Creating Clarity and Certainty for Shale Gas Development
May 17, 2012
A British Columbia Example
Shad Watts – Community Consultation & Regulatory Affairs Nexen NEBC Shale Gas
Shale Gas Case Study
Agenda
Nexen NEBC Shale Gas Overview and Challenges
Opportunities to Create Certainty and Clarity
Tenure Acquisition
Fiscal Incentives
Effective & Efficient Regulation
Shale Gas Overview
Northeast British Columbia
Nexen Asset Positioning
Nexen Ownership Summary
~172,000 acres in Horn River
and Cordova
Nexen Total NEBC Basin Acreage: ~300,000 net acres
~128,000 net acres
~90,000 net acres
~82,000 net acres
~128,000 acres in Liard
60% working interest
100% operated
Ownership in Cabin Gas Plant
Takeaway Capacity
Spectra Plant
100 MMcf/d
Cabin Gas Plant
5% Nexen WI in Phase 1
400 MMcf/d gross
processing capacity
Expected online mid2012
20% Nexen WI in Phase 2
400 MMcf/d gross
processing capacity
NEBC Shales (Horn River: 104 Tcfe)
BRITISH
COLUMBIA
Horn River
Muskwa
Potential LNG Facility
BRITISH
COLUMBIA/
ALBERTA
Montney
Montney: 55 Tcfe
Horn River Basin: Top Quartile Shale Play in North America
WILLISTON
BASIN
Bakken
UINTA
BASIN
Baxter
Mancos
SAN JOAQUIN
BASIN
McClure
PARADOX
BASIN
Cane Creek
BIG HORN
BASIN
Mowry
PICEANCE
BASIN
North American Unconventional
Resource Plays
SAN JUAN
BASIN
Mancos
Lewis
Utica
APPALACHIAN
BASIN
Marcellus
Huron
ARKOMA/ARDMORE BASIN
Fayetteville
Woodford
Caney
DELAWARE BASIN
Barnett
Woodford
500 net foot interval averages 50% thicker than the Barnett
High silica content shale is very brittle and fracable
Marcellus Shale: 197 Tcfe
Woodford Shale: 12 Tcfe
SANTA MARIA
BASIN
Monterey
Third largest resource play in North America
MICHIGAN
BASIN
Antrim
Fayetteville Shale: 26 Tcfe
BLACK WARRIOR BASIN
Floyd
Conasuaga
Neal
Barnett Shale: 61 Tcfe
Haynesville Shale: 140 Tcfe
Eagle Ford Shale: 10 Tcfe
10+ year land tenure with minimal drilling
required to hold
Attractive tax regime and royalty structure
Competitive resource recovery (EUR) with 6 – 15 Bcf wells
Viable North American LNG export option
Ideally located to supply growing oil sands demand
Cordova Embayment extends platform
____________________
Resource Potential Estimate Source: Wood Mackenzie.
2
Shale Gas Overview
Northeast British Columbia
4
STAGES OF SHALE GAS EXPLORATION AND DEVELOPMENT
• A stepwise approach through exploration and appraisal…
• Technical feasible – defining and characterising the a viable play concept;
• Commercial feasiblity – cracking the nut leading to cost effective reservoir
productivity;
• Commercial demonstration through pilot programs prior to project sanction
30+
Shale Gas Overview
Development Requirements NEBC
1. Permanent Roads and year round access.
2. Well pads with many (8-20) horizontal wells
•
•
•
•
One pad per 3 square miles.
Triple Drill Rigs (5000m); self moving
Surface footprint only 5-10% of traditional equivalent
vertical well development
Innovative application of technology to reduce
development costs.
3. Completion (fracing) of Horizontal Wells.
•
16-20 fracs per well.
•
3+ fracs per day.
•
exclusively slick water* fracs .
•
typically 200-350 tonnes sand per frac (2-4 railcars).
4. Appropriate pipelines to and from the well pads
*Slickwater or slick water fracturing is a method or system of hydro-fracturing
which involves pumping water & sand with a friction reducer.
6
Shale Gas Overview
Development Requirements NEBC
5.
