Encana Corp. took part in Alberta's record land sale recently to target a new gas opportunity potentially as liquids-rich as the hottest current play in the U.S., executive vicepresident Mike Graham says.
The continent's second-largest producer of natural gas participated in the $842-million rights sale on June 1, Graham admitted, not revealing how much Encana spent or how much land it bought up.
He said the firm is trying to prove the potential of liquids-rich gas in the Duvernay formation in the Rimbey area, about 60 kilometres northwest of Red Deer.
"We're excited about results from the Duvernay," Graham said this week, noting Encana will drill three to four wells in the shale this year.
Graham, the president of Encana's Canadian operations, made the first public admission Encana was in on the bidding for oil and gas leases and licences, a highly secretive process in which companies have landsmen submit offers on their behalf.
Alberta oil and gas companies paid an average of $3,100 per hectare on June 1 for leases or licences on 271,000 hectares -the largest sale on record for the province.
Research analysts at boutique investment-banking firm Peters and Co. estimated in a note that the vast majority of money spent -$750 million -was on deep rights likely targeting the Duvernay shale and said a significant portion of acquired Crown acreage is interspersed with freehold title lands, with Encana being the dominant owner.
Encana owns just over 76,000 hectares of land underlain by the Duvernay, Graham said, noting competitors have been producing more than five million cubic feet of gas a day from the shale, with 50 to 200 barrels of liquids per mcf of gas.
He compared the Duvernay to the Eagle Ford shale in south Texas that has firms paying top dollar for land and competing for busy contractors to get drilling and completion work done.
Murphy Oil Corp. senior vice-president and chief financial officer Kevin Fitzgerald, who heard Graham's presentation, said the Eagle Ford play is "very hot" south of the border.
"The Eagle Ford is the big new play, the big current play, down in the United States," said Fitzgerald, whose company paid $1,800 an acre there in 2009 -compared with a going rate of $25,000 an acre today.
The Duvernay focus is part of Encana's shift away from dry gas and into liquid-rich gas plays that fetch prices closer to those of oil, which has been hovering around $100 US a barrel for crude futures.
Graham said he doesn't expect natural gas prices to move north of $4 to $5 per million cubic feet for another couple of years.
