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The Game PlanMarcellus Shale Gas
Dana W. Johnson, President, U.S. Operations
1
Marcellus Shale Gas Overview
• Current land position of ~ 200,000 net acres
• 70,000 net operated acres with an average working interest of 90%
• Long lease tenure at attractive entry price in area that has good thickness & maturity
• Average 24% non-operated working interest in ~467,000 gross acres (~114,000 net) primarily in Pennsylvania and West Virginia with Chief Oil & Gas
• Average 19% non-operated working interest in ~103,000 gross acres (~20,000 net) in NE Pennsylvania with EXCO Resources
2
Marcellus Potential
Planned production
growth of over 150 MMcf/day
over next 4 years
3.9 Tcfe of best estimate
contingent resource
Contingent Resource Est. 2009 2010
Operated - 1.2 Tcfe
Non-Operated 2.1 Tcfe 2.7 Tcfe
Total 2.1 Tcfe 3.9 Tcfe
# of Net Locations 639 926
Land Utilization 55% 65%
Average EUR/Well 3.4 Bcfe average 4.2 Bcfe average
Well Costs $4 – $5 million $4.5 – $6.8 million
Density 4-8 wells/640 acres 4-8 wells/640 acres
2P Reserves 24 Bcfe 117 Bcfe
• Majority of reserve bookings are in Lycoming, Susquehanna and Marshall counties - represents about 1 year’s drilling
• Best estimate of contingent resource is nearly 5x booked corporate 2P natural gas reserves
• Attractive finding and development costs of $1.64/Mcfe in 2010 and over life
3
Geologic Variances Across the PlayCounties ranked on weighted criteria:• Formation at least 25 feet thick• Proximity to economic production• Original Gas in Place (OGIP) Bcf• Maturity (Ro% or Heat Value)• Northeast PA average EUR of 4.5 –
5.5 Bcf+• Southwest PA average EUR of 4.0
Bcfe• Although Tier 1 counties in NE PA
have much higher OGIP, expect that greater well spacing is required than in the Tier 1 counties in SW PA
• We expect both regions to have a similar recovery factor
• 98% of Enerplus wells in our resource assessment are in the dry gas window
4
Marcellus Performance – Cumulative ProductionType curve estimates have been increased as well
results have either met or exceeded our expectations 25% of wells are above 6 Bcfe type curve
5
Marcellus Performance – NE Pennsylvania
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0 60 120 180 240 300 360 420 480 540 600 660 720 780 840
Dai
ly P
rodu
ctio
n (M
cf/d
ay)
Days on Production
21 MARCELLUSHORIZONTAL PRODUCERS
Lycoming 1 Lycoming 2
Lycoming 4 Lycoming 3
Lycoming 10 Lycoming 11
Lycoming 12 Lycoming 13
Lycoming 14 Lycoming 5
Lycoming 6 Lycoming 7
Lycoming 8 Lycoming 9
Susq. 1 Susq. 2
Susq. 3 Lycoming 15
Lycoming 16 Lycoming 17
Lycoming 18 Average Horizontal
Type Curve (EUR 6 BCF)
6.0 Bcf Type Curve
3.5 Bcf Type Curve
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Marcellus Well Economics
4.0 Bcf Well 5.0 Bcf Well 6.0 Bcf Well
NYMEX$/MMbtu IRR
Payout (Years)
NPV 12%($MM) IRR
Payout (Years)
NPV 12%($MM) IRR
Payout (Years)
NPV 12%($MM)
$6.00 27% 3.4 $2.51 41% 2.5 $4.57 57% 2.0 $6.62
$5.00 16% 4.9 $0.75 26% 3.4 $2.37 37% 2.6 $3.99
$4.00 7% 8.6 ($1.02) 13% 5.7 $0.17 20% 4.2 $1.35
* Assumes long-run well cost of $6.0 MM
• Wells in the liquids rich gas window of the Marcellus that have higher liquids content show a ~20% improvement in netbacks versus dry gas wells
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Well Design• Drilling (Average 30 days)
• Operated• Drilling primarily delineation wells – with vertical pilot, cores and logs• 5 single well pads in Centre County, PA (2 wells ) and Preston County, WV (3
wells)• Lateral length of 4,000’ to 5,000’• Closed loop system with synthetic mud• Installing water infrastructure
• Non – operated• Drilling primarily lease saving operations, rather than pad drilling• Vast majority single well pads with a few 2 to 4 well pads• Longer laterals 3,000’- 5,000’• Closed loop system with synthetic mud
• Completions (2 to 4 weeks)• Operated
• 10 – 12 frac stages, 300’ to 400’ per stage• 4 perf clusters per stage• Slickwater frac with multiple sweeps
• Non-operated• Fewer frac stages and larger frac intervals 400’ – 450’• 6 – 9 perf clusters per stage• Still testing 1 month “resting” of wells• Reduced chemical loading
Drilling costs range from $2.5 – $3.5
million
Completion costs range from $3.0 –$4.0 million
Marcellus Well Timeline
Well application / permit approval Site Build Drilling Waiting on Frac
Crews Fracing
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45 – 60 days in PA
• 30 – 45 days in WV• Assumes water sources
permitted• Current regulations
45 – 90 days
• Cannot begin building site until permit in hand
• Depends on time of year
25 – 35 days/well
• Multi-well pads
• “self-skidding” rigs help reduce drilling time
30 - 60 days
• Shortage of frac fleets relative to basin-wide drilling activity
7 - 14 days
6 – 8 months
Note: Timeline excludes well “resting” and tie-in to gathering systems