In field Facilities / Gas Compression
•
Dehydrate and compress gas
•
Formation water filtration & disposal
6.
Takeaway pipeline to Area Gas Plant(s)
7.
Area Gas Plants that will further process the gas
•
Remove CO2 and trace H2S
•
Compress to sales pipeline pressures
8. Sales pipeline to transport gas to market
7
Shale Gas Overview
Horn River Basin – Drilling (18 well pad)
b-77-H/94-O-8 Pad 2011
Shale Gas Overview
Horn River Basin – Completions (9 well pad)
c-1-J/94-O-8 Pad 2011
Shale Gas Overview
Development Challenges NEBC
•
Distance to market
•
Undeveloped local service
sector / distance to
services
•
Lack of infrastructure and
difficult surface access
•
Understanding the
reservoir
•
Long time before positive
return
Shale Gas Overview
Development Challenges NEBC
Large upfront capital requirements
Drilling = $127,687/day
Completions = $640,693/day
(excluding materials)
Field Infrastructure
8%
Pad Facilities & Pipelines
9%
Pad Construction
2%
Site
Operations
14%
Drilling
24%
Completions
43%
11
Shale Gas Overview
THE SHALE GAS DEVELOPMENT CHALLENGE
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
the least frac water & proppant ?
How many frac stages & how far apart ?
Best flowback practices to enhance performance ?
What is the best well spacing,
length & orientation ?
Where should laterals be placed ?
Is there a sweet spot
in the reservoir ?
Planar bi-wing
or complex fracs ?
How much free &
absorbed gas ?
How important are natural
Fractures ?
Shale Gas Overview
Key Messages – What It Takes
Quantitative – Below Ground
• Positive expected monetary values  Cumulative distribution of NPV that
incorporates mitigation decision points and key subsurface risk and uncertainty
ranges
• Acceptable risked capital levels
• Attractive success case valuation
Qualitative – Above Ground
• Favorable fiscal terms and incentives that promote exploration and risk sharing
• Terms of tenure aligned with the “unconventional” timelines for exploration,
appraisal and development
• Sanctity of contract
• Stable, streamlined, open and transparent regulatory structure
• Infrastructure to customer
• Liberalized gas market
• Political stability
• Secure and predictable operating environment
• Legitimate government consultation on regulation, terms and policy
Shale Gas Case Study
Agenda
Nexen NEBC Shale Gas Overview and Challenges
Opportunities to Create Certainty and Clarity
Tenure Acquisition
Fiscal Incentives
Effective & Efficient Regulation
Certainty in Subsurface Rights
Oil & Gas Tenure
Tenure Must Facilitate
Responsible Development:
• Should stimulate work activity rather
than be viewed as a revenue
generation mechanism
• Clear definition of exclusive rights
geographically
• Appropriate to resource developed in
the term, and geographical extent
• Risk sharing through flexibility in
commitments for work or cash in lieu
with optionality for staged
commitments related to market.
