Shale Gas: An Emerging North

American Reality and Its Global

Implications

Dr Basim Faraj

Pareto’s 17th Annual Oil & Offshore Conference

September 1- 2, 2010

Holmenkollen Park Hotel

Oslo, Norway
 Outlook for Energy: A view to 2030

• Globally, about 1.5 Billion people lack access to electricity

• 2.5 Billion people with no modern cooking or heating fuels
• There will be 900 million more households in the World by
2030!
Source: Outlook for Energy: A view to 2030, Dec, 2009

• There exists over 300 million Chinese middle class citizens!

• ~ 300 million Indians without electricity!
Source: Economist, Dec, 2009

Meeting energy demand will require trillions of dollars of

investment and a commitment to innovation
Source: Outlook for Energy: A view to 2030, Dec, 2009
 Worldwide Oil Production Projection
in the 21st Century
We are already
40
here, 2008!
2035!
35

30
(30)
Bbrl/yr

25

20

15

10

0
1950 2000 2050 2100 2150
Data from Salvador, 2005
 Worldwide Natural Gas Production
Projection in the 21st Century

180
2075!
160
We are here,
140 2008!
120
(107)
100
Tcf/yr

80
60
40
20
0
1950 2000 2050 2100 2150 2200 2250 2300

Data from Salvador, 2005

XTO, Dec 9, 2009
December 9, 2009 XTO presentation
The Shale Gas
Resource:

Stupendous!
Gas Shales - Current Focus on North America

Source: Shale Gas Outlook to 2020 (Ziff Energy, April 2009)

A vast wealth of core and technical data has been
acquired from North America shale reservoirs

An example:

# # # wells Core Member

Basins Formations cored length companies
(km)
22 89 275 ~13.6 78

Source: Corelab NA Shale Gas Consortium Annual

Meeting, Calgary, August, 2009
 Resources and Technically Recoverable Resources
(Tcf) of Selected Shale Plays
(one Tcf heats 15 million homes for one year!)

New
Parameter Fayetteville Haynesville
Barnett Marcellus Woodford Antrim Albany Total
1OGIP 327 52 717 1,500 23 76 160 2855
1 TRR* 44 42 251 262 11 20 19 649

Parameter
Horn Montney 3 Utica 3 Utica
River
2OGIP 500 250 - 1000 83 - 181 4.3 Tcf
Prospective
(129 Tcf) Recoverable
(833 K acres) Resource

1 Source: DOE, modern shale gas: A primer, April, 2009. 1TRR*: Technically Recoverable Resource.
2 Encana, September 9, 2009. OGC study, 2006 (unofficial numbers).
3 Questerre Energy Corporation, September 1, 2009
~ 4,000 Tcf GIP!!
Production History By Major US Shales

Total Calendar Daily Production (Bcf/d)

14

12
Shale is 22 % of total
lower 48 gas
10
production!
8

4
The Barnett Shale provides 40%
2
of US shale gas production
-
2004 2005 2006 2007 2008 2009 2010

Antrim Barnett Fayetteville Woodford LA HB TX HB Marcellus

Source: Moorman, R. (Southwestern Energy, based on data from IHS/PI Dwight’s and public company records)
Steep Initial Production Declines

Theoretical Production Forecast (MMcf/d, starting with first 30-day average IP)
12

10

0
0 12 24 36 48 60

Months on Production

Haynesville Marcellus Fayetteville Barnett Core

Source: Southwestern Energy, data from public company reports

 Same amount of gas: Different scenarios!

2007 (Actual)
1465 Rigs
31,000 new wells
26-28% decline
Cost $ 69 Billion

2007 Barnett-
only scenario
1670 Rigs
20,000 new wells
22-26% decline
Cost $ 50 Billion

Ross Smith Energy

Group, April 2009
 Same amount of gas: Different scenarios!

2007
Haynesville-only
scenario
924 Rigs
5,500 new wells
26-30% decline
Cost $ 47 Billion

Ross Smith Energy

Group, April 2009
The Reserves:
The
Challenge!
 µDarcy: 1/1,000,000 Darcy
(one millionth of a Darcy)

nDarcy:1/1,000,000,000 Darcy
(one billionth of a Darcy)
Darcy’s lower limit is ~1/10th of a
µDarcy!
 Permeability Terminology
(We are dealing with extraordinary geological reservoirs!)
Tighter than Tight Tight Conventional

Extremely Very
Tight Tight Tight Low Moderate High

0.0001 0.001 0.01 0.1 1.0 10.0

Granite Permeability (mD)

0 % porosity
Limestone
Montney
Good Shale
Barnett Sidewalk General
Cement oilfield
rocks
Source: modified after US DOE Study, 2005
 Barnett Shale Core: The Reservoir!

TOC ~4%
%Ro ~1.5

Calcite-
filled
fracture
Barnett Shale: Newark East, Bosque Co. (Shale texture
using SEM (Basim Faraj, Talisman Energy)

Sponge Spicules
 Coffee Making and Shale Gas!

Parameter Whole Beans Ground Beans

# Coffee Beans 16 gm 16 gm
200

Surface Area 0.02 m2 800 m2

(50 m2/gm)
(1 coffee bean/1 cm2)

Caffeine Diffusion 40,000 Seconds!

Time 1 Second
or 11 hours!

