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Major Oil & Gas Basins: Duvernay Formation

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Duvernay: Introduction

The Duvernay is one of North America’s most attractive liquids-rich plays, often drawing comparisons to the Eagle Ford.  Located in the Western Canadian Sedimentary Basin, the formation roughly covers 20% of Alberta.

According to the Alberta Energy Regulator (AER), the “total in-place resource endowment for the Duvernay ranges from 350 – 540 trillion cubic feet of natural gas, 7-16 billion barrels of natural gas liquids, and 44-81 billion barrels of oil”. Despite the massive potential of this resource, the amount of resource that can be recovered economically depends on a variety of factors; drilling & completions, well results, liquids yields, cost reductions etc.

The attractiveness of the play deeply relies on condensate yields supporting the play’s economics. Canadian condensate prices typically trade at a premium to WTI, due to the high demand for diluent from the geographically adjacent oil sands operations. Some of the target developmental areas in the Duvernay which are liquids-rich include – Kaybob, Edson, Rimbey, Willesden Green, and Ferrier. Apart from the natural gas liquids window, east Duvernay is an extremely attractive oil window with vast potential.

Infrastructure still remains an issue, and the Duvernay is slightly more early-stage in terms of infrastructure than similar North American plays such as the Montney, and the Eagle Ford.

Some notable operators with large positions in the Duvernay include Encana, CNRL, Repsol, Chevron, Bonavista, Athabasca Oil, Vermillion, and Birchcliff.

Duvernay shale targets

Duvernay: Exploration and Production

Encana: Encana’s Duvernay assets are core to their portfolio and overall operations, with 1,000 well locations identified. Simonette North and Simonette South are Encana’s core Duvernay position, with strategically interconnected infrastructure existing – gas capacity of 155 MMcf/d, liquids capacity 30 Mbbls/d.

Encana has rich gas agreements with Aux Sable, gas transport on Alliance pipeline, and condensate transport on Pembina’s peace pipeline. The target market for condensate is Edmonton, while natural gas and liquids volumes have diversified pricing exposure in the Chicago market.

Shell: Since entering the Fox Creek area in 2012, Shell has acquired 225,000 net acres of land position in the Kaybob area of the Duvernay. Shell Canada’s Duvernay operations consist of over 80 wells and average production of 38 MMcfe/d of gas and NGL’s, and 8,000 boe/d of oil and condensate.

Repsol: Repsol has one of the largest land positions in the Duvernay with 329,000 net acres. Currently, operations are still very early stage and focused on delineation efforts and cost reductions. Repsol Canada’s Duvernay acreage position is the second largest land position in its portfolio – expect a lot of growth coming out of Repsol’s Duvernay positions once operations become more mature.

Chevron: The Duvernay formation is a key focus area for Chevron Canada, where Chevron currently operates the Kaybob Duvernay program, as part of a JV with KUFPEC Canada (70% Chevron, 30% KUFPEC), a 330,000 net acre position. Between 2011-2014, Chevron successfully drilled 16 horizontal wells, 13 of which utilized multi-stage fracking. Since early 2017, 53 wells have been completed and tied to production facilities.

Athabasca: With over 200,000 net acres in the Kaybob area, Athabasca has one of the most attractive land positions in the Duvernay in oil and condensate rich windows. Athabasca holds 30% WI in these positions, which are operated by Murphy Oil. Winter 2016/2017 drilling activity on a 2-well pad in the Kaybob area yielded IP60 of 1,450 boe/d (74% liquids).

Duvernay: Energy Infrastructure

Some of the major players in pipeline & infrastructure within the Fox Creek, Duvernay area are Keyera, Pembina & Aux Sable.

Keyera: Keyera’s core infrastructure lies within West Central Alberta, with over 2.1 Bcf/d gross licensed capacity. As a result of this, Keyera has multiple processing facilities and existing pipe built in the Duvernay – Bigoray, Pembina North, Cynthia, Brazeau North, Zeta Creek just to name a few.

Pembina: Like Keyera, Pembina also has a large infrastructure position within the Duvernay as operator of the Peace pipeline system, the Duvernay gas plant, and the Fox Creek pump station. Pembina has recently entered a 20-year infrastructure development and service agreement with Chevron, including a dedicated area of 10 gross operated townships concentrated in the prolific liquids-rich Kaybob area.

Aux Sable: Aux Sable Canada’s Heartland Offgas Process Plant (HOP) located in the industrial area of Fort Saskatchewan, Alberta is connected to the Alliance pipeline system which runs through the Duvernay. HOP has licensed capacity of 20 mmcf/d.

Duvernay: Recent M&A

July 6, 2017 – Paramount Resources merges with Trilogy Energy, acquiring assets in the Montney & Duvernay region for $650 MM, roughly $5,508/acre

May 30, 2017 – Trilogy Energy divests assets within the Duvernay for $60 MM – roughly $9,615/acre

September 07, 2016 – One Stone Energy Partners acquires Yoho Resources for $29 MM

December 17, 2015 – Yoho Resources divests assets within the Duvernay for $50 MM – roughly $4,859/acre

November 11, 2015 – Trilogy Energy divests assets within the Duvernay for $85 MM – roughly 14,757/acre

Related Reading for Exploration & Production

Exploration & ProductionDepressed Oil & Gas Stocks · Cardium Formation · Major SAGD Projects in Canada · Global Oil Supply and Inventory Primer · Major Oil And Gas Basins: Viking Formation · Oil and Gas Investment Banking: Spreading E&P Peer Comparables · Major Oil and Gas Basins: Montney · Major Oil & Gas Basins: Alberta Deep Basin · Chinese Energy Companies in Canada · Oil and Gas Reserves and Resources · Major Oil & Gas Basins: Duvernay Formation · Analyzing Oil Sands Stocks · Bitumen in Canada · Macroeconomic Drivers of the Price of Oil on the Supply Side · Exploration & Production · Oil & Gas Royalty Company Primer · Offshore Oil Production Primer · Permian Basin Stocks ·
BasinsCardium Formation · Major Oil And Gas Basins: Viking Formation · Major Oil and Gas Basins: Montney · Major Oil & Gas Basins: Alberta Deep Basin · Major Oil & Gas Basins: Duvernay Formation · Permian Basin Stocks ·
Daniel Pham is a 4th year Finance student at the Haskayne School of Business where he also swam on the University of Calgary Dinos Varsity team, most recently representing the Dinos at the 2016 Canadian Rio Olympic Trials. On campus, Daniel is involved in multiple extracurricular activities, most notably co-founding the Haskayne Consulting Club, which seeks to bridge the gap between academia and industry. Based out of Calgary, Daniel is currently wrapping up an 8-month co-op term with Suncor Energy and moving on as an Investment Banking Analyst with BMO Capital Markets in the energy coverage group. Having spent most of his childhood living on three different continents, Daniel is an avid traveler and is looking forward to solo backpacking through Panama in the coming weeks!

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