07 - Valuation Techniques

Risk, Uncertainty & Economic Analysis for Resource Assessment and Production Forecasting in Shale and Tight Reservoirs
Introduction Probability, Distributions and Correlation Estimating Under Uncertainty Tight Clastics / Carbonate Assessment Shale Assessment Reservoir Flow Valuation Techniques
Decline Curve Analysis Approaches

Arps with best fit b Modified Hyperbolic Approach Hyperbolic followed by exponential Hyperbolic b exceeds 1, then by hyperbolic b less than 1 Variable b with time methods Stretched Exponential Production Decline (SEPD) Power Law Loss-Ratio Duong method Assume all flow is linear The 5 Year rule for Modified Hyperbolic Reservoir Modeling Great progress but simulators require SRV input
Rose & Associates, LLP
Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013
Reserve Determination From Production Data

Arps Equation:
q(t) =
Exponential decline Harmonic decline Hyperbolic decline
qi (1+bDit)1/b
b=0 b=1
q(t) = qi * eDit q(t) = qi / (1+ Dit )
b is between 0 and 1
This is a good approximation technique when we have steady state flow conditions, with an unchanging drainage area. Unfortunately in Resource Plays this is not the case!
Arps Decline Equation

Arps Equation:
q(t) =
q(t) qi Di t b
qi (1+bDit)1/b
= Production rate at time t = Initial Production rate = The initial decline rate, in percent per year = Cumulative time in days, since the start of production = Arps decline constant
Arps Decline Models
JohnLee,SPEShortCourse
Critique of Arps Model

Requires:

q(t) =
qi (1+bDit)1/b
Constant bottom-hole pressure Unchanging drainage area A fixed skin factor Stabilized (boundary dominated) flow for validity
Recent Observations
Best-fit b values almost always >1 for recent gas wells Extrapolation to economic limit with high b value leads to unrealistically large reserves estimates Linear flow likely for most of the economic life of the well in ultra-low permeability reservoirs
Reserves as rate 0 (time ) for b 1

AfterJohnLee(2011)
BarnettVerticalWells
Linear Flow Plots Straight line on a 1/q vs sqrt of t plot slope on a log rate vs log time plot
10 Years No Boundary
SPE138987BrentHale,W.Cobb&Associates
PerformanceofVeryLowPermFracturedWells
HoughandMcClurg (2011)
Decline Curves Approaches: Modified Hyperbolic

10 Hyperbolic decline used b>1
Common approach (i.e. PhD Win, Aries, PEEP): exponential tail-off after a hyperbolic decline: Hyperbolic decline used until annual decline rate reaches a pre-defined min, called Dmin., which in turn is based on analogs or the experience of the engineer. Typically Dmin of 4-10% is being used
Rate MMSCFD
An unconstrained extrapolation with best-fit b > 1 is unrealistic
Assumed Dmin 0.1 0.00 5.00 10.00
Exponential Decline used 15.00 b = 020.00
25.00
Time in Years
Decline Curves Approaches: Modified Hyperbolic

Advantages Widely used for 20+ years Uses Industry standard Arps empirical model
Hyperbolic based on history matching followed by Exponential once a predefined minimum decline rate is reached (terminal decline rate)
Keeps reserves estimates conservative but within reason The two errors in this approach compensate each other
The imperfect b value (exceeds 1) causes an over prediction of reserves Applying a exponential terminal decline results in a negative error, which causes a conservative estimate
Disadvantage Appropriate Analog data is required to estimate the minimum terminal decline rate
JohnLee,SPEShortCourse
Terminal Decline & b Value Variation -Bakken Elm Coulee Field

OilRate,B/D
1,000
100
10
Dmin,(%/yr):108654
10
20
30
40
50
Years
SPE149273,B.Kurtoglu,C.A.Cox,H.Kazemi
Forecasting EUR: Vertical Devonian Shale, KY

