british columbia’s montney play - clean energy bc · wood mackenzie™, a verisk analytics...

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British Columbia’s Montney play

Mark Oberstoetter, Generate 2017

More growth on the way

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Our integrated approach allows us to

spot trends and forecast future dynamics

before anyone else

Agenda

1 The high-level. Does the world even want gas anymore?

2 Trends and activity levels in the Montney

3 Forecasting activity by sub-play and operator

woodmac.com 4

British Columbia gas production

Province-level forecast

BC Montney production surpasses 4.5 bcfd in 2025 and 5.4 bcfd in 2030

Source: Wood Mackenzie – North America Gas Service

Wood Mackenzie’s base case outlook

-

1.0

2.0

3.0

4.0

5.0

6.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Ga

s p

rod

uc

tio

n b

cfd

British Columbia - conventional British Columbia - other British Columbia - Montney





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Canada’s gas production

Country-level forecast

Alberta’s Montney, Deep Basin and Duvernay contributions add to British Columbia’s growth



-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Ga

s p

rod

uc

tio

n b

cfd

British Columbia - conventional British Columbia - other Alberta - conventional

Alberta - other Rest of Canada Alberta - Montney

British Columbia - Montney





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North America gas production

North America-level forecast

Lots of competition!



-

20.0

40.0

60.0

80.0

100.0

120.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Ga

s p

rod

uc

tio

n b

cfd

Other US Lower 48 Marcellus / Utica Haynesville Permian Rest of Canada BC Montney





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Together, wind and solar grow more than threefold to 2035

Source: Wood Mackenzie

Emerging markets, led by China & India, will see greatest capacity build

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2017 2021 2025 2029 2033

TW

h

Other Renewables Geothermal

Solar Wind

Other Solid Fuels Hydro

Nuclear Gas

Oil Coal

World power output by fuel, 2017 – 2035 Global wind & solar capacity growth, 2017 – 35

0

500

1,000

1,500

2,000

2,500

2017 2021 2025 2029 2033

GW

South America

Russia and Caspian

North America

Middle East

Europe

Asia Pacific

Africa

South America

Russia and Caspian

North America

Middle East

Europe

Asia Pacific

Africa

So

lar

Win

d




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0

10,000

20,000

30,000

40,000

50,000

2008

2009

2010

2011

2012

2013

2014

2015

2016

World PV bid prices vs. project size, 2009 – 2017

Renewable costs are falling fast & surprising to the downside

Growth in China’s manufacturing capacity is the critical factor for solar markets


Source: GTM Research

World solar module production, 2008 - 2016

0

50

100

150

200

250

300

350

400

450

Jul-09 Nov-10 Apr-12 Aug-13 Dec-14 May-16 Sep-17

Ave

rag

e b

id p

ric

e (

US

D / M

Wh

)

Auctioned capacity (MWdc)

Nam

ep

late

MW

dc

China 2016 panel manufacture 50%

greater than rest of world combined

2016 capacity approaching 90,000 MW

(vs. 50,000 MW production)





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Agenda






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2014 well locations

Montney by vintage year: 2014 vs. 2016

2014 marked the peak of drilling activity thus far, led by Northern BC LNG-aspirants and increased activity due to strong commodity prices

Trends and activity levels in the Montney

2016 well locations






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Operators have refined drilling and completion techniques

All or a combination of increased proppant placement, longer laterals and a greater number of more targeted frac stages has resulted in significantly improved recoveries






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The trend of longer laterals

Operator preference and geology is responsible for the varying lengths of laterals



Lateral lengths by year

0

500

1,000

1,500

2,000

2,500

3,000

3,500

No

rth

ern

BC

South

ern

BC

Sund

ow

n G

round

birch

He

rita

ge L

iqu

ids

Da

wso

n C

ree

k

Sw

an

AB

San

ds

Mu

llig

an

Pouce C

oup

e

Gra

nd

Pra

irie

Ante

Cre

ek

Kaybob

Elm

wort

h/K

arr

Kakw

a C

ore

Dry

Ga

s

Kaybob

Fox C

reek

Kaybob

Sim

onett

e

Kaybob

We

st

Nort

h

Oil

Pem

bin

a

Late

ral

len

gth

(m

etr

es)

2011 2012 2013 2014 2015 2016

Montney Duvernay





woodmac.com 13

Operator reported frac stages per well

Frac stages, the more the better?

