Quicksilver accelerates Horn River development

In yet another indication the Horn River shale gas field is almost ready for prime time, Houston-based Quicksilver Resources said Friday it has signed transportation deals that will allow it to scale up production from northeast British Columbia.

The Fort Worth-based unconventional gas producers, which was a pioneer in shale plays such as the Barnett field in Texas, said it has created an operating subsidiary to build the gathering pipelines needed to move the gas onto larger pipeline networks feeding Canada and the United States.

“We have the pieces in place to ensure that our vast resource capture will move out of the Horn River Basin to the west through the Spectra system and to the south through the Trans Canadian pipeline system,” Quicksilver chairman Toby Darden said in a statement. “We believe that creating this midstream entity will provide our lowest cost solution for gathering, treating and transporting our commodity to multiple sales points.”

The first part of the puzzle is a 32-kilometre gathering line, which will tie-in to the Spectra Westcoast system to the lower mainland and Pacific Northwest, expected to be operational in May.

On April 11, Quicksilver signed a deal with TransCanada Corp. to build a 100-kilometre tie-in into the Alberta Nova network which can alternatively access the TCPL main line to Eastern Canada and the larger North American grid.

In an interview, Quicksilver vice-president Rick Buterbaugh said current production of about 20 million cubic feet per day is constrained by limited access to third-party pipelines. The tie-ins will allow ensure adequate capacity to ramp up production to 2014 and beyond, he added. “This gives us multiple outlets for our gas,” he said. “We’re always looking for a variety of markets to move gas to, it’s the key to almost any of these developments.”

Horn River has been touted as one of the largest natural gas discoveries in North America, but its remote location near the Yukon border make it relatively expensive compared to other big shale plays in Pennsylvania and Texas that are closer to consuming markets.

The proliferation of low-cost shale production has pushed gas prices to the lowest levels in a decade, which put even more pressure on the economic viability of remote fields like Horn River.

Natural gas jumped seven cents in New York on Friday, to $4.21 US per million British thermal units, but Lower 48 storage levels remain well above the five-year averages.

The U.S. government issued a report Thursday that showed a larger-than-expected stock build of 28 billion cubic feet, which Barclay’s Capital analyst Tom Driscoll called “bearish” in a research report.

“We believe gas price risk remains to the downside as fundamentally the market remains oversupplied and U.S. production continues to grow.

Where other Horn River players like Encana and Apache Corp. have looked at liquefied natural gas exports off the West Coast as an alternative to traditional markets, Buterbaugh said low-cost pipeline transport remains a cornerstone of Quicksilver’s strategy.

The company will continue to pursue Horn River because it has the potential to quadruple the company’s proved reserves to about 12 trillion cubic feet. Despite low prices, Buterbaugh said he believes Horn River can be viable.

“Locking in low-cost transportation is all part of the equation of making Horn River competitive with the other plays,” he said.