Field Average
169 Wells > 30 yrs prod history b = 2.0 Di = 23%
D(20 YRS) = 2.25%
5 YEARS PROD FED GAS OIL & COAL CO (808685)
b = 1.4 Di = 34%
D(20 YRS) = 3.2% CUM = 199MMCF EUR = 638MMCF
b = 1.6 Di = 29%
b = 1.94 Di = 31%
Production Type Curves

The type curve approach is ideal when we have:
d
Random per-well recovery, not related, in a predictable manner, to geological or operating parameters. Observed frequently:
Shale in general Cordilleran tight gas trends, Wamsutter, Jonah, Pinedale, Canadian Deep basin Neuquen Basin, Argentina Spraberry Field , Canyon Sand W Texas
But why not use reservoir models?
Type curve matching determines drainage area

in low perm sands
Estimates of well drainage can be developed from type-curve matching of early production data once reservoir properties are established
Kuuskraa (2007)
Design of Production Type Curves

Steps to Generate Production Type Curves
1. 2. 3. 4. Normalize rate time data to a common date. Develop Type well curves for each distinct geological trend with the same lithology. Develop Type Curves which reflect your anticipated well spacing. Technology levers cause shifts in rate. Generate plots by Time periods (30+ data before you subdivide), by Operator and by Completion technology. Determine the Correlation between the Initial and Average 30, 60 and 90 day Rate and the projected EUR for each well.
5.

1.
Normalize rate time data to a common date.

Do not eliminate any wells unless it can be clearly demonstrated that you will never realize that outcome again. For example a failed new frac fluid or early days when only 3 of 15 planned stages are executed.
Extrapolate all wells using a best fit of the data. If in linear flow use the 5 year rule for shale and 3 year rule for tight gas and tight oil sands. Do NOT look for a typical P90 or P10 well and then use its performance to deliver the P90-P50-P10 Type curves. Wells are dynamic in their delivery. P10 wells become P90 wells etc as different frac stages fluctuate in their delivery. Type curves should be based on well capability against planned back pressures. You will then need to account for operational downtime as a separate line item. A good discipline in production optimization. Use monthly data. Using Excel statistics functions is good for large well counts. Remember, Excel uses the data not the fitted curve.
Why Not Use The Nearest Offset?
SWNEnergyJuly2012InvestorPresentation
Honour All Wells in Developing Your Type Curves - Extrapolate limited life wells and then normalize
PetroHawk InvestorPresentationMay2011

5.
Type Curves for Each Sub-trend

Fruitland Coals Fruitland Coal Outcrop
Colorado New Mexico
TPA 4: mod to high; meteoric recharge TPA 3:
TPA 1: mod to low; low rank coal area
v. high TPA 2: v. low oily coal

10 miles
TPA = Type Producing Area
MeekandLevine(2005)
10
Type Curves for Each Sub-trend

Fruitland Coal Outcrop
Structural hingeline
Moderately productive area w abundant recharge
Lithology,settingandrecharge impactproduction
10 miles
No flow boundary, as coals begin to pinch out and lose perm
Type Curves for Each Geologic Sub-trend

Fruitland Coals
4,000
MCFG/D
3,000 2,000 1,000 0

Peak water production
TPA 3 n = 52 TPA 4, n = 58 1, n = 65
40
80
120 2, n = 74
Months
Here the sweet spot of the trend is obvious, but we will return for the need to compare geology to rate
MeekandLevine(2005)
11

5.
Technology Levers Cause Shift in Rates

10 Fayetteville Shale Daily Gas Production, MMCFD
100
0
100
Slick-Water Fracs
1
Nitrogen Enhanced Fracs

0.1 50 100 150 200 SPE107435,RussellK.Hall
Time in Days
12
Barnett Stimulated Rock Volume for Cross-linked Gel vs Slick Water. Increased SRV validated by doubling of the gas production rates
Cipolla etalSPE125532
SouthwesternEnergyAugust2010InvestorPresentation
13
SouthwesternEnergyJuly2011InvestorPresentation
SouthwesternEnergyJuly2012InvestorPresentation
14

