Log In

Enter your username and password below

North America’s Next Big Shale Play Just Jumped 1,775%

Duvernay sounds like a fine wine from California, but don’t be fooled…

It’s actually the next frontier in shale gas production. In fact, Duvernay is estimated to be 30% bigger than the Eagle Ford shale, which is the most productive shale field in the United States.

Indeed, the profit incentive here is so great, it’s created a veritable stampede among North American oil majors, which are all  jostling to get a piece of the action.

We’re talking about EnCana (NYSE: ECA), Apache (NYSE: APA), ConocoPhillips (NYSE: COP) and more – all scooping up huge tracts of the property.

So far, more than $4.2 billion has been spent to acquire land and initiate drilling, creating a massive wealth effect.

How massive?

Well, just a few short years ago, this land was selling for about $1,600 per acre… Now, it costs more than $30,000. That’s a 1,775% increase in value.

So what’s all the fuss about?

The Mad Dash at Duvernay

Duvernay contains an estimated 150 trillion cubic feet of recoverable gas.

But that’s not all…

The thing that makes Duvernay especially appealing is that it contains as much wet gas as it does dry.

What’s the difference? Well, wet gas refers to liquid-rich natural gas, which is more profitable.

For example, mega driller Chesapeake Energy (NYSE: CHK) says that its wet gas wells currently deliver about $36,000 per day in revenue. Compared to $13,000 for its dry gas wells.

Or just look at EnCana. The company weathered the huge pullback in dry gas prices by leveraging its wet gas reserves. No doubt, the company understands the value Duvernay offers, which is why it’s leading the charge to lock in acreage.

Now, there are a lot of potential shale plays in the United States and Canada.

For instance, there’s an estimated 78 trillion cubic feet of gas in British Columbia’s Horn Basin. But that area is so remote that current prices make the project unfeasible. And that’s typical of many shale formations.

But not Duvernay.

No, Duvernay is located in a region dotted with infrastructure and pipelines, making it eminently accessible.

That’s yet another reason this particular formation is such a prized asset.

So what companies are making the biggest splash?

The Hottest Play in Canada

Well, right now, EnCana is the biggest (and the safest) play. But it’s certainly not the only major player to keep an eye on…

Among the smaller companies staking a claim to the Duvernay shale is Trilogy Energy (PINK: TETZF), a $2.6 billion, Calgary-based company that also pays a small dividend. Trilogy is a former energy trust that recently converted back to a corporate structure. It’s already begun drilling and processing gas from wells in the region and plans to expand its operations there.

Celtic Exploration (PINK: CEXJF) was another player until a couple weeks ago, when Exxon Mobil (NYSE: XOM) announced that it would buy the company for $3 billion.  Exxon paid a 55% premium for Celtic, which controls 104,000 acres in Duvernay.

It’s clear that oil and gas majors know that – amid the global resource chase – the market for acquisitions is getting tight and aggressive. Especially since many energy-producing countries are closing their fields off to foreign investment.

Russia, Argentina and Venezuela are at the forefront of this nationalization movement. But Canada is one of the few remaining open markets. The country is so resource rich that it welcomes foreign investment. And energy companies are rushing to exploit the friendlier environment.

Of course, investors should exercise a bit more caution. The Duvernay shale is still young in terms of drilling results. And so far, more money has been made flipping the real estate than from actual energy production!

Still, the fact that it’s in a relatively early stage of development also makes it more enticing.

Bottom line: Duvernay is the hottest play in Canada right now. It’s rich in wet gas and boasts proximity to great infrastructure. Not to mention, it benefits from a friendly government willing to sell land. That sets it apart from most other shale plays.

Since its first well was drilled decades ago, it’s a little late to invest in Duvernay directly. But there’s still time to play the shale formation indirectly with companies like Trilogy and EnCana – whose valuations are cheap.

EnCana is particularly attractive, since many investors tend to focus on the company as a pure natural gas play, and not give it credit for being a diversified energy producer.

So if you’ve been standing on the sidelines amidst the ongoing shale boom, this is your chance to jump in.

And “the chase” continues,

Karim Rahemtulla