Engineering and Economic Challenges in Shale Gas Production

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1 Engineering and Economic Challenges in Shale Gas Production 211 Gas/Electric Partnership Conference Feb 1 th, 211 Rob Sutton

2 US Gas Well Locations Source: IHS MS Streets & Trips 2

3 3

4 U.S. Gas Well Gas Production U.S. Historical Gas Well Facts 7, Production 7 Avg Daily Production, MMCFD 6, 5, 4, 3, 2, 1, Well Count Avg Well Rate Well Count, 's or Avg Gas Rate, MCFD/Well EIA

5 U.S. Gas Well Gas Production 7, Avg Annual U.S. Gas Well Gas Production 6, 5, Gas Rate, MMCFD 4, 3, 2, 1, EIA Year 5

6 U.S. Gas Well Gas Production 7, 6, Avg Annual Monthly U.S. Gas Well Gas Production 5, Gas Rate, MMCFD 4, 3, 2, 1, EIA & HPDI Year 6

7 U.S. Gas Well Gas Production 7, 6, Avg Annual Percent Shale U.S. Gas Well Gas Production 35 3 Gas Rate, MMCFD 5, 4, 3, 2, Percent from Shale 1, EIA & HPDI Year 7

8 Jan-9 Jan-1 12, 1, 8, 6, 4, Shale Plays 2, 8 Jan-7 Jan-8 Jan-6 Shale Play Rate Comparison Haynesville Woodford Fayetteville Barnett Antrim Legacy Appalachia Gas Rate, MMCFD Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 HPDI

9 Natural Gas Where It s Produced EIA & HPDI Location 29 Avg Daily Rate, MMCFD % of Total Total Texas USA w/o Gas Barnett Wells 55,342 13, Texas 18, Wyoming 6, Gulf Barnett of Mexico Shale 29 5,144 4, Oklahoma 4, Lousisana 4, New Mexico 3, Colorado 3, Barnett accounts for 26% of total gas well gas production intexas Total

10 Gas Price and Rigs $14. $12. Henry Hub Natural Gas Spot Price & U.S. Drilling Rig Count Price US Rigs 3,5 3, $1. 2,5 $/MMBtu $8. $6. 2, 1,5 Rig Count $4. 1, $2. 5 $. Jan-8 Jan-9 Jan-1 Jan-11 Source - EIA 1

11 Texas Gas Wells 1, 9, 8, 7, Texas Gas - Annual New Gas Wells Well Count 6, 5, 4, Source HPDI 3, 2, 1,

12 Jan-1 25, 2, 15, 1, 5, Texas Gas 12 Jan-8 Jan-9 Jan-7 Jan-6 Jan-3 Jan-4 Jan-5 Jan-2 Texas Gas Wells Gas Rate, MMCFD Jan-98 Jan-99 Jan- Jan-1 Source HPDI

13 Jan-1 Barnett Shale 6, 5, 4, 3, 2, 1, 13 Jan-9 Barnett Shale Gas Production Rate Gas Rate, MMCFD Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Source HPDI

14 Well Types and Cost Vertical well cost $3,-4, Horizontal well cost $2,5,-7,, Multistage hydraulic fractured completions 1, 9, Comparison of Vertical and Horizontal Well IP Barnett Horizontal Barnett Vertical 8, 3 Day Well IP, MCFD 7, 6, 5, 4, 3, 2, 1, Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 HPDI 14

15 Barnett Shale Horizontal & Vertical Wells 1. Barnett - Fraction of Annual Wells Drilled as Horizontal.9.8 Fraction of Total HDPI & SPE Year 15

16 Vertical vs Horizontal Well Attrition Barnett - Well Attrition Wells Fraction of Total Wells Vertical 22 Wells 23 Wells 24 Wells 25 Wells 26 Wells 27 Wells 28 Wells Horizontal HDPI & SPE Months 16

17 Well IP Comparison IP Comparison - Reported vs 3 Day 35, 3, Reported Data Simulation Reference Reported Gas IP, MCFD 25, 2, 15, 1, 5, HDPI & SPE , 1, 15, 2, 25, 3, 35, 3 Day (Peak Month) Rate, MCFD 17

18 Well EUR and IP 1, Well EUR at 3 Years, MMCF 1, 1, 1 4 Stage 8 Stage Comparison of Well EUR with IP 4 - Ft Horizontal Well 12 Stage 1 Stage 16 Stage 2 Stage 5, 1, 15, 2, 25, 3, 3 Day Well IP, MCFD 24 Stage 3 Stage 1 Nano Darcy 1 Nano Darcy 1 Nano Darcy 1 Micro Darcy 1 Micro Darcy 18

19 Cumulative Gas and IP Relationship HPDI 19

20 Cumulative Gas and IP Relationship HPDI 2

21 Cumulative Gas and IP Relationship HPDI 21

22 IP Distribution Comparison Fraction of Total IP Rate Distribution Comparison (28-21) Legacy Appalachian Antrim Barnett Horizontal Woodford Horizontal Fayetteville Haynesville/Bossier Horizontal 35-7,927 HPDI Day Well IP, MCFD 22

23 Example Use of Cum vs IP & IP Distributions Well cost $4.5 MM Gas price $5./MCF Desired payout 3 years Calculate Vol of gas = 4,5,/5. = 9 MMCF 23

24 Gas Production to Payout Well Costs Required Gas Reserves for Payout Cumulative Produced Gas, MMCF 7, 6, 5, 4, 3, 2, 1, 2 $/MCF 3 $/MCF 4 $/MCF 5 $/MCF 6 $/MCF 7 $/MCF 8 $/MCF 9 $/MCF 1 $/MCF 11 $/MCF 12 $/MCF Drill & Complete Cost, MM$ 24

25 Estimated Required Well IP 3 Day Well IP, MCFD 18, 16, 14, 12, 1, 8, 6, 4, 2, 2 $/MCF 3 $/MCF 4 $/MCF 5 $/MCF 6 $/MCF 7 $/MCF 8 $/MCF 9 $/MCF 1 $/MCF 11 $/MCF 12 $/MCF Well IP for 3 Year Payout (Barnett Average) HDPI & SPE Drill & Complete Cost, MM$ 25

26 Probability of Payout IP Rate Distribution Probability of Comparison 3 Year Payout (28-21) Chance Fraction of Success of Total Legacy Appalachian Antrim Barnett Horizontal Woodford Horizontal Fayetteville Haynesville/Bossier Horizontal 2 $/MCF 3 $/MCF 4 $/MCF 5 $/MCF 6 $/MCF 7 $/MCF 8 $/MCF 9 $/MCF 1 $/MCF 11 $/MCF 12 $/MCF.2.1 HDPI & SPE Drill 3 Day & Complete Well IP, MCFD Cost, MM$ 26

27 Summary Shales provide a significant amount of the natural gas produced in the U.S. Approximately 2% of U.S. gas well gas production Premier plays currently Barnett, Fayetteville, Haynesville/Bossier & Woodford Use care when looking at well IP s Use 3 day IP rates Cumulative gas vs IP relationships Viable means to rank wells using early time data IP can be manipulated by completion techniques Not recommended for estimates of EUR Application to short time periods Putting it all together Cumulative gas vs IP relationships IP rate distribution Simple economic evaluation (probability of payout) 27

28 Questions 28

Availability, Economics and Potential of North American Unconventional Gas

Availability, Economics and Potential of North American Unconventional Gas Harry Vidas Vice President Natural Gas Consulting (703) 218-2745 hvidas@ ICF International INGAA Foundation Palm Coast FL November