1. First Mover Last Update 2015.01.28 1.0.0 Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 1

2. First Mover A first mover is someone or some organization that gets there or does something before everyone else Let’s look at a local example Fracing shale rock formations in order to extract natural gas or crude oil Here is what it looks like Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 2

3. Fracing Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 3

4. Fracing Fracing was developed in the middle of the 20th century It never amounted to anything Shale rock was known to contain natural gas But this gas could not be economically extracted Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 4

5. Fracing One could drill vertically to tap deposits above and below the shale rock But the shale rock layer was too thin and too hard to extract natural gas from by just drilling into it There are no shale gas gushers George Mitchel of Mitchell Energy was sitting on a lot of mineral rights Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 5

6. Fracing None of these were doing him any good as there were no deposits that could be reached by vertically drilling He decided that he would look into applying horizontal drilling and fracing to this rock It worked Mitchell Energy was sold to Devon for 3.5 billion dollars Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 6

7. The Barnett Shale Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 7

8. Lease Mineral Rights Usually controlled by the government In the US owned by individuals Unrelated to the surface rights Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 8

9. Mineral Rights Lease First mover –Lease the mineral rights before anyone else does –Pay the lowest possible price Single payment per acre –Income regardless Percentage payment of results –Only paid on successful wells Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 9

10. HBP Drill only those wells needed to prevent the lease from expiring or Renew the lease by paying the bonus payment gain Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 10

11. Extend The Method Other Uses Everyone was certain that horizontal drilling and fracing could not be used to extract crude oil from shale rock EOG though otherwise Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 11

12. Eagle Ford Copyright Kenneth M. Chipps Ph.D. 2013 www.chipps.com 12