As a general rule, the most successful man in life is the man who has
the best information
It was August of 2009 when I first wrote about Quebec, Canada’s
Utica shale gas play.
The Utica has a lot going for it:
- Shallow depth of the shale
- High
production rates, up to 1 million cubic feet a day (mmcf/d) in vertical
tests
- Rock
properties are comparable to other more established shale plays, right
mineralogy, porosity and maturity
- High-quality
natural gas with minimal impurities, 88% to 97% methane, less than one
per cent inert gases and 1,027-1,136 British Thermal Unit (Btu) content.
Gas is pipeline ready, no H2S, no CO2, no nitrogen extraction
- Infrastructure
in place with nearby access to major pipelines
- Premium
natural gas pricing to NYMEX helps make the economics compelling. New
York City Gate pricing typically averages US$1 above NYMEX Henry Hub,
making the pricing environment attractive for producers
- Low
initial acreage costs with low carrying costs
- Quebec
Canada is one of the best areas in the world to explore for and develop
a resource
- Utica
gas is within 400 miles of the New York City Market. Unused export
capacity to the US on TransCanada Corp’s pipeline system is 200 -
400 mmcf a day.
Quebec uses 500 billion cubic feet per year of natural gas - all of it
coming from Alberta, whose conventional reserves, according to industry
consultant Ziff Energy Group, are in steep decline. Ziff predicts that total
gas output in the Western Canada Sedimentary Basin will drop below 14 Bcf/d
by 2020 from the current 16.2 Bcf/d.
The National Energy Board (NEB) estimates deliverability of Canadian
gas will shrink by 9% a year over the next two years, this despite:
- An
increase in gas drilling investment from C$5.76 billion in 2009 to
C$8.51 billion in 2011
- An
increase in gas-targeted wells from 4,170 to 6,495
Royal Dutch Shell stepped up its interest in U.S. gas shale properties
with a $4.7 billion purchase of privately-held East Resources, Inc. The deal
includes a 650,000 net acreage position in the Marcellus shale, and 1.05
million net acres overall. Shell also acquired 250,000 net acres of mineral
rights in the Eagle Ford shale play in South Texas. This brings Shells total
shale and tight gas acreage acquired just this year in North America to 1.3
million acres.
Total SA, Europe’s third-largest oil company, accelerated its
expansion in unconventional energy by agreeing to buy a stake in Chesapeake
Energy Corp.’s assets in the biggest U.S. natural-gas field for up to
US$2.25 billion.
Exxon Mobil Corp., the biggest U.S. oil company, is buying shale-gas
producer XTO Energy Inc. for $29.2 billion.
“This is really about value creation over the next many years.
This is about the next 10, 20, 30 years.” ExxonMobil CEO Rex Tillerson
“We will need a growing amount of electricity and natural gas is
in an excellent position to capture a significant amount of that
market.” Larry Nichols, chairman of Devon Energy and chairman of the
American Petroleum Institute
A Canaccord Adams equity research report said the participation of
Talisman Energy and Forest Oil in the Utica shale of the St. Lawrence
Lowlands improves the plays chances of becoming commercial in the next few
years.
Netherland, Sewell & Associates, a Texas-based consulting firm,
estimated the Utica deposit could hold 150 Bcf per square mile, 66% more than
any previous calculation
.
The feature company in my first Utica article “The Utica
– An Emerging Canadian Shale Gas Play” was Canadian Quantum
Energy Corp. CQM - TSXv.
CQM has interests in four key permits comprising approximately 170,000
gross acres / 35,000 net acres in the heart of the identified Utica’s
Fairway. At the time I featured the Company, its shares were trading around
the C$1.90 level, this was just prior to the Company implementing a four for
one forward split of its shares. Post split the shares dropped briefly to the
C$0.40 level and then climbed to a high of C$2.29.
This author believes a large part of CQM’s post split share
price increase (currently 29.5mm shares fully diluted >50% owned by
insiders), and the increased market attention all the Utica players received,
was because of flow results from the St. Edouard well (12 mmcf/d), a joint
venture horizontal well drilled by Talisman and Questerre. It’s also my
belief, because of 3D seismic and pipeline work currently being done,
development wells will be drilled and takeaway production will happen from
the St. Edouard well #1 in 2011.
Talisman Energy has drilled, or will drill this summer, four more
wells in the Utica Shale in Quebec.
The success of all wells drilled in the area are important but
especially important to CQM are (in the above map CQM’s interests are outlined
in red):
- Leclercville
is being stimulated with a multi-stage frac as I write this article
- Fortierville
is very close to one of CQM’s permits. This well is currently
being drilled
- Gentilly
was drilled in February of 2010 and is scheduled to be fraced as soon as
the equipment is released at Leclercville.
- Ste-Gertude
will be spudded after drilling is complete on Fortierville
Two of the next four wells to be drilled are on ground CQM has an interest
in with a third well being very close to the permit boundary, much closer
than the St. Edouard. Also of note is Forest Oil has announced plans to drill
a 1,000 meter horizontal well in the second half of 2010 on its deeper North
Richelieu acreage - closer to CQM’s Nicolet acreage than the St.
Edouard.
80% of CQM’s Utica acreage is located on the Nicolet permit with
87% of the total Nicolet land package lying between the Yamaska Growth Fault
and the Logan’s Line – this area is deeper & over-pressured
and past activity indicates the highest probability of success.
Canadian Quantum and Junex entered into a farm-out agreement whereby
Junex earned a 50% working interest in CQM’s Nicolet Utica and Lorraine
shale intervals by drilling and subsequently coring two exploration wells
(St.Gregoire #2 and St.Gregoire #3)
The St.Gregoire #2 well was drilled into the deeper acreage south of
the Yamaska growth fault encountering over-pressured zones. It is worth
noting that the St.Edouard, a horizontal well, was drilled into a similar
area of greater structural influence and over-pressuring.
Canadian Quantum and Junex plan on shooting 2D seismic and based on
results from this seismic shoot will initiate a horizontal drilling program,
likely in early 2011.
The other 20% of CQM’s holdings in the Utica are partnered with
Talisman and Questerre Energy where CQM has a 3.75% working interest. This
interest, while small, is extremely important to the Company as it gives them
access to Talisman - the most active and most experienced shale player in the
region.
That small working interest is going to, in this authors opinion,
drastically shorten the learning curve for CQM when/if it comes time to
develop the Nicolet. CQM is learning as much as they can from the progression
of these early wells - figuring out a successful formula and how to keep
costs down.
An NI 51-101 compliant resource study was recently conducted covering
the Nicolet Permit by Netherland, Sewell & Associates (NS&A). The
report concluded 8.7 tcf of original gas is in place on the permit of which
10% could be recovered. Net to CQM this equates to 436 bcf of recoverable
reserves on this permit alone.
With significant news flow expected through the rest of 2010 the Utica
could again become one of the hottest resource plays in North America.
CQM is currently trading around C$1.00, has recently closed a C$2.09mm
financing, is fully capitalized to meet its 2010 capital expenditure program,
has a significant land base with third party resource calculations and,
possibly, numerous positive share price catalysts coming in the short to
medium term.
The Utica Shale gas play in Quebec, Canada and Canadian Quantum Energy
Corp. TSXv - CQM should be on every investors radar screen.
Is it on yours?
Richard Mills
Aheadoftheherd.com
Richard is host of www.aheadoftheherd.com
and invests in the junior resource sector. His articles have been published
on over 60 websites including - Wall Street Journal, 24hGold, Kitco,
USAToday, Safehaven, SeekingAlpha, The Gold/Energy Reports, Gold-Eagle and
Financial Sense.
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