Investing in Fossil Fuels: Opportunities and Risks

1. VAGABOND VENTURE OIL COMPANY SEARCHES FOR FOSSIL FUELS Winter Term 2012 Session 1 What are we after, how do we find them, and how do we make a profit? The course outline But first, Geology in the News

2. Geology in the News Chesapeake Energy Corp., one of the oil and gas producers most responsible for the current glut of natural gas supply, said it will reduce drilling activity this year as natural gas prices have reached a 10-year low. Cutting 46 drilling rigs to 23. The current glut of natural gas partly stems from the U.S. energy industry's success with new exploration techniques, notably hydraulic fracturing of shale formations, or fracking. The boom in new production, plus lackluster demand amid a mild winter, helped drive natural gas prices Friday to $2.343 a million British thermal unit, down 26% month over month and down from nearly $14 in July 2008 as supply has far outstripped demand The course outline

3. Geology in the News

4. Geology in the News

5. The Course Outline Week 1: Geology of Coal, Oil and Gas (Don) Week 2: History and processes of exploration (Sandi) Week 3: Engineering of exploration/production (Rocky) Week 4: ‘Vagabond Venture Oil Company’ finds 4 prospects (together) Week 5: ‘Vagabond Venture Oil Company’ drills 2 (together) Week 6: ‘Vagabond Venture Oil Company’ finds & produces two fields: one oil & one gas (together) Vagabond Venture Oil Company offers you a virtual investment opportunity

6. Several Ways of Investing in Oil & Gas Projects • 1. Invest $’s in the Stock of a Major Oil Company • 10 year return on investment = $3-5% What Vagabonds Oil Company will be offering you 2. Invest $’s in the stock of a Small Oil Company 10 year return on investment - $0 to 500%+ 3. Invest $’s in the drilling of a single well: 10 year return on investment - $0 to 100%X+ 4. Invest $’s in the drilling of two or more wells: 10 year return on investment - $0 to 1,000%X+

7. Investing $’s as a Partner* in Vagabonds Oil & Gas 1. Invest a $ amount in an E & P project for a small % of profits or 2. Pay a % of the cost of an E & P project for a larger % of profits Invest in: 1. drilling a single well, dry $ or completed $$ or 2. Two of more wells depending on the results of initial drilling Your investment return = your % of actual project cost applied to profits What you can study in order to make your investment decision Partner*: you participate in decisions on major deviations from approved $ expenditures

8. What you can study in order to make your investment decision Proposed Location Geophysical report and cross sections Geological report and map Drilling recommendations & detailed cost flow chart Land-lease report and map Introduction: What Natural Resources Burn?

9. What are Natural Resources that Burn? Vegetation: Grass, twigs, wood chunks Compressed Vegetation: Peat, lignite, coal Compressed animal remains: Oil and gas How are these resources related? Humans have sought for and fought over these resources from the beginning of historic time

10. Natural Resources that Burn How are these resources related? They all have an organic origin: either from plants or from “animals” Peat briefly For example: plants Today‘s burnable Vegetation: grass, twigs, wood chunks Yesterday’s Vegetation: peat in inland glacial bogs Long Ago’s Vegetation: lignite in tropical coastal swamps Very Long Ago’s Vegetation: coal from buried lignite

11. Peat hand dug from a glacial bog in Scotland

12. Commercial peat operation, Ireland

13. Peat fired electrical generation, Finland Peat bogs are found today scattered where the recent continental glacier covered much of the Northern Hemisphere

14. Most Recent Continental Glaciation Last continental glacier: North America: areas of peat bogs Leaving peat; next lignite (low grade coal) First, let’s look at lignite in Texas Human land path Last continental glacier: Eurasia: area of peat bogs

15. Lignite at or near the surface in Texas Texas lignite: ancient, Gulf of Mexico coastal swamps Lignite mining in Texas

16. Open Pit Lignite Mining, Texas Huge drag-line crane removing rock covering the lignite layer Dump trucks move lignite to nearby furnaces to be burned to make electricity How do we get layers of lignite in layers of sandstone, shale, and limestones? Continuous belt conveyer digs up lignite layer and loads lignite into huge dump trucks

17. Cross Section Cartoon of Occurrence of two layers of Lignite Land surface Shale layer Sandstone layer Limestone layer Shale layer Lignite layer How did all this happen? Lignite layer Let’s look at the present-day Texas coast as a possible modern model

18. Bays, swamps, & marshes (organic rich mud) = future lignite Sand = future sandstone Accumulation of sediments in the Gulf of Mexico An area world famous for Oil and Gas Fields Mud (clay) = future shale How do we get several layers of lignite of different ages

19. Today’s Bays, swamps, & marshes = future lignite Long time ago location of bay muds & offshore sands & clays Younger location of bay muds & offshore sands & clays Today’s location of bay muds & offshore sands & clays But before considering oil and gas, let’s look briefly at COAL

