The Horn River Basin and Montney Shale Formations

Keith Kohl

Written By Keith Kohl

Posted February 9, 2010

Editor’s note: For more updated information from Keith Kohl on Shale Gas Stocks, click here…


War is brewing in Canada.

Over the last few weeks, I’ve been talking about the trouble that Alberta has had keeping energy companies from packing up and moving across the border. As you know, it’s not an issue of lacking resources — far from it, actually.

Alberta certainly has the energy. In fact, the resurgence of the Cardium oil formation into the media spotlight has sparked rush of M&As in the area. If you recall, several companies that have had success unlocking the Bakken formation in Saskatchewan are setting their sights on Alberta’s mature oil Cardium play…

One of my favorite plays — Petrobakken (TSX: PBN), for example — recently made its second move into the Cardium light oil play by acquiring Result Energy.

The reason comes down to Alberta’s ‘Fair Share’ of oil and gas royalties. As I discussed last week, the changes made to Alberta’s oil and gas royalty structure became a ticking bomb. Now I do apologize to my Canadian readers for delving into Canada’s political scene — especially on a provincial level — but judging from the replies sent across my desk, I didn’t miss the mark.

But what surprised me was the number of readers that didn’t give much more than an afterthought to Alberta’s western neighbor, British Columbia.

It’s understandable that Saskatchewan has stolen much of the media’s spotlight. I’m certainly guilty to a degree — after all, the emergence of the Bakken light oil play during the last several years makes it impossible not to get excited.

However, there are two very good reasons why we can’t ignore Alberta’s western neighbor. (Some of my newer readers may not have a clue about the two emerging natural gas plays developing in British Columbia; the last time I brought them up, many were in the dark.)

So, before I get into the four Canadian gas stocks to watch this year, I want to take a second to run through those two burgeoning shale formations…

The Horn River Basin and Montney Shale Formation

I’ve often referred to the Horn River Basin as one of the best-kept secrets in natural gas discoveries. If I even mentioned this shale gas field five years ago, I’d be met with a wall of blank stares.

Located in the northeast corner of British Columbia, this shale gas field has been called Canada’s crown jewel of natural gas. Roughly 10-20% of the 250 trillion cubic feet of gas is thought to be recoverable.

Think about it.

If we’ve learned anything from U.S. shale plays like the Haynesville (a shale play in Louisiana that is comparable to these Canadian shale plays), it’s that unconventional natural gas is booming.

Mark my words: unconventional natural gas plays like these shale formations will absolutely dominate North American gas production within the next decade.

And things get even better for British Columbia.

South of the Horn River drilling area lies the Montney shale formation.

If you haven’t heard about the Dawson Creek area of British Columbia by now, don’t feel too bad. Ever since oil and gas prices collapsed, the Montney shale has remained practically unheard of.

Although it has less natural gas than the Horn River Basin, the Montney shale is estimated to hold 50 trillion cubic feet of natural gas.

As you know, extracting this natural gas isn’t as easy as sticking a well straight down into the ground. In order to unlock the potential of these two shale plays, companies need to spend millions of dollars drilling horizontal wells, then essentially fracture the shale rock using millions of gallons of water mixed with sand.

And then we have the Kitimat connection, which is just another reason to get excited over B.C. natural gas.

The Kitimat Connection

Those of you that have been with me since the beginning know my feelings over liquefied natural gas. Although I don’t believe that LNG will play a major role in meeting U.S. demand, I won’t discount global demand altogether.

The Kitimat LNG project, located near Bish Cove (approximately 400 miles north of Vancouver), is looking to open new markets in the Asia-Pacific region.

3 Natural Gas Stocks to Own in 2010

It’s a no-brainer that these shale plays hold enormous potential. I know my readers have had huge success trading the up-and-coming U.S. shale plays.

Right now, they’re playing one of the largest shale discoveries in North America. In this free report, you can see why they’ve already raked in gains of 21%, 51% and 17% — in only a matter of weeks. Click here to learn more about this opportunity.

As for the Horn River Basin and Montney shale formations, you have several ways to play the action. For example, Apache Corp. (NYSE: APA) recently bought a 51% stake in the Kitimat LNG project, reserving 51% of the capacity in the terminal.

If nothing else, the infrastructure will need some serious work — especially if we expect these shale plays to come to fruition.

There’s no better play here than TransCanada (NYSE: TRP). Nearly a year ago, TransCanada secured shipper commitments for a new pipeline which will run to the Horn River Basin. The Horn River pipeline will cost an estimated $340 million and is expected to be operational in the second quarter of 2011.

Also keep an eye on Terra Energy (TSX: TT), which recently announced the company’s expansion into the Montney “fairway” in British Columbia. According to the deal, Terra Energy acquired 91 gross sections of land, now making the company one of the largest holders of Montney rights.

Until next time,

keith kohl

Keith Kohl

Energy and Capital

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