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What a difference a year makes
• Major shale gas discovery made in Quebec
• Grew valuable expertise in shale gas plays
• Achieved early success on B.C. Liard shale gas play with well on production at 5 mmcf/d
• Cash flow over $17 million exceeded guidance
• Replaced over 150% of 2008 production on a 2P basis
• Increased financial strength with net working capital of over $50 million
• Major shale gas discovery made in Quebec
Business plan has proven successful
2008 Objectives
Participate in the drilling of several wells in the Lowlands to test the Trenton Black-River and shale gas prospects
Drill an additional 5 (2.5 net) wells in Antler and evaluate the PackersPlus stimulation technique to increase production and ultimate recovery
Commence full production from the Mannville I Pool in Vulcan
Build inventory of over 50 drilling locations
Maintain similar production levels as 2007 with materially higher netbacks
Met all 2008 objectives
Operating and Financial Results2008 2007
Cash Flow $17.29 million $10.22 million
ProductionCrude Oil and Natural Gas Liquids (bbls/d) 385 (33%) 176 (13%)Natural Gas (mcf/d) 4,761 (67%) 7,282 (87%)Total (boe/d) 1,178 1,390
Revenue ($/boe) 69.13 46.88
Royalties ($/boe) 11.55 11.06
Operating Expenses ($/boe) 14.05 12.07
Operating Netback ($/boe) 43.53 23.75
Working capital ($) 54.31 million 10.08 million
2P Reserves 2.92 mmboe 2.34 mmboe
Debt Nil Nil
Strengthened financial position
Market Liquidity
• Daily trading volumes increased from 0.78 million shares in 2007 to 5.34 million shares in 2008
• Added to Oslo Bors Benchmark Index
• Increased analyst coverage by 7 firms to 12
St. Lawrence Lowlands, Quebec
“All Hail the Triumphant” Copyright 2008 Daedalus Designs Inc. Courtesy Kinsman Robinson Galleries, Toronto in association with Master’s Gallery Ltd., Calgary
Why Shale Gas in Quebec
• Favorable fiscal terms
• Well defined deep fairway with IGIP “incredible gas in place”
• Large land position with drilling inventory measured in decades
Lorraine ShaleLorraine Shale
Favorable Fiscal Terms
• Canada’s second largest natural gas market- over 0.5 Bcf/d
• Additional estimated 200-400 mmcf/d capacity on TCPL (seasonal)
• Royalties of 10% to 12.5%
• Realized natural gas prices in GazMetro system are at a $0.60 premium to NYMEX
• GazMetro distribution system confirmed availability for tie-ins with 9-month lead time
Pipeline infrastructure in Lowlands
Alberta Quebec
Revenue ($5.00/mcf AECO - US$/4.50 NYMEX) $5,000,000,000 $6,450,000,000
LessRoyalties (25% AB/10% PQ) (1,250,000,000) (645,000,000)Trans & Proc ($0.50 AB/$0.20 PQ) (500,000,000) (200,000,000)Operating ($1.00/mcf) (1,000,000,000) (1,000,000,000)Operating net back 2,250,000,000 4,605,000,000Capital (500 wells plus facilities) (2,000,000,000) (2,000,000,000)
Undiscounted cash flow $ 250,000,000 $ 2,605,000,000
Operating net backsPer Mcf $2.25 $4.61Per Boe $13.50 $27.63
Based on 1 Tcf and 2 Bcf/well potential of Utica or Lorraine shale gas
Comparative Illustration of Fiscal Terms
Well Established Geology
Unstructured Structured
Play Fairway
Utica Structure Map
Schematic Cross Section of Lowlands
Dominant Land Position in Fairway
Acreage Gross Net
Questerre - TLM (~25% + 4.25% GORR) 719,788 206,746Yamaska – FST/GMR (20% working interest) 113,453 22,691
St. Jean – GMR (56% working interest) 181,255 107,003
Total 1,014,496 336,440
• 500 net sections (over 1,200 sq. km)
• Land values validated by Canbriam/Suncor farm-in
Quebec City
Montreal
2009 Activity
2008 Activity
2007 Activity
IGIP – Incredible Gas in Place
SYSTEMM
IDD
LE/U
PPER
ORD
OVI
CIA
NGROUP FORMATION
INDIAN CASTLEINDIAN CASTLE
TRENTON
UTICA DOLGEVILLEDOLGEVILLE
FLAT CREEKFLAT CREEK
BASALLORRAINELORRAINE
MIDDLEMIDDLELORRAINELORRAINE
Stratigraphy
• Discovered resource potential over 35 Tcf on Questerre net acreage
Multi Tcf PotentialAssumptions
Estimated discovered resource of 93 Bcf/section for Utica and 120 Bcf/section for Lorraine based on TLM, FST & QEC estimatesRecovery factors based on 100 acre spacing for Utica and 80 acre spacing for LorrainePotential contingent resource based on 70% prospectivity factor plus 50% land utilization/risk factor resulting in 35% of net acreage being developedShrinkage factor of 5% includes fuel gas
Questerre 305,849 net working interest acres (107,047 utilized)
Recovery Gross Bcf/well Gross Bcf/well Net Recoverable Net RecoverableTotalUtica Lorraine Utica (Tcf) Lorraine (Tcf) Tcf
10% 1.38 1.43 1.48 1.91 3.3815% 2.07 2.14 2.22 2.86 5.0720% 2.76 2.85 2.95 3.81 6.7725% 3.45 3.56 3.69 4.77 8.46
Questerre 30,591 royalty interest acres (10,707 acres utilized)
10% 1.38 1.43 0.148 0.191 0.33915% 2.07 2.14 0.222 0.286 0.50820% 2.76 2.85 0.296 0.381 0.67725% 3.45 3.56 0.370 0.477 0.846
Note: 1 trillion cubic feet of gas is 167 million barrels of oil equivalent (BOE)
Realizing the Potential
• Every shale play has its own learning curve and requires unique, innovative solutions
