Warlick International WCLI Presentation 8 Oct2009


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A brief overview of North American Unconventional Gas and Future Trends. A presentation by Don Warlick on October 8, 2009 at the WCLI conference in Santa Barbara, California.

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Warlick International WCLI Presentation 8 Oct2009

  1. 1. A Brief Overview of U.S. Unconventional Gas Development – and Future Trends West Coast Land Institute 27 th Annual Conference Santa Barbara, California – October 8, 2009 www.WarlickEnergy.Info
  2. 2. Agenda <ul><li>Unconventional Playbook – a Summary </li></ul><ul><li>Quick Flyover of the U.S. </li></ul><ul><li>Gas Demand Near-Term/Long-Term </li></ul><ul><li>Supply, Largely Driven by Gas Shale Evolution </li></ul><ul><li>Looking Ahead </li></ul><ul><li> </li></ul>www.WarlickEnergy.Info
  3. 3. 1. Unconventional Playbook – a Summary <ul><li>Well planned early-stage geoscience and leasing are keys to success </li></ul><ul><li>Sound geological assessment is critical to strategic evaluation of big unconventional prospects in North America today </li></ul><ul><li>A must: Very astute leasing strategy (e.g. Fayetteville Shale) </li></ul><ul><li>Then comes smart drilling & production in unconventional plays </li></ul><ul><li>The unconventional endgame is typified by the Barnett Shale – it has now become all engineering and real estate </li></ul><ul><li> </li></ul>www.WarlickEnergy.Info
  4. 4. Typical Unconventional Play Rollout <ul><li>Geological evaluation </li></ul><ul><li>Launch the landmen </li></ul><ul><li>Execute leasing program, mass up holdings </li></ul><ul><li>Drill test and delineation wells </li></ul><ul><li>Go horizontal…and fast! </li></ul><ul><li>But throughout …you must secure oceans of cash </li></ul><ul><li>Build on your success </li></ul><ul><li> </li></ul>www.WarlickEnergy.Info
  5. 5. 2. U.S. Flyover -- Leading Gas Shale Basins www.WarlickEnergy.Info
  6. 6. Leading Tight Gas Plays www.WarlickEnergy.Info
  7. 7. Leading Coalbed Methane Basins www.WarlickEnergy.Info
  8. 8. 3. Gas Demand Near Term/Long Term <ul><li>Since late 2008, pessimism about U.S. and Canadian economies has been pervasive </li></ul><ul><li>That’s true in natural gas also with the tremendous decline in prices </li></ul><ul><li>However… economic data since mid-summer is improving </li></ul><ul><li>Natural gas is looking better, despite little help from weather or better economic activity </li></ul><ul><li>The Administration’s emphasis is on wind, solar and…natural gas </li></ul>www.WarlickEnergy.Info
  9. 9. Electric Power – Critical to Growth in Gas Demand <ul><li>We are now transitioning from economic recession to economic recovery , albeit slowly </li></ul><ul><li>Underlying this in the near term and long term will be faster growth in the demand for electric power </li></ul><ul><li>A big reason: More natural gas at attractive prices that can fuel natural gas-fired infrastructure that already exists </li></ul><ul><li>Base load and peak load will be critical in the recovery – solar and wind power are not counted on in either category </li></ul><ul><li>Summary: Gas-fired electric power generating facilities already in place make gas demand the easiest to grow </li></ul>www.WarlickEnergy.Info
  10. 10. 4. Supply, Largely Driven by Gas Shale Evolution <ul><li>Significant improvements in technologies for drilling, completion and subsurface evaluation have helped ramp up gas production </li></ul><ul><li>We think LNG into U.S. will not pose earlier-perceived threats to gas production -- and imports from Canada will remain measured </li></ul><ul><li>Natural gas from Alaska will not be significant until the pipeline across Canada is built…well off into the future </li></ul><ul><li>On the upside, about half of natural gas consumed comes from wells drilled in the US during the last 3 ½ years </li></ul><ul><li>Overriding this picture is the “Green“ perspective of future legislation and emission-oversight requirements </li></ul>www.WarlickEnergy.Info
  11. 11. Supply Mix in the U.S. <ul><li>Conventional sources are declining, Alaska “bump” ~ 2020 anticipates pipeline completion </li></ul><ul><li>But onshore unconventional gas will be saving the day </li></ul>www.WarlickEnergy.Info
  12. 12. Gas Shale Capacity Ramping Up <ul><li>Gas shale development (in green) is producing big results </li></ul><ul><li>Barnett began the trend, newer shales using the technology </li></ul>www.WarlickEnergy.Info
  13. 13. Comparing Three Notable Gas Shales <ul><li>We compare the Barnett to the newest gas shales with promise </li></ul><ul><li>Early science/tech development in the Barnett is paying off </li></ul>www.WarlickEnergy.Info
  14. 14. Haynesville Shale www.WarlickEnergy.Info
  15. 15. Haynesville in Early Growth Phase <ul><li>It all began just recently, in late 2007 when Cubic Energy and Chesapeake announced good news about good wells </li></ul><ul><li>Then came a land rush followed by vertical wells, which are now trending to horizontal </li></ul><ul><li>A big plus: Options to drill into other attractive formations like the Cotton Valley Sand, Cotton Valley Lime, Smackover, Travis Peak and James Lime </li></ul><ul><li>The Haynesville has tremendous potential, drawing gas portfolio players like Chesapeake/Plains, Petrohawk, Goodrich, EnCana and others </li></ul><ul><li>Quite possible for drilling to triple this year and continue up in 2010 </li></ul>www.WarlickEnergy.Info
  16. 16. A Plus in the Haynesville . . . multiple pay zones www.WarlickEnergy.Info
  17. 17. Marcellus Shale www.WarlickEnergy.Info
  18. 18. Marcellus is in Very Early Phase, Much More to Come <ul><li>The Appalachian has a very long drilling history, none of which focused on the Marcellus until recently </li></ul><ul><li>Early lease payments were $150-$200 per acre in Pennsylvania, jumped to ~ $3,000 by 2008 with royalty levels 12.5% to 18.75% </li></ul><ul><li>It has great advantage in its proximity to Eastern US gas markets </li></ul><ul><li>There is need for infrastructure buildup for increasing gas takeaway </li></ul><ul><li>Early results on these wells are excellent </li></ul><ul><li>Accordingly, there is influx big players like Chesapeake/StatoilHydro, Range Resources, Cabot, EQT and many others </li></ul><ul><li>At midyear, Marcellus drilling was 2X that of 2008 and should continue; a great development future is in the cards </li></ul>www.WarlickEnergy.Info
  19. 19. 5. Looking Ahead <ul><li>The natural gas sector has a ways to go yet, but there is anticipation of improved prices, declining production and slowly-recovering economic conditions into 2010 </li></ul><ul><li>Unconventional gas will be a bulwark for future supply, while LNG landed in North America is dependent upon world economies’ economic recovery and Eastern Hemisphere LNG demand </li></ul><ul><li>Gas imports to the U.S. from Canada should remain at present or lesser levels </li></ul><ul><li>That leaves a bigger role for unconventional gas development in future years </li></ul><ul><li>For the immediate we anticipate supply/demand balance coming soon as demand improves and production declines </li></ul><ul><li>6. Result: Firming prices, slightly better conditions for development showing up late-2009 and improvement in 2010 </li></ul>www.WarlickEnergy.Info
  20. 20. End of Presentation www.WarlickEnergy.Info