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Shale Gas exploration and development: An operator’s perspective
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Shale Gas exploration and development: An operator’s perspectiveCanadian Shale Gas Workshop- BrusselsAndrew Quarles – General Manager Europe Unconventional
22 Jan 2013
2
Summary
• Who is Nexen?
• Shale Gas exploration and development: a lengthy and uncertain endeavor• Not all shale gas plays are the same
• Timing and cost
• Shale Gas Operators can and need to be good neighbors• What does development look like?
• An example of community engagement
• Environmental stewardship
3
Nexen Overview
• Headquartered in Calgary, Canada
• 3,800 employees in 7 countries
• 185,000 – 220,000 boe/d production in 2012
• $30 to $46 /boe netbacks
• $2.8 - $3.2 billion in cash flow
• 28 exploration wells planned for 2012
• 10 billion boe of resource to develop
85% OIL
15% GAS
4
Nexen’s Global Portfolio
CanadaOil sands SAGDShale gas
Gulf of MexicoOffshore deep water
ColombiaConventional oilShale gas
NigeriaOffshore deep water
UK North SeaOffshore2nd largest producer
PolandProspective Shale gas
YemenConventional +20 years
Nexen’s Canadian Shale Gas Experience
____________________Resource Potential Estimate Source: Wood Mackenzie.
SAN JOAQUINBASIN
McClure
SANTA MARIABASIN
Monterey
UINTABASINBaxter
MancosPICEANCE
BASIN
PARADOXBASIN
Cane Creek
SAN JUANBASIN
MancosLewis BLACK WARRIOR BASIN
FloydConasuaga
Neal
BIG HORNBASINMowry
WILLISTONBASINBakken
BRITISH COLUMBIA/ALBERTAMontney
MICHIGANBASINAntrim
DELAWARE BASINBarnett
Woodford
BRITISH COLUMBIAHorn River
Muskwa
ARKOMA/ARDMORE BASINFayettevilleWoodford
Caney
Utica
Potential LNG Facility
North American Unconventional Resource Plays
Marcellus Shale: 197 Tcfe
Haynesville Shale: 140 TcfeEagle Ford Shale: 10 Tcfe
Barnett Shale: 61 Tcfe
Fayetteville Shale: 26 Tcfe
Montney: 55 Tcfe
NEBC Shales (Horn River: 104 Tcfe)
APPALACHIANBASIN
MarcellusHuron
Horn River Basin: Top Quartile Shale Play in North America
Third largest resource play in North America
500 net foot interval
High silica content shale is very brittle and fracable
Attractive tax regime and royalty structure
Competitive resource recovery (EUR) with 6 – 15 Bcf wells
Viable North American LNG export option
Woodford Shale: 12 Tcfe
Nexen NEBC Basin Acreage: ~300,000 gross acres
Not All Shale Gas Plays Are The Same
• There are a wide variety of shale plays. Less than half are economic
• The expensive and time consuming challenge to determine where one is located on this spectrum
Lengthy Process to Explore and Appraise
• A stepwise semi-decadal approach through exploration and appraisal… • Resource- defining and characterizing a viable play concept; • Flow rate– cracking the nut leading to cost effective reservoir productivity;• Commercial- demonstrate that gas can be produced cost effectively through
pilot programs
30+
How to get the most gas usingthe least frac water & proppant ? How to get the most gas usingthe least frac water & proppant ?
What to put on the books ?What to put on the books ?
Deliverability and EUR for each well ?Deliverability and EUR for each well ?
How important are naturalFractures ?How important are naturalFractures ?
How many frac stages & how far apart ?How many frac stages & how far apart ?
Where should laterals be placed ?Where should laterals be placed ?
What is the best well spacing,length & orientation ?What is the best well spacing,length & orientation ?
Best flowback practices to enhance performance ?Best flowback practices to enhance performance ?
Planar bi-wingor complex fracs ?Planar bi-wingor complex fracs ?
Is there a sweet spotin the reservoir ?Is there a sweet spotin the reservoir ?
The Shale Gas Development Challenge: Above and Below the Surface
How much infrastructure and when to expand ?How much infrastructure and when to expand ?
Market contracts and takeaway capacity ?Market contracts and takeaway capacity ?
How to reliably assess to services?How to reliably assess to services?
How much free & absorbed gas ?How much free & absorbed gas ?
How much is it going to cost ?How much is it going to cost ?
Shale Gas Operations are not “Get Rich Quick”
• Significant upfront investment for exploration and appraisal
• Stable long term cashflow with “manufacturing style” development investments
• Long payout periods with a cashflow that is sensitive to discounting
AN
NU
AL
CA
SH
FL
OW
/ C
AP
ITA
L ($
Bill
ion
) -
BA
RS
CU
MU
LA
TIV
E N
ET
CA
SH
FL
OW
($B
illion
) - LIN
E
(0.6)
(0.4)
(0.2)
-
0.2
0.4
0.6
0.8
1.0
1.2
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
(3.75)
(2.50)
(1.25)
-
1.25
2.50
3.75
5.00
6.25
7.50
Cash Flow Capital Cumulative CF
Manufacturing Style Development
Explore and Appraise
Representative Cash Flow of a Successful Shale Gas Project
Multi-Well Pad Design Minimizes Impact
• Minimize surface footprint (5%) – environment and cost benefits
• Optimize well placement – stratigraphic placement
• Optimize wells spatiallyto maximize recovery
10
3-5 Square miles of reservoir developed from a single drilling pad
Central Well Pad: 880‘ x 575‘
Footprint Management: Drilling C-1-J Pad, NE BC
MARCH 2011
N
Footprint Management: Completions C-1-J Pad, NE BC
JULY 2011
N
Footprint Management: Production Phase Reclamation
AUG 2012
N
Stakeholder Engagement
Stakeholders• First Nations• Regulators• Local, Regional, & Provincial Gov.• Industry Peers
14
Stakeholder Concerns
Environmental Impacts• Surface & Grd. Water, Wildlife &
Species @ Risk, Footprint Mgmt
Social Interests• Infrastructure Capacity, Treaty Rights
Economic Opportunities• Local Employment and Services
Through the Identification of stakeholders and understanding key concerns, we are able to effectively focus our engagement efforts towards facilitating meaningful discussion and open transparency.
Engagement Activities
Ensuring a Positive Local Economic Impact
0%
10%
20%
30%
40%
50%
60%
70%
80%
2008 2009 2010 2011
Outside BC
Other BC
Fort Nelson
Contracted Vendors in NEBC for SG Development
16
Multi-year regional caribou inventory with First Nation participation
100 11485
749
293
407
129
581
49
246
172
15976
1843
124
Managing Environmental Impacts
Nexen’s leadership with governance structure for implementing BC Research and Management of Boreal Caribou (Spp @ Risk)
Regional Wildlife Research – Collaboration
Footprint Management: Production Phase Reclamation
AUG 2012
N
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