The Cardium formation, located in western Alberta in the AthabascaRiver region, has become a hotbed of resource-rich shale deposits. As horizontal drilling and fracking technology advances, improved oil and gas recovery rates in the Cardium have been the focus of much development in the past year.
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Overview of the Cardium
Beginning in late 2009, M&A speculation within the area placed high valuations on firms operating in the area. Similar to the Bakken oil fields of Saskatchewan, where firms like Crescent Point Energy (TSE:CPG) bought out many E&P junior players, a similar trend has emerged in the Cardium.
Canadian mid-tier oil producer Petrobakken (TSE:PBN) acquired Result Energy and Berens Energy at the beginning of 2010, and followed with subsequent activity later on the year. Recently, TSX Venture firm Triple 8 Energy also acquired Cardium assets to gain access to the light oil and gas abundant in the region.
While the wave of M&A activity that was expected to soar through the Cardium has not yet come to full fruition, many oil and gas players are strategically targeting these shale formations. Of the 1,040 sections, covering 665,000 net acres, Penn West Energy Trust (NYSE:PWE) holds over 50% while ConocoPhillips (NYSE:COP) has slightly under 20% ownership. The total cost to construct and operate a well here runs at approximately $3.1 million, which is significantly more than wells in the Amaranth and Colorado Group regions, which cost $1.4 and $1.1 million respectively. Nonetheless, the horizontal drilling techniques have tremendously increased the potential oil & gas recovery.
NAL (TSE:NAE-UN) has the majority of its capital focused on 17 net wells in the Cardium. Despite that a Peters & Co. report in March questioned the valuation of Cardium operators as extraction rates fell below expectations, NAL's operations have been on par with forecasts.
Similar to NAL, which plans to expand its Cardium exploration and production activities in upcoming quarters, Bonavista Energy Trust (TSE:BNP-UN) intends to almost double the number of horizontal Cardium wells in 2011. Sixteen wells are budgeted for 2010, and 30 for 2011.
Likewise, Anderson Energy (TSE:AXL) reported on June 20, 2010 that it will drill 21 gross wells in the region in 2010, as fourth-quarter production is expected to reach 1,500 barrels of oil per day. Light oil horizontal drilling in the Cardium has enabled Anderson to increase its portfolio focus on oil and NGL as natural gas prices remains depressed.
The Bottom Line
The Alberta Government has decreased the amount of royalties that oil companies are forced to pay, from a maximum of 50% in 2009 to 40% effective as of 2011. Such measures are intended to energize investment in Alberta, as companies become more profitable and appealing to shareholders.
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