JCPT Tech Briefs

Upstream Representations for the LNG Supply Chain

G
as trapped in low-permeability
tight shales has become acces-
sible with advances in horizontal
drilling and new completion tech-
niques, making liquefied natural gas (LNG)
an economically feasible product marketed
worldwide. This paper explores the intrica-
cies involved in modelling upstream field
development and the scenarios required
to provide reasonable estimates of the up-
stream asset that will feed the rest of the LNG
chain, including investment required, growth
potential, and long-term sustainability.

Introduction

Oil and gas companies in North America,

Australia, and Europe are leveraging new
technologies in drilling, completion, and liq-
uefaction to unlock their countrys abundant
natural-gas reserves and resources. While
the price of gas remains low in North Ameri- Fig. 1Upstream development map.
can markets, the world market for natural
gas continues to grow. maintain these fields, exploration-and- ly planned portfolio, when measuring value
As industry becomes increasingly in- production companies must represent their over time.
volved in new opportunities like these, many technical understanding of the fields effec-
significant projects are being contemplated. tively in models, which allow them to eas- Simplified Modelling for Increased
Such proposals in Canada include three in ilysimlatedifferent approaches to their over- Planning Agility
Kitimat, British Columbia, two inPrince Ru- all development.
pert, British Columbia, and another located A well-planned portfolio requires both time
more than 6700 km across the country Effective Decision Making and detail to develop. There are potentially
inGuysborough County, NovaScotia. an infinite number of details that could be
Each of these projects requires invest- Investment decisions made early in the port- factored into developing realistic field-devel-
ment in the overall supply chain, which in- folio selection process can have a big impact opment models, which are included in the
corporates the field development to the on results over the long term. Once execu- complete paper.
transportation, liquefaction, and shipping tion of a plan has started, it can be extremely Given unlimited time and resources, one
of the product. In order to attract investors, difficult to implement major course correc- could develop detailed models, comparing
companies need to effectively model these tions without incurring cost and delays. More an unlimited number of planning scenarios.
large-scale projects and define clear strate- portfolio value can be gained by starting out However, engineers and planners have limits
gies for execution. with the right strategy in the upfront planning on their available time and resources. As a
One of the most-intricate and -complex stage because the ability to alter the value result, they must take a realistic approach to
aspects of developing these models is the of a portfolio significantly during execution is planning by deciding which of these details
upstream field-development plan, which restricted. Once the execution begins on a are most important to include in their models.
will determine effectively the supply for all selected portfoliodespite efforts to make Some details are more important than
components of the downstream supply improvements during executioneven the others. Depending on the nature of the field
chain. To provide a reasonable estimate poor execution of a good portfolio still out- development, certain elements may have
for the investment required to develop and performs the successful execution of a poor- a significant impact on the outcome of the
scenario while others may add unnecessary
noise and could make the model potentially
This article, written by JCPT staff editor Leah Guindon, contains highlights of paper SPE
difficult to maintain.
171631, Building Meaningful Upstream Representations for the LNG Supply Chain, by If a field contained 1,000 wells, a detailed
Graham Kirk, 3es Innovations Incorporated; and Kristian Wieclawek and Cameron P. representation of each well could be mod-
Six, Sproule, prepared for the 2014 SPE/CSUR Unconventional Resources Conference elled. However, if changes are later required,
Canada, Calgary, 30 September2 October. The paper has not been peer reviewed.

