Rigs to High-Line Electricity Feb 22 Final2

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Conversion of Drilling Rigs toHigh-line Electricity

Dave Hassan | Rudy Sundermann |Alice Yu

Cenovus Energy Inc.

Edmonton, AB | February 23, 2011



Advisory

This document contains forward-looking information prepared and submitted pursuant to Albertaregulatory requirements and is not intended to be relied upon for the purpose of making investment decisions, including without limitation, to purchase, hold or sell any securi ties of Cenovus Energy

Inc. Additional information regarding Cenovus Energy Inc. is available at www.cenovus.com.

http://www.cenovus.com/





Description of Project Type

On diesel-electric drilling rigs, we can get direct carbon reductions by

switching from electricity from diesel-fuelled, engine-driven generation(gensets), to electricity from a high-voltage transmission line (high-line),if it is nearby.

•What creates the credits?

• Diesel-fueled gensets produce greenhouse gas emissions at the rate of about 0.95 tonnes CO2e per MWh.

• When a MWh of electricity is taken from a connection to a high-line, suchas the Alberta Grid, the GHG emissions from the electricity suppliersaverage to about 0.88 tonnes CO2e/MWh.

• The difference between these two modes of operation is the GHG reductionachievable.

• If the high-line is supplied by dedicated electricity from solar or windsystems then the GHG emissions can be as low as 0 tonnes CO2e/MWh.

•GHG emissions addressed under this protocol include:

• CO2, CH4, and N2O, of which CO2 has the larger share.



Protocol Overview

• Users – Intended users for this protocol are thelessees and/or owners of drilling rigs

• Aggregation – This protocol is unlikely to result in

aggregated projects.• Drilling rigs operate in isolation.

• There is a potential for some related GHG reduction fromthe reduction of transport of diesel fuel.

• There will also be a reduction in local emissions of otherpollutants resulting from diesel combustion.



Process Overview

• Cenovus drilling personnel identified the electricity sourcing

opportunity in 2008 and recommended investigation of relatedGHG reduction potential.

• The Protocol development process was supported by aTechnical Working and Consulting Group of over a dozen of people from different sectors:

• University of Calgary, Drilling Contractors/Drilling rigs companies,Drilling Operations Teams, AENV, C3

• 3 Technical Workshops held over 3 months

• Protocol draft and technical seed documents were reviewed in 1st round technical workshops

• Meetings with rig owners were held to determine measurementmethods

• The Protocol draft was also reviewed by EBA to validate thequantification methodology



Best Practice Guidance

• No other jurisdictions have similar drilling rigs protocol in place

• Project that has similar conversion is in place in BC under Pacific CarbonTrust

• Hybrid heating system designed to use electricity as a replacement forfossil fuel

• Conservativeness:

• All the emission factors and properties factors are based on EIA, EPA andCAPP

• Calculations of emissions is based on accurate metering of diesel flow andpower demand. The latter meter accuracy is within 0.1% of the expectedvalue.

• Quantification methodology is based on the difference in emissions per

MWh between diesel-fuelled genset electricity and high-line electricity• We have not included the GHG reduction from the reduction in trucking of

diesel fuel

• We used the Alberta Grid factor of 0.88 tCO2e/MWh to demonstrate thepotential for GHG reduction knowing that there are better options.



Offset Criteria - Additionality

• Real – GHG reductions come from shifting from diesel-fuelled

electricity to high-line grid electricity to power the rig

• Quantifiable – Direct measurement of diesel consumption, of genset electricity, and of grid electricity

• Drilling rig genset-specific – by building a Rig Fuel Switch Curve

• Verifiable – Accurate meters provide direct measurement andthe readings from these meters are recorded

• Incremental GHG emissions reductions/removals may beachieved by using renewable power sources (i.e. wind). In thiscase the operator must consult AENV.

• This electricity source conversion is not required by anyregulation either current or anticipated.



