--> Abstract: Security of Supply: Operational Margins at the Wellhead and Natural Gas Reserve Maturation, by Ruud Weijermars; #90124 (2011)

Datapages, Inc.Print this page

AAPG ANNUAL CONFERENCE AND EXHIBITION
Making the Next Giant Leap in Geosciences
April 10-13, 2011, Houston, Texas, USA

Security of Supply: Operational Margins at the Wellhead and Natural Gas Reserve Maturation

Ruud Weijermars1

(1) Delft University of Technology, Delft, Netherlands.

The early success in the development of unconventional natural gas plays pioneered in the US and Canada has many eager followers worldwide keen to enhance their natural gas resource base. Security of reserves is a cornerstone of every national energy policy. Essentially, the maturation of unconventional prospective resources into economic proved reserves is a task that must be executed by oil and gas companies. This study first reviews the critical steps and key issues that must be addressed when companies enter into emergent unconventional gas plays. The exploration process is no gamble, but a cost-conscious program with many decision stages aimed at identifying resources that may generate a profit when reserves are eventually developed. The resource inventory is classified according to strict rules mandated by the SEC and supported by SPE and UN resource classification schedules. Reserves inventory is a key asset of oil and gas companies and affects their balance sheets. Progressive investment in data acquisition and subsequent professional appraisal and modeling leads to reserve maturation. Changes in reserve inventory may positively affect the credit ratings of oil and gas companies, but any downgrading of reserves could increase their cost of capital. The risk of fluctuation in the asset inventory made up by gas reserves is much higher for unconventional operators than for conventional gas operators. The underlying causes: geological factors, technology issues, environmental concerns and economic constraints are analyzed, categorized and benchmarked in a sensitivity analysis. The model accounts for regional volatility in wellhead and wholesale prices and uses cost-effective well productivity data from three decades of accelerated US & Canadian unconventional gas development. For investors, it is crucial to understand sensitivities in the reserve maturation process, to better judge the risk involved in the unconventional gas sector. For operators, it is essential for rapidly building positive free cash flow in a highly competitive market. For governments, accelerated reserve growth with a low volatility is important for security of supply. Recommendations are formulated for optimum resource development, with a focus on seizing opportunities while mitigating the risks associated with uncertainty in the development of unconventional natural gas reserves.