Slide 1

Natural Gas Potential of Coals in British Columbia: Geology Update Thomas Gentzis, Ph.D. CDX Canada, Co., Calgary, AB and

David Schoderbek Burlington Resources, Calgary, AB 4th Annual Coalbed Methane Symposium, Calgary, AB

Outline • Overview of current CBM activities in British Columbia • Data presentation & interpretation of the CDX/TLM/Burlington Highhat corehole • Review geology and CBM potential in selected Tertiary & Cretaceous basins in British Columbia • Operational advantages & challenges • Important principles guiding CBM exploration • Acknowledgements

BC NGC Activity Areas Ft Nelson

Klappan Hudson’s Hope Ft St John Prince George

< 80 NGC wells authorized since 2000 ~ 50 NGC wells drilled

NE BC Foothills

Merritt Comox

Princeton Elk Valley

Cranbrook

Nanaimo

Crowsnest (Courtesy of CSUG, 2005)

BC NGC Status • Approximately 50 CBM wells drilled in BC – 2 pilots or feasibility projects in SE BC • Elk Valley (EnCana)

– Other evaluation wells • Fernie/Sparwood area in SE BC (Chevron, Shell) & Klappan in northern BC (Shell) • Hudson’s Hope, NE BC (HH Gas/PRC, EnCana, Canadian Spirit) • Princeton, interior of BC (Petrobank)

• No commercial production projects to date • Hudson’s Hope projects are in early evaluation stage; potential to move towards commercial production in 2006 or early 2007

Alberta NGC Well Locations (Jan. 2005) Edmonton

•Over 3,000 NGC wells, most drilled since 2003 •About 15% of AB wells drilled in 2004

Calgary

6% Mannville

2% Ardley

92 % Horseshoe Canyon (Courtesy of Alberta Geological Survey & CSUG, 2005)

Burnt River deposit

(after Ryan & Lane, 2002)

Thick Gething coal seam in the Burnt River area, west of Gwillim Lake

Dense cleating

Wide cleating

Cleat spacing varies depending on coal composition

Highhat corehole c-A42-K/93-P-5

Drilling Summary Corehole c-A42-K/93-P-5 • Corehole located in a NW-SE trending faultbound gentle anticline, with minor folding • Air-drilled 316 mm (12 ½ in) hole to 456 m • Run 219.1 mm (8 5/8 in) casing & cement • Air/mist/soap-drilled 200 mm (7 7/8 in) hole to 1015 m • Mud-drilled 200 mm hole to 1395 m • Run 139.7 mm (5 ½ in) casing & foam-cemented

Field Operations Summary Corehole c-A42-K/93-P-5 • Cut and wireline-retrieved 8 Gething cores • Cored 20.9 m, recovered 17.2 m (average recovery of 82%) • Sealed 7 canisters of coal core for desorption • Sealed 13 canisters of coal cuttings for desorption • Logged 16.3 m of coal: AIT-DLD-CNL-MLTDSI and FMI (Formation Micro-Imager)

FMI Log

(Courtesy of David Schoderbek, Burlington Resources)

(Courtesy of David Schoderbek, Burlington Resources)

FMI Log

(Courtesy of David Schoderbek, Burlington Resources)

FMI Log

(Courtesy of David Schoderbek, Burlington Resources)

Gas Content and Analytical Data - Cores

Top

Lost

Desorbed Resid

Depth (m)

Gas

Gas

Gas Gas (arb) Gas (adb)

