Unconventional Gas in Canada
Opportunities and Challenges Service Sector Workshop June 24, 2010
F M Dawson, President
Canadian Society for Unconventional Gas
Service Sector Workshop
CSUG is a membership-based association, formed in 2002, to support the responsible exploration and development of unconventional gas in Canada Mission “To facilitate the factual and collaborative exchange of unconventional gas knowledge and challenges among government, regulators, industry and public stakeholders for the exploration and production of the resource in an environmentally sensitive and economical manner�
June 24, 2010
Workshop Outline
Service Sector Workshop
Introduction Why do we Need Unconventional Gas?
Module 1
(0.5 hour)
What is Unconventional Gas?
Module 2
(0.5 hour)
Drilling and Completion Technologies
Module 3
( 0.5 hour)
North American Gas Market and its Impact on Western Canada
Module 4
( 0.5 hour)
Opportunities and Challenges
Questions and Discussion
June 24, 2010
Why Do We Need Unconventional Gas?
Service Sector Workshop
Gas Facts Canada produces approximately 6 Tcf (trillion cubic feet) of gas per year which roughly 50% is exported to United States This translates into ~ 16 Bcf (billion cubic feet) of produced gas per day Alberta accounts for approximately 80% of this volume
Peak production from Western Canada was in 2006 and has been declining at a rate of nearly 1 Bcf/day per year New unconventional gas sources such as Montney are filling in some of the decline gap but conventional production continues to drop Companies will become more dependent on unconventional gas in order to offset their company decline rates Unconventional gas resource plays provide opportunities for companies to maintain production as well as grow their reserve base
June 24, 2010
Service Sector Workshop
Why Do We Need Unconventional Gas?
600,000
Natural gas supply decline that must be found from new sources such as unconventional gas
16
400,000
14 12
300,000
200,000
100,000
10
New Brunswick Production Ontario Production NWT/Yukon Production Nova Scotia Production Saskatchewan Production British Columbia Production Alberta Production
Canadian Gas Production 2000-2008
8
From NEB 2008
0 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Bcf/day
Daily Gas Production (10 3m3/day)
Peak Production
18
500,000
General decline since 2006 can be attributed to basin maturity of conventional gas production and retraction of activity due to lower natural gas price Annual decline rate for 2007-2008 estimated to be 0.9 Bcf/day
Year
June 24, 2010
Service Sector Workshop
Why do we Need Unconventional Gas? Projected Supplies of Natural Gas in United States
United States conventional production continues to decline from 5 Tcf/yr to < 3 Tcf/yr by 2030 Continued decline of imports from primarily Canada Projected growth of unconventional gas to fill the gap Moderate to slow growth of overall natural gas demand until after 2020 30
History
TCF/year
25
Projections
20 Unconventional 15 10
Non-associated offshore Alaska
Associated-dissolved Net imports
5 Non-associated conventional
0 1990
1995
2000
2005
2010
2015
2020
2025
2030 modified from EIA, 2009
June 24, 2010
Module 1 What is Unconventional Gas?
June 24, 2010
Workshop Outline – Module 1
Service Sector Workshop
What is Unconventional Gas?
Main Types of Unconventional Gas Differences between Unconventional and Conventional Reservoirs Trapping Mechanisms for Gas Storage Exploration and Development Strategies for Unconventional Gas Risk Profile – What Risks Do Exploration Companies Face Resources versus Reserves
June 24, 2010
Workshop Outline â&#x20AC;&#x201C; Module1
Service Sector Workshop
Glossary of Terms Reservoir
The rock that contains potentially economic amounts of natural gas
Porosity
The free space within the fine grained rock that can store natural gas
Permeability
The ability of the rock to pass fluids or gas through it. The higher the permeability number, the greater the amount of fluid or gas that can flow through the rock over a fixed time period
Resources
The amount of gas that is thought to lie within a reservoir (lower degree of confidence) but does not account for how much is actually recoverable
Reserves
The amount of natural gas that is actually proven to be recoverable from a reservoir (high degree of confidence)
Source Rock
The rock material which contains organic material from which the natural gas is formed. In the case of shale gas and coal, the reservoir is also the source rock. In tight gas reservoirs, the natural gas was sourced elsewhere and migrated to the reservoir rock
June 24, 2010
What is Unconventional Gas ? – CSUG Definition
Service Sector Workshop
Unconventional Gas is very simply Natural Gas from what industry would call Unconventional Reservoirs
Often these reservoirs are of a lower quality and require enhanced technology types of completions to yield commercially successful wells
Unconventional gas “plays” are often referred to as Resource “plays”
Resource play types of exploration and development projects are usually successful through lower cost operational efficiency and economy of scale type operations
Lateral pervasiveness of reservoir shifts risk from geology to engineering
June 24, 2010
Service Sector Workshop
What is Unconventional Gas ?
