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Assessing the Quality of Shale Play Reserves and Operator Performance

Arthur E. Berman

South Texas Geological Society San Antonio, Texas March 25, 2014

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1/1/20

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1/1/20

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Granite Wash Production (Horizontal)


Granite Wash oil and gas production are in steep decline. �e number of producing wells has been falling for the last 3 months suggesting that wells are short-lived. �e rig count has been falling steadily since August 2013 and is currently at 54. Approximately 22% of 2013 Granite Wash wells were drilled from pads.

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Oil Production Number of Wells Number of Rigs

Mississippi Lime oil production is erratic probably due to unreliable data reporting from Oklahoma. It has apparently risen along with the number of producing wells in recent months. �e rig count is �at at about 69. About 36% of Mississippi Lime wells were drilled from pads in 2013.

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Gas Production Number of Wells Number of Rigs

Woodford gas production is erratic probably because of unreliable data reporting in Oklahoma. It has fallen sharply in recent months and the number of producing wells has decreased correspondingly. �e rig count is currently 48. Approximately 45% of Woodford wells were drilled from pads in 2013.

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Niobrara production continues to increase but at a slower rate. �e number of producing wells and the rig count are also increasing. �e rig count is currently 51. Approximately half of Niobrara production is from the greater Wattenberg Field area and 84% of wells are drilled from pads.

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U. S. Energy Information Administration | Drilling Productivity Report

Marcellus

0

400

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2007 2008 2009 2010 2011 2012 2013 2014

Oil production thousand barrels/day

Marcellus

0.0

1.0

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Feb42

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0

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Marcellus

+630 -242 +388

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New-well oil production per rig barrels/day

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Marcellus Marcellus

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drilling data through December projected production through February

January 2014 Drilling Productivity Report

Monthly additions from one

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February

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January barrels/day

month over month

Oil +1

Gas thousand cubic feet/day month over month

+110

million cubic feet/day month over month

6,303 February

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January 6,193 41 40

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Oil +2 Gas +388

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County/Year Completion Cumulative Remaining EUR Cumulative Remaining EUR scf/bbl MBOE Econ MBOE Econ Ratio BOE/day Count

Karnes 2010 124.5 38.6 163.1 690.7 283.8 974.5 5,975 224 117 1.9 532 50Karnes 2011 142.4 70.3 212.7 501.9 260.4 762.3 3,584 260 131 2.0 562 130Karnes 2012 109.7 88.9 198.6 343.4 341.1 684.5 3,447 241 125 1.9 604 243Avg all yrs 137 61 199 554 267 821 4,248 250 127 2.0 553.5Dewitt 2010 221.3 126.5 347.8 1,191.4 748.7 1,940.1 5,578 469 184 2.6 822 31Dewitt 2011 178.7 118.5 297.2 994.5 827.7 1,822.2 6,131 411 170 2.4 729 131Dewitt 2012 141.0 211.2 352.2 621.6 1,085.8 1,707.4 4,848 459 645 203Avg all yrs 187 120 307 1,032 813 1,845 6,025 422 173 2.4 746.9

Dimmit 2010 123.0 100.2 223.2 803.5 685.0 1,488.5 6,669 316 90 3.5 335 39Dimmit 2011 69.5 85.4 154.9 419.2 533.0 952.2 6,147 214 59 3.6 220 181Dimmit 2012 54.1 93.1 147.2 273.5 612.6 886.1 6,020 203 71 2.8 275 346Avg all yrs 79 88 167 487 560 1,047 6,240 232 65 3.6 240.4

LaSalle 2010 35.5 10.0 45.5 1,143.8 1,496.9 2,640.7 58,037 211 63 3.4 333 45LaSalle 2011 39.8 23.6 63.4 965.6 1,224.1 2,189.7 34,538 200 70 2.9 300 80LaSalle 2012 56.3 68.1 124.4 319.6 840.4 1,160.0 9,325 197 76 2.6 348 221Avg all yrs 38 19 57 1,030 1,322 2,352 42,998 204 67 3.0 311.8Webb 2010 54.7 28.8 83.5 1,598.6 1,887.6 3,486.2 41,751 301 82 3.7 357 101Webb 2011 45.2 38.8 84.0 1,108.2 1,524.4 2,632.6 31,340 249 77 3.2 349 234Webb 2012 28.6 32.2 60.8 788.7 1,672.9 2,461.6 40,487 215 74 2.9 366 272Avg all yrs 48 36 84 1,256 1,634 2,890 34,479 264 79 3.4 351.6