• Maintains competitiveness through
market pricing with no minimum bids
but don't have to award if less than
fair award price
15
Certainty in Subsurface Rights
Oil & Gas Tenure
Principles of British Columbia’s Tenure System
• Exploratory effort is rewarded with the right to
produce, delineation of a pool allows the
tenure to be held beyond the end of its term
• Longer tenures are granted in areas with
poorer infrastructure
• Oil and gas tenure grants the rights to the
resource only - permitting of exploration and
development activities is managed separately
by an independent agency
• Unused rights return to the Crown at the end
of the tenure term
16
Certainty in Subsurface Rights
Tenure Types in BC
Drilling Licences (3, 4, or 5yr term)
• Exploration type of tenure
• Different terms depending on location
• Encourages Development
Leases (5 or 10yr term)
• Production form of tenure
• Held in perpetuity
17
Shale Gas Case Study
Agenda
Nexen NEBC Shale Gas Overview and Challenges
Opportunities to Create Certainty and Clarity
Tenure Acquisition
Fiscal Incentives
Effective & Efficient Regulation
Shale Gas Case Study
A SUCCESSFUL FISCAL REGIME
• Fiscal regime that shares risk / incents activity
• Provides long term certainty
• Enable accelerated capital cost recovery for capital intensive plays
• Facilitate resource development through access cost sharing in
remote areas (roads and pipe)
• Incent zone specific production through target credits
• Recognize seasonal or operational constraints
Fiscal Incentives
BC’s Targeted Royalty Programs
British Columbia Targeted Royalty Programs
Summer Royalty
Program
Deep Royalty
Programs
• Deep
• Deep Discovery
• Deep Re-entry
Conditions:
• Spud Date
between April 01
& November 30
Conditions:
• Vertical Well Depth >
2500m
• Before Sep 1, 2009
Horizontal Well Depth
> 2300m
• After Sep 1, 2009
Horizontal Well Depth
> 1900m
Marginal Royalty
Program
Ultra-Marginal
Royalty Program
Coalbed
Methane
Conditions:
Condition:
Condition:
• 12 month
average Rate <
40 mcf/d/100m
• Production <
600
mcf/d
• 12 month average Rate
< 80 mcf/d/100m
Infrastructure
Royalty
Credit
Program
Net Profit
Royalty Program
Condition:
Conditions:
• By Request for
Applications
• By Request for
Applications
• Monthly Production
below 880 mcf/d
20
Fiscal Incentives
Impact of BC Royalty Programs
• $1.3
billion in
incremental royalties
since 2004/05
21% increase in BC’s
natural gas revenues
•
21
Shale Gas Case Study
Agenda
Nexen NEBC Shale Gas Overview and Challenges
Opportunities to Create Certainty and Clarity
Tenure Acquisition
Fiscal Incentives
Effective & Efficient Regulation
Efficient and Effective Regulation
• Considers Operational requirements, risk, and technical
considerations
• Built collaboratively
• Flexible
• Approvals received in a timely manner
• Incent desired practices
• Results based – focus on compliance
Effective & Efficient Regulation
Provincial Legislative Framework
Government and Ministries
•Set Policy and Legislation
•Award Tenure
E.g. Oil and Gas Activities Act
Oil and Gas Commission
•Provides Permits & Approvals
•Compliance & Enforcement
E.g. Drilling and Production Regulation
Effective & Efficient Regulation
One Window Approach
Specified
Enactments
Land Act:
Section 14 Temporary Occupation of Crown Land
Section 39 Licence of Occupation
Section 40 Right of Way
The BC Oil and Gas Commission serves as a
“single window” agency provided with
legislative authority for authorizations under
several Acts.
Water Act:
Section 8 Short Term Use of Water
Section 9 Changes in and About a Stream
Section 26 Permits over Crown Land
Forest Act:
Section 47 Master Licence to Cut
Section 117 Road Use Permit
Other Enactments:
Section 12 Heritage Conservation Act
Sections 9, 14 & 15 Environmental Management Act
25
Effective & Efficient Regulation
Regulatory Framework
Structure of OGAA
Oil and Gas Activities Act (OGAA)
•
•
•
•
•
•
More efficient approvals for multiple related activities
Increased compliance and enforcement mechanisms
Increased landowner/stakeholder support
Increased environmental protections
New appeal provisions
Maintains specified enactments
Geophysical Exploration Regulation
Drilling & Production Regulation
Pipeline Regulation
Administrative Penalties Regulation
Consultation and Notification Regulation
Environmental Protection & Mgmt Regulation
26
Effective & Efficient Regulation
One Window Approach
Project Lifecycle – What the Commission Regulates
1.
7. Abandonment / Reclamation
•
•
Pre-Application
•
Certificate of Restoration Process
Orphan Fund
Consultation/Engagement by
Industry with landowners, other
stakeholders/First Nations and
Government/Commission
6. Operations
•
•
2.
Risk based
inspections
Compliance
Programs and Audits
•
•
5. Leave to Open/Production
•
Application
3.
