Tinker, 2014

Bureau of Economic Geology Jackson School of Geosciences, The University of Texas at Austin

MOGA February, 2014

Global Energy

and the Role of Shale

Scott W. Tinker

Tinker, 2014

MOGA December 4, 2003

The Coming Natural Gas Economy

Scott W. Tinker

Bureau of Economic Geology

John A. and Katherine G. Jackson School of Geosciences The University of Texas at Austin

Tinker, 2014

QAd1023

2003 Outline

• Global Decarbonization • The Trend Towards Natural Gas • Creating a Global Gas Industry • Summary and Opportunities

Tinker, 2014

Global Energy

The Role of Shale

Outline

Tinker, 2014

Global Population and Energy

http://www.eia.gov/iea/wecbtu.html QAe874

Source: BP Statistical Review of World Energy, 2012

0

Po

pu

lati

on

(m

illi

on

s)

1000

2000

3000

4000

5000

6000

7000

8000

0

100

200

300

400

500

Pri

ma

ry e

ne

rgy (

qu

ad

s)

Year

2010 2005 2000 1995 1990 1985 1980

Tinker, 2014

Population ~1 billion people per color

More people live

inside the circle

than outside…

Tinker, 2014

Global Energy Mix and Demand

1017

820

468

207 156 57

302

149 28

5

166

16

880

975

517

267

191 99

376

371

10 5

167

111

98

3 24 1

1389

562 2609

78 289 64

(MTOE)

Tinker, 2014

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

1970 1975 1980 1985 1990 1995 2000 2005 2010

BC

F/D

ay

Total North America Total S. & Cent. America Total Europe & Eurasia

Total Middle East Total Africa Total Asia Pacific

Global Natural Gas Production

115 Tcfy

Source: BP Statistical Review 2012

Tinker, 2014

Natural Gas Supply

Resources and Cost

QAe980

Source: IEA World Energy Outlook (2009)

0 100 200 400 300 500 1,000 1,100 600 700 800 900

Resources (trillion cubic meters)

Pro

du

cti

on

co

st

(200

8 $

/Mb

tu)

LNG

Sour

Arc

tic

De

ep

Wa

ter

Shale C

oa

l B

ed

M

eth

an

e

Pro

du

ce

d

Co

nv

en

tio

na

l

Tight

15

10

5

0

4X

Tinker, 2014

U.S.

China

The Future Transportation Mix

BP Statistical Review of World Energy, CIA World Factbook, Census Bureaus, Marc Faber Limited, RJ Estimates

From Raymond James and Associates, Inc., August 2, 2010

Millions of oil-equivalent barrels per day 25

20

15

5

10

0

ExxonMobil Corporation, 2013 The Outlook for Energy: A View to 2040, page 20.

2000 2020 2040 2000 2020 2040 2000 2020 2040

Europe North

America

Gasoline

Other

Natural gas

Fuel oil Jet fuel

Biodiesel Diesel

Ethanol

Asia

Pacific

Tinker, 2014

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

1965 1975 1985 1995 2005

10

00

s B

bl

Da

y

Total North America Total S. & Cent. America Total Europe & Eurasia

Total Middle East Total Africa Total Asia Pacific

Global Oil Production

Source: BP Statistical Review 2012

30.5 BBY

Tinker, 2014

Long-Term Oil Supply Resources and Cost

0 2000 4000 10,000 6000 8000

140

20

0

Resources (billion barrels)

Pro

du

cti

on

co

st

(2

00

8 $

)

MB

/d

Coal

to

liquids

Gas

to

liquids

Oil shales

Shale oil

Pro-

duced MENA

Other conventional

oil

Deepwater and

ultra-deepwater

40

60

80

100

120

Heavy

oil

&

bitumen

EOR

Arctic

CO2 EOR

140

100

120

Source: IEA World Energy Outlook (2009)

