Kamel Eddine CHIKHISONATRACH

Essen Meeting5 – 6 March 2008

This presentation is fully dedicated to the practical preparation of our study by visiting each of the topics and requesting approvals by WOC members in order to move ahead and start the redaction.

I hope that this will give the opportunity to each of the group members to identify, according to his/her domain of expertise the area of contribution.

Introduction

As a reminder, the main areas of concern for difficult reservoirs & unconventional gas resources presented during our last meeting were as follow :

1. Resources base - Endowment

2. Importance of technology progress

3. Unconventional Gas Supply – Present status

4. Economics : Resources costs, Market prices, Operators margins

5. Environment

6. Outlook

Detailed plan

I suggest to go through each of them by declining the subtopics and highlighting what could be the key elements to be

evocated.

1 - Resources base - Endowment

Future is unconventional. Such statement needs to be clarified !

From an emerging resource a decade ago, unconventional gas is now a core business of many producers as well as a growing number of the majors.

We need first to set up the basics principles and definitions of gas resources and reserves according to 2007 SPE/WPC/AAPG/SPEE Petroleum Resources Management System (PRMS). This system was issue from the evolution of the industry, driven by advancements in technology, the international expansion of the E&P sector, and the increasing role of unconventional resources in meeting global energy needs.

Discovery & Development criteria

are critical

What is unconventional

• Coalbed methane• Shale gases • Natural gas hydrates• Water-dissolved (aquifer)

gases

• Tight reservoir gases• BCGA's* (more than 4500

m)

Really unconventional gas sources

(non-free gas content more than 5% of total gas content)

Pseudo-unconventional gas sources

(non-free gas content less than 5% of total gas content)

Following our last discussion, we need to agree definitely the following classification

* Personally, I prefer the term BCGA rather than Gas of the Deep as this is a widely used term by most of authors (see after)

BCGA comments

Attributes common to BCGAs include: Regionally pervasive gas accumulations Reservoirs may be single and isolated or vertically stacked Abnormally-pressured (over- or under-pressured) Gas accumulations are down-dip from normally-pressured, water-bearing reservoirs Gas accumulations do not have down-dip water contacts Low permeability (<1.0 md) Low Porosity Gas–saturated reservoirs Gas of thermal origin Water most often present as irreducible water Thick, regionally pervasive accumulations commonly contain interbedded water-

bearing reservoirs

There are two basic types of BCGSs: direct and indirect. A direct type is defined as having a gas-prone source rock while an indirect type is defined as having

an oil-prone source rock.

The differences in attributes for direct or indirect type BCGSs have strong implications for design of exploration strategies

Conventional vs Unconventional Reservoir

Conventional vs Unconventional Reservoirs

Reservoir Permeability Range

Resources pyramid

3.6 trillion boe of unconventional

resources

Resources base

Resources estimates : We need to report the most recent estimations

Sources to consider : USGS, EAI, HIS, …

?

Why so important variations ?

Variance Estimates : Some explanations

In some cases, only reserves have been reported without including growth factor

Some estimates don't include all basins Deterministic approach for some estimates (especially for non mature areas) Differences in considered values, most likely versus 3P Current technology vs anticipated future E&P Differences in assessment between small and big fields size Differences in geological approaches and interpretations

We need to emphasize the importance of these variances as We need to emphasize the importance of these variances as they have a strong implication on the outlook estimates @ they have a strong implication on the outlook estimates @ regional and global scales by : regional and global scales by :

Detailing the nature and effect of each parameter Detailing the nature and effect of each parameter Providing one or two case studies preferably in basins located in US or Providing one or two case studies preferably in basins located in US or

Canada where continuous assessments are made and where important Canada where continuous assessments are made and where important variations in estimates have been recorded for particular fields ex : East variations in estimates have been recorded for particular fields ex : East and Central Texas and Central Texas

Plays distribution

Unconventional natural gas resources are widespread. There're associated with most "common" petroleum systems Unconventional natural gas resources are widespread. There're associated with most "common" petroleum systems across the globe except the particular cases of CBM's and Methane hydrates. across the globe except the particular cases of CBM's and Methane hydrates. Therefore, the key issue is not discovering the resources, as is the case with conventional hydrocarbons. The central Therefore, the key issue is not discovering the resources, as is the case with conventional hydrocarbons. The central issue is identifying areas where the commercial drivers enable their economic development. issue is identifying areas where the commercial drivers enable their economic development.

