British Columbia's Montney play - More growth on the way Mark Oberstoetter, Generate 2017 - Clean Energy BC
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British Columbia’s Montney play More growth on the way Mark Oberstoetter, Generate 2017 Trusted commercial intelligence woodmac.com
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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
Wood Mackenzie’s base case outlook woodmac.com 4
Province-level forecast
BC Montney production surpasses 4.5 bcfd in 2025 and 5.4 bcfd in 2030
British Columbia gas production
6.0 British Columbia - conventional British Columbia - other British Columbia - Montney
5.0
Gas production bcfd
4.0
3.0
2.0
1.0
-
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: Wood Mackenzie – North America Gas Service
Wood Mackenzie’s base case outlook woodmac.com 5
Country-level forecast
Alberta’s Montney, Deep Basin and Duvernay contributions add to British Columbia’s
growth
Canada’s gas production
20.0 British Columbia - conventional British Columbia - other Alberta - conventional
Alberta - other Rest of Canada Alberta - Montney
18.0
British Columbia - Montney
16.0
14.0
Gas production bcfd
12.0
10.0
8.0
6.0
4.0
2.0
-
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: Wood Mackenzie – North America Gas Service
Wood Mackenzie’s base case outlook woodmac.com 6
North America-level forecast
Lots of competition!
North America gas production
120.0 Other US Lower 48 Marcellus / Utica Haynesville Permian Rest of Canada BC Montney
100.0
Gas production bcfd
80.0
60.0
40.0
20.0
-
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: Wood Mackenzie – North America Gas Service
Wood Mackenzie’s base case outlook woodmac.com 7
Together, wind and solar grow more than threefold to 2035
Emerging markets, led by China & India, will see greatest capacity build
World power output by fuel, 2017 – 2035 Global wind & solar capacity growth, 2017 – 35
35,000 2,500
30,000
2,000
25,000
Solar
1,500
20,000
TWh
GW
15,000
1,000
10,000
Wind
500
5,000
0 0
2017 2021 2025 2029 2033 2017 2021 2025 2029 2033
South America South America
Other Renewables Geothermal
Russia and Caspian Russia and Caspian
Solar Wind
North America North America
Other Solid Fuels Hydro
Middle East Middle East
Nuclear Gas
Europe Europe
Oil Coal
Asia Pacific Asia Pacific
Source: Wood Mackenzie Africa Africa
Wood Mackenzie’s base case outlook woodmac.com 8
Renewable costs are falling fast & surprising to the downside
Growth in China’s manufacturing capacity is the critical factor for solar markets
World PV bid prices vs. project size, 2009 – 2017 World solar module production, 2008 - 2016
450 50,000
2008
400 Auctioned capacity (MWdc)
2009
40,000
Average bid price (USD / MWh)
350 China 2016 panel manufacture 50%
greater than rest of world combined 2010
300
Nameplate MWdc
2016 capacity approaching 90,000 MW
30,000 2011
(vs. 50,000 MW production)
250
2012
200
20,000 2013
150
2014
100 10,000
2015
50
2016
0 0
Jul-09 Nov-10 Apr-12 Aug-13 Dec-14 May-16 Sep-17
Source: GTM Researchwoodmac.com 9 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
Trends and activity levels in the Montney woodmac.com 10 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 2014 well locations 2016 well locations Source: Wood Mackenzie
Trends and activity levels in the Montney woodmac.com 11 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
Trends and activity levels in the Montney woodmac.com 12
The trend of longer laterals
Operator preference and geology is responsible for the varying lengths of laterals
Lateral lengths by year
2011 2012 2013 2014 2015 2016
3,500
3,000
Lateral length (metres)
2,500
2,000
1,500
1,000
500
Montney Duvernay
0
Pembina
Dry Gas
Kakwa Core
Dawson Creek
Mulligan
Swan
AB Sands
Northern BC
Southern BC
Pouce Coupe
Kaybob Simonette
Oil
Ante Creek
Grand Prairie
Kaybob
Elmworth/Karr
Sundown Groundbirch
Heritage Liquids
Kaybob West North
Kaybob Fox Creek
Source: Wood MackenzieTrends and activity levels in the Montney woodmac.com 13
Frac stages, the more the better?