1000 md High Quality
Medium Quality
Tight Larger Reservoirs Gas More Difficult to Develop Gas Shales
100 md 1 md
Coalbed Methane
0.1 md
0.001 md Lower Quality
0.00001 md
Increased Technology Requirements
Smaller Reservoirs Easier to Develop
Increased Cost to Develop
Natural Gas Resource Triangle
Gas Hydrates modified from Schmezl, 2009
June 24, 2010
Types of Unconventional Gas Reservoirs
Service Sector Workshop
Tight Gas Sands and Carbonates Natural gas has migrated into the micro-porosity of the rock matrix Commonly found in basin centered gas deposits
Natural Gas from Coal (Coalbed Methane) Host rock is both source and reservoir for natural gas Reservoir rock is highly compressible and subject to changes in permeability
Shale Gas Very high natural gas resource base per volume of reservoir rock due to high micro-porosity Requires extensive fracture stimulation
June 24, 2010
Types of Unconventional Gas Reservoirs
Service Sector Workshop
Conventional vs Continuous or Unconventional Type Accumulations
from Midnight Oil and Gas, 2009
June 24, 2010
Types of Unconventional Gas Reservoirs
Service Sector Workshop
Conventional Reservoirs Storage tank Gas generated elsewhere (source rock) and then migrates to the potential reservoir Need a trap for the gas: structural, stratigraphic
Unconventional Reservoirs (excluding tight gas and carbonates)
Both source and reservoir Gas generated in situ, (some migration) Do not necessarily need a trap but generally need a seal Gas held in reservoir by either pressure or low permeability
June 24, 2010
Service Sector Workshop
Types of Unconventional Gas Reservoirs Unconventional Reservoir Continuum
Conventional Gas Reservoirs
Tight Gas Reservoirs
“Hybrid” Gas Reservoirs
Shale Gas Coalbed Methane Reservoirs
The shift from conventional to unconventional reservoirs reflects a change in grain size from higher permeability, coarser grained rocks towards very fine grained rocks with low permeability Reservoir variability both vertical and geographically can lead to the development of “sweet spots” of higher permeability in the finer grained reservoir rocks Core photos courtesy of Canadian Discovery
June 24, 2010
Service Sector Workshop
Types of Unconventional Gas Reservoirs Organic-rich Black Shale
High TOC & high adsorbed gas Low matrix Sw High matrix Sg Gas stored as free & adsorbed Mature Source Rock
Silt - Laminated Shale or Hybrid
Gas stored in shale and silt Low to moderate TOC Higher permeabilities in silty layers
Highly Fractured Shale
Low TOC & low adsorbed gas High matrix Sw Low matrix Sg Gas stored in fractures Shale is the source rock
From Hall, 2008
June 24, 2010
Key Aspects of Unconventional Gas Development
Service Sector Workshop
Two Major Resource Play Types in Canada Deep Horizontal
BIG PRIZE
High costs due to horizontal drilling and
Shallow Co-Mingled
HIGH RISK
multi-stage fracing Well costs $6-10 MM High productivity wells with sharp decline rates Well production >2 MMcf/d High entry costs “Barnett type” business model
LOWER RISK SMALLER PRIZE
Lower costs due to coiled tubing drilling and use
of nitrogen with proppant fracing technology Well costs $250,000 to D&C and Stimulate Low productivity wells with flatter decline rates Economic wells due to co-mingled zones Well production 100-150 mcf/d Lower entry costs “Shallow gas – Manufacturing” business model
June 24, 2010
Key Aspects of Unconventional Gas Development
Service Sector Workshop
Each basin is unique requiring capital intensive exploration
and experimentation to optimize productive sweet spots as well as stimulation and production methodologies Creates a two tier approach by industry players: Early Explorers
- large capital expenditures required - advantage in land acquisition position and cost - higher risk - generally associated with resource play development
Early Adopters
- apply learnings of the early explorers to optimize capital costs and completion techniques - do not have the opportunity to acquire prime land position other than perhaps by serendipity - lower risk of technology but higher risk associated with resource base size
Most shale and tight gas wells have very high decline rates – need to plan for a large acreage position to allow for continued drilling to offset declines June 24, 2010
Key Aspects of Unconventional Gas Development
Service Sector Workshop
UNCONVENTIONAL GAS STRATEGY
AN INTEGRATED APPROACH TO WELL DESIGN
Reservoir Characterization
Completion Strategy
Unlocking the Resource Play
Wellbore Architecture
from E. Schmelzel, 2008
June 24, 2010
Key Aspects of Unconventional Gas Development
Service Sector Workshop Water Disposal
UNCONVENTIONAL GAS STRATEGY
Environmental Impact Surface Impacts
Production Rates
Water Production Casing Exit
Completion Strategy
Multiple Targets
Casing /Tbg Design
Log analysis / type Tortuosity
Frac Design
Frac Initiation Pressure Geochemistry Orientation In-Situ Stress
Vertical Horizontal
Multi-laterial / laterial Open Hole / Slotted liner Flow regime
Wellbore Architecture
Fluid Invasion
Cemented Uncemented
Cement Assurance Zonal Isolation/ Liner Integrity
Open Hole Cased Hole from E. Schmelzel, 2008
Wellhead Config Hole Cleaning
June 24, 2010
Key Aspects of Unconventional Gas Development
Service Sector Workshop
The Key Questions Reservoir Characterization Reservoir modeling
THE GOAL
MAXIMIZED Sweet Spot identification
Wellbore placement
RESERVOIR EXPOSURE
Wellbore completion
from E. Schmelzel, 2008
June 24, 2010
Unconventional Gas Risk Profiles Conventional Reservoirs
Service Sector Workshop
Unconventional Reservoirs
Geoscience
Engineering Geoscience
Much of the risk is concentrated in the front end geoscience exploration and the ability to locate natural gas reservoirs of economic size
Engineering
Risk is concentrated in the ability to produce economic volumes from laterally pervasive deposits of natural gas where the risk of finding hydrocarbons is low
June 24, 2010
Service Sector Workshop