New Plays

To date, the majority of unconventional gas E&P activity has been focused on North America, where declining indigenous conventional production has driven up gas prices.

Europe, India and China will be the focus of the next unconventional wave, as current and anticipated market conditions suggest commodity prices, will be sufficient to sustain commercial unconventional development.

At this stage, we need to highlight the exploration activity made by some companies for assessing such resources as MOL through its cooperation with ExxonMobil, PetroChina and CUCBM in partnership with CDX, Far East Energy Corp and ConocoPhilips ,

We need to invite experts from these companies. We need to invite experts from these companies.

Plays distribution (2)

Current distribution of some (well) known Plays

Resources estimates Canada

Methane Hydrates

Worldwide, only a few dozen boreholes have been drilled to assess marine hydrate resources.

Arctic Hydrates : found within and beneath permafrost on the North Slope of Alaska, in the Canadian arctic, and in northern Siberia.

Include for example : Alaskan accumulations located in the Prudhoe Bay-Kuparuk River area (30 TCF i.e. twice the volume of conventional gas found in the Prudhoe Bay field).

Marine Hydrates

Need for detailed maps !! + Typical Case studies

USGS

Methane Hydrates Projects (US & Japan)

Need to complete by

Russian projects

Cases studies : UG Resources base (proposal)

This part of the report will be concluded by 2 or 3 short cases studies of resources assessments dedicated to most significant unconventional accumulations.

I am suggesting the following ones :

Coalbed methane : Central Kazakhstan (new plays) / San Juan & Black Warrior basins USA

(producing) / Moura Coal Mine Australia

Shale Gas Australia, US

Methane Hydrates Russia, Japan

Tight Gas US, Canada, …

U.S. Onshore Gas Giants of the 1990s

Top onshore gas discoveries in the United States during the 1990s (eight of the top ten U.S. onshore giant gas discoveries are unconventional)

During the1990s, unconventional resources comprised 80% of the large gas field discoveries. Ofthose discoveries, tight gas sands were the most prominent of the resources being developed.

There is an ongoing technical need to delineate the size and There is an ongoing technical need to delineate the size and distribution of global unconventional gas resources, provide distribution of global unconventional gas resources, provide preliminary insights into commercial potential and begin preliminary insights into commercial potential and begin transferring the technologies needed for development, such that transferring the technologies needed for development, such that these resources can be developed in the international arena as they these resources can be developed in the international arena as they have in the USA.have in the USA.

2 - Technology

For this part of our study, I suggest that we discuss some of key research areas and to provide with typical achievements made so far

in terms of :

1. Geosciences, Resources characterization 2. Plays modeling (including hydrates)3. Drilling technology4. Completion & Stimulation5. Life mechanisms6. Surface infrastructure

Then, to conclude with the status of the R & D performed by some leaders (companies & research organizations) in the domain of unconventional gas.

We'll have to ask ?? contributions from Shell, ExxonMobil, Jogmec, Devon Energy, BP, Total, as well as representatives from the US National Methane Hydrate R&D Program, VNIIGAZ.

Table of Required Advances

GTI Workshop

2010

2020

2030

Difficult reservoirs and technologies for their E & P

Subtopics proposals (for discussion)

Definition & categorization Deep reservoirs (HT, HP), Shallow / Unconsolidated reservoirs, Heterogeneity of properties, predictability

Resources assessments and uncertainties in immature & new frontier areas

Approaches & Limitations

Key drivers for difficult reservoirs resources exploration & assessment Reservoirs qualities characterization and prediction, Anisotropy, Fracture Network, Formations Evaluations, 3D geological modeling, geostatistical modeling, production history matching, Drilling, cost reduction

Key drivers for difficult reservoirs resources Development & ProductionHydraulic fracturation optimization, wells completions, Advanced wells construction Deviated and horizontal drilling applications, Production monitoring & control, cost optimization

Preparing the future E & P of difficult reservoirs Implementation of adequate organizational strategies in both companies and

services providers, Making available adequate technical and human resources, Development of new geological/geophysical approaches, Implementation of long term organizational plans and strong integration

among the different disciplines.

3 - Unconventional gas supply – Present Status

1. Key Regions Australia Canada * China Russia United Kingdom United States *

2. Major Projects US, Canada, China, Russia …

3. Industry Initiatives

4. Major Players

* done

4 - Economics

Key factors to be addressed for the development of unconventional gas resources. These factors affect resource costs, market price and, when combined, overall margin realized by projects.

