Tight Gas in Western Canada: An Important and Continuing Component of Overall Supply. Agenda

Transcription

1 Tight Gas in Western Canada July 25 Tight Gas in Western Canada: An Important and Continuing Component of Overall Supply R.K. (Bob) Dixon, P.Eng. Unconventional Gas Conference, Houston July 26, Agenda Introduction WCSB Gas Supply Challenge Unconventional Gas CBM/Shale WCSB Tight Gas Shallow Jean Marie Deep Basin Summary 2 1

2 Tight Gas in Western Canada July Forward Energy Group Inc Planning Investments GOALS Portfolio STRATEGIES Plays Properties TACTICS Prospects Projects Discovery Recovery Better information for strategic decisions 3 Geographic Regions 6 N 6M 5M 4M 3M Connected Townships SW Saskatchewan (137) NW Saskatchewan (254) BC Plains (545) NW Alberta (699) NE Alberta (512) Central Alberta (733) EC Alberta (349) SE Alberta (744) Deep Basin (578) Foothills (227) Fort Nelson Fort McMurray Fort St. John 8 7 Grande Prairie 6 Edmonton 5 Hinton Lloydminster Saskatoon 4 3 Geographic Regions modified from Petroleum Services Association of Canada Natural Gas Supply Trends Calgary Lethbridge Medicine Hat Swift Current N Large and complex basin 4 2

3 Tight Gas in Western Canada July 25 Agenda Introduction WCSB Gas Supply Challenge Unconventional Gas CBM/Shale WCSB Tight Gas Shallow Jean Marie Deep Basin Summary 5 WCSB Production Marketable Gas Production, MMcfd 18, 16, 14, 12, 1, 8, 6, 4, Marketable Gas Production by Province Territories Saskatchewan British Columbia Alberta WCSB production: Recent peak at 16.9 Bcfd in 21 Decreased to 16.5 Bcfd in 23 Rebound to 16.7 Bcfd in 24 Alberta: dominant provincial source 2, E Source: CAPP BC: only region with growth trend WCSB ultimate potential for conventional natural gas: 29 Tcf (NEB/EUB) Unconventional resource potential: 3 1s Tcf Will production grow again, sustain or decline? 6 3

4 Tight Gas in Western Canada July 25 Supply Challenge: Sustain Production 18, 16, WCSB Gas Production by Period Onstream Wells Onstream 199 to 24 Wells Onstream Pre-199 Total WCSB production flat at 16.7 Bcfd ±.2 Bcfd Calendar Daily Marketable Gas Rate, MMcfd 14, 12, 1, 8, 6, 4, 2, source: Forward Energy, CAPP Decline in production from connected wells Rate additions from new wells onstream provide growth Wells onstream since 1989 produce 8% of gas WCSB supplies 25% of consumption in US and Canada Competing processes of decline and rate additions 7 How has industry responded? WCSB: Gas Activity and Gas Prices Event Count Natural Gas, CAPP Average Wellhead/Plant Gate price Connection activity reached record levels, above 14, connections, by the end of 24 1 Event Count ($/Mcf) Activity, and rate additions, responded to prices, cash flow, acquisition and capital markets, export capacity, etc E Gas price and gas connection activity correlated 8 4

