Natural gas wells fail to meet expectations
Corridor Resources waits to see if Apache Canada will invest another $100M
Corridor Resources is waiting to hear from Apache Canada to see if the companies will continue to drill for natural gas in the Elgin area after two test wells underwhelmed expectations.
Corridor Resources still believes there is a significant amount of natural gas in the Elgin area after a well that it drilled in 2009 proved to be commercially viable.
Corridor Resources teamed up with Apache Canada, which has spent $25 million to explore two new wells.
Apache has until June 1 to agree to spend another $100 million on drilling more wells.
Greg Chornoboy, the senior oil and gas analyst with the investment firm Jennings Capital, said the two companies are trying to figure out what went wrong with those two wells.
"Unless something comes roaring back to life right now they've spent $25 million and do not have a commercial looking success," Chornoboy said.
Corridor Resources announced last year that the formerly abandoned wells could have more natural gas than is available in all of western Canada's proven reserves.
When Corridor Resources and Apache Canada announced their deal, the two companies said they could drill as many as 480 new wells if the natural gas reserves emerged as predicted.
Chornoboy said Apache has a history of spending a significant amount of money on speculative ventures. So he said the company may come up with the extra $100 million to drill additional wells.
Apache Canada must make the additional investment if it wants to continue the agreement with Corridor Resources, which allows the company to keep half of the future profits from what may be in the ground in the Elgin area.
If Apache walks away, Chornoboy said Corridor Resources will probably start looking for other partners.
The natural gas industry analyst said this is an example of the tough calls that are regularly made in the oil and gas sector.
The two companies are hydro-fracking in the area. But Chornoboy said the hydraulic fracturing technique hasn't worked on the first two wells.
"The first well they really didn't get any kind of a commercial gas rate and they played with a number of different techniques and to my knowledge they are still testing the second one," he said.
"But unless something comes roaring back to life right now they've spent $25 million and do not have a commercial looking success."
Hydro-fracking is a process where exploration companies inject a mixture of water, sand and chemicals into the ground, creating cracks in shale rock formations.
That process allows companies to extract natural gas from areas that would otherwise go untapped.