In North America, the new dirty words in the oil and gas industry are "dry gas." Thanks to the booming success of gas shale plays like the Barnett, the Haynesville, and the Marcellus, natural gas prices have dropped below US $5/Mcf and show no signs of moving higher any time soon.

It is in this scenario that producers in the Horn River Basin in northeast British Columbia currently find themselves. The area is remote and far away from gas markets. But there is so much gas there – some estimates put the amount at 700 Tcf of gas in place – that canny operators are trying to find some way to make the Horn River work.

Composition, history

The Horn River is composed of Muskwa, Klua, and Evie shales and has an areal extent of approximately 4,000 sq miles (10,360 sq km). When gas prices are taken out of the equation, it compares very favorably to its US cousins. Gerry de Leeuw,Devon Canada's vice president of exploration, said the Horn River is the thickness of two Marcelluses and a Woodford combined. The rocks also have higher carbonate and silica content, making them more amenable to hydraulic fracturing, according to the January 2008 issue of the AAPG Bulletin.

Encana is widely credited with kicking off the Horn River play. Mark Taylor, team lead for Encana's Horn River Development group, said the basin is surrounded on all sides by conventional gas reservoirs. "Companies would be aiming for some of the deeper Devonian targets, looking for those conventional reefs that give up the gas easily," he said. "It was always a drilling problem getting through the shales."

During one drilling program, an enterprising geologist decided to come back uphole and flow test the shale section. Thanks to natural fracturing in that particular section, Encana got "burnable gas at the surface in a significant volume."

It was time to have a chat with Encana's Barnett team. "We quickly got together with our peers on the south side of the border and said, 'OK, we think we have a shale. What are we looking for?'" Taylor said. "We took our learnings from the Barnett and began accumulating land in what we think is the best position in the basin at a time when we could still get it more cheaply."

Due to the northern climate, most operations in the Horn River Basin are carried out during the winter months to avoid muddy conditions. (Photo courtesy of Devon Canada)

Different approaches

Companies are taking differing approaches to the play. Devon Canada has 170,000 acres, or about 10% of the leased acreage in the play. But it currently is not chasing Horn River wells.

"We've got such a diverse and rich portfolio of opportunities that we don't really need to chase dry gas, including the Horn River Basin," de Leeuw said. "We would look for higher gas prices before we started going after Horn River again."

Luckily for companies like Devon, the British Columbian government has made this option an attractive one. De Leeuw said Devon can retain its land for 12 to 18 years by drilling stratigraphic wells down to a certain depth.

"It's a much more rational economic exploitation of your resource," he said.

Additionally, the government understands the potential of the Horn River Basin and wants to work with the oil and gas industry to exploit it intelligently. "These people are extremely well-educated," de Leeuw said. "They understand business, they understand the competition in the US, they understand that they're at the end of the pipe, and they've created a fiscal royalty regime that actually helps us drill Horn River faster than we would normally.

"Certainly they understand that by doing that they receive a multiplier effect in terms of income." He added that the industry is willing to pay a good price for Horn River acreage because of the royalty and fiscal rates. With these terms in place, Devon can afford to hang onto its Horn River acreage until prices are more favorable.

Making the economics work

Encana still is active in the Horn River Basin despite the low gas prices. Taylor said the favorable terms have allowed his company to take a more orderly development approach to its acreage, resulting in incremental lessons learned that cumulatively help push down costs and improve efficiencies.

The Horn River wells also seem to have a lower decline curve than their American counterparts, particularly the Haynesville. "Haynesville is a strong play for other reasons," he said. "It just changes the economic model you have. You're going to have a longer term, more consistent production rate out of the Horn River wells as opposed to reaching payout earlier." Encana has acreage both in the Barnett and the Haynesville, he said, and the fact that the Horn River endeavor continues to attract Encana money is a testament to its prolific potential despite its remoteness.

The top Horn River players by acreage have claimed most of the basin. (Source: PLSD Research, courtesy of UGCenter.com)

Encana also has the advantage of knowing the terrain, having been involved in the conventional Jean Marie play to the east, where keeping horizontal wells in zone can be a bigger challenge. Taylor said the tools his company has been using to drill the Jean Marie carbonate work fine in the Horn River shale, and despite the very thick nature of the shale, the company applies the same geology and geophysics as it does in the Jean Marie to find the sweetest spots.

"In the Jean Marie, we've been targeting layers of carbonate that are 3 to 5 m (9.7 to 16.3 ft) thick," he said. "We have a fairly well-established expertise in being able to put the drill bit where we want it on a horizontal well and keep it there over thousands of meters.

"When the drillers moved over to the Horn River and we said we had a 100-m (330-ft) package of shale – all you have to do is keep the drill bit in it – they didn't break a sweat."

Another big advantage for Encana is the fact that each well pad can house as many as 16 horizontal wells, so the company can keep a drilling crew busy and not have to let it go every few months. "We have what we call a level load program," Taylor said. "We don't move in and put in five or six rigs and then decide we want to slow down and go back to zero. The rig that's drilling for us now moved into the field in October 2008."

Because of this consistency, Encana has seen tremendous drilling efficiency increases. Taylor said in the 2007 time frame, it took more than a month to drill a 3,300-ft (1,000-m) horizontal leg. "Now we're consistently taking wells out 2,500 to 3,000 m (8,152 to 9,783 ft) and getting them done in 20 to 25 days. On a per-meter basis, we're probably drilling these wells twice as fast as we were three years ago. That just gets back to our resource play model – repeating what we've done before.

"You can focus on the small incremental changes because you know you're going to drill another 300 or 400 wells. So it's worth chasing."

The wild card

The Horn River Basin already has access to a pipeline that moves the gas eastward toward the large US and Canadian markets, but it has trouble competing with other shale plays (particularly the Marcellus) that are closer to market.

But LNG might change the nature of the depressed North American gas market. If the overabundance of North American gas could find its way into other markets desperate for natural gas, market dynamics could change significantly.

To this end, producers in the Horn River have joined forces to build the Kitimat LNG facility and the Pacific Trail Pipeline. EOG Resources Inc. and Apache Corp. advanced the idea and were later joined by Encana.

The LNG facility will be built on Bish Cove about 400 miles (650 km) north of Vancouver. It will be built on First Nations land under a partnership with the Haisla First Nation. The initial phase has a planned capacity of about 700 MMcf/d. The pipeline will run from Summit Lake, British Columbia, to Kitimat.

Marketing discussions already are under way with potential Asia-Pacific LNG customers. Shipments are expected to begin in 2015.

This development has the potential to significantly alter the dynamics of further Horn River Basin development. Mark Papa, CEO of EOG, gave a presentation in fall 2010 that included comments on his company's Horn River activities.

"In my opinion, if any LNG export plans are built in North America, Kitimat is the most likely to happen," he said. "Our Horn River development is an oil project because we expect the gas to be sold at an oil index price."

If the balance tips in favor of Horn River gas, the field will be able to comply for decades to come. De Leeuw said it probably would be impossible to go "full bore" on the field due to physical and personnel constraints, but even if the field was developed full out, it would have at least 20 years of production capacity.

"It's a resource for many years to come," he said.

Most acreage in the center of the basin already is leased. (Source: BC Ministry of Energy)