Exploration World November 2014

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NOVEMBER 2014

SUPPLY AND DEMAND

IF NOT RUSSIA, WHO WILL

SUPPLY GAS TO EUROPE? Top 10 u.s. states by natural gas production

How the power of siberia pipeline will impact the future of eurasian energy

EDITOR’S COMMENT

History repeats itself. One might not always recognize it when it does. We live in a time when there’s no shortage of things to fear. It’s estimated that confirmed Ebola cases will reach 1.2 million worldwide by January. Middle Eastern turmoil continues to challenge the convictions of the western world and the ethics of intervention. Though making progress, the economy is not recovering nearly as quickly as would be desired. The Ukrainian crisis continues to drive a wedge between the world’s largest superpowers.

Despite all of this, the factor that is important to remember is that the world has been here before. We have faced deadly diseases and hell-bent radicals and posturing world powers. And in the end, we came out stronger. We learned and we tried to reshape things for the better. That is what we will do again, so long as we learn what brought us to this point.

In this issue, we examine the factors that led to the current tensions between Russia and the West and what that might mean for Europe’s energy sector. On the other side of the coin, we look at what a Russia that sees itself as embattled is doing to stabilize its own energy exports.

As the shale revolution has changed the American energy landscape, the states that produce the most natural gas have shifted. We take a look at which states are in the lead now. And since the boom in U.S. production has widespread impacts, we look at how developing market factors and technology are driving some companies back to the Gulf of Mexico.

Ian Hanner Editor ian.hanner@wdmgroup.com 3

CO CN OTNETN ETNST S FEATURES This month we focus on the customer experience with the latest technology

28 Pipelines

How the Power of Siberia Pipeline Will Impact the Future of Eurasian Energy

6 Drilling

New Technology Breathes Life into Declining Gulf of Mexico Production

12 Exploration

Supply, Demand and Russia

20 Logistics

Big Data, Big Opportunity

36 Top 10

Top 10 U.S. States by NAMCOR Natural Gas Production

COMPANY PROFILES

44

Laricina Energy

CANADA 44 Laricina Energy

AUSTRALIA

USA 50 Wildcat Midstream

4

58 Rockpile Energy Services

November 2014

74 TAG Oil

58 Rockpile

36

Top 10

States by Natural Gas Production

74 TAG Oil

50 Wildcat Midstream

5

DRILLING

NEW TECHNOLOGY B DECLINING GULF OF M

How new technology is cheaper, easier a

W R I T T E N B Y: I

6

November 2014

BREATHES LIFE INTO MEXICO PRODUCTION

making offshore drilling and more precise

IAN HANNER

7

DRILLING ONCE ONE OF the most prolific spots for drilling in not just the U.S. but the world, production rates in the Gulf of Mexico have drastically fallen in the last decade, but now new technology is poised to turn that around.

According to the U.S. Energy Information Administration (EIA), crude oil production in the Federal Gulf of Mexico fell from about 1.537 million barrels per day in 2003 to about 1.257 million barrels per day in 2013; a decline of over 18 percent. The change is even more drastic applied to wells drilled at depths less than 200 feet.

Between 1997 and 2007, that number fell from about 219 million barrels of crude oil to about 101 million; a drop of almost 54 percent.

It would be easy to attribute this across the board decline in production to the public’s uneasiness with offshore drilling following the Deepwater Horizon disaster in 2010, but it’s obvious when looking at the data that this trend predates that event. The truth is, the wells are starting to run dry.

That’s not to necessarily imply that the Gulf of Mexico is running out of oil (or other resources like natural gas, of which there is still an estimated 7 8

November 2014

trillion cubic feet remaining in offshore Louisiana and Alabama alone). Rather, the biggest problem is that all the easy to access oil has been tapped.

This is in large part the factor that has driven increased deepwater drilling in the Gulf of Mexico and why so many companies have been moving on land. The shale revolution, as some have come to call it, have opened up a whole new wave of American oil and gas production on-land in areas that are substantially cheaper to develop and often yield higher production levels anyway.

That’s part of what makes a recent return to the Gulf of Mexico so noteworthy; it might be making a comeback.

“We are re-shooting all of our large fields to make sure that we haven’t missed anything,” said Matt McCarroll, chief executive of Fieldwood Energy LLC, according to Reuters. That source reported that Fieldwood had purchased assets in the Gulf of Mexico last year from Apache Corp and SandRidge Energy Inc. Fieldwood is one of a relatively small number of companies that are diverting resources back to wells in that area thought to be past their

GULF OF MEXICO PRODUCTION

The Gulf of Mexico’s geographic location means calm weather for most of the year, excluding hurricane season.

prime. The primary reason for this return is the same reason why so many other companies have hit the jackpot onshore: technology.

As Reuters pointed out, horizontal drilling isn’t necessarily a new science, having been around for nearly two decades, but its overall application has never been so precise and so widespread until now. That technology, coupled with nearperfected three-dimensional (3D) seismic imaging hardware, is allowing these organizations operating in the

Gulf to utilize infrastructure already in-place rather than beginning new, extremely expensive deepwater developments.

Apache, which found itself in the news earlier this year when it struck nearly 300 million barrels of crude oil offshore Western Australia, has been utilizing these technologies in the North Sea for years, discovering numerous reservoirs previously glanced over.

“3D seismic has not only helped us in acquiring new leases with 9

DRILLING

new reserves on them, but also in sharpening targets for development drilling in our existing fields,” said Andy Clifford, president of Saratoga Resources, according to Reuters.

One major player in the Gulf of Mexico is Energy XXI which has been fully utilizing horizontal drilling and 3D seismic technology in the area for some time. As reported by Reuters, 10

November 2014

this allowed their proved reserves in the Gulf to increase by nearly 50 percent in 2013, having extracted only 5 percent of those holdings to-date.

They expect to extract another 5 percent moving forward.

“That’s a meaningful number when we talk about 6 billion barrels of oil in place underneath our top 10 fields,” Energy XXI CEO John

Schiller told Reuters.

The importance of increases in production like that made by Energy XXI is debatable. While this obviously represents a large amount of oil and natural gas wealth, it ultimately pales in comparison to the massive amount of the resources that is being produced on-shore. More importantly is what it represents: a new generation of oil and

gas production that through enhanced precision and greater safety measures is better able to responsibly harness the domestic resources available in shallow-water fields.

This has the potential to mean more abundant, cheaper energy while eliminating many of the risks, challenges and costs that comes with deepwater drilling.

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E X P L O R AT I O N

SUPPLY, DEMAND AND RUSSIA 12

November 2014

If not Russia, who will ship natural gas to Europe?

W R I T T E N B Y: I A N H A N N E R

13

E X P L O R AT I O N

AS SANCTIONS CONTINUE to amass at Russia’s feet over the country’s involvement in the Ukrainian crisis, several major contenders for the role of Europe’s chief natural gas supplier have emerged.

In February 2014, unidentified troops began taking part in covert operations in Crimea after “revolutionary” movements ousted former Ukrainian 14

November 2014

President Viktor Yanukovych.

Though denied at the time, it was later confirmed that these unknown units were Russian forces, leading to the Russian annexation of Crimea and the eventual sanctions aimed at Russia’s key economic players. As hostilities continued in the country— especially after the July 17 attack on Malaysia Airline Flight 17 by suspected

S U P P L Y, D E M A N D A N D R U S S I A

Ukrainian separatists—the western political world, spurred on by the U.S., echoed with calls for increased sanctions.

