Drilling Introduction SCA, LLC

Drilling Introduction Rig Types Rig Personnel & Components Drill Bits, Drill Pipe, Fishing Tools Subsurface Pressure Drilling a Hole - Casing Program Well Completion Directional Drilling

What Is This?

Chevron s recent Jack 2 discovery Lower Tertiary play in the Walker Ridge area Photo: Devon Energy Corp.

Deep Drilling!! Sea level 7,000 feet Sea floor 20,000 feet Chevron s recent Jack 2 discovery, 175 miles off the coast of Louisiana, is over 5 miles below sea level. 21,000 feet Total depth = 28,175 feet

Types of Drilling Wells Exploration: well to test new exploration opportunity. Rank Wildcat: exploratory well drilled significantly away from or deeper than known production. Discovery: a successful exploration well. Dry Hole: a well that encountered no hydrocarbons, or insufficient hydrocarbons quantities to justify development. Appraisal: follow-up well drilled to evaluate the commerciality of a new discovery. Development: field wells drilled to develop and produce discovered reservoirs. Injection: wells utilized to inject gas, water or chemicals for production enhancement or waste water disposal.

Rig Types Water Depth = 300 Water Depth = 10,000 8 8 Land Jackup Semisubmersible Floater Anchored Drill Ship Dynamically Positioned

Rig Types - Land Rig

Rig Types - Jackup Rigs

Rig Types: Semi-submersible Seadrill Deepwater http://www.miningtopnews.com/wp-content/uploads/2009/01/seadrill-west-aquarius.jpg

Rig Types: Semi-submersible

Rig Types Drill Ship Noble Globetrotter Water depth to 10,000 /3,048 m Well depth to 40,000 /12,192 m (Image: Noble Corp) Deepwater Discovery Water depth to 10,000 / 3,048 m Well depth to 30,000 / 9,144 m (oilrig-photos.com)

Rig Personnel Company man: representative of the operator (oil company). Offshore Installation Manager (OIM): the most senior manager on board an offshore drilling rig or production platform, responsible for the health, welfare and safety of the personnel of the service company. Tool pusher: responsible for maintaining all tools, equipment, supplies, etc!for the drilling operations. Driller: in charge of the drilling crew, driving the drilling rig, monitor drilling performance and hole conditions to optimize drill rate and avoid hazards. Derrick hand: guides the stands of drillpipe into the top of the drill string from a position at the top of the derrick.

Rig Personnel Roughneck: works on the rig floor handling the drill pipe during drilling operations. Roustabout: handles various jobs including rig maintenance and cleanup. Geologist: evaluates cuttings, core and log data from the drilling well and relates to the well prognosis. Mudlogger: service company employee responsible for gathering data and collecting cuttings and fluid samples during the drilling of a well to identify possible indications of hydrocarbons ( shows ). Mud engineer: responsible for the drilling fluid ( drilling mud ) which lubricates the drill bit and clears cuttings from the borehole.

Rig Personnel The number and makeup of the crew staffing a drilling rig varies depending on the location and type of drilling operation. Most drilling operations run 24 hours/day to optimize rig use, and there are typically two full crews to work the day shift and the night shift. Crews typically work two weeks on and two weeks off, although 28-day shifts are common in remote locations.

Rig Personnel!"#$%&'()*+

Rig Components 1. Mud tank (pump) 2. Shale shakers 3. Suction line pipe 4. Mud pump 5. Motor or power source 6. Vibrating hose 7. Draw-works 8. Standpipe 9. Kelly hose 10. Goose-neck 11. Traveling block 12. Drill line 13. Crown block 14. Derrick 15. Monkey board 16. Stand (of drill pipe) 17. Pipe rack (floor) 18. Swivel 19. Kelly drive 20. Rotary table 21. Drill floor 22. Bell nipple 23. Blowout preventer, Annular 24. Blowout preventers, Pipe & Blind ram 25. Drill string 26. Drill bit 27. Casing head 28. Flow line Components of a Drilling Rig

Rig Components Rig Floor Kelly (40 ) Kelly Bushing Rotary Table Drill Pipe (30 ) Kelly and Rotary Table SCA, LLC 277

Rig Components Rotary Drive System

Primary functions of drilling mud Cool the drill bit Remove cuttings Stabilize the well bore Balance formation pressure Mud Circulation System Mud Pump Stand Pipe Rotary Hose Swivel Shale Shaker Annulus Mud Pit Shale Slide Drill Bit Reserve Pit

Drill Bits Tri-cone Tooth Bit

Drill Pipe & Drill Collars DRILL PIPE connects the bottom-hole assembly (collars & bit) to the rig, to raise, lower, rotate and pump mud to the drill bit. DRILL COLLARS add extra weight immediately above the drill bit in the drill string to improve penetration rate.

