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Discussion Discussion –– SPEE Monograph 3SPEE Monograph 3 ““Guidelines For The Practical Guidelines For The Practical Evaluation of Undeveloped Evaluation of Undeveloped

Reserves in Resource PlaysReserves in Resource Plays””

Bill VailBill VailHoustonHouston

October 6, 2010October 6, 2010

Genesis of the Resource Play CommitteeGenesis of the Resource Play Committee

In 2008, the Society of Petroleum Evaluation In 2008, the Society of Petroleum Evaluation Engineers recognized few, if any, guidelines existed Engineers recognized few, if any, guidelines existed to assist evaluators with determining reserves and to assist evaluators with determining reserves and resources for resources for ““Resource PlayResource Play”” hydrocarbon hydrocarbon reservoirs. Consequently, the SPEE Board formed reservoirs. Consequently, the SPEE Board formed a committee to prepare such guidelines. Starting in a committee to prepare such guidelines. Starting in 2009, our Resource Play Committee began a 2009, our Resource Play Committee began a dialogue on issues associated with these types of oil dialogue on issues associated with these types of oil and gas reservoirs. and gas reservoirs.

Resource Plays Committee ParticipantsResource Plays Committee ParticipantsRobin Bertram Robin Bertram –– CalgaryCalgaryGary Gonzenbach Gary Gonzenbach –– AustinAustinJim Gouveia Jim Gouveia –– CalgaryCalgaryBrent Hale Brent Hale –– DallasDallasRussell Hall Russell Hall –– MidlandMidlandPaul Lupardus Paul Lupardus –– OKCOKCPaul McDonald Paul McDonald –– DallasDallasNathan Meehan Nathan Meehan –– HoustonHoustonBill Vail Bill Vail –– HoustonHoustonMarshall Watson Marshall Watson -- MidlandMidland

Monograph 3 Monograph 3 –– ““Guidelines For The Guidelines For The Practical Evaluation of Undeveloped Practical Evaluation of Undeveloped

Reserves in Resource PlaysReserves in Resource Plays””

Chapter 1 Chapter 1 –– Definition of a Resource PlayDefinition of a Resource PlayChapter 2 Chapter 2 –– Statistics Statistics –– A Brief LessonA Brief LessonChapter 3 Chapter 3 –– Determining Proved AreasDetermining Proved AreasChapter 4 Chapter 4 –– Estimating Undeveloped Estimating Undeveloped

Reserves in a Resource PlayReserves in a Resource Play

Table of ContentsTable of Contents

Typical Resource Play ReservoirsTypical Resource Play Reservoirs

Shale GasShale GasCoalbed MethaneCoalbed MethaneTight Gas ReservoirsTight Gas ReservoirsBasin Centered Gas SystemsBasin Centered Gas SystemsCertain Tight Oil ReservoirsCertain Tight Oil Reservoirs

Chapter 1 Chapter 1 –– What is a Resource Play?What is a Resource Play?

Chapter 1 Chapter 1 –– WHATWHAT’’S A RESOURCE PLAY ?S A RESOURCE PLAY ?

Resource Play Resource Play -- Tier 1 CriteriaTier 1 CriteriaExhibits a Exhibits a repeatablerepeatable statistical distribution statistical distribution of EURsof EURsOffset well performance is not a reliable Offset well performance is not a reliable indicator of PUD performanceindicator of PUD performanceContains continuous hydrocarbon systems Contains continuous hydrocarbon systems that are regional in extentthat are regional in extentHydrocarbons are not held in place by Hydrocarbons are not held in place by hydrodynamicshydrodynamics

Resource Play Resource Play -- Tier 2 CriteriaTier 2 Criteria

Requires Extensive Stimulation to ProduceRequires Extensive Stimulation to ProduceProduces Little InProduces Little In--situ Watersitu WaterDoes Not Exhibit an Obvious Seal or TrapDoes Not Exhibit an Obvious Seal or TrapLow Matrix Permeability (< 0.1 mD)Low Matrix Permeability (< 0.1 mD)

