John H Quigley LLC1 The Business Case for Sustainable Shale Gas Development John H Quigley LLC2 University of Pittsburghs Shale Gas Roundtable: Getting it right 4 elements: Strong, adaptive, staffed, resourced legal/reg system Aggressive development/adoption of BMPs, operational performance standards Investments in technology, operational innovation Targeted research to inform continuous improvement John H Quigley LLC3 University of Pittsburghs Shale Gas Roundtable: Getting it right m; Aggressive development/adoption of BMPs, operational performance standards Investments in technology, operational innovation John H Quigley LLC4 Can the natgas industry get those two right on its own? John H Quigley LLC5 And fast enough? Requires a paradigm shift John H Quigley LLC6 The most effective tool to enable that shift may be John H Quigley LLC7 8 Balance Sheets and Bottom-Line Risks KPMG identified four areas of broad, interconnected, critical risks to companies that employ hydraulic fracturing: 1. Physical/Environmental risks 2. Regulatory risks 3. Reputational risks 4. Forward-looking risks 9 John H Quigley LLC 1. Physical/Environmental Risks Water availability Fracking faces serious challenges in drought-prone, high water-demand areas here, abroad Risk will worsen as global climate disruption accelerates Any thirsty industry faces uncertain future Weather-related events: On-site runoff Increased soil erosion Threats to integrity of containment pits Increased risk of contamination to surface, groundwater Seismicity risk from wastewater disposal 10 John H Quigley LLC 1. P/E Risks (contd) Water quality TDS Metals NORM Chemicals Contamination of water, soil can occur from Poor well construction Improper disposal of fracking fluids, chemicals Leaks, spills Frackwater storage in open containments a big risk: Wildlife, domestic animals Volatilizing chemicals cause local air pollution, health impacts What happens to injected frackwater that stays downhole may lead to increased short-/long-term risks John H Quigley LLC11 1. P/E Risks (contd) Risks to biodiversity Scale - In 10 million acres >1/3 of states land area leased for shale gas exploration Hundreds of thousands of wells, tens of thousands of miles of roads, pipelines developed in coming decades 60K wells: almost 10% of PAs forest cover destroyed/damaged by Marcellus exploration alone And thats before development of other shale basins Profound impacts on water, wildlife, and more John H Quigley LLC12 2. Regulatory Risks Permitting, licensing, access issues Approval delays Regulatory gaps Local actions Recordkeeping requirements, paperwork State actions - weight limits, bonding requirements Local actions - road reconstruction, community compensation agreements KPMG: Decrease production, increase costs, but IEAs Golden Rules for a Golden Age of Gas: following all Golden Rules to cost of well, but landscape-level planning alone would save 5% of overall development costs Regulations on methane capture should be cost-negative John H Quigley LLC13 3. Reputational Risks Threats to companys license to operate Community values, attitudes, perceptions Local impacts, incidents, accidents Corporate compliance, business behavior, behavior/track record of vendors. Impacts on other economic sectors, like farming, tourism. John H Quigley LLC14 4. Forward-looking Risks Increasing costs of fuel, water treatment, disposal Vendor, supply chain risks in acquisition, use, treatment, recycling, disposal of water Increasing litigation over permit violations, environmental damage, contamination Increasing liability exposure, insurance costs Increased vendor, supply chain environmental/business risks Increasing transparency, disclosure requirements Bans, moratoria A tighter regulatory environment going forward John H Quigley LLC15 What are the common denominators among all of these risks? Water and chemicals. John H Quigley LLC16 A Path to $ustainability If water, toxic chemicals reduced/eliminated for hydraulic fracturing, virtually all of these costs/risks would reduced or eliminated Acquisition, storage, handling of chemicals, water Trucking, pipeline development Drought/ withdrawal curtailment by river basin commissions Water treatment, handling, storage, recycling, disposal Reduced site development, restoration from smaller well pad footprints Road building, bonding Mitigating/remediating spills, leaks, ground- or surface-water contamination Compliance reporting costs Lobbying, legal, litigation settlement, and - maybe a lot of - PR costs John H Quigley LLC17 A full accounting of risks, costs: May make the business case for Prioritizing/driving R&D, pilots Deployment of techs, BMPs Continuous improvement of SGRs getting it right John H Quigley LLC18 A full accounting would also: Place cost reduction alongside risk reduction + Reconcile both society's and industry's goals + Establish/enhance social license to operate + Framework for developing a more agile regulatory approach Potential win - win situation where public is confident that their health is not in jeopardy and savings go directly to a company's bottom line. John H Quigley LLC19 Its time to sharpen the pencils. John H Quigley LLC20 Contact John H Quigley LLC John H Quigley LLC 21