Probabilistic Approach To U Resource Modelling

by Prof.Richard Sinding‐Larsen and Dmitry Surovtsev

INTERNATIONAL ATOMIC ENERGY AGENCY

Technical Meeting on Uranium Provinces and Mineral Potential Modelling

20‐22 June 2011, IAEA Headquarters, Vienna, Austria

About Authors, Disclaimer and Acknowledgement Richard Sinding‐Larsen, Board Member and Co‐Founder of GeoKnowledge A.S., g , g ,

is a professor of resource geology at the Norwegian University of Science and Technology (NTNU). Richard has advised extensively on play assessment to government agencies both in Norway and in South East Asia. He has been Secretary General of the IUGS (International Union of Geological Sciences) and y ( g )is currently Senior Advisor and responsible for the non‐renewable resources part of the UN‐IUGS initiative on Planet Earth. Richard has a MSc in Applied Geology and a PhD in Resource Geology, both from NTNU.

Dmitry Surovtsev is Head of Representation in Kazakhstan of Effective Energy N.V., a member of Uranium Holding ARMZ. Before joining the uranium mining industry in 2010 Dmitry followed a seventeen years career in the international petroleum industry (business , consulting and academic ). Dmitry has a MSc in petroleum industry (business , consulting and academic ). Dmitry has a MSc in International Economics from Moscow State Institute of International Relations (MGIMO) and a certificate of postgraduate education in Banking & Finance from the London School of Economics & Political Sciences (LSE).

DISCLAIMER: No proprietary sources and materials of authors’ companies and institutions wereused in the preparation of this presentation. Authors’ opinions may differ from the views of theirrespective organizations.

ACKNOWLEDGEMENT: We would like to acknowledge the significant contribution of CharlesStabell of Geoknowledge by allowing us to use his Economic Potential of a Shale Gas Resource Playpresentation as the ISL analogue.

G i f HC & U i fi ld

Overview• Genesis of HC & Uranium fields• Uranium production by ISL vs. Oil Production

• ISL and Shale gas engineering issues• Cost and economic parameter

• GeoX a Probabilistic Resource and Valuation tool• The Uranium Play_Assessment_Process• The Situation – Initial Position in Shale Gas Resource Play• Approach• Results

• Concluding remarksg

G i f C & i fi ld (h d )Genesis of HC & Uranium fields (hydrogenous)

(U fi ld) (S R k) * (Mi ti /Ti i ) * (S d t ) * (S l) * (T )

ρ (HC field) = ρ1 (Source) * ρ2 (Migration/Timing) * ρ 3(Reservoir) * ρ4 (Trap) * ρ5 (Seal) * ρ6 (Preservation)

ρ (U field) = ρ (Source Rock) * ρ (Migration/Timing) * ρ (Sandstones) * ρ (Seal) * ρ (Trap)

i d i b S Oil P d iUranium production by ISL vs. Oil Production

ISL parameters are close to HC parameters like water cut and economic well flow rates used for HC reservoir engineering.

Minimum economic U concentration in pregnant solutions, minimum economic initial and terminal well flow rate appear more relevant for ISL mining engineers than ore grades in the ground.

Important issues are:• changes of residual oil saturation to water flood (Sorw) with changing permeability

Important issues are:• permeability of the mineralised horizon;• hydrological confinement of the mineralized horizon; flood (Sorw) with changing permeabilityand• amenability of the uranium minerals to dissolution by weak acid or alkaline solutions.

ISL and Shale gas engineering issuesT diti l it i i i d t t ( l t ff d Traditional open‐pit mining industry parameters (ore volume, cutoff and average grade) are not entirely adequate for ISL projects.

Unlike open‐pit mining, ISL ore volume cannot be calculated with certainty p p g, yand is a function of subsoil fluid embayment area determined by Darcy law and poroperm properties of the sandstones.

