NORTH MONTNEY & SHALE GAS GROWTH RESOURCE & INFRASTRUCTURE ANALYSIS

Transcription

1 NORTH MONTNEY & SHALE GAS GROWTH RESOURCE & INFRASTRUCTURE ANALYSIS November 2013 APEGA Permit APEGA Permit P08121

2 COPYRIGHT NOTICE Reprint only with express written permission from HSB Solomon Associates Canada Ltd. (Solomon) and Gas Processing Management Inc. (GPMi). All ownership rights, title and other property rights to all text, image and other materials contained or displayed in this Solomon and Gas Processing Management Inc. document, specifically North Montney and Shale Gas Growth Resource & Infrastructure Analysis belong to Solomon and Gas Processing Management Inc. and constitutes valuable intellectual property. No material from any part of this document is authorized or intended by Solomon and Gas Processing Management Inc. to be assigned or licensed to any party and may not be downloaded, transmitted, broadcast, reproduced or in any other way used or otherwise disseminated in any form, in whole or in part to any person or entity. All unauthorized duplication or any other use of this document including, but not limited to publishing in whole or in part, excerpting portions for presentations, shall constitute intentional infringement(s) of Solomon and Gas Processing Management Inc. intellectual property and shall further constitute a violation of our trademarks, copyrights, and other rights, including, but not limited to, rights of privacy. Without further notice we will prosecute to the fullest extent allowed by law. CONFIDENTIALITY AND NON-DISCLOSURE NOTICE This Study has been prepared by Solomon and Gas Processing Management Inc. and constitutes Solomon's and Gas Processing Management Inc. s Confidential Information. The Study is provided to the Client strictly for its' internal company use on the basis that the Company and its employees, officers, contractors, and any other party receiving this Study by the Company maintain its confidentiality. The Company shall be responsible in all cases for the enforcement of this Confidentiality requirement and shall bear all liability for any violations of this provision by its subsidiaries, affiliates, joint ventures, consultants, agents, third party contractors and related persons or entities that are controlled by or under common ownership and control of the Company. Should a subsidiary, affiliate, joint venture, consultant, agent, third party contractor and related persons or entities that are controlled by or under common ownership and control of the Company desire to review this study, they can, though only at the Company s premise and under the Company s supervision. No part of the study, in whole or part, and no copies, subsets, notes, or presentations can be provided. WARRANTY The data contained in this Study, although believed to be accurate, is not warranted or represented by Solomon or Gas Processing Management Inc. to be so. Solomon and Gas Processing Management Inc. expressly disclaims all responsibility for, and liability in respect of all loss and/or damage howsoever caused, including consequential, economic, direct or indirect loss, to any party who relies on the information contained in the Study.

3 NORTH MONTNEY AND SHALE GAS GROWTH RESOURCE & INFRASTRUCTURE ANALYSIS TABLE OF CONTENTS Section Page I. INTRODUCTION... 1 Study Background... 1 Independent Assessment... 1 Data Sources... 2 Objectives... 2 The North Montney and Shale Gas Growth Prize... 3 Study Area... 4 Executive Summary... 5 Western Canada... 5 Study Area Production to Area Infrastructure... 5 Processing Facilities... 6 Commercial and Regulatory... 6 Sub Region Strategies... 6 Additional Considerations... 7 Overview of the Study Team... 8 II. WESTERN CANADA... 9 Western Canada Gas Demand Outlook to Western Canada Gas Supply Outlook to Gas Supply by Type Gas Supply by Region to Prices and Costs of Gas AECO Gas Price Outlook to Ethane Price Propane, Butane, and Oil Price Impact of Liquids Content on Value and Industry Activity Costs Operating Costs Full Cycle Cost of Gas Challenges Continue! Western Canada Full Cycle Cost of Gas Assumptions and Limitations of the Data III. PRODUCTION TO Oil and Gas Potential Geological Overview Montney Play Horn River and Liard Plays... 22