One major problem presented by crippling Russia’s energy sector, which a large portion of these economic sanctions targeted, is that the resource-rich nation provides a substantial share of natural gas imports to Europe. According to Saxo Capital Markets, Lithuania, Estonia, Finland and Latvia depend on Russia for 100 percent of their natural gas supply, which is especially important for the colder countries during the winter when the resource accounts for nearly all residential heating.

However, this dependence on Russian gas isn’t unique to those Baltic nations. Hungary and Bulgaria both imported over 80 percent of their natural gas from Russia. Austria and Poland both imported about 60 percent of their supply from the superpower, with Germany and France importing about 37 percent and 16 percent respectively.

As sanctions continued to pile up and Moscow grew more impatient with outstanding debt for gas supplied by Ukraine, Russia hinted

on numerous occasions that the country might consider turning off the flow of natural gas.

“Sanctions have a boomerang effect and without any doubt they will push US-Russian relations into a dead end, and cause very serious damage,” Russian President Vladimir Putin said after an early round of sanctions.

Russia’s Piece of the Pie This is a threat taken very seriously by the energy community, which implied such a shortage would result in extremely serious security situations.

“We think that Russia could block transit of gas through Ukraine to Europe, pending settlement by [Ukrainian oil and gas company] Naftogaz of outstanding debt and might also allow a decline in oil exports, which could add a geopolitical risk premium to the oil price,” Morgan Stanley analysts Jacob Nell and Alina Slyusarchuk wrote, according to International Business Times.

At about 1,688 trillion cubic feet in proved reserves, Russia is considered the most natural gas-rich country in the world, according to the U.S. Energy Information Administration 15

E X P L O R AT I O N

(EIA). Russia’s state-controlled Gazprom, both the largest gas producer and one of the largest overall companies in the world, produces roughly 47.1 billion cubic feet of gas per day. About 76 percent of Russia’s natural gas is then exported to Europe via pipeline, representing a sizeable chunk of Moscow’s tax revenue.

Ultimately, the western powers and 16

November 2014

Russia find themselves locked in a stalemate—Russia can’t afford to shut off the gas flow, but can’t abide sanctions. Based on that assessment, a good deal of financial and energy analysts have differed with Morgan Stanley and instead insisted such a move by Russia was farfetched. “…We do not foresee a radical shift away from [European] dependency on

Russian natural gas supplies that has been plead for by so many politicians and commentators on both sides of the Atlantic,� reads a market forecast released by the Brookings Institution in mid-October. “Instead, absent such interventions, we assume that the fundamental incentive for private entities to act (i.e. price) has not changed, and that political preference

will not enter the commercial lexicon.�

Despite that relative optimism, it seems that European leaders are preparing for the worst.

Other Options for Europe Ultimately starting in 2008, a boom in crude oil and natural gas production in the U.S. has ignited a national debate over the necessity to leave 17

E X P L O R AT I O N

in place a 1970s ban on the export of oil. However, while oil exports are still restricted, natural gas producers are permitted to export their resource under certain preconditions.

Infrastructure that would allow for the large-scale export of liquefied natural gas (LNG) to Europe is under development, though certain facilities already in place could fill a portion of the demand. According to a leaked EU document published

by The Washington Post on July 8, European leaders are abundantly 18

November 2014

aware of America’s ability to aid in the continent’s energy mix, all but insisting on increased exports as a precondition for the passage of the Transatlantic Trade and Investment Partnership (TTIP).

“The current crisis in Ukraine confirms the delicate situation faced by the EU with regard to energy dependence,” the document reads. “Of course the EU will continue working on its own energy security and broaden its strategy of diversification. But such an effort

S U P P L Y, D E M A N D A N D R U S S I A

begins with its closest allies.”

While the U.S. has no shortage of companies that would likely compete for a share of the European energy market, Putin expressed his disbelief in that scenario to energy executives in May, according to RT. “In order to set up exports of [LNG], infrastructure has to be created [on] either side of the Atlantic, and everyone understands that. This will take both, time and money,” Putin said. “Meanwhile, the gas prices in the [Asian] Pacific region exceed those in Europe by 1.6 times. It is self-evident that it will be more profitable for U.S. companies to fight for the premium Asian market. No one wants to forego the opportunity to earn money.”

Another possible supplier for Europe could be Canada, which in the last decade or so has seen a large spike in hydrocarbon resources as companies rapidly develop the expansive Canadian oil sands in Alberta and shale formations toward the south.

While Canada’s production growth has been predominantly in crude oil as opposed to natural gas, a recent EU decision to drop a “dirtier” distinction on Canadian exports from the oil sands has ignited rumors that Europe

is planning to lean on that nation if hiccups in energy supply do occur.

According to Reuters, a separate EU official speaking on condition of anonymity confirmed those rumors.

“It is no secret that our initial proposal could not go through due to resistance faced in some member states,” EU Climate Commissioner Connie Hedegaard said, according to Reuters.

One more possible candidate for the job would make for strange bedfellows. No stranger to international sanctions itself, Iran may serve as a substantial exporter of natural gas to Europe due to its proximity, apparent readiness and a thaw in tensions as talks over the country’s alleged nuclear arms program seem to be making progress.

“Iran is far towards the top of our priorities for mid-term measures that will help reduce our reliance on Russian gas supplies,” an anonymous European Commission source told Reuters in September. “Iran’s gas could come to Europe quite easily and politically there is a clear rapprochement between Tehran and the West.”

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LOGISTICS

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November 2014

BIG DATA BIG OPPORTUNITY How Big Data can help the oil and gas sector W R I T T E N B Y: M I C H A E L S C H W A R T Z , S H O B H I T M AT H U R

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LOGISTICS

EVERYONE IS TALKING about Big Data these days: how to capture it; how to manage it; how to store it; how to use it. Businesses that deal in physical commodities are no exception. But what is interesting about managing commodities is that it has always been a big data business – long before the term became fashionable.

By its very nature, commodity 22

November 2014

trading creates thousands of individual data points. Physical trades that are hedged with financial derivatives.

International supply chains with touch points in every continent. Pan-global networks for storage and transport.

Overlapping layers of national and supra-national legislation. And a crowd of creditors, customers, counterparties and contractors circling at every stage.

B I G D ATA , B I G O P P O R T U N I T Y

EU

23

LOGISTICS

Shobhit Mathur

Michael Schwartz

Behind all these data points are decisions to be made that affect short-term profitability and long-term stability. If we look at the supply chain, simply moving a commodity from point A to point B involves selecting the right storage, the right transport solution and the right route. That’s after deciding on the right quantity to move, the right market to send it to – and of course the right source to acquire it from in the first place.

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November 2014

In rapidly moving markets, any of those decisions may need to be reconsidered before the commodity arrives at its final destination.

Then there’s the processing and refining of raw materials to consider.

Is it better to move goods to a smelting plant, refinery or factory, or is it preferable to sell and move the unrefined commodity? How much needs to be made and of what quality? Are there more buyers for

B I G D ATA , B I G O P P O R T U N I T Y

light crude versus heavy crude oil or Hard Red Winter wheat versus Soft Red Winter wheat? What protein quality within each wheat class would drive the greatest profit margin?

Are there storage, pipeline and transport facilities that can ensure the quality and integrity of the materials concerned? How can asset-intensive stockyards with multimillion-dollar machinery be optimized to get the most throughput and the most effective use of equipment?

The risk management aspect of the business adds a whole new layer of data points too. Prices move, markets change and regulations get updated. Businesses with exposure to commodities need to stay abreast of these developments and react accordingly. They also have to decide on risk policies that take into account the counterparties, geographies and commodities they wish to be exposed to, and the limits they wish to put in place on those exposures. Again, the ability to react as these limits are approached or breached – deliberately or otherwise – is essential.