5.
Shale Oil Exercise: Wolfberry

Variation in the Mean of the ERU based on Early Rate Data
The term Wolfberry was coined by Van Temple of Henry Resources
15

Variation in the Mean of the ERU based on Early Rate Data Assignment: Your Management has made a few simple requests: 1. What is the your estimate of the 80% confidence range in the average well EUR for the upcoming 40 wells given the 7 wells drilled to date and the analog selected? 2. You have two new wells with 30 day production rates of 160 BOE/D and 300 BOE/D respectively. You are asked to provide a best technical estimate of the EUR. Using only the initial 7 well data set provide a range for the EUR of these new wells. 3. Your budget calls for 10 wells based on a P50 rate of 150 BOE/D or more. How large of a drilling program is required to realize an 90% confidence that the program will average 150 BOE/D (the minimum to meet our hurdle rates)?
NorthAmericanUnconventionalResourcePlays P10/P90ofPeakProductionMonth
SPEE(2011)Monograph3
16
analogs

Variation in the Mean of the ERU based on Early Rate Data Assignment: Your Management has made a few simple requests: 1. What is the your estimate of the 80% confidence range in the average well EUR for the upcoming 40 wells given the 7 wells drilled to date and the analog selected? a) Determine your assumed P10 / P90 ratio when more data are available. Hint: Lets agree to use 4. As you will see this is a good start. b) Plot the data in Table 1 using the Mid-Point Approach c) Use your P10 / P90 from step (a) to determine a range of EUR outcomes with increased sampling. For simplicity assume the Mean will be found at the same percentile and determine the range in Means based on your revised P10 / P90 ratio.

Variation in the Mean of the ERU based on Early Rate Data
EUR / Peak Rate: Rank them largest to smallest Using the mid-point approach, build a Rate or EUR Type Curve on linear and log vs probability paper:
1. Arrange all data by size, largest first and assign Rank 2. Determine the Percentile Values Percentile = 100/n * (Rank 0.5) 3. Tabulate data sizes with %tiles 4. Plot the data pairs
Data Rank %tile

Largest Smallest
1 100/n * (1 0.5) 2 100/n * (2 0.5) 3 100/n * (3 0.5) 4 100/n * (4 0.5) etc
17
Wolfberry Eastern Shelf Data

TABLE 1
Source: Drilling Info
Well # G2 H1 H2 H3 H4 H6 S1
Oil IP (BO/D) 80 229 186 124 210 60 64
Max Oil Equiv Month Gas IP IP Oil Rate (MCF/D) (BOE/D) BO/D 108 75 114 123 273 89 56 98 242 205 144 256 75 73 86 269 202 122 115 77 145
Max Month Gas Rate MCF/D 110 658 298 122 223 147 165
Max Month Rate BOE/D 104 379 252 142 152 102 173
Cum Oil (BO) 11,820 40,787 41,486 10,653 63,752 9,662 43,336
Cum Gas (MCF) 13,258 83,481 71,468 11,524 167,800 20,300 60,681
Cum Oil Equiv EUR (BOE) (MBOE) 14,030 54,701 53,397 12,574 91,719 13,045 53,450 92 235 152 177 309 149 137
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Rank Order the EUR & Determine the Percentile