Refined completion techniques have seen a marked increase in frac stages per well


British Columbia’s top performing wells based

on IP30 rates

0

10

20

30

40

50

60

70

80

90

100

Av

era

ge

nu

mb

er

of

fra

c s

tag

es p

er

we

ll

2013 2017


-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

- 20 40 60 80 100

Pro

pp

an

t (t

on

ne

s)

Number of frac stages

Bottom 75% Top 25% Top 10%

Source: Wood Mackenzie, BCOCG, IPS ranged by mmcfe





woodmac.com 14

Rig counts versus total gas production

Fewer rigs are drilling more productive and cheaper Montney wells

Lowered costs are due to structural shifts in drilling and completion techniques, along with depressed service costs


Movements in well costs since 2012

Source: Wood Mackenzie, Nickles RigLocator

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0

10

20

30

40

50

60

70

80

2014

2015

2016

2017

Pro

du

ction

(b

cfd

)

Ave

rag

e m

onth

ly r

ig c

oun

t

BC gas production BC rig count

0

2

4

6

8

10

12

14

16

18

20

2012

2013

2014

2015

2016

2017

Co

mp

an

y c

ite

d w

ell

co

st (C

dn$

mm

)

Seven Generations Delphi

Cequence Black Swan

Tourmaline Birchcliff (compl. cost only)

Storm Resources





woodmac.com 15

Swan BC

Heritage Liquids BC

Sundown Groundbirch BC

Kakwa Core AB

Dawson Creek BC

Pouce Coupe AB

Southern BCNorthern BC

Elmworth/Karr AB

Grande Prairie AB

Ante Creek AB

Kaybob ABSpirit River Tier 1

Notikewin AB

Falher AB

Bluesky AB

Dunvegan AB

Susquehanna Core

Bradford Area

Northeast PA

Lycoming Area

Greene Dry Gas Area

Southwest Rich Gas

WV Rich Gas

Ohio

Lean gas core

Lean Gas SWPA

Northern wet gas

Southern wet gas

Tioga County

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

-1,000 1,000 3,000 5,000 7,000 9,000 11,000 13,000

Local hub b

reakeven (

US

$/m

mbtu

)

Remaining well locations

Montney Deep Basin Marcellus Utica

Montney and Deep Basin hold significant low-cost gas resource

At a wellhead breakeven, WCSB production is competitive with the Marcellus and Utica, but top tier areas lack in repeatability







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Agenda






woodmac.com 17

Remaining value split 50/50 between AB and BC

Liquids-rich gas areas including Kakwa Core, Heritage

Liquids and Pouce Coupe hold 53% of remaining value

Wood Mackenzie’s Montney sub-plays

Forecasting activity by sub-play and operator


NPV split by sub-play

Northern BC (1),

Cdn$6.72 bn

Sundown

Groundbirch (3),

Cdn$3.87 bn

Heritage Liquids (4), Cdn$13.32 bn

Dawson Creek (5),

Cdn$0.71 bnSwan (6),

Cdn$2.48 bn

Southern BC (2), Cdn$0

Mulligan (8), Cdn$0

AB Sands (7),

Cdn$0.49 bn

Pouce Coupe (9),

Cdn$6.29 bn

Grande Prairie (10),

Cdn$2.54 bn

Kakwa Core (14),

Cdn$8.34 bn

Kaybob (12),

Cdn$1.14 bn

Ante Creek (11),

Cdn$2.43 bn

Elmworth Karr (13),

Cdn$4.54 bn





woodmac.com 18

Sub-play area 1 – Northern BC

Activity has shifted from LNG linked drilling to pure-play producers

» Near-term growth driven by investments in processing infrastructure


Source: Wood Mackenzie, XI Technologies

0

50

100

150

200

250

300

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2010 2014 2018 2022 2026 2030 2034