Gathering Gas in the Marcellus
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NE PASusquehanna, Bradford,
Sullivan, Lycoming
Central PAClearfield,
Clinton, Centre
South PACambria, Somerset,
Fayette
SW PA & WVMarshall, Green PA
Midstream Party Chief Midstream Caiman/ Chief Midstream
Caiman Caiman / MarkWest Plant
Comments Most mature area of the field where Chief has been acquiring ROW and laying pipe to their own producing wells for the past 2 years
New drills are just being evaluated and egress routes being investigated
Pipeline activity wasn’t started until 2010 as no wells were completed (assume 1 year behind Marshall County)
Liquids rich gas area that is currently flowing wet into the sales pipe waiting on the MW Plant for liquids extraction
Wells to be tied-in in 2011 30 - 35 6 - 20 25 - 32 25 - 30
10
Marcellus Drilling Activity To Date*
Gross Wells Drilled (at Mar 3, 2011) Horizontal Vertical Total
Producing 42 9 51
Partially Drilled** 4 1 5
Waiting on Completion 33 5 38
Waiting on Pipeline 11 6 17
Total Gross Wells 90 21 111
• Planned drilling activity in 9 counties in PA, Marshall and Preston counties in West Virginia, and Garrett county in Maryland
• Majority of producing wells in Bradford, Lycoming and Susquehanna Counties in NE PA (>80% of current production) and Marshall County in WV
• Current net production is ~20 MMcfe/day
* Includes operated and non-op wells drilled by Chief & Exco**Vertical portion of well drilled, awaiting horizontal extension
2011 Marcellus Plans
• 2011 capital program of $160 million• 150 gross wells planned (22.4 net)
• Operated : 5 gross wells, 1 rig• Non-Operated: 145 gross wells, 8 - 10 rigs
• Expect to complete ~121 gross wells with 94 new gross wells on stream by the end of the year
• Capital:• 25% directed to liquids rich gas in SW PA and NW
WV • 30% directed to delineation activity to preserve
lease positions and identify future potential• 45% of capital directed to development drilling in
areas with EUR’s of 4.5 to 5.5 Bcf
• May see upward pressure on capital due to activity levels
• Current average netback ~$2.50/Mcfe
11
Production growth of
150% in 2011
12
Moving Natural Gas Out of the Marcellus• Enerplus has taken several steps to ensure we can move our growing
Marcellus gas production to market:• Entered into longer term (5 years +) firm “must take” contracts with creditworthy
substantial end users of the natural gas who:• hold firm capacity on the various interstate pipelines (Transco, Tennessee)• have storage capacity and trading ability
• These contracts have flexibility to increase delivered volumes as we bring production to pipe:
• Participated in the Wyoming Pipeline Project that creates optionality for our production between the two key pipelines - Transco and Tennessee
• Entered into a firm processing and marketing agreement with MarkWest for our liquids rich gas produced in Marshall County
MMBtu/dMin Max Min Max Min Max Min Max Min Max
Committed Sales into Transco Pipeline: 12 36 48 74 68 81 65 80 38 45Committed Sales in to Tennessee Gas Pipeline: 21 30 30 38 38 14 6 6
20152011 2012 2013 2014
14 38
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Water Access & Handling
• ERF and our JV partners have sufficient water source permits to execute development plans
• ERF and our JV partners are permitting and constructing additional water impoundments
• ERF developing centralized water infrastructure with gas gathering system (Centre County, PA)
• Implemented closed loop system for drilling fluids management in 2010
• Goal to recycle 100% of produced and flow back water by end of 2011
• Chief building a centralized tank farm for storage and recycling
• ERF reusing flow back fluid on location to reduce fresh water use
• JV partners utilizing industrial water treatment plants and disposal wells for water disposal
14
Key Concerns Actions
Environment • Drilling and completion “best practice” being utilized –surface, intermediate and production casing cemented to surface
• Fracing more than a mile below water table• Surface containment systems • Pre-testing water wells
Fracing • EPA frac study underway• On-going education and transparency by industry
needed
Regulatory/Government/Stakeholder
• Sitting on various industry associations to leverage relationships and provide input on regulation
• Holding “town hall” meetings in new areas to build landowner relationships and address local issues
Industry Challenges
Marcellus Summary
• Enerplus has a meaningful position in North America’s best shale gas play
• Marcellus offers significant future growth potential
• Results to date exceeding expectations
• 2011 operations focusing on appraisal drilling in our operated leasehold, continued appraisal and development drilling in our non-operated leasehold
• We’re managing the challenges
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