4 Gas and Liquids Production Forecast Methodology New Wells on Production to End of Top Drilling Operators New Initial Well Productivity to Raw Gas Production to 2024 by Sub Region Total Gas Production Estimated Ultimate Recovery per Well Raw Gas Produced from 2008 to the End of Ethane Production to the End of NGL (C 3 + ) Production to Total C 3 + NGL Production Composition H 2 S Gas Concentrations CO 2 Concentrations NGL Concentrations IV. GAS INFRASTRUCTURE Impact of Changing Gas Supply on Processing Infrastructure Production & Plant Capacities Typical Gas Treating (H 2 S and CO 2 ) Considerations Typical Natural Gas Liquids (NGL) Recovery Considerations Economics Other Considerations Operating Expenses Plant Operating Cost Influences Plant Operating Costs Facility Utilization Facility Turnarounds Maintenance Capital Facility Reliability Infrastructure Capital Costs Take Away Infrastructure Natural Gas Spectra Alliance TransCanada Gas Storage Aitken Creek Gas Storage Take Away Infrastructure Natural Gas Liquids (NGL) Impact of Gas Growth on Product Take Away Capacity Requirements Gas Natural Gas Liquids V. PROCESSING FACILITIES Sub Region Cabin D-76 Enbridge Fort Nelson B-84 Spectra Energy Fort Nelson North A-30 Westcoast Energy... 68

5 Fortune Creek A-66 Quicksilver Sierra A-26 Endurance Sub Region Peggo D-83 Spectra Midstream Wildboy D-75 Penn West Sub Region Bistcho Lake Strategic O & G Bivouac Husky Rainbow Husky Rainbow Husky Rainbow Lake AltaGas Zama Apache Canada Sub Region Caribou C-4 Keyera Energy Jedney 1 B-88 Spectra Midstream Jedney 2 B-88 Spectra Midstream Lily A-29 Progress Sikanni B-41 Spectra Midstream Sub Region Chinchaga C-32 TAQA Martin Creek B-2 Nuvista Ring Border C-81 ConocoPhillips Sub Region Chinchaga 1-24 CNRL Chinchaga North Keyera Energy Hamburg CNRL Hamburg N Devon Pedigree Nuvista Sub Region Altares B-24 Canbriam Energy Altares C-65 Progress Aitken Creek D-44 Spectra Blair D-58 AltaGas Cypress B-99 CNRL Farrell B-88 Talisman Highway B-36 Spectra VI. COMMERCIAL AND REGULATORY Commercial Considerations Scenarios Challenges Infrastructure Access Government Regulation Existing and Developing British Columbia Alberta The Way Forward Area Activity Coordination

6 Value Sharing a Broad Approach to Utilise Existing Infrastructure Current Principles Challenges Fee Negotiation Value Sharing Performance Upside Commercial and Performance Parameters CO&O Agreements Plant Repositioning Commercial Approaches Plant Remediation and Restoration VII. SUB REGION STRATEGIES Strategic Analysis Assumptions Evaluation Assumptions Liard Shale Gas Horn River Shale Gas Montney Tight Gas Base Case Facility Development NGLs Opportunity Overview Area Gathering Systems Sub Region 1 Aggressive Shale Gas Growth Infrastructure Development and Repositioning Opportunities Sub Region 2 Slow Growth Development and Repositioning Opportunities Sub Region 3 Harvest Development and Repositioning Opportunities Sub Region 4 Aggressive Growth Infrastructure Development and Repositioning Opportunities Sub Region 5 Harvest Infrastructure Development and Repositioning Opportunities Sub Region 6 Harvest Infrastructure Development and Repositioning Opportunities Sub Region 7 Aggressive Growth Infrastructure Development and Repositioning Opportunities VIII. OTHER CONSIDERATIONS Environmental Development Considerations Provincial Parks, Protected Areas, and Wildland Areas Roads, Communities, and First Nation Lands Historic Drilling Activity Abandonment Liability Greenhouse Gases and Applicable Regulations CO Flaring and Venting The Role of Government Plant Proliferation

