1.Albertas Emerging Shale Gas Industry Technological Innovation Creating Opportunities for DevelopmentDawson Energy Advisors Ltd. November 2013

2. Major Driver for Unconventional Resource Development - Size of the Prize Conventional hydrocarbon plays have traditionally relied on the low hanging fruit for successUnconventional resource plays have a large resource base but require more advanced technology to capture the rewardDawson Energy Advisors Ltd.November 2013 3. Key Messages that I hope to convey over the next 1 1/2 hours: Successful shale gas development consists of application of technology coupled with operational efficiencies Management needs to be comfortable with the size of the investment needed and the time required for a return on capital invested A manufacturing mentality is necessary for commercial development A thorough understanding of the reservoir is needed to quantify variables and to match completion technology with reservoir properties The fundamental goal of all technologies employed is to maximize reservoir contact resulting in optimal productivity and EURDawson Energy Advisors Ltd.November 2013 4. Topics to be Discussed Foundation of Unconventional ReservoirsExploration Strategies Contacting the Reservoir Drilling Technologies Hydraulic Fracture Stimulations Microseismic Tools and Observations Technological Success - Alberta Shale GasDawson Energy Advisors Ltd.November 2013 5. Topics to be Discussed Foundation of Unconventional Reservoirs Exploration Strategies Contacting the Reservoir Drilling Technologies Hydraulic Fracture Stimulations Microseismic Tools and Observations Technological Success - Alberta Shale GasDawson Energy Advisors Ltd.November 2013 6. Fundamental Differences Between Conventional and Unconventional Reservoirs1000 mdHigh Quality100 mdMedium Quality Tight OilLarger Reservoirs More Difficult to Develop1 mdCoalbed Methane0.1 mdTight Gas Gas Shales0.001 md Lower QualityIncreased Technology RequirementsSmaller Reservoirs Easier to DevelopIncreased Cost to DevelopNatural Resources Triangle0.00001 md Gas Hydrates modified from Schmezl, 2009Dawson Energy Advisors Ltd.November 2013 7. Unconventional ReservoirsConventional Reservoirs Conventional Oil or Gas ReservoirsTight Gas or Oil SandstoneShaleExtremely Tight 0.0001Natural Gas from CoalTight Oil in LimestoneVery Tight 0.001Tight 0.01Low 0.1Moderate 1.0High 10.0100.0Permeability (mD)Poor GraniteQuality of Reservoir Sidewalk CementNote: Natural Gas from Coal reservoirs are classified as unconventional due to type of gas storageDawson Energy Advisors Ltd.Good Volcanic Pumicemodified from US DOENovember 2013 8. Unconventional Reservoir ContinuumConventional Gas ReservoirsTight Gas ReservoirsHybrid ReservoirsShale Gas Shale Oil Coalbed Methane ReservoirsThe shift from conventional to unconventional reservoirs reflects a change in grain size from higher permeability, coarser grained rocks towards very fine grained rocks with low permeabilityReservoir variability both vertical and geographically can lead to the development of sweet spots of higher permeability in the finer grained reservoir rocks Core photos courtesy of Canadian DiscoveryDawson Energy Advisors Ltd.November 2013 9. Shale is just not Shale Organic-rich Black ShaleSilt - Laminated Shale or HybridHighly Fractured Shale Gas stored in shale and silt Low to moderate TOC Higher permeabilities in silty layers High TOC & high adsorbed gas Low matrix Sw High matrix Sg Gas stored as free & adsorbed Mature Source RockLow TOC & low adsorbed gas High matrix Sw Low matrix Sg Gas stored in fractures Shale is the source rockFrom Hall, 2008Dawson Energy Advisors Ltd.November 2013 10. Conventional vs Continuous or Unconventional Type Accumulations Lateral pervasiveness of hydrocarbon bearing strata results in large accumulations The identification and development of the higher permeability sweet spots is an important consideration in the overall project economics Resource plays can be considered a statistical play where there will be a range of producibility well profiles, and a large number of wells are required in order to achieve economic successfrom Midnight Oil and Gas, 2009Dawson Energy Advisors Ltd.November 2013 11. Resource play development is a statistical playRecognition that within the oil or gas field there are going to be both high volume and low volume producersRely on statistical average to achieve project economic return on investment Understanding reservoir properties will decrease the risk of completing low volume producing wellsFrom Southwestern Energy, 2009Dawson Energy