5 Tight Gas in Western Canada July How big is the annual challenge? Calendar Daily Sales Gas, MMcfd 14, 12, 1, 8, 6, 4, Solution Gas Gas Production by Year Onstream Events Onstream year 1 year 3. Bcfd 3.2 Bcfd Calendar Daily Sales Gas, MMcfd 4,5 4, 3,5 3, 2,5 2, 1,5 1, Gas Rate Additions by Year Onstream Bcfd 5 year average , , , ,361 3,22 3,257 3, , , , ,724 1,732 1,16 2, Year Onstream Year Supply additions were 1.7 Bcfd in 199, peaking at 3.9 Bcfd in 21; 3.7 Bcfd in 24 Shallow declines in early years; first year decline has increased from less than 3% to 4% Rate additions for all wells onstream in year is the peak monthly rate Higher production rates require higher production replacement 9 WCSB Supply Additions 6 N 6M 5M 4M 3M Rate Added per Township MMcfd 128 to 494 (3) 64 to 128 (6) 32 to 64 (38) 16 to 32 (159) 8 to 16 (41) 4 to 8 (657) 2 to 4 (785) 1 to 2 (725) to 1 (135) Fort Nelson Fort McMurray Rate Added and Event Count Fort St. John 8 4, First Year Rate Added 16, 3,5 Event Count 14, 7 3, 12, Grande Prairie 6 Rate Added, MMcfd 2,5 2, 1,5 1, 8, 6, Event Count Hinton Edmonton Lloydminster 5 1, 4, Saskatoon 4 5 2, Year Onstream Rate Added per Township Events Onstream , MMcfd Calgary Swift Current 2 1 Natural Gas Supply Trends Lethbridge Medicine Hat 1 49 N WCSB: Very large area, many producing plays, very active 1 5

6 Tight Gas in Western Canada July 25 Rate Additions per Well, Mcfd/well 1, Rate Additions per Zone Connected Well Connection Activity and Average Rate Additions per Well Rate Additions per Well Well Connection Count 16, 14, 12, 1, 8, 6, 4, Event Connection Count Rate added by new connections declined to 25 Mcfd per zone (24) Threshold size of an economic well decreased as gas price and netback increased Year Onstream 2, Expanded opportunity set: smaller, higher cost, lower quality, higher risk or more remote prospects More, but lower productivity, opportunities at the economic margin 11 Supply Measures Decline Analysis Example: Rate - Cum INVERNESS GILBY W5 Gilby Basal Mannville BBB Deliverability 3, Actual Production Profile Initial Rate 2,35 Mcf/d Decline Function Deliverability 2,5 Decline Function at 77% Load Factor Deliverability 2,93 Mcf/d First 12 Month Rate Calendar Daily Rate, Mcfd Raw 2, 1,5 1, 5 Constant % Decline Rate 17.8% per year Extrapolated Recovery Bcf First 12 Month 1. Mcfd (Rate Added) 1,62 Mcf/d Rate Added 5 1, 1,5 2, 2,5 3, 3,5 4, 4,5 5, Cumulative Production, MMcf Extrapolated recovery Deliverability Rate added the primary measure allocated by load factoradjusted first 12 month rate Discounted production Plant gate marketable Extrapolated Recovery (or EUR) Supply measures calculated from decline functions 12 6

7 Tight Gas in Western Canada July 25 Agenda Introduction WCSB Gas Supply Challenge Unconventional Gas CBM/Shale WCSB Tight Gas Shallow Jean Marie Deep Basin Summary 13 What is Unconventional Gas? To provide a comparison to the US production, we have adopted the US Energy Information Administration (EIA) definition of unconventional gas: Natural gas extracted from coalbeds (coalbed methane) and from low permeability sandstone and shale formations (tight sands and gas shales) is commonly referred to as unconventional gas. Most of these resources must be subjected to a significant degree of stimulation (e.g., hydraulic fracturing) or other unconventional production techniques to attain sufficiently economic levels of production. 14 7

8 Tight Gas in Western Canada July 25 Resource Triangle Low High Technology Requirement -Produced Volumes -Remaining Reserves Resource Quality -Tight Gas -CBM -Undiscovered Conventional High -Tight Gas -Ultra Tight Gas Plays -Deep CBM -Shale Gas -Gas Hydrates Low 15 Identification Issues U.S. agencies currently report natural gas production in the Lower 48 states from conventional and unconventional sources Canadian agencies do not (yet) distinguish production from tight sand or shale reservoirs from conventional gas production The Alberta EUB only recently began to identify production from coalbed methane wells separately Confidentiality provisions delay some information release, thus potentially obscuring more recent trends 16 8

