2015 CO2 Conference Week

Wednesday, December 9, 2015

Seminar on the Origins, Processes and Exploitation of Residual Oil Zones

Midland Center

Midland, Texas

2

Table of Contents for the ROZ Seminar

1 Introduction: The Evolving Understanding of ROZs………..…Melzer

2 The Science of ROZs ………………………………...Trentham/Vance

3 ROZ Properties and Characteristics ………………………..….Melzer

Break

4 The Permian Basin ROZ Resource (San Andres

Formation) …………………………………………V Kuuskraa/ARI

5 CO2 EOR and Depressuring the Upper ROZ (DUROZ)

Case Histories …………………………………...Trentham/Melzer

6 Big Horn Basin (Wy) ROZs …………………….…..…….EORI/Melzer

7 Williston Basin (ND, SD) ROZs …………………………..…….Melzer

8 ROZ Wrap-up and Buffet Lunch ………………………………..Melzer

Optional Field Trip to Seminole San Andres Unit (Separate Ticket Required)

5:30 -7:30 pm - Reception at the Midland Center

Section

72

Section 3

ROZ Rock and Fluid Properties and Characteristics

What the Field Data Tells Us

Steve Melzer

73

ROZ Rocks/Oils/WatersOutline

• Late Stage Diagenetic Overprinting

• ROZ Oils

• ROZ Waters

73

MPZ vs. ROZ Petrophysics

Petrophysics

Core Observation

Core Analysis

Adapted from Thurman, Legado Resources, CO2 Flooding Conference, Dec 2010

74

SiO2

CaCO3

Ca Mg (CO3)2

7575

76

Porosity and PhotoElectric Cross Section Log

Northern PB San Andres Formation Example

PhotoElectric Cross Sectional Value of 3:

= Dolomite

(Anhydrite and Calcite = 5+)

76

77

CR

OSSP

LOT P

OR

OSITY &

DR

Y WEIG

HT SU

LFUR

FRO

M TH

E GA

MM

A SP

ECTR

OSC

OP

Y LOG

0

0.0

2

0.0

4

0.0

6

0.0

8

0.1

0.1

2 52

00

53

00

54

00

55

00

56

00

57

00

58

00

59

00

60

00

Dep

th in

feet

SpectroLith Dry Wt Sulfur

00.0

5

0.1

0.1

5

0.2

0.2

5

0.3

Porosity - Decimal

Dry W

eight Su

lfur (lb

/lb)

PX

ND

_HI (R

t Scale)Porosity and Sulfur

Composition (Spectroscopy) Log

NE Shelf San Andres Formation (PB) Example

Sulfur Track on SpectroLith© Computation:

Increasing Sulfur in the Inverted Transition Zone

77

78

What Do We Know About ROZ Oils?

78

79

SSAU MPZ and ROZ Oils

79

80

MPZ and ROZ Oil Comparisons

ROZ

Oils

80

81

Remember this Slide?

Let’s Think about the Consumed

Hydrocarbons

81

82

MPZ and ROZ Oil Comps

82

83

Other Permian Basin Oil Data

83

84

Hypotheses

• Microbes (Anaerobes) modify oil composition

• Microbes (Anaerobes) create H2S during the process of oil

composition modification (source the S from anhydrite)

• A variety of Sulfurous Chemicals are also a by-product of the

Anaerobic Process

So what evidence of these processes do we have?

84

85

The Anedoctal Evidence

• Sour Oil and “Sulfur Water”

• And How about oil composition

changes?

