Shale Gas Challenges / Technologies Over the Asset Life Cycle

U.S.China Oil and Gas Industry Forum

Robert Bobby Kennedy Baker Hughes inc
September, 2010

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AGENDA
Shale Gas Reservoir and U.S. Shale Gas Basics

Challenges / Technologies Over the Shale Gas Asset

Life Cycle
EXPLORATION APPRAISAL DEVELOPMENT PRODUCTION

REJUVENATION

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The Shale Gas Reservoir

Shale Gas - Unconventional natural gas reservoir contained

in fine-grained sedimentary rocks, dominated by shale containing clay and other minerals like quartz, calcite Continuous Formation - No Trap - Not a true Reservoir Gas Sourced and Remains in Same formation Total Organic Carbon, Thermal Maturity, Mineralogy, and Natural Fractures are Key - Porosity & micro/nanoDarcy-Permeability, secondary Gas stored in three ways: 1. Free Gas
a. In Rock Matrix Porosity b. In Natural Fractures

2. Sorbed Gas

Source: EIA

a. Adsorbed on organic and mineral surfaces w/in Nat Fractures b. Absorbed on organic and mineral surfaces w/in Matrix

3. Dissolved - In HC liquids present (bitumen) Total Gas = Free + Sorbed + Dissolved

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Key Reservoir Parameters

Brittle Rock Helps maximize extent of induced fracture network
(Brittle Rock will Frac like Glass = better SRV)

Stress Regime Relates to pattern orientation and well spacing Over-pressure May require high strength Frac proppants Local Lithology Variations Faults, Karsts, Water Organic Content
Relates to well productivity

Micro-porosity Thermal Maturity (Ro) - >Mature = Dry Gas

Total Porosity increases at higher TOC Relates to gas in place TOC decreases at higher Ro <Mature = Wet Gas

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Gas Shale Basics (U.S. Basins)

Formation Thickness, 20 600 ft (net) Depth, 6,500 13,500 ft Well IPs, 2 10+ MMcfd Primarily Dry Gas Some produce small amounts of water Typical Decline:

- Initial Flush Flow - 1st Yr Steep Decline (65-80 %) - Produces slowly over time, 25+ Yrs
Shale Gas Type Curves
Production, MMCFD
12 10 8 6 4 2 0 1 3 5 7 9 11 13 15 17 19 21 23 25

Haynesville Woodford Barnett Marcellus Fayetteville

All Shales Are Not the Same (Geology Varies Even in the Same Basin)

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Developing Shale Gas

Gas Shales must be Fracture stimulated to produce commercially

Artificial Reservoir is achieved by:

1. Multi-Stage Fracturing 2. Horizontal Wells

Effectiveness of Hydraulic Fracturing determines: - Production rates

- Drainage area - Recovery Vertical Wells to define play and collect reservoir data Horizontal Wells to develop Laterals 3,000 - 6,000 ft Well Spacing Avg. 80 acres

All Shale Gas Reservoirs are Not the Same

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How Many Wells for 1TCF (30 BCM) of Shale Gas?

1400 1200 1000
Well Count

Barnett-Fayetteville-Woodford-Marcellus-Haynesville-Horn River Total TCF 44 42 11 262 251 100

800 600 400 200 0 0.9 0.025 1.8 0.05

Typical Scenarios

200 - 250 Wells/TCF

3.5 0.1

5.3 0.15

7.1 0.2

8.8 0.25

10.6 0.3

BCF/Well BCM/Well

Ultimate Gas Recovery Per Well, BCF (BCM)

Ultimate Gas Recovery Per Well

Shale Gas Development Requires Large Number of Wells

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Shale Gas Asset Life Cycle

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EXPLORATION Challenges / Technologies

Determine the Economic Value and Reservoir Potential Understand Field Wide Well Placement and Architecture Reservoir Characterization
TECHNOLOGIES Reservoir Analysis Geomechanics Formation Evaluation Economic Evaluation