1020.30

73.8

474.4

15.2

563.4

571.2

1.37 0.42 1.79 27.24 26.87 27.35 13.09 12.91 13.15 18.10 1.54

1020.70

52.8

454.7

17.5

525.0

532.4

1.38 0.50 1.87 31.63 31.19 31.79 11.89 11.73 11.95 17.52 1.60

1021.12

86.4

632.3

7.4

726.1

736.7

1.44 0.28 1.71 10.51 10.36 10.54 13.47 13.28 13.51 15.10 1.39

1021.48

99.2

665.4

20.0

784.6

803.0

2.29 0.36 2.64 4.08 3.99 4.09 14.03 13.71 14.08 14.68 1.34

1022.55

104.9

537.2

9.5

651.6

660.9

1.41 0.29 1.70 18.05 17.80 18.10 13.30 13.11 13.34 16.29 1.44

1059.24

63.8

426.6

17.7

508.1

516.9

1.70 0.39 2.08 38.08 37.43 38.23 9.80

1059.46

135.0

697.3

30.1

862.4

876.8

1.63 0.27 1.90 13.82 13.59 13.86 12.70 12.49 12.73 14.78 1.39

arb: as-received basis adb: Air-dried basis daf: dry, ash-free basis SG: Specific gravity

Total

Total

ADM

Moisture

Ash

Volatile Matter

S.G.

% % adb % arb % adb % arb % dry % adb % arb % dry %daf

9.63

9.84 15.93 1.64

Gas Content - Raw and Processed Samples

Depth (m) 1045.16 1046.40 1053.50 1054.50 1074.59 1094.20 1099.40 1116.40 1129.60 1133.37 1137.40 1268.90 1284.38

Lost Desorbed Residual Total Gas Content Ash % +200mesh Float 1.75 (scf/t; arb)(scf/t; arb) (scf/t;arb) (scf/t, arb) (scf/t; adb) (adb) (wt %) (wt%) 64.4 188.1 13.2 265.7 381.7 36.21 89.09 62.19 15.8 52.2 1.1 69.1 90.7 82.96 81.25 9.92 41.8 188.1 1.4 231.3 330.1 36.88 88.77 64.26 41.6 132.6 0.7 174.9 242.5 56.70 84.21 40.11 9.4 40.2 2.1 51.7 63.7 81.15 94.50 7.02 21.1 70.5 5.9 97.5 125.5 74.46 89.35 13.97 35.6 156.6 6.2 198.4 269.2 53.03 92.77 41.31 7.2 36.6 0.5 44.3 55.0 85.30 89.16 7.07 27.5 69.1 4.1 100.7 131.1 74.69 87.85 10.53 24.1 78.7 2.5 105.3 146.5 72.41 91.97 21.89 24.5 75.9 1.3 101.7 131.6 71.02 89.59 22.23 13.2 25.4 0.4 39.0 47.8 87.17 92.16 2.70 24.7 63.9 3.6 92.2 127.5 76.71 90.08 20.71

Float 1.75 & Recalc'd to Recalc'd to Ash +200M SG+200M +200M (wt%) +200 mesh +200M, Fl1.75Fl1.75(%; adb)(g/cc;adb) 55.41 428.43 773.27 14.34 1.41 8.06 111.57 1384.26 15.92 1.44 57.04 371.82 651.82 11.00 1.4 33.78 288.00 852.67 11.34 1.38 6.63 67.42 1016.24 9.20 1.38 12.48 140.51 1125.65 16.41 1.46 38.32 290.21 757.27 7.07 1.37 6.30 61.69 978.67 13.70 1.42 9.25 149.24 1613.25 12.17 1.39 20.13 159.29 791.23 24.40 1.51 19.92 146.92 737.69 11.58 1.40 2.49 51.85 2083.59 14.73 1.41 18.66 141.59 758.94 15.52 1.43

Gas Content (arb)

c-A42-K / 93-P-5 900

Lost Gas Portion of Total

800 700

Desorbed Gas Content

600 500 400 300 200 100 0 1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

Canister Numbers (Courtesy of David Schoderbek, Burlington Resources)

(Courtesy of David Schoderbek, Burlington Resources)

Ash versus Specific Gravity for Cores 1.70

1.60

Specific Gravity (g/ml; adb)

R2 = 0.9818 1.50

1.40

1.30

1.20

1.10

1.00 0.00

5.00

10.00

15.00

20.00 Ash % (adb)

25.00

30.00

35.00

40.00

Total Gas Content versus Ash Content (cores; adb) 40.00

35.00

Ash Content (%; adb)

30.00

25.00

20.00

15.00 Canister 11 10.00

5.00

0.00 400.0

500.0

600.0

700.0

800.0

Total Gas Content (scf/t; adb)

