international shale presentation

The information and data sources for this document include the Energy Information Agency (EIA) of the US Dept. of Energy, AdvancedResources International (ARI), Wood Mackenzie, Barclays, The Oil & Gas Journal, Rig Zone, Bloomberg, The Motley Fool, Seeking Alpha,and other sources including Annual Reports and investor presentations from the companies discussed in this presentation. Some of thecommentary is cited verbatim from those sources. All of the information contained in this document is confidential and proprietary toNational Oilwell Varco. Under no circumstances should this information be released, published, copied or distributed to any other partywithout the express written consent of National Oilwell Varco.

MARKET RESEARCH & ANALYSIS

INTERNATIONAL SHALE ANALYSISAN OVERVIEW OF GLOBAL SHALE ACTIVITY

August 14, 2014

Contact: [email protected]

Overview of Global Shale Activity

• Global shale development in a context of energy supply and demand

• Major shale basins– Current stages of development

– Expected timeline for development

– Potential size and productivity

– Obstacles to development

– Key operators

North American Natural Gas Contribution by Basin

Source: smartplanet.com

Slide 3

• 7,800 Tcf of gas and 335 Bbls of oil technically recoverable global resources

• Successful shale gas exploitation in the United States indicates the potential that shale resources can hold

Overview of Global Shale Activity

The Future of Shale

Slide 4

Source: BP Energy Outlook 2030 Source: BP Energy Outlook 2030

China19%

Argentina14%

Algeria12%USA

12%

Canada10%

Mexico9%

Australia8%

South Africa7%

Russia5%

Brazil4%

Shale Gas

Where is the Shale?

Russia27%

USA21%

China11%

Argentina10%

Libya9%

Australia6%

Venezuela5%

Mexico5%

Pakistan3% Canada

3%

Shale Oil

Where is the Shale?

Source: carbonbrief.org

MM

bo

e/d

Why are Unconventional Resources Important?

Bbls – Billion barrels of oilBcf – Billion cubic feet of gasbls – Barrels of oilboe – Barrels of oil equivalentcf – Cubic feet of gascfe – Cubic feet of gas equivalentMbls(boe) – Thousand barrels of oil (equivalent)Mcf(e) – Thousand cubic feet of gas (equivalent)MMbls(boe) – Million barrels of oil (equivalent)MMcf(e) – Million cubic feet of gas (equivalent)Tcf(e) – Trillion cubic feet of gas (equivalent)/d – Per day

Slide 8

Abbreviations/Units

I. Europe

• Largely gas dominated• Most of Europe opposes fracing:

– In eastern Europe, Ukraine only country allowing E&D– UK institutes 18 month fracing moratorium after possible fracing-caused

earthquake– 400+ Spanish towns declare “frac-free zones”– Germany lifts fracing moratorium– Poland most favorable infrastructure and public support

• Russia most “fracing friendly” with best geology– Most shale oil reserves in the world at 75 Bbls– Bazhenov shale is Russia’s most attractive play– Western IOCs assisting Russian NOCs with shale techniques

Slide 10

European Shale

Activists in an anti-fracingdemonstration outside the European Commission Building.

West Siberian BasinBazhenov

Formation

West Siberian Basin

• Located in Russia between the Ural Mountains and Yenisey River.

• Largest basin in the world

– 850,000 square miles

– Bakken is 200,000 square miles

• Oil dominated basin– Not enough public information to determine recoverable

resources

• Northern region not considered prospective:

– Depth greater than 5,000 meters

– Bazhenov Formation most prospective area

Slide 12

West Siberian Basin

A drill site in Russia’s West Siberian Basin

Rosneft*ExxonMobil JV

Surgutnefte-gaz*

GazpromNeft* Lukoil*TNK-BP* (Rosneft)