Decision (21 days)
•
Review project to ensure it is
compliant and ready to
commence operations
First Nations
Consultations
Application Review
•
Permit issued or declined
with reasons
Conditions attached as
appropriate
4. Construction
•
Inspections and
Enforcement
27
Effective & Efficient Regulation
Streamlined Application
WELL PERMIT
APPLICATION FORM
OGC, 100 10003 110 AVE
Fort St. John, B.C. V1J 6M7
Phone: (250) 794-5200
FLFN
FNFN
Other
HRFN
WMFN
Archaeological Assessment Information Form
Archaeological Reports, if available
Other:
Fibre Utilization Plan
Other Documents
Date Received
THIS IS AN AUDITABLE DOCUMENT
FOR INSTRUCTIONS REFER TO THE WELL PERMIT APPLICATION MANUAL
COMMISSION USE ONLY
Commission File No.:
A
WA No.:
Application Category:
Document :
Routine
Well Classification:
Non-Routine
Objective Field:
Application Fee: $
PETROLEUM & NATURAL GAS TENURE RIGHTS
Directionally drilled
Objective Field Code:
B
Applicant Name:
Surface Coordinates:
N/
Proposed Bottom Hole
Location(s) & Heel Location
(s)
Address:
Horizontally drilled
Vertically drilled
Well Centre Coordinates (UTM) Zone:
ADMINISTRATION
F
Permit, Drilling Licence or Lease Number(s) (for bottom hole location(s), plus heel to toe locations):
__________________________ _________________________ _________________________ _______________________
Is the applicant the registered holder of the petroleum and natural gas rights?
Yes
No
G
WELL SPECIFICATIONS
N:
S (m)
E/
Objective
Formation(s)
W (m)
Objective Fluid
(oil, gas or water)
E:
from
Objective Depth(s)
(m TVD)
corner of
Ground Elevation (m):
Expected TD
Core
(Y/N)
( m TVD)
(m MD)
Formation at:
TD
BOP
Class
City, Province, Postal Code:
Contact:
Referral Company:
Email:
Email:
Agent Name:
Phone:
Phone:
Internal File No.:
APPLICATION INFORMATION
ePASS No.:
C
Surface location (NTS/DLS):
Well Name:
New Permit Holder Application Fee Applicable
Yes
No
Primary Well Application
Subsequent Well Application with new area
If this is a subsequent well application, enter the primary WA No.: _____________ and Commission File No.: _______________
Revision to Commission File No. :
Bit Size
(mm)
Re-entry COR/WA No.:
Water Source Well
Is the water source well designed to operate at a rate greater or equal to 75 litres/second?
Disposal Well
Yes
PROPOSED CASING PROGRAM
Linear Density
Grade
New or Used
(kg/m)
Casing Size
(mm O.D.)
H
Setting Depth
(If directional, enter m TVD and in MD)
No
Injection Well
Cross Reference to other Commission File No. (if applicable):
Is this well within an area designated as a special project using innovative technology under section 75(1)(b)?
Yes – Approval No.: _____________
No
LAND STATUS
Area Of Activity:
North
Central
Forest District(s):
South
D
MKMA
ALR
SYD
Private Land
Is there a Timber Reservation charged against the title?
Review Corridor applied for
Yes
No
Cross reference to existing review corridor, OGC file no.:
Total woodlot licence area
ha
Total area private land
ha
Total area Crown land
ha
Total new Crown land area disturbance
ha
Total application area proposed
ha
Area of Crown land for wellsite only
ha
FIRST NATIONS CONSULTATION / ABORIGINAL COMMUNITY NOTICE PACKAGE
N/A
E
Ensure the following are attached to the application for First Nations consultation purposes:
Aboriginal
Consultation
Attachments
Community Notice
KLCN
BRFN
MLIB
Cover letter (2 copies for each consultation and notification area affected)
KLFN
KLMSS
DENE
THA
DRFN
PRFN
Application Form
SFN
Mapping requirements
Gelchem
KCI
Air
I
Hydrocarbon Based:
Other – Specify Type:
Master Licence To Cut (MLTC) No.:
Crown Land
DRILLING INFORMATION
Drilling fluid type:
Underbalanced drilling?
