Apache (NYSE:APA) has disclosed a large position in the Liard Basin in Western Canada and has referred to this new natural gas play as the "best shale gas reservoir in the world."

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Liard Basin
Apache has leased a 100% working interest in 430,000 net acres in the Liard Basin in British Columbia. The company estimates that its properties contain 210 Tcf of natural gas in place, with 48 Tcf of net resources. The basin is located nearby the slightly better known Horn River Basin, another large natural gas resource play where Apache and several other operators have acreage.

SEE: Natural Gas Industry: An Investment Guide

Production
Apache is targeting the Lower Besa River First Black Shale formation and has drilled three wells into this formation to date. The company reported that the Apache D-34-K well produced an average of 21.3 million cubic feet of natural gas per day during the first thirty days of production.

This is an immense production rate and dwarfs the initial production rate from any wells in other natural gas plays in North America. The results are even more surprising when one considers that Apache drilled and completed the well with only a 2,900-foot lateral and a six stage hydraulic fracturing operation. The other two wells were drilled vertically, but also produced at prodigious rates of 9.8 and 4.6 million cubic feet per day.

SEE: Uncovering Oil & Gas Futures

Apache development model in the Liard Basin calls for wells with lateral lengths between 7,050 and 8,040 feet and 18 stage hydraulic fracturing operations. The company estimates that the estimated ultimate recovery (EUR) on these wells will be 66 Bcf. Apache expects Liard Basin wells to generate an IRR of 12% at natural gas prices as low as $2.57 per Mcf.

The company is not rushing to develop the Liard Basin due to the low price of natural gas, and will drill slowly here in 2012 and 2013. The company's long-term plan is to transport production from the Liard Basin to the Kitimat liquefied natural gas (LNG) plant currently under construction, or to existing pipelines owned by TransCanada (NYSE:TRP) and Spectra Energy (NYSE:SE).

Other companies that have drilled wells into the Liard Basin, although not into this particular formation, include Chevron (NYSE:CVX) and Amoco, which was purchased by BP (NYSE:BP) in the late 1990s.

SEE: Accounting For Differences In Oil And Gas Accounting

The Bottom Line
Apache's new natural gas play in British Columbia adds even more to the large horde of natural gas resources in North America. Although there is too much supply of this commodity in the market today, this resource base will one day be an essential part of the global supply of energy.

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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