Canada’s Alberta Montney oil subplay offers solid economics, but the fragmentation of the play limits large company interest, and the shallowness of the subplay casts some doubt on well recovery factors, IHS Inc. (NYSE: IHS) said in an Oct. 21 release.

In 2013, the Canadian National Energy Board (NEB) estimated the Montney’s mean in-place unconventional oil resources, located almost entirely in Alberta, at 141.5 billion barrels. Commercially recoverable resources were estimated at 1.1 billion barrels, implying only a 0.7% recovery factor, much lower than in most unconventional plays. Additionally, the NEB cautioned that the shallowness of the subplay casts doubt on well recovery factors, suggesting unusual technical challenges.

“The Montney oil subplay offers robust economics, which bodes well for the commercial development of the play,” said Hassan Eltorie, principal analyst at IHS Energy, in a statement. “But the play does face some technical challenges and its fragmentation means that we really don’t have the large sweet-spot that would attract larger operators to the play. A larger company would have to make many acquisitions to have an impact in the play, which would be difficult due to a lack of M&A activity."

IHS expects the current fragmented state to continue, with small players dominating activity, Eltorie said.

Average, peak month production rates for the Montney oil subplay in Alberta dropped 16% in 2013 to 351 barrels of oil equivalent per day (boe/d), after jumping 211% in 2011 and 124% in 2012. According to the IHS report, the increase in the number of wells drilled also slowed in 2013, with a total of 182 wells drilled in 2012, and 112 in 2011.

Some operators are reducing activity because 2013 drilling results failed to build on the steadily improving 2010 to 2012 results. In 2013, average well-peak month rates fell 16% to 351 boe/d from 2012. Nonetheless, average well-economics remain healthy for the subplay.

Operators are targeting numerous areas across the play, noted the IHS analysis, with each operator focusing on one or two areas. Much of the drilling has centered on the Ante Creek and Kaybob areas in the southeast portion of the play. While average peak rates have dropped in 2013, economics remain robust, said the IHS report.

“We are seeing strong results led by RMP Energy Inc. (TSE: RMP) and ARC Resources Ltd. (TSE: ARX),” Eltorie said. “ARC Resources has excelled, in particular, since its well performance has bucked the trend by recording improved rates.”

The IHS report also noted that, in the Kaybob, Duvernay operators Trilogy Resources and Athabasca Oil Corp. (TSE: ATH) are also drilling the Montney. In the northeast portion of the subplay, Long Run Exploration’s drilling dominates in the shallower Girouxville and Normandville areas.

As for the recent oil price fluctuations and their impacts on activity in the Montney sublay, Eltorie said, “The IHS Energy economic analysis puts the break-even price for the average Montney well at $60 per barrel. With the current drop in oil prices averaging in the $80 per barrel range, we do not think price pressure will lead to a curtailment in activity.”