www.csug.ca

Unconventional Gas in Canada: Past, Present, Future

Kin Chow, CDX Canada, Co.Chairman, Canadian Society for Unconventional Gas

(CSUG)Canada Think Day

March 9, 2006

www.csug.ca

Canadian Society for Unconventional Gas

Mission Statement• To facilitate the factual and collaborative

exchange of unconventional gas knowledge and challenges among government, regulators, industry and public stakeholders for the exploration and production of the resource in an environmentally sensitive and economical manner.

www.csug.ca

What is Unconventional Gas?• Natural gas contained in “difficult-to-produce”

rock formations which require special drilling, completion, stimulation, and/or production techniques to achieve economic production

• Examples:Natural Gas from Coal (NGC) or coalbed methane (CBM) found in coal seamsTight Gas, found in sandstone and limestonesShale gas, found in shaleGas Hydrates, ice-like substance on the ocean floor

• Common trait – big resource, long life

www.csug.ca

Unconventional Gas is a Growth Industry

Conventional Gas has “peaked”

32% of Current US Gas Production

~ 17 Bcf/D

Unconventional Gas* is the future In North

America

*Coalbed Methane, Tight Gas Sands, Gas Shales in Canada and the US

Graphics from Western Gas Resources

www.csug.ca

Canadian Unconventional Gas Potential is Huge

• Resource estimates are over 2,000 trillion cubic feet (Tcf), excluding gas hydrates

Current Canadian production of natural gas (both conventional and unconventional) is ~ 6 Tcf/yr, about the same as unconventional gas production in the USCanada uses about 3 Tcf/yr, domesticallyHow do we turn this resource into reserves?

• US analogy leads to estimates of >100 Tcfrecoverable

• Conventional Canadian reserves are ~ 58 Tcf

www.csug.ca

U.S. Unconventional Gas Production History and Forecast

0

5,000

10,000

15,000

20,000

25,000

30,000

1949 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015

Ann

ual N

atur

al G

as P

rodu

ctio

n (B

cf)

Total Natural GasConventional GasUnconventional Gas

Tax Credits

DOE GRI

EIA (1949 – 1990) and NPC (1991 – 2015)

www.csug.ca

Relevance to Canada

• Canadian NGC industry is just getting started

• Canadian industry is benefiting from technologies and experience over last 30 years in U.S.

• Alberta has advantage of a regulatory regime that will not allow some of the negative U.S. experiences to occur

www.csug.ca

NGC is “Unconventional” Gas

• “Oil sands” of gas

• Much of gas is “sorbed” on the coal

• Water initially produced typically to “dewater” or “depressure” coal

• Permeability comes from “cleats”

• Low gas rates

Stage 1Stage 1 Stage 2Stage 2 Stage 3Stage 3Stage 3Stage 3

(enlarged)(enlarged)Sandstone

Coal

Limestone

www.csug.ca

“Typical” NGC Well Production ProfileDewatering

Stage

StableProduction

Stage

Decline

Stage

Prod

uctio

n R

ate

Gas

Water

Time

www.csug.ca

What Is Natural Gas from Coal?

• Sweet gas, generally greater than 90% methane (CH4), with small amounts of other substances such as carbon dioxide (CO2) and nitrogen

• NGC is the cleanest burning fossil fuel• Historically, some “dewatering” has been

required to produce NGC• Each NGC basin is unique in terms of geology,

topography, water saturation, water chemistry

www.csug.ca

14 Different U.S. NGC Resource Basins

Total CBM 727 Tcf - GRI

www.csug.ca

Canada has Lots of Coal and Coal Gas

Western Canadian Sedimentary Basin

Powder River

Appalachian

Black Warrior

Raton

San Juan

Uinta

Over 700 Tcf Coal Gas estimated in Canada (500 Tcf in AB; 80 Tcf in BC) Sources: AGS & BC MEMMap courtesy of Gas Technology Institute

(Various colours shown on coal basins indicate age of sediments)

www.csug.ca

North American NGC Basins

Colors Denote Age of Coal

www.csug.ca

NGC in Canada – Resource Estimates

119

40

60

20

352

115 7

22

0 100 200 300 400 500 600Tcf

British Columbia FoothillsAlberta FoothillsAlberta PlainsEast Coast

MinimumGas-In-Place

MaximumGas-In-Place

www.csug.ca

Three types of NGC plays in Alberta

1. “Dry” coals, practically no water production (HSC)• ~91% of existing CBM wells, ~25% of resource• Current production ~ 350 MMcf/D

2. Coals that produce saline water (Mannville)• ~7% of existing wells, ~60% of resource• Commercial development announced in 2005• Brine disposed of in approved underground zones