Yes
No
Managed pressure drilling?
Is a remote sump being applied
for with this application?
Yes
No
If yes, remote sump must be shown on the construction plan.
Yes
No
3
SOUR WELL INFORMATION (H2S RELEASE RATE > 0.01 m /s)
List expected sour zones and their corresponding maximum H 2S content (%):
3
Cumulative H2S release rate (m /s):
Drilling:
Completion:
Emergency Planning Zone radius (km):
Drilling:
Completion:
Distance to nearest occupied dwelling (km):
Distance to nearest Urban Center (km):
Are there any occupied dwellings, public facilities, numbered or named highways, rivers and lakes,
Yes
recreation areas, places of business and/or egress inside the calculated Emergency Planning Zone?
N/A
No
28
J
Effective & Efficient Regulation
Environmental Protection
Horizontal Wells
Vertical Wells
• 20 Horizontal wells from one 260x175m pad
• Would need 320 vertical wells
• Each frac stage in hz well is equivalent to a vert. well • Vertical wells each on a separate 100m x 100m pad
• Same amount reservoir contacted in both scenarios
• 85% less surface disturbance
29
Effective & Efficient Regulation
Environmental Protection
Small Lake
Complexes
• Collaborative effort
bw industry and
government
• Calf mortality
decreases when
selected
• Calf recruitment
success increases
2000 meters
• Predators are
avoiding/don’t select
Lakes 1 ha – 10 ha within 200m
proximity of each other
250m buffer applied
30
Effective & Efficient Regulation
Water uses – Shale Gas
What is Water Used For?
Oil and Gas
Road and well pad construction
Drilling
Well completions
Transportation/pipelines
31
Effective & Efficient Regulation
Water requirements
Nexen Horn River Basin:
• 1 pad per year
• 16-18 frac stages per well, 20 wells per pad
• Frac design:
• 3300 m3 per frac stage and drill-outs
• 60,000 m3 per well x 20 wells per pad
• 200-350 tonnes frac sand per frac
• Total annual requirement of ~1,200,000 m3 of water &
80,000 – 140,000 tonnes of sand
32
Effective & Efficient Regulation
Water Protection - Well Construction
Potable Groundwater Aquifers
Potable Water Wells:
<150-300 metres
Surface casing
Additional steel
casing and
cement to
protect groundwater
Protective Steel
Casing
Hydraulically fractured shales
Approximately
2500 metres
below surface
33
Effective & Efficient Regulation
Licensed Withdrawal
• Variable withdrawal rates are designed to mimic seasonal variations in flow
6.00
Instream
Flow Range
(2011)
Withdrawal
Parameter
Flood Stage: 80% >
inferred median
> 1.652 m3/s
25% of
mean daily
discharge
High Flow: > inferred
median
0.918 –
1.651 m3/s
15% of
mean daily
discharge
Normal Flow: < inferred
median
0.918 –
0.352 m3/s
10% of
mean daily
discharge
< 0.351 m3/s
Zero Withdrawal Limit
Maximum Withdrawal Limit
(30% of mean
annual flow - ice
free period)
0
Total Discharge (April to October): 17 600 000 m3
3
Total Allowable Withdrawal: 3 400 000 m (19% of total)
3
Current use capacity: 2 000 000 m (12% of total)
5.00
Mean Daily Discharge (m3/s)
Flow Condition
4.00
3.00
2.00
25% of MDF
2 500 000
m3/year
15% of MDF
1.00
10% of MDF
0 Withdrawa
0.00
22-Apr-10
12-May-10
1-Jun-10
21-Jun-10
Tsea River at W7 - 2010 Discharge
Inferred Median
Zero Withdrawal Limit
11-Jul-10
31-Jul-10
20-Aug-10
9-Sep-10
29-Sep-10
19-Oct-10
Tsea River at W7 - 2010 Allowable Withdrawal
34
Flood Stage
34
2010 Used
Conclusions
Capital Intensive Development
Governments and industry need to work together
Different phases of development need to be recognized
Focus on results based regulatory framework to enhance
efficiency and flexibility