Status and Practices of Shale Gas Exploration and Development in Sichuan Basin

Status and Practices of Shale Gas Exploration and Development in Sichuan Basin Li Luguang PetroChina Southwest Oil and Gas Field Company Sep. 25, 2011

Outline I. Shale gas exploration and development history in Sichuan basin II. Case study of shale gas exploration and development in Sichuan basin III. Prospect of shale gas exploration and development in Sichuan basin 1 37

1. Sichuan is the earliest region to develop and use natural gas in the world Chinese ancestors named gas wells so visually as Fire wells, which was quoted in various Chinese literary forms. In the 3rd century BC., Li Bing, the satrap of Sichuan made his people drill wells to drain brine and burned natural gas to boil brine for salt in Linqiong. About 1700 years ago, salt wells were drilled in a dozen of counties in Linqiong, Chengdu and Nanchong. Zhuotong well - the initiation of modern well drilling In 1835, well Senghai was drilled to 1001.42 m,the deepest well at that time in the world. The bamboo pipeline kangpen-jian is the oldest natural gas transmission system of mankind. 2 37

2. Sichuan basin is the earliest base for natural gas industry in China 113 gas fields discovered Proven reserves 1370.8 bcm, recoverable reserves 812.9 bcm Total length of gas pipelines 18,000 km 14 gas processing plants with annual capacity of 15 bcm. One plant under construction with annual capacity of 3 bcm. Cumulative gas production over 300 bcm. Production exceeded 10 bcm since 2004. Produced more than 10 million tons of oil equivalent in 2006, and over 15 bcm of gas in 2009. Natural gas accounts for about 16% in primary energy consumption in Sichuan and Chongqing. Conventional gas resources in Sichuan basin is 10.6 tcm, oil resources 1.135 billion tons. PetroChina has 131 mining rights covering 168,700 km2, 7.9 tcm conventional gas resources and 1.07 billion tons oil resources. 3 37

3. Frequent shale gas shows in past drilling resulted in the discovery of low yield commercial gas flows 四川盆地志留系龙马溪组气显示图河深 1 南江 S 1l-O 2b b 4558.5~4580m 生物灰岩微漏气侵, 酸化产气 1.88 万方 /d 万源汶川绵阳仪陇宣汉巫溪成都南充五科 1 S 1x x 4806.5-4816.2m 4816.2m 含角砾泥岩, 气侵后效井涌, 中测获气 1.09 万方 /d 简阳 S 1 l 中途测试产气 202 方 /d, 产水 1.118 方 /d 广安池 1 S 2h3611 h3611-3613.22m 3613.22m 含云质生物灰岩, 发生井涌利川汉源资中 S 威 64 1 l 中途测试产气 1980 方 /d 威 4 乐山威 32 威寒 8 重庆威 2 东深 1 永川隆 32 阳 63 临 7 S 1 l 完井射孔, 酸化产气 3500 方 /d 阳 9 阳深 2 泸州宜宾太 13 老深 1 太 15 付深 1 S 2h h 3054.5-3300m 3300m 4 个层段, 粉砂岩生物灰岩, 井喷井雷波涌, 测试产气约 10 万方 /d 筠连涪陵来风彭水道真 0 40 80km 比例尺 In 1966, well Wei-5 encountered a 15m-22m high blowout when drilled to a depth of 2797m in Qiongzhusi formation, with a tested daily output of 24,600m 3 and formation pressure of 29.17MPa. Gas shows were observed in 68 intervals from 41 wells in Qiongzhusi formation. In 1981, well Yang-63 obtained low-yield gas flow during Well Wei 5 Well Yang 63 formation test in Longmaxi formation. Well Long-32 and other two wells also obtained low-yield gas flow. Gas shows were observed in 32 intervals from 15 wells in Longmaxi formation. 4 37

4. PetroChina Shouthwest is the first in China to launch joint study on shale gas with foreign companies Keep an eye on shale gas E&D progress in the United States since 2000 Launch a joint study on shale gas with US s New Field Company on Dec. 14, 2007 to assess Cambrian and Silurian shale gas resources and development prospects in Weiyuan, and compiled a report Shale gas potentials of the Cambrian Qiongzhusi and the Silurian Longmaxi formations in Weiyuan gas field, Sichuan basin 5 37

