American oil and gas prospector Apache Corp stunned natural gas investors Thursday June 14, 2012 with a natural gas discovery announcement, the main point of which is, “ . . . . in terms of just resource, with the 1 well we drilled horizontal, we put 6 fracs on it. It’s going to go to 18 Bcf of gas, came on at 22 million a day, a tremendous resource.”
That’s 22 million cubic feet a day, an estimate of 18 billion cubic feet from the well in its primary production. One well, only one, in a shale formation. For investors in natural gas this is a long term, low profit, produce all you can at the lowest possible price – problem. Some folks swirling comments about Chesapeake would have the blame fall on one guy, but the facts are North America has a huge supply of natural gas and its gotten more huge last week. The industry has just been knocked onto its heels; the next big profit period will be years, probably a couple decades away.
For consumers natural gas has just become a very reliable source of fuel at historically low prices. For those thinking about natural gas vehicles and other uses of natural gas, the potential for long-term supplies at good prices has improved dramatically. In the meantime there will be economic growth, jobs and new products and services to distribute and use all this gas. North America’s luck has just turned.
Apache may have made one of the world’s largest shale-gas discoveries in a remote corner of northeastern British Columbia. The first estimate is a massive field containing as much as 48 trillion cubic feet of recoverable natural gas.
Liard & Horn River Basins.
Apache drilled three wells into its leased acreage in the Liard Basin of British Columbia (a sub basin of the Mackenzie Basin) of Canada. The Liard Basin locations are just to the south of where British Columbia’s northern border meets the borders of the Yukon and Northwest Territories. The wells tapped into a massive shale-gas reservoir so large it could supply U.S. demand for almost two years.
Sub Basins of the Mackenzie Basin.
John Bedingfield, Apache vice president of worldwide exploration, said at the company’s investor day, “This is probably the best shale gas reservoir in the world.”
Just one of the three prospect wells drilled in the region was treated with the still controversial multiple-stage hydraulic fracturing process that’s the foundation for North America’ prolific shale-gas reserves. The well was “fracked” six times, delivered an average of 21.3 million cubic feet of gas per day over its first thirty days of production. Apache believes this is the most prolific shale-gas test well ever drilled.
The Liard Basin is located in northeastern British Columbia, west of the Horn River basin. Most drilling activity is taking place in the central part of the basin. The early overview has the Liard as covering 1.25 million hectares. Apache, the largest player in the region, has drilling rights to 180,000 hectares, a little over 15%, about 430,000 acres. The wells have already been connected to pipelines in the region and the gas is sold.
Natural gas is now selling at $1.78 US per 1,000 cubic feet at the Alberta hub, which is below the cost of much production. In the U.S. prices are higher, $2.60 US a thousand cubic feet. Apache estimates the cost of production from its high-production Liard wells at $2.57 US a thousand cubic feet, including a 12-per-cent return on investment.
Because of the low North American natural gas price, Apache is not likely move quickly to fully develop the new resource. Meanwhile, Apache will have to do enough drilling in the Liard Basin to maintain its gas rights there.
Apache is also a partner in a natural gas liquefied natural gas terminal at Kitimat on the Pacific Ocean shore where some of the vast Canadian reserves can be sold overseas. Natural gas is selling in the range of $16 US a thousand cubic feet in Asia.
This is an enormous find, with big, big numbers.
Of great interest are those fracturing numbers. Six aren’t very many, when 20 and 30 or more are frequent practices. Just how large the Liard is when all the territory is examined will be a very interesting number, too.
The consumer’s good news is they’ve discovered lots of natural gas up in northeastern British Columbia and companies will be producing that gas for many years to come – the bad news is that they have identified a lot of gas in northeastern British Columbia and elsewhere and it has seriously depressed the prices.
By. Brian Westenhaus