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In China, geological and surficial conditions will need to be proven favourable for economic development. Mountainous

terrain and corresponding subsurface structural complexity, coupled with high population density, impose additional

challenges compared to most existing shale gas developments in North America. On the logistical and economic side, there

may be additional challenges of an immature fracture stimulation support industry, roads not built for heavy traffic and largevehicles in rural areas, and the uncertainty of a regulatory and price environment that is still under construction.

To create a successful Unconventional gas and oil industry in China, strong partnerships are needed in every combination.This includes resource holders, regulatory bodies, local governments, communities, partners, service and material suppliers,

universities, and research institutions. Not to be overlooked is the need to educate and train a workforce with the unique skillsapplicable to Unconventional hydrocarbon projects. If subsurface conditions are capable of supporting an Unconventionals

industry, the development benefits both economically and environmentally can be large.

Sichuan Shale Joint Cooperation Project, PetroChina and Shell

The Sichuan Shale cooperation project has achieved its goals of the first phase. These included achieving > 3 years Lost Time

Injury (LTI) free, spudding the first exploratory well within a year of project inception, demonstrating the technical basis for a

shale gas venture, and transferring North American and China (Changbei) field development best practice into the project

team. The first vertical well with a two-stage hydraulic fracture stimulation tested at a stable rate of 60 000 m3/d, while a

subsequent horizontal was successfully completed with a 9-stage stimulation and tested at a rate of 430 000 m3/d.

Key focus areas for safety management include road safety, contractor safety management, safety leadership, worksite hazard

management and process safety. In addition, a major cultural change programme of behavioural-based safety is underway andwill underpin a programme of continuous improvement required to achieve and sustain a high level of safety performance.

The key technical objectives of the initial five-well programme were to:

i. Determine the presence and lateral continuity of shale gas and assess the degree of the charge retention of the basalpart of the Longmaxi Shale and underlying Baotao Limestone;

ii. Gather subsurface lithological data, including continuous core to calibrate wireline logs;iii. Gather engineering data on drilling and fracture stimulation performance, and subsurface pressures;iv. Determine the producibility/flow rate of the gas, if it is present.

Structural complexity and subsurface uncertainty are currently high, with sparse 2D seismic data of numerous differentvintages and very few prior Base Longmaxi and Baotao well penetrations. The high-gamma ray interval at the base of the

Longmaxi shale interval was proved correlateable across the area of evaluation, but sub-regional differences in facies,

thickness and reservoir properties are evident even with the limited data to date. The characteristics of the basal Longmaxi

shale include low porosity and permeability but good fraccability and abundant pre-existing natural fractures. The jointcooperation area within which we are evaluating the Longmaxi is structurally complex, therefore with a variable stress

distribution in both direction and magnitude. The contained hydrocarbons are dry gas with no detectable H2S; the target

interval is highly overpressured.

Long term extended test data are required to better understand the overall well performance and ultimate recovery per well to

be expected from full development. This is turn informs field development concept selection, i.e. number, type, and layout ofwells and their associated infrastructure placement and sizing.

A play-based exploration methodology has been employed to focus on the key uncertainties first, characterize different so-

called play segments, and execute a robust data acquisition programme. This is helping to rank the better and lesser portionsof the joint cooperation area and drives subsequent decision-making. At the same time, early exploration is laying the data-

based groundwork for a future full-field development programme which will be executed in phases. Vertical wells have

provided whole cores, extensive logging data, and reservoir pressures from DFIT and downhole surveys. Focused Ion Beam

(FIB) Scanning Electron Microscopy has been employed on core plugs with the aim of visualizing and and quantifying thenano-scale pore network, assessing hydrocarbon storage capacity and pore connectivity and calibrating petrophysically derived

reservoir properties. The stratigraphy and depositional environment were investigated with chemostratigraphy on drill

cuttings.

