Why I know there is oil there. An 'exploration well" in shale is different that conventional wells as it has a much lower risk profile because shale is the most common sedimentary rock in the world. Conventional reservoirs are limestone and sandstone deposits which have to have special geologic conditions to trap the hydrocarbons that are squeezed out of the shales. As a result, while a large part of the risk for conventional wells - such are Windy River drilled by MGM in 2011 - was whether they would find the reservoir and whether it would contain oil. This risk does not exist for the Canol Shale. The risk is only whether it will produce at commercial quantities.
Here is why I think the risk of finding hydrocarbons is close to zero on the well MGM is drilling.
- It is being drilled between two old wells abandoned by Conoco back in the days when they were elephant hunting for another Norman Wells.
- I have looked at the logs of the offset wells - I-77 and I55- and they have between 50 and 70 metres of oil saturated shales. The water saturations are less than 20% and the porosities look good.
- I have seen the seismic line covering the area and the Canol shows up clear as day.
- There are a lot of wells drilled in this area and lots of seismic hence it is pretty easy to map the Canol Shale.
- Husky has stated that they have confirmed the presence of HC in the two wells they drilled.
Now why do I think there is a high probability that this reservoir will produce at economic rates? I am not as sure about this one, but think that odds are greater than 70%.
First, I beleive that the Canol is NATURALLY fractured by the uplift of the surrounding mountains. Mother nature does a much better job of fracturing than man can. Other oil shales are not so fortunate. The Bakken was microfractured when natural gas was produced in the reservoir and the pressure built up to the point where it split the rock. The Eagle Ford is not naturally fractured. This would be a huge thing and is why I think the Canol is better than anything I have seen. Here is why I think it is naturally fractured:
- The first well discovery well was Dominion #1 drilled in 1920. This well FLOWED oil from a naturally fractured Canol Shale. The limestone reservoir of the Norman Wells was discoverd later.
- Husky's second well is going to be tested this winter and they have said they are not going to hydraulic fracture it because it is naturally fractured. This is highly unusual in shale oil. The key thing is even if a well - such as Husky's first well - does not intersect natural fractures, a 2000 metre horizontal and frac job is likely to intersect a few natural fractures.
- A report by the Canadian Geologic Society confirms the natural fracturing of the Canol.
The second reason that I think that we will commercial production rates is Husky. They have cores and 3D seismic. However, they are telling anyone what they got. However, nobody spend $50 million putting in 40 km of all weather road, a permanent air strip and camp to drill exploration wells unless they must be planning to drill year round which means development drilling. Each rig can drill about 10 well per year. Given that they are building two permanent pads and each pad can accomodate up to 30 wells, these would seem to imply year round drilling and 60 wells over three years. Development on this scale means Husky thinks they have commercial production rates. While it seems pretty agressive to me to start construction on the road in January BEFORE the wells have been tested it seems to mean that Husky must be pretty sure they got something good. By the way, even at 500 bopd per well- which I consider low - 60 wells would produce 30,000 bopd. The issue for MGM may be getting space on the pipeline before Husky fills it up.
As an aside the Norman Wells field will be done in 5 years. This means the pipeline will have 50,000 bopd spare capacity. The Normal Wells field will also have about 300 Bcf of gas sitting there trapped. If the Canol has a GOR of 1000 SCF/bbl it means 50 MMcfd in solution gas. There is no way the government will allow that to be flared. It seems to me that this all means that the southern half of the Mackenzie Valley pipeline will have to be built. I think the NWT Minister has publically stated this. If this is the case remember the lovely gas discoveries that MGM has in the CMV. Nogha has 200 bcf gross and 100 bcf net to MGM. In other word the Canol oil discovery may become the key to having the MV pipeline built. It will stimulate the building of the MV highway and drop the price of construction for the MVP hugely. If you buy into my previous posts about higher gas prices, MGM really is a huge opportunity.
Last comment: I don't think the environmental risks are as large as some seem to feel. My reasons would occupy another big post, so I will hold off taking up too much of eveyone's time.