20. Natural Resources that Burn How are these resources related? They all have an organic origin: either from plants or from “animals” Coal briefly For example: plants Today‘s burnable Vegetation: grass, twigs, wood Yesterday’s Vegetation: peat in inland glacial bogs Long Ago’s Vegetation: lignite in tropical coastal swamps Very Long Ago’s Vegetation: coal from buried lignite

21. Coal Resources: USA Lignite Soft Coal Hard Coal Why so much soft coal in the central USA?

22. Coal Resources: Central & Eastern USA Let’s look at the geology of North America at the time when soft coal was being formed

23. Land: ancient North America 290 million years ago Vast area of tropical swamps & marshes Today’s soft coal areas A quick look at geologic time Ancient Appalachian Mountains

24. Geologic Time: Last 570 Million Years Time of lignite formation in Texas 570,000,000 years Time of coal formation & building of the Appalachians Mountains Where does oil & gas fit with these natural resources derived from plants?

25. Natural Resources that Burn How are these resources related? Where might large volumes of plant and animal remains be buried quickly? Generally speaking; Oil & gas are made from minute, marine animal remains: Coal is made from tropical swamp plant remains. Let’s look again at the paleo-geologic map of North America 290 million years ago How are coals related to oil & gas? In both coal and oil & gas: remains must be prevented from decaying: usually by PROMPT BURIAL by younger sediments!!

26. Land: ancient North America 290 million years ago Area of thick sediment accumulation along rising mountains Appalachian Trough In the Appalachian Trough both plant and marine animals were quickly buried giving rise to the coal, oil, and gas fields of PA & WV Does this paleo-geologic map account for the oil and gas fields of eastern USA? Ancient Appalachian Mountains

27. Focus on eastern USA Central Texas Gray=dry holes!

28. The Gulf of Mexico geosyncline Focusing now on a recent geological model for oil & gas: 1. generation 2. migration and 3. entrapment

29. Geology and Oil & Gas Fields: GOM Gulf of Mexico geosyncline Focus on this area

30. What is a Geosyncline? Answer: A thick (1000’s of feet) accumulation of rock debris in the ocean at the continental margin Debris brought to the ocean by rivers and spread along the coast by ocean currents

31. Geosyncline Example: land River debris Ocean Rocks of the Iberian continental crust river debris geosyncline A modern example of a geosyncline: The Gulf of Mexico

32. Example of a Geosyncline:Gulf of Mexico 1. Integration of the debris of several rivers Swamp Muds Shallow water Sands Modern Sediment Accumulations Affect on the North American Continent by the creation of the GOM geosyncline Deep water Muds

33. Example of a Geosyncline:Gulf of Mexico Affect on the North American Continent by the creation of the GOM geosyncline Oldest part of geosyncline rising as erosion moves debris into Gulf rising Hinge Line Sinking Gulf of Mexico Geosyncline Youngest part of geosyncline sinking as erosional debris is deposited in the Gulf 2. Accumulation of thick layers of debris

34. Subsurface Cross Sections Gulf of Mexico Geosyncline Hinge Line Gulf of Mexico Austin Sun City New Orleans rising Shale: potential oil & gas source Rocks SandstoneReservoir Rocks Sinking 65,000 feet thick Gulf of Mexico Geosyncline Mature Source Rocks What is a source rock? 2. Accumulation of thick layers of debris What are source & reservoir rocks?

35. What is an oil & gas source rock? Any rock, usually a shale, that yields oil & gas naturally when squeezed and heated (buried) . Let’s look for source & reservoir rocks in a typical well in the Gulf of Mexico What is a reservoir rock? Any rock, usually a sandstone or limestone, that will yield oil & gas (or water) when penetrated by drilling

36. Geology and Oil & Gas Fields: GOM Gulf of Mexico geosyncline

37. Geology and Oil & Gas Fields: GOM Gulf of Mexico geosyncline Let’s look for source and reservoir rocks in a typical well drilled in the Gulf of Mexico geosyncline

38. Typical layers of shale (gray) & sandstone (yellow) in a geosyncline: e.g. Gulf of Mexico Well drill hole Let’s look at this portion of the well log

39. Reading a Wire Line Electrical Log Depth track: depth below derrick floor Sandstone (reservoir) Shale non-reservoir Water Oil &/or Gas Reservoir Rocks Potential Source Rocks Can you read this electrical log?

40. Reading the electric log of the well How does oil & gas get from the source rock into the reservoir rock?

41. Oil & Gas escapes at the surface Unless there is a trap (fence) in the reservoir rock layer Reservoir rock Source rock Source rock Top of mature (generating) source rock Typical oil and gas traps A simple fault trap

42. Rock Layers can be Broken (faulted) Fault Where’s the Oil trapped?

43. The Course Outline Week 1: Geology of Coal, Oil and Gas (Don) Week 2: History and processes of exploration (Sandi) Week 3: Engineering of exploration/production (Rocky) Week 4: ‘Vagabond Venture Oil Company’ finds 4 prospects (together) Week 5: ‘Vagabond Venture Oil Company’ drills 2 (together) Week 6: ‘Vagabond Venture Oil Company’ finds & produces two fields: one oil & one gas (together) NEXT WEEK!