Participants gathered to learn about the Utica Shale gas play, North America’s new-kid-on-the-block resource play.
Québec’s emerging shale gas trend targets the Utica Formation, an Ordovician age, black calcareous shale with productive equivalents in the Appalachian basins of the United States.
Calgary’s service sector – facing yet another slow winter in the Western Canadian Sedimentary Basin – had a strong presence at the conference. Hoping to enter the Utica Shale gas play on the ground floor, representatives from slick water fracture stimulation, micro-seismic monitoring, drilling and seismic companies learned a little French and got up to speed on Québec’s gaz naturel non classique – Canada’s newest unconventional resource play.
The conference’s 37 speakers discussed far-ranging subjects, including Utica Shale geology, completion techniques, proximity to U.S. gas markets, carbon sequestration, economics, regulatory affairs, water usage and community outreach.
By all metrics, the first annual APGQ conference was an unqualified success – and Canada’s Utica Shale has the “right stuff” to make it a contender in North America’s emerging shale gas industry.
“The beauty of Québec is that Talisman has one million gross acres of contiguous land in the St. Lawrence Lowlands.”
That’s according to AAPG member Jean-Yves Chatellier, a geologist with Calgary-based Talisman Energy Inc., one of the two major E&P firms involved in Québec.
“This is early in the game,” Chatellier said, “but until proven otherwise, the whole basin is deemed prospective.”
Although he says that he didn’t initially coin the phrase, Chatellier has stated publicly: “The Utica has Incredible-Gas-In-Place.”
“In some areas,” he added, “the Utica is overpressured, delivering more gas per unit volume of rock.”
Resource figures publicly released by industry indicate about 93 Bcf of IGIP per section for the Utica Shale, increasing to 150 Bcf of IGIP per section for the basin’s deepest targets.
An additional 200 Bcf of IGIP per section may be lurking in the Lorraine Shale, an uphole siliceous gas shale measuring 1,500 to 2,000 meters thick. While the Lorraine, the poor cousin to the Utica, exhibits great potential, it has yet to be production tested in Québec.
“Imagine 2,000 meters of organic rich shales (Lorraine),” Chatellier said. “That’s huge!”
Despite the fact there is currently no production from the Utica, the oil and gas industry is on the cusp of proving the play’s commerciality. This huge natural gas resource is proximal to pipeline infrastructure that services both Québec and the northeast seaboard of the United States. Strategically located just 400 miles from New York City, Utica gas will command a $1 USD premium to NYMEX pricing.
Alternatively, the gas could be sold domestically, into the Québec and Ontario markets. According to Chatellier, Québec’s annual gas consumption ranges between 200 to 240 Bcf per year, the majority of which is transported from Western Canada.
Royalty rates in Québec range between 10 to 12.5 percent, further enhancing the play’s economics.
The entrepreneurial spirit of grass roots exploration is alive and well in Québec – during the past five years, a tenacious group of a dozen or so juniors has added value to these lands, advancing technical knowledge on the play and farming out large, contiguous blocks to two major E&P companies, Talisman and Forest Oil.
Originally, these exploration permits were leased for the deeper, Ordovician age Trenton-Black River (TBR) hydrothermal dolomite play. However, in response to growing shale gas production from analogous U.S. Appalachian basins, the industry’s exploration focus has shifted quickly to the resource play.
♦In Québec, Talisman’s first five vertical wells had been successful, with production tests in the Utica ranging from 300 to 900 mcf/day. Talisman invested $38M last year in the Utica Fairway, and based upon early successes the company has ramped up its activity. In the fourth quarter, Talisman spudded two, 1,000-meter-long horizontal pilot wells, with completion plans for eight-stage fracs per well.
The horizontal wells will be drilled adjacent to vertical wells, enabling the acquisition of micro-seismic data to map fracture propagation in x-y-z space.
Talisman also is a player in the Montney Shale in British Columbia, and in New York’s Marcellus Shale.
