Colombia: a shift to unconventional oil and gas? Derrick Dao, P. - - PowerPoint PPT Presentation

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Colombia: a shift to unconventional oil and gas? Derrick Dao, P. - - PowerPoint PPT Presentation

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Colombia: a shift to unconventional oil and gas? Derrick Dao, P. Eng. ddao@mcdan.com McDaniel McDaniel & Associates is a leading international consulting firm Overview Colombia Consulting expertise Global presence Established in

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Colombia: a shift to unconventional oil and gas?

Derrick Dao, P. Eng. ddao@mcdan.com

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McDaniel & Associates is a leading international consulting firm …

McDaniel Overview Colombia Sep 28, 2017

» Established in 1955 » Head office in Calgary, Canada » Internationally recognized expertise in:

» Reserves evaluations » Resource assessments » A&D Advisory services » Geological studies » Technical studies » Expert witness testimony

Consulting expertise Global presence

McDaniel & Associates’ oil and gas consulting expertise spans 75 countries covering many of the most important hydrocarbon basins around the world

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…having evaluated nearly 700 properties outside of Canada and United States

McDaniel Overview Colombia Sep 28, 2017

Diversified Experience Capability

  • Strong presence and relationship with many operators in

Latin America

  • Extensive experience in west and east Africa
  • Leading evaluator in central Asia region
  • Unrivalled experience in preparing reserves and resources

evaluations using different reserves definitions and security exchange rules, and for a variety of fiscal systems in different countries

  • Fiscal Regimes
  • Royalty/Tax
  • Producing Sharing Contracts
  • Service Contracts

Latin America 29% MENA 10% Africa 20% Europe 15% Asia, Australia 26%

Distribution of Experience

Compliance

PRMS COGEH & NI51-101

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… working with many of the world’s leading financial institutions and multinational conglomerates

TECHNICAL & FINANCIAL ADVISORY

McDaniel and Associates is relied on by prospective acquirers, financial institutions and equity funds to provide objective technical and financial advice. Our wide experience in asset valuations help these institutions make informed decisions.

Sep 28, 2017 McDaniel Overview Colombia

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» Since 1951 the Colombian oil industry operated and regulated by the state-owned company Ecopetrol » In 2003, Ecopetrol and the Colombian oil industry underwent restructuring to avoid further sliding of production and reserves » Reforms separated Ecopetrol’s dual role of regulator and Oil Company » Role of administrator and regulator

  • f hydrocarbon resources

assigned to the National Hydrocarbon Agency (ANH)

  • 0.5

1.0 1.5 2.0 2.5 3.0 3.5 1980 1985 1990 1995 2000 2005 2010 2015

  • 200

400 600 800 1000 1200

Reserves (000 MMbbls),) Oil Production (Mbbl/d)

Production Proved Reserves

Establishment

  • f ANH

Pacific E&P acquires Rubiales field

Colombia is a positive example of a country re-structuring…

Colombia Historical Production and Reserves Industry History

Camo Limon Discovery (1200 MMbbls) Cusiana Discovery (750 MMbbls) Cupiagua Discovery (510 MMbbls)

Lack of discoveries = Declining Reserves + Production Sep 28, 2017 McDaniel Overview Colombia >80% increase in production levels

Source: BP 2016 Statistical Review

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313.9 10 20 30 40 50 Mexico Argentina Brazil Colombia Ecuador Peru Trinidad & Tobago Venezuela Other Latin America

RLI (years)

» Current production levels are not sustainable over long term at current proved reserve levels (Ecopetrol’s lowest in 5 years) » 2016 Reserve life index is 6.3, the lowest in South America and

  • ne of the lowest out of all producing countries in the world

» Future growth in oil production will require greater exploration and

  • il discoveries to replenish increase in Colombia’s Reserves

… but investment is still required to replenish reserves & production levels …

Colombia Reserve Life Index (Oil) Ecopetrol total proved reserves Ecopetrol percentage of Colombia’s oil production