Offset Criteria - Permanent

• GHG reductions achieved are not reversible

• As long as the high-line powered rigs are in place,

there is a guarantee on the reduction of CO2e

emissions



Offset Criteria - Leakage

• Little risk of leakage associated with this conversion

• Since the incremental cost to prove GHG reductions isrelatively small, and is typically paid by the lessee, thisProtocol application will not encourage rig owners to movethe diesel electric rigs, with higher GHG emissions, to other

areas that do not have such a protocol in place• Under current market conditions, the relative cost of diesel

fuel and fuel transport compared to the cost of connectingto a high-line and paying for power, shows an economicbenefit to make the change. Again, this protocol will not

encourage the rig owners to move the rigs elsewhere



Offset Criteria - Clear Ownership

• The decision to connect to a high-line is made byproject developers, who may or may not be the rigowners

• Typically the rig lessee pays for fuel and electricityand the connection to a high-line. The lessee getsthe GHG reductions.

• Ownership of the emission reduction must beestablished in the drilling contract if the rig owners

are not the owners of the wells



Barriers Assessment

Identified Barrier – Anything that would discourage adecision to try and implement the project activity

• Lack of availability of enough electricity would stopthe project. This would include:

• If diesel price/kWh goes below high-line kWh price + GHGreduction credit value

• If the high-line was too far from the rig drilling site

• If the high-line was close but the local demand was toolarge to prevent brown-outs if the rig was put on line.



Other Benefits

• Other Benefits:

• Reduction in noise pollution

• Reduction in maintenance cost for the drilling contractors

• Improvement in efficient operation of the drilling rigs

• Reduction of truck traffic, dust from roads, damage toroads, safety issues, etc.

• Potential Adverse Effects:

• Increase in installation costs for the conversion• Increase of electricity demand from the high-line (see

Barriers Assessment).



Drilling Rig Site Diagram

Genset 1

Genset 2

Genset 3

Rig

Diesel FuelTank

Baseline:Diesel Fuel

Boiler

FluidProcessing

High-line Electricity

Transformer

Project: High-line Electricity

= High-line electricity demand meter from grid

MobileEquipment



Summary of Baseline and Project Conditions

Baseline Project

Genset 1F E

Genset 2

F E

F = Diesel fuel flowrate meter in L/sE = Electricity output meter in kW

Rig

Establish Rig Fuel Switch Curve

• relationship of diesel fuel flowrateconsumed versus kW electricityoutput from each genset. Addoutputs and flowrates to get Rigflowrate/output relationship.

Transformer anddisconnect switch

G

Rig

Disconnect the gensets and supplyelectricity from the high-line

• Measure instantaneous kWelectricity demand

H-L = High-line G = High-line electricity demand from grid meter in kW(Continuous metering)

H-L

The high-line kW demand has high-line GHG emissions. For theequivalent kW demand, the electricity could have come from thediesel gensets. The avoided diesel flowrate (and GHG combustionemissions) are calculated from the rig Fuel Switch Curve equation.Emission Reduction = (Diesel combustion emissions avoided –

grid emissions)



Baseline Condition

• Business-as-usual is trucking diesel fuel to the wellsites and

burning the diesel to generate electricity to operate the rig• Current diesel usage is established by daily tank level

measurement without the corresponding kW outputmeasurement. Real-time measurement and digital recordingof data is not installed. Diesel usage onsite from this tank alsoincludes fuel for equipment other than the gensets.

• The Baseline condition is determined by testing the diesel-fuelled gensets for the relationship between fuel flowrate andinstantaneous kW demand over the operating range of thegenset from idle to full power.

• Establishing the rig fuel switch curve is not current standardindustry practice.

• The quantification is “comparison-based”

• Baseline adoption rate = about 15% (28) of drilling rigs inAlberta



Project Condition

• The Project condition is the supply of thedrilling rig electricity through a high-lineconnection

• High-line electricity emissions factor is taken

into account:• Alberta grid average is published annually by the federal

government, with the 2008 value calculated to be 0.88tCO2e/MWh[1]

• There is continuous metering and digitalrecording of instantaneous power demand.

