EIA Energy Conference Tinker, 2015 June, 2015

Shale Gas Plays Inevitable Updates

Bureau of Economic Geology University of Texas at Austin Acknowledgements and DisclosuresTinker, 2015

 Alfred P. Sloan Foundation  IHS and DrillingInfo  EIA  BHP, ExxonMobil, Southwestern Energy, Devon, Range Resources, Cimarex, Carrizo for discussions ------ Potential conflicts of interest have been fully disclosed: see BEG website  Publications and Press:

 Several peer-reviewed journal articles – see BEG website

 Oil and Gas Journal Articles – Barnett and Fayetteville

 Mainstream Media including NPR, WSJ and many others Tinker, 2015 Interdisciplinary approach

Well Economics Geologic Analysis Results by tier: Results: geologic Productivity Breakeven prices and characteristics per mi2, Analysis profitability index as a incl. OGIP map function of completion Results: Productivity functions and Decline Analysis expected productivity Production Outlook Results: Well declines, “tier”map, inventory of Results by tier : Pace of future wells. incl. expected recovery drilling with respect to (EURs) economic, technical, policy assumptions Tinker, 2015 State-of-art

 BEG outlooks have done well so far

 But some of the observe changes in producer behavior are not covered by the models

 We get access to more data

 We keep learning from every new play

 => Need to enhance our approaches Barnett Shale: Price sensitivity Tinker, 2015

2.5 $6 HH EIA AEO14 $4 HH $3 HH 2 Total: 44-47 Tcf 1.5

1 Tcf/year

0.5

0 2005 2010 2015 2020 2025 2030 2035 2040 2045 Barnett Shale Tinker, 2015 OGIPfree (productivity limit ) Productivity

How to treat Resource composition that affects economics Tinker, 2015 Fayetteville: Price sensitivity 2.5 $6 HH EIA AEO14 $4 HH $3 HH 2 Total: 14-20 Tcf 1.5

Tcf/year 1

0.5

0 2005 2010 2015 2020 2025 2030 2035 2040 2045 Fayetteville Shale Tinker, 2015 OGIPfree

How to account for • Desorbed gas that matters for resource and future production • Natural fractures and faults determining recoverable resource

Productivity Tinker, 2015 Haynesville Shale: Most expensive 2.5 $6 HH EIA AEO14 $4 HH $3 HH 2 Total: 36-57 Tcf 1.5

Tcf/year 1

0.5

0 2005 2010 2015 2020 2025 2030 2035 2040 2045 Tinker, 2015 Haynesville Shale OGIPfree Productivity

How to capture • Pressure gradient (extreme values lead to dynamic permeability) • Clay effect • Potential contributions from adjacent formations Tinker, 2015 Need for Updates

 Improved geologic knowledge

 Updates in decline analysis

 Revised analysis of productivity drivers (structural changes)

 Changes in well economics: cost structure and finances

 Production incentives w.r.t. new constraints Tinker, 2015 GEOLOGIC UPDATES:

1. Improved granularity (on characterization) 2. Better understanding (of data and features) 3. Knowledge expansion (reinterpretation of existing and usage of new data) Tinker, 2015 Marcellus Play Boundary

 ~46,000 square miles

 Minimum depth 2000’

 Minimum thickness 30’

 Outcrop +5 miles

 Maximum thermal maturity 3.5% Ro Tinker, 2015 Summary

 Heterogeneity across plays makes us learn more about shale geology

 New data and technological advances lead to continuous updates

 Expansion of drilling activity changes uncertainties

 Changes in economic environment translate into improved granularity Tinker, 2015 WELL PRODUCTIVITY, RECOVERY, TECHNOLOGY, AND STRATEGY:

1. Improved granularity (on characterization) 2. Better understanding (of data and features) 3. Knowledge expansion (reinterpretation of existing and usage of new data) Tinker, 2015 Decline Analysis

• Production decline is a function of ------Estimated decline function geological rock properties; • Expected production, however, is a function of completion design, geologic and company parameters. => Standard well approach, or well normalization, cannot be used => Technology and economics determine the productivity along with geology Tinker, 2015 OGIP vs. EUR Correlation

30 Need to understand production variability and reduce uncertainty 25

20

15

10

5 Length normalized Length normalized EUR (Bcf)

0 25 35 45 55 65 75 85 95 105 115 125 135 OGIP Bins, Bcf/mi2 Tinker, 2015 New Strategies

1000ft 800 ‐1000ft • Drilling and completion strategies Cluster drilling: determine number of future well Infill‐ tighter drilling: spacing locations ‐‐addsless waterlocations ‐‐reducedlower costs costs • Knowledge accumulation, resource ‐‐Increasemore wells/pad EUR exhaustion, and unfavorable economic result in diversity drilling and completion techniques

Infill drilling and cluster drilling can results in a substantial increase in future individual well and play recovery! Tinker, 2015 Completions and Experience matter

8 Prefered completion Standardized well

6 (Bcf) region 4 given a 2 for

EUR 0 well

1 3 5 7 9 1113151719212325272931333537394143454749 Economic region ‐2 average

‐4 Tinker, 2015 WELL ECONOMICS AND PLAY OUTLOOK:

1. Models expand to account for new trends and practices 2. Outlooks improve when tested parameters are well defined and mutually consistent Tinker, 2015 Inventory w.r.t. Producers’ Decisions

 Number of locations & productivity depend on completions (HF water, spacing)

 Completion choice depends on the market environment and technology Tinker, 2015 Conclusion

 Changes in any aspect of play description leads to a review of all the parts of the analysis

 The outlooks results keep changing with:

 Price (NG/NGL/WTI) ,

 Basis differential/Infrastructure,

 Costs & Technology improvement;

 Regulatory framework.

 But resource in place may not by fully known yet.