Benchmarking Reserve Estimation by Comparing EUR Variability Across the BC Montney May 28, 2014

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1 Benchmarking Reserve Estimation by Comparing EUR Variability Across the BC Montney May 28, 2014 Jake Thompson, Development Engineer Presented at: Reserve Estimation Unconventionals REU Canada 2014

2 2 Advisories Forward-Looking Information Certain information contained in this presentation constitute forward-looking information. Forward-looking information typically contains statements with words such as "anticipate", "believe", "estimate", will, "expect", "plan", "schedule", "intend", "propose" or similar words suggesting future outcomes or an outlook. Statements relating to reserves are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Although Black Swan believes that the expectations, estimates and projections upon which such forward-looking information are based are reasonable, undue reliance should not be placed on the forward-looking information as Black Swan can give no assurance that such expectations, estimates and projections will prove to be correct. Such expectations, estimates and projections involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Black Swan and described in the forward-looking information, and many of such risks and uncertainties are not within the control of Black Swan. The forward-looking information contained in this presentation is made as of the date of its preparation and Black Swan will not necessarily update or revise any such forward-looking information as a result of new information, future events or otherwise. Oil and Gas Measures This presentation contains disclosure regarding volumes expressed as "boe" (barrels of oil equivalent) or cfe (cubic feet equivalent). All equivalency volumes have been derived using the ratio of six thousand cubic feet of natural gas to one barrel of oil (6:1). Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

3 Black Swan Energy Overview 3 Well-Financed Junior $350 MM equity line; financing closed March 2011 $150 MM equity line; financing closed November 2013 Experienced Management Management team with deep and diverse experience in the Western Canadian Sedimentary Basin Strategy Established Positions Develop a portfolio of early-entry plays in Western Canada Focus on liquids-rich, repeatable, and high return plays Sizeable position in the Montney play in northeast B.C., and the Duvernay play in central Alberta Demonstrated Results Drilling commenced February 2012 First production November wells drilled to date 147 mmboe of 2P Reserves

4 Montney - Unconventional Resource Play Black Swan Beg A-020-H/094-G-01 Upper Montney 60m Thick, Gas-Charged Resource Montney > 250 m thick Up to 4 Hz intervals Aitken Lower Montney 200m Early to Middle Triassic aged siltstone Consistent reservoir characteristics exhibited across acreage; shelf edge to offshore depositional environment Porosity 3%-7% with very low water saturation Source: Montney facies base map modified after Canadian Discovery Ltd. (2008) 4

5 BC Montney Fairway Significant development over a large area The emergence of the Montney as a premier North American resource play is largely a result of its repeatability and predictability Hz Montney Producers Consistent production profile within the over-pressure fairway Producers are now focused on liquids-rich areas for top tier economics 11 BC strike areas with more than 20 horizontal wells Only Dawson was originally developed with vertical wells 12 kpa/m and dry gas lines from OGC Montney Atlas (2012); Oil window is Black Swan interpretation 5

6 Large variability within a field, but a similar average across the fairway 6 Large variation in results within each developed field The average is remarkably similar across all fields despite significant differences in depth, pressure, & thickness Individual well results cannot accurately predict deliverability from a field When booking reserves in new areas, reversion to the mean should be expected

7 Decline behaviour also consistent across the BC Montney 7 Long term well performance and decline profile similar across the Montney Decline does not change materially between low & high rate wells (unless restricted) Can confidently predict EUR from test or early production data

8 Test rates predict long term production with accuracy 8 For new fields, bringing wells on production quickly is not always possible Strong correlation between flow test and long term production allows estimation of recovery from only a few days of flow Flow test must be long enough to achieve stable production (~ 5 days), as flush rates are not a good indicator of long term deliverability Must apply a consistent methodology to normalize test data, otherwise results can easily be skewed

9 Type curve developed using production across the fairway 9 Black Swan developed a type curve by normalizing production for all Montney wells in BC The average well has an IP30 of 3.6 MMscf/d and an EUR of 4.6 Bcf The type curve equates to a 5.0 MMscf/d normalized test rate The curve is adjusted up or down based on test rates or initial production, however the curve shape is a close match for the majority of Montney wells

10 Case Study North Montney Upper Montney Results Variability of results over short distances is apparent Productivity appears diminished in the oil window The entire area is clearly productive in the dry gas and liquids-rich windows, however it is challenging to reflect the variability in reserve bookings Black Swan s approach in collaboration with reserve evaluators: 2 PUDS & 2 Probable Hz locations offsetting tests In-fill locations booked between economic tests 3 miles apart This approach recognizes the value of defined `sweet spots while honoring the larger data set 12 kpa/m and dry gas lines from OGC Montney Atlas (2012); Oil window is Black Swan interpretation 10

11 Successful de-risking strategy has resulted in significant reserve bookings Black Swan entered the play in 2011 through crown land sales and has acquired a 206 net DSU position. Targeted a liquids-rich and low cost area to achieve top tier economics without requiring a higher type curve 13 Hz and 2 Vt wells tested; locations selected to maximize reserves & de-risking Initial wells confirmed liquids & over pressure, with subsequent locations confirming the type curve 2013 Year End Reserves 23,700 mboe of Proved 147,400 mboe of Proved + Probable 18% liquids ~3,500 boe/d of current production with >2,000 boe/d behind pipe A total of 189 Montney locations have been booked 12 kpa/m and dry gas lines from OGC Montney Atlas (2012); Oil window is Black Swan interpretation High confidence in repeatability supports move to development 11

12 Next Steps Improving Results 12 Huge upside if technical work can allow operators to accurately predict above average locations Black Swan is currently using a variety of techniques including seismic inversion, XRF, curvature analysis and detailed petrophysics in an attempt to high grade acreage Improved completion design has the potential to increase the average result across all locations Black Swan & industry moving towards open hole completions with shorter stage lengths Black Swan results using open hole and short stage lengths have an average EUR of 6 Bcf A material increase in results from enhanced completions can be applied to existing undeveloped reserves

13 Conclusions 13 Using statistics to evaluate trends across a large fairway is an important tool to quantify reserves when developing a new field. Accurate estimation of long term productivity from short duration tests provides confidence in economics prior to major infrastructure investment. Significant variability is expected in individual well results. This should be considered and accounted for when estimating average field deliverability during a pilot program. The Montney is a highly repeatable and predictable resource on a macro scale, despite the variability in individual well results. Operators are focusing on liquids-rich areas and reducing cost to achieve top-tier economics. Enhanced completion techniques are likely to improve results across the Montney, further increasing the attractiveness of the play. Similar techniques can be applied when evaluating new opportunities throughout the basin.