Taken together these individual dimensions create a significant amount of complexity – and produce

huge volumes of data. But if commodities have always been a big data business, it hasn’t always been the best at using that data.

Most commodity exposed firms have reasonably strong transactions systems along the supply chain to capture the data that surrounds each transaction or engagement. But as margins tighten, and conditions get tougher, it is becoming increasingly clear that systems need to do more: they need to be able to correctly interpret the data so that it can support real-time decision-making.

This is a big step on the evolution of commodity management systems: from data capture to data analytics.

The ability to analyze information to create predictive models allows firms to develop accurate, repeatable formulae that take into account market conditions to identify optimal scenarios.

Going back to the beginning of the supply chain gives us an idea of what this might look like in practice. As we have established, matching both the quality and quantity of raw materials, with the right transport and logistics to meet the specific demand of an identified buyer reduces inefficiency in 25

LOGISTICS

the supply chain.

The problem here is that the initial production of the commodity is based on the assumption that the right amount and the right quality will be available. Planning the entire supply chain depends on the farmer producing the right amount of 26

November 2014

wheat at the right quality. The same is true in metals for example. If the mined bauxite contains insufficient aluminum ore, then the carefully calibrated supply chain starts to crumble. Hope rather than fact has been the foundation of all subsequent transactions.

B I G D ATA , B I G O P P O R T U N I T Y

A system designed for the Big Data era can remove much of that uncertainty. By incorporating and analyzing bio-data, crop analysis, historic yield information or geological information for example, the system can create a far more accurate picture of the likely outcome of any given well, farm or mine. And with the ability to predict both quality and quantity of output, the commodities business is in a better position to decide which producers to deal with, find an appropriate buyer, enter into advanced agreements and negotiate better pricing, as well as optimized logistics planning.

In this way, commodities businesses can make better use of the information they produce themselves as well as externally available data sets. Using advanced visualization techniques coupled with user-controlled, predictive analytics, organizations can optimize trading and supply chain operations.

The right system will be able to integrate all of these internal and external data sets, extracted from multiple sources, and bring them together in a central repository.

It will then visualize that data to

enable firms to pinpoint where they and their resources need to be at any time.

By incorporating powerful analytical capabilities, the new generations of commodity management systems, such as Eka’s Smart Commodity Management solution, enable commodity exposed businesses to develop predictive capabilities that facilitate actual decision-making, rather than just monitoring activity.

In other words, it’s about looking forward, rather than back: making accurate forecasts about the future, rather than just monitoring what’s happened in past.

The world has changed. KPIs and static graphs are great – but they are not enough. The better solution allows businesses that deal in physical commodities to embrace both Big Data and the future without being overwhelmed by either.

Michael Schwartz is the executive vice-president and chief marketing officer at Eka. Shobhit Mathur is Eka’s vice-president of product management and presales. To find more information, visit www. ekaplus.com.

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PIPELINES

HOW THE POWER OF S IMPACT THE FUTURE O

Russia’s gas has to W R I T T E N B Y: 28

November 2014

SIBERIA PIPELINE WILL OF EURASIAN ENERGY

o go somewhere IAN HANNER 29

PIPELINES

Russian President Vladimir Putin signs a pipe at the groundbreaking ceremony for the Power of Siberia.

With a Chinese economic boom in full swing, many companies, including Russia’s state-controlled behemoth Gazprom, are rushing to fill the Asian country’s skyrocketing natural gas demand.

One major logistical concern for Gazprom is the overall lack of pipeline infrastructure to Russia’s southern neighbor. To fill that need, the company, in cooperation with the China National Petroleum Corp.

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November 2014

(CNPC) is constructing one of the world’s largest pipelines at a price tag of approximately $70 billion. The pipeline has been given the name Power of Siberia.

Gazprom’s website reads, “The Power of Siberia will become a unified gas transmission system (GTS) for the Irkutsk and Yakutia gas production centers and convey gas from these centers to Vladivostok via Khabarovsk.”

POWER OF SIBERIA PIPELINE

From Khabarovsk, the natural gas will run south in an already operating pipeline to the Vladivostok LNG facility near North Korea. Before reaching Khabarovsk however, a portion of the gas will be diverted south into China

near Blagoveshchensk.

The pipeline is expected to supply roughly 38 billion cubic meters of natural gas per year to China and generate approximately $400 billion in revenue for Russia over the course of

From left, Gazprom head Alexey Miller, Russian President Vladimir Putin and First Vice-Premier of China’s State Council Zhang Gaoli on-stage during groundbreaking ceremony. (Gazprom)

31

PIPELINES

The Gazprom headquarters in Russia. Gazprom is Russia’s largest energy company and the world’s largest producer of natural gas. (Gazprom) its 30-year deal with the gas-hungry neighbor.

While the Power of Siberia project has been in the works for some time, many speculate that the reason for a renewed emphasis on the program is continued tensions between Russia and Europe regarding the Ukrainian crisis. Accused of arming rebels and committing covert operations forces to Ukraine, the western world has 32

November 2014

levied a series of sanctions toward Russia aimed predominantly at the energy and commerce sectors.

In response to these sanctions, Russia has on numerous occasions indicated that shutting off the flow of natural gas to Europe was not off the table if tensions with the West continued to escalate. Since Europe’s imports of Russian gas account for over 70 percent of the nation’s exports

of the resource, many analysts have expressed doubt that any such action would take place.

Tapping into a gas-hungry Chinese market, however, could have the potential to diversify Russia’s exports if European relations remain icy. While domestic Chinese gas production has increased greatly in recent years, the country’s consumption is outpacing it, growing at an estimated rate of 20

percent annually.

The project had unleashed a bidding storm as pipeline and other construction contractors battled it out for the chance to build the expensive piece of infrastructure.

Having previously pitted the heads of Stroigazmontazh, Stroitransgaz and Stroigazconsulting against one another in this bidding war, Gennady Timchenko’s Stroitransgaz eventually 33

PIPELINES

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POWER OF SIBERIA PIPELINE

won the right to construct the first unit in Power of Siberia pipeline— specifically an offloading facility at the Lena River.

Construction kicked off on Sept. 1 at a groundbreaking ceremony attended

by Russian President Vladimir Putin, Gazprom head Alexey Miller, First Vice-Premier of China’s State Council Zhang Gaoli and Wang Dongjin, vice president of the CNPC. “Today the first joint of the unique Power of Siberia gas transmission system has been welded. The cuttingedge gas production and processing facility and thousands of kilometers of gas pipelines will secure first gas supplies in as little as four years,” Miller said. “Great in all senses, this project has boosted the development of entire industries of the Russian economy: metallurgy, pipe production and machine building.”

He went on, “Power of Siberia opens up new opportunities for gasification of eastern Siberia and the Far East.

Due to this project thousands of new jobs will be created, accommodation and social infrastructure will be constructed. Gazprom timely and fully performs its obligations in any area of its activity. It always ensures reliability

of gas supplies to its consumers. The same will be true for the Power of Siberia project.”

Russia’s second largest steelmaker Severstal was tapped in late September to supply large diameter pipe for the expansive project through 2016.

In early October, Gazprom and Russia announced they had reached an agreement on the cross-border section of the Power of Siberia, seeking to clarify certain details regarding pipeline construction parameters. The agreement was signed by Miller and Dongjin.

“As of today, all the necessary documents on gas supplies to China have been signed, including the intergovernmental agreement,” Miller said. “The construction of Power of Siberia is in full swing. We have a particular plan and specific deadlines to be met without fail.”

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TOP 10

TOP10 gas

u.s. s

Which states lead the way in natural gas

states by natural

s production production?

