tag shale report aug2008
TRANSCRIPT
8/9/2019 TAG Shale Report Aug2008
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UnconventionalRsur opprus
ausrsFractured shale plays are emerging across the United
States and around the world. As the largest acreage
holder of Whangai-Waipawa shale in New Zealand,
TAG Oil brings its technical and operational expertise
to bear in unconventional gas and oil exploration.
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i rsps h hrg h ‘sy s g,’ h xpr
d prdu dusry s rsgy urg sh…dh hgy f hydru frurg… rsfrm ur
rsrrs mmry b prs.
Technology-driven, unconventional resource plays—particularly projects in search
o gas or oil production rom ractured shale—are sprouting up across the United
States and around the world. As extraction technology improves, areas once
thought to contain resources that would never see the light o day are today
considered to be some o the most proliic and popular in the industry. Why have
these unconventional reservoirs remained undeveloped, and what’s changing?
Shale, which consists mainly o consolidated clay-sized particles, is the Earth’s
most common sedimentary rock. It looks like the slate o a chalkboard and gener-
ally has ultra-low permeability. In many oil ields, shale orms the geologic seal
that retains the oil and gas within conventional producing reservoirs, preventing
hydrocarbons rom escaping to the surace. In a handul o basins, however, lay-
ers o shale—sometimes hundreds o eet thick and covering millions o acres—
are both the source rock and a reservoir sequence or oil and gas. These shales
have one thing in common: they are rich in organic carbon.
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ss dms rsurs
h r rd dpr
frms, ghr zs,
dpr wr, mr ss
rms, d rsgy
mr u sgs.”
U.S. Department of Energy
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Fractured Shale Opportunities in Australasia | August 2008 page 2
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Early low-permeability wells were consid-
ered ailures because they did not naturally
produce at commercial rates. Technology
simply wasn’t up to the challenge, making
the oil and gas held in these unconventionalsources much more diicult—and thereore
more costly—to develop than conventional
oil and gas resources. But reduced oil sup-
plies, regional tightening in gas supplies,
continued rising demand or oil and gas on
a global scale, and advancements in drilling
and completion technology have resulted in
an ever-increasing interest in tapping these
unconventional oil and gas reserves.
A recent study by leading oil and gas
research irm, Wood Mackenzie, arguesthat the global unconventional hydrocarbon
prize is potentially enormous. In a report
entitled “Unconventional Hydrocarbons –
The Hidden Opportunity,” Wood Mackenzie
estimates nearly 3.6 trillion barrels o uncon-
ventional, undeveloped oil equivalent. That
is triple the 1.2 trillion barrels o conventional
oil considered recoverable rom conventional
oil reserves. And, in the Energy Information
Association’s long-term reerence case ore-
cast, production rom unconventional sources
are anticipated to grow to 5.7 million barrels
o oil per day in 2025, up rom 1.8 million
barrels o oil per day in 2003.
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As consumer demand or cleaner burning
uels grows, gas becomes an even more at-
tractive long-term opportunity. Based on its
lower carbon ootprint, it’s clear that every
cubic oot o gas brought to market can be
sold. At the end o 2006, proven reserves
o conventional gas in the ground stood at
around 6,300 trillion cubic eet. When po-
tential unconventional in-ground gas sources
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Dave Francis and Alexandra Johansen ignite an East Coast Basin gas seep.
Grwh Br Sh Prdu
1997 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4
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G a s P r o d u c t i o n
( b i l l i o n
c u b i c f e e t p e r d a y )
Advanced drilling and completion technology is responsible or the dramatic production increase in East Texas’ Barnett Shale and other developing ractured shale plays which share similarities to New Zealand’s Waipawa-Whangai shales.
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Fractured Shale Opportunities in Australasia | August 2008 page 3
are added to these estimates, the uture o
gas in homes and industry suddenly becomes
a vast investment opportunity. In a 2005
presentation, IHS Energy estimated untapped
unconventional gas reserves alone at 90,000
trillion—that is 90,000,000,000,000,000—
cubic eet.1
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With 2.2 million net acres o permit hold-
ings, TAG Oil is the largest acreage holder o
Waipawa-Whangai oil
and gas shale in secure, stable New Zealand.