• Acquire a statistically significant set of results and create repeatability by testing one variable at a time
• Very high beta on individual well results; top half of wells pay for everything
• Persistence and technology inevitably lead to improved results
Barnett Shale (Texas)
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
5/7/1990 1/31/1993 10/28/1995 7/24/1998 4/19/2001 1/14/2004 10/10/2006 7/6/2009
First Y
ear A
vg Ga
s Rate
(MCF
PD)
Woodford Shale (Oklahoma)
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
5/7/1990 1/31/1993 10/28/1995 7/24/1998 4/19/2001 1/14/2004 10/10/2006 7/6/2009
Avg
Gas R
ate
(MCF
PD)
Fayetteville Shale (Arkansas)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
9/1/2002 1/14/2004 5/28/2005 10/10/2006 2/22/2008 7/6/2009
First
Year
Avg
Gas
Rat
e (M
CFPD
)
Production data courtesy of Tristone Capital/IHS
Moving up the Learning Curve in 2008
• Validated giant resource potential “IGIP”
– St. Francois du Lac #1 test, April 2008
• Frac’d rock successfully and achieved sustainable gas flows
– Gentilly #1 test, August 2008
• Designed and carried out first prototype horizontal well completion
Frac Fluid Containment System
Gentilly #1 Fracture Stimulation
Forest Oil Horizontal Well Results• Sustained rates of 100 – 800 mcf/d
• Different intervals tested for frac effectiveness
• Rock breaks well – sufficient rock volumes stimulated
– frac geometry confirmed by microseismic
• Good pressure gradients with high pressures encountered
• Four stage prototype – 8 stage production wells would double stimulated rock volumes
• Well cleanup times are slow indicating potential issues with conductivity to wellbore
Frac operations on Forest horizontal wells
Micro-seismic used to validate frac geometry(Image courtesy of Pinnacle Technologies Inc.)
Measuring up to a Proven Shale Play
Initial results are well up the first year learning curveFayetteville production data courtesy of Southwestern Energy corporate presentationQuebec results are estimated 30-day equivalent ratesSpecific wells and intervals are confidential
Quebec
Trend Line
Southwestern
Trend Line
Quebec shale compared to SWN Fayetteville shale
0
0.5
1
1.5
2
2.5
3
3.5
4
01-Ja
n
01-Ja
n
01-Ja
n
01-Ja
n
01-Ja
n
01-Ja
n
01-Ja
n
01-Ja
n
Daily G
as
Rate
(m
mcf
/d)
Year 1 Year 2 Year 3 Year 4
Quebec Expected Timeline
Original timeline is generally being met with any delays due to market conditions
Rock Properties Investigation
Pilot Project
Commercial Development
Resource Identification
Optimization
2011
Q1 Q2 Q3 Q4
2010
Q1 Q2 Q3 Q4
2009
Q1 Q2 Q3 Q4
2008
Q1 Q2 Q3 Q4
Rock Properties Investigation
Pilot Project
Commercial Development
Resource Identification
Optimization
2011
Q1 Q2 Q3 Q4
2010
Q1 Q2 Q3 Q4
2009
Q1 Q2 Q3 Q4
2008
Q1 Q2 Q3 Q4
Proposed Pilot Pad Locations
Outlook for 2009• Add to database
– Finalize testing of Gentilly #1 and La Visitation #1 well
– Test St. David #1– Drill & test St. Edouard #1
• Test one variable at a time– Re-enter and re-frac Yamaska wells
• Pilot 6-well pad– Acquire seismic data over several
potential commercial drilling pads– Obtain regulatory approval to
commence drilling of 6 well production pad
– Commence approval process for tie-in to GazMetro distribution system
Drilling rig for Forest horizontal wells
Liard Shale
• Harness and apply shale learning curve
• A-5 well has encouraging results – 5 mmcf/d on production
• Seeking partners to gather base data to rigorously evaluate Liard shale potential
• Beaver River project adding to our internal shale expertise and proves benefits of following learning curve
Mississippian shale/siltstone sequence
Beaver River Schematic cross section
Conventional AssetsAntler, Saskatchewan
• Validated horizontal multistage wells to increase recovery
• Over 50 drilling locations
• Flexibility to accelerate development drilling based on higher oil prices
Greater Sierra, Northeast BC
• Completed drilling program and 3-D seismic program in 2008
• Several deeper prospects identified using 3-D seismic survey
• 50 drilling locations - Future drilling programs to leverage higher natural gas prices
Vulcan, Southern Alberta
• Focus on operating efficiencies to further improve netbacks
Oil Battery at Antler
Drilling Rig at Greater Sierra
2009 Outlook
Quebec• Complete drilling and testing of multi-zone deep vertical wells with Talisman• Refine completion design and re-enter and re-complete Yamaska horizontals• Acquire seismic over potential pilot areas with Talisman
Northeast British Columbia• Validate Liard shale play rock properties at Beaver River Field
Conventional Assets• Minimal capital spending on conventional assets - Expenditures focused on
short payouts rather than rates of return
1650 AMEC Place 1650 AMEC Place 801 Sixth Avenue SW801 Sixth Avenue SW
Calgary, Alberta T2P 3W2 CanadaCalgary, Alberta T2P 3W2 CanadaTel: (403) 777 1185Tel: (403) 777 1185Fax: (403) 777 1578Fax: (403) 777 [email protected]@questerre.com