Drilling: The Casing Program Blowout Preventer 36 Hole 30 Conductor Pipe 100 26 Hole 20 Surface Casing 2000 17 1/2 Hole 13 3/8 Intermediate Casing 8000

Drilling: The Casing Program 36 spud bit 26 drill bit

Drilling: The Casing Program 30 conductor casing

Depth Subsurface Pressure Blowout Pressure Prediction Pressure Overburden Pressure Reservoir Pressure Blowout Drill Fluid Mud Weight

Maconda Blowout April 2010

Drilling Well Completion Cement Program 30 100 39,600 of Pipe Casing Shoe 20 2500 13 3/8 8000 9 5/8 14,000 Producing Formation Drilling The Target Horizon

Drilling Well Completion Cement Program 30 100 39,600 of Pipe Casing Shoe 20 2500 13 3/8 8000 9 5/8 14,000 7 Liner 15,000 Perforation Holes Shot in Liner Producing Formation Perforate the liner and clean up the reservoir SCA, LLC 292

Drilling Well Completion Completion is the process in which the well is prepared to produce hydrocarbons. Perforations are made through the casing to allow formation fluids to flow into the well bore from the producing reservoir. Completion fluids are pumped into the reservoir to clean up damage caused during drilling and enhance reservoir flow. A packer is set above the perforations to isolate them from the rest of the wellbore. Production tubing inside the casing then conducts the hydrocarbons through the packer to the surface.

Well Completion: Perforations

Well Completion: Tubing Packer: set above the perforations to isolate them from the rest of the wellbore. Production tubing: conducts the oil through the packer(s) to the surface.

Casing & Tubing, Top View Formation Conductor 20 Cement Surface 13 3/8 Intermediate 9 5/8 Production tubing Liner 7

Fracture Stimulation Hydraulic fracturing ( fracing or a frac job): pumping pressurized fluid into reservoirs to create fractures which allow crude oil and natural gas to flow from the reservoir into the well bore. Fractures: induced fractures extend into the reservoir, increasing the surface area of the formation exposed to the borehole and therefore the rate at which reservoir fluids can be produced. Proppant: fractures are kept open by inclusion of a proppant, commonly a uniformly sized sand. Improved fracture stimulation technology has allowed tight gas sand and unconventional shale reservoirs to produce in commercial rates and volumes.

Fracture Stimulation

Fracture Stimulation Fracing or Frac job

Fracture Stimulation Ceramic Proppant

Environmental Challenges

Fracing Environmental Impact This process has been used for more than 60 years in over a million wells Surface casing protects the groundwater aquifer behind steel and cement Hydraulic fracturing generally takes place thousands of feet underground, below multiple layers of impermeable rock and well below drinking water aquifers. Hydraulic frac fluid is ~99 percent water and proppant, and ~1% chemical additives (found in household products). Most of the sand or ceramic proppant remains in the reservoir to hold open the fractures. Most of the water and additives flow back to the surface where they are recycled or disposed of at permitted waste water disposal sites.

Advantages of Directional Drilling Drilling at an angle (or horizontally) increases the exposed section of well bore through the reservoir. Access multiple targets that are not vertically stacked Access reservoirs where surface access is difficult or not possible, such as under a city, airport, lake, or environmentally restricted area. Drill multiple wells from a single surface location to limit surface impact (e.g. arctic environments), or eliminate the need for multiple production facilities (e.g. offshore platform). Relief wells" can be drilled from a safe distance to control a blow out well.

Applications of Directional Drilling After Leroy & Leroy 1977 A B C D E F G H I J A. Multiple wells offshore or platform B. Shoreline drilling C. Fault Control D. Inaccessible location E. Stratigraphic trap F. Relief well control G. Straightening hole & side tracking H, I, J Salt dome drilling

Horizontal Drilling in Unconventional (Resource) Plays Horizontal drilling is used in shale gas plays to:! Increase well bore exposure to reservoir! Intersect more natural fractures! Avoid water bearing zones! Accelerate production & increase EUR/well

Horizontal Drilling in Conventional Fields Horizontal drilling increase well bore exposure to the reservoir, accelerates production and increases EUR/well.