ALL VIRGINIA WELLS ALL VIRGINIA WELLS ------ CBM WELLS CBM WELLS HIGHLIGHTED IN GREENHIGHLIGHTED IN GREEN

•• Oil & Gas WellsOil & Gas Wells

•• CBM WellsCBM Wells

Buck Knob

Nora

Oakwood

0

10

20

30

40

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80

90

1000-

5050

-100

100-

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-105

010

50-1

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-115

011

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-125

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-135

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-145

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2100

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-245

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2500

-255

025

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2600

-265

026

50-2

700

EUR Range

Freq

uenc

yDistribution of EUR resultsDistribution of EUR results

Well Count: 1121

Mean: 476 MMcf

Median: 394 MMcf

Mean

Median

Chapter 2 Chapter 2 -- StatisticsStatistics

Chapter HighlightsChapter Highlights–– Importance & Relevance of Lognormal DistributionsImportance & Relevance of Lognormal Distributions–– Use of P10/P90 ratios as a measure of uncertainty for Use of P10/P90 ratios as a measure of uncertainty for

Lognormal DistributionsLognormal Distributions–– Recommendations for Minimum Sample SizeRecommendations for Minimum Sample Size–– Aggregation Aggregation

Use of P10/P90 ratiosUse of P10/P90 ratiosP1

P2

P5

P10

P20

P30

P40

P50

P60

P70

P80

P90

P95

P98

P99

-2

10 100 1,000 10,000 100,000

GAS EUR (MMCF)

Fig. 2.16—Cumulative Probability vs log EUR for Barnett Shale

Plotting EURs using a probit scalePlotting EURs using a probit scale

.

Minimum Sample SizeMinimum Sample Size

Figure no. 2‐ 27 Impact of Aggregation on a Lognormal Distribution With a P10/P90 Ratio of 10

AggregationAggregation

More Wells leads to tighter spread between P10 and P90More Wells leads to tighter spread between P10 and P90

0

20,000

40,000

60,000

80,000

100,000

120,000

0 5 10 15 20 25 30 35 40WELL COUNT

INIT

IAL

RA

TE (M

CF

/ MO

)

90TH PERCENTILE 50TH PERCENTILE 10TH PERCENTILE

Chapter 3 Chapter 3 –– What Constitutes a Proved What Constitutes a Proved Location in a Resource Play?Location in a Resource Play?

How many offset locations can be How many offset locations can be classified as proved?classified as proved?Monograph 3 makes the case that Monograph 3 makes the case that statistical methods can be applied as statistical methods can be applied as ““reliable technologyreliable technology”” for quantifying future for quantifying future development drilling.development drilling.

Chapter 3 Chapter 3 –– Analogous WellsAnalogous Wells

Analogous Wells Have Similar:Analogous Wells Have Similar:–– GeologyGeology–– Completion ProcedureCompletion Procedure–– Lateral LengthLateral Length–– SpacingSpacing–– InterferenceInterference–– Wellbore OrientationWellbore Orientation

Making the Transition to a Making the Transition to a Statistical AnalysisStatistical Analysis

PHASE OF RESOURCE PLAY DEVELOPMENT

Early Intermediate Statistical Mature

RATIO OF ANALOGOUS PRODUCING WELLS TO RECOMMENDED SAMPLE SIZE < 1 1 to 4 > 3 Very Large

P10 /P90 <4, APPROXIMATE WELL COUNT < 50 100 150 > 500

P10 /P90 4 TO 10, APPROXIMATE WELL COUNT < 50-200 100-400 150-600 > 1000

P10 /P90 10 TO 30, APPROXIMATE WELL COUNT < 200-700 200-1400 600-2100 > 4500

Well Counts for Various Stages of Development Well Counts for Various Stages of Development

How Many Locations Can Be How Many Locations Can Be Identified as Proved?Identified as Proved?