Written by: Ian Hanner 37

TOP 10

As a resource with a fraction of the polluting carbon dioxide content of traditional fossil fuels, natural gas is being heralded as the energy source of the near future.

A robust enough energy source to power everything from heaters to cars to power plants, some companies say it could make up the difference in the world’s energy makeup as coal and oil slowly fade out over time and renewable forms of energy pick up the slack.

So with so much riding on this resource, it’s poised to make a significant impact on geopolitics moving forward.

While the countries that control and produce the most natural gas will undoubtedly play a significant role in the future of the planet, it’s perhaps equally important to pay mind to which American states are ranking highly as well. While net gross withdrawals of natural gas have almost consistently been increasing over the last century, they began to level out in the mid-90s to mid-2000s before beginning a dramatic spike in 2007 38 November 2014

as the shale revolution overtook the U.S. In 2013 the U.S. as a whole produced nearly 30.2 trillion cubic feet of natural gas, more than a 28 percent increase over the previous seven years.

The increase in gas extraction in certain states has redrawn certain well-established power divisions.

As such, here is the 2012 gross withdrawal data for the top 10 gas producing states as reported by the U.S. Energy Information Administration (EIA).

10

Utah – 490 billion cubic feet

Measured in Btu, natural gas is Utah’s most prolific energy resource, with coal a relatively

T O P 1 0 U . S . S TAT E S B Y N AT U R A L G A S P R O D U C T I O N

close second. In fact, coalbed methane has historically accounted for a large part of Utah’s overall natural gas production – roughly one-third.

Since a peak in 2002 however, that amount has fallen to about one-tenth, according to the EIA. The increase in Utah’s overall output has largely been attributed to increased drilling in established fields as the state’s proved reserves continue to increase.

Utah has three of the top 100 largest natural gas fields in the U.S., according to the EIA.

09

West Virginia – 539 billion cubic feet

While West Virginia produced more than five times as much coal as it did natural gas in 2012, the gas it did produce was still enough to rank it ninth on this list.

The discovery and subsequent development of the Marcellus shale formation has dramatically affected the natural gas production in the state. As of 2011, West

Virginia’s proved reserves totaled more than 6 trillion cubic feet of natural gas. Though refinery capacity is expanding within the state, they’re largely unable to keep up with the dramatic increase in gas production. As a result, a 1,230 mile pipeline is being built to transport gas directly from the Marcellus and Utica shale formation to refineries along Texas’ Gulf Coast, according to the EIA.

08

Arkansas – 1.146 trillion cubic feet

Marketed natural gas production increased by over 500 percent between 2005 and 2011 and is partially attributed to increased 39

TOP 10 use of fracking and horizontal drilling at the Fayetteville shale.

In fact, the state produced more gas energy than it did crude oil, coal, nuclear power and other renewables combined in 2012. The state’s proved reserves of natural gas account for nearly 5 percent of the U.S. total. According to the EIA, coalbed methane has also contributed over 21 billion cubic feet of natural gas since 2001.

Proved dry natural gas reserves increased by over 800 percent between 2005 and 2011. The majority of the state’s natural gas production is in the Arkoma Basin.

largest producer of natural gas in the nation, New Mexico also ranks as the sixth most prolific crude oil producer. Despite that, in 2012 New Mexico produced more natural gas than it did coal and oil combined. The state is one of the only in the nation that saw a significant decrease in natural gas production levels between 2007 and 2012, having fallen over 20 percent. Almost one-third of all gas produced within the state comes from coalbed methane, of which New Mexico holds one-fifth of the national total. New Mexico is also home to the San Juan Basin, one of the most substantial natural gas reserves in the nation.

06 07

New Mexico – 1.215 trillion cubic feet

In addition to being the seventh 40 November 2014

Colorado – 1.709 trillion cubic feet

In reverse of New Mexico, Colorado has the distinction of sixth highest natural gas output in the nation, with the seventh highest oil output. According to the EIA, marketed natural gas production in Colorado rose by 38 percent between 2007 and 2012 to rest at about 1.855

T O P 1 0 U . S . S TAT E S B Y N AT U R A L G A S P R O D U C T I O N

trillion cubic feet, which is double 2001 production levels. In addition to its massive natural gas wealth, Colorado holds the Niobrara shale formation which holds an EIA estimated 2 billion barrels of oil. The state is home to nine of the nation’s top 100 largest natural gas fields.

05

Wyoming – 2.022 trillion cubic feet

A truly energy-rich state, Wyoming is able to rank as the fifth largest producer of natural gas in the country, despite the fact that its coal production is nearly triple the relative output.

Wyoming accounted for about 7.4 percent of the U.S. total of marketed natural gas in 2013,

according to the EIA. The energy reporting organization states the nearly two-thirds of all natural gas produced within the state is extracted on federal leaseholds. Colorado and Wyoming are the two leading states in coalbed methane production. Wyoming holds 15 of the nation’s largest natural gas fields, according to EIA statistics.

04

Oklahoma – 2.023 trillion cubic feet

Natural gas accounts for the vast majority of Oklahoma’s energy production at approximately 2.3 quadrillion Btu worth in 2012. By contrast, the closest resource to that was crude oil at just over 500 trillion Btu. The state produced about 8.4 percent of the nation’s total marketed natural gas in 2013.

03 Pennsylvania – 2.256 trillion cubic feet 41

TOP 10

Pennsylvania produced about 2.31 trillion cubic feet of marketed natural gas in 2012, according to the EIA, making it the third most prolific state in the country. Largely to credit for the massive amount of natural gas produced within the state is increased development along the Marcellus shale formation, which possesses more than enough of the resource to supply the U.S. for several decades. In fact, increased development on this formation more than quadrupled production levels between 2009 and 2011, according to the EIA.

02

Louisiana – 2.955 trillion cubic feet

Louisiana has long been established as an energy

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powerhouse within the country, especially with a thriving offshore oil and gas industry. The state produced about 3 quadrillion Btu of natural gas in 2012, with its oil, coal and other resources not even coming close to the same level. According to the EIA, “The Henry Hub in Erath, Louisiana, is the interconnect for nine interstate and four intrastate pipelines that provide access to major markets throughout the country; Henry Hub is used as the pricing point for natural gas futures trading on the New York Mercantile Exchange.”

01

Texas – 7.475 trillion cubic feet The nation’s strongest powerhouse, even since before shale extraction reshaped the energy landscape, Texas continues to lead the country in hydrocarbon wealth. Home to Houston, the unofficial energy capital of the nation, the state holds the distinction of being the number one producer of both

T O P 1 0 U . S . S TAT E S B Y N AT U R A L G A S P R O D U C T I O N

oil and natural gas in the U.S. In 2013, Texas alone exported over 29 percent of the total marketed natural gas in the country. It holds about a third of nation’s top 100

highest proved reserve gas fields and has some of the highest capacity and most modernized refineries in the world.

43

Laricina Energy Laricina Energy is Sitting on an Ocean of Oil

With innovation, Laricina could change the Canadian bitumen market Written by: Ian Hanner

Produced by: Michael Magno

45

LARICINA ENERGY

T

o say Laricina Energy is still on the ground floor wouldn’t show the whole picture, but it would put in context the company’s big plans for expansion in the near future.

Laricina was founded in 2005 by several graduates of Deer Creek Energy, a successful energy company purchased by French Supermajor Total S.A., with an interest in pursuing multiple in situ production opportunities in the thriving Canadian oil sands.

Laricina, which was named for the hardy tamarack tree prolific in the area, prides itself on its pioneering spirit, according to President, Founder and CEO Glen Schmidt.

That spirit is taking the company into its tenth year.

