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One Big Player Says Buy, Another Sell For This Shale

Somewhat differing opinions on Canada's Montney shale of late.

Established Montney player Progress Energy (owned by Malaysian major Petronas) called a buy on the play last week. Agreeing to pony up $1.5 billion to buy additional acreage in the play from exiting producer Talisman Energy.

But another Canadian mid-tier says the play is a sell. Enerplus Resources, who last week announced it is offloading 33,300 acres in the Montney to an unnamed buyer. (The firm is redeploying the sale proceeds into U.S. shales, buying 17,000 acres in the Marcellus.)

Why the difference of opinions on the play? The answer appears to come down to one word: liquids.

Enerplus CEO Ian Dundas cited lower-than-expected natural gas liquids (NGLs) content as a big reason for his company's exit. Dundas noted that the acreage had yielded mainly dry gas.

Progress CEO Michael Culbert told a different story in discussing his Montney acquisition. Culbert noted that a significant content of liquids like propane and butane was a big reason why Progress is going "all-in" on the play.

The differing assessments show the evolving state of Canada's shale plays.

Previously we had blanket excitement over big shale packages like the Montney, Duvernay and Horn River.

Now we're seeing that not all shale is created equal. Increased drilling in these plays is discovering different zones. Some areas are oil-prone. Some have dry gas. And some are in-betweens, with gas and associated NGLs.

With prices for oil and liquids running at historic highs compared to gas, producers are getting choosey. Dry gas acreage is being offloaded. Liquids-rich gas is in demand.

Given the impact of high-value liquids on well economics, this stance makes sense. It also means that some shale acreage is going to get more valuable. While other ground grows less so.

A final interesting note on this one. Even though dry gas may be getting low valuations, it is seeing some love. An unnamed buyer stumped up $130 million for the Enerplus ground--even though it's known to be devoid of liquids.

Begs the question: who are they, and what do they see ahead for gas prices that others don't?

Here's to liquids and gases,

By. Dave Forest

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