unconventional oil plays opportunity vs risk

EnerCom’s London Oil & Gas Conference™ 4June 14, 2012Sofitel London

EnerCom’s London Oil & Gas Conference™ 4June 14, 2012Sofitel London

Unconventional Oil PlaysOpportunity vs Risk

Unconventional Oil PlaysOpportunity vs Risk

Danny D. Simmons

1000 BOPD - What a great well!1000 BOPD - What a great well!

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12/2009 1/2010 2/2010 3/2010 4/2010 5/2010 6/2010 7/2010 8/2010 9/2010 10/2010 11/2010 12/2010

BO

PD

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If only it was always so easy . . .If only it was always so easy . . .

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Time

Rat

e

50 mbo

400 mbo

200 mbo

• How much oil and/or gas are wells going to make, and

• Can my Company make $ drilling wells?

• How much oil and/or gas are wells going to make, and

• Can my Company make $ drilling wells?

Fundamental Goals of Reservoir EngineeringFundamental Goals of Reservoir Engineering

OOIPOOIP

OGIPOGIP

TemperatureTemperature

TOCTOC

Porosity vs. TOCPorosity vs. TOC

PorosityPorosity

PressurePressureFluid AnalysisFluid Analysis

Free Gas vs. Adsorbed GasFree Gas vs.

Adsorbed Gas

Natural FracturesNatural

FracturesHydraulic FracturesHydraulic FracturesRoRo

Permeability -Natural

Permeability -Natural

Permeability -Induced

Permeability -Induced

Well SpacingWell SpacingRecovery

FactorRecovery

Factor

Vertical vs. LateralVertical vs. LateralRecovery per Incr. Lateral Foot

Recovery per Incr. Lateral Foot

PricesPrices

CostsCosts

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GR GRRT D,N

10’High Quality Net

60’ Quality Net

General PrinciplesGeneral Principles

Higher silt content(Rt and Rhob)

Higher organic

content

(GR)

HydrocarbonProfile

Higher silt content

(Rt and Rhob)

430' Gross

250' Net < 2.5 g/cc

OGIP+/- 175 BCF/Sq Mi

More is Better…

Storage Capacity (In-Place)

Flow Capacity (Permeability)

Reservoir Energy (Rec. Factor)

More is Better…

Storage Capacity (In-Place)

Flow Capacity (Permeability)

Reservoir Energy (Rec. Factor)

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Unconventional OilUnconventional Oil

Description: Oil resources not economical to produce using conventional oil and gas recovery techniques

Sources: Heavy Oil (<20° API) Tight Oil Reservoirs

♦ Shales♦ Low permeability sandstones and carbonates

Oil Shale (solid rock) Oil Sands

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High-Activity Unconventional Oil PlaysHigh-Activity Unconventional Oil Plays

• Bakken/Three Forks Reservoirs Williston Basin Montana and North Dakota

• Niobrara Reservoir Denver-Julesburg Basin, Powder River Basin, Laramie

Basin, Others Colorado and Wyoming

• Eagle Ford Reservoir South Texas

• Mississippian Reservoir Northern Oklahoma and Southern Kansas

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Bakken Shale / Three Forks ReservoirsBakken Shale / Three Forks Reservoirs

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Bakken/Three Forks – Areal ExtentBakken/Three Forks – Areal Extent

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Bakken/Three Forks – LithologyBakken/Three Forks – Lithology

Source: “Elm Coulee” Oil Field Richland County, Montana Bakken Oil Well Frac Treatment

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Bakken/Three Forks – Why the Excitement?Bakken/Three Forks – Why the Excitement?THREE FORKS, BAKKEN, AND SANISH OIL PRODUCTION AND WELL COUNT

MONTANA AND NORTH DAKOTA

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Oil

(BBL

/Day

)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Wel

l Cou

nt

ND Sanish and Three ForksND Sanish, Three Forks, and BakkenND and MT Sanish, Three Forks, and BakkenTotal Well Count

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Bakken/Three Forks – Fluid PropertiesBakken/Three Forks – Fluid Properties

Oil Density = 42 API (Sweet)Oil Viscosity = 0.3 CP at Reservoir ConditionsInitial Solution GOR = 500 to 800 SCF/BBLSolution GOR at 3 Years = 800 to 1,100SCF/BBLSolution Gas Heating Value = 1,500 BTU/SCF

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Bakken/Three Forks Example WellBakken/Three Forks Example Well

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Bakken Development IssuesBakken Development Issues

• Pipeline Capacity• Gas Processing Capacity• Infrastructure Capacity• Workforce• Optimal Well Spacing

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Niobrara ShaleNiobrara Shale

