It’s nice to have one in the bag, especially when that discovery includes the most prolific shale test in North America.
Apache Corp. is estimating a net 48 Tcf in recoverable gas from its 430,000 acres in the Liard Basin, a geological natural gas treasure trove in northeast British Columbia that spills across the borders into the Northwest and Yukon territories.
Natural gas may be the wrong answer at the moment with prices below $3 per Mcf, stubbornly rising production, and nagging forecasts for a multiyear low-price environment, but Apache’s Liard discovery positions the company for the transformation under way as an isolated North American natural gas market begins globalization.
Apache’s Liard Basin Lower Besa River First Black shale discovery is the westernmost of a handful of headline Canadian gas basins that include the Horn River, the prospective Cordova Embayment and the Montney shale. That 48 Tcf in the Liard (out of 201 Tcf gas in place) compares favorably to original estimates of 49 Tcf recoverable from the Marcellus (now ranging up to 84 Tcf) and 60 Tcf recoverable from the Haynesville.
So yes, Apache’s discovery is big.
Apache’s Liard holdings currently lie in a core covering 60 by 40 miles. The Lower Besa shale originates in a structurally stable, organic-rich marine environment with little clastic influx in quartz-filled deposits 400 to 1,000 feet thick inside a good boundary sequence.
“It has high pressure, it’s very brittle and it’s thick. Those are the three things that separate the Liard from most other basins,” notes Rob Spitzer, Apache Corp.’s vice president for Canadian exploration and a 30-year veteran in the western Canadian sedimentary basin (WCSB).
Work in the Liard commenced in 2007 following development in the Horn River, 60 miles east where Apache has been active since 2004. Apache’s geological team understood there were other regional plays besides the Horn River and opted to prospect in Liard while everyone was focused on Horn River.
The company drilled a vertical test in 2009, the D 28 B well, executed a single frac on a gas-saturated column of 708 feet and produced a 30-day IP of 4.6 MMfcd. The D 28 was followed in 2010 by a horizontal well, the D 34 K, with six frac stages, resulting in a 21 MMcfed 30-day IP.
This is the well that generated headlines two years later when Apache released results during its June 2012 investors day (see Apache 2012 Investor Day link). Apache says the D 34 produced 3.5 MMcfpd per stage with a 3.1 Bcf one-year cumulative production and an estimated ultimate recovery (EUR) of 17.9 Bcf, which, according to Apache, makes the D 34 the world’s most prolific shale gas test.
After the 2009 Lower Besa discovery, Apache began leasing acreage near Patry, about 60 miles northwest of Fort Nelson. The story is partially reflected in Crown disposition land sales. The first sale of Petroleum and Natural Gas rights (PNG) in July 2009 resulted in seven drilling licenses covering 114,300 acres for $CAN31.3 million. In June 2010, British Columbia awarded 14 PNG licenses to drill on 164,683 acres for $CAN110.4 million, including two vertical tests for Apache.
Apache is working on a 4th well currently. The company plans a 61-pad program with 12 wells per pad and 731 locations at an estimated cost of $35.4 million per well for drilling, completion and infrastructure, or potentially more than $25 billion in total development cost.
“These wells are going to be relatively prolific,” Spitzer says. “It’s not like other plays where you have to drill hundreds and hundreds of wells to produce the gas.”
The attractiveness of the high organic content and brittle rock in thick saturated columns is offset somewhat by a high-temperature, high-pressure (HTHP) environment. Bottomhole temperatures of 350 degrees and pressures of 11,200 to 12,000 psi make the Lower Besa a tough neighborhood for downhole tools.
The Lower Besa discovery is the largest Canadian natural gas find since the ill-fated Ladyfern discovery more than a decade ago. Unlike Ladyfern, which was discovered by some of the same geologic team involved in the Liard Basin, the Lower Besa has longevity.
While $2.57 gas provides a 12% IRR, full development at Liard really requires Nymex gas prices above $4 per Mcf. But Liard likely will not add to the glutted North American gas grid. In October 2011 Apache received a 20-year license to export 10 MM metric tones of natural gas as LNG and plans a phased two-train $4.5 billion plant at Kitimat with first cargoes slated for early 2017. Liard gas will be mixed with production from the Horn River and the greater WCSB for export to Asian markets in a transformative industry development as the North American gas industry enters the international arena. The Lower Besa will provide the gas volume to make Kitimat LNG sustainable.
After all, the gas is there. Apache’s got it in the bag.
Contact the author, Richard Mason, at email@example.com