Acreage N/A N/A N/A 640,000 N/A

Shale Well Count

Production Rates - - - - -

IP Rates - - - - -

EUR 18 Bbls 30 MMbls (1P) - - 4.5 Bbls

Still in exploration

phase

Plans to commence shale

production in 2015

Plans to invest $150 million to develop

Bazhenov shale

Working on 7 projects with 6 more projects

planned

* Indicates operator not commercially producing shale hydrocarbons yet

No plans for shale

production

Bazhenov Formation Operators

Domanik Formation

Timan-Pechora Basin

Arctic Circle

Timan-Pechora Basin

• Located in northern region of Timan-Pechora Basin– Remote location in extreme weather environment

• 122,000 square miles

• Oil rich shale– Insufficient data to estimate recoverable resources

• Favorable mineralogy (<10% clay)– Correlated to Duvernay Formation in Canada

Slide 15

Domanik Formation

A Drill site in Russia’s Domanik Shale Formation in the Timan-Pechora Basin

Rosneft*BP JV

Rosneft*Statoil JV

Acreage Exploration phase Exploration phase

Shale Well Count - -

Production Rates - -

IP Rates - -

EUR - -


Domanik Formation Operators

050

100150200250

Can

nin

g

Geo

rgin

a

Co

op

er

Mar

cellu

s

Tcf

Gas

Resource Potential

II. Australia

Slide 17

• Geologic conditions resemble North America• Slow development due to remote locations• Cooper basin already has infrastructure and processing

facilities– Higher clay contents yield fracing uncertainty– Higher CO2 levels add risk– Favorable faulting

Slide 18

Australian Shale

Overlooking Sydney and Sydney Harbor

Cooper Basin

• Located in Australia at the South Australia/Queensland border

• Approximately 50,000 square miles• Estimated recoverable resources in the region are 93 Tcf

gas and 1.6 Bbls oil• Resources at depths between 5,000 and 10,000 feet• Prime location to service large populations in southeast

Australia– Infrastructure already in place

Slide 20

Cooper Basin

A drill site in Australia’s Cooper Basin

Beach Energy*Cooper Energy JV

Senex* Drillsearch*BG Group JV

Santos*

Acreage N/A N/A 5.7 million acres 63.4% basin assets

Shale Well Count N/A 20 planned for 2014 3 exploration

Production Rates 23,000 boe/d -Exploration stageOne well cased &

suspendedExploration phase

IP Rates 400 Mcf/d - 1.8 – 2 MMcf/d 2.5 MMcf/d30-day avg

EUR 91 MMboe - 12.2 MMboe (1P) 1.5 Bcf/well


Evaluating prospects: 23 of 25 exploration wells

cased/suspended

Cooper Basin Operators

Burgos Basin

393 Tcf6.3 Bbls

Tampico Basin

124 Tcf

Middle Magdalena Valley18 Tcf4.6 Bbls

Maracaibo Basin202 Tcf14.9 Bbls

Parana Basin84 Tcf4.3 Bbls

Neuquen Basin583 Tcf19.7 Bbls

III. Latin America

0200400600800

Bu

rgo

s

Tam

pic

o

MM

V

Mar

acai

bo

Par

ana

Neu

qu

en

Mar

cellu

s

Tcf

Gas

Resource Potential

Slide 22

• Above average shale richness in all basins

• Argentina has the most prospective shale in the world other than North America

• Colombia has put in place preferential terms for shale operators:

– 40% reduction in royalties

– Higher oil prices

Slide 23

South American Shale

Torres del Paine National Park in the Patagonia

region of South America

Neuquen Basin

• Home of the Vaca Muerta shale• Located in west-central Argentina• 67,000 square miles• Most shale in basin between 8,000 and 14,500 feet • Estimated recoverable resources of 583 Tcf gas and 19.7

