Extracting Oil from Shale - Adapting the Horizontal Gas Story to Oil - Conceptual Conundrums - How it Works

Transcription

1 Horizontal Oil-1

2 Copyright; Assumption of Risk: Copyright This presentation and the contents of this presentation have been copyrighted by EOG Resources, Inc. All rights reserved. Copying of the presentation is forbidden without the prior written consent of EOG Resources, Inc. Information in this presentation is provided as is without warranty of any kind, either express or implied, including but not limited to the implied warranties of merchantability, fitness for a particular purpose and the timeliness of the information. You assume all risk in using the information. In no event shall EOG or its representatives be liable for any direct, special, indirect or consequential damages resulting from the use of the information. Cautionary Notice Regarding Forward-Looking Statements: This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, including, among others, statements and projections regarding EOG's future financial position, operations, performance, business strategy, returns, budgets, reserves, levels of production and costs and statements regarding the plans and objectives of EOG's management for future operations, are forward-looking statements. EOG typically uses words such as "expect," "anticipate," "estimate," "project," "strategy," "intend," "plan," "target," "goal," "may," "will" and "believe" or the negative of those terms or other variations or comparable terminology to identify its forward-looking statements. In particular, statements, express or implied, concerning EOG's future operating results and returns or EOG's ability to replace or increase reserves, increase production or generate income or cash flows are forward-looking statements. Forward-looking statements are not guarantees of performance. Although EOG believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, EOG's forward-looking statements may be affected by known and unknown risks, events or circumstances that may be outside EOG's control. Important factors that could cause EOG's actual results to differ materially from the expectations reflected in EOG's forward-looking statements include, among others: the timing and extent of changes in prices for natural gas, crude oil and related commodities; changes in demand for natural gas, crude oil and related commodities, including ammonia and methanol; the extent to which EOG is successful in its efforts to discover and market reserves and to acquire natural gas and crude oil properties; the extent to which EOG can optimize reserve recovery and economically develop its plays utilizing horizontal and vertical drilling and advanced completion technologies; the extent to which EOG is successful in its efforts to economically develop its acreage in, and to produce reserves and achieve anticipated production levels from, its existing and future natural gas and crude oil exploration and development projects, given the risks and uncertainties inherent in drilling, completing and operating natural gas and crude oil wells and the potential for interruptions of production, whether involuntary or intentional as a result of market or other conditions; the availability, proximity and capacity of, and costs associated with, gathering, processing, compression and transportation facilities; the availability, cost, terms and timing of issuance or execution of, and competition for, mineral licenses and leases and governmental and other permits and rights of way; changes in government policies, laws and regulations, including environmental and tax laws and regulations; competition in the oil and gas exploration and production industry for employees and other personnel, equipment, materials and services and, related thereto, the availability and cost of employees and other personnel, equipment, materials and services; EOG's ability to obtain access to surface locations for drilling and production facilities; the extent to which EOG's third-party-operated natural gas and crude oil properties are operated successfully and economically; EOG's ability to effectively integrate acquired natural gas and crude oil properties into its operations, fully identify existing and potential problems with respect to such properties and accurately estimate reserves, production and costs with respect to such properties; weather, including its impact on natural gas and crude oil demand, and weather-related delays in drilling and in the installation and operation of production, gathering, processing, compression and transportation facilities; the ability of EOG's customers and other contractual counterparties to satisfy their obligations to EOG and, related thereto, to access the credit and capital markets to obtain financing needed to satisfy their obligations to EOG; EOG's ability to access the commercial paper market and other credit and capital markets to obtain financing on terms it deems acceptable, if at all; the accuracy of reserve estimates, which by their nature involve the exercise of professional judgment and may therefore be imprecise; the timing and extent of changes in foreign currency exchange rates, interest rates, inflation rates, global and domestic financial market conditions and global and domestic general economic conditions; political developments around the world, including in the areas in which EOG operates; the extent and effect of any hedging activities engaged in by EOG; the timing and impact of liquefied natural gas imports; the use of competing energy sources and the development of alternative energy sources; the extent to which EOG incurs uninsured losses and liabilities; acts of war and terrorism and responses to these acts; and the other factors described under Item 1A, "Risk Factors," on pages 14 through 19 of EOG's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and any updates to those factors set forth in EOG s subsequent Quarterly Reports on Form 10-Q. In light of these risks, uncertainties and assumptions, the events anticipated by EOG's forward-looking statements may not occur, and, if any of such events do, we may not have anticipated the timing of their occurrence or the extent of their impact on our actual results. Accordingly, you should not place any undue reliance on any of EOG's forward-looking statements. EOG's forward-looking statements speak only as of the date made and EOG undertakes no obligation, other than as required by applicable law, to update or revise its forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise. Oil and Gas Reserves; Non-GAAP Financial Measures: Effective January 1, 2010, the United States Securities and Exchange Commission (SEC) now permits oil and gas companies, in their filings with the SEC, to disclose not only proved reserves (i.e., quantities of oil and gas that are estimated to be recoverable with a high degree of confidence), but also probable reserves (i.e., quantities of oil and gas that are as likely as not to be recovered) as well as possible reserves (i.e., additional quantities of oil and gas that might be recovered, but with a lower probability than probable reserves). As noted above, statements of reserves are only estimates and may not correspond to the ultimate quantities of oil and gas recovered. Any reserve estimates provided in this presentation that are not specifically designated as being estimates of proved reserves may include estimated reserves not necessarily calculated in accordance with, or contemplated by, the SEC s latest reserve reporting guidelines. Investors are urged to consider closely the disclosure in EOG s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, available from EOG at P.O. Box 4362, Houston, Texas (Attn: Investor Relations). You can also obtain this report from the SEC by calling SEC-0330 or from the SEC s website at In addition, reconciliation and calculation schedules for non-gaap financial measures can be found on the EOG website at