♦During the past two years, Forest Oil has announced Utica production rates, employing slick water fracs in both vertical and short-reach, prototype horizontals, of up to 1 mmcf/day. Last year Forest Oil employed four-stage fracs in its short-reach horizontals, but reported difficulties in cleaning up the wells and recovering frac fluids. Through a farm-in with Junex Inc., an organically grown junior, Forest Oil plans to drill a vertical pilot hole during the winter of 2010, followed by the drilling and completion of a horizontal wellbore.
“From a scratch position in 2006, we are now at a stage where the concept has been proven, and we are moving to the pilot stage,” said Raymond Savoie, president and chief executive officer of Gastem Inc., a Québec-based junior. “So far so good; the Utica is shaping up to be a major shale play in North America.”
The game plan, Savoie said, is to establish repeatability in drilling and completion techniques and, ultimately, to prove the play’s commerciality.
With an exposure to 486,000 gross acres in Québec’s Utica and Lorraine Shale Gas Fairway, Gastem is moving forward with pilot projects in 2010 in various partnerships, including one with Talisman.
Gastem is the first organically grown Québec company to export its Utica Shale expertise to nearby New York state, where it has more than 35,000 gross acres under lease in the Utica and Marcellus Gas Shale plays. In October, Gastem drilled and cased its first Utica well, Ross #1, to 4,950 feet.
“We’ve done a lot to compare the shales in Québec and New York in terms of the anatomy of a shale,” said AAPG member Geraint Lloyd, Gastem’s vice president of exploration.
“The Barnett has been the golden shale play that everyone uses as a standard,” Lloyd said. “The Utica is actually closer to a marl than to a shale.”
Lloyd’s used many key metrics – drilling depth, thickness, clay content, TOC, pressure gradient, TOCs, IGIP and gas price (US) – to compare the Utica, favorably, to the Barnett.
According to Lloyd, Gastem has conducted numerous petrophysical evaluations to establish “whether or not we can break the rock.” Because the Barnett contains a higher percentage of silica, it fracs easier than the more calcareous Utica.
♦In 2008, Canbriam Energy, a Calgary-based company created to chase resource plays in North America, secured 173,000 acres in the Utica Fairway, through farm-in deals with Gastem, Petrolympic Ltd. and Ressources & énergie Squatex. Canbriam also is actively drilling the unconventional Montney play in northeastern British Columbia.
“The Utica is a true shale basin, similar – yet mineralogically distinct – to those in the United States, including the Barnett and Marcellus,” explained John Nieto, Canbriam’s vice president of exploration.
Canbriam Energy’s team is integrating log, core and seismic data, developing its proprietary geological and petrophysical models for the Utica Shale. Canbriam has designed both core analysis and wireline logging programs to optimize completion methods.
Leveraging upon its success in horizontal drilling and multi-stage completions in the Montney, a hybrid shale that’s siliciclastic in nature, Canbriam is transferring this expertise to the Utica.
According to Nieto, a petrophysicist and AAPG member, Canbriam is still a relative newcomer to the play.
“There’s big potential in Québec, and if you can get in during the early stages of exploration, the rewards can be higher,” Nieto said. “Obviously, early birds take greater risks.”
Canbrian has done some comparisons on the cost of entry into Québec, Nieto said, and the Utica is very attractive compared to the Barnett’s historical highs of upwards of $30,000 (US) per acre.
At writing, Canbriam had drilled and cased three wells in the Utica play, and was production testing two of the three wells.
Comparisons to the Eagle Ford
Sitting in a topographic low called the St. Lawrence Lowlands, the Utica and Lorraine Shale Gas Fairway straddles the St. Lawrence River, running SW-NE in a narrow band between Montréal and Québec City. During the past five years, the entire 1.5-million-acre Fairway was leased by junior oil and gas companies under initial five-year exploration terms. Ten-year extensions, based upon minimal work commitments, are readily available from the Québec government.
