Robert Fisher, PG April 16, 2013

Discussion Topics Unconventional Gas Barnett Shale/Economics Example Plays How Fracking Works Production of Natural Gas Issues and Concerns

What is Unconventional Gas? Definition:Natural gas reserves that are more difficult or less economical to extract than conventional reserves Types today Deep Natural Gas (>15,000 feet deep) Shale Gas (and associated condensate/crude) Tight Gas Coal Bed Methane Methane Hydrates

Why is Unconventional Gas Development so important? US & global reserves are huge Energy will come largely from fossil fuels for the rest of our lifetimes Depressed natural gas prices ($3/Mcf) are currently boosting the economy.

US Unconventional Shale Gas Development 750+ trillion cf of gas Annual US demand = 23 tcf 20+ billion boe (crude) Annual US demand = 7.3 bboe 46% of US gas by known shale plays in US Marcellus Bakken Barnett Eagle Ford

Unique Features of Unconventional Oil & Gas Development Uses new techniques (including horizontal drilling) to access oil & gas reserves in tight formations Requires a significant volume of water for hydraulic fracturing during well development to release the oil and/or gas Requires treatment of returned frac water prior to reuse or disposal (similar to produced water) Often occurs in areas that never experienced oil & gas development in the past, leading to new challenges

Barnett Shale First Barnett well drilled in 1981 Mitchell Energy pioneered development techniques in Barnett Major development began in 2003 with horizontal drilling combined with hydraulic fracturing Numerous wells in urban areas of DFW Metroplex including DFW Airport

Barnett Shale Production from Barnett Shale in 13 North Texas Counties Current drilling activity is about 1/3 of the peak rig count in 2008 (approximately 50 active rigs)

Barnett Shale Statistics Average reserves: ~25 Mcf/acre Average lifetime of each well: 7.5 years (some lasting 15 years) Drilling depths: up to 6,000 feet Horizontal drilling lengths: 1 to 2 miles Completion costs: $2MM to $3MM per well Well yields: 1 to 2Mcf/day (highest recorded yield – 17Mcf/day over 30 day period) Average lifetime well yield: 0.84Bcf Opportunity for Mineral Rights Holders Sign-on bonuses and royalty payments $2,500 to $3,000 per acre, with possibilities up to $5000 to $7000/acre (Note: historic highs were $25,000/acre in 2007 or so) Royalty rates are 20 to 25% Access to off-property gas development Develop your own gas resources

DFW Example

Hydraulic Fracturing Fracking - Hydraulic fracturing of a subsurface geologic unit by high- pressure water, proppant (sand), and chemicals to improve permeability in the shale, tight sand, or other formation that hold gas or oil

Hydraulic Fracturing Fracking has been used in oil and gas wells since the 1940s Fracking combined with horizontal drilling began in the 1980s

Hydraulic Fracturing Typically deep: 4,000 to 9,000 feet. Usually well below production aquifers.

Fracking Fluid Composition Chemical Additives, 0.5% Dilute acids Sodium chloride Polyacrylamide Ethylene glycol Borate salts Sodium/potassiu m carbonate Glutaraldehyde Guar gum Citric acid Isopropanol

Why Fracking Fluids Contain these Chemical Additives

Hydraulic Fracturing Layout

Hydraulic Fracturing

Production of Unconventional Gas Same for either gas type: Well Heads Separators Condensate Tanks Produced Water tanks Compressors Gas Metering Gathering Lines Nearly identical to production of conventional gas once fracking is completed Primary difference is fracking fluid flowback early in wells life with unconventional gas

Main Issues of Concern

Special Challenges Air permitting/impacts Nuisance concerns (light, noise, dust, etc.) Water withdrawal Groundwater protection Water disposal Waste disposal Pipelines, compressor stations & storage Habitat and endangered species protection Daily people/equipment/truck ingress/egress

The Future 750+ trillion cubic feet (tcf) 23 tcf annual US demand 46% of US gas production by known shale plays in the US - Marcellus - Bakken - Barnett - Eagle Ford