5. Two formations and three zones were selected as favorable targets based on comprehensive geologic studies (1)Basic works Field surveyed 24 profiles in Sichuan, Chongqing, Yunnan and Guizhou to collect over 800 samples. Drilled 11 geological shallow wells to get 1509.2 m cores. Well Qilin-1 was drilled to 173 m, obtaining a 3-6m high gas blowout that lasted for 10s. 6 37

(2)Comprehensive Studies Thickness map of Longmaxi formation in Sichuan and adjacent regions Thickness map of Qiongzhusi formation in Sichuan and adjacent regions Correlation of Longmaxi formation in well Wei-4 and Wuke-1 Longmaxi formation: 120,000 km 2 in the basin, 100m-400m thick, maximum thickness 700m. Correlation of Qiongzhusi formation in Leshan and Nanjiang Qiongzhusi formation: 180,000 km 2 in the basin, 100m-600m thick, more than 700m thick at basin rim. 7 37

(3)Assessment Weiyuan 2366 km 2 Fushun-Yongchuan: 3818 km 2 Main targets: the Cambrian Qiongzhusi and the Silurian Longmaxi formations. Changning and Weiyuan blocks for self operation. Fushun-Yongchuan for cooperation with Shell. 8 37

6. Finished 2D and 3D seismic survey and existing data reprocessing 2D seismic(km) 3D seismic(km 2 ) Changning 986.42 Changning 151.35 West Changning 344.19 Weiyuan 104.61 Total 1330.61 Total 255.96 Existing 718 2D seismic lines of 16391 km in south Sichuan were reprocessed, with a controlling area of 52,550 km2. 9 37

7. The first shale gas appraisal well in China Wei-201 was drilled and obtained gas flow after fracturing Well Wei-201 was spud on Dec.18, 2009, TD 2840m. For the first time in China, it obtained gas flow after fracturing the Cambrian Qiongzusi and Silurian Longmaxi formations. Vertical appraisal wells Ning-201 and Ning-203 were drilled, and obtained gas flow in the Silurian Longmaxi formation after fracturing. Well Formatio n Total flowback m 3 Flowback percentag e % Pressure coefficien t Production m 3 Notes Wei- 201 Ning- 201 Qiongzusi 1085.8 55.5 1.009 10,800 Longmaxi 1099.6 51.07 0.901 3,000-17,000 Longmaxi 660.8 30.9 2.03 11,000 First tested layer Longmaxi 702.2 33.6 2.03 7,500 Second tested layer Ning- 203 Longmaxi 450.5 18.56 7,500-15,000 Produced 714,100m 3 in 92 days. 10 37

8. The first horizontal shale gas well in China Wei-201-H1 was drilled and produced gas after fracturing Wei-201-H1 was spud on Jan. 10, 2011 and completed on Apr. 15 with a total depth of 2835.6m. Gas flow was obtained after staged fracturing on July 2. This is the first horizontal shale gas well in China. 11 37

9. Mass parallel analysis and experiments have been done Sampling by PetroChina SW R&D Institute PetroChina R&D Institute PetroChina Langfang Institute Weatherford Corelab (Wei 001-4) Zone Sample Quantit y S 1558 Tota l 2291 Gas bearin g Organi c carbon 1558 Pyrolysi s 1558/52 2 Refltc, kero micro 166 /144 Analysis Items Ф, K, S 200 /46 733 733 733/194 60/64 140 EM, X- ray diffra 401 em 176 xr 803 270 em 90 xr 540 S 18 18 18 5 25 43 25 25 8 each Gas co mp Rock densit y Oil gener ation 32 24 38 25/16 78 22 S 49 3 49 34 11 3 34 11 97 each 48 2 48 17 9 2 24/28 2 9 S 24 21 21 24 6 21 2 44 20 20 20 20 6 20 2 40 40 5 40 40 40 40 80 Rock mech anis m 2515 2515 51 2512 2515 /894 494 382 /88 2134 /1729 55 75 57/48 126 2515 samples were analyzed for 8401 sample/times and11 items by five institutes in parallel. 12 37

