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Learning to Win in Unconventionals
Who we are
• Integrated energy company – Exploration, production, refining,
retail, trading, energy marketing, LNG
• No. 261 on the Global Fortune 500 in 2011
• ~$34 billion in revenue in 2010
• 14,000 employees worldwide
• E&P activity in 22 countries
• 2010 average production in excess of 420,000 Boe/d
• End-2010 proved reserves in excess of 1.5 billion Boe
• Marketing - Strong position selling petroleum products worldwide, gas and electricity on US East Coast
• Refineries - Port Reading in New Jersey and, in a joint venture with the Venezuelan state company PDVSA, at St Croix in the US Virgin Islands
Our History of Independence
Shenzi first oil
Bakken sanction
4
Global Production Portfolio
Bakken
Seminole
Okume / Ceiba
Waha GEA
Schiehallion Valhall
Beryl
Samara-Nafta
ACG
Sinphuhorm
JDA Natuna A
Conger
South Arne
Pangkah 2010 Production, Mboe/d
US Europe Africa Asia/Other Total
Liquids 89 91 113 14 307
Gas 18 22 - 71 112
Total 107 113 113 85 418
Pailin
Shenzi
Llano
5
250
300
350
400
450
2005 2006 2007 2008 2009 2010
800
1000
1200
1400
1600
2005 2006 2007 2008 2009 2010
Strong Track Record of Growth
Proved Reserves MMBOE
+7% CAGR
Production MBOED
+5% CAGR
Important Part of US Oil Supply
SOURCE : Hess estimates
Bakken (US)
Other tight oil & shale gas liquids
11%
US Unconventional Liquids Production Million barrels per day
40%
Share of onshore US liquids production
7
Growing Unconventional Portfolio
Eagle Ford Shale • >100,000 net acres • 3 rig program
Paris Basin • ~340,000 net acres • Plan 6 wells in 2012
Utica Shale • ~185,000 net acres • Plan 3 rig program in 2012
China • Two JSA’s with Sinopec • 1.7 MM acre study area
Beetaloo Basin • >6.2 MM gross acres • Seismic underway
Bakken Shale • ~900,000 net acres •16 rig program
8
North Dakota Bakken Shale
•Hess ~67% W.I., operator •~900,000 net acres •16 rig program •Expanding advantaged
infrastructure •Lean manufacturing •Attractive economics
MBOED
0
20
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015
+50% CAGR
Capa
Beaver Lodge
Tioga
Hawkeye
Blue Buttes
Antelope
Red Sky
Impact
Passport
Stampede
East Nesson
Canada
Avalanche
Tioga Gas Plant
z Nesson Anticline
Russian Creek
Little Knife
Murphy Creek
30 Miles
West Nesson
Goliath Stony Creek
Buffalo Wallow
9
Unconventionals Require Different KPIs…
• Relatively few wells
• Complex geology and reservoir with variation across the field
• High volume production per well with relatively flat production curves
Unconventional Resource Conventional Resource
• Higher number of wells
• Less geological and reservoir complexity/ variation
• Lower volumes per well with peak IPs quickly tapering to steady state production
Keys to Success in Unconventionals
• Speed of execution
• Parallel processes
• Standardization
• Continuous improvement
• Balanced workflow and pull
• Replication of manufacturing approach across plays
© 2011 Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
A New Operating “model”…
10
Organization
• Functional structure is not well aligned to unconventional development and execution processes
• Often, lack of defined roles and responsibilities
Process and Planning
• Requires creation of standard processes
• Adopt formal mechanisms to share institutional knowledge and learnings
• Shift focus from capital planning to continuous process
• Focus on learning / improvement objectives
Performance Management
• Requires re-alignment of performance contracts and metrics with KPIs for new processes and planning
• New metrics require buy-in across the organization on their definition and review process
Operational
• Embrace a factory concept of repeatable, predictable processes -- to ensure efficient execution
• Drive accountability and compliance for consistency, efficiency and effectiveness
© 2011 Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
11
2011 Unconventionals Roadmap
OptimiseOptimise
• Operations Effectiveness • Manage NOJV • Infill Strategy • Frac Stages • Orientation • Re-fracs • Duals
• Multi-well Pads • Fully Automated • Remote monitoring • Optimised Spacing
• Single Lateral • Simple, Low Mechanical Risk • Drill best wells • Simple Surface Kit • Some Trucked Production • Build Infrastructure • Manage NOJV
Bakken Strategy Adjustments Support Growth…
12
“Play the Thick” • Leased 100k acres in East Nesson • Mimic Elm Coulee single stage frac’s • Success in good rock; but not tighter rock