Drilling - Summary Introduction Rig Types Rig Personnel & Components Drill Bits, Drill Pipe, Fishing Tools Subsurface Pressure Drilling a Hole - Casing Program Well Completion Directional Drilling,-./0+

Advantages of Directional Drilling Source: API Oil & Gas Primer, 11/2008

Please do not turn the page

Well Data Acquisition Types of Well Data Relating Log Data to Geology Relating Log Data to Seismic Data

Types of Well Data The following processes are used to acquire data from drilling wells to analyze subsurface formations: Mud logging Wireline logging MWD (Measurement While Drilling) Coring

Mud Logging Mud logging is the evaluation of formation cuttings created at the drill bit and transported to the surface by the drilling mud. The cuttings are caught at the shale shaker and placed in small bags at regular intervals. Analysis is done using a microscope and a ultraviolet box to look for indications of oil stains (florescence). The drilling mud is also analyzed for hydrocarbon gases using a gas chromatograph.

Mud Logging Mud Pump Stand Pipe Rotary Hose Swivel Shale Shaker Annulus Mud Pit Shale Slide Reserve Pit Mud Circulation System

Mud Logging Shale Shakers

Mud Logging Cuttings

Mud Log Show: The presence at a certain depth of oil or gas in the drilling mud, possibly indicating a productive zone.

Overview of Wireline Logging Depth Measurement Draw Works Wellhead Digital Recording Cable Winch Wireline Downhole Tools

Wireline Logging Logging Truck

Wireline Logging Logging Tools

Wireline Logging Logging Tools going in the hole

Logging While Drilling Advantages: Measure formation properties before drilling fluid invasion. Obtain data from well bores that are difficult to log with wireline tools (e.g. horizontal wells). In some cases alleviates the need to run wireline logs. Widely used for geosteering of horizontal wells in unconventional resource plays.! note: Geosteering is the process of adjusting borehole orientation during drilling to target geological objectives based on mud logging data and information gathered by MWD and LWD tools.

Types of Wire line Logs Electric (Resistivity) Logs Porosity Logs Lithology Logs Acoustic Logs

Resistivity Log Wireline Logging Neutron-Density Log Gamma Ray Neutron Resistivity Density Caliper

Types of Wire line Logs Log Name: Measures: How it works: Indicates: Electric (Resistivity) SP (Spontaneous Potential) Gamma Ray Density Neutron Acoustic (Sonic) resistance to electric current of the rocks and fluids in the formation near the borehole electrical potential difference between mud in the well opposite different formation lithologies and a stake at the surface near the borehole natural emission of gamma rays from the formations density contrast between minerals in the formation and fluids in the pore space neutron detectors measure energy loss as neutron source irradiates the formation and emitted neutrons are absorbed formation travel time (velocity) gas and oil are resistant to electrical current and saline formation water conducts electrical current electrical potential varies due to formation properties distinguishes shales which have naturally high levels of radioactivity from other formation with typically low gamma ray signatures gamma ray absorption is a function of matter per unit volume (formation density). rate of loss is inversely related to the amount of hydrogen present in the pore fluids (water and hydrocarbons) tool emits sound waves that travel from a source to a receiver in the wireline tool presence of hydrocarbons in the reservoir. permeability, lithology and depositional environment shales vs. other lithologies, organic richness porosity, if both mineral and fluid densities are known porosity lithology, porosity and two-way travel time which is used for seismic time/depth conversion

Determining Pay A reservoir or portion of a reservoir that contains economically producible hydrocarbons i.e. capable of "paying" an income. Sometimes called pay sand or pay zone. The overall interval in which pay occurs is the gross pay interval. The intervals within the gross pay zone that meet criteria for producing hydrocarbons such as minimum porosity, permeability and hydrocarbon saturation are called the net pay interval. www.glossary.oilfield.slb.com/display.cfm?term=pay

Log Evaluation

Contour Map on Geologic Surface

Mapping Using Well Logs -3000-4000 -5000 0 } 100-1000 SSTVD -2000-3000 -4000 2000 MD 3000 MD 4000 MD 5000 MD -5000 6000 MD SCA, LLC 329

Mapping Directionally Drilled Wells Measured Depth (MD) True Vertical Depth (TVD) SCA, LLC 330

Measurement While Drilling (MWD) & Logging While Drilling (LWD)

Logging While Drilling (MWD & LWD) Sophisticated (and relatively expensive) logging tools that are physically located in the bottom hole drilling assembly. Measurements include borehole temperature, pressure and directional data (MWD), and many wireline log measurements such as resistivity, porosity, gamma ray and velocity data (LWD). The measurements are made in real time, stored in solid-state memory, and transmitted to the surface by digitally encoded mud pulses. Mud-pulse telemetry system Smith International PathMaker 3-D Rotary Steerable System

Coring: Conventional Cores Conventional, full diameter or whole core allows for accurate determination of formation rock properties and fluid saturations. Whole core is a cylinder of rock, 3" to 4" in diameter and up to 60 feet long acquired in a core barrel. The core barrel is a hollow pipe tipped with a circular, diamond bit that cuts the core and retains it for retrieval to the surface. Conventional core is invaluable for reservoir evaluation although time consuming and expensive to obtain. Coring takes place at pre-determined intervals, before objective has been penetrated.