PHASE OF RESOURCE PLAY DEVELOPMENT

Early Intermediate Statistical Mature

RECOMMENDED NUMBER OF PUD OFFSETS PER PRODUCING WELL (VERTICAL WELLS) 4 8 Statistical Statistical

RECOMMENDED NUMBER OF PUD OFFSETS PER PRODUCING WELL (HORIZONTAL WELLS) 2-4 4-8 Statistical Statistical

PUD counts at Various StagesPUD counts at Various Stages

Determining Determining ““ProvedProved”” Area From Well DataArea From Well Data

Monograph 3 recommends using the Monograph 3 recommends using the Expanding Concentric RadiiExpanding Concentric Radii methodmethodThis method compares ever increasing areas of This method compares ever increasing areas of potential reservoir around potential reservoir around ““AnchorAnchor”” wells to the wells to the EUR distribution of the EUR distribution of the ““AnchorsAnchors””If the EUR statistical distribution for each area is If the EUR statistical distribution for each area is comparable, then each area is an extension of comparable, then each area is an extension of the resource play, and areas bound by the the resource play, and areas bound by the concentric circles should be concentric circles should be ProvedProved reservesreserves

Expanding Concentric Radii MethodExpanding Concentric Radii Method

First, create a statistical distribution for First, create a statistical distribution for wells located in the center of the wells located in the center of the concentric circles, the concentric circles, the ““AnchorAnchor”” wellswells

Inside 2 miles

Inside 1 mile

Inside 0.5 mile

Anchor Well Located In Anchor Well Located In First Circle (Closest Area)First Circle (Closest Area)


The second step creates subsequent The second step creates subsequent statistical distributions for wells located in statistical distributions for wells located in each concentric circleeach concentric circle

Inside 2 miles

Inside 1 mile

Inside 0.5 mile

Test Set 1Test Set 1



Step 1 Step 1 –– Create one statistical distribution Create one statistical distribution for for ““AnchorAnchor”” wellswellsStep 2 Step 2 –– Create a subsequent statistical Create a subsequent statistical distribution for wells positioned in distribution for wells positioned in Expanding Concentric Radii (Test Sets)Expanding Concentric Radii (Test Sets)Step 3 Step 3 –– Compare each statistical Compare each statistical distribution from the test sets to the distribution from the test sets to the ““AnchorAnchor”” wellswells


1 Mile Radius

0.5 Mile Radius

Anchor Well

Producing Well (Non‐Anchor)

Legend

0.5 Mile Radius Distribution 1 Mile Radius Distribution


Test Set 1Test Set 1 Test Set 2Test Set 2

Producing Area

P2

P5

P10

P20

P30

P40

P50

P60

P70

P80

P90

P95

P98

Mean

1.0 10.0 100.0 1,000.0 10,000.0 100,000.0 1,000,000.0

Distribution

Data Points - 54

P99 = 17025.0

P90 = 31201.0

P50 = 65594.2

Mean = 75996.1

P10 = 137899.4

P1 = 252722.6

Anchor Wells

EUR (barrels)


0 6 123 Miles

LegendAnchor Set 1

Analogue Wells

Geologic Subset 1

Project 1

Non Contiguous Drilling Area

LKH

Resource Play0 6 123 Miles

LegendAnchor Set 1

Analogue Wells

Geologic Subset 1

Project 1

Non Contiguous Drilling Area

LKH

Resource Play

Clipped Polygons within Expanding Concentric Circles

Determining Determining ““ProvedProved”” Area From Well ControlArea From Well Control

Chapter 4 Chapter 4 --Estimating Reserves for Estimating Reserves for Undrilled Locations in a Resource PlayUndrilled Locations in a Resource Play

Identify Analogous WellsIdentify Analogous WellsCreate a Statistical Distribution for Create a Statistical Distribution for Analogous WellsAnalogous WellsDetermine the Number of Drilling Determine the Number of Drilling OpportunitiesOpportunitiesPrepare a Monte Carlo SimulationPrepare a Monte Carlo SimulationEstimate Reserves using PRMS Estimate Reserves using PRMS DefinitionsDefinitions

Alternatives for Running Monte Carlo SimulationsAlternatives for Running Monte Carlo Simulations

Method #1: Use P^ to approximate P90 Method #1: Use P^ to approximate P90 valuevalueMethod #2: Apply aggregation factor Method #2: Apply aggregation factor provided in Monograph provided in Monograph

Method #1 Method #1 -- What Is P^ ?What Is P^ ?

