1. Data Driven. Solution Focused. www.XITechnologies.com CAPP Guidelines H 2 S Release Rate Assessment and Audit Forms July 2012 Presentation Presented by Andy Newsome Wednesday October 3, 2012

2. Welcome H 2 S understanding required for compliance and to avoid any negative impact on public safety ERCB continually evolving regulations and audit requirements means we as an industry need to have processes and tools that will evolve as well Disclaimer This is not a full review of the CAPP guidelines. We recommend you take the time to review the guidelines in its entirety. Todays goals: Due Diligence Educate Ease Anxiety

3. Agenda 10:10 am – 10:15 am History 10:15 am – 11:00 amCAPP Guidelines 11:00 am – 11:30 am Questions & Answers 11:30 am – 12:00 pm Networking and Refreshments

4. History 1997 ERCB and CAPP members meet to discuss need for consistency 2000 XIs H2S Gold Search created 2002 Directive 56, formerly Guide 56, released by ERCB 2010 Need for ERCB and CAPP information realignment CAPP Guidelines exist to: Clarify Requirements Streamline Methodology Best Practices Templates

5. July 2012 H2S Release Rate Assessment and Audit Forms CAPP Guidelines Review

6. 1 Introduction July 2012 H2S Release Rate Assessment and Audit Forms Page 1-1 Regulators in Western Canada mandate the preparation of an H 2 S release rate before an application to drill a well can be submitted. Too many times research is done after the fact

7. 1 Introduction – Guideline Changes July 2012 H2S Release Rate Assessment and Audit Forms Page 1-1 Maps no longer apply Determine the H 2 S release rate (RR) potential for all wells The industry is now required to determine the H 2 S release rate potential for all wells, regardless of the H 2 S concentration. Consequently, the maps no longer apply.

8. 1 Introduction – Guideline Changes July 2012 H2S Release Rate Assessment and Audit Forms Page 1-1 elaboration of search area requirements, Regulators Perspective Too hard to create rules to encompass all scenarios Industrys Perspective The more subjectivity, the harder it is to comply

9. 1 Introduction – Guideline Changes July 2012 H2S Release Rate Assessment and Audit Forms Page 1-1 removal of the outdated EPZ calculations and provision of guidance for using the ERCBH 2 S program for calculating the EPZ based on the maximum H 2 S release rate as determined from the guidelines in this document Directive 71 took over EPZ calculation rules CAPP Guidelines and H 2 S Search were impacted

10. 1 Introduction – Other Guideline Changes July 2012 H2S Release Rate Assessment and Audit Forms Page 1-1 Clarification of when net pay adjustments are necessary Streamlining of the calculation procedure Updates to horizontal well calculations to account for multiple stimulations Addition of commingling guidelines Inclusion of newer best-practice procedures that were not documented in the previous guidelines Addition of acid gas injection guidelines Addition of guidelines for producing wells (post-testing phase) Alignment with Alberta ERCB regulations and British Columbia OGC regulations Clarification of when net pay adjustments are necessary Streamlining of the calculation procedure Updates to horizontal well calculations to account for multiple stimulations Addition of commingling guidelines Inclusion of newer best-practice procedures that were not documented in the previous guidelines Addition of acid gas injection guidelines Addition of guidelines for producing wells (post-testing phase) Alignment with Alberta ERCB regulations and British Columbia OGC regulations Please review the rest of the changes on your own:

11. 1 Introduction July 2012 H2S Release Rate Assessment and Audit Forms Page 1-1 The EPZ includes residents or areas with high public usage The well is located within 5.0 km of an urban density development (>50 dwellings) The well is a critical or special sour well Determine level of expertise and types of resources required It is the users responsibility to determine the appropriate level of analysis required for each specific application;…

12. July 2012 H2S Release Rate Assessment and Audit Forms Page 2-1 2.1 Maximum H2S Release Rate Determination The H 2 S RR for each potential zone that may contain H 2 S gas is determined by multiplying the maximum H 2 S content and AOF rate as determined by the geological and engineering review of the available data. The paired data points need not be from the same well. The sum of the RRs from each zone becomes the cumulative RR for the drilling, completion/servicing, and suspended/producing RR, as applicable to the project.