Coring: Conventional Cores

Coring: Sidewall Cores A core gun has numerous, hollow steel cylinders mounted along its sides, attached by short cables. The core cylinders are propelled laterally into the formation at selected depths by explosive charges. The cables then pull the cylinders containing small samples (1 diameter x 1.75 length) from the well bore wall and transports them to the surface. Sidewall cores allow sampling at many points in the well bore after wireline logs have been acquired. Sidewall cores are generally less expensive Sample recovery is often poor, and the potential to stick the tool in the hole is relatively high.

Sidewall Cores

Well Data Acquisition Types of Well Data Mud Logging Wireline Logging MWD Logging Core: Conventional & Sidewall

Reservoir Engineering Basics Drive Mechanisms Evaluation of Reserves & Resources Reservoir Modeling and Simulation

Basic Reservoir Terminology: Porosity, Permeability & Water Saturation Porosity: A measure of the void spaces in a reservoir recorded as a percentage between 0 and 100%. Fracture porosity: Associated with a fracture system related to faulting or induced fractures (frac job), creating porosity in rocks like brittle shales that lack primary porosity Permeability: A measure of the ability of a reservoir to transmit fluids through connected pore space, designated by the darcy (D), or more commonly the millidarcy (md) or 0.001 darcy. Water Saturation: The fraction of the pore space that is occupied by formation water, expressed in %.

Sandstone Reservoirs Pore space Sand Grains Permeability Good Porosity = Lots of Space for Oil & Gas

Hydrocarbon Reservoirs Porosity Gas/ Oil Contact Oil/ Water Contact Sand Grain

Reservoir Drive Mechanisms+ The natural forces in the reservoir that displace oil and gas out of the reservoir, into the well bore and up to the surface are called reservoir drive mechanisms. A pressure differential or pressure sink must exist between the reservoir and the wellbore in order for reservoir fluids to be produced. As the reservoir is produced, pressure is naturally maintained by one of these processes:! Water influx from an aquifer! Fluids (oil and gas) expanding within reservoir to occupy volume! Reduction in volume, i.e., reservoir collapse! Fluid flowing from one elevation to another, gravity drainage

Edge Water Drive As the oil is produced, water residing in the reservoir will drive or sweep the oil toward the well bore. Additional water continues to enter the system (recharge).

Reserves Evaluation Methods Common methods for determining the volume of hydrocarbons in a reservoir include: Decline Curve Analysis Volumetrics

Decline Curve Analysis (Mature Reservoirs) + Barrels of oil and water per month Economic Limit Decline Curve Projected EUR 83,300 bbls. Field Production Rate Decline Curve

Reserves Evaluation: Volumetrics Geoscientists and reservoir engineers work together utilizing detailed reservoir maps and well bore data to estimate the original barrels of oil contained in the reservoir (OOIP). Stock Tank Oil Initially In Place (STOIIP) refers to the original volume of oil in the reservoir converted to volume at surface conditions. A recovery factor is estimated utilizing the permeability of the formation and the reservoir drive mechanism. The recovery factor is applied to the STOIIP to provide a deterministic (equation driven) estimate of the amount of oil that will ultimately be produced.

Estimating Recoverable Reserves Rock Volume =70% Area (acres) Net Pay (feet) Gross Reservoir Volume!'("1'23+45(6"2+7'8'&7*+"&+ 2'*'21"92+82'**#2':+2';5<1'+ 8'2='5>9;963:+5&7+922'7#(9>;'+ "9;+"2+$5*+*56#25<"& Pore Volume Porosity = 30% Water Saturation S w = 50% Oil in Place OOIP = 50% Recovery Factor RF = 40% Recoverable Oil Recoverable Oil From a Reservoir

Calculating the Volume of Oil Standard Soccer Field TOTAL AREA = 43,594 SQ. FT. or 1.001 acres 1 ft. of oil over field = 1 acre-foot = 7,758 bbls of oil 1 acre-foot = 1,233 M 3 (1 M 3 = 6.29 Barrels) 1 acre-foot = 43,560 ft 3 (1 ft 3 = 0.178 Barrels)