EUR MBOE 309 235 177 152 149 137 92 Rank 1 2 3 4 5 6 7 (100/n) * (Rank - 0.5) 7.1 21.4 35.7 50.0 64.3 78.6 92.9
Force fit the Data to Lognormal with a P10/P90 ratio of 4 Using the P10/P90 ratio of 4 line, build an envelope where: The Left side boundary passes through the point furthest away from the best fit line. The right side boundary passes through the data point furthest to the right of the best fit line.
19
20
P10/P90ofvariousaggregated perwellEURdistributions
Pmean,%tile
P10/P90
Rose & Associates, LLP 21 Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013
22
100%
90%
Percentage of the Mean from Value to Book as Proved Adjustment Mean to Protfolio P90
80%
70%
60%
The P90 is approximately % of the sampled mean of with a sample size of 7 wells and a P10/P90 ratio of 4. = Assuming near symmetry from the central limit theorem: The P10 is approximately % of the sampled mean with a sample size of 7 wells and a P10/P90 ratio of 4 =
Log-Normal P10/P90 = 15.0
50%
40%
30%
Log-Normal P10/P90 = 10.0
20%
10%
Trumpet Chart Approximation Method For The Determination of The EUR 80% Confidence Interval
Log-Normal P10/P90 = 8.0 Log-Normal P10/P90 = 5.0 Log-Normal P10/P90 = 3.0 Log-Normal P10/P90 = 2.0
0% 0
10
20
30
Aggregated Well Count

23
40
50
60
70
80
90
100
24

Variation in the Mean of the ERU based on Early Rate Data Assignment: Your Management has made a few simple requests: 2. You have two new wells with 30 day production rates of 160 BOE/D and 300 BOE/D respectively. You are asked to provide a best technical estimate of the EUR. Using only the initial 7 well data set provide a range for the EUR of these new wells.
STEPS: a) Cross-plot initial production rate versus EUR b) Determine which Percentile 160 BOE/D and 300 BOE/D fall at. c) Read off the EUR at the same Percentile. d) Based on the Correlation Coefficient determine the range of your EUR estimate.
25
26
30 Day Rate vs EUR

IPvsEUR
300 R=0.6622 250 200
R = 0.81
IP BOE/D
150 100 50 0 0 100 200 300 400
EUR MBOE
27
28
Rank Order the Rate & Determine the Percentile

Force Fit to Lognormal with a P10/P90 = 4
IP BOE/D 256 242 205 144 98 75 73 Rank 1 2 3 4 5 6 7 (100/n) * (Rank - 0.5) 7.1 21.4 35.7 50.0 64.3 78.6 92.9
29
30
Track Actuals vs. The Forecasted Aggregate Type Curve What Would You Recommend in This Scenario?
Actuals
What is The Value of Information?

Information costs money. How can it add value? We can evaluate how this expenditure can add value with a decision tree
One branch includes the expenditure One branch does not
Information adds value if the expected value of the branch with the expenditure is greater than the expected value of the branch that does not
Lets look at an example
31
Expected Value & VOI

Two Coin Flip
Both Heads, You Win $25 Any Tails, You Win 0
After Both Coins Have Been Tossed, for a Small Fee You Can PEEK at One Coin. If It Is a HEAD, You PLAY the Game FOR $5. If the first coin Is a TAIL, You Cannot Win, So You Avoid the $5 LOSS. How Much Would You Be Willing to Pay for a Peek at the First Coin Before You Decide to Play? How about $1

Two Coin Flip
WIN
HH HT TH TT
(0.25)($25 - $6) = +$4.75 (0.25)(-$6) = -$1.50 (0.25)(-$1) = -$0.25 (0.25)(-$1) = -$0.25

WIN
Cost of peek = $1
HH HT
(0.25)($25-$5) = +$5.00 (0.25)(-$5) = -$1.25 (0.25)(-$5) = -$1.25 (0.25)(-$5) = -$1.25
$0.00
TH TT
32

Two Coin Flip
WIN
HH HT TH TT
(0.25)($25 - $6) = +$4.75 (0.25)(-$6) = -$1.50 (0.25)(-$1) = -$0.25 (0.25)(-$1) = -$0.25

WIN
Cost of peek = $1
HH HT
(0.25)($25-$5) = +$5.00 (0.25)(-$5) = -$1.25 (0.25)(-$5) = -$1.25 (0.25)(-$5) = -$1.25 Value of peek: $2.75 $1.25 = $1.50
$0.00
Solve
TH TT

