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KANSAS OIL AND NATURAL GAS PRODUCTION:
AN AMERICAN ENERGY ANSWER!
JAMES ROLLER MANAGER – CORPORATE DEVELOPMENT
U.S. ENERGY EXPLORATION INDUSTRY LEADERSHIP SINCE 1989 Founding Principals
› Small Business Backbone – Co-founded with 10 employees and $50,000 by CEO Aubrey McClendon and former President and COO Tom Ward
Chesapeake Performance › #1 driller of new oil and natural gas wells in the U.S.
− June 1st, 2012 – Thurman Horn 406H – We believe is the best onshore well drilled in the lower 48 states in the past several decades.
– First Production averaged 5,400 bbls oil, 1200 bbls of NGL’s, and 4.6
mmcf gas per day
› #1 driller in the U.S. during the past 20 years, with more than 12,200 wells › #1 driller in the world of horizontal wells over the past 20 years, with more than 6,200
wells › Second largest producer of natural gas in the U.S › Top 10 gas and liquids marketer in North America through Chesapeake Energy Marketing,
Inc. (CEMI)
Chesapeake is committed to revitalizing the U.S. economy and rejuvenating the industrial sector by replacing foreign oil imports with oil, natural gas, natural gas liquids and dry gas.
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SERVING CUSTOMERS ACROSS THE COUNTRY
Recognizing the diversity of customers and creating partnerships that help the community, economy, political leaders, and other stakeholders and doing so in an environmentally sensitive way is imperative
Recognizing the diversity of customers and creating partnerships that help the community, economy, political leaders, and other stakeholders and doing so in an environmentally sensitive way is imperative
OIL AND NATURAL GAS PRODUCTION PROCESS
OIL AND NATURAL GAS PRODUCTION PROCESS
Five Basics Steps
1. Site Selection/Preparation
2. Drilling
3. Completion
4. Production
5. Reclamation
SITE SELECTION Many factors go into selecting a drilling site:
Geology Topography Access roads Pipelines and utilities Proximity to schools and homes Available water sources Proximity to wetlands, sensitive wildlife
habitat or significant archeological sites
SITE PREPARATION • Site construction
typically 4 to 6 weeks
• Typical pad site 300 x 400 feet
• E&S Controls installed
• Zero discharge sites
• Containment mechanisms put into place
THESE ADVANCED DRILLING & COMPLETION TECHNOLOGIES HAVE REVOLUTIONIZED OIL AND NATURAL GAS PRODUCTION
Knowing where fresh water is located
› Established by state water protection agencies
Protective well design
› Consist of multiple layers of steel casing
MULTIPLE LAYERS OF PROTECTION
DRILLING
HYDRAULIC FRACTURING Once the drilling rig leaves, hydraulic fracturing begins
Hydraulic fracturing is an advanced technology that allows the safe and economic removal of natural gas and oil from the deep formations
Hydraulic Fracturing has been used by the natural gas and oil industry since the 1940s
WHAT DOES IT LOOK LIKE?
First experimental hydraulic fracturing treatment in U.S. 1947 in Grant County, Kansas.