[1] Environment Canada, Electricity Intensity Tables, Alberta.



Flexibility mechanisms

1. A rig may begin operation immediately on the high-

line. The relationship between diesel flowrate andpower demand is established by testing the gensetand this test can be done at any time

2. The Protocol provides examples using the Albertagrid electricity greenhouse gas factor as the basis

for estimating CO2e reductions due to high-line

power conversion. The project proponent may use

a different greenhouse gas factor if it can be justified to and approved by AENV.



Methodology

Assumptions:

• All of the diesel fuel to the gensets is burned forpower generation. No other use of diesel fuel isincluded.

• The changes in emissions from the diesel deliveryand storage are not included in the baseline GHGemissions calculations to enhance conservativeness

Mandatory Requirements:

• A metering/logging system that measures theinstantaneous diesel flowrate and correspondinggenset electricity kW output with data continuouslyrecorded over the operating range of the gensets.



Quantification ApproachesTest gensets = EmissionsBaseline

Measure High-line demand = EmissionsProject High-line

Measure High-line demand to get avoided diesel usage = EmissionsProject Genset

• EmissionsProject Genset requires the calculation of a RigFlow Switch Curve equation relating kW demand

from the gensets on the rig to the fuel flowrate used

to run the genset engines

• kW demand from the high-line is measured and thehigh-line GHG emission factor used to determine theEmissionsProject High-line

Emission Reduction = Emissions Project Genset – Emissions Project High-line



Quantification Procedures

Quantification focused on the following approaches:

1. Testing the each diesel-electric genset of a rig to get data toconstruct a Rig Fuel Switch Curve Equation:

a) Measure the equivalent diesel flowrate of each genset with respect to thekW electric output of each genset

b) Combine all gensets of a rig to build a Rig Fuel Switch Curve

2. Meter the high-line electricity consumed during project condition andfor each measurement interval, use the With Rig Fuel Switch CurveEquation to calculate the equivalent flowrate of diesel fuels saved bythe conversion:

• The GHG reduction is the difference in emissions between the twoconditions

Genset 1

Fuel In Meter (L/s) Electricity Output Meter (kW)

RigGenset 2

Fuel In Meter (L/s) Electricity Output Meter (kW)



Verifiability - Data Management & Records

• What is required for

verification?• Sufficient numbers of recorded

data pairs from measurement of diesel fuel flowrate and genset kWoutput from each genset to providean accurate plot and matchedcurve line and equation over theoperating range for each genset, to

allow the data addition to producea Rig Flow Switch Curve andEquation

• Metered and recorded kW demandduring high-line operation

• A spreadsheet or databasecalculation of the polynomial

equations, and the resulting GHGemissions for each mode and thedifference in emissions over achosen operating duration

DataRequired

Source Frequency

kW electricity Demandmeters

Continuousmetering

Liters persecond of diesel fuelsused inbaseline test

Fuel meters Continuousmetering



Sample Calculation – Baseline Condition

The greenhouse gas emissions intensity for

combustion of diesel fuel in stationary engines is(per CAPP and EPA, AP-42):

3

2

3

4

3

2

3

2

3

4

3

2

3

2

/808.221/00014.0310/0004.01/681.2

/00014.0/0004.0/681.2422

metCOmtCH mOtN mtCO

GWP mtCH GWP mOtN GWP mtCOCH O N CO



Sample Calculation – Diesel Fuel Avoided

Rig Fuel Switch Curve Example:

• The drilling rigs in the TechnicalSeed Document example areassumed to have 3 identicalgensets (Caterpillar 3412)

• The data shown in the table isbased on data from shoptesting of each engine and anassumed generator efficiency of 92%.

