SAGD Technology: First the Fundamentals, Then the Advancements APEGA SAGD Forum Edmonton, Alberta. Neil Edmunds, P.Eng Director, EOR Advisory

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SAGD Technology: First the Fundamentals, Then the Advancements 2013 APEGA SAGD Forum Edmonton, Alberta Neil Edmunds, P.Eng Director, EOR Advisory September 4, 2013

The Anna Karenina Principle Describes an endeavor in which a deficiency in any one of a number of factors dooms it to failure Consequently, a successful such endeavor is one where every possible deficiency has been avoided Happy families are all alike; every unhappy family is unhappy in its own way - L.Tolstoy [1st line of Anna Karenina] it is possible to fail in many ways, while to succeed is possible only in one way - Aristotle September 10, 2013 WE PRODUCE 2

Outline 1. The importance of calculation (vs. intuition) to SAGD engineering 2. Things that should be calculated Economic Objectives Steam Costs versus Recovery Rate Engineering of twin-well 2D start-up principles to 3D (long) wells Global (Interdisciplinary) Optimizations 3. Tools that we need to do these September 10, 2013 WE PRODUCE 3

The Monty Hall Problem 1. Participant chooses one of three doors; the prize is randomly placed 2. Host opens one of the two remaining doors, always revealing a not-prize. Therefore, the prize is behind one of the two remaining doors. 3. The participant is invited to switch doors. Q: Should he bother to switch, or does it not make any difference? September 10, 2013 WE PRODUCE 4

The Monty Hall Problem A: Yes! He is twice as likely to win if he switches The probability of the prize being in one of the two doors, not originally picked, is 2/3 The 1/3 chance of the prize being in the chosen door, has not changed Therefore there is 2/3 chance the prize is behind the other, remaining door Note: The host knows where the prize is (not), and does not open the second door, at random! September 10, 2013 WE PRODUCE 5

Intuition Is a Poor Substitute for Calculation Too many variables, too dynamic, too non-linear Analogy: lighting a campfire by remote-control Too many choices Many more ways to do it badly, than to get it just right Too much money involved Project scale, and environmental duty, demand sophisticated engineering September 10, 2013 WE PRODUCE 6

Some Notable Failures in SAGD Intuition Issue Intuition Reality SAGD? Gravity is too weak to be interesting GD only applies to fully depleted reservoirs Gravity is dominant when k>1d Relevant parameter is the gradient Effect of Shale Breaks Fatal to gravity drainage Minimal if Lshale << hres Need for Sand Control The oil is too heavy to get through the slots SAGD is inoperable without sand control Slots are nothing, compared to the sand! September 10, 2013 WE PRODUCE 7

Some Notable Failures in SAGD Intuition (cont.) Issue Intuition Reality Vertical Injectors? Startup Method Circulation Direction Better conformance & more control, than a horizontal injector Force with a strong pressure differential Must all be operated at exactly the same BHP Need 1 vert. every 50-100 m to match Must melt it, and let it drain, to do it over 800m doesn't matter Must go into the tubing, returns from annulus September 10, 2013 WE PRODUCE 8

Some Notable Failures in SAGD Intuition (cont.) Issue Intuition Reality Liner Fluid Distribution Objective is constant flux Objective is constant pressure Controllable by dual tubing, e.g. Only sensitive if hydraulics are bad NCG Effects Lower SOR by draining at a lower temperature (SAGP) Fast SAGD slows down Slow SAGD speeds up esp. Rising We still can't predictively model September 10, 2013 WE PRODUCE 9

Some Under-appreciated Aspects of SAGD Engineering 1. Steam Costs versus Recovery Rate 2. Economic Objectives 3. Extension of 2D twin-well principles to 3D (long) wells 4. Global (Interdisciplinary) Optimizations September 10, 2013 WE PRODUCE 10

This image cannot currently be displayed. Reservoir Steam/Oil Ratio Steam 1 m 3 of oilsand @ 2250 kpa, 30% porosity & 85% oil saturation: CSOR RES = T Hlv Cvr φ S o Temperature: 10 225 C Viscosity: 10 6 5 cp. Oil Saturation: 85% 15% Heat Required: 0.46 GJoule Steam Condensed: 1.56 bbl Oil Recovered: 1.3 bbl Equivalent SOR RES : 1.2 September 10, 2013 WE PRODUCE 11

