1. Meeting the Environmental Challenges of Water Recycling in Shale Gas Plays John Candler, Rahul Dixit, Daniel Gallo, Andrea Shramko, Kayli Clements, M-I SWACO

2. Water challenges in shale plays Water supply - Groundwater - Water Discharge Water supply - Groundwater - Water Discharge

3. Treatment and reuse is a solution to water challenges Processing Technologies: Chemical Chemical Mechanical Mechanical Thermal Thermal Filtration Filtration Membranes Membranes Electro coagulation Electro coagulation Clean Water Returned To Hydrologic Cycle Water Returned For Reuse Closed loop system 100% recycle

4. Challenges for recycling and reuse Business Business Technical Technical Regulatory Regulatory

5. Business Issues

6. CONFIDENTIAL INFORMATION ©2009 M-I L.L.C. Flowback Water Treated water Offsite/Local Treatment Facility Two Recycle Approach Options Onsite treatment

7. Mobile and Central Treatment Facilities Mobile Treatment for single wells Mobile Treatment for single wells  5,000 to 10,000 bbl per day  Quick rig up and rig down  Trailer mounted for transportation  Small footprint Filtration Unit: 35 ft x 10 ft Filtration Unit: 35 ft x 10 ft Reclamation Unit: 120 ft x 120 ft Reclamation Unit: 120 ft x 120 ft Central Treatment Facilities Central Treatment Facilities  60,000 to 100,000 bbl per day  Central Facilities for Multiple wells in the area  Strategically located  In-line with drilling program requirements  Treatment and re-use of 100% of produced waters  Minimum operating volumes required to justify the investment

8. Service based approach offers comprehensive services from characterization to treatability. Traditional Water treatment solutions Oilfield Service based approach Wellbore Productivity Brine Mgmt, Completion fluids & filtration. Environmental Solutions: Treatment modeling, lab scale treatability, Chemical Separation, Injection, Vapor recompression, Filtration Technologies Analytical laboratories, Research and development centers Production Technologies : Scale & Corrosion inhibitors, Microbiocides, Drag reduction and NORM decommissioning. Industrial Experience Single treatment technology

9. 9 H2O2H2O2 Fe 2+ Shale Gas Reservoirs: The Need for Frac Flowback Treatment  Each well is initially fractured in 8 to 12 stages  Average 10,000 bbl of water are used per stage  130 bbl/truck – 77 trucks per stage  18-30% of the water flows back

10. Water Recycling Treatment Technologies – Summary  Provide environmental control and limiting future environmental liability  Use best available technology and practices  Quality control of water and waste  Minimize use of valuable natural water sources  Consistent HSE management and controls

11. State Summary StateShale PlayMajor Issue PennsylvaniaMarcellusDisposal LouisianaHaynesvilleRecycling/Sourcing TexasHaynesvilleSourcing

12. Sourcing Sourcing Regulated by seasonal availability Regulated by seasonal availability

13. Water needs varies from region to region based on factors from regulations to transport cost SOURCE: M-I SWACO; EIA; Deutsche Bank; shalegas.com; USGS; NPC; McKinsey analysis

14. Disposal/Recycle Technology

15. Flowback Water Management Flowback Storage in Tanks or Lined Pits Almost always trucked Typically injected in Class II Brine Injection well some distance away ~ 10 minutes to 6 hours Regions without disposal wells may use commercial treatment works, which then dispose to waterways Treat and recycle, or…just dilute with makeup water and reuse for next job Less frequently (but increasing) operators may recycle …

16. Issues with recycle and beneficial reuse: Is the secondary material similar to an analogous raw material or product? Is the secondary material similar to an analogous raw material or product? What degree of processing is required to produce a finished product? What degree of processing is required to produce a finished product? What is the value of the secondary material? What is the value of the secondary material? Is there a guaranteed market for the end product? Is there a guaranteed market for the end product? Is the secondary material handled in a manner consistent with the raw material/product it replaces? Is the secondary material handled in a manner consistent with the raw material/product it replaces?