During the past three years, operators have drilled some 24 wells targeting the Utica Shale. With only 270 well penetrations in the St. Lawrence Lowlands, Québec remains a frontier with respect to oil and gas exploration.
The province’s historical production originates from two gas fields that, combined, produced just under 10 Bcf from the TBR and the unconsolidated Quaternary.
Talisman’s Chatellier compares the carbonate rich Utica Shale to the Eagle Ford Shale in the United States.
“The Eagle Ford is the lowest cost for production, and locally it’s condensate rich,” he said. “The Eagle Ford is the first carbonate rich shale to produce condensate.”
And, as Chatellier points out, wet gas with its higher Btu value fetches a higher price.
From Talisman’s perspective, commercial success in the Utica could lead to further opportunities in the shallower Lorraine and in the deep hydrothermal dolomite play in the TBR.
“At the moment, we only have very sparse 2-D seismic data in Québec – that makes chasing the TBR a very dangerous game.”
In the recent past, Talisman has produced up to 125 mmcf/d from the TBR in adjacent New York state. In 2007, Talisman drilled Gentilly #1, targeting Québec’s TBR play. Drilled to a total depth of 2,529 meters, Gentilly #1 flowed 4.5 mmcf/day, declining to between 340 to 630 mcf/day. Suspended, the well was re-entered a year later, producing 800 mcf/day from the uphole Utica.
According to Lloyd, the Lorraine has a higher swelling clay content than the Utica, and it’s therefore sensitive to water. Citing the Montney Formation as a possible analog, Lloyd says it’s possible to stimulate the Lorraine.
“For the moment,” he added, “everyone has put the Lorraine in his back pocket, as it were.”
Chatellier echoed Lloyd’s thoughts on the Lorraine’s commercial development: “It might take two decades, or a technological step change.”
He suggested, further, that a propane frac might work.
“Propane might have the edge in the Lorraine,” he said, “but that’s only hypothetical.”
Last November, Junex Inc. successfully used propane to frac the Utica in Junex Saint Augustin-de-Desmaures #1, at depths between 436.5 and 473.5 meters. According to AAPG member Peter Dorrins, Junex’s chief operating officer, this represented the first propane frac of a gas shale in Eastern Canada.
It also was the first time the Utica had been production tested at depths shallower than 500 meters.
Dorrins said the company was exploring innovative options to “crack the code” for the Utica.
“We’re transporting completion recipes from elsewhere,” he said.
Junex used a Calgary-based service company specializing in propane fracs to complete its well – the company was one an eastern frac tour that also included completing unconventional reservoirs in Pennsylvania and New Brunswick.
Junex holds more than one million gross acres in the Utica and Lorraine Shale Gas Fairway, distributed between the three different plays.
Junex Saint Augustin-de-Desmaures #1, Dorrins said, encountered oil shows while drilling, and the core adsorption work determined that the reservoir’s high-Btu gas mixture included 12 percent propane – combined, these data steered Junex’s decision to use a 61-ton sand frac propelled by propane.
“We’re dealing with nano permeabilities, and we wanted to avoid getting water into the reservoir,” Dorrins said. “In the event that it didn’t work, then you haven’t damaged the formation, or done any harm.”
The perforations were acidized, and the frac propagation was monitored, using micro-seismic monitoring in an adjacent observation well.
And the results?
“The surprise is that we got some oil,” Dorrins said. “It’s the first time that oil’s been produced – and sold – out of the St. Lawrence Lowlands, to my knowledge.”
During the first 109 hours, the well recovered 47 seven barrels of 37 degree API oil, and 467 mcf/day of gas (including the injected propane). Subsequently, the oil flow stopped and the well averaged 92 mcf/day. No sand or water was recovered during the test.
As they say, hindsight is wonderful thing: “In our mind, the propane frac was absolutely the right decision, since we recovered oil.
“The oil is going to create some production challenges,” he added, “but it opens up the Shallow Utica Play.”