The Montney at Kakwa/Karr: An Evaluator s Perspective

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1 The Montney at Kakwa/Karr: An Evaluator s Perspective CSUR 2013 Technical Conference Andrew Dabisza, P. Eng McDaniel & Associates Consultants Ltd. October 10, 2013 Website:

2 Outline Who are we? Kakwa Area o o Major players Historical Development The 4 main challenges o o o o Geological Technical Economic Reserve/Resource Bookings

3 McDaniel & Associates Who are we?

4 McDaniel & Associates Consultants Ltd. Established in 1955 Head Office based in Calgary with branch office in Guildford, England McDaniel & Associates is one of the world s leading petroleum consulting firms specializing in geological studies, reserves evaluations, resource assessments, economic evaluations, technical advisory work and petroleum engineering studies Spectrum of technical work: International and domestic Conventional reservoirs (primary, secondary and enhanced recovery methods) Unconventional reservoirs (Oil Sands, Tight Gas, CBM, Shale Gas/Oil)

5 Kakwa Area

6 Montney Fairway Cypress / Town Altares / Farrell Creek Dawson Swan Lake / Tupper Elmworth Kakwa Resthaven

7 Kakwa Major Land Owners R7 R6 R5 R4 R3 R2 R1W6 T66 T65 CIOC T64 7 Generations T63 Donnycreek T62 Paramount Resources

8 Kakwa 2011 Montney Development R7 R6 R5 R4 R3 R2 R1W6 T66 T65 T64 T63 T62 Wells rig released in Total wells - 8

9 Kakwa 2012 Montney Development R7 R6 R5 R4 R3 R2 R1W6 T66 T65 T64 T63 T62 Wells rig released in Total wells - 20

10 Kakwa 2013 Montney Development R7 R6 R5 R4 R3 R2 R1W6 T66 T65 T64 T63 T62 Wells rig released in Total wells - 23

11 Geological Technical The 4 Challenges Economic Reserve / Resource Booking

12 Challenge #1 - Geological

recovery factors Suggested a large drainage area Core Derived Matrix Porosity Log

13 Initial Interpretation 3% Limestone Porosity Log Cutoff 2710 grain density Underestimates pay Underestimates porosity Initial OGIP estimates too low High recovery factors Suggested a large drainage area Core Derived Matrix Porosity Log 2720 grain density Used to try to calibrate logs Still underestimates net pay and porosity.

14 Core porosity vs. Log porosity

15 Core porosity vs. Log porosity

16 Current Interpretation Effective Porosity at 3% Derived from Sonic Log Less affected by washout and mineralogy Correlates to core very well Reasonable Recovery Approximately 60% increase in gas in place!!

17 Challenge #2 - Technical

18 Technical Challenges PVT analysis and quantification of hydrocarbon in-situ Variation in liquid yields Production rates Recovery factors Well spacing Completion practices Interference

19 Technical Challenges Gas Production

20 Technical Challenges Oil Production

21 Technical Challenges Illustrative Type Wells Gas Oil IP30 6 MMcfpd CGR 85 bbl/mmcf EUR 1 MMboe Gas/Liquid Split 65/35 10% NPV - $13.5MM IP bopd GOR 6750 scf/bbl EUR 1 MMboe Gas/Liquid Split 50/50 10% NPV $11.3MM

22 Challenge #3 - Economic

23 Economic Challenges Well classification NGDDP ($4-5MM) Classification of well head condensate (oil or flat rate royalties) NPV Rate of return Project economics Processing capacity Market access

Economic Challenges 10% NPV Btax ($M) 0 5,000 10,000 15,000 20,000 25,000 Wellhead CGR (bbl/mmcf) 30 140 Price ($/mmbtu) 1.0 5.0 Type Curve (Bcf) 3.0 5.0 Condensate Price (%) -20% +20% NGDDP No Yes Capex ($MM) 12.