Advisors Ltd.November 2013 12. Aspects of Unconventional Reservoirs Unconventional ReservoirConventional ReservoirLease areaProspective reservoir area Producing well Non-producing well (dry hole) Higher production area (sweet spot)Dawson Energy Advisors Ltd.Lease areaFundamental Differences Conventional reservoir areas constrained by geological boundaries Within the unconventional reservoir area are sweet spots of higher productivity Most wells in unconventional reservoir are productive but some may not meet economic thresholds Unconventional reservoirs require significant number of wells to achieve statistical thresholds of economic production November 2013 13. Unconventional Resource Exploration Area Much of the prospective reservoir area contains productive hydrocarbons but not necessarily at economic rates The identification of the sweet spots of potentially higher productivity wells is an important element of economic success Lease areaProspective reservoir area Producing well Non-producing well (dry hole) Higher production area (sweet spot)Dawson Energy Advisors Ltd. A strong understanding of reservoir properties and the heterogeneity of the reservoir across the lease block helps in defining the presence and location of the sweet spots November 2013 14. Other Aspects of Unconventional Resource Development Risk of Success Conventional ReservoirsRisk of Success Unconventional ReservoirsGeoscienceEngineering GeoscienceMuch of the risk is concentrated in the front end geoscience exploration and the ability to locate natural gas reservoirs of economic sizeDawson Energy Advisors Ltd.EngineeringRisk is concentrated in the ability to produce economic volumes from laterally pervasive deposits of natural gas where the risk of finding hydrocarbons is low November 2013 15. Typical Investment Profile for Unconventional Resource Development Shale gas exploration is capital intensive with large volume of investment in the early stages and return on investment throughout the life of the project To achieve economic production companies require: Strong commodity prices Ideally existing infrastructure (pipelines, processing facilities etc.) to lower capital costs Advanced technologies to optimize productivity while lowering costs Availability of equipment and materials in sufficient quantity and stability of supply< $ million annual cash flow >Investor Cash FlowProduction Cumulative Cash FlowTax Paid0Operating Expenditure Capital ExpenditureEach bar = 1 year From Shell E&P Technology, 2009Dawson Energy Advisors Ltd.November 2013 16. Typical Production Profiles Conventional Reservoirs Decline rates of production may follow three types of curves and generally are less than 20% per year 0153045 60 75 90 105 120 (months)Unconventional Reservoirs Commonly steep decline rates up to 75 85% in the first 18 months of productionDawson Energy Advisors Ltd.November 2013 17. Other Aspects of Unconventional Resource Development Production declines are relatively steep (60 to 80% in the first year) Companies are compelled to be on a drilling treadmill to offset production declines while at the same time growing production As a result large land tracts of mineral tenure are required to allow for the planning of an inventory of drillable locationsDawson Energy Advisors Ltd.November 2013 18. Observations about successful North American shale gas exploration projects Shale gas exploration is capital intensive requiring several hundreds of millions of $$ of investment before commercial production of scale is achieved The application of key technologies that enables increased contact to the reservoir is the key to commercial success Integration of geology and engineering disciplines to recognize the influence of geology on engineering design and ultimate productivity Exploration and development will take a number of years to reach thresholds of production A well established exploration strategy is necessary to ensure that: Reservoir properties that will influence production are identified Optimum completion technologies are applied to demonstrate repeatability The optimal target area is identified in the lease area (sweet spot if present) Capital efficiency Management understanding of risk, reward and time requirementsDawson Energy Advisors Ltd.November 2013 19. Topics to be Discussed Foundation of Unconventional ReservoirsExploration Strategies Contacting the Reservoir Drilling Technologies Hydraulic Fracture Stimulations Microseismic Tools and Observations Technological Success - Alberta Shale GasDawson Energy Advisors Ltd.November 2013 20. Unconventional