Developing The Utica-Point Pleasant Shale: Economic and Environmental Impact

Organic Content Data suggests rich in

organics, with 2-4% total organic content (in line with other shales)

Thermal Maturity We appear to be in the oil

and wet gas windows Geomechanical

Properties Appears to be brittle,

calcareous rock without high clay content

5

Source: Bodino, M., 2011, DUG East presentation

Chesapeake Energy Corp. 1,357,500

EV Energy Partners 780,000

Chevron Corp. 600,000

Anadarko 300,000

Hess Corp. 185,000

Total SA (France) 154,750

Devon Energy Corp. 110,000

Consol Energy Inc. 100,000

Gulfport Energy Corp. 62,500

Rex Energy Corp. 58,700

Petroleum Development Corp. 40,000

ExxonMobil (XTO Energy) 25,056

Magnum Hunter 16,000

Carrizo Oil & Gas 15,000

Total 3,804,506

6-17-11

Permit information from the Division of Oil & Gas Resources Management 12-2-11

Utica-Point Pleasant Activity Map

Buell 10-11-5 8H in Harrison County, Ohio, (6,148-foot lateral) yielded 9.5 million cubic feet (mcf) per day of natural gas and 1,425 barrels per day of NGLs and oil

Mangun 22-15-5 8H in Carroll County, Ohio, (6,231-foot lateral) flowed 3.1 mcf per day of natural gas and 1,015 barrels per day of liquids

Neider 10-14-5 3H in Carroll County, Ohio, (4,152-foot lateral) peaked at 3.8 mcf per day of natural gas and 980 barrels per day of liquids

Optimally, operators would like to have lease blocks of about 2 sq miles, contiguous to allow drilling in both directions from one central drill pad. Most horizontals are being drilled in a NW-SE orientation in Ohio to intersect the natural NE-SW joints & fractures.

Developmental Drilling 101

Potential Economic Impact

As much as $7 B has been spent on leases with bonuses up to $5800/acre for landowners and even more by foreign companies ($15,000/acre) doing joint ventures with U.S. players like CHK

Revenue from production royalties (12.5-23 %) will be >>> than lease bonuses

Well drilling will increase from <150 wells this year, to > 1,200 wells per year by 2015 (Typical well cost $5 M)

Expenditures on exploration will rise from about $246 M last year to $14 B in 2015 according to a recent study sponsored by OOGEEP and prepared by Kleinhenz & Associates

Petroleum industry in Ohio now employs approximately 4,000 people

Kleinhenz estimates that 204,520 jobs (including peripheral) will be created over the next 5 years due to the development of the Utica shale

Another study by Weinstein and Partridge from the Ohio State Extension Office claims these numbers are overestimated and that only 20,000 jobs will be created

Plans for a processing plant at Natrium, WV under development (12-12) to handle 200MMcfd and fractionate 36,000 bbls NGL and may expand to 400 MM and 59,000 bbls.

PIPELINE INFRASTRUCTURE Dominion and NiSource are both converting portions of their large transmission lines to accept wet gas for the short term, while additional processing and fractionation plants are built

Source: Dominion, B. Breon 3-11

The Chemical Industry in Ohio employs 42,878 people

The average wage of a Chemical Industry employee in Ohio is $65,909

Chemistry is an essential

part of the economy as 96% of all manufactured goods are directly touched by the business of chemistry

2/1/2012

Natural gas processing involves the removal of impurities and NGLs from raw gas, while fractionation involves the separation of the NGL stream into distinct hydrocarbons byproducts

Both may be great economic opportunities for Ohio or

WV in the early years of Utica-Point Pleasant production as very little processing capability and no fractionation plants exist in Ohio

An estimated 17,000 jobs will be created if a new plant is constructed in WV or OH

The plastics and rubber industry employs 81,100 people in Ohio Ohio leads the US in plastic and rubber production, with an annual

value of $5.08 billion There are 1,150 rubber and plastic companies in Ohio, 29 of which

are Fortune 1,000 companies Ohio exports products valued at $1.37 billion annually The polymer industry average annual wage in Ohio is $40,300

Availability of regionally available feedstock will stimulate growth

in this area due to cheaper product and reduced transportation costs

Peripheral industries like supplies, hotels, restaurants, etc. will all benefit from the trickle down effect….the wealth will spread out like……..