9 Tight Gas in Western Canada July US-Canada Gas Production Profiles Lower 48 Natural Gas Production by Resource Type Shale WCSB Gas Production, by Resource Type Coalbed Methane Tight (3 plays) Conventional CBM: 6 MMcfd in 4 Shale: nil Bcfd 3 Bcfd Gas Shales Coalbed Methane Tight Sands Conventional E 24E Source:EIA Lower 48 gas production flat at 5-52 Bcfd; WCSB plateau at Bcfd CBM and shale gas in WCSB not yet on radar 3 major plays for Tight* gas in WCSB Tight gas in lower 48 at 2% of total 24 production vs 28% contribution in WCSB Conventional* gas in decline Tight gas is significant for both USA and Canada 17 WCSB Unconventional Gas WCSB Gas Production, by Resource Type Shale Coalbed Methane Tight (3 plays) Conventional 35% 3% 25% 2% 15% Unconventional Gas, as % of Total WCSB Bcfd CBM: 6 MMcfd in 4 Shale: nil % 5% % gas rates Shale: nil CBM: 6 MMcfd Tight*: 5. Bcfd Conventional*: 11.6 Bcfd Tight* gas: Selected three plays as examples where tight gas dominates With decline in conventional, tight gas becoming greater share of the mix Tight gas currently 3% of WCSB output 18 9

10 Tight Gas in Western Canada July 25 Agenda Introduction WCSB Gas Supply Challenge Unconventional Gas CBM/Shale WCSB Tight Gas Shallow Jean Marie Deep Basin Summary 19 Coalbed Methane in WCSB Resource potential: 3-4 Tcf gas in place; 1-2 Tcf recoverable (various sources) Recent startup WCSB production at 17 MMcfd Only commercial production to date from the Horseshoe Canyon coals, in Alberta Experimental pilots operating in BC and in Alberta production levels not yet material 2 1

11 Tight Gas in Western Canada July 25 CBM plays in Alberta Horseshoe Canyon and Belly River coals Upper Cretaceous Typically dry gas production Focus of most of current activity Ardley (Scollard) Upper Cretaceous Limited activity to date Mannville Group Lower Cretaceous Often with associated water Experimental pilots, results often confidential 21 Coalbed Methane Production Gas Rate, MMcfd Gas Rate Coalbed Methane Production: Alberta Well Count Cumulative Well Count Production rate increasing dramatically 6 MMcfd annual average in MMcfd exit rate Dec4 17 MMcfd est. rate Jun5 CBM now contributing 1% of total WCSB Recent start; high growth rates 3+ wells drilled to date; 1 wells onstream by end Dec4 (EUB designation) 22 11

12 Tight Gas in Western Canada July 25 Coalbed Methane Opportunities and Challenges Significant resource potential Value drivers increasing with strengthening of commodity prices and technology improvements Due to their location, CBM properties often have the benefit of existing infrastructure and stakeholder familiarity Surface land and land user impacts Major challenges sufficient resources of permeability-thickness (the cost of) water handling 23 Shale Gas in WCSB No current recognized gas production from shale zones Values for resource estimates large numbers Experimental work being undertaken results are confidential Some production occurring as commingled production with sand stringers, whether inadvertent or planned 24 12

13 Tight Gas in Western Canada July 25 Agenda Introduction WCSB Gas Supply Challenge Unconventional Gas CBM/Shale WCSB Tight Gas Shallow Jean Marie Deep Basin Summary 25 What is Tight Gas? In the US, tight gas reservoirs generally are defined as gas-bearing rocks with an in-situ permeability to gas of less than.1 md (Spencer, 1989) Since in-situ permeability data is not publicly reported for gas zones in the WCSB, we have estimated tight gas production on the basis of a number of criteria, including stratigraphic group, geographic region, the occurrence of fracture stimulation or horizontal drilling and depth 26 13

