Future NB Economic Impact Study of Shale Gas Supply Chain … · 2014-09-03 · 2U.S. data are from...

Future NB Economic Impact Study of Shale Gas Supply Chain Development in New Brunswick

May 17th 2013

http://www.futurenb.com/index.php

© Deloitte LLP and affiliated entities.

Contents

• Executive Summary

• Introduction

• Overview of Shale Gas

• Shale Gas Lifecycle and Supply Chain

• Core Activities Assessment

• Economic Benefits

• Industry Survey

• Industry Readiness

• Opportunities & Recommendations

• Closing Remarks

• Appendix A: Workforce Summary

• Appendix B: Path to Participation & Competition

• Appendix C: Industry Survey

• Appendix D: Regulatory Review

Economic Impact from Shale Gas Development in New Brunswick 1


Executive Summary

2 Economic Impact from Shale Gas Development in New Brunswick


Executive Summary

Objective

• The objective of this study was to identify where opportunities reside for New Brunswick

companies to benefit from potential shale gas development

Approach

The approach to undertaking this work included efforts to:

• Identify the lifecycle, supply chain and core activities of a single wellhead (‘One Well

Model”)

• Identify the economic benefits of shale gas under various development scenarios

• Survey and interview industry and key stakeholders to determine awareness

• Evaluate readiness of New Brunswick organizations and identify gaps in available shale

gas supply chain activities

• Prioritize opportunities for companies to participate

Why Deloitte

To complete its work Deloitte relied on its unconventional gas practice, global energy and

resources group and past experience completing industry studies



Executive Summary

Findings

The development of the shale gas industry in New Brunswick would result in significant

economic benefits realized through direct employment and opportunities for local supply

chain related companies

Economics

The following economic benefits were determined:

• $13 million CAD in overall development cost per well

• $4.5 million increase in Gross Domestic Product (GDP)*

• 21.2 Full Time Equivalent (FTE) jobs per well

• A total of $21 million in direct, indirect and induced investment*

Readiness

• To date the shale gas industry in New Brunswick is immature with limited resources

actively under development

• New Brunswick has well developed industrial services and many of the activities which

serve other sectors are well positioned to participate in the shale gas industry

• New Brunswick is ready to participate in many core activities however, in most of the

highly specialized shale gas activities New Brunswick is not yet ready

* Statistic Canada Input/Output Model



Executive Summary

Opportunities

• Opportunities exists for New Brunswick companies to capitalize on activities in the

development of shale gas

– Immediate opportunities exist in a number of core activities

o Transportation and Mobilization, Professional Services, Geophysical and Surveying, Construction and Pipeline

– Mid Term opportunities may exist should organizations address limitations in either capacity or

capability

o Pipe and Casing, Waste Water Management, and Vertical Drilling

Recommendations

• Focused efforts to educate operations of all sizes on the requirements for participation

and supply chain management processes within the shale gas industry

• Develop a strategy to promote collaboration between organizations in order to achieve

critical capacity

• Evaluate labour resources and develop strategies on how best to prepare available

workforce for new opportunities



Introduction



Introduction: Background and Scope

• Given the active and important discussions occurring in New Brunswick on shale gas the

New Brunswick Business Council requested FutureNB explore the economic impact of

shale gas development for New Brunswick

• FutureNB (FNB) retained Deloitte to conduct, under FNB’s guidance, an economic impact

study to help identify the opportunities available for New Brunswick companies to take

part in shale gas supply chain

• The following items were in scope for the study:

– Which products and services are required by developers of shale gas to support a productive shale

gas wellhead

– To what extent will these products and services will be required at each phase of the lifecycle

– Which products and services can be supplied by existing New Brunswick companies

– The labour force/skills required to support shale gas development and what gaps exist

– The implications of different levels of well development (low, medium, high)

Note: 1. To date, shale gas development in New Brunswick has been limited; thus the findings in this report are based on directional estimates of

capital and operating costs from other jurisdictions that have undertaken development in shale gas. 2.All figures are subject to revision and should be

revisited should meaningful shale gas development and production initiate in the Province



Introduction: Approach

• In completing the study, Deloitte combined both primary and secondary

research activities:

– Primary

o Industry survey of companies within the shale gas supply chain to ascertain their awareness,

capability and readiness to partake in the development of the shale gas industry

o Interviews with resource developers, industry associations and stakeholder organizations to

validate findings and provide input and context to study development

o Estimating the economic impacts of shale gas in terms of GDP, tax revenue and job creation*

o A detailed regulatory review of five jurisdictions was undertaken to determine how New Brunswick

regulations might impact supply chain activities

– Secondary

o Secondary research efforts contributed significantly to the study with numerous academic

sources as well as documented experiences from other jurisdictions

• In addition, Deloitte its extensive Oil and Gas industry practices in both the US

and Canada to test and validate information and assumptions


*using Statistics Canada’s Input/Output model which is a proven model to estimate the economic effects of a given

change in the economy


Overview of Shale Gas



• Shale gas is natural gas contained within a commonly occurring rock classified as shale

• Shale gas has become an increasingly important source of natural gas throughout the

world as recent technology advancements have opened up vast amounts of reserves,

which previously were not economically viable

Overview of Shale Gas: Introduction

Figure – Geology of Natural Gas Resources

• As a result of improved efficiency from

lateral drilling (as shown in the image) rapid

expansion of shale gas development has

occurred throughout the world

• Aside from a low cost of production, Shale

gas has a number of benefits which make it

attractive relative to other sources of energy:

– Lower carbon footprint

– Relatively inexpensive

– Abundant

• As a result, shale gas development is

expected to “profoundly” affect the

international trade of energy resources and

is expected to significantly alter energy

consumption profiles of many jurisdictions*

*Source: U.S. Energy Information Administration, - World Energy Outlook 2012



Overview of Shale Gas: Global Resource Landscape • A recent EIA study estimated technically recoverable shale gas exists within 48 basins in

32 countries, with North America representing the largest reserve opportunity in the world

• Total technically recoverable shale gas resources in the selected basins (6,622 trillion cu.

ft.) is similar to total proven natural gas reserves globally (6,609 trillion cu. ft.)

186 347

175 110 217 239

639

1,931

1,389

396

1,042 1,225

-

500

1,000

1,500

2,000

2,500

Europe NorthAmerica

Asia Australia Africa SouthAmerica

Tri

llio

n c

ub

ic f

eet

Proved Natural Gas Reserves

Technically Recoverable Shale Gas Resources

2

All information from U.S. Energy Information Administration, http://www.eia.gov/analysis/studies/worldshalegas/, including the following: 1 Proved gas reserves: Oil and Gas Journal, Dec., 6, 2010, P. 46-49. 2U.S. data are from various EIA sources. The proved natural gas reserves number in this table is from the U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves, 2009 report,

whereas the 245 trillion cubic feet estimate used in the Annual Energy Outlook 2011 report and cited on the previous page is from the previous year estimate.