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Niobrara Producing BasinsNiobrara Producing Basins

• Powder River Basin• DJ Basin • Laramie Basin• Hanna Basin• Sand Wash Basin• Piceance Basin• North Park Basin• San Juan Basin• Raton Basin

Source: Hart Energy

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Denver-Julesburg Basin NiobraraDenver-Julesburg Basin Niobrara

Source: Adapted from Sonneburg, 2010

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Wells That Sparked the Niobrara Horizontal Drilling PlayWells That Sparked the Niobrara Horizontal Drilling Play

• EOG Resources: #2-01H Jake, Weld Co. 3Q 2009; Max rate to sales 1,558

BOPD 3,800-ft lateral, TMD 11,838 ft. Made 50,000 BBLS in 1st 90 days on

line

• Noble Energy: #1-99H Gemini K, Weld Co. Made 60,000 BOE in 1st 60 days on

line

• SM Energy: #1-H Atlas, Laramie Co., WY Produced 1,700 BOPD 1st week on

line

Source: PDC Energy – Hart Energy DUO Conference, May 2011

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Horizontal vs. Vertical PerformanceHorizontal vs. Vertical Performance

Source: Adapted from Noble Energy, Inc.

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Eagle Ford ShaleEagle Ford Shale

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Eagle Ford Shale PlayEagle Ford Shale Play

Source: http://www.eia.gov/oil_gas/rpd/shaleusa9.pdf21

StratigraphyStratigraphy

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EOG Eagle Ford WellsEOG Eagle Ford Wells

Source: EOG Resources, Inc.

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Eagle Ford Production HistoryEagle Ford Production History

Source: http://www.rrc.state.tx.us/eagleford/index.php24

Eagle Ford Production HistoryEagle Ford Production History

Source: http://www.rrc.state.tx.us/eagleford/index.php25

Eagle Ford Production HistoryEagle Ford Production History

Source: http://www.rrc.state.tx.us/eagleford/index.php26

Drilling ActivityDrilling Activity

Source: http://www.rrc.state.tx.us/eagleford/index.php27

Mississippian Lime ReservoirMississippian Lime Reservoir

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Unconventional OpportunitiesUnconventional Opportunities

Source: SandRidge Investor Presentation February 2012

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Geologic ModelGeologic Model

Source: SandRidge Investor Presentation February 2012

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Mississippian Vertical Type Log – Woods County, OKMississippian Vertical Type Log – Woods County, OK

CUM: 34 mbo, 68 mmcfg

Induction Density-NeutronPre-Pennsylvanian Unconformity

Kinderhook

Woodford ShaleViola

Sandridge W E 1-31, Township 28 N, Range 13 W, Section 31

Mis

siss

ippi

an L

ime

Spergen D

Warsaw C

Osage B

Osage B

Lower

Compton Limestone

Cha

ttano

oga

Sha

le

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SandRidge 2011 Play DefinitionSandRidge 2011 Play Definition

Source: SandRidge Investor Presentation February 2012 32

Industry Mississippian Horizontal Drilling ActivityIndustry Mississippian Horizontal Drilling Activity

Source: SandRidge Investor Presentation February 201233

Mississippian Production Characteristics Mississippian Production Characteristics

• Complex fluid distribution Inter-bedded oil, gas, and water

• Complex drive mechanism High water-cuts and GORs for the life of the wells

• Horizontal to vertical EUR ratios are not applicable Vertical wells generally develop local conventional

structures in the chat Horizontal well generally develop the large-scale matrix

• Results are very statistical in nature

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Mississippian Example WellMississippian Example Well

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Shale PlaysEvaluation Considerations

Shale PlaysEvaluation Considerations

• Shale plays may require considerable initial capital expenditures to allow commercial access and determine economic feasibility.

• Geoscience costs tend to be very large early in shale plays: Seismic in areas without recent petroleum exploration activity Coring and laboratory analysis

• Learning curve – earliest wells in new play may deliver poor results as drilling and completion technology is perfected.

• General shale play economics improve over time due to: More effective drilling and completion techniques Better understanding of reservoir and identification of "sweet spots"

• Long-term investment Shale plays have very large in-place volumes and very large drilling

location inventories that may take decades to realize.

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Unconventional Oil ReservoirsUnconventional Oil ReservoirsKeys to Success:

Large Volumes of Oil-in-Place Successful Production Technology Development Stable, High Oil Prices

Issues: Midstream Capacity

♦ Pipelines♦ Gas Processing♦ Water Disposal

Service Capacity♦ Materials♦ Workforce♦ Support Systems

Optimal Well Density Optimal Completion and Drilling Plans

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