Estimating Unconventional Oil Resources and Reserves*

Rick Marsh1

Search and Discovery Article #120021 (2009)

Posted November 30, 2009 *Adapted from presentation at AAPG Geoscience Technology Workshop, “Geological Aspects of Estimating Resources and Reserves,” Houston, Texas, September 9-11, 2009 1Energy Resources Conservation Board, Calgary, Alberta (rick.marsh@ercb.ca)

Abstract Given its history, the Petroleum Reserves Management System (PRMS) is well suited to industry personnel trying to define a financial asset but somewhat less so to a resource manager trying to define potential, even more so when the potential is unconventional. To fully suit an unconventional world, PRMS likely needs some adjustments, and the value of non-proven reserve and resource estimates needs to be better appreciated by a wider audience. Current international mineral standards may better suit unconventional needs, and Canadian regulatory standards are showing the growing usage of Contingent Resources. By its very nature, unconventional means looking at resources lower down in the resource pyramid, but just how much lower is an open ended question. Alberta has a long track record, especially with oil sands, of dealing with this issue, both from a government and industry perspective. Combining these perspectives yields common general categories of (constrained) total in-place, developable in-place, and recoverable resources (reserves). Experience leads to the conclusion that for a resource assessment geologist, the production engineer is an important colleague. The geologist and the engineer are both charged with the same overall mission: find it and get it out of the ground at a profit. When dealing with unconventional resources, however, ‘it’ isn’t necessarily obvious and neither is ‘out of the ground’; that is why it’s called unconventional, and properly estimated resources and reserves are the forecaster of success. The key middle ground for both disciplines is developable in-place (within the reservoir) and caprock integrity (external to the reservoir).

References Alberta Energy and Utilities Board, 2005, Alberta’s reserves 2004 and supply/demand outlook 2005-2014: AEUB (EUB [ERCB]) ST98-2005, 162p. (http://www.ercb.ca/docs/products/sts/st98-2005.pdf) (accessed October 22, 2009) Marsh, R.A., 2007, Understanding Alberta's bitumen resources (abstract): Search and Discovery Article #90063 (2007) (http://www.searchanddiscovery.net/abstracts/html/2007/annual/abstracts/lbMarsh.htm) USGS, 2009, Assessment of in-place oil shale resources of the Green River Formation, Piceance Basin, Western Colorado: USGS Fact Sheet 2009-3012 (http://pubs.usgs.gov/fs/2009/3012/) (first posted April 2, 2009; accessed October 22, 2009) Vanden Berg, M.D., 2008a, Water-related issues affecting conventional oil and gas recovery and potential oil shale development in the Uinta Basin, Utah: Technology Status Assessment: Utah Geological Survey (http://www.netl.doe.gov/technologies/oil-gas/publications/EP/NT05671_TSA.pdf) (accessed October 22, 2009) Vanden Berg, M.D., 2008b, Basin-wide evaluation of the uppermost Green River Formation's oil-shale resource, Uinta Basin, Utah and Colorado: Presentation at the 28th Oil Shale Symposium, November 2008 (http://geology.utah.gov/emp/oilshale/pdf/oilshale1108.pdf) (accessed October 22, 2009)

Estimating Unconventional Estimating Unconventional Oil Resources and ReservesOil Resources and Reserves

Rick MarshRick MarshEnergy Resources Conservation BoardEnergy Resources Conservation Board

Calgary, AlbertaCalgary, Alberta

AAPG Geoscience Technology WorkshopAAPG Geoscience Technology WorkshopGeological Aspects of Estimating Resources and ReservesGeological Aspects of Estimating Resources and Reserves

Houston Houston –– Sept 11, 2009Sept 11, 2009

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IntroductionIntroduction

Three items for discussion todayThree items for discussion todayAn unconventional view of PRMSAn unconventional view of PRMS

A resource managerA resource manager’’s perspective of s perspective of unconventional unconventional ‘‘reservesreserves’’