Overview of Shale Gas: US Experience


• Shale gas development is having a material

impact on the US economy and is

forecasted to represent a larger percentage

of growth in domestic resources over the

next several decades and beyond

– 76% of global unconventional gas output in

2010 came from the US*

– US shale gas direct employment is expected to

grow from 600,000 to 870,000 jobs between

2010 and 2015**

– Contribution to US GDP is expected to grow

from its 2010 level of 76 billion to 118 billion by

2015**

• In 2010 shale gas development contributed

$18.6 billion to federal, state and local taxes

and royalties in the US and is expected to

grow to $57 billion by 2035 **

– Direct capital expenditures are expected to

grow from $33 billion to $48 billion by 2015

• Unconventional gas will allow the US to

become a net exporter of oil and gas by

2030*

* US Energy Information Administration - World Energy Outlook 2012

** IHS Global Insights – The Economics and Employment Cont. - December 2011

U.S. Dry Natural Gas Production, 1990 – 20401

Trillion cubic feet


Overview of Shale Gas: Canada

• 13% of the global unconventional gas output came from Canada in 2010 (60 billion cubic

meters)*

• Canada has an estimated available resource of 1111 trillion cubic feet (tcf) ** concentrated

primarily in the western provinces

• 317,000 jobs are expected to be created across Canada by 2035***

• The Natural Gas industry is expected to contribute $1.5 trillion to Canada’s Gross

Domestic Product over the next 25 years ***


• The Natural Gas industry is expected

to generate $199 billion in royalties

over the next 25 years***

• Direct investment is estimated to be

$386 billion between 2012 and

2035****

Basins

Gas Plays

Oil/Liquids Plays

*Source: U.S. Energy Information Administration, - World Energy Outlook 2012

**Canadian Society of Unconventional Gas – An Overview of Canada’s Natural Gas Resources - May 2010

***Canadian Petroleum Producers Association - Status of Shale Gas Development in New Brunswick - Feb 2012

**** Conference Board of Canada – The Role of Natural Gas in Powering Canada’s Economy – Dec 2012

Image from PacWest Consulting Group


• The Province of New Brunswick has shale gas deposits estimated between 70-80 trillion

cubic feet (tcf), which could represent as much as 10% of Canadian identified resources

• Given the experience of other jurisdictions, the economic impact of shale gas

development to the New Brunswick economy would be meaningful

• Development of shale gas resources in New Brunswick has been modest to date with 30

Natural gas wells currently producing in the province*

Overview of Shale Gas: New Brunswick

*Canadian Petroleum Producers Association - Status of Shale Gas Development in New Brunswick - Feb 2012

** Government of New Brunswick Oil and Natural Gas Licences/Leases Map

• Corridor Resources

• Southwestern Energy Company

• Contact Exploration Inc.

• Petrolia

• Petroworth

• Beneficial LLC

• Windsor Energy Inc.

• Potash Corp of Saskatchewan

• Irving Oil Ltd

New Brunswick Gas Licencees**



Shale Gas Lifecycle and Supply Chain



Shale Gas Lifecycle: Introduction


• Understanding the costs/inputs of a single wellhead, and developing a ‘One Well’

model’*, was a component of this study and an important foundation from which to

assess varying levels of well development. The slides that follow depict the stages,

phases and core activities of single wellhead

• Activities within the life cycle of a shale gas wellhead are typically classified into three

stages: Pre-drilling, Drilling and Production

– The stages provide a distinction in activities and developers decide during each stage whether the

wellhead is viable enough to continue development

*The location of shale deposits can greatly impact the development costs associated with all phases of the lifecycle. Costs vary greatly depending on factors such as

where the deposits reside, depth of the required well, ease of access to the well pad and the number of wells on a site, etc.


Shale Gas Lifecycle: Distinct Phases


Within the three stages of the lifecycle there are six distinct phases that exist. Each phase

contains specific levels of development cost, duration and capability.

About each phase

• Land acquisition and the

securing of seismic and drilling

location permits

• Initial geophysical and

geochemical surveys are

completed as required

• Initial vertical drilling to obtain

core samples to evaluate shale

formations completed

• Acquire surface leasing and

permits and determination of

specific well pad requirements

• Site excavation planning and

preparation, drilling of initial

mouse hole is completed

• Safety procedures,

environment and regulatory

requirements & emergency

response plans

• Drilling rig and equipment

mobilization, delivery of

required drilling fluids and mud

• Blow out preventer installation,

surface and intermediate

casing cemented into wellbore

• Wellbore drilled to total depth,

potential reservoirs identified,

production casing installed

• Drill rig and equipment is

demobilized, installation of

permanent wellhead complete

• Stimulation equipment is

mobilized onsite, reservoir

horizons perforated and

stimulated

• Demobilization of stimulation

equipment, producing zones

tested for commercial recovery

potential

• After well casing, cementing

and stimulation services

completed, viability of well

confirmed

• Installation of surface facilities

and ancillary services are

competed

• Pipeline infrastructure is

installed and tied to mainline

• Closure of well, removal of

equipment and

disposal/treatment of any

remaining production waste

• Closure and remediation of site

• Re-contouring of well site and

access roads, removal of

pipeline and ancillary facilities

Pre

-

Pro

du

ctio

n

Pro

du

cti

on

Identify Gas

Resource

Site Planning &

Preparation

Drilling, Casing

& Cement

Completion &

Stimulation

Commercial

Recovery

End of Life

Pre-D

rilling

D

rilling

P

ro

duc

tio

n


Shale Gas Supply Chain: Introduction

• In order to determine the economic impact of shale gas, it is necessary to understand the

shale gas supply chain and what activities are required to support development

• Information on activities required within the supply chain was gathered to aid the

readiness assessment of the current landscape of New Brunswick companies, in order to

determine whether there is sufficient capability and capacity in New Brunswick to provide

activities required within the shale gas supply chain

• Supply chain requirements by lifecycle phase, size of the development opportunity, as well

as the degree of specialization required of each service were gathered to help inform

when and where economic opportunities will reside for New Brunswick companies



Shale Gas Supply Chain: Value Map


• Distribution to Gas

Consumers

• Gathering, Processing,

Marketing & Distribution

• Development of the

Shale Gas Wellhead

Downstream

Identify Gas

Resource

Site

Planning &

Preparation

Drilling,

Casing &

Cement

Completion

&

Stimulation

End of Life

Natural Gas Energy

• Non-Renewable

Resources

• Renewable

Resources

• Gas Resources

Midstream Upstream

Gathering

Pipeline

Transmission

Pipeline

• Wind

• Solar

• Water

• Nuclear

• Natural Gas

• Oil

• Coal

• Oil Sands

Domestic

• Household

Industrial

• Commercial

International

• LNG

Commercial

Recovery

Dis

trib

ution

Lin

es

• Shale Gas

• Coal Bed

Methane

• Tight Gas

• Gas Hydrates

• Other

• Conventional

Pre

-Dri

llin

g

Drilli

ng

P

rodu

ction

Focus of Study: Shale Gas

Development Lifecycle and

Supply Chain

Gas

Processing

Facility

• Activities to support shale gas development fall within the upstream sector which is also commonly known as the exploration and

production sector. It covers searching for the resources and subsequently drilling and operating the wells that recover and bring the

gas to the surface


Shale Gas Supply Chain: Overview

20 Economic Impact from Shale Gas Development in New Brunswick 20 Economic Impact from Shale Gas Development in New Brunswick

The image below illustrates the core activities required within the shale gas supply chain at each stage and

phase of the lifecycle. The slides which follow provide specific detail on activities within each phase, including

critical inputs and workforce requirements.

Core

A

ctivities

License,

Permitting &

Lease

Agreements

Site Survey &

Construction

Safety &

Planning

Environmental

Survey &

Approval

Survey &

Permitting

Activity

Clear & Survey

Shot Lines

Shot Hole

Drilling

Data

Recording

Drilling

Mobilization

Land

Preparation

Vertical

Drilling

Directional

Drilling

Casing

Services

Equipment

Mobilization

Stimulation

Services

Tubing

Services

Well Test &

Flowback

Recovery

Supervision

& Misc.