3 Agenda Extracting Oil from Shale - Adapting the Horizontal Gas Story to Oil - Conceptual Conundrums - How it Works Captured Inventory - Shales Plus Hybrid Plays Horizontal Oil-3

4 Natural Outgrowth of the Great American Shale Gas Revolution KEROGEN Same Basin-Centered Saturation Concept but Source Rocks Cooked Only to Medium Rare Same Horizontal Completion Breakthroughs - Massive Increase in Volume of Rock Connected to Wellbore - Allows Economic Extraction from Very Low Permeability Source Rocks O I L WET GAS AND CONDENSATE ng Depth, mperature Increasi Time, Te DRY GAS Horizontal Oil-4

5 Vertical Vintage Area Contacted (Ft 2 )* Extractable Perm (md)** Reservoirs Gas Oil Open Hole Perforating Fracturing Big Fracs 1800s 1920s 1940s 1980s , s 240, Horizontal Open Hole Bi-Wing Fracs Complex Fracs Many Stage Complex 1980s ,000 1,200,000 10,000, Many-Stage Complex ,000, * Normalized to 100 Height, 4,000 Lateral ** Matrix In-Situ Permeability Extractable for Gas and Oil, md = millidarcy. Horizontal Oil-5

6 Natural Outgrowth Of The Great American Shale Gas Revolution Huge Resource Concentrations to Attack - 75% of Generated Oil Still in Mother Source Rocks MMboe in-place Per Section in Targeted Plays - Only Need to Achieve 3% Recovery Efficiency for Economic Extraction EOG is Rapidly Advancing Horizontal Technologies to Exceed This Recovery Metric in Our Key Plays Horizontal Oil-6

7 Industry Dogma Matrix Pore Throats too Small to Pass Oil Molecules - Methane Molecule 0.4 Nanometers - Oil Molecules Nanometers Multiphase Flow Further Inhibits Matrix Contribution Due to Early Dropout of Liquids in the Reservoir - The Retrograde Condensate Issue Oil is Only Coming from Fractures so Early IPs will Fall Quickly as Fractures Deplete - Overestimating EURs from Short Production Lives Horizontal Oil-7

8 10 Millimeter Millimeters Pencil Lead Human Hair 100 Mesh Frac Sand 0.01 Trinidad 2 Darcy Sandstone Micrometer Soap Film Uinta Basin 0.1 md Sandstone Typical Shale Reservoirs Nanometer Oil Molecules 0.5 to 3 nm Methane Molecule nm Horizontal Oil-8

