Frenzied Levels Of Drilling Vital To Sustain Gas

   Maurice Smith
   Nickle's Daily Oil Bulletin
   11 November 2002

   Despite record levels of drilling, Western Canadian natural gas
   production appears to have peaked at 16.6 bcf per day and continued
   frantic drilling is needed just to keep pace with that level, says
   Robert Meneley, head of Meneley Enterprises Ltd.

   There aren't any elephant pools waiting to be discovered and future
   gas will have to come from the large number of smaller pools
   remaining, said Meneley, who served as chief analyst on the Canadian
   Gas Potential Committee from 1993 to 2001 before returning to his
   consulting practice.

   Speaking to the CPGA/PJVA 9th Joint Annual Conference Thursday,
   Meneley said the maturing Western Canada Sedimentary Basin still
   remains Canada's best hope for natural gas with some 61% of Canada's
   remaining 234 tcf of nominal marketable gas. His figures, he said, are
   based on the 2001 Canadian Gas Potential Committee report, though his
   views do not necessarily reflect those of the committee.

   Meneley quickly moved to dispel the notion any monster gas finds are
   out there. "Gas accumulations in Western Canada are small on a world
   scale; there never were any elephants," he said. Only two gas pools,
   in the Medicine Hat and Milk River formations in eastern Alberta,
   could be termed as giant fields with more than 3.5 tcf of marketable
   gas, he said.

   Which is not to say there isn't plenty of potential yet to be
   discovered. "Western Canadian gas fields make up for their lack of
   size with exceptional accessibility and infrastructure," he said.
   Indeed, Western Canada is destined to remain Canada's dominant gas
   supply area with an estimated 142 tcf of Canada's 234 tcf remaining
   nominal marketable conventional gas.

   Central Canada and offshore Nova Scotia are estimated to hold 13 tcf
   and the Mackenzie Valley and Beaufort Sea another 35 tcf. An
   additional 44 tcf is estimated to be under Canada's arctic islands and
   offshore Newfoundland and Labrador, though that gas is so remote it is
   unlikely to be produced any time soon, if ever, said Meneley.

   Nominal marketable gas is calculated by using the percentage of gas in
   place in discovered gas fields that is marketable to estimate volumes
   of undiscovered marketable gas. It's called nominal because not all
   the gas will actually be marketable due to accessibility issues,
   economics or because it might never be found. The estimates do not
   include gas from conceptual exploration plays lacking actual gas
   discoveries.

   Not only are there no elephants, but production is going to have to
   shift to smaller accumulations in the Western Basin. It is estimated
   almost all the fields larger than 600 bcf have been discovered and
   almost 70% of production so far has come from fields over 40 bcf. The
   largest remaining potential lies in finding the large number of fields
   smaller than 2.5 bcf.

   That means more drilling. It is anticipated just three fields of over
   600 bcf, and 150 fields containing over 40 bcf, remain undiscovered.
   There are another 3,200 midsize fields, of between 2.5 and 40 bcf, but
   the bulk of remaining gas will be found in some 64,000 undiscovered
   pools from 0.15 to 2.5 bcf.

   "Even with advances in technology it will take a massive drilling
   effort to find the undiscovered gas in Western Canada," said Meneley.
   He said at the current average finding rate of three exploration wells
   per discovery, it would take about 200,000 exploration wells to find
   the 67,000 largest new pools, twice the number of exploration wells
   drilled in Western Canada through 1998.

   Over half the undiscovered nominal marketable gas in the basin, some
   43 tcf, is locked in Lower Cretaceous reservoirs, Meneley said, an
   area particularly sensitive to economics due to the small size of the
   pools.

   The basin's largest exploration targets are in the Foothills, expected
   to hold 14 tcf undiscovered potential, and the deeper Devonian with
   another 11 tcf. These fields, however, face the greatest risk of being
   in areas where exploration is precluded. There is no estimate of how
   much gas could be excluded due to that risk, Meneley said.

   It's too early to estimate the potential contribution from
   non-conventional gas sources, which will become more important as
   technology improves. Meneley did say it appears that, like with
   conventional production, commercial coalbed methane production now
   underway will require a large number of wells to sustain any
   significant production.

   With just five per cent of the world's natural gas supply, North
   American is gas poor, Meneley said. And with 31% of world production,
   it is depleting its reserves quickly. Canada cannot fix the U.S. gas
   supply shortfall and at some point North America may have to rely on
   imports of LNG for its gas supply.

   In the meantime the industry in Canada must adapt, he concludes, to
   accommodate the larger number of smaller, short-lived pools the future
   holds. Though there remains more gas to be discovered than has been
   found already, "The days of cheap gas are over," he said. "As always,
   the prize will go to those who can adjust to change."


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