Resources versus Reserves
Primary goals of initial exploration programs for unconventional gas plays are: Define rock properties of the target zones to determine how much gas may be present Define reservoir properties to guide in the development of the fracture stimulation program Undertake initial stimulation testing of primary zones to quantify initial productivity Conduct extended reservoir testing to determine decline rates and changes in reservoir pressure
Reserves
Exploration Activities
Initial Drilling OGIP
Initial Well Testing IP
Initial Well Stimulation and Testing
Extended Well Testing
Multiple Wells And Reproducibility Of Results
Resources P10
P50 Probability of Success
P90
June 24, 2010
Module 2 Drilling and Completion Technologies
June 24, 2010
Workshop Outline – Module 2
Accessing the Reservoir - Why and How
Drilling and Completion Technologies
Service Sector Workshop
Coiled Tubing Drilling Horizontal Drilling Multi-Lateral Drilling
Completion and Stimulation Techniques Vertical Fracture Stimulations and Co-Mingling Multi-Stage Fracture Stimulation Techniques Micro-Seismic to Determine Effectiveness of Stimulation
Gas Factory Ideology
Optimization of Reservoir Production Key Aspects of Unconventional Gas Development Stages of Exploration and Development Economies of Scale and Economic Benefits
June 24, 2010
Workshop Outline – Module 2
Service Sector Workshop
Glossary of Terms EUR
Estimated Ultimate Recoverable reserves from a well
OGIP
Original Gas in Place before production (usually quoted in billions or trillions of cubic feet)
IP
Initial production rate of a gas well – often much higher than the sustained production rate – usually quoted as millions or thousands of cubic feet per day (Mmcf/d or mcf/d)
Hydraulic Fracturing
Commonly referred to as fracing, this is the process where the reservoir rock is cracked using pressure and fluids to create a series of fractures in the rock through which the natural gas will flow to the wellbore
Multi-Stage Fracturing
The process of undertaking multiple fracture stimulations in the reservoir section where selected parts of the reservoir are isolated and fractured separately
Microseismic
The methods by which fracturing of the reservoir can be observed by geophysical methods to determine where the fractures occurred within the reservoir June 24, 2010
Accessing the Reservoir
Service Sector Workshop
The fundamental purpose of drilling a natural gas wellbore is to intersect the wellbore and optimize the productivity from the wellbore In unconventional reservoirs the ability of the gas to flow to the well is hindered due to lower permeability To counter this lower productivity, drilling and stimulation techniques are used to maximize the amount of the reservoir exposed to the wellbore
Techniques include: Vertical well multi-zone stimulation Horizontal wells Multistage fracturing
Essentially all unconventional gas reservoirs require some form of improved access either through drilling or hydraulic fracturing
June 24, 2010
Drilling and Completion Technologies
Service Sector Workshop
Different types of drilling equipment and methodology are available dependent on reservoir depth, thickness and expected flow properties
Some choices include:
Coiled Tubing Drilling and multi-zone completions Horizontal Drilling Multi-Lateral Drilling
June 24, 2010
Drilling and Completion Technologies
Service Sector Workshop
Drilling Efficiencies and Savings have been achieved through:
Speed of drilling using new bit technology (PDC bits achieve penetration rates of up to 80 m/hr) Multiple drill string assemblies that reduce tripping time Geosteering in real time in horizontal and multilateral wells Automation of rig floor equipment eliminating additional manpower Fit for purpose rigs that can move on site without teardown Eg. Range Resources operates two fit for purpose drilling rigs that can move to the next well location on a common pad with over 3000 m of drill pipe stacked on the derrick – rig move reduced from days to hours From Range Resources, 2010
June 24, 2010
Drilling and Completion Technologies Geosteering of horizontal wells in real time allows optimal reservoir penetration
Service Sector Workshop
Multiple well orientations either vertical or horizontal from single surface well pads minimizes footprint
courtesy Halliburton
June 24, 2010
Drilling and Completion Technologies
Service Sector Workshop
• Drilling of horizontal wells with the horizontal legs being up to 2500 m in length • Multi stage fracture stimulations using slick water and sand to essentially “create reservoir” in rock that would not have been considered reservoir quality previously
Zonal isolation packer systems in horizontal and multi-lateral wells allow for selective stimulation as well as production
courtesy Halliburton
June 24, 2010
Drilling and Completion Technologies
Service Sector Workshop
Horizontal Drilling/ Multi-Lateral Drilling
Side Laterals
Main Lateral
The Pinnate Drainage Pattern
June 24, 2010
Completion and Stimulation Techniques
Service Sector Workshop
Fracture stimulations are required for most Unconventional resource plays due to low permeabilities of the reservoirs Type of fracture stimulation used is defined by: Depth and number of reservoirs to be stimulated Reservoir quality Type of wellbore (vertical versus horizontal) Fluid sensitivity Geomechanical properties of the reservoir Availability of equipment and materials Economic assessment of wellbore deliverability
June 24, 2010
Service Sector Workshop
Completion and Stimulation Techniques Fracture Stimulation Parameters The main purpose of fracture stimulation is to create open pathways for fluid flow within the reservoir either by creation of fractures or intersection of existing fracture systems Ideally the reservoir rock should be “brittle” so that it fractures easily Mineral content of the shales will determine “fracability” of reservoir – ideally a silica rich shale is preferred
