EnCana (NYSE:ECA) outlined a strategy the company will employ to develop natural gas properties in the Horn River Basin in Western Canada. The large reserves of natural gas contained in shale formations will be used to meet expected future demand from fast growing economies in Asia. (For more on Natural Gas, read Natural Gas Industry: An Investment Guide.)

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Horn River Shale
The Horn River Shale is a generic term used to describe several stacked formations that are present in vast areas of the Western Canadian Sedimentary Basin. These include the Muskwa, Otter Park and Evie formations, which are at depths ranging from 8,500 to 9,000 feet on EnCana's properties.

The National Energy Board of Canada and the British Columbia Ministry of Energy and Mines recently updated the resource assessment of the Horn River Basin. The report estimated that the shale contains 78 trillion cubic feet (Tcf) of marketable natural gas with a range from 61 Tcf to 96 Tcf.

Greater Sierra
EnCana has 1.8 million acres in the Greater Sierra area in Western Canada, and estimates that approximately 264,000 net acres in that region are prospective for the Horn River Shale. EnCana started evaluating the play in 2008, and then began the initial stages of its development program. The company estimates that it will have 70 wells on line by the end of 2011.

Drilling Efficiency
EnCana has seen an improvement in drilling efficiency over the last three years as it increased the length of laterals on wells and the number of hydraulic fracturing stages. The company has also reduced costs here as well, with supply costs in the $3.90 to $4.40 per thousand cubic feet (Mcf) range in 2010. EnCana is targeting a supply cost range of $3.50 to $3.75 per Mcf in the Horn River Shale. (For more on how you can invest in this market, see A Guide To Investing In Oil Markets.)

Asian Demand
Demand for natural gas in Asia is expected to grow rapidly over the next few decades, and EnCana is building a liquefied natural gas (LNG) facility to export natural gas from the Horn River Shale to Asia. China is anticipated to be the largest natural gas consumer in Asia by 2020, with a projected demand of 35 billion cubic feet per day.

Apache Corporation (NYSE:APA) and EOG Resources (NYSE:EOG) are also involved with building this LNG facility, which is expected to be in operation by 2015.

Other Operators
Other operators with properties prospective for the Horn River Shale include Nexen (NYSE:NXY), which has 172,000 net acres in several different areas in Western Canada. The company is drilling from nine well pads and expects these wells to be on production by late 2011. In 2012, Nexen plans to drill from eighteen well pads.

Quicksilver Resources (NYSE:KWK) is also active here and has 130,000 net acres under lease. The company has drilled and completed four wells in the Horn River Shale and has an additional four wells that are waiting on completion.

Devon Energy (NYSE:DVN) has 174,000 net acres and plans to spend $100 million in 2011 to develop the Horn River Shale.

The Bottom Line
Although crude oil and other liquid hydrocarbons are currently in vogue, there are basins where operators are continuing to progress on natural gas development. The Horn River Basin is one of these places, and EnCana and the industry have a solid long-term plan to get these resources to market. (For more information on oil and other commodities, read An Overview Of Commodities Trading.)

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