CAPROCK INTEGRITY FOCUS Analyzing How To Utilize Technical Testing Methodologies To Ensure Caprock Integrity Tuesday, May 24 th, 2011
Forward-Looking Information and Advisories This presentation contains "forward looking information" within the meaning of applicable Canadian securities laws. Forward looking information is included in this presentation with respect to, among other things: estimates of reserves and resources and future net revenue associated therewith; forecast netbacks and the anticipated benefits thereof; anticipated timing associated with the phased development of Alberta Oilsands Inc.'s ("AOS'") Clearwater, Hangingstone, Grand Rapids and Algar Lake properties (including anticipated timing for receipt of regulatory approvals, delineation, drilling, completion project plans, commencement of construction, first steam, commencement of production and timing of stakeholder consultations); expectations of future production and bitumen production goals; the anticipated application of certain technologies to enhance production; funding requirements and capital expenditures associated with such development; achieving commerciality; future development of AOS' conventional assets and its reserves and resource base; and general operational and financial performance in future periods. With respect to forward looking information contained in this presentation, AOS has made assumptions regarding, among other things: the future growth of AOS, operating costs; future prices for crude oil, natural gas, bitumen and refined products; AOS' ability to generate sufficient cash flow from operations and to access existing credit facilities and capital markets to meet its future obligations; the legal and regulatory framework representing royalties, taxes and environmental matters where AOS conducts its business; and future economic conditions. Although the forward looking information contained in this presentation is based upon assumptions which management of AOS believes to be reasonable, AOS cannot assure investors that actual results will be consistent with this forward looking information. Forward looking information involves significant known and unknown risks and uncertainties. A number of factors, many of which are beyond the control of AOS could cause actual results to differ materially from the results discussed in the forward looking information. Some of the risks that could affect the future results of AOS and could cause results to differ materially from those expressed in the forward looking information of AOS include: the need to obtain required approvals and permits from regulatory authorities; the impact of competition; compliance with and liabilities under environmental laws and regulations; the uncertainties of estimates by AOS' independent consultants with respect to the company's reserves and resources; the volatility of crude oil, natural gas, bitumen and refined product prices; economic conditions in Canada and globally; changes to royalty regimes and government regulations regarding royalty payments; risks associated with exploring for, developing, producing, processing, storing and transporting crude oil, bitumen and natural gas; geological, technical, drilling and processing problems; imprecision in estimating capital expenditures and operating expenses; imprecision in estimating the timing, costs and levels of production and drilling; imprecision in estimates of future production capacity, potential delays or changes in plans with respect to exploration and development projects or capital expenditures; and changes to regulations and legislation applicable to the Corporation and the interpretation thereof including tax and environmental legislation and regulations in the provinces of Canada in which AOS conducts its business. These and additional risks and uncertainties relating to the business and operations of AOS are described in detail in its most recently filed Annual Information Form, which is available on SEDAR at www.sedar.com. Statements relating to "reserves" and "resources" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the described reserves and resources, as the case may be, exist in the quantities predicted or estimated, and can be profitably produced in the future. "Contingent resources" means those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. "Prospective resources" means those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. It should be noted that reserves, contingent resources and prospective resources involve different risks associated with achieving commerciality. There is no certainty that it will be commercially viable to produce any portion of the resources described in this presentation. Further, there is no certainty that any portion of the prospective resources described in this presentation will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources. The prospective resource estimates set forth herein have been risked for the chance of discovery but not for the chance of development and hence are considered partially risked estimates. If a discovery is made, there is no certainty that it will be developed or, if it is developed, there is no certainty as to the timing of such development. In addition, the estimated future net revenues and values contained in this presentation do not necessarily represent the market value of such reserves or resources. In addition to the foregoing, investors are cautioned that this presentation contains forecasted netbacks. The forecasted netbacks represent AOS' revenue, less royalties and certain operating expenses. The forecasted netbacks contained herein do not have any standardized meaning prescribed by Canadian generally accepted accounting principals and therefore are unlikely to be comparable to similar measures presented by other companies and may not be appropriate for other purposes. Management believes that forecasted netbacks are useful supplemental measures as they provide an indication of the ability of AOS to fund future growth through capital expenditures. The forward looking information contained herein is made as of the date of this presentation, and AOS assumes no obligation to update or revise it to reflect new events or circumstances, except as required by law. Because of the risks, uncertainties and assumptions inherent in forward looking information, prospective investors in the securities of AOS should not place undue reliance on this forwardlooking information. The disclosure of barrels of oil equivalent ("boe") in this presentation may be misleading, particularly if used in isolation. A boe conversion ration of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. 2
Introduction Technologies to analyze, model, monitor caprock integrity to ensure safe progress Technical tests to secure production Potential risks for caprock Compliance with changing regulations 3
Clearwater Phase I Based on experience for Clearwater West Broadly applicable to SAGD projects For information on Alberta Oilsands Inc. http://www.aboilsands.ca/ 4
Joslyn Failure - Unexpected! Collapse Area, trees bent in Trees deflected to right Trajectory of materials Vent actually slightly curved
ERCB View A definitive cause yet to be identified.
