1. SHALE GAS WHAT WE KNOW WHAT WE KNOW WE DO NOT KNOW WHAT DO WE NOT KNOW WE DO NOT KNOW Supratik Banerji Regional Technology Center (RTC) – Unconventional Gas Dallas, Texas Jan 11 th, 2009 PETROTECH 2009: SHALE GAS FORUM

2. WHAT WE KNOW Shale Gas World Examples: Barnett, Marcellus Critical factors in shale productivity optimization WHAT WE KNOW WE DO NOT KNOW Critical factors in shale productivity optimization Shale Gas Production Mechanism Fracture Propagation Model … WHAT WE DO NOT KNOW WE DO NOT KNOW … REGIONAL TECHNOLOGY CENTER Research Directions CONCLUSIONS (wherever possible) DISCUSSION POINTS

3. Coal, Oil, and Natural Gas Will Remain Indispensable Source: IEA REFERENCE CASE 19802004 2030 288 QUADRILLION BTU445 QUADRILLION BTU BIOMASS NUCLEAR WIND / SOLAR / GEOTHERMAL 678 QUADRILLION BTU HYDRO OIL NATURAL GAS COAL 1980 2004 2030

4. The US Gas World 20002007 2533 350442 21 19.3 23.1 27%  8%  $4.25$6.50

5. Conventional and Unconventional Shall Complement Premier clean energy source ‘unconventional’ and ‘conventional’ will complement US unconventional gas / Total gas: 46% 3.6 Trillion BoE in unconventional oil (heavy oil, CBM, shale gas and oil) double the undiscovered conventional 80% of new gas production in the US will be unconventional Shale gas (US only dominant player today) Reserve of 780 TCF (US) – grossly under-reported 40 – 200 BCF gas/sq mile (Barnett) 46,000+ wells drilled

6. Marcellus: the most promising shale gas play ?? THE GOLD RUSH  XTO : Acquires 152,000 acres from Linn Energy at $600M (April 2008); additional production: 25 MMcfe/d, average well reserve: 2 Bcfe, Resource potential: 2-4 Tcfe  SouthWestern : to spend $26 M in drilling 3 vertical wells  Chesapeake : plans 165 wells by 2009, 6 times the current number  EXCO Resources : $150 M for additional acreage;  CNX Gas : estimates shale resources between 1.3 – 5.2 Tcf:  Rex Energy : 16,000 acres of additional acreage;  Atlas Energy : sees 4-6 Tcf from Marcellus with 150 vertical wells in the next 18 months;  Chief Oil and Gas : 4 more wells in ’07;  Cabot Oil and Gas (100,000 net acres leased, two vertical wells producing 800-1000 Mcf/d, 20 well program for 2008;  East Resources : 70 well program (mostly vertical) THE RUN UP  Chesapeake, Range and others : Acreage positions  All operators : Good gas kick, but not commercially productive  Range Resources : December ’07 press release  PennState Univ : Reserves assessment (Jan ’08)  All others: We cannot miss the boat (again)  Rigs : ??, Pumping companies : 5 SOME NUMBERS, IN NO PARTICULAR ORDER  12.5  600120540006000  168-5165020025  560

7. Barnett -- The activity continues …

8. Gas Shales: you mean they are ”reservoirs” ? Challenges Formation evaluation Completion design Modeling and forecasting What are they? Organic-rich shales Source rocks TOC : Adsorbed and free gas Common traits of gas shale reservoirs Abundant gas (40 to 150 BCF/section) Low porosity (~ 5%) Very low permeability (~ 200 nD) Low recovery efficiency (8 to 12%) Naturally fractured (mineralized ??) Low water saturation (~ 20% ??) Require fracture stimulation Long well life and large developments