ISL and Shale gas assets presents unique assessment challenges Estimate of in‐ ISL and Shale gas assets presents unique assessment challenges. Estimate of in‐place resources are not very useful as recovery is key.

Confidence in the conversion from resources to reserves, will be greatly , g yenhanced if an ISL field leach trial can be undertaken.

Exploration for ISL and Shale gas assets is more like appraisal, where the key decision is made after doing a pilot test production that can prove the potential decision is made after doing a pilot test production that can prove the potential for commercial production.

Cost and economic parameters Fortunately, cost engineering and economic concepts are not much

different whether we speak about open pit ISL or Oil & Gas projectsdifferent whether we speak about open‐pit, ISL or Oil & Gas projects. In all cases we would need to account for:

CAPEX project si e dependent project size‐dependent

size‐independent OPEX

fixed (time dependent) fixed (time dependent) variable (output‐dependent)

Sales Price Main Product Associated By‐Products

Tax Regime Concession

PSA PSA The results of economic assessment by DCF analysis in all cases are NPV

and IRR and, for exploration projects, EMV

EMV = ρ (Success) * NPV – ρ (Failure) * PV (Exploration costs)

"A tool meeting CCCP requirements"

B h i d j l i d Both integrated project evaluation teams and top management of exploration ventures need an assessment tool that meet the CCCP requirements :tool that meet the CCCP requirements : Consistent methodology & deliverables Cross‐Discipline (Full‐Cycle) Common Database Probabilistic Assessment (Monte Carlo)S h t l h b d l d d t tl i d i Such a tool has been developed and constantly improved in Norway since 1985 to serve the needs of 70+ international oil & gas companies in 20+ countries . & g p

Let's see how the concept may be applicable for ISL Uranium projects.


20-22 June 2011, IAEA Headquarters, Vienna

Copyright © 2011 GeoKnowledge6

Situation: Initial Position in Resource Play• Considering taking an initial 20km2 position in shale

gas resource play with 5,66 – 14,16 Bm3 recoverablethat from a power generating capacity is comparable to 636-1591 Ton NatU

• Lease costs are MM$ 0.494 – 1.236 per km2• Reservoir quality an issue in target resource play• Once verified quality will do a pilot to evaluate reservoir

and well performance; each well is estimated to have an average peak rate ≈ 28000 m3/D that from a power generating capacity is comparable to ≈ 3.2 kg NatU/day and

• EUR ≈ 28.3MMm3 comparable to 3.182 Ton NatU.• With successful pilot will invest in infrastructure and

then development drilling with 0.65 km2 spacing




Approach: Pilot Before Full Scale Production

• Target ”sweet spot ”• After lease acquisition,• PILOT activity 8 horizontal well production• Successful pilot defined by estimated 283 MMm3

production comparable to 31.82 Ton NatU• Infrastructure development activity prior to start of

full development drilling activity with 24 packages of6 wells with 6 rigs




Shale Gas Sweet Spot as Adsorbed + Free Gas




Activity Set Definition

20,7 km2 acquisition

E1 well resolves reservoir quality risk

8 well pilot if reservoir quality OK

Infrastructure development if pilot OKHZ dev wells with 0,65 km2 spacing & 6 rigs




Activity Definition – E1 Exploration Well




Activity Definition – Pilot Production




Results – EMV $25 Million




Results – Production




Results – Production

Box Plot with P99 P90 P50 P10 P1 and mean (x)

C l di kConcluding remarksAssessment tools (GeoX) for Exploration Decision & Assessment tools (GeoX) for Exploration Decision & Management Support allows for:

Integrated probabilistic modelling that reflects bothIntegrated probabilistic modelling that reflects bothstatic and dynamic uncertainties can be performed for Uranium ISL in a similar way as for shale gas resourcesy g

Multiple target – multiple activity sequences can be used to model conditional pilot‐infrastructure‐fullpproduction activities

Support for entry, full development and abandonmentpp y, pdecisions

Education

Probabilistic Approach To U Resource Modelling