14 Tight Gas in Western Canada July Tight Gas Play Examples 6 Tight Gas - Three Plays WCSB Gas Production, by Resource Type Shale Coalbed Methane Tight (3 plays) Conventional Deep Basin 14 Jean Marie 12 Shallow - SE AB/SW SK 1 5 Bcfd Gas Rate, MMcfd For the purpose of this analysis, we illustrate three types of tight gas plays, as examples: Shallow (SE Alberta/SW Sask.) Jean Marie Deep Basin The key uncertainty is the proportion of tight gas production from fracturestimulated Mesozoic zones deeper than 6 feet Three tight gas plays all on growth trends 27 Agenda Introduction WCSB Gas Supply Challenge Unconventional Gas CBM/Shale WCSB Tight Gas Shallow Jean Marie Deep Basin Summary 28 14

15 Tight Gas in Western Canada July 25 Connected Townships SW Saskatchewan (137) NW Saskatchewan (254) BC Plains (545) NW Alberta (699) NE Alberta (512) Central Alberta (733) EC Alberta (349) SE Alberta (744) Deep Basin (578) Foothills (227) 6 N Fort Nelson Fort St. John M Grande Prairie Hinton 49 N 5M Calgary Edmonton Lethbridge 1 4M Fort McMurray Lloydminster Medicine Hat 3M Saskatoon 8 7 Swift Current Shallow: SE Alberta/SW Saskatchewan Shallow fracture-stimulated, low-permeability Upper Cretaceous reservoirs in the Sweetgrass Arch area of southeast Alberta and southwest Saskatchewan Well depth: 2-25 ft, predominantly vertical 24 production: 1.7 Bcfd in 24, 1% of WCSB production 95% of the over 33,+ events connected since 199 have been fracture stimulated 29 Shallow Tight Gas Geographic Regions modified from Petroleum Services Association of Canada Natural Gas Supply Trends Abbey/ Lacadena Medicine Hat 1 miles Canada USA Alberta Saskatchewan 3 15

16 Tight Gas in Western Canada July 25 Shallow Tight Production 2 18 Gas Rate Well Count Shallow SE AB/SE SK wells onstream wells onstream prior to 199 Shallow SE AB/SW SK Gas Rate, mmcfd Cumulative Well Count mmcfd Intense activity: 1.8 Bcfd from 66,+ wells onstream (to Apr5) Average well rate: 33 Mcfd Steady production to 2, 9%/year growth rate since Infills, extensions and new discoveries 31 Shallow Tight Gas Rate Additions Rate Added from Shallow Tight Gas Sands Upper Cretaceous in SE Alberta and SW Saskatchewan 5+ new wells connected each year 4 8 Rate Added, MMcfd Rate Added, MMcfd Zones Connected Zones Connected Supply additions increasing to 35 MMcfd/year, above the annual loss due to decline (~15 MMcfd) Year Onstream Resource play: continuous activity to keep production rate going 32 16

17 Tight Gas in Western Canada July 25 Shallow: Operators Gas Rate (12 months ended Apr4), mmcfd Shallow SE AB/SW SK - Operators Gas Rate Well Count Cumulative Well Count EnCana largest operator, by far; 1. Bcfd (42% of total play) EOG second largest, but only 8% of volume Nearly 2 other operators share the activity EnCana EOG Anadarko Nexen Husky Apache CNRL ARC Enerplus Others Variance in average rate per well reflects internal play diversity EnCana largest Shallow Tight Gas operator 33 Agenda Introduction WCSB Gas Supply Challenge Unconventional Gas CBM/Shale WCSB Tight Gas Shallow Jean Marie Deep Basin Summary 34 17

