Colombia: a shift to unconventional oil and gas? Derrick Dao, P. - PowerPoint PPT Presentation

Colombia: a shift to unconventional oil and gas? Derrick Dao, P. Eng. ddao@mcdan.com

McDaniel McDaniel & Associates is a leading international consulting firm … Overview Colombia Consulting expertise Global presence » Established in 1955 » Head office in Calgary, Canada » Internationally recognized expertise in: » Reserves evaluations » Resource assessments » A&D Advisory services » Geological studies » Technical studies » Expert witness testimony McDaniel & Associates’ oil and gas consulting expertise spans 75 countries covering many of the most important hydrocarbon basins around the world Sep 28, 2017

…having evaluated nearly 700 properties outside of Canada and United McDaniel Overview States Colombia Diversified Experience Capability  Unrivalled experience in preparing reserves and resources evaluations using different reserves definitions and security exchange rules, and for a variety of fiscal systems in different Latin countries Asia, America  Australia Fiscal Regimes 29% 26%  Royalty/Tax  Producing Sharing Contracts  Service Contracts Europe MENA 15% Africa 10% 20% Compliance Distribution of Experience  Strong presence and relationship with many operators in PRMS COGEH & NI51-101 Latin America  Extensive experience in west and east Africa  Leading evaluator in central Asia region Sep 28, 2017

… working with many of the world’s leading financial institutions and McDaniel Overview multinational conglomerates Colombia TECHNICAL & FINANCIAL ADVISORY McDaniel and Associates is relied on by prospective acquirers, financial institutions and equity funds to provide objective technical and financial advice. Our wide experience in asset valuations help these institutions make informed decisions. Sep 28, 2017

McDaniel Colombia is a positive example of a country re-structuring… Overview Colombia Industry History Colombia Historical Production and Reserves 3.5 1200 Lack of discoveries » Since 1951 the Colombian oil Production = industry operated and regulated by Declining Reserves + Proved Reserves 3.0 Production the state-owned company 1000 Ecopetrol 2.5 >80% increase 800 in production » In 2003, Ecopetrol and the Reserves (000 MMbbls),) Oil Production (Mbbl/d) levels 2.0 Colombian oil industry underwent restructuring to avoid further 600 sliding of production and reserves 1.5 400 Cupiagua Pacific E&P acquires » Reforms separated Ecopetrol’s 1.0 Discovery Rubiales field (510 MMbbls) dual role of regulator and Oil Company Cusiana Discovery 200 (750 MMbbls) 0.5 Establishment Camo Limon Discovery of ANH (1200 MMbbls) » Role of administrator and regulator - - of hydrocarbon resources 1980 1985 1990 1995 2000 2005 2010 2015 Sep 28, 2017 assigned to the National Hydrocarbon Agency (ANH) 5 Source: BP 2016 Statistical Review

… but investment is still required to replenish reserves & McDaniel Overview production levels … Colombia Ecopetrol total proved reserves Colombia Reserve Life Index (Oil) 2500 313.9 Proved reserves (MMboe) 2000 50 40 1500 RLI (years) 30 1000 20 500 10 0 0 2012 2013 2014 2015 2016 2017 Mexico Argentina Brazil Colombia Ecuador Peru Trinidad & Venezuela Other Latin Tobago America Ecopetrol percentage of Colombia’s oil production » Current production levels are not sustainable over long term at current proved reserve levels (Ecopetrol’s lowest in 5 years) » 2016 Reserve life index is 6.3, the lowest in South America and Ecopetrol one of the lowest out of all producing countries in the world Remaining » Future growth in oil production will require greater exploration and oil discoveries to replenish increase in Colombia’s Reserves Sep 28, 2017 6 Source: Ecopetrol SEC EDGAR Source: BP 2016 Statistical Review

… with fears by the Office of the Comptroller General of Colombia McDaniel Overview losing its oil independence Colombia 1,000,000 Bopd peak oil production in 2013, with close to 2 billion barrels in total proved reserves 872,000 Average 2017 year end production estimate, with total proved reserves in Colombia at 1.6 billion barrels – 32% down from three years earlier 2021 End of Colombia oil self sufficiency at current forecasted rates Sep 28, 2017 7

Plenty of investment opportunities still exist in Colombia given the McDaniel Overview initiatives to increase reserves, particularly in unconventionals Colombia E&P investment levels in Colombia $7bn of investment required for country to $8.3b 9 meet government production targets 8 7 $2.1bn of E&P Investment levels, billions $ USD 6 investment still needed 5 An increase of $2.6bn of 4 investment coinciding with better expectations by oil & gas companies 3 2 Amidst low oil prices, represents a fraction of the 1 $8.3bn of invested into Colombia two years earlier Sep 28, 2017 0 2014 2016 2017 2018+ 8