“It’s very uncommon for a small company to do this,” he said. “So, I would say [the tenth anniversary] means pride; pride and satisfaction in the quality of the work.

Now, with efforts focusing on their Germain and Saleski projects, the company’s tenth year is poised to be the one in which it explodes onto the international scene as a major player.

46

November 2014

Located within the Grosmont formation, the company’s Saleski project utilizes enhanced oil recovery techniques. Through several years of development, Schmidt is able to boast that they’ve proved the commercial viability of the play.

“The most recent well we drilled cost us half of what the first well had cost,” Schmidt said. “We’ve taken the pilot work and, with a data set over a little better than three years of operations, we can now forecast. So we’re in a position at Saleski to declare the commerciality of the Grosmont.

That’s a significant advancement of that particular project.”

The Saleski project applies a cyclical steam assisted gravity drainage (C-SAGD) technology that utilizes a horizontal well drilled into the formation. Since the bitumen that Laricina is targeting is significantly heavier than traditional crude oil, it doesn’t flow as easily.

To combat this, steam is injected through the well bore into the formation, allowing the bitumen to

E X P L O R AT I O N W O R L D

Saleski Tour

flow more easily. The resource is then pulled to the surface through that same well.

Where Laricina is experimenting is with the introduction of various types of solvents to the process.

By injecting light hydrocarbons into the formation before the steam, the company is able to more easily extract the oil while minimizing the amount of water necessary for the

process. This technique has yet to be applied at Saleski, though it’s in the early stages of utilization at Germain.

“These would be common [enhanced oil recovery] schemes in conventional oil,” Schmidt said. “We’re applying them now to bitumen recovery with steam and the benefit of that is we’re hugely more efficient. We get w w w. l a r i c i n a e n e r g y. c o m

47

LARICINA ENERGY higher productivity, lower steam requirements and because we use a hydrocarbon, it essentially recycles in the process.”

The addition of solvent at the company’s other flagship project Germain has already demonstrated the technology’s capability.

The company brought online a demonstration project at the Germain play in June 2013. Through trial and error, Laricina is now exhibiting production levels indicative of a sustainable, commercial

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operation, Schmidt said.

Saleski and Germain currently produce somewhere in the realm of 1,000 to 1,200 barrels of oil per day, a figure that Schmidt expects to increase to 10,000 barrels per day by 2017. With financing, he said an additional 30,000 barrels per day would be added by 2019, with the full potential between the two projects at about 500,000 barrels per day.

“We need to secure the capital,” he said. “The gatekeeper for us to execute is money. On the

E X P L O R AT I O N W O R L D

success of tracking the capital, and it’s quite competitive to get that capital, then execution of commercial performance would mean that we would become only the second Canadian independent who has grown from a concept to a public market position of commercial development doing projects at the billion dollar scale.”

Forecasting an expansion to that scale, Laricina set about a few years ago to develop a pipeline that would transport bitumen to Edmonton, Alberta. Following an application process, Laricina received approval for the Stoney Mountain pipeline, but later sold that permit to TransCanada.

Now, in partnership with PetroChina, TransCanada is constructing the TCPL Grand Rapids pipeline adjacent to Laricina’s projects that will be able to accommodate the high volume of oil that Schmidt expects to produce.

“I think what distinguishes [Laricina] from some of the other small players who have the aspiration to advance their developments to commerciality is that we clearly have the assets, they’re unique, and we have the capability and opportunity to execute because the physical requirements that facilitate actually delivering the production are in place,” Schmidt said.

Company Information INDUSTRY

Oil & Gas HEADQUARTERS

Calgary, Alberta FOUNDED

2005 EMPLOYEES

100+

w w w. l a r i c i n a e n e r g y. c o m

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Wildcat Midstream

Wildcat Midstream Maintains Value for Producers

With strong investments in Midstream infrastructure, Wildcat is quickly making a name for itself Written by: Ian Hanner

Produced by: Jason Wright

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November 2014

E X P L O R AT I O N W O R L D

B

ased in Dallas, Texas, Wildcat Midstream has spent the last half decade carving out a sizable chunk of the highly-profitable Texas midstream market with its innovative approach.

Underpinning their operations with the mantra, “Defined by maximizing your netbacks,” Wildcat Midstream has spent the years since its founding in 2011 perfecting a process in which every profitable dollar possible is passed back to the producer. Under the guidance of co-founders Chris Rozzell, David

Miller and Michael Davis, Wildcat Midstream and its various divisions has grown from humble beginnings to one of the most dominant companies of its type in the region.

While “Defined by maximizing your netbacks” means little to someone not steeped in the nuances of the oil and gas industry, it means something substantial to a Midstream executive—and it definitely means something to anyone involved in Upstream.

With that mindset, Wildcat Midstream seeks to maintain the w w w. w i l d c a t g a s . c o m

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We Meet Schedules.

FacIlItIES

PIPElInES

Facilities

civil

Refurbishment

new construction

• Bulk Fuel Loading/Storage Facilities • Compressor Stations (Electric, Fuel Gas, and Turbine Generated) • Amine Plants • Cryogenic Plants • Dehydration Facilities • Deoxygenated Facilities • Dew Point Plants • Fractionation Plants • Refrigeration Systems • Sulfur Plants • Nitrogen Recovery Units

Our expertise is in foundation pours of: • Compression • Coolers • Towers • Pumps • Drill Piers • Containments • Skids • Pipe Supports

• Skid repiping • Valve removal and replacement • Piping reroutes • Structural replacement • Skid repair • Insulation and replacement • Electrical and Instrumentation reroutes and replacements • UT metering pit gauging • Internal rust removal • Sandblasting and painting • Bolt and gasket replacement

• Steel pipelines up to 24” • Polyethylene pipelines up to 36”

Dismantle and Demolition • Project consultation • Processing facility plant disassembly, retirement and relocation • Equipment removal • Structural Steel, piping and concrete demolition • Logging and expediting every component

12905 Hwy 36 S. | Caldwell TX 77836 | PO Box 385 | Somervi

Evers and Sons Inc. is a non-union general process plant contractor, with extensive experience and expertise in all phases of oil and gas construction. We specialize in the ground-up construction of pipelines, natural gas processing plants, compressor stations, and bulk liquids loading facilities.

We’re also proficient in the modernization, renovation and demolition of existing systems. Our continued success is attributed to our company-wide commitment towards teamwork and safety, which protects our people, our customers and the environment. Being one of the leading gas contractors, we always strive to provide the utmost level of satisfaction to our clients.

IntEgRIty MaIntEnancE

FabRIcatIOn

Pipeline Integrity Maintenance 2” to 30”

ROW clearing and Maintenance

• Multiple types of composite wraps • Steel repair sleeve • Weld Reinforcement sleeve • Leak repair clamps • Pipeline section replacement

• Reclamation of existing ROW • Hand clearing environmentally sensitive areas • Equipment clearing • Shredding • Pipeline marker and sign replacement • Painting of valve settings, risers and crossings

• Process piping for on skid and off skid applications • Carbon steel • Stainless steel fabrication • Meter tubes • Metering skids • Valve skids • Valve settings • Pipeline strainers • Manifold headers • Launcher and receiver barrels • Launcher and receiver skids • Slug catchers • Non-coded vessels and tanks • Heater shells • Flare stacks • Heavy duct work (all diameters) • Valve access platforms • Skids of any size • Pipe racks

line Preparation for Pigging • Block valve replacements and removals • Short radius fitting removals • Fabrication and installation of pig launchers and pig receivers • Pipeline elevation changes • Pipeline re-routes

abandonment • Abandonment of all pipe sizes

ille, TX 77879 | Office (979) 596 2139 | www.eversandsons.com

• Pipe bridges • Large multi-story structures • Module structures

accessory Steel items • Pipe supports • Pipe clamps • Vessel skirts • Base plates • Base rings • All other non-pressure components

SUPPLIER PROFILE

EVERS AND SONS

A non-union general process plant contractor incorporated in the State of Texas, Evers & Sons has extensive experience and expertise in all phases of oil and gas construction, from ground-up construction of pipelines, natural gas processing plants, compressor stations, bulk liquids loading facilities, to modernization, renovation and demolition of existing systems. We are a certified member of the National Women Business Owners Corporation (NWBOC) and the Women’s Business Enterprise Alliance (WBEA and WBENC).