900.0

1000.0

Desorption Curve for Canister 7 coal cuttings 60

Desorbed Gas Content (a.r.b.; scf/t)

50

40

30

20

10

0 0

100

200

300 Cumulative Time (hours)

400

500

600

Total Gas Content vs. Ash Content for Un-processed Cuttings 100 90

Ash Content (%, adb)

80 70 60 R2 = 0.9809

50 40 30 20 10 0 0.0

50.0

100.0

150.0

200.0

250.0

Total Gas Content (scf/t; adb)

300.0

350.0

400.0

450.0

Ash Content vs. Total Gas Content: Cuttings GC Adjusted to +200 mesh and Float 1.75 SG fraction 2500.00

Total Gas Content (scf/t; adb)

2000.00

1500.00

1000.00

500.00

0.00 0

5

10

15 Ash Content (%; adb)

20

25

30

Gas vs. Ash for Coal Cuttings (raw samples & +200 mesh and Float 1.75 SG fraction) Total Gas Content (scf/t, adb; raw & processed samples)

2500.00

2000.00

1500.00 +200 mesh/Fl1.75SG Raw Samples 1000.00

Core Data 500.00

0.00 0

10

20

30

40

50

60

Ash Content (% adb; raw & processed samples)

70

80

90

Adjusted Gas Content vs. Weight Yield for +200 mesh and Float 1.75 SG Fraction of Cuttings 2500.00

Adjusted Gas Content (sf/t adb)

2000.00

1500.00

1000.00

9

17 20

6 14

18

8

500.00

(6, 8, etc: canisters numbers) 0.00 0.00

10.00

20.00

30.00

40.00

Yield (weight %) @ +200M/Fl1.75SG

50.00

60.00

Maceral Analysis - Corehole c-A42-K/93-P-5 Depth 1020.3-1020.71021.12-1021.481021.48-1021.88 1022.55-1022.86 1059.24-1059.46 Canister 1 3 4 5 10 Seam Gaylord 1 Gaylord 1 Gaylord 1 Gaylord 1 Gaylord 3 As measured Total Vitrinite 39.6 37.8 45.4 45.8 46.6 collotelinite 12.8 15.6 17.6 18.0 18.8 collodetrinite 26.8 22.2 27.8 27.8 27.8 Total Liptinite 1.0 0.0 0.0 0.0 0.0 Total Inertinite 47.2 56.2 51.0 48.2 35.8 Semifusinite 9.6 18.0 19.4 11.6 15.6 Fusinite 23.4 28.2 16 26.6 11.0 Other 14.2 10 15.6 10 9.2 Total Minerals 12.2 Mineral matter free Total Vitrinite 45.1 Total Liptinite 1.1 Total Inertinite 53.8 Total 100.0

6.0

3.6

6

17.6

40.2 0.0 59.8 100.0

47.1 0.0 52.9 100.0

48.7 0.0 51.3 100.0

56.6 0.0 43.4 100.0

â&#x20AC;˘Face cleats developed normal to fold axis

Siderite mineralization in Gething coal fracture: photo courtesy of David Schoderbek, Burlington Resources

Completions Summary Corehole c-A42-K/93-P-5 • Perforated 14 Gething coal intervals over 120 m • Conducted injectivity testing (1017-1024 m) for pressure & permeability measurements • Injection/fall-off: 1132 psia at 991 m (8.0 KPa/m) & effective permeability to water of 0.2-0.3 mD or 0.5 mD absolute permeability • Moved on coil tubing and fracturing equipment • Stimulated 7 separate hydraulic fractures with 1-10 tonnes sand proppant • Pumped 85 m3 of water with N2 (70 quality N2 foam fracs) • Fracs designed to past the near-wellbore damage with energized fluid

Completions Summary Corehole c-A42-K/93-P-5 • Nitrified fluid to assist flow back (low reservoir pressure) • Flow back frac treatment to clean up & evaluate • Run in 60.3 mm (2 3/8 in) production tubing to 1120 m & flow/swab to evaluate • Swabbed dry; 20 m3 of frac fluid left to recover • Did not place well on limited production testing