9 Sub-Sample 72H_1 1,000 (nm) 1,000 (nm) Field Emission Scanning Electron Microscopy (SEM) Cube of Focused Ion Beam Cuts (15 nm Slices) 10 nm Resolution Connected Pore Network 1,300 nd Permeability Cube = 1,000,000 Oil Molecules Horizontal Oil-9

10 Open 500-1,000 nm Pores in Eastern Core Backscatter Electron Image Fewer Large Pores than Eagle Ford Overall but Thicker Pay Section Generally Higher Gas-Oil-Ratio than Eagle Ford Due to Preponderance of Smaller Pore Throats X-Ray Spectral Map - Rigid Framework X-Ray Spectral Map - Clays Horizontal Oil-10

11 5 μm 5 μm Micro X-Ray Tomography (200 nm Resolution) Connected Pore Network Next Steps Upscaling to Mappable Parameters - Geochemical Analyses - Mercury Injection Capillary Pressure Work - Proprietary Core-Calibrated Petrophysical Algorithms Horizontal Oil-11

12 Retrograde Condensation Impedes Matrix Flow in WET GAS Maturation Window Producing Time EOG is Focusing Updip in the VOLATILE OIL Window - Corollary Issue with Gas Exsolution from Oil Producing Time Horizontal Oil-12

13 Gas Breakout Ameliorating Factors Massive Multistage Fracs Spread Pressure Drawdown Broadly in the Formation Fracs Designed to Preserve Matrix Oil Flow Paths Gas Breakout Provides Drive Mechanism Boosting Overall Recovery Efficiency Significant Value Uplift from Extreme NGL Loading of Typical Breakout Gases Horizontal Oil-13

14 The Proof is in The Production Horizontals - Limited Production Histories Due to Play Vintages and Quick Shut-Ins for Offset Fracs - Even Minimal Offset Depletion Impacts Achievable Frac Complexity - Drilling and Completing in Rolling Multi-Well Patterns to Maximize Recoveries - Early Flowback Data Showing Some Matrix Support Verticals - Long Production Histories Available for Sub-Economic Bailout Wells with Primitive Completions - Diagnostic Pressure/Rate Analyses Confirm Matrix Contribution Horizontal Oil-14

15 Bopd Typical Oil Decline Curves 232 Mbo Eagle Ford Hyperbolic (B = 0.65) Fracture + Matrix 39 Mbo Eagle Ford 21 Mbo Barnett Combo Hyperbolic (B = 1.5) Matrix Dominant 165 Mbo Austin Chalk Near Exponential (B = 0.3) Fractures Only Years Long-Term, Low-Rate Production from Multiple Wells in Both Eagle Ford and Barnett Oil Windows Acid Jobs or Very Small Fracs Flow Decline Characteristics Indicate Matrix Support Vertical Wells Show Semi-Random Access to Fracture Systems and Limited Matrix Connectivity Horizontal Completions are the Solution Horizontal Oil-15

16 More Rigorous Approach to Flow Regime Identification In Combination with Proprietary Reservoir Models Allows Quantification of Matrix/Fracture Contribution Long-Lived Vertical Wells Confirm Matrix Flow in Barnett and Eagle Ford Only Short Horizontal Histories but Evidence of Early Matrix Support Press sure Drawdown Per Unit Producti ion Rate 10,000 1, Austin Chalk Fracture Flow Increasing Derivative Eagle Ford Matrix Flow Flat Derivative 100 1,000 10,000 Days r Unit Production Rate re Drawdown Pe Pressu 1, Eagle Ford Matrix Flow Flat Derivatives Days Vertical Wells Horizontal Wells Eagle Ford Horizontal Oil-16

17 Hybrids Conventional but Low Permeability Reservoirs in Two Types of Traps Type A Bakken Supercharged with Oil from Adjacent Shales Forming Extensive Basin-Centered Saturation Cells Core Sweetspots and Surrounding Lite Areas with Overall Potential in Billions of Barrels Large Unleased Positions Available to Early Movers Type B Waskada Conventional Stratigraphic and Structural Traps with More Moderate Extents Halos of Horizontal Locations Beyond Economic Limits of Old Vertical Production Legacy HBP Issues Locally but Many Opportunities Available in the 5-50 MMbo Range Shales Large Areas of Hydrocarbon Saturation Typical but Not All Name-Brand Shales Have an Oil Leg Attached - Haynesville Fully Cooked to Gas - Fayetteville Eroded by Ozark Uplift - Marcellus Thin and Under-Pressured Only the Best-of-the-Best the Can Produce Economic Oil with Current Technology - Best Permeability Eagle Ford - Richest Oil-in-Place/Section Barnett Horizontal Oil-17