Gas Strategy is Critical to Success Understanding the Play Reservoir Characterization Resource Assessment Formation Properties & AnalogsAddress the Resource Play Challenges Which technologies, services or products are most appropriate Operational Risk / Cost Assessment Field Trials / PilotBuild in Efficiencies of Operations and Material Management to Control Costs Scale of operations is usually large (program drilling and completions) Remote areas may add significant cost Bundling of Services, Concurrent / Continuous OperationsDawson Energy Advisors Ltd.November 2013 21. Unconventional Resource Play Strategy AN INTEGRATED APPROACH TO WELL DESIGNCompletion StrategyReservoir CharacterizationUnlocking the Resource PlayApplication of TechnologyWellbore Architecturefrom E. Schmelzel, 2008Dawson Energy Advisors Ltd.November 2013 22. The Key Questions Reservoir Characterization Reservoir modelingTHE GOALMAXIMIZED Sweet Spot identification Wellbore placementRESERVOIR EXPOSURE Wellbore completionfrom E. Schmelzel, 2008Dawson Energy Advisors Ltd.November 2013 23. Primary goals of initial exploration programs for unconventional plays are: Define rock properties of the target zones to determine how much hydrocarbon may be present Define reservoir properties to guide in the development of the fracture stimulation program Undertake initial stimulation testing of primary zones to quantify initial productivity Conduct extended reservoir testing to determine decline rates and changes in reservoir pressure ReservesExploration ActivitiesInitial Drilling OGIPInitial Well Testing IPInitial Well Stimulation and TestingExtended Well TestingMultiple Wells And Reproducibility Of ResultsResources P10Dawson Energy Advisors Ltd.P50 Probability of SuccessP90November 2013 24. Determination of reservoir properties along with stimulation and production optimization requires a number of years of testing and pilot projects Time Stage 1:Stage 2:Identification of UCG ResourceEarly Evaluation DrillingExploration TasksPreliminary geological assessment to determine potential for hydrocarbonsStage 3: Pilot Project DrillingVertical drilling to obtain core samples for reservoir properties along with estimation of resource potential and Early horizontal drilling to evaluate well geographic limits of performance with potential field varying hydraulic fracturing technologies along with continued reservoir testing to determine engineering propertiesDawson Energy Advisors Ltd.Pace of development is largely dependent on technical success, economics and market conditions and availability of equipment and materials Stage 4: Pilot Production TestingStage 5: Advanced hydraulic fracturing testing and improvements of productivity with reduced expenditureCommercial DevelopmentProject ReclamationNovember 2013 25. Key Variables That Influence Overall Reservoir Performance PermeabilityTotal Organic CarbonReservoir ProducibilityThermal MaturationPorosityShale Distribution and Geological SettingReservoir Fracability Regional StressCompletion and stimulation choices will be influenced by there reservoir characteristics as well as outside factors such as technology, materials and equipment availability Dawson Energy Advisors Ltd.November 2013 26. In order to be economically successful most unconventional resource play projects require the adoption of a manufacturing style of operations. This is to ensure that the project achieves: Optimization of Reservoir Production Employs Economies of Scale and Economic Benefits Continuous Improvement of Productivity while at the same time reduction in production costs Sufficient land base to support ongoing drilling and development plans that account for steep decline of initial production rates Service sector alliances that will allow continuous operations and economies of scaleDawson Energy Advisors Ltd.November 2013 27. Pilot project testing is necessary: To realize continue improvement of wellbore productivity and ultimate reserve recovery Demonstrate technology repeatability for large scale commercial developmentFrom EncanaDawson Energy Advisors Ltd.November 2013 28. Summary and Key Points Shale gas exploration and development is capital intensive and requires a well developed exploration strategy to enhance the probability of success A staged exploration approach allows key reservoir knowledge to be obtained during the exploration programs prior to corporate commercial decisions being made. Understanding of the reservoir is critical to develop the most effective drilling and completion technologies that will improve the prospects