Given the intense and active deformational setting of the Sichuan Basin, the Longmaxi Formation may exhibit anisotropic

subsurface stresses congruent with regional stress patterns, or possibly, significant local variation depending on whether a

given well penetrates a crest, flank, or syncline of a fold (Hackbarth et al., 2011). In terms of reservoir pressures, earlyindications from drilling data, DFIT and well tests are that there exist good overpressures in some areas. Mudrocks (shales)

are typically highly laminated and contain preferentially-oriented micro-structural features that result in mechanical

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anisotropy. This complicates their analysis for fracture stimulation design compared to tight sand reservoirs, such that

additional geomechanical parameters must be determined.

Various drilling-related techniques have been employed or evaluated in order to improve operational performance andefficiency as well as implement best practices. These techniques included managed pressure drilling, advanced waste

management (with synthetic-based mud cuttings incinerated) and pitless drilling. As this was an unfamiliar area for the early

exploratory wells, great care was taken to avoid potential subsurface hazards such as shallow gas, shallow depleted intervals,H2S-bearing zones, areas of geological complexity, poorly imaged areas and major fault zones. In exploratory shale gas areas

which are structurally complex and only have sparse 2D data coverage, additional emphasis needs to be placed on positioningthe horizontal wells, as these have greater challenge than in a development phase where 3D seismic is typically available.

Well based seismic techniques have been explored for this purpose.

In this project, geomechanical properties have also been derived and integrated with additional data such as image and sonic

logs and used as a basis for frac design. Hydraulic fracture stimulation designs for the project have included low vicositywater with proppant and gel for friction reduction in a limited entry design. In each case, the planned design was validated

and/or adjusted just before execution using results from Diagnostic Fracture Injection Tests (DFITs) immediately prior to

stimulation. Hydraulic fracture execution is challenging in the area because of high wellhead treating pressure due to high

formation stress and pore pressure. Overall, the procedure followed the plug and perf design with coiled tubing sand jetting

and milling out of all plugs prior to commingled flow back for testing. Production logging gave insights on inflow from thevarious perforation clusters.

More specifically, two frac stages were placed in the two vertical wells. In the first well, some 2200 m3 of fluid was used,

combined with 72 thousand tonnes of proppant at a maximum pump rate of about 55 bpm. The maximum pressure reachedwas 12500 psi. In the three subsequent horizontal wells, the number of stages ranged from five to nine. Fluids were at least

partially recycled. Further work is ongoing to optimize frac parameters for future well stimulations; experience gained from

operations in North America has been and will continue to be applied to the evaluation execution of this opportunity. The twingoals are to improve well ultimate recovery while also optimizing fluid and proppant usage.

During well hydraulic fracturing operations for one well, a new approach for well-based monitoring of microseismic eventsfrom multiple monitoring points was tested and is described in more detail elsewhere (Dwan et al., 2013). In summary, the

redistribution of earth stresses around a growing hydraulic fracture causes the surrounding rock to fracture and thus emit very

faint sounds. In the study area, these microseismic events generated by hydraulic stimulation in a horizontal well were sensed

from one adjacent vertical well at a depth of >3500m, and 3 shallow instrumented boreholes drilled just for this purpose.Using the four sets of observer data the time, depth, and x,y location of the microseismic events could be calculated with good

accuracy.

Figure 1. Geometry of horizontal well with relation to Longmaxi Shale Layers and vertical well. The horizontal well was

subject to 9-stage hydraulic fracturing treatment and microseismic monitoring undertaken using the vertical observation wells

as well as 3 shallow instrumented wells.