24 Economic Challenges 10% NPV Btax ($M) 0 5,000 10,000 15,000 20,000 25,000 Wellhead CGR (bbl/mmcf) Price ($/mmbtu) Type Curve (Bcf) Condensate Price (%) -20% +20% NGDDP No Yes Capex ($MM) Opex (%) -20% +20% *Base Well Metrics: 4.0 Bcf EUR, 85 bbl/mmcf CGR, $10MM DC&T capital, NGDDP, $3.00/MMbtu AECO, and $100/bbl Condensate

Economic Challenges ROR (%) 0% 100% 200% 300% 400% 500% 600% Wellhead CGR (bbl/mmcf) 30 140 Price ($/mmbtu) 1.0 5.

25 Economic Challenges ROR (%) 0% 100% 200% 300% 400% 500% 600% Wellhead CGR (bbl/mmcf) Price ($/mmbtu) Type Curve (Bcf) Condensate Price (%) -20% +20% NGDDP No Yes Capex ($MM) Opex (%) -20% +20% *Base Well Metrics: 4.0 Bcf EUR, 85 bbl/mmcf CGR, $10MM DC&T capital, NGDDP, $3.00/MMbtu AECO, and $100/bbl Condensate

Economic Challenges Payout Time (years) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Wellhead CGR (bbl/mmcf) 140 30 Price ($/mmbtu) 5.0 1.0 Type Curve (Bcf) 5.0 3.0 Condensate Price (%) +20% -20% NGDDP Yes No Capex ($MM) 7.

26 Economic Challenges Payout Time (years) Wellhead CGR (bbl/mmcf) Price ($/mmbtu) Type Curve (Bcf) Condensate Price (%) +20% -20% NGDDP Yes No Capex ($MM) Opex (%) +20% -20% *Base Well Metrics: 4.0 Bcf EUR, 85 bbl/mmcf CGR, $10MM DC&T capital, NGDDP, $3.00/MMbtu AECO, and $100/bbl Condensate

27 Challenge #4 Reserve and Resource Booking

28 Case 1: Single well (no test) Criteria: - Drilled and completed well - No test data - No off-setting production Booking Potential: Undeveloped Reserves Contingent Resources None None Disclaimer: The following reserve and resource booking examples are for illustrative purposes only. Actual reserve and resource bookings are dependent on the circumstances that exist and the information available for the well in question at the time of the evaluation. Existing Well Proved Location Probable Location Resources

29 Case 2: Single well (commercial test) Criteria: - Drilled, completed, and tested well - Test rate is commercial - No off-setting production - Good geological control Booking Potential: Undeveloped Reserves Contingent Resources Single Well Pad Disclaimer: The following reserve and resource booking examples are for illustrative purposes only. Actual reserve and resource bookings are dependent on the circumstances that exist and the information available for the well in question at the time of the evaluation. Existing Well Proved Location Probable Location Resources

30 Case 3: Single producing well Criteria: - Well is producing at commercial rates - Good production history - Good geological control Booking Potential: Undeveloped Reserves Contingent Resources Pad Pad Disclaimer: The following reserve and resource booking examples are for illustrative purposes only. Actual reserve and resource bookings are dependent on the circumstances that exist and the information available for the well in question at the time of the evaluation. Existing Well Proved Location Probable Location Resources

31 Case 4: Multiple producing wells Criteria: - Multiple wells producing at commercial rates - Good production history for all wells - Good geological control Potential Booking: Undeveloped Reserves Contingent Resources Pad Pad Disclaimer: The following reserve and resource booking examples are for illustrative purposes only. Actual reserve and resource bookings are dependent on the circumstances that exist and the information available for the well in question at the time of the evaluation. Existing Well Proved Location Probable Location Resources

32 Summary Kakwa area Montney a growing hot bed of activity Wide range of outcomes in a small area 4 main challenges: o o o o Geological Technical Economic Reserve/Resource Bookings New data surfacing daily Lots of future potential -$$$$ World Class Play Exciting to see what happens in the future

33 Questions?

34 Contact Info Andrew Dabisza, P. Eng Associate (403) Engineering Philip Ho, P. Eng Steven Carmichael, P. Eng Associate Associate (403) (403) Geology David Jenkinson, P. Geol Senior Geologist (403)

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