2X

Tinker, 2014

Global Energy

The Role of Shale

Outline

Tinker, 2014

5

10

15

20

25

30

Mark

ete

d P

rod

ucti

on

(Tcf)

0 0

50

100

150

200

250

300

Pro

ved

Reserv

es (T

cf)

U.S. Natural Gas Production and Reserves

Data: BP World Energy 2012

End-of-Year

U.S. Proved Reserves

Annual

U.S. Production

Tinker, 2014

U.S. Natural Gas Production (TcF)

http://www.eia.gov/energy_in_brief/about_shale_gas.cfm

0

5

10

15

20

25

1990 1995 2000 2005 2010

Shale gas

Coalbed methane

Tight gas

Non-associated offshore Alaska

Associated with oil

Non-associated onshore

14 TcF

9 TcF

23 TcF

Tinker, 2014

Conventional Gas

Total Natural Gas

From a 2004 Tinker Talk to the IPAA US Natural Gas 2004 forecast

Unconventional Gas

1949 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015

0

5,000

10,000

15,000

20,000

25,000

An

nu

al

Na

tura

l G

as P

rod

ucti

on

(B

cf)

EIA (1949-1990) and NPC (1991-2015)

15 TcF

10 TcF

25 TcF

http://www.eia.gov/energy_in_brief/about_shale_gas.cfm

14 TcF

9 TcF

23 TcF An Anticipated

Evolution!

Tinker, 2014

U.S. Shale Gas Plays

Tinker, 2014

“Bottom Up”

Well Recovery

Drainage Areas

Infill Drilling Potential

Drainage areas

of the existing

wells

Ikonnikova S., et al. 2013. SPE Res. Eval & Eng (resubmitted)

Tinker, 2014

Barnett: • Variable leases

• Multiple operators

• Wide range of

completion types

Ikonnikova S., et al. 2013. SPE Res. Eval & Eng (resubmitted)

Tinker, 2014

Parameters Considered Economic Well Life Limit (mmcf/d)

Basis to Henry Hub ($/mmbtu)

Royalty Rate (%)

Severance Tax Rate (%)

Marginal Tax Rate (%)

Inflation Rate (%)

Drilling Cost (CAPEX)

Related CAPEX Factor (%)

Expense/Well/Year

Gathering, Compression, Treatment

NGL Transport Cost

Water Cut (bbl/mcf)

Water Disposal Cost

Oil Yield

GPL Yield

Gas Shrinkage

Processing Fee

Lease Cost/acre

Spacing (ac)

Depletion Cost

Abandonment Cost

Basis to Henry Hub

WTI Price

GPL/WTI Ratio

Developable Acreage Ceiling

• Partly Drained

• Undrilled

Annual Technology Improvement

Annual Well Cost Improvement

Minimum Completions in a Year

Attrition

Tinker, 2014

Barnett Production Outlook

Model forecast

was accurate

for 2011-2012

~15,000 wells ~11,000 wells ~3,000 wells

Browning, J. et al. 2013. SPE Econ & Mgmt

Tinker, 2014

$-

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

0

0.5

1

1.5

2

2.5

1995 2000 2005 2010 2015 2020 2025 2030

He

nry

Hu

b $

20

10

Tcf

pe

r Y

ea

r

Tcf per Year (Base Case Sensitivity to Price)

Tcf @ $10 HH

Tcf @ $6 HH

Tcf @ $4 HH

Tcf @ $3 HH

Henry Hub $2010

Barnett

Production Forecast

Tinker, 2014

Economic Production Distribution

Monte Carlo

0.000

0.005

0.010

0.015

0.020

0.025

0.030

0.035

0.040

0.045

0.050

29 34 39 44 49 55 60 65 70

Re

lati

ve

Fre

qu

en

cy

Cumulative Production (Tcf)

