Shale Plays – The New Paradigms

on Exploring, Risking and Special

Skill Sets Required to Evaluate Them

Lynn Strickland

Vice President Asia Pacific,

Russia Caspian Exploration

1

Cautionary Statement

FOR THE PURPOSESOF THE “SAFE HARBOR” PROVISIONSOF THE

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The following presentation includes forward-looking statements within

the meaning of Section 27A of the Securities Act of 1933, as amended,

and Section 21E of the Securities Exchange Act of 1934, as amended,

which are intended to be covered by the safe harbors created thereby.

These statements relate to future events, such as anticipated revenues,

earnings, business strategies, competitive position or other aspects of

our operations or operating results. Actual outcomes and results may

differ materially from what is expressed or forecast in such forward-

looking statements. These statements are not guarantees of future

performance and involve certain risks, uncertainties and assumptions

that are difficult to predict such as oil and gas prices; operational hazards

and drilling risks; potential failure to achieve, and potential delays in

achieving expected reserves or production levels from existing and

future oil and gas development projects; unsuccessful exploratory

activities; unexpected cost increases or technical difficulties in

constructing, maintaining or modifying company facilities; international

monetary conditions and exchange controls; potential liability for

remedial actions under existing or future environmental regulations or

from pending or future litigation; limited access to capital or significantly

higher cost of capital related to illiquidity or uncertainty in the domestic

or international financial markets; general domestic and international

economic and political conditions, as well as changes in tax,

environmental and other laws applicable to ConocoPhillips’ business and

other economic, business, competitive and/or regulatory factors

affecting ConocoPhillips’ business generally as set forth in ConocoPhillips’

filings with the Securities and Exchange Commission (SEC). Unless legally

required, ConocoPhillips undertakes no obligation to update publicly any

forward-looking statements, whether as a result of new information,

future events or otherwise.

2

No two shale plays are alike

Not every shale play is going to work

Those that work have well defined sweet-spots

Exploration includes extended and expensive appraisal

Special skill sets needed for evaluating shales

Discussion Topics

Shale Plays are Not Without Risk

3

An Abundance of Plays – But Not All Plays are Created Equal

1962 1972 1982 1992 2002 2012 2022 2032

4

U.S. Oil Production Growth: Driven by the "Big Three" Shale Oil Plays

U.S. production has risen from 6.5 million barrels per day in 2008

To 8.5 million barrels per day at present, and is still rising rapidly

Bakken4-24 BBOE

Permian Basin

10-30 BBOE

Eagle Ford22-30 BBOE

= Oil Wells = Gas Wells = Cond. Wells = Dry Holes0

12,000

10,000

8,000

6,000

4,000

2,000

14,000

U.S. Oil Production

(thousands of barrels per day)

History Prediction

1970: U.S. Peak Oil

Sources: Historical U.S. production data from BP statistical review of world energy 2012 andU.S. EIA; oil production numbers include condensate and NGLs; Prediction from PIRA Energy

Wolfcamp

� Also have acreage in the Barnett, Canol, Niobrara,

Duvernay and other plays

� Over 3 billion BOE of resources in North America

Strong International Shale Presence

� Early Mover in Poland Shale with 3 vertical and 2

horizontal wells

� Drilling Second Vertical well in Canning Basin of

Australia

� Partnerships with Sinopec and CNPC in Sichuan Basin in

China

5

Oil

High yield gas/volatile oil

Gas

Avalon Barnett

Eagle Ford

Canol

Horn River

Montney

Duvernay

Bakken

Niobrara

San Juan

ConocoPhillips’ Shale Plays

ConocoPhillips is an industry leader in shale

exploration & development in North America

� Big position in big three liquid rich plays (Eagle Ford,

Bakken and Permian Basin)

6

Identifying the Risk

Source Rock(TOC, Kerogen Type, Maturity, Rock Eval)

+

Reservoir Rock = storage capacity(Facies, GRI Porosity, Saturation, Permeability)

+

Brittle Fracable Rock(Mineralogy, Contiguous Thickness, Depth, Pressure, Stress Regime)

+

Containment

(Seal Presence & Thickness, Thru Going Faults, Isolation from Formation Water)

YOU NEED ALL FOUR TO BE SUCCESSFUL

AND THESE WILL NOT EXIST OVER THE ENTIRE SHALE BASIN

7

Source Quality Risk

Kerogen Type

Hydrogen Index

I, II

300+

S2 Remaining potential

TOC >2%

3

Reservoir Mineralogy Risk

Quartz

Carbonate

Ohio

Barnett 2

Marcellus

Woodford

Caney

Huron

Normal Shale Seal

Clay

Muskwa

Montney

High Risk

8

They may all look the same

but they behave differently

Haynesville

Barnett 3

Posidonia

Niobrara

Eagleford

SWS

9

Fracability Risk

Grieser USGS

Can you break the rock and will the proppant keep the fracture open

Andrews 2009

Bottom Seal Containment Risk

Need 3D Seismic

Potential Collapse Area

40ms =

250’ karst

featureEllenberger Below Barnett Shale

Possible Source of Water

10

11

Eagleford -- The Perfect Storm

Source Characteristics� High TOC 3-6� Type II Kerogen� Perfect maturity Range Oil-Condensate Window� High HI

