6 Hypothetical Shale Gas Development

HYPOTHETICAL SHALE GASDEVELOPMENT

Conceptual development plan for a theoretical shale gas playfeeding an LNG train

1 © 2012 Gaffney Cline & Associates. All Rights Reserved.

Shale Asset Evaluation Work FlowTechnical evaluation work flow for a specific portion of a shale gas play


ScenarioConsideration given to investing in a relatively new shale gas play

• A shale gas play has been identified

– 20 wells have been drilled to validate a play concept in an area that covers 50,000acres

– 10 of the wells have been completed and are producing a cummulative 3 MMcfd

– Initial analysis has been completed and presented by seller

• What additional tests need to be conducted

• What risks remain

– How can those risks be mitigated

• What is the expected resource base

– What is the expected per well production profile

• What is the timeline

– Investment schedule

• How soon will you know if you have sufficient resource volume

– When do you move from resource to reserves

– When can you be assured that there is sufficient gas for one 0.34 Bcfd LNG train

– What do you do with the production while the plant is being built


What do you know?Hypothetical knowledge of play under consideration

• Resource Play

– 50,000 acres under lease (~200 km2)

– Dry gas based on current drilling information

• Initial exploration work has been ongoing for 2 years

• 20 wells have been drilled to-date

• Seller has completed and is producing 10 wells

– Production history is less than twelve months

– Current production is 3 MMcfd

• To-date seller has spent $ 60 million

• My goal is to provide gas to an LNG train at the rate of 0.34 Bcfd

Economics although critical are not considered in this Scenario


Development Approach

• Define current and future egress– How much can be produced in the short term

– Hypothetical LNG plant requires .34 Bcfd• When will the plant be operational

– What egress expansion is needed• To transport gas to LNG plant

• To handle over capacity during peak production period

– What does the drilling schedule need to look like to supplythe plant• What is the optimum production profile

• Is there sufficient resource to supply the plant for the long term

• Are there alternative sources of gas for the plant


Drilling Schedule Comparison

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Scenario 2 scheduleScenario 1 scheduleScenario 2 wellsScenario 1 wells

Scenario 1:

– Up to 16 rigs

– Last wells drilled in 2024

Scenario 2:

– Up to 9 rigs

– Last wells drilled in 2032

Common assumptions

– 20 wells drilled prior tocommencement

– Total 1,414 wells drilled

– 40 days to drill a well

– continuous drilling


1,414 total wells,6.0 Tcf production(2011-2043)

Drilling scenario 2with a maximum of9 rigs

No pipelineconstraints

Peak in 2021 at0.9 Bcf/day

17 years securedsupply for theplant (0.34 Bcf/d)


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GCA - Development Plan (Target 340 mmcfd 2018-43)

GTL plant

GCA Mid Unconstrained

Wells Drilled

Base Case Production Summary

LNG plant

Main Drivers - What is crucial to make this work?

• Understanding geologic variability– Formation pressure– Net porosity x thickness (Φ-h) distribution– Minerologic variations– TOC variations

• Completion technology• Water management

– Source– Disposal

• Developing infrastructure– Development area infrastructure– Egress infrastructure

• Avoiding delays, managing costs– Develop efficient drilling and completion methods

• Is there sufficient people, equipment, roads, water, proppant……….

– Is there sufficient infrastructure to handle production above what the LNGplant will accept


Well Performance

• Current estimates based on to-date wells

• Production performance is predicted based on limiteddevelopment in a concentrated area

– Can this be extrapolated into the greater area

• Extrapolation of interpreted trends needs to be adjusted

– Formation properties

– Completion design (number of frac stages, treatment size)

– Spacing

– Well Orientation


Main UncertaintiesCritical items that can only be estimated

• Well performance

• Reservoir pressure distribution

• Formation characteristics

• Improvement in completion technology

• Upstream supply competition

• Service and manpower availability


Conclusions

• In the initial stages of development there will be limiteddata to establish performance based projections

• Development potential will have a large initial range

• Difficult to match upstream potential with egress capacity

– Egress requires significant investment

• Can this be shared with other area operators

• Competition for egress and market could be substantial

• Development costs and area potential need to bebracketed in order to define a $/Mcf production cost

Each project is unique. This scenario is meant todemonstrate just a few of the many critical elements thatneed to be considered when entering a new venture.


DEVELOPMENT CONCEPT

An example of how a specific area could be evaluated


Modular Design


Phase I


Pilot Well Evaluation MethodologyEvaluation techniques for key pilot wells and the rational for those techniques


Phase II


Phase II Evaluation Methodology


Phase III


Phase III Evaluation Methodology


Phase IV


Documents

6 Hypothetical Shale Gas Development