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Vagabond Venture Oil Group SEARCH FOR FOSSIL FUELS Winter Term 2012

Vagabond Venture Oil Group SEARCH FOR FOSSIL FUELS Winter Term 2012. TODAY’S PLAN. Drilling Results - Economics. Future Class?. Drilling Results - Geologic. Geology in the news. GEOLOGY IN THE NEWS. Austin American Statesman: February 25, 2012.

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Vagabond Venture Oil Group SEARCH FOR FOSSIL FUELS Winter Term 2012

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  1. Vagabond Venture Oil Group SEARCH FOR FOSSIL FUELS Winter Term 2012

  2. TODAY’S PLAN Drilling Results - Economics Future Class? Drilling Results - Geologic Geology in the news

  3. GEOLOGY IN THE NEWS Austin American Statesman: February 25, 2012 Texas Supreme Court determination 08-0964: “Subsurface fresh water belongs to land owner and should be treated like oil and gas deposits which are owned by land owner of subsurface minerals”

  4. Two land ownerships in Texas Surface land ownership: farms, ranches, homes, etc. Subsurface land ownership: Oil and gas deposits

  5. Rain water Fresh water Soil Fresh Ground water Fresh Ground water Brackish Ground water Salt water Hot salt water

  6. Rocks at Sun City Georgetown limestone Williams Dr. Front Gate Georgetown limestone SR 195 Massive Edwards limestone Village Center Berry Creek pond Edwards limestone Comanche Peak layer Edwards limestone Porus reef layers Edwards limestone Walnut layers Glen Rose limestone Trinity Sandstone

  7. GEOLOGY IN THE NEWS Austin American Statesman: March 3, 2012 Fracking & horizontal drilling of new wells costing $1.5 million predicted to increase oil production by 2 million bbls/day Problems: lack of water for fracking and local endangered lizard species

  8. Gas and Oil Shale Plays: USA and Western Canada West Texas Oil Shale Play: Bone Springs Oil Shale

  9. DISCLAIMER The material you are about to see was developed for the learning and enjoyment of the class participants. The diagrams and numbers have been gathered from various sources to reflect the geologic and economic scenerios of the two locations, but neither is a real prospect and neither represents an actual investment opportunity.

  10. VAGABOND GROUP 2 OPPORTUNITIES On-shore Pennsylvania Off-shore Gulf of Mexico • Drilling results • Return on investments

  11. VAGABOND GROUP On-shore: Pennsylvania 2 OPPORTUNITIES On-shore Pennsylvania Off-shore Gulf of Mexico On-shore Pennsylvania • Drilling results • Return on investments

  12. On-shore: Pennsylvania - reached Marcellus shale @ 4,935’ - found 52’ Marcellus shale - TD @ 5,060’ in salt Is there gas? Let’s look at the seismic & well logs . . . .

  13. On-shore: Pennsylvania N S our prospect DRY HOLE DISCOVERY ` MARCELLUS DRY HOLE! 52’ shale no gas! thickness ? gas ? Why? 4’ shale no gas 56’ shale 46’ gas

  14. On-shore: Pennsylvania N S our prospect DRY HOLE DISCOVERY ` MARCELLUS not organic rich organic rich 1) no organic-rich deposits in our area of Marcellus 2) gas leaked out of Marcellus shale along fault

  15. On-shore: Pennsylvania N S our prospect DRY HOLE DISCOVERY fault leaks ` MARCELLUS Maxum Oil CEO DRY HOLE! 1) no organic-rich deposits in our area of Marcellus 2) gas leaked out of Marcellus shale along fault One million $ investor is broke!

  16. On-shore: Pennsylvania It’s not too late! N S our prospect DRY HOLE! One million $ investor is broke!

  17. Upper Devonian Ohio Gas Shale

  18. Rocks of Northeastern USA

  19. extent of Ohio and related gas shales

  20. Probable Extension of Ohio Gas Shale Play into Illinois In Illinois the Ohio Shale is Called the New Albany Shale Ladoga Your next investment?

  21. VAGABOND GROUP Off-shore: Gulf of Mexico 2 OPPORTUNITIES On-shore Pennsylvania Off-shore Gulf of Mexico Off-shore Gulf of Mexico • Drilling results

  22. Off-shore: Gulf of Mexico - reached Wilcox sand @ 12,500’ - found 2,166’ sand Let’ see! - TD @ 16,624’ in salt - discovered 520’ oil sands Looking at the seismic data. . . .