Sep 28, 2017 McDaniel Overview Colombia

Source: Ecopetrol SEC EDGAR Source: BP 2016 Statistical Review

500 1000 1500 2000 2500 2012 2013 2014 2015 2016 2017

Proved reserves (MMboe)

Ecopetrol Remaining

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… with fears by the Office of the Comptroller General of Colombia losing its oil independence

Sep 28, 2017 McDaniel Overview Colombia

1,000,000 872,000 2021

Bopd peak oil production in 2013, with close to 2 billion barrels in total proved reserves Average 2017 year end production estimate, with total proved reserves in Colombia at 1.6 billion barrels – 32% down from three years earlier End of Colombia oil self sufficiency at current forecasted rates

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Plenty of investment opportunities still exist in Colombia given the initiatives to increase reserves, particularly in unconventionals

Sep 28, 2017 McDaniel Overview Colombia 1 2 3 4 5 6 7 8 9 2014 2016 2017 2018+

Investment levels, billions $ USD

E&P investment levels in Colombia

$8.3b

$2.1bn of E&P investment still needed $7bn of investment required for country to meet government production targets

An increase of $2.6bn of investment coinciding with better expectations by oil & gas companies Amidst low oil prices, represents a fraction of the $8.3bn of invested into Colombia two years earlier

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…prompting the government to take additional measures to ensure national energy security

Sep 28, 2017 McDaniel Overview Colombia

Promoting offshore development

  • Three special economic zones dedicated to facilitating offshore exploration in the Caribbean Sea
  • Tax and customs incentives offered to companies drilling offshore wells, including Ecopetrol,

Anadarko, Exxon, Petrobras, Repsol and Statoil

  • Ecopetrol and Anadarko with several deep water off shore gas discoveries in the Purple Angel, Furte

Sur and Furte Norte blocks, collectively covering a total of ~14,900 square kms

Expediting exploration rights process

  • Government has gotten rid of the two year auction system for allocating exploration rights
  • Replaced with model under which companies will be allowed to bid at any time for the oil blocks

put out to tender

Unconventional oil and gas deposits

  • Ecopetrol CEO Juan Carlos Echeverry announcing in August 2017 that the company will be

ramping up shale oil production in the country. Recoverable oil could be between 2.5 to 7 billion barrels

  • Shale production to drive the company’s strategic focus over the next decade to boost reserves.

Ecopetrol acknowledges that “we are not unconventional experts and so we would seek partners with the know-how”

  • Interested parties reportedly include Occidental Petroleum and Shell
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Colombia’s shale prone Middle Magdalena Valley

Middle Magdalena valley basin Stratigraphic chart – La Luna formation

Sep 28, 2017 McDaniel Overview Colombia

Source: Platts Source: ANH

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Middle Magdalena La Luna comparison chart

La Luna versus other unconventional plays

Sep 28, 2017 McDaniel Overview Colombia

Source: Search and discovery

Depth (ft) 4,000 - 13,000 Net shale pay thickness (ft) TOC (wt %) Ro (%)

Eagleford

Oil/Gas

6,000 - 14,000

Woodford

Oil/Gas 10,000 - 13,500

Haynesville

Gas

4,000 - 11,000

Bakken

Oil/Gas

4,000 - 12,000

Marcellus

Gas

4,000 - 17,000

La Luna

Oil/Gas

50 - 200 100 - 200 60 - 200 10 - 60 50 - 250 200 - 1400 2 - 9 3 - 10 2 - 5 10 - 15 3 - 15 2 - 6 0.55 – 1.45 0.53 – 3.00 1.00 – 1.12 0.45 – 0.80 1.00 – 3.00 0.6 – 3.00 6,000 - 11,000

VacaMuerta

Oil/Gas

200 - 1700 2 - 8 0.5 – 3.00

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200 400 600 800 1000 1200 1400 1600 1800 Net shale pay thickness (ft) 2 4 6 8 10 12 14 16 TOC (wt%) 12