The results of this work have yielded vital insights regarding fracture geometries, which will be used for optimizing futurewell design. In particular, the data suggest the presence of frac barriers which contain vertical frac growth to within the shale,

although there is potential for natural fractures to weaken the effectiveness of these frac barriers. The data also suggest a

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complex fracture pattern consistent with the patterns described elsewhere within the basin (Fu Yongqiang et al., 2011). The

microseismic interpretation indicates weak stress anisotropy at that location, but strong interaction between the main hydraulic

fracture and pre-existing natural fractures/ planes of weakness. All these observations are very helpful in interpreting the

stimulated rock volume (SRV) which in turn strongly influences well initial rate and the ultimate recoverable volume fromeach well. Geomechanics plays a critical role in determining subsurface stress field, identifying brittle and fraccable shale

intervals and predicting natural fracture network in a structurally complex setting. (Yuan et al., 2013). Further work will

incorporate newly acquired data to further enhance reservoir characterization and refine and develop new geomechanicalmodels.

Finally, it is important to note that the operating environment in the Sichuan Basin consists of densely-populated, intensively-

farmed agricultural land. Non-technical risks arising from land use, permitting processes and interactions with the communityare significant for developments where many hundreds of wells are expected to be drilled. Management of these will be

critical to the development of Chinas shale gas resource base. However, with good operational practices, shale gas operations

can bring noticeable benefits to local communities. In this respect, Shell uses its global onshore operating principles to guideoperational activities. These focus on the following principles i) Safety and Well Integrity, ii) groundwater protection and

water re-use, iii) protection of air quality, iv) minimized operational footprint, v) positive interactions with local communities.

During the initial evaluation period, we engaged with local communities to understand any issues or concerns as a result of

operations and looked for opportunities to provide local benefits such as employment or improved road conditions. One such

example included supporting the farming community with pumps, hoses and personnel during a low-rainfall period whenirrigation was needed. We generally received good support from local communities during operations to date. The learnings

gained from this initial evaluation will be incorporated into any future development planning.

Technical Summary The basal Longmaxi Silurian Shale appears to be ubiquitous in the study area, southern Sichuan Basin. While

exhibiting regional variability, it is proven to have the potential to flow gas to the surface at a significant rate.

The Sichuan study area is structurally complex. Well and core measurements to date indicate weak stress anisotropy,but strong interaction between hydraulic fractures and pre-existing natural fractures.

Hydraulic fracturing has been successful in stimulating the flow of gas at encouraging rates.

A microseismic trial has highlighted good rock properties for microseismic monitoring and has demonstrated thepotential to use a shallow well based monitoring technique

Analysis of microseismic results has yielded insights into the geometry and pattern of fracture stimulation. Theimportance of pre-existing natural fractures has been demonstrated. Estimates of stimulated rock volume, fraccontainment and stage interference drawn from these data will be used to refine future well completion design.

Results from the first five-well programme, plus continued application of insights from North Americanunconventionals projects, will be used to progress the evaluation of this opportunity.

References

Claudia J. Hackbarth, Danny Soo, and Navpreet Singh, 2011. Sichuan Basin Shale Gas, China: Exploring the Lower Silurian

Longmaxi Shale. International Petroleum Technology Conference Bangkok, Thailand, 1517 November 2011.

F.S. Dwan, J. Qiu, M. Zhou, R.S. Yuan, I. Zhang, L. Jin, S. Wang, X. Li, M. Lin, B. Liang, C. Deng, S.Liang, R. V. Dok, L.

Walter, 2013. Sichuan Shale Gas Microseismic Monitoring Acquisition, Processing, and Integrated Analyses, International

Petroleum Technology Conference Beijing, 26-28 March 2013. 12IPTC-P-655

Fu Yongqiang, Xiao Yongjun, Chen Yuanlin, Zeng lixin. 2012. Practicing and Learning of Shale Gas Staged Fracturing in

Sichuan Basin A Case for the W1 Horizontal Well. IADC-SPE. Asia Pacific Drilling and Technology Conference, Tainjin9-11 July 2012.

Yuan, Roger, Fa Dwan, Navpreet Singh, S. Wang, X. Li, M. Lin. 2013. Geomechanical Characterization and Modeling Help

to Unlock Shale Gas Reservoirs in the Southern Sichuan Basin. International Petroleum Technology Conference Beijing, 26-

28 March 2013. IPTC-16756-Abstract.