1. Resource costs : Good understanding of resources characteristics, recoverable reserves and production

potential (i.e. mature vs hypothetic play). Application of available and appropriate technology Presence of transportation and pipeline infrastructure

2. Market price : Supply/Demand Gap (existing or emerging) Sufficient and Sustained Price for Commercial project

3. Margin Sufficient margin to support projects over their entire life. This suggest an alignment of

Resources costs and Market price. Unfortunately, few areas in world are fitting both criteria.

Thus, we need to develop these key parameters and conclude with 2 Thus, we need to develop these key parameters and conclude with 2 "opposites" case studies : developed and undeveloped areas, emphasizing "opposites" case studies : developed and undeveloped areas, emphasizing by the way the role of governments by setting up "appropriate" fiscal by the way the role of governments by setting up "appropriate" fiscal regimes for unconventional gas (for example L48 versus xxx tbd)regimes for unconventional gas (for example L48 versus xxx tbd)

Environment

To be done

Outlook & See Questionnaire

In the short to medium term, unconventional hydrocarbon development will be driven primarily by commodity prices. Wood Mackenzie’s medium term gas price ($5.20/mcf Henry Hub flat real) point to a favorable environment for the exploitation of unconventional outside of the existing North America areas. This assumes a softening in the current cost inflation and on-going technology advances.

Dark Clouds have begun to appear on the horizon for unconventional gas. In North America and for many years, progress in technology was able to counter resource depletion, holding the key performance measure, reserves added per well, relatively constant. This, unfortunately, is no longer the case with reductions in R&D and technology investment . As a result, since the 1996 to 2000 time period, reserves per well for all three of the unconventional gas resources have declined sharply.

020406080

100120140160180

2004 2010 2015 2020 2025 2030

World Gas Production

OECD Russia Middle East Other Non-OECD TotalSource EIA 2007

Tcf

Reserves growth estimation

66 % increase from 2007 to 2030 mainly from EurasiaMost of them associated to conventional reservoirs

2030 Natural Gas Industry Outlook – WOC 1

WOC-1 General

What are the estimated levels of reserves (tcm), where are they located (map) and what production capacity (bcm/annum) is consistent with base demand and price framework up to 2030 ?

Reserves @ 2007 : ~ 175 TCM

Reserves Reserves increase increase 90 TCM90 TCM

Demand forecast of ~ 2 % which is slower than the one made in the late 90's ( 3%)

Decrease due to the slowdown of energy demand and of economic growth, the implementation of energy conservation programs in a context of globally higher prices, and growing competition with competing energies.

020406080

100120140160180

2004 2010 2015 2020 2025 2030

World Gas Production

OECD Russia Middle East Other Non-OECD TotalSource EIA 2007

Tcf

2030 Outlook : Production @ 4.5 – 5 TCM

IFP

2030 Outlook : Production @ 4.5 – 5 TCM

2030 Outlook : Annual growth demand

2030 Outlook : Reserves 240 – 270 TCM

WOC-1 General

How much of these reserves are associated and non-associated, onshore and offshore? Is there a changing trend? How will this influence costs and technology needs?

Reserves addition

From 1996 to 20032, more than half of the estimated additions to gas reserves by reserve growth and approximately 10 percent of the estimated undiscovered gas volumes were realized.

Onshore & offshore Reserves distribution

Current situation Current gas reserves distribution (Cedigas 2006) :

Offshore reserves share (39% = 70 TCM) has increased over time, they were 26% of global figure in 1995.

Nearly two-thirds of offshore gas reserves are in the Middle East, where over half of offshore reserves are located in two giant fields: North Field and South Pars.

The Number 2 region for offshore gas reserves is Asia/Pacific, with 16%. This is where 43% of new offshore gas finds occurred in the last five years.

Nine of the fifteen largest fields discovered between 2000 and 2004 were offshore; they represent 64% of the reserves discovered during this period.

Onshore & offshore Reserves distribution

Outlook 2030

A clear tendency to increase the share of offshore gas resources is expected in the next coming years.

Nine of the fifteen largest fields discovered between 2000 and 2004 were offshore; they represent 64% of the reserves discovered during this period.

Offshore gas discoveries size is increasing !!!