Real World SOR's and Heat Loss Current commercial SOR's are actually 2.5-3.5 The extra steam consumption is due to heat loss to confining strata, primarily the overburden The Loss component of the SOR is proportional to: Steam temperature, i.e. f(pressure) Square root of the pattern operating lifetime Inverse of (formation thickness x porosity x oil saturation) CSOR Loss = H T lv φ S o k t h C η s vo t September 10, 2013 WE PRODUCE 12

Summary of SOR Factors CSOR = S O = H T φ S lv o C vr + k t C hη s vo t multiple important variables temperature, i.e. the steam pressure porosity x oil saturation (or wt% bitumen) thickness (the meat in the heat loss sandwich) time to a given recovery for whatever reason *CIPC 2007-27 September 10, 2013 WE PRODUCE 13

Economics Overview Basic Ingredients (ex. Geo/Eng) Cost of Things: Wells:Steam:Fuel A full list of design parameters & constraints An Objective Function (supply cost, NPV/ha, etc.) Different Levels of Analysis I. Reservoir Scoping: minimize supply cost; steam as utility II. Scheme Optimization: how big a facility for x locations III. Operating: maximize production with existing steam capacity September 10, 2013 WE PRODUCE 14

SAGD Economics[I]: Reservoir Scoping Analyze a single well pair as if a stand-alone project; develop utility unit prices for wells ($/pair, tied-in) & steam ($/tonne, all-inclusive utility price) Minimize the Supply Cost (SC), defined as that constant oil price, which if received for the life of the project, would yield a project return equal to the cost of capital (i.e., the discount %) : SC is useful for preliminary feasibility or optimization; compare one process/configuration/reservoir with another Easy to apply by individual reservoir engineers September 10, 2013 WE PRODUCE 15

SAGD Economics[II]: Scheme Design Typically, maximize NPV/ha based on prototypical reservoir descriptions A scheme design includes Project Steam & Oil Capacities Drilling schedule, by location For each reservoir prototype considered Startup Procedure & Lifetime Operating Policy Liner Tubulars (thermohydraulic) Specification Lifting Spec and Equipment Wellhead Interface Spec: fluids x P,T,h,Q Downhole Instrumentation Spec Injection/Production Forecast September 10, 2013 WE PRODUCE 16

Scheme Design: Comments Note the highly interdisciplinary nature of project design The most efficient use of capital is to build steam capacity in the most economical tranches; and then use it to produce the maximum amount of oil possible: it is expensive to idle steam capacity to keep the oil plant full even more so, to add increments to existing facilities this strategy does not generate a constant oil output Financial markets deal in productive capacity; need to manage external expectations and perceptions September 10, 2013 WE PRODUCE 17

Economics (III): Operating Maximize project oil production (e.g. annual CDOR) Use all the steam, all time Manage well counts steam capacity neither idle, nor spread too thin Relentless debottlenecking of anything that limits well performance to less than the full potential of the reservoir: WB hydraulics Bad completions (can t pull steam at will) Inadequate lifting Flow line capacity Facility treating Produced heat management capacity September 10, 2013 WE PRODUCE 18

CSOR Examples: The Cost of Delay Months to Reach 50% OIP CSOR at 50% OIP Extra Steam Per Pair at 50% CDOR for 100k bspd Project 60 2.507-61 2.518 (~$70k) 120 3.080 32,467 bopd September 10, 2013 WE PRODUCE 19

A Good Start-up is a Function of Engineering September 10, 2013 WE PRODUCE 20

Startup of a Long Well Pair September 10, 2013 WE PRODUCE 21

Typical SAGD Well Pair to Scale 20m 800m The only possible way to establish conformance along substantially the full length of a well pair, is to: 1) Establish an initial critical mass of heat in the rock between the pair, along the full well length; and 2) Allow gravity to maintain a stable gas/liquid interface along the length (See, How to survey the pyramids without space aliens) September 10, 2013 WE PRODUCE 22

Twin-Well Conduction Start-up (1990) 220 C @ r=3.5 September 10, 2013 WE PRODUCE 23

Fluid & Heat Flow in a SAGD Producer Early Production Phase scab liner keep the steel hot (only) correct location of subcool measurement -conformance control cannot cure lack of mobility September 10, 2013 WE PRODUCE 24

Some Critical Mistakes During Ramp-up 1. Subcool determination, anywhere other than the pump inlet Outlet of the liner is the only place that measures the total heat balance in the liner Measurement at the toe cripples production when early heat inflow is near the toe normally a favorable circumstance 2. Watching the fiber - controlling so as to prevent steam inflow, anywhere This will basically ensure a lengthy startup and correspondingly poor CSOR for the life of the pair Some steam is needed to carry heat around the liner and maintain a useful temperature September 10, 2013 WE PRODUCE 25

