Snapshot: Horn River Basin

Petroleum/Natural Gas Lease Sales

Spurred by successful US shale development and greater requirements for natural gas to feed Canadian heavy-oil projects, US and Canadian oil and gas companies turned to the Horn River Basin in northeastern British Columbia to bolster gas supplies.

A May 2008 Wood Mackenzie report said the Muskwa, Evie, and Klua gas shales in the basin would break even with a gas price of US $6.50/Mcf. In a later report, Nexen Inc. said it could earn a 10% return at a gas price of $4/Mcf.

The Horn River Basin is attracting international attention, big name operators, and explorers that also are looking to the northeast corner of British Columbia at similar shales in the Cordova Embayment. At least one operator is testing commercial potential of the Exshaw Shale, the equivalent of the Bakken in the Williston Basin along the US-Canada border.

The Horn River Basin Producers Group expected to see 125 wells drilled in the basin in 2009, many from multiwell pads.

In a December 2009 report titled, "Worldwide Gas Shales and Unconventional Gas: A Status Report," Advanced Resources International estimated Horn River Shale gas in place at 760 Tcf with 130 Tcf recoverable. That 760-Tcf estimate is at the high end. That makes the Horn River the highest potential gas field in Canada, but with a potential lower than the Marcellus Shale that has 1,500 Tcf of gas in place and 262 Tcf recoverable, and the Haynesville Shale, with 717 Tcf of gas in place and 251 Tcf recoverable. Both shale plays are in the US. Wood Mackenzie estimated 250 Tcf of in-place gas in the basin with 10% to 20% recoverable, and the US Geological Survey calculated 500 Tcf of gas in place with 110 Tcf recoverable.

The Advanced Resources International report also estimated the basin produced 100 MMcf/d of gas in 2009 and would double that figure in 2010.

The Horn River Basin extends from about 25 miles north of Ft. Nelson, British Columbia, to the border with the Northwest Territories, about 1,500 sq miles, according to the Horn River Basin Producers Group. To date, most of the drilling has taken place north of Kotcho Lake and southeast of Maxhamish Lake.

Devon Canada Corp. experts Bill Beaudoin and Jerry Shaw conducted their own analysis in a paper titled, "Characterization of the Horn River Basin Thermogenic Shale Gas Play in Northeastern BC."

They explained the laterally equivalent Evie, Klua, Otter Park Member, and Muskwa collectively were called the Horn River Group and formed a 656-ft thick overpressure, organic-rich package of siliceous shales at depths from 7,874 to 8,859 ft.

At the 2009 Frontiers & Innovation Convention, Vic M. Levson, Warren Walsh, Christopher Adams, Fil Ferri, and Mark Hayes with British Columbia government agencies presented "An Overview of Shale Gas Potential in Northeastern British Columbia."

According to the paper, the Exshaw, Muskwa, and Evie were the main targets for exploration in the Horn River Basin and Cordova Embayment. The richest part of the Muskwa has a maximum total organic content (TOC) of 6% by weight and the Muskwa TOC can reach 5.9% with an average of 3.1%.

In a paper titled, "Shale Units of the Horn River Basin and Cordova Embayment," Sara McPhail, Warren Walsh, and Cassandra Lee with the British Columbia Ministry of Energy, Mines, and Petroleum Resources, and Patrick A. Monahan with Monahan Petroleum Consulting and Penn West Energy Trust, said the Evie, or Klua, member in the lower portion of the Horn River package is about 131-ft thick in the Cordova Embayment and ranges from 246-ft thick in the east to 131 ft in the western part of the Horn River Basin.

The Otter Park Member in the middle of the Horn River Formation reaches a maximum thickness of 886 ft in the southeastern Horn River Basin, thinning to the north and west.

The Muskwa is the higher, more radioactive section of the Horn River and shows high resistivity on logs. It ranges from a thickness of 164 to 230 ft in the Cordova Embayment and from 98 to 197 ft in the Horn River Basin.

Among the larger operators involved in the play are ExxonMobil with its Imperial Oil affiliate in Canada with 250,000 net acres, Apache Corp., Devon Energy, Encana Corp., Nexen, and EOG Resources.

According to a 2009 Dow Jones Newswire report, ExxonMobil had drilled four wells by July and found each well could produce between 16 and 18 MMcf/d of gas.

