2013 Business Plan
Business Group TerraGreen Energy Resources, LLC 03.14.2013
PetroChina - Jilin Oil Field Project
Business Plan
Prepared By: TerraGreen Energy Resources, LLC (“TGER”)
© Copyright 2013, TerraGreen Energy Resources, LLC, All rights reserved
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PetroChina - Jilin Oil Field Project By accepting a copy of this report, the recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose than reading, and not to disclose any of its contents to third parties without written permission of TERRAGREEN ENERGY RESOURCES, LLC. The report is furnished for information purposes only. No representation or warranty is made by TERRAGREEN ENERGY RESOURCES, LLC, or any other entity as to the accuracy or completeness of the information, and nothing contained in the report is, or shall be, relied on as a promise or representation of the future.
Table of Contents 1.0
Executive Summary
4
2.0
Project Overview and Key Points
7
3.0
Keys to Success
9
4.0
Reservoir Properties
12
5.0
Upside Potential
15
6.0
Oil Marketing
18
7.0
Financial Data
19
8.0
Insurance Plan
27
9.0
Management Team
29
10.0
Confidentiality Clause
31
Key Terms
• • • • • • • •
bbl – barrel of oil bbls – barrels of oil bopd – barrels of oil per day cp – centipoises md –milladarcie OOIP – original oil in place psi – per square inch WTI – West Texas Intermediate
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PetroChina - Jilin Oil Field Project 1.0 Executive Summary TerraGreen Energy Resources (TGER) will acquire from CNPC-PetroChina Company Limited (PC) 50% interest in the reserve of four blocks of Mutou Oilfield, Mu-110, Mu-E, Mu-F and Mu-206. These blocks are located in the Songliao Basin and specifically in the Jilin Oilfield - Jilin Province, PR China. The acquisition involves purchasing proved producing reserves with a development plan of hydrojetting 35 wells with 3 zones in each well. This technology was applied to 6 wells in another part of the Jilin Oilfield with a 3 fold increase in production from one zone. The total capital investment for this project is $52 million USD. The deal structure proposed is for the Equity Partner to receive 45% of the 50% and TGER will receive 5% of the 50% of the Proved Reserves. The reserves above the Proved schedule will be split 25% Equity partner and 25% TGER. The deal will also include a cash draw of $1.8 million USD to cover the cost of drilling 10 new wells ($3.6 million USD 8/8th) in the field in 2013 to access additional areas to increase production. There is an annual budget of $980,000 to enhance existing well bores. Therefore at close, the investor would invest $51.8 million USD on behalf of TGER to close the project with PetroChina. TGER will be the holder of 50% interest in the Joint Venture. TGER has the expertise to justify PetroChina agreeing to this co-operation Joint Venture. TGER and the investor will enter to a contractual agreement that will specifically provide for the investor’s interest in the property. TGER will offer to investor 45% interest in the Joint Venture Company, the other 5% will be distributed to other individuals who have helped to complete this transaction as finder’s fees for bringing this project to TGER.
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PetroChina - Jilin Oil Field Project Jilin Oil Field is located in favorable terrain for drilling and production
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PetroChina - Jilin Oil Field Project Oil Gathering Facility
Water Separation facility
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PetroChina - Jilin Oil Field Project Oil Facility
2.0 Project Overview and Key Points
All Currency in USD unless otherwise Designated Seller .......................................................................... ‌‌.CNPC-PetroChina Company Limited. Use of Funds (45% interest, Equity Partner Participation) Total Price of Asset -------------------------------------------- $25,000,000 ($25.0 million) 2013 Hydrojetting Costs ------------------------------------- $ 7,000,000 ($ 7.0 million) Capital Reserve (JV Registration) ------------------------- $ 8,000,000 ($ 8.0 million) Capital Reserve (Acq. Contiguous Block B) ------------ $10,000,000 ($10.0 million) Operating Capital --------------------------------------------- $ 2,000,000 ($ 2.0 million) Total Investment w/ Dev. Capital ------------------------- $52,000,000 ($52.0 million)
Oil In Place Cumulative Production Recovery to date Expected Recovery Ultimate 1P Recovery
63,560,000 bbls (Certified National Chinese Reserve Report) 6,587,998 bbls, January 1, 2012 10.3% 15.7% 9,966,998 bbls
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PetroChina - Jilin Oil Field Project Proved Reserves
3,379,000 bbls
Proved Reserves Proved Producing Proved Undeveloped Ultimate Recovery Ultimate 1P, 2P Recovery Probable Reserves
94% 6% 25% 15,890,000 bbls 5,924,000 bbls
Proved plus Probable Reserves Proved Reserves 36% Probable Reserves 64%
The recovery from this test area above agrees well with the estimated proved recovery of 18% and Proved Reserves of 3,379Mbbls. This well spacing is about 16 acres per well.
