CALGARY -- Shell Canada Ltd. has tapped into a massive natural gas reservoir in Western Canada -- its largest discovery in the area in nearly two decades -- raising hopes that the birthplace of the Canadian oil industry may still contain undiscovered elephant-sized deposits.
The Calgary energy company announced a major discovery in central Alberta, which could contain up to 800 billion cubic feet of "raw gas," the initial and most expansive measure of the amount of natural gas in a reservoir. But Shell's Tay discovery will add hundreds of billions of cubic feet of gas to Shell's reserves, making it the largest discovery for the company since 1987 and the biggest find in the industry since Murphy Oil Corp. first tapped into the Ladyfern field in early 2000.
With outside estimates pegging the upper end of saleable reserves at just under 500 billion cubic feet, Shell's discovery is 500 times as large as the current average in the Western Canadian Sedimentary Basin and its estimated production of 30 million cubic feet a day is 90 times bigger than the average.
The industry has been increasingly assuming that the future of the basin would be dominated by small, quickly depleted wells, but Clive Mather, Shell Canada's president and chief executive officer, said the discovery may alter that perception, along with his own company's strategy. Shell, which had previously only aimed to stabilize its conventional production, now says that it may be able to increase its output. Mr. Mather, on a road trip in Boston as the news broke, said he believes Shell's discovery shows the basin has legs after all. "I think there's a lot of running room left, and I think this discovery is a good indication of that."
Buoyant commodity prices and improvements in technology for examining exploration data contributed to the discovery, Mr. Mather said.
Shell has already increased its exploration budget for next year, and plans to push ahead with efforts in non-conventional natural gas production from coal-bed methane and the hard-to-access "tight" gas reservoirs.
The Tay discovery is a good sign for exploration prospects in the basin, and could erase the "creeping feeling" that the era of big discoveries is at an end, if another major find follows shortly, said Wilf Gobert, vice-chairman at Peters & Co. Ltd. He said the saleable reserves from the Tay discovery are in the neighbourhood of 480 billion cubic feet.
That is not a major discovery compared with the international efforts of many of the supermajor energy firms, but in Western Canada it is considered enormous, Mr. Gobert said.
The fact that Shell's discovery is in an easily accessible area and near to existing pipeline infrastructure further improves the economics of any production from Tay, located 30 kilometres southwest of Rocky Mountain House in the foothills of central Alberta, or about 160 kilometres northwest of Calgary. Rising natural gas production will also help Shell as its oil sands production -- and consumption of gas in those operations -- increases, acting as a natural hedge.
Shell said Tay will produce 30 million cubic feet a day in gas beginning in the middle of next year, although that amount could increase if the company chooses to enlarge the pipeline into which production will feed.
Shell owns 75 per cent of the huge discovery, while privately held Mancal Energy Inc. is the junior partner.