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ECONOMICS, BARRIERS, AND RISKS OF OIL SHALE DEVELOPMENT IN THE UNITED STATES

Khosrow BiglarbigiHitesh Mohan

Peter CrawfordMarshall Carolus

INTEK, Incorporated

28th USAEE/IAEE North American Conference

New Orleans, LA

December 4, 2008

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America’s Oil Shale

• Resource• Technology• Economics• Environmental• Path Forward

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What is Oil Shale?

RockKerogen

Pyrolysis

Upgrade

700 - 800 °F

Syn- Crude

Naphtha

Gasoline

Jet Fuel

Diesel

HC Gas

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Most Concentrated Hydrocarbon Deposit

2 Trillion Barrels

6 Trillion Barrels

Source: US DOE, 2004

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Oil Shale Production ApproachesOil Shale Production Approaches

Mining Retort UpgradingResource Refinery

Surface ProcessSurface Process

Drilling Heating UpgradingResource Refinery

In Situ ProcessIn Situ Process

Source: US DOE, 2004

Choke Point

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Shell In-Situ Conversion Process

Source: US DOE, 2008

High Value Products

Pilot Test (Colorado)Pilot Test (Colorado)

Light Surface Processing

HEATER

PRODUCER

OVERBURDEN

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Other Examples of In-Situ Technology

Pilot Tests (Colorado)Pilot Tests (Colorado)

IDT–EGL Resources ProcessChevron Process

FracturesFractures

Injector

Producer

Source: US DOE, 2004

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Alberta Taciuk Processor (ATP)

Pilot Test (Utah)Pilot Test (Utah)

PreheattubesVapour

tube

Combustionzone Retort

Preheattubes

Coolingzone

Oil shalefeed

750°C

500°C 250°C

Source: US DOE, 2006

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Other Surface Retort Technology

• Gas Combustion Retort (GCR)

• High thermal efficiency

• High retort efficiency

• Present use– Petro-six operating in Brazil

– Paraho Process being tested for a major project abroad

Oil MistExtractors

Raw Shale

Spent Shale

RESIDUE COOLING

COMBUSTION

STRIPPING

PYROLYSIS

PREHEATINGMIST FORMATION

Oil MistExtractors

Raw Shale

Spent Shale

RESIDUE COOLING

COMBUSTION

STRIPPING

PYROLYSIS

PREHEATINGMIST FORMATION

RESIDUE COOLING

COMBUSTION

STRIPPING

PYROLYSIS

PREHEATINGMIST FORMATION

Source: US DOE, 2007

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First Generation Project Costs

Item Unit Range

Capital Cost $/BPD

O&M Cost $/Bbl 12-20

40K-55K*

* Barrel of Daily Capacity

Source: INTEK Inc., 2006

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Canadian Oil Sands Operating Costs

Source: Suncor, 2008

$0

$5

$10

$15

$20

$25

$30

$35

$40

2006 2007 2008

$35

$30

$23

Do

llar/

Bar

rel

Year

12

Source: Canadian Association of Petroleum Producers, April 2008

$1,0

00 p

er B

bl

of

Dai

ly C

apac

ity

140000

0

20

40

60

80

100

120

Suncor -Millennium

Albian Syncrude -Aurora 2 &

UE 1

Nexen – OPTI

CNRL -Horizon

Shell -Muskeg &Scotford

PCA/UTS Fort Hills

$3 Billion $11 Billion

100,000 Bbl/D Project

2001 2003 2006 2007 2008 2010 2011

Canadian Oil Sands Capital Costs

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Economic Price for Oil Shale Technology20

07 D

oll

ars

Per

Bb

l

Source: INTEK Inc., 2008

$0

$10

$20

$30

$40

$50

$60

$70

True In-Situ Surface Mining UndergroundMining

Modified In-Situ

Rate of Return - 15%

$38

$47

$57

$62

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Cashflow of a Generic Oil Shale Project

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

1200

5 10 15 20 25 30 35 40

After Tax

Before Tax

Year

Cu

m.

Dis

cou

nte

d C

ash

flo

w (

MM

$)

Room for Government Action

Source: INTEK Inc., 2008

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Impact of Incentives on Generic Cashflow

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

1200

5 10 15 20 25 30 35 40

After Tax

Before Tax

Year

Cu

mu

lati

ve D

isco

un

ted

Aft

er

Tax

Cas

hfl

ow

(M

M$)

$10/Bbl Production Credit$5/Bbl Production Credit15% investment Credit10% Investment CreditAccelerated Depreciation

Source: INTEK Inc., 2008

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Oil Shale Environmental ImpactsAir Quality

Oil Shale Processing

HCGas CO2 SOx NOx

• CO2 Enhanced Oil Recovery• Sequestration• Other Industrial Uses

Capture and Clean Existing Technology

Process Plant Use

Source: SPE #110590, 2007

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Land Use Depends On The Process

• 1 MMBbl/D Production for 40 Years– Surface: 31 Square Miles

– In-Situ: 14 Square Miles

• Example for 2.5 MMBbl/D Industry: – 52 Square Miles

2.5 MMBbl/d

52 Square Miles

Green River

17,000 Square

Miles

Source: SPE #110590, 2007

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Water Requirements

• 1-3 Barrels of Water per Barrel of Shale Oil

• Challenges:–Water rights–Water availability–Ground water protection–Water runoff

Source: US DOE, 2007

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Development Hurdles

• Access to Land– 70% on Federal Land– BLM issued final regulation (November 18, 2008)

• RD & D

• Environmental Permitting

• Fiscal Regime

• Public Education

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Total Resource6 Trillion Barrels

High Quality Resource2 Trillion Barrels

Technical Recovery

1 Trillion Barrels

Reserves600 – 750Billion Bbls

The Prize

$50 - $65 / Bbl

@

Source: INTEK Inc., 2008

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0

500

1,000

1,500

2,000

2,500

2005 2010 2015 2020 2025 2030 2035

Year

Th

ou

san

d B

bl/

DProjected Production Potential

(Shale Oil in the U.S.)

Base

Tax Incentives

RD&DAccelerated Scenario

Measured Scenario

Business as Usual

Source: US DOE, 2007

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Example Benefits of Oil Shale DevelopmentCumulative (Over 25 Years)

Item RD&D

Direct Public Sector Revenues 85

Value of Imports Avoided 325

Production 12.8

Direct Federal Revenues 48

Direct Local/State Revenues 37

Contribution to GDP 1300

New Jobs 300

Unit Base Incentive

Billion $ 25 48

Billion $ 70 170

Billion Bbls 3.2 7.4

Billion $ 15 27

Billion $ 10 21

Billion $ 310 770

1000 FTE 60 190

Source: INTEK Inc., 2007

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Summary

• Over 6 trillion barrels of in place resource

• The most concentrated hydrocarbon deposits on Earth

• Conversion technologies are advancing rapidly

• Sustained production potential of up to 2.5 MMBbl/Day

• Substantial economic benefits to the Nation

• Requires concerted effort by the private sector, Federal & State governments, and local communities