Horn River Gas Shale Play Could Be Big for EnCana

On Thursday, Houston-based EOG Resources Inc. (EOG) released preliminary drilling results for three wells in the Horn River Basin of northeast British Columbia, in an area where EnCana Corp. (ECA) along with joint venture partner Apache Canada (APA), has a dominant land position.

The development got the attention of RBC Capital Markets analyst Gordon Gee, who said in order to obtain the cost of capital returns, EnCana would need long-term Nymex gas prices of at least $8 per Mcf (thousand cubic feet) – and that’s if the play works geologically.

At these levels, the Horn River gas shale play has a potential value of C$0.75 to C$6 per share for EnCana, Mr. Gee told clients in a note. With $9 gas prices, that range is C$2.80 to C$8.50 per share. Meanwhile, if drilling cost can be reduced from their current levels of C$10-million per well to C$8-million, he said the breakeven gas price would be only $7 per Mcf.

Despite the attractive potential here though, there are several risk factors involved and investors should probably stick to only modest valuations for this play, or perhaps none at all, Mr. Gee said.

Comments

[Trader Tim:]

I think that this shale play is going to be huge! Great article

2008 Jul 11 09:19 AM

[Joe The Plu...:]

Far too many risks and unknowns, involved with this "adventure"

Feb 17 12:10 PM