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Shale Gas exploration and development: An operators perspective

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<ul><li> 1. Shale Gas exploration and development: An operators22 Jan 2013 perspectiveCanadian Shale Gas Workshop- BrusselsAndrew Quarles General Manager Europe Unconventional</li></ul> <p> 2. Summary Who is Nexen? Shale Gas exploration anddevelopment: a lengthy and uncertainendeavor Not all shale gas plays are the same Timing and cost Shale Gas Operators can and need tobe good neighbors What does development look like? An example of community engagement Environmental stewardship 2 3. Nexen Overview Headquartered in Calgary, Canada 3,800 employees in 7 countries 185,000 220,000 boe/d production in 2012 $30 to $46 /boe netbacks $2.8 - $3.2 billion in cash flow 28 exploration wells planned for 2012 15% 10 billion boe of resource to develop GAS 85% OIL 3 4. Nexens Global PortfolioUK North SeaOffshoreCanada2nd largest producerOil sands SAGDShale gasPoland Prospective Shale gas Gulf of Mexico Offshore deep water Yemen Conventional +20 years Colombia Nigeria Conventional oil Offshore deep water Shale gas4 5. Nexens Canadian Shale Gas ExperienceNexen NEBC Basin Acreage: ~300,000 gross acresNEBC Shales (Horn River: 104 Tcfe)BRITISH COLUMBIA Horn RiverMuskwa Potential LNG FacilityBRITISH COLUMBIA/ALBERTAMontneyMontney: 55 TcfeHorn River Basin: Top Quartile Shale Play in North America WILLISTON BASINBakkenThird largest resource play in North AmericaMICHIGAN BASIN Utica BIG HORN BASIN Mowry Antrim 500 net foot interval UINTA BASIN BaxterPICEANCE Marcellus Shale: 197 TcfeSAN JOAQUIN BASINMancos BASINARKOMA/ARDMORE BASINAPPALACHIANHigh silica content shale is very brittle and fracableMcClure PARADOXBASIN FayettevilleBASIN WoodfordMarcellusCane CreekCaneyHuronAttractive tax regime and royalty structureWoodford Shale: 12 TcfeFayetteville Shale: 26 Tcfe SANTA MARIASAN JUANCompetitive resource recovery (EUR) with 6 15 BcfBASINDELAWARE BASIN MontereyBASIN MancosBarnettWoodford BLACK WARRIOR BASINwellsLewis FloydNorth American Unconventional ConasuagaResource PlaysNealViable North American LNG export optionBarnett Shale: 61 TcfeHaynesville Shale: 140 Tcfe Eagle Ford Shale: 10 Tcfe ____________________ Resource Potential Estimate Source: Wood Mackenzie. 6. Not All Shale Gas Plays Are The Same There are a wide variety of shale plays. Less than half areeconomic The expensive and time consuming challenge to determine whereone is located on this spectrum 7. Lengthy Process to Explore and Appraise A stepwise semi-decadal approach through exploration and appraisal Resource- defining and characterizing a viable play concept; Flow rate cracking the nut leading to cost effective reservoir productivity; Commercial- demonstrate that gas can be produced cost effectively through pilot programs 30+ 8. The Shale Gas Development Challenge: Above and Below the Surface Deliverability and EUR for each well ? How much is it going to cost ? What to put on the books ? How much infrastructure and when to expand ?How to reliably assess to services? Market contracts and takeaway capacity ? How to get the most gas using Best flowback practices to enhance performance ?the least frac water &amp; proppant ?How many frac stages &amp; how far apart ?What is the best well spacing,length &amp; orientation ?Where should laterals be placed ?Is there a sweet spot How much free &amp;in the reservoir ?absorbed gas ?Planar bi-wing How important are naturalor complex fracs ? Fractures ? 9. Shale Gas Operations are not Get Rich Quick Representative Cash Flow of a Successful Shale Significant upfront Gas Projectinvestment for 1.2 7.50ANNUAL CASH FLOW / CAPITAL ($Billion) - BARSCUMULATIVE NET CASH FLOW ($Billion) - LINEexploration and1.0 6.25appraisal 0.8 5.00 Stable long term 0.6 3.75cashflow withmanufacturing 0.4 2.50style Explore and Appraise 0.2 1.25developmentinvestments - - Long payout(0.2) (1.25)periods with a (0.4) (2.50)cashflow that is Manufacturing Style Developmentsensitive to (0.6) (3.75)2026 20272028 202920302015 20162017 20182020 2021 2023 2025 20142019202220242013 2012discounting Cash Flow Capital Cumulative CF 10. Multi-Well Pad Design Minimizes ImpactCentral Well Pad: 880 x 575 Minimize surfacefootprint (5%) environment andcost benefits Optimize wellplacement stratigraphicplacement Optimize wellsspatiallyto maximize3-5 Square miles ofrecovery reservoir developed from a single drilling pad10 11. Footprint Management: Drilling C-1-J Pad, NE BCNMARCH 2011 12. Footprint Management: Completions C-1-J Pad, NE BC NJULY 2011 13. Footprint Management: Production Phase Reclamation NAUG 2012 14. Stakeholder EngagementThrough the Identification of stakeholders and understanding keyconcerns, we are able to effectively focus our engagement effortstowards facilitating meaningful discussion and open transparency. Stakeholder ConcernsStakeholdersEnvironmental Impacts First Nations Surface &amp; Grd. Water, Wildlife &amp; Regulators Species @ Risk, Footprint Mgmt Local, Regional, &amp; Provincial Gov.Social Interests Industry Peers Infrastructure Capacity, Treaty Rights Economic Opportunities Local Employment and Services 14 15. Ensuring a Positive Local Economic Impact Contracted Vendors in NEBC for SG Development80%70%60%50% Outside BC40% Other BC30%Fort Nelson20%10% 0%2008 20092010 2011 16. Managing Environmental Impacts Regional Wildlife Research CollaborationMulti-year regionalNexens leadershipcaribou inventorywith governancewith First Nationstructure forparticipationimplementing BC Research and 114 Management of 10085 Boreal Caribou4943 18(Spp @ Risk) 172 129 293 15976 407 581 749 124 24616 17. Footprint Management: Production Phase Reclamation NAUG 2012</p>