The Duvernay, the most exciting early phase unconventional play in Western Canada is now projected to hold Cdn$24.6 billion in remaining value according to Wood Mackenzie’s latest key play analysis in North America. The granular breakdown of the play reveals it has reserves of 13 billion barrels of oil equivalent (bnboe).
“We expect Duvernay oil production to average 1 million barrels a day (boe/d) in 2024; with a mix of 47% gas, 33% oil and condensate and 20% NGLs,” says Callan McMahon, Senior Analyst – North America Upstream Research for Wood Mackenzie.
Wood Mackenzie highlights that the play’s heterogeneous geology causes well performance, liquids content, and costs to vary drastically across different geographic areas. In addition, McMahon says that Cdn$2 billion in development capex is expected in 2014 – representing 4% of Canada’s total. To put that in perspective, the Montney and oil sands are projected to attract Cdn$4 billion and Cdn$23 billion respectively in development capex this year. As a comparison, Eagle Ford’s spend in 2014 is expected to be USD$27 billion.
The key findings of Wood Mackenzie’s analysis of five distinct sub-play areas in the Duvernay shale are as follows:
- Kaybob and Pembina most attractive: Of the five Duvernay sub-plays, Kaybob and Pembina generate the most attractive economic returns, with type-well post-tax internal rate of returns (IRRs) of 40% and 28% respectively.
- Kaybob is core area: The Kaybob sub-play, located some 252 kilometres to the west of Edmonton, is emerging as the core area of the play and Wood Mackenzie modelled 8,596 remaining locations in this area.
- Location, location: Operators that produce light oil and condensate have a strategic advantage, given the play’s location. These products attract a premium to WTI in western Canada; due to the demand for diluent from the oil sands sector (bitumen must be blended to achieve transportation viscosities).
- M&A is alive: The Duvernay has attracted over Cdn$8.5 billion in M&A spend from 2009-2014 ytd, and recent deal flow has been driven by players either augmenting positions or farming down interests to reduce capital commitments. The play is expensive to develop given its depth and smaller producers lacking the financial firepower to drill aggressively and to leverage economics of scale, will require strategic partners (with the right skill set) to successfully generate value.
- Driving Activity: Wood Mackenzie has used available data to model the leading 13 companies driving activity. Currently, Wood Mackenzie considers only seven of these companies to hold commercial positions in the play: Chevron, Shell, Encana, PetroChina, Trilogy, Athabasca and Husky. ConocoPhillips, Talisman, Sinopec Daylight, ExxonMobil, CNRL and Vermilion hold notable assets and with further work their positions are expected to become commercial.
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