13. July 2012 H2S Release Rate Assessment and Audit Forms Page 2-1 2.1 Maximum H2S Release Rate Determination Identify every potential zone For each zone Search H 2 S and flow rate sample set Assign both a representative sample Calculate RR Provide cumulative rate for entire well H 2 S Search:

14. July 2012 H2S Release Rate Assessment and Audit Forms Page 2-1 2.1 Maximum H2S Release Rate Determination The H 2 S RR is used as an input to calculate an EPZ. The EPZ is calculated using the ERCBH 2 S… ERCB Directive 71: The licensee must use ERCBH2S properly, prior to filing the ERP, to calculate the size of the EPZ for sour gas with a hydrogen sulphide (H 2 S) concentration of 0.1 moles per kilomole (mol/kmol) (0.0001 mole fraction or 100 ppm) or greater. ERCB Directive 71: The licensee must use ERCBH2S properly, prior to filing the ERP, to calculate the size of the EPZ for sour gas with a hydrogen sulphide (H 2 S) concentration of 0.1 moles per kilomole (mol/kmol) (0.0001 mole fraction or 100 ppm) or greater.

15. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Requirement to Drill Well Need geological prognosis If you consider H 2 S prior to approving well, Surface Land / Geology can follow the basics of these guidelines too

16. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Requirement to Drill Well Summarize formations that may be productive. Identify casing points/hole sections

17. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Start with all formations Identify all relevant formations (sour or not) Know well design (casing) beforehand

18. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Collect and validate gas analysis data. Collect flow data for sour zones Requirement to Drill Well Representative data points for every formation Geologically analogous Validation – not just collection

19. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Requirement to Drill Well Complete engineering adjustments for each formation (unstimulated conditions)

20. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Use formulas from guidelines in sections 5 and 6 Apply well specifications against H 2 S Search RRs to determine adjustment

21. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Requirement to Drill Well RRs for all operations Address drilling and completion operations individually Ensure chosen sample is best and most representative flow rate Complete engineering adjustment for completion interval (stimulated condition)

22. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Requirement to Drill Well Determine H 2 S RR for Each Hole Section, Completion Zone, and Producing Zone

23. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Directive 56 – Schedule 4.3 Drilling Completions Production All forms cumulative Calculate target zones – all forms cased Similar to Completions

24. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Requirement to Drill Well Determine Well Classification for Drilling, Completion, and Producing Operations

25. 2.2 H 2 S Release Rate Assessment – H 2 S Release Rate Process Flow July 2012 H2S Release Rate Assessment and Audit Forms Page 2-2 Directive 56 – Table 7.1 Identifies Well Classifications Based on: Maximum H 2 S content Potential H 2 S RR

26. 2.3.1 Release Rate Cases - Drilling Case July 2012 H2S Release Rate Assessment and Audit Forms Page 2-3 If multiple casing strings are cemented in place during a drilling operation, then separate RRs can be determined for each hole section. Casing points splits potential release rate in two Intermediate hole release rate Main hole (after uphole zones isolated) Higher of the two (or more) is to be applied as drilling RR

27. 2.3.1 Release Rate Cases - Drilling Case July 2012 H2S Release Rate Assessment and Audit Forms Page 2-3 An assessment of shallow formations (above the top of the Mannville) is generally not necessary if deeper zones will contribute to the H 2 S release rate of the well… Should expect shallow zones to be sweet Shallow sour zones are suspect

28. 2.3.1 Release Rate Cases - Drilling Case July 2012 H2S Release Rate Assessment and Audit Forms Page 2-3 Only if deeper zones to be penetrated are sour If shallow zone is sour, likely an erroneous or discountable sample Deal with the test or discount the form and document …unless it is known that the shallower zones may significantly impact the H 2 S release rate.