July 2015 Journal of Canadian Petroleum Technology 211

JCPT Tech Briefs
every one of those 1,000 well models would
need to be updated in order to maintain plan
integrity. But what if all 1,000 wells were rep-
resented as a single field model? Certainly,
all of the individual-well detail and optionality
would be lost, but conversely ones ability to
make changes to the model would be ex-
tremely efficient. Limited time and resources
means that a balance between these two ex-
tremes must be achieved to allow for enough
detail to be accounted for in the model with-
out making it overly challenging to make
changes andmaintain.
Ability to change efficiently is equally vital
in portfolio planning. External factors, out-
side the control of the planner, add risk to
the investment and can require adjustments
to be made as situations arise. Examples of
external factors could include
Reservoir behaviour (prediction of field
behaviour)
 Service and material costs (general
and administrative, rigs, chemicals, and
steel)
Regulatory changes/restrictions
In order to adapt to these external ele-
ments and reduce the risks they impose,
it is important for the model to be flexible
and easy to change or course-correct as
required. The use of specialized modelling
Fig. 21D simulation model in Builder.
212 July 2015 Journal of Canadian Petroleum Technology
software can enhance the ability to incorpo-
rate more detail into the models while still be-
ing able to make changes efficiently.
As for those plan elements that can be
controlled, planners must explore varying in-
puts and multiple corresponding outcomes.
This due diligence provides the visibility
investors need to understand potential up-
side and risk, which could affect the supply
chain potentially and the overall viability of
the investment.
Case Study
In the complete papers case study, a real-
life example is provided concerning how
varying a few fundamental assumptions in
a field-development plan can have a sig-
nificant impact on the overall investment. To
simplify the model for publication, numbers
have been rounded.
Land
The case study consists of 200,000 acres
of land split into four areas of varying pro-
duction performance (Fig. 1). A land devel-
opment factor of 95% has been applied to
account for realistic hurdles (e.g., faults and
other geohazards, not being able to drill to
the edge of lands, and surface restrictions).
Reservoir and Production
Characteristics
The reservoir characteristics, production
forecasts and profiles, and well design are
provided in the complete paper.
Economics
Operating costs are assumed to be the
same for each area. The fixed well cost in
the case study is assumed to be USD 6,000
per well per month. Variable costs include
gas and liquids expenses, and is assumed
to be USD 0.75/Mcf.
Capital costs are also the same for each
area at the well-level, and are assumedtobe
USD 7 million for drilling and completionand
USD 500,000 for gathering and tie-in.
The capital costs for facility and infrastruc-
ture are assumed to be USD 70 million /
(100MMcf/D).
Developing Area Models
The principle of breaking down a complex
problem or system into a series of parts that
are easier to conceive, understand, pro-
gram, and maintain can be applied to break-
ing down a field-development program into
its fundamental building blocks, critical for
JCPT Tech Briefs
Fig. 3Portfolio vs. execution scenario comparison.
conceptualizing the immense detail of large
field-development plans while remain-
ing flexible enough to update and main-
tainthese plans over the longterm.
In the complete papers case study, the
basic elements required to model this field
development are defined as template proj-
ects in the modelling software. Each of
thefour areas is defined by a single template
that captures the specific operational details
for each area, including
Capital and timing (drilling, completion,
tie-in, and facilities)
Primary gas production, shrinkage, and
derived liquid yields
Operating expenses
In addition, other details are captured
to be used later for feasibility checks and
formulating metrics in the roll-up analysis.
These include:
 Resources (drilling rigs, service rigs,
fracturing crews, pipeline crews)
Casing requirements, number of fractur-
ing stages, and spacing
Associated with the area development,
the common field facilities are also defined
as template projects to capture their capital
cost and construction timing.
With the technical details cap-
tured in the templates, these details are
July 2015 Journal of Canadian Petroleum Technology 213
then leveragedto develop the field-develop-
mentscenarios.
Scenarios
There are countless factors that could be
manipulated to develop the different plan-
ning scenarios. However, for the purpose
of this case study, only two key elements
aremanipulated:
 Development pace (ramp up over 4
years vs. 6 years)
Order of the field development [random
vs. net present value (NPV)]
Field-Development Pace
The field-development pace dictates how
quickly the production can ramp up to the
target plateau rate. Factors are noted in the
complete paper.
Area-Development Order
The order of development of the area plays a
critical role, and can also have a high degree
of variability. For the purpose of this case
study, the development strategy is to devel-
op one area fully before moving to thenext.
For the first scenario, areas are se-
lected randomly. For the second scenario,
a metric-based ranking is used to com-
pare how each area relates to the other ar-
eas on the basis of a set of operational and
economicmetrics.
Maximum Well Count per Area
Each area can accommodate only a fi-
nite number of wells on the basis of the
landsize, land development factor, and res-
ervoir thickness.
Field-Facility Timing
Capital must be included for the expansion
of the facilities and infrastructure as produc-
tion ramps up to the raw-gas-production
target of 1.76 Bcf/D. On the basis of the fa-
cility-expansion cost of USD 70 million/(100
MMcf/D), and the assumption that the capi-
tal is applied in 100-MMcf/D increments, the
total facility capital is USD 1,260 million.
Scheduling the Field-Development
Scenarios
On the basis of the different constraints, four
distinct field-development scenarios are
generated. They are noted in the complete
paper and in Fig. 2.
Analysis and Comparison
Instead of looking at the development
plan in terms of volumes of gas measured
JCPT Tech Briefs

in MMcf or drilling-rig days, investors re-
quire these modelling data to be transi-
tioned into financial data (e.g., discounted
cash flows) and metrics (e.g., rate of return
andNPV).
Leveraging a modelling softwares eco-
nomic calculations allows the operation-
al plan to be translated into a format that
investors require, which includes revenues
calculated by applying the appropriate price
forecasts, discount rates, depreciation, tax-
es,burdens, and any other factors required
to generate the resulting cash flows and met-
rics for each scenario.
In each scenario, for comparison
puposes, the complete paper keeps
project count and total capital spend-
ingconstant.
Does Selecting a Good Portfolio Up Front
Add More Value Than Executing a Bad
Portfolio More Efficiently? To test this
case-study theory, assume that the authors
selected the portfolio (Scenario A1,random
order, with a 4-year ramp up) and on thefirst
day of execution, operational efficiency
was improved and USD 500,000, or 10%,
wassaved on the drilling of each ofthe2,419
wells, which equates to USD 1.2 billion
insavings across the entire portfolio.
Now compare that scenario to the port-
folio (Scenario A2, NPV order, with a 4-year
ramp up) with no additional cost savings.
As expected, the original portfo-
lio continues to outperform the portfolio
with the cost savings and results in a bet-
terinvestment (Fig. 3).
Continuous Evaluation and Planning
The model constructed in the complete
papers case study provides an envi-
ronment that can help companies pre-
dict and explore how alternative assump-
tions can have a significant impact on the
projected outcome of their field-develop-
ment plan.
But, regardless of how much up-front
analysis and detail have gone into the plan,
there will always be external factors that will
impact the plans ability to deliver against
the set strategy. Whether it is higher or
lower production, unforeseen reservoir in-
terference, resource shortages, changing
costs, or environmental-policy changes,
theplan needs to be adaptable to account
for these unexpected variances.
For unconventional resources (e.g.,
tight gas), continuous monitoring
and strategy adjustment throughout ex-
ecution are key in allowing stakehold-
ers to update the plan while still meeting
the desired end goal. The ability to en-
ter the latest real-time i formation into the
modelisamust underthesecircumstanc-
es.JCPT

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214 July 2015 Journal of Canadian Petroleum Technology