Deterministic vs. Probabilistic False precision

Probabilistic Reserve Calculations Deterministic equation: N = A x h x O x (1-Sw) x 7758/Boi Reservoir factor minimum mean maximum area of oil accumulation (acres) 1460 1755 2050 net pay thickness (feet) 19 33 47 porosity (%) 16% 20% 23% oil saturation (%) 65% 70% 74% bbls/acre foot 7,758 7,758 7,758 OOIP (bbls) 22,381,520 33,540,511 44,699,501 recovery factor (%) 26% 34% 42% formation volume factor 1.2 1.2 1.2 recoverable oil (bbls) 6,983,034 14,755,791 22,528,549 probability P90 P50 P10

Resources Classification Framework 100 Resource/Reserve Est. over Field Life Resources Decision Point Reserves 80 MBO 60 40 20 0 explore appraise develop manage abandon P10 P50 P90

Definition of Oil Reserves Oil and gas in underground reservoirs can only be classified as reserves if they can be produced commercially under current economic conditions using currently available technology. There are three widely recognized reserve categories: proved, probable, and possible reserves.! Proved reserves (P1): Reasonably certain" to be producible using current technology, at current prices, current commercial terms and given current political constraints.! Probable reserves (P2): "Reasonably Probable" of being produced using current or likely technology at current prices, with current commercial and political terms.! Possible reserves (P3): Some likelihood of being developed under favorable circumstances.

Definition of Oil Reserves

Reserves Evaluation: Commerciality Reservoirs are generally inhomogeneous and may be compartmentalized by faults and stratigraphic barriers which complicate the reservoir development plan. Careful analysis of the reservoir is required to optimize drainage of the hydrocarbons. The cost of drilling additional development wells must be weighed against the acceleration of the production rate and maximizing the reserves ultimately recovered. An economic model is often constructed to estimate the balance between field development costs and expected revenues over time.

Economic Model

Reservoir Models and Simulation A three dimensional Reservoir Model of an oil or gas reservoir is constructed from the combination of reservoir data including well logs, cores and seismic data. The limits and quality of the reservoir are accurately determined and the parameters are extrapolated throughout the model using geo- statistical methods. Reservoir Simulation programs use the reservoir models to predict fluid flow (oil, gas and/or water) during the life of the reservoir. The simulation is calibrated for accuracy by comparing the prediction of initial output to historic reservoir pressure and production data ("history matching ). The simulation can be run under various scenarios to optimize future production. (example: drill additional wells, 2ndary recovery).

Reservoir Model & Simulation 358

Reservoir Model 3 D Simulation Model in Schlumberger s ECLIPSE Reservoir Engineering Software 3 D Simulation Model in Roxar s TEMPEST Reservoir Engineering Software

Reservoir Engineering - Summary Basics Drive Mechanisms Evaluation of Reserves & Resources Reservoir Modeling and Simulation

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Evolution of channel levee systems in the Mars- Ursa region. (A) Turbidity currents incised the blue unit in phase 1. (B) Channel deepened, and levees were deposited in phase 2. C) Rotational channel margin slides formed by base failure and forced blue unit and levee material to slide down on circular failure planes and forced the toe thrust up through the channel floor. (D) Levee growth, rotational sliding, and channel excavation continued synchronously to maintain a conveyor belt process in phase 4. Channel backfilling developed at the end of phase 4 in response to changes in base level. The sandy nature of turbidity currents is reflected in the sand-rich nature of the channel fill.+

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Mahogany #1 (Jubilee Field) Discovery Well+ Stacked turbidites of Turonian age Net oil pay 95m (>300 ) Individual pays up to 35m (>100 ) thick Excellent reservoir characteristics High well deliverability (Mahogany 1 Tested at >20,000bopd)

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Probability, Risk and Uncertainty+

Various industries define Risk and Uncertainty differently. They are often confused as the same thing.

Decision Making with Risk and Uncertainty Which of these items represents Risk Events? Which of these items represents Outcomes with Uncertainty? Drill Well Large Discovery EMV $1,500,000,000 Shoot 3D Seismic Seismic Confirms Prospect Seismic Condemns Prospect Sell Lease $10,000,000 $1,000,000 $200,000 Moderate Discovery EMV $175,000,000 Small Discovery EMV $25,000,000 Dry Hole EMV $0 Lease Expires Worthless $0

Risk Events Decisions Shoot 3D Seismic 60% 40% Decision Making with Risk and Uncertainty Example Events Seismic Confirms Prospect Events Seismic Condemns Prospect Decisions Sell Lease Drill Well $10,000,000 Outcomes $1,000,000 $200,000 Decisions or 25% 50% Outcomes Large Discovery EMV $1,500,000,000 Moderate Discovery EMV $175,000,000 Small Discovery EMV 25,000,000 Dry Hole EMV $0 2% 8% 20% 70% Likelihoods (Probabilities) Lease Expires Worthless $0 25% Likelihoods (Probabilities) Outcomes with Uncertainty

Risk and Uncertainty Risk is generally associated with an event such as Will our 3D Seismic Shoot confirm our prospect?. Uncertainty is the variability of the outcome such as How much could we sell our lease for after we shoot seismic?. Uncertainty is also applied to various factors that can affect the outcome.