Evers & Sons is successful because we rely on a company-wide commitment to teamwork and safety. We are dedicated to providing each employee with an accident-free, drug-free workplace, which protects our people, our customers and the environment. Our safety program starts with new employee orientation and continues with daily safety meetings, monthly training sessions, and ongoing site-specific and skills training. Our outstanding drug and alcohol program incorporates DOT testing and follow-up random testing.

Bottom line, we believe a process plants project is done well only if it is done safely.

Website: www.eversandsons.com

W I L D C AT M I D S T R E A M

E X P L O R AT I O N W O R L D

value of the resources they transport for their Upstream clients.

“That is more than a slogan to us,” the company states. “It is our way of life, and it comes from focus on three areas: Maximizing Runtimes; Maximizing Efficiencies; [Maximizing] Product Recoveries. Wildcat is about fanatical service and you can bank on the difference. Our mission is simple to understand but difficult to execute. That is why we are confident that once you work with Wildcat, you will never look to another production management partner again. Our company is built from the bottom up based on the premise that every member of our team is there to support your field operations.”

Drawing on their high-tech expertise, Wildcat operates a cryogenic processing facility in northern Louisiana and is in the process of building a marine and storage terminal in southern Texas that can facilitate transfer or resources between railway, truck, pipelines and water.

Be sure to catch the December issue of Exploration World to read our full feature on Wildcat Midstream.

Company Information INDUSTRY

Sector HEADQUARTERS

Dallas, Texas FOUNDED

2011

w w w. w i l d c a t g a s . c o m

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RockPile Energy Service

RockPile Energy is Changing Dakota Fracking Industry

From people to technology, RockPile continues to set itself field of energy completion services.

Written by: Ian Hanner

Produced by: Alex Hortaridis

es

g the North

lf in the

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ROCKPILE ENERGY SERVICES

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October 2014

E X P L O R AT I O N

W

ith a unique take on the value of employees and proprietary technology, RockPile Energy Services is not your traditional energy completion services provider.

Established in June 2011 by the Triangle Petroleum Corporation, RockPile was created to fill what Triangle saw as a serious lack of frack service providers in North Dakota. The relatively low number of companies offering this service meant that oil companies operating in the area were waiting for eight to twelve months to get well fracked, according to Curt Dacar.

Dacar is the chief executive officer and previous chief operating officer. He had a key role in the founding of the company. Brought in by Triangle for his decades of industry experience working at Schlumberger, Dacar was instrumental in getting the company off the ground.

“I was working in North Dakota and I knew some of the folks in their organization through past relationships and work history with some of the folks that actually worked for me when I worked at Schlumberger,” Dacar said.

“They contacted me and asked w w w . r o c k p i l e e n e r g y. c o m

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global knowledge. In

Hydraulic Fractu Oil & Gas Acidizing

Production Chem

Water Well Drill Founded in 1951, Economy Polymers and Chemicals has grown to become one of the largest manufacturers of high viscosity guar gum powder in the world, as well as an industry leader in providing oil field stimulation chemicals. We are a multinational company, committed to extensive research and development, and devoted to continuously creating new and better products for the industries we serve. In addition, we provide toll manufacturing and custom chemical blending of our customer’s products. All of our custom chemical blending and manufacturing facilities are ISO 9001:2008 certified and utilize advanced technology to ensure that our chemical products are produced, packaged and delivered on time and to the highest standards of quality.

USa toll Free: 800-231-2066 tel: 713-723-8416 Fax: 713-723-1845

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ELIMS introduces a revolutionary technology aimed at the inventory management phase of hydraulic fracturing. This innovation represents a step change in accuracy resulting in: • a drastic decrease in personnel risk • a means to invoice immediately • a reduction of the service provider’s inventory to zero

Find out more at www.elims.com eLiMS is a division of economy Polymers & Chemicals

www.economypolymers.com

SUPPLIER PROFILE

ECONOMY POLYMERS AND CHEMICALS

Founded in 1951, Economy Polymers and Chemicals has grown to become one of the largest manufacturers of high viscosity guar gum powder in the world, as well as an industry leader in providing oilfield stimulation chemicals. chemical manufacturing facilityHeadquartered in Houston, Texas, we are a multinational company with operations in the United States, Canada, Dubai, Russia and Argentina. All of our custom chemical blending and manufacturing facilities are ISO 9001:2008 certified and utilize advanced technology to ensure that our chemical products are produced, packaged and delivered on time and to the highest standards of quality.

At Economy Polymers and Chemicals we are committed to extensive research and development in order to continuously create new and better products for the industries we serve. Over the years we have made major investments in R&D – and have also made a substantial manufacturing investment in India to develop and produce new varieties of guar.

Website: www.economypolymers.com

ROCKPILE ENERGY SERVICES

E X P L O R AT I O N

if I would help them try to get a frack crew set up, so through the Summer I kind of consulted with them, helped them decide on the equipment and so forth. And in September of 2011, they actually asked me if I’d join the company as the COO, which I decided to do.

[From there] I just started ordering equipment, building infrastructure, looking for land, putting building plans together and looking for an executive team.”

why we focus on hiring regional people, knowing that people from California, Texas or anywhere in the South-- it’s just not an environment that’s easy for them to adapt to. You see a lot of turnover.”

Attrition isn’t something that a company of RockPile’s size can easily abide. In inclement weather like that, Dacar said that it’s not at all uncommon to see a 30 to 40 percent turnover rate. By hiring (relative) locals, Dacar boasts that Building a Workplace the company has an attrition rate of Community only 15 percent during the winter.

In the years since, the company has Whether or not that’s due to the purchased several fracking fleets origin of the employee is up to and established a strong core of interpretation because RockPile employees from the region. Due to certainly has other ways they try to the harsh winters, hiring as locally make employees feel they have a is something Dacar said is vitally career rather than a job. In addition important to the company. to paying for a financial advisor to “The reason we do that is-- I grew come in for all new employees, the up in North Dakota and I’ve worked company goes out of the way to in North Dakota for many years,” make it easy for employees to live Dacar said. “I know what it’s like and work in North Dakota. to work there at 20, 30 below zero “We realized that North Dakota with a 20 mile per hour wind. It’s was, and still is, a very challenging brutal. The winters, or rather six place to find good places to live,” or seven months of the year, are he said. “We said that we wanted extremely difficult to work in. That’s to be able to provide these people w w w . r o c k p i l e e n e r g y. c o m

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Martin Construction, Inc. utilizes the latest technology to provide efficient, cost effective locations that meet your specifications. For a company experienced in all phases of earth work construction, call Martin Construction.

S e r v ic e S Oil Site PreParatiOn | reClaMatiOn | SnOw reMOval rOadS | railrOad SPurS and Siding | landFillS Site develOPMent (COMMerCial and reSidential)

Specializing in Earthworks Construction

Work Smart.

TBM is: Total Bulk Management TBM Sand & Storage Logistics, LLC provides solutions for the frac sand supply chain including the PropMaster mobile silo, the PropBox storage and transport system, Frac Sand Transloading, high quality ceramic Proppants and Frac sand sourcing and logistics services.