29. 2.3.1 Release Rate Cases - Drilling Case July 2012 H2S Release Rate Assessment and Audit Forms Page 2-3 During drilling operations, the formations are considered to be unstimulated. Therefore, flow adjustments to a skin value of zero may be made to offset data from a stimulated zone… Post stimulated flow rates are flagged Use more representative sample Apply formulas from Sec 5, apply adjustment in H 2 S Search

30. 2.3.2 Release Rate Cases – Compl./Servicing Case July 2012 H2S Release Rate Assessment and Audit Forms Page 2-3 Most often, the primary target represents the highest H 2 S release rate potential. However, in some cases, a secondary zone may represent the highest stimulated H 2 S release rate… Reference formation with the higher H 2 S Exceptions to this are in the guidelines

31. 2.3.2 Release Rate Cases – Compl./Servicing Case July 2012 H2S Release Rate Assessment and Audit Forms Page 2-3 Ensure you: Research reference well to understand test conditions Reference other data sources for clarification Vertical flow analysis may be conducted to further adjust from sandface AOF to surface AOF. If completion operations are restricted to wellhead on techniques…

32. 2.3.3 Release Rate Cases - Producing Case July 2012 H2S Release Rate Assessment and Audit Forms Page 2-4..same issues identified for completion H 2 S RR calculations apply to producing…also used to set the level designation of the well… Level designation summary, found at: http://ercb.ca/ids/pdf/id97-06.pdf Compare well design and flow rate to reference well Consider tubing configuration/potential flow restrictions Apply results to summary sheet Update level designation summary pre and post drilling

33. 2.3.4 Release Rate Cases - Commingling July 2012 H2S Release Rate Assessment and Audit Forms Page 2-4 For any of the drilling, completion/servicing and producing cases, situations may arise where more than one sour formation is open to flow into the wellbore… Cannot just add two RRs must consider backflow pressures too

34. 2.3.4 Release Rate Cases - Commingling July 2012 H2S Release Rate Assessment and Audit Forms Page 2-5 Tests spanning multiple formations: Potential formation misassignment Potential flow from multiple sources If one or more of the offset analogue wells has only multi-zone AOF data, and the proposed well will be completed in only one of those zones, then the analogue AOF test may be adjusted…

35. 3.1 Data Sampling - Search Area July 2012 H2S Release Rate Assessment and Audit Forms Page 3-6 …concentrations tend to vary… within a single well from sample to sample... …better understanding of the geological analogue allows the analyst to restrict data to more representative samples… …as the number of data points in a representative sample set increase, the confidence of the data quality also increases. 10 wells provided for each formation Proximal search often gives best geological representation Involve geology when unsure

36. 3.1 Data Sampling - Search Area July 2012 H2S Release Rate Assessment and Audit Forms Page 3-6 Doesnt mean ALL samples within 3x3 townships Consider all present pools within 3x3 townships as potentially analogous Board Order System. http://ercb.ca/data-and- publications/orders/board-order-system …3x3 twp study area…to define appropriate geological analogies from which representative H 2 S and AOF samples can be obtained.

37. 3.1 Data Sampling - Search Area July 2012 H2S Release Rate Assessment and Audit Forms Page 3-6 …smaller review areas may be sufficient if data can be obtained. Conversely, the best geological analogues may be more distant… Dependent on your area and available data minimum five representative analogous samples for H 2 S and AOF… However, search area may become so large that it extends beyond any geological correlation…less than five samples is warranted. Should be sufficient All 10 wells found within 5-10km Farthest sample found >30km Consider expanding search area

38. 3.1 Data Sampling - Search Area July 2012 H2S Release Rate Assessment and Audit Forms Page 3-6 Data points are representative if they cannot be discounted for technical reasons. If samples that have a higher H 2 S concentration than the sample selected are discounted, then the applicant must support the decision with geological or engineering reasoning.

39. 3.1 Data Sampling - Search Area July 2012 H2S Release Rate Assessment and Audit Forms Page 3-6 Factors to consider when authenticating both gas analyses and flow rates: Formation assignment Distance Test date Sample type Most common feedback from ERCB: Document/explain your work Resources provided by XI: Browse Feature Assign a different sample Re-assign test Engineering/Geological Discussion Footnotes Data alerts and flags InfoXchange

40. 3.1 Data Sampling - Search Area July 2012 H2S Release Rate Assessment and Audit Forms Page 3-6 Data Alerts, Flags, and Footnotes