Wells

dri

lled

pe

r ye

ar

Su

b-p

lay p

rod

uctio

n (

mm

cfe

/d)

Gas Oil/condensate NGLs Wells drilled

0

50

100

150

200

250

300

350

0

500

1,000

1,500

2,000

2,500

3,000

2010 2014 2018 2022 2026 2030 2034

Wells

dri

lled

pe

r ye

ar

Su

b-p

lay p

rod

uctio

n (

mm

cfe

/d)


6.5 6.1 5.9 5.9 5.2 4.7 4.7 4.5 4.3 4.3 3.5 3.2

2.8

1,165

02004006008001,0001,2001,4001,6001,800

0

2

4

6

8

10

12

14

16

Unco

nve

ntio

nal

Res.

Bla

ck S

wa

n

Sto

rm R

es.

Pa

inte

d P

on

y

To

dd

En

erg

y

CN

RL

Can

bri

am

En

erg

y

Ke

lt E

xplo

ratio

n

Sa

gu

aro

Res.

Ch

ino

ok E

nerg

y

Su

nco

r

Pro

gre

ss

Cre

w

IP3

0 r

ate

(b

oe

/d)

IP3

0 r

ate

(m

mcfe

/d)

mmcfe/d IP Average gas well IP

boe/d IP Average oil well IP





woodmac.com 19

Sub-play area 4 – Heritage Liquids

High value British Columbia acreage given condensate and NGL yields

» Highest IRR (post-tax) of British Columbia sub-plays at 62%


Source: Wood Mackenzie, XI Technologies

0

50

100

150

200

250

300

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2010 2014 2018 2022 2026 2030 2034

Wells

dri

lled

pe

r ye

ar

Su

b-p

lay p

rod

uctio

n (

mm

cfe

/d)


$4.3

$14.6$21.5

86

295

1,094

Oil

NGL

Gas

EUR (mmboe)

Revenue (C$M))





woodmac.com 20

Over 6,790 wells have been drilled in the Montney since 2013

We forecast over 10,000 more will be drilled in 2018-2026. Four areas stand out –Northern BC, Heritage Liquids, Kakwa and Pouce Coupe


Source: Wood Mackenzie, XI Technologies. Note this is our Canada Upstream unconstrained outlook, our markets teams take a risked view on these development levels.

Sub-play drilling history and forecast

0

200

400

600

800

1,000

1,200

1,400

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

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201

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201

9

202

0

202

1

202

2

202

3

202

4

202

5

202

6

We

lls

dri

lle

d

Northern BC (1) Southern BC (2) Sundown Groundbirch (3) Heritage Liquids (4)Dawson Creek (5) Swan (6) AB Sands (7) Mulligan (8)Pouce Coupe (9) Grande Prairie (10) Ante Creek (11) Kaybob (12)Elmworth Karr (13) Kakwa Core (14)





woodmac.com 21

Disclaimer

Strictly Private & Confidential

This report has been prepared by Wood Mackenzie Limited. The report is intended

solely for the benefit of its subscribers and its contents and conclusions are confidential

and may not be disclosed to any other persons or companies without Wood Mackenzie’s

prior written permission.

The information upon which this report is based has either been supplied to us by public

sources or comes from our own experience, knowledge and databases. The opinions

expressed in this report are those of Wood Mackenzie. They have been arrived at

following careful consideration and enquiry but we do not guarantee their fairness,

completeness or accuracy. The opinions, as of this date, are subject to change. We do

not accept any liability for your reliance upon them.





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