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Kurt Martin, President BJ Martin, Operatins Manager | bjm@martinconstructionnd.com Brad Riely, estimator | briely@martinconstructionnd.com Jackie Walth, Hr | jwalth@martinconstructionnd.com

www.martinconstructionnd.com

ROCKPILE ENERGY SERVICES

E X P L O R AT I O N

with an opportunity to come to North Dakota and get housing at a reasonable cost, so we actually built a 30 unit multi-building complex of higher scale apartments with hardwood floors, tile, etcetera. We rent those out to our employees at about 30 to 40 percent off of what the current market price is.”

That dedication to the living standards of their employees didn’t come with a low price tag. RockPile paid about $6 million for that development.

“We wanted to be able to attract people to come to the community and bring their families and be part of the community because we fully realized that if we provide them housing and a place to bring their families, it’s much easier to keep that employee as a long-term, career-focused employee, rather than someone rotating in and out of the business every two to three weeks. To be honest with you, the housing has been very successful.

It’s allowed a lot of people to come to North Dakota that normally wouldn’t. It’s allowed us to keep

w w w . r o c k p i l e e n e r g y. c o m

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A World Leader in the Design and Manufacture of Stimulation Equipment Stewart & Stevenson provides our customers with complete state of the art fracturing equipment spreads, including: • Fracturing Pumps • Blenders • Hydration and Chemical Additive Units • Data Acquisition and Control Centers We also specialize in, Acidizing Equipment, Coiled Tubing Units, Nitrogen Units, Cementing Equipment, Drilling and Workover Rigs, Railcar Movers and Generators

Over a Century of Innovation www.stewartandstevenson.com

Chad Joost | 281-345-5151 | c.joost@ssss.com

Design-Build Construction Management General Construction 804 East Villard Dickinson, ND 58602 (701) 483-8279 Fax: (701) 483-3647 E-Mail: kolling@ndsupernet.com Kim Kolling | Scott Kolling kollingandkollinginc.com

BUILDER

ROCKPILE ENERGY SERVICES them, develop them and promote them within the company.”

Moreover, RockPile goes out of its way to make employees feel like they’re part of a family within the company with awards banquets, camping, hiking and jeeping trips, and even a resort stay at Lake Tahoe. Dacar said he believes this sort of employee cohesion not only leads to happier, long-term workers, but a higher standard of quality

E X P L O R AT I O N

brought to every job.

Driving Technology The emphasis RockPile puts on the quality and satisfaction of their employees isn’t the only thing that sets them apart. With innovative technology systems, the company is unique in its handling of both chemicals and propant for use in fracking operations.

According to Dacar, chemicals

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www.pioneermatrix.com Our newly expanded 100,000 sqft warehouse in North Dakota

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Contact us today and see why no other dealership offers you more.

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ROCKPILE ENERGY SERVICES used in the fracking process are typically delivered and transported in 330 gallon totes. Every time the tote is opened or transported, there is a small risk of spilling. Since this is not healthy for employees nor the environment, RockPile developed what they call a Chemical Management System that minimizes the number of times the chemicals need to be moved, minimizes the potential for a spill and protects employees, all while adding greater

E X P L O R AT I O N

efficiency to the whole process. “Not only has it been a successful rollout from a logistical standpoint-we save a ton on logistics-- but just from the environmental side of things, having less exposure. And of course tank bottoms on those old totes make it very difficult to get every drop out.�

The company also has a unique system for delivering proppant for holding open induced fractures.

While the industry standard for the

w w w . r o c k p i l e e n e r g y. c o m

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Oilfield Testing & Consulting is a truly independent cement and drilling fluids testing facility, using state-ofthe-art industry recognized equipment.

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Our mission is to deliver excellent customer service and quality-assured results on which you can depend.

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E X P L O R AT I O N

handling of proppant hasn’t changed much in over 50 years, RockPile wasn’t satisfied with the quality of service traditional methods allowed them.

“We looked at it and said there were two things that we need to do differently,” Dacar said.

“One: we don’t like the way the industry handles chemicals. Two: we don’t like the way the industry handles proppant. So what we wanted to do really was revolutionize the things that we could impact and change.”

He added, “With the traditional way you handle proppant from the mine to the wellhead, that grain of proppant, let’s say silica sand, would be transported four or five times. When we came up with this gravity feed system, we really wanted to just be able to take it from the mine to the wellhead. We got it from our transload facility in Dickinson to the wellhead now, which cuts down on several of those transfers. We’re still working on getting the technology to the point where we can take it right from the mine to the wellhead.

So it’s impacted our business from a logistics side considerably, from both a working capital standpoint as well as an efficiency standpoint.”

Company Information INDUSTRY

Fracking Services HEADQUARTERS

Denver, CO FOUNDED

2011 EMPLOYEES

~60 (on prospect) REVENUE

$200 million (last year)

w w w . r o c k p i l e e n e r g y. c o m

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TAG Oil:

Canadian Owned,N

Merging the best of Northern and South Written by: Ian Hanner Produced by: Wayne Masciotro

New Zealand Run

hern Hemisphere exploration 75

TA G O I L

Aerial view of 2013’s Ngapaeruru exploration.

BY BLENDING PRODUCTION styles from Canada and New Zealand, TAG Oil has managed to find a sweet spot for operations in the Southern Hemisphere.

TAG Oil was founded in Canada in 2002 by Alex Guidi with the express purpose of exploration in New Zealand. While trading on the Toronto Stock Exchange, the company invests nearly 100 percent of their capital in the development of projects in their host country.

Though a relatively small company in the world of oil production, Chief Operating Officer Drew Cadenhead says the company has no problem 76

November 2014

competing in their niche market.

“We are the most active explorer in New Zealand and have had good exploration success over the last few years,” Cadenhead said. “A very strong financial position [has us] positioned well for future growth into the next few years.”

Cadenhead’s optimism is not without merit. TAG Oil has seen tremendous growth in the last decade. TAG Oil was “relatively inactive” for the first seven years of its existence, according to Cadenhead, who used to be the Chief Executive Officer.

“We were just JV partners with

E X P L O R AT I O N W O R L D

Hydrocarbon storage tank at TAG Oil’s Sidewinder Field

some other companies, so once we took control of things ourselves and we were getting much more active operationally, I switched from CEO to COO,” he said. “I relocated myself and my family back to New Zealand to run all of our operations here. Our CFO at the time, Garth Johnson, took over the role of CEO up in Vancouver.”

Cadenhead’s expertise comes from several decades of experience working for various exploration companies in both Canada and New Zealand. He also holds a Bachelors of Science Degree in Geology from the University of Calgary. Now tasked with the direction of TAG Oil’s operations in New Zealand, he’s putting his skills to work.

“It is something that’s very important to us: our perception as a good corporate citizen; as a very safety and healthoriented company. Our record is impeccable here and it’s very important for us to maintain that record.” w w w. t a g o i l . c o m / d e f a u l t . a s p

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SUPPLIER SUPPLIER PROFILE PROFILE

COMPANY NAME BUSINESSFRIEND

Employees: Xxxxx Businessfriend Established: Xxxxcreates a digital eco-system that drives individuals and organizations to personalxxxx and professional success.

Industry: Xxxxxxxxxxxx xxxx xxx xxxxx xxxxx.Make connections, nurture relationships, and harness the strength of your social network with Services: Xxxxxxxxxxxx xxxx xxxx xxx xxxxx xxxxx. business utilities that take you beyond your connections. We operate under Ongoing xxxx xxxxIdentity, xxx xxxxx xxxxx our BUSI Projects: platform,Xxxxxxxxxxxx a Business Utility Social which gives you the opportunity to Xxxxxxxxxxxx meld the strength andxxxx familiarity of your online social identity Management: xxxx xxx xxxxx xxxxx with the software-like need toentry collaborate and conduct business.