Payout
3.2years
Reserve half Life
7 years (Proved Reserves only)
Rate of Return
24%, ($52 million investment)
Project Interest
45% Working/45% Revenue
VAT
24%
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PetroChina - Jilin Oil Field Project Operating Expense
Estimated at $8,184,000 per year, includes maintenance capital spending of $984,000 per year to keep wellbores clean and producing
Current Avg Price
$115 per bbl (Brent, Indonesian, Dubai)
2012 Actual Price
$109 per bbl
Term of Current PSA
TBD – Typically 10-15 Years, with NAV Buyback by PetroChina
Current Wells
Block A: 255 Total – 196 Production / 59 Injection
Block Location
Mu110, MuE, MuF, Mu206, located in Jilin Oilfield
Current Production
Avg. 450 bbls of oil per day per well
Oil Buyer
PetroChina Company Limited
Hydrojetting Stimulation
35 wells with 3 zones per well at $200,000 per well (Gross cost per well)
Project is a yield risk, not a capital risk due to the high percentage of proved producing reserves with upside potential from improved wellbore communication and higher oil prices
3.0 Keys to Success The success of the Jilin Oil Field Project will be the result of • Superior management of existing production • Enhanced stimulation of existing perforations with hydrojetting • Identify productive zones that have been bypassed • Improve waterflood sweep efficiency • Additional Industry experience from US professionals • Production is expected to increase over the next year due to a projected increase in field maintenance spending to restore wells and improve well performance through refracturing old wells, recompleting to new zones, cleaning perforations and repairing pumps in wells that have been SI (Shut-In) due to a lack of spending.
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PetroChina - Jilin Oil Field Project The graphic below illustrates a well on location which showed good production until the pump was damaged due to the volume of water that was being moved. The pump needs to be changed to restore the well to its original tested volume of 150 tons/month (i.e. 36 bopd.)
Oil monthly production
308-02 well oil monthly production 250 200 150 系列1
100 50 0 1
4
7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 From Feb. 2007 to Nov 2011
The graphic below illustrates a recompletion of a well on location that has dropped due to having perforations plugged with wax and needs to be cleaned.
E 4-01 well oil monthly production
Oil monthly production
140 120 100 80
系列1
60 40 20 0 1
4
7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 From Apr. 2007 to Nov 2011
These two examples are of typical of the present field operations that are hindered due to a lack of capital spending as PetroChina has decided to sell the property and has elected not to keep spending money to keep the production up. In both of these cases production has dropped and stayed low for at least one year. Hydrojetting for improved completions will allow enhanced wellbore communication with the formation to improve production. Most of the wells producing in this field are fracture stimulated to improve wellbore communication. This method of production will enhance the wellbore communication and improve production in many of the wells in this field. This method is similar to horizontal drilling, but without the expense of the directional tools and drilling rig.
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PetroChina - Jilin Oil Field Project Hydrojetting has been performed on 16 wells in Jilin Oil Field in 2012 with an average increase in production from 0.8 tons/d(6 bopd) to 2.5 tons/day (18 bopd), 3.1x. This process works by enlarging the surface area to flow and contacting more formation in the horizontal direction than can be contacted by a single vertical well.
