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JCPT Tech Briefs

Upstream Representations for the LNG Supply Chain

G
as trapped in low-permeability
tight shales has become acces-
sible with advances in horizontal
drilling and new completion tech-
niques, making liquefied natural gas (LNG)
an economically feasible product marketed
worldwide. This paper explores the intrica-
cies involved in modelling upstream field
development and the scenarios required
to provide reasonable estimates of the up-
stream asset that will feed the rest of the LNG
chain, including investment required, growth
potential, and long-term sustainability.

Introduction

Oil and gas companies in North America,


Australia, and Europe are leveraging new
technologies in drilling, completion, and liq-
uefaction to unlock their countrys abundant
natural-gas reserves and resources. While
the price of gas remains low in North Ameri- Fig. 1Upstream development map.
can markets, the world market for natural
gas continues to grow. maintain these fields, exploration-and- ly planned portfolio, when measuring value
As industry becomes increasingly in- production companies must represent their over time.
volved in new opportunities like these, many technical understanding of the fields effec-
significant projects are being contemplated. tively in models, which allow them to eas- Simplified Modelling for Increased
Such proposals in Canada include three in ilysimlatedifferent approaches to their over- Planning Agility
Kitimat, British Columbia, two inPrince Ru- all development.
pert, British Columbia, and another located A well-planned portfolio requires both time
more than 6700 km across the country Effective Decision Making and detail to develop. There are potentially
inGuysborough County, NovaScotia. an infinite number of details that could be
Each of these projects requires invest- Investment decisions made early in the port- factored into developing realistic field-devel-
ment in the overall supply chain, which in- folio selection process can have a big impact opment models, which are included in the
corporates the field development to the on results over the long term. Once execu- complete paper.
transportation, liquefaction, and shipping tion of a plan has started, it can be extremely Given unlimited time and resources, one
of the product. In order to attract investors, difficult to implement major course correc- could develop detailed models, comparing
companies need to effectively model these tions without incurring cost and delays. More an unlimited number of planning scenarios.
large-scale projects and define clear strate- portfolio value can be gained by starting out However, engineers and planners have limits
gies for execution. with the right strategy in the upfront planning on their available time and resources. As a
One of the most-intricate and -complex stage because the ability to alter the value result, they must take a realistic approach to
aspects of developing these models is the of a portfolio significantly during execution is planning by deciding which of these details
upstream field-development plan, which restricted. Once the execution begins on a are most important to include in their models.
will determine effectively the supply for all selected portfoliodespite efforts to make Some details are more important than
components of the downstream supply improvements during executioneven the others. Depending on the nature of the field
chain. To provide a reasonable estimate poor execution of a good portfolio still out- development, certain elements may have
for the investment required to develop and performs the successful execution of a poor- a significant impact on the outcome of the
scenario while others may add unnecessary
noise and could make the model potentially
This article, written by JCPT staff editor Leah Guindon, contains highlights of paper SPE
difficult to maintain.
171631, Building Meaningful Upstream Representations for the LNG Supply Chain, by If a field contained 1,000 wells, a detailed
Graham Kirk, 3es Innovations Incorporated; and Kristian Wieclawek and Cameron P. representation of each well could be mod-
Six, Sproule, prepared for the 2014 SPE/CSUR Unconventional Resources Conference elled. However, if changes are later required,
Canada, Calgary, 30 September2 October. The paper has not been peer reviewed.

July 2015 Journal of Canadian Petroleum Technology 211


JCPT Tech Briefs

every one of those 1,000 well models would software can enhance the ability to incorpo- Reservoir and Production
need to be updated in order to maintain plan rate more detail into the models while still be- Characteristics
integrity. But what if all 1,000 wells were rep- ing able to make changes efficiently.
resented as a single field model? Certainly, As for those plan elements that can be The reservoir characteristics, production
all of the individual-well detail and optionality controlled, planners must explore varying in- forecasts and profiles, and well design are
would be lost, but conversely ones ability to puts and multiple corresponding outcomes. provided in the complete paper.
make changes to the model would be ex- This due diligence provides the visibility
tremely efficient. Limited time and resources investors need to understand potential up- Economics
means that a balance between these two ex- side and risk, which could affect the supply
tremes must be achieved to allow for enough chain potentially and the overall viability of Operating costs are assumed to be the
detail to be accounted for in the model with- the investment. same for each area. The fixed well cost in
out making it overly challenging to make the case study is assumed to be USD 6,000
changes andmaintain. Case Study per well per month. Variable costs include
Ability to change efficiently is equally vital gas and liquids expenses, and is assumed
in portfolio planning. External factors, out- In the complete papers case study, a real- to be USD 0.75/Mcf.
side the control of the planner, add risk to life example is provided concerning how Capital costs are also the same for each
the investment and can require adjustments varying a few fundamental assumptions in area at the well-level, and are assumedtobe
to be made as situations arise. Examples of a field-development plan can have a sig- USD 7 million for drilling and completionand
external factors could include nificant impact on the overall investment. To USD 500,000 for gathering and tie-in.
Reservoir behaviour (prediction of field simplify the model for publication, numbers The capital costs for facility and infrastruc-
behaviour) have been rounded. ture are assumed to be USD 70 million /
 Service and material costs (general (100MMcf/D).
and administrative, rigs, chemicals, and Land
steel) Developing Area Models
Regulatory changes/restrictions The case study consists of 200,000 acres
of land split into four areas of varying pro- The principle of breaking down a complex
In order to adapt to these external ele- duction performance (Fig. 1). A land devel- problem or system into a series of parts that
ments and reduce the risks they impose, opment factor of 95% has been applied to are easier to conceive, understand, pro-
it is important for the model to be flexible account for realistic hurdles (e.g., faults and gram, and maintain can be applied to break-
and easy to change or course-correct as other geohazards, not being able to drill to ing down a field-development program into
required. The use of specialized modelling the edge of lands, and surface restrictions). its fundamental building blocks, critical for

Fig. 21D simulation model in Builder.