7 GCA (Gas Cost Allowance) and Royalties Revenue Enhancements Implementation Intangibles Why is a Study Required? Other Considerations APPENDIX A: WELL ANALYSIS APPENDIX B: DETAILED MAPS FEEDBACK LIST OF FIGURES Figure 1.1 North Montney and Shale Gas Area... 4 Figure 2.1 Gas Demand in Western Canada... 9 Figure 2.2 Western Canada Dry Gas Supply Outlook to Figure 2.3 Regional Non-Associated Dry Gas Supply Outlook to 2024, Bcf/d Figure 2.4 AECO Gas Price Outlook Figure 2.5 Intra-Alberta Ethane Price Outlook Figure 2.6 Propane, Butane, and Oil Prices Figure 2.7 Equivalent Gas Price Impact of Liquids Figure 2.8 Western Canada Natural Gas Operating Costs Figure 2.9 Western Canada Full Cycle Gas Cost Figure 2.10 New Gas Full Cycle Costs Figure 3.1 Oil and Gas Production by Formation Figure 3.2 Montney Potential and Wells Figure 3.3 Oil and Gas Potential of the Horn River, Liard, and Cordova Figure 3.4 Production Forecast Methodology Figure 3.5 Gas Wells on Production to End of 2024, Wells/year Figure 3.6 Top Operators by Sub Region Figure 3.7 Regional New Gas Well Productivity, MMcf/d Figure 3.8 Total Regional Raw Gas Production to 2024, Bcf/d Figure 3.9 Regional Sweet Raw Gas, Bcf/d Figure 3.10 Regional Sour Raw Gas, Bcf/d Figure 3.11 Total Regional Raw Gas Production, Bcf/d Figure 3.12 Estimated Ultimate Recovery per New Well, Bcf Figure 3.13 Raw Gas Resource Produced from 2008 to the End of 2024, Tcf Figure 3.14 Ethane Liquid Production Outlook to the End of 2024, MBbl/d Figure 3.15 Total NGL (C 3 + ) Produced to the End of 2024, MBbl/d Figure 3.16 NGL Yields (C 3 + ), Bbl/MMcf Figure 3.17 Regional NGL (C 3 + ) Production, MBbl/d Figure 3.18 H 2 S Concentrations by Sub Region (Typical 1.04%) Figure 3.19 CO 2 Concentrations by Sub Region (Typical 3.86%)... 38

8 Figure 3.20 C 3 + Concentrations by Sub Region (Typical 3.4%) Figure 4.1 Area Raw Gas Production vs. Facility Capacity Figure 4.2 Unit Operating Costs vs. Complexity Factor Figure 4.3 Utilization Cost Factor vs. Facility Utilization Figure 4.4 Area Natural Gas Takeaway Infrastructure Map Figure 4.5 NGL Takeaway Pipeline System Figure 5.1 Sub Region 1 Gathering System Schematic Figure 5.2 Cabin D-76 Throughput & Capacity Figure 5.3 Fort Nelson B-84 Throughput & Capacity Figure 5.4 Fort Nelson North A-30 Throughput & Capacity Figure 5.5 Fortune Creek A-66 Throughput & Capacity Figure 5.6 Sierra A-26 Throughput & Capacity Figure 5.7 Sub Region 2 Gathering System Schematic Figure 5.8 Peggo D-83 Throughput & Capacity Figure 5.9 Wildboy D-75 Throughput & Capacity Figure 5.10 Sub Region 3 Gathering System Schematic Figure 5.11 Bistcho Lake Throughput & Capacity Figure 5.12 Bivouac Throughput & Capacity Figure 5.13 Rainbow Throughput & Capacity Figure 5.14 Rainbow Throughput & Capacity Figure 5.15 Rainbow Lake Throughput & Capacity Figure 5.16 Zama Throughput & Capacity Figure 5.17 Sub Region 4 Gathering System Schematic Figure 5.18 Caribou C-4 Throughput & Capacity Figure 5.19 Jedney 1 B-88 Throughput & Capacity Figure 5.20 Jedney 2 B-88 Throughput & Capacity Figure 5.21 Lily A-29 Throughput & Capacity Figure 5.22 Sikanni B-41 Throughput & Capacity Figure 5.23 Sub Region 5 Gathering System Schematic Figure 5.24 Chinchaga C-32 Throughput & Capacity Figure 5.25 Martin Creek B-2 Throughput & Capacity Figure 5.26 Ring Border C-81 Throughput & Capacity Figure 5.27 Sub Region 6 Gathering System Schematic Figure 5.28 Chinchaga 1-24 Throughput & Capacity Figure 5.29 Chinchaga North Throughput & Capacity Figure 5.30 Hamburg Throughput & Capacity Figure 5.31 Hamburg N Throughput & Capacity Figure 5.32 Pedigree Throughput & Capacity Figure 5.33 Sub Region 7 Gathering System Schematic Figure 5.34 Altares B-24 Throughput & Capacity Figure 5.35 Altares C-65 Throughput & Capacity Figure 5.36 Aitken Creek D-44 Throughput & Capacity Figure 5.37 Blair D-58 Throughput & Capacity Figure 5.38 Cypress B-99 Throughput & Capacity Figure 5.39 Farrell B-88 Throughput & Capacity Figure 5.40 Highway B-36 Throughput & Capacity

