another good article

Duvernay- a highly prospective area?
Encana Corp's Duvernay shale wells to be eagerly followed by fellow explorers
Tue 9:18 am by Ian Lyall Encana Corporation’s announcement last week that it is to spud three wells in the Duvernay shale will be eagerly followed by other companies with acreage in this highly prospective area Encana Corporation’s announcement last week that it is to spud three wells in the Duvernay shale will be eagerly followed by other companies with acreage in this highly prospective area

Encana Corporation’s (TSE:ECA) announcement last week that it is to spud three wells in the Duvernay shale will be eagerly followed by other companies with acreage in this highly prospective area of Canada.

"It's still early days but we are very excited about the potential of the Duvernay shale to add significant liquids volume to the production profile of the Canadian division," Encana’s Mike Graham said in a conference call last week to discuss the company’s quarterly results.

All three wells will drilled in the final quarter of this year at an estimated cost of US$12 million per well. The company expects to be even busier in 2012.

Encana holds about 365,000 net acres in what it believes to be some of the best liquids-rich acreage in the play.

The Duvernay, in the Canadian province of Alberta, is still in its infancy.

However, judging from the level of excitement it is generating, the area is about to explode into life.

The investment bank Macquarie, which recently published a report on the play, its economics and its geology, has already dubbed it the new Eagle Ford, drawing parallels with the hugely prolific south Texas formation.

If this analogy is correct then brace yourself.

Eagle Ford has gone from nought to 140 rigs in little over two years, while attracting all the big hitters in shale.

These companies such as Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Petrohawk, now part of the BHP mining empire (LON:BLT).

To date only 35 wells have been drilled or licensed in the Duvernay, according to research carried out by Macquarie.

But this is merely the calm before the storm. Over C$1.4 billion has been invested on land acquisition in this foothills province – and over half of that was spent in one frenetic day.

A further wave of crown auctions of land took place last month and is continuing this month.

“Over the next decade, we believe the Devonian-aged Duvernay shales will emerge as one of the most promising oil and gas resource plays in Canada,” said Macquarie analyst Ray Kwan in a recent research note.

Where the Duvernay differs from its Texas cousin is that it has so far failed to draw the interest from the shale majors mentioned earlier.

I say so far, because there are rumblings that the big boys are on their way. However, with most of Duvernay acreage taken in the land grab, the only way in will be to buy a slice of the action.

All of this creates the perfect storm for Australia-listed micro-cap Mako Energy (ASX:MKE), which along with joint venture partners Kilgore and Transerv has 90,500 acres of land in this tightly held fairway in west-central Alberta.

They not only hold rights to the Duvernay horizon - some 82,000 acres or 128 sections - but also a shallower tight sandstone light oil play above the Duvernay horizon.

This second zone, the Rock Creek formation, comprises over 84,500 acres or 132 sections, and is already proven to contain light oil and natural gas liquids. This was the original target for Mako’s land acquisitions in the area.

The package makes the trio the 13th largest landholder in the Duvernay, and it is just approaching the right size to be picked up on the radar screens of the majors. Mako owns 50 per cent of the JV.

The plan is to ride on the back of the wave of interest in the Duvernay to farm down. The blue-print the partners are using is the one deployed with great effect by Aussie compatriot Aurora Energy.

Its deal with Hilcorp, now part of Marathon Oil, was a farm-down of Eagle Ford acreage.

It transformed Aurora from a small-cap to a billion-dollar enterprise that last year ranked as the ASX’s fastest growing company.

It must be remembered, however, that Aurora’s land package was smaller than that held by Mako and its partners and did not contain an additional productive zone such as Rock Creek.

In attempting to emulate the success of Aurora, the trio is targeting a farm down to retain a material working interest and the involvement of a partner with the balance sheet and expertise to properly exploit the opportunity.

A deal on the Duvernay may well be struck with just one company, and it will almost certainly be a corporation with very deep pockets.

Encana, meanwhile, is excited about the potential of the Duvernay. "With the liquids we forecast, we think anywhere from 100 to 200 bbls per mmcf, we think it's going to be a very economic project for us," said Graham in the conference call.