Peters & Co: Duvernay play challenging but promising
De-risking a new play is never easy. The Duvernay shale is no different.
As Calgary-based investment house Peters & Co. points out in a March 20 research note to clients, even though land sales in the Duvernay have been snapped up by companies with increasing zeal since 2009, there’s been limited drilling activity there.
In 2011, 17 horizontal and 13 vertical wells were drilled in the Duvernay and Peters is forecasting 40 wells will be drilled in the play in 2012.
The small amount of drilling means producers haven’t found their groove yet, with Peters noting that the Duvernay’s proximity to the foothills, the depths being drilled (anywhere from 2,200 to 3,800 meters) and higher than average fracture gradients and reservoir pressures means operators will continue to face drilling and completion challenges. “Overall, given the few Duvernay wells drilled to date, well completions for this zone are in the experimental phase,” Peters writes.
Experimentation is also costly. Peters says well costs in the play have been between $10 million and $20 million per well.
But Peters is confident these challenges will be overcome, even with prices for the cleanest burning fossil fuel languishing in the US$2 area.
The confidence comes from the fact that infrastructure in the Duvernay (pipelines, etc.) is excellent and the natural gas liquids content in the reservoir is substantial.
With rates of return boosted by low royalties and high liquids contents, and the encouraging results from the three horizontal wells drilled to date in the liquids-rich window, this play has the potential to be one of the larger future developments in the WCSB [Western Canadian Sedimentary Basin].