Sheared and slickensided fractures Open vertical fractures
From Hall, 2008
June 24, 2010
Completion and Stimulation Techniques
Service Sector Workshop
Typical coil tubing unit used for multi-zone fracture stimulation
Courtesy of Halliburton, 2009
June 24, 2010
Service Sector Workshop
Completion and Stimulation Techniques Light Weight Proppant Technology is Key
Before
After (10,000 psi)
High Velocity Nitrogen pumping under pressure Courtesy Stealth Ventures, 2008
June 24, 2010
Completion and Stimulation Techniques
Service Sector Workshop
Horizontal Wellbore and Multi-Lateral Wellbore Completions ď&#x192;&#x2DC; Commonly multi-stage fracture stimulations are conducted to optimize the amount of fracture energy entering into the wellbore ď&#x192;&#x2DC; The horizontal leg is broken into stages where fracture stimulation for each stage is isolated from the rest of the wellbore ď&#x192;&#x2DC;Fracture design for each stage within the horizontal leg is dependent on borehole logging indicators of gas concentration as well as natural fracture density
June 24, 2010
Service Sector Workshop
Completion and Stimulation Techniques
Application of Multi-Stage Fracing Critical to Unlocking Resource Potential Comparison of Frac Stages to Iniitial Well Productivity
Cost of additional frac stages needs to be balanced against increase in production and EUR
16
1200000
14
1000000
12 800000
10 8
600000
6
400000
4 200000
2 0
Incremental Cost of Frac Stage ($$)
Each additional frac potentially increases recoverable reserves by 0.5 to 1.5 Bcf
Incremental Cost of Frac Stage
Initial Production Rate (mmcf/d)
Each additional frac increases initial well productivity by 0.5 to 1.5 mmcf/d
0 2
3
4
5
6
7
8
9
10
Number of Frac Stages IP low (mmcf/day)
IP high (mmcf/day)
Frac costs ($,000)
June 24, 2010
Completion and Stimulation Techniques
Service Sector Workshop
From Fairborne Energy, 2009
June 24, 2010
Drilling and Completion Technologies
Service Sector Workshop
Run vertical stimulation video
June 24, 2010
Drilling and Completion Technologies
Service Sector Workshop
Run horizontal CBM drilling video
June 24, 2010
How Do We Measure Success in Reservoir Stimulation
Service Sector Workshop
Micro-Seismic to Determine Effectiveness of Stimulation Measures micro seismic events related to the propagation of fractures within the reservoir Requires one or more observation wells to allow proper mapping of location geographically and vertically of microseismic events Can be run independently or as permanent seismic arrays in field to be developed Provides a 3D image of fracture propagation that can be measured in real time during the fracture stages Allows fracture propagation trends to be identified and adjusted for additional stages so fractures can be contained within zone Identifies areas of poor fracture generation or geological barriers to effective stimulation
June 24, 2010
How Do We Measure Success in Reservoir Stimulation
Service Sector Workshop
Run microseismic video
June 24, 2010
How Do We Measure Success in Reservoir Stimulation
Service Sector Workshop
Fracture microseismic events relative to orientation of wells in Barnett fairway illustrate:
ď&#x192;&#x2DC; Complex nature of natural fracture system that exists within reservoir (Figure A) ď&#x192;&#x2DC; Areas of limited fracture propagation that may represent areas of infill drilling for optimal reserve recovery (Figure B)
Figure A
Figure B
from Pinnacle Technologies
June 24, 2010
Completion and Stimulation Techniques
Service Sector Workshop
ď&#x192;&#x2DC; Multi-stage fracture stimulations are labor and equipment intensive that requires planning for wellsite activities as well as supply of frac materials (sand and water primarily)
ď&#x192;&#x2DC; Multi-stage fracture stimulations are costly and should be undertaken only after reservoir properties have been tested from vertical wellbores and core data
Courtesy Fairborne Energy, 2009
Courtesy Fairborne Energy, 2009
June 24, 2010
Gas Factory Ideology
Service Sector Workshop
Optimization of Reservoir Production Key Aspects of Unconventional Gas Development Stages of Exploration and Development
Economies of Scale and Economic Benefits
June 24, 2010
Service Sector Workshop
Optimization of Reservoir Production Understanding the Reservoir is Key to Optimizing Production and Reserve Recovery
This is achieved through continuous improvements and experimentation in drilling, completion and production techniques
From Southwestern Energy, 2009
June 24, 2010
Service Sector Workshop
Optimization of Reservoir Production Resource play development is a statistical play
Recognition that within the gas field there are going to be both high volume and low volume producers Rely on statistical average to achieve project economic return on investment Understanding reservoir properties will decrease the risk of completing low volume producing wells
From Southwestern Energy, 2009
June 24, 2010
Optimization of Reservoir Production
Service Sector Workshop
Downspacing of horizontal wells has been instrumental in improving EUR for individual wells EUR from infill wells up to 50 % of OGIP as compared to 10-20% from original spacing Application of simul-fracs on multiple parallel horizontals wells may further increase recovery factor
June 24, 2010
Key Aspects of Unconventional Gas Development
Service Sector Workshop
Unconventional Gas Strategy is Critical to Success Understanding the Play Reservoir Characterization Resource Assessment Formation Properties & Analogs Address The Resource Play Challenges Which technologies, services or products are most appropriate Operational Risk / Cost Assessment Field Trials / Pilot
Build in Efficiency Scale of operations is usually large Remote areas may add significant cost Bundling of Services, Concurrent / Continuous Operations
June 24, 2010
Service Sector Workshop
Stages of Exploration and Development 0 Stage 1: Identification of UCG Resource