85

86

GC Analysis

MPZ Reservoir Oil From ROZ Interval

Permian Basin, San Andres Oil from Goldsmith Field

Sample UH-00037-001

c3_m

nc4

c4_2m

nc5

c4_22dm

cp

c4_23dm

c5_2m

c5_3m

nc6

c5_22dm

mcp

c5_24dm

c4_tm

bz

c5_33dm

cx

c6_2m

c5_23dm

cp_11dm

c6_3m

cp_c13dm

cp_t13dm

c5_e

cp_t12dm

nc7

mcxc12dm

cp_e

tol

nc8

ai9

ebz

mxy_pxy

oxy

nc9

ai10

nc10

ai11

nc11

nc12

ai13

ai14

nc13

ai15

nc14

ai16

nc15

nc16

ai18

nc17

pr

nc18

ph

nc19

nc20

nc21

nc22

nc23

nc24

nc25

nc26

nc27

nc28

nc29

nc30

nc31

nc32

nc33

nc34

nc35

File: 11G10014.D\FID2B.CHDate & Time: 3/17/11 4:30:06 PM

20 40 60 80 100 120 140 160

100

200

300

400

500

600

700

Sample UH-00037-002

c3_m

nc4

c4_2m

nc5

c4_22dm

cp

c4_23dm

c5_2m

c5_3m

nc6

c5_22dm

mcp

c5_24dm

c4_tm

bz

c5_33dm

cx

c6_2m

c5_23dm

cp_11dm

c6_3m

cp_c13dm

cp_t13dm

c5_ecp_t12dm

nc7mcxc12dm

cp_e

tol

nc8

ai9

ebz

mxy_pxy

oxy

nc9

ai10

nc10

ai11

nc11

nc12

ai13

ai14

nc13

ai15

nc14

ai16

nc15

nc16

ai18

nc17

pr

nc18

ph

nc19

nc20

nc21

nc22

nc23

nc24

nc25

nc26

nc27

nc28

nc29

nc30

nc31

nc32

nc33

nc34

nc35

File: 11G10015.D\FID2B.CHDate & Time: 3/17/11 7:47:44 PM

20 40 60 80 100 120 140 160

100

200

300

400

500

600

700

Sample UH-00039-001

c3_mnc4

c4_2m

nc5

c4_22dm

cp

c4_23dm

c5_2m

c5_3m

nc6

c5_22dm

mcp

c5_24dm

c4_tm

bz

c5_33dm

cx

c6_2m

c5_23dm

cp_11dm

c6_3m

cp_c13dm

cp_t13dm

c5_e

cp_t12dm

nc7

mcxc12dm

cp_e

tol

nc8

ai9

ebz

mxy_pxy

oxy

nc9

ai10

nc10

ai11

nc11

nc12

ai13

ai14

nc13

ai15

nc14

ai16

nc15

nc16

ai18

nc17

pr

nc18

ph

nc19

nc20

nc21

nc22

nc23

nc24

nc25

nc26

nc27

nc28

nc29

nc30

nc31

nc32

nc33

nc34

nc35

File: 11G10147.D\FID2B.CHDate & Time: 7/22/11 1:49:31 PM

20 40 60 80 100 120 140 160

100

200

300

400

500

600

Acquired with corporate support from

86

87

GLSAU MPZ Oil Sample #213 – GC Results(MPZ Reference)

20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0

100

200

300

400

500

600

700

800

c3_m

nc4

c4_2m nc5

c4_22dm

cp

c4_23dm

c5_2m

c5_3m

nc6

c5_22dm

mcp

c5_24dm

c4_tm

bz

c5_33dm

cx

c6_2m

c5_23dm

cp_11dm

c6_3m

cp_c13dm

cp_t13dm

c5_e

cp_t12dm

nc7

mcxc12dm

cp_e

tol

nc8

ai9

ebz

mxy_pxy

oxy

nc9

ai10

nc10

ai11

nc11

nc12

ai13

ai14

nc13

ai15

nc14

ai16

nc15

nc16

ai18

nc17

pr

nc18

ph

nc19

nc20

nc21

nc22

nc23

nc24

nc25

nc26

nc27

nc28

nc29

nc30

nc31

nc32

nc33

nc34

nc35

Retention Time (min)

Retention Time - Minutes

87

88

MPZ Oil GLSAU

nC6 nC7 nC8

nC9 nC10 nC 11

88

89

ROZ Oil GLSAU GC ResultsSample R1A

20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0

100

200

300

400

500

600

700

c3_m

nc4

c4_2m

nc5

c4_22dm

cp

c4_23dm

c5_2m

c5_3m

nc6

c5_22dm

mcp

c5_24dm

c4_tm

bz

c5_33dm

cx

c6_2m

c5_23dm

cp_11dm

c6_3m

cp_c13dm

cp_t13dm

c5_e

cp_t12dm

nc7

mcxc12dm

cp_e

tol

nc8

ai9

ebz

mxy_pxy

oxy

nc9

ai10

nc10

ai11

nc11

nc12

ai13

ai14

nc13

ai15

nc14

ai16

nc15

nc16

ai18

nc17

pr

nc18

ph

nc19

nc20

nc21

nc22

nc23

nc24

nc25

nc26

nc27

nc28

nc29

nc30

nc31

nc32

nc33

nc34

nc35

Retention Time (min)