Expansion dominant force 7
Potential Failure Modes 1. Zero effective stress soil turns into quicksand and fails steam pressure moves up through caprock 2. Vertical jacking of oil sands causes heave at surface. Tension in caprock will cause rupture 3. Shear failure along edges of chamber 4. Hydraulic fracture propagates upward
Required Elements
What do you have to do? Understand geology o Caprock thickness o Unconformity below oil sands o Glacial geology o Discontinuities Frac pressures o Mini-frac tests o Understand hydraulics in wellbore Material properties o Physical properties o Flow properties o Thermal properties Initial conditions o Stress o Pressures Operating Conditions o SAGD details solvent, steam, gas
ERCB Geological Evaluation
Drained v. Undrained (time dependency) Fluid Drains
Mohr Coulomb Failure Criteria Fails at an angle in shear c is cohesion Simplification!
Clearwater Properties At large strains, i.e. an existing fault with displacement (slickenslides) have low strength this is worst case. Have not observed this yet, have to have well intersection
Strength of Clearwater Clearwater AOS If there is over consolidation, it is possible that there is cohesion
Increased fluid pressure weakens rock Change in pore pressure could induce failure
Capillary Imbibition Pressure Barrier IFT Reservoir Engineering 17
Suncor MacKay RMR report
Pressure moves up Need to know cap rock permeability Cap rock strength changes with pressure migration
Initial pore pressures Simulator will take a long time to stabilize Rainfail / surface recharge? Low permeability, piezometers take a long time to equalize Piezometer may not be stabilized in poor quality McMurray
Different confining stresses McMurray Formation Shale Source: Chalaturnyk PhD Dissertation
Young s modulus (stiffness) Source: Chalaturnyk PhD Dissertation
Heave Current run max displacement vertically of 0.40 meters (Similar to MacKay less deep but smaller pad
Core Logging The overburden, Clearwater Shale core images demonstrate Core images from the underburden, Devonian rock varied deformation. between good rock quality to karst features. Makes rock mass less stiff (good). Possibility of fluid losses at high injection presssures. Fair to Good Rock Quality - Devonian Category % Poor < 50 Fair 50-75 Good > 75 Poor Rock Quality - Devonian
Mini-Frac Results Results correct? representative? Source: Petroleum Geomechanics Inc. report
Dipole sonic data Stresses smooth? (not) Vary over lease? (likely) Mini-frac tests representative? (maybe) Tectonics, erosion, glacial loading and salt collapse (many factors) Tie dipole sonics to mini-frac results Core to FMI images Low stress layers Minimum stresses correspond to low stress layers? Overburden stresses match
Stress Level (model output)
Keep values under 1 by S.F. i.e. 0.8 to 0.9 (critical) Stress Level
Keep values under 1 by S.F. i.e. 0.8 to 0.9 (critical) Stress Level
B 3: Shear Stress Failure Need to know initial conditions Mini-frac data Very helpful Hard to do everywhere Suggests dipole sonic logs helpful Need to know large scale features in particular any faults Design to unknown fault? Dependent on strength of rock (Mohr-Coulomb criteria) Need average properties of materials
Morphology of Joslyn failure Horizontal fractures will turn vertical Point fracture source will turn into a cup Vertical fractures will branch flower cups manifest at surface Must keep injection pressures under fracture pressure! 0 σ v σ h Depth (m) -0.6-1.2-1.8 Fracture Path from low residual area Fracture path from high residual compression region 0 1 2 3 4 5 6 7 Distance from Wellbore (m)
Water Cannon Phase Changes in Wellbore Originally a waste heat line, venting to water pool (in nuclear power plant) http://www.kirsner.org
Griffiths and students - MIT Note statistical nature of measurements CIWH is a function of rate and condensate subcool.
Wellbores are inherently unstable (Edmunds and Good) Intermittent Flow Edmunds recommends avoiding intermittent flow region
Conclusions Cap rock is a major issue, failure potentially catastrophic Mechanism not completely understood Multi disciplinary Needs to be aggressively addressed Significant history of CSS failures Things to know o o o o o o o Material properties Core logging FMI s Thermal expansion Dipole Sonics Monitoring Reservoir simulation with geomechanics Significant regulatory issue in project approval 35