41. 3.1 Data Sampling - Search Area July 2012 H2S Release Rate Assessment and Audit Forms Page 3-6 Alerts Issues Non Identified Sour Spans multiple formations Suspicious interval InfoXchange record

42. 3.1 Data Sampling - Search Area July 2012 H2S Release Rate Assessment and Audit Forms Page 3-6 Analysts may find some samples show trace H 2 S concentrations that are not quantified or show very low concentrations in areas that are typically considered to be sweet. Will help industry in reducing the number of wells licensed as sour unnecessarily

43. 3.1 Data Sampling - Search Area July 2012 H2S Release Rate Assessment and Audit Forms Page 3-6 All samples with H 2 S show values at less than 50 ppm conc Over 80% of the representative samples are sweet (0% H 2 S) The Operator believes the trace samples are erroneous. All samples with H 2 S show values at less than 50 ppm conc Over 80% of the representative samples are sweet (0% H 2 S) The Operator believes the trace samples are erroneous. If met it can allow analysts to discount trace H 2 S samples

44. 3.1.1 Data Sampling - Drilling Inside Existing Pool July 2012 H2S Release Rate Assessment and Audit Forms Page 3-7 Penetrating an existing pool (Must be able to demonstrate) Highest H 2 S concentration Data sampling insufficient Only reference data samples from pool itself Use unless it can be discounted or you can demonstrate a trend to prove otherwise Consider outside data points

45. 3.1.1 Data Sampling - Drilling Inside Existing Pool July 2012 H2S Release Rate Assessment and Audit Forms Page 3-7 10 Gas Analyses for Pekisko Max H 2 S content: 0.37% (Pekisko A identified) Pekisko A Pool Max: 7.23%

46. 3.1.2 Data Sampling - Drilling Outside Existing Pool July 2012 H2S Release Rate Assessment and Audit Forms Page 3-7 Guidelines: Start within 5 km Minimum of 3 reference pools The pool max of a multi-well pool is the most representative, and considered one test (geologically analogous pools only) You are not forced to find data simply to meet the requirement H 2 S Search: Minimum 5 km, all samples considered, 10 highest chosen Beyond 5km, 10 wells found. Any pools identified, Pool Max provided Get more data if needed

47. Banff Pools identified in search (within 5 km) 3.1.2 Data Sampling - Drilling Outside Existing Pool 10 Gas Analyses for Banff Max H 2 S content: 0.17% July 2012 H2S Release Rate Assessment and Audit Forms Page 3-7

48. 3.2 Data Sampling - H2S Sampling and Data Quality July 2012 H2S Release Rate Assessment and Audit Forms Page 3-8 Use for revising your production RR post completion Identify which sample types are more reliable

49. 4.1 Geologic Interpretation of Potentially Sour Formations July 2012 H2S Release Rate Assessment and Audit Forms Page 4-9 Guidelines: Consider every potential formation individually H 2 S Search: Stay conservative, make sure all are addressed Reliable geological prognosis Footnotes provided for formation related alerts and to document results

50. 4.2 Gas Cap Versus Oil Leg Flow Rates July 2012 H2S Release Rate Assessment and Audit Forms Page 4-9 Regulations If the gas analysis is taken from a solution gas sample Can result in a high release rate for your well Calculate a release rate for the gas cap and oil leg individually

51. July 2012 H2S Release Rate Assessment and Audit Forms Page 4-9/10 4.3 Wellbore Design Considerations and Slant Wells Regulations: Intermediate casing can have significant effect on H 2 S RR and EPZ planning Slant wells <30 can be considered vertical H 2 S Search: Split Summary

52. July 2012 H2S Release Rate Assessment and Audit Forms Page 4-9/10 5 Engineering Adjustments 6 EPZ Modeling Engineering Adjustments 5.1 Calculate AOF 5.2 Adjustment for Reservoir Pressure 5.3 Adjustment to Zero Skin 5.4 Adjustment for Net Pay or Contacted Reservoir Length 5.5 Adjustment for Contacted Reservoir Length 5.6 Adjustment for Stimulation of Wells 5.7 Adjustment From Sandface AOF to Wellhead AOF 5.8 Acid Gas Injection Wells EPZ Modeling

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