89

90

ROZ Oil GLSAU

nC6 nC7 nC8

nC9 nC10 nC11 nC12

90

91

Another Basin,

Another (heavier) Oil

91

92

Bighorn Basin, Wy Tensleep OIlOil Properties are similar in TZ/ROZ and MPZ*

GC Analysis

MPZ Reservoir Oil From Non-productive Wells (ROZs?)

?

Baseline Profile; Meaning?

92

93

Needed Work

• Get Oil Samples from Various Vertical Positions in the Type 3

ROZs

• Get Oil Compositions Paying Close Attention to Miscible-critical

Components (C-5 to C-20)

• Get and Analyze Oils from Type 1 and 2 ROZs to Compare to MPZ

Oils

• Look at Both Microbial and Diffusivity Explanations for HC

Component Reductions

93

94

What Do We Know About Type 3 ROZ Water?

94

95

PB Field #1

95

96

PB Field #2 – Water Salinities

96

97

Big Horn and Other BasinsWater Salinities

• Water Can Actually be “Fresh”

These Type 3, Laterally Flushed, ROZs can be

thought of in a Pore Volume Flushing Context

• In our First RPSEA Report (West Side of the Central Basin Platform),

we Modeled and Calculated the San Andres Hydrodynamic Flushing

at 17-46 Total Pore Volumes (15 million years) using DST*-derived

Permeabilities

* Drillstem Test

97

98

Proximity to Source WatersFor Type 3 ROZs

• The Closer to the Source and

• The Higher the Formation Permeability

Then The Greater the Pore Volume Flushing and Fresher the Water

• Does that Affect the Residual Oil Saturation? That is, is it Like a Low Salinity Water Flood?

• Should We Expect Variable Waters Even in a Project Area (Vertically, Horizontally)?

98

99

Section 4

The Permian Basin ROZ Resource (San Andres Formation)

Our report on this is pending and under review at RPSEA and DOE)

Vello Kuuskraa

Advanced Resources

International

100

The Three Residual Oil Zone Resource Studies to Date

• 2006 - Brownfields Beneath 56 fields

(45 San Andres/Grayburg Fields)

• 2014 – Four County Greenfield ROZ

Study (All San Andres)

• 2015 – Eight County Greenfield ROZ

Study (All San Andres)

101

Summary of ROZ Brownfield Study(2006)

102

Brownfield Recoverable Resources

103

RPSEA II Study Foundation:San Andres Fairway Mapping

November 2015

104

Early San Andres Fairway Mapping

(Circa 2009)

San Andres ROZ FairwaysOriginal 4 Counties Chosen

104

105

In-Place San Andres ROZ "Fairway" Resources: Four-County Area of West Texas

County

In-Place Resources

Total Higher Lower

Quality Quality

(B Bbls) (B Bbls) (B Bbls)

Gaines 45.5 35.4 10.1

Yoakum 20.7 16.1 4.6

Terry 17.9 10.6 7.3

Dawson 27.8 14.6 13.2

Total 111.9 76.7 35.2

Source: Advanced Resources International, 2015.

106

Also Performed a Recoverable Resource Estimate and Checked Against First Draft of KM’s “Tall Cotton”

Recoverables

Exhibit 7.3.3 (EX-3) Comparison of Gaines County Volumetric San Andres ROZ "Fairway" Reservoir Properties: Tall Cotton ROZ “Fairway”, Seminole Oil Field ROZ,

and This Study’s Partition #3

Volumetric Reservoir Properties

Seminole Oil Field ROZ1, 2

“Tall Cotton” ROZ “Fairway”3

This Study Partition #3

(ROZ “1” Only) (ROZ “1” & ROZ “2”)

ROZ “1”

ROZ “2”

Total

Gross Pay (feet) 246 540 244 248 492

Net Pay (feet) 197 450 208 224 432

Porosity (%) 12.8%-15% 12% 10.2% 9.7% 10%

Oil Saturation (%) 32% 35% to 50% 36% 36% 36%

1Honarpour, M., 2010. 2Bush, J., 2001. 3 Railroad Commission of Texas, 2014.