for commercial production Development of repeatability as well as production optimization is necessary before commercial development begins Shale gas reservoirs are heterogeneous and there will be variability from region to region. The key is to understand the reservoir properties to be able to identify variables that will impact producibilityDawson Energy Advisors Ltd.November 2013 29. Topics to be Discussed Foundation of Unconventional ReservoirsExploration StrategiesContacting the Reservoir Drilling Technologies Hydraulic Fracture Stimulations Microseismic Tools and Observations Technological Success - Alberta Shale GasDawson Energy Advisors Ltd.November 2013 30. Three key technologies form the foundation upon which the unconventional resource potential in Canada has been unlockedUnconventional Gas ResourcesHorizontal DrillingMicro-Seismic MonitoringMulti Stage Fracturing Dawson Energy Advisors Ltd.November 2013 31. Evolution of Drilling TechnologyIncrease in Reservoir Contact$$$$$Horizontal multilateral wellsHorizontal WellsUnconventional Resources$ Vertical wells with multiple targetsVertical wellsTimeDawson Energy Advisors Ltd.November 2013 32. Drilling technology needs to be matched with the specific reservoir geometries Vertical reservoir targets may be best intersected using vertical or deviated wells Thick laterally persistent shale reservoirs are best intersected using horizontal wells or horizontal with a multi-lateral configurationCourtesy of HalliburtonDawson Energy Advisors Ltd.November 2013 33. Drilling Efficiencies and Savings have been achieved through: Speed of drilling using new bit technology (PDC bits achieve penetration rates of up to 80 m/hr) Multiple drill string assemblies that reduce tripping time Geosteering in real time in horizontal and multilateral wells Automation of rig floor equipment eliminating additional manpower Fit for purpose rigs that can move on site without teardown Improved drilling fluids for solids removal and borehole stability From Range Resources, 2010Dawson Energy Advisors Ltd.November 2013 34. Wellbore design for extended lateral length (>2000 m) requires proper design including an understanding of reservoir properties, geological barriers and regional stress regimesDrilling of horizontal wells with the horizontal legs being up to 3500 m in length Multi stage fracture stimulations using slick water and sand to essentially create reservoir in rock that would not have been previously been considered reservoir qualityDawson Energy Advisors Ltd.November 2013 35. Rotary Steerable Systems consideration for efficiency gain (ROP) and improved well bore quality (Logging/Completion activities).Dawson Energy Advisors Ltd.November 2013 36. LWD considerations for preferred placement within Duvernay Formation.Dawson Energy Advisors Ltd.November 2013 37. Dawson Energy Advisors Ltd.November 2013 38. Application of multiple wells from single drilling pads reduces surface footprint Requires accurate downhole drilling surveys to ensure proper borehole separation between parallel horizontal legs as well as optimal reservoir drainageMultiple wells from a single pad allow optimal materials management and cost savings through the employment of a manufacturing processDawson Energy Advisors Ltd.November 2013 39. Topics to be Discussed Foundation of Unconventional ReservoirsExploration StrategiesContacting the Reservoir Drilling Technologies Hydraulic Fracture Stimulations Microseismic Tools and Observations Technological Success - Alberta Shale GasDawson Energy Advisors Ltd.November 2013 40. Fracture stimulations are required for most unconventional resource plays due to low permeabilities of the reservoirs Type of fracture stimulation used is defined by: Depth and number of reservoirs to be stimulated Reservoir quality Type of wellbore (vertical versus horizontal) Fluid sensitivity Geomechanical properties of the reservoir Availability of equipment and materials Economic assessment of wellbore deliverabilityDawson Energy Advisors Ltd.November 2013 41. The primary goal of hydraulic fracture stimulation is to produce hydrocarbons from the wellbore in an accelerated timeframe by creating a series of pathways from the wellbore to the natural fracture or permeable flowpaths within the reservoir In unconventional reservoirs, the hydraulic fracturing process is critical due to the low permeability Silt - Laminated Shale or Hybrid Highly Fractured ShaleOrganic-rich Black ShaleMigration of hydrocarbons to the induced fractureDawson Energy Advisors Ltd.Modified from Hall, 2008November 2013 42. Principle