NE BC Montney Resource Evaluation
The following discussion is subject to a number of cautionary statements, assumptions and risks as set forth therein. See "Information Regarding Disclosure on Oil and Gas Reserves, Resources and Operational Information" on the "Advisories" page of this website for additional cautionary language, explanations and discussion, and see "Forward-looking Information and Statements" for a statement of principal assumptions and risks that may apply. See also "Definitions of Oil and Gas Resources and Reserves" below. The discussion includes reference to TPIIP, DPIIP and ECR as per the Resource Evaluation as at December 31, 2016, prepared in accordance with NI 51-101 and current COGE Handbook guidelines. Unless otherwise indicated on this website, all references to ECR and prospective volumes are Best Estimate ECR and Best Estimate prospective volumes, respectively. All information referenced in the Resource Evaluation is prior to the pending disposition of Crew’s Goose area, expected to close in the second quarter of 2017.
The Montney formation in NE BC has been identified as a world-class unconventional resource play with the potential for significant volumes of recoverable resources. The area includes dry gas, liquids-rich gas and light oil development opportunities, with Crew having access to all three hydrocarbon windows. It is one of the largest and lowest cost liquids-rich natural gas resource plays in North America and Crew’s land base comprises 300,000 net acres, ideally situated in some of the most prospective parts of the play, with good access to infrastructure and multiple egress options.
Sproule was engaged to conduct an updated independent Montney resource evaluation of Crew’s principal lands in the NE BC Montney region including Septimus, West Septimus, Groundbirch/Monias, Attachie, Tower and other minor NE BC Montney lands (the “Evaluated Areas”) effective as of December 31, 2016, and based on Sproule’s forecast price deck as at December 31, 2016 (the “Resource Evaluation”). The Resource Evaluation highlights the development potential on the Company’s undeveloped land base providing Crew with significant opportunities to progress conversion of Resource to ECR and ultimately to increased reserve bookings over time. Further, the diversity of Crew’s NE BC Montney assets with exposure to liquids-rich gas, crude oil and dry natural gas allows us to effectively navigate through commodity price cycles.
TPIIP for the natural gas-bearing lands in the Evaluated Areas remains unchanged relative to year end 2015 at 64.3 Tcf. Natural gas ECR was evaluated on an unrisked and risked basis in the Resource Evaluation and was subdivided into the Maturity Subclasses of ‘development pending’ and ‘development on hold’. The risked ‘development pending’ natural gas ECR totaled 7.3 Tcf and the risked ‘development on hold’ ECR totaled 0.43 Tcf, which includes 104 bcf of ‘development pending’ natural gas and 26 bcf of ‘development on hold’ natural gas on Crew’s oil-bearing lands.
The ECR of our ngl was also evaluated on an unrisked and risked basis in the Resource Evaluation and was subdivided into the Maturity Subclasses of ‘development pending’ and ‘development on hold’. The risked ‘development pending’ ngl ECR totaled 211 MMbbl and risked ‘development on hold’ ngl ECR totaled 16 MMbbl which includes 3 mmbbls of ‘development pending’ ngl and 1 mmbbls of ‘development on hold’ ngl on Crew’s oil-bearing lands.
On the oil-bearing Montney lands, TPIIP increased 1% to 7,979 MMbbl and DPIIP increased 2% to 1,647 MMbbl. Oil ECR was evaluated on an unrisked and risked basis in the Resource Evaluation and was subdivided into the Maturity Subclasses of ‘development pending’ and ‘development on hold’. The risked ‘development pending’ oil ECR totaled 17 MMbbl and risked ‘development on hold’ oil ECR totaled 4 MMbbl.
Risking of the contingent resources included a quantitative assessment of the contingencies applicable to the project including evaluation drilling, corporate commitment and timing of production and development. Risking of the prospective resources included a quantitative assessment of these same factors, as well as a quantitative assessment of the chance of discovery.