Bbls oil• Neuquen Basin predicted to be the location of the next big

oil/gas boom

Slide 25

Neuquen Basin

Drill pads under completion in Argentina’s Neuquen Basin

YPF SAChevron JV

EOG Resources* Americas Petrogas*

Acreage 203,350 net 95,000 960,000

Shale Well Count 161 producing 3 gross 10-15 gross

Production Rates 20,000 boe/dStill in testing/exploration

phase

IP Rates 200 bls/d - 972,000 cf/d30-day test

EUR 750 MMboe - 6.7 Bbls (P50)

Slide 26 * Indicates operator not commercially producing shale hydrocarbons yet

Evaluating exploration wells.Intends to proceed cautiously in

the region

Neuquen Basin Operators

Middle Magdalena Valley Basin

• Located in Central Colombia• 13,000 square miles• Shale located at depths between 3,000 and

15,000 feet• Recoverable resources of 18 Tcf gas and 4.6 Bbls

oil

Slide 28

Middle Magdalena Valley Basin

A drill site in Colombia’s Middle Magdalena Valley

Basin

EcoPetrol* Canacol*Conoco/Shell/Exxon JV

Nexen* (CNOOC) Sintana Energy*

Acreage 2.7 MM250,000 total

62,000 sweet spot1.5 MM 53,750

Shale Well Count11 wells, 5 fracks

planned thru 201511 exploration wells planned thru 2015

Long-term investments depend on results of

exploration wells

Production Rates $117 MM CapEx - -

IP Rates - 7,500 bls/dtest - -

EUR 31.7 Tcf N/A - 210 MMbls

$250 MM CapEx


Exploration phase in

ExxonMobil JV

Middle Magdalena Valley Operators

• Excellent potential for developing shale oil & gas resources• Eagle-Ford shale extending through south Texas border is most

prospective shale• Geology more complex in southeast areas• PEMEX is the only operator allowed in the country

– Mexican gov plans to open drilling to IOCs in 2015 or 2016

• Shale wells have been very costly:– $20-$25 million per well– Modest initial flow rates with very steep decline

• Mexico’s shale development constrained by several factors:– Limits on upstream investment– Poor capabilities of local service sector– Public security concerns in many shale areas

Slide 30

Mexican Shale

A PEMEX drill site in Mexico’s Burgos Basin

Burgos/Tampico Basins

• Located in the northeastern part of Mexico’s Coahuila State

• 24,200 square miles• Recoverable resources: 517 Tcf gas and 6.3 Bbls oil• Average shale depth of 11,500 feet• PEMEX currently only operator in Mexico

– Predicts commercial shale operations to begin in 2015

• Government plans to bring in IOCs by 2016

Slide 32


A PEMEX drill site in Mexico’s Tampico Basin

PEMEX*

Acreage All

Shale Well Count 175 total after 2014

Production Rates N/A

IP Rates N/A

EUR N/A


Burgos/Tampico Operators

Tindouf Basin43 Tcf0.3 Bbls

Timimoun Basin209 Tcf

Ghadames Basin351 Tcf12.3 Bbls Sirte Basin

53 Tcf18.2 Bbls

IV. North Africa

0100200300400

Tin

do

uf

Tim

imo

un

Gh

adam

es

Sirt

e

Mar

cellu

s

Tcf

Gas

Resource Potential

Slide 34

• Majority of shale is “hot shale”– High uranium content

• Shale is immature in the north, but matures southward• Libya an important hydrocarbons producing country

– Assessment of shale reserves halted during the 2012 uprising– Chairman suggested plans to assess Libya’s shale reserves and

bring in IOCs with unconventional resource extraction technology

• Most shale activity taking place in the Tunisian sector of Ghadames Basin

Slide 35

North African Shale

A caravan makes its way past the Pyramids of Giza in

northern Egypt

Ghadames Basin

• Located in Algeria and Tunisia– Nearly all shale operations in Tunisia

• 2,500 square miles in Tunisia• 351 Tcf gas and 12.3 Bbls oil technically recoverable

resources across entire basin– 23 Tcf gas and 1.5 Bbls oil in Tunisian sector

• Shale located between 8,000 and 14,500 feet

Slide 37

Ghadames Basin

A convoy of seismic trucks makes its way through the northern Sahara Desert on its way to a survey site

