VENOCO, INC. Monterey Shale Focused Analyst Day Wednesday, May 26, 2010 New York Plaza Hotel NOTE: Slides 82, 85 and 89 were updated as of July 14, 2010 www.venocoinc.com
The Company Applying new technology to revitalize legacy assets Venoco is an independent energy company engaged in the acquisition, exploitation and development of oil and natural gas properties primarily in California.…
Monterey Shale World Class Source Rock Mkt. Cap California Monterey Monterey (1) Largest U.S. Oil Shale Play California E&P MM (5/21/10) Acreage (Net) Acreage (Net) Acres / MM Market Cap Southern California Multi…
Monterey Competitive Landscape Area of VQ-OXY Significant Competitors Joint 3D Shoot Majors Primarily Chevron and AERA (Shell & Exxon) Dominated since early 1900s Focused on heavy oil Occidental Acquired many producing fields…
The Heart of Venocos Monterey Expertise Operating Expertise 13 years Monterey production South Ellwood 1997 Sockeye 1999 U.S. MMS SAFE Award for Operating Excellence (Platforms Gail & Grace) (Venoco field ownership in red…
Company Highlights Solid Core Assets Large Development Opportunities Key year for Monterey Shale Exploitation Frac/acidize offshore wells (M2) Share price: 12.67 (5/21/10) Shares outstanding: 54.5 million Drill 10 wells onshore…
Strategy & Capital Strategy Pursue oily opportunities Monterey Shale Exploitation multi-year, multi-100 million barrel Existing producing assets enhance low-decline assets Develop Large Inventory in Sacramento Basin 700 locations at…
Experienced Management Team Years Name Title Prior Affiliations Experience Tim Marquez Chairman, CEO Unocal, founded Venoco in 1992 30 (& majority VQ shareholder) Bill Schneider President Unocal 25 Tim Ficker CFO KPMG 20 Ed O'Donnell…
2010 Capital Spending Estimated Capital by Business Unit Advance oily projects in 2010 and 2011 Emphasize oil in portfolio 220 Million Robust inventory of oil projects Sac Basin Monterey Exploration & Exploitation 108 Drill 10…
Sacramento Basin Largest gas producer & most active operator in Basin Drilled approximately 400 wells since 2005 Drilled 86% productive wells in 2009 Extensive inventory for future activity Positive gas differential significantly…
Sac Basin Forbes Fm Geological Model Total Depth 5,000 9,000 Gross Forbes Thickness 1,500 3,000 Thick Gross Gas Pay Section Horizontal Drilling Potential Proven Down Spacing Infill Opportunities Multiple Isolated…
Sac Basin Reinterpreting Pay Low Contrast/Resolution vs.. Traditional Channel Sand Easily identifiable Channel Sands developed in early years More Typical Results: (Channel Sand Pay) Low SP = more sand High Good Sonic…
Sac Basin Reinterpreting Pay Low Contrast/Resolution vs.. Traditional Channel Sand Sycamore Field Sutter County Flat SP = Low No Gas Faster ROP = Modest Gas Shows Drilled 6/2007 less sand Resistivity Effect on Softer Rock Zone Open…
Sac Basin Economics Current Economics of the Sacramento Basin(1) Drill and Complete 800 Workovers 75 Total Well Cost (000) 875 Gross IP Rate (Mcf/d) 650 Gross Reserves (Bcf) 0.7 Lifting Costs (/Mcf) 0.65 Type Curve IRR…
Potential Net Asset Value(1) Commodity Price Assumption: 5-Year Strip as of 12/31/09 (2) Total Proved Reserves per fully diluted share(6) = 16.99 PV-10 (3)/ Risk Risked (8) NAV (MM) Factor Value (8) (3) Proved Reserves 101.3 MMBOE…
Monterey Shale Mike Wracher Vice President, Exploration
Todays Agenda Monterey Overview and Venocos Opportunity Monterey Primer Luis Chirinos, Engineering Director History of Monterey production and its technical drivers Characterizing the Monterey Marc Kamerling, PhD, Senior Geologist…
The Monterey Enormous Original Oil in Place Venoco estimates 20 billion barrels OOIP(1) on onshore undeveloped acreage The best analog for the Monterey is the Monterey Monterey has produced more oil than any other shale Monterey…