17. Specifications for Frac water No regulatory specifications set for frac water quality No regulatory specifications set for frac water quality Currently no regulations for fracking process (except casing) Currently no regulations for fracking process (except casing) EPA currently evaluating whether hydraulic fracturing should be regulated as underground injection wells and under the same jurisdiction EPA currently evaluating whether hydraulic fracturing should be regulated as underground injection wells and under the same jurisdiction

18. Fracturing Fluid Makeup

19. Why do we need to treat the flowback for reuse? ConcernsCulpritsPotential Impacts ScalingHardness, Metals Plugging Formation, Increase equipment cost CorrosionHardness, Bacteria Plugging Formation, Increase equipment cost NORMBarium, Strontium QHSE Gel StabilityDivalent cations Too high divalent cations can cause conflict with gel stability to support proppant conduction H2SSulfate Reducing Bacteria Strong environmental and safety concerns

20. Water Treatment Specifications pH TSS (mg/L) TDS (mg/L) Calcium (mg/L) Barium (mg/L) Iron (mg/L) Bacteria (CFU/ml) Operator #1 7 - 8< 10< 65,0003,0001,200<25No spec Operator 2: 7-9<10<20,000<300<100<10100 Haynesville Shale Area : pH TSS (mg/L) TDS (mg/L) Calcium (mg/L) Barium (mg/L) Iron (mg/L) Bacteria (CFU/ml) Operator #1 7 - 8< 10< 100,000<3,000<100<25No spec Operator 2: 7-9<10<20,000<300<100<10100 Operator 3: 7 - 9<10No specNo Spec<10 No spec Marcellus Shale Area :

21. TREATMENT TECHNOLOGIES

22. Water Management Solutions Blending

23. Blending Treatment Operation

24. Water Management Solutions Filtration

25. Targets removal of TSS, using filter cartridges/socks. Filtration System

26. Filtration System Example Operational Highlights (Filtration System Central Site) Processed over 1M bbls of flowback water  Treats and processes average of 5,000 bbl/12 hours  99.9% water recovery  1,000 bbls of waste sent to disposal Contaminates removed from flowback water (ppm):

27. Water Management Solutions Reclamation

28. Reclamation System Flowback Water Reclamation System Trial Results:  Calcium Removal: 9,400 ppm to 34 ppm  Magnesium Removal: 570 ppm to 6 ppm  TDS reduction 61,100 ppm to 39,100

29. Reclamation System Example Operational Highlights (Reclamation System Mobile Unit) Operational Highlights (Reclamation System Mobile Unit) Typical Flowback Water Processed per Well 10,500 bbls Typical Flowback Water Processed per Well 10,500 bbls  Treats and processes 3,000 bbl /12 hours  97% water recovery  125 bbls of waste sent to disposal Contaminates removed from flowback water (ppm):

30. Water Management Solutions RO

31. ClarificationIon Exchange Reverse Osmosis Sludge Flow Back Water Antiscalant & pH Adjustment Hardness Iron Pretreatment - Membrane Technology Oil Removal Oil pH adjustment Ultra Filtration

32. Reverse Osmosis - RO Features: Features: Remove TDS and can handle up to 40K TDS. Remove TDS and can handle up to 40K TDS. Pre-treatment includes: Pre-treatment includes: TSS, oil, and some hardness removal TSS, oil, and some hardness removal 35 - 40% recovery drinking water quality 35 - 40% recovery drinking water quality Inexpensive with less than 40K TDS flow back & produced waters Inexpensive with less than 40K TDS flow back & produced waters Low energy input required Low energy input required

33. Water Management Solutions Thermal

34. Pretreatment - Thermal Technology Clarification/ Filtration Thermal Technology Flow Back Water Antiscalant Defoamer Corrosion Inhibitor Suspended Solids pH adjustment