P^ (PP^ (P--hat) is the Average of Phat) is the Average of Pmeanmean and P50 for and P50 for the single well EUR distributionthe single well EUR distributionP^ is Often Close to the P90 Value for an P^ is Often Close to the P90 Value for an Aggregation of WellsAggregation of WellsConsequently, it is a useful measurement when Consequently, it is a useful measurement when evaluating a large group of wellsevaluating a large group of wellsRecommended for use when comparing various Recommended for use when comparing various EUR distributions in our Concentric Radii EUR distributions in our Concentric Radii MethodMethod

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 10 20 30 40 50 60 70 80 90 100WELL COUNT

PRO

VED

AG

GR

EGAT

ION

FA

CTO

R

P10/P90 = 3 P10/P90 = 5 P10/P90 = 7 P10/P90 = 9 P10/P90 = 11

Method #2 Method #2 -- Proved Aggregation FactorProved Aggregation Factor

Concepts that deviate from past proceduresConcepts that deviate from past procedures

Expanding beyond the oneExpanding beyond the one--offset constraintoffset constraintProved areas or enclosures as defined by this Proved areas or enclosures as defined by this method are not deterministicmethod are not deterministicAggregation results and P90 will vary as a Aggregation results and P90 will vary as a function of the well count or remaining function of the well count or remaining locationslocations

Final Comments on Evaluating Resource Plays Final Comments on Evaluating Resource Plays

Our Resource Play Committee can not Our Resource Play Committee can not overover--emphasize the emphasize the necessitynecessity of exercising of exercising good judgment in evaluating resource good judgment in evaluating resource plays.plays.Maintain perspective Maintain perspective Rely on experienceRely on experienceWe see Monograph 3 as a starting point, We see Monograph 3 as a starting point, not the final say on these issues.not the final say on these issues.

Current Status Current Status –– Monograph 3 Monograph 3

The Resource Play Committee has The Resource Play Committee has submitted a Final Draft to the SPEE Boardsubmitted a Final Draft to the SPEE BoardThis draft is currently undergoing a final This draft is currently undergoing a final round of peer reviewround of peer reviewWhen approved, we anticipate that an When approved, we anticipate that an electronic version will be made available to electronic version will be made available to the publicthe public

DisclaimerDisclaimer

Please note that all of the views and opinions expressed within Please note that all of the views and opinions expressed within this presentation are opinions held solely by the author and by this presentation are opinions held solely by the author and by members of SPEEmembers of SPEE’’s Resource Play Committee; they represent s Resource Play Committee; they represent neither the opinions of neither the opinions of DeGolyer and MacNaughtonDeGolyer and MacNaughton (Texas (Texas Registered Engineering Firm FRegistered Engineering Firm F--716) nor of its management.716) nor of its management.

Questions?Questions?

Pioneer Natural Resources, Chesapeake Energy, Pioneer Natural Resources, Chesapeake Energy, Russell K. Hall and Associates, AJM Petroleum Russell K. Hall and Associates, AJM Petroleum

Consultants, TRC Consultants, Rose & Associates, Consultants, TRC Consultants, Rose & Associates, Baker Hughes, William M. Cobb & Associates, Baker Hughes, William M. Cobb & Associates,

ACT Operating Company, andACT Operating Company, and

II’’d like to express my sincere appreciation to all the d like to express my sincere appreciation to all the companies that participated in this work:companies that participated in this work:

DeGolyer and MacNaughtonDeGolyer and MacNaughton

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