Calgary-based consulting group Ziff Energy analyzed cost and reserve data from 77 producing companies and royalty trusts in its most recent study of finding and development (F&D) costs for western Canada. The firm used changes in proven reserves and actual capital costs to calculate the results.


F&D costs have tripled due to smaller reserve targets and higher outlays for land, drilling and development. The most costly areas are the most remote, and generally are those with limited access and infrastructure.


Ziff Energy estimates full-cycle costs for 2008 will rise to C$9. For the first 10 months of 2008, producers received C$7.50 per thousand at the Alberta Gas Plant Gate. “In the last three years, the gas price Canadian producers received has generally been lower than the full-cycle cost for new gas, so producers will earn a lower, or even no, return on this new gas,” said Ziff.


Industry response to these economics has been swift. In the first 10 months of 2008, Canadian gas completions dropped 19% as compared with 2007’s 12,635 total, and 2007 completions were down 17% from 2006. Ziff found that costs were up across all types of plays, from conventional to unconventional, but that the range among plays varied by as much as C$4 per thousand.


During 2007, most wells were drilled in central and southern Alberta, the latter for shallow-gas objectives. Both conventional plays, they accounted for 40% and 23%, respectively, of the year’s drilling.

?daunting economics
Canada’s unconventional plays offer some relief. Small but growing slices of activity, these plays are characterized by high production growth, reserve replacement and reinvestment with low F&D costs. Major unconventional plays include Horn River shale gas, Greater Sierra tight gas, extended Deep Basin tight gas, Manville and Horseshoe Canyon coalbed-methane, and shale gas.

Comments