Borders; 60th parallel; NEBC Shale Gas areas; 300,000 acres; 3rd largest in N Am; thick zones (500ft); building take-away infrastructure over time; need certainty with tenure, fiscal terms, and regulation while we understand the resource and create infrastructure capacity stepwise over time.Slow methodical process, involving significant government, stakeholder, and producer collaboration, but done with care, the resource is potentially significant . . .
Dec 2011 Investor presentationOur multi-well pad design is key to delivering more efficiency. It is somewhat unique to NEBC shale gas operations and has only limited use to date in other shale basins in North American.One of the reasons is land tenure. Pad drilling requires large continuous land ownership as we can access 3 to 5 square miles of reservoir from a single well pad. In many of the U.S. shale plays royalty owners are disparate within each well spacing unit and it is difficult to effectively pool all of the interests to create large land blocks.This pad design also requires very high resource density or thick pays to take advantage of its efficiency.Nexen is not the only operator using this design in Horn River, however some of the design elements are unique to Nexen and I will touch on several of these.
2011 available spend in D&C, Facilities, Seismic, HSE, Shared Services and Construction – accounting for capacity78% or $60,033,713, was contracted to Fort Nelson, BC Suppliers7% or $5,073,271, was contracted to BC Suppliers15% or $13,000,000, was contracted to other BC (majority Alberta) Supplier’sTotal of 85% or $65,106,985 was contracted to NEBC contractors
Shale Gas exploration and development: An operator’s22 Jan 2013 perspective Canadian Shale Gas Workshop- Brussels Andrew Quarles – General Manager Europe Unconventional
Summary• Who is Nexen?• Shale Gas exploration and development: a lengthy and uncertain endeavor • Not all shale gas plays are the same • Timing and cost• Shale Gas Operators can and need to be good neighbors • What does development look like? • An example of community engagement • Environmental stewardship 2
Nexen Overview • Headquartered in Calgary, Canada • 3,800 employees in 7 countries • 185,000 – 220,000 boe/d production in 2012 • $30 to $46 /boe netbacks • $2.8 - $3.2 billion in cash flow • 28 exploration wells planned for 2012 15% • 10 billion boe of resource to develop GAS 85% OIL 3
Nexen’s Global Portfolio UK North Sea Offshore Canada 2nd largest producer Oil sands SAGD Shale gas Poland Prospective Shale gas Gulf of Mexico Offshore deep water Yemen Conventional +20 years Colombia Nigeria Conventional oil Offshore deep water Shale gas 4
Nexen’s Canadian Shale Gas Experience Nexen NEBC Basin Acreage: ~300,000 gross acresNEBC Shales (Horn River: 104 Tcfe) BRITISH COLUMBIA Horn River Muskwa Potential LNG Facility BRITISH COLUMBIA/ ALBERTA Montney Montney: 55 Tcfe Horn River Basin: Top Quartile Shale Play in North America WILLISTON BASIN Bakken Third largest resource play in North America MICHIGAN BASIN Utica BIG HORN BASIN Mowry Antrim 500 net foot interval UINTA BASIN Baxter PICEANCE Marcellus Shale: 197 Tcfe SAN JOAQUIN BASIN Mancos BASIN ARKOMA/ARDMORE BASIN APPALACHIAN High silica content shale is very brittle and fracable McClure PARADOX BASIN Fayetteville BASIN Woodford Marcellus Cane Creek Caney Huron Attractive tax regime and royalty structure Woodford Shale: 12 Tcfe Fayetteville Shale: 26 Tcfe SANTA MARIA SAN JUAN Competitive resource recovery (EUR) with 6 – 15 Bcf BASIN DELAWARE BASIN Monterey BASIN Mancos Barnett Woodford BLACK WARRIOR BASIN wells Lewis Floyd North American Unconventional Conasuaga Resource Plays Neal Viable North American LNG export option Barnett Shale: 61 Tcfe Haynesville Shale: 140 Tcfe Eagle Ford Shale: 10 Tcfe ____________________ Resource Potential Estimate Source: Wood Mackenzie.
Not All Shale Gas Plays Are The Same• There are a wide variety of shale plays. Less than half are economic• The expensive and time consuming challenge to determine where one is located on this spectrum
Lengthy Process to Explore and Appraise• A stepwise semi-decadal approach through exploration and appraisal… • Resource- defining and characterizing a viable play concept; • Flow rate– cracking the nut leading to cost effective reservoir productivity; • Commercial- demonstrate that gas can be produced cost effectively through pilot programs 30+
The Shale Gas Development Challenge: Above and Below the Surface Deliverability and EUR for each well ? How much is it going to cost ? What to put on the books ? How much infrastructure and when to expand ? How to reliably assess to services? Market contracts and takeaway capacity ? How to get the most gas using Best flowback practices to enhance performance ? the least frac water & proppant ? How many frac stages & how far apart ? What is the best well spacing, length & orientation ? Where should laterals be placed ? Is there a sweet spot How much free & in the reservoir ? absorbed gas ? Planar bi-wing How important are natural or complex fracs ? Fractures ?
Shale Gas Operations are not “Get Rich Quick” Representative Cash Flow of a Successful Shale• Significant upfront Gas Project investment for 1.2 7.50 ANNUAL CASH FLOW / CAPITAL ($Billion) - BARS CUMULATIVE NET CASH FLOW ($Billion) - LINE exploration and 1.0 6.25 appraisal 0.8 5.00• Stable long term 0.6 3.75 cashflow with “manufacturing 0.4 2.50 style” Explore and Appraise 0.2 1.25 development investments - -• Long payout (0.2) (1.25) periods with a (0.4) (2.50) cashflow that is Manufacturing Style Development sensitive to (0.6) (3.75) 2026 2027 2028 2029 2030 2015 2016 2017 2018 2020 2021 2023 2025 2014 2019 2022 2024 2013 2012 discounting Cash Flow Capital Cumulative CF
Multi-Well Pad Design Minimizes Impact Central Well Pad: 880‘ x 575‘• Minimize surface footprint (5%) – environment and cost benefits• Optimize well placement – stratigraphic placement• Optimize wells spatially to maximize 3-5 Square miles of recovery reservoir developed from a single drilling pad 10
Footprint Management: Drilling C-1-J Pad, NE BC NMARCH 2011
Footprint Management: Completions C-1-J Pad, NE BC NJULY 2011
Footprint Management: Production Phase Reclamation NAUG 2012
Stakeholder Engagement Through the Identification of stakeholders and understanding key concerns, we are able to effectively focus our engagement efforts towards facilitating meaningful discussion and open transparency. Stakeholder ConcernsStakeholders Environmental Impacts• First Nations • Surface & Grd. Water, Wildlife &• Regulators Species @ Risk, Footprint Mgmt• Local, Regional, & Provincial Gov. Social Interests• Industry Peers • Infrastructure Capacity, Treaty Rights Economic Opportunities • Local Employment and Services 14
Ensuring a Positive Local Economic Impact Contracted Vendors in NEBC for SG Development 80% 70% 60% 50% Outside BC 40% Other BC 30% Fort Nelson 20% 10% 0% 2008 2009 2010 2011
Managing Environmental Impacts Regional Wildlife Research – CollaborationMulti-year regional Nexen’s leadershipcaribou inventory with governancewith First Nation structure forparticipation implementing BC Research and 114 Management of 100 85 Boreal Caribou49 43 18 (Spp @ Risk) 172 129 293 15976 407 581 749 124 246 16
Footprint Management: Production Phase Reclamation NAUG 2012