Cygam Energy* Chinook Energy* Serinus Energy* Perenco Tunisia*

Acreage 1.5 MM 1.4 MM 247,000 38,000

Shale Well Count8 new wells planned

for 2014Exploration wells

underway13 producing

1 well drilled/fracedin 2010

Production Rates 2,300 bls/d 1,345 boe/d 10,000 boe/dConventional production

IP Rates Exploration phase - N/ANot producing shale resources as of 2012

EUR N/A N/A 11.5 MMboe (2P) N/A


Agreed on sale of Tunisia assets to

MedcoEnergi (June 16, 2014)

Ghadames Basin Operators

Karoo Basin

370 Tcf

V. South Africa

0100200300400

Tcf

Gas

Resource Potential

Slide 39

• Karoo Basin:– Igneous intrusions and complex geology create significant

risks

• Moratorium on fracing lifted in 2012• Government will not allow exploration until more

environmental studies are competed

Slide 40

South African Shale

A group of cheetahs relax in the South African sun

Karoo Basin

• 236,400 square miles in central to east South Africa

• Recoverable resources of 370 Tcf gas– Depths between 6,000 and 10,000 feet

• Fracing not permitted until further environmental tests are completed– Operators have claimed their stakes in the region and are

waiting to start E&D

Slide 42

Karoo Basin

A team of geologists prepare for a seismic survey in South Africa’s

Karoo Basin

Falcon Oil & Gas*Chevron JV

Shell Oil*Challenger

Energy*Sasol*

Chesapeake/Statoil JV

Acreage 7.5 MM 45.7 MM 800,000 21.8 MM

Shale Well Count

Production Rates

IP Rates

EUR


NO SHALE PRODUCTION, EXPLORATION, OR DEVELOPMENT CURRENTLY ALLOWED IN

REGION

Karoo Basin Operators

South China/Yangtze Platform

Sichuan Basin626 Tcf

Junggar Basin36 Tcf

12.1 Bbls

Tarim Basin216 Tcf8.6 Bbls

Songliao Basin16 Tcf

11.5 Bbls

VI. China

0200400600800

Sich

uan

Jun

ggar

Son

glia

o

Tari

m

Mar

cellu

s

Tcf

Gas

Resource Potential

Slide 44

• 285 shale wells as of YE 2013– 7 Bcf shale gas produced in 2013

• Shale oil tends to be waxy and stored in lacustrine-deposited shales– Clay rich – Less favorable for hydraulic stimulation

• Sichuan Basin:– quartz rich, black shales– Roughly comparable to North American analogs– Shales tend to be very faulted

• PetroChina’s first well took 11 months to drill

– Current exploration focusing on southwest quadrant • Relatively less faulted and low in H2S

– Hydraulic fractures grow planar due to high stress

• Most shale basins located in remote parts of the country– Development slowed due to lack of infrastructure and processing facilities– Lack of water

Slide 45

Chinese Shale

Looking east near the Chinese city of Dali

Overlooking Linfen, China;

the world’s most polluted city

Sichuan Basin

• 74,500 square miles • South-central China• Recoverable resources 625.9 Tcf gas

– Depths between 3,280 and 16,400 feet

• Considerable work needed:– Define geological sweet spots – Develop service sector’s processing capacity – Install infrastructure

• General estimates for the region (as of 2010) are:– 3.3 MMcf/d IP rates– 3.54 Bcf per well EURs– $2.45 CapEx/Mcfe– $4.58/Mcf breakeven