WHAT DOES IT LOOK LIKE? Typical Site Layout – Cerca Pad, Wyalusing Township, PA
Sand Storage Units
Working Water Tanks
Pump Trucks Chemical Storage
Blender
Recycled water for re-use
Tanks for produced water Data Monitoring Van
Frac Heads
COMPLETION AND PRODUCTION
FRACFOCUS.ORG
TYPICAL DEEP FRACTURING PRODUCTS
Other: ~ 2% Acid Anti-bacterial Agent Breaker Clay Stabilizer Corrosion Inhibitor Crosslinker Friction Reducer Gelling Agent Iron Control pH Adjusting Agent Scale Inhibitor Surfactant
Water and Sand: ~ 98%
Products are rarely all used in one play
For more information, visit HydraulicFracturing.com and FracFocus.org or see our fact sheet on Hydraulic Fracturing
CURRENT CHESAPEAKE WATER USE BY SHALE PLAY
Eagle Ford Shale 125,000 Gallons used for Drilling 4,800,000 Gallons used for Fracturing
~ 4.9 Million Gallons Used Per Well
Permian Basin Plays** 100,000 Gallons used for Drilling 1,800,000 Gallons used for Fracturing
~ 1.9 Million Gallons Used Per Well
** Includes Avalon Shale, Bone Spring, Spraberry, Wolfberry, and Wolfcamp plays
Niobrara Shale 300,000 Gallons used for Drilling 3,000,000 Gallons used for Fracturing
~ 3.3 Million Gallons Used Per Well
Cleveland / Tonkawa 200,000 Gallons used for Drilling 3,800,000 Gallons used for Fracturing
~ 4.0 Million Gallons Used Per Well
Mississippi Lime 100,000 Gallons used for Drilling 2,100,000 Gallons used for Fracturing
~ 2.2 Million Gallons Used Per Well
Liquids-Rich Shales (Gas, Oil, Condensate)
RAW FUEL SOURCE WATER EFFICIENCY
Source: USDOE 2006 (other than CHK data)
*Includes processing which can add 0 - 2 gallons per MMBtu **Includes refining which consumes major portion (90%) of water needed (7-18 gal per MMBtu) Solar and wind not included in table (require virtually no water for processing) Values in table are location independent (domestically produced fuels are more water efficient than imported fuels
Energy resource Range of gallons of water used per MMBtu of energy produced
Conventional (vertical) natural gas 1 – 3
Chesapeake deep shale natural gas * 0.84 – 3.32
Coal (no slurry transport) (with slurry transport)
2 – 8 13 – 32
Nuclear (processed uranium ready to use in plant) 8 – 14
Conventional (vertical) oil 8 – 20
Chesapeake deep shale / tight sand oil ** 8.15 – 20.13
Synfuel - coal gasification 11 – 26
Oil shale petroleum 22 – 56
Oil sands petroleum 27 – 68
Synfuel - Fisher Tropsch (Coal) 41 – 60
Enhanced oil recovery (EOR) 21 – 2,500
Biofuels (Irrigated Corn Ethanol, Irrigated Soy Biodiesel) > 2,500
WATER USE EFFICIENCY IN MAJOR SHALE PLAYS
* Includes Avalon Shale, Bone Spring, Spraberry, Wolfberry, and Wolfcamp Plays Source: 1Chesapeake Energy 2011, 2Chesapeake Energy Data 3Based on 1,028 Btu per Cubic Foot Gas and 5,800,000 Btu per BBL oil, USDOE 2007, 4 Does not include processing British Thermal Unit (Btu) Million British Thermal Units (MMBtu)
Play Average Water Use Per Well 1
CHK Est. Avg. Natural Gas Equivalent Production Over
Well Lifetime 2
Assumed % Energy from
Source 2
Resulting Energy Production Per Well Over
Well Lifetime 3
Water Use Efficiency
(in gallons per MMBtu) 4
Permian Basin Plays* 1.9 million gallons 1.3 billion cubic feet equiv
(oil and gas) ~ 68% Oil
~ 32% Gas 1.3 trillion Btu (total) 1.46
Mississippi Lime 2.2 million gallons
1.4 billion cubic feet equiv (oil
and gas)
~ 40% Oil ~ 60% Gas 1.44 trillion Btu (total) 1.53
Eagle Ford Shale 4.9 million gallons
3.0 billion cubic feet equiv
(oil and gas)
~ 67% Oil ~ 33% Gas 3.1 trillion Btu (total) 1.58
Cleveland / Tonkawa 4.0 million gallons 2.0 billion cubic feet equiv
(oil and gas) ~ 50% Oil
~ 50% Gas 2.05 trillion Btu (total) 1.95
Niobrara 3.3 million gallons 1.5 billion cubic feet equiv (oil and gas)
~ 69% Oil ~ 31% Gas 1.55 trillion Btu (total) 2.13
CHK’S COMMITMENT TO THE ENVIRONMENT Spill Prevention, Control and Countermeasure (SPCC) plans
› Secondary containment for chemicals, oils and produced fluids › CHK utilizes a site management system to generate SPCC plans
Water management practices › Improved sourcing methods › Recycling/reuse
Air Quality › Robust compliance system › Technical support team to implement regional solutions
Promoting the use of natural gas in America › NGV’s › Natural Gas powered rigs › Natural Gas for Power Generation
Implementing state-of-the-art environmental protection across our operations
OIL AND NATURAL GAS INDUSTRY THE ECONOMIC BACKBONE
*Chart does not include new major discoveries in Eagle Ford, Mississippi Lime, Niobrara, Utica.
