Image: Vesta Energy is a large player in the emerging East Shale Basin. Here's its leadership team, l-r: CFO Paul Smith, COO Grant Rabe, CEO Curtis Cook, VP exploration Dermot O'Connor and chief accounting officer Jenny Ngo. Source: Vesta Energy
While the majors test technologies and build production in the Duvernay play in central Alberta, a number of smaller explorers have begun sizing up an extension to the opportunity that is being called the East Shale Basin.
“It’s a bit of a different animal than the Western Duvernay because there are a fair number of shallower wells being drilled. But it’s mostly light oil, with a fair amount of gas,” says Brad Hayes, president of Calgary-based Petrel Robertson Consulting, citing information gathered by Canadian Discovery about the East Shale Basin.
There are a few reasons it hasn’t attracted the same attention as its western sister, Hayes says.
For one thing, it’s geographically a smaller area. In addition, because it surrounds historic plays such as the Innisfail Reef, where freehold rights are already held, it hasn’t been on the majors’ radar.
Also, a large player in the area is privately owned Vesta Energy, which has been very close-mouthed about its activities there.
That changed in mid-May, when it announced it had raised $295 million to speed up exploration of the play. Private equity firms Riverstone Holdings and JOG Capital co-led the equity offering.
Calgary-based Vesta is led by Curtis Cook, the company’s founder, president and chief executive officer and a veteran of the Canadian exploration and production scene with a background at such companies as Renaissance Energy, which was taken over by Husky Oil in 2000 in a deal valued at $500 million. Other executives with the company, such as Dermot O’Connor, vice-president of exploration, and Paul Smith, chief financial officer have experience with such successful shale-based explorers as EOG Resources and Talisman Energy.
Vesta refers to the East Shale Basin as the Joffre Duvernay Shale oil play.
Whatever name one chooses to use, Vesta has become a big participant in the play, having a contiguous land position of 200,000 net acres. In mid-May, it had drilled 23 wells and was producing about 3,500 boe/d, of which 80 per cent is light oil.
Olivia Wassenaar, a managing director of Riverstone, makes it clear the private equity firm has great hopes for the play.
“By applying learnings from U.S. shale plays, Vesta is developing the Joffre Duvernay Shale oil play into a world-class resource and one of the most economic plays in North America,” she says.
Company executives go on to say that the play, located in central Alberta, where oilfield service infrastructure is well established, should help Vesta accelerate the development of its land base.
Cook, Vesta’s CEO, says the company would provide limited public disclosure about its activities in the play “for the next year or so.”
However, he says the company would be considering going public “in the next two years or so.”
Petrel Robertson’s Hayes says activity in the East Shale Basin is largely responsible for the province collecting $180.13 million in land sale revenue by the end of June, up from $63.77 million at the same point last year. Overall, 526,080 hectares have been purchased in Alberta.
“It has become a very hot area,” he says. “But there hasn’t been a huge land rush like there was in the early days of the original Duvernay play. At one point, there was a half township of land sold there for $100 million.”
The East Shale Basin might not have become obvious to anyone who follows land sales in Alberta, but it definitely blipped above that screen in early June, when one of the country’s most active explorers announced it had picked up a land position there.
Raging River Exploration says it has accumulated about 100,000 net acres of land in the basin.
“Although the play remains in its infancy, the characteristics exhibited by it, including relatively shallow depth, contiguous net pay, large estimates of total petroleum initially-in-place, light oil phase and the expected ability for productivity and recovery improvements through technology, are consistent with Raging River’s strategy for creating per share value,” the company says.
It says it expects to drill its first evaluation well in the play in the fourth quarter of this year, with up to six additional evaluation wells to be drilled in 2018.
Kaush Rakhit, chief executive officer of Canadian Discovery, says despite the central Alberta location of the East Shale Basin area, “it hasn’t been particularly heavily drilled.”
A good deal of conventional drilling took place there in the 1950s and 1960s, but the area, east of the Rimbey-Meadowbrook reef trend, has been extensively studied and drilled. (The prolific Redwater field is included in the general area.)
Canadian Discovery, which has studied the East Shale Basin extensively, has calculated that light shale oil is present in 4,200 sections, with about 600 sections of gas condensate. In total, the area encompasses about 5,000 square miles.
Rakhit says Vesta’s executives undoubtedly learned about the area’s potential after EOG drilled a well there in 2010-11. U.S.-based EOG also had opportunities in the Permian and elsewhere and decided not to pursue the opportunity.
He says despite the large land position that Vesta, Raging River and others have taken in the play, “there’s still 2.7 million acres left.”
Canadian Discovery has been studying the area since 2011 and has accumulated extensive geological knowledge of the play, he says.
Prices for land positions in the play have started to rise significantly, he says.
“People used to be able to buy land positions there for $100/hectare, but prices are now 10 times that or more,” he says. “That’s strong, especially considering the play is early. We think it’s just starting to hit an economic threshold.”
He says so far there has been little known interest in the play by majors, although land brokers may be buying on behalf of larger companies.
The play has many advantages, Rakhit says. It’s more of an oil play than the western Duvernay, it’s located close to an extensive oilfield services cluster, and wells are shallower than a lot of shale plays, at depths of 2,000–2,500 metres.
His company recently released a study of the play, and he is proposing a more thorough geological study of the area.
Rakhit says his firm has calculated that production could average 725,000 boe/metre per section of shale, with 10–20 metres of shale resource.
He goes so far as to say he believes it may be the largest shale oil find in Canadian history, with a potential that could attract the same kind of attention as the Permian.
“If you have 10 metres of shale play, you could end up with 30 [billion] to 60 billion barrels in the play,” he says. “And there may be 14–28 tcf of gas potential and one [billion] to two billion barrels of condensate potential. This is the biggest shale oil play I’ve seen in western Canada.”
Because wells in the play are shallower than most shale plays, wells can be drilled for less than $5 million each, “and that’s trending down to $4 million.”
The return on investment is likely superior to the Saskatchewan Bakken and other plays, he says. “This is early days, but the potential of this play and of plays in the oil fairway just beyond this area is significant.”