Nexstar Comes Up With A Pembina Cardium Tight Oil Play

By Mike Byfield

July, 2009




Nexstar Energy Ltd. may be tiny, but the micro-junior has triggered a tight oil play in Alberta's Pembina oilfield that has geological parallels with the Bakken success story in southeastern Saskatchewan. "We're focused on oil-bearing portions of the Pembina Cardium [formation] that lacked sufficient permeability to be of much interest when this field was originally developed with vertical wells," says Peter Carwardine, Nexstar's president and CEO. "Our drilling indicates that these prospects can now be profitably exploited through multi-stage fracturing of horizontal wells."

Most junior producers play a safe strategy, investing most of their capital in low-risk opportunities. Nexstar Energy Ltd. took the route of higher risk and greater potential reward, with little success initially. The junior drilled a series of unproductive wildcats in its Pembina-Swan Hills core area. To boot, a big chunk of the three-year-old company's capital got tangled up in the ABCP (asset-based commercial paper) meltdown.

Its fortune began to turn with the recompletion of an existing vertical well in the Pembina Cardium formation. When the recompletion came on production, Nexstar noticed evidence of pressure depletion and drainage by several other wells two miles or more away. "This field was originally developed in the 1950s and '60s. The production data suggested that oil and gas had flowed that distance through conglomerate and lower permeability sand reservoir rock over the previous 40-plus years," says Christian Viau, Nexstar's VP exploration.

Nexstar wondered if horizontal drilling might release oil from Pembina Cardium rock that had previously been ignored as too tight. Horizontal drilling for these targets, the Nexstar team theorized, should focus on bypassed pay situations with no drainage within several miles. If this thesis proved correct, a great deal of Pembina acreage would become prospective. Nexstar began looking for a better-funded partner willing to invest in Nexstar's Cardium concept.

Pembina, with an estimated 7.8 billion barrels of original oil in place, is Canada's largest conventional onshore oilfield. Despite extensive secondary recovery through waterfloods, less than 1.4 billion barrels has been produced. The scale of the remaining prize continues to draw plenty of interest. Among the most active operators is Canada's largest oil and gas trust, Penn West Energy Trust, which has spent the past 14 years accumulating expertise in Pembina Cardium EOR (enhanced oil recovery) operations.

Drawing on CO₂ from petrochemical manufacturing at Joffre (near Red Deer, Alta.), Penn West operates Alberta's only CO₂-driven EOR project. Encouraged by that five-year pilot project, the trust is working toward construction of a CO₂ pipeline that would transport that gas about 150 kilometres for EOR use in the Pembina field. In the meantime, it has drilled two innovative horizontal wells in the Pembina Cardium. The first was a water injector, designed to drive oil toward vertical wellbores, while the second well initiated a CO₂ flood. Results have not been announced.

Several larger operators have recently applied multi-stage fracturing to horizontal wells in this huge oilfield, targeting existing production areas. There's speculation (persistent, yet possibly inaccurate) that these horizontal fracs have been hampered by water incursion. Nexstar's pitch to potential partners was in part around the fact that drilling in tighter Pembina Cardium rock should not encounter water from earlier secondary floods.

George Fink, a grand old man of the Canadian oilpatch, stepped up to the plate. Fink is CEO of Bonterra Oil & Gas Ltd., whose daily production of about 5,300 BOE comes primarily from the Pembina field. Bonterra, in a joint venture with Cobalt Energy Ltd. and Nexstar, acted as operator of a well drilled in December 2008 near Pigeon Lake, on the edge of the main Pembina Cardium pool.

At its annual meeting on May 21, Bonterra said the $2.9-million horizontal well had been fraced in seven stages. Initial production came on at over 250 barrels per day, with no water. Output has declined to 155 BOE per day, including 15 BOE of solution gas. Reservoir porosity is about 12 per cent, slightly better than the typical Bakken well's 10 per cent. At 6.5 metres of pay, reservoir thickness is appreciably greater than the Bakken's 4.5 metres. The company expects to book reserves of 400,000 barrels per well, double the typical Bakken performance.

"It's still pretty new, but we think we can recover more on a per-well basis than the Bakken," Fink said at the annual meeting. In April, Bonterra purchased Cobalt for about $5.5 million to maximize its position in the play. The company plans to drill five or six more horizontal wells in the Pembina Cardium this year, along with 10 to 15 vertical wells. Bonterra says that including the Cobalt assets, it has 330 Cardium drilling locations in inventory, which could rise above 1,000 locations with 40-acre spacing.

"These are long-life reserves of light oil [36? API] and sweet gas," Viau says. The Nexstar geologist adds that future drilling risk in this play is reduced by ample log and core data. "If you know what characteristics to look for, you can identify the right reservoir and map it," he says. "Away from areas of secondary flooding, there's little or no underlying water, which minimizes the risk of fracturing into water."

The junior holds a 31.82 per cent working interest before payout and a 21 per cent working interest after payout in the December 2008 well. "Bonterra is an efficient operator with good infrastructure in the area. We're pleased to have them as an operating partner," Carwardine comments. Although Nexstar's production averages a modest 50 BOE per day, its CEO says its outlook is now good: "We have no bank debt, our ABCP difficulties are gone, and the Pembina field just got a lot bigger, especially from our point of view."

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