Shale Oil Drives Canadian and Alaskan Exploration
By Anne Leonard
The shale gale continues to take odd turns. While nearly everyone anticipated Argentina would be one of the next fronts in the shale gas revolution, the first solid results coming out of the South American country are in the production of shale oil. Few saw that coming. Meanwhile, last summer Canada’s Northern Oil & Gas Directorate held a lease sale in which all 11 Mackenzie Valley blocks offered were awarded for work commitment bids totalling more than C$530 million. The results for acreage in what has long been considered a natural-gas prospective area were surprising. The long-stalled Mackenzie Valley Pipeline Project has been declared all but dead; financial and environmental issues aside, shale gas production in the US and Canada had rendered the issue moot, both in terms of need and commodity prices.
So what was up? Why had ExxonMobil, Shell, ConocoPhillips and Husky Oil, among others, scooped up every available tract, with the three supermajors each offering work commitments of more than US$40 million, while Husky pledged nearly US$400 million? In a word (or two), shale oil, or as Canadian independent MGM Energy has tagged it, “the Canol oil shale play."
It appears Husky Oil will be the first out of the gate, with plans to begin constructing ice roads and an ice bridge over the Mackenzie River by the end of the year in the Central Mackenzie Valley. This will ‘pave’ the way for a two-well oil shale drilling program planned for in the 2011/12 drilling season. No information has been released on which block the first test well will be drilled. In the 2011 Central Mackenzie Valley Call for Bids, Husky was awarded two blocks: the 877.48-square-kilometre CMV2011-04, now called EL 462, and the 870.34-square-kilometre block CMV2011-06, now labelled EL 463. The combined work commitment bid for the blocks is C$376 million. The wells will be drilled as vertical holes to evaluate the Canol and Hare Indian shales, which are believed to be the source rock for the Norman Wells oil field located to the northwest. Given what has happened in the Bakken Shale of North Dakota and the Eagle Ford Shale of South Texas, if successful Husky’s program could set a level of off drilling activity not seen in the Northwest Territories in decades.
Calgary-based MGM Energy has also announced plans for shale oil exploration, although it will not begin drilling until the 2012-2013 winter season. If this shale oil play pans out, there may be no bigger winner than MGM. The company was formed in 2007 to acquire the Mackenzie Delta and Mackenzie Valley oil and gas interests of Paramount Resources. Since its inception, the small company has added to its leasehold along the proposed natural gas pipeline route, making it the largest leaseholder in the area with a net 8,144 square kilometres under contract. Clearly, MGM was betting on the pipeline and just about the time all those bets were off, along comes shale oil. In the 2011 Central Mackenzie Valley sale, the company picked up three blocks for just over C$4 million. Perhaps one of the first clues something was brewing was MGM’s farm out of a 50% working interest in its EL 440 to Devon Energy earlier in 2011.
The shale in the area is likely well defined as most of the blocks awarded from the licence round have had multiple wells drilled on them that penetrated both shales. According to MGM, the Canol/Hare Indian shale is 30-170 metres thick at a depth of 1,000-2,500 metres. In addition, the Bluefish Shale is 15-25 metres thick at a depth of 1,000-2,700 metres. Both are highly brittle, which is a key attribute for successful fracturing. But perhaps one of the biggest pieces of the puzzle for an area so far north is infrastructure. Running through the area is the 40,000 barrels of oil per day Enbridge pipeline, which transports crude from the Norman Wells oil field. Discovered in the 1920s, Norman Wells has been in decline for decades. Consequently, the pipeline is currently running at a little more 33% capacity. If the dreams of Husky and MGM come true—the votes of confidence from Shell, ExxonMobil and ConocoPhillips are good omens—and the Enbridge pipeline proves not large enough, the existing right-of-way should preclude any of the problems the proposed gas pipeline has faced.
North Slope shale oil?
Lack of a natural gas pipeline has also been the bane of operators on the North Slope of Alaska. Now, an independent company has amassed the maximum leasehold of 500,000 acres (a little more than 2,000 square kilometres) allowed in the state on the premise it doesn’t matter, because there is shale oil on the North Slope ready for exploitation. However, unlike the Canada play, so far apparently few have bought into the Alaska concept.
Great Bear Petroleum has submitted a Plan of Operations elaborating its proposed 2011-2012 program, indicating it will conduct their initial exploration and evaluation activities on its acreage found along a 24-kilometre north-south section of Dalton Highway and the Trans Alaska Pipeline System (TAPS) right-of-way between Deadhorse and Franklin Bluffs. The Anchorage-based firm plans to drill four test wells plus another two wells contingent on the results of the initial wells. The Mesozoic-aged Hue shale/GRZ, Lower Kingak Formation and Shublik Formation are the targeted source rock units, which Great Bear expects to find between 2,740 metres and 3,660 metres.
Although Great Bear says the exact drilling sequence for the wells has not been determined and is dependent on the results of the initial core tests, the operations plan notes that the company intends to commence its drilling in the northern sector of their area of activity. The Alcor 1 drillsite is the northernmost of the six potential drillsites proposed by Great Bear, located along the James Dalton Highway past milepost 398, roughly 27 kilometres south of Deadhorse. Keeping with the theme of its company name, Great Bear has named its wells after the five brightest stars in the Ursa Major (Big Dipper) constellation.
According to the Alaska press, Great Bear and Halliburton are joining forces to conduct a ‘proof of concept’ operation to tap the shale. On its website, Great Bear calls its leasehold, “the heart of the unconventional play fairway south of the Kuparuk and Prudhoe Bay fields.” The company is headed by 30-year North Slope veteran Ed Duncan.
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Anne Leonard is an editor for the IHS “International Oil Letter.”
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