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Cli lick to edit Master tit itle style le MPD Moving to a “Must Have” Creates a Long-Term Optimization in Western Canada

8 March 2019

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Innovators

Companies that pursue new technologies aggressively to gain early advantage

Early Adopters

Companies that pursue new approaches aggressively to gain a significant competitive advantage

Early Majority

Companies that wait for a new approach to prove itself and then move quickly

Late Majority

Companies that wait until the new approach is well established and there is lots

• f support

Moore's technology adoption life cycle curve

MPD Technology Adoption

Where is “there”?

“Transition” from UBD to MPD

▪Technology is a main driver in our

• rganization

▪We can afford new technologies ▪If we don’t do it this way, it can’t be done ▪Company X is doing it, does it work for us? ▪Will it allow us to go places we haven’t gone before? ▪It works but it’d be too expensive ▪“There are risks associated with it” ▪“Well established and lots of support”: There are several providers to choose from ▪Commodity? ▪Mainstream

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Where is “there”?

Adoption varies by Market Maturity

▪ How can we do it? Operators look for alternatives to dril drill well ells th that at are chal challengin ing g from the pressure management perspective ▪ It works! Successful implementation of the technology leads to its adoptio ion n at the field level ▪ Knowledge is key: With adoption, field development teams not only become familiar with the technology but also learn when en not not to to us use e th the e tech technology (misuse of the technology is

• ne of the main causes of technology rejection)

▪ The more the merrier: Once it is adopted, the market is established and more

• re alt

ltern rnativ ives lead to a widespread use that makes it easier to evaluate the use of MPD in more fields and plays in the region

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Adoption Challenges and Old Paradigms

MPD is an additional cost

Dri Drill lling ng cost st and and Productive e Time Time

Cost of problems not associated with pressure Cost of problems associated with pressure

Dri Drill lling ng cost st and and Productive e Time Time Dri Drill lling ng cost st and and Productive e Time Time MPD D Serv Services MPD D Serv Services

St Statu tus s Quo uo (pre-MPD adoption) Old Old Par Paradigm (MPD is just an additional cost) New New Par Paradig igm (MPD mitigates problems and makes drilling more efficient)

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Cost reduction associated with MPD efficiencies (e.g. ROP increase)

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Adoption Challenges and Old Paradigms

“If necessary”

Dri Drill lling ng cost st and and Productive e Time Time

Cost of problems not associated with pressure Cost of problems associated with pressure

Plann nning ng

MPD Planned No MPD Planned

Dri Drill lling ng cost st and and Productive e Time Time MPD D Serv Services Dri Drill lling ng cost st and and Productive e Time Time Exe Execu cution

MPD Planned No MPD Planned

Dri Drill lling ng cost st and and Productive e Tim Time MPD D Serv Services MPD MPD Serv Services

Call out

• ut servic

ervice (we will use only if we run into problems)

MPD PD-ena nable bled operat

• peratio

ion ▪ MPD enabled rigs ▪ RCD housing rental

Costs increase substantially if MPD is necessary and only called after problems arise

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Cost reduction associated with MPD efficiencies (e.g. ROP increase)

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Adoption Challenges and Old Paradigms

Paving the way for a wider adoption of the technology

A condition for market maturity and for a technology to be well established is to have “lots of support”. For support to exist, there are certain conditions to meet: ▪ Use Users rs nee need d to to be be tr trai ained to to und understand d the the ad adva vantages and and sho shortcomings of

• f the

the tech technology: As MPD becomes more popular in several regions of the world, both operators and service companies participate in exercises to spread the knowledge and communicate experiences on the use of the technique, that have helped field development teams to be more efficient in well construction projects. ▪ An An incr increased supp supplie lier ba base se: As more providers offer the service, competition keeps service companies striving for a more cost-efficient solution to provide to their customers and more equipment is available to fulfill the demand for services.

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Adoption Challenges and Old Paradigms

Paving the way for a wider adoption of the technology (cont.)

▪ Plu lug and and play play and and Int ntegra rated so solu lutions: During the initial days of MPD, packages were UBD-modified kits that were used for MPD, this resulted in the need for a large footprint to provide the service. New modular and integrated packages, as well as MPD-enabled rigs will help MPD become more accessible to customers. ▪ Tec Technic ical Sup Support: The expertise on a particular technology usually resides on the supplier side in its earlier days. At the present, several majors and medium-size operators can afford to have in-house

• experts. This is not an option for expansion in new areas and it is certainly something small operators will

struggle with. It is important that service providers are able to provide the necessary support to not only help planning, but executing a successful drilling operation.

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New Reality: Cheaper, Longer and Faster

Source: Drilling Contractor Magazine

▪ More challenging market conditions are forcing operators to drain reservoirs in a more efficient way, using a reduced amount of surface resources. This has led to the development of more complex reservoir production techniques, such as multi pad wells with several horizontal wells being drilled, trying to reach as much

• f the reservoir as possible.

▪ In making reservoir drainage more efficient, new problems arise for the drilling team. Having to drill long lateral sections in narrow drilling windows created by stimulating certain sections of the reservoir, producing others to depletion while some keep virgin pressures becomes problematic.