9 Figure 7.1 Infrastructure Opportunity Schematic Figure 7.2 Gas Gathering Systems by Facility Figure 7.3 Gathering Systems by Gas Type Figure 7.4 Sub Region 1 Production Forecast Figure 7.5 Sub Region 2 Production Forecast Figure 7.6 Sub Region 3 Production Forecast Figure 7.7 Sub Region 4 Production Forecast Figure 7.8 Sub Region 5 Production Forecast Figure 7.9 Sub Region 6 Production Forecast Figure 7.10 Sub Region 7 Production Forecast Figure 8.1 Provincial Parks, Protected Areas, and Wildland Areas Figure 8.2 Rivers and Lakes Figure 8.3 Roads, Communities, and First Nation Lands Figure 8.4 Historic Drilling Activity Figure 8.5 Simple Facility Description for Gas Cost Allowance Figure A.1 Oil and Gas Trends Pine Point, Keg River, and Nahanni Wells Figure A.2 Oil and Gas Trends Slave Point Wells Figure A.3 Gas Trends Jean-Marie Gas Wells Figure A.4 Oil and Gas Trends Pekisko Wells Figure A.5 Oil and Gas Trends Elkton-Debolt Wells Figure A.6 Oil and Gas Trends Baldonnel Wells Figure A.7 Oil and Gas Trends Charlie Lake Wells Figure A.8 Oil and Gas Trends Doig Wells Figure A.9 Oil and Gas Trends Halfway Wells Figure A.10 Oil and Gas Trends Bluesky - Triassic Wells Figure A.11 Oil and Gas Trends Notikewin Gas Wells LIST OF TABLES Table 3.1 Gas Potential of North Montney and Shale Gas Regions Table 3.2 H 2 S Concentrations by Geological Formation (Typical 1.04%) Table 3.3 CO 2 Concentrations Geological Formation (Typical 3.86%) Table 3.4 C 3 + Concentrations by Sub Region (Typical 3.4%) Table 4.1 Typical Sour Gas Processes Table 4.2 Sulphur Recovery or Injection Processes Table 4.3 Typical Liquid Recovery Processes Table 4.4 Typical Area Operating Costs, $/Mcf Table 4.5 Turnaround and Maintenance Capital Expenses Table 4.6 Estimated Facility Reliability, % Table 4.7 Estimated Time for Approval and Construction Table 4.8 Comparative Capital Installation Factors Table 5.1 Cabin D-76 Facility Details Table 5.2 Fort Nelson B-84 Facility Details Table 5.3 Fort Nelson North A-30 Facility Details... 68