Engine Power Fuel Rate

kW electric L/s

137.1 0.016237

205.6 0.021108

274.2 0.026443

342.7 0.030927

411.2 0.036185

479.8 0.040592




Rig Fuel Switch Curve:

• (left) individual genset fuel switch curve

• (right) rig fuel switch curve (combined 3 gensets)

• Can be “stamped” on specific drilling rig and allow the projectdevelopers to use the curve to claim the “avoided emissions”




Rig Fuel Switch Curve Equation:

• Time and high-line demand (kW) are recorded• The genset fuel not burned at each of the kW demands at set

intervals is then calculated using the curve fitted polynomialequation. At Time 1:

Rig Fuel Rate (L/s) = 3.33 x 10-9 x Demand(kW)2 + 7.765 x 10-5 x Demand(kW) + 1.716 x 10-2

= 3.33 x 10-9 x (1350 kW)2 + 7.765 x 10-5 x 1350 kW + 1.716 x 10-2

= 0.12806 L/s

Time High-Line

Demand

High-Line Consumption Fuel Not-burned per Rig Fuel Switch Curve at the

High Line Demand Shown

second kW kWh Liters/second

1 1,350 0.375 0.12806

2 900 0.25 0.08974

3 240 0.067 0.03599

4 1,380 0.383 0.13066

5 1,290 0.358 0.12287

6 1,320 0.367 0.12546



Sample Calculation – GHG Emissions

Project Baseline Condition:

GHGProject genset = [(0.12806 L/s x 1 sec) + (0.08974 L/s x 1 sec) + (0.03599 L/s x 1sec) + (0.13066 L/s x 1 sec) + (0.12287 L/s x 1 sec) + (0.12546 L/s x 1 sec)] x1 m3 /1000 L x 2.808 tCO2e/m3 = 0.00178 tCO2e

Project Condition:

GHGProject High-line = [(1350 kW x 1s/3600s/h) + (900 kW x 1s/3600s/h) + (240 kW x1s/3600s/h) + (1380 kW x 1s/3600s/h) + (1290 kW x 1s/3600s/h) + (1320 kW

x 1s/3600s/h)] x 1 MWh/1000 kWh x 0.88 tCO2e/MWh = 0.00158 tCO2e

Therefore, the GHG emissions reduction over the 6 seconds duration is:

ΔGHG = GHGProject genset - GHGProject High-line = 0.00020 tCO2e

3

2

3

Pr /808.21000/1)/( metCO Lmdt s L Rate Fuel Avoided GHG genset oject

MWhetCOkWh MWhhoursdt kW wer HighLinePoGHG line Highoject /88.01000/1)()( 2Pr



Sample Calculation

(t CO2e / 6 sec)

Baseline

B 6 Electricity Supplied by

Diesel-Fuelled Generator

0.00178

Σ

Emissions Baseline 0.00178

ProjectP 6 Electricity from Grid 0.00158

Σ Emissions Project 0.00158

Net GHG Reduction = Baseline –

Project

0.00020

Assuming 250 days of drilling operations per year(24/7), the rig can reduce GHG emissions by 720tCO2e/year.

Based on Rig Fuel Switch Curve Equation over 6

seconds:



Offset Potential

• Canadian Association of Oilwell Drilling Contractors

(CAODC) (46816 drillings days in 2009)

• If the rigs would have been connected to high-line,assuming that 15% of the rigs have been converted todiesel gensets and half of them had access to high-line

electricity, these rigs operating in 2009 could have reducedemissions by almost 3,200 tCO2e.

• Further GHG reduction may be achieved if theelectricity comes from renewable sources

• For the same assumptions noted above, the GHGreductions could have been almost 45,300 tCO2e in 2009 if emissions factor is zero.



Any Questions?