Monterey Shale Activity Venoco Areas of Operations Business Strategy Monterey Monterey Shale Acreage Control the play Prospect Areas Onshore Undeveloped 105,000 Ending current joint venture discussions Monterey Production or…
Three Year Opportunity Increase total acreage position to 350,000 net acres Drill original 30 evaluation areas and 60-80 development wells 3-year capital expenditures of approximately 350 million (1) Estimated Monterey production…
Monterey Primer Luis Chirinos Engineering Director
History of Shale Production Long history of production from organic shales Monterey has produced for over a century Seismic monitoring Barnett c 2000 Modern Petrophysical Model 1998 Multi-stage fracs in Barnett 2001…
Monterey Abundant Data Exists Wells penetrating the Monterey Massive amount of data has North Lost Hills been collected in the Monterey Shafter 300 wells have penetrated the Monterey in our areas of interest 200 of those wells…
Controls on Productivity And Reserves Fracture Dominated Productivity controlled by the Number + Frequency + Aperture + Orientation of fractures Storage proportional to fracture volume High peak rate High initial decline, flattening…
Identifying Quality Matrix Brittleness Thickness Key Rock & Fluid Depth Properties Porosity / Permeability Oil Gravity / Oil in place Modern petrophysical methods Modern drilling and completion techniques Enabling Horizontal…
Petrophysics: Identifying Sweet Spots An old well on our acreage Old logs re-processed with Drilled before modern new petrophysical model evaluation methods were Identifies oil reservoirs available Venoco, Inc. 27
Petrophysics: Identifying Sweet Spots 1980 analysis Modern analysis Completed well open-hole Cement casing in place Isolate high water saturation zones Flow tested in 400 of Monterey Shale Selectively perforate high oil…
Petrophysics: Identifying Sweet Spots 1980 analysis did not highlight Modern analysis shows deeper deeper zone zone more prospective Venoco, Inc. 29
Petrophysics Refining the Model Venoco offshore well Newly drilled Good petrophysical results Oil saturation and permeability Recently acidized Producing over 500 BOEPD Venoco, Inc. 30
The Technology of Shale Drilling and Completions Technology Horizontal Wells Slotted liners Perforate/acidize Hydraulic fracturing Single stage Multi-stage Vertical Wells Swell packer assemblies Barefoot completions…
Theoretical Monterey Vertical vs. Horizontal Well Combination Matrix/Natural fracture system Venoco, Inc. 32
Theoretical Monterey Vertical vs. Horizontal Well Vertical well petrophysical analysis shows low permeability in matrix Fracture Identification Log not available Inferred fracturing from high initial production rates Venoco, Inc.…
Theoretical Monterey Vertical vs. Horizontal Well Reservoir modeled as Matrix/Fracture system Calculated theoretical performance of vertical and horizontal wells Estimated Production Profiles 1,800 1,600 1,400 1,200 1,000 800…
Comparing Shale Plays The Monterey compares very favorably to unconventional oil plays Enormous amounts of hydrocarbons in place OOIP / EUR / 640 Thickness Oil Perm Por. TOC Reservoir TVD Oil Sat. 640 acres acres (ft) Gravity…
Primer Monterey vs. Bakken Producing Monterey reservoirs have EURs in excess of 2.5 billion BOE(1) The Monterey is the source rock for over 37 billion BOE in producing California fields For comparison, the Bakken is expected to…
Monterey Extremely Rich Reservoir Even when reservoir properties are marginal, the Monterey is capable of delivering strong results Min. Value Peak Rate Avg. Characteristic Field Comments (Avg.) (well) Well EUR 100+ BOPD production…
Shortening the Monterey Learning Curve Tools to Maximize Value Identify Key Shale Properties Analyze legacy data Identify sweet spots Find by-passed pay Classify reservoir types Petrophysical Analysis Identifies areas of highest…
Characterizing the Monterey Marc Kamerling, PhD Senior Geologist
Monterey Production & Reserves Prolific Source Rock San Joaquin Basin 16.4 BBO 15.2 TCF 2007 Sourced 6 of the 20 largest US oil fields Santa Maria Basin 1.79 BBO Monterey fields are 20-50 years older than 1.33 TCF the other…