1 Stage 2: Early Evaluation Drilling
2
3
4
5
20
Time (years)
Newfoundland Barnett Stage 3: Pilot Project Drilling
Haynesville Stage 4: Pilot Production Testing
Quebec Lowlands Nova Scotia New Brunswick
Horn River Basin
Fayetteville Woodford Montney
Alberta Plains
Pace of development is largely dependent on technical success and market conditions
Marcellus
Horn River Basin Alberta Plains
Stage 5: Commercial Development Project Reclamation
June 24, 2010
Stages of Exploration and Development
Service Sector Workshop
ď&#x192;&#x2DC; The slower rate at which the EUR is captured in unconventional reservoirs extends the economic break- even point, but the long-term ultimate recovery due to the size of the OGIP remains attractive compared to conventional reservoirs ď&#x192;&#x2DC; To achieve economic production of unconventional gas you need: high gas prices; preferably existing infrastructure, new and existing technologies that are available in sufficient quantity; and a competitive / incented environment in which to work
Life Cycle of an Unconventional Natural Gas Resource Development
From Shell E&P Technology, 2009
June 24, 2010
Economies of Scale and Economic Benefits
Service Sector Workshop
Resource Play Success is achieved through the adoption of a “Manufacturing Style” approach to commercial development Efficiency Controls Costs Speed of Execution Materials Management / Recycling Risk Avoidance Strategies & Methods Logistics Costs Demand Innovation Critical in Remote Areas
from E. Schmelzel, 2008
June 24, 2010
Economies of Scale and Economic Benefits
Service Sector Workshop
Cost savings can be achieved through a vertical integration business model which is particularly important in a competitive natural gas market
Companies such as Southwestern Energy and Range Resources have demonstrated significant savings on field development by integrating drilling, completion equipment, fracture fluids and proppants and midstream pipeline operations
Courtesy Southwest Energy, 2009
June 24, 2010
Economies of Scale and Economic Benefits
Service Sector Workshop
Key Elements of Manufacturing Ideology Minimize completion time Mitigate operational risk Define synergies and economies of scale Maximize EUR - completion methods which are adaptable to future recompletion capabilities reserves Minimize Logistics Costs: Re-using water from flowback and production, innovative fluid handling & storage Minimize Surface Impact & Costs: Pad drilling and completions, multi-lateral capability
Creation of service sector alliances or entities to enable the timely supply of service sector equipment and materials
June 24, 2010
Module 3 North American Gas Market and its Impact on Western Canada
June 24, 2010
Workshop Outline – Module 3
Service Sector Workshop
Glossary of Terms OGIP
Original Gas in Place before production (usually quoted in billions or trillions of cubic feet)
Marketable Resources
The estimated amount of natural gas that can be recovered from the OGIP values using existing technology
IP
Initial production rate of a gas well – often much higher than the sustained production rate – usually quoted as millions or thousands of cubic feet per day (Mmcf/d or mcf/d)
F&D Costs
The finding and development costs that a company spends to develop the natural gas well or field
Royalties
The amount of $$ that companies pay to the owner of the oil and gas resources (usually the government)
NYMEX or AECO
Natural gas market hubs that establish baseline pricing for natural gas sold in North America
June 24, 2010
Workshop Outline – Module 3
Canada‟s Natural Gas Resource Base
North American Unconventional Gas Basins
Service Sector Workshop
Competition from Developments in United States North American Pipeline Infrastructure
Competitive Challenges Facing Western Canada
Competitiveness Opportunities
June 24, 2010
Service Sector Workshop
Canadaâ&#x20AC;&#x;s Natural Gas Resource Base
Total Gas In Place Resources 3915 Tcf ( 111x 1012 m3 )
692
1111
801 1311
Conventional (remaining)
NGC/CBM
Tight Gas
Shale Gas
Estimates from Petrel Robertson Resource Assessment Study completed for CSUG April 2010
June 24, 2010
Service Sector Workshop
Canada‟s Natural Gas Resource Base Conventional Projected Natural Gas In Place
Mackenzie- Beaufort
67 Western Arctic
44
Total
692 Tcf
(TCF – trillions of cubic feet)
NWT/Yukon
76 Labrador Shelf
24 Western Canada Sedimentary Basin 482
East Coast Onshore
41
Ontario
East Coast Offshore 81
5
June 24, 2010
Service Sector Workshop
Canada‟s Natural Gas Resource Base Arctic Islands NWT Cretaceous
Shale Gas Projected Natural Gas In Place Total
1111 Tcf
(TCF – trillions of cubic feet)
NWT Devonian Besa River Horn River Basin 500
Cordova Embayment 200 Western Canada Sedimentary Basin (Colorado Group only) 100
Maritimes 130 Utica 181 Ontario Paleozoic
June 24, 2010
Service Sector Workshop
Regional Shale Gas Resource Estimates (Tcf)
1200 Marketable Low Marketable High Gas In Place
ď&#x192;&#x2DC; No resource estimates 1000 have been made for Duvernay Fm in Alberta 800 or the Muskwa equivalent formations into Yukon or 600 NWT ď&#x192;&#x2DC; Colorado shale estimate is 400 considered conservative as limited exploration on deep 200 Colorado has been 0 completed to date
1111
500
200 170 68 75
181
100 30
42
14 4
7
343 130 49 11
128
June 24, 2010
Canadaâ&#x20AC;&#x;s Natural Gas Resource Base
Service Sector Workshop
Tight Gas Projected Natural Gas In Place Total Cambrian
1311 Tcf
(TCF â&#x20AC;&#x201C; trillions of cubic feet)
Chinkeh BC Deep Basin 187 Montney 632
Jean Marie 62
Deep Basin 430 Note: Montney estimate does not include extension of resource potential into Alberta
Albert
June 24, 2010
Service Sector Workshop
Regional Tight Gas Resource Estimates (Tcf)
1600 1400
Marketable Gas Low
1411
Marketable Gas High
No tight gas estimates have been made for Quebec or Maritimes
1200
Original Gas In Place
1000 800
* Resource estimate for Alberta Montney is based upon pers. com.