Additional Information

Site Diagram for the Baseline and Project Conditions

Genset 1

Genset 2

Genset 3

Rig

Diesel FuelTank

Baseline:Diesel Fuel

Boiler

FluidProcessing

High-line Electricity

Transformer

Project: High-line Electricity

= High-line electricity demand meter from grid

MobileEquipment




Process Flow Diagram for the Project Baseline

B 2

Fluid Production/

Extraction from Wells

B 3

On-Site Processing of

Produced Fluid

B 6

Electricity Supplied

by Diesel Fueled

Generator to the

Drilling Rig

B 4

Downstream Fluid

Transportation

B 5

Downstream Fluid

Processing

B 1

Drilling Operations –

Diesel-Electric Drilling Rigs

B 12

Equipment

Manufacture

B 16

Transportation of

Equipment

B 10

Construction on Site

B 17

Testing of

Equipment

B 18

Well Site Rig Release

B 11

Development of

Site

B 8

Diesel Storage

B 9

Auxiliary Diesel Use

B 7

Diesel Delivery B 15

Fossil Fuel Refining B 14

Fossil Fuel

Extraction

B 13

Equipment

Assembly




Baseline Sources and Sinks

Upstream SS’s During Project

Upstream SS’s Before

Project On Site SS’s During Project

Downstream SS’s After

Project

Downstream SS’s During Project

Energy or Material Flow

Legend

Related Source/Sink

Controlled Source/Sink

B 1


Diesel-Electric Drilling Rigs

B 6

Electricity

Supplied by

Diesel-Fuelled

Generator to the

Drilling Rig

B 4

Downstream Fluid

Transportation

B 5

Downstream

Fluid Processing

B 2

Fluid Production/


B 3


Produced Fluid

B 10


B 11

Development of Site

B 12

Equipment Manufacture

B 16

Transportation of Equipment

B 17Testing of Equipment

B 18Well Site

Rig Release

B 7

Liquid Fuel

Delivery

B 8

Diesel Storage B 9

Auxiliary

Diesel Use

B 13

Equipment Assembly

B 15

Fossil Fuel

Refining

B 14

Fossil Fuel

Extraction




Process Flow Diagram for the Project Condition

P 2

Fluid Production/


P 3


Produced Fluid

P 6

Electricity from

High-line to the

Drilling Rig

P 4

Downstream Fluid

Transportation

P 5

Downstream Fluid

Processing

P 1


Electric Drilling Rigs

P 7

Electricity Supplied by Diesel-

Fueled Generator to the Drilling Rig

P 17

Transportation of

Equipment

P 11


P 18

Testing of

Equipment

P 13

Equipment

Manufacture

P 19

Well Site

Rig Release

P 12

Development of

Site

P 9

Diesel Storage P 10

Auxiliary Diesel Use

P 8

Diesel Delivery

P 16

Fossil Fuel Refining

P 15

Fossil Fuel

Extraction

P 14

Equipment

Assembly

P 20

Electricity Generation –

various sources – coal-

fired; hydroelectric, gas

fired, wind, solar,

geothermal, nuclear, co-

gen, etc.




Baseline Sources and Sinks

Upstream SS’s During Project

Upstream SS’s Before

Project On Site SS’s During Project

Downstream SS’s After

Project

Downstream SS’s During Project

Energy or Material Flow

Legend

Related Source/Sink

Controlled Source/Sink

P 4

Downstream

Fluid

Transportation

P 5

Downstream

Fluid

Processing

P 2

Fluid Production/


P 3


Produced Fluid

P 1


Electric Drilling Rigs

P 6

Electricity from

High-line to the

Drilling rig

P 7

Electricity Supplied by

Diesel-Fueled Generator

P 11


P 12

Development of Site

P 13

Equipment Manufacture

P 17

Transportation of Equipment

P 18

Testing of Equipment

P 19Well Site

Rig Release

P 8

Liquid Fuel

Delivery

P 9

Diesel

Storage

P 10

Auxiliary

Diesel Use

P 14

Equipment Assembly

P 16

Fossil Fuel

Refining

P 15

Fossil Fuel

Extraction

P 20Electricity Generation – various

sources – coal-fired; hydroelectric, gas

fired, wind, solar, geothermal, nuclear,

co-gen, etc.

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