E&P in Canada: Past and Future

September 1, 2014

Author: Sona Mlada, Analyst

Published by: PESGB Newsletter, September edition

In 2013, the E&P revenues in Canada reached ~$140 billion, while exploration and development spending amounted to around $70 billion. Throughout the year, almost $11.5 billion were spent on M&A activities in Canada, ~17% of which were represented by acquisitions in the Montney play and ~7% by oil sands. In real terms, the largest acquisition was Petronas’ purchase of Talisman’s Montney acreage for over $1.4 billion. So where can we expect future growth potential in Canada?

Canada is a country rich in oil and gas resources represented by a combination of onshore conventional fields, shale gas and tight oil plays, oil sands and offshore fields. Approximately 30% of total oil and gas resources in Canada are found in currently producing onshore and offshore fields, located primarily in the provinces of Alberta, British Columbia and Saskatchewan and offshore Newfoundland and Labrador. Rystad Energy sees yet-to-find oil and gas potential mainly within the offshore Northwestern Territories, Nunavut and Newfoundland and Labrador.

Origin of Organic Deposits in Canada

Looking at the Map 1, we can observe a clear pattern of hydrocarbon deposits in Canada. About 90% of all oil and gas resources in Canada are located in Alberta and British Columbia in a vast petroleum basin called Western Canada Sedimentary Basin (WCSB). The organic deposits were layered in the basin in various geological ages, from Middle Devonian to Late Cretaceous. Taking a closer look at the Map 2, we can see that WCSB represents a treasure for Canada also in terms of unconventional plays. During the Devonian age, the sediments of Horn River Shale (Middle Devonian) and Duvernay Shale (Late Devonian) were deposited, followed by the Mississippian age, which contributed to the deposition of the Alberta Bakken play (younger Banff and Exshaw formations are Mississippian age, underlying Big Valley is late Devonian). The two younger formations are Montney play deposited in Middle Triassic and Cardium play (Cretaceous). While Horn River and Duvernay are pure shale plays, Alberta Bakken consists of a mix of shale and tight sediments, Cardium is primarily comprised of sandstones, and Montney is a hybrid of conventional formations, tight sands and black shale. The structure of the formations is especially complicated in the area of the Foothills in the province of Alberta, where Duvernay, Montney and Cardium form a stacked potential, with the Duvernay depth ranging from 9,800 to 14,800 ft, while the depth of Montney ranges from 6,500 to 10,800 ft and for Cardium from 3,300 to 8,200 ft. All three formations get deeper towards the Rocky Mountains on the border between Alberta and British Columbia. The liquid window is in general found in a belt between the deep Foothills and the shallower Plains.

In terms of crude oil resources, Canada disposes of ~170 billion barrels of crude oil, making it the third largest crude oil resource holder in the world, after Saudi Arabia and Russia. Over 80% of these remaining crude resources are represented by oil sands.

Production in Canada and Future Trends

In 2013, total production in Canada averaged 6.4 million boe/d, of which ~4 million boe/d were liquids and ~14 bcf/d was gas. Going forward, we estimate that the overall production in Canada is going to surpass 7 million boe/d in 2016. We can see a clear tendency of increasing weight of the unconventional production compared to the overall production. In the current year, production from shale gas and tight oil plays represents ~20% of total production; by 2025 we estimate this value to increase to over 30%, the increase is driven primarily by the supply from the Montney and Duvernay plays. In 2000, almost 80% of the Canadian production was represented by conventional on- and offshore fields. Going forward we expect this share to decrease to as low as 10% of the total production.

Exploration in Canada and Its Potential

Although upstream activity is heavily concentrated in the provinces of Alberta, British Columbia and Saskatchewan, about 40% of the total area of Canada is located above the 60th parallel north. The territories of Yukon Territory (YT), Northwest Territories (NWT) and Nunavut are areas where Rystad Energy sees a future exploration potential for the country (Map 1). E&P activity had been ongoing in these provinces also in the past – at Norman Wells in the NWT the first oil was discovered as early as 1920. Currently, several major companies, including ExxonMobil, Shell and ConocoPhillips, have amassed exploration licenses in the Canol Shale in the NWT, with first test wells being drilled already. Among other discoveries, Amauligak (located in the Beaufort Sea) stands out, which was discovered in 1984.  Going forward, there are generally three main limitations for E&P activity in the Northern provinces: harsh weather conditions, lack of infrastructure and legislation constraints.

What Can We Expect Going Forward?

Canada has gone a long way since the very first oil discovery was made in 1858 by James Miller Williams. Currently, we see the most important technological advancements in the development of shale gas (horizontal drilling and multi-stage fracturing), and oil sands (steam assisted gravity drainage). So what are going to be the next milestones in the E&P business in Canada? One of them will certainly be the first LNG shipments from the coast of British Columbia to the East Asian markets, where gas prices currently are ~3.5 times higher than in North America (as of August 2014). By now (August 2014), the industry hasn’t sanctioned any LNG terminals in Canada; however, there are three proposed and ten potential projects. Petronas is the operator that is so far closest to making a final investment decision regarding its ~$11 billion Pacific NorthWest LNG project by the year-end. Shell and Chevron also have mature plans, but sanctioning could be delayed due to high costs of development.

 

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