Interior Coal Basins Tertiary

Major Tertiary Coal Basins and faults in British Columbia

(after Ryan, 2002)

•Deposits are located 20 Km west of Cache Creek, in southcentral British Columbia •Contains up to 10 billion tonnes of lignite to sub-bituminous coal •Deposit is in a graben structure that is fault-bounded and gentlyfolded •Hundreds of DDH drilled in the 1970s & early 1980s by BC Hydro •Note the extent of a Gravity “low” (indicates coal)

(modified from Dolmage Campbell & Assoc., 1975)

Hat Creek Cross Sections

(modified from Dolmage Campbell & Assoc., 1975)

•Two coreholes near the centre of the No. 2 deposit encountered over 500 metres of coal and interburden (Goodarzi and Gentzis, 1987) •Deposit is divided in 4 distinct zones (A to D) •Average ash of coal deposits is 30 wt% due to numerous rock splits; lower ash coals (<10 wt%) are present in zones B & D •Rank changes very little with depth, from 0.3% Ro,ran to 0.5% Ro,ran

(after Ryan, 2002)

Huminite (eu-ulminite and texto-ulminite) macerals in Hat Creek coal (after Gentzis, 1985)

Huminite and inertinite (funginite) macerals in Hat Creek coal (after Gentzis, 1985)

â&#x20AC;˘No desorption, adsorption or isotope data is available for the Hat Creek coals â&#x20AC;˘The low-rank, low-ash but also very thick Powder River coals provide the best analogue (data from Pratt, Mavor and DeBruyn, 1997; Bustin and Clarkson, 1999; compiled by Ryan, 2003) 5.0 4.5

HVA 0.67% Rmax

4.0

M3/tonne

3.5

combined free gas and adsorbed gas

3.0

Coal gas is almost certainly biogenic; thus, hydrology & ground water flow could strongly affect gas content

120

scf/t

If there is additional free gas, total gas sorptive capacity could be 40-60 scf/t

160

2.5 Powder River isotherm Rmax=0.35%

2.0

80

1.5 40

1.0 0.5 desorption results

Free gas at 5% porosity

0.0 0

100

200 300 equivalent depth in metres

400

500

Hat Creek Hydrology • 98% of the water flow in Hat Creek Valley is surficial & 2% is from groundwater; groundwater is within few meters to 30 m from surface • Piezometers were installed in >200 holes to measure pressure fluctuations • Pump tests measured hydraulic conductivity and evaluated depressurization & recharge capability • Hydraulic conductivities in coal beds ranged from 1x10-6 m/s to 3x10-9 m/s; higher values are indicative of lower ash and better fracture development • Pumping tests showed a general downward movement of groundwater; kaolin tonsteins, bentonite beds & unlithified mudstones act as aquitards to groundwater flow • Few artesian wells flowed potable water that was enriched in Na-bicarbonate ions (high alkalinity)

â&#x20AC;˘Permeability is one of the most critical factors affecting the economic production of CBM â&#x20AC;˘Limited perm data from pressure draw-down tests exists for Hat Creek Lith unit

milli Darcies

No of tests low

high

Upper Siltstone A zone siltstone and coal

13

0.0001

3

6

0.001

0.03

B zone coal C zone siltstone and coal

3

20

50

13

0.003

3

D zone coal Lower Siltstone sandstone

12

0.6

100

15

0.0002

0.5

Conglomerate

4

0.0095

0.3

Limestone

7

0.12

10000 (BC Hydro data, 1979)

Coal zones B and D contain clean coal (Goodarzi and Gentzis, 1987) & may also have high permeability (50-100 mD)

Hat Creek Deposit Summary • Based on a resource of 10 billion tonnes in the No. 1 and No. 2 deposits and a 1.5 cm3/g (~50 scf/ton) gas content, the OGIP could be in the range of 0.5 Tcf • All of the CBM resource is concentrated in a small area that is close to infrastructure and major pipeline • However, the Hat Creek Valley is currently under a moratorium for CBM exploration & development • Deer farming, small ranching & hunting (partridge) ops • Small ranch operations in the valley; opposition to development is very vocal, well-organized and is comprised of local ranchers, farmers, and even some First Nations groups

Tulameen Coalfield •Located 20 Km NW of Princeton and covering an area of 10 Km2 •A number of underground mines operated in the area (1900-1940) recovering about 2.2 million tonnes of coal •Coal rank varies with depth from 0.65% to 0.89% (high vol. B/A bit.)