10 Table 5.4 Fortune Creek A-66 Facility Details Table 5.5 Sierra A-26 Facility Details Table 5.6 Peggo D-83 Facility Details Table 5.7 Wildboy D-75 Facility Details Table 5.8 Bistcho Lake Facility Details Table 5.9 Bivouac Facility Details Table 5.10 Rainbow Facility Details Table 5.11 Rainbow Facility Details Table 5.12 Rainbow Lake Facility Details Table 5.13 Zama Facility Details Table 5.14 Caribou C-4 Facility Details Table 5.15 Jedney 1 B-88 Facility Details Table 5.16 Jedney 2 B-88 Facility Details Table 5.17 Lily A-29 Facility Details Table 5.18 Sikanni B-41 Facility Details Table 5.19 Chinchaga C-32 Facility Details Table 5.20 Martin Creek B-2 Facility Details Table 5.21 Ring Border C-81 Facility Details Table 5.22 Chinchaga 1-24 Facility Details Table 5.23 Chinchaga North Facility Details Table 5.24 Hamburg Facility Details Table 5.25 Hamburg N Facility Details Table 5.26 Pedigree Facility Details Table 5.27 Altares B-24 Facility Details Table 5.28 Altares C-65 Facility Details Table 5.29 Aitken Creek D-44 Facility Details Table 5.30 Blair D-58 Facility Details Table 5.31 Cypress B-99 Facility Details Table 5.32 Farrell B-88 Facility Details Table 5.33 Highway B-36 Facility Details Table 7.1 Opportunity Value Summary Table 7.2 Sub Region 1 Overview Table 7.3 Sub Region 1 Gas Processing Facilities Table 7.4 Opportunity Horn River Shale Gas Use Existing Capacity Table 7.5 Opportunity Horn River Shale Gas Expand Fortune Creek A Table 7.6 Opportunity Horn River Shale Gas Expand Enbridge Cabin D Table 7.7 Opportunity Horn River Shale Gas - Expand Area Facilities Table 7.8 Opportunity Liard Shale Gas - Utilize Existing Sour Processing Capacity Table 7.9 Opportunity Liard Shale Gas - Develop an Area Processing Facility Table 7.10 Opportunity Liard Shale Gas - Expand the Area Processing Facility Table 7.11 Sub Region 2 Overview Table 7.12 Sub Region 2 Gas Processing Facilities Table 7.13 Opportunity Cordova Shale Gas - Expand Wildboy D Table 7.14 Opportunity Consolidate Non-Study Plants Table 7.15 Sub Region 3 Overview Table 7.16 Sub Region 3 Gas Processing Facilities

11 Table 7.17 Opportunity Consolidate Zama Table 7.18 Opportunity Consolidate Non-Study Plants Table 7.19 Sub Region 4 Overview Table 7.20 Sub Region 4 Gas Processing Facilities Table 7.21 Opportunity North Montney Use Existing Capacity Table 7.22 Opportunity North Montney - Expand Progress Lily A Table 7.23 Opportunity North Montney - Expand the Area Processing Facilities Table 7.24 Sub Region 5 Overview Table 7.25 Sub Region 5 Gas Processing Facilities Table 7.26 Opportunity Consolidate Chinchaga C-32 to Hamburg North Table 7.27 Sub Region 6 Overview Table 7.28 Sub Region 6 Gas Processing Facilities Table 7.29 Opportunity Consolidate Hamburg Table 7.30 Opportunity - Consolidate Pedigree Table 7.31 Opportunity - Consolidate Non-Study Plants Table 7.32 Sub Region 7 Overview Table 7.33 Sub Region 7 Gas Processing Facilities Table 7.34 Opportunity North Montney Gas - Use Existing Capacity Table 7.35 Opportunity North Montney Gas - Expand Highway B Table 7.36 Opportunity North Montney Gas - Construct a Plant in 94-B Table 7.37 Opportunity North Montney Gas - Expand Progress Altares C Table 7.38 Opportunity North Montney Gas - Expand Talisman Farrell Creek B Table 7.39 Opportunity North Montney Gas - Develop Additional Capacity Table 7.40 Opportunity - Consolidate Cypress B-99 into Highway B Table 8.1 Integrated Development B.C. GCA and Royalty Impacts Table 8.2 Integrated Development Alberta GCA and Royalty Impacts Table 8.3 Integrated Development Cumulative B.C. GCA and Royalty Impacts Table 8.4 Integrated Development Alberta Cumulative GCA and Royalty Impacts

