Real Estate Growth (Not Bubble) in the Duvernay Is a Reminder of Canada’s Shale Boom

Matthew Carr By Matthew Carr, Emerging Trends Strategist, The Oxford Club

Oil & Gas

The collapse of crude caused a lot of investors to forget about Canada’s emerging shale industry. But lately, land sales in one of Canada’s most important shale regions have been skyrocketing.

An unknown buyer just dropped $21 million in the East Shale Basin of Alberta’s Duvernay shale region.

It’s the latest plot twist in the real estate story that demands every energy investor’s attention.

Location, Location… for Excavation

In the past year, prices per acre have increased more than tenfold in the oil-rich East Shale Basin of the Duvernay – one of Canada’s hottest shale plays. Last year, sales in the area rarely broke $121 per acre. And the parcels that did were near existing, producing wells.

But at the end of April, bidding in the area hit $1,700 per acre…

That’s a 1,300% increase.

Don’t get me wrong: This is still 35 times less than the $60,000 per acre that companies are currently plopping down in the U.S. Permian Basin.

In other words, we’re not talking about a real estate bubble in the eastern Duvernay… at least not yet.

But investors should understand that the attributes that make the Permian so attractive for oil companies are also present in the eastern Duvernay.

Canada’s Permian?

The East Shale Basin is grassland with a well-established pipeline infrastructure in place – it’s easy to develop and easy to get product out.

And unlike the natural gas section in the West Shale Basin, where drilling is very seasonal and done only during the winter, the eastern side offers year-round access to oil reserves.

This is among the features it has in common with the Midland Basin in the Permian, which explains the boom we’ve seen in the Duvernay.

Plus, the plays on the eastern side of the Duvernay aren’t as deep as they are in the west, running from around 6,500 to 7,200 feet. That makes it a lot cheaper to drill.

And like the Midland, the Duvernay has enormous potential… In fact, its potential surpasses that of the Midland.

A report by the Alberta Geological Survey estimates that there are 443 trillion cubic feet of natural gas, 11.3 billion barrels of natural gas liquids (NGLs) and 61.7 billion barrels of oil in the eastern Duvernay.

The Midland, on the other hand, is estimated to hold 20 billion barrels of oil…

In other words, even though the price per acre has soared in the Duvernay, it still looks like a steal.

Wood Mackenzie projects that NGL production in the Duvernay will grow from 27,000 barrels per day in 2015 to 320,000 bpd by 2025.

That’s a 1,085% increase over 10 years.

It also means the region is very early in development. And Chevron (NYSE: CVX), Trilogy Energy (TSE: TET) and Encana (NYSE: ECA) are trying to lead the way.

In 2011, Chevron began exploring the NGL-heavy Kaybob region. The company has a net 70% interest in 330,000 acres. And to date, Chevron has drilled 53 wells.

In 2016, Trilogy drilled two horizontal wells in the Duvernay. The wells cost $10.2 million apiece and are producing a combined 1,224 barrels of oil equivalent per day.

Of the three, Encana is the most focused.

The company believes it has between 100 million to 200 million barrels of NGLs and oil in the Duvernay. Encana controls 445,000 net acres in the shale play.

Encana sees the potential for 1,000 wells in the Duvernay, which is more than its Eagle Ford assets. Of these, 500 are considered “premium locations.” The company expects to develop nearly half of them by 2021.

One of the biggest advantages Encana has is multi-well pads and infrastructure already in place.

Plenty of Intrigue, But the Story’s Just Beginning

Development is early. But the Duvernay is one of North America’s largest emerging shale plays.

The recent price jump we’ve seen in the East Shale Basin shows that somebody with deep pockets is trying to get a jump on competitors. It also demonstrates confidence in the shale play.

Consider it a reminder to not forget Canadian shale. The focus is always on the U.S… but our neighbor to the north has a lot to offer investors.

Good investing,

Matthew

P.S. It’s one thing to stay on top of major trends in energy, such as the real estate boom in the Duvernay… but it’s another thing to invest in it.

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