Concept by Basim Faraj, Talisman Energy

measurements from Arizona State University, 2007
 Dendritic fractures

Basim Faraj, 2006

Trican’s largest Slickwater frac in Canada, 2007
 L&S C3H Microseismic – Map View: Barnett Shale

3000
2800
2600
2400
•2048’ lateral, 2 stage
2200
Stage 1
Perforations
stimulation
2000
1800
1600
•450’ between stages, ~ 350’
1400 N44oE between perf clusters
1200 2200’
1000 •Both stages show very
South-North (ft)

similar fracture networks

800
600
400 L&S #C1
200 Observation well •Fracture direction: N44oE
0
-200
-400
•Fracture longitudinal and
-600 lateral growth ~ 2200’
-800
-1000
-1200 2200’ Stage 2 L&S #C •Only marginal overlapping
-1400
Perforations Treatment well between stages
-1600
-1800
-2000 Tim Clawson,
-4400
-4200
-4000
-3800
-3600
-3400
-3200
-3000
-2800
-2600
-2400
-2200
-2000
-1800
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0
200
400
600
Antero Resources, 2008
West-East (ft)
Horizontal Drilling & Multi-stage Slickwater Frac Technology
Barnett
SRV vs. 6-month Average
All Wells
SRV= Stimulated Area x Net Pay
4000

3500
6-Month Average (MCFD)

3000

2500

2000
y = 0.5569x + 356.11
2
R = 0.5486
1500

1000

500

0
0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000

SRV (106 ft3)

Michael Mayerhofer, Pinnacle Technologies, 2008

 Within 4 years
production
tripled!
Rapid development
of horizontal and
slickwater fraccing
Bcf/yr

Texas Railroad Commission, 2009

Advances in frac Technology = EUR increase 2.5 fold!

An area of 2.5 bcf/well

6.3 Bcf/well

54 %!
Landing at Dallas Fort Worth Airport,
April 21, 2008, Basim Faraj

Chesapeake Rigs
Shooting 3D seismic operation at DFW International Airport
(Chesapeake website, 2008).

The Can-Do-Spirit!
An example of Shale Gas Project Performance: Fayetteville Shale

Total Well Cost, Average Lateral Length, Average IP vs Time

3,874
4000 3,850 4000
3,736
3,562
3,763
3500 3,301 3500
3,193

Average Lateral Length (ft)

3,347
3000 3000
Average IP (Mcf/d)

2,622 3,000
2,512 2,882
2500 2500
2,104 2,541
2,343
2000 2000
2,028
1,788
1500 1500
1,497
1,261
1000 1000
$2.9 $3.0 $3.0 $2.9 $2.8 $3.0 $3.1 $3.1
$2.6
500 500

0 0
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr Apr-09
2007 2007 2007 2007 2008 2008 2008 2008 2009

Total Well Cost ($ MM) Average IP Rate (Mcf/d) Average Lateral Length (ft)

Source: Southwestern Energy, 2009

 The Quebec Opportunity

Key points
• Talisman has a very large prospective land base within the
Utica fairway (771, 000 net acres*).
• Early results are very encouraging.
• Currently drilling horizontal wells.
• Long term growth opportunity. 150 km
• Excellent proximity to premium markets.

Industry Perspective
Saint Edouard # 1

Early Success (Vertical Wells)

Earning Well / Partner Name Test Rate (mcfe/d)

Gentilly / Questerre >800

La Visitation / Questerre >300
Saint-David / Questerre >400
Leclercville / Intragaz 900
Saint-Edouard / Questerre 700

* May 2009 Disclosure

Why Shales Look Promising!

IGIP (Incredible Gas-In-Place)

 From 50 to 500 Bcfe per square mile
High rates of return
 From 30% to over 100%
Longevity
 Drilling inventories measured in decades
Continuous improvement
 Techniques evolve and costs go down
Advances in Shale Plays Learning Curve
• Reservoir characterization: Specialized Analyses
(permeability, saturations, mechanical, advanced logging)

• Geochemistry: Great advances on viability of plays

• Microseismic: The best diagnostic tool - replaced the

conventional inadequate reservoir
modeling - Still in need of shale gas
modeling-

• Drilling: Super pads, horizontals-spacing

• Completion: Greatest impact on reserves recovery

Logistics and economies of scale in all phases of the play
execution: Efficiency Plays!
 Summary
• Shale gas changes the equation in North America from “we are running
out of gas in the 70s” to “we we are having about 90 years of proven and
potential supply”.

• Shale gas is good news for North America economy, energy security, job
creation and investment in the production of clean-burning natural gas.

• Shale plays require significant lead times and sizeable investments that
do not necessarily fit well within the risk tolerance and time horizon of
most financiers.

• Shale gas potential exists in many basins around the World. North
American geoscientist and engineers de-risked and utilized the best
technologies for exploration & exploitation of these plays. This
Knowledge is transferable with commitment!
 Summary 2

• Developing shale gas resources is a progressive process: initially

costs are high and EUR’s may be lower than desired. Overtime,
the costs will come down and the EUR’s will increase as learning
progresses. In other words, finding costs will start high and will
come down over time. DO NOT QUIT TOO SOON if the trends
are moving the right direction.

Five Giant gas fields discovered in NA since

2007!!!!
“The revolutionary concept of hydrocarbon production
from shale is without a doubt, the most exciting
accomplishment of geosciences & petroleum
engineering integration in the last several decades. This
revolutionary concept is a bright chapter of innovation
from the oil and gas industry that is providing the most
needed commodity to the world: Energy.”

Dr Basim Faraj- Geoscientist, 2009

 May The
Shale
be with you!