| | An FAO Summary and Review of the CERI report | Background | Highlights that rural landowners may find useful
An FAO Summary and Review of the CERI report
Socio-Economic Impact of Horseshoe Canyon Coalbed Methane Development in Alberta 1
Author: Canadian Energy Research Institute (CERI)
Paper Review
Background
CERI conducted a socio-economic benefits analysis of coal bed methane development in the area of the Horseshoe Canyon geological formation. Funded by Economic Development, Canadian Association of Petroleum Producers and the Canadian Society for Unconventional Gas, the paper outlines the economic impact CMB development could have on the province.
In the executive study, it is clear the study did not address the non-economic impacts including environmental and sociological. Most significant to this is the quote from an Alberta energy news release. 2 “Stakeholders in this large development are unaccustomed to this type and level of activity and significant stakeholder interest and involvement is accompanying this development.”
Highlights that Rural Landowners May Find Useful
- 7,764 coalbed methane wells have been drilled in 2005 with 5,419 of these wells producing 73 billion cubic feel (bcf) of methane.
- Key to a development is the depth to coal, pore-pressure gradient and the amount of absorbed and free gas in the coal.
- Current estimates in the Horseshoe Canyon development area covers 20.4 million acres or about 31,854 sections but based on the ability of the coal to produce gas and the current gas price, about one half of the area is not economically dependable. This leaves about 14,500 sections available for development.
Horseshoe Canyon Gas in Place (Source CERI) - Gas concentrations over 0.5 bcf per section is considered viable.
Horseshoe Canyon Development Sub-Areas (Source CERI) This map indicates gas volumes available in trillion cubic feet.
An average well can produce between 70 to 180 bcf/day and could possibly produce over its lifetime between 211 to 470 mmcf (60 year lifetime)
- This 60-year lifetime is important as it means a surface lease could cover over 2 generations of landowners.
- The report also looked at optimizing well spacing. The report discussed wellhead spacing. Wells drilled into highly permeable coal zones would have between 1 or 2 wells per section. Where the wells were deeper or the coal was less permeable, between 4 to 8 wells would be required. In addition the report discussed compressor spacing, with at least one compressor site per township being required.
- Drilling economics
| Completed well | $170,000 – 225,000 |
| Tie Ins | $78,000 - 195,000 |
| Compression initial | $3.75 million |
| Compression | $1.9 m to 2.4 m |
| Fixed Operations | $675/mo. |
| Viable | $0.20/mcf |
It should be noted that land access was not in these figures. Of the 184,496 sections reviewed, 49% of these were crown minerals and 51% were freehold minerals.
The economics in the study ranged from 3 low scenarios up to 3 high scenarios, a total of 9 scenarios.
| Wells per year | 2,500 - 5,000 |
| Raw gas (Tcf) | 11.81 - 11.94 |
| Royalties (Tcf) | 1.22 - 1.23 |
| Reserves (Tcf) | 9.79 - 9.93 |
 | |
| NPV ($B) | $10.12 - 17.45 |
| Right of Return (%) | 41.3 - 69.7 |
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| Total taxes ($B) | $3.32 - 4.44 |
| Capital Return ($B) | $8.98 - 9.03 |
The socio-economic review also estimated the gross domestic product (GDP) impact this development will have over the 60-year program in Alberta. Totals ranged from a low of $96,817,000,000 ($96 billion) to a high of $122,697,000,000 ($122 billion). Agriculture would only capture directly between $321,000,000 and $333,000,000 or about $5,350,000 per year.
Conclusions
Having one compressor tie-in between 36 to as much as 288 wells per township indicates significant portions of the provincial land base along the Edmonton-Calgary corridor would be challenges to any future non-agricultural use.
In a recent court case 3 , the court outlines the four pillars of compensation and how they are to be used. The court said the 4 pillars only apply when the Surface Rights Board is being used as an arbitrator for compensation. There is an estimate of $9 billion that are may be available for the companies (and investors).
The FAO would suggest a creative land agreement in an attempt to capture these returns to investors.
These creative situations may be included into a surface lease agreement:
- Linking annual rentals to the price of gas.
- Linking all components (well site, pipelines, and compressors) into one master agreement.
- Obtaining options or warrants to company stock to capitalize on any potential growth if and when the gas is produced.
For more information contact:
Farmers’ Advocate Office, 305, 7000 - 113 Street, Edmonton, AB T6H 5T6
Phone: 780-427-2433
Click image above to view larger map.
Click image above to view larger map. |
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