600 450
400 200 0
187 67 30
62 22 10
62 23 11
120 43 19
166 77
430
100 33 15
155
509
230
69
From CSUG Natural Gas Resources Assessment Study, 2010 June 24, 2010
Canadaâ&#x20AC;&#x;s Natural Gas Resource Base
Service Sector Workshop
Natural Gas from Coal Projected Gas In Place Total
801 Tcf
(TCF â&#x20AC;&#x201C; trillions of cubic feet)
British Columbia Basins 84
Western Canada Sedimentary Basin 638
Maritimes 79
June 24, 2010
Service Sector Workshop
Regional NGC Resource Estimates (Tcf) Note marketable NGC for British Columbia has been constrained significantly due to concerns about access to resources
Assessment does not include NGC potential in Yukon where potential is limited due to lack of infrastructure Marketable resource potential for Maritimes is constrained by much of resource location (offshore)
Marketable Low Marketable High Gas In Place
900
801
800 700
636
600 500 400 300 84
200
129
8
0.2
100 4
0
79
2
117
3.6
27 0
3
34
June 24, 2010
Service Sector Workshop
Prospective Shale Gas Basins in United States
160 Tcf 76 Tcf
1500 Tcf
52 Tcf 717 Tcf 327 Tcf
23 Tcf From DOE, April 2009
June 24, 2010
Prospective Tight Gas Basins in United States
Service Sector Workshop
June 24, 2010
Pipeline Corridors for North American Gas Distribution
Service Sector Workshop
Major pipeline corridors in United States are being built to eliminate local bottlenecking in delivery of natural gas to the northeast market
ANTRIM MARCELLUS
NEW ALBANY
BARNETT
FAYETTEVILLE WOODFORD HAYNESVILLE
June 24, 2010
North American Gas Market and its Impact on Western Canada
Service Sector Workshop
In the past 3 years, shale gas production has increased by 6 Bcf/day while in 2008/09, demand destruction due to economic recession has reduced demand by as much as 2 Bcf/day 9
Daily Production (Bcf/d)
8 7 6 5 4 3 2 1 0 Jan „04
Jul „04
Antrim
Jan „05
Jul „05
Barnett
Jan „06
Jul „06
Fayetteville
Jan „07
Jul „07
Woodford
Jan „08
Jul „08
Haynesville
Jan „09
Marcellus
From Southwest Energy, 2009
June 24, 2010
North American Gas Market and its Impact on Western Canada
Service Sector Workshop
Canadian Exports will continue to be challenged by lower cost natural gas produced in United States basins Industry will react negatively through declining activity due to poor economics but there will be a lag from when activity declines and actual production declines
Technological development has allowed the projected decline rates to be offset by improved productivity
Horizontal Drilling Activity in United States 2010
Drilling Activity in United States - 2010 From ARC Energy Charts, 2010
June 24, 2010
North American Gas Market and its Impact on Western Canada
Service Sector Workshop
Many E&P companies are shifting their exploration focus to oil resource plays due to low market price for natural gas Gas completions continue to stall and much of the shallow gas wells are re-completions rather than new drills Abundant gas supply in United States coupled with continued horizontal drilling will continue to put downward pressure on natural gas prices including hedged contracts over the next few years (2-5 ?????)
Oil Well Completions in Canada -2010
Gas Well Completions in Canada - 2010 From ARC Energy Charts, 2010
June 24, 2010
North American Gas Market and its Impact on Western Canada
Service Sector Workshop
Higher Demand Cycle
Supply Glut - Lower Demand Cycle
Modified from Government of Nebraska website, 2010
June 24, 2010
Challenges to Western Canada Natural Gas Production
Service Sector Workshop
While Western Canada contains vast quantities of largely under-developed unconventional gas, the industry as a whole faces a number of challenges that negatively impact the competitiveness of the produced product Pipeline tariffs to major markets Distance and current tolls create a $0.50 to >$1.00 burden to producers CDN $ exchange rate advantage has evaporated due to strength of Canadian $$ Rule of thumb was $0.01 differential between US$$ and CDN $$ translated into $0.06 - $0.07/mcf market price
Finding and Development costs are higher due to weather related constraints Additional costs to drill during winter months and spring break up Royalty and Regulatory burdens negatively impact economics While royalty changes in B.C. and Alberta have helped they still are not as competitive to some US jurisdictions
Explorer composition and mobility of capital Many of the major unconventional gas players in Western Canada have a diverse resource play portfolio that extends across North America allowing movement of capital to areas of economic advantage Commitment by industry to one primary consumer market (US)
June 24, 2010
Barnett (Tier 3)
Mannville (CBM)
Piceance (Highlands)
Barnett (Tier 2)
Jean Marie (Tight Gas)
Alberta Deep Basin
Wattenberg (Core)
Montney (4 stage frac)
Woodford (Arkoma)
Raton (CBM)
Horseshoe Canyon
Alberta Shallow Gas
Powder River (CBM)
Jonah
Eagleford
Uinta (Shallow)
Fayetteville (2.2 Bcf)
Nora (CBM)
Piceance (Valley - Core)
Montney (8 stage frac)
(W. Texas Overthrust)
Pinedale (Flank)
Huron Shale
Barnett (Tier 1)
Woodford (Anadarko)
Horn River
Marcellus
Fayetteville (2.6 Bcf)
Pinedale (Crest)
Granite Wash (Horz.)