Operations

Security &

Fire

Protection

Fluids &

Cutting

Disposal

Equipment

Rentals

Systems

&

Controls

Supervision

Blowout

Preventer

Manifold

Install Surface

Facilities

Install Pipeline

Supervision &

Maintenance

Operations

Equipment

Mobilization

Supervision &

Misc. Operations

Well Plugging

& Field

Services

Cementing

Installation

of Wellhead

Land Prep &

Restoration

Identify Gas

Resource

Site Planning &

Preparation

Drilling, Casing

& Cement

Completion &

Stimulation

Commercial

Recovery End of Life

Pre - Drilling

Typical Duration: 1-2 years

Development Cost: $1M to $2M

Production



Drilling

Typical Duration: 4-6 months


Phase

S

ta

ge



© Deloitte LLP and affiliated entities. 21 Economic Impact from Shale Gas Development in New Brunswick

Shale Gas Supply Chain: Pre – Drilling Scorecard

Identify Gas

Resource

Site Planning &

Preparation

Drilling, Casing

& Cement

Completion &

Stimulation

Commercial


Pre - Drilling



Production



Drilling



License, Permitting

& Lease Agreements

$50K

Site Survey &

Construction

$150K

Safety & Planning

$100K

Environmental

Survey & Approval

$250K

Survey & Permitting

Activity

$450K

Clear & Survey

Shot Lines

$100K

Shot Hole Drilling

$150K

Data Recording

$200K

Typical Duration

1 to 2 years

Development Cost

$800K to $1M

Workforce Requirements

15 High Skilled, 30 Medium Skilled

FTE ~3 to 5

Key Inputs

Geophysical & Seismic Survey,

Data Logging & Analysis,

Well Site Selection

Typical Duration

60 to 90 days

Development Cost

$400K to $600K



FTE ~4 to 6

Key Inputs

Environmental Impact

Assessment, Site Civil &

Construction Operations




Shale Gas Supply Chain: Drilling Scorecard

Identify Gas

Resource

Site Planning &

Preparation

Drilling, Casing

& Cement

Completion &

Stimulation

Commercial


Drilling

Mobilization

$650K

Land

Preparation

$50K

Vertical

Drilling

$1.3M

Directional

Drilling

$550K

Casing

$800K

Equipment

Mobilization

$50K

Stimulation

Services

$1.5M

Tubing

Services

$500K

Flowback

Recovery

$350K

Supervision

& Ops

$125K

Security/Fire

Protection

$50K

Fluids &

Disposal

$800K

Equipment

Rentals

$500K

Systems &

Controls

$250K

Supervision

$350K

Manifold/

Wellhead

$100K

Cementing

$200K

Installation

of Wellhead

$50K

Typical Duration

45 to 100 days

Development Cost

$5-6 Million



FTE ~3 to 4

Key Inputs

Drilling Rig, Steel Casing,

Cement, Drill Mud, Water,

Aggregate, Fuel

Typical Duration

60 to 90 days

Development Cost

$3-4 Million



FTE ~10 to 11

Key Inputs

Stimulation Equipment, Fluids,

Sand, Water, Propane, Perforation,

Flow-back Storage, Wellhead

Pre - Drilling



Production



Drilling






Shale Gas Supply Chain: Production Scorecard

Identify Gas

Resource

Site Planning &

Preparation

Drilling, Casing

& Cement

Completion &

Stimulation

Commercial


Install Surface

Facilities

$450K

Install Pipeline

$1.1M

Supervision &

Maintenance

Operations

$150K*

Equipment

Mobilization

$50K

Supervision & Misc.

Operations

$100K

Well Plugging &

Field Services

$350K

Land Prep &

Restoration

$300K

Typical Duration

5 to 20 years

Development Cost

$1-2 Million



FTE ~1 to 2

Key Inputs

Surface Facilities, Pipeline,

Work-overs & Operations

Typical Duration

1 to 5 years

Development Cost

$600-700K



FTE ~1 to 2

Key Inputs

Well Plugging, Abandonment,

Reclamation & Re-vegetation

Pre - Drilling



Production



Drilling



*Variable cost per well, other costs in this phases are fixed costs per field

**The location of shale deposits can greatly impact the development costs associated with all phases of the lifecycle. Costs vary greatly depending on factors such as



Core Activity Assessment



Core Activity Assessment: Introduction

• Activities within the shale gas supply chain were assessed by both their “Development Cost” and

degree of “Specialization” to help determine where the best opportunities reside for New Brunswick to

participate in shale gas development. “Development Cost” and “Specialization” are defined as:

- Development Cost: Degree of investment/cost required for the activity

- Specialization - Degree of specialization required when considering:

o Workforce (PhD. Chemical Engineer vs. General Labourer)

o Assets (1 ton truck vs. and lateral drilling rig)

o Inputs (stimulation sand vs. water)

• Based on the assessment of each activity by the above criteria, activities were arranged by

development stage and grouped into one of four categories

25

Dev. Cost Specialization Actions

Pursue H L

Activities represent high value with lower levels of specialization. A proactive pursuit of

these activities is recommended given low degree of specialization, they represent

activities firms can more easily compete for

Assess H H

Activities represent high value but require a high degree of specialization. A careful

assessment is recommended with recognition that firms with existing or transferable

capabilities would be best positioned to compete

Capitalize L L

Activities represent relatively low value with lower degrees of specialized and in many

cases are already present. Maintaining these activities, where present and seeking out

targeted opportunities is recommended.

React L H

These activities are lower in value but require a higher degree of specialization. These

activities should be considered on a case by case basis given the degree of specialization

required

Economic Impact from Shale Gas Development in New Brunswick



• In the Pre-Drilling stage the bulk of opportunities are of low value, and many represent

highly specialized. As a result opportunities to participate are typically limited and require

careful evaluation

Identify Gas

Resource

Site Planning &

Preparation

Pre Drilling

$450,000* $0

$900,000 $150,000

# Activity Dev. Cost Specialization

1 Geological Survey and

Permitting Activity $450,000 High

2 Environmental Survey

and Approval $300,000 High

3 Geological Data

Recording $200,000 High

4 Site Survey and

Construction $150,000 Medium

5 Shot Hole Drilling $150,000 Medium

6 Clearing and Survey

Shot Lines $100,000 Medium

7 Safety and Planning $100,000 Low

8 Licensing and Lease

Agreements $50,000 Low

PURSUE

CAPITALIZE

ASSESS

REACT

*Total value of

activities within

quadrant

Pursue - Activities represent high value with lower levels of specialization. A

proactive pursuit of these activities is recommended given low degree of

specialization, they represent activities firms can more easily compete for

Assess - Activities represent high value but require a high degree of

specialization. A careful assessment is recommended with recognition that firms

with existing or transferable capabilities would be best positioned to compete

Capitalize - Activities represent relatively low value with lower degrees of

specialized and in many cases are already present. Maintaining these activities,

where present and seeking out targeted opportunities is recommended.

React - Activities are lower in value but require a higher degree of specialization.

These activities should be considered on a case by case basis given the degree

of specialization required



• The drilling stage offers a number of opportunities given the volume of overall services

required to support this stage of well development. Given the significant mix of activities

several opportunities may be present

Drilling, Casing

& Cement

Completion &

Stimulation

Drilling

$6,950,000* $500,00

$1,400,000 $350,000


1 Stimulation Services $2,200,000 High

2 Vertical Drilling $1,400,000 Medium

3 Fluid and Cutting Disposal $750,000 Medium

4 Casing $750,000 Medium

5 Drill Mobilization $650,000 High

6 Directional Drilling $700,000 High

7 Equipment Rentals $500,000 Low

8 Tubing Services $500,000 High

9 Supervision (Drilling) $350,000 High

10 Well Test and

Flowback Recovery $350,000 High

11 Systems and Controls $250,000 High

12 Cementation $200,000 Medium

13 Supervision (Stimulation) $150,000 High

14 Blowout Out Preventer

Manifold and Wellheads $100,000 High

15 Equipment Mobilization $100,000 Medium

16 Security and

Fire Protection $100,000 Medium

17 Land Preparation $100,000 Medium

18 Installation of Wellhead $50,000 High

PURSUE

CAPITALIZE

ASSESS

REACT

*Total value of

activities within

quadrant



• The Production stage would typically represent few opportunities given the high degree

of specialization required for most activities. However, given the capability of several

activities with other industries, evaluation may reveal opportunities.

