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© 2014 BAKER HUGHES INCORPORATED. ALL RIGHTS RESERVED. TERMS AND CONDIT IONS OF USE: BY ACCEPTING THIS DOCUMENT, THE RECIPIENT AGREES THAT THE DOCUMENT TOGETHER W ITH ALL INFORMATION INCLUDED THEREIN IS THECONFIDENTIAL AND PROPRIETARY PROPERTY OF BAKER HUGHES INCORPORATED AND INCLUDES VALUABLE TRADE SECRETS AND/OR PROPRIETARY INFORMATION OF BAKER HUGHES ( COLLECTIVELY " INFORMATION") . BAKER HUGHES RETAINS ALL RIGHTSUNDER COPYRIGHT LAW S AND TRADE SECRET LAW S OF THE UNITED STATES OF AMERICA AND OTHER COUNTRIES. THE RECIPIENT FURTHER AGREES THAT THE DOCUMENT MAY NOT BE DISTRIBUTED, TRANSMITTED, COPIED OR REPRODUCED IN W HOLE ORIN PART BY ANY MEANS, ELECTRONIC, MECHANICAL , OR OTHERW ISE, W ITHOUT THE EXPRESS PRIOR W RITTEN CONSENT OF BAKER HUGHES, AND MAY NOT BE USED DIRECTLY OR INDIRECTLY IN ANY W AY DETRIMENTAL TO BAKER HUGHES’ INTEREST.

Unconventional Resources Workshop

Alfredo Mendez

Business Development Director

Unconventional Resources-Eastern Hemisphere

Madrid, Spain

May 26, 2014

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Objective

Unconventional plays are very rewarding but also risky. Wemust do it right the first time as we cannot afford to experimentand trial and error. An integrated multi-disciplinary approachshould be key from surface to subsurface.

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Agenda

￭ 09:45h-10:15h BHI Introduction to Unconventional Resources (Alfredo Mendez)

￭ 10:15h-11:00 Seismic (Robert Porjesz)

– Unconventional Reservoir rock physics.

– Seismic Data for Sweet Spots

– Sample Case Histories

￭ 11:00- 11:45 Seismic acquisition (Eric Gillot)

– Feasibility surveys and CGG seismic experience in Spain

– Seismic Data acquisition with wireless recorder – benefits for unconventionalexploration in Spain

– Case history of TIGF Lussagnet (SW France) 3D wireless seismic survey

￭ 11:45h-12:15h BREAK

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Agenda

￭ 12:15h–13:00h Hydraulic Fracturing (Alfredo Mendez)

– Design Criteria

– Latest and Greatest on Frac Fluids for Unconventionals

– Completions for Unconventionals

– Microseismic/SRV

– Water Management/Environment Update\

￭ 13:00h–13:45h Complete Lessons learned

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Rock Strength:• Will it fracture?• Where to fracture?• How to fracture?

GeomechanicalVolume Value

Fractures:• Porosity• How to complete• Hazard avoidance

Fracture Volumes

Lithofacies:• Sweet spots• Completion information• Reserve estimations

Rock Property Volumes

Pre-Stack Seismic InversionPre-Stack Seismic Inversion

Azimuthal SeismicAnalysisAzimuthal SeismicAnalysis

Multi-attributeAnalysisMulti-attributeAnalysis

Core Calibrated Geomechanical LogsCore Calibrated Geomechanical Logs

Downhole Fracture &Stress MeasurementsDownhole Fracture &

Stress Measurements

Mineral %Logs

Mineral %Logs

The Power of Two: Baker Hughes and CGG

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What do we need?

Evaluate Vertical Wells For: Gain Insight To:

Lithology and mineralogy Quantify the amount of TOC

Porosity and fluid saturationDetermine the formation’s ability to produce;Validate hydrocarbons in place

Rock mechanical propertiesand stress regimes

Detect vertical fractures; Determine optimal wellboreplacement, trajectory and fracture strike direction

Geomechanical characteristicsDetermine in-situ stress, fracture gradient and fractureclosure pressures

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Advanced Integrated Engineering for Shales

Regional Detailed Scenarios FDP

Seismic Data

StructuralModel

GeologicalModel

LithofaciesModel

GeomechanicalModel

Fracture Model andMicroseismic

Detailed Model

Fracture OptimizationModel

Flow Simulation

Economics

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Software Design Tools for Unconventionals

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Average Cost % Distribution Tight/shale gas

HydraulicFracturing, 55

Completion Fluid, 2

Water, 3Perforation, 3

Flowback , 2

Coiled Tubing, 2

Tubulars , 3

Drilling Bitsand DRT, 7

Directional Drilling, 5

DF and extras, 4

Drilling ServicesMob/Demob, 5

Site and Accom, 2

Casings, 4 P&A, 3

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Unconventional Oil & Gas Production-Major US Plays

Shale Gas:– Production in US 10 years old– From 2 Bcf/d 2004 to 27 Bcf/d

(2013)– From 36,000 wells (2004) to

>120,000 wells (2013)– 15,000 wells drilled p.a.