10. A national shale gas pilot plan for Changning-Weiyuan block was compiled National shale gas pilot area of Changning-Weiyuan block is located in the southern part of Sichuan basin, including Changning block and Weiyuan block, with a total area of 6567.5 km 2. Changning block: 4201.4 km 2. Weiyuan Weiyuan bolck: 2366.1 km 2. Changning 13 37

1. Brief of well Wei-201 and its gas production after fracturing Wei 201 Logging Curves of Silurian Longmaxi formation Wei 201 Logging Curves of Cambrian Qiongzhusi formation 15 37

Sand fracturing plot for Qiongzhusi formation in well Wei-201 Sand fracturing plot for Longmaxi formation in well Wei-201 Gas output from the Silurian Longmaxi formation for consecutive 270 days and amounted to 299,821 cubic meters. 16 37

2. Brief of well Ning-201 and it gas production after fracturing Ning 206 Ning 203 Ning 201 2424-2427 2429-2431 2434-2436 Ning 201 2495-2498 2505-2508 2513-2516 2010CN001S line horizontal stacking profile TD formation PBTD Baota formation 2560m 17 37

Main-fracturing plot for the first tested layer in well Ning-201 Main-fracturing plot for the second tested layer in well Ning-201 Fracturing treatment Fluid m 3 Proppant m 3 Fracturing treatment Fluid m 3 Proppant m 3 2000.9 84.8 Mainfracturing Mainfracturing 2118.92 41.45 Continuously produced gas for 17 days and cumulatively yielded 202,500m 3 with a daily average of 11,000m 3. Continuously produced gas for 24 days and cumulatively yielded 169,400m 3 with a daily average of 7,500m 3. 18 37

3. China s first horizontal shale gas well Wei-201-H1 184 50 184 55 184 60 184 65 Wei-201-H1 05WY31 WX91- D3 WX91- D4 89WD- D1 89WD- D2 89WD- D3 32 80 威寒 103 威 92 威 03-1224 威 04 32 80 05WY30 32 75 04WY01 05WY15 1958 3575 05WY29 + 威 119 威阳 40 井威 40 威阳 116 井威 64 威 21 威 201 威 78 威 12 威 67 威 116 威 42 威 22 威 65 威 69 威 201- H1 威 79-1250 威寒 8 井威基井 Wei 201 威阳 20 井威 20 威寒 104 Wei 201-H1 威阳 17 32 75 05WY15 1661 05WYXDJ 1529 05WY16 1595 05WY17 3674 1562 05WY28 05WY18 1529 184 50 184 55 184 60 184 65 05WY19 威 16 05WY20 05WY21 05WY22 05WY23 05WY-D18 line Time&Depth profile Well Wei-201-H1: TD at 2,823.43m,horizontal interval 1,079m 19 37

Proppant, m 3 100 mesh 40-70 mesh 102.26 482.37 Total fluid, m 3 23655.39 Acid: 91.65 m 3 Average proppant volume/stage Average fluid volume/stage Fluid volume for sand jet perforation Slick water: Main-fracturing 23563.74 m 3 pumping time 53.14 m 3 2150.49 m 3 650.2 m 3 1817 min 11 stages fracturing: created many China s records, including the most fractured stages of horizontal shale gas well, the biggest fluid volume for a single well, the biggest proppant volume, the highest pumping rate, and the longest continuous treating time. Well Wei-201-H1 treatment plot 20 37

Produced gas for 44 consecutive days and cumulatively yielded 564,000m 3. 21 37

4. Protect environment during shale gas exploration and development 1. Abide by relevant laws, codes and standards for environmental protection during shale gas E&D Mineral Resources Law of the People's Republic of China Environmental Protection Law of the People's Republic of China Law of the Peoples Republic of China on Evaluation of Environmental Effects The Law of Land Administration of the People's Republic of China Water Law of the People's Republic of China Law of the Peoples Republic of China on Water and Soil Conservation Law of the People's Republic of China on Prevention and Control of Water Pollution Law of the People's Republic of China on the Prevention and Control of Atmospheric Pollution Law of the People's Republic of China on Prevention of Environmental Pollution Caused by Solid Waste Law of the People's Republic of China on Prevention and Control of Pollution From Environmental Noise Cleaner Production Promotion Law of the People's Republic of China The Circular Economy Promotion Law of the People s Republic of China Law of the People s Republic Of China on the Protection of Wildlife Law of the People's Republic of China on Protection of Cultural Relics Emergency Response Law of the People s Republic of China 22 37