Commercial


Production

$1,650,000* $0

$900,000 $50,000


1 Pipeline $1,150,000 High

2 Surface Facilities $500,000 Medium

3 Field Services

and Well Plugging $350,000 Medium

4 Land Prep

and Restoration $300,000 Medium

5 Supervision (Recovery) $150,000 High

6 Supervision (End of Life) $100,000 Medium

7 Equipment Mobilization $50,000 Medium

PURSUE

CAPITALIZE

ASSESS

REACT

*Total value of

activities within

quadrant

Pursue - Activities represent high value with lower levels of specialization. A

proactive pursuit of these activities is recommended given low degree of

specialization, they represent activities firms can more easily compete for

Assess - Activities represent high value but require a high degree of

specialization. A careful assessment is recommended with recognition that firms

with existing or transferable capabilities would be best positioned to compete

Capitalize - Activities represent relatively low value with lower degrees of

specialized and in many cases are already present. Maintaining these activities,

where present and seeking out targeted opportunities is recommended.

React - Activities are lower in value but require a higher degree of specialization.

These activities should be considered on a case by case basis given the degree of

specialization required


Core Activity Assessment: Key Findings

• The Drilling stage represents the greatest number of opportunities for New Brunswick

firms given:

– Between 60-70% of well development costs are spent in the drilling stage, thus representing the

largest financial opportunity of all stages

– A large percentage of activities require low levels of oil and gas specialization, therefore NB firms

should be in a good position to capitalize on opportunities

• The bulk of the activities in the Pre-Drilling and Production stages require higher levels of

specialization, and the bulk of these activities are those of low development cost. It may

be difficult to drive material economic benefit from activities within this stage

• Industrial services, which require a lower level of shale gas specialization, present

immediate opportunities to support shale gas development such as:

– Transportation/Mobilization, Cementing, Construction, Equipment Rentals and Security and Fire

Protection



Activity Assessment: Summary

Pursue

Activities represent significant value and require a lower degree of specialization.

Action: Proactive pursuit of these opportunities is recommended. Build

relationships, Understand procurement process, Identify competitive landscape Pu

rsu

e

• Activities within the shale gas supply chain present varying levels of opportunity for New

Brunswick operations. The following categories and actions result from the evaluation of

these activities

Assess:

Activities which represent significant value however, require a higher degree of

specialization.

Action: Assess investment required to participate. Determination barriers to entry

Identify project risks

Assess

Capitalize

Activities represent lower value but lower levels of specialization. Significant

numbers of these activities may be preexisting capabilities and may only be

constrained by capacity

Action: Address constraints, Build relationships, Understand procurement

process, Identify competitive alternatives, Build awareness

Ca

pit

ali

ze

React

Activities represent a lower levels of value but a high degree of specialization.

Action: Determine if participation is feasible at a modest levels of investment.

Identify competitors and barriers to entry. React

• Geological survey

and permitting

activity

• Stimulation

services

• Vertical drilling

• Fluid and cutting

disposal

• Casing

• Drill mobilization

• Tubing services

• Pipeline

• Surface facilities

• Equipment Rentals

• Safety and

planning

• Licensing and

lease agreements

• Equipment

mobilization

• Security and fire

protection

• Land preparation

• Wellhead

installation

• Environmental

survey and

approval

• Geological data

recording

• Site survey and

construction

• Shot hole drilling

• Clearing and survey

shot lines

• Supervision (Drilling

and Stimulation)

• Well testing and

flowback recovery

• Systems and

controls

• Cementing

• Manifold /wellhead

• Field services

• Land prep and

restoration

• Supervision

(Recovery and End

of life)

Core Activities


Economic Benefits



Economic Benefits: Introduction

• The economic benefit of shale gas development was examined by looking at three

important drivers of economic growth: Output, GDP and Jobs

• Statistics Canada’s Input/output model was employed to help measure the economic

benefits possible from shale gas development. Economic benefits were first gauged using

the development cost for a single wellhead (using inputs from the “One Well” model)

• For each of GDP, Development Costs and Job Creation, Statistics Canada measures the

direct, indirect and induced benefits


Gross Output

• Represents the total

Direct, Indirect and

Induced investment/

spend supporting the

initial development

Job Creation (FTE) Gross Domestic

Product (GDP)


value of the goods and

services produced

within a given year


number of Full Time

Equivalent (FTE) jobs

created from the

development activity

Development Cost

• Identifies the total

costs associated with

the development of

‘One Well’

Direct Impact

• The direct impact on the output of

an industry considering a one

dollar change in output to meet

the change of one dollar in final

demand

Induced Impacts Indirect Impact

• Measures changes due to inter-

industry purchases as they

respond to new demands. This

includes the chain reaction of

output up the production stream

driving various inputs.

• Measures changes in the

production of goods and services

in response to consumer

expenditures induced by

households' incomes generated

by the production of the direct and

indirect requirements


Economic Benefits: Output - GDP - Jobs

Source: Stats Canada Input/Output Model

• Direct Output: Identifies the

investment/spend associated with the

development cost of One Well

• Indirect Output: Identifies the

additional investment/spend of other

supporting services and companies

• Induced Output: Identifies the resulting

investment/spend by non-industry

related companies that are impacted by

the development cycle

• Total Output: $21 Million

Direct $13 M

Indirect $5

Induced $3

Direct 21 FTE

Indirect 30

Induced 24

Impact on Jobs/FTE Impact on NB GDP Gross Output

Direct $4.5 M

Indirect $2.5

Induced $2.0

Below are the economic impacts of the $13M shale gas ‘One Well’ development costs on

gross output, GDP and Jobs.

• Gross Domestic Product: Identifies the

realized market value of goods and

services produced within NB

• NB GDP: Understanding that not all

goods and services to support the

development of ‘One Well’ will be from

New Brunswick, The Stats Canada

Input/Output model identifies the

approximate amounts that would be

regional versus imports from other

jurisdictions

• Total NB Impact: $9 Million

• Full Time Equivalent (FTE): Is a unit

that identifies the workload required to

complete a defined service. An FTE of 1

represents effort that would span working

fulltime hours with a 1 year period

• Direct FTE: Identifies the workforce

requirements to develop One Well

• Indirect and Induced FTE: Represent the

jobs created to support the Direct FTE

across the well development cycle

• Total FTE: 75

Statistics Canada does not currently have a “model” established specifically for the Shale Gas Industry. The Oil & Gas Extraction Industry was used

instead, given many similarities to Shale Gas, in order to generate the impacts identified in the study


Economic Benefits: Development Scenarios

• Various development scenarios, and how they might influence the economic impacts

associated with shale gas development, were assessed

• Discussion with industry stakeholders, and consideration of both historic and current rates

of development in New Brunswick, served as inputs to develop the scenarios considered

• Consideration was given to the economies of scale, or efficiencies, which would be

realized as a region becomes more active in its development. Research demonstrates

that these efficiencies are the result of the learning curve of operators, decreases in

mobilization costs and more efficient, multi-well drilling and stimulation efforts

• For purposes of our assessment the following levels and efficiencies were used to

ascertain the economic potential of various levels of development:

Note: 1.The costs associated to geophysical and environments programs within “Pre-Drilling” are likely to be spread

across the development of multiple wells. Some efficiencies are also achievable in this category.