“Chase the Play East” • Acquired 200k acres Red Sky; Stampede; Avalanche • Implemented 10 stage frac’s • Refine IP/EUR models
“Take Multi-Year Approach” • ‘Mow-it-Down’ • Sanctioned 5 year; $5B project • Recognized need to continue growing acreage • Committed to build infrastructure; play mid-stream
“Make Strategic Acquisitions” • Acquire AOG and Tracker
Two Phase Strategy Developed • Hold by Production (HBP) • Re-set strategy to hold new acreage • Field test optimal well designs
2005 2006 2007 2008 2009 2010 2011 2012
Unconventional Basins Screening Methodology
• Organic Storage
• Inorganic Storage
• Fracability
• Fluid Mobility
• Reservoir Pressure
• Fluid Quality
• Structural Complexity
• Drilling Depth
Inorganic Matrix Storage
Inorganic Matrix Storage
Pore Throats 4 - 50 nm
(Oil molecules 0.5 - 3 nm) Pore Throats 4 - 7000 nm
Lower Maturity – fluid GOR 300-2900 cf/bbl
Higher Maturity – fluid GOR 800-8800 cf/bbl
High Maturity – gas condensate to dry gas
Organic Matrix Storage
Storage mechanisms
Classification of Unconventional Reservoirs
Producing in Williston Basin for 60 Years
• Conventional Production Gas and oil zones Primary and waterflood
• Bakken Unconventional
Project Since 2004, intense high
activity Applying best-in class
technology
• Well established infrastructure Gathering and trunk lines Trucking Facility
Resource Description: Middle Bakken
Item Bakken
Depth (ft) 10,000
Porosity (%) 6
Water saturation (%) 38
oil gravity 42
Permeability (mD) 0.05 – 0.001
Net Pay (ft) 50 ft
OIP/ 1280 acres (MMSTB) 10
Upper Bakken Shale
Facies 6
Facies 1-5
Lower Bakken Shale
Three Forks
Facies 7
Lodgepole
Middle Bakken
Resource Description : Middle Bakken
• MB-7:variable calcareous, variably silty dolomites (XRD>50% carbonate); abrupt transition from a siliciclastic – dominated system to a carbonate-dominated system indicates a significant sealevel turnaround (basin deepening or sealevel increase)
• MB-6:coarsest material (fossiliferous sandstones to sandy skeletal/peloidal/ooid grainstones composed of very fine – to medium-grained sand, and diverse skeletal grains and allochems), and marks a maximum sealevel lowstand
• MB-1 through MB-5: predominantly calcareous to fully dolomitic siltstones (XRD>50% detrital quartz silt, +feldspars), representing a prograding, shallowing upward siliciclastic system
Upper Bakken Shale
Lower Bakken Shale
Middle Bakken
Key Reservoir Data Reservoir & Fluid Properties
• Permeability: 0.0001 – 1 md • Initial Pressure: 5,000 – 8,000 psig (34.5-55.2MPa) • Bubble Point: 1,800 – 3,300 psig ( 12.22-22.4MPa) • Formation Volume Factor: 1.4 – 1.8 RB/STB • Solution GOR: 500 – 1400 scf/STB • 0.82 SG Oil (Viscosity = 0.15- 0.45 cP @ Reservoir Conditions) • Compressibility: 10 - 20 x 106 psi-1
1020
10225
10250
10275
10300
10325
10350
10375
10400
10425
10450
10475
10500
MD 0.00 900.00GR_EDTC 0.00 15.00YME_DYN_HORZ
0.00 15.00YME_DYN_VERT
0.00 0.50PR_DYN_VERT
0.00 0.50PR_DYN_HORZ
0.50 1.00TXSG_ANI2
Upper Bakken
iddle Bakken
ower Bakken
Three Forks
9975
10000
10025
10050
10075
10100
10125
10150
10175
10200
10225
10250
0275
MD 0.00 900.00GR_EDTC 0.00 15.00YME_DYN_HORZ
0.00 15.00YME_DYN_VERT
0.00 0.50PR_DYN_VERT
0.00 0.50PR_DYN_HORZ
0.50 1.00TXSG_ANI2
Upper Bakken
iddle Bakken
ower Bakken
Three Forks
1065
10675
10700
10725
10750
10775
10800
10825
10850
10875
10900
10925
10950
MD 0.00 900.00GR_EDTC 0.00 15.00YME_DYN_HORZ
0.00 15.00YME_DYN_VERT
0.00 0.50PR_DYN_VERT
0.00 0.50PR_DYN_HORZ
0.50 1.00TXSG_ANI2
Upper Bakken
iddle Bakken
ower Bakken
Three Forks
10775
10800
10825
10850
10875
10900
10925
10950
10975
11000
11025
(11050
)
MD 0.00 900.00GR_EDTC 0.00 15.00YME_DYN_HORZ
0.00 15.00YME_DYN_VERT
0.00 0.50PR_DYN_VERT
0.00 0.50PR_DYN_HORZ
0.50 1.00TXSG_ANI2
Upper Bakken
iddle Bakken
ower Bakken
Three Forks
Simulation Projects
Objectives • Confirm presence of
natural fractures, estimate fracture permeability
• Determine drainage areas of wells and interference effects
• Determine effective contributing well length
• Degradation of hydraulic fractures
• Infill-drilling strategy
• Uplift of increased frac stages
Microseismic
This seismic attribute is the dip on the reservoir. The well log shown for the northern well is an anisotropy log which may detect fractured zones. The maximum anisotropy coincides with the maximum dip. Squares are the locations of fracturing events during a hydraulic frac.
