1. Bruce Peachey, FEIC, FCIC, P.Eng. President, New Paradigm Engineering Ltd. September 16, 2015

2.  What is being fractured in Alberta and why?  Basic principles of hydraulic fracturing  Summary of current hydraulic fracturing practices, potential and known environmental impacts  Assessment of the future of the industry in Alberta

3. AGS – Rock Chips Spring/Summer 2003 Carbonate: Nisku/Leduc Sandstone: Cardium/Mannville Shale: Duvernay/Montney etc

4. Canadian Tight Oil Formations

5. All data AER June 30, 2013 Includes Duvernay

6. The Fracturing Prize  There is a tremendous amount of oil and gas to be found in low “tight” sedimentary rocks ◦ Tight rocks lack easy drainage pathways to wells  Solution  use horizontal wells ◦ Low porosity = low flow rates = low reserves  Solution  increase porosity by fracturing  The fracturing sustainability challenge: ◦ Economic – Wells are much more expensive ◦ Environmental – More activity per well ◦ Social – Gaining benefits from the wells

7. Multi-well Pads  Many wells can be drilled to different bottom hole locations from the same surface location or even the same well  Reduces construction costs and environmental impact compared to vertical wells  Horizontal wells expose more of the reservoir

8. Basic Fracturing Process  Similar to other hydraulic tools like “Jaws of Life”  Hydraulic force  Balloons with holes in them  “leak-off”  “Doorstop”  Proppant  Scale mm vs. m This NOT This 0-100 microns

9. Source PTAC Presentation

10. Basic Fracturing Fluids  There are a range of fracturing fluids possible ◦ Balance – viscosity, fluid volumes, costs, chemicals, effectiveness and safety ◦ Water-based – Lower cost, high volumes  Slickwater  high water rates fewer chemicals  Gelled  less water more chemicals ◦ Gelled oil  Used in many tight oil wells in Alberta ◦ Nitrogen based – Standard for CBM  Used in different ways with varying amounts of water from gas or cryogenic liquid to energized (<50%N 2 ) and foams (50-95%N 2 ) – More Nitrogen  less water ◦ CO 2, Propane/NGL, more exotic

11. Fracturing Practices  Vary with the type of formation, stage of development ◦ By Formation: ◦ Tight oil – Some using slickwater some gelled oil ◦ Volumes of Fracturing Fluid for tight oil ◦ Viking – 500-800 m 3 /well ◦ Cardium – 500-2,600 m 3 /well (gelled oil  slickwater) ◦ Montney – 0-800 m 3 /well (many are gelled oil) ◦ Swan Hills – 2,000-2,500 m 3 /well (slickwater) ◦ Duvernay – 20,000-60,000 m 3 /well (slickwater) ◦ Stage of Development: ◦ Exploration – single wells  find the best areas ◦ Development – pads  economies of scale

12. Fracturing Practices (cont’d  Evolving with experience: ◦ There is a “learning curve” in each part of each formation ◦ Change methods ◦ Increase stages ◦ Change fluids ◦ Site selection

13.  Main purpose is to get as much production as possible from one well ◦ Cheaper and fewer land-use impacts to drill and fracture more laterals from a single surface location  High upfront capital cost/well ◦ Costs increase as wells get deeper, formations get thicker, and number of laterals increase  High initial production rates ◦ Rates drop off very fast as pressure depletes  Still a lot of room for optimizing these!! Economics of Fracturing

14.  Water volumes ◦ Some very high volume, but some no water used at all ◦ Impact of water use varies by basin  Truck traffic on roads  Impact on wildlife ◦ Especially high volume water completions  Potential chemical spills  Mainly during transport  Impact duration  Horizontal pads + more wells ◦ More drilling and completion days per well  More widespread development ◦ Whole regions vs. specific fields and pools  Tradeoffs  less chemicals = more water

15. Key AER Map June 2013 Hz, multistage: Cardium (~29%) Sand Montney/Doig (~16%) Silt Other Upper Mannville (~11%) Sand Beaverhill Lake Group (~9%) Carbonate Viking (~9%) Sand Glauconitic (~5%) Sand Water Needs: Cardium – 2,600-500 m 3 /well Montney – 2,000-0 m 3 /well BHL – 2,000-3,000 m 3 /well Viking – 500-800 m 3 /well Duvernay – 20,000–100,000+ m 3 /well Water Short – Over-allocated Water Rich – Low allocations

16.  Producers focusing on liquids and oil, not gas ◦ Oil prices are still high compared to gas, but very uncertain  Many formations are still on the “Learning Curve” ◦ Working to optimize pace, reduce costs, improve performance ◦ Will gradually learn from each other  Larger Producers Reducing Presence in Alberta ◦ Imperial, Apache, Encana, Devon, Chevron, Suncor  Selling conventional and shale assets in Alberta  Less economic than oil sands or shale in the U.S.  Exception – resources to support oil sands – diluent/fuel gas  Smaller more focused companies still active ◦ Some have very good assets  could stay economic

17.  Oil should continue to be more highly valued than gas ◦ Oil prices fluctuating due to fight for market share  OPEC may keep prices “high enough” for some tight oil/liquids ◦ May not be high enough for shale oil/gas ~$45-$50/bbl????  Lower oil price is forcing U.S. drillers to slow down  North American gas needs LNG outlets to Global markets ◦ Canadian production helped by low dollar against the U.S.$ Shale Production should fall quickly as drilling is reduced and with reduced cash flow AER – ST98-2014

19. Russian base gas price Future Convergence ???? Source - BP As differential drops so does incentive for new LNG!!!

20. www.cbc.ca Japan U.S. Europe Brent Japan Shuts Down all Nuclear Power Japan Begins Restarting Nuclear + New LNG Plants come on in Aust/Qatar

21.  Gas Economic Indicators – Long-term value, short-term payout or sustaining cash flow vary between companies  Best performers with the best assets, knowledge or investment strategies will go commercial first with the least impact  fewer wells PoorBestBetter

22.  Internationally there is a lot of potential shale oil and gas  Many of our potential export client countries have more shale oil and gas than we do. Will investment move elsewhere?

23. 1.Activity is happening in more, and more varied, resources and diverse landscapes  wider range of methods, issues and options 2.Focus is more on tight shallow oil and liquids  not gas 3.More competition for markets both within Alberta, and other sources closer to markets “Sellers” Market is now a “Buyers” market 4.Regulations, some specific to hydraulic fracturing, are likely ahead of other jurisdictions 5.Policies shifting from conventional  unconventional 6.Economics is picking the winners  those with the best assets can do well. Others???