12 North Montney and Shale Gas Growth Resource & Infrastructure Analysis 1 I. INTRODUCTION Study Background With the growth of North Montney Tight Gas and Shale Gas, new gas opportunities in the north-eastern region of British Columbia and the north-western region of Alberta are changing the dynamics of the infrastructure systems that are gathering, processing, and transporting products in the area. Conventional natural gas production in most areas of Western Canada has steadily declined over the past decade; growth of new Tight Gas and Shale Gas opportunities contributes to the arrest of the overall decline with real supply growth in response to growing LNG demand. Potential exists to re-evaluate how existing and additional infrastructure in this area is developed, managed, and operated; substantial industry effort will be required to utilize the existing infrastructure for the new gas production, construct additional processing capacity in concert with the existing gathering and processing facilities and only construct new Greenfield Facilities when it is the only option. Some of the new production is expected to contain significant volumes of natural gas liquids; the area contains limited NGL Take Away Infrastructure. Industry can work co-operatively to develop new infrastructure and to use the area s existing infrastructure for the benefit of both the developing and current resource base. The study s assessment of the existing and required infrastructure quantifies opportunities to decrease capital investment, optimize development cycle times, improve processing efficiencies and decrease per unit operating expenses for both new and existing production. Independent Assessment Solomon and Gas Processing Management Inc., two independent gas consulting groups 1, jointly analyzed and developed the strategic alternatives for production owners, infrastructure operators, investors, and government to consider. We believe that a structured approach to develop a common gas gathering and processing strategy in gas growth regions, along with a repositioning analysis in maturing regions, will improve utilization and effectiveness of the infrastructure, extend overall gas field production, and ultimately result in the development and recovery of more resource. This 4 th of a series of 7 independent assessments is the first step towards these goals in this study area. 1 background on key individuals from both firms working on this study is at the end of this chapter

13 2 North Montney and Shale Gas Growth Resource & Infrastructure Analysis Data Sources The analysis is based on publically available data sources 2 ; data was not requested from clients. Due to the developing nature of the area infrastructure, Gas Processing Management conducted interviews with operators of existing and developing facilities to ensure that the study uses the most currently available infrastructure data. Objectives The study examines growth opportunities and existing gas production within the defined region and develops an independent assessment of the area s production potential through to With this outlook, the required gathering, processing, and transportation infrastructure was assessed to build a logical case for industry to change how the infrastructure is operated and managed. The Study forecasts the production by Sub Region, lays out a blue print to cooperatively use the existing gas gathering and processing infrastructure, and develops new area infrastructure to effectively and efficiently process growing gas production. Where infrastructure is forecast not to be directly impacted by developing the resource, the study analyzes and recommends repositioning scenarios that will increase processing effectiveness for existing conventional production. The primary drivers for change in this region are the rapidly developing resources in the Shale Gas (Liard, Horn River, and Cordova Basins) and North Montney Tight Gas plays, and declining production from the existing gas reserves. The study provides a detailed outlook of gas and liquid production to 2024 and the impact forecasted production will have on area infrastructure. Growing Shale and Tight Gas production, when coupled with declining existing resource base, will require constructing new infrastructure and utilizing, retooling, and expanding existing facilities. Within the analysis region there are four different production development focuses that are integrated into an overall area strategy: 1. the developing North Montney Play including the western area that was previously analyzed in the Montney Growth Study (#1 of the series) 2. the developing Horn River and Cordova Shale Gas Basins 3. the newly emerging Liard Shale Gas Basin 4. mature and declining gas production in the existing conventional gas areas such as Sierra, Zama, Chinchaga, and Ring Border. Where existing infrastructure presents an economically viable alternative to gather and process the developing gas or new infrastructure is required, the study emphasizes a coordinated industry approach to reduce capital employed and operating expenses. Where existing facilities are not forecast to play a role in the growing resource picture, the study presents alternatives to efficiently harvest reserves through infrastructure consolidation. The study forecasts theoretical ethane, natural gas liquids (NGLs C 3 + ), and condensate production and identifies those Sub Regions where take away capacity is a concern. 2 Alberta Energy Resources Conservation Board (ERCB), British Columbia Department of Mines - Oil and Gas Division and Oil and Gas Commission, Company Websites, GeoSCOUT, and GeoVista