Employing its considerable technical and
operational experience, the company has
taken the leadership role in exploring and
developing these high-potential shale beds
in the largely untapped East Coast Basin o
New Zealand, where the Whangai-Waipawa
ractured shale ormations are widespread
and most thickly developed.
This project represents an exciting oppor-
tunity to unlock a very major unconventional
oil and gas resource. The Waipawa-Whangai
ormations together have always been viewed
as high-quality source rock, though they were
never considered to be producible until the
success o the Barnett Shale in Texas. Extrac-
tion success there, where reserves are esti-
mated by the U.S. Geological Survey to be in
excess o 25 trillion cubic eet, has provided
a model or shale exploration throughout
the world. And continuing developments indrilling capabilities and hydraulic racturing
technology support the premise that unlock-
ing a major reserve in the Waipawa-Whangai
shale is well within reach.
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Oil seep in TAG Oil’s East Coast Basin permit.
1Ken Chew, VP o Industry Perormance and Strategy, IHS Energy:
“World Oil and Gas Resource and Production Outlook,” 28 June 2005.
TAG Oil holds two permits in New Zealand’s East Coast Basin, covering 2.2 million acres.
es cs Bs
Barnett data: GNS NZ Gov’t, Field, Brad (2006), Curtis (2002), Hollis et al (2005) - Bakken Data: Flannery, Jack; Kraus, Je; 2006 Search and Discovery
Article #10105; Integrated Analysis o the Bakken Petroleum System, US Williston Basin - Waipawa, Whangai Data; GNS, NZ Gov’t; Francis, David; 2007
Reservoir Analysis o Whangai Formation and Waipawa Black Shale, PEP’s 34348 & 38349, onshore East Coast Basin, Core Labs report 2007-12-18
cmprs f h Wpw-Whg h Bkk d Br Shs
U Bkk Wpw Br Whg
Depth (m) 2700 - 3500 0 - 5000 1980 - 2590 0 - 5000
Net Thick (m) 10 - 50 10 - 60 15 - 60 300 - 600+
BI-I Temp °C 80 - 110 70 - 110+ 93 70 - 110+
TOC % 1.1 - 12 3 - 12 4.5 0.2 - 1.7
Vit Re R 0.3 - 1.2 0.3 - 0.4 1.0 - 1.3 0.4 - 1.4
Total Porosity % 8 -12 9 - 23 4 - 5 16 - 31
Reserves (mmc / well) 100k - 1,500k TBD 80k - 1,500k TBD
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The Waipawa Black Shale is a ractured,
poorly bedded, organic-rich siltstone. Out-
crop sampling indicates an average total
organic carbon (TOC) value’s o 5% and
average Hydrogen Index (HI) o 245 with
maxima o 12% TOC and 550 HI, respec-
tively. The ormation occurs throughout
TAG Oil’s East Coast Basin acreage and has
also been identiied in other areas o New
Zealand. The Waipawa Black Shale is normal-
ly 30m or more thick and achieves a maxi-
mum thickness o 70m in Southern Hawke’s
Bay. The organic carbon is primarily o marine
origin, although signiicant terrestrial organic
matter is evident in some samples.
P rsrrs
ud sdss
f rus gs
d prss up
20% r mr
M urbd
f sdss
d shw-
mr ng
mss.
Wpw-Whg Sur Rk P
Whangai
Waipawa
0 25 50 75 100 125 150 175 2000
10 0
20 0
30 0
40 0
50 0
60 0
Type III
Type IIType 1
OI (mg CO /g TOC)2
) C O T
g / C H g m ( I H
Source: Geological &Nuclear Science
This Hydrogen Index has been created rom Waipawa-Whangai Formation outcrop samples.The results graphed help predict the Kerogen type o the samples, which are indicative o oil or gas as the hydrocarbon type associated with the Shale.In the case o the Waipawa-Whangai Formation this index suggests that the samples are
predominantly Type-I Kerogens that are more oil-prone than gas.