of Multi-Stage Fracture Stimulations To effectively stimulate the entire length of the horizontal leg multi-stage fracture technology is necessary Single stage stimulations tend to leave much of the intersected reservoir un-stimulated due to preferential flow of fracture fluids Isolation technologies allow the horizontal leg to be divided into discrete stages that can be stimulated individually Stage fracturing ensures that the maximum amount of fracture energy can be applied into a defined area thus making a more effective fracture with greater number of fractures or a greater fracture half lengthRadioactive tracer log indicates that only 3 of 6 perforations accepted fracture fluidDawson Energy Advisors Ltd.From SPE 90697November 2013 43. Typical coil tubing unit used for multizone fracture stimulationHydraulic fracturing operations are completed on a large scale and require specialized equipmentCompletion techniques as well as size and amount of equipment will be dependent on the depth of the reservoir, size of fracture stimulation and number of fracs designed for the wellDawson Energy Advisors Ltd.November 2013 44. Fracture Stimulation Parameters The main purpose of fracture stimulation is to create open pathways for fluid flow within the reservoir either by creation of fractures or intersection of existing fracture systems Ideally the reservoir rock should be brittle so that it fractures easily Mineral content of the shale component will determine fracability of reservoir ideally a silica rich shale is preferredSheared and slickensided fracturesOpen vertical fracturesFrom Hall, 2008Dawson Energy Advisors Ltd.November 2013 45. Multi-Stage fracture stimulation allows more accurate placement of frac with specific volumes of frac fluid and proppantDawson Energy Advisors Ltd.November 2013 46. Understanding the Reservoir is Key to Optimizing Production and Reserve RecoveryThis is achieved through continuous improvements and experimentation in drilling, completion and production techniques From Southwestern Energy, 2009Dawson Energy Advisors Ltd.November 2013 47. Downhole Technologies The mechanism by which the fracture fluid and proppant are delivered into the specific stages of the multi-stage fracturing operation is critical to the successful fracture stimulation There are many types of technologies that address the access to the reservoir with minimization of formation damage. These systems are built around two fundamental approaches: Cemented LinerOpen Hole (non cemented liner or no liner)Both of these approaches have advantages and disadvantages and may not be suitable under all reservoir conditionsDawson Energy Advisors Ltd.November 2013 48. Downhole Technologies Cemented Liners Access to the reservoir is limited to the perforated zones and the fracture created beyond the cemented liner Provides stability to the wellbore and ensures proper isolation during fracturing stages More cost effective (the frac job takes longer but downhole tools costs are signficantly lower Most service companies provide varying types of multi-port borehole isolation technologies for cases wellboresLiner or production tubing is cemented into the wellbore in the horizontal legPerforations penetrate through liner as well as the wellbore cement into the formationcourtesy of HalliburtonDawson Energy Advisors Ltd.November 2013 49. Downhole Technologies Open Hole Completions Relies on mechanical packers to isolate stages of the wellbore for fracturing Enables fracture fluid and proppant to travel into the natural fracture system unconstrained by perforation locations Ideally suited for operations where time is critical but usually more costly than conventional cemented fracture stimulationscourtesy of PackersPlusDawson Energy Advisors Ltd.November 2013 50. Reduction of Fines Proppant technology continues to address the issues of: Creation of fines from the proppant and reservoir Integrity of the proppant material under pressure and temperatureFrom CarboceramicsDawson Energy Advisors Ltd.November 2013 51. Maximization of Reservoir Contact The object of reservoir stimulation is to maximize communication between the wellbore and the reservoir Reservoir communication can be in the form of intersecting existing fracture systems or creating a fracture network in the reservoir rock surrounding the wellboreDefinition of Stimulated Rock Volume (SRV) The amount of reservoir rock stimulated that contributes to the ultimate recoverable volume of natural gas produced from the wellbore Length of lateral stimulatedFracture network widthFracture heightSRV = fracture network height x fracture network width x length of stimulated lateralDawson Energy Advisors Ltd.November 2013 52. Key Elements of Hydraulic Fracture Stimulation Programs Choosing the right technologies for the fracture stimulation is dependent foremost on the reservoir itself. The operator must have a good understanding of the reservoir properties in order to design the proper fracture treatment program Each reservoir will have its own unique characteristics and early stage exploration activities are required to determine these reservoir properties Other factors determining the choice of fracture stimulation are: Availability of equipment and technology Availability of fracture fluids and proppant Number of stages required the total size of each stage Relative costDawson Energy Advisors Ltd.November 2013 53. Topics to be Discussed Foundation of Unconventional ReservoirsExploration StrategiesContacting the Reservoir Drilling Technologies Hydraulic Fracture Stimulations Microseismic Tools and Observations Technological Success - Alberta Shale GasDawson Energy Advisors Ltd.November 2013 54. Micro-Seismic to Determine Effectiveness of Stimulation Measures micro seismic events related to the propagation of fractures within the reservoir Requires one or more observation wells to allow proper mapping of location geographically and vertically of microseismic events Can be run independently or as permanent seismic arrays in field to be developed Provides a 3D image of fracture propagation that can be measured in real time during the fracture stages Allows fracture propagation trends to be identified and adjusted for additional stages so fractures can be contained within zone Identifies areas of poor fracture generation or geological barriers to effective stimulationDawson Energy Advisors Ltd.November 2013 55. The validity and usefulness of microseismic data is highly dependent on the design of the microseismic program Observation Well Distance and number of observation sites In Canada, typical distance from observation well to stimulated well are: Shallow Gas 150 m Foothills Tight Sands 700 m Issues Same Pad Operations Other Cultural Noise (e.g., Production) Treatment Factors Viewing Angle Seeing As Much Of The Fracture As Required Avoiding Breaking Into The Observation Well Receiver Depth Straddling Above Dawson Energy Advisors Ltd.November 2013 56. Dawson Energy Advisors Ltd.November 2013 57. Micro-seismic monitoring of the multi-stage fracture stimulation program allows: Visualization in real time of fracture propagation enabling adjustments to be made during the stages to ensure that the fractures are staying within zone Identification of previously unrecognized geological barriers Determination of optimal horizontal well spacing Determination of stimulated rock volume (SRV) for reserve determinationMicro-seismic monitoring of fracture events for each staged stimulation allows the lateral and vertical envelope of the fracture stimulated rock to be determined Dots represent individual micro-seismic events that occur during the fracturing of the reservoir Track of the horizontal wellbore Courtesy of Nexen, 2011Dawson Energy Advisors Ltd.November 2013 58. Microseismic events can be used to calculate stimulated rock volume for reserve valuationsProduction contribution from various stages to overall wellbore production can be observed and calibrated to reservoir heterogeneity or effectiveness of stimulation techniquesDawson Energy Advisors Ltd.November 2013 59. Observations From Field Activities in North America Microseismic Activity Is Very Limited For Rates < ~ 20 bpm From An Offset Observation Well Higher Stimulation Rates Generate More And Larger Microseisms Larger Volumes Generate More And Larger Microseisms Microseismic Activity In Horizontal Wells Is Increased By Limiting Fracture Entrances Uncemented Laterals Often Have Considerably Less Activity Highly Tectonic Environments Often Are Good Microseismic Candidates High Stresses, Large Shear, And More Fracture Planes (Oblique) Thick Reservoirs Are Likely To Generate Stronger Microseisms Vertical Fractures (Most Common) Will Be Larger (Larger Slip Area)Dawson Energy Advisors Ltd.November 2013 60. Topics to be Discussed Foundation of Unconventional ReservoirsExploration Strategies Contacting the Reservoir Drilling Technologies Hydraulic Fracture Stimulations Microseismic Tools and ObservationsTechnological Success - Alberta Shale GasDawson Energy Advisors Ltd.November 2013 61. Distribution of Canadas Unconventional Hydrocarbon Resources Canadian Unconventional Resource