Canada’s Montney Shale play is one of North America’s most competitive and economically viable reserves. And now, with its vast resources and an estimated 50 trillion cubic feet of natural gas, the region is turning up the heat.
For years, the Montney was highly inaccessible because of its low permeability. It wasn’t economically feasible to drill there, so it was largely ignored by producers.
Like much of the North American shale deposits, the Montney’s full potential was realized in 2005 when developers began combining hydraulic fracturing and horizontal drilling practices. Unforeseen reserves became familiar and profitable from there on out.
A few short years later, the province was breaking records at its oil and gas auctions when it raked in $2.2 billion in 2008 from just three auctions in May, July, and August.
And the reason it’s starting to make more headlines is because of gas prices. A higher natural gas price and increased demand to the East has the industry looking to exploit the Montney’s unconventional resources like never before. When natural gas prices were low and the technology lagged behind, it was a region that producers were content leaving in the dark.
Not today! All the factors are lining up to allow Montney Shale investors to reap huge rewards.
The Formation
The Montney Shale formation is found primarily in northeast British Columbia, and it extends into Alberta, south of the Horn River Basin and the Duvernay Shale.
The shale itself is special because of its complex and distinct geological zones offering three to four stages of potential producing intervals. Its Triassic-aged shale at depths of 5,000 to 7,500 feet offers what producers are going after: that’s where you’re going to find the large quantities of natural gas trapped within its tight shale. And that’s precisely why companies are scooping up land leases like they’re hotcakes.
And they all have one goal in mind: to explore and drill for natural gas.
Of course, the Montney offers more – there is oil being produced in Western Alberta, where the formation has sandy facies around the Sturgeon Lakes and Saddle hills area.
But it’s gas that’s being extracted from the siltstone reservoir in the Dawson Creek and Pouce Coupe areas, according to Chinook, and it’s also found in the northern and western fringe areas where the shale is more silty.
If you were to work your way around and from the top to the bottom of this formation, you’d find siltstone and dark grey shale, with dolomitic siltstone at the base and sandstone at the top. It’s very shale-like in the north and west, silty in the middle of the reserve (where the gas is), and a more coarse sand-like composition in the west.
There are hopes that after the Montney has been exploited for gas, it could turn into an oil field, and more effort could be placed where reserves are found in the north, west, and southern parts of the formation.
Production
In most parts of Western Canada, the production of conventional natural gas has been at a steady decline for quite some time. In the past decade, with tight gas and other shale gas opportunities becoming more prevalent, the overall growth has become stunted.
And because of the increased exploitation of unconventional reserves, domestic production has sent the price of gas down in both Canada and the U.S. That’s good for us consumers, but not when you’re a producer trying to make a buck.
That’s why we as investors need to be paying close attention right now. Where are producers going to go? The depressed gas prices have them looking to the East, where prices are four times what they are here.
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Many experts believe doing more business with Asia would be Canada’s best move since it first started exporting to the U.S. in 1889.
The Montney is one of the largest shale deposits in Canada. There is plenty of gas to move and plenty of customers to buy, and a focus on the East comes without a single worry about pipelines or U.S. guidelines. And that’s where the money is: to the East.
And with even further advances in technology, operators are cracking the Montney Shale, and extraction is easier than ever in this resilient reservoir. There’s multi-stage fracturing going on, a process that permeates the rock to maximize results. And because there is very little water in this formation, there is little to no threat of well flooding from fracking.
Investing
I can say quite confidently that the Montney Shale and British Columbia as a whole are going to be big movers for Canada’s natural gas industry in the future.
The long-term potential is there, and natural gas prices will drive that success.
ExxonMobil (NYSE: XOM) just spent almost $3 billion in the Duvernay and Montney Shale formations.
But you might want to take a close look at some of the Canadian companies that were already there and had the party all set up. Encana Corp. (NYSE: ECA) has the most acreage, and companies like Talisman Eneergy Inc. (NYSE: TLM) have been very active in the region.
They’re all headed to China and the East to secure natural gas exports for years and years to come.
The party is just getting started…
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