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Reservoir Analysis
Conventional reservoir modeling/analyses Not effective for Shale Gas

- Complex reservoir characteristics and gas flow regime introduce difficulty in predicting GIP, recovery, production profiles, well placement, and design fracturing programs/completions
An Integrated Multidicipline Approach is required to forecast

production, recovery, design fracture stimulations, and well placement for use in Economic Evaluations

BHI through Reservoir Development Services currently provides

Integrated Approach and employs Shale Engineering to analyze/design optimized completions and stimulation for maximum Producing Rates and Recovery used in determining Shale Reservoir Potential

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BHI Integrated Approach - Workflow

Petrophysics: Mineralogy Rock Mechanics

Disciplines: Geomechanics, Geochemistry, Petrophysics, Rock Properties, Seismology, Reservoir, Well, Stimulation Modeling
Geomechanical Model

Better stimulation
Where Number of stages Frac design

Monitoring
(Microseismic)

Calibration

Shale Engineering

Better drilling and completion design

C. Jenkins,2010

Optimized Production
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Improved Predictions

APPRAISAL Challenges / Technologies

Validate the Economics of the Reservoir Generate a Field Development Plan Refine and Optimize Completion Design

TECHNOLOGIES Reservoir Analysis Geomechanics Formation Evaluation Economic Evaluation

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Geomechanics Important in Exploration, Appraisal, and Development Phases of Life Cycle

Pre-Drill Modeling and Analysis for:
Wellbore Stability Management Pore Pressure Prediction Determining In-Situ Stress Comprehensive Well Planning

Geomechanics Models for Hydraulic Fracturing Design

(propagation, stages, perfs), Well Placement, and Completion Design

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Reservoir Characterization Challenge

No single Log or Core provides all the Answers Conventional Log Suites can Not provide all characterization data required for Shale Gas
Solution - BHI Shale Gas Evaluation Suite Provides:
Porosity Permeability Water Saturation Mineralogy Shale Lithofacies Total Organic Content Maturity Level (Thermal) GIP (adsorbed and free) Fracture Characterization Dynamic and Static

Geomechanical Rock Properties Pressure Gradient Stress Regime Siliceous Index SWC Analysis

Run in Vertical Wells

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BHI Shale Gas Evaluation Suite

An Integrated Petrophysical Approach Using Logs and Analyses to Characterize Highly Complex Shale Gas Reservoirs

Log & Analyses Identifies:

Optimum Fracturable Intervals Formations to Drill Horizontal Laterals Potential Barriers for Frac Containment

Lithology Mineralogy Th/U for Carbon classification

IntelliFrac
Micro-seismic

300+ Evaluation Suites run in US Shale Gas, 40+ in Canada

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DEVELOPMENT Challenges / Technologies

Minimize Drilling Costs Optimize Completion and Fracturing

Design Minimize Environmental Impact

TECHNOLOGIES Well Design / Drilling Hydraulic Fracturing Well Completion Environmental

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Reducing Days on Well by Drilling Optimization

Offset Well and Dull Bit Analysis Downhole Tools, Analytical Tools and Modeling
BHA Modeling

Structured Processes & Engineering Training

Torque, Drag, Hydraulics Modeling

Friable Formation

Stabilizer in this section at RPM change

RPM change

RPM near critical speed, then BHA enters hard formation

Friable Formation

Appears to result from stabilizers hanging on ledges and allowing bit to side cut

Downhole dynamics measurement

AXIAL

LATERAL

TORSIONAL

DF Designs & ECD

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Reducing Risk/Cost (Additional Trips)

Drill Bits Quantec PDC & Tricone Bits specifically designed for Shale Gas - Vertical, Curve, and Laterals
Goal Drill the Curve & Lateral with Single Bit and BHA Trip