Oil on water!

Safety and environmental protection are not options at the drill site – they are corporate mandates!

Horizontal drilling and multi-stage hydraulic fracturing are essential to economic success as well as the biggest concerns

Common Myths About Fracing

The Fracs of Life Part #1:

Volumetric Composition and Purposes of the Typical Constituents of Hydraulic Fracturing Fluid (Data compiled from various sources (EPA 2004; API 2009))

Composition Constituent % by Volume Example Purpose

Water & Sand 99.500 Sand suspension Proppant sand grains hold microfractures open

Acid 0.123 Hydrochloric or muriatic acid Dissolves minerals and initiates cracks in the rock

Friction Reducer 0.088 Polyacrylamide or mineral oil Minimizes friction between the fluid and the pipe

Surfactant 0.085 Isopropanol Increases the viscosity of the fracture fluid

Salt 0.060 Potassium chloride Creates a brine carrier fluid

Scale Inhibitor 0.043 Ethylene glycol Prevents scale deposits in pipes

pH-Adjusting Agent 0.011 Sodium or postassium carbonate maintains effectiveness of chemical additives

Iron Control 0.004 Citric acid Prevents precipitation of metal oxides

Corrosion Inhibitor 0.002 n, n-dimethyl formamide Prevents pipe corrosion

Biocide 0.001 Glutaraldehyde

Minimizes growth of bacteria that produce corrosive and toxic by-products

Source: "Water Management Challenges Associated with the Production of Shale Gas by Hydraulic Fracturing;" Elements, Vol. 7 pp.181-186

Kelvin b. Gregory, David A. Dzombak: Department of Civil and Environmental Engineering, Carnegie Mellon University

Radiszv D. Vidic: Department of civil and Environmental Engineering, University of Pittsburgh

Usually less than 50% of frac fluid is ever returned and is flowed back into tanks, not open pits

Frac fluid can sometimes be recycled and used in other frac jobs….and that is the ultimate goal!

Frac fluid can be treated and disposed ….and that is the requirement!

What not to do? Don’t drink it!

•Ohio has primacy over Class II injection wells (PA does not!) •Brine injection wells and hydraulic-fractured production wells are distinct and different •There are 181 Class II injection wells in Ohio (144,000 in U.S.) •1.03M gal/d injected (2 B gal/d U.S.)

Generalized Geology and Profile of a Utica Shale Well Prototype in East

Central Ohio

At these depths, the pressure from the overlying rocks and fluids make it physically impossible to induce a fracture all the way up to the groundwater layers.

Does hydraulic fracturing cause earthquakes? Earthquake Epicenter Map Historical and Instrument Located

Myth #3: Fracing causes earthquakes

Earthquake Epicenter Map •Epicenters •Instrument locations •Deep faults

Earthquake Epicenters and Injection Wells

•Only seemingly direct evidence of relation between injection and earthquakes has been observed in Youngstown area •Marietta area is a question mark •Zero evidence of relationship between earthquakes and fracing

Companies have already placed nearly $6B in the form of lease payments in the hands of landowners and royalty interests will range from 12.5 to 23 %

Well completions will rise from <150 in 2012 to >1200

per year by 2015 Growth of good jobs is certain: between 20,000 and

200,000 over the next 5 years Horizontal drilling and hydraulic fracturing will

continue to play the key role in the development of the Utica shale

Ohio Division of Geological Survey www.ohiodnr.com/geosurvey Penn State Marcellus Center www.marcellus.psu.edu Frac Focus www.fracfocus.org Ohio Oil and Gas Energy Education Program www.oogeep.org

Landowners and Leasing http://www.dnr.state.oh.us/Portals/11/oil/pdf/landowners_leasing.pdf

QUESTIONS? CONCERNS?