1995 2005 2030

WOC-1 General

What are the estimated levels of upstream investments required until 2030 & the key constraints for new developments?

Levels of Upstream investments & Key Constraints

3.9 trillion US$ to be 3.9 trillion US$ to be investedinvested

E&P share : 66 % E&P share : 66 %

dedicated to Exploration dedicated to Exploration and development of gas and development of gas

fields, includingfields, includingbringing new fields on bringing new fields on stream and sustaining stream and sustaining

output at existing fields, output at existing fields,

Levels of Upstream investments & Key Constraints

Investments required for Upstream : ~ 2.5 trillion US$Investments required for Upstream : ~ 2.5 trillion US$

Key constraints :

• Prices : Higher prices allow producers to drill for more expensive sources, but will

reduce natural gas demand.

• Technology : improve of technologies will stabilize the prices path

• R&D investments

• Risk Mitigation

• Government assurances and/or incentives

• Environmental constraint : EU directives (NEC / LCP) : SO2 / NOx;, CO2 Emission Trading Scheme and Kyoto

• Market availability

• Transportation network development & cost

WOC-1 General

What are the expected regional and temporal distribution of production peaks? (graphs)

World Gas production profile

BP Statistical Review of World Energy 2007

Future Giant Gas fields location trends

Based on the locations of past giants, new discoveries of giant oil and gas fields would mainly be made in passive margin and rift environments, especially in deepwater basins.

2000 – 2007 statistics related to the 79 new new giant oil and gas fields : -36 percent along passive margins- 30 percent in rift zones or overlying sags (structures associated with rifts) ex Persian gulf-20 percent in collisional zones ex NW Australia & W Africa, GOM, Brazilsimilar tectonic settings as the previously documented giants from 1868-2000,

Trends suggest that remaining giant fields will be discovered in "in-fill" areas where past giants have been clustered and in frontier, or new, areas that correspond to the predominant tectonic settings of past giants.

WOC-1 / SG-1

What are the key drivers that will affect the development of the remaining conventional world gas resources and what will be their level of production in 2030 ?

WOC-1 / SG-2

What is the estimated production in 2030 (bcm/annum) and reserve base (tcm) for difficult reservoirs and unconventional gas resources?

Unconventional gas supply outlook @ 2030

There's a big gap between what has been achieved so far in north America and the rest of the world.

This gap will be reduced significantly for some types of unconventional gas as tight gas considering that many companies are fully involved in the E&P of such plays. Consequently, a significant increase is expected.

For CBM, the situation is more complex where strong environmental implication take place. Thus, the development of such resource will differ from countries according to their environmental policies. As a result, an important increase would happen in Asia and Africa.

Concerning Methane Hydrates, and following the status of the research projects, no commercial production is expected prior to 2030.

In conclusion, and among the 160 TCF to be produced yearly @ 2030, the ratio of unconventional gas could be estimated to 12 – 15 %, slightly higher than the one recorded today ~ 10 – 12 %.

To be discussed ….

WOC-1 / SG-2

What price levels will stimulate the development of difficult reservoirs and unconventional gas resources ?

Average real natural gas wellhead prices are projected to fall from today''s high levels to just under $5 per thousand cubic feet (mcf) (2005 dollars) by 2013 as increased drilling brings on new supplies and new import sources become available. After 2013, natural gas wellhead prices are projected to increase gradually, to about $6 per mcf in 2030 (equivalent to $9.63 per mcf in nominal dollars).

EIA Annual Energy Outlook 2007

Gas price outlook @ 2030

Note : The economically recoverable CBM gas in the Powder River Basin doubles when the wellhead price is raisedfrom $3 to $7

7 – 8 $ could-it be the 7 – 8 $ could-it be the stimulating level for stimulating level for

unconventional gas ? unconventional gas ?

2030 Outlook : Reserves Distribution

Worldwide undiscovered natural gas is estimated at 4,221 trillion Of the total natural gas resource base (6183 TCF), an estimated 3,000 trillion cubic feet is in “stranded” reserves, usually located too far away from

pipeline infrastructure or population centers for its transportation to be economical.

Of the new natural gas resources expected to be added through 2025, reserve growth accounts for 2,347 Tcf. More than one-half of the mean undiscovered natural gas estimate is expected to come from Eurasia, the Middle East, and North Africa; and about one-fourth (1,065 TCF) is expected to come from a combination

of North, Central, and South America. Source: EIA Annual Energy Review