How do we Quantify Risk and Uncertainty? We quantify Risk and Uncertainty by assigning Probabilities to the various geologic and reservoir parameters. Probabilities can be determined statistically, stochastically, or by estimation (gut feeling ).

Risk and Uncertainty Risk is generally associated with an event such as Will our 3D Seismic Shoot confirm our prospect?. Uncertainty is the variability of the outcome such as How much could we sell our lease for after we shoot seismic?.

What is Probability? Probability is defined as the Subjective confidence about the likelihood of an uncertain future event, given repeated trials. (say that in English please) The confidence of an event actually occurring

Probability Analysis Variables (data) can be analyzed mathematically, graphically, and/or subjectively. Mathematical analysis can consist of calculated summary statistics or stochastic simulation. Graphical Analysis can consist of Frequency Distribution plots (histograms), Cumulative Distribution plots, or Probability Plots. Subjective Analysis can consist of Rules of Thumb, Professional Opinion, or Gut Feeling.

Commentary!one may have Uncertainty without Risk but not Risk without Uncertainty. We can be uncertain about the winner of a contest, but unless we have some personal stake in it, we have no Risk. The measure of Uncertainty refers only to the Probabilities assigned to outcomes, while the measure of Risk requires both Probabilities for outcomes and losses quantified for outcomes.

The Oil and Gas Industry Often Limits the Definition of Risk and Uncertainty Risk is the chance (probability) of total loss (dry hole). Uncertainty is the variability of the outcome (expected reserves).

How does the Industry Describe Uncertainty? Uncertainty is a measure of the variability of input parameters which will affect the expected outcome (resources/reserves). The outcome can be represented by a single value or can represent a range of values. The measures are usually presented as a range of Probabilities. P99 - Absolute minimum P90 - Reasonable minimum P50 - Most likely expected value (Median) P10 - Maximum expected value P1 - Absolute Maximum PMean - sometimes substituted for Most Likely Swanson s Mean - sometimes substituted for PMean

The Industry Accepted 5 Geologic Risk Assessment Factors These inputs can be difficult to quantify, and are often the result of professional opinion HC Source 90% Migration 80% Reservoir 50% Closure 60% Containment 80% Chance of Success (COS) 17% Individual likelihoods (probabilities) are multiplied together to quantify RISK

Uncertainty Factors that can Affect Reservoir Size Most Input Min Likely? Max Volumetric Parameters P90 P50 P10 Area (acres) 70 150 300 Net Thickness (ft) 20 30 40 Porosity (%) 10 15 24 Water Saturation (%) 55 40 35 Recovery Factor (%) 5 10 25 P 50 Sometimes input into Stochastic Analysis, or often left out and determined graphically, and then input into a Deterministic analysis.

Why is the Oil and Gas Industry Using these Methods? In the past, Risk Factors used tended to be the result of historical success rates or very optimistic guesses. Reservoir Input Parameters used in Deterministic Analysis tended to be described as Most Likely values. Upon analysis what was often used as a most likely value tended to skew more towards the maximum value.

Arriving at Probabilities Subjectively Probabilities derived from professional judgment are the most commonly used (and abused) inputs. These are often as good as those derived from more rigorous and time consuming methods. But they as only as good as the evaluator, biased inputs have resulted in supporting many otherwise questionable prospects.

Subjective Risk Analysis Rules of Thumb are often used to assign Risk such as those based on Reserve Class: Proved Developed 90-100% COS Proved Undeveloped 75-90% COS Probable Undeveloped 50-75% COS Possible Undeveloped 25-50% COS New Field Wildcat 1-25% COS

Subjective Risk Analysis 5 Component System All of these parameters (including the final outcome) can be determined by Professional Opinion (guesswork). The geoscientist working the area often has intimate knowledge and insight. HC Source 90% Migration 80% Reservoir 50% Closure 60% Containment 80% Chance of Success (COS) 17% An outside evaluator (or supervisor) not familiar with the area might have difficulty in validating these estimates, and thus may have to defer to the credibility and reputation of the Geoscientist s opinion.