Hydrojetting through the Oil Sand
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PetroChina - Jilin Oil Field Project 4.0 Reservoir Properties
Depth
1000-1200m
Area
10.4 km2
Well Spacing
15 to 20 acres
Formations
Fuyu, Yangdachengzi
Temperature
120 deg F
Pressure
1645 psi
Porosity
17.8%
Permeability
15 – 30 md
Gas/Oil Ratio
110 scf/bbl
Oil Density
54 #/ft3
Oil Gravity
31 deg API
Oil Viscosity
20 cp
Pay Zones
9 groups with 26 total layers
Total Pay Thickness
200m
Comments
6 layers are considered continuous and good candidates for horizontal drilling/hydrojetting. Well spacing needs to be around 10 acres for best recovery efficiency. West Texas Waterflood experience indicates that reservoir compartmentalization is greater than anticipated. “It was estimated from these forecast models that an additional 6.9% of oil in place could be recovered by infill development to 10 acre spacing.” “A Statistical and Economic Analysis of the incremental Waterflood Infill Drilling Recoveries in West Texas Carbonate Reservoirs”, 1991, SPE
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PetroChina - Jilin Oil Field Project Well Plot Mapping
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PetroChina - Jilin Oil Field Project
JingYuan Oil Field Production
600000
Annual Oil Production (Bbls/yr)
500000
Little Capital Spending in years 2009, 10 and 11 has allowed production to fall below the historical produciton
400000
300000
200000 Actual
Series3
100000
0 1995
2000
2005
2010
2015
2020
2025
2030
Year
E、 F、 110 Daily Production Rate (bbls/day)
E、 F、 110 Block Daily Production Rate Decline is about 5% per year
800
110 Block E Block F Block Field Total less 206 Block
700 600 500 400 300 200 100 0
1
3
5
7
9 11 13 15 17 19 21 23 25 27 29 31 33 35 Jan 2009 to Nov 2011
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PetroChina - Jilin Oil Field Project 5. 0 Upside Potential
Waterflood Recovery Recovery from the four blocks has been about 10% after several years of primary production and limited water injection. This is primarily due to a lack of poor perforating practices, limited analysis of individual zone performance and formation damage combined with limited remedial action to restore damaged wellbore productivity. This has resulted in rapid decline in production and limited areal drainage from the reservoir. By improving individual zone contributions to productivity and additional infill drilling/hydrojetting the recovery from this reservoir should increase to 20% to 25%. Below is a table West Texas waterflood recoveries based on actual field results. The permeability of these waterfloods are all less than 5md compared to 15 to 30md at Jilin Oil Field. The viscosity of the oil in these field is about 2 to 4 cp vs. 20 cp for Jilin. Production is governed by the ratio of perm/viscosity. So for West Texas this ratio is about 1 (3md/3cp) and the Jilin Oil Field ratio is also about 1 (20md/20cp), therefore the recoveries should be comparable. Notice that the infill drilling recoveries range from 25% to 40% of the oil in place. This study (SPE 19783) was done in 1989 before higher prices made complete downspacing to 10 acres economical. The projected Proved recovery for the Jilin Oil field is only about 15.7% of the OOIP compared to the 25% in these actual field results. In the study below only 12.5% of the fields were below 20% recovery. This suggests a probability of 87.5% of having a recovery of greater than or equal to 20%. Further analysis suggests that the probability of greater than 25% to be nearly 60% and greater than 30% to be about 40% recovery. Therefore in the analysis of the Jilin Oilfield of only Proved reserves of 15.7% suggest significant support for increased recovery through better completion methods and reservoir management. .
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PetroChina - Jilin Oil Field Project World Oil Prices In addition to improved recovery from these reservoirs, global oil prices are continuing to increase with time. World oil production has reached about 85 to 86 million bbls per day. This has remained relatively flat for the past 7 years. This is the first time in 25 years when world oil production has not increased over a seven year period. This may indicate that world oil production may have reached its maximum (http//www.EIA.gov). Matt Simmons, noted Investment Banker from Houston pointed this out all the way back in 2005. Since that time oil production has not significantly increased. World oil prices have been as high as $140 per bbl (WTI) in 2008, then the global economic meltdown. Presently in the global recession oil prices have remained high while world economies have declines. This demonstrates the high demand and growing dependency on oil around the world. As the world economics start to recover the price for oil should escalate to above $100 per bbl and as high as $125 per bbl. There does not appear to be much downward pressure on oil prices and upward pressure appears to be increasing. Matt Simmons was quoted as speculating that oil prices could climb to as high as $300 per bbl. Although this seems too high, remember that it was only about 10 years ago that oil prices were only about $25 per bbl.