14 North Montney and Shale Gas Growth Resource & Infrastructure Analysis 3 It focuses on: new facilities where required and the use of existing infrastructure where practical existing facilities with sufficient processing and gathering capacity to provide alternatives for handling growing production gas processing facilities and their associated gas gathering systems that have sulphur recovery, acid gas injection, and acid gas flaring capabilities with licensed raw gas design capacities greater than 35 MMcf/d sweet gas processing facilities with design capacities greater than 50 MMcf/d. Where smaller facilities can play a role or impact development, they were considered on an exception basis; the opportunity to more fully include smaller facilities to further optimize the developing and mature gas could be assessed in future work within the defined area framework. The challenges related to developing or repositioning an area for a step change in performance are much more than technical; any analysis must address business factors that will ultimately determine if solutions can be implemented. Finally, it is recognized that a step change in infrastructure performance will affect royalties and the Gas Cost Allowance programs for the benefit of the Provinces of Alberta and British Columbia. The North Montney and Shale Gas Growth Prize The developing North Montney and Shale Gas resources present a unique opportunity to integrate and utilize the area infrastructure for the benefit of both current and developing resources; currently: 1. the study infrastructure has a total existing processing capacity of 5.1 Bcf/d with expansions planned to 5.7 Bcf/d; surplus unused capacity is upwards of 3 Bcf/d Bcf/d of gas currently is processed in the study infrastructure (2013) 3. operating expenses could be reduced by integrating the new or expanded infrastructure on an industry basis, processing production through available existing capacity, developing additional Brownfield capacity when required and repositioning the remaining underused facilities as appropriate 4. capital investment can be reduced by integrating and coordinating development of additional capacity on an area and industry basis 5. reduced capital investment and decreased operating expenses will generate additional revenue for the Governments of Alberta and British Columbia through the acceleration of royalties and the reduction in Gas Cost Allowance.

15 4 North Montney and Shale Gas Growth Resource & Infrastructure Analysis Study Area The North Montney and Shale Gas Study includes: sulphur recovery, acid gas flaring, injection and venting, sweet facilities, and facilities under construction within the Area. To ensure the study carries adequate detail, the overall region has been subdivided into 7 Sub Regions. This allows gas and liquid production forecasts to be developed more accurately, while concurrently simplifying the analysis of technical and commercial infrastructure options. The rationale of the Sub Regions includes: provincial boundaries, natural geographic boundaries, H 2 S, CO 2, and NGL compositional differences, gas gathering system reach, known field boundaries, and our professional judgment. Figure 1.1 illustrates the entire North Montney and Shale Gas study area and labels three sizes of triangles that represent each facility that is included in the study. Figure 1.1 North Montney and Shale Gas Area Liard River Cooridor Provincial Park & Protected Area 124 Maxhamish Lake Provincial Park & Protected Area Quicksilver A Fort Nelson North A-30 Thinahtea South Protected Area Wildboy D W6 5W6 W6 Bistcho Lake Bistcho Lake T125 T Muncho Lake Provincial Park Cabin D-76 Fort Nelson Peggo D-83 Zama Hay Zama Lakes Hay River Wildland Hay River 35 T Dune Za Keyih Provincial Park & Protected Area Finlay Russel Provincial Park & Protected Area Kwadacha Wilderness Provincial Park Kwadacha River Northern Rocky Mountains Provincial Park Kluachesi Creek Ospika River Prophet River Redfern Kelly Provincial Park Fort Nelson B-84 4 Caribou C-4 Sikanni B-41 Klua Lakes Protected Area Jedney 2 B-88 Jedney 1 B-88 Sierra A-26 Fontas River Highway B-36 Blair D-58 Aitken Cypress B-99 Creek 120 D Lily A-29 Bivouac Ring Border C-81 (1) Chinchaga C-32 Martin Creek B-2 Rainbow Lake Rainbow Rainbow Hay River Pedigree Chinchaga North Hamburg N Hamburg Chinchaga 1-24 Chinchaga Wildland W6 Peace River 5W6 W6 High Level 35 T110 T105 T100 T95 T90 Cities, Towns, Highways & First Nations Lands 7 Altares C-65 Altares D-24 Farrell B McMahon Fort St. John Study Gas Plant, Raw Gas (MMcf/d): > Gas Storage Study Facility Types: NGL/Liquids Extraction Sulphur Recovery Acid Gas Flaring/Injection Sweet Facilities New Facility / Under Constr.