Some Critical Mistakes During Ramp-up 3. Dual production strings Heat transfer between strings renders this inoperable Long string can only be controlled at the neutral point Short string cannot be properly controlled, anywhere September 10, 2013 WE PRODUCE 26

Twin-Well Conduction Start-up (II) P inj P prd September 10, 2013 WE PRODUCE 27

Effect of Liner Pressure Gradient September 10, 2013 WE PRODUCE 28

Interdisciplinary Project Parameters Design Parameter Discipline: Corp Drill Prod Fac Ops Project steam capacity X X Steam allocation per pair X X X Wellhead max & min pressures (steam, emulsion, gas) X X X Lifting technology and max fluid rate X X X X Maximum casing vent volume & heat load X X X Completion length/diameter X X X X Producer elevations X X Pattern (pair-to-pair) spacing X X Startup methodology X X X X Wellhead services, e.g. gas, water X X X Wellbore tubulars configuration X X X Downhole instrumentation X X September 10, 2013 WE PRODUCE 29

Nonlinear Engineering Read, high technology Calculations defy closed-form analysis; need case-specific numerical analysis Nonlinear functions cannot be extrapolated or (meaningfully) averaged Thermal vs. Reservoir engineering: A superset of conventional reservoir engineering Heat transfer, melt cavities, economics, etc. 2 year minimum apprenticeship September 10, 2013 WE PRODUCE 30

Some Applications of SAGD Reservoir Simulation 1. Forecasting 2. History matching (adjust res. model) 3. Wellhead design basis (e.g. casing gas/steam) 4. Wellbore thermo hydraulic design 5. Internalization of SAGD mechanisms, phenomena, and pathologies Punch line: The list is in increasing order of importance September 10, 2013 WE PRODUCE 31

The Camp Fire Analogy Aspect Campfire SAGD Reaction Oxidation SAGD Consumable Wood Oil Sand Reactant Oxygen Steam Products Heat, light Oil Byproducts CO2, smoke Condensate, NCG Kindling Small, dry bits Well pairs Starting Agent Match, accelerant Circulation, bullheading Critical Heat Balance Mass Transport Reaction vs. Radiation Natural convection Heat injection vs. External transient loss Natural convection w/phase change September 10, 2013 WE PRODUCE 32

The Camp Fire Analogy Imagine, lighting a campfire: Out of sight, by remote-control, guided only by a handful of basic, single-point instruments, operated by shifts of teams, guided by a separate team of specialists, none of whom have ever actually seen any kind of fire burning, nor ever will; and very often, manage many fires all at once, even though this is everyone s first time in these particular woods. September 10, 2013 WE PRODUCE 33

September 10, 2013 WE PRODUCE 34

Real World SAGD Hot, undrained September 10, 2013 WE PRODUCE 35

Flow Around a Producer Well* It is impossible to operate a SAGD well pair near the oil-water contact without some interaction with basal water over life of the well pair Oil will drain below producer over time and be stranded *CIPC 2009-128 September 10, 2013 WE PRODUCE 36

The Bottom Water Problem 18 m pay a) 2m Standoff: TI=16m So=60% EOIP = 2.88m CSOR ~ 4.86 b) WOC-3m: TI=21m So=64.8% EOIP = 4.08m CSOR ~ 3.77 4 m water 6 m oil (strand ed) September 10, 2013 WE PRODUCE 37

Continuous Technical Improvement Exploitation of a novel technology proceeds in an environment having a multitude of cost-reduction opportunities Must be prepared to (at least) incorporate major improvements in SAGD as they arise OTOH, the ideal commercial field operation is characterized by disciplined boredom Introducing significant new technology has risk, and will look negative to the bottom line of many departments/units Top level championship should be apparent at all stages of the introduction September 10, 2013 WE PRODUCE 38

Conclusions SAGD is a complex, and most often counter-intuitive, technology Thus the two-edged sword of simulation is central to SAGD reservoir engineering SAGD is a team sport it is intensely interdisciplinary SAGD is a separate craft: a conventional reservoir engineer running a thermal model is not a thermal engineer In Difficulty Lies Opportunity September 10, 2013 WE PRODUCE 39