(2) Challenges in working environment Changning-Weiyuan Area Hills High population density Constrained well locations Poor transportation Unbalanced water sources Difficulties in surface facility construction Environmental friendly and harmonious development: well locating, water source preparation and three wastes treatments, etc. Changning area elevation data map Geographical environment of Sichuan shale gas development Geographical environment of shale gas development in foreign countries 23 37

(3) Water source a. Use river water for vertical well Ning- 201 & Ning-201 Well No. Number of zones Water storage for single zone Total Wei-201 2 2600 5200 Ning-201 2 2600 5200 Ning-203 1 2600 2600 Wei-201-H1 10 2600 26000 Water source River, reservoir Rain water Well water Water tanker Feasibility Based on season and topography, basically available Great uncertainty by climate influence, and water storages are needed Great uncertainty, water output needs to reach min. 100m 3 /h High cost,feasible for vertical wells but not for horizontal ones 24 37

b. Pumping water from river Long distance and large amount of water supply process (Wei-201-H1 3-stage water supply system) Small river 转水供液供砂 Pumping rate: 1500-2000m 3 /day 10000 m 3 Well H3 Pumping rate: 3000-3500m 3 /day Floc drop 7000 m 3 4 sets 37KW water pumps, single rate is about 7m 3 /min, max water supply can reach 28m 3 /min. Daily water supply can reach 2000m 3-4000m 3, enough for two layers fracturing per day. 25 37

(4) Use environmental friendly additives slick water a. Different surface water can be used through formula modulation Water source from caves for well Ning-201 Water source for well Ning-206 Water source for well Ning-203 Well Ning-201 used water from caves, and well Ning-203 & Ning-206 used river water, pumping water and additives on the fly. b. Slick water is recyclable Slick water recycle reduces waste water drainage, reinjection and treatment cost; Slick water recycle reduces the use of clean surface water and protects the environment. 26 37

(5) Waste fluid treatment a. Waste drilling fluid was re-injected to depleted well Yang-78 after been treated. Casing program of Well Yang-78 Well Yang-78 Well Fu-1 Re-injection zone: Maokou formation 27 37

b. Treatment of flowback fracturing fluid. Flowback fracturing fluid was re-injected to well Wei-28 after been treated, and that from Changning area was re-injected to well Fu-1. Well Wei 28 Well Wei 201 Study on more effective water used model and the utilization of fracturing fluid recycling is underway. 28 37

1. Compared to US, marine shale in Sichuan basin has favorable prospects Items Barnett Marcell us Eagle Ford Haynes ville Depth (m) 2286 2134 3505 3658 Well Wei-201 Longmaxi Qiongzhusi 1503.6-1543.3 2652-2704 Well Ning- 201 2479-2525 Longmaxi Well Ning- 203 Net thickness (m) 91 107 76 69 39.7 52 46 33.4 BHT ( ) 93 54 168 171 65 95 TOC (%) 4.5 4.4-9.7 4.5 3 3.2 2.9 2-4.5 2.5-4 Ro (%) 2 1.23-2.56 1.5 2.2 2.7 3.5 2.8-3.2 2.8-3.2 Effective Porosity (%) Total gas content (m 3 /ton) Adsorption gas content (%) Reservoir pressure (MPa) 6 4.6-11.1 11 10 4 2.2 3-6 2-6 8.5-9.9 1.7-4.5 1.1-2.8 1.72~ 3.5 3.5-6.5 35 50 20 18 45 46 0.6-1.3 1-1.6 27.6 27.6 35.8 58.6 15.3 28.2 51 30 37