Producing Monterey Fields(1) South Belridge(2) = 540 MMBO Zaca = 33 MMBO Hondo = 317 MMBO Santa Clara Off(2) = 28 MMBO Cat Canyon(2) = 335 MMBO Santa Maria = 23 MMBO Point Arguello = 208 MMBO Oakridge = 17 MMBO Orcutt(2) = 175 MMBO…
Monterey Opportunity Monterey Overview Type Section Dominated by Legacy fields Diverse reservoir styles Structural South Ellwood Structural-Matrix Elk Hills Additional turbidite sand targets Stratigraphic North Shafter Peak…
Monterey Shale Deposition Biogenic Shale Concentrated in protected or distal environments Deep Marine Sands Deposited during unique Miocene environment Siliceous Shales Diatoms Limestones Foraminifera Sand/Clay Rich Clay/Mud…
Geology Rock Composition Detritus Clay Shale Siliceous Shale Chert/ Porcelanite Dolomite/ Diatomite Limestone Biogenic Silica Carbonate All rock types can be found in each field area Venoco, Inc. 44
Monterey Geology Basins Sockeye Total 86 MMBO San Ardo Monterey 17 MMBO 550 MMBO(1) from Sandy Orcutt Elk Hills North Shafter South Ellwood Facies within Monterey Total 1.8 BBO Total 227 MMBO Total 13 MMBO Total 87 MMBO Monterey 86…
Monterey Shale Thickness in San Joaquin Basin North Shafter Lost Hills Belridge Elk Hills Monterey Shale is up to 8,000 thick in the San Joaquin Basin, with average thickness between 1,000 and 2,000 Venoco, Inc. 46
Monterey Characterization Interpretation Reservoir testing Seismic Geothermal Fracture studies Petrophysics Geopressure Pressure Build-up analysis Oil Properties Source studies 2-D Seismic Line at San Joaquin 2-D Seismic…
Characterizing Monterey Production Mike Wracher Vice President, Exploration
Monterey Reservoir Types Fracture Dominated Monterey Majority of Production from natural fractures Micro (Elk Hills) or Macro (South Ellwood) Matrix contribution to some extent Matrix Dominated Monterey Minimal natural fracture…
Fractured Monterey South Ellwood 28 Wells (EUR = 72 MMBOE) Prolific Producer of Monterey Fields Single porosity system dominates High IP, high EUR, and steep initial declines Sockeye 23 Wells (EUR = 35 MMBOE) Generally…
Fractured Monterey South Ellwood Trend Analysis 28 productive wellbores Exponential decline Large contribution from natural fractures Aquifer support Average South Ellwood well IP = 410 BOPD EUR = 2.3 MMBO Field-wide EUR…
Quantifying Fractures South Ellwood Pressure Transient Analysis: multiple fractures and faults Example: 145 hour pressure build up (PBU) on 3242-7-2RD (December 2004) Early Time Diagnostics: Mid Time Diagnostics: Late Time Unit…
Quantifying Fractures South Ellwood Extensive Core Data Set Why Characterize Mapping, prediction, simulation Depletion Planning Reservoir Categorization 3 dominant fracture sets in the Monterey i. Fracture Type II High Perm & Porosity…
Fracture Dominated Reservoirs Tools Low Fracturing (Matrix Dominated) Fracture Dominated Few Fractures Fractures Venoco, Inc. 54
Fracture Dominated Reservoirs Controls on Fracturing Lithology 3D seismic control on Siliceous Shale fracture modeling Limestone Clay/Mud Shales Diagenesis Tectonism Fault Proximity Curvature Fracture Density Modeling at…
Matrix Dominated Monterey Matrix System Single porosity model Storage capacity Large permeability variation (matrix only) Rose Field = 0.05 md Petrophysically identified zones as high as 50 md Drive mechanisms Solution gas drive…
Matrix Dominated SE Lost Hills Field Trend Analysis 600+ Productive wellbores All wells experience hyperbolic decline Average SE Lost Hills well IP = 65 BOPD Water cut = 55% EUR = 87 MBO Field-wide EUR = 71 MMBO Cum…
Matrix Reservoir Properties New Scoping Tools Venoco, Inc. 58
Dual Porosity Monterey Fracture & Matrix Optimal Reservoir for an Oil Shale Sugar cube model (dual porosity) Fractures tap into matrix to drain system Most common system Drivers Phase changes Rock type Overprinted by fault & fold…