  23. Off-shore: Gulf of Mexico our prospect Wilcox Sandstone Reservoirs? BEST water ~6000’ sandstones Wilcox salt

  24. Off-shore: Gulf of Mexico our prospect water ~6000’ sandstones Wilcox salt

  25. Off-shore: Gulf of Mexico - fault - & sand 12,500’ 11,500’ - top sand 14,666’ - base sand 16,000’ - base sand

  26. Off-shore: Gulf of Mexico - fault - & sand 12,500’ 14,666’ - base sand 16,604’ – top salt 16,000’ - base sand

  27. Off-shore: Gulf of Mexico thickness of Wilcox sand where’s the oil! - fault - & sand 14,666’ - base sand 12,500’ – top sand 12,500’ 16,604’ – top salt 14,666’ - base sand = 2,166’ Let’s look at the well log . . . .

  28. Off-shore: Gulf of Mexico top sand: 12,500’ base sand: 14,666’ 100’ 520’ Reservoir Rocks (sandstones) 520 feet of ‘pay’ near base of sand! Presence of oil/gas

  29. Off-shore: Gulf of Mexico Lateral well ? 520’ PAY near base sand ? Perhaps more pay?

  30. VAGABOND GROUP 2 OPPORTUNITIES On-shore Pennsylvania Off-shore Gulf of Mexico • Drilling results • Return on investments

  31. Remember the offshore border dispute?

  32. Offshore development options FPSO=Floating, Production, Storage, Offloading (5840ft)

  33. Remember fpso’s?

  34. Petroleum engineer Primary Jobs: Reservoir Characterization Economic Analysis Covered in CLASS No. 6 Well Design & Drilling Production & Enhancements Covered in CLASS No. 5 36

  35. Economic Analysis

  36. Oil &gas economics O&G Tax Accounting Oil Price 6 KEY FACTORS IN O&G ECONOMIC ANALYSIS Recoverable Reserves Operating & Investment Cost Royalties & Working Interest Production Rate

  37. Oil &gas economics Factors Affecting OIL PRICE Political Technical Economic Financial • Worldwide Reserves status • Worldwide Production Capacity • Refining Capacity • Worldwide Supply & Demand • Cost of Alternatives • Transaction costs • OPEC’s Mood • Producing country’s stability • Balance of Power

  38. Oil &gas economics Factors Affecting RECOVERABLE RESERVES Modeling Selection Physical Rock Properties Drive • Quality of seismic • Geologic & Geophysical selection accuracy • Reservoir drive mechanism • Recovery Factor • Reservoir modeling accuracy • Reservoir aerial extent • Porosity • Permeability

  39. Oil &gas economics Factors Affecting PRODUCTION RATES Regulations Downhole Reservoir Production Faciliities • Quality of completions • State mandated allowables • Rate of Depletion • Byproducts produced • Capacity of Facilities

  40. Oil &gas economics Factors Affecting ROYALTIES & WORKING INTEREST Working Interest Royalties • Amount paid to property owners • Over-ride agreements • Major player or not

  41. Oil &gas economics Factors Affecting OPERATING & INVESTMENT COSTS Financial Well Cost Production Facilities Operating • Depth of well • Amt of logging • Byproducts produced • Drilling costs • Enhanced recovery needed • Disposal Needed • Fuel costs • Personnel costs & benefits • Proximity to market • Insurance Costs • Design Efficiency • Volume capacity

  42. Oil &gas economics Factors Affecting O&G TAX ACCOUNTING Tax code is written specifically for O&G investing, is complex and must be handled by specialist

  43. OIL & GAS ECONOMICS All of these factors result in an economic calculation to determine the profitability of the project The economic calculation is a called a Net Present Value (NPV) calculation NPV = ∑ (Income – Expense)*(1+DR)^t The following examples will make this understandable…

  44. OFFSHORE GOM, BAHA #2

  45. FUTURE PRODUCTION OFFSHORE

  46. Simple net present value OFFSHORE, GULF OF MEXICO, BAHA FIELD PRODUCING 100,000 BOPD INITIALLY DECLINING EXPONENTIALLY OVER 10 YEARS INFLATION DATA IS FROM APRIL 1999 TO APRIL 2000

  47. Other investment returns STOCK DATA IS FROM APRIL 1999 TO APRIL 2000

  48. Other investment returns MUTUAL FUND DATA IS FROM APRIL 1999 TO APRIL 2000

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