07-01-03 With 10 centuries' worth of coal nestled under the ground in British Columbia (BC), there's growing interest in the economic potential of the clean-burning gas that resides within it.
Coalbed methane already supplies 7 % of annual natural gas needs in the US, but the industry is barely into its infancy in Canada.

The BC government is pursuing investment, offering tax incentives sweet enough to evoke murmurs of envy in Alberta, and promoting coalbed methane development in its recently announced energy policy. Coalbed methane reserves in this province are estimated at 90 tcf, exceeding on-shore reserves of natural gas, and could single-handedly meet the province's gas needs for decades to come.
Better yet, there are wealth-creating, job-sustaining volumes of coalbed methane scattered all over the province -- notably in the northeast, the northwest and the southeast, as well as Vancouver Island, the Okanagan and even the Queen Charlottes. That's in notable contrast to opportunities in conventional natural gas, which are focused in the Western Canada Sedimentary Basin in Peace River country in the north-eastern part of the province.

But despite the US experience, there's little happening north of the 49th parallel. There are a handful of wells in Alberta that came into production in 2002, some exploratory and pilot projects in BC and that's about it.
Large companies such as BP and EnCana are active. EnCana is involved in what is, to date, the only commercial Canadian coalbed methane venture. In the Palliser region in southern Alberta, EnCana and a US partner have developed a small, producing field in an area that's relatively free of technical complications.
EnCana and BP may make announcements in the near future but don't want to talk, at present, about their projects. However, BC Energy and Mines Minister Richard Neufeld notes encouraging signs of progress.

Ministry staff report they're being bombarded daily with calls from oil and gas companies, investors and members of thegeneral public as appreciation grows for the economic potential of this untapped resource. Investment is also accelerating. By mid-2001, the province had collected $ 20 mm for exploration rights in southeast and northeast BC By the end of 2002, that had risen to $ 50 mm, including a recent $ 7-mm leap that Neufeld takes as proof that the industry will succeed in BC
"There's a huge opportunity to develop coalbed methane in the province of British Columbia," Neufeld said. "That money is coming in at an open bidding auction process. There are no strings attached and bidders come in knowing full well what the regulations are and what they're up against," he said.
"If they're willing to bid that kind of money for the land and to go in and produce it, then it means we have some pretty good opportunities in the province of British Columbia."

What companies are "up against" is a resource that requires a different skill set for extraction than natural gas. If natural gas is a hare, then coalbed methane is atortoise.
Hit a natural gas field and you're almost instantly at peak production -- and peak revenue generation. Drill into a coal seam, however, and you're months or even years away from making money on the methane it grudgingly yields.
Simply drilling a hole into a coal seam won't touch off a flow of methane. Generally, you have to inject a fluid into the coal seam and widen its natural fractures enough to allow the gas to flow through. You usually have to pump water out of the coal as well, and it can take months or years of pumping before there's enough space around the well bore for the methane to collect.

Moreover, every coal seam offers its own set of complications, and a method that works at one hole may fail at a hole in the immediate vicinity. Eventually you get a steady flow -- a trickle compared to the rush from a conventional natural gas well, but one that may persist for a decade or more. That's the reward, but experts point out that the risks cannot be ignored.
"Coalbed methane is variable, and it's variable everywhere... across every part of the business," El Paso Production principal geologist Larry Knox recently told delegates to a Canadian Institute conference on coalbed methane.
That uncertainty extends to geology, geography, engineering, drilling and completions, as well as economics, regulations and returns on investment, according to Knox and other speakers who are familiar with the US experience. In fact, they said, the uncertainty is substantial enough that the risks inherent in coalbed methane development are comparable to those faced in price-sensitive projects such as the Alberta oil sands.

Some small-cap companies involved in US projects have realized spectacular returns for the risks they've undertaken. Neufeld notes that the situation in BC will be more complicated than in Alberta or the US because of unresolved aboriginal treaty negotiations.
"A lot of that Alberta land is privately held, about 45 %, which makes it a little easier than British Columbia, where it's about 5 %," Neufeld said. "You should know that on average, oil companies, whether they're headquartered in Houston or in Alberta, will pay a greater price per hectare on land sales to operate in British Columbia than they do in Alberta. "That says a whole bunch of things to us -- that it's not so hard to work in British Columbia as people tend to say, but also that we have more gas in our wells than they do in Alberta."

The Vancouver Island owner of a company looking to extract coalbed methane from the Comox coalfield agrees. Priority Ventures president Neil Swift publicly blasted the BC government in 2001 for complex regulations that called for paperwork from four ministries in order to obtain a drilling permit.
Paperwork has been something of a bane for Priority. The company is currently under a cease-trade order from the BC Securities Commission because of its failure to provide documentation in support of estimates of the size of its resources. Swift puts the trading suspension down to inexperience and says a Calgary consultant is preparing the necessary documents for submission early this year.

Meanwhile, Swift says government red tape ceased to be an issue when the Oil and Gas Commission introduced streamlined new regulations last October. But other hurdles remain, he noted.
"For us, the land tenure situation has been the most challenging," Swift said. "The mineral rights in the areas of interest are on fee-simple land. You have to go around to all these individual owners and lease their gas rights from them," he said. "For example, we have leased about 7,000, 8,000 acres for petroleum and natural gas and we have over 80 different leases. "We started to lease in probably the first quarter of 2000. It took from that time to the end of 2001 to accumulate 7,500 acres. You could pick up 7,500 acres in most other places in northeast BC, Saskatchewan or Alberta in a few months."

Priority's other problem, adding to its costs, is that there aren't a lot of drilling companies on the Island -- they're mostly at the other end of British Columbia, in Peace River country. But he says isolation can turn into an asset in the long run.
"What we don't have on Vancouver Island is easily accessible land. What we do have to support our project are higher [retail] gas prices because of our isolation -- and we have a pipeline that literally runs right through the coalfields. The city of Courtenay is only a little over a mile from where we drilled."