Combination Monterey Elk Hills Field Trend Analysis 80 productive wellbores Exponential decline Good matrix and fracture network Steeper decline than South Ellwood lower aquifer and gravity drainage support Average Elk Hills…
Combination Monterey North Shafter Field Trend Analysis 45 productive wellbores General hyperbolic decline Matrix contributes majority 2,500 lateral Hydraulically fracture stimulated Average Well IP = 265 BOPD Water cut =…
Combined Monterey Completions Development Techniques & Completions Fracture Dominated Monterey Cemented Casing to isolate mobile water Selective perforating of high fracture intervals Large Scale HCL-HF Acid jobs are key…
Wrap Up Mixed Reservoirs 92,000 Acres of Venoco Leases in combined reservoir Wellbore geometry dependent on field characteristics Best of Both Worlds: High IPs, shallow decline, long life Fracture Dominated Systems 5,275 Acres of…
Operations and Development Ed ODonnell Sr. Vice President, Southern California www.venocoinc.com
Turning Opportunity into Value 155,000 net acres in multiple basins 350,000 total net acre target 20+ Billion bbls OOIP 30 evaluation areas being worked Large database Well depths 6,000-14,000 Formation thickness 500-6,000…
The Value Creation Process Acquisition and Evaluation Acquire prime acreage Be early, be quick, be cost effective Screen for light oil, structural components, natural fractures, moderate depths, and well data Understand the rock…
The Value Creation Process Exploitation and Development Expand talented, multi-disciplinary team Continue to increase acreage position in hand-off areas Acquire 3D seismic Define development plan Acquire permits and build well…
The Value Creation Process Near-Term Plans 2010 Year of Science Transition three project areas to exploitation Initiate 10-12 well drilling program Acquire additional acreage Shoot 3D seismic Permit future well locations Design…
Initial Pilot Project Areas for Exploitation Development Options Monterey Project A 9,400 acres 56 wells (160 acre spacing) Fracture dominated reservoir Initiated 1st Qtr 2010 Monterey Project B 7,500 acres 38 wells (200 acre…
Monterey Project A Overview Vertical Well History 5 wells drilled in the 1980s initial rates averaged 70 BOPD Assortment of stimulation techniques Venoco drilled well in 2008 initial rate of 250 BOPD High gravity oil 31 to 38 degree…
Project A Early Test Results billion barrel oil field Area of Development Venoco Vertical Well 250 BOPD, 31.4 Flowed 83 BOPD, 340 Gas lifted 115-139 BOPD Pumped 44 BOPD, 38 Pumped 79 BOPD, 36.40 Venoco, Inc. 72
Project A Type Curve Vertical vs. Horizontal Type Wells(1) Vertical Summary Horizontal Summary Capital Cost = 2.0 MM Capital Cost = 3.0 MM Water Hauling = 6.00 / BW (18.00 / BO) Water Hauling = 6.00 / BW (18.00 / BO) LOE = 5.50…
(1) Project A Unrisked Model Total Project A 5-Year Cash Flows (M) 2010 2011 2012 2013 2014 Wells Drilled 0 2 6 12 24 Economic Assumptions Cumulative Wells 0 2 8 20 44 Development Wells: Gross Production (BO/day) 0 304 1,405 3,344…
Monterey Project B Overview Drilling History Three vertical wells drilled since 2000 data pilot holes Two horizontal wells initial rates of 95-125 BOPD High gravity oil 27 degree API Less than optimal completion techniques…
Project B - Early Test Results Area of Development 95 BOPD 125 BOPD Venoco, Inc. 76
Project B Type Curve Vertical vs. Horizontal Type Wells(1) Vertical Summary Horizontal Summary Capital Cost = 2.0 MM Capital Cost = 3.0 MM Water Hauling = 4.50 / BW (6.75 / BO) Water Hauling = 4.50 / BW (6.75 / BO) LOE = 7.50 /…
(1) Project B Unrisked Model Total Monterey B 5-Year Cash Flows (M) 2010 2011 2012 2013 2014 Wells Drilled 1 3 6 12 16 Economic Assumptions Cumulative Wells 1 4 10 22 38 Development Wells: Gross Production (BO/day) 121 1,239 2,250…
Monterey Project C Overview Vertical Drilling History 4 wells drilled in the 1980s initial rates up to 1,100 BOPD High gravity oil 30 degree API Horizontal Well Projections Initial rates of 700 barrels per day Reserves of 800,000…