Reservoir Characteristics� Restricted Marine Setting� GRI Porosity 8-10%� GRI Saturation 70-85%� Permeability 100-300nd

Fraccability� Lithology = Cretaceous organic silica and carbonate rich� Clay 10-20%� Depth Range = 10-12000 ft� Contiguous thickness 100+ ft� Overpressure 0.65-0.75 psi/ft

� SHmax = SHmin thus a SRV fracture pattern on stimulation

Meets All Criteria for Good Shale Play

COP Eagle Ford Acreage

12

Eagle Ford Outcrop Photo

Frac fluids can alter rock and/or

reservoir fluid propertiesEagle Ford Outcrop Photo

Eagleford Sweet-spot Identification

Rock properties can vary rapidly

laterally and vertically

Fluid properties can change

appreciably over short distances

Fluid properties can change

over a well’s productive life

Frac fluids may or may not be

produced back

13

Not all Barnett wells are successful, relatively small sweet-spot

Barnett Sweet-spot Identification

Pollastro, 2003

Ro=1.1 Gas Window

Jarvie 2004

thin

thin

Youngs Modulus

14

Pressure

Depth

Montney Sweet-spot Identification

Regional

Water line

ConventionalWater

Source: Dahl and Lefebvre 2012

Not the typical parameters exploration

geologists think about

� Optimize well

spacing, well

Manufacturi

ng Phase

Exploration

Phase

Appraisal

Phase

Initial

DevelopmentPhase

Acreage

AcquisitionPhase

� Accumulate land

position

� Acquire data

required to position

exploration wells

� Drill vertical wells to

test extent of play

� Drill horizontal wells

to determine

production rate

� Drill horizontal wells � Drill initial

to determine development area

commercial well

design

design, etc.

� Run rigs and frac

spreads at optimal

pace

� Continuous

development

activities

Unlike Most Conventional Plays Shale Exploration Involves

Expensive Pilot Programs before Sanctioning Development

15

10 to 20 years2 to 5 years2 to 4 years

Produce

Typical Shale Lifecycle

Exploration

Value

16

Securing the Best Acreage within the Best Plays

Eagle Ford is amongst the best

liquids-rich plays

Not all parts of the Eagle Ford

are equally valuable

Factors controlling value:

�

�

�

�

Hydrocarbon type

Hydrocarbons in place

Pore pressure

Rock properties

ConocoPhillips’ acreage is

optimally positioned

Eagle FordPlay Area

NW

SE

Low

SE

High

Oil Cond. Gas

NW

Value curve geometry based upon ITG’s May 2012 “Eagle Ford Shale: The Regal Eagle” report and data published by Marathon and other operators;Curve is an approximation and shows general trends in value; Results for specific operators may vary from trend line.

17

Optimizing the Development Plan

Critical decisions include:

�

�

�

�

�

Well length

Completion design

Well spacing

Gathering & processing

Commercial arrangements

Controlled experiments can

vastly accelerate learning

Learn from others via:

� Data in public domain

� Data trades

Eagle Ford Well Spacing Pilot Design

Map view

18

Managing the Field

Focus on safety and efficiency

It helps if you are already good at

managing large operations:

ConocoPhillips San Juan Basin

� 10,000 operated wells

� 2,200 compressors

� 950 miles of gathering lines

� 17 salt water disposal facilities

Utilizing "integrated operations" approach

on new developments like Eagle Ford

Eagle Ford Well Head

19

Keys to Shale Exploration Success

Be an operator in multiple shale plays in North America

Understand critical subsurface elements to successful shale plays

�Comprehensive petroleum system analysis

�Detailed petrophysical evaluation and calibration to core

�Rock mechanics - collecting and analyzing the core

Fracture Treatment analysis- conducting experiments and tests to

better understand shale response

Micro-Seismic integration, evaluating and experimenting with

differing responsesand correlation to frac designs

Special Skill Sets Needed for Shale Evaluation

NW SE

Petrophysics – The Integration of Logs and Core

- 8000’

-

10400’

-

12800’Must calibrate logs to core, need GRI porosity ,

saturation and permeability data to define pay

20

Wellbore Array

21

frac treatments go is paramount

Micro-Seismic – A Different Type of Geophysics

Buried ArrayCourtesy of Microseismic

Surface ArrayCourtesy of Microseismic

Understanding where the

Vertical Frac = Single Frac

Horizontal Multiwell

Multi-Stage Frac

After 30 yr

Understanding of Reservoir Engineering

Stimulated Rock Volume

Horizontal Multi-Stage

Frac

Need to understand which drilling

method and fracture treatment opens

up the most Stimulated Rock Volume

red - original reservoir pressure

dark blue – later time flowing bottom hole

pressure

The Key to Commercial Success in

Unconventional production

22

Plays