THE BIG 4 U.S. NATURAL GAS SHALE PLAYS WORLD CLASS DISCOVERIES*
U.S. SHALE DEVELOPMENT HAS DRAMATICALLY REDUCED PRICE VOLATILITY BENEFITING INDUSTRIAL, COMMERCIAL AND RESIDENTIAL CUSTOMERS
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
-1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000 11,000 12,000 13,000 14,000 15,000
USD
/mm
Btu
mm
cf/d
U.S. Shale Gross Production: Past 10 Years
MarcellusHaynesvilleFayettevilleBarnettMonthly Average Henry Hub Natural Gas Spot Prices
Katrina & Rita Gustav & Ike
A SUCCESSFUL FORMULA FOR DEVELOPING NATIONAL SUPPORT: NATURAL GAS DEVELOPMENT
JOB CREATION: The oil and gas industry creates thousands of jobs and sustains or induces millions of others.
SUSTAINABLE ECONOMIC GROWTH: America’s exploration and production sector invests billions into the economy while attracting billions more in foreign investment. The natural gas and oil industry revitalizes U.S. manufacturing and industrial sectors.
INCREASED ENERGY INDEPENDENCE: Natural gas vehicles and increased domestic oil production remain the most viable opportunities for our country to move beyond our 40-year dependence on OPEC nations.
IMPROVED AIR QUALITY: Natural gas utilization in the power, industrial and transportation sectors can dramatically improve air emissions and urban air quality..
U.S. MANUFACTURING RENAISSANCE: New natural gas liquids production and natural gas supply give the U.S. a competitive advantage among global competition.
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CREATE PARTNERSHIPS WITH OUR INDUSTRIAL CUSTOMERS Domestic natural gas, natural gas liquids and oil production,
due to the potential for supply growth in the lower 48, is powerful lever for increasing American jobs
An increased focus on natural gas liquids (NGL) extraction can provide a competitive advantage for the US manufacturing base over global naptha-based competition
Lower natural gas prices and increases in NGLs means low input costs and increased feedstock supply for: › Petrochemical, plastic, steel, aluminum, iron works, industrial gases
and fertilizer sectors America’s abundance of natural gas and NGLs is a competitive
advantage to our global manufacturing companies and can be a key driver in a modern, American industrial renaissance
The American Chemistry Council projects that a 25% increase in the U.S. production of ethane, a key feedstock for petrochemical companies like Dow and DuPont, can create more than 400,000 American jobs alone as well as:
› $4.4 billion in increased federal, state, and local tax revenue; $44 billion over 10 years
› $32.8 billion increase in U.S. chemical gross products › $16.2 billion in U.S. capital investment › $132.4 billion in U.S. economic output
America’s abundance of natural gas and NGLs is a competitive advantage to our global manufacturing companies and will be the key driver in an American industrial renaissance
DOMESTIC UNCONVENTIONAL RESOURCES ARE A KEY DRIVER FOR CURRENT AND FUTURE ECONOMIC GROWTH
OKLAHOMA IMPACT 2009 - 2011
Statewide Economic Data › Over the two-year period the industry added nearly 12,000 jobs, including almost
4,000 jobs to the self-employed − Chesapeake Data
– More than 13,400 employees in 17 states
– More than 7,600 employees in Oklahoma
– More than 4,700 employees in Oklahoma City
› Labor income (including wage and salary disbursements and self-employment income) grew to levels in 2011 very near their pre-recession peak, providing a statewide average compensation per job of more than $113,000 − Great diversity of labor market (High School through Doctorate)
› Income growth was strongest in the field, reflecting increased drilling activity and increased complexity associated with today's drilling technique; average income from drilling jobs grew nearly 30% since the recession to more than $65,000 per job
30 *OERB – 2012 Economic Impact Report *CHK Data – May 2012
OKLAHOMA 2009 – 2011 IMPACT Industry activity in 2011 set off long run economic impacts estimated to be:
› $52 billion in gross state product, or one out of every $3 in GSP.
› $28 billion in state personal income, or one out of every $5.