3. Coals that produce non-saline water (Ardley)• ~2% of existing wells, ~15% of resource• Early evaluation phase

www.csug.ca

Much of Canada’s NGC Potential is in Alberta

First commercial NGC well in Alberta in December 2001

Current production is over 350 MMcf/D

Over 3,000 wells drilled in 2005

NGC wells accounted for 15% of all wells drilled in Alberta in 2005

Courtesy of EUB & AGS

www.csug.ca

NGC in Canada – WCSB Schematic Cross Section

Drum

helle

rVall

ey(R

ed D

eer R

iver)

HorseshoeCanyon Fm

Edge

of D

eform

ed B

elt

Belly RiverGroup

Mannville GpPaleozoicMilk River Fm

Fernie GpKootenay Gp

Lethbridge

Taber

McKay

Pakowki

Upper Mannville Coals MannvilleCoals

Scollard FmArdley Coal

Lower

BasalDrumheller

WeaverCarbon - Thompson

West East

Nikanassin Fm

Colorado Shale

Lea Park

www.csug.ca

Alberta NGC Well Locations (Jan 2005)

Edmonton

Calgary

About 15% of AB wells drilled in 2005

2 %Ardley

6%Mannville

92 % HorseshoeCanyon

Courtesy of AGS

www.csug.ca

“Dry” Horseshoe Canyon Coals

Photos courtesy of AGS

www.csug.ca

Courtesy of CDX Canada

www.csug.ca

NGC Comparison with Conventional Natural Gas

Typical Conventional Natural Gas

Typical NGC

Depth 150 m to 3,000 m 150 m to 1,500 m

Water Usually salt waterRates may increase during production life Water is re-injected

Usually no water or salt water in AlbertaRates typically decrease Salt water is re-injected

Compression Less required More required

Well Spacing Initially, one well per section; density often increases

Two to eight wells per section

www.csug.ca

Why has Horseshoe Canyon Worked?

• Committed, experienced industry players• Over 50 MM$ invested before significant production

• Recognition of “dry” coal characteristics• Less gas in place and reservoir energy

• Low rates• Reduced capital and operating costs

• Innovation• Nitrogen fracs, air-drilling, multi-zone completions, new

nitrogen sources

• Adaptation• Alberta shallow gas “machine”

• Achieved without significant royalty/tax incentives

www.csug.ca

Mannville NGC Activity~ 250 wells tested

Mannville CBM

Mannville 1200m

Calgary

Edmonton

Red Deer

Drumheller

www.csug.ca

Mannville Development

• Larger resource but reservoir less permeable than HSC

• Industry turning to horizontal drilling• First commercial development

announced in 2005• Interest growing

www.csug.ca

Canadian NGC Business has Changed Over Last 5 Years

• NGC is now a serious play and a big part of Canada’s energy future

• Competition increasing as more players are involved

Leases more costly

• Many Canadian companies are focusing on resource plays like NGC

• The income trusts are getting into NGC as the risk is reduced

www.csug.ca

Natural Gas from Coals is Growing

• Resource is ~ 700 Tcf• 1 billion+ $ invested in ~ 3,000+ wells in

Alberta in 2005• Current production 350+ MMcf/D

• ~1.5% of Canadian gas production• HSC Largest “dry” coal play in world• Mannville emerging play

• NEB stated that NGC will offset decline in conventional production

www.csug.ca

NGC in Canada – Issues1. Water Production and Disposal• When wells produce salt water, it is re-

injected deep underground, below fresh water aquifers (this is a conventional Alberta oil and gas technique, used for many decades)

• If fresh water was produced, Alberta Environmental Protection would regulate water management

• All wells have surface and production casing

www.csug.ca

NGC in Canada –Produced Water Disposal

Source: Nexen/Trident Exploration Corp.

www.csug.ca

NGC in Canada – Issues, cont’d

2. Well Density and Surface Disturbance

• Well sites similar to existing conventional gas

• The norm in Alberta and BC is 2 to 8 wells per section

• Surface facilities, including water disposal equipment, are similar to conventional gas

www.csug.ca

NGC in Canada – Issues, cont’d

3. Air Quality • NGC is the cleanest-burning form of

sweet, dry gas• NGC is not sour, and contains no

liquids or foreign contaminants• Requires little or no field processing• Producers are seeking solutions to

reduce flaring

www.csug.ca

Low-Impact “Dry” NGC Well Site

Photo courtesy of MGV Energy

www.csug.ca

NGC Compressor Site

www.csug.ca

NGC is Only Part of Solution

0

2

4

6

8

10

12

14

16

18

20

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13

2014

20

15

2016

20

17

2018

20

19

2020

20

21

2022

20

23

2024

20

25

Year

Avg

Pro

duct

ion,

Bcf

/D

NEB w/o NGC NEB NGC

www.csug.ca

Why Should We Care?