New problems call for better solutions

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New Reality: Cheaper, Longer and Faster

▪ These events will cause several areas of the reservoir that need to be crossed with the same hole to exhibit different pressure regimes that are difficult to manage with conventional techniques. ▪ Operators who try to maximize returns on investment now see MPD as an enabling tool to create long longer dra rain inage con conducts ts in the reservoir, making drilling not only possible in some instances, but a more

• re econ

economic ical l

• pt
• ptio

ion when challenged with pressure related problems such as influxes and losses. ▪ The on-bottom ROP improvement that is usually associated with lower ECDs is seen in MPD operations, it is difficult to predict and can only be assessed once MPD has been tried and drilling performance compared with wells drilled conventionally. ▪ The following slides illustrate a case history of the implementation of two techniques that are known to increase ROP: Low Lower mud ud den ensit ity and Low Low-so solid ids s con conte tent t dri rill lling g flu fluid ids.

But faster?

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New Reality: Cheaper, Longer and Faster

▪ Specific Deep Basin formation groups in Western Canada have been drilled successfully utilizing strategies that incorporated Invert as a drilling fluid in HPHT wells with a TD between 16,400’ and 19,680’. ▪ MPD has been employed in these wells, which often have very narrow drilling windows, to great success but economics became a driving force to utilize brine as a drilling fluid. ▪ Brine presents its own set of challenges. With Pore Pressures in the range of 13.0 – 13.5ppg EMW, special brines would be required but they would be corrosive and expensive.

Faster: Utilizing MPD and Brine in HPHT Formations

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New Reality: Cheaper, Longer and Faster

▪ Incorporating MPD into Brine drilling allowed the operator to dynamically modify the density of the drilling fluid by applying Surface Back Pressure with a MPD system. Lower brine densities were then required and this allowed the use of chlorine-based brines (11.6 ppg) ▪ Premature trips, to replace downhole tools, were often necessary. The use of a low solids content fluid like brine reduced the number of trips necessary and this resulted in a higher overall ROP in similar wells (av (aver erage improve vement t ~ ~ 30 30%). The economic impact of the new strategy resulted in cos cost t sa savings vings of

• f 16%

16% pe per r well ell compared to wells drilled with invert oil.

Faster: Utilizing MPD and Brine in HPHT Formations

AVERAGE AVERAGE

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New Reality: Cheaper, Longer and Faster

Surface Back Pressure is the New Weighting Agent

▪ In a more mature market, where MPD is used consistently, some aspects of the drilling fluid business will also change. ▪ Operators will also start seeing lower drilling fluid densities as normal and it will translate into lower fluid costs but will also bring more advantages:

▪ Lower fluid disposal costs (OBM vs WBM) ▪ Longer bit runs as downhole tools will last longer in lower solids mud environments ▪ Possibility to use water based systems in more applications as high fluid densities are not required, which will also mean a more environmentally friendly

• peration

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Drilling Market Overview – 2014-2018

8 March 2019

Then, are we there yet?

▪ A lot of work has been done in the Western Canadian region to educate the drilling community, including

• perators, drilling contractors and service companies, on the benefits of MPD and in which situations it can

help, but especially in which they cannot. ▪ The use of MPD in this region was also backed by the extensive use of UBD in the past. ▪ Several MPD providers have been operating in Western Canada for years and have offered customers with a variety of options in terms of service and equipment. ▪ The oil price collapse in 2014 prompted operators to drastically cut drilling activity. Both the number of rigs and the number of wells drilled, experienced a sharp decline towards the end of the year and even further in 2015. ▪ During hard economic times, the belief is that MPD would not be used as often because it is associated with higher costs and “only needed in difficult wells”.

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Drilling Market Overview – 2014-2018

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Then, are we there yet?

▪ The charts below illustrate the trend in both number of wells drilled and number of active rigs in Western Canada (Alberta, Saskatchewan and British Columbia) from 2011 to 2018 considering oil and gas wells.

100 200 300 400 500 600 700 800 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Jan-2018

NUMBER OF ACTIVE RIGS

AB SK BC Total

Source: BOE Report Source: Government of Alberta Government of British Columbia Government of Saskatchewan

9,365 7,448 7,596 8,948 4,419 3,628 6,271 6,128

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 2011 2012 2013 2014 2015 2016 2017 2018

NUMBER OF WELLS DRILLED

AB SK BC Total Number of Wells

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Was MPD ditched due to low oil prices?

8 March 2019

Then, are we there yet?

▪ Although it is believed MPD would be minized during hard times, operators in Western Canada have recognized the value of the technology as a way to drill wells more efficiently. This has led to an increase in the number of MPD jobs executed, while the total number of wells drilled has decreased. ▪ The crisis from oil price collapse served as a litmus test for MPD as a drilling-enabling technology. While the number of wells drilled with MPD still represents a small percentage of the total, the trend is positive. We could conclude that by most operators the level

• f maturity necessary to recognize MPD as a drilling
• ptimization technology has been reached.

7,596 8,948 4,419 3,628 6,271 6,128 187 95 114 188 244 256 50 100 150 200 250 300

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 2013 2014 2015 2016 2017 2018

NUMBER OF MPD JOBS NUMBER OF WELLS DRILLED

AB SK BC Total Number of Wells Number of MPD Jobs

The number of MPD companies polled for this chart represent 40%-60% of the total

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Will MPD be a must on every rig in the future?

8 March 2019

Then, are we there yet?

▪ Nowadays, even if MPD is considered a mainstream technique, it does not mean that MPD is used in every single well, which is the case in Western Canada. ▪ The question for discussion among the MPD community (all operators, drilling contractors and service providers) is, will we be there when every rig is MPD-enabled or when every well is drilled in MPD mode?

MPD MPD MPD MPD MPD MPD MPD MPD MPD MPD MPD MPD MPD MPD MPD MPD

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End of Presentation

8 March 2019