Natural gas producers eye liquids-rich plays

CALGARY — With no rebound in natural gas prices expected any time soon, producers say the pursuit of liquids-rich zones will be one of the few bright spots in the coming year.

CALGARY — With no rebound in natural gas prices expected any time soon, producers say the pursuit of liquids-rich zones will be one of the few bright spots in the coming year.

At an investment conference Thursday, the CEO of Talisman Energy Inc. (TSX:TLM) said the company expects to spend between $4 billion and $4.5 billion in 2011, with a focus on exploiting valuable liquids from its vast North American shale holdings.

“We will be exerting some level of discipline,” said chief executive officer John Manzoni, noting the final capital budget for next year hasn’t yet been finalized.

Calgary-based Talisman will likely temper its activity in dry gas shales, with prices expected to remain weak for some time. On the other hand, natural gas liquids, key ingredients for petrochemicals and plastics, are fetching much more attractive market prices.

“I’m not a big bull on gas prices in the next 12 months. I’ve been there for quite a long time. I think it’s not a controversial statement,” Manzoni said.

“But these sort of gas prices could last well through 2011, could even last a little bit into 2012.”

This year’s capital spending is expected to come in at between $4 billion and $4.2 billion.

Last month, Talisman bulked up its presence in a liquids-rich part of the Eagle Ford shale in Texas. Talisman brought in Norway’s Statoil as a joint-venture partner in the play.

The company’s other North American shale holdings include the Utica in Quebec, the Montney in northeastern British Columbia and the Marcellus in Pennsylvania.

It also focuses on exploiting oil and gas from offshore platforms in the North Sea and Southeast Asia, and is looking at expanding its presence in the Middle East, South America and Europe.

Encana Corp. (TSX:ECA), which is focused exclusively on natural gas, will be zeroing in on its highest value projects in 2011, said Kevin Smith, the vice-president in charge of Canadian unconventional gas exploration.

“Certainly as we go into 2011, there are more opportunities that are being focused on that deliver more liquids production along with the gas in the Deep Basin,” Smith told the conference.

Areas like Gordondale in northwestern Alberta are “rising to be some of the most profitable projects that we’ll have in our portfolio.”

Last month Encana trimmed its production target, cash flow guidance and capital spending for the remainder of 2010.

One of the reasons for the toned-down outlook was rising drilling costs in the Haynesville shale play in Louisiana and east Texas. Smith said the costs in the United States have been much “more pronounced” than what he has observed in Canada.

The chief operating officer of Canadian Natural Resources Ltd. (TSX:CNQ), a major shale landholder in western Canada, said last week it could take three to seven years for natural gas prices to strengthen.

“What price to you need shale gas to work at? I think that’s out yet. Obviously the sweet spots will work quite well. Liquids-rich will work,” Steve Laut said.

“With the amount of shale gas activity and potential, we think it can be quite some time before you see a recovery.”

In reaction to the low prices, Canadian Natural has shut in 35 million cubic feet per day of production out of the 1.2 billion cubic feet per day it produces.