This oil-rich Waipawa Black Shale in outcrop demonstrates the prouse internal racturing within the ormation.
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th es cs Bs
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ids,
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Wpw-Whg Sur Rk P
Whangai
WaipawaGOOD
GA S
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OI L
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EXCELLENT
S2 (mg HC/g ROCK)
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The multiple racturing systems observed in the Whangai Formation at the Gaddums Hill outcrop.
Source: Geological & Nuclear Science
Samples taken rom the Waipawa Formation indicate high TOC values, indicative o good to excellent quality source rocks. Although the TOC values are lower in the Whangai than the Waipawa Formation, the immense thickness o the ormation, up to 1500 eet in some areas, more than compensates or the lower values. In some instances, the two ormations could work together as one system.
The Whangai Formation is a poorly bedded,
siliceous or slightly calcareous mudstone, withlocalized development o greensand and well
bedded calcareous acies. The ormation is
300 to 600 m thick throughout much o the
East Coast Basin. The basal and main Whan-
gai acies, Rakauroa Member, has an average
TOC o 0.8% in the western sub-belt, with
maximum TOC values o 1.7% and 336 HI.
Although its TOC content is lower than the
Waipawa Black Shale, the Whangai Formation
is heavily ractured and can be nearly twenty
times as thick.
th s d r fhydru frurg
With light sweet crude reaching more than
$80/bbl and natural gas rising above $6/
MMBtu in September, interest in develop-
ing exploration and extraction technologies
continues to grow.
Fracturing is achieved by using hydraulic
pressure created by pumping luid into open
cracks in the shale, and by keeping these
cracks open by injecting solid propping materi-
als (proppants) along with the luid pumped
into the ormation. The pumped luid, under
pressures o up to 8,000 psi, is enough to crackshale as much as 3,000 eet in each direction
rom the wellbore. And opening ractures in
the shale is the key to good production.
Because o shale’s extremely low permeabil-
ity, the best racture treatments are those that
expose as much o the shale as possible to the
well bore. The greater the exposure, the aster
the oil or gas will be produced.
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A simple racturing job may pump a
mixture o water and sand into the well.
The water creates the pressure to initiate
the ractures, then carries the sand into the
cracks as they grow. When the luid pres-
sure is released, the grains o sand hold the
cracks open. Although water and sand are
the cheapest luid and proppant, they are not
always the best. High-tech racturing luids
are more viscous, and better able to maintain
the proppant in suspension, allowing it to
travel deeper into the ractures and reduce
the amount o settling that occurs beore the
ractures close. Advanced designs or artiicial
proppants used in addition to sand also do a
better job o holding open the cracks.
R-wrd hgy yds
r gsThe Bakken Shale play in the Williston Ba-
sin, which straddles Montana, North and
South Dakota, and dips up into Canada, now
contains the highest-producing onshore ield
established in the lower 48 states in the past
56 years, according to the Department o
Energy. Output at the Elm Coulee oil ield in
eastern Montana alone is estimated to reach
200 million to 250 million barrels.
To date, over 600 wells have been drilled
in the middle member o the Bakken Shale
Formation, and 356 producers were pump-
ing oil in Richland County as o August 2006.
In the mid-Bakken play, which only began in
December 2003, over 200 mid-Bakken wells
have been permitted and nearly 100 wells
were producing as o February 2007.
Because o new horizontal drilling and
completion technologies, the potential recov-
erable resource base or the Bakken Forma-
tion is massive. A recently published study by
USGS scientist Leigh Price provides estimates
rom 271 to 503 billion barrels (mean o
413 billion) o oil equivalent in place. I this
bears out, it could increase the estimate o
technically recoverable crude oil resources in
the U.S. by billions o barrels. For perspec-
tive, consider that the current estimate o all
technically recoverable crude oil resources in
the U.S., not including Bakken oil resources,
is 174.67 billion barrels.
