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Beijin, March, 2019

CNPC

The Overview of CNPC Shale gas exploration

and development

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Outline

1. Background

2. progress and activities

3. Prospect

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• Shale gas “Development Plan”: produce 6.5 Bcm shale gas in 2015 and 30 Bcm in

2020. 4 national demonstration areas. Nesrec has been established.

• Shale gas as an independent mineral, has already finished two rounds of exploration

right bidding.

• By the end of 2018, shale gas will have national financial subsidiary(0.2RMB/m3 ).

Shale gas price will be market driven.

1. Chinese Government inspired shale gas E&D

United States has promoted China to speed up the shale gas exploration,

development, construction and production.

Government preferential policy support

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2. Shale Gas E&D status

1. Abundant Chinese marine shale resources

China's shale gas resources evaluation results are different, but its all

agreed that China has a great resource potential and southern Marine

shale should be focused

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2. Jiaoshiba、Wiyuan-Changning、Zhaotong all have commercial

breakthrough, the industrial production has been started

Development history

2010: Established Changning-

weiyuan, and Zhaotong

2011：Established Yan-an

2013：Established Fuling

Industrial production start

2018: Produced 43×109m3

2019: Drilled 700 wells so far

2019: Produced 67 ×109m3

中国石油

中国石化

延长集团

国土资源部

北京

西安

成都

重庆

China shale gas E&D map

Weiyuan-Changning

Fuling

Yan-an

Zhaotong

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3. Shale gas exploration is progressing in these 30 bidding blocks

Black shale is shown in Yuqian-Chuannan block

Shale gas content is good in lower Cambrian Guizhou block, now is fracturing.

Shale has been found in Hubei LaiFeng-Xianfeng block

Shale gas content is good in Hunan Baojing block

Shale gas content is good in lower Cambrian in Chongqin Cheng Kou Block

Hunan Longshan, Guizhou ,Chongqing –Qianjiang and etc. are all processing the drilling work

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Outline

1. Background

2. progress and activities

3. Prospect

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1) Mining rights of shale gas

PetroChina has 10 shale gas blocks in the Sichuan basin, with an area

of 64 ×103 km2

Mining rights distribution in Sichuan Basin, PetroChina

No. Block

Mining

right

（Km2）

1 luxian-Changning 5947

2 Muchuan-Yibin 5256

3 Neijing-Jianwei 6845

4 Shuifu-Xuyong 6818

5 Dazu-Zigong 5388

6 Bishan-Hejiang 6862

7 Anyue-Tongnan 6680

8 Xuanhan-Wuxi 6881

9 Zhongxian-Fengdu 5813

10 Junlian-Weixin 7760

Total 64249

1. CNPC shale gas E&D

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2) E&D history

Comprehensive geological evaluation of shale gas

Drilled the first commercial shale gas well, Ning201-H1, with high production

Drilled and fractured the first vertical shale gas well, Wei201

First factory-like operation wellpad in China

Constructed the shale gas pipeline and 2 demonstration area in China

Drilled and fractured the first horizontal well, Wei201-H1, in China

2007

2009

2011

2012

2013

2014

PetroChina invested 20 billion to promote construction of 2 demonstration

areas, Changning~Weiyuan and Zhaotong.

Great progress has been made in shale development.

More than 150 wells, production exceeded 12×109m3

More than 350 wells, production exceeded 43×109m3

2016

2018

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2D: 6000km, 3D: 1000 km2

300 wells drilled

56 wells completed

3) Exploration & Development Status

Highest well: 130×106m3/d

Daily production: 1.3×106m3/d

Highest EUR：300×106m3

Production well : 220

Daily production: 17×106m3/d

Production in 2018: 4.3×109m3

Shale gas pipeline in Changning

Changning pipeline: 150km

transport capacity of 3×10m9/a

In 2019

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Drilled 50 vertical wells to target two sets of marine facies shale.

Set up geologic evaluation methods, select favorable areas to develop.

1) Drilling evaluation technology

Features

U.S and others

China

Sichuan

Shale thickness （m） 35-350 30-210

Buried depth （m） <4200 <4000

Organic abundance

（%） 3-10 2.2-5.3

MaturityRo（%） >1-2 2.8-3.2

Gas content

(m3/t) 0.8-9.9 1.61-5.5

mechanics(GPa) 20-63 13-39

Porosity（%） 2-8 2.9-5.2

Brittle mineral content（%） >40 50.3-67.9

Resource

abundance(108m3/Km2) 2.2~8.9 4.3~5.4

Pressure coefficient >0.9 >1.2

Geologic evaluation Key parameters

TOC

Ro Burial depth

Thickness

Minerals

Physical property Geomechanics

Gas content

Preservation Production capacity

2. Main Technology Progress

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The favorable areas of Changning-Weiyuan, Fushun-Yongchuan, Zhaotong

have been confirmed with geology reserves of 6×1012 m3 (10000Km2)

Block （Km2） Area （109m3) Resource

abundance

Changning 2050 920

Weiyuan 4216 1890

Fushun-Yongchuan 2000 1000

Zhaotong 1400 500

Total 9666 4310

Characteristics evaluation parameter

High quality shale thickness （m）

>30

Shale buried depth （m） <4000

Pressure coefficient

>1.2

favorable areas

Evaluation parameters

Longmaxi Formation in Southern Sichuan Basin

威远

长宁

富顺-永川

Fushun-yongchuan

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2) Research technologies increase single well production

North American multi-stage fracturing of horizontal wells.