2. Abundant marine shale gas resources in Sichuan basin Resources calculation parameter Layer Prospective area (10 4 km 2 ) Longmaxi Group EIA(2011) Qiongzhusi Group 14.73 21.11 depths(m) 2400~4100 2600~4600 Total Layer PetroChina Southwest Differen t zones Effective shale distribution (km 2 ) Effective shale thickness (m ) Shale gas resources (10 4 bcm) Reserves abundance (10 8 m 3 /km 2 ) Min Max Min Max Thickness (m) Total thickness 90~490 60~430 Thickness with rich organic matters 170 120 Net thickness 85 60 Reservoir pressure Atmospheric Pressure Atmospheric Pressure Qiong zhusi Buried depth< 4000m 12000 30 ~70 1.12 2.80 All basin 137250 30 8.24 20.59 0.60 1.50 Reservoir condition Shale gas resources Average TOC (%) 3.0 3.0 Ro( %) 2.3 2.5 Clay content (%) Resources abundance (10 8 /km 2 ) Geological resources ( 10 12 m 3 ) Technical recoverable resources(10 12 m 3 ) Low-middle Low-middle 8.74 6.23 38.86 39.45 78.31 9.71 9.87 19.58 Long maxi Total Buried depth< 4000m 30000 50 3.00 7.50 1.00 2.50 All basin 36600 50 3.66 9.15 1.00 2.50 Buried depth< 4000m 4.12 10.30 All basin 11.90 29.74 31 37

3. Abundant shale gas potentials in pilot areas 476km 2 (Buried depth<1000m) Buried depth<4000m Acreage: 2800km 27 Wei 201 Control area: 1300km 2 Buried depth < 3000m Acreage: 226km 2 Buried depth < 3500m Acreage: 994km 2 Buried Depth of Cambrian Qiongzhusi Formation in Weiyuan Structure Ning 201 Ning 203 Buried depth <2500m Acreage: 400km 2 Buried depth <3000m Acreage: 823km 2 Resource abundance of Longmaxi formation in Weiyuan : 0.3 bcm/km 2, Resource base: 360.1 bcm; Silurian erosion area Buried depth <2000m Acreage: 145km 2 Buried depth <3500m Acreage: 1200km 2 Depth of Silurian Longmaxi formation in East Weiyuan Structure Resource abundance of Qiongzhusi formation in Weiyuan : 0.316 bcm/km 2, Resource base: 886 bcm ; Resources abundance of Longmaxi formation in Changning : 0.3 bcm/km 2, Resource base: 309bcm 32 37

4. Favorable shale gas potential in Fushun-Yongchuan cooperation block Shell s assessment of shale gas potential at the block Probability Depth<4100m Effective area (km 2 ) Gross shale thickness (m) Effective Shale Thickness (%) Ф (%) S g (%) Gas in place 10 12 m 3 Resource abundance 10 8 m 3 /km 2 P10 80 90 10 80 2.40 12 P50 2000 60 80 7 65 1.33 6.7 P90 40 70 4 50 0.40 2 Completed 2 wells: Yang-101 and Zheng-101 Now drilling 3 wells: Lai-101, Tan-101 and Yang-201-H2 Test production of well Yang-101: 60,000m 3 /d 33 37

5. Early stage practices laid foundation for shale gas E&D Geological evaluation approaches preliminarily formed Lab appraisal system for shale stimulation basically established Drilling & completion experiences gained Engineering experiences accumulated in organizing, equipment logistics, execution control, and failure handling Development of new type of complex bridge plug on going Complex bridge plug 34 37

6. Government policy is firm backup to shale gas development National shale gas development program for the 12th Five Year Plan has been worked out Shale gas E&D has been listed as a national key scientific and technological research project for the 12th Five Year Plan Changning-Weiyuan has been appointed national shale gas pilot block Relevant government departments are making preferential policies 35 37

Sichuan is the earliest region to exploit and use natural gas in human history and also the earliest natural gas industry base in China. With the support of government and guided by CNPC and PetroChina strategies, we have enough confidence to gain better understandings on shale gas accumulation patterns and resource distribution laws by 2015 through theoretical and technological innovation. We will mainly base on self innovation to develop adaptable technologies, realize scaled and efficient development of shale gas and meet the production target of 1 bcm per annum. Meanwhile, we pursue to lay sound foundations for fast development of shale gas industry in China, and make due contribution to fueling national economy. 36 37

37 37