2. Additional efficiencies are likely available in procurement, labour and professional services however they could not be

reasonably captured. 34 Economic Impact from Shale Gas Development in New Brunswick

Development Level Wells/year Efficiency

Low Development 6-10 Wells No reduction in cost identified

Medium Development 11-30 Wells 5% reduction in cost identified in the

drilling and completions phases

High Development 31-70 Wells 10% reduction in cost identified in

the drilling and completion phases


Direct Economic Benefits: Development Scenarios Impacts from low, medium and high well development

• Impact on Direct Output: Identifies

the increase in investment/spend

associated with continued

development of multiple wells

• Low Well Development: Represents

an impact of $92M in additional

‘Direct” outputs

• Medium Well Development:

Represents an impact of $92M in

additional ‘Direct” outputs

• High Well Development :


additional ‘Direct” outputs

Impact on Direct Output Impact on Direct GDP

One Well: $4.5M

$35

$110

25 wells/ year

$225

55 wells/ year

0

50

100

150

200

250

Low Medium High

$ millions

One Well: $13M

$105

$310

25 wells/ year

$650

55 wells/ year

0

100

200

300

400

500

600

700

Low Medium High

$ millions

Impact on ‘One Well’ FTE

170

500

25 wells/year

1044

55 wells/ year

0

200

400

600

800

1000

1200

Low Medium High

FTE

‘One Well”

Direct GDP

$4.5 M

‘One Well”

Direct Output

$13 M

‘One Well”

Direct FTE

21.2

8

wells/

year

8

wells/

year

8

wells/

year

• Impact on Direct Output: Identifies

the increase in the market value of

goods/services produced associated

with continued well development


an impact of $30M in additional

‘Direct” GDP



additional ‘Direct” GDP



additional ‘Direct” GDP

• Impact on Direct FTE: Identifies the

increase in workforce requirements

associated with continued well

development


an impact of 150 in additional ‘Direct”

FTE per well


Represents an impact of 479 in

additional ‘Direct” FTE per well


Represents an impact of 1023 in

additional ‘Direct” FTE per well


Industry Survey

© Deloitte LLP and affiliated entities. Economic Impact from Shale Gas Development in New Brunswick 36


Industry Survey: Overview

• An survey invitation to over 450 companies, representing a cross section of industries and services

relevant to shale gas, was distributed to help determine: − Business Preparation - The amount of planning which has taken place thus far in preparation for shale gas

development

− Attitudes and Awareness - What companies think about the development of shale gas and its potential for their

business

− Overall readiness - What services are currently provided in New Brunswick and at what level of capacity and capability

• Respondents represented most core services required to support shale gas development, and the bulk of

those identifying as ‘other’ provide services that are transferable to shale gas


*Results by service/industry have a high margin of error, thus poor reliability, given low response rates within individual services/industries and thus

were not examined in detail given responses will not be representative of the population

16%

11% 11% 10% 10%

9%

6%

4% 3%

20%

0%

5%

10%

15%

20%

25%

Site Planning,Preparation,

andConstruction

ProfessionalServices

IndustrialServices and

Supply

GeneralTrucking and

Transportation

Geophysicaland Seismic

Services

Drilling,Casing, andCementation

WellCompletion

andStimulationServices

Natural GasCommercial

Recovery andField

Operations

Well End-of-Life Oil andGas FieldServices

Other

Resp

on

den

ts P

erc

en

tag

e


Industry Survey: Head office location of respondents

38

New Brunswick

Nova Scotia

Ontario

Quebec USA

Alberta

• 84% of respondents have head offices located in New Brunswick which suggests that the

bulk of spend by shale gas developers, thus GDP generated, will be retained in the

province should these companies participate in development

− 88% of small firms responding (<100 FTEs) were headquartered in New Brunswick

− 57% of larger firms responding (>100 FTEs) were headquartered in New Brunswick


Regional break down of companies by number of employees

88%

1% 3% 4% 5% 0%

57%

21%

14%

0% 0% 0%

10%

20%

30%

40%

50%

60%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Larg

e C

om

pan

ies (

>=

100 E

mp

loyees)

%

Sm

all C

om

pan

ies (

<100 E

mp

loyees)

%

Small Companies (<100 employees) Large Companies (>= 100 employees)


Industry Survey: Business Preparation and Awareness

39

Strongly Disagree

Strongly Agree

My company will

benefit from the

development of shale

gas in New Brunswick

My company has a

strategic plan to

participate in the

development of shale

gas in New Brunswick

My company has

considered strategic

relationships to enable

us to compete in the

Shale Gas Industry in

New Brunswick

Neither Agree or

Disagree

Companies were asked a series of questions to understand whether they are active in

following, and taking steps to prepare for, shale gas development in New Brunswick.

• Respondents indicated , for the most part, they were generally undertaking efforts to do so


0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

3.7 3.8

3.1 3.3

My company has been

actively following the

development of the

Shale Gas Industry in

New Brunswick


Industry Survey: Business Readiness

55%

23%

15%

7%

0%

10%

20%

30%

40%

50%

60%

Our company is not currently asupplier in the Shale Gas

Industry, but our company has thecapability to be a supplier

Our company does not currentlyhave the capability to be asupplier in the Shale Gas

Industry, but could participate witha shift in company focus

Our company is a supplier in theShale Gas Industry today

Our company does not participatein the Shale Gas Industry and has

no plans to participate in thefuture

93% of respondents believe they will be able to serve as a supplier to the shale gas industry,

implying that there is a good deal of readiness across New Brunswick companies

• A large percentage of the remaining respondents indicate that they are interested but are unsure what

is required to support shale gas development



Industry Survey: Company Capability

Companies were asked to indicate which sub service offerings they are capable of

providing to the shale gas industry

• While capacity cannot be easily determined, it is worth noting that respondents indicated they have

capability in every sub service required to support the shale gas industry in New Brunswick

− For the vast majority of core activities, more than five respondents indicated they perform the sub service, which

could be construed as a preliminary indication of the current level of capacity in New Brunswick to support shale

gas development

Activities Number of

Sub-Activities

% of each sub-service offering with 5

or more providers

Site Planning, Preparation, and Construction 5 80%

Industrial Services and Supply 10 60%

Professional Services 8 100%

General Trucking and Transportation 10 70%

Geophysical and Seismic Services 3 100%

Drilling, Casing, and Cementation 5 100%

Well Completion and Stimulation Services 3 100%

Natural Gas Commercial Recovery and Field Operations 3 0%

Well End-of-Life Oil and Gas Field Services 3 100%



While respondents indicated capability to participate and deliver service to support shale

gas development, capacity gaps exist that could impact their ability to service demand if

unaddressed.

Industry survey: Workforce Requirements


26%

19%

12% 12% 12% 10%

3% 7%

0%

5%

10%

15%

20%

25%

30%

Direct industryexperience

Availability ofrequired

workforce

Industry skills Willingness todo the work /

hours

Retention ofskilled

workforce

Technicaldegree /

certification

Interpersonalskills

Other

Workplace challenges currently being faced

Education/training programs needed most in order to support shale gas development

Most respondents indicated they face multiple challenges to seizing opportunities to support shale gas, with the most common challenge

being lack of direct industry experience.

67% of respondents believe some degree of training would help their firm to participate in shale gas development, however there is

disparity amongst those surveyed as to the type of training required

33%

25% 15%

11% 8% 8%

0%

10%

20%

30%

40%

None Trade / IndustryCertification

1-2 Year TechnicalCertificate or

Diploma

Graduate Degree /Professional

Certification (e.g. P.Eng)

4 Year College /University

UndergraduateDegree Program

Other


Industry Survey: Findings


• At a summary level, responses indicate there is willingness to support shale gas and

that some preparations are being undertaken by companies to ready themselves to

seize opportunities

• At present, there appears both capability and capacity to support low levels of

development given that firms are currently providing most of the sub activities required

to support shale gas

- The low response rate* across individual industries/services resulted in an inability to rely on

the survey as a tool to test capacity and capability at a sub activity offering level

*Results by service/industry have a high margin of error, thus poor reliability, given low response rates within individual services/industries and thus

were not examined in detail given responses will not be representative of the population


Industry Readiness



Industry Readiness: Overview

Criteria As defined by As measured by

Capability

Past or

transferable

experience

• Degree to which current New Brunswick companies have

performed services for shale gas or similar services

required to support shale gas

• Survey results

• Interviews

• Industry

Database

Skilled

Workforce

• Degree to which companies have FTEs employed in

occupations that support the delivery of this service

• Industry

Database

Capacity

Current

ability to

support

multiple

wells

• Degree to which there are a sufficient number of New

Brunswick companies identified as currently delivering this

service

− A larger number of firms delivering this service improves

the likely capacity to support shale gas

• Survey results

• Industry Database

Ability to

scale

• Degree to which firms performing this service have ability to

scale operations via base business, access to capital • Industry Database

• The readiness of New Brunswick companies to support shale gas development was

assessed by examining each core service within the three stages of the lifecycle and

assigning a readiness rating based on both the Capability and Capacity of New

Brunswick companies to deliver each core activity as defined and measured by the

following


© Deloitte LLP and affiliated entities. 46

Identify Gas

Resource

Site Planning &

Preparation

Industry Readiness


Pre Drilling

Industry readiness in the Pre-drilling stage is relatively high. Many organizations

possess the capabilities required to participate and may only be constrained by overall

capacity. Some specialized capabilities may not be present in advance or more robust

activity in shale gas.

