The Duvernay shale play could well be the biggest thing to hit the Alberta energy sector since the oil sands, but five years into its development, players are still hedging their bets.
Many companies with acreage in the sprawling west-central Alberta natural gas, gas liquids and oil play – some with pockets more than deep enough to go it alone – are searching for partners to lower the risk.
So where are the deals? It's been ages since a joint venture has been struck.
By some predictions, reserves in the Duvernay could be on par with some of the U.S. shale developments that have changed the North American energy supply picture. The play could hold a massive 392 trillion cubic feet of natural gas, 43.3 billion barrels of condensate and gas liquids, and 35.8 billion barrels of oil, according to a recent estimate by FirstEnergy Capital Corp. analyst Robert Fitzmartyn.
But results in the form of production have been much slower to come than in shale plays, such as the Bakken in North Dakota or Eagle Ford in Texas, even as a who's who of the oil patch spends millions of dollars per well to try to unlock the prize.
The hunt for partners has been a reflection of that. Companies have yet to generate serious cash flow from their Duvernay projects, so it's still a cost equation as they work to solve the geologic and engineering riddles.
Take Chevron Corp. The second-largest U.S. oil major has amassed 300,000 acres in the Kaybob area, the northernmost of three regions of the Duvernay. Its CEO, John Watson, talked it up during a visit to Calgary last week.
"We've got two rigs that are operating, and we have an opportunity to ramp up to 10 rigs over the next decade," Mr. Watson said. "It's as good an opportunity as we have in our portfolio, based on what we've seen so far for liquids-rich plays."
Yet, Chevron, which operates big projects around the world, is looking to sell part of its Duvernay interest to another player to spread out the risk. Mr. Watson didn't spill the details, but he said third parties have shown interest.
Athabasca Oil Corp., flush with cash after the sale of its stake in the Dover oil sands project to PetroChina Co. Ltd., is scouting for a joint-venture partner in its Kaybob holdings. Talisman Energy Inc. has also been seeking to reduce its interest in the Duvernay. It was reported last year that China's Sinopec Corp. would favour hiving off half its stake.
Of course, a little caution never hurt anyone, especially in a region where drilling multistage horizontal wells, and using hydraulic rock fracturing can cost $10-million to $15-million a pop.
The oil patch has forked over nearly $3-billion for acreage in the play since 2009, so Wall Street has taken notice. In a report last month, Goldman Sachs sounded some optimistic notes about the Duvernay, but urged investors to be a bit wary. Drilling over the next 12-18 months should provide a much more solid view of what it can yield.
"If exploration is successful, we believe resource/production growth has potential to rival established U.S. shale oil plays given the Duvernay's large footprint (three million acres-plus) and high quality operators," Goldman Sachs said.
But it added the play needs two things: lower well costs and a clearer picture of the Duvernay's ability to serve up oil and liquids-rich gas, which fetch more in the market than dry gas. "We are not recommending any [exploration and production companies] at present for Duvernay exposure," it said.
Other major players include Encana Corp., which has a joint venture with PetroChina, as well as Royal Dutch Shell PLC, Canadian Natural Resources Ltd., Vermilion Energy Inc., Trilogy Energy Corp. and Apache Corp. It's clearly not the low-rent district.
The recent quiet spell in Duvernay joint ventures might be because those with acreage on offer think they could fetch a much better price in short order.
If the big bucks they drop on drilling over the next eight months prove their optimism was well-placed, those deals are going to be a lot more lucrative.