16 8 North Montney and Shale Gas Growth Resource & Infrastructure Analysis Overview of the Study Team Bill Armstrong, P.Eng. Principal, GPMi, 44 years of experience in oil and gas production, operations, management, asset evaluation, process engineering, and design for a large integrated energy company. Bill has worked in Canada and the US and has led teams responsible for the management of oil and gas development and operations including large sour gas and oil fields. Bill headed a team that separated midstream and liquids marketing functions from producing functions and set up, managed, and divested the midstream business. Bill is currently providing consulting services including asset evaluations, determining strategy for management of midstream assets, and front end evaluation of feasibility and options for development of facilities. R. N. (Bob) Child, P.Eng. Principal, GPMi, 38 years of exploration, production, and midstream/gas infrastructure experience including a decade of hands on field oil and gas (sweet and sour) engineering and operational supervision; drilling, completions, land acquisition and reservoir optimization and management, project and operations engineering; the executive accountable for Gas Finding and Development for the Canadian Operations of a multinational oil and gas producer; President and CEO of a major Canadian midstream business and President of a Canadian midstream business for a U.S. based oil and gas producer. W. P. (Bill) Gwozd, P.Eng. Senior Vice President, Gas Services, Ziff Energy A Division of Solomon Associates, has three dozen years of experience in gas contractual purchases and gas storage strategies, directing gas control functions for transportation contractual arrangements, and preparing written regulatory applications. Experience includes transportation planning of natural gas liquids pipelines and storage facilities, pipeline acquisitions, gas supply and demand forecasts, gas storage development, and transportation alternatives. He oversees assessments, semi-annual client debriefings, and leads our expert witness testimony service offerings. Focus is on long-term gas price outlooks for LNG, LDC, Pipeline, and power clients. He is a guest contributor to TV stations, radio, newspapers, and magazines. Zuzana Jurickova Intermediate Gas Analyst, Ziff Energy A Division of Solomon Associates, for the past 8 years, has assisted with projects in the areas of gas supply and demand research and forecasting analysis. Over this period she has worked on the Western Canada Reserve Replacement (F&D) Cost Study, a study on North American Cost Inflation for a major producer, and a study of North American pipeline expansions for a major steel producer. She is currently working on North American Gas Supply costs for 20 basins (and LNG). Prior to joining Ziff, Ms. Jurickova worked in corporate credit and finance. Ms. Jurickova obtained her five-year Degree in Economics from University of Economics in Bratislava, Slovakia. Simon Mauger, P.Geol. Director, Gas Supply and Economics, Ziff Energy A Division of Solomon Associates, has 35 years of experience in the upstream oil and gas industry as an exploration and development geologist in Western Canadian and other locations. Mr. Mauger planned, evaluated, and economically modeled gas resources for a leading international exploration and production company; prepared and optimized long term gas supply plans for growing gas markets, and developed the regional exploration component of the North American integrated natural gas strategy. He develops a gas supply outlook for each North American gas producing region, authors technical research reports on supply, demand, and transport, issues, and assesses gas costs of North American gas basins. Lev Virine, P.Eng., Ph.D. Manager, Gas Consulting, Ziff Energy A Division of Solomon Associates, has over 2 decades of technical experience, economic evaluation of oil and gas reserves, decision and risk analysis, portfolio management, and oil and gas reserves management. He assisted leading national and international exploration and production companies in establishing reserves evaluation and decision analysis processes. Dr. Virine is the author of more than 40 scientific papers and articles, 7 patents, and two books. His current focus is gas production outlooks, gas supply decline analysis, and full cycle cost assessment. He has spoken at conferences and symposiums around the world. Dr. Virine received his doctoral degree in engineering and computer science from Moscow State University of Railway Engineering.