Website: address goestools hereyou as the last

E X P L O R AT I O N W O R L D

“Our niche here in New Zealand is to run our company as a small nimble junior company-- sort of like a Canadian model, not surprisingly,” he said. “What we found was that there were a number of Majors down here, [such as] Shell and some of the big Australian companies, mainly focusing offshore. No one was really focusing on-shore where there’s some really nice oil. In particular, shallow oil plays, so really kind of up our alley as far as what we were familiar with as Canadians working in Calgary.”

One of TAG Oil’s strongest plays is in the Taranaki Basin. The only sedimentary basins in New Zealand to have been commercialized to date, the company has invested heavily in the region with three plants and a wholly-owned network of pipelines just east of the field.

From there, everything ties into their mother facility, the Cheal plant.

The drilling operations in that region produce between 2,300 and 2,500 barrels of oil equivalent per day, securing a steady cash flow.

According to Cadenhead, TAG Oil will be producing in that region for years to come having only drilled

roughly 25 percent of the company’s total acreage.

“If we were to stop drilling here today, the oil would keep flowing for about another 10 to 15 years,” he said. “They’re nice long reserve life, index fields. They produce very well.”

Speaking about new drilling operations in the region, he added, “These wells will cost us about $3 million to drill and complete and tie in and we’ll get a net present value out of these wells of somewhere between $10 to 30 million. It’s really a great little play for us.”

The success of smaller scale, but very stable operations in shallow plays like these, has afforded the company the ability to develop higher risk operations. With reportedly zero debt and about $50 million in reserve, TAG Oil is looking to explore deeper targets in the region. According to Cadenhead, there are numerous reservoirs situated at depths of between 4,000 and 5,000 meters. With larger pool sizes, he estimates the value of each of these wells would be closer to $20 million.

With stable cash flow from the w w w. c o m p a n y u r l . c o m

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TA G O I L

Working in partnership with our customers providing safe, efficient and cost effective crane and transport solutions.

Ian Roebuck Crane Hire Limited are proud to be associated with Tag Oil and Webster Drilling, supplying their crane and trucking requirements for the Drilling Programme throughout New Zealand.

Office (06) 758 7259 | Fax (06) 758 1827 105 Corbett Road, R.D. 3, Bell Block, New Plymouth 4312 PO Box 3086, Fitzroy, New Plymouth 4341

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WESTEND HIRE

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Since 2009

We specialise in onsite equipment servicing to the oil/gas and farming industries in the greater Taranaki area.

We are well-known for the prompt, reliable and friendly service and our willingness to go the extra mile to get products and equipment to suit the client’s specific needs.

ENGINEERING CONTROL LIMITED

A leading petrochemical open systems integrator since 1997 Providing Process Control and Automation Services to the Oil and Gas Industry: • Control Systems Consultancy, Engineering and maintenance • Control Systems Technology Consultancy and Supply • Control Systems Integration • Functional Safety Consultancy and Engineering

140 Juliet St, Stratford

Ph: +64 800 123 553 Enquiries: gavin@westendhire.co.nz www.westendhire.co.nz 82 October 2014

P: +64 6 757 5562 | E: manager@ecl.co.nz 166 Powderham Street, New Plymouth 4340, New Zealand

www.ecl.co.nz

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Taranaki Basin, the company has been able to turn its attention to other regions yet to be developed, such as the East Coast Basin. “[The East Coast Basin] clearly has a working hydrocarbon system,” Cadenhead said. “We know that because there’s 300 or 400 oil and gas seeps where oil and gas is actually gurgling out of the ground. So we know the kitchen is working there and we recognized that about five years ago and secured a very large land base-nearly 2 million acres.”

He estimated it would take about three years to gather enough data and drill enough exploratory wells to prove commercial viability, but according to Cadenhead, several independent engineering assessments have indicated that the company is sitting atop reserves in the billions of barrels.

“It just remains to be seen if it can be cracked,” he said. “We’re the only ones trying to crack it. It’s one of the main reasons the shareholders in TAG are keeping their fingers crossed and hoping for a hit over there, as well as the good work that

we’re doing in the Taranaki Basin.”

The small staff size at TAG makes the company’s successes thus far even more impressive. With only 25 employees in New Plymouth, TAG’s revenue for the 2014 fiscal year was just over $2.3 million per person. Over the last five years that the company has been growing, the staff has been hired on one-byone, with only two people leaving the company in that time span, according to Cadenhead.

“We have a lot of fun here,” he said. “It’s a really loose atmosphere and because it’s such a small group, we don’t get bogged down in red tape and paper work. We just yell at each other down the hallway instead of sending memos around. We chat around the coffee pot. It really is a small family type of [operation] here.”

As a foreign entity operating in another country, TAG Oil has to be extra careful about their perception as good for the community. With a very active role sponsoring both local academic and sporting organizations, the company tries to make it clear that they’re trying to give back to their host country.

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TA G O I L

The process isn’t easy though.

Cadenhead pointed out that in recent year, the oil and gas industry has come under scrutiny from the public in a way that it hasn’t before.

“It’s probably one of the biggest challenges for us, to tell you the truth, and one of the biggest risks is getting permission and consent to drill wells,” he said. “It’s something we put a lot of effort into and I can honestly say many, many more times the effort than we [put into it] just four or five years ago. It 84

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just wasn’t a consideration. It has become a consideration. And that’s not just here in New Zealand; that’s a global phenomenon.”

He added, “It is something that’s very important to us: our perception as a good corporate citizen; as a very safety and health-oriented company.

Our record is impeccable here and it’s very important for us to maintain that record.”

The natural gas produced by the company doesn’t just benefit New Zealand by introducing jobs and

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taxable revenue. Since TAG Oil doesn’t own a facility to liquefy natural gas, all of the natural gas produced in the country is sold in New Zealand without the added costs accrued by shipping overseas.

Meanwhile, the company’s crude oil is shipped to primarily Asian markets such as China, Japan and India, which require oils with very low sulfur content, and sold at a premium. From there the company imports cheaper oil back from the Middle East to refine into gasoline and diesel for use in New Zealand.

“We’ve got the choice of either consuming that oil here or shipping it offshore,” Cadenhead said.

“There’s an insatiable thirst for oil in the Southeast Asia part of the world. It’s a great place to find oil.

It’s a great place to find high quality oil in particular.

As I said, we’re netting back on our oil sales here probably close to $80 a barrel right now.”

Cadenhead said he could see the company taking a number of paths in the decade to come.

Most exciting would be proving commercial viability on their unconventional plays in the East Coast Basin.

“If the unconventional play starts to work for us and we can have success with the proof of concept of being able to flow hydrocarbons from those multi-billion barrel reservoirs that we see over on the East Coast Basin, that’s a completely different ball game,” he said. “Most likely, TAG, at the size that we are, would get bought out by a Major at that point.”

Company Information INDUSTRY

Oil and Gas HEADQUARTERS

Vancouver, Canada FOUNDED

2002 EMPLOYEES

25 REVENUE

$57,546,899 (2014) PRODUCTS/ SERVICES

TAG Oil is a Canadianowned exploration and production company for both oil and gas that operates exclusively in New Zealand. By merging the styles of both countries, the company has been able to solve problems no one else has, becoming the busiest explorer in New Zealand.

With a small staff size, the company is able to stay highly-adaptive to an evolving energy market and act fast to capitalize on growth opportunities.

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