Geologist and Engineer; an Geologist and Engineer; an unconventional pairunconventional pair

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Resource Classification StandardsResource Classification Standards3

There have been many standards leading to PRMS, ‘SEC2’, CRIRSCO (minerals), & UNFC (mineral & petroleum)

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Unconventional View of PRMSUnconventional View of PRMSPRMS PRMS –– most applicable for most applicable for categorizing industry assets but categorizing industry assets but less so for resource managers less so for resource managers dealing with unconventional dealing with unconventional resourcesresources

Resource extraction moving from Resource extraction moving from single pool to basinsingle pool to basin--wide depositwide depositWhat is discovered?What is discovered?What about grade?What about grade?Timeframe?Timeframe?Contingent resources; a useful Contingent resources; a useful categorycategoryMineral categories may be more Mineral categories may be more applicable for unconventional applicable for unconventional developmentdevelopment

BestBestWorstWorst

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everything

raw - marketable

PRMS

Australian Coal Standards

Source: Coalfields Geology Council of NSW & Queensland Mining Council - 2003

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Resource Resource ‘‘PyramidPyramid’’Hydrocarbons similar to minerals Hydrocarbons similar to minerals development history development history –– plums plums (conventional) then crumbs (conventional) then crumbs (unconventional)(unconventional)

When categorizing; keep the net When categorizing; keep the net wide wide –– we donwe don’’t know what we t know what we dondon’’t know; initial commerciality t know; initial commerciality ideas likely wrongideas likely wrong

In Alberta;In Alberta;ERCB initially used 3% mass ERCB initially used 3% mass bitumen cutoff; now using 6% (to bitumen cutoff; now using 6% (to exclude marginal grade material)exclude marginal grade material)CSS development moving into CSS development moving into thinner (more marginal) zones; thinner (more marginal) zones; SAGD still restricted to plumsSAGD still restricted to plums

The world of conventional oil – the PRMS world

The world of oil sands and oil shale – the PRMS world

The world of conventional

oil – the PRMS world

The world of oil sands and oil shale – the continuous

accumulation world

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(dynamic) limit of what resources are currently thought to be of interest

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““Pay GradePay Grade”” –– where to start?where to start?

Source: USGC Fact Sheet 2009-3012Source: Marsh – Understanding Alberta’s Bitumen Resources

Source: Vanden Berg (2008) – Utah Geological Survey

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Oil Sands PayOil Sands Pay Oil Shale GradeOil Shale Grade

8% cut-off(“rich”)

6% cut-off (currently using)

3% cut-off(“lean”)

< initially just rich/lean

then in greater detail>

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Constraint Mapping Constraint Mapping –– Oil SandsOil SandsTotal in place

aka – SAGD-able in placeaka - Exploitable in place

Developable in place

caprock

drillinggas zone

thicknessmultiple zones

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- Regional perspective of developable (Alberta’s Wabiskaw-McMurray deposit)- Industry perspective is similar but on a much smaller scale

Source: EUB (ERCB) ST98-2005

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Constraint Mapping Constraint Mapping –– Oil ShaleOil Shale

Potential Additional Constraints;Data Density?Minimum Volume?Caprock?Socio-Environmental constraint areas?Other operational (commerciality) constraints?

reduced by 48%!

Source: Vanden Berg (2008) – Utah Geological Survey

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Developable in place Developable in place xx recovery (or utilization) factor recovery (or utilization) factor ==recoverable resource (reserve)recoverable resource (reserve)

A provincial perspective of recoverable (used for A provincial perspective of recoverable (used for unconventional oil and gas in Alberta) unconventional oil and gas in Alberta) –– start with in start with in place only, then book initial reserves = production, place only, then book initial reserves = production, then book project reserves, then finally book then book project reserves, then finally book regional regional reserves reserves (inter(inter--project reserves)project reserves)

RecoverableRecoverable

Developable (within range of extraction Developable (within range of extraction facilities and local conditions) in placefacilities and local conditions) in place