Two Coin Flip
Both Heads, You Win $25 Any Tails, You Win 0 Value of the Peek:
A) Increased EV of Venture B) Lowered Exposure on Half the Outcomes C) Increased odds of Final Investment From 1:4 to 1:2 Value of Peek relative to Prize? $1 / $19 = or about 6 Percent
Now, who will play this game??? I will play until I loose my $25
33

Two Coin Flip Post Appraisal
What is the EV if you planned to spend the $1 for the peek and $5 for the second coin regardless of the first coins outcome?
EV = 0.25($25 -$6) + 0.75 (-$6) = 0.25
Without the back-away option, this Is not an attractive alternative, relative to flipping both coins
WORTHLESS

Two Coin Flip Post Appraisal Summary:
Prize: $25.00 - ($5.00+Peek) Pc = 0.25 Peek Cost % of Prize EV of Venture $1.00 6 $2.75 $2.50 14 $1.25 (same as EV w/o peek) For This Venture, Your Spending Limit For New Data is 14% of the Value of the Prize
34
Value of Informationa
Chance Factors:
Ex VOI - 1
Prevalent Assumptions:

Source = 1.00 Timing = 1.00 Reservoir = 0.80 Trap/Closure = 0.75 Seal/Containment = 1.00 _____________________________ Pg = 0.60
Only 1 Well Site Considered Seismic Data will identify, with certainty if Closure is high or low A successful well has a PV of $1.0 MM A dry hole has a PV of - $(0.8) MM Seismic costs $100 K The New Seismic Data Will Not: -- Illustrate Other Leads -- Change the Size (and Hence Value) of the Prospect -- Modify the Reservoir Chance
Value of Information
Scenario 1
owc
Edge of 3D
Ex VOI - 1
Top of Structure Proposed Seismic Line
Chance Factors:
Only 1 Well Site Considered Seismic Data Will Identify, with Certainty if Closure is High or Low.
Source = 1.00 Timing = 1.00 Reservoir = 0.80 Closure = 0.75 Containment = 1.00 Pg = 0.60
owc
Proposed Seismic Line
Scenario 2
Edge of 3D
Rose & Associates, LLP 35
36
Drill (no seismic)
Ex VOI - 1
Build tree in chronological order with a place to record inputs
Shoot seismic
37
38
Ex VOI - 1
Main Point: Know When the Cost of the Information Exceeds the Value of That Information
Educate Your Management That While Data May Add to Their Comfort Level, It May Not Add to the Value of the Venture to the Corporation.
39
40
Pitfalls in The VOI Approach

Failing to realize that new information will only resolve some of your uncertainties. When dealing with imperfect information, assessing values in the wrong order on the decision tree often yields biased results. Allowing the new information to alter the original range. Using intuition to estimate the value of information.
Rose & Associates, LLP 41 Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013
42
Types of Information
Perfect
Once you have the information, all doubt is removed
Imperfect
Although the information has been obtained, some questions, sometimes all of the questions, still remain We will need to address this issue, and we have tools to do that
43
44
Exercise UCR Pilot Evaluation

With encouraging information from analysis of past wells in an area, your management believes that Pc for developing this UCR trend is 0.60; i.e. Pc = 0.60 (Option 1, time to commercial declaration = 2 years) Upon additional assessment, your team believes that: 1. An initial pilot (IP = 4 wells), if successful will increase the Pc = 0.75. (Option 2, delaying commercial declaration by 3 years) 2. If the IP is successful, you could conduct a 2nd stage pilot (16 wells w 4 cores), further increasing the Pc = 0.9. (Option 3, delaying commercial production by 4 years) 3. PV of commercial success = $200 MM (not including any pilot costs). 4. PV of commercial failure 1. Option 1 PV (f) = $ -150 MM 2. Option 2 PV (f) = $ -100 MM 3. Option 3 PV (f) = $ - 25 MM 5. PV (IP) = $ - 7 MM 6. PV (2nd) = $ -19 MM if a failure 7. PV (2nd) = $ - 5 MM if a success 8. Each pilot stage will defer commercial dev by 1 year. The PV(success) will decrease by $15 MM for each year of delay.
IP Initial Pilot
2SP 2nd Stage Pilot

