Moin_raza_khan Unconventional or Tight Gas Development Challenges and Pricing Issues

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Unconventional/Tight Gas DevelopmentChallenges and Pricing Issues

PIP - Pakistan Energy Conference 2011

April 10 – 12, 2011

Serena Hotel, Islamabad

Moin Raza Khan General Manager Exploration

Dr. Fareed Siddiqui Senior Manager Reservoir Engineering

Saqib Ahmed Chief Accountant

TALK OUTLINE

Global Energy Overview

Energy Resources Overview - Pakistan

Unconventional Reservoirs? - Resource Potential

Unconventional Reservoirs - Development Challenges

Pricing Issues vis-à-vis Risk, Uncertainty and Cost of Exploration and Development

Conclusions and Recommendations

Future prediction By year 2030……

By year 2030 totaldemand to be about 100million barrels oil per day

The global energy mixwill look very similar

Resources are adequateto support global demandgrowth. Access alongwith Technology areimportant in all aspects

of our energy challenges

Still considered thesafest resource, vizrecent nuclear disaster inJapan

Source: Exxon Mobil Corporation – 2009 Summary Annual Report

MMboed

Energy Resources Overview - Pakistan

Country’s Exploration & Production

Hydrocarbon Potential vs. Exploration Total Sedimentary Area = 827,268 Sq. km.

Area under Exploration = 279,618 Sq. km. (34%)

Reserves Prognosticated Discovered

Oil (Billion barrels) 40 1

Gas (Trillion Cu. ft.) 200 54

Wells Drilled:Exploratory (Success Ratio: 1:3.3) 776Discoveries 238

Development and Appraisal 1,048

Average 22 wells per 10,000 Sq. Km. against world average of 100 wells

Oil and Gas Reserves / Production:Product Reserves Production R/P RatioGas 27.59 Tcf 4,208 mmcfd 18.9Oil 306 MMBBL 68,298 bpd 12.9

PPL’s share in Country’s Production: Gas 24%

Oil /NGL/Condensate 09%

Pakistan World

Drilling Density and Success Rate

Drilling Density Success Rate

659 mmbbl

306 mmbbl

Crude Oil Reserves January 2011

Cumulative Production Balance Recoverable

26.40 Tcf

27.60 Tcf

Natural Gas Reserves January2011

Cumulative Production Balance Recoverable

Pakistan - Future Energy Demand Supply Deficit

Coal lmports

(demand)

(local)

88.5(supply)

Nuclear

Local Coal

Projected indigenous gas supply

(Source: Ministry of Petroleum)

Projected naturalgas demand at

4.5% GDPgrowth

(2.5 bcfd)(8 bcfd)

Source: PIP – Energy Outlook April 2011

Unconventional Reservoirs (UCR)?Resource Potential

"Future energy resources of the World, particularly gas, will be found in

what we consider today to be unconventional reservoirs. These are not, in

fact, undiscovered resources, since their occurrences are fairly well-known.

However, we do not have adequate geologic data to evaluate the

contribution such reservoirs will make to the World’s energy endowment in

the future.”

(USGS)

Why go for unconventional reservoirs......

Resource Triangle

Unconventional Hydrocarbon Resources

Unconventional resources are

o Difficult to develop with available technologyo Expensive to produce

Unconventional hydrocarbon resources include

o Tight Gas (TG) Sand Reservoirs (in situ permeability of less than 0.1 mD and porosity about 10%)

o Shale gas

o Coal bed Methane

o Deep gas

o Methane hydrates

o Tar sands and Oil

shales

Basin-centered Gas

Permeable Ssreservoir

Tight gasplay

Pervasiveprolific source

Region Coalbed Methane(Tcf)

Shale Gas(Tcf)

Tight Sand Gas(Tcf)

Total(Tcf)

World 9,051 16,112 7,406 32,560

Total Unconventional Gas in Pakistan

Total Known Tight Gas:~34 Tcf

Prognosticated ShaleGas in-place Reserves :65 Tcf

Preliminary Analysis

A Shale Gasassessment study isunderway

Reservoir Management Challenges

In-place and Reserves Estimation - Difficult to Estimate

Specialized Logging, Reservoir Engineering ConceptsModification required for low rate production, lowpermeability reservoirs