Source: Advanced Resources International, 2015.

What portion of this in-place San Andres ROZ “fairway” oil resource can be mobilized

107

Recoverable Resources(4-County Study)

108

Expanded OIP Resource Study to 8 More Counties (2015)

109

San Andres

Greenfield

ROZ

Assessment

Study

110

12-County ROZ Study

(ARI)

2014 (4-county) and

2015 (8-county)

111

12-County Greenfield ROZ Resources

112

Section 5

ON-GOING RESIDUAL OIL ZONE DEMONSTRATION PROJECTS

ROZ Seminar

CO2 Conference

December 2015

Bob Trentham & Steve Melzer

113

Section 5a

CO2 EOR Case Histories

Bob Trentham

114

There are Two Categories of Projects Currently Exploiting the ROZ

(This Section has an Engineering Emphasis)

a. EOR Exploitation (currently limited to CO2 EOR and

the Permian Basin)

b. Depressuring the Upper ROZ (DUROZ) also

Occasionally Referred to as Depressuring EOR

115

Subsection 5a

ON-GOING CO2 EOR RESIDUAL OIL ZONE DEMONSTRATION PROJECTS

ROZ Seminar

CO2 Conference

December 2015

Bob Trentham

116

Permian Basin Stratigraphic Column, Cumulative Production to Date & Estimated OOIP

117

MIDDLE SAN ANDRES FORMATION PALEOGEOGRAPHYwith Location of Industry Documented ROZ Zones/Fields

VACUUM FIELD

Guadalupe

Mountains

Midland

BasinDelaware

Basin

Central

Basin

Platform

Shelf Margin

“reef”

Texas

New MexicoMidland

San Angelo

Restricted

Carbonate Shelf

Open

Marine

Marathon

Overthrust Belt

NORTHWEST

SHELFNORTHERN

SHELF

EASTERN

SHELF

WASSON FIELD (3)

SEMINOLE FIELD (5)

GOLDSMITH FIELDHobbs

HANFORD FIELD

MEANS FIELD

GEORGE ALLEN FIELD

E. SEMINOLE FIELD

TALL COTTON PROJECT

118

The List of On-going ROZ CO2 EOR Projects

*** BF = ‘brownfield’ (requires wells deepenings;

GF = ‘greenfield’ (requires new wells)

***

119

Horizontal

Depressuring

GEORGE ALLEN

Peripheral

Greenfield CO2 Flood

TALL COTTON

Greenfield

CO2 Flood

GOLDSMITH

Brownfield

ROZ CO2 Flood

& Gas Lift

SEMINOLE

Brownfield

ROZ CO2 Flood

119

120

SEMINOLE FIELD

THE “GOLD STANDARD” OF ROZ PROJECTS

121

Tall Cotton

A Greenfield project without an associated Main Pay.

Seminole

Field

West

Seminole

Field

122

Anschutz #1 Keating

Read & Stevens #1-427 Charlene

“Bittner Field”

2 wells, the #1 Keating and the #1-427 Charlene, provided the information necessary

to establish the presence of a significant Greenfield ROZ in the area.

Tall Cotton

123

Subsection 5b

EXPLOITING THE RESIDUAL OIL ZONE VIA DEPRESSURING

ROZ Seminar

CO2 Conference

December 2015

Steve Melzer

124

Has the Permian Basin Entered a Second and New Era of Horizontal

Well Production?

125

CONCLUSIONS

• Wolfcamp Oil has effectively caught up with San Andres Oil Production

• Wolfcamp Gas Blows away San Andres Gas (40 bcfpd to 3)

• We Would Suspect the NGL Production Story is a Very Similar One

BUT……is there more to this story?