•Coal resource is estimated to be 300 million tonnes based on the extent of 2 coal zones • CBM resource could be

42 Bcf

(after Ryan, 2002)

(after Ryan, 2002)

Adsorption isotherms for samples of the upper seam. Tulameen coals have maximum methane sorptive capacity of 3-7cm3/g (~100-220 scf/ton) at 2001000 m 14 400 scf/t

12

Quinsam 0.67% Rmax 15.75%ash

cc/g as received basis

10

Ryan equation 0.67% Rmax 12% ash

FW 0.65%Rmax 12.7% ash

300 scf/t

8 200 scf/t

6 4

HW 0.67%Rmax 7.2% ash

2

100 scf/t

0 0

200

400

600

800 1000 metres

1200

1400

(after Ryan, 2002)

Current CBM Activity â&#x20AC;˘ CBM rights in the Tulameen Coalfield are held 75%/25% by Compliance Energy and the Upper Similkameen Band â&#x20AC;˘ In addition to coalbed methane development in the Tulameen Coalfield, Compliance already has a small coal mine in operation and has developed plans for a coal-fired generation plant

Princeton Coalfield •Near the town of Princeton, covering an area of 170 Km2 •Underground mining in the past. Coal rank is variable (subbit-high vol.A bit.) based on Ro,max of 0.52 to 0.8% •Coal resource is estimated to be 800 million tonnes based on the extent of 4 coal zones over a 540 m thick section •Cumulative coal thickness is in the range of 17 to >26 m •Coal zones are high in ash (on average) and contain numerous bentonitic splits •The southern part of the basin is most prospective but also covered with >1500 m of Tertiary sediments (based on a gravity survey) •CBM resource could be

80 Bcf

(after Ryan, 2002)

Current Activity â&#x20AC;˘ Petrobank Energy & Resources has 60% interest to the coalbed methane rights in the Princeton Coalfield (along with two other small companies Connaught Energy and Birchill) â&#x20AC;˘ Limited test drilling has been done and the abovenamed companies have made agreements with some landowners â&#x20AC;˘ Petrobank plans to drill up to 5 wells through 2004-2005 as part of a test project

Characteristics of Tertiary Coal Basins • Rapid subsiding basins; often fault bounded grabens • Strike-slip motions disrupted drainage and produced basins starved of sediment influx • Balance between rates of subsidence and vegetation accumulation existed for long periods of time • Rhythmic deposition of fining upward sequences capped by coal • Folding was gentle and not related to compression; folding probably occurred soon after coal deposition • Tectonic environment is favourable for extension of cleats • The coals are low in rank (subbituminous to high-volatile bituminous A) and difficult to grind (have low HGI)

Characteristics of Tertiary Coal Basins • Coal seams are generally <1000 m deep, often in the 200800 m range • Coal rank is depth-dependent in some basins; rank is higher in the centre of synclines • Rank is temperature dependent, which helps maintain vitrinite microporosity • High heat flow from volcanics has resulted in high maturation gradients • On an equivalent rank basis, Tertiary coals may have higher adsorption capacities than Cretaceous coals • Thick seams should correspond well to fracture stimulation or cavitation depending on depth

Operational Advantages • Formation waters expected to be fresh • Impermeable bentonite bands restrict vertical water movement, thus allowing accumulation of biogenic methane • Bentonite may be perfect seal for ensuring no flow from hanging and footwalls of seams during dewatering • Artesian overpressure conditions likely to exist in the centre of the synclinal coal basins • Some Tertiary coals have high resin (amber) content, which contributes to thermogenic gas generation at lower coal rank • Potential resource ranges from 50 Bcf to 1 Tcf; market includes local communities