Slide 47

Sichuan Basin

A CNPC drill site in the Sichuan Basin

PetroChinaShell JV

SinopecBP/FTS

International JV

Shell* ConocoSinopec JV

BP*Sinopec JV

ENI*PetroChina JV

Exxon* Statoil* EOG

Acreage N/A N/A 850,000 1.5 MM 750,000 900,000131,000

developed

Shale Well Count

N/A 305

exploration wells

N/AExploration

phase - -2 wells beganproduction in

2014,6 wells planned

for 2014

Production Rates

N/A 0.6 MMcf/d None yet3 MMcf/d

713 MMcf/d predicted

- - - - 7 MMcf/d

IP Rates N/A N/A 2 MMcf/d N/A - - - - N/A

EUR N/A N/A N/A N/A - - - - N/A

Has interest in production/ex

ploration blocks

Currently evaluating

acreage

Negotiating with

PetroChina for shale block


Sichuan Basin Operators

Junggar Basin

• Located in northwest China • 62,000 square miles• Not as remote as most Chinese basins

– Close to markets and region capitol, Urumqi– Good infrastructure

• Untested, highly prospective shale deposits– Rich shale– Favorable geology– Over-pressured

• Shale at depth of 10,000 feet– 12.1 Bbls recoverable oil– 36 Tcf recoverable gas

Slide 50

Junggar Basin

Overlooking the steppes of the Junggar Basin

HESS*Shell/PetroChina JV

Petromin

Acreage 200,000

Shale Well Count

One well completedFurther drilling planned for 2014

Production Rates

Exploration phase

IP Rates -

EUR -

Pulled out of production sharing agreement with PetroChina on

July 7, 2014

Believes PetroChina made several infractions in the agreement and

is currently seeking damages


Junggar Basin Operators

Songliao Basin

• China’s largest oil field– 108,000 square miles

• Located in northeast China• Recoverable resources 11.5 Bbls oil and 16 Tcf gas

– Located at depth of 5,500 feet

• Structurally complex basin• Lucastrine sedimentary origin

– Clay rich shale– Unsure how shale would respond to fracing

• Already possesses good infrastructure due to ongoing conventional production

Slide 53

Songliao Basin

A CNPC drill site in the Songliao Basin

An end-of-life conventional well in the Songliao Basin

Hess*Shell/PetroChina JV

Jilin Oilfield Co. (CNPC)*

Acreage 200,000 Southern region

Shale Well Count

Exploration phase 10 gas wells drilled/fraced as of 2013

Production Rates - Wells reported successful

IP Rates - N/A

EUR - N/A


Songliao Basin Operators

55Slide 55

Tarim Basin

• China’s largest on-shore sedimentary basin– 234,000 square miles

• Located in western China’s Xinjiang Autonomous Region– Dry, remote, lightly populated region– Lacks infrastructure for transporting hydrocarbons– Underground aquifers could supply frac water

• 261 Mbls/d conventional production (2011)• 216 Tcf recoverable gas and 8.6 Bbls recoverable oil• Most shale too deep for production (>5,000 m)• TOC unfavorable at <2%• Favorable geology with 7 distinct structural zones

Slide 56

Tarim Basin

Overlooking the steppes of the Tarim Basin

Travelling along a road through the Tarim Basin

The Big Picture: Supply and Demand

0

1

2

3

4

5

6

0 200 400 600 800

Leve

l of

Ris

k

Technically Recoverable Resources

Basin Prospectivity

West Siberian Basin

Timan-Pechora Basin

Cooper Basin

Neuquen BasinMiddle Magdalena Valley Basin


Ghadames Basin

Karoo Basin Sichuan BasinJunggar Basin

Songliao Basin

Tarim Basin

How the Plays Stack Up

Slide 58

• International shale gaining attention as conventional production declines

• Operators beginning to make major shale investments all over the globe

Slide 59

Why is Shale Important?

World Natural Gas Production by Source

Source: EIASource: EIA

international shale presentation

Documents

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future of shale slide

shale techniques

bblsbazhenov shale

international shale

european shale activists

cubic feet of gas equivalentd

oil gas journal