(thanks to rotair for posting on Trusts at IV)
By Lauren Krugel(CP) – 1hour ago
CALGARY — The energy industry had allbut abandoned Canada's biggestlight oil pool, deeming it too expensive and difficult to exploit.
But then shale natural gas plays beganto take off in the UnitedStates as companies learned how to drill far-reaching horizontal wellsand fracture the rock several times along the bore to extract the gas.
"It wasn't until somebody said, 'Wait asecond -can we do that withoil?' that all of a sudden it changed the game," said Jason Fleury,manager of investor relations with Penn West Energy Trust (TSX:PWT.UN).
Penn West is one of the top players inthe Cardium oil play, a regionthat spans much of west-central Alberta. The industry has known therewas oil there since the 1950s, but until recently there was no way toget the bulk of it out of the ground and still make money.
"The rock is tight. The economics aretough. It just didn't lenditself to a level of development commensurate with the size of thepool," Fleury said.
Fast forward a few decades and theCardium region has become a hotbedof activity, as companies look to bulk up their presence in an areathat holds enormous amounts of high-quality oil.
On Friday, Daylight Resources Trust(TSX:DAY.UN) announced plans tobuy West Energy Ltd. (TSX:WTL) for $570 million in cash and stock so itcould expand its holdings in the area.
"I think this is the most exciting newplay in Western Canada," saidDaylight executive vice-president Ted Hanbury.
In the past few years, much of theindustry's attention has beenfocused on the Bakken, a similar type of area in southeasternSaskatchewan and parts of Montana and North Dakota.
"Those kinds of opportunities withlarge oil reserves in place andlarge lower-risk drilling inventories don't actually come around veryoften," said Hanbury.
"So when a play like the Cardiumemerges, I think it gathers theattention of a lot of companies."
Daylight has had a position in theCardium for about three years, butramped up its activity last year when it bought Highpine Oil and Gasfor $530 million.
With so little of the Cardium land inCrown hands, acquisitions arereally the only way for companies there to grow, Hanbury said.
PetroBakken Energy Ltd. (TSX:PBN) hasalso been on the hunt. Itpurchased a private company active in the Cardium for $251.4 millionthis week shortly after gobbling up Result Energy Inc. for $480 millionand Berens Energy Ltd. for $336 million.
"All of these acquisitions fit welltogether and provide aconcentrated land position in the west Pembina area that will be one ofour key focus areas," said Gregg Smith, PetroBakken's president andchief operating officer.
PetroBakken plans to have six rigsworking in the Cardium, allowing60 gross wells to be drilled by the end of the year.
As its name would suggest,PetroBakken's main area of focus is theBakken region of Saskatchewan. But it has found many of the techniquesto get the oil out of that region work in the Cardium, too.
"We feel that technically the Cardiumis analogous to the Bakken withsimilar reservoir parameters and thickness, if not even better in manyareas," Smith said on a conference call Friday.
Original estimates of the Cardium putthe amount of oil in placethere at 10 billion barrels, but that was based on old technology thatessentially involved punching a hole straight down into the ground. Withthe advent of horizontal drilling, there's potential for that estimateto rise, Penn West's Fleury said.
The estimates were also based on anarrow definition of what parts ofthe Cardium can be economically developed. Smaller companies began todrill outside of those zones - in what's called the "halo" - and foundoil.
"These guys are drilling wells wherethere wasn't supposed to bedevelopment," said Fleury, referring to Result, Berens and West.
"These guys are the ones that dothings that bigger guys might notwant to put capital into. They risk it all every day and our industrybenefits from it."
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