“R yrs’ dr-
m hgs
hgy r
mkg xsg
rgy rsrs
srh furhr wh
kpg g-rm
rgy ss wr
h hy hrws
wud h b.”
Testimony of Chairman
Alan Greenspan before
the Committee on Energy
and Commerce, U.S.House
of Representatives —
June 10, 2003
Pumped fuid is enough to crack shale as much as 3,000 eet in each direction rom the wellbore.
A 2500’ horizontal well with 10 staged ractures contacts over 400 times the amount o reservoir
than a conventional vertical well through the same ormation.
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th umrus pprusf h es cs Bs
The East Coast Basin o New Zealand is
a lightly-explored Cretaceous-Cenozoic
ore-arc basin situated across the Australian-
Paciic plate margin. Basins o this type can
be proliic producers o oil and gas, as seen
in Indonesia, Caliornia and other active plate
margins worldwide. Thus ar, only one well
per 800,000 acres has been drilled in the en-
tire East Coast Basin, and the great majority
o these had signiicant oil and gas shows.
In addition to the unconventional poten-
tial in the Waipawa-Whangai shale, TAG Oil’s
acreage contains at least 50 known Mio-
cene/Pliocene structural leads and deined
prospects, many at airly shallow depths.
This translates to relatively low drilling costs,
which enables TAG Oil to explore major up-
side potential with limited
inancial exposure. Potential reservoirs include
sandstones o various ages and porosities o
up to 20% or more in Miocene turbidite an
sandstones and shallow-marine Miocene lime-
stones. A recent independent technical assess-
ment conducted by Sproule International Ltd.
estimates the mid-case undiscovered resource
potential* o the deined prospects to be in
excess o 1.7 billion barrels o oil equivalent.*
eurgg rg, whhr pursug r u ms
Whether pursuing oil and gas in the Waipa-
wa-Whangai ractured shale, or exploring or
conventional oil and gas, this lightly explored
basin presents a unique opportunity or irst
movers.
Ws Bs Pr Rsrs
200520042003200220012000199919981997199619951994
0
10 0
20 0
30 0
40 0
50 0
60 0
70 0
80 0
90 0
C r u d e O i l P r o v e d R e s e r v e s , M i l l i o n s o f B a r r e l s
The middle member o the Bakken Shale ormation is responsible or the explosive increase in Williston Basin oil production over the past ew years.
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*The term barrels o oil equivalent
“boe” may be misleading, particularly
i used in isolation. A boe conversion
ratio o six thousand cubic eet (6
mc) to one barrel (1 bbl) is based on
an energy equivalency conversion
method primarily applicable at the
burner tip and does not represent avalue equivalency at the wellhead.
The term “undiscovered resources”
are those quantities o oil and gas
estimated on a given date to be
contained in accumulations yet to
be discovered. There is no certainty
that any portion o the undiscovered
resources will be discovered and that
i discovered, it may not be economi-
cally viable or ethnically easible to
produce.
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taG o ld.
(Corporate Oice)
1050 Burrard Street
Suite 2901
Vancouver, BC V6Z 2S3Canada
Tel: 1.604.609.3350
Fax: 1.604.682.1174
taG o ld.
(Technical Headquarters)
233 Broadway
P.O. Box 262
Stratord 4332
Taranaki, New Zealand
Tel: 06.765.6643
Fax: 06.765.6654
TSX-V: TAO
www.tagoil.com
Frwrd-lkg Sms Certain statements contained in this document constitute orward-looking statements. These statements relate to anticipated uture
events or TAG Oil’s uture perormance. All statements other than statements o historical act may be orward-looking statements. Forward-looking statements are
oten, but not always, identifed by the use o words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”,
“targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown risks, uncertainties and other actors
that may cause actual results or events to dier materially rom those anticipated in such orward-looking statements. TAG Oil believes that the expectations underly-
ing those orward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and thereore such orward-looking
statements included in this document should not be unduly relied upon. These statements speak only as o the date o this document.