Recovery (or utilization) Recovery (or utilization) factor (applicable to the factor (applicable to the facilities, economics, and facilities, economics, and geology)geology)

itera

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Geologists & engineers – brothers in arms, but…Geologists see in color; engineers in black & whiteGeologists love maps; engineers love charts (geologists are visual; engineers are numerical)Geologists are wildcatters (failure is part of learning); engineers are risk adverse (a bridge cannot fail)

Need to marry the skills and tendencies of bothWorking together on issues like defining developable pay, creating reservoir models, and ensuring caprock integrity are important

Geologists & engineers Geologists & engineers –– brothers in armsbrothers in arms, but, but……Geologists see in color; engineers in black & whiteGeologists see in color; engineers in black & whiteGeologists love maps; engineers love charts (geologists are Geologists love maps; engineers love charts (geologists are visual; engineers are numerical)visual; engineers are numerical)Geologists are wildcatters (failure is part of learning); Geologists are wildcatters (failure is part of learning); engineers are risk adverse (a bridge cannot fail)engineers are risk adverse (a bridge cannot fail)

Need to marry the skills and tendencies of bothNeed to marry the skills and tendencies of bothWorking together on issues like defining Working together on issues like defining developable developable paypay, creating , creating reservoir modelsreservoir models, and ensuring , and ensuring caprock caprock integrityintegrity are importantare important

Geologist & EngineerGeologist & Engineer10

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geological resource

technological resourceeconomical

resource

Developable Pay Developable Pay --conventionalconventional

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Schematic of simplified resource classes Schematic of simplified resource classes ––conventionalconventional

Ability to define developable pay is normally simpler than unconventional

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resourcetechnological

resourceeconomical resource (?) > 6% mass bitumen

in single zone with more than 4 wells per township

amount produced at less than ~3:1 SOR

amount > 10m thick above producer

the conservation conundrum

Developable Pay Developable Pay ––unconventionalunconventional

the conservation conundrum

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Need to work together to define the developable part of the reservoir (both vertically & areally) and then to monitor performance to ensure operational success

SAGD bitumen development example

Schematic of simplified resource classes Schematic of simplified resource classes ––unconventionalunconventional

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ModellingModellingGeological ModelGeological Model

‘‘Begin with the end in mindBegin with the end in mind’’ –– model for flow simulation or detailed model for flow simulation or detailed geological/reservoir modelgeological/reservoir modelDonDon’’t hide unknowns or limits of knowledget hide unknowns or limits of knowledgeFor flow simulation, need to preserve heterogeneity more than For flow simulation, need to preserve heterogeneity more than attain spatial accuracyattain spatial accuracy

Reservoir Flow SimulationReservoir Flow SimulationOutput is limited by inputOutput is limited by inputHistory matching is good only so far as there is sufficient histHistory matching is good only so far as there is sufficient history and ory and you understand the processyou understand the processIt is the future prediction that is important; what about monitoIt is the future prediction that is important; what about monitoringring

needs engineering input

needs geological input

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Caprock IntegrityCaprock Integrity

Ever increasing importance; need to think longEver increasing importance; need to think long--termtermCaprock DefinitionCaprock Definition

Seal vs. CaprockSeal vs. CaprockMechanical; Chemical; Thermal?Mechanical; Chemical; Thermal?

TimescaleTimescaleThree months or three decades?Three months or three decades?

Need to work together to understand the geology and Need to work together to understand the geology and the recovery mechanism to ensure recovery is the recovery mechanism to ensure recovery is confined to the strata intendedconfined to the strata intended

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Thank you for your timeThank you for your time

Questions?Questions?

Estimating Unconventional Oil Resources and ReservesEstimating Unconventional Oil Resources and Reserves

AAPG Geoscience Technology WorkshopAAPG Geoscience Technology WorkshopGeological Aspects of Estimating Resources and ReservesGeological Aspects of Estimating Resources and Reserves

Houston Houston –– Sept 11, 2009Sept 11, 2009