“The super liquids-rich window of the Montney in British Columbia will emerge as one of the top plays in Western Canada and perhaps in North America”
BMO Capital Markets Research Note
BMO Capital Markets Research Note
The Lower Triassic Montney Formation of Alberta and British Columbia (BC) has been the target of oil and gas exploration since the 1950s. Until recently most of the investment was directed towards conventional sandstone and dolostone reservoirs, however there is also a considerable thickness of siltstone, saturated with oil and gas, which cannot be developed using conventional technology. With recent advances in horizontal drilling, multi-stage hydraulic fracturing and completion design it has become possible to develop these siltstones and as a consequence the Montney has become the most active oil and gas play in Canada and one of the most attractive plays in North America.
According to the National Energy Board of Canada (2013) the siltstones of the Montney Formation are expected to contain 449 trillion cubic feet (TcF) of marketable natural gas, 14,521 million barrels of marketable Natural Gas Liquids (NGLs), and 1,125 million barrels of marketable oil. One of the most notable features of the Montney is its vertical thickness, which exceeds 300m in some places in BC. Most producers have at least 200m of exploitable vertical pay, presenting the opportunity for commercial development to involve several layers of wells which improves the productivity of each well pad. It is also notable that the interval being developed is a reservoir with natural porosity (average 6%) rather than a shale which results in enhanced productivity per well. The characteristics of the Montney siltstone are well suited to fracking resulting in exceptional fracture stability. Calima has used a proprietary geological work-flow to identify and capture a significant land position within the super liquids rich window of the Montney play in British Columbia where the presence of a significant proportion of natural gas liquids and oil results in improved economics.
The Montney Formation is an Early Triassic aged formation in the Western Canadian Sedimentary Basin extending over 130,000 sqkm from north-east British Columbia to north-west Alberta. The Montney Formation forms part of the Western Canada ‘Deep Basin’ system, a pervasive hydrocarbon system of organic rich shales and siltstones where tight reservoirs exist in close proximity to matured hydrocarbon-expelling source rocks. The sediments were deposited in a shallow marine shelf environment in which sediments flowed into the basin in a south-westerly direction as a series of channel and fan deposits. The Montney Formation is dominated by siltstones with varying degrees of dolomitisation. The thickness of the Montney typically ranges from 100-300m, thinning to zero at its eastern and north-eastern edges while increasing to over 300m on its western side. The depth from surface to the top of the Montney ranges from 700m to 4,500m, increasing from northeast to southwest.
Like the Eagle Ford, Utica Shale and other unconventional plays in North America, the Montney Formation has dry gas, liquids-rich gas, and oil windows. As the generated hydrocarbons are in-situ, or in very close proximity to the mature source rocks, the system becomes ‘inverted’ from the conventional sense so that water sits above the oil window, which in turn sits above increasingly drier gas with depth.
History of the Montney
The Montney Formation has been the focus of oil and gas exploration since the 1950s, with early efforts targeting the Montney’s conventional sandstone and dolomite reservoirs. However it was the inaccessible oil and gas resources contained within the bounding siltstones, which would eventually prove to be the major prize. In the early years, limitations in technology meant this potentially vast resource remained undeveloped. Efforts to target the unconventional Montney play were restricted to vertical drilling for poor quality, conventional fine-grained sandstone reservoirs. However by 2005, with the advent of horizontal drilling and advancements in multistage horizontal fracturing techniques, the economic development of this extensive, unconventional resource became a possibility. By the end of 2014, 97% wells drilled in BC were horizontal, with majority targeting the Montney play.
The first attempt to employ multistage hydraulic fracturing in a Montney horizontal well occurred in July 2005, near Dawson Creek. Initial production commenced at rates four-to-five times greater than previously drilled vertical wells in the same target horizon. This was quickly followed by other successful horizontal wells which, along with subsequent drilling and coincident geologic investigation, eventually defined the regional unconventional resource play trend. The Montney Formation has emerged as one of the most commercially attractive and compelling unconventional prospects in North America. More recently, following exceptional results in liquids-rich areas, a rush to find new liquid-rich sweet-spots has ensued.
The Montney JV has been particularly focused on areas in the Montney Formation which Management have determined, based on the results of nearby drilling and in-house mapping, to be rich in liquid hydrocarbons. Like other unconventional plays, the heterogeneous nature of reservoir quality and liquids content within the Montney results in laterally- and vertically-defined sweet-spots, areas where productivity from the Montney is enhanced. Using an extensive digital well-log dataset of over 1,400 existing public domain wells, the Montney JV aimed to identify potential new liquids sweet-spots in the play. To that end, the Montney JV employed a regional data layering methodology which is sometimes referred to as Common Risk Segment Mapping.
Recognition of critical play elements within the hydrocarbon system were ‘stacked’ to identify potential sweet-spots. Through calibration to existing production, Common Recovery Segment Maps were used to create detailed interpretations of hydrocarbon productivity potential across the play.
The first attempt to employ multistage hydraulic fracturing in a Montney horizontal well occurred in July 2005, near Dawson Creek. Initial production commenced at rates four-to-five times higher than previously drilled vertical wells in the same target horizon. This was quickly followed by other successful horizontal wells which, along with subsequent drilling and coincident geologic investigation, eventually defined the regional unconventional resource play trend.
The first step in understanding the play was to characterise and isolate the interpreted play components of the system. Studying more than 3,500 horizontal wells currently producing in the play allowed the JV to develop an understanding of the key components of the hydrocarbon system, which include Porosity, Resistivity, Pressure, Liquids-Gas ratio and above ground considerations such as terrain and infrastructure. Proven and potential ‘sweet-spots’ became apparent as the play components were ‘stacked’. Following the sweet-spot mapping process, several areas were high-graded for targeted land acquisition. This methodology is used commonly in international exploration but apparently has not been widely adopted in North America.
Development & Production
Much of the Montney benefits from relatively easy surface access, pre-existing natural gas infrastructure and the presence of liquids rich gas, providing favourable economics for the play. The Montney’s thick pay is allowing producers to plan developments that will ultimately see many wells drilled from a single pad-site (as many as 16 wells in some instances), providing meaningful economies of scale. Furthermore, resource recovery in the Montney is maximised through targeting areas of higher-than-average overpressure without increased vertical depth, which in turn keeps well costs down.
Montney gas production has grown from negligible volumes in 2005 to almost 5.5Bcf/d in 2016, which currently represents more than a third of Canada’s natural gas production. This growth in production has largely offset declines in the rest of the Western Canadian Sedimentary Basin. There are currently about 6,500 producing wells in the Montney, and the play continues to evolve and expand as companies consolidate and push the edges of the fairway. Significant gas-liquids and condensate volumes are also being generated as operators identify and move towards the liquids-rich areas of the play.
Focused development of the Montney wet-gas trend began in the south-east portion of the play during 2009-2010 as natural gas commodity prices fell and it was recognised that significant associated natural-gas liquids and condensate production enhanced economic returns. In North-East British Columbia (NEBC), the “liquids-rich” parts of the Montney emerged and began to be developed in late 2013 and 2014. The advancement of horizontal drilling and multi-stage fracturing technologies has helped accelerate oil growth, with oil and free condensate production from the Montney currently standing at around 65 Mbbls/d. The growth in targeted Montney drilling over the past few years, combined with the slowdown in conventional gas drilling, has resulted in the Montney becoming the single most important gas producing formation in British Columbia.
Oil and Gas Exploration and Production
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