Red Sky 3-D seismic Calibration
Anisotropy Map
Multi-Well Pads and Stacked Dual Laterals
Multi-well Pad Objectives
Drill and complete six dual lateral (3F/MB) wells on a single drilling pad
Execute safely with no incidents, injuries, or spills
Conduct simultaneous operations Frac and/or produce adjacent wells while drilling
Use Lean tools to develop multi-well procedures
Implement Lean Production Control to ensure safe, on-time execution
Understanding the Bakken Cost Structure
Though a very high-tech play, the Bakken also benefits from a “Manufacturing Mind-set”:
• Minimize upfront Capex costs:
Lean/Six Sigma - Transparent, efficient work-flows (Standardized Work flows, etc.)
Robust, simple designs of drilling, completion and production equipment (Standardized Designs, etc.)
Long-term, performance-based relationships with key suppliers
• Minimize Life of Project Operating costs:
Production Excellence - “Early Equipment Management” maximize reliability and minimize catastrophic failure
Exception Based Surveillance – “The Virtual Oilfield” Leverage manpower and minimize negative effects of distances
847739
693671
617607607
587582577575
556552
539526
492477
429424
390386
374314
185
Hess
Hess at best class in Drilling
Feet drilled per day (2009 average) Hess 2005 avg. Hess 2007 avg.
Source: North Dakota Industrial Commission, Oil & Gas Division
20
22
24
26
28
30
32
34
3Q08 4Q08 1Q09 2Q09
Hess Drilling Days (Spud to TD)
26
Evolution of Well Design
Cased hole Wireline set packers and perforating guns Sequentially set packers and perforate over
each interval
27
Horizontal Well Plug and Perf Completion
Multi-stage system was initiated in 2Q 2008 Frac pumped down 4.5" frac string 5k # 100 mesh sand & 150k # ISP or sand per stage Proppant concentration ramped up from 0.5 to 6 ppa Max. surface treating press. = 8,000 psi @ 30 to 40 bpm
Multistage Frac with Sliding Sleeves
Increasing the number of stages
NPV Analysis
14
15
16
17
18
19
20
21
22
0 20 40 60 80
No of Fracs
NPV
(MM$
)
NPV f
Number of Stages Improvements made Timeline
10Frac ball material. Openhole packer technology using hydraulic set and swell packer.
2008
18Expanable collapsible frac sleeve. 1/8 increment ball and seat with 8K differential rating.
2009
22 Double barrel ball seat. 2009
22+Wireless e-technology. Activating multi-sleeve with one-ball system
2010
Current Well Design
Current multi-lateral / stacked dual-lateral wellbore diagram
Shown as an 22-stage completion system
Moving to a 38-stage completion system
29
Bakken Lateral
Three Forks Lateral
Multi-Well Pad
Drill Site During Production
30
Groundwater protected by steel casing strings held in place with cement
Mechanical Configuration
31
In fracture stimulating the Middle Bakken a completion liner (4 1/2") with oil swellable casing external elements for stage isolation is utilized.
Preparing for Fracturing
Trucks loading water into frac tanks
~ 20,000 Barrels of Water Per Frac
32
Bakken Well Performance Improvement
Single Lateral Performance
Bakken Well Performance Improvement
Production Comparison - SOR
0
200
400
600
800
1000
1200
30 Day 60 Day 90 Day 180 Day 365 Day
BO
PD
18 Stage 10 Stage Scour Frac
How to succeed Unconventional project
Suitable Leading Technology + Manufacturing Mind-set
36
Successful Unconventional Project
•Hess ~67% W.I., operator •~900,000 net acres •16 rig program •Expanding advantaged
infrastructure •Lean manufacturing •Attractive economics
MBOED
0
20
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015
+50% CAGR
Capa
Beaver Lodge
Tioga
Hawkeye
Blue Buttes
Antelope
Red Sky
Impact
Passport
Stampede
East Nesson
Canada
Avalanche
Tioga Gas Plant
z Nesson Anticline
Russian Creek
Little Knife
Murphy Creek
30 Miles
West Nesson
Goliath Stony Creek
Buffalo Wallow