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Subjective Risk and Uncertainty Analysis The evaluator can establish a single Risk Factor and Uncertainties of a Low, Mid, and High side Reserve case based on estimated (professional opinion) parameters. For a prospect it may have Risk of 20% COS with the main uncertainty being Area Low-200 acres, Mid-600 acres, and High 1000 acres with Reserves varying with these parameters only. For a development well it may have Risk of 80% COS, with the main uncertainty being Recovery Factor, Low-100 BAF, Mid 250 BAF, High 400 BAF with Reserves varying with these parameters only.

Statistical Analysis of Field Size Data (Uncertainty) EUR Field # Date MMBO Summary measures for selected variables 1 1972 12 EUR 2 1973 24 Count 20.000 3 1974 11 Mean 3.460 4 1975 1.2 Median 1.200 5 1975 3.4 Standard deviation 5.833 6 1977 2.2 Minimum 0.200 7 1978 3.4 Maximum 24.000 8 1978 1.4 Range 23.800 9 1980 1.8 Variance 34.020 10 1983 0.9 Mean absolute deviation 3.662 11 1983 0.7 Skewness 2.788 12 1983 0.8 Kurtosis 8.149 13 1984 2.3 14 1985 0.7 15 1985 1.2 16 1987 0.5 17 1988 0.6 18 1988 0.4 19 1990 0.5 20 1991 0.2 Cutbank Formation Trend Data Which is the best measure of expected field size?

Statistics and Probability Unfortunately no discussion of Probability can avoid at some point the use of statistical methods. While Probabilities are usually expressed as a decimal or fraction they are often derived from statistical analysis. Probabilities can be verified by repeated trials (simulation).

*#-.,./-&)01-&+,2,)%3)42"&5) *26")7-#-)) Probability Plot P1 P10 P50 P90 P99 0.07 P1 49.66 P90 0.30 P10 11.32 P50 1.85 P Mean 3.46 Swanson's 5.17 P99 0.1 0 1 10 100 1000 Probability Descriptive Statistics Derived from Probability Analysis

Statistical Analysis of Trend Field Size Time Series Data - is it Relevant? EUR vs Time 100 10 Mean Field Size 3.46 MMBO What would be the expected field size for a Prospect to be drilled in 2010? MMBO 1 Discoveries are getting smaller with time 0.1 1970 1975 1980 1985 1990 1995 Year

Statistical Analysis of Inputs Associated with Uncertainty!"#$% &'(")*'( +,-,,./, +,-0,./, +,-1,2/3 +,-3,+/2 +,--,./4 +,-+,3/1 +,-2,./4 +,-.,-/, +,-5,5/2 +,+4,-/1 +,+,,-/- +,+0,2/. +,+1,5/5 +,+3,-/, +,+- 04/4 +,++ 00/. +,+2,+/5 +,+.,./3 +,+5,3/3 +,24,5/+ +,2,,2/3 +,20,./1 +,21 04/, +,23 0,/3 +,2-,5/+ +,2+,+/+ +,22,+/1 +,2. 00/2 +,25,+/+ Frequency 40 35 30 25 20 15 10 5 0 Data Graphical Display (Histogram or Frequency Distribution)!"##$%&'#($)"%()'*+%')(,(-.(/'0$%1$2,()!"#$%&"#!"'() *++,+++ -$.( */,0+1 -$23.( */,/4+ 5).(2.#262$73.)3"( 8,+98-3(3:': *8,18/ -.;3:': 88,/9< =.(>$ *+,<8? @.#3.(A$ 1,8*8 -$.(6.BC"D')$62$73.)3"( *,?<4 5E$F($CC +,*4/ G'#)"C3C H+,*0< Summary Statistics <=12 12-14 14-16 16-18 18-20 20-22 22-24 24-26 26-28 >28 Porosity %

Deriving Probabilities from Data PROBABILITY < = 100% 90% 80% 70% 60% 50% 40% 30% Cumulative Distribution Core Porosity Frequency Distribution Plots can be displayed graphically to display Probabilities Normal distributions follow an S shaped curve 20% 10% 0% 0.6 1.8 3.1 4.3 5.5 6.7 8.0 9.2 10.4 11.6 12.9 14.1 15.3 16.5 17.7 19.0 20.2 21.4 22.6 23.9

The Normal Distribution Frequency % 30% 25% 20% 15% 10% One of the most common distributions encountered in nature is the normal distribution where the data appears to be symmetrical about the mean or average value. 5% 0% 0.7 2.0 3.3 4.6 6.0 7.3 8.6 10.0 11.3 12.6 13.9 15.3 16.6 17.9 19.2 20.6 21.9 23.2 24.5 25.9

What Does the Normal Distribution Represent? Data that fits a Normal Distribution is most likely the result of an additive process of other factors. (What does that mean?) Example The role of a single die will generate a Uniform Distribution, all outcomes from 1-6 will have equal occurrence. The SUM of the role of two dice will yield a normal distribution (non-linear).

