The Horn River Basin Producers Group

(HRBPG)An Unconventional Approach Applied to an Unconventional

Reservoir

CAPL Topical Issues Luncheon April 30, 2009

Robert Spitzer

Chair HRBPG

VP Exploration Apache Canada Ltd.

Agenda

• Shale Gas “101”

• The Horn River Basin

• The Producers Group

• Formation

• Mandate

• Members

• Structure

• Defining Success

• Accomplishments

• Summary

Why the focus on unconventional? – it is what basins have left to offer on a large scale

Shales to dominate L-48 production growth

Unconventional the way of the future in Canada

1. XTO 1,561 1,213 28.7%2. Chesapeake 1,851 1,454 27.3%3. EOG Resources 997 837 19.1%4. Williams Companies 926 780 18.7%5. EnCana 1,387 1,197 15.9%6. Devon Energy Corp. 1,783 1,624 9.8%7. El Paso 660 617 7.0%8. Apache Corp. 764 719 6.2%9. Occidental 604 597 1.2%10. Anadarko Petroleum 1,637 1,693 -3.3%

CompanyMMcfd Percent

ChangeQ3 2007 Q3 2006

Unconventional resources driving supply growth

Large growth companies have exposure to resourcePlays

Source: Williams/ Deutsche Bank Conference 2008

10X Mag 10X Mag10X Mag 100X Mag

20 um

Shale Gas ‘101’Conventional Reservoir Unconventional Reservoir

< Grain Size< Permeability< Porosity Stimulation Free + Adsorbed Gas

Gas Development

Conventional Reservoir

Shale GasReservoir

Wells

Plan View

North American Shale Basins

• Potential for shale gas plays became apparent from Barnett in Texas

• Currently many shales being evaluated throughout US and Canada

• Horn River Basin is one of these

• Thickness, richness and aerial extent of shale makes this a sizeable prize, 100’s of TCF’s

• Distance from market is a significant disadvantage

Horn River Horn River BasinBasin

Horn River Shale Gas Play

Klua/Evie Shale

Muskwa/Otter Park Shale

Depth: 8500 ft tvd

13000 ft md

Keg River

Slave Point

150 ft

320 ft

• Shale is up to 600 ft thick

• Depths range from 8,000 to 10,000 ft

• Horizontal wells and multiple frac technology required to extract gas

Regional Distribution of Resource

•94-O •94-P

•ZAMA

•CORDOVA• EMBAYMENT

•PRESQU’LLE BARRIER REEFCOMPLEX

•KLU

A ED

GE

•BC

•NWT

•ALTA

•Area of Interest•3000 sq mi

•20 mi

• Shale is present over a large area

• Best part is in the Horn River Basin

• Prospective area is ≈3,000 sq mi

A New Approach

• Recognition very early that there was an opportunity to do business differently in this area in part because

Relatively unexplored

Land was at least 50% held

It makes sense to work together right from the start on a project with this potential magnitude!

• Approach to companies well received

The Shale Gas Producers Group

• The group was formed November 2007 and has involvement of the BC Government (MEMPR, OGC), the First Nations and major industry players:

Apache Nexen ConocoPhillips

Encana EOG Pengrowth Devon Quicksilver PetroCanada Exxon Mobil/ Imperial Stone Mountain

• The purpose of the group is to facilitate cooperation and communication between companies, First Nations, government and other key stakeholders

• This group is evolving and still has some “major work to do”

HRBPG Structure HRBPG Structure

Chair

Operations Subcommittee

Regulatory Subcommittee

Environmental Subcommittee

11 Steering Committee Members

(1 from each member company)

Communications Subcommittee

Values of Group

The group will conduct our business with:

• Honesty

• Integrity

• Respect for others

• Open communication

• Responsible development

What Does Success Look Like?

