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Kansas Next Step2007 Seminar: New Technology, Seismic and Seismic

Interpretation

Hays, Kansas

August 8-9, 2007

Kent F. Perry

Gas Technology Institute

2

Advanced Drilling Technologies Coiled Tubing Rig

• Niobrara Chalk• 4 ¾” Open Hole• One 3000’ Well/Day

3

Unconventional Gas Growth

Non-Arctic U.S. and Canadian Production Outlook

2003 NPC Study

0

5

10

15

20

25

30

2000 2005 2010 2015 2020 2025

Tcf

ASSOCIATED

CONVENTIONAL

NONCONVENTIONAL

4 Tcf

4

NiobraraArea

of Activities

Area of Drilling Activity

Googleearth.com

5

Niobrara Chalk High O (30 to 50%)

Low k (.01 to 3 md)

Depth = 1500 to 3000 Ft.

Biogenic Gas

Low Relief Structures

Under Pressured

Requires Fracture Stimulation

IP = 50 Mcf/Day or Less

W.Lynn Watney – U. of Kansas

6

8 3/4” open hole to 376 ft.5 1/2” casing @ 376 cemented with 145 sacks neat cement

Surface

Estimated Cost Savings From Conventional Rig from

25% to 35% per well

Conventional Well = $125,000Microhole = $88,000

4 ¾” Open Hole to 1180 ft.2 7/8” “ casing @ 1179’ cemented w/45 sacks

Cement

Niobrara Chalk Formation

k = .002 md - .5 mdPorosity = 20 -35%IP After Frac = 30 - 50 Mcf/d

Microhole Well Completion – Goodland, Kansas Niobrara

All Wells Fracture Stimulated

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Benefits of Rig Utilization

1. Efficient Rig Mobilization

2. Small Environmental Footprint

3. Rapid Drilling

4. Good Hole Quality and Cement

5. Rig Capable of Drilling, Running Casing, Tool Handling, Logging

6. Benefits of Continuous Tubing

7. Low Noise, Emissions

8. Mud Recycle, Minimum Cuttings and Zero Discharge if Required

9. Improved Safety Saves Money, Environment and Enables Marginal

Resources

8

1. Efficient Rig Mobilization

50 Feet

9

2. Small Environmental Footprint

50ft70ft

10

3. Rapid Drilling

0

100

200

300

400

500

600

Duell

Irvin

Gut

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Mel

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Moore

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ay 2

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2

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Av

era

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RO

P -

Ft/

Hr

ROP Range = 200 to 500 ft/hr

First WellsMay, 2005

Bit Design Change

Project WellsOctober, 2005

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PDC Bit

Size: 4.75 inches

4. Good Hole Quality and Cement

12

5. Rig Capable of Drilling, Logging, Running Casing, Cementing

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6. Benefits of Continuous Tubing Drilling

• Rapid Drilling Through Pay Zone

• No Pressure Surges Due to Connections

• Minimized Fluid Loss• Minimized Formation Damage

• Gauge Hole • Straight Hole• Good Cement

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7. Low Noise - Low Emissions

15

8. Mud Recycle, Minimum Cuttings and Zero

Discharge if Required

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• Small Crew

• No Drill Pipe – No Connections

• Limited Loads to Move

9. Improved Safety

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3100 Ft. Well Drilled in 19 Hours

Casing/Cement20%

MIRU - RDMO16%

Pick Up BHA16%

Drilling21%

Lay Down BHA16%

Logging11%

Allocation of TimeTotal = 19 Hrs.

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Barriers to Microhole Usage

> Production Engineers Have Long Term Concerns

– Ability to Rework Wells

– Handling of Significant Fluids

– Limited Space for Mechanical Equipment

– Future Use of Wellbores

> Lack of Experience/Familiarity

> Depth Limitation

> Difficult Drilling Environments – Stuck Pipe

> Issues with State of Colorado – Ability to Adequately Complete

Wells, P&A

> Hard Formations – Heavy Muds

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Precision Replacing Horsepower

Pay

Pay

Wellbore

Wellbore

Ideal World

Real World

Pay

Pay

Wellbore

Wellbore

Ideal World

Real World

1960’s 1980’s 2000’s

Nuclear Stimulation Massive Hydraulic Fractures

Horizontal Wellbore Fracturing

From Pinnacle Technology

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U.S. Onshore Drilling By Depth Interval

0

10,000

20,000

30,000

40,000

50,000

60,000

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

Year

All

We

lls

pe

r Y

ear

>15k

10-15k

5-10k

0-5k

Actual Forecast

Source: EEA Base Case January 2006

$3.4 Billion Savings at 25% market penetration of shallow wells.

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North American Resource Base is Large and Diverse

Technically Recoverable Resource Base

1,969 Tcf

284

329

303

• Deeper on Land• Tighter Rocks• Unconventional• Deeper in Water• Less Accessible• Heavily Explored

NPC 2003

But:

Therefore TechnicallyChallenging

Impact on Gas Resources

0 to 5000’ Technically Recoverable

Unconventional = 130 Tcf

Added Through Lower Cost of Microhole

Drilling = 14 Tcf

22

Activity Trend Rig Has Drilled + 300,000 Feet of Hole

• Colorado – Kansas

Microhole Well Numbers Increasing

• Total Has Grown to + 40

2900’ – 6 ¼ “Wells Drilled in One Day

Drilling Faster Than Permitting

Second Rig Built and Running

Significant Interest in Additional Rigs

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Summary

> “Fit For Purpose” Microhole Coiled Tubing Drilling– Less Impact on the Environment

– Fast and Efficient

– Enhances Safety

> Saves Money– Enables the Development of Marginal Oil and Gas

Resources

> Future Direction– Smaller Holes, Horizontal Capabilities

– Greater Market Penetration