The following tables summarize the results of the Resource Evaluation along with comparatives to the December 31, 2015 evaluation using the resource categories set out in the COGE Handbook on a “best estimate” case.
|Conventional Natural Gas
|Total Petroleum Initially In Place (TPIIP)||64.3||64.3||0%|
|Discovered Petroleum Initially In Place (DPIIP)||35.2||35.2||0%|
|Undiscovered Petroleum Initially In Place (UPIIP)||29.1||29.1||0%|
(1) TPIIP, DPIIP and UPIIP have been estimated using a one percent porosity cut-off in the Resource Evaluation, which means that essentially all gas bearing rock has been incorporated into the calculations.
|Light & Medium Crude Oil
|Total Petroleum Initially In Place (TPIIP)||7,979||7,895||1%|
|Discovered Petroleum Initially In Place (DPIIP)||1,647||1,613||2%|
|Undiscovered Petroleum Initially In Place (UPIIP)||6,332||6,282||1%|
(1) TPIIP, DPIIP and UPIIP have been estimated using a one percent porosity cut-off in the Resource Evaluation, which means that essentially all oil bearing rock has been incorporated into the calculations.
|2016 Reserves and Risked & Unrisked ECR(1)(2)(3)(6)(7)(8)||Chance of Development||Best
|Best Estimate Risked|
|Conventional Natural Gas (Bcf)|
|Development Pending ECR||87%||8,388||7,298|
|Development on Hold ECR||85%||500||425|
|Natural gas liquids (Mmbbls)(4)(5)|
|Development Pending ECR||88%||240||211|
|Development on Hold ECR||84%||19||16|
|Light & Medium Crude Oil (Mmbbls)|
|Development Pending ECR||89%||19||17|
|Development on Hold ECR||80%||5||4|
(1) All DPIIP other than cumulative production, reserves, and ECR has been categorized as unrecoverable at this time. A portion of the Unrecoverable DPIIP may in the future be determined to be recoverable and reclassified as contingent resources or reserves as additional technical studies are performed, commercial circumstances change or technological developments occur; the remaining portion may never be recovered due to the physical/chemical constraints represented by subsurface interaction of fluids and reservoir rocks.
An estimate of risked Net Present Value (“NPV”) of future net revenue of the development pending contingent resources subclass only is preliminary in nature and is provided to assist the reader in reaching an opinion on the merit and likelihood of Crew proceeding with the required investment. It includes contingent resources that are considered too uncertain with respect to chance of development and cannot be classified as reserves until the contingencies are lifted. There is uncertainty that the risked NPV of future net revenue will be realized. The other subclasses of resources are not included in this NPV and therefore this is not reflective of the value of the resource base.
|Before-Tax NPV(1) 2016 Risked ECR Development Pending(2)||($ millions)|
|Discounted at 5%||6,447|
|Discounted at 10%||1,997|
|Discounted at 15%||693|
|Discounted at 20%||217|
(1) Based on the Resource Evaluation and Sproule’s forecast pricing at December 31, 2016 which is set forth in Crew’s press release dated February 9, 2017.
The estimated cost to fully develop and bring on commercial production of the ‘development pending’ contingent resources for all three product types is approximately $11.2 billion (or approximately $3.0 billion discounted at 10%). The forecasted timeline to bring these resources onto production is between two and 17 years utilizing the same technology in horizontal drilling and multi-stage fracturing that Crew has already proven to be effective in the Montney formation in NE BC.
|Prospective Resources (1)(2)(3)(4)(5)(6)(7)||Chance of Commerciality||Best Estimate Unrisked||Best Estimate Risked|
|Conventional Natural gas (Tcf)||66%||10,311||6,774|
|Natural gas liquids (Mmbbl)||66%||327||215|
|Light & Medium Crude Oil (Mmbbl)||66%||149||98|
(1) All UPIIP other than prospective resources has been categorized as unrecoverable at this time.
Resource volumes are estimated using volumetric calculations of the in-place quantities, combined with performance from analog reservoirs. The currently producing assets of Crew and other industry parties in the Montney area of NE BC are used as performance analogs for ECR within Crew's areas of operations. The evaluation of ECR is based on an independent third party evaluation that assumes all of Crew's ECR will be recovered using horizontal multi-stage hydraulic fracturing and multi-well pad drilling, which are established technologies.
Based upon the foregoing analysis and resource information, coupled with Crew’s expertise in the NE BC Montney, we anticipate that significant additional reserves will be developed in the future as we achieve continued drilling success on that portion of our Montney acreage which is currently undeveloped. Key positive factors considered in the Resource Evaluation estimates which support Crew’s view that significant additional resources will be recovered include completions enhancements; improved economic conditions; historic drilling success and recoveries on the more fully-developed Montney acreage; abundant well log and production test data; the presence of analogue wells in the area; improving average initial productivity trends; and the application of increased drilling densities. Continuous development through multi-year exploration and development programs and significant levels of future capital expenditures are required in order for additional resources to be recovered in the future.