Directional Services Custom BHAs Ultra Motor Technology Rotary Steerable AutoTrak eXpress TeleTrak (MWD) & MWD Tools

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Optimizing Wellbore Placement Reservoir Navigation Services (RNS)

RNS - Real-time LWD to detect
adjacent formations
(AziTrak & GR)
Reservoir Navigation Services
Top Bottom Top

- Ensure optimal reservoir entry

- Maintain optimal position within reservoir - Avoid reservoir exit - Steer to sweet spot

Deep Resistivity Image

Cap Rock Well Path Reservoir

Depth of Detection

Distance to Bed Boundary

Reduced Number Wells/STs Reduced overall Costs Increased Production & EUR

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High Efficiency Rotary Steerable Systems

Decrease risk
Improves borehole quality for lower risk associated with running casing in long laterals

Reduce rig time

Eliminates orientation and slide time associated with steerable motor drilling Improves overall effective ROP Steerable Motor

Rotary Steerable

Rotate

Slide

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Optimizing Drilling Fluid Programs For Increased ROP and Reduce Environmental Impact
Drilling Fluid
Barnett: WBM, OBM/Brines (some cases) Haynesville: WBM to KOP, then OBM Marcellus: Air/Mist to KOP, then WBM or SBM Eagle Ford: Fresh Water for Surface, then OBM

Density
Barnett: < 10.0 ppg Haynesville: 12.0 16.5 ppg Marcellus: 11.5 14.0 ppg Eagle Ford: 11.0 12,0 ppg

Environmentally Friendly Fluids

- BHI TERRA MAX Environmentally Acceptable Alternative to OBM - NEXT-DRILL Synthetic Invert Emulsion
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Reduce Cost and Environmental Risk with Centralized Dewatering

Recycle processed water for drill or wash water More efficient disposal after dewatering Remove suspended solids in WBM
BHI can help make operation Green:. - Reduce fluid waste, disposal costs, transportation fees, environmental impact - Reuse fluid in future well operations

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Shale Gas Drill Pads Logistics & Environment (Shale Gas Factory)
Developing a Shale Gas Factory 10 + wells from a single pad Shared rig access, mud pits Skid-mounted Frac-pumps Gas conditioning & compression Gas export Minimize Environmental Impact - Footprint - Fit for Purpose Eco-Centre for Solids and Waste Alliance with service provider (BHI) to capture learning curve benefits

Eco-Centre

DRILL PAD

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Hydraulic Fracturing Process

1. Pump Pad

- Causes rock to fracture - Creates fractures to accept Proppant Proppant (size-graded particles, spherical white sand / man-made) mixed into fluid Slurry; pumped in to prop open created fractures

2. Pump Slurry

3. Flush

Clean fluid to clear surface lines & well tubulars of proppant; pumps shut down
4. Bleed Off well pressure to allow fractures to close on proppant 5. Recover injected fluid by flowing/lifting well

(Typically recover <30% of frac fluid)

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Fracturing Fluid
Fracturing Fluid = Base Fluid + Additives + Proppant Base fluid water or oil Additives Gelling Agents, Crosslinkers (polymers), Friction Reducers, Breakers, Surfactants & Non-emulsifiers, Biocides Proppants White Sand (for Shales), Brown Sand, Low Density Ceramics, Resin-coated Sand, Sintered Bauxite
Typical Shale Frac Basic Materials Per Stage
SHALE BARNETT FAYETTEVILLE HAYNESVILLE MARCELLUS WOODFORD EAGLE FORD STAGES 7-9 8-11 8-11 6-8 8-10 8-10 *Xf ft 300-400 250-300 300 300-400 250 350
SW = Slickwater

COMPLETION METHOD Plug-N-Perf Plug-N-Perf/OH Plug-N-Perf/OH Plug-N-Perf/OH Plug-N-Perf/OH Plug-N-Perf