General Comments concerning a coming shortage of oil Global Net Exports Summary or the Noose tightens: If we extrapolate the 2005 to 2010 rate of increase in consumption by the exporting countries out to 2020 and if we extrapolate Chindia's 2005 to 2010 rate of increase in net imports out to 2020, and if we assume a slight production decline among the 2005 top 33 net exporting countries (1.0%/year from 2010 to 2020), then for every ten barrels of oil that non-Chindia countries (net) imported in 2005, they would have to make do with four barrels in 2020. According to Bryan Walsh, Time Magazine, March 2012, “The decline of major conventional oil fields-coupled with the rapidly rising demand from countries like China and India-means the spare production capacity that once cushioned prices is melting away, ushering in an era of volatile market swings.” Bruce Stanley, Associated Press, November 2010 ”Global supplies of crude oil will peak as early as 2010 and then start to decline, ushering in an era of soaring energy prices and economic upheaval – or so said an international group of petroleum specialists meeting Friday”. Below are a number of companies and government agencies which believe oil production is at or near its peak.
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PetroChina - Jilin Oil Field Project The plot below shows historic global oil production and looks at prediction of production from 2005 to present. The results show that even with high oil prices the best has been a flattening of production.
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PetroChina - Jilin Oil Field Project 6.0 Oil Marketing Oil is presently sold under an existing contract with PetroChina Corporation. PetroChina has submitted in writing their intent to continue to purchase and transport any oil production from the Jilin Oil Field. Ownership of oil is transferred at the point of pick-up. All liability incurred during transport is the sole responsibility of the PetroChina or their transporter.
China Oil Production/Consumption According to the US Energy Information Administration, China’s largest oil fields are mature and production has peaked, leading companies to focus on developing largely untapped reserves in the western interior provinces and offshore fields. In the attached graphs, it is shown that oil production has peaked in China, but demand has continued to grow supporting the need to purchase all oil produced inside China and also supporting the earlier comments that there exists strong support for rising oil prices in the coming years as world oil consumption continues to increase while world oil production has continue to remain flat.
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PetroChina - Jilin Oil Field Project 7. 0 Financial Data
**This Area Has Been Left Intentionally Blank**
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PetroChina - Jilin Oil Field Project
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PetroChina - Jilin Oil Field Project
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PetroChina - Jilin Oil Field Project
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PetroChina - Jilin Oil Field Project
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PetroChina - Jilin Oil Field Project
Project Economics EBITDA
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PetroChina - Jilin Oil Field Project
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PetroChina - Jilin Oil Field Project Hydrojetting 105 well Development with TGER as Operator
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PetroChina - Jilin Oil Field Project The projections herein are the responsibility of the Directors and President of TERRAGREEN ENERGY RESOURCES, LLC, as identified in this business plan, and to the best of management’s knowledge and belief, are in conformance with generally accepted accounting principles. The company believes all of the assumptions underlying the projections are reasonable and appropriate.
8.0 Insurance Plan The Jilin Oil Field Project will be covered with a blanket insurance policy. This policy includes coverage for all assets along with necessary liability for any employee related claims. There will be a centralized office onsite that will have a monitored security system. There are also plans to establish a permanent residence with staff on the premises at all times. All completed wells will be fenced as needed to ensure their protection. All movable assets will be stored in a centralized, fenced area that will be monitored by taped surveillance. TERRAGREEN ENERGY RESOURCES, LLC currently holds a blanket bond in the state of Colorado that provides coverage for all environmental liability. TERRAGREEN ENERGY RESOURCES, LLC has never been cited by the EPA and considers environmental management a top priority in all projects.