Medium

Medium Medium

Medium

MEDIUM

READINESS

LOW

READINESS

HIGH

READINESS

MEDIUM

READINESS


Industry Readiness Drilling, Casing

& Cement

Completion &

Stimulation


Drilling

Industry readiness in the Drilling stage is widely varied. Several organizations possess

the capabilities required to participate and may only be constrained by capacity.

However, some very specialized activities are not yet active in the region and present

low levels of readiness.

Medium

Medium Medium

Medium

Medium

MEDIUM

READINESS

LOW

READINESS

HIGH

READINESS

MEDIUM

READINESS


Industry Readiness Commercial



Production

Industry readiness in the Production stage is mixed. Several organizations possess the

capabilities required to participate and there appears sufficient levels of capacity to

support activities for this stage.

Medium

Medium Medium

Medium Medium

Medium

MEDIUM

READINESS

LOW

READINESS

HIGH

READINESS

MEDIUM

READINESS


Industry Readiness – Key Findings

• Activities within Pre-Drilling and Production stages contain the highest levels of readiness

as they leverage existing capabilities.

• New Brunswick is least ready to participate in the highly specialized activities within the

Drilling stage, which are not active in the province. However, within the Drilling stage a

number of other activities, which required lower levels of oil and gas specialization,

demonstrate high levels of readiness

• Activities which have been developed to support other industries are already in place to

support the development of shale gas, for example:

– Transportation, Equipment Rentals, Industrial Services and Construction



Opportunities & Recommendations



Opportunities: Introduction

51

• Recommendations were developed by combining the inputs from the Activity

Assessment portion of the study as well as the Industry Readiness Assessment

• Combining these two independent assessments allows the various activities to be

evaluated by:

• Readiness

• Development Cost

• Specialization

• The primary goal of the recommendations is to maximize the value created for New

Brunswick companies with the least amount of additional investment in either

workforce or assets



Opportunities

52

Identify Gas

Resource

Site Planning &

Preparation

Pre Drilling

The Pre-Drilling stage presents achievable opportunities for organizations to participate in the shale

gas supply chain. With organizations demonstrating high levels of readiness, opportunities are likely

accessible.

# Activity Opportunity Assessment

1 Geological Survey and

Permitting Activity

Evaluate competitive advantage.

determine investment required,

assess risk

2 Environmental Survey

and Approval

Gage appeal of opportunity, level

of investment, barriers to entry

3 Geological Data

Recording

Determine operational fit, level of

investment, address constraints

4 Site Survey and

Construction

Gage appeal of opportunity, level

of investment, barriers to entry

5 Shot Hole Drilling

Determine ease of

implementation, level of


6 Clearing and Survey

Shot Lines

Determine ease of

implementation, level of


7 Safety and Planning Identify opportunities, open

dialogue, identify barriers to entry

8 Licensing and Lease

Agreements

Identify opportunities, open

dialogue, identify barriers to entry

PURSUE

CAPITALIZE

ASSESS

REACT

$450,000* $0

$900,000 $150,000

High Medium Low

Opportunity Assessment: *Total value of

activities within

quadrant



Opportunities

53

Drilling, Casing

& Cement

Completion &

Stimulation

Drilling

The Drilling stage presents a wide variety of opportunities predominantly based on levels of readiness.

Several high value activities may be too specialized, while other, less specialized activities, present more

realistic opportunities. # Activity Opportunity Assessment

1 Stimulation Services Evaluate capability,

2 Vertical Drilling Assess constraints and

investment required

3 Fluid and Cutting Disposal Assess constraints and

investment required

4 Casing Evaluate competitive advantage

and investment, assess risk

5 Drill Mobilization Evaluate competitive advantage


6 Directional Drilling Evaluate capability

7 Equipment Rentals Evaluate competitive advantage

develop relationships

8 Tubing Services Evaluate capability

9 Supervision (Drilling) Evaluate capability

10 Well Test and

Flowback Recovery

Assess constraints and

investment required

11 Systems and Controls Evaluate capability

12 Cementation Evaluate competitive advantage


13 Supervision (Stimulation) Evaluate capability likelihood of

delivery

14 Blowout Out Preventor

Manifold and Wellheads

Assess constraints and

investment required

15 Equipment Mobilization Evaluate competitive advantage


16 Security and

Fire Protection

Evaluate competitive advantage


17 Land Preparation Evaluate competitive advantage


18 Installation of Wellhead Assess constraints and

investment required

PURSUE

CAPITALIZE

ASSESS

REACT

$6,950,000* $500,00

$1,400,000 $350,000

High Medium Low


activities within

quadrant



Opportunities

54

Drilling, Casing

& Cement

Completion &

Stimulation

Production

The Production stage presents a mix of opportunities for organizations to participate in the

supply chain. Some activities are likely outside current skill sets while others activities

present immediate opportunities due to high levels of readiness.

# Activity Opportunity Assessment

1 Pipeline Evaluate opportunity, assess risk

2 Surface Facilities Evaluate competitive advantage


3 Field Services

and Well Plugging Evaluate capability

4 Land Prep

and Restoration

Evaluate competitive advantage


5 Supervision (Recovery) Evaluate capability

6 Supervision (End of Life) Assess constraints and investment

required

7 Equipment Mobilization Evaluate competitive advantage


PURSUE

CAPITALIZE

ASSESS

REACT

$1,650,000* $0

$900,000 $50,000

High Medium Low


activities within

quadrant



Core

A

ctivities

Opportunities: Summary

55 Economic Impact from Shale Gas Development in New Brunswick 55 Economic Impact from Shale Gas Development in New Brunswick

License,

Permitting &

Lease

Agreements

Site Survey &

Construction

Safety &

Planning

Environmental

Survey &

Approval

Survey &

Permitting

Activity

Clear & Survey

Shot Lines

Shot Hole

Drilling

Data

Recording

Drilling

Mobilization

Land

Preparation

Vertical

Drilling

Directional

Drilling

Casing

Services

Equipment

Mobilization

Stimulation

Services

Tubing

Services

Well Test &

Flowback

Recovery

Supervision

& Misc.

Operations

Security &

Fire

Protection

Fluids &

Cutting

Disposal

Equipment

Rentals

Systems

&

Controls

Supervision

Blowout

Preventer

Manifold

Install Surface

Facilities

Install Pipeline

Supervision &

Maintenance

Operations

Equipment

Mobilization

Supervision &

Misc. Operations

Well Plugging

& Field

Services

Cementation

Installation

of Wellhead

Land Prep &

Restoration

Identify Gas

Resource

Site Planning &

Preparation

Drilling, Casing

& Cement

Completion &

Stimulation

Commercial


Pre - Drilling



Production



Drilling



• New Brunswick presents tangible opportunities to support the development of shale gas.