OH = Openhole

FLUID TYPE

FLUID VOLUME Bbls/Stage 14,000 6,500 11,400 16,000 18,500 12,800

PROPPANT TYPE Ottawa/Lite Ottawa Other Ottawa Bauxite/Other Ottawa/DC

PROPPANT Total Lbs. 550,000 300,000 330,000 785,000 255,000 300,000

Acid, SW Acid, SW Acid, SW /Poly Acid, SW Acid, SW Acid, SW

* Fracture half length estimated

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Fracture Treatment Monitoring Methods

Conventional Temperature and Tracer Surveys

- Data near well-bore vicinity - Fluids & proppants traced Distributed Temperature Sensing (DTS) - Fiber Optic Production Logging - Spinner surveys - Flow & Temperature Microseismic Monitoring - During fracture treatment / Near real-time - Managing treatment and post-treatment analysis

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Typical Shale Gas Completion Options (For Hydraulic Fracturing the Well)
Cemented Liner Plug-N-Perf Method

Openhole Completion Systems BHI FracPoint Others (Frac Sleeves & Isolation Packers)

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Plug-N-Perf Method

Cased Hole - Perforate & Produce Multiple pay zones Hydraulic Fracture each individual zone Set Plugs for zonal isolation Drill Out Plugs and Produce
8,000+ Composite Plugs run by BHI in Barnett
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FracPoint Completion System

One-trip system Up to 24 stages Continuous Multi-zone Frac (Shortest overall Time) Drop a Ball To:
- Isolate previous Frac - Open new zone

- Shift sleeve

Versatile system

- Primary and Re-fracturing applications - Reduced Cost vs Plug-N-Perf

- Eliminates perforating & liner cementing operations

450+ Installations Shale Gas & Bakken (oil)

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PRODUCTION Challenges / Technologies

Reduce Environmental Risk Maintain Production Rates Reduce Scaling, Corrosion, and Microbial Contamination Meet Gas Pipeline Specifications

TECHNOLOGIES Frac Chemicals Production Chemicals Environmental

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Shale Fracturing (Fluid) Challenges

Large Slickwater Fracs: Water stored in lined/unlined earthen pits open
to atmosphere for days/months

Frac Water Sources:

Fresh water supply wells, chlorinated city water, rain Ponds, rivers, streams, lakes Re-used frac flow back water

Frac Process & Slurry allows Bacteria to form downhole Different waters mixed - Scale formed & severe Bacteria/Algae Frac water Not Treated, Problems: - Microbial Influenced Corrosion - Generation of Hydrogen Sulfide - Scale deposits (Radioactive)

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BHI AddFRAC Fracturing Chemical Program

1. Survey 2. Chemical Selection
- Biocides - Scale Inhibitors - Corrosion Inhibitors - Oxygen Scavengers - Flow Stimulators & Friction Reducers - Surfactants - Clay Stabilizers

3. Implementation AddFRAC Program - Monitoring - Testing - Reporting - Optimization 3,000+ AddFRAC Programs in Shale Gas
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Production Chemical Management

During Production - Effective corrosion, scale, and bacteria

monitoring and treatment are required Water Management and gas deliquification Necessary - BHI F.O.A.M. production stimulation / deliquification
- BHI Continuous Optimization (Automation) of chemical injection rates through effective Monitoring and Reporting - Chemicals for water treatment

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REJUVENATION Challenges / Technologies

Reduce Production Decline Remediate Sub-Economic Wells Determine Recompletion and Workover Strategy

TECHNOLOGIES Remediation Restimulation Recompletion

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Rejuvenation Solutions
Chemical and Mechanical Remediation Coil Tubing Intervention and Recompletions Restimulation/Re-Frac Fracs Do Not last Forever
Fractures Close, Proppants Fail, Stress Regime Changes w/Production

Revised Field Development Plan Re-entry and InFill Drilling, Multilaterals

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Shale Gas Challenges/Technologies Over the Asset Life Cycle

THANK YOU

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