Encana signed a farm-out agreement with KOGAS in April 2010. Under that agreement, KOGAS will invest $529 million in three years to earn a half interest in Encana's 154,000 acres in the Horn River and Montney plays. It could earn 12,500 acres in the Horn River. In June 2010, Encana said it signed a memorandum of understanding to negotiate a potential joint venture (JV) in the Horn River and other formations with China National Petroleum Corp. (CNPC). Under that agreement, CNPC could own interests in Encana properties through investments.

According to the Encana website, the company had approximately 260,000 net acres on land in the Devonian shale play in the Horn River Basin at the end of 2008, had drilled five vertical and 10 horizontal wells, and placed one vertical and eight horizontal wells on production. It planned more horizontal wells, construction of a compressor station, and a 24-in. diameter gas pipeline in its Two Island Lake area in 2009.

By 2010, Encana’s land position had dropped to 256,000 net acres, but it had drilled 300 net well sites in inventory and had drilled 20 wells. It expected to produce 55 MMcfge/d from the basin by the end of 2010 from contingent resources of nearly 7 Tcfge. Its 30-day average initial potentials on Horn River Basin wells rose from 4.6 MMcfge/d in 2006 to 9.1 MMcfge/d in 2009 to 11.7 MMcfge/d in 2010.

Encana and Apache Corp. operated jointly in a portion of the Horn River Basin with both companies drilling multiple wells. Encana drilled seven horizontal wells on its ECA 1-D pad in 2010 and planned to drill the remaining wells and complete and produce all 16 wells on the pad in 2011. The system on these pads allows eight wells to the northwest and eight wells to the southeast from a central location where the drilling rig can be skidded. Encana also is working the 63-K pad with 14 wells scheduled to produce before the end of 2010 and the 76-K pad with 11 horizontal wells scheduled to begin production in 1Q 2011.

Apache, meanwhile, began producing the 16-well 70-K pad, planned to start producing the 14-well 52-L pad in 2010, and will start producing the 16-well 34-L pad in 2011. In all, Apache drilled 34 gross, 17 net, wells in 2010; completed 55 gross, 27 net, wells; and produced 44 gross, 22 net wells.

In May 2010, Baker Hughes and VSFusion said they completed one of the largest microseismic hydraulic fracture monitoring surveys ever undertaken for Apache Canada in that company's Horn River Basin properties. The companies recorded more than 75 separate stimulation treatments in the survey. Apache wanted to find out how different perforation patterns affected fracture propagation and to use that information to make real-time changes in treatments. The survey also will help Apache optimize spacing on horizontal wells on future drilling pads.

Nexen drilled an eight-horizontal-well pad in 2010 as a set up for an 18-well pad. It had some 90,000 acres in the Dilly Creek area and another 38,000 acres in the Cordova Embayment before the June land sale. It estimated between 3 and 6 Tcfge of recoverable contingent resources from its properties, assuming a 20% recovery. It also increased its shale land position throughout northeastern British Columbia to 300,000 acres at the June land sale. Its land can support between 500 and 700 wells.

With five shale gas wells onstream, it reached a maximum production rate of more than 15 MMcfge/d. Nexen also said limited gas pipeline infrastructure and processing capacity could constrain early development in the Horn River Basin.

Devon Energy holds 170,000 net acres in the basin and is drilling to hold its acreage position. It planned seven horizontal wells for 2010 with estimated ultimate recoveries of 7 to 8 Bcfge per well.

Quicksilver Resources Inc. had 130,000 net acres in the Horn River Basin and completed its first well for an initial production rate of 13 MMcfge/d and an average 10 MMcfge/d during its first month online. It completed the well in a 3,500-ft lateral section with 10 fracture stages and hooked the well into a sales line.

In an August 2010 presentation, the company said it had drilled four wells and had a resource potential of more than 10 Tcf of gas.

Its c-60-D and d-50-A wells showed significant mobile oil saturation in the Exshaw/Bakken Shale, and the company was following that potential.

Penn West Energy Trust has been working the Cordova Embayment since 2006. In August 2010, it signed an agreement with Mitsubishi Corp. of Japan to develop the embayment's shales. Mitsubishi's Cordova Gas Resources Ltd. subsidiary will acquire a half interest in the shale assets for $422.5 million ($450 million) and will form a JV with Penn West for development. Mitsubishi said it estimated 5 to 8 Tcf of shale gas resources on the property.

The partners plan to raise production from the mid-2010 rate of 30 MMcf/d of gas to approximately 500 MMcf/d of gas by drilling 1,000 wells in the next 15 years.