• ENERGY and the ENVIRONMENT are intrinsically linked to the ECONOMY and QUALITY OF LIFE in modern Canada

• Canadians are large consumers of energy, but also care about the environment

• 42% of Canadians believe the oil and gas industry is damaging the environment and is not committed to improving its performance

• Since 82% of our energy comes from fossil fuels (including coal)

• Disconnect between the demand for energy and fears related to the production process

www.csug.ca

Key Stakeholder Issues in Unconventional Gas

• Many new wells will be required, how will we manage impacts on:• Water• Air• Surface

• Actions currently underway• Multi-Stakeholder Advisory Committee (MAC)

process on NGC in Alberta• Stakeholder engagement in other areas of

prospective growth (BC, SK, …)• Water for Life, Clean Air Strategic Alliance

(CASA)

www.csug.ca

Summary

• Differentiate Canadian NGC on its merits –different from US experience

• Unconventional gas is a vital part of Canada’s energy future and it is being developed responsibly

• Canada has a strong regulatory structure to manage growth

• All stakeholders must engage to ensure that we “do it right”, harvesting the energy while protecting the water, surface, and air

www.csug.ca

For more information on unconventional gas and CSUG

• Visit the CSUG website at www.csug.ca (contact information for CSUG board and office)

• Attend CSUG’s 8th Annual Conference on Unconventional Gas November 15-17, 2006 TelusConvention Centre, Calgary

www.csug.ca

The U.S. Industry Today

• 727 Tcf resource, 82 Tcf recoverable* (11% recovery factor)

• 20,000+ wells in over 13 basins• 4.4 Bcf/D and growing, over 200 Mcf/D/well

Still dominated by San Juan Basin (>50%)• Growth is ongoing, with essential emphasis on

managing environmental impact• U.S. experience has led to NGC developments in

Canada, Australia, China, Eastern Europe, …* SPE – Holditch, EIA, NPC

www.csug.ca

Key “Learnings” from U.S.

• Complex reservoirsGas contents, desorption isotherms, cleats

• Each basin is uniqueDepth, permeability, number of seams, rank, water quality

• Different technologies were adapted to different areasMulti-seam fracs, cavitation, openholeArtificial lift optionsGas processing challenges

• New environmental challenges

www.csug.ca

Research and Fiscal Incentives Catalyzed U.S. Growth in NGC

• Gas Research Institute (GRI) and DOEBillions in basic and applied research

• Massive hydraulic fracturing• Reservoir characterization and modeling• New tools and technologies

• Tax CreditsAttracted investment capitalBeing considered for renewal in U.S.

www.csug.ca

Use U.S. Experience to Succeed in Canada

• Build on existing technology base and adapt to unique Canadian coals

• Work with Canadian regulators and stakeholder groups to develop and implement responsible development strategies

AB DOE MAC & BC MEM outreach programs• “Do it Right” the first time in Canada

www.csug.ca

Exploration, Pilot and Development Wells

1 mile

Exploration

Pilot

Development

www.csug.ca

Canada’s Potential NGC ProductionNEB Estimates 75 Tcf Recoverable

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024Year, Canada

Ave

rage

Pro

duct

ion,

Bcf

/DU.S. NGC Total U.S. NGC w/o San Juan NEB Techno -Vert TCPL

19841982 1986 1988 1990 1992 1994 1996 1998 2000 2002 20041980Year, United States

www.csug.ca

Cleats are Essential to Coal Permeability

Drumheller Coal Paintearth Mine, Alberta

Cleat spacing 10-25cm (face)

(Photo by AGS)

www.csug.ca

U.S. NGC Production History

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

E

Year

Ann

ual C

BM

Pro

duct

ion

(BC

F)

0

5000

10000

15000

20000

25000

Prod

ucin

g C

BM

Wel

ls

BCF ProducedWell Count

2002 NGC production represents ~8% of U.S. natural gas production.

Through 2003 almost 20,000 producing NGC wells in 12 states.

Source: GTI Gas Resource Database, GTI-01/0136, EIA, Various Public Records, NSAI Estimates

www.csug.ca

BC Coalbed Gas Activity Areas

< 80 wells authorized since 2000

~ 50 drilled

Elk Valley

Crowsnest

Comox

Nanaimo

NE BC Foothills

Hudson’s Hope

Ft Nelson

Ft St John

Cranbrook

Prince George

Klappan

PrincetonMerritt

www.csug.ca

National Petroleum Council Study: Unconventional Gas is Increasingly Important

• “Conventional gas production will inevitably decline, and the overall level of indigenous production will be largely dependent on industry’s ability to increase its production of unconventional gas”*

• 80% of gas production in 10 years will be from wells yet to be drilled

• By 2025, unconventional gas will account for about 80% of new drilling and 50% of gas production

• NEB stated that NGC will offset decline in conventional production

* Balancing Natural Gas Policy: Fueling the Demands of a Growing Economy, National Petroleum Council report, 2003

www.csug.ca

Coal has Organic Beginnings

Courtesy CDX Gas

www.csug.ca

Coalification Process takes TimeDeposition of Plant Matter

BurialPressure

Heat

Volatile Products- Water- Gas

Residual Product- Coal

Microbial Activity

Microbial ActivityCourtesy CDX Gas