45
CD Commercial Dev
46
Option 2 with Init Pilot

proceed to CD (commercial dev)
P(CD) now = 0.60 P(CD) given IP succeeds = P(CD|IP) = 0.75 P(CD) given IP and 2nd stage pilot succeeds = 0.90 P(CD) P(~CD)
200 0.60 120
Ch wt value for Option 1 = $60 MM IP
-150 0.40
-60
P(IP)
initial pilot
proceed to CD
0.90 P(CD)
P(2SP) P(IP) P(2SP)
P(CD) 0.10
0.75
proceed to commercial dev 0.90 P(CD)
P(CD) 0.10
IP Initial Pilot
2SP 2nd Stage Pilot

47
CD Commercial Dev
48
49
50
51
52
Determine value at end nodes to determine most valuable option

P(CD) now = 0.60 P(CD) given IP succeeds = P(CD|IP) = 0.75 P(CD) given IP and 2nd stage pilot succeeds = 0.90 P(CD) P(CD)
200 0.60 120
-150 0.40
-60
IP
2SP
CD
-7 (IP) -7 0.20 158 0.60 -1.4 94.8
0.20
initial pilot
proceed 200 (CD) - 7 (IP) - 5(2SP) - 30 (20.90 Yr Delay) 0.90 to CD
0.83 0.80 0.17
0.10 0.10 - 7 (IP) - 5(2SP) - 25 (CD Fail)

- 7 (IP) - 19 (2SP Fail)
-37 0.067 -2.5
-26 0.133 -3.5
200 (CD) - 7 (IP) - 15 (10.75 Yr Delay) proceed to commercial dev
0.75
178 0.60 106.8
- 7 (IP) - 100 (CD Fail) -107 0.20 -21.4 0.25
IP Initial Pilot
2SP 2nd Stage Pilot

53
CD Commercial Dev
54
Branch Prob
P(CD) P(~CD) 2SP CD
200 0.60
Option 1: $60.0 MM
IP
-150 0.40
-7 0.20
0.20
initial pilot
proceed to CD
0.90 0.10
158 0.60
94.8
0.83 0.80 0.17
-37 0.067 -2.5
-26 0.133 -3.5
Option 3: $87.5 MM Option 2: $85.4 MM IP Initial Pilot

0.75
proceed to commercial dev
0.75 0.25
178 0.60 106.8
-107 0.20 -21.4
2SP 2nd Stage Pilot

55
CD Commercial Dev
End Node Value
Observations: Prob at each CD = 0.60
Branch Value
120
-60
-1.4
56
Lets recap: where is the portrayal of risk?

Cumwellcount=293 @$4MM/well>$1B
proceed directly to Commercial Dev
explore
delineate
demonstrate
develop Assume 40 ac spacing over 10,000 ac
Fail, exit e.g. comm demo Drill 20 + wells Uniformity/comm Optimize frac e.g. Drill 3 wells check min suite and rates e.g. Drill 7 wells Proof of concept
proceed to CD
P10 P50 P90
Fail, exit
Fail, exit
Regardless of which stage the project is in, Economics are to be run on a point forward basis.
Lets recap: where is the chance?

explore
delineate
demonstrate
Fail, exit
proceed to CD
P10 P50 P90
Fail, exit
Fail, exit
57
Lets recap: where is the uncertainty?

explore
delineate
demonstrate
Fail, exit
proceed to CD
P10 P50 P90
Fail, exit
Fail, exit
Lets recap: uncertainty in the type curve