Estimates** ** Based upon CSUG 2010 Appraisal of Original Gas in Place (OGIP)Natural Gas from Coal Shale Gas Tight Gas801 Tcf 1111 Tcf 1411 TcfMajor Sedimentary Basins containing potential unconventional hydrocarbon resources (excluding gas hydrates) Identified Resource Play Targets Natural Gas from Coal (NGC) Shale GasLiard BasinTight Gas (sands and carbonates) Tight OilBowser Basin Western Canada Sedimentary BasinAnticosti BasinMay 12, 2011 Appalachian BasinMaritimes Basin Sydney BasinFebruary 2013 62. Development of Canadas unconventional resources has embraced technology and innovation as well as addressing market challenges and environmental considerations2004-20062006-2008Reservoir Characterization Science of the reservoirTechnological Application How do we produce the resourceTechnological progression in resource development is based upon continuous improvement to achieve greater economic returns but influenced by outside forces such as market, environment and opportunity Dawson Energy Advisors Ltd.2009-2010 Technological Evolution How do we produce the resource at economic rates given the North American market issues2011-2012 2013 - ? Technological InnovationHow do we produce the resource in a responsible manner that respects industry commitment to society and the environmentTechnological Transfer How can we transfer our knowledge to new plays in different geological settings as well as geographic environmentsNovember 2013 63. Albertas Emerging Unconventional Resource Opportunities Montney Fm tight gas Duvernay Fm shale gasCardium Fm tight oil Viking Fm tight oil Exshaw Fm tight oil Note: Exshaw Fm is stratigraphic equivalent to Bakken Fm in Saskatchewan Map does not illustrate coalbed methane potential in provinceDawson Energy Advisors Ltd.November 2013 64. Commercial shale gas development benefits from multiple operations from multi-well pads Reduced environmental footprint Effective materials management for continuous operations Equipment and operational efficiency Surface infrastructure efficiencies for long term productionFrom EncanaDawson Energy Advisors Ltd.November 2013 65. Companies are demonstrating improvement through cost reduction and increased productivity in response to downward market pressure in North AmericaMontney Performance History$MMCDN3.5$6.457 Cost/IntervalSupply Cost*6$4.552.55 $4.10$3.20$3.40$3.174$3.15 $2.761.5 1.03NYMEXDCT costs / interval3.02.0$/MMBtu2 $1.500.5$0.94$0.81$0.63$0.51$0.551 $0.500.00 2006 Vertical200620074620088200920102011913142012F15Completion Stages*Supply Cost is defined as the flat NYMEX price that yields a risked IRR of 9% and does not include land or G&A costs. Courtesy of EncanaDawson Energy Advisors Ltd.November 2013 66. Technological Development Driven by PriceReservoir Quality Higher Quality Reservoirs Discreet Pool Size$5 - $20 / bb/ Vertical wells $20 - $60 / bblVertical wells with Fracture Stimulation$20 - $60 / bblHorizontal wells$60 - $120 / bblHorizontal wells with Staged Fracture Stimulation$120 / bbl+Key technologies of horizontal drilling and multi-stage fracturingVertical Vertical with FracHorizontalHorizontal with Multi-Stage FracLow Quality Reservoir Larger Geographic Distribution of Resourcesmodified from Penn West, 2011Dawson Energy Advisors Ltd.November 2013 67. Social Media and the need for Factual Information The societal issues of shale gas exploration and hydraulic fracturing has dominated the headlines in many geographic regions, particularly in areas that do not have a long history of oil and gas explorationMost of the concerns are predicated on misinformation for example GaslandDawson Energy Advisors Ltd.November 2013 68. North American Markets is the Biggest The Challenge Oversupply of natural gas into the North American market has led to a dramatic price collapse where the current economics of natural gas production are challenged Companies have responded by shifting their focus to higher priced commodities such as tight oil and liquids rich natural gasGovernment of Nebraska websiteDawson Energy Advisors Ltd.November 2013 69. Alberta Opportunities and Challenges Alberta contains significant amounts of unconventional hydrocarbon resources, both shale gas, liquids rich shale gas and tight oil Competitive production from other basins within North America has meant that companies exploring for these resources have needed to achieve improvements in productivity whole at the same time lowering production costs to remain competitive Applications of new technologies in drilling, completions and production as well as analytical techniques has