18 Tight Gas in Western Canada July 25 Connected Townships SW Saskatchewan (137) NW Saskatchewan (254) BC Plains (545) NW Alberta (699) NE Alberta (512) Central Alberta (733) EC Alberta (349) SE Alberta (744) Deep Basin (578) Foothills (227) 6 N Fort Nelson Fort St. John M Grande Prairie Hinton 49 N 5M Calgary Edmonton Lethbridge 1 Fort McMurray Lloydminster Medicine Hat Saskatoon 8 7 Swift Current O O-9 4-O-8 -O I I-5 94-I-5 94-P P P P-4 94-P P-5 94-P-6 94-P-3 94-I I I I-6 94-I-6 94-P P P-1 94-P-2 94-I I I-1 94-I-7 94-I-7 94-P-9 94-P-7 94-P-8 94-P-1 94-I-9 94-I-8 94-I-8 Forward Energy Group Inc Jean Marie Trend Licensed to : Forward Energy By : Date : 25/7/6 Scale = 1:785 Project : jean marie R13 R12 Jean Marie Gas-charged, under-pressured shelf carbonates of the Devonian Jean Marie Formation in NE British Columbia, typically drained by horizontal wells Well depth: 4-45 ft TVD: Horizontal leg length: average 29 ft, up to 5 ft Jean Marie sources produced about.5 Bcfd, 3% of 24 WCSB production 35 4M 3M T126 T125 T124 T123 T122 Geographic Regions modified from Petroleum Services Association of Canada Natural Gas Supply Trends T121 T12 T119 T118 T117 Jean Marie Tight Gas T116 T115 T114 T113 T112 T111 T11 T19 Kilometres T Miles T17 94-J-1 94-I-4 94-I-3 94-I-2 5 miles 94-I-1 R12W6 T

19 Tight Gas in Western Canada July 25 Jean Marie Production 6 Gas Rate Well Count Jean Marie 12 6 wells onstream wells onstream prior to 199 Jean Marie Gas Rate, mmcfd Cumulative Well Count mmcfd : 48 MMcfd from ~1 wells onstream; average well rate: 48 Mcfd Very little base production; recent growth from application of technology Jean Marie an emerging play 37 Jean Marie Rate Additions 2 Rate Added from Shallow Carbonates Upper Devonian Jean Marie in NE British Columbia 4 25 new wells connected each year Rate Added, MMcfd Rate Added, MMcfd Zones Connected Zones Connected Supply additions nearly 2 MMcfd, above the loss due to decline Average initial rate decreasing to 75 Mcfd/well in E Year Onstream 38 19

20 Tight Gas in Western Canada July 25 Jean Marie: Horizontal Drilling 25 Connection Activity from Shallow Carbonates Upper Devonian Jean Marie in NE British Columbia 2.5 Rate Added per Well from Shallow Carbonates Upper Devonian Jean Marie in NE British Columbia Vertical Vertical Deviated Deviated Horizontal Horizontal 2 2. Well Connections 15 1 Rate Added per Well, MMcfd/well Year Onstream Year Onstream Full scale deployment of horizontal, under balanced drilling technology, commencing in 1999, enhanced play development Over 95% of recent wells in Jean Marie play are horizontal Productivity of horizontal wells 2-1% better than vertical wells Horizontal technology made this play 39 Jean Marie: Operators 5 45 Jean Marie - Operators Gas Rate Well Count 7 6 Jean Marie play characterized by few operators 4 Gas Rate (12 months ended Apr4), mmcfd Cumulative Well Count EnCana is the largest; nearly 45 MMcfd, or 6% of the total CNRL and Devon operated 24% and 7%, respectively EnCana Cdn Natural Devon Penn West Husky Others EnCana dominates the Jean Marie play 4 2

21 Tight Gas in Western Canada July 25 Agenda Introduction WCSB Gas Supply Challenge Unconventional Gas CBM/Shale WCSB Tight Gas Shallow Jean Marie Deep Basin Summary 41 Deep Basin Definition of the Deep Basin characteristics: Gas charged area in west-central Alberta (and parts of BC), just east of the Foothills disturbed belt Located in recent to Jurassic stratigraphic groups Deeper than 6 ft A large portion of these reservoir rocks are low permeability, or tight Well depth: 7-11, ft; average 84 ft; predominantly vertical The Deep Basin play produced about 2.6 Bcfd, 15% of 24 WCSB production 42 21