Our ability to recover additional resources is subject to numerous risks and the key negative factors include minimal well data from the Montney formation in certain intervals; a lack of long-term production history in the Montney; potential for variations in the quality of the Montney formation where minimal well data currently exists; access to capital that would enable us to continue development; low commodity prices which could impact economics; the future performance of wells; regulatory approvals or surface restrictions; lack of infrastructure in certain areas; access to required services at the appropriate cost; overall industry cost structures; and the continued efficacy of fracture stimulation technologies and application. In order for ECR to be converted into reserves, Crew’s management and technical teams must continue to assess commercial production rates, devise firm development plans that incorporate timing, infrastructure and capital commitments. Confirmation of commercial productivity is generally required before the Company can prepare firm development plans and commit required capital for the development of the ECR. With continued development and delineation, some resources currently classified as ECR are expected to be reclassified as Reserves.
A key contingency that prevents the classification of ECR as Reserves is the additional drilling, completions and testing required to confirm viable commercial rates. Sproule assigned ECR beyond those areas which were assigned Reserves but which were within three miles of existing wells, or production tests. Further, a lack of infrastructure in the Evaluated Areas which is required to develop the resources, such as gas gathering, processing and natural gas liquids separation facilities, further impedes the reclassification of ECR to Reserves. In addition to these factors, and the general operational risks facing the oil and gas industry, there are several technical and non-technical contingencies that need to be overcome in order to reclassify ECR to Reserves. These include evaluation drilling, corporate commitment and timing of production and development of the ECR.
There is no certainty that any portion of the prospective resources will be discovered. There is uncertainty that it will be commercially viable to produce any portion of the prospective (if discovered) or contingent resources.
Definitions of Oil and Gas Resources and Reserves
Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on the analysis of drilling, geological, geophysical and engineering data; the use of established technology; and specified economic conditions, which are generally accepted as being reasonable. Reserves are classified according to the degree of certainty associated with the estimates as follows:
- Proved Reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
- Probable Reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
Cumulative Production is the cumulative quantity of petroleum that has been recovered at a given date.
Resources encompasses all petroleum quantities that originally existed on or within the earth's crust in naturally occurring accumulations, including Discovered and Undiscovered (recoverable and unrecoverable) plus quantities already produced. "Total resources" is equivalent to "Total Petroleum Initially-In-Place". Resources are classified in the following categories:
Total Petroleum Initially-In-Place ("TPIIP") is that quantity of petroleum that is estimated to exist originally in naturally occurring accumulations. It includes that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations, prior to production, plus those estimated quantities in accumulations yet to be discovered.
Discovered Petroleum Initially-In-Place ("DPIIP") is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially in place includes production, reserves, and contingent resources; the remainder is unrecoverable.
Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development but which are not currently considered to be commercially recoverable due to one or more contingencies.
Economic Contingent Resources ("ECR") are those contingent resources which are currently economically recoverable.
Project Maturity Subclass Development Pending is defined as a contingent resource that has been assigned a high chance of development and the resolution of final conditions for development are being actively pursued
Project Maturity Subclass Development On Hold is defined as a contingent resource that has been assigned a reasonable chance of development, but there are major non‐technical contingencies to be resolved that are usually beyond the control of the operator.
Project Maturity Subclass Development Unclarified is defined as a contingent resource that requires further appraisal to clarify the potential for development and has been assigned a lower chance of development until contingencies can be clearly defined.
Project Maturity Subclass Development not Viable is defined as a contingent resource where no further data acquisition or evaluation is currently planned and hence there is a low chance of development.
Undiscovered Petroleum Initially-In-Place ("UPIIP") is that quantity of petroleum that is estimated, on a given date, to be contained in accumulations yet to be discovered. The recoverable portion of undiscovered petroleum initially in place is referred to as "prospective resources" and the remainder as "unrecoverable."
Prospective Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development.
Unrecoverable is that portion of DPIIP and UPIIP quantities which is estimated, as of a given date, not to be recoverable by future development projects. A portion of these quantities may become recoverable in the future as commercial circumstances change or technological developments occur; the remaining portion may never be recovered due to the physical/chemical constraints represented by subsurface interaction of fluids and reservoir rocks.
Uncertainty Ranges are described by the Canadian Oil and Gas Evaluation Handbook as low, best, and high estimates for reserves and resources. The Best Estimate is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.