​6 key Montney development highlights from Q4/2016

Image: Encana

The buzz is hot around the Montney liquids-rich natural gas and oil play that straddles Alberta and B.C.

As the financial reporting period comes to a close for the fourth quarter of 2016, we take a look at some highlights of Montney activity, gleaned from in-depth coverage in the Daily Oil Bulletin.

Encana: Montney results continue to improve

Encana says that in the fourth quarter it delivered a 50 per cent well productivity improvement from a new Montney well by applying a completion design similar to one successfully pioneered in the Eagle Ford.

“In the Montney we have again leveraged our multi-basin advantage by transferring the success we’ve had in the Eagle Ford in fluid tight cluster design,” said Mike McAllister, chief operating officer.

“We implemented this design in Pipestone just 12 weeks after first testing it in the Eagle Ford. Early results are compelling. There’s been a 50 per cent improvement in well performance in the first 45 days. Our drilling and completion costs remained flat in the first quarter as operational efficiencies offset increases in completion scope.”

McAllister said the company plans to spend about $265 million in the Montney this year.

“Our 2017 Montney program is set to deliver significant market expansion. Last year, our Montney production averaged 20 barrels of liquids per million cubic feet. The average ratio for our 2017 drilling program is 85 barrels per million cubic feet, or a 325 per cent increase in liquids content,” he said.

“As a result, we expect to more than double our liquids production in the Montney by the end of the year. The vast majority of this liquids growth is premium value condensate.”

McAllister said Encana plans to run seven gross rigs in the play and drill a total of 70 to 80 net wells. Ten to 12 of these wells will be drilled at Pipestone. Drilling and completion costs are expected to average $4.5 million per well.

Painted Pony: Increased production, lower costs drive record funds flow

Montney-focused Painted Pony Petroleum’s annual average daily production volumes increased 49 per cent in 2016 compared to the year ended Dec. 31, 2015, underscoring strong year-over-year organic growth.

Fourth quarter 2016 average daily production volumes increased approximately 144 per cent to 36,695 boe/d compared to the fourth quarter of 2015 when average daily production volumes totaled 15,043 boe/d.

Painted Pony's operating costs decreased by 28 per cent in 2016 to 68 cents per mcfe from 94 cents mcfe in 2015. This marks the second consecutive year of annual operating cost reductions in excess of 25 per cent.

The higher production and lower operating costs drove Painted Pony’s record funds flow from operations of $26.5 million during the fourth quarter of 2016, compared to $2.6 million during the fourth quarter of 2015.

Citing the recent decline in forward natural gas strip prices, Painted Pony has reduced its 2017 capital spending to $288 million from its previously announced capital budget of $319 million. It also cut its 2018 capital spend to $216 million, down from previous 2018 capital spending indications of $385 million as outlined in Painted Pony's five-year plan.

Click here to read about Painted Pony's new $276.6-million Montney acquisition.

Pembina Pipeline: Considering Montney pipeline expansion

Pembina Pipeline Corporation is looking at further expansion of what it calls Phase III in the Montney play with a pipeline looping between Kakwa and Fox Creek, although it hasn’t yet seen the physical volumes that would support the project.

The company is seeking regulatory approvals and undertaking consultations in anticipation of producers signing up, Mick Dilger, president and chief executive officer, said in a conference call to discuss fourth-quarter 2016 and year-end results.

“Once they are signed up, our experience is that you just can’t react quick enough,” he said.

Pembina is currently looking at the feasibility of a Phase IV expansion that would include some small pipeline segments and additional pumps, said Paul Murphy, senior vice-president, pipelines and crude oil facilities. Additional pumping could increase the capacity by 300,000 bbls/d between Fox Creek and Namao.

There is a shortage of capacity out of the Montney between Kakwa and Fox Creek because growth in liquids-rich production, such as that from Seven Generations Energy, has occurred since Pembina announced the Phase III expansion and “the pipe’s too small out there by a lot,” he said.

Once Phase III is complete, Pembina will have four pipelines in the Fox Creek to Namao corridor with an initial total design capacity across the company’s Peace and Northern systems of approximately 900,000 bbls per day, which can be further expanded through the addition of pump stations to reach an ultimate capacity of approximately 1.2 million bbls per day.

Each of the four pipelines will transport different products (crude oil, condensate, propane-plus and ethane-plus).

AltaGas: Looking at further Montney plant expansion

AltaGas is proceeding with the first train of the Townsend Phase 2 gas plant expansion and is looking at adding the second already-permitted train, says the company’s chief executive.

Long-lead major equipment has been ordered and work is underway on the 99 mmcf-per-day shallow-cut gas processing facility on the existing Townsend site, David Harris, president and chief executive officer, said in a conference call to discuss 2016 fourth quarter and year-end results.

The first train, fully contracted with Painted Pony, is expected to begin commercial operation in October 2017.

With the addition of incremental field compression equipment to move raw gas production from the Blair Creek area to Townsend, the estimated total cost will be approximately $120 million to $140 million, including $80 million for the first train.

AltaGas also is in discussions with multiple parties to contract and build the second train of the expansion, said Harris.

Trilogy Energy: Jump in Montney drilling

Based on encouraging completion results from the first quarter 2016 Montney horizontal oil wells, Trilogy Energy Corp. increased its 2016 Montney drilling activity from the two wells that were initially planned to a total of 12 wells for the year.

Nine of these wells were completed prior to the end of 2016; the remaining three were completed in January 2017 and producing through the Montney oil battery in late February 2017.

Continued improvements to Trilogy's Montney oil well drilling and completion program resulted in year-over-year well costs declining by approximately 30 per cent while productivity generally increased, the company says.

Cost savings were achieved in drilling operations through the utilization of multi-well pads and high performance drilling systems. The shift from hydrocarbon-based fracture to water-based fracture stimulations significantly reduced completion costs and allowed the company to economically increase proppant volume and decrease stage spacing, thereby better distributing proppant along the length of the lateral wellbore.

Incorporating the efficiencies and learnings from its 2016 Montney drilling and completion program, Trilogy plans to drill 15 horizontal Montney oil wells and complete 18 wells in 2017. The capital investment Trilogy has made into the Montney oil gathering and processing infrastructure has resulted in Trilogy reducing its operating cost structure in this area to $6.60/boe for 2016.

Crew Energy: Success at Septimus

Crew Energy says that its Montney success continued in 2016 at Septimus and West Septimus (Greater Septimus), with area production increasing 59 per cent year over year to 17,797 boe/day.

Fourth quarter corporate operating netbacks were $17.03 per boe, 23 per cent higher than the same period in 2015 and 21 per cent higher than the previous quarter, as a result of lower operating costs combined with higher realized pricing in the quarter.

Operating costs per boe were reduced by 29 per cent in 2016 compared to 2015 and averaged $5.88 per boe, compared to $8.31 per boe in 2015. Operating costs in the fourth quarter averaged $5.35 per boe, a reduction of 22 per cent compared to the same period in 2015 and a further five per cent reduction from the prior quarter.

Throughout 2016, Crew says it continued to demonstrate the success of its Montney-focused strategy with positive growth across its core Greater Septimus area and advancement of its future development plans at Groundbirch.

While commodity prices remained very weak through the first half of the year, the company says it benefitted from lower costs and improved operational efficiencies and had access to the required drilling and completions services.

With foresight into the potential for ramp-up in industry activity and given its development plans for the next three years, Crew took the opportunity to lock-in major service costs through the end of 2017 and remains well positioned to advance the company’s long-range growth plan.