22 Tight Gas in Western Canada July 25 Connected Townships SW Saskatchewan (137) NW Saskatchewan (254) BC Plains (545) NW Alberta (699) NE Alberta (512) Central Alberta (733) EC Alberta (349) SE Alberta (744) Deep Basin (578) Foothills (227) 6 N Fort Nelson Fort St. John M Grande Prairie Hinton 49 N 5M Calgary Edmonton Lethbridge 1 Fort McMurray Lloydminster Medicine Hat Saskatoon 8 7 Swift Current M 3M Geographic Regions modified from Petroleum Services Association of Canada Natural Gas Supply Trends Foothills Deep Basin Edmonton Foothills Calgary 2 miles Canada USA BC Alberta 43 Deep Basin Production 35 3 Gas Rate Well Count Deep Basin wells onstream wells onstream prior to 199 Deep Basin Gas Rate, mmcfd Cumulative Well Count mmcfd Increasing activity: 2.9 Bcfd from 76+ wells onstream (to Apr5) Average well rate: 4 Mcfd Steady production growth from 199, 7%/year compound annualized growth rate Deep Basin tight gas: significant and growing 44 22

23 Tight Gas in Western Canada July 25 Deep Basin Fracture Stimulations 7 6 Rate Added by Fracture Stimulation Deep Basin Non-fracture stimulated Fracture stimulated A majority of the wells in this Deep Basin play are fracture stimulated Rate Added, MMcfd % of these rate adds from fractured wells Year Onstream Fracturing technology - a necessary component 45 Deep Basin Deliverability Class Connection Activity by Deliverability Class Deep Basin region -.5 MMcfd.5-1 MMcfd 1-2 MMcfd 2-4 MMcfd 4-8 MMcfd 8+ MMcfd MMcfd 4-8 MMcfd 2-4 MMcfd 1-2 MMcfd.5-1 MMcfd Rate Added by Deliverability Class Deep Basin region MMcfd Rate Added, MMcfd Rate Added, MMcfd Year Onstream Year Onstream Extraordinary growth in the number of low rate (<.5 MMcfd and 1-2 MMcfd) connections since 1995; number of connections in the higher rate classes has remained relatively constant Rate additions from lower deliverability wells (<2. MMcfd) increased from 3% to 65% of annual rate additions Pushing the marginal economic limit has lead to growth in overall rate additions from lower deliverability wells 46 23

24 Tight Gas in Western Canada July 25 Deep Basin: Operators Gas Rate (12 months ended Apr4), MMcfd Deep Basin - Operators 2 Gas Rate Well Count Burlington BP CNRL EXM/IOL Talisman Devon EnCana Conoco Others Cumulative Well Count Approximately 2 operators share the activity; no single operator dominates Burlington largest operator; 1. Bcfd (23% of total play) BP and CNRL second largest, but only 9% of volume each Burlington: largest Deep Basin operator 47 Agenda Introduction WCSB Gas Supply Challenge Unconventional Gas CBM/Shale WCSB Tight Gas Shallow Jean Marie Deep Basin Summary 48 24

25 Tight Gas in Western Canada July 25 Outstanding issues: No clear working definition of tight gas Lack of accepted characterization of plays and resources Size and scope of resource potential/opportunity is not agreed Focus on enabling technologies not as well understood Resolution: Forward Energy is embarking on a tight gas characterization project Multi-client Wide support: industry, government, agency Multi-year Where To From Here? A solid grounding in the definition and extent of tight gas in the WCSB required - to lead to solid investment decisions 49 Key Messages The WCSB is a large, diverse and dynamic basin; many opportunities available to all types and sizes of operators Unconventional gas is one of the few components of the WCSB with sustainable growth potential CBM is in relative infancy in Canada; tight gas is a continuing program Tight gas, developed through the resource play mechanism, is a major focus for selected operators Technology developments have been, and will continue to be a major factor in resource development The sky is not falling - the sky is growing The challenge is cost-effective rate additions 5 25

26 Tight Gas in Western Canada July 25 Tight Gas in Western Canada: An Important and Continuing Component of Overall Supply R.K. (Bob) Dixon, P.Eng Unconventional Gas Conference, Houston July 26,