Sharp Decline in Well Productivity

~70% decline in the first year Long Production Tail

Reserves highly sensitive to price because of highCapex/Opex

Limited per well Drainage Area

Per well recovery limited to well drainage area

10-20 acre well spacing as compared to 160 acre for Conventional reservoirs

How to Initiate UCR Projects

Operator Identify and analyze TGR development project

Define pilot project

Submit development concept to authorities

E&P Service Contractor

Offer latest technologies and equipment,

Experienced people,

Discount for TGR campaign

Government authorities

Provide incentives to the industry for TGR developments

Specialized Development Strategies –

From Technical Success to Commercial Success

Evaluate and Plan Develop Resource Maps

Core and Core analysis

Logging and Testing

Exploration/Exploitation Plan

Select Pilot Area

Pilot well – Confirm Drilling and Completion Strategy

Optimize

More than one Pilot may be required for differentsections of the same Resource

Develop

Modular Development Approach

Similar to Mining Approach

TG Policy The tight gas policy announced by GoP in 2010 provides the

stepping stone for Pakistan’s unconventional gas industry. The

policy provides 40% - 50% premium over the 2009 Policy Price.

Tight Gas Price on the Card!

Compared to price of imported petroleum products of aroundUS$ 13 /mmtbu *

* Source: Pakistan Energy Yearbook 2010

40% premium(USD / mmbtu)

50% premium(USD / mmbtu)

PP '09 (Z III) 6.13 6.57

PP '09 (Z II) 6.59 7.06

PP '09 (Z I) 7.04 7.55

Economic Scenario

Input Assumptions Normal BTU Case Medium BTU Case

Gas Initially In Place 750 BCF 750 BCF

Recovery / Shrinkage 59% / 85% 59% / 85%

BTU Factor 920 850

TG Price for Zone II II

Well productivity 5 MMscfd 5 MMscfd

No. of wells 25 25

Production cycle 20 year 20 year

Opex / boe $3.5 $3.5

Capex $421m $511m

Escalation 3.5% 3.5%

Discount Factor 14% 14%

IRR Sensitivities at Different Crude Prices

Results of Economics (2of 3)

18.4920.1

22.43 22.43

15.2 15.2

0 20 40 60 80 100 120 140

Inen ReoRun

Oil Price (US $/Barrel)

Base Case - Medium BTU Value (920) Low BTU Case (850)Normal BTU (920) Medium BTU (850)

NPV Sensitivities with variation in CAPEX & OPEX (@ CrudePrice 75 $/bbl)

Results of Economics (3 of 3)

41.4930.39

-24.7-35.02

-70.00

-20.00

130.00

180.00

Base 10% 15%

Na1% D(UMio

CAPEX + OPEX Sensitivities

Base Case - Medium BTU (920) Low BTU Case (850)ormal BTU (920) Medium BTU (850)

Thanks

& Questions?

Conventional sandstone reservoir

Tight gas sandstone

Tight Gas Reservoir

Gas bearing sandstones and carbonateshaving in-situ permeability to gas of lessthan 1 mD

Many ‘ultra tight’ gas reservoirs may havein-situ permeability down to 0.001 mD

Typically, un-stimulated gas flow rates ina well less than 1 mmscfd

USA: ~ 300 Tcf (Recoverable reserves)

Pakistan: ~ 34 Tcf (Estimated recoverable resource)

The term “Shale Gas” refers to

unconventional, continuous-type, self-sourced resources contained in finegrained organic-rich, low permeabilityclay rich rocks

Shale permeability restricted utilization of a rich resource in the past

Horizontal drilling and Hydraulic fracturingresulted shale gas boom in recent years

Shale gas accounts for major gas supplyin North America – Expected to rise more

USA: ~ 742 Tcf (Recoverable reserves)

Pakistan: Not estimated, could be up to ~65Tcf

What are shale gas?

Basinwise Prognosticated Reserves

of Shale Gas in Pakistan

Prognosticated ShaleGas in-place Reserves :65 Tcf

Preliminary Analysis

PPL-Eni undertakinga joint Shale Gasassessment study for Pakistan

Hydraulic multi-fracture simulationUnder balance Drilling

Coil Tubing

Enhance Perforation

Acid Stimulation

Tight Gas Development Technologies

Drilling for Unconventional Resources requires to leverage on

Fit-for-purpose Rigs, portable, fast moving, multiple workstrings with minimal footprint

Managed pressure-drilling with adaptive fluids

Requires industrialized drilling environment in the country

Development of Unconventional Resources:

Drilling & Production Technology

Production

Sand jet perforation followed by annular coiled tubing (CT) fracture stimulation => excellent

production results in targeted thin-sands

Completion: Fraccing with Microseismic Monitoring technology. Directional frac. Dewatering.

Moin_raza_khan Unconventional or Tight Gas Development Challenges and Pricing Issues

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