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PetroChina - Jilin Oil Field Project
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PetroChina - Jilin Oil Field Project 9.0 Management Team The Company Formed in 2008, TERRAGREEN ENERGY RESOURCES, LLC (“TGER”) is an integrated and environmentally conscious domestic and international energy management company incorporated on May 5, 2009, and headquartered in Greenwood Village, Colorado. The company is registered in the state of Colorado under the EIN: 20-091261923. TERRAGREEN ENERGY RESOURCES, LLC is classified as a Limited Liability Corporation. TGER focuses its services on all segments (up, mid and downstream) of the oil and gas industry to deliver a high-quality acquisition program supplemented with integrated financial, operational, and technical management of acquired assets and energy investment projects. The TGER team combines long experience in the industry with educational and professional credentials in engineering, technology, finance, accounting, business, and economics. TGER offers management and staff to execute operations very efficiently with proven methods. State-of the art exploration technology combined with the latest drilling, well completion, production, and recovery technology is standard practice. This is the ordinary, day-to-day job of operations management and it must be executed flawlessly with disciplined cost management and a laser-like focus on operational excellence to increase reserves, production rates, and profits. TERRAGREEN ENERGY RESOURCES, LLC is primarily involved in the following business areas in China:
Location, acquisition, development and/or completion of oil and gas, and coal properties.
Purchase and Resale of oil and gas industry-related products and services
Select members of the team include:
Brett Cunningham (Managing Director, President): Corporate operations and finance executive with 25 years of business experience. His background includes management, negotiations, operations, investor relations, and business analysis. Mr. Cunningham has practical knowledge of developing and growing companies and has developed specialized financing concepts for large projects.
Mr. Garry Ward (Managing Director, China Country Manager): Career spans 25 years in the petroleum industry, where his primary focus has been on the evaluation of oil and gas properties throughout the United States and includes eight years in China. Mr. Ward was in charge of all technical evaluations and gas marketing for Floyd Oil Company from 1986 until the company sold its assets in 1999 and successfully purchased over USD 200 million in oil and gas properties.
Mr. David Lue (Gas Marketing Consultant): Began his career with Panhandle Energy Pipeline Company in 1972. During his tenure with Panhandle he was responsible for pipeline operations in the Gulf of Mexico and was directly involved in all of Panhandle’s LNG projects. After the merger of Panhandle with Duke Energy, Mr. Lue was promoted to International Business Development. While in that capacity Mr. Lue reviewed all international pipeline and LNG projects for Duke Energy’s potential investment. Mr. Lue left Duke/Panhandle after 30 years to accept a position as a Director of the West East Pipeline development project in China.
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PetroChina - Jilin Oil Field Project
Mr. Paul Stroud (Managing Director, Operations): More than 31 years of worldwide experience in the energy industry. He has an extensive background in onshore and offshore oil and gas operations, CBM wells, hot-water wells and high pressure steam wells. Mr. Stroud began his career as an engineer for Shell in 1971. After a period at UNOCAL Geothermal he established a consulting business, heading up projects for OESI in Hawaii, and Caithness Corporation in Indonesia.
Mr. Dave Weisgerber (Managing Director, Drilling Operations): More than 34 years of experience in the drilling industry with a comprehensive background in natural gas, oil, CBM and high-pressure, high-temperature steam. Mr. Weisgerber is proficient in all methods of directional and horizontal orientation and has spent the past 13 years working on projects in the United States for Huber, EnCana Oil & Gas, Pinnacle Gas Resources and Chesapeake Energy Corporation. Mr. Weisgerber has also worked on drilling projects in Indonesia, India and the Philippines.
Mr. Keith Reeves (Managing Director, Geology & Exploration): Career of 28 years of experience in the oil and gas industry. Mr. Reeves is an expert in the areas of exploration, development and production geology which he has executed on a global basis – from the far reaches of Burma, to prolific oil & gas plays in the United States to successful methane gas discoveries in Botswana. Mr. Reeves has immense experience in acquisition prospect analysis with ranking, risk assessment, volumetrics and economic forecasting.
Mr. Paul Adams (Managing Director, Global Project Investments and Finance): Involvement in capital markets spans 20 years. It began in 1992 with an eight year assignment as a stockbroker, and was followed by a consultancy career in private equity investments. Some of the luminaries for whom he has conducted capital raises include Darryl Quarles, award winning director and script writer of the sitcoms Fresh Prince of Bel Air and Family Ties; Richard Waryn, former Managing Director of Dubai Capital Group’s private equity activities in the CIS Region; and Larry Namer, co-founder of E! Entertainment."
10. Confidentiality Clause The information included in this business plan is strictly confidential. This information is provided on the understanding that it will not be disclosed to third parties without the expressed written consent of TERRAGREEN ENERGY RESOURCES, LLC.
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