San Andres

Carbonat

e

10 mm

10 mm

Wolfcamp

125

3 mm

9 mm

126

Other Critical Factors to Consider

• The Carbonate Formation Decline Curve has Historically been very

Gentle (4-5% per year) - as witnessed on the last slide

• The Shale Decline Curves are Very Steep Creating the Need to Keep

Drilling at a Rapid Pace

• The $100/bbl Oil Era Allowed Technology to Leap Forward; $40-50/bbl

Oil will still have Sweetspots to Exploit - especially in the PB

• Is There Anything New with the Carbonates? Could they be a Hybrid

between the Gentler Decline Curve and Big Quick Returns on

Investments that the Shales Give?

127

It is Very New but There is IndeedMore to the Story

• A New Horizontal Resource Play (Depressuring the Upper ROZ) in the San Andres has Just Entered the Picture and Shows Promise of Adding Another Dimension to the PB Production Story as Time Moves Forward

• How Big is this New Play?

• What are its Characteristics?

• Does This have Scalability to Other Part of the U.S. and World?

128

Insights on An Overlooked Production Mechanism and Demonstration Case Histories:

A New and Exciting San Andres Residual Oil Zones Oil Play - Depressuring the Upper ROZ (DUROZ)*

December 2015

* Can Also Be Refered to as Depressuring EOR (DEOR)

129

Where to Start?

Much has Been Learned About Residual Oil Zones in the Last Decade

Almost all of it from Work Here in the Permian Basin

130

Current Thinking on ROZ’s

Oil and gas industry thinking has historically believed that residual

(immobile) oil can only be recovered using enhanced recovery

techniques. The fastest growing technique uses carbon dioxide-

enhanced oil recovery (CO2 EOR) and is currently being used to

recover oil from ROZs in 15 different projects as you just saw.

And….these ROZs are Predominately Oil Wet with Large Immobile

Oil Targets

Are EOR injection projects the only way?

131

An Exciting New Strategy for ROZ’s

• Two companies, drilling and completing horizontal wells in Yoakum

County, Tx, have very recently found that they can make a ROZ

productive without using an injectant (classic EOR). We believe that

they did not originally understand exactly what was controlling the

production but, nonetheless, their results are exciting and speak for

themselves.

• As of the Present, over 30 wells have been drilled and, after roughly a

month of 100% water production, all showed climbing oil cuts and, at

the 90th day of production, between 200-300 bbls/day.

132

133

133

The Permian

Basin

We are looking at this

Area in

particular

*

* ROZ Fairway Thickness Exceeding 100’

133

134

On-going

DURO

Z Play

AreaYoakum

County, TX

134

135

Private and Confidential Material 135

Analog (Reference Case History) Well

Current DUROZ

Play AreaYoakum County, Tx

136

Manzano/Walsh Area Map 34599

A

36127

36191

31933

A’

Yoakum

Cochran

Lea

Gaines

137

Manzano-Walsh Cross Section A-A’ (N-S)

-1500 msl

-1600 msl

138

138

DUROZ*: An Evolving Strategy for Producing the ROZ

• Go to a ROZ Fairway Location, Seek and Secure a Water Disposal Option (all DUROZ ROZ wells produce water cuts in the range of 75-85%)

• Target the Good Gas/Oil Ratio ROZs

• Expose a Large Section (e.g., Long Lateral)

• Stimulate the Zone

• Pump Very Large Volumes of the Water Until Reservoir Pressures Falls Below ‘Bubble Point’

• Be Patient

• Watch Oil Cuts Rise

* Reservoir Depressuring the Upper ROZ

139

Private and Confidential Material 139

The DUROZ “Play” (as

Currently Under Development as

of Jan 2015)

139

140

Starting the Completion(First Stage Perforation)

* Hydrofracture Technologies being used include gelled fracs,

hybrid fracs and “slickwater” fracs – all successful

*

141

Completing the Perforations(and Readied for Staged Hydraulic Fracturing)

Stage 1 FracStage 2Stage 3

142

Analog Well Performance (1)(DUROZ Case Histories)

• The following data is from the older upper ROZ

wells and one in particular we call our analog

horizontal San Andres ROZ well in Yoakum

County, Texas

• Since drilling and completing the analog well in

late in 2013, 30 more DUROZ wells have been

drilled and over 25 completed and, according to

our conversations with the two companies

involved, hydrofrac optimization is improving on

the analog production case history.

