PRMS WORKSHOP Small Independents View on Unconventional Reserves J. Michael Gatens, CEO Unconventional Gas Resources Canada Calgary, AB
Presentation Overview Special characteristics of unconventional gas reservoirs relating to reserves estimation Advantages of PRMS for unconventional gas reservoirs Case Study Examples Warrior Basin CBM Canadian Tight Sand/Shale…
Special Unconventional Gas Characteristics Continuous, rather than discrete accumulation of gas Large resource in place, relatively low recovery efficiency Resource is much larger than reserves, especially early in the life of a…
Reserve Analysts and Regulators Have had to Adapt to Unconventional Gas Many traditional methods were deficient, but companies still needed reserves reports Many regulations built for conventional gas needed to be modernized as…
PRMS is a Positive Step for Unconventional Gas Recognizes importance of large R resource versus small r reserves R can become r over time Incorporates calculation of original-gas-in-place in TPIIP and DPIIP definitions OGIP limits…
Warrior Basin CBM Example Early CBM wells really challenged estimators Traditional methods and evaluators had trouble with inclining gas production Early approaches tended to be very conservative Conflicts arose when asset…
Warrior Basin CBM Example Many evaluators started to use reservoir simulation models to capture physics of CBM production process Incorporated sorbed gas and allowed practical limits on recovery efficiency Captured the de-watering…
BC Montney Shale Play Play started with vertical wells, stalled in early 2000s HZ wells with multi-fracs energized play in 2007 Petronas Painted Pony Play extension growing in Montney North northwest UGRC Shell Improving liquids…
BC Montney is World- Class Hybrid Eagle Ford Shale/Tight Gas Play Log 1,000 Tcf Resource Gamma Ray 300 m Thick Density Porosity 1,990 2,400 m to Top Neutron Porosity Over-pressured Both Logs Printed on same 300-400 Bcf/sq. mi.…
Montney Play has Benefitted from PRMS Early use of continuous resource concept to calculate and use resource estimates TPIIP, DPIIP, Contingent Resource reports Use of recovery efficiency as QC check on reserve estimates R r early…
Montney Evaluation Practices Evolving Increase in the radius surrounding new wells that proves surrounding land Continuing use of OGIP estimates to refine and QC performance estimates via recovery efficiency Use of lower log…
Small Independents View of Current Practice PRMS is an improvement from the past R is still much larger than r early in project life Huge impact on potential value gap between prospective buyers and sellers Solicited opinions of…
Common Views Reserves Report is important to investors and bankers Provides independent, intelligent, objective view Useful in transactions Underestimates unconventional asset value in early stages, can be used as a weapon by…
Common Views 20-Year Cut-off is too short, use 40-50 years Relatively small impact on value, creates problems with F&D PRMS Framework provides a more fundamental, inclusive framework for capturing both the uncertainty, and upside…
CEO Views Reserves reports tend to underestimate unconventional asset values Strength of PRMS is a box that allows for everything to be included, capture upside Devil is in details Need a generation or two of evaluators with…
CFO Views For public companies reserve reports used to calculate F&D Good measure of investment efficiency, quality of management For unconventional gas, the 20+ year reserves life can be a problem Some analysts view 50-year…
Director/Investor Views Owners reserve estimates are usually too optimistic Dont care about 20-yr +/- limit, most value is in first 4 years Apparent F&D too low, true F&D subjective PRMS categories have greater risk, uncertainty;…
VP Geosciences Views Reserves report useful, but tend to be conservative due to (overly) stringent assumptions by external evaluators Likes to compare estimator assumptions/values to internal estimates Log cut-offs, mapping…
VP Reservoir Engineering (internal evaluator) Views Reserves alone miss full value for unconventionals Relationship w/external evaluator adds value Experience, exposure to outside data Check on internal work Probabilistic methods…
External Reserves Evaluator Views External reserves reports reduce bias and conflict of interest Avoids outright fraud, shucksters, but there are still bad actors out there In transactions, there are often 4 opinions, buyer,…
External Reserves Evaluator Views Old school guys still dont like PRMS Need better standards for assigning resource value, still too subjective Resources dont have to be economic Good for new plays, but can be a bit fuzzy What is…
Summary PRMS is a positive step forward for unconventional gas Recognizes importance of large R resource versus small r reserves R can become r over time Incorporates calculation of original-gas-in-place in TPIIP and DPIIP…
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