1. SPE DISTINGUISHED LECTURER SERIES is funded principally through a grant of the SPE FOUNDATION The Society gratefully acknowledges those companies that support the program by allowing their professionals to participate as Lecturers. And special thanks to The American Institute of Mining, Metallurgical, and Petroleum Engineers (AIME) for their contribution to the program.

2. Advances in Unconventional Resources Technology: Assessment Methodology John Lee Texas A&M University

3. Global Energy Availability Requires Creative Thinking We need increasing amounts of energy of right type at right place and right time Viability of many alternatives limited by practical considerations Unconventional resources play important role for most forecasters Improved assessment methodology one key to availability of needed unconventional resources

4. Unconventional U.S. Gas Production Will Increase EIA 2006 Lower 48 unconventional Lower 48 conventional— onshore Lower 48 conventional— offshore Lower 48 associated Alaska HistoryProjections 10 0 19902030 2004

5. Dependence on Unconventional Resources To Grow in United States ‘As a result of technological improvements and rising natural gas prices, natural gas production from relatively abundant unconventional sources (tight sands, shale, and coalbed methane) is projected to increase … from 35 percent of total lower 48 production in 2003 to 44 percent in 2025’ EIA Energy Outlook 2005

6. Production From Unconventional Sources Will Increase in U.S. Production, % 35% 44% Technological improvements Rising natural gas prices Diminished supply of conventional resources Time 50 25 20032025

7. … And Later in the World Production, % Technological improvements Rising natural gas prices Diminished supply of conventional resources Time

8. Recent Worldwide Estimates of Unconventional Gas in Place, (Tcf) Rogner 1997

9. Resource Distribution and Practical Permeability Limit Resources Reservoir quality High Low Resource size High Low After USGS, 2003 Practical limitpermeability

10. Resource Distribution and Practical Cost Limit Resources Reservoir quality High Low Resource size High Low After USGS, 2003 Practical limitcost

11. NPC Forecasts Technology Impact on Gas Production With no technology advancement With technology advancement 32 22 0 20002025 Tcf Year NPC 2003

12. NPC Model Assumes and Identifies Expected Technology Advances Technology Area Annual, % 25 years, % Exploration well success Development well success Ultimate per-well recovery Initial production rate 0.53 0.41 0.87 0.74 14 11 24 20 Drilling costs Completion costs Construction costs Fixed operating cost 1.81 1.37 1.18 1.00 37 39 26 22 NPC 2003

13. Improved Resource Assessment Key to Much Unconventional Resource Development Technology Area Annual, % 25 years, % Exploration well success Development well success Ultimate per-well recovery Initial production rate 0.53 0.41 0.87 0.74 14 11 24 20 Drilling costs Completion costs Construction costs Fixed operating cost 1.81 1.37 1.18 1.00 37 39 26 22 NPC 2003

14. Active Projects in Resource Assessment Quantifying uncertainty in unconventional gas resource assessments in North America Estimating unconventional gas resources outside of North America

15. USGS Applied Methodology for Undiscovered Resources in 2003 Uinta Piceance SAH97.165

16. Resource Assessment Methodology Identify areas within petroleum province that are ‘total petroleum systems’ Hydrocarbon source rocks Reservoir rocks Hydrocarbon traps

17. Analyze ‘Assessment Area’ (Play) – About 700 in North America Boundary of assessment area USGS 2003

18. Classify Petroleum Systems as Conventional … USGS 2003

19. …or Continuous USGS 2003

20. Characteristics of ‘Conventional’ Accumulations Relatively high matrix permeability Obvious seals and traps High recovery factors

21. Characteristics of ‘Continuous’ Accumulations Regional in extent Diffuse boundaries Low matrix permeabilities No obvious seals or traps No hydrocarbon/water contacts Abnormally close to source rocks Low recovery factors Includes tight sandstones, coalbed gas, oil and gas in fractured shale and chalk

22. Some Don’t Accept USGS Model for Unconventional Resources Green River Uinta Piceance SAH97.165 Some low-permeability gas fields occur in poor-quality rocks in conventional traps Shanley et al. (2004):

23. Production Decline Curves Used to Predict EUR 10,000 10 19982000 Production Rate, Bcf/month Year 1,000 100 Gas Oil USGS 2003

24. EUR Distribution for Continuous Accumulation 100,000 0 050100 EUR, MMcf or 1,000 bbl Percent of Sample 1,000 10,000 100 USGS 2003

25. USGS Undiscovered Oil and Gas Estimates for Uinta-Piceance Province, Utah-Colorado Resource Type Oil, MMSTBGas, Bscf Conventional Continuous P957.15 P5018.47 Mean20.39 P540.44 P9531.99 P5037.57 Mean38.78 P5 56.84 P9563.71 P50191.12 Mean213.12 P5436.01 P9512,145.49 P5020,121.27 Mean21,211.03 P5 33,978.81

26. Observations USGS Methodology yields probability distribution of undiscovered resource Previous presentations simply most likely, high, low cases Virtually all undiscovered resource in USGS model ‘continuous’ gas Validity of continuous model critical Range from P5 to P95 quite narrow Analysis indicates narrow, subjective input data

27. North American and Non-North- American Basins Selected for Further Study North American basins studied will probably include frontier areas in Travis Peak and Barnett Shale Non-North-American basins will include Neuquen and Cuyo basins (Argentina) and Sichuan basin (China)

28. NA Basin International Basin Conventional Unconventional Estimating Non-North American Unconventional Gas Resources Known Basin Analogs Conventional Unconventional Known Unknown

29. Objectives and Challenges Objectives Develop methodology for identifying analogous basins Estimate potential resources in selected basins Challenges No public literature available General lack of data availability Large number of basins in North America Which parameter to use? What criteria?

