Friday, September 11, 2009

Horn River Potential

When it comes to natural gas finds, I like to believe the cliche that a rising tide floats all boats. This week, EnCana was in the news talking about the potential for the Horn River shale play in northeastern British Columbia. Horn River is not a new discovery, but companies that have leased land are starting to see some drilling results (I've previously noted Exxon's excitement). The field is estimated to have approximately 500 Tcf of gas in place with about 110 Tcf recoverable. That would make it the third biggest North American gas play behind the Marcellus (1500 Tcf in place/262 Tcf recoverable) and Haynesville (717 Tcf in place/251 Tcf recoverable) Shales.

What is particularly attractive is the Horn River play's geology, which has produced less severe decline rates than other shale plays. The play is young and only a handful of wells have been drilled to date, so solid information is yet to come. What is less attractive s the play's remote northern location. There is a lack of pipeline infrastructure and its location far from consuming markets makes gas from this area more costly to transport. Additionally the drilling season is somewhat limited by weather.

While Horn River may not be poised to supply North American population centers, it is close to the coast and there are plans to create an LNG export port in Kitimat, BC. To me, this makes perfect sense for Canada. The biggest LNG consuming nations are in Asia, and it's easier to cut across the north Pacific to deliver gas than make your way from the Persian Gulf. Listen up, Alaska. Before building a $26 billion AIGA pipeline to the lower 48, you might think harder about an LNG port. (Note: map below is NOT to scale!)

Coincidentally, EnCana's Horn River frothiness comes as the company has resurrected plans to split the company in half, separating the pure play natural gas company (keeping EnCana name) from the more conservative integrated oil company (new name: Cenovous Energy). While this transaction is not slated to close until the end of November 2009, it reminds me a bit of when Chesapeake "broke the story" on the Haynesville Shale and then announced a big stock offering the next day.

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