Ministry of Energy, Mines and Petroleum Resources

Looking to the Future: Looking to the Future: Development in the Horn River BasinDevelopment in the Horn River Basin

B. KerrB. Kerr

INTRODUCTION – Horn River BasinCONCEPTDATA SOURCESGAS IN PLACE MAPPINGLAND POSITIONSRELATING OGIP MAPPING TO POTENTIAL RESERVE

STATEMENTSDEVELOPMENT SCENARIOS

- ACCESS AND RECOVERY- PACE AND PRODUCTION- VALIDATION

SERVICE REQUIRMENTSSUMMARY

Overview

Horn River Basin in Northeast British Columbia

• Between Liard Basin to West and Slave Point Carbonate Platform to East

• Over 14,000 sq.km

• 60% tenured (rights vary)

• Access to basin from Liard Hwy (77) in the west and Sierra Yoyo Desan Rd in the east.

• World class shale basin

Introduction

Concept

Use public information and OGIP mapping to approximate scale of future development

Apache Press Release April 8, 2008http://investor.apachecorp.com/releasedetail.cfm?ReleaseID=303676

- Apache net 207,000 acres.- Apache Encana JV on >400,000 acres.- Apache net gas resource 9-16 tcf.

Apache Analysts Review, October 23, 2008.http://www.apachecorp.com/Resources/Upload/PrevArticleFiles/files/Apache_2008_Analyst_Review_08_Canada.pdf

- Majors Land positions.- Production Profiles.

EOG Investor Presentation, March 2009.http://www.eogresources.com/media/slides/InvPres_0309.pdf

- 157,500 net acres.- ~ 6 tcfe (60% drillable, 25% recovery)

Nexen Q1 2008 Earnings Conference Call, October 29, 2008.http://www.nexeninc.com/files/Conference_Calls/q1_2008_cc_script.pdf

- 3 – 6 tcf potential reserves.- 123,000 net acres.- assuming 20% recovery.

Ross, D.J.K. and R.M. Bustin. Characterizing the shale gas resource potential of Devonian-Mississippian strata in the Western Canada sedimentary basin: Application of an integrated formation evaluation. AAPG Bulletin 2008 92: 87-125.http://aapgbull.geoscienceworld.org/cgi/content/full/92/1/87

Walsh, W. Unpublished internal maps of Devonian shale gas potential in the Horn River Basin, October 2008.

Data Sources

GAS IN PLACE MAPPING –

- Walsh (EMPR Internal)

- Based on isopachs of Muskwa/Otter Pk and Klua/Evie fms- Considered Muskwa / Otter Park and Klua / Evie to be separate and distinct.- Assumed constant shale densities- Varied gas contents through iterations to produce high and low cases

- Ross & Bustin (AAPG Bulletin Jan 2008)

- Based on isopachs, geochemical analyses of core and estimates derived from calibrated geophysical logs.- Considered free and adsorbed gas capacities- Limited data within Horn River Basin

Gas In Place Mapping

- Potential OGIP calculated and iso-areas generated and contoured.

- Large volumes of gas predicted based on thick packages of shale.

- OGIP values applied to Gas DSUs across Horn River Basin for

- Walsh low case: 332 TCF mean 53 bcf/dsu, range 0-113 bcf/dsu- Walsh high case: 820 TCF mean 131 bcf/dsu, range 1-287 bcf/dsu- Ross: 782 TCF mean 126 bcf/dsu, range 20-300 bcf/dsu

Legend

BCF / DSU

ROSS

20 - 30

31 - 40

41 - 50

51 - 60

61 - 70

71 - 80

81 - 90

91 - 100

101 - 110

111 - 120

121 - 130

131 - 140

141 - 150

151 - 160

161 - 170

171 - 180

181 - 190

191 - 200

201 - 210

211 - 220

221 - 230

231 - 240

241 - 250

251 - 260

261 - 270

271 - 280

281 - 290

291 - 300

Gas In Place Mapping

• Much of the Horn River Basin has been tenured over the last 5 years• Record land sales in B.C. - price per hectare and total sales