• Experimentation has been occurring with 9000’

laterals and recent costs of the longer lateral wells

has come down to $2.75 million where the 4500’

lateral costs range from $1.8-2.1 million

143

Horizontal DUROZ Wells - Daily Production History

Winbert 1H

144

Horizontal DUROZ Wells – Cum Production Data

Winbert 1H

145

Reservoir Depressuring Stats

146

Analog Well Performance (2)(Analog {1-mile} DUROZ Case History)

• A Good Average Well is also the oldest of the upper ROZ wells (Winbert 1-H), we’ll call our analog horizontal San Andres ROZ well in Yoakum County, Texas

• Long Term Well Decline Analysis Complicated by the Addition of Two Wells to the Lease

147

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

0

50

100

150

200

250

300

350

400

450

500

Aug-13 Nov-13 Mar-14 Jun-14 Sep-14

Cu

m O

il i

n B

bls

OIL

PR

OD

UC

TIO

N (

bo

pd

)

MONTH- YR

WINBERT HORIZONTAL LEASE PRODUCTIONYOAKUM COUNTY SAN ANDRES

OIL (BOPD)

CUM OIL (BBLS)

Winbert (Brahaney Area) DUROZ Case HistoryYoakum County, Texas

12 Months

Well Drilled

Aug 2013

148

The Produced Water Volumes are Very Large

148

149

Winbert Lease Update

WINBERT LEASE HORIZONTAL SAN ANDRES ROZ WELLS PRODUCTION

YOAKUM COUNTY, TEXAS

0

5,000

10,000

15,000

20,000

25,000

0 5 10 15 20 25 30MONTHS AFTER 1st WELL COMPLETION

OIL

PR

OD

UC

TIO

N (

bo

pm

)

0

1

2

3

4

5

We

ll C

ou

nt

WINBERT LEASE OIL (BOPM)

WCNT

150

The DUROZ Play Summary

151

DEOR/DUROZ Review {1}

• The DEOR/DUROZ Play, although very new, takes advantage

of the new understanding of the widespread ROZ Fairways,

high Sorw Values, and excellent reservoir properties of the

Permian Basin San Andres porosity intervals

• The Play also takes advantage of the technological advances

in horizontal drilling and completions

• The two technologies converge to make a very commercial

horizontal play even at $50/bbl oil pricing if water costs can be

contained

152

DEOR/DUROZ Review (Cont’d)

• The Bottom of the Prospective ROZ may not be a

lithological change bringing with it hydrofracturing

risks or it can be a wackestone (tight, shaley

dolomite) providing an excellent containment

(bottom) for the hydrofracs (~ROZ thickness of 100’)

• DUROZ Zones can be stacked

• This play will have “sweetspots” like other resource

plays but could be of enormous extent throughout the

San Andres Shelf Regions of the PB

153

DEOR/DUROZ Summary (Cont’d)

• This Area of Western Yoakum County is

Laced with Dry Holes with an Occasional

Shingle of Mobile Oil at the Top of the

ROZ – a Classic Indicator of ROZ

Greenfields

• Conventional Thought Keeps Saying that

it has to be Mobile Oil that is Being

Produced (Tight Oil)

• But with 30-40% Sorw Values in the ROZ

Greenfields, there are Plenty of Reasons

to Believe it is Residual Oil that is being

Produced (i.e., Camp #3 – see Slide #16)

154

With all of this as the Premise…

What about ROZ Scalability to Other Places?

For Both (CO2) EOR and for DEOR/DUROZ

155

Comments on Scalability to Other Areas, Other Basins in the U.S. and Abroad

• San Andres ROZ

• Other ROZs in the PB (Grayburg,

Glorieta/Yeso, Clearfork, Abo)

• Hunton Dewatering Play (OK)

• Big Horn Basin (WY)

• Powder River Basin (WY)?

• Red River ROZ Play (Williston Basin)

• Others?

156

For more information and a complete set of slides – see 2015

CO2 Conference Results on www.CO2Conference.net