Resource Development Model Dave Russum Geo-Help Inc.

Concept Simple method to look at resource development Applicable to all non-renewable resources Applicable to renewable resources where production exceeds sustainable levels Can be applied to a single project or to a total world assessment of a resource Provides some predictability to future trends

Renewable and Non- Renewable Resources Renewable – the resource is constantly being replaced eg. Timber, fish –Production could be sustained forever Non-renewable – the resource is not being replaced in the normal timeframe of man’s activities eg. Oil, gas –When used it is gone forever

Resource Development Model – 8 Stages 1. Discovery 2. Evaluation 3. Development 4. Expansion 5. Hey-day 6. Denial 7. Reality 8. Abandonment TIME

Stage 1: Discovery Idea Exploration Recognition of the Resource

Stage 2: Evaluation Determination of the economic viability of the resource Decision to proceed

Stage 3: Development Bringing the resource into production –Creating the infrastructure –Creating ability to process the resource

Stage 4: Expansion/Growth The initial discoverer and others recognize the potential for expansion. Competition creates rapid growth. Cost may escalate Hasty investment decisions may be made

Stage 5: Hey-day Intense production to profit from the resource. Production accelerates beyond reasonable levels. Related industry may develop close to the resource rather than shipping all the product to a distant market Decisions tend to be based on a herd mentality and the assumption of virtually unlimited future production Technology helps sustain activity

Stage 6: Denial Limits to resource ignored Companies, workers, politicians, regulators and consumers predict and expect continued growth in production (and pay cheques) Spending based on unrealistic future expectations Early investors may quietly exit Costs to maintain production increase Opinions that all is not rosy are ignored or not welcome

Stage 7: Reality Limitations of resource recognized, Quotas or regulations may be applied to extend the life of the resource generally too little to late. Remaining quality resources become a cash cow Small, low cost operators pursue remaining marginal resources.

Stage 8: Decline/Abandonment Remaining resource is not economically viable and man moves on. Restoration often does not occur because it is not economically viable creating the “ghost towns” that are common in any natural resource area. Resource not completely produced; it is simply not economically viable to extract what remains or a more viable alternative have been discovered.

Reserve Growth Unbridled optimism

Production Rapid Growth Technology and $’s Steep decline

Texas Onshore gas production Current Stage: 7 (Reality) 7 Real 6 Den 5 Hey 4 Expan

Alberta gas production and gas wells (CAPP Data) Current Stage: 6 (Denial) - Rapidly Moving to Reality 6

Texas Remaining Reserves Peak Production Peak (1971): Reserves >120Tcf, R/P = 15

Alberta Remaining Reserves and R/P Peak Prod’n Peak (2001): Reserves 42 Tcf, R/P 8.5

Texas vs. Alberta Statistics TexasAlberta Area (sq. miles) 269,000255,000 Prodn Tcf109 Tcf Rem. Reserves (2002) 43 Tcf40 Tcf 2002 Production5600 Bcf4900 Bcf 2002 Gas wells65,68670,000

Stages Not consistent in length Will be some overlap of stages Stage may be skipped or take hundreds of years New technology or price may rejuvenate an existing project/resource

Resource Development Model – WELSH COALFIELDS 1. Discovery (Pre 1850) 2. Evaluation (2 years?) 3. Development (1850’s) 4. Expansion ( ) 5. Hey-day ( ) 6. Denial ( ) 7. Reality ( ) 8. Abandonment (1990s) TIME Current Stage: 8

Resource Development Model – COD FISHERIES 1. Discovery (1700s) 2. Evaluation (1 year?) 3. Development (18 th Century) 4. Expansion (19 th Century) 5. Hey-day (19 th - mid 20 th Century) 6. Denial ( ) 7. Reality (1990’s) 8. Abandonment (1990s) TIME Current Stage: 8

Resource Development Model – Leduc 1. Discovery (1947) 2. Evaluation (1 month?) 3. Development ( ) 4. Expansion ( ) 5. Hey-day ( ?) 6. Denial ( ) 7. Reality (1975-Present) 8. Abandonment (2005?) TIME Current Stage: 7/8

Resource Development Model – Ladyfern 1. Discovery (3 years) 2. Evaluation (1 week?) 3. Development (6 months) 4. Expansion (1.5 years) 5. Hey-day (1 day?) 6. Denial (1 day) 7. Reality (Present) 8. Abandonment TIME Current Stage: 7

Resource Development Model – Alberta Tarsands 1. Discovery (1778) 2. Evaluation (to 1965) 3. Development (1967) 4. Expansion (1967-Present) 5. Hey-day (Present?) 6. Denial 7. Reality 8. Abandonment TIME Current Stage: 4/5

Resource Development Model – Alberta Gas 1. Discovery (1880’s) 2. Evaluation (20 years?) 3. Development ( ) 4. Expansion ( ) 5. Hey-day ( ) 6. Denial (2000- Present) 7. Reality 8. Abandonment TIME Current Stage: 6

Resource Development Model – Canada CBM 1. Discovery (1970’s?) 2. Evaluation ( ?) 3. Development (2003 Onward) 4. Expansion 5. Hey-day 6. Denial 7. Reality 8. Abandonment TIME Current Stage: 2/3

Resource Development Model – Canada Gas Hydrates 1. Discovery ( ?) 2. Evaluation ( ?) 3. Development (2025 Onward) 4. Expansion 5. Hey-day 6. Denial 7. Reality 8. Abandonment TIME Current Stage: 1/2

Resource Development Model – BC Gas 1. Discovery (1948) 2. Evaluation ( ?) 3. Development (1960’s) 4. Expansion (1970’s-1990’s) 5. Hey-day (Present) 6. Denial 7. Reality 8. Abandonment TIME Current Stage: 5

Resource Development Model – Saskatchewan Gas 1. Discovery (1950’s) 2. Evaluation ( ?) 3. Development (1990’s) 4. Expansion (Present) 5. Hey-day 6. Denial 7. Reality 8. Abandonment TIME Current Stage: 4

Resource Development Model – Scotian Shelf Gas 1. Discovery (1960’s) 2. Evaluation ( ’s) 3. Development (1999) 4. Expansion (Present?) 5. Hey-day 6. Denial 7. Reality 8. Abandonment TIME Current Stage: 4or 7?

Resource Development Model – Mackenzie Delta Gas 1. Discovery (1970’s) 2. Evaluation (1970-Present) 3. Development 4. Expansion 5. Hey-day 6. Denial 7. Reality 8. Abandonment TIME Current Stage: 2/3

Canada’s Hydrocarbon Stages Stage1 Disc 2 Eval 3 Dev 4 Expn 5 Hey 6 Den 7 Real 8 Abn AB Gas BC Gas Sask. Gas E. Coast Gas??? Mackenzie Gas? CBM Gas Hydrates AB Oil - Light AB Oil - Heavy Tar sands?

Resource Development Model – Alberta Coal (Mining) 1. Discovery (1800’s) 2. Evaluation ( ) 3. Development (1880’s) 4. Expansion (1880=1900) 5. Hey-day ( ) 6. Denial (1930’s-1960) 7. Reality (1960’s) 8. Abandonment (1970’s) TIME Current Stage: 8

Resource Development Model – Alberta Coal (Opencast) 1. Discovery (1800’s) 2. Evaluation (to 1950’s) 3. Development (1960’s?) 4. Expansion (1970’s) 5. Hey-day (Present) 6. Denial 7. Reality 8. Abandonment TIME Current Stage: 5 Demand/price could move to Stage 4 ?