Middle Magdalena La Luna formation – good TOC and pay

La Luna formation

Sep 28, 2017 McDaniel Overview Colombia

Source: Search and discovery

Parallels to Eagleford

  • Comparison between core samples show comparable

characteristics such as porosity, TOC and permeability

  • Porosity
  • Eagleford ~ 7.3%
  • La Luna ~ 6.3%
  • Horizontal Permeability
  • Eagleford ~700nD
  • La Luna ~ 920nD
  • Similar depths and similar age

Parallels to Vaca Muerta

  • Complex stacking pattern of varying lithologies
  • Stacked shale packages
  • Overpressured
  • Similar depths and size of shale packages

TOC (wt%) Kerogen Quality < 0.5 Very poor 0.50 to 1.0 Poor 1.0 to 2.0 Fair 2.0 to 4.0 Good 4.0 to 12.0 Very good > 12.0 Excellent

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La Luna: Some of Canacol’s results

Canacol shale acreage September 2012 - Well 1 : Mono Arana

Sep 28, 2017 McDaniel Overview Colombia

Source: Canacol Source: Canacol

  • Well drilled to 9,942 feet MD
  • 760 feet of gross pay in La Luna formation
  • 230 feet of net oil pay, average porosity 14%
  • Overpressured formation at up to 8146 psia
  • Flowed up to 590 bopd of 22 API oil, 118 mscfpd with virtually

no water in 24 hour test in naturally fractured reservoir

December 2016 - Well 2 : Mono Capuchino

  • Well drilled to 10,023 feet MD
  • 769 feet of gross pay in La Luna formation
  • 406 feet of net oil pay, which consists of shales and limestones

with average porosity of 15% and open fractures visible on image logs

  • Recovered uncommercial heavy oil from La Luna but tested

commercial rates from Tertiary Lisama sandstone

July 2017 - Well 3 : Pico Plata

  • Well drilled to 16,406 feet MD
  • 1369 feet of gross pay in La Luna formation
  • 866 feet of net oil pay, average porosity 10%
  • Three slickwater fracs, between 27 – 30 feet thick varied

between 80,000 – 346, 000 pounds

  • Variable flow rates from 60 – 500 bopd of 31 API oil with no

water

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Fracking Colombia’s unconventional resources?

ANH deemed unconventional blocks (includes CBM)

48

Sep 28, 2017 McDaniel Overview Colombia

Source: ANH, Geographiando

Unconventional hydrocarbon blocks

Select operators

Unconventional hydrocarbon deposits (ANH, Feb 2017)

Available Blocks Unconventional deposit Available Blocks Coal Bed Methane Active Blocks Unconventional exploration Unconventional production

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Active unconventional exploration blocks

1

Active unconventional production block

1

Reserved block

6

Operators

35

Remaining unconventional hydrocarbon blocks

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Environmental oppositions to Colombia’s shale development

Overlap of unconventional concessions with indigenous territories Environmental and indigenous concerns

Sep 28, 2017 McDaniel Overview Colombia

  • “Black Line” is area of special protection and indigenous

peoples affected in this area need to be consulted before project approval

  • Blocks outside of the “Black Line” area not subject to same

limitations

  • Some environmental groups concerned about dangers of

fracking, government will need to balance the need for economic benefit and environmental concerns

Protests against fracking in Colombia

Source: ANH, Geographiando Indigenous Territories

Indigenous reserves “The Black Line” Natural National Parks Urban cabildos, rancherias and unguarded communities Colonial reserves Other Indigenous territories Unconventional blocks Coal Bed Methane blocks Unconventional blocks that

  • verlap with Indigenous

territory Coal Bed Methane blocks that overlap with Indigenous territory Indigenous peoples affected

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The opinions expressed within this presentation are those of the authors/presenters. No representation or warrant, express or implied, is made by McDaniel as to the certainty or completeness of the information contained in this presentation, and nothing contained in this presentation is, or shall be relied upon, as a promise or representation by McDaniel This presentation may not be reproduced, in whole or in part. The disclosure of any of the data contained herein or supplied in connection herewith or the use thereof for any other purpose, except with the written consent of McDaniel, is strictly prohibited

Cautionary statements

Sep 28, 2017 McDaniel Overview Colombia