How All Happy SAGD Operations are Alike Interdisciplinary project teams: no silos Keep heating (circulating) after first production (real world SAGD) - pull some steam Liner total pressure variations as low as possible i.e. a constant pressure source, not constant flux Equipment limitations never allowed to restrict the reservoir One-time steam capacity additions; 100% utilization Maintain optimum well count September 10, 2013 WE PRODUCE 40

Forward-looking Statements Advisory This Laricina Energy Ltd. (the Company ) presentation contains certain forward-looking statements. Forward-looking statements may include, but are not limited to, statements concerning estimates of exploitable original-bitumen-in-place, predicted recovery factors, steam-to-oil ratios and well production rates, estimated recoverable resources as defined below, expected regulatory filing, review and approval dates, construction and start-up timelines and schedules, company project potential production volumes as well as comparisons to other projects, statements relating to the continued overall advancement of the Company s projects, comparisons of recoverable resources to other oil sands projects, estimated relative supply costs, potential cost reductions, recovery and production increases resulting from the application of new technology and recovery schemes, estimates of carbon sequestration capacity, costs for carbon capture and sequestration and possible implementation schedule for carbon capture and sequestration processes or related emissions mitigation or reduction scheme and other statements which are not historical facts. You are cautioned not to place undue reliance on any forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both generally and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Although the Company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct and, accordingly that actual results will be consistent with the forward-looking statements. Some of the risks and other factors that could cause results to differ materially from those expressed in the forward-looking statements contained in this presentation include, but are not limited to geological conditions relating to the Company s properties, the impact of regulatory changes especially as such relate to royalties, taxation and environmental changes, the impact of technology on operations and processes and the performance of new technology expected to be applied or utilized by the Company; labour shortages; supply and demand metrics for oil and natural gas; the impact of pipeline capacity, upgrading capacity and refinery demand; general economic business and market conditions and such other risks and uncertainties described from time to time in the reports and filings made with security regulatory authorities, contained in other disclosure documents or otherwise provided by the Company. Furthermore the forward-looking statements contained in this presentation are made as of the date hereof. Unless required by law the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this presentation are expressly qualified by this advisory and disclaimer. September 10, 2013 WE PRODUCE 41

Significant Definitions In this presentation the reserve and recoverable resource numbers, along with the net present values given, are as defined in the report of GLJ Petroleum Consultants Ltd. ( GLJ ) regarding certain of Laricina s properties effective December 31, 2012, referred to herein (the GLJ Report ). Exploitable OBIP or Expl. OBIP refers to original-bitumen-in-place that is targeted for development using thermal recovery technologies. The best and high estimate of the Company s resources include contingent and prospective resources. Cont. or 2C and Pros. refer to contingent and prospective bitumen resources, respectively. Contingent resource values have not been risked for chance of development while prospective resource values have been risked for chance of discovery but not for chance of development. There is no certainty that it will be commercially viable to produce any portion of the contingent resources. There is no certainty that any portion of the prospective resources will be discovered or, if discovered, if it will be commercially viable to produce any portion of the prospective resources. 2P means proved plus probable reserves and 3P means proved plus probable plus possible reserves. SAGD means steam-assisted gravity drainage. C-SAGD means cyclic SAGD. SC-SAGD means solvent-cyclic SAGD. CSS means cyclic steam stimulation. The SC-SAGD best estimate technology sensitivity (Laricina technology sensitivity) net economic forecasts were prepared on Saleski-Grosmont and Germain-Grand Rapids based on SC-SAGD technology. SOR means steam-oil ratio. CSOR means cumulative steam-oil ratio. CDOR means calendar day oil rate. bbl means barrel. bn means billions. m means metres. mmbbl means millions of barrels. bbl/d means barrels per day. EIA means Energy Information Administration. NPV means net present value. m 3 means cubic metres. m 3 /d means cubic metres per day. kpa means kilopascal. Dkeff means Darcy s effective permeability. km 2 means square-kilometres. NPV10 means net present value, before tax, 10 percent discount. US$ means United States dollars. U.S. means United States of America. WTI means West Texas Intermediate. WCS means Western Canadian Select. PV10 means net present value before tax, 10 percent discount. Unless otherwise stated, all dollar amounts are shown in Canadian dollars (C$). September 10, 2013 WE PRODUCE 42

Contact Us Laricina Energy Ltd. 800, 425 1 st Street SW Calgary, Alberta T2P 3L8 403-750-0810 www.laricinaenergy.com laricina@laricinaenergy.com September 10, 2013 WE PRODUCE 43