Building a Better Mousetrap

Opportunities for Improvement in Tight Oil Stimulation

Ron Gusek, Vice President Corporate Engineering

Outline
Innovation
How do we define it? Where do we focus? What drives innovation?

Innovation in Hydraulic Fracturing

Improved Completion Efficiency Green Fluids Reduced Horsepower?

What is Innovation
Significant positive change A creative idea that is realized Change that creates a new dimension of performance
Evolution Plot
Departure
20000 0 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 5000 10000 15000 25000 30000 35000 40000 45000

US Rig Count Percentages by Type

100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% % DIR. % HORIZ. % VERT.

Source: IADC Drilling Contractor March 2011

Source: Baker Rig Count

From Invention to Innovation

The Reward
Barnett gas production has exceeded the prior peak using half the previous number of rigs.
180,000,000 160,000,000 140,000,000 Production (MCF) 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 0 200 180 160 Horizontal Gas Rigs 140 120 100 80 60 40 20 0

Source: Simmons and Company

GW Gas

Rig Count

Myths of Innovation
Its Like Turning on a Lightbulb The Best Ideas Always Win People Love New Ideas

Opportunities in Stimulation

Opportunities in Stimulation
WCSB Well Completion Profile by Resource Play
Resource Play
Amaranth Bakken Cardium Deep Basin Horn River Lower Shaunavon Montney Viking

Typical Depth (meters) Vertical Measured

500 1000 1500 500 1500 2000 3000 3500 1000 1500 2000 3000 1500 2500 2000 3000 2000 2500 4000 4500 1000 1500 2000 3000 2000 2500 3000 3500 1000 1500 1500 2500

Completion Stages
10 50 15 20 6 18 5 10 15 22 10 15 8 22 10 20

Fracturing Horsepower Required

6000 8000 4000 8000 6000 12000 12000 35000 40000 50000 6000 8000 15000 35000 6000 8000

Frac Size (Tonnes / Stage)

20 40 tonnes 6 12 tonnes 20 30 tonnes 80 200 tonnes 200 300 tonnes 20 40 tonnes 100 200 tonnes 20 40 tonnes

2011E Wells Completed

200 250 700 800 500 600 600 700 70 80 100 200 450 550 550 650

Source: Company Reports and CIBC World Markets Inc.

Pushing the Limits

During 2008/09, stage counts in the Bakken increased rapidly, followed by a shift toward extended reach laterals. The long laterals should facilitate additional stages.
600.00 500.00 400.00 300.00 200.00 100.00 0.00 Given slowing incremental gains per stage, optimal stage count appears to be in the low 30s in extended reach wells 12000 Avg. Lateral Length Bakken Average Lateral Length (ft) 10000 8000 6000 4000 2000 0 Avg. Frac Density 2.50 2.00 1.50 1.00 0.50 0.00 Avg. Frac Density (Stages / 1000 ft) 3.00

Average IP (b oepd)

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

10 20 Bakken Average Stages

30

Incremental Bakken stages are showing declining returns, although an increase is still beneficial.

The shift to almost exclusive use of extended reach laterals should accommodate additional stages.

Source: Bernstein Research Oil Services Group - 2011

2Q11

Coiled Tubing Limitations

Do We Need to Mill Out the Seats?

Frac sleeves milled out: day 157

Source: SPE138322

# DAYS TIL

LINE PRESSURE

MCFD MCFD

Snapshot of Completion Efficiency

60 50 40 30 20 10 0

Actual stage production versus theoretical average production

Woodford Below 90% of Avg.

Barnett

Fayetteville

Eagleford

Haynesville Below 25% of Avg.

Marcellus Below 10% of Avg.

STUDY TOTAL Not Producing

Below 75% of Avg.

Below 50% of Avg.

The columns represent stages that are producing below the theoretical average by the percentages shown.

Source: SPE 144326

What if the Ball Seats were Retrievable?

Single trip retrievable system No milling Maximize lateral length Minimize required coiled tubing size Ensure a debris-free full drift liner Add NPV through higher IP and EUR

Environmental Footprint

Why Develop a Low Health & Environmental Impact Acid Spearhead?

Objective is to reduce the hazard of all the blends and additives Regulatory and public pressure for low hazard chemicals in fracturing operations Fracturing operations often begin with acid spearhead treatment Hazards associated with acid spearhead outweigh those associated with fracturing fluid systems

Green Acid Blend

Original Blend
Additives Corrosion inhibitor Total Volume and Weight 17.5 gal/1000 gal, 30.0 lb/1000 gal Rating 32 Other Blend Additives De-foamer Iron control Demulsifier

Low Health & Environmental Impact Blend

Additives Low toxicity corrosion inhibitor Total Volume and Weight 7.5 gal/1000 gal, 50.0 lb/ 1000 gal Rating 15 Other Blend Additives De-foamer Low toxicity iron control Low toxicity demulsifier (2 options)

Horsepower Growth in North America

20,000 18,000 16,000 Horsepower (000s) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Various Historical Reports

Hold Your Horses

Examine opportunities to obtain effective treatment at reduced rates and pressures New chemistry to generate controlled energy downhole rather than on surface Investigate means to augment existing stimulation

Summary
Effective innovation requires:
The ability to clearly understand the problem, the talent to solve it and the successful use of it to improve things A seed to get started A network of support Someone who is willing to be the first

Successful application of innovation results in

Efficiency improvement Reduced environmental footprint Improved IP and/or EUR

Questions ?

Worldwide Innovation, Commitment, Performance, and Results sanjel.com