› 344,503 jobs, representing one out of every six jobs in the state.
Industry activity in 2011 set off long run fiscal impacts estimated to be: › Nearly $1 billion in direct gross production tax payments, including $504 million in oil gross production taxes
and another $459 million in natural gas gross production tax payments.
› $2.35 billion in Federal Personal Income Tax payments.
› $700 million in State Personal Income Tax payments.
› $563 million in State Sales Tax payments.
› $503 million in Local Sales Tax payments.
Jobs and Opportunity › Oklahoma City – Currently touts the lowest unemployment rate of 4% for major US cities greater than 1 million
people.
Industry Ripple Effect › Each industry job causes a ripple effect creating as many as 17 additional construction, manufacturing,
petrochemical, refining, pipeline and service
− 68,000 Oklahoma Industry Jobs x 17 = 1,156,000 jobs! (Just from Oklahoma, not including other operating areas)
31 *Data Courtesy of OERB – 2012 Economic Impact Report *Bureau of Labor Statistics – April 2012
EVERY $1 DROP IN NATURAL GAS PRICES SAVES CONSUMERS $23 BILLION ANNUALLY
User Avg. Price 2008 Spending 2008 (B) Avg. Price 2011 Spending 2011
(B) Savings 2011 vs. 2008 (B)
Residential $13.89 $67.95 $11.39 $51.12 $16.83 Commercial $12.23 $38.56 $9.47 $28.02 $10.54
Industrial $9.65 $64.37 $5.49 $33.98 $30.38
Electric Power $9.65 $64.35 $5.49 $38.16 $26.19
Total, 2008 $235.23B Total, 2011 $151.29B $83.94B
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Average natural gas price by user and total spending, 2008 vs. 2011
Note: Prices are per 1,000 cubic feet.
Residential consumers save $5 billion annually. Commercial consumers save $3 billion annually. Industrial consumers save $7 billion annually. Electric power companies save almost $8 billion annually. Total savings of about $23 billion annually
*Data Courtesy of Dr. Mark Perry, Economist, University of Michigan
NATURAL GAS IN TRANSPORTATION In the last two years – 24 new CNG station have been built or are in the process
of being completed. Oklahoma Retailers are embracing the change › CNG displaced nearly 3 million gallons of gasoline or diesel in 2011 and may double that
number in 2012
CNG offers Oklahoma families and Oklahoma business an alternative to foreign oil while saving $1.75-2.00 per gallon › CNG lowers the cost of doing business in the state of Oklahoma. Capital savings in the
near term will begin to also have an influence in our public transportation systems and education in the near term. This means more money going to more important transportation projects and school classrooms
Economic Impact: › The ~3,450 NGVs in OK today save annually ~$4.7 million in fuel costs; $4.7 million can
then be reinvested into the state › If 10% of the state’s transportation system ran on natural gas, it would equate to $211
Million in annual savings/future investment capital › If 50% of the state’s transportation system ran on natural gas, it would equate to $1.056
Billion in annual savings
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CNG FUELING INFRASTRUCTURE – OKLAHOMA MODEL
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DON’T WORRY… THERE IS AN APP FOR THAT!
Free iPhone and Android Application
› Locate and Plan your next trip
› Get the latest News
› Update Prices
› Post to Facebook or Twitter
› Post Pictures of the Station
Create your own profile at www.cngnow.com
WHO SHARES IN THE REVENUE Mineral Owners
› Bonuses and royalties Local Workers
› Wages and benefits Local Business
› Subcontractors and service companies Counties, Cities, School Districts
› Ad valorem and other taxes Other Stakeholders
› Charitable organizations › Chesapeake shareholders
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It Begins With All Of Us Working Together!
QUESTIONS? Chesapeake Energy
www.chk.com AskChesapeake
www.AskChesapeake.com
Hydraulic Fracturing www.hydraulicfracturing.com
America’s Natural Gas Alliance
www.anga.us Frac Focus Registry
www.fracfocus.org YouTube Channel
www.youtube.com/chesapeakeenergy
Facebook www.facebook.com/Chesapeake
www.twitter.com/#!/chesapeake
JAMES ROLLER MANAGER- CORPORATE DEVELOPMENT James.roller@chk.com 405-935-8252 (o) 405-229-9683 (c) @jamesroller
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