…success of this project means that the main concerns for each major group ie. the community of Fort Nelson, the government (people of British Columbia), the First Nations and industry are understood and addressed while responsibly developing the asset…

The Road to a Successful Outcome…T

IME

TIME

“People” Factors

Identify Stakeholders

Identify StakeholderConcerns

Establish Process/ Values and Develop Solutions to Concerns

Voice in Ongoing Development

RESPONSIBLE D

EVELOPMENT –

INTEGRATIO

N OF P

EOPLE / ECONOMIC

FACTORS

Com

mun

icat

ion

Communication

SUCCESS FOR ALL

“Technical / Economic”

Factors

Idea Evaluation Phase DevelopmentPhase

Technical/ Economic Evolution

Concept

Number

Vertical well

refracs

5

10

15

(4)

Vertical drills fracs

(14)

Hz wells ≤ 3 fracs

(6)

* NB: 11 wells licensed but not drilled

Hz wells * > 3 fracs

(11)

…very few wells in a large area…

Pad drilling

Economic viability

? + $

Two Island Lake: 2009 Pad Activity

7

13 119

6

14

15

APAOperated

EnCanaOperated

ECA Op. wells drilledAPA Op. Muskwa wellsAPA Op. Klua wellsECA Op. Muskwa wellsRoad AccessAPA/ECA Lands

Addressing Stakeholder and First Nations Concerns

• Local Employment/Developing Capacity• Principles

• Actions

• Environment• Area operating protocals (AOP’s)

• Water sourcing options partnering with government for innovative solutions

• Low impact seismic: Slim Bin

• Development Planning

• Communications

HRBPG Employment and Capacity Building Guiding Principles

• We are willing to employ local businesses and individuals as all our member companies do in their respective operating areas. Specifically this means:

a) necessary safety requirements are met,

b) necessary qualifications in the required skill set exist,

c) costs are competitive for similar work.

d) required personnel with the necessary skill set are available at the required time.

e) companies will be courteous and provide reason(s) for applicants not achieving employment for a specific

job in that circumstance.• We are willing to contribute to building capacity for local businesses

and individuals in partnership with local and provincial governments, First Nations, (Fort Nelson and Fort Liard) and the community of Ft. Nelson.

•  We commit to communicating progress of the HRB shale gas project in a mutually agreeable manner.

Employment/Capacity Building: Actions to date

Employment

• Developing a “report card” showing local/non local hiring. Initiated by HRBPG led by BC government including Town of Fort Nelson

• Procurement office in Fort Nelson funded in large part by HRBPG

• Energy Expo in Fort Nelson with all producers and 35 service providers!

Capacity Building

• HRBPG funding 100% of Operator training program run by Northern Lights College in Fort Nelson.

• Developed Area Operating Protocols, a suite of best management practices designed to minimize environmental impacts.

– ‘AOPs’ have been sent to OGC and First Nations for review

• Assembled, with government, an inventory of the environmental data collected to date. This will be used to identify gaps for future study efforts.

• Working in collaboration with Geoscience B.C. to identify sustainable sources of water in the Horn River Basin.– Priority has been given to the identification, mapping and testing of non-

potable subsurface sources.

– To date over $9.5 MM has been committed by both Geoscience B.C. and the HRPG

EnvironmentEnvironment

Slim Bin Seismic

Development Plan

• Given the operations work completed since September 4, 2008, industry is now in a position to begin development planning scenarios to government, stakeholders and First Nations

• Three scenarios are being developed to reflect the life of the project (which spans decades) at different gas prices

• Scenarios will include many assumptions and will therefore be constantly adjusted; however, they will provide an idea of what full-scale development may look like

• Anticipated completion:

– initial draft for August 1

– final draft October 31

Communications

• Symposium: September 2008• Energy Expo @ May 2009 Chalo School November 2008• Chamber of Commerce February 2009• Meeting with Fort Nelson First Nations @ Chalo School

including OGC, MEMPR and HRBPG• Monthly HRBPG meetings with participation of First Nations

Town of Fort Nelson, OGC and MEMPR• HRBPG Communications subcommittee publications

• FAQ• Newsletter• Success Stories

Summary

• Unique approach adopted early to better “manage” a large unconventional opportunity

• Significant “cultural diversity” amongst 11 producers has been a positive influence – “egos parked outside the door”

• Praise is in order not only for individual producers for positive developments, however equally our stakeholders (OGC, MEMPR, Town of Fort Nelson) and First Nations for their significant efforts!

• Much has been accomplished – much more to be done . . . .