For the purpose of analysis of potential future activity subdivide the basin into three areas:

1. Major operators (as identified by Apache presentation October 23 2008)

2. Unknown operators (all other tenure in basin as of March 2009)3. Untenured land

Land Positions

“Major Operators”

Operators identified in the Horn River Basin

• Devon• Nexen• EOG• Imperial / Exxon• Apache / Encana JV

Land Positions

Unknown Operators Untenured Land

Land Positions

 DSU

OGIP Public *

OGIP Walsh Low

OGIP Ross

OGIP Walsh High

Nexen 119 10-20 9.9 14.9 24.9

Apache** 284 45-80 23.4 45.9 59.8

EOG 226 40 20.5 35.2 52.6

           

*Assuming 20% recovery for Apache**Assuming 50% Net of ECA/APA identified land          

• Calculate the OGIP on the lands attributed to companies and compare these values to volumes from press releases.

• Walsh estimates for OGIP resource “bookend” company statements and Ross values.

Relating OGIP Mapping to Potential Reserve Statements

Land Category DSU

OGIP Walsh Low

ROSS OGIP

OGIP Walsh High

Major Operators 1500 125 231 320

Unknown Operators 2760 122 306 293

Untenured Land 1971 85 245 207

Total 6231 332 782 820

• Calculate the OGIP on categories of landsMajor OperatorsUnknown OperatorsUntenured Land

Relating OGIP Mapping to Potential Reserve Statements

Two scenarios – Walsh Low / High Case OGIP- Consider availability of land for drilling

- Exclude 10-30% of land from development as inaccessible on land holdings of major companies- Exclude 30-50% of land from development for unknown companies for time frame of analysis.- Exclude 70% of untenured land from development as unprospective*

- Consider recoveries on land that is drilled- 20-30% recovery

- Consider potential production profiles and EUR per well- IP 4.9 mmcf/d, EUR 5.5 bcf- IP 3.3 mmcf/d, EUR 4.1 bcf

* >95% of the basin is interpreted to have more than 30 bcf OGIP per DSU

Development ScenariosAccess and Recovery

Drilling Activity

Major Operators Lands – 20 year full development

Unknown Operators Lands – 30 year full development

Untenured Lands – 40 year development

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Years

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Years

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Years

Development ScenariosPace and Production

Annual Drilling – Pessimistic OGIP, Limited Accessibility, 20% recovery, 4.1bcf/well

0

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MajorsMajors

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Development ScenariosPace and Production

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MajorsMajors

UnknownUnknown

UntenuredUntenured

Annual Drilling – Optimistic OGIP, Good Accessibility, 30% recovery, 5.5 bcf/well

Development ScenariosPace and Production

00.5

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Pro

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Year

Pessimistic Shale Forecast

Development ScenariosPace and Production

Optimistic Shale Forecast

BC’s Current Production

  DSUPress Release Pessimistic Optimistic

Nexen 119 3-6 1.4 6.7

Apache 284 9-16 3.3 16.1

EOG 226 6 2.9 14.2

- If these development scenarios were applied on company lands, how would they compare to potential reserves as announced?

Development ScenariosValidation

Resources needed to support drilling and completions

- Frac Sand- Water

 Frac Sand

(tons) Water (m3)

Pessimistic 8,849,100 102,105,000

Optimistic 19,743,100 227,805,000

Max Annual 1,404,000 16,200,000

Max Annual Water – 25% of Annual Water Use in CRD (Greater Victoria)Max Annual Frac Sand – 150+ truck loads of sand per day.

Service Requirements

- Large volumes of gas in place- Significant reserve expectations- Successful development of play will require 10’s of thousands of wells

- Development over 20 years will require unprecedented activity levels- Peaking at 3 wells rig released every day of the year

- Optimistic case as presented (16,000 wells) is development of 62% of the sections in the basin.

Summary