Christopher Adams Oil and Gas Specialist. Upstream Development Division Tenure and Geoscience Branch June 6, 2014

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1 Christopher Adams Oil and Gas Specialist Upstream Division Tenure and Geoscience Branch June 6, th B.C. Unconventional Gas Technical Forum Victoria Conference Centre Victoria, BC June 5 6, 2014

2 Advances in horizontal drilling and completion techniques producers are now able to unlock vast tracts of gas-bearing shales in the Horn River Basin, Cordova Embayment, Liard Basin and the Montney play trend. Substantial increase in capital spending by industry on exploration and development activities over the last 15 years. Reached $7.9 B in 2008 $5.2 B in Total oil and gas revenue in fiscal 2013/13 was $1.12 B. Accounted for about 45% of total resource sector revenue in BC (2.7% of total provincial government revenue).

3 Raw natural gas production in British Columbia in 2013 was 1.58 Tcf (4.4 Bcf/d), which was the second highest in Canada or 26 per cent of total Canadian production. Raw gas production in the province has held steady or increased with shale gas now contributing over 60% (and growing). Unconventional horizontal well technology has increased production in many areas. Less than 10% of all wells drilled in BC in 2013 were conventionally-drilled vertical wells. 3

4 BC has a huge ultimate potential resource for marketable natural gas with the undiscovered portion remaining high at over 400 Tcf. BC s remaining marketable gas reserves between 1972 and 2003 held fairly steady ( 7 9 Tcf). From 2003 to 2013, it climbed almost 265% to 33.5 Tcf. 4

5 2014 Wells Drilled Conventional vs. Unconventional Remaining Raw Gas Reserves: Unconventional sources are expected to further dominate with new activity and the continued depletion of conventional pools. 5

6 Liard Basin Devonian 9,340 square kilometres OGIP large! 2 wells producing (March 2014) Daily production 4.5 MMcf/d Cumulative production 10.1 Bcf Horn River Basin Devonian 11,400 square kilometres OGIP 448 Tcf, Marketable 78 Tcf 200 wells producing (Feb. 2014) Daily production 492 MMcf/d Cumulative production 635 Bcf Cordova Embayment Devonian 2,690 square kilometres OGIP 200 Tcf, Marketable 20 Tcf 19 wells producing (March 2014) Daily production 30 MMcf/d Cumulative production 25 Bcf Total GIP estimates of approx. 2,900 Tcf Over 400 Tcf marketable Northeast BC 6 Montney Triassic 29,850 square kilometres OGIP 1,965 Tcf, Marketable 271 Tcf 1,644 gas wells producing (March 2014) Daily production 2.26 Bcf/d Cumulative production 2.53 Tcf

7 Sources for BC s ultimate potential for natural gas and established reserve estimates: Ultimate Potential Northeast BC Conventional Gas (March 2006) In-Place 91 Tcf Marketable 51.9 Tcf Ultimate Potential Horn River Basin (May 2011) In-Place 448 Tcf Marketable 78 Tcf Ultimate Potential BC Montney (Nov. 2013) In-Place 1,965 Tcf Marketable 271 Established Reserves BC Remaining Reserves as of December 31, 2012: 40.2 Tcf Raw 33.5 Tcf Marketable Ultimate potential assessment for the Cordova Embayment is forthcoming! 7

8 8 Land brokers and producers focused on purchasing PNG rights in the Montney play trend in 2012, 2013 and so far in Shale gas regions accounted for 97.5% of total bonuses in Same percentage portion in 2014 with most bonus totals resulting from PNG rights sold within the Montney.

9 Unconventional horizontal well technology has increased BC s production in many areas. Less than 10% of all wells drilled in BC in 2013 were conventionally-drilled vertical wells. 9

10 January to May 2013: 399 well authorizations issued January to May 2014: 512 well authorizations issued (28% increase from last year) Well authorizations in 2014 Montney 97%, Liard Basin 1.8%, Jean Marie 0.8%, Bivouac Muskwa 0.2% 10

11 33 operators drilled 568 wells in northeast BC in 2013 Progress Energy most active with a 32% share of 2013 rig releases. 11

12 28 operators drilled 279 wells in northeast BC to May 27, 2014 Progress Energy most active with a 30% share of 2014 rig releases. 12

13 13 As of Feb. 2014, 200 wells were producing 490 mmcf/day. Potential lies in Devonian strata, primary targets Muskwa/Evie Member/Otter Park Since 2006, operators in the Horn River Basin have drilled 376 shale gasdirected wells. Drilling peaked in 2010 with 90 wells rig released. Rig releases in Horn River Basin fell to 41 in 2013.

