Canadian Manufacturing

B.C. town sees revival of drilling in Montney natural gas formation

While gas prices are still weak, rich finds in the Montney and the prospect of new pipelines are helping to revive exploration


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CALGARY—Increasingly empty industrial yards around the northeastern B.C. city of Fort St. John are a welcome sign for Jennifer Moore.

Moore, a regional economic development officer, says the return of parked natural gas drilling rigs and related equipment to the field shows that a recovery is underway for one of Canada’s biggest new energy plays.

Fort St. John sits atop the Montney, a natural gas-bearing formation that straddles the B.C.-Alberta border. Like the oilsands hub of Fort McMurray, its fortunes are closely tied to energy prices.

And with natural gas prices weakened by rising U.S. supplies, Fort St. John and neighbouring communities have witnessed a grinding two-year slowdown.

“It’s been a little scary here,” said Moore, who works for the North Peace Economic Development Commission.

“As you drove around the community industrial areas, you saw a lot of iron parked in yards, and that’s not a good thing. Pipe, equipment, trucks … the majority was parked in town.”

Industry players say that while gas prices are still weak, rich finds in the Montney and the prospect of new pipelines are helping to revive exploration.

According to the online trade publication BOE Report, 335 wells have targeted the Montney in the first quarter of this year. That’s a hopeful sign after drilling fell to 746 wells for all of 2016 from a peak of 1,321 in 2014.

The northeastern B.C. unemployment rate dropped to 6.5 per cent in March from 10.5 per cent in December. At the height of the boom in 2014, it registered as less than 3.5 per cent.

“People are feeling more optimistic,” Moore said. “Cautiously optimistic.”

Energy executives say the Montney’s prolific production, unlocked with horizontal drilling and hydraulic fracturing technology, makes it the most profitable natural gas play in Canada. It provides about one-quarter of Canada’s current natural gas output.

In a recent report, Desjardins Capital Markets said the Montney has proven its quality, with growth now limited mainly by insufficient pipeline space to carry away its growing bounty.

But plans are being filed to bring more Montney gas to market. They include TransCanada’s mainline pipeline system from Alberta to Ontario and its new North Montney Mainline through northeastern B.C., as well as through an expansion of the rival Alliance Pipeline that runs from the Montney region to Chicago.

“Pipelines are being expanded because people can see we’ve got an economic play here,” said Jeff Tonken, CEO of Birchcliff Energy of Calgary, which produces Montney gas and light oil on the Alberta side of the border and has signed contracts for more pipeline space.

Calgary-based Encana has said it wants to nearly double its Montney gas output to 1.2 billion cubic feet per day by 2019, while its associated Montney output of liquids such as condensate and propane is expected to grow by five times to 70,000 barrels per day.

Moore said she expects steady growth going forward, adding it’s unlikely the region will return to the “hair-on-fire” boom of 2014 because of a drilling timeout by producer Progress Energy, owned by Malaysian energy giant Petronas.

Progress has reduced its contracted drilling fleet in northeastern B.C. to one rig from more than 20 in recent years, observers say, as it waits for a final investment decision on its parent company’s Pacific NorthWest liquefied natural gas (LNG) project near Prince Rupert, B.C.

That project would chill and ship up to 3.2 billion cubic feet per day of natural gas to energy-hungry customers in Asia. But it has been delayed by internal reviews and slumping LNG prices.

The Montney production bulge and lack of room on pipe from Western Canada has hurt gas prices at the main Alberta trading hub compared with U.S. prices.

TD Securities says it expects Canadian gas to sell for as much as US$1 less per thousand cubic feet than U.S. gas over the next four years because of “market access challenges.” It’s a significant disadvantage given that U.S. gas is now selling for just over US$3 per thousand cubic feet.

But producers point out their returns are also boosted by condensate—a light oil produced with the gas. Condensate has a geographic advantage. It sells in Edmonton for near-New York benchmark crude oil prices because it is used to dilute oilsands bitumen for pipeline transport.

Gerry Goobie, principal with consultancy Gas Processing Management Inc., estimates Alberta and B.C. condensate production has risen from 181,000 barrels per day in 2014 to 260,000 bpd in 2016, with most of the increase coming from the Montney.


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