9. Why are shale “reservoirs” challenging ? -- Heterogeneous and Anisotropic. -- Complex clay morphology -- Free and adsorbed gas -- Organic maturity and type. -- Complex fracture networks -- Sensitive to acids and frac fluids. Mixed siliceous/argillaceous (Reservoir) Clay Rich (Non-reservoir) Calcite Rich (Non reservoir) Silica Rich (Reservoir)

10. So, what is the problem? Understand production mechanism –Physico-chemical processes –Characterize fluid and rock properties and interaction Reservoir characterization –Geomechanical modeling –Production forecasting Completion Design and Execution –3D fracture design –Tailored products/processes for execution –Hz completion strategy

11.  High gas saturation  High matrix permeability  High pore pressure  Low fluid sensitivity; especially shale gas  Fracturable (resulting in large surface area)  Easy to drill (strong and non-abrasive)  Continuous, homogeneous, and extensive Wish List for Successful Tight Gas Production

12. The three most important elements in tight gas plays: Heterogeneity, Reservoir quality, and Completion quality. The three most important elements for defining Reservoir Quality: Gas in place (adsorbed and interstitial), Fluid saturation (gas, water, and mobile oil), and Permeability (Pore pressure would be 4 th ). The three most important elements defining Completion Quality Fracture containment Rock fracturability (?) Chemical sensitivity to fracturing fluids Defining the Viability of a Tight Gas Play

13. Technology Used: MicroSeismic and Simultaneous Fracturing

14. Current Operating Procedures: Pumping the Pond

15. Fracture Geometry Information from Horizontal Image Logs Variable Induced Fractures Infers Variable Stress Transverse Fractures Only:  H >>  h No Fractures: High  ’ Long & Trans Fractures: Low  ‘ &  H ~  h Long, Narrow Fracture FairwayWide Fracture FairwayNo Fractures

16. Work in progress

17. Understanding of complex fractures vs. longer simpler fractures Determine connected surface area created (fracture widths, fluid absorbed) Optimize fracture conductivities (fluid sensitivity, proppant transport, etc) Advance interpretation of micro-seismic data Shale Gas Developments

18.  Why are the shales full of gas, and not water ?  Can we map shale continuity through surface methods? Seismic? Resistivity?  What is the production mechanism at such high CPs? Imbibition? Is there a better liquid than water?  How can we design and control fracture propagation? What is the best proppant? Fluid? How do we make them go around transverse fractures?  EGR using CO 2 ? Gas desorption at higher temperature Experimental study of gas shale pyrolysis Relationship between maturity and porosity, fluid saturation ISSUES

19. Sub-Basalt Reservoirs Carbonates Heavy Oil (Faja) Gas Condensates Advanced Recovery (Chicontepec) Unconventional Gas Heavy Oil Mumbai Abu Dhabi Puerto de la Cruz Mexico City Dallas Calgary Moscow Regional Technology Centers (RTCs)

20. Project distribution SupratikBanerji DeanWillberg Productivity MarcThiercelin GeoScience Complex Fracture Conductivity Gas- Production Simulator Numerical Quantification AutoFRAC RTC Dallas Productivity Optimization Production and Reservoir Engg GeoScience Engineering Projects Complex Fracture Conductivity - Production Modeling Materials for Complex Fractures Conductivity Measurement and Engineering Production Physics 3D Frac Simulator Sonic Scanner Advanced Interpretation MicroSeismic to Simulation Numerical Quantification Completions Perforation Best Practices Near-wellbore innovations Gas Shale Production Gas Shale Production Optimization Gas Shale Surface Chemistry Re-fracs

21. Conclusions: Key Parameters for Gas Shale Plays Thermal Maturity Saturations Storage Adjacent water bearing formations Mineralogy, Faults and Fractures Organic richness, Matrix Permeability Thickness Fluid compatibility Fracture containment Fracture orientations Hydraulic & natural Fracture complexity Fracture conductivity Stress Geology & Reservoir Engineering

22. Conclusions: Shale ≠ Shale ≠ Shale

23. THANK YOU PETROTECH 2009: SHALE GAS FORUM