Refined completion techniques have seen a marked increase in frac stages per well
Operator reported frac stages per well British Columbia’s top performing wells based
on IP30 rates
2013 2017 Bottom 75% Top 25% Top 10%
100 10,000
Average number of frac stages per well
90 9,000
80 8,000
70
7,000
60
Proppant (tonnes)
6,000
50
5,000
40
30 4,000
20 3,000
10
2,000
0
1,000
-
- 20 40 60 80 100
Number of frac stages
Source: Wood Mackenzie Source: Wood Mackenzie, BCOCG, IPS ranged by mmcfeTrends and activity levels in the Montney woodmac.com 14
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
Rig counts versus total gas production Movements in well costs since 2012
20 Seven Generations Delphi
80 BC gas production BC rig count 5.0 Cequence Black Swan
Tourmaline Birchcliff (compl. cost only)
18
4.5 Storm Resources
70
Company cited well cost (Cdn$mm)
16
4.0
Average monthly rig count
60
Production (bcfd)
14
3.5
50 12
3.0
10
40 2.5
2.0 8
30
1.5 6
20
1.0 4
10
0.5 2
0 0.0 0
2014
2012
2013
2015
2016
2017
2017
2014
2015
2016
Source: Wood Mackenzie, Nickles RigLocatorTrends and activity levels in the Montney woodmac.com 15
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
4.00 Montney Deep Basin Marcellus Utica
Bluesky AB
3.50
Northern wet gas
Local hub breakeven (US $/mmbtu)
Tioga County
3.00
Ohio
Southern wet gas
Southern BC
Lycoming Area Northern BC
2.50
Falher AB
Greene Dry Gas Area Lean Gas SWPA
Dawson Creek BC
WV Rich Gas Northeast PA
2.00 Notikewin AB Sundown Groundbirch BC Lean gas core
Swan BC
Spirit River Tier 1
Kaybob AB Southwest Rich Gas
1.50
Pouce Coupe AB
Bradford Area
Susquehanna Core
1.00
Heritage Liquids BC
Kakwa Core AB
0.50 Grande Prairie AB
Dunvegan AB
Elmworth/Karr AB
0.00
-1,000 1,000 Ante Creek AB 3,000 5,000 7,000 9,000 11,000 13,000
-0.50 Remaining well locations
Source: Wood Mackenziewoodmac.com 16 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
Forecasting activity by sub-play and operator woodmac.com 17
Wood Mackenzie’s Montney sub-plays
NPV split by sub-play
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
Northern BC (1),
Kakwa Core (14), Cdn$6.72 bn
Cdn$8.34 bn
Sundown
Groundbirch (3),
Elmworth Karr (13), Cdn$3.87 bn
Cdn$4.54 bn
Kaybob (12),
Cdn$1.14 bn
Ante Creek (11),
Cdn$2.43 bn
Grande Prairie (10), Heritage Liquids
Cdn$2.54 bn (4), Cdn$13.32 bn
Pouce Coupe (9),
Cdn$6.29 bn Dawson Creek (5),
Cdn$0.71 bn
Swan (6),
AB Sands (7),
Cdn$2.48 bn
Cdn$0.49 bn
Southern BC (2), Cdn$0
Mulligan (8), Cdn$0
Source: Wood MackenzieForecasting activity by sub-play and operator 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
Gas
Gas Oil/condensate
Oil/condensate NGLs Wells
Wellsdrilled
drilled
5,000
3,000 300
350
(mmcfe/d)
production(mmcfe/d)
4,500
year
2,500 300
250
year
4,000
per
3,500 250
per
2,000 200
drilled
Sub-playproduction
3,000 200
drilled
1,500
2,500 150
Wells
2,000 150
Wells
1,000 100
Sub-play
1,500 100
1,000
500 50
50
500
0 0
2010 2014 2018 2022 2026 2030 2034
mmcfe/d IP Average gas well IP
16 boe/d IP Average oil well IP 1,800
IP30 rate (boe/d)
IP30 rate (mmcfe/d)
14 1,600
12 1,400
10 1,165 1,200
1,000
8
6.5 6.1 800
6 5.9 5.9 5.2 600
4 4.7 4.7 4.5 4.3 4.3 3.5
3.2 400
2
2.8 200
0 0
CNRL
Suncor
Progress
Canbriam
Painted Pony
Crew
Kelt Exploration
Saguaro Res.
Todd Energy
Black Swan
Storm Res.
Chinook Energy
Unconventional
Energy
Res.
Source: Wood Mackenzie, XI TechnologiesForecasting activity by sub-play and operator 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%
Gas Oil/condensate NGLs Wells drilled
5,000 300
Sub-play production (mmcfe/d)
4,500
250
Wells drilled per year
4,000
3,500
200
3,000
2,500 150
2,000
100
1,500
1,000
50
500
0 0
2010 2014 2018 2022 2026 2030 2034
86
$4.3
295
EUR (mmboe) Oil
NGL
$21.5
$14.6 Gas
Revenue (C$M))
1,094
Source: Wood Mackenzie, XI TechnologiesForecasting activity by sub-play and operator 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
Sub-play drilling history and forecast
Northern BC (1) Southern BC (2) Sundown Groundbirch (3) Heritage Liquids (4)
Dawson Creek (5) Swan (6) AB Sands (7) Mulligan (8)
1,400 Pouce Coupe (9) Grande Prairie (10) Ante Creek (11) Kaybob (12)
Elmworth Karr (13) Kakwa Core (14)
1,200
1,000
Wells drilled
800
600
400
200
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Source: Wood Mackenzie, XI Technologies. Note this is our Canada Upstream unconstrained outlook, our markets teams take a risked view on these development levels.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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