Haynesville
Deep Bossier
Challenges to Western Canada Natural Gas Production Service Sector Workshop
Required NYMEX Natural Gas Strip for 10% IRR
$10
$8
$6
$4
$2
$0
Source: Morgan Stanley September 14, 2009
June 24, 2010
Competitiveness of Western Canada Natural Gas
Service Sector Workshop
Economic success in remote locations such as Horn River will require technological advances as well as logistical efficiencies Courtesy of Nexen, 2010
Efficiencies achieved through multiple wells from single pads allow for centralization of equipment and stockpiling of materials and consumables for extended drilling programs One drill pad may hold as many as 18 wells allowing development of 3 sections of land 250 to 300 fracture stimulations from a single pad – equipment on site for 2 to 3 months
June 24, 2010
Competitiveness of Western Canada Natural Gas Challenge:
Service Sector Workshop
Improve overall productivity and/or economics for the entire play â&#x20AC;&#x201C; not just the â&#x20AC;&#x153;sweet spot high productivity areasâ&#x20AC;?
Recognition that within the gas field there are going to be both high volume and low volume producers
- Barnett shale completions
Rely on statistical average to achieve project economic return on investment Understanding reservoir properties will decrease the risk of completing low volume producing wells Improved productivity will allow marginal wells to achieve economic thresholds Modified from Southwestern Energy, 2009
June 24, 2010
Competitiveness of Western Canada Natural Gas
Service Sector Workshop
Competitiveness within the natural gas market where there is no current control over market price and transportation costs can be influenced by 4 major variables: Improvement of well performance either through production volumes or estimated ultimate recovery (EUR) Well performance can be in the form of IP rates to slower decline rates
Improvement of well costs from cradle to grave Reduction of development costs through logistical efficiencies and synergies are critical to economically successful development Savings achieved through development in areas that have established infrastructure Creation and deployment of new technologies that will allow unique unconventional gas opportunities in Western Canada to be developed Focus R&D efforts on technologies that will positively impact Western Canadian unconventional gas deposits
Establish alternative markets outside of North America to realize optimal value for natural gas produced
June 24, 2010
Service Sector Workshop
Competitiveness of Western Canada Natural Gas Well Cost Evolution ($C)
Production Evolution
Deep Basin – (vertical wells)
Montney - Per Interval
$MM
$MM/Frac
Horn River MMcfe/d
1.50
7.5 6.2
11.7
5.9 4.9
9.1
0.95
4.7
0.79
2006 2007 2008 2009 2010F
0.37
2007
2008
0.61
2009
2010F
Horn River – Per Interval $MM/Frac
NGC – Well costs $MM 0.40
2006
0.65
4.6
2008
2009
2010F
Montney MMcfe/d
2.0 0.36
3.9 1.0
4.7
5.3
3.7
2.1 0.6 2006 2007 2008* 2009 2010F
2008
2009
2010F
2008
2009
2010F
Modified from CAPP, 2010
June 24, 2010
Competitiveness of Western Canada Natural Gas
Service Sector Workshop
New emerging markets for Canadian Natural Gas Fleet Vehicles and Heavy Trucks
International Exports
Source: CNGVA, 2010
If 5% of heavy vehicles in Canada operated on natural gas Gas consumption would increase by 53 Bcf or 1.5% of current domestic gas use Greenhouse gas emissions from heavy diesel vehicles would decrease by 795 kilotonnes per year
Source: Apache Corp, 2010
5 mtpa export capacity by 2014 Significant potential for increased sales of Western Canada gas at prices higher than current North American price structure
June 24, 2010
Service Sector Workshop
Competitiveness of Western Canada Natural Gas Projected Supplies of Natural Gas in United States
United States conventional production continues to decline from 5 Tcf/yr to < 3 Tcf/yr by 2030 Continued decline of imports from primarily Canada Projected growth of unconventional gas to fill the gap Moderate to slow growth of overall natural gas demand until after 2020 30
History
TCF/year
25
Projections
20 Unconventional 15 10
Non-associated offshore Alaska
Associated-dissolved Net imports
5 Non-associated conventional
0 1990
1995
2000
2005
2010
2015
2020
2025
2030 modified from EIA, 2009
June 24, 2010
Module 4 Opportunities and Challenges
June 24, 2010
Opportunities and Challenges
Service Sector Workshop
Glossary of Terms NGC
Natural gas from coal or commonly referred to as coalbed methane (CBM)
Co-mingling
Production of natural gas from multiple vertical zones within a single borehole
Hybrid well
Natural gas production from both coals and other non-coal reservoirs such as sandstone or shale within a single borehole
Hydraulic Fracturing
Commonly referred to as fracing, this is the process where the reservoir rock is cracked using pressure and fluids to create a series of fractures in the rock through which the natural gas will flow to the wellbore
June 24, 2010
Opportunities and Challenges
Service Sector Workshop
Natural Gas from Coal Current Developments Opportunities for Growth
Shale Gas Current Development Opportunities for Growth
Critical Elements for Success
June 24, 2010
Where is Unconventional Gas Located In Alberta?