14 Could contain a resource larger than that found within the Horn River Basin and Cordova Embayment Potential lies in Devonian strata, primary targets Muskwa/Evie Member/Otter Park Apache Beaver d-87-e/094-o-13 RR July 11, 2013 Proj. Formation: Kotcho Apache La Jolie c-77-a/094-n-16 Licensed March 22, 2013 Proj. Formation: Besa R. Nexen Inc. La Jolie c-66-i/094-n-9 RR Oct. 8, 2013 Proj. Formation: Nahanni APACHE Sandy b-55-f/094-o-13 RR April 7, 2013 Proj. Formation: Fort Simpson ECA HZ Kiwigana d-03-h/094-o-6 RR March 15, 2013 Proj. Formation: Muskwa Apache Canada Ltd. has been working in the eastcentral region of the Liard Basin in an area called Patry. Nexen Energy ULC plans to develop shale gas resources in the Liard Basin in a strategic partnership with a consortium led by INPEX CORPORATION of Japan Apache La Jolie a-35-k/094-o-12 Licensed Aug. 29, 2013 Proj. Formation: Besa R. PARA HZ Patry b-40-i/094-o-5 RR Jan. 30, 2013 Proj. Formation: Kotcho PARA HZ Patry b-20-i/094-o-5 RR Jan. 30, 2013 Proj. Formation: Kotcho ECA HZ Kiwigana c-55-a/094-o-6 RR Oct. 2, 2013 Proj. Formation: Otter Park Paramount Resources Ltd. holds over 51,000 net hectares in the Liard Basin that are prospective for shale gas in the Middle Devonian Besa River. 14

15 Penn West Exploration Ltd. has acquired over 70,000 hectares in the Cordova Embayment. Mitsubishi Corporation is a joint venture partner with Penn West to develop shale gas in Cordova. Initial goal was to increase production from assets in the area to 500 mmcf a day. Seven rig releases in 2013 Completion operations underway in 2014 In late 2013, Penn West announced plans to sell its shale gas assets in the Cordova. Nexen Energy ULC holds over 3,300 hectares in the Cordova Embayment with a 60% working interest. Continues to gather information and knowledge through a series of drilling, well completion and production testing programs 3 wells drilled in early 2014 Aided considerably by Nexen s Nov 2011 agreement with INPEX CORPORATION of Japan. 15

16 One of Western Canada s most active plays with one of the largest marketable gas resource at 271 Tcf Montney play trend accounted for 33 per cent of 2012 BC s remaining raw gas reserves (13.4 Tcf) Only shale gas region where significant land sales have continued Gas production from the Triassic Montney Formation has seen exceptional growth to 2.3 Bcf/day Drilling activity targets the over-pressured zones and areas with highest liquids, condensate and light oil potential. High producing areas in southern Montney region include Groundbirch, Swan, Dawson, Saturn, Monias and Tupper Increasing production in North Montney Altares, Town, Lily Lake, Julienne Creek, Farrell Creek 16

17 Only shale gas region where significant land sales have continued So far in 2014, over 97% of bonus totals have resulted from rights sold within the Montney play region. Shale gas regions have accounted for 97.5% of total bonuses in

18 The Montney region accounted for 82% of all drilling activity in

19 Montney region accounting for 90% of all drilling activity so far in Progress Energy by far the lead operator (after acquiring Talisman North Montney assets) 19

20 Top Montney Producers Source: IHS Accumap (production as of Feb. 2014) 20

21 British Columbia s shale gas plays now account for approximately 60% of BC s total gas production. Horn River, Liard Basin, Cordova Embayment and Montney have attracted major investments Montney play trend now the flagship resource play in the WCSB with an expanding productive fairway. Higher resource and recovery estimates from BC s shale gas regions have had a significant impact on unconventional resource play development in British Columbia Unconventional reservoirs have tremendous growth potential with booked reserves representing only less than one per cent of current total resource estimates (Hydrocarbon and By-Product Reserves in British Columbia 2012, BC Oil and Gas Commission) Unconventional sources are expected to further dominate new industry activity as horizontal well completions techniques are optimized and the depletion of conventional pools continues. Significant expansion and development of the regional Montney Formation has increased the remaining reserves for oil, gas, condensate and natural gas liquids. Liquids-rich gas production within many portions of the entire trend contains high value condensate and NGLs, which significantly contribute to favorable economics, competing with producers crude oil projects. 21

22 Thank You! Christopher Adams th B.C. Unconventional Gas Technical Forum Victoria Conference Centre Victoria, BC June 5 6, 2014