Project C Early Test Results 59 BOPD, 45% cut Area of Development 1,118 BOPD, 20% cut 409 BOPD, 55% cut 458 BOPD, 76% cut Venoco, Inc. 80
Project C Type Curve Vertical vs. Horizontal Type Wells(1) Vertical Summary Horizontal Summary Capital Cost = 2.0 MM Capital Cost = 2.5 MM Water Hauling = 3.00 / BW (6.00 / BO) Water Hauling = 3.00 / BW (6.00 / BO) LOE = 6.35 /…
(1) Project C Unrisked Model Total Project C 5-Year Cash Flows (M) 2010 2011 2012 2013 2014 Economic Assumptions Wells Drilled 2 5 12 24 24 Cumulative Wells 2 7 19 43 67 Development Wells: CapEx = 2.5 MM Gross Production (BO/day)…
Infrastructure and Markets Extensive midstream and downstream network Access to multiple markets Strong profit margins New upstream facilities Generic design Modular, skid-mounted Scalable Los Angeles Venoco, Inc. 83
Project A, B, & C Unrisked Forecast(1) Project A, B, & C 5 Year Unrisked Cash Flow (M) 2010 2011 2012 2013 2014 Total Wells Drilled per Year 3 10 24 48 64 Cumulative wells 3 13 37 85 149 NOTE: Slides 82, Total Gross Production…
Shale F&D Costs 35 30.00 30 F&D Costs (/BOE)(1) 25 24.00 20 19.20 17.25 15 10 5.99 4.66 5 3.25 0 (1) 15:1 BTU ratio used for BOE conversion based on current commodity pricing. Source: Credit Suisse Natural Gas…
Projects A, B, C Metrics First 3 Monterey Projects Transitioned to Exploitation Productive Area: 29,400 acres Development Wells Required: 169 Capital Investment: 498 million(1) Expected Ultimate Recovery: 117.2 MMBbls(2) Total…
Financial Summary & Wrap Up Tim Marquez www.venocoinc.com
Monterey Net Asset Valuation (NAV)(1) Area Acreage EUR Well Count Capital NPV10 Discounted P/I Project A 9,400 29.4 MMBO 56 176 MM 307 MM +2.54 Project B 7,500 26.2 MMBO 38 122 MM 440 MM +4.99 Project C 12,500 61.6 MMBO 76 200 MM…
Potential Net Asset Value(1) Commodity Price Assumption: 5-Year Strip as of 12/31/09 (2) Total Proved Reserves per fully diluted share(6) = 16.99 PV-10 (3)/ Risk Risked (8) NAV (MM) Factor Value (8) (3) Proved Reserves 101.3 MMBOE…
Wrap up slide Monterey Shale Billion barrel opportunity Most prolific/valuable shale play in U.S. Venoco highly levered to Monterey 60% of current oil production from Monterey 13 years building operational expertise in the Monterey…
APPENDIX www.venocoinc.com
2010 Projections Various Commodity Prices Average Commodity Price for Remainder of Year ( in Million)(1) Revised Price - Oil/Gas Guidance(6) 65/4.00 75/4.50 85/5.00 95/5.50 O/G revenue (unhedged) 19,250 BOE/d 277.7 306.3 335.0 363.7…
Sac Basin: Superior Realizations Enhance Economics Natural Gas Basis Differentials ( per MMBtu) Based on 4.27 per MMBtu Henry Hub Average May, 2010 price 0.25 0.13 (0.08) (0.17) (0.35) (0.47) (0.55) Rockies San…
Historical Operating Data Three Months Years Ended December 31 Ended March 31, 2005 2006 2007 2008 2009 2010 Production (BOE/d) 11,555 15,882 19,535 21,674 20,622 19,384 Oil component 70% 59% 56% 52% 45% 45% Oil & Gas Sales…
Derivative Transactions Floor Cap Weighted Weighted Avg Current Crude Oil Deliveries for Production BBLs/Day Avg Prices BBLs/Day Prices May 1 - Dec 31, 2010 8,000 56.22 6,150 83.32 Jan 1 - Dec 31, 2011 7,000 50.00 5,000 140.40…
Net Asset Value & Unrisked Resource Estimates References in this presentation to Asset Value or Net Asset Value (NAV) reflect the present value of estimated future revenues to be generated from the production associated with the asset…
GAAP Reconciliations Adjusted EBITDA We use Adjusted EBITDA, as a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. We define Adjusted EBITDA as net income (loss) before the effect…
GAAP Reconciliations Present Value of future net cash flows The present value of future net cash flows (PV-10) is a non-GAAP measure because it excludes income tax effects. Management believes that before-tax cash flow amounts are…
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