3 Key Numbers From the Montney

The Montney is shaping up as one of Canada’s most exciting unconventional oil and gas formations.

The Motley Fool

Higher crude prices and narrowing price differentials between Canadian crude blends and West Texas Intermediate is generating considerable activity in Canada’s oil patch. Driving renewed interest among government agencies and players in the patch to uncover and develop further petroleum resources. This is seeing considerable interest in Canada’s unconventional oil and gas formations, most notably the Montney and Duvernay.

The Montney formation lying across northwestern Alberta and northeastern British Columbia is fast shaping up as one of the most exciting emerging unconventional oil and gas plays in Canada. In 2013, the formation was formally evaluated by Canadian federal and provincial authorities with some startling results.

1. Considerable oil and gas resources
The evaluation of the Montney formation found it contained considerable potential oil and gas resources. The assessment identified 1.2 billion cubic meters or 449 trillion cubic feet of natural gas, 14.5 billion barrels of natural gas liquids and 1.2 billion barrels of crude.

These tremendous natural gas resources make the Montney one of the world’s largest known natural gas formations. The majority of the natural gas and non-gas liquids lie in the section of the Montney in British Columbia while the Alberta side contains the majority of the oil resources.

2. 100 years of Canadian natural gas consumption
Based on total 2012 Canadian natural gas demand of 88 billion cubic meters or 3.1 trillion cubic feet, the Montney gas resource holds around 145 years of Canada’s natural gas needs.

3. One of Canada’s most economic gas plays
Even though the Montney is in the early stages of development it is already producing significant amounts of natural gas. In 2012 alone natural gas production from the Montney grew to an average of 48.6 million cubic meters or 1.7 billion cubic feet, making up over 12% of Canada’s total natural gas production.

The key reason for this rapid growth in production is because the Montney has been identified as one of the most economic natural gas plays in Canada. The National Energy Board found natural gas supply costs in British Columbia, where the majority of the Montney’s natural gas resources lie, were some of the lowest in Canada at 10% lower than the weighted national average.

What does this mean for investors?
There is a range of energy companies operating in the Montney and the formation continues to attract considerable attention from energy juniors and majors. In late 2013, Talisman Energy (TSX: TLM)(NYSE: TLM) sold 75% of its Montney acreage in northeast British Columbia to Progress Energy Canada, a subsidiary of Malaysia’s Petronas, for $1.5 billion.

The biggest operator in the Montney is Canadian natural gas heavy weight Encana (TSX: ECA)(NYSE: ECA), which has been active in the formation for almost a decade. The Montney has become a focus for Encana because of development costs coupled with its assets in the formation being rich in higher margin natural gas liquids such as butane, propane and condensate.

Encana has allocated between $400 million and $500 million for further drilling in the Montney in 2014. This is because the formations characteristics fit well with the company’s turnaround strategy, which is focused on boosting lower cost natural gas and more profitable natural gas liquids production. The formation also has plenty of running room with Encana having identified 25 years of drilling opportunities in the formation.

Even with Encana’s share price having popped 16% for the year to date, there are still plenty of reasons to buy Encana shares. This includes gaining exposure to what is shaping up as one of the lowest cost and most exciting natural gas plays in Canada.

Foolish bottom line
The Montney is fast emerging as one of the most exciting unconventional natural gas and natural gas liquid plays in Canada, which is particularly appealing because of the low development costs associated with the formation. This, coupled with the formation’s considerable resources, will continue to attract the attention of energy companies and investors alike.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith does not own shares of any companies mentioned.

More on Investing

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Tuesday, September 26

Weakness in commodity prices could pressure the TSX index at the open today, as investors closely monitor the important U.S.…

Read more »

risk/reward
Investing

These 2 Stocks Carry a Lot of Risk, But Their Upside Is Huge

These two stocks have some significant risks, but they trade so cheaply that they offer unbelievable capital gains potential.

Read more »

Payday ringed on a calendar
Dividend Stocks

Boost Your Monthly Dividend Income With This TSX Gem

A high-yield TSX gem in the real estate sector can boost your monthly dividend income.

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Bank Stocks Look Like a Steal: Here’s My Favourite for October 2023

TD Bank (TSX:TD) stock looks dirt cheap, as it continues to fluctuate in this rocky economic environment.

Read more »

little girl in pilot costume playing and dreaming of flying over the sky
Investing

Better Buy: Air Canada Stock or WestJet Airlines?

With the airline industry yet to recover fully from the pandemic, is Air Canada one of the top stocks to…

Read more »

oil and gas pipeline
Dividend Stocks

Is Enbridge Stock a Buy for its 7.6% Dividend Yield?

Enbridge stock is a TSX giant that offers investors a tasty dividend yield of 7.6%. Is this high-dividend stock a…

Read more »

Early retirement handwritten in a note
Dividend Stocks

Retire Early With These 3 Canadian Passive-Income Stocks

Three Canadian passive-income stocks are smart choices for people with early retirement goals.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Energy Stocks

This 7 Percent Dividend Stock is My Top Pick for Immediate Income

Looking for a solid dividend stock that can provide an immediate income source? Consider this dividend gem now while its…

Read more »