Alberta’s Cardium Formation : Oil Play Overview

In 2009, many natural gas weighted producers were on the brink of bankruptcy following very tough economic times. With natural gas prices hammered, many producing wells had to be shut because they were no longer economic. These companies woke up one day realizing that they have a great chance to rebalance their production weighting between oil and gas. They were extremely lucky to be sitting on prospective Cardium lands. Their valuation had been increasing and a lot of mergers and acquisitions have been triggered. Why do you ask? What is it all about? Let’s take a quick look.

The Cardium formation stretches throughout much of west-central Alberta. It is typically a sandstone deposit encased in thick shale. The industry has known there was oil there since the 1950s. It has been producing oil and gas for over 50 years from vertical wells (on old technology that essentially involved punching a hole straight down into the ground with a penetration of the reservoir perpendicular to its plane). Take for example Alberta’s Pembina oil field; it has produced over 1.3 billion bbls of light gravity oil and over 12 tcf of gas since initial discovery in 1953.

The industry has also known that deeper zones hosted oil in rocks as opposed to the usual sand formation. These “tight” zones were deemed uneconomic until advancements in horizontal drilling and completion technologies allowed them to be exploited. Until recently there was no way to get the bulk of it out of the ground and still make money. Thanks to horizontal drilling, the Cardium has the potential to rival some of the most profitable light oil plays such as the Bakken. West central Alberta has been revitalized with this new technology.

Horizontal drilling is the process of drilling a well to a subsurface location just above the target oil or gas reservoir called the “kickoff point”, then deviating the well bore from the vertical plane around a curve to intersect the reservoir at the “entry point” with a near-horizontal inclination, and remaining within the reservoir until the desired bottom hole location is reached. The well is subsequently fractured by pumping a fluid and a propping material such as sand down the well under high pressure to create fractures in the oil-bearing rock. The propping material holds the fractures open, allowing more oil to flow into the well than would naturally.

While the cost factor for a horizontal well may be as much as two or three times that of a vertical well, the production factor can be enhanced multiple times, making it very attractive.

NAL Oil &Gas Trust is credited as the first to experiment with the technology in the Cardium during the fourth quarter of 2008. Following success at Garrington, development of the Cardium has grown steadily in 2009 and is expected to explode in 2010 with estimated 200-plus horizontal multi-stage fractured wells targeting the Cardium, up from an estimated 35 wells in 2009.

Next week I will cover the companies operating in the Cardium patch,  the state of mergers and acquisitions and initial production rates.

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