12% 10% Net Sand Zone A Adding Two Simple Uniform Distributions Yields a Normal Distribution Uniformly Distributed Net Sand values from wells 12% 10% Net Sand Zone B Frequency % 8% 6% 4% + Frequency % 8% 6% 4% 2% 2% 0% 0.4 1.1 1.9 2.6 3.4 4.1 4.9 5.6 6.4 7.1 7.9 8.6 9.4 10.1 10.9 11.6 12.4 13.1 13.9 14.6 0% 0.4 1.1 1.9 2.6 3.4 4.1 4.9 5.6 6.4 7.1 7.9 8.6 9.3 10.1 10.8 11.6 12.3 13.1 13.8 14.6 = Frequency &"! &!! %! $! Normally Distributed Total Net Sand Values from wells #! "!! '(") *")+ *)! *)!+ *,) *,)+ *&!! *&!!+ *&") *&")+ *&)! *&)!+ *&,) *&,)+ *"!! *"!!+ *"") -"")

Multiplying Two Simple Uniform Distributions Yields a Lognormal Distribution Frequency % 12% 10% 8% 6% 4% 2% Net Sand Zone A X Frequency % 12% 10% 8% 6% 4% Porosity Zone A 0% 0.4 1.1 1.9 2.6 3.4 4.1 4.9 5.6 6.4 7.1 7.9 8.6 9.4 10.1 10.9 11.6 12.4 13.1 13.9 14.6 2% 0% 0.4 1.1 1.9 2.6 3.4 4.1 4.9 5.6 6.4 7.1 7.9 8.6 9.3 10.1 10.8 11.6 12.3 13.1 13.8 14.6 = Frequency &"! &!! %! $! POR x FT A Lognormal Distribution is not Symmetrical about the mean #! "!! '(") *")+ *)! *)!+ *,) *,)+ *&!! *&!!+ *&") *&")+ *&)! *&)!+ *&,) *&,)+ *"!! *"!!+ *"") -"")

Which Mean is Best when you are Dealing with Lognormal Distributions? Randomly Generated data for Lognormal Distribution about a Mean of 17 and Standard Deviation of 10 P1 P10 P50 P99 2.99 P1 56.15 P90 5.78 P10 29.06 P50 12.96 P Mean 15.83 Swanson's 17.25 P90 P99 1 10 100 1000 Probability In this example Swanson s Mean is the most mathematically correct

Probability Analysis - Stochastic Methods Stochastic Methods (Computer Simulation) is commonly used to account for reservoir uncertainty. They allow for variability of multiple parameters They are very fast.

Probability Analysis - Stochastic Methods Reservoir Parameters can be assigned various probability distributions and then run as a Simulation where the Probabilities are then computed. Variable Inputs 20% Monte Carlo Simulation F r e q u e n c y % 15% 10% 5% P90 160 MBO P50 366 MBO P10 726 MBO 0% 44 220 396 573 749 925 1101 1277 1453 1630 MBO

Comparison of Stochastic vs. Deterministic Results Deterministic Analysis using Most Likely Parameters Zone: Prospect Name: Cutbank Formation Last Chance Oil Gravity 32 API Bo 1.1 Gas Gravity 0.61 Res. Temp 190 F Res. Pressure 3915 psia Porosity 15 % Water Sat. 40 % Drainage Area 150 acres Net Pay 30.0 feet Oil in Place 2,856 MBO Recovery Factor 10 % Unrisked Recoverable Oil 286 MBO Using Most Likely Values in a Deterministic Analysis can often have quite different results than calculated Mean values. Simulation Output P90 160 MBO P50 366 MBO P10 726 MBO

Probability Analysis Graphical Methods Best Practice? Probability Analysis using graphical techniques is a relatively quick method to determine Mean values. This technique requires only the inputs of Reasonable Minimum and Maximum values. These values can be derived from a combination of opinion, statistical analysis, or more rigorous evaluation techniques (not covered here). This method removes the evaluator s bias towards picking optimistic Most Likely Values. Removing Most Likely bias is probably the Most important outcome of Probability Analysis.

Probability Analysis - Graphical Methods Deriving the Mean Productive Area for a Reservoir Input your Reasonable Minimum Area on the P90 Line Input your Reasonable Maximum Area on the P10 Line Draw a line connecting the two points and extend to the edge Extend a line from the intersection of the P50 and that line P1 P10 Probability Area P90 70 P50 140 P90 300 Swanson s Mean 167 Acres P50 P90 Area (acres) P99