New drilling and production technology has dramatically transformed North America's natural gas industry by unlocking massive shale gas reservoirs. Now, those technological advances are being adopted more broadly in the oil and gas industry to reduce costs in mature or difficult-to-tap fields.
Service companies have, over the past five years, made huge strides in so-called fracturing techniques, which are used to stimulate oil and gas production from the rock in which the hydrocarbons are trapped.
Together with drilling advances, a variety of technologies have allowed producers to tap long-discovered gas reservoirs in shale rock, including the prolific Barnett, Haynesville and Fayetteville fields in the United States, and the Montney and Horn River plays in Canada.
But the technology has applications far beyond the shale plays.
As a result of the advances, "every operator in the Western Canadian basin can do more with what they own," John Deilwart, chief executive officer of ARC Energy Trust, told an investors' conference yesterday.
Canadian gas producers face enormous challenges with depressed prices and a supply glut that forecasters believe will keep pressure on prices for at least the next year.
Producers like Paramount Energy Trust and Progress Energy Resources Corp. boast that they are low-cost producers, but are nonetheless shutting in gas production - keeping it in the ground - in anticipation of higher prices.
Companies are continuing to explore or develop new fields, albeit at a slower pace than they did a year ago, and smaller producers are eagerly anticipating asset sales by giants like Suncor Energy Inc. and EnCana Corp. in the expectation they can snap up some relatively cheap reserves that fit with their portfolios.
While conventional production of oil and natural gas is still forecast to decline in Western Canada, companies are employing new strategies to stem the fall, including squeezing more production from mature reservoirs and developing previously uncommercial reservoirs in deep, tight formations.
ARC Energy is developing properties in the Montney shale region of northeastern British Columbia, but is also looking to employ new drilling and fracing techniques in Alberta's mature fields, like the Pembina structure centred 65 kilometres southwest of Edmonton.
"Technology is everything in our business today because the reserves are limited, but we have a big resource, and so for areas like Western Canada that are mature, the leverage of technology is enormous," Mr. Dielwart said after a presentation at the Peters & Co. Ltd. oil and gas conference.
He expects the industry to make further advances that will allow companies to pinpoint their drilling, to maximize recovery from mature or difficult fields, and to improve overall productivity.
High-tech fracing is costly, eating up about 40 per cent of ARC's development costs at its Dawson play in the Montney area. But it also results in more production per well, thereby reducing the average cost for each 1,000 cubic feet of gas produced.
Industry executives at the Peters conference said they remain optimistic about the industry's future in Western Canada, and expect prices to recover to profitable levels by the end of 2010.
Companies that focus on the shallow gas production in Alberta say investors are undervaluing those assets in the mistaken belief that the conventional side of the business is in a death spiral.
"We're not dead yet," joked Susan Riddle Rose, Paramount Energy's chief executive officer. Paramount has been successful at replacing its reserves, even as distributes much of its cash flow to unitholders of the trust.
Ms. Rose said Paramount, like several of its mid-sized competitors, will consider acquisitions as EnCana and Suncor shed assets. "I think it's a great opportunity for us because the assets that will be disposed of are the ones that we actually are very good at managing," she said.