Methodsdescribed
Rate
From Modified Arps
Arps Eq (hyperbolic) ModifiedArps StretchedExponential PowerLawLoss DuongEquation Russelletalhybrid5yr TransientHyperbolicExp
months
58
Lets recap: portrayal of avg production and costs
Lets recap: Resources involved
Play resources from drilling program GIP per well

Note the asymmetry that comes from mult. Note the symmetry that comes from addition
EUR / well
from type curve
EUR / well
from analog
59
Lets recap: Distribution vs Decision Tree

Pg=100% Pe=52%
PV
$296M
Conclusions (1- 7 of 13)

1) 2) Charging creates the pressure anomalies When sample size is limited, rely on first principles for distribution (population) shape and analogs for population variability. Reservoirs (except CBM) tend to be low perm. Porosity cut-off considerations lowered with improved completion techniques In organic rich, thermally mature shales, different mineral suites can become productive, as long as clay content is minimal Consider compositing multiple criteria to spatially high-grade segments Different segments (different geologic ingredients) likely deserve different type curves.
3) 4) 5)
6) 7)
60
Conclusions (8-13 of 13)

8) 9) Consider completion techniques and spacing when forecasting uncertainty in type curves. Type curves are critical for valuation, link play chance assessments to minimal IP rates modeled A high play chance can lead to a very low Pe for a drilling program; integrate engineering work with geoscience early Staged investments require staged plans. Assessments should separate geologic chance from commercial risk From the reference decision point, the product of all success case probabilities must be the same for all options that reach that success state. Confidence (chance) of achieving is related to sample size
10)
11)
12)
13)
Risk, Uncertainty & Economic Analysis for Resource Assessment and Production Forecasting in Shale and Tight Reservoirs
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07 - Valuation Techniques

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07 - Valuation Techniques

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Risk, Uncertainty & Economic Analysis for Resource Assessment and Production Forecasting in Shale and Tight Reservoirs

Decline Curve Analysis Approaches

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Reserve Determination From Production Data

q(t) = qi * eDit q(t) = qi / (1+ Dit )

Arps Decline Equation

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Arps Decline Models

Critique of Arps Model

Reserves as rate 0 (time ) for b 1

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Decline Curves Approaches: Modified Hyperbolic

An unconstrained extrapolation with best-fit b > 1 is unrealistic

Assumed Dmin 0.1 0.00 5.00 10.00

Exponential Decline used 15.00 b = 020.00

Decline Curves Approaches: Modified Hyperbolic

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Terminal Decline & b Value Variation -Bakken Elm Coulee Field

Forecasting EUR: Vertical Devonian Shale, KY

D(20 YRS) = 2.25%

5 YEARS PROD FED GAS OIL & COAL CO (808685)

D(20 YRS) = 3.2% CUM = 199MMCF EUR = 638MMCF

15 YEARS PROD FED GAS OIL & COAL CO (808685)

D(20 YRS) = 2.88% CUM = 296MMCF EUR = 715MMCF

50 YEARS PROD FED GAS OIL & COAL CO (808685)

D(20 YRS) = 2.37% CUM = 704MMCF EUR = 807MMCF

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Production Type Curves

But why not use reservoir models?

Type curve matching determines drainage area

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Design of Production Type Curves

Design of Production Type Curves

Normalize rate time data to a common date.

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Why Not Use The Nearest Offset?

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Design of Production Type Curves

Type Curves for Each Sub-trend

TPA 4: mod to high; meteoric recharge TPA 3:

TPA 1: mod to low; low rank coal area

v. high TPA 2: v. low oily coal

TPA = Type Producing Area

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Type Curves for Each Sub-trend

Moderately productive area w abundant recharge

Type Curves for Each Geologic Sub-trend

3,000 2,000 1,000 0

Rose & Associates, LLP

Ch 7 - Valuation Techniques AAPG Cartagena 2D course, Sept. 2013

Design of Production Type Curves

Technology Levers Cause Shift in Rates