Domestic E&D engineering techniques, key tools.

• Horizontal well path control

•horizontal well drilling fluid technique

•horizontal well safe and quick drilling

3D H-well drilling drilling rate and cyle

1st 2-nd

1st 2-nd

3main horizontal well drilling techniques

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By introducing techniques from abroad and developing independently,

shale gas SRV fracturing technology has been formed

• Fracturing design

• Horizontal wells multi-stage fracturing

• Large-scale shale gas operation

• Fast drillable bridge plug

• Clustering perforation tool

• Recoverable slick water/ fracturing

fluid Fracturing site of shale gas

horizontal well

3 main fracturing techniques

2 tools and liquid systems developed

independently

Self-made Composite bridge plug

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Microseismic monitoring of surface, shallow and deep well

Micro seismic monitoring truck

Downhole geophone

Monitoring of H2

SRV: 378 ×106m3

Fracture length: 300~1100m

width:150-700m

height: 140-2200m

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3) “Factory-mode” was tested, improving work efficiency and reducing cost

wellpad reduced drilling cycle from

150 days to 43 days.

“zipper-like” fracturing increased

daily fracturing stages from 2 to 4

Wellpad is more effective.

A wellpad with 6 wells can save

70% of land usage.

Cost reduced more than 20%.

Changning H3 wellpad

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Drill 230 wells in 2 pilots during 2014-2019

Processing capacity: 2.5×109m3/year

production in 2015: 2.6×109m3

WELL 2 WELL 1

3. Pilot area shale gas development

Drilling pad :63

Drilling bit: 105 （3 pilot block）

Drilling well: 118 (70 completed)

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1) International cooperation

2009: Shale gas evaluation

cooperation with Shell

2013: PSC contract was approved by

Commerce Department of China,

2015: ODP project

Ccooperation with BP which will

end before 2015

Drilling: 22wells

Completed: 21wells

Finished: 17 wells

Wells put into

production:11

Cumulative commercial gas

production: 87x106m3

Evaluation cooperation with

HESS, drilling some appraisal

wells are in 2015

4. Shale gas development cooperation

Fushun-Yongchuan

Neijiang-Dazu

Northern Rongchang

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Company completed registration

and start operating and producing

Company completed registration,

start preliminary exploration

work

Its registering and ready to

operate

Sichuan Ltd

Chongqing Ltd

Changning

Shell

BP

Rist cooperation

Sichuan Basin shale gas pilot area distribution

CNPC

CNPC ZheJiang

ChangNing Ltd.

Chongqing Ltd.

Sichuan Ltd.

2) Domestic cooperation

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1. Background

2. progress and activities

3. Prospect

Outline

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The D&C cost of horizontal wells is high

Horn River shale gas development cost

2007年 2008年 2009年 2010年 2011年

Item 2007 2008 2009 2010 2011

Average fracturing stages in a well 3.0 8.7 13.5 19-29 19-29

Drilling and fracturing costs ＄/Mcf 6.78 3.2 1.6 0.87 0.74

1. Challenges

Challenge 1: Cost

• Single well cost : around 16 MM $ (early)

• Dropped to 10 MM$ (recent).

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Challenge 2: Engineering techniques

Safe and quick drilling techniques for long horizontal sections

• Formation collapse and casing deformation extend the well construction cycle

• key tools need to be introduced, such as rotary steering

Staged fracture techniques for horizontal wells

• Complex ground stress, difficult fracturing

• Limited work capacity of coiled tubing restricted the practicability of staged

SRV fracturing.

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Challenge 3: Prediction of ultimate recoverable reserves of gas wells

Production decline of U.S gas wells Gas production of well H1

Maximum production time 2 year ( H1).

Not shown all features of gas well performance in 2 pilot areas,

EUR prediction inaccurate.

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Challenge 4：Safety and Environmental protection

Fracturing fluid and flowback fluid may lead to environment

pollution

LRET oil based mud recycling station Pyrolysis adsorption

processing site diagram

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1-step: 2014-2015, to achieve production of 2.6×109m3 in 2015. “factory” operation will

be tested further to find out a profitable development path of shale gas that fits China's

conditions and geological characteristics.

2- step: 2016-2020, horizontal wells will be drilled in Sichuan basin ， “factory” operation

will be extensively promoted. Meanwhile, new favorable areas of shale gas will be

evaluated in search of new core area of shale gas, to provide material resources for

increasing production.

3- step: 2021-2030, based on Sichuan basin marine facies to develop shale gas. And then

new pilot areas of shale gas will be found. Thus gradually enhance the shale gas

proportion in nature gas industry.

PetroChina’s 3-step” strategy for shale gas development

2. CNPC“Three Steps”Strategy

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PetroChina is looking at 70×109m3 of shale gas production in 2019 and

120×109m3 in 2020 .

No Block

Production of

2019

（109m3）

Production

of 2020

（109m3）

1 Changning 35 5.5

2 Weiyuan 30 4.5

3 Zhaotong 5 1.5

4 International

cooperation area 0.1 0.2

5 New cooperation

area in Sichuan 0.2

6 Cooperation area

in Chongqing 0.1

Total 70 12

3. Future Prospect

Production plans of shale gas

Si chuan

Chongqing

Changning

International cooperation

Risk cooperation

CNPC

Zhe jiang

CNPC pilot area & cooperation area(2015-2020)

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