Service Sector Workshop
Areas of Unconventional Gas Exploration and Development in Alberta
Tight Gas Sands and Carbonates Natural Gas from Coal
Shale Gas
Gas Hydrates
June 24, 2010
Natural Gas from Coal Opportunities
Service Sector Workshop
Natural Gas from Coal (NGC) or Coalbed Methane (CBM) still represent a significant growth area for central Alberta Over 14,000 wells are currently producing natural gas from coal Continued development of the Horseshoe Canyon play and possible expansion of Ardley NGC development to the west as part of the new co-mingling regulations will be major contributors North American gas price will still put pressure on operators to lower operating costs to be competitive Source: ERCB ST98-2010 June 24, 2010
Natural Gas from Coal Opportunities
Service Sector Workshop
Source: ERCB ST98-2010 June 24, 2010
Natural Gas from Coal Opportunities
Service Sector Workshop
Total number of NGC well completions for 2009 was 1848 98% of these wells were Horseshoe Canyon Formation vertical co-mingled production Of the 1811 Horseshoe Canyon wells, nearly 70% were re-completions of existing vertical wells Mannville NGC production accounted for 15% of total natural gas production but only 3% of new connections Changes to Alberta royalty system have created a competitive environment for “hybrid” NGC wells even in a low gas price setting
Source: ERCB ST98-2010 June 24, 2010
Natural Gas from Coal Opportunities
Service Sector Workshop
Source: ERCB ST98-2010 June 24, 2010
Natural Gas from Coal Opportunities
Service Sector Workshop
Source: ERCB ST98-2010 June 24, 2010
Continued Improvement to Maintain Competitiveness
Service Sector Workshop
Source: Ember Resources, 2010 June 24, 2010
Service Sector Workshop
Shale Gas Potential of Canada Original Gas In Place (Tcf) 130 181
500
100
Bowser Basin Colorado Group Jurassic and Paleozoic Devonian Shales
200
Cordova Embayment 200 Tcf Horn River Basin 500 Tcf
Colorado 100 Tcf
Maritimes Basin 130 Tcf Utica and Lorraine Shale Basin “Quebec Lowlands” 181 Tcf
From CSUG Natural Gas Resource Assessment Study, 2010 June 24, 2010
Colorado Group Unconventional Gas Play
Service Sector Workshop
June 24, 2010
AGE (Ma)
Colorado Group Unconventional Gas Play
GE
Service Sector Workshop
FORMATION
LEA PARK
84
U. COLORADO
ONIAN
1st WHITE SPEC
87
ACIAN
MEDICINE HAT EQN.
89
ONIAN
93
ANIAN
COLORADO GROUP
basal U COLORADO
2nd WHITE SPEC
BELLE FOURCHE
FISH SCALE MKR
97-99
IAN VIKING
Gas Migration
WESTGATE
Gas migrates from the gas charged shales into the silt and sand laminae which allows up to five perforation entry points to be picked over the entire Colorado Group Shales
Gas Migration
MILK RIVER EQN
Hundreds of feet of Gas Charged Shales
ANIAN
JOLI FOU
MANNVILLE
Source Stealth Ventures Ltd
June 24, 2010
Colorado Group Unconventional Gas Play
Service Sector Workshop
Application of technology to address swelling clays and fracing issues and will be critical to achieve optimal production volumes
High velocity nitrogen fracing
Light Weight Proppant
Before
After (10,000 psi)
Source Stealth Ventures Ltd
June 24 , 2010
Emerging Opportunities – Shale Gas
Service Sector Workshop
Deep Colorado Group has thermogenic potential for shale gas resources New data released by AGS on reservoir characterization will enable target areas to be defined Maturity increases from east to west possibly increasing the “brittleness” of the shale formations
Source: Geological Atlas of Western Canada Sedimentary Basin June 24, 2010
Emerging Opportunities â&#x20AC;&#x201C; Tight Gas
Service Sector Workshop
Distribution of major tight gas formations in southern Alberta plains
June 24, 2010
Western Canada Natural Gas Challenges
Service Sector Workshop
Development of unconventional gas is a technology play. Industry continues to make advances in technology development and deployment that allows improvement in productivity and EUR as well as opening up opportunities in new basins (ie. Deep Bossier) The impact of application of these new technologies will create an environment where natural gas will remain an abundant â&#x20AC;&#x153;low costâ&#x20AC;? energy supply for the next 2-3 years Companies will need to look at new market strategies as well as corporate strategic direction to ensure sustainability and growth in the re-defined North American natural gas marketplace
June 24, 2010
The Final Comment
Service Sector Workshop
So what have we learned this morning? One thing for sure --- INFORMATION OVERLOAD But here are some key takeaways: Canada and Alberta has enough natural gas to supply our needs as well as our export levels for over 100 years This abundance of natural gas in North America will continue to keep prices at the lower level for the near future due to oversupply into the market Companies exploring and producing natural gas in Western Canada will need to become the low cost operator if they are to compete in the North American market Economies of scale, manufacturing ideology and partnerships with the service sector will be critical to achieve this goal
June 24, 2010
Unconventional Gas in Canada Critical Elements for Technical and Economic Success
Thank You for Your Attention!
F M Dawson, President