Operational Challenges • Ash content is high and variable; local facies changes may control permeability • High geothermal gradients may have decreased the adsorptive capacity of the coals at depth • Presence of basement volcanics may affect gas composition by increasing CO2 and N2 contents • Rank indicates that coals have not generated much thermogenic methane • Limited CBM desorption and adsorption data is available • “Free” gas present in fractures may be a major component of total gas; difficult to estimate fracture porosity • Resource definition may be poor in some basins although margins are well established

Interior Coal Basins Cretaceous

Groundhog/Klappan Coalfields

•Coal prospects are scattered through the Bowser Basin •Most are found in an area of 5000 Km2 in the northern part of the basin •The Groundhog Coalfield occupies the southern part and the Klappan Coalfield the northern part of the basin

(after Ryan, 2003)

Klappan east Klappan west

•The Klappan/Groundhog coalfields form an area defined by the trace of the Biernes synclinorium •The coalfield is divided into a number of smaller resource areas

McEvoy Flats Biernes synclinorium

Panorama

•Cumulative coal thickness ranges from 10 to 26 m •OGIP estimated at 8 Tcf! using a conservative gas content of 5 cm3/g

(after Ryan and Dawson, 1995)

Vitrinite reflectance data for the Klappan/Groundhog coalfields

Biernes Synclinorium

4

3.5

4.5 5 Resource area 3

4 5 (after Ryan and Dawson, 1995)

â&#x20AC;˘The Langmuir Rank Equation provides a rough estimate of anthracite isotherms at different temperatures (after Ryan and Dawson, 1995) temperature data from Olszewski 1992

Anthracite data gg/gm

40 35

20'C 40 60 80

30 25 eddy curve 20

actual adsorption trend during uplift

22'C adsorption

15 Some Chinese data 10 5 metres 0 0

500

1000

1500

2000

2500

Gas Diffusivity • Gas diffusivity through the coal matrix to the cleats is controlled by: - Coal Rank - Maceral Composition - Particle Size • At higher ranks (e.g., 1.8% to 2% Ro,max), coal structure becomes more organized & aromatic rings fuse into larger clusters • Pores within the anthracite are flattened and sealed (annealed), which leads to low diffusivity • In anthracite, the surface area available for adsorption increases but diffusivity is low and becomes the ratecontrolling process

Current Activity • Shell Canada started an exploratory drilling project in the Fall of 2004 • The company has signed an eight-year exclusive deal with the Province to explore for CBM under 412,000 ha of land • By the time the eight-year deal is over, just under $9.5 million will have been paid to the province • Shell plans to spend an additional $12 million on actual work on the ground • The Tahltan First Nation elders declared a moratorium on resource development on traditional lands; the company has thus ceased activity in the area

(after Smith, 1989)

(after Ryan, 2002)

â&#x20AC;˘Coal in holes 1 and 2 is fully saturated with gas â&#x20AC;˘Moderated N2 concentrations were measured

(after Ryan, 2002)

Current Activity • Very little has happened since 2002 when Priority Ventures Ltd. undertook an exploration program • Ownership issues (coal vs. P&NG) on Vancouver Island are complex and need resolution • MEM commenced the “Mineral Title Development Project” to identify and confirm the ownership of minerals on Vancouver Island • Unlike the rest of BC, most NGC rights on Vancouver Island are freehold

Important Principles Guiding CBM Exploration • Finding good reservoir “quality” (gas content & permeability) is more important than finding thick coal • Coal in the lower part of the “oil window” has generally poor reservoir quality, such as low gas content & poor cleat development • Near-surface hydrologic/biological processes may have a strong impact on reservoir quality by enhancing gas content and coal permeability • It is preferable to test a variety of different play concepts • Existing data can potentially provide useful “clues” to finding good reservoir conditions

Acknowledgements • Doug Seams, Kin Chow and Colin Anderson, CDX Canada, Co. • Stefan Siefert, Talisman Energy Inc.