Opportunities range from industrial support activities to highly complex activities

Phase

S

ta

ge

Opportunity Assessment

High Medium Low


Closing Remarks


• The decision to pursue opportunities within the shale gas supply chain will ultimately reside with the

entrepreneurs of New Brunswick. Specific services within the overall supply chain present high value

opportunities with varying degrees of expertise required

• An analysis of the required market conditions which permit the extraction of New Brunswick resources

should be conducted. This information represents the most imperative and overriding indicator in

determining the likelihood of shale gas resource development. Current and future market pricing as

well as expected extraction costs for the New Brunswick market are key factors. Should the market

conditions not indicate a probability of development, all opportunities to participate in the shale gas

supply chain are theoretical

• Most, if not all, activities which currently exist in New Brunswick would not be prepared, at this point,

to accommodate high levels of development activity. Investments in additional assets and workforce

would be required to expand capacity

• In the short-term the highly specialized activities in the shale gas supply chain are likely to be

imported from other more mature markets until such time as the local entrepreneurs see an

opportunity to invest and create those capabilities locally

• Becoming active in the shale gas supply chain present real challenges independent of preexisting

capability or capacity. How to access the network of suppliers is as important as having the skill set

required to meet an identified need. The appendix includes a section identified as “Path to

Participation”, which identifies key factors influencing participation

• New Brunswick has critical capability in several areas but is also somewhat fragmented in its overall

capacity. With several smaller operations in key activities a concerted effort to promote collaboration

between operators will be required to meet “High” levels of development

• The development of shale gas in New Brunswick presents strong economic benefits in a variety of

services, many of which compliment activities the province is already engaged in today


Appendix Workforce Shale Gas



Shale Gas Workforce – Summary

One Well

Workforce PHASE OCCUPATIONS MANHOURS FTE

Identify Gas

Resource

• 45 Total Roles

• 9360 • 4.5 - 15 High Skilled Resources

- 30 Medium Skilled Resources

Site Planning &

Preparation

• 20 Total Roles

• 1104 • .5 - 5 High Skilled Resources


Drilling, Casing

and Cement

• 40 Total Roles


- 31Medium Skilled Resources

Completion &

Stimulation

• 75 Total Roles



Commercial

Recovery

• 10 Total Roles

• 3467 • 1.7 - 1 High Skilled Resource


End of Life

• 16 Total Roles

• 448 • .02 - 1 High Skilled Resource


Total 206 Total Roles 44043 Man-hours 21.2 FTE



Shale Gas Workforce – Identify Gas Resource

Identify Gas

Resource

Geology

• Conduct field surface reviews • 2 high skilled resources • 6 – 8 weeks

• Interpretation and mapping • 2 high skilled resources • 6 – 8 weeks

• Well-site Geologist • 1 high skilled resource • Duration of Well

Development

• Laboratory Services • 2 high skilled resources • 8 – 12 weeks

Geochemistry

• Conduct field sampling 2 high skilled resources • 6 – 8 weeks

• Laboratory Services • 2 high skilled resources • 8 – 12 weeks

Geophysics

• Field data acquisition

• 1 high skilled resource

• 30 medium skilled

• 5 vibroseis trucks

• 3 – 4 weeks

• Computer data processing • 1 high skilled resource • 2 weeks

• Interpretation and mapping • 2 high skilled resources • 3 – 4 weeks



Shale Gas Workforce – Site Planning and Preparation

Site

Planning

and

Preparation

Surface Lease • Surface lease negotiations • 2 high skilled resources • 3 – 4 weeks

Environmental

Survey • Conduct field assessment 1 high skilled resource • 3 – 4 weeks

Civil Work • Licensing and permitting • 3 medium skilled

resources • 2 days

Emergency

Response • Emergency response planning • 1 high skilled resource • 3 – 4 weeks

Construction

• Site survey • 1 high skilled resource • 3 – 4 weeks

• Heavy equipment • 4 medium skilled

resources • 3 – 4 days

• Trucking • 8 medium skilled




Shale Gas Workforce – Drilling, Casing and Cement

Drilling,

Casing and

Cement

Drilling

Operations • Drilling consultant • 1 high skilled resource

• Duration of

drilling activity

Mud Work • Mud logging • 1 high skilled resource • Duration of

drilling activity

Rig Mobilization • Rig movement activity • 15 medium skilled

resources • 2 days

Install Work • Install blow out preventer • 2 medium skilled

resources • .5 days

Drill Vertical

• Drilling rig day work • 5 medium skilled

resources

• Duration of

drilling

• Cementation (Surface) • 1 high skilled resource

• 3 medium skilled • 1 days

Drill Lateral

• Drilling rig day work • 5 medium skilled

resources

• Duration of

drilling activity

• Directional drilling • 4 high skilled resources • Duration of

drilling activity

• Cementation (Intermediate &

Production



• 1 day each

section

Transportation • Vacuum truck • 1 medium skilled

resource • 1 week

Equipment

Rental • Onsite field equipment


resource • 1 week



Shale Gas Workforce – Completion and Stimulation

Completion

and

Stimulation

Stimulation • Hydraulic stimulation operations

(plug and perforation)

• 3 high skilled resources

• 22 medium skilled • 2 weeks

Coil tubing • Tubing installation • 1 high skilled resource

• 4 medium skilled • 1 week

General

Transportation

• Vacuum trucking • 1 medium skilled

resource • 2 weeks

• Water trucking

• 43 Trucks and drivers

per day for completion

• 18 trucks and drivers for

produced water hauling

(disposal activity)

• Duration of

completion &

stimulation

activity

• Mobilization Equipment Rental • 1 medium skilled

resource • 2 weeks



Shale Gas Workforce – Commercial Recovery

Commercial

Recovery Production

• Field operations



resources

• Life of gas

filed

• Maintenance • 4 medium skilled

resources

• Life of gas

field

• Environmental monitoring • 2 medium skilled

resources

• Life of gas

field



Shale Gas Workforce – End of Life

End of Life

Abandonment

• Plugging work • 2 medium skilled


• Cementation • 2 medium skilled


Reclamation • Heavy equipment operation • 4 medium skilled


Trucking • General trucking services • 8 medium skilled


Environmental

Services • Environmental assessment



resources

• 1 – 2 days

• Ongoing

Monitoring



Shale Gas Workforce: NAICS

2006 Statistics Canada Census Data - Age

Geography: New Brunswick

NAICS (North American Industry Classification System : 211 Oil and Gas Extraction


Selected Workforce - Age Total Male Female

Total labour force 855 540 315

15-24 90 85 10

25-34 350 185 160

35-44 205 135 65

45-54 140 65 70

55-64 76 60 10


Shale Gas Workforce: NAICS

2006 Statistics Canada Census Data - Education

Geography: New Brunswick

NAICS (North American Industry Classification System : 211 Oil and Gas Extraction


Selected Workforce -

Education

Total Male Female

Total labour force 855 540 315

No Certificate, Diploma, Degree 45 30 15

Certificate, Diploma, Degree 810 510 295

High School 110 70 40

Trade, Apprentice 150 120 30

College certificate/diploma 335 230 105

University certificate 45 35 10

University degree 175 65 110


Path to Participation & Competition



Path to Participation: Business Factors

In addition to sectors which present the most appealing opportunities, equally important is

understanding how organizations select their suppliers. These factors fall into three

categories:

1. Business Factors

• Long standing and trusted relationships

• Industry Certifications – API Standards

− API standards that are referenced in regulations: http://www.api.org/~/link.aspx?_id=5F4BD0184F104DE295858DBED0CB21C9&_z=z

− API Monogram and Certification Programs http://www.api.org/certification-programs/api-monogram-program-and-apiqr

− API specifications http://www.api.org/certification-programs/api-monogram-program-and-apiqr/licensing-information-forms

− API Monogram Licensees and Certified Companies http://compositelist.api.org/default.aspx

− The Annual Standards Plan information http://www.api.org/publications-standards-and-statistics/annual-standards-plan