35. Mechanical Vapor Recompression

36. Regulatory challenges Disposal/Recycle RCRA rules apply for all waste States have jurisdiction for treatment and disposal Produced/Flowback waters cannot be directly discharged

37. General Commonalities Well Activities Well Activities No specifications set for frac water quality No specifications set for frac water quality Currently no regulations for fracking process (except casing) Currently no regulations for fracking process (except casing) EPA currently evaluating whether hydraulic fracturing should be regulated as underground injection wells and under the same jurisdiction EPA currently evaluating whether hydraulic fracturing should be regulated as underground injection wells and under the same jurisdiction Initial Design of EPA Research. Study on Potential Relationships Between Hydraulic Fracturing and Drinking Water Resources. U.S. Environmental Protection Agency Office of Research and Development. March 2010. http://yosemite.epa.gov/sab/sabproduct.nsf/0/3B745430D624ED3B852576D400514B76/$File/Hydraulic%20Frac%20Sco ping%20Doc%20for%20SAB-3-22-10%20Fin al.pdf Initial Design of EPA Research. Study on Potential Relationships Between Hydraulic Fracturing and Drinking Water Resources. U.S. Environmental Protection Agency Office of Research and Development. March 2010. http://yosemite.epa.gov/sab/sabproduct.nsf/0/3B745430D624ED3B852576D400514B76/$File/Hydraulic%20Frac%20Sco ping%20Doc%20for%20SAB-3-22-10%20Fin al.pdf http://yosemite.epa.gov/sab/sabproduct.nsf/0/3B745430D624ED3B852576D400514B76/$File/Hydraulic%20Frac%20Sco ping%20Doc%20for%20SAB-3-22-10%20Fin al.pdf http://yosemite.epa.gov/sab/sabproduct.nsf/0/3B745430D624ED3B852576D400514B76/$File/Hydraulic%20Frac%20Sco ping%20Doc%20for%20SAB-3-22-10%20Fin al.pdf

38. Laboratory Requirements  Waste Characterization  Water Analysis  Treatment Evaluations  Regulatory Compliance

39. Water Characterization Requirements Analytical Laboratory AnalyteField Kit AA or ICP-MSAl, Ba, Ca, Fe, Mg, Mn, Si, Sr, SO 4, X ICSulfateX GravimetryTDSX TitrationAlkalinity, ClX GravimetryTSS NTU (Clarity)X AA: Atomic Absorption ICP-MS: Inductively Coupled Plasma Mass Spectroscopy IC: Ion Chromatography NTU: Nephelometric Turbidity Units  Analytical laboratory offers state-of-the art instrumentation for data validation and methods development purposes  Field Kits available to all operations

40. Water Analysis and Bench Treatment Evaluation  Personnel & Equipment Water analysis before and after Bench scale Treatment Before TreatmentAfter Treatment

41. Regulatory Compliance Testing Identification of test parameters Identification of test parameters Development of test protocols for field testing and offsite lab testing Development of test protocols for field testing and offsite lab testing Sampling procedures and frequency Sampling procedures and frequency Documentation and reporting procedures Documentation and reporting procedures

42. THE PATH FORWARD

43. Life Cycle Analysis Air Discharges Air Discharges Water Discharges Water Discharges Solid Waste Solid Waste Biodiversity protection Biodiversity protection Resource consumption Resource consumption Use of Good Science Use of Good Science Transparent Operations Transparent Operations Dedication to waste minimization approach Dedication to waste minimization approach

44. The Big Picture Operators Operators Service Companies Service Companies Regulators Regulators Other Stakeholders Other Stakeholders –Public Participation –Research Organizations –NGOs –Industry trade groups –Technology providers

45. Positive Change Remain engaged with local authorities Remain engaged with local authorities Conserve resources Conserve resources Practice Responsible Withdrawal Practice Responsible Withdrawal Implement Recycling Implement Recycling Identify other industrial water sources Identify other industrial water sources Be proactive in the community Be proactive in the community Protect groundwater/ surface water resources Protect groundwater/ surface water resources