18 Now in Fourth Year of Horizontal Oil Initiative Competitive Advantages in Identifying Suitable Rocks Head Start on Completion Techniques Unique Recipe Required for Each Play - Open Versus Closed Fractures - Nano Versus Microdarcy Matrix Permeabilities - Rock Strength Versus Proppants - Pressure and Geostress Settings - Frac Barriers and Geohazards Horizontal Oil-18

19 Shales Liquids Growth Forecast is Underpinned by Proven Horizontal Plays in Full Development Mode Net Acres (000 s) Net Reserve e Potential* (MMboe) Booked at 12/31/09 (MMboe) Eagle Ford Barnett Combo Hybrids Bakken/Three Forks Waskada - Canada Cleveland Total , , Working on Spacing Optimization, Program-Mode Cost Cutting, and Further Completion Tune-Ups * Potential, not proved reserves Horizontal Oil-19

20 Appraising Additional Shale and Hybrid Discoveries DJ Niobrara High IP Wells on Sweetspot within 400,000 Net Acre Position U.S. Waskada 20 MMboe Net Potential* on 57,000 Acre Extension to Canadian Development Generated and Captured a Number of Additional Horizontal Oil Exploration Plays Drilling/Testing Initial Wells this Year Leased 2,100, Net Acres So Far Plan to Accelerate Acreage Accretion on Individual Plays at Proof-of-Concept * Potential, not proved reserves Horizontal Oil-20

21 Proven Horizontal Oil Plays are Delivering ATROR* 30% % at Current Prices All-In Full Cycle RORs will Drive Superior ROCE Performance for the Next Decade - Program Mode Cost Cutting + Recovery Improvements - Massive Numbers of Wells Sharing Infrastructure The Horizontal Oil Revolution is Coming Bakken, Eagle Ford and Barnett Combo will Probably Rank #5, #6, and #17 on List of All Time Giant U.S. Oil Fields - Prudhoe Bay #1 at 13 Billion Barrels - Coalinga Oldest in All Three Fields Discovered Post 2000 EOG Premier Position as First Mover in all Three * See reconciliation schedule; Based on the March 10, 2010 five year strip of $5.91 NYMEX Henry Hub and $86.90 WTI, then $5.50 and $90.00 held flat thereafter. Horizontal Oil-21

