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A brief overview of North American Unconventional Gas and Future Trends. A presentation by Don Warlick on October 8, 2009 at the WCLI conference in Santa Barbara, California.
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A Brief Overview of U.S. Unconventional Gas Development – and Future Trends
West Coast Land Institute 27th Annual Conference
Santa Barbara, California – October 8, 2009
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Agenda
1. Unconventional Playbook – a Summary
2. Quick Flyover of the U.S.
3. Gas Demand Near-Term/Long-Term
4. Supply, Largely Driven by Gas Shale Evolution
5. Looking Ahead
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1. Unconventional Playbook – a Summary
Well planned early-stage geoscience and leasing are keys to success
Sound geological assessment is critical to strategic evaluation of big unconventional
prospects in North America today
A must: Very astute leasing strategy (e.g. Fayetteville Shale)
Then comes smart drilling & production in unconventional plays
The unconventional endgame is typified by the Barnett Shale – it has now become all
engineering and real estate
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Typical Unconventional Play Rollout
1. Geological evaluation
2. Launch the landmen
3. Execute leasing program, mass up holdings
4. Drill test and delineation wells
5. Go horizontal…and fast!
6. But throughout …you must secure oceans of cash
7. Build on your success
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2. U.S. Flyover -- Leading Gas Shale Basins
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Leading Tight Gas Plays
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Leading Coalbed Methane Basins
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3. Gas Demand Near Term/Long Term
Since late 2008, pessimism about U.S. and Canadian economies has been pervasive
That’s true in natural gas also with the tremendous decline in prices
However… economic data since mid-summer is improving
Natural gas is looking better, despite little help from weather or better economic activity
The Administration’s emphasis is on wind, solar and…natural gas
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Electric Power – Critical to Growth in Gas Demand
We are now transitioning from economic recession to economic recovery , albeit slowly
Underlying this in the near term and long term will be faster growth in the demand for electric power
A big reason: More natural gas at attractive prices that can fuel natural gas-fired infrastructure that already exists
Base load and peak load will be critical in the recovery – solar and wind power are not counted on in either category
Summary: Gas-fired electric power generating facilities already in place make gas demand the easiest to grow
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4. Supply, Largely Driven by Gas Shale Evolution
Significant improvements in technologies for drilling, completion and subsurface evaluation have helped ramp up gas production
We think LNG into U.S. will not pose earlier-perceived threats to gas production -- and imports from Canada will remain measured
Natural gas from Alaska will not be significant until the pipeline across Canada is built…well off into the future
On the upside, about half of natural gas consumed comes from wells drilled in the US during the last 3 ½ years
• Overriding this picture is the “Green“ perspective of future legislation and emission-oversight requirements
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Supply Mix in the U.S.
Conventional sources are declining, Alaska “bump” ~ 2020 anticipates pipeline completion
• But onshore unconventional gas will be saving the day
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Gas Shale Capacity Ramping Up
Gas shale development (in green) is producing big results
• Barnett began the trend, newer shales using the technology
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Comparing Three Notable Gas Shales
We compare the Barnett to the newest gas shales with promise
Early science/tech development in the Barnett is paying off
Metrics Barnett Haynesville Marcellus
Estimated Basin Area (Sq. Mi.) 5,000 9,000 95,000
Total Vertical Depth(000 Ft.) 5,400-9,600 10,500-13,500 5,000-8,500
Net Thickness (Ft.) 250-500 200-300 50-200
Original Gas-in-Place/Section (BCFE) 50-200 150-250 70-150
Average Well Cost ($Million) 2.5-4.0 7.0-10.0 3.0-4.0
Gross EUR (BCFE) 2.0-3.5 6.0-7.5 3.0-4.0
Finding & Development Cost ($/MCFE) 1.20-3.00 1.20-2.00 0.90-1.60
Comparison: New High-Growth Shales vs. the Barnett
DOE, Raymond James
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Haynesville Shale
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Haynesville in Early Growth Phase
It all began just recently, in late 2007 when Cubic Energy and Chesapeake announced good news about good wells
Then came a land rush followed by vertical wells, which are now trending to horizontal
A big plus: Options to drill into other attractive formations like the Cotton Valley Sand, Cotton Valley Lime, Smackover, Travis Peak and James Lime
The Haynesville has tremendous potential, drawing gas portfolio players like Chesapeake/Plains, Petrohawk, Goodrich, EnCana and others
Quite possible for drilling to triple this year and continue up in 2010
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A Plus in the Haynesville . . . multiple pay zones
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Marcellus Shale
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Marcellus is in Very Early Phase, Much More to Come
The Appalachian has a very long drilling history, none of which focused on the Marcellus until recently
Early lease payments were $150-$200 per acre in Pennsylvania, jumped to ~ $3,000 by 2008 with royalty levels 12.5% to 18.75%
It has great advantage in its proximity to Eastern US gas markets
There is need for infrastructure buildup for increasing gas takeaway
Early results on these wells are excellent
Accordingly, there is influx big players like Chesapeake/StatoilHydro, Range Resources, Cabot, EQT and many others
At midyear, Marcellus drilling was 2X that of 2008 and should continue; a great development future is in the cards
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5. Looking Ahead
1. The natural gas sector has a ways to go yet, but there is anticipation of improved prices, declining production and slowly-recovering economic conditions into 2010
2. Unconventional gas will be a bulwark for future supply, while LNG landed in North America is dependent upon world economies’ economic recovery and Eastern Hemisphere LNG demand
3. Gas imports to the U.S. from Canada should remain at present or lesser levels
4. That leaves a bigger role for unconventional gas development in future years
5. For the immediate we anticipate supply/demand balance coming soon as demand improves and production declines
6. Result: Firming prices, slightly better conditions for development showing up late-2009 and improvement in 2010
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End of Presentation
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