…prompting the government to take additional measures to ensure McDaniel Overview national energy security Colombia  Three special economic zones dedicated to facilitating offshore exploration in the Caribbean Sea  Tax and customs incentives offered to companies drilling offshore wells, including Ecopetrol, Anadarko, Exxon, Petrobras, Repsol and Statoil Promoting offshore  Ecopetrol and Anadarko with several deep water off shore gas discoveries in the Purple Angel, Furte development Sur and Furte Norte blocks, collectively covering a total of ~14,900 square kms  Government has gotten rid of the two year auction system for allocating exploration rights  Replaced with model under which companies will be allowed to bid at any time for the oil blocks put out to tender Expediting exploration rights process  Ecopetrol CEO Juan Carlos Echeverry announcing in August 2017 that the company will be ramping up shale oil production in the country. Recoverable oil could be between 2.5 to 7 billion barrels Unconventional oil and  Shale production to drive the company’s strategic focus over the next decade to boost reserves. gas deposits Ecopetrol acknowledges that “we are not unconventional experts and so we would seek partners with the know-how” Sep 28, 2017  Interested parties reportedly include Occidental Petroleum and Shell 9

McDaniel Colombia’s shale prone Middle Magdalena Valley Overview Colombia Middle Magdalena valley basin Stratigraphic chart – La Luna formation Sep 28, 2017 10 Source: Platts Source: ANH

McDaniel Middle Magdalena La Luna comparison chart Overview Colombia La Luna versus other unconventional plays Eagleford Woodford VacaMuerta Haynesville Bakken Marcellus La Luna Oil/Gas Oil/Gas Oil/Gas Oil/Gas Gas Oil/Gas Gas 4,000 - 13,000 6,000 - 14,000 6,000 - 11,000 4,000 - 11,000 4,000 - 12,000 4,000 - 17,000 10,000 - 13,500 Depth (ft) Net shale pay 50 - 200 100 - 200 200 - 1400 200 - 1700 60 - 200 10 - 60 50 - 250 thickness (ft) TOC (wt %) 2 - 9 3 - 10 2 - 8 2 - 5 10 - 15 3 - 15 2 - 6 Sep 28, 2017 Ro (%) 0.55 – 1.45 0.53 – 3.00 0.5 – 3.00 1.00 – 1.12 0.45 – 0.80 1.00 – 3.00 0.6 – 3.00 11 Source: Search and discovery

McDaniel Middle Magdalena La Luna formation – good TOC and pay Overview Colombia Parallels to Eagleford La Luna formation  16 Comparison between core samples show comparable 1800 characteristics such as porosity, TOC and permeability 14  Porosity 1600  Eagleford ~ 7.3%  12 La Luna ~ 6.3%  1400 Horizontal Permeability 10  Eagleford ~700nD  La Luna ~ 920nD 1200  8 Similar depths and similar age 1000 6 Parallels to Vaca Muerta 4 800  Complex stacking pattern of varying lithologies 2  Stacked shale packages 600  Overpressured 0  Similar depths and size of shale packages 400 TOC (wt%) TOC (wt%) Kerogen Quality 200 < 0.5 Very poor 0.50 to 1.0 Poor 1.0 to 2.0 Fair 0 2.0 to 4.0 Good Net shale pay thickness (ft) 4.0 to 12.0 Very good Sep 28, 2017 > 12.0 Excellent Source: Search and discovery 12

McDaniel La Luna: Some of Canacol’s results Overview Colombia September 2012 - Well 1 : Mono Arana Canacol shale acreage  Well drilled to 9,942 feet MD  760 feet of gross pay in La Luna formation  230 feet of net oil pay, average porosity 14%  Overpressured formation at up to 8146 psia  Flowed up to 590 bopd of 22 API oil, 118 mscfpd with virtually no water in 24 hour test in naturally fractured reservoir December 2016 - Well 2 : Mono Capuchino  Well drilled to 10,023 feet MD  769 feet of gross pay in La Luna formation  406 feet of net oil pay, which consists of shales and limestones with average porosity of 15% and open fractures visible on image logs  Recovered uncommercial heavy oil from La Luna but tested commercial rates from Tertiary Lisama sandstone July 2017 - Well 3 : Pico Plata  Well drilled to 16,406 feet MD  1369 feet of gross pay in La Luna formation  866 feet of net oil pay, average porosity 10%  Three slickwater fracs, between 27 – 30 feet thick varied Sep 28, 2017 between 80,000 – 346, 000 pounds  Variable flow rates from 60 – 500 bopd of 31 API oil with no water 13 Source: Canacol Source: Canacol