T?he Upper Ordovician Utica shale has lit up hopes for home-grown natural gas supply in the Canadian province of Quebec. The Utica offers some striking potential for Quebec, which has the dubious distinction of being a Canadian province with no indigenous oil and gas production.

The shale, named after its outcrop near Utica, New York, burst into industry consciousness in the spring of 2008. That’s when Denver-based Forest Oil Corp. unveiled a program in a slice of the St. Lawrence lowlands between Montreal and Quebec City, along the mighty St. Lawrence River.

The company announced that two vertical 4,800-foot pilot wells that were drilled in 2007 tested at rates up to 1 million cubic feet per day. The 500-foot-thick shale that was present in the pilots boasted several appealing attributes: It occurred at attractive depths, exhibited excellent rock properties, offered low acreage costs and long-term leases in a favorable fiscal regime, and sat in the midst of premium gas markets.

Naturally, the announcement was no surprise to a group of small Canadian companies that had been quietly building acreage positions. The Utica had been an exploration objective for some time; the Forest news pushed it into the daylight.

Forest had actually taken over operations on the two wells, located on the Yamaska permit, from Canadian junior Gastem Inc. and its partner, Questerre Energy Corp. Gastem, headed by former Quebec minister of mines Raymond Savoie, had drilled the #1 St. Louis de Richelieu and #1 St. Francois du Lac vertical wells in summer 2007. As interest rose in shale plays across North America, Gastem fielded offers from a couple of large, well-financed shale operators.

“We liked what we heard from Forest Oil,” says David Vincent, Gastem vice president. “Forest was already working in Quebec with another Canadian company, Junex Inc., and Forest decided our permit was where it wanted to be.”

Forest farmed into Gastem’s permit and took over operations on the wells. In late 2007 and early 2008, Forest fractured #1 St. Francois. By the time it revealed its Quebec program, it had assembled an impressive land position of 339,000 gross acres through a series of deals.

Excitement revved higher in September, when Canadian senior Talisman Energy Inc. reported that its vertical #1 Gentilly, a reentry of a Trenton-Black River test in the St. Lawrence lowlands, flowed 800,000 cubic feet a day from a single shale zone during a test period of 18 days. Talisman had partnered with Questerre on 940,000 gross acres in the play.

Now, industry eagerly awaits news from a fresh round of activity. “We need these data points to see if the play will support more pilot programs,” says Wendy Liu, Calgary-based analyst with Canaccord Adams. “The question is whether results will be strong enough to move the play forward.”

Quebec Potential

As commercial shale plays go, the Utica is an outsider. It’s extremely old—Ordovician in age—and extremely cooked. Vitrinite reflectance values range from 1.1% Ro to 4%. It’s also particularly calcareous, consisting 40% to 70% of calcite minerals. Clay content is 10% to 35% and quartz content is generally less than 20%.

That mineralogy goes directly to the heart of one of the looming concerns in the Utica play. If calcite is assumed to be a fracturable mineral, the shale should respond well to fracture stimulation. There’s no question of whether the Utica is brittle; only actual stimulations in the field will prove if it can be effectively cracked.

Other characteristics fall in line with known commercial shale plays: Total organic content (TOC) varies from 0.3% to 2.5% by weight, hydrogen index is low and pressure gradient is 0.6 psi per foot. According to Talisman, the Utica contains between 25- and 160 billion cubic feet (Bcf) of gas in place per section.

To date, the focus of Utica exploration in Quebec is a deep-platform thermogenic play in the St. Lawrence lowands. Here, the Utica occurs at depths around 6,000 feet and achieves up to 750 feet in thickness. This fairway is bounded on the west by the Yamaska growth fault and on the east by Logan’s Line, a deep fault that scribes the structural break between the Appalachian mountains and the Canadian Shield.

Potential also extends from the fairway across a broader area. On the northwest side of the regional Yamaska fault is a shallow platform play. In this region, gas is thought to be biogenic; depths are 1,500 feet and Utica layers are some 300 feet thick. A couple of interesting tests were in progress in this regime at press time.

East of the current fairway, across Logan’s Line, the shale is contorted in deep, thrusted sections. Depths to the prospective zone can be 11,000 feet, and have a thickness of up to 1,000 feet. No test has yet been drilled in this province for Utica.

There’s a bonus zone as well. Above the Utica lies the Lorraine group, composed of tremendously thick flysch deposits from the Devonian orogeny. The Lorraine is noncalcareous, siliceous and argillaceous; its composition is 40% clay and less than 20% calcite. Quartz content is 30% or more. This medium- to dark-gray shale, with sandstone interbeds, exhibits mineralogy more typical of currently producing shale reservoirs. The unit also has TOC values of up to 1.5% and its thickness can reach 6,500 feet.

It’s a viable target—gas-in-place estimates run 50- to 190 Bcf per section.

Active Exploration

During 2007 and 2008, 11 wells were drilled in Quebec’s shale-gas play. “This year, there is potential for 15 to 20 wells to be drilled by various operators in the play, although that may be optimistic, given the current business environment,” says Liu. “If results are favorable, we could see commercial development in 2010.”

Talisman is currently expanding its pilot areas, and has elected to drill the three remaining option wells on its Questerre block. It has cased its #1 La Visitation, drilled to some 9,000 feet in the fairway.

Additionally, the company is cleaning up and flowing back fracs on two intervals it treated in the Lorraine in the Gentilly well. Results on each well are expected imminently. Its next test, #1 St. David, is in progress.

For its part, Forest Oil is working on three horizontal tests. One is on the Contrecoeur Block it holds with Junex and two are on Yamaska, with Gastem and Questerre.

