Montney natural gas production is huge, but liquids the biggest prize in 2018

Natural gas production from the Montney play straddling Alberta and B.C. hit a record high in 2017, but the best economics in the fairway come from higher value condensate, and that’s what’s going to drive “more focused activity levels” this year.

Analysts with Peters & Co. estimate that Montney natural gas production averaged approximately 6.3 billion cubic feet per day in October, dominated by volumes from the B.C. side of the play.

According to National Energy Board data, Canadian production was 15.59 bcf/d in October, making the Montney play responsible for 40 percent of the total.

The Montney may be big for natural gas, but producers are increasingly interested in its liquids, Peters and Co. said in a research report released on January 2.

“Condensate production in B.C. has doubled over the last two years solely due to Montney development. The province currently produces about 40,000 bbls/d of condensate (plant and wellhead combined),” analysts wrote, adding that in a challenged natural gas environment, liquids-rich and particularly condensate production offers some of the most attractive economics.

“We believe the benefit of condensate will drive more focused activity levels across the basin over the upcoming year, as regional natural gas prices provide less incentive for producers to support natural gas values in the near-term beyond volumes which an be hedged or sold in markets which attract stronger netbacks.”

Encana, which Peters & Co. says has some of the most attractive assets in the fairway, expects to more than double its Montney liquids in the fourth quarter of 2017 compared to the same period of 2016, boosting its operating margin by more than 50 percent.

“This expansion equates to an incremental ~$200 million in annualized operating cash flow,” the company said in November.

Condensate prices have recently averaged $76/bbl and are expected to average $75/bbl in 2018, according to Peters & Co.

“A number of the liquids-rich producers are generating strong operating cash flow strictly from condensate volumes,” analysts wrote.

“Based on industry average realizations and costs, we would estimate that operating netbacks on condensate volumes would be about $53/bbl on our 2018 price assumptions.”

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