212 July 2015 Journal of Canadian Petroleum Technology


JCPT Tech Briefs

Fig. 3Portfolio vs. execution scenario comparison.

conceptualizing the immense detail of large then leveragedto develop the field-develop- eas on the basis of a set of operational and
field-development plans while remain- mentscenarios. economicmetrics.
ing flexible enough to update and main-
tainthese plans over the longterm. Scenarios Maximum Well Count per Area
In the complete papers case study, the
basic elements required to model this field There are countless factors that could be Each area can accommodate only a fi-
development are defined as template proj- manipulated to develop the different plan- nite number of wells on the basis of the
ects in the modelling software. Each of ning scenarios. However, for the purpose landsize, land development factor, and res-
thefour areas is defined by a single template of this case study, only two key elements ervoir thickness.
that captures the specific operational details aremanipulated:
for each area, including  Development pace (ramp up over 4 Field-Facility Timing
Capital and timing (drilling, completion, years vs. 6 years)
tie-in, and facilities) Order of the field development [random Capital must be included for the expansion
Primary gas production, shrinkage, and vs. net present value (NPV)] of the facilities and infrastructure as produc-
derived liquid yields tion ramps up to the raw-gas-production
Operating expenses Field-Development Pace target of 1.76 Bcf/D. On the basis of the fa-
cility-expansion cost of USD 70 million/(100
In addition, other details are captured The field-development pace dictates how MMcf/D), and the assumption that the capi-
to be used later for feasibility checks and quickly the production can ramp up to the tal is applied in 100-MMcf/D increments, the
formulating metrics in the roll-up analysis. target plateau rate. Factors are noted in the total facility capital is USD 1,260 million.
These include: complete paper.
 Resources (drilling rigs, service rigs, Scheduling the Field-Development
fracturing crews, pipeline crews) Area-Development Order Scenarios
Casing requirements, number of fractur-
ing stages, and spacing The order of development of the area plays a On the basis of the different constraints, four
critical role, and can also have a high degree distinct field-development scenarios are
Associated with the area development, of variability. For the purpose of this case generated. They are noted in the complete
the common field facilities are also defined study, the development strategy is to devel- paper and in Fig. 2.
as template projects to capture their capital op one area fully before moving to thenext.
cost and construction timing. For the first scenario, areas are se- Analysis and Comparison
With the technical details cap- lected randomly. For the second scenario,
tured in the templates, these details are a metric-based ranking is used to com- Instead of looking at the development
pare how each area relates to the other ar- plan in terms of volumes of gas measured

July 2015 Journal of Canadian Petroleum Technology 213


JCPT Tech Briefs

in MMcf or drilling-rig days, investors re- case-study theory, assume that the authors tions can have a significant impact on the
quire these modelling data to be transi- selected the portfolio (Scenario A1,random projected outcome of their field-develop-
tioned into financial data (e.g., discounted order, with a 4-year ramp up) and on thefirst ment plan.
cash flows) and metrics (e.g., rate of return day of execution, operational efficiency But, regardless of how much up-front
andNPV). was improved and USD 500,000, or 10%, analysis and detail have gone into the plan,
Leveraging a modelling softwares eco- wassaved on the drilling of each ofthe2,419 there will always be external factors that will
nomic calculations allows the operation- wells, which equates to USD 1.2 billion impact the plans ability to deliver against
al plan to be translated into a format that insavings across the entire portfolio. the set strategy. Whether it is higher or
investors require, which includes revenues Now compare that scenario to the port- lower production, unforeseen reservoir in-
calculated by applying the appropriate price folio (Scenario A2, NPV order, with a 4-year terference, resource shortages, changing
forecasts, discount rates, depreciation, tax- ramp up) with no additional cost savings. costs, or environmental-policy changes,
es,burdens, and any other factors required As expected, the original portfo- theplan needs to be adaptable to account
to generate the resulting cash flows and met- lio continues to outperform the portfolio for these unexpected variances.
rics for each scenario. with the cost savings and results in a bet- For unconventional resources (e.g.,
In each scenario, for comparison terinvestment (Fig. 3). tight gas), continuous monitoring
puposes, the complete paper keeps and strategy adjustment throughout ex-
project count and total capital spend- Continuous Evaluation and Planning ecution are key in allowing stakehold-
ingconstant. ers to update the plan while still meeting
The model constructed in the complete the desired end goal. The ability to en-
Does Selecting a Good Portfolio Up Front papers case study provides an envi- ter the latest real-time i formation into the
Add More Value Than Executing a Bad ronment that can help companies pre- modelisamust underthesecircumstanc-
Portfolio More Efficiently? To test this dict and explore how alternative assump- es.JCPT

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214 July 2015 Journal of Canadian Petroleum Technology