Shale Gas exploration and development: An operator’s perspective

1. Shale Gas exploration and development: An operator’s
22 Jan 2013 perspective
Canadian Shale Gas Workshop- Brussels
Andrew Quarles – General Manager Europe Unconventional

2. Summary
• Who is Nexen?
• Shale Gas exploration and
development: a lengthy and uncertain
endeavor
• Not all shale gas plays are the same
• Timing and cost
• Shale Gas Operators can and need to
be good neighbors
• What does development look like?
• An example of community engagement
• Environmental stewardship
2

3. Nexen Overview
• Headquartered in Calgary, Canada
• 3,800 employees in 7 countries
• 185,000 – 220,000 boe/d production in 2012
• $30 to $46 /boe netbacks
• $2.8 - $3.2 billion in cash flow
• 28 exploration wells planned for 2012
15%
• 10 billion boe of resource to develop GAS
85%
OIL
3

4. Nexen’s Global Portfolio
UK North Sea
Offshore
Canada 2nd largest producer
Oil sands SAGD
Shale gas Poland
Prospective
Shale gas
Gulf of Mexico
Offshore deep
water Yemen
Conventional
+20 years
Colombia Nigeria
Conventional oil Offshore deep water
Shale gas
4

5. Nexen’s Canadian Shale Gas Experience
Nexen NEBC Basin Acreage: ~300,000 gross acres
NEBC Shales (Horn River: 104 Tcfe)
BRITISH
COLUMBIA
Horn River
Muskwa
Potential LNG Facility
BRITISH
COLUMBIA/
ALBERTA
Montney
Montney: 55 Tcfe
Horn River Basin: Top Quartile Shale Play in North America
WILLISTON
BASIN
Bakken
Third largest resource play in North America
MICHIGAN
BASIN Utica
BIG HORN
BASIN
Mowry
Antrim 500 net foot interval
UINTA
BASIN
Baxter PICEANCE Marcellus Shale: 197 Tcfe
SAN JOAQUIN
BASIN Mancos BASIN
ARKOMA/ARDMORE BASIN APPALACHIAN
High silica content shale is very brittle and fracable
McClure PARADOX BASIN
Fayetteville
BASIN Woodford Marcellus
Cane Creek Caney Huron Attractive tax regime and royalty structure
Woodford Shale: 12 Tcfe Fayetteville Shale: 26 Tcfe
SANTA MARIA
SAN JUAN
Competitive resource recovery (EUR) with 6 – 15 Bcf
BASIN DELAWARE BASIN
Monterey BASIN
Mancos Barnett
Woodford BLACK WARRIOR BASIN
wells
Lewis Floyd
North American Unconventional Conasuaga
Resource Plays Neal Viable North American LNG export option
Barnett Shale: 61 Tcfe
Haynesville Shale: 140 Tcfe
Eagle Ford Shale: 10 Tcfe
____________________
Resource Potential Estimate Source: Wood Mackenzie.

6. Not All Shale Gas Plays Are The Same
• There are a wide variety of shale plays. Less than half are
economic
• The expensive and time consuming challenge to determine where
one is located on this spectrum

7. Lengthy Process to Explore and Appraise
• A stepwise semi-decadal approach through exploration and appraisal…
• Resource- defining and characterizing a viable play concept;
• Flow rate– cracking the nut leading to cost effective reservoir productivity;
• Commercial- demonstrate that gas can be produced cost effectively through
pilot programs
30+

8. The Shale Gas Development Challenge: Above and Below the Surface
Deliverability and EUR for each well ? How much is it going to cost ?
What to put on the books ?
How much infrastructure and when to expand ? How to reliably assess to services?
Market contracts and takeaway capacity ?
How to get the most gas using Best flowback practices to enhance performance ?
the least frac water & proppant ?
How many frac stages & how far apart ? What is the best well spacing,
length & orientation ?
Where should laterals be placed ?
Is there a sweet spot How much free &
in the reservoir ? absorbed gas ?
Planar bi-wing How important are natural
or complex fracs ? Fractures ?

9. Shale Gas Operations are not “Get Rich Quick”
Representative Cash Flow of a Successful Shale
• Significant upfront Gas Project
investment for 1.2 7.50
ANNUAL CASH FLOW / CAPITAL ($Billion) - BARS
CUMULATIVE NET CASH FLOW ($Billion) - LINE
exploration and 1.0 6.25
appraisal
0.8 5.00
• Stable long term
0.6 3.75
cashflow with
“manufacturing 0.4 2.50
style” Explore and Appraise
0.2 1.25
development
investments - -
• Long payout (0.2) (1.25)
periods with a (0.4) (2.50)
cashflow that is Manufacturing Style Development
sensitive to (0.6) (3.75)
2026
2027
2028
2029
2030
2015
2016
2017
2018
2020
2021
2023
2025
2014
2019
2022
2024
2013
2012
discounting
Cash Flow Capital Cumulative CF

10. Multi-Well Pad Design Minimizes Impact
Central Well Pad: 880‘ x 575‘
• Minimize surface
footprint (5%) –
environment and
cost benefits
• Optimize well
placement –
stratigraphic
placement
• Optimize wells
spatially
to maximize 3-5 Square miles of
recovery reservoir developed
from a single drilling pad
10

11. Footprint Management: Drilling C-1-J Pad, NE BC
N
MARCH 2011

12. Footprint Management: Completions C-1-J Pad, NE BC
N
JULY 2011

13. Footprint Management: Production Phase Reclamation
N
AUG 2012

14. Stakeholder Engagement
Through the Identification of stakeholders and understanding key
concerns, we are able to effectively focus our engagement efforts
towards facilitating meaningful discussion and open transparency.
Stakeholder Concerns
Stakeholders Environmental Impacts
• First Nations • Surface & Grd. Water, Wildlife &
• Regulators Species @ Risk, Footprint Mgmt
• Local, Regional, & Provincial Gov. Social Interests
• Industry Peers • Infrastructure Capacity, Treaty Rights
Economic Opportunities
• Local Employment and Services
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15. Ensuring a Positive Local Economic Impact
Contracted Vendors in NEBC for SG Development
80%
70%
60%
50%
Outside BC
40%
Other BC
30% Fort Nelson
20%
10%
0%
2008 2009 2010 2011

16. Managing Environmental Impacts
Regional Wildlife Research – Collaboration
Multi-year regional Nexen’s leadership
caribou inventory with governance
with First Nation structure for
participation implementing BC
Research and
114
Management of
100
85 Boreal Caribou
49 43 18 (Spp @ Risk)
172
129 293
159
76
407
581
749
124
246
16

17. Footprint Management: Production Phase Reclamation
N
AUG 2012