Barnett

0.000

0.005

0.010

0.015

0.020

0.025

0.030

0.035

0.040

0.045

0.050

29 34 39 44 49 55 60 65 70

Re

lati

ve

Fre

qu

en

cy

Cumulative Production (Tcf)

35 Tcf

56 Tcf

45 Tcf

Browning, J. et al. 2013. SPE Econ & Mgmt

Tinker, 2014

Fayetteville

DPhi * H

Tinker, 2014

Fayetteville OGIP Free

Tinker, 2014

Fayetteville

Tiers

Tinker, 2014

$-

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

2005 2010 2015 2020 2025 2030

He

nry

Hu

b $

20

10

Tcf

pe

r ye

ar

Tcf per Year (Base Case Sensitivity to Price)

Tcf @ $10 HH

Tcf @ $6 HH

Tcf @ $4 HH

Tcf @ $3 HH

HH $2010

Fayetteville

Production Forecast

Tinker, 2014

Model: Rice University, Medlock, 2012

2013 Dry Shale Gas Production

QAe2255

Tinker, 2014

0

30

35

2007 2009 Year

2011 2013

25

20

Billio

n c

ub

ic f

eet

per

day

10

5

15

Woodford (OK)

Bakken (ND) Eagle Ford (TX)

Rest of US

Fayetteville (AR)

Haynesville (LA and TX)

Barnett (TX) Antrim (MI, IM, and OH)

Marcellus (PA and WV)

10

TcF

/Year

5

2013 Dry Shale Gas Production

QAe2255 Source: U.S. Energy Information Administration

Model: Rice University, Medlock, 2012

Actual

10

Tinker, 2014

Global Shale Gas

Negative

Neg Positive

Positive Positive

Mixed Positive

Positive

Tinker, 2014

Th

ou

sa

nd

ba

rre

ls/y

ear

From: James D. Hamilton, Working Paper 17759, NATIONAL BUREAU OF ECONOMIC RESEARCH, 2012

Annual US Oil Production Annual US Oil Production

Tinker, 2014

Monterey Woodford/Anadarko

Utica Barnett

Uinta Niobrara

Permian Midland

Permian Delaware Granite wash

Eagle Ford

Bakken

2010 U.S. SHALE LIQUIDS

PROJECTION 5

4

3

2

1

0

2010

U.S

sh

ale

liq

uid

s p

roje

cte

d g

row

th

.(M

bp

d)

2012 2014 2016 2018 2022 2020

After Morse et. al., 2012, Energy 2020: North America, the new Middle

East: Citi GPS: Global Perspectives & Solutions, figure 14, p. 17.

QAe465

3.8 mmbod by 2022…

10% IRR: $44/bbl

10% IRR: $50/bbl

10% IRR: $68/bbl

10% IRR: $44/bbl

10% IRR: $50/bbl

10% IRR: $51/bbl

IRR Source: Rystad Energy

Tinker, 2014

Annual US Oil Production

From: James D. Hamilton, Working Paper 17759, NATIONAL BUREAU OF ECONOMIC RESEARCH, 2012

1.4 Bby

shale oil

by 2022

Th

ou

sa

nd

ba

rre

ls/y

ear

Tinker, 2014 Unconventional Summary

“Trade Offs” Environmental Risks and Impacts

Traffic/noise/light

Surface

Groundwater

Quakes

Health

Local and atmospheric emissions

Energy Security and Economic Benefits Available

Affordable

Reliable

Jobs and Taxes

These are not mutually exclusive!

Tinker, 2014

• Balance of Trade

Exports: Natural gas, liquids, products

Imports: Oil

• Regulation and Planning

Infrastructure

Resources

Permitting

• Emissions

• Energy Security

Unconventional Reservoirs Implications

Tinker, 2014

Shale will be a big part of the energy future and “above ground” challenges are as important as below ground.

Diverse energy portfolios are inevitable, and for the most part desirable.

The global energy transition will take time.

Wrap Up Thoughts

Tinker, 2014

Thanks!