U.S. shale play could be huge: EnCana

New find could rival existing Haynesville shale, company says


Calgary — Globe and Mail Update, Thursday, May. 28, 2009 03:52AM EDT

EnCana Corp. (ECA-T59.01-0.36-0.61%) says early drilling results indicate it is sitting on a potentially massive natural gas resource in the southern United States – one that's stacked on top of the already lucrative Haynesville shale of east Texas and western Louisiana.

EnCana said Wednesday it believes the so-called mid-Bossier shale could rival the size of the Haynesville reserve, which the U.S. Department of Energy has estimated contains 251 trillion cubic feet of recoverable natural gas. That's enough to supply the entire continent for 10 years, although only a fraction of technically recoverable gas is usually profitable to produce.

The bonus for EnCana is that the mid-Bossier and the Haynesville are what the industry calls a “stacked play.” Depending on location, the Haynesville shale lies between 3,200 and 4,100 metres below the surface. The mid-Bossier is 150 metres above it. Many wells drilled to obtain access to the Haynesville pass through the mid-Bossier.




Because the mid-Bossier did not initially show as much as promise as the Haynesville, and because of Louisiana land-retention regulations, companies have rushed to drill the deeper Haynesville first. As a result, the mid-Bossier itself has been largely ignored until now.

EnCana, however, has drilled several vertical wells and, in the past few months, a single horizontal well to test the mid-Bossier. It found gas that mirrored the quality and quantity of the Haynesville.

“The thickness and aerial extent are similar to the Haynesville, and we think the gas in place could rival – or is right there with – Haynesville,” Jeff Wojahn, president of EnCana's U.S. division, said in an interview Wednesday.

The company plans to drill three or four more mid-Bossier wells this year.

At least one analyst, however, criticized EnCana for drawing attention to a prospect that is very preliminary. “You can certainly make an argument that a company should wait a little while until they get more data before they come out and talk about it,” said Leo Mariani, an analyst with RBC Dominion Securities. “It's pretty early in the play,” he said. “And there really wasn't enough data to listen to what they say and be 100 per cent convinced.”

The promise of the mid-Bossier could be dampened by several factors, Mr. Mariani said. A single well could be an anomaly, and subsequent work could show poorer results. Or a well could also flow strongly at the beginning, but subsequently lose steam and produce a smaller amount of gas than originally estimated.

“At the end of the day, well results speak, and the more well results and the longer-term they are, that's how you get convinced the play is successful,” Mr. Mariani said.

A half-dozen shale plays such as the Haynesville have radically shifted the supply picture in North American natural gas, and helped to depress prices. Unconventional gas reserves, of which shales are a key component, now form 60 per cent of U.S. onshore recoverable resources, and shale gas production has more than tripled in the past three years.

Houston-based Petrohawk Energy Corp., which has 300,000 net acres in the Haynesville, said the mid-Bossier does not appear to be as large as the Haynesville. “It's not present where we do most of our drilling,” said Petrohawk vice-president of investor relations Joan Dunlap. The company is drilling its first mid-Bossier well and does not yet have results it can release.

EnCana owns 433,000 net acres in the Haynesville, which has shown enough promise that the company doubled its budget for the area to $580-million this year to do the work required to keep its land position.

Some analysts have estimated that Haynesville gas can be produced for $3.50 (U.S.) per 1,000 cubic feet, or slightly above the current trading range. The large, cheap supply has raised fears of a natural gas oversupply that could keep prices low for years to come.

EnCana, however, believes gas will return to between $6 and $8, based on the cost of producing gas from conventional wells.