McMullen 2010 67.9 22.6 90.5 835.3 370.1 1,205.4 13,319 166 75 2.2 445 22McMullen 2011 61.8 31.8 93.6 717.4 505.6 1,223.0 13,066 170 82 2.1 417 52McMullen 2012 56.7 59.1 115.8 384.6 402.6 787.2 6,798 165 430 137

Avg all yrs 64 29 93 752 465 1,218 13,141 169 80 2.1 425.2Gonzales 2010 90.6 18.0 108.6 65.9 2.0 67.9 625 113 76 1.5 556 13Gonzales 2011 67.5 29.4 96.9 45.8 2.0 47.8 493 100 53 1.9 279 21Gonzales 2012 71.7 50.8 122.5 54.1 13.1 67.2 549 127 72 1.8 399 55

Avg all yrs 76 25 101 53 2 55 544 105 62 1.7 385.2Live Oak 2010 119.0 72.5 191.5 1,230.0 668.4 1,898.4 9,913.3 310 124 2.5 717 14Live Oak 2011 127.2 97.4 224.6 528.7 305.0 833.7 3,711.9 277 122 2.3 602 84Live Oak 2012 64.9 158.3 223.2 489.4 698.8 1,188.2 5,323.5 297 424 90

Avg all yrs 126 94 220 629 357 986 4,598 281 122 2.3 618.1Atascosa 2010 78.8 43.1 121.9 55.6 0.0 55.6 456.1 125 56 2.2 301 7Atascosa 2011 73.0 59.8 132.8 72.4 9.4 81.8 616.0 138 61 2.2 311 37Atascosa 2012 64.8 80.9 145.7 48.3 20.0 68.3 468.8 150 62 2.4 304 54

Avg all yrs 74 57 131 70 8 78 591 136 61 2.2 309.2

Weighted Average = 248 77 2.3 427

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range as the J1 set (Hancock and Engelder, 1989;Lash and Engelder, 2009). The second conundrumstems from geological evidence that suggests thatthe J1 set propagated before Alleghany-orogeny-induced folding and concomitant LPS (Pashin

and Hinkle, 1997; Engelder, 2004). If the J1 setpredates Alleghanian LPS, then it survived thistectonic deformation in black shales as unhealedjoints with little modification during penetrativestrain despite being subnormal to the direction of

Figure 5. (A) Crosscutting J1 and J2 joints in the Marcellus black shale exposed in Oatka Creek, Le Roy, New York. View is to the east-northeast. (B) The J1, J2, and J3 joints in the Marcellus black shale within folded beds just south of Jacksons Corner, Pennsylvania. Theview is to the east-northeast showing south-dipping beds. Freiberger compass for scale. See Figure 2 for the locations.

Engelder et al. 865

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12-Month Cumulative Production, 7/13

ChesapeakeCHK 2008 2,267 28 2,335 23 2,059 1,166CHK 2009 3,078 118 2,971 110 2,436 1,482CHK 2010 4,276 194 3,543 191 Insufficient Data 1,834CHK 2011 4,169 269 3,538 207 1,664CHK WTD AVG 3,904 609 3,370 531 2,371 1,660PetrohawkHK 2008 6,249 12 7,543 3 3,761 2,540HK 2009 4,828 65 4,873 46 3,998 2,382HK 2010 5,977 84 Rate Controlled 75 Insufficient Data 2,191HK 2011 4,452 94 Rate Controlled 67 1,925HK WTD AVG 5,135 255 5,036 191 3,963 2,158EncanaECA 2009 3,203 32 3,341 34 2,555 1,825ECA 2010 3,053 66 3,112 82 Insufficient Data 1,932ECA 2011 4,364 32 3,022 60 2,436ECA WTD AVG 3,413 130 3,126 176 2,555 2,029EXCO EXCO 2009 4,716 40 4,965 30 4,059 2,559EXCO 2010 4,629 92 5,113 87 Insufficient Data 2,352EXCO 2011 4,072 156 3,921 118 2,370EXCO WTD AVG 4,339 288 4,496 235 4,059 2,391

Overall Average 4,197 1,282 3,676 1,133 3,001 1,961

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•! Over-stated resource estimates & public confusion between resources and reserves.

•! Not all shales are equal (e.g., Silurian Shale play in Poland). •! Costs are higher outside North America: lack of services &

infrastructure. •! Most U.S. shale gas plays are not commercial. •! Little private mineral ownership outside North America—no

profit incentive for landowners. •! Concession mindset means winner must de-risk entire basin. •! Population density & geographic footprint: 30,000 wells to

develop Bowland Shale in U.K. (e.g., Greater Manc. 5,440/sq mi. vs. Harris 2,460/sq mi.)

•! Hydraulic fracturing is a big issue even though it should be a relative non-issue.

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