30. Analog basin progress 60 - 70 basins 31 basins All NA basins: NA basins with unconventional gas potential Analog score Final Analog Basins Data Collection Define criteria to find analog basins Include characteristics of international basins Build expert system to compare NA basins to international basins Build database of reservoir properties

31. General basin information Source rock information Reservoir characteristics Data Analysis

32. Highest scores most likely analogs Point Calculation 1 × WF 1 1 × WF 1 1 × WF 1 1 × WF 2 0.1 × WF 2 0.8 × WF 2 1 × WF 3 0.1 × WF 3 0.75 × WF 3 1 × WF 4 0.7 × WF 4 0.7 × WF 4 1 × WF 5 0.8 × WF 5 1 × WF 5 1 × WF 6 1 × WF 6 0 × WF 6 Total PtsBasin 1Basin 2 Nearness of match, not relative values

33. Rank Result Sheet

34. Summary Comments Unconventional resources, especially gas, to play leading role in North American energy supply in next 25 years EIA 2006 Lower 48 unconventional Lower 48 conventional— onshore L 48 C—offshore Lower 48-Associated Alaska HistoryProjections 10 0 1990 2030

35. Summary Comments Unconventional resources also to play increasingly important role in world energy supply in coming decades

36. Summary Comments Advances in technology key to developing potential of unconventional resources With no technology advancement With technology advancement 32 22 0 20002025 Tcf Year

37. Summary Comments Ability to access resources better, quantify uncertainty important part of technology development

38. Summary Comments USGS methodology for resource assessment good starting point

39. Summary Comments Widespread applicability of continuous gas accumulation model questioned

40. Summary Comments Final modified model to be applied in North America, other continents to identify broad potential, specific target areas

41. Advances in Unconventional Resources Technology: Assessment Methodology John Lee Texas A&M University

42. Fall 2005 UG Enrollment ClassCollege StationQatar Fish9910 Freshman448 Sophomore75 Junior69 Senior50 Total33718

43. Fall 2005 Graduate Enrollment DegreeTotal Distance Learning PhD502 MS932 ME3422 Non-Degree14 Total19140

44. Need to Extend Practical Limits Through Technology Advances

45. Three Resource-Assessment Categories Depicted Untested cells with potential to add to reserves in next 30 years Areas of untested cells Cells tested by drilling Assessment area boundary USGS 2003

46. Petroleum-Charged Cells Only ‘untested cells with potential’ contribute to resource-base additions Assessment of these cells proceeds on basis of geologic understanding and petroleum engineering principles What we are looking for is untested sweet spots

47. Unconventional Gas Production Will Increase In Lower 48 States EIA 2006 Lower 48 NA unconventional Lower 48 NA unconventional—onshore Lower 48 NA unconventional—offshore Lower 48 AD Alaska 10 0 19902030 2004 HistoryProjections

48. LNG Imports Will Become Increasingly Important EIA 2006 Overseas LNG Canada Mexico 20301990 5 0 2004 HistoryProjections

49. Gas Wellhead Prices Will Likely Stabilize EIA 2006 10 0 2030 19902004 HistoryProjections

50. Rate of Technology Advance Will Influence Gas Prices EIA 2006 HistoryProjections10 0 19902030 Reference Slow technology Rapid technology 2004

51. Rate of Technology Advance Will Influence Gas Supply EIA 2006 25 0 19902030 Reference Slow technology Rapid technology Reference Slow technology Rapid technology Production Net Imports 2004 HistoryProjections

52. Gas Price Forecasts Cover Wide Range of Outcomes EIA 2006 10 0 19902030 Reference Low price High price 2004 HistoryProjections

53. LNG Import Rate Will Depend on Prices EIA 2006 HistoryProjections 10 0 19902030 Reference Low price High price 2004

54. Canadian Gas Will Augment US Supplies NPC 2003 Non-Arctic Canada U.S. Lower 48

55. Unconventional Gas Will Play Increasingly Important Role NPC 2003 Associated Unconventional Conventional

56. Most Future Gas Supply Yet To Be Discovered NPC 2003 Undiscovered unconventional Proved Undiscovered conventional Growth

57. Lower-48 Production Will Remain Broad-Based NPC 2003 Eastern interior Rockies Gulf of Mexico Deepwater Gulf Coast Onshore Midcontinent Permian Basin Shelf

58. Unconventional Gas Production Will Increase in Canada NPC 2003 Conventional Coalbed methane Shale

59. North American Gas Well Count Will Level Off NPC 2003 U.S. Lower 48 Canada

60. Shale, CBM, Tight Gas Well Count Will Increase NPC 2003 Conventional Coalbed methane Conventional Shale Tight

61. Shale, CBM Gas Well Count Will Climb in Canada NPC 2003 Conventional Shale Coalbed methane

62. North American Reserves Will Dwindle NPC 2003 Lower 48 Reserves Addition Gas Production Reserves-to-Production Ratio

63. Most Future Gas Undiscovered Undiscovered 69% Proved 14% Growth 17% NPC 2003

64. Conventional 72% Nonconventional 28% Unconventional Gas Reserves To Be Significant NPC 2003

65. Conventional Reserves Span Continent NPC 2003

66. Rockies Hold Most New Unconventional Gas NPC 2003

67. How Do Conventional and Unconventional Resources Differ? Conventional Massive stimulation treatments Special recovery processes Leading-edge technologies Unconventional

68. Quantifying Uncertainty in Unconventional Gas Resources in North America Compile resource inventories and analyses Provide methodology to operators Develop assessment methodology Assess resources Recent, unanalyzed data on unconventional resources Well-developed, analyzed basins 30 years of data

69. Oil and Gas Resources Occur in Vastly Different Settings USGS 2003