22 Copyright; Assumption of Risk: Copyright This presentation and the contents of this presentation have been copyrighted by EOG Resources, Inc. All rights reserved. Copying of the presentation is forbidden without the prior written consent of EOG Resources, Inc. Information in this presentation is provided as is without warranty of any kind, either express or implied, including but not limited to the implied warranties of merchantability, fitness for a particular purpose and the timeliness of the information. You assume all risk in using the information. In no event shall EOG or its representatives be liable for any direct, special, indirect or consequential damages resulting from the use of the information. Cautionary Notice Regarding Forward-Looking Statements: This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, including, among others, statements and projections regarding EOG's future financial position, operations, performance, business strategy, returns, budgets, reserves, levels of production and costs and statements regarding the plans and objectives of EOG's management for future operations, are forward-looking statements. EOG typically uses words such as "expect," "anticipate," "estimate," "project," "strategy," "intend," "plan," "target," "goal," "may," "will" and "believe" or the negative of those terms or other variations or comparable terminology to identify its forward-looking statements. In particular, statements, express or implied, concerning EOG's future operating results and returns or EOG's ability to replace or increase reserves, increase production or generate income or cash flows are forward-looking statements. Forward-looking statements are not guarantees of performance. Although EOG believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, EOG's forward-looking statements may be affected by known and unknown risks, events or circumstances that may be outside EOG's control. Important factors that could cause EOG's actual results to differ materially from the expectations reflected in EOG's forward-looking statements include, among others: the timing and extent of changes in prices for natural gas, crude oil and related commodities; changes in demand for natural gas, crude oil and related commodities, including ammonia and methanol; the extent to which EOG is successful in its efforts to discover and market reserves and to acquire natural gas and crude oil properties; the extent to which EOG can optimize reserve recovery and economically develop its plays utilizing horizontal and vertical drilling and advanced completion technologies; the extent to which EOG is successful in its efforts to economically develop its acreage in, and to produce reserves and achieve anticipated production levels from, its existing and future natural gas and crude oil exploration and development projects, given the risks and uncertainties inherent in drilling, completing and operating natural gas and crude oil wells and the potential for interruptions of production, whether involuntary or intentional as a result of market or other conditions; the availability, proximity and capacity of, and costs associated with, gathering, processing, compression and transportation facilities; the availability, cost, terms and timing of issuance or execution of, and competition for, mineral licenses and leases and governmental and other permits and rights of way; changes in government policies, laws and regulations, including environmental and tax laws and regulations; competition in the oil and gas exploration and production industry for employees and other personnel, equipment, materials and services and, related thereto, the availability and cost of employees and other personnel, equipment, materials and services; EOG's ability to obtain access to surface locations for drilling and production facilities; the extent to which EOG's third-party-operated natural gas and crude oil properties are operated successfully and economically; EOG's ability to effectively integrate acquired natural gas and crude oil properties into its operations, fully identify existing and potential problems with respect to such properties and accurately estimate reserves, production and costs with respect to such properties; weather, including its impact on natural gas and crude oil demand, and weather-related delays in drilling and in the installation and operation of production, gathering, processing, compression and transportation facilities; the ability of EOG's customers and other contractual counterparties to satisfy their obligations to EOG and, related thereto, to access the credit and capital markets to obtain financing needed to satisfy their obligations to EOG; EOG's ability to access the commercial paper market and other credit and capital markets to obtain financing on terms it deems acceptable, if at all; the accuracy of reserve estimates, which by their nature involve the exercise of professional judgment and may therefore be imprecise; the timing and extent of changes in foreign currency exchange rates, interest rates, inflation rates, global and domestic financial market conditions and global and domestic general economic conditions; political developments around the world, including in the areas in which EOG operates; the extent and effect of any hedging activities engaged in by EOG; the timing and impact of liquefied natural gas imports; the use of competing energy sources and the development of alternative energy sources; the extent to which EOG incurs uninsured losses and liabilities; acts of war and terrorism and responses to these acts; and the other factors described under Item 1A, "Risk Factors," on pages 14 through 19 of EOG's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and any updates to those factors set forth in EOG s subsequent Quarterly Reports on Form 10-Q. In light of these risks, uncertainties and assumptions, the events anticipated by EOG's forward-looking statements may not occur, and, if any of such events do, we may not have anticipated the timing of their occurrence or the extent of their impact on our actual results. Accordingly, you should not place any undue reliance on any of EOG's forward-looking statements. EOG's forward-looking statements speak only as of the date made and EOG undertakes no obligation, other than as required by applicable law, to update or revise its forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise. Oil and Gas Reserves; Non-GAAP Financial Measures: Effective January 1, 2010, the United States Securities and Exchange Commission (SEC) now permits oil and gas companies, in their filings with the SEC, to disclose not only proved reserves (i.e., quantities of oil and gas that are estimated to be recoverable with a high degree of confidence), but also probable reserves (i.e., quantities of oil and gas that are as likely as not to be recovered) as well as possible reserves (i.e., additional quantities of oil and gas that might be recovered, but with a lower probability than probable reserves). As noted above, statements of reserves are only estimates and may not correspond to the ultimate quantities of oil and gas recovered. Any reserve estimates provided in this presentation that are not specifically designated as being estimates of proved reserves may include estimated reserves not necessarily calculated in accordance with, or contemplated by, the SEC s latest reserve reporting guidelines. Investors are urged to consider closely the disclosure in EOG s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, available from EOG at P.O. Box 4362, Houston, Texas (Attn: Investor Relations). You can also obtain this report from the SEC by calling SEC-0330 or from the SEC s website at In addition, reconciliation and calculation schedules for non-gaap financial measures can be found on the EOG website at