“Forest reentered both of our wells and drilled horizontal legs last summer,” says Gastem’s Vincent. “They multifraced both legs in the fall, and the wells are flowing back now.” Results should be forthcoming at any time. Gastem’s most recent news is its farm-in on 92,104 acres in two permits dubbed Mundiregina. “This is just southwest of Yamaska, so it’s in the middle of the fairway,” says Vincent. “This will be the next block where we will put our drilling effort.”

Gastem and Canbriam Energy, a private, Calgary-based company, are taking an 85% working interest in the permits from undisclosed sellers. Gastem’s portion will be 17%, Canbriam will operate and hold 68% and the sellers will retain 15%. “Canbriam has very experienced management and a strong cash position,” he says. “We see Canbriam as a solid partner.” The two firms have pledged a six-well drilling and seismic program.

Additionally, Junex has plans for up to six additional wells by midyear. It has already drilled three: one in the shallow Utica play and two in the deeper portion. Not all of its wells are strict shale tests; viable prospects are also present in the area in the deeper Trenton-Black River and Potsdam formations.

At a recent conference in Quebec, Junex reported that lab analysis of shale cores from its shallow #1 St. Augustin de Desmaures indicated the gas is thermogenic, a surprising result and one that could have interesting implications in the western side of the play.

Questerre has activity as well. The company is at work on its #1 St. Jean sur Richelieu in the shallow play, where it holds an extensive position. Assumptions are that recoveries of up to 500 million cubic feet could be achieved from a low-cost vertical well in this portion of the Utica. Gastem is involved in this test also; it holds a 20% interest.

Overall, the play is in its earliest phases of discovery and delineation; the possibility of full-scale development exists but is far from firm.

“We don’t yet know if the play is commercial; the well economics appear challenging at current natural gas prices,” says Liu. “We think the play needs $8 per million Btu Nymex prices to yield returns of 10%.” That’s based on recoveries of 2.2 Bcf per horizontal well in the moderate-depth fairway.

One answer to that is cost control. “Right now, we estimate horizontal Utica wells cost close to C$5 million each; our target is to take that down to C$2.5 million,” says Vincent. “We think we can do that as companies drill more wells and access to rigs and services improves.”

If that can be done, and gas prices recover, economics could be robust.

New York Reach

Although the clusters of activity in Quebec have been attracting attention of late, the Utica also shows healthy promise across the international border, into New York.

The first well designed as a Utica test was drilled in 2007 in the Empire State, says John Martin, senior project manager, New York State Energy Research and Development Authority (NYSERDA). However, gas has been produced from Ordovician shales in wells drilled along the shore of Lake Ontario since the 1880s. These historic fields, classified as Upper Trenton, are now recognized as shale producers. And, some 40% of the wells drilled into the Trenton-Black River in the active play in the Finger Lakes region of south-central New York have recorded shows in the Utica.

New York’s Utica shale wedges from a few hundred feet in thickness in the western part of the state to more than 1,000 feet in the east. Depths show an even more dramatic range, running rapidly from surface outcrops to more than 10,000 feet at the New York/Pennsylvania border. Across its extent, the shale is thermally mature. It’s not overpressured as in Quebec; gradients are estimated at 0.2 to 0.4 psi per foot.

There are three distinct formations: Flat Creek, Dolgeville and Indian Castle. The older Flat Creek and Dolgeville occur in eastern New York and eastern Pennsylvania, and thicken remarkably southeast. The deepest, richest member is Flat Creek, which contains up to 4% TOC. The middle Dolgeville is a mix of carbonate and shale units, and exhibits TOC between 1.5% and 2%.

The youngest, and least prospective, unit is Indian Castle. This transgressive shale has the broadest extent, however, stretching across much of the southern and western portions of the state. From NYSERDA analysis, New York’s Marcellus shale contains far more gas than the Utica. The Marcellus boasts higher organic content, and its storage capacity for gas approaches that of the prime Barnett shale in North Texas.

Yet, the Utica is extremely competent and its sweet spot—thick, organic-rich black shale at depths of 2,000 to 8,000 feet—occurs across an impressive number of central and eastern New York counties. “The thickness and TOC values are each highest in the eastern part of the play, approaching the New York City watershed,” says Martin.

“There’s great potential in New York, but also some questions we need to answer.”

Drilling Hiatus

It will take drilling to answer those questions, but drilling has been an issue in New York. A regulatory overhaul is in progress, and shale wells are not being permitted.

Prior to the block, a few recent wells were drilled to Utica. Most noteworthy are two 2007 tests by Utica Energy LLC in the Mohawk Valley, in the shallow end of the Utica’s sweet spot and close to regional pipelines. Gas flowed to surface on one well after fracture stimulation.

In early 2007, Gastem joined the project. The firm agreed to drill one horizontal and five vertical wells to earn a 65% interest in a 29,000-acre block.

However, the permitting ban has stymied this for the moment. “We were supposed to drill last summer, but the state stopped giving out permits in June,” says Vincent.

New York is updating an environmental-impact statement for its oil, gas and mining industries to address concerns swirling around shale development in the state, including the impact of development, potential risks for underground sources of drinking water and possible hazards from produced, naturally occurring radioactive materials.

Operators hope that permits for certain types of shale wells, such as vertical tests with small fracture treatments, may be released shortly as the scope of the state’s analysis becomes more defined.

“We think the entire process will be finalized this year, and permits for all types of shale wells will be available as soon as this summer,” says Martin.

Meanwhile, Gastem remains positive on the Utica’s prospectivity. “What we like is that the Utica shale is right on the pipeline network, the gas price is interesting and the drilling costs are reasonable,” says Vincent.

“We know there are other companies looking at the Utica in New York, but we’re all waiting on the permit situation to be resolved.”

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