A quirk in regulatory guidelines may be to blame for a significant undervaluing of Canada’s largest shale gas play.
This is according to Enverus which concluded in a recent report that as much as 40% of the wellhead condensates—equal to more than 300 million bbl—extracted from the Montney Shale over the past 20 years are essentially missing from publicly reported data.
The energy analytics firm points to regulatory directives in both Alberta and British Columbia which share the Montney. Under certain circumstances, those rules allow operators to report condensate output as “gas equivalent” volumes.
The issue chiefly applies to the condensate-rich areas within the Montney where operators recombine condensate with dry gas prior to moving both products via pipeline to a processing facility. In other words, the problem is not that shale producers are miscalculating wet-gas output.
“Operators are stating volumes as prescribed by provincial regulators, and the misleading reporting does not affect the prices that they obtain in marketing both gas and wellhead liquids," explained Trevor Rix, a senior vice president at Enverus Intelligence Research.
The big problem according to Enverus is that the banks and outside equity investors that finance much of the industry’s growth don’t usually have access to the private tallies that show what’s really coming up the wellhead.
“They are looking at some of Canada's most significant unconventional liquids-rich plays and are seeing dry gas that doesn’t look as economic compared with other plays that they might have an opportunity to invest in—it makes the Canadian opportunity space look inferior,” said Rix.
Enverus said it is able to correct for fluids production in the Canadian sector thanks to a proprietary model which relies on petrophysical data, fluid properties, and well completions.
In using the model, Enverus believes the Montney holds superior economics over not just almost all other Canadian plays but many of those in the US too, including the gas-dominated Marcellus Shale and Haynesville Shale.
“In some of the most active areas of the Montney, the addition of the liquids with our model has corrected the 20:1 half-cycle breakeven gas price from around USD $3.20/Mscf to somewhere in the range of $2.15/Mscf which gives an idea as to the magnitude of impact that this problem has on the implied profitability of these areas,” said Rix.
He added that the degree to which wellhead liquids are underreported varies across the Montney.
In some of the extreme cases, there are areas where four out of five barrels of liquids are missing from the publicly available data. Enverus also reports that on the high end there are fields producing more than 100 bbl of field condensate per 1.0 MMscf of dry gas and yet the public data show there to be zero liquids production.