Shale Oil:– Production increased 2007– Mainly from Bakken and Eagle

Ford plays

– Currently facing Productionchallenges Keep ”feeding the beast” with new

well drilling to offset productiondeclines ‘Red Queen’ effect “have to keep

running faster to stay in the sameplace”

Oil Production in Major U.S. Shale Plays

Gas Production in Major U.S. Shale Plays

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Technology Improving Economics - Greater Recovery

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Source: Baker Hughes, IHS Source: HPDI

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Unconventional Resources Requires Lots of Wells

Giles et al. 2012, SPE 151906

￭ Shale Gas development need largenumber of wells

– Typcially 200 times more wells than aconventional field development

￭ Large variability in production and EURestimates for single plays

– 1 to 2 orders of magnitude difference inthe production for these shale gas plays

￭ Statistical plays: lower production wellsoffset by higher production wells

￭ Large depletion 50-60% in the first 12months is common – no plateau productionfor individual wells

￭ Annual drilling - maintains production

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RDS: Baker Hughes’ Sub-surface expertise

RDS Global sub-surface expertise with over 400professionals with operator experience: Sub-Surface Teams established Aramco, Abu

Dhabi, Beijing (Petrochina), Linc Energy, ... Leading geomechanics specialists in the service

sector– 124 Unconventional projects in N. America

Geographically close to our customers so that wecan help them achieve their goals DRTC in Dhahran – Unconventional resource CGG Global Alliance JewelSuite – specialised for shale gas/oil (Shell)

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Technology Improving Economics – Reducing Drilling Time

￭ Directional Drilling:

￭ 16 HBRSS wells: >95,000’

￭ Stayed in 6’ window for(97.7%).

Wells

Per

Rig

HBRSS vsConventional Motor

￭ Drilling improvements;

– Pad drilling

– Bits, fluids and system optimisation

– Rotary steerable systems – High Build

￭ Allowing curve and lateral to be drilled in 1 run

￭ Drilling rate increased between 200-300%

￭ Drilled 10,000,000+ feet since introduction

– 2011 World Oil award winner for “Best DrillingTechnology”

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REAL-TIME IMPLEMENTAITON - AutoTrak Curve ™2011 World Oil Award for best drilling technology

1

5°/100 ftConventionalRSS

15°/100 ftAutoTrak Curve

Current Results:

Drilled more than 1.5 million ft in12 months

Drilled 10,000,000+ feet sinceintroduction

The Drive for efficiency

• Minimizes downtime

• Drills complex well profiles

• Drills more payzone

• Saves time on well

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Many operators

are struggling with

lower than expected

or inconsistent

production results

North American Experience

3 out of 10 shale gas wells are commerciallysuccessfull

40% of all frac stages contribute to production***

73% of operators admit they don't know enoughabout the subsurface to develop an effectivehydraulic fracture design*

Only 10% of the 15,000 horizontal wells drilledannually in the US are logged**

*Welling, 2012**SPE Workshop Prague, 2012***E&P, 2012

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Common Pitfalls

Focused on reducing costs versus reducing geologic uncertainty

Capital intensive environment discourages the use of technologies, to characterize thereservoir

Horizontal wells are typically planned to maximize wells per leasehold

At most, a gamma ray tool is used to geosteer through the reservoir with conventionalmud logging.

Leading to statistical drilling and geometric fracturing

These practices have led to many wells being placed and completedin reservoir intervals with poor rock properties and/or production potential

…which has a direct impact on production performance

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Exploration Appraisal / Development Development / Production Rejuvenation

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Data-Driven Solutions For Optimal RecoverySteps To Success

Identify Resource Potential

Evaluate Resource and Optimize Field Planning

Determine Interval to Land Lateral

Precise Navigation and Drilling Precision

Characterize Lateral To Identify Sweet Spots

Monitor Performance and Refine Frac Design

Select Effective Completion System

Optimize Frac Design and Treatment

Maintain Continuous Production Flow

Refrac For Ultimate Recovery

Build and Modify Reservoir Model

Manage the Water Cycle

Exploration Appraisal / Development Development / Production Rejuvenation

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Identifying and Evaluate Resource Potential

TOC

Porosity Permeability

Thickness

Brittleness

Depth

Value: Estimate resource potential and producibility Identify potential sweet spots to develop Initial field development plan and economics Reduce commercial risk

Solution:Compile & Analyze Historical Data Geology, geochemistry, geomechanics and petrophysicsAcquire, process and Interpret Seismic CGG Identify areas of highest TOC Estimate geomechanical properties and in-situ stress Calibrate the seismic with well control to identify core areas

for drilling and completionConstruct Reservoir Model - JewelSuite Refine model with data from pilot program

Challenges: Understanding subsurface on a regional level Identifying areas with TOC and preferred rock/mechanical

properties Determining factors that influence productivity Prioritizing exploratory/appraisal well locations

Exploration: Far Field Screening

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Evaluate Resource and Optimize Field Planning

Solution:Pilot Program to Characterize The Reservoir Lithology / Mineralogy / TOC Porosity / Permeability / Fluid Saturation Rock Mechanics / Stress Regime Vertical FracturesFormation Evaluation Suite™ GR/CN/DN/HDIL™ (Mini Slam) FLeX / RockView™ Conventional Coring/ MaxCOR™ XMAC-F1™ Micro Frac (RCI™) STAR/EI/CBIL™ imager MReX™

Value: Validate hydrocarbons in place and recoverability Identify sweet spots to develop Refine field development plan and economics

Challenges: Reservoir heterogeneity Determining hydrocarbons in place / recoverability Determining prospective development locations Determining optimal well spacing, orientation and

lateral length

Exploration: Data Acquisition

Formation’s ability toproduce?

Presence ofhydrocarbons?

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Three Critical Decisions Can Impact Recovery

Placing frac stages in optimalzones along the lateral

Designing fractures with optimalconductivity, proppant distribution

and reservoir contact

Selecting the optimal intervalfor lateral placement

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