Possibility grows of spectacular gas find in northeast

Second firm drilling in Horn River Basin cites vast potential natural gas reserves

Scott Simpson
Vancouver Sun
Thursday, April 24, 2008

The possibility that the remote northeastern corner of British Columbia harbours a spectacular, untapped natural gas resource is growing increasingly certain.

Calgary-based gas explorer Nexen Inc. became the latest company to herald a vast new opportunity in B.C. when it announced that drilling results on its property in the Horn River Basin suggest a potential reserve as great as six trillion cubic feet of gas.

"This is the first time these kind of rock properties have shown up on the radar screen in Canada, and you guys [in B.C.] just happen to have a whole bunch of it," said Nexen's Michael Harris, vice-president of investor relations.
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"This is clearly the most exciting thing we've had in B.C. for a long, long time."

The Nexen announcement follows a similar declaration in February by EOG Resources that its potential net reserve at Horn River is approximately six trillion cubic feet.

All inferences to date about the size of the resource are preliminary -- based on results from barely a handful of holes drilled.

But if the projections are correct, they would collectively increase Canada's total proven natural gas reserves by about 20 per cent -- and that may be at the low end of what's possible.

Earlier this month, the partnership with the largest land holding to date in Horn River, Calgary's EnCana and Houston-based Apache Corp., announced large volumes of gas from three wells drilled this past winter in the basin.

Horn River was the focus of record provincial revenue from gas lease auctions over the past fiscal year, and pending the release of results from April's monthly auction -- which took place on Wednesday -- the spree may continue thanks to gas commodity prices making the venture economic.

The Horn River gas is locked in a shale deposit that is more costly to exploit than conventional gas -- for example, it costs about $10 million to drill a well, compared to $1 million at a conventional deposit.

Shale gas deposits can be cost-effectively exploited -- the Barnett shale deposit in Texas is the second-largest on-shore gas deposit in the United States.

"When our geologists realized that B.C. has these shales, they considered the potential for tight gas and thought we should grab a little bit, and take a look," Harris said.

Projects in the B.C. region likely won't proceed without a trading market price for gas of at least $8 per unit. A unit is 1,000 cubic feet -- a typical B.C. home uses an average of about 10 units per month.

Gas moved into the $10-per-unit range this month amid expectations that prices will range higher than they have for two years, due to a cold winter that took a large bite out of existing reserves.

B.C.'s low-cost royalty framework for unconventional gas reserves also provides incentives for drillers to operate in this province.

ssimpson@png.canwest.com

© The Vancouver Sun 2008