• Business Practices

- Health, Safety and Environmental Policies

o Documentation and demonstrated processes

- Capacity to delivery

o Financial solvency

• Direct experience

• Cost competitiveness


http://www.api.org/~/link.aspx?_id=5F4BD0184F104DE295858DBED0CB21C9&_z=z

http://www.api.org/certification-programs/api-monogram-program-and-apiqr











http://www.api.org/certification-programs/api-monogram-program-and-apiqr/licensing-information-forms
















http://compositelist.api.org/default.aspx

http://compositelist.api.org/default.aspx

http://www.api.org/publications-standards-and-statistics/annual-standards-plan













Path to Participation: Vertical Integration

2. Supplier Sourcing Methodology: Companies Process may be:

• Activities directly leveraging either long-term relationships or utilizing readily available local services and resources

• Contract out all or parts of its activities to integrated third party service providers. Company’s such as Halliburton and

Baker Hughes. Third party service providers are often capable of conducting services in all phases of the life cycle

• Conduct all activities through owned subsidiaries. Although few examples exist, several organizations are well

integrated from exploration to extraction

• Significant vertical integration investment with the

Chesapeake Oilfield Services subsidiary providing:

- Drilling rigs

- Stimulation services

- Pressure pumping services

- Compressor manufacturing and services

- Rental tools

- Heavy haul transportation

Chesapeake

• Use of vertical integration for select categories with

subsidiary companies providing:

- Drilling rigs (DeSoto Driling)

- Frac sand (DeSoto Sand)

• Internal resources primarily services the Fayetteville play

• Open to considering additional vertical integration

opportunities based on TCO

Southwestern

• Target 30-60% of cost structure from internal services

including:

- Drilling rigs

- Stimulation services

- Coil tubing

- Rental tools

- Transportation

• Utilize internal services across four plays

Pioneer Natural Resources

• Vertical integration investment through the in-house

provision and ownership of :

- Sand mines

- Sand storage and loading facilities

- Hydrocarbon Transport

• Future transportation flexibility via the use of company-

owned rail facilities

EOG



Path to Participation: Sourcing Opportunities

3. Outreach and sourcing opportunities:

Companies should reach out through known channels for identifying suppliers as well as identifying

possible partners:

• Utilize online resources or vendor sourcing regimes:

− “ISNetworld” is an example of a web based resource gear toward connecting service providers and corporate customers. Although a

similar clearinghouse does not exist in Canada understanding how to identify your organization is critical http://www.isnetworld.com/

• Identify potential strategic partnerships

− If direct experience is lacking or not easily transferable, a strategic partnerships with an experienced partner might prove a winning

recipe

− Contact Petroleum Services Association of Canada to identify experienced providers within the area of expertise http://www.psac.ca/


http://www.isnetworld.com/



http://www.psac.ca/

http://www.psac.ca/

http://www.psac.ca/


Competition: Key Players

Tight/Shale Gas Oil Sands/Shale

Pressure Pumping Services Directional Drilling Services

The North American oil and gas supply chain is as advanced and as competitive

as any found in industry today.



Competition: Information Sources

• To compete in the delivery of any service organizations will need to be savvy in earning

the business

• Organizations such as Petroleum Services Association of Canada have members who

provide over 1900 specific services http://www.psac.ca/

• A directory of all organizations and the services they provide are located on the PSAC site

https://members.psac.ca/Source/Members/psacDirectorySearch.cfm


http://www.psac.ca/

http://www.psac.ca/




Appendix Industry Survey



Industry Survey: Overview of Findings

• Over 900 company names were assembled by Deloitte representing a cross section of industries and

services relevant to shale gas – Deloitte gathered contact information for roughly half of these firms through a variety of methods

– A small subset of contacted firms were unable to participate given the survey was issued online, in English only

Business Attitudes

What companies think about

the development of shale gas

and its potential for their

business

Business Preparation

The amount of planning which

has taken place thus far in

preparation for shale gas

development

Overall Readiness of NB

What services are currently

provided in New Brunswick

and at what level of capacity

and capability

• An industry survey was undertaken to better determine

*Confidence Level – The amount of uncertainty that will be tolerated or the confidence with which the results will be reported

**Margin of Error– The amount of error that is expected in the respective results

Summary Statistics

Invitations sent 475

Completed Surveys 76

Response Rate 16%

Survey Validity

Confidence Interval* 95%

Margin of Error** ~11%

• As a result of the low response rate relative to the population, survey validity is only acceptable for

questions that garnered a response of the entire sample size

– Results at a more granular level (by service/industry) will have a high margin of error, thus poor reliability, given low

response rates and were not examined in detail given responses will not be representative of the population



Appendix: Regulatory Review



Regulatory Review : Overview

• A critical aspect of determining the implications for shale gas development in New

Brunswick was a detailed effort to determine how the regulatory framework might impact

(if at all) the supply chain or services required

• The jurisdictions compared in the evaluation are:

- Alberta

- British Columbia

- Arkansas

- Colorado

• An important consideration for the regulations in New Brunswick is that, in large part, the

regulations have not yet been put into practice. As such, there is little information available

on how the regulations are being applied and industries experience with them.



Regulatory Review: Areas of Difference

Pre -

Drilling

• Well pad design to be submitted and approved by the regulator

• Emergency plans/response

• Traffic restrictions

• Visual restrictions

• Liability Insurance

• Notification and consultation

Drilling

• Pre-fracturing assessment for potential inter-wellbore communication (Alberta’s draft rules would also require this)

• Special requirements for emergency containment of fracture fluid in the case of a spill

• Special requirements for security of chemicals

• Testing of drinking water well quality

• Monitoring of surface water quality

• Water use plan to be submitted and approved by the regulator; and

• Assessment of potential for induced seismic events prior to fracturing.

• Setbacks Requirements

• Misfire Protocol

• Surface Gas Vent Flow/Gas Mitigation Testing

• Fracturing Treatment Plan

• Well Completion Report

• Fracturing Monitoring Requirements (stop parameters)

• Post Fracturing Reporting

• Closed Loop fluid system

• Waste management plan

• Spill reporting and response plan

• Air emissions

Production • Site restoration and remediation

Areas which are unique to New Brunswick Areas which are more stringent than other jurisdictions



Summary

• The regulatory framework developed in New Brunswick can be best categorized as more stringent and more demanding than all other markets examined

• New Brunswick’s rules are broadly similar to those of Alberta, both of which are generally more stringent than those jurisdictions compared

• Alberta is in the process of broadening its rules around hydraulic stimulation:

– Alberta’s stimulation fluid disclosure rules are new as of Dec. 31, 2012

– More rules on hydro‐stimulation are pending in Alberta; an 11‐page draft directive was issued on

Supply Chain Implications

Three areas stand out as having some impact on the shale gas supply chain:

Reporting

• New Brunswick reporting and regulatory framework contemplates significantly more reporting throughout all phases of development than other jurisdictions. As such the cost of professional services will be higher than other jurisdictions

• Estimate – Cost estimated to be between $100k and $200k per well

• Service Implicated: Professional services, engineering, environment engineering and testing and laboratory services

Infrastructure

• A required closed loop fluid system is part of the New Brunswick regulatory framework. Although closed loop systems are operating in other jurisdictions, we were not able to identify a regulatory requirement in the jurisdictions evaluated.

• Estimate – incremental cost estimated to be $250k-$350k per well

• Service Implication: Advanced fabrication, industrial construction, cementing and equipment mobilization services

Road Repair

• New Brunswick regulations contemplate that the developers of gas resources will be responsible for the repair of locally impacted road

• Estimate – Cost estimate is not able to be determined. The requirements are not yet in practice nor completely clear on the range of implications

• Services Implication: Road construction, Paving

Regulatory Review: Supply Chain Implications


Future NB Economic Impact Study of Shale Gas Supply Chain … · 2014-09-03 · 2U.S. data are from...

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