enabled many operators to achieve economic rates of return even in a price constrained market As commodity prices recover, the continued application of these technologies will enhance the economics of these unconventional resource plays Many exploration and service companies are looking at deploying these technologies internationally into emerging unconventional global resource plays Dawson Energy Advisors Ltd.November 2013 70. Key Elements of Shale Gas Exploration Shale gas production is a statistical play. While there will be high volume producers (in the technical sweet spot of the reservoir geographic area)a there will also be wells that underperform in terms of gas production. Understanding the geological variability of the reservoir both vertically and geographically is critical to optimizing productivity of the individual wellbores. Placement of horizontal wells within the reservoir to intersect the most prospective layers within the shale reservoir and to recognize the implications of horizontal stress is an important aspect of the drilling. Geophysical logging and petrophysics is required to identify reservoir properties that will influence the fracture propagation and effectiveness Knowledge of reservoir properties is critical in designing an fracture stimulation program that will link into the natural fracture network of the strata Micro-seismic monitoring is an integral part of shale gas exploration to effectively visualize the placement of the fractures as well as determine the volume of reservoir stimulated for reserve calculationDawson Energy Advisors Ltd.November 2013 71. Determination of reservoir properties along with stimulation and production optimization requires a number of years of testing and pilot projects Time Stage 1:Stage 2:Identification of UCG ResourceEarly Evaluation DrillingExploration TasksPreliminary geological assessment to determine potential for hydrocarbonsStage 3: Pilot Project DrillingVertical drilling to obtain core samples for reservoir properties along with estimation of resource potential and geographic Early horizontal drilling to evaluate well limits of potential field performance with varying hydraulic fracturing technologies along with continued reservoir testing to determine engineering propertiesDawson Energy Advisors Ltd.Pace of development is largely dependent on technical success, economics and market conditions and availability of equipment and materials Stage 4: Pilot Production TestingStage 5: Advanced hydraulic fracturing testing and improvements of productivity with reduced expenditureCommercial DevelopmentProject ReclamationNovember 2013 72. Key Messages Canada has abundant natural gas resources to enable natural gas to be part of a comprehensive national energy strategy Technological achievements in horizontal drilling, multi-stage fracture stimulation and microseismic monitoring are enabling the economic development of numerous low permeability reservoirs in Western Canada Over supply into a market constrained North American market has led to short term economic challenges for industry and government Industry has responded by becoming more efficient as well as employing technological innovation to remain competitive Government has tailored their royalty and fiscal regime to include the unique aspects of unconventional resource development The key to long term sustainability is to expand export opportunities to beyond North America and to increase the domestic utilization of natural gas through transportation and power generationDawson Energy Advisors Ltd.November 2013 73. In South America there appears to be substantial potential for unconventional resources From the Canadian experience, companies and government need to recognize: Capital requirements will be much higher than originally anticipated A minimum of 4 to 5 years will be needed to complete exploration prior to making a commercial decision Analogues from existing producing shale basins are valuable but understanding the unique reservoir properties of the basin itself is critical for success Application of core technologies such as horizontal drilling, multi-stage fracturing and microseismic form the foundation but the unique reservoir properties of a specific basin will require innovation and experimentation to optimize productivity Source: EIA World Shale Gas Resources Report, April 2011Dawson Energy Advisors Ltd.November 2013 74. Albertas Emerging Shale Gas Industry Technological Innovation Creating Opportunities for Development Thank You for your Attention Dawson Energy Advisors Ltd. November 2013