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Major boost in gas drilling needed to supply Canadian LNG projects: officials

Vancouver, British Columbia — Drilling for feedstock gas will need to be ramped up significantly to support LNG projects planned in British Columbia, industry officials said Thursday at the 3rd annual Canadian LNG Exports Conference in Vancouver.

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Nearly 3,000 wells have been drilled in the past few years at the Montney play in the Western Canadian Sedimentary Basin, but the extent of additional drilling that has to happen now is "staggering," Tourmaline Oil CEO Michael Rose said late Thursday.

Four developers are due to announce final investments over the next two to 12 months for their projects in British Columbia: the 12 million mt/year Pacific Northwest LNG, the 2.1 million mt/year Woodfibre LNG, Altagas' 1.8 million mt/year Douglas Channel LNG, and the Shell-backed Canada LNG with a nameplate capacity of 24 million mt/year.

The four projects will require gas supplies in excess of 6.3 Bcf/d, with Shell and Pacific Northwest together accounting for 5.8 Bcf/d, or about 90% of total demand, Ted Hanbury, vice president of corporate development for Painted Pony Petroleum, said at the event.

To supply 1 Bcf/d of gas 105 to 115 new wells will have to drilled each year, Geoff Morrison, manager BC operations at the Canadian Association of Petroleum Producers, said on the sidelines of the event.

At that rate, it would mean about 700 new wells/year in the Montney to supply 6.3 Bcf/d.

With 450 Tcf of reserves, Montney will support multiple LNG projects for several decades, Rose said, adding his company, which drilled 250 wells in the past four years in that play, is currently producing 250,000 Mcf/d of gas.

"Our aim is to double output [to 500,000 Mcf/d] over the next two to three years and emerge as a potential supplier for an LNG facility," he said, adding Tourmaline has 2P (proven and probable) reserves of 4.34 Tcf in northeast Montney in British Columbia and the Deep Basin play in neighboring Alberta.

Deep Basin is another shale play in the WCSB that will be a supply source for LNG, he said, noting it has reserves of 72 Tcf that is primarily sweet gas.

Initially developed by drilling vertical wells, the focus now at Deep Basin is on horizontal drilling with greater gas recoveries, Rose said.

"In an AECO-hub C$3 [$2.47]/MMBtu gas world, it is still economical to drill at the Deep Basin. At Northeast Montney, where we were drilling horizontally in 2006 at a cost of C$8 million/well, Tourmaline has now broken the C$4 million/well barrier," he said, noting the company is maintaining a rate of return of nearly 10% in its Montney assets.


Drilling new wells is also on the radar of Painted Pony with 4,000 potential sites at its acreage in Montney, Hanbury said.

"Our cost of drilling, completion and tie-in is just under C$7 million [$5.7 million]/well and the company has plans to increase output to 40,000 b/d of oil equivalent in 2016, from 13,000 boe/d last year," he said.

Work is also underway to build a 150,000 Mcf/d gas processing plant in northeast Montney under a strategic alliance Pony Petroleum signed last year with Altagas, he said.

Another producer, Birchcliff Energy, plans to increase output from its assets in the Montney and Doig plays where it has 2P reserves of 2.3 Tcf and contingent resources of 7.9 Tcf, Vice President for Corporate Development Jim Surbey said.

"We have drilled 165 wells and our gas is a bit sour and expensive to produce," Surbey said, without giving any figures.

Meanwhile, a decision by the National Energy Board to approve TransCanada's 2.4 Bcf/d North Montney Mainline Project will connect the Deep Basin to the British Columbia's West Coast, Tourmaline's Rose said.

The NEB has recommended that the federal government approve the gas that is due for startup in 2017, TransCanada said Thursday.

--Ashok Dutta,
--Edited by Jason Lindquist,