TECHNOLOGY TO SAVE YOU MILLIONS:

CNG, LNG & MULTI-FRACTURED

HORIZONTAL WELLS

NAPE

FEBRUARY 5, 2014

GEORGE E. KING, P.E.

SAM GOSWICK

WHERE CAN NATURAL GAS POWER BE USED? Although most attention is paid to short term fuel savings in drilling & fracturing, massive Prod/Op savings over 5 to 50+ years may dwarf the whole segment.

Major Areas: • Truck Transport • Facilities, pipeline & compression • Fracturing • Drilling

Methane lift & unloading concentrates the recoverable gas stream – field gas preferred?

Dual fuel and dedicated fuel

Lift, processing, compression, etc.

APACHE VIEW – FRACTURING WITH DUAL FUEL PUMPERS

Timeline In 2Q12, we saw the opportunity to accelerate the use of natural gas as fuel in

upstream E&P stationary engine market with emphasis on fracturing operations. In 3Q12, executed an agreement with Halliburton to convert one frac spread in

Apache’s Central Region to utilize LNG dual-fuel natural gas/diesel engine technology. Caterpillar accelerated Dynamic Gas Blending (DGB) technology to meet our needs. In 3Q12, the first Caterpillar-outfitted Q10 frac pump was delivered. The limited field trial with two DF frac pumps started shortly thereafter and by Dec. a

full 12-pump frac spread was outfitted with DF engines. In January 2013, Apache announced that a full-scale field trial was successfully

underway with Halliburton utilizing Caterpillar OEM DF DGB engines.

Milestones

3

Source: Sam Goswick, SPE 166443

~1750 Drilling Rigs Engaged in US –majority on land. Texas: 834

Oklahoma 175

Louisiana 112

Engines – Caterpillar & GE leaders in rig engines. 20% higher cost & larger – payout depends on fuel cost spread)

Fuel Cost Reduction (Very Rough Estimations – Midwest Energy News – S. Modak) Three engine drill rig (1600 gallons or >$4500 per day)

15% to ~40% savings with LNG

30% to ~55% with CNG

50% to ~80% with field gas

GAS POWERED RIG & PUMP MARKET GROWTH

4

29 Nov 2013

Highly dependent on fuel type, cost, transport cost, reliability and quality

Straight Diesel – EPA emissions limits looming on 2015

Dual Fuel – substitutions of 50% to 60% natural gas

Difficulties in handling transient loading

Best application is where gas supply is inconsistent.

Large drilling rig uses 1600 gallons of diesel per day.

Straight Natural Gas – Spark Ignition

Turbines –All gas types – Electrical generation and compressors.

POWER METHODS

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30 LNG mobile fueling units (2013) Zeus Intelligence

~150 LNG fueling stations added in 2012-13 Clean Energy

Apache – 19 CNG refueling stations

FUELING WITH LNG & CNG

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Rough Economics – SPE 166443

Source: Sam Goswick – SPE 166443

Field gas – much cheaper – Can save ~$1,000,000/yr

Pipeline gas–stable supply, constant–50% fewer trucks

Emissions reductions

Sound reduction

ADVANTAGES

8 LNG World News, EQT rig

PR Newswire, Paterson Rig, Antero

Expect routine flaring to be eliminated (when?).

Convert waste gas to electricity for field grid usage.

Apache’s experience –2 cents per Kwh (turbine)

Turbine powered generators:

30kw to 5MW micro-turbines Low or high pressure gas streams

Pipeline quality gas

Alternate fuels possible

TARGETING WASTE GAS AND FLARING

9 Source: Sam Goswick, SPE 166443

Dynamic Gas Blending

Engines 3512 and 3516 series engines

Solar Turbines

Factory installed or retrofitted

Up to 70% substitution

Automatically adjusts for incoming gas quality

EXAMPLE: CATERPILLAR

10

Source: Elle Seybold, SPE 166443

Waukesha Gas Engines

VHP L7044GSI

100% natural gas fired, rich burn engines

Reduced maintenance schedule

No-derate to 8,000 ft altitudes

Non Selective Catalyst Reduction (NSCR) – cleaner

Formaldehyde emissions reduced

Easily exchanged with existing rig power generation drivers

EXAMPLE: GE

11 Source: Elle Seybold, SPE 166443

EXAMPLE: MICRO TURBINES - PROCESSING CAPSTONE C1000 POWER PACKAGES

12

Delivery Schedules

On Site Storage

Regasification (vaporizer) capacity (60oF to engine)

Transfer stability on the pad

Rig crew training

Fit for purpose power

Altitude adjustments (air : fuel ratios)?

LNG AND CNG – PLANNING IS THE KEY

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NGL FUEL TRAILERS, TRANSPORTS AND SUPPLY

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Stabilis LNG

Storage Vessels Queen Trailers: Capacity: 16,000 LNG

Gals (9,500 DGE) Transporters: 10,000 LNG Gals (5,900

DGE)

Offloading - Vaporizers ISV Combo Unit: 300 LNG Gal/Hr (178 DGE

/Hr) Full Scale Vaporizer: 1800 LNG Gal/Hr (1070

DGE /Hr)

LNG EQUIPMENT

Source: Elle Seybold, SPE 166443

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And there is very little “NEW” about it.

First horizontals in 1940’s and 50’s.

Commercial fracturing since 1950.

First multi-frac verticals in early 1950’s

First slick water fracs in 1950’s

First multi-frac deviated & horizontals in 1974

Over a million fracture treatments from horizontals

A REVOLUTION IN PROGRESS - MULTI-FRACTURED HORIZONTAL WELLS

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WELLBORE LAYOUT

TECHNOLOGY DRIVERS

EARLY PRODUCTION ESTIMATION

Reasons for rapid decline: • Flush production • Fractures closing • Liquids difficult to move Opportunities? • Evaluating areas for refracs • Insitu surface & liquid modification

COMPARISON OF IP AND MAXIMUM MONTH TO 1 YR OF PRODUCTION.

Bakken Data

In other shales a three-month cumulative is needed for good correlation to 12-month and overall EUR.

IP

Max Month

SPE 163846

MAJOR ISSUE? – WHERE TO PLACE HYDRAULIC FRACTURES? ONLY 50% MAY BE PRODUCING. REMEMBER HOW FLUIDS FLOW IN SHALES! – THROUGH NATURAL FRACTURES!

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2 wells – first ten days Overview: Tracking Frac Stage performance

with Oil-Based Tracers Objective: Optimize Well and Frac Design Conclusion: Uncertain, but oil-based tracers

may help define frac performance and optimized stage #’s

CONVENTIONAL MAPPING;… AND SHORTFALLS?

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Shale Economic Development follows a 1/3 : 1/3 : 1/3 Classification.

Of the shale wells drilled to date, an estimation can be made that:

1/3rd of shale wells are not economical.

1/3rd of shale wells are marginally economical.

1/3rd of wells carry economics for the project.

THE 1/3 : 1/3 : 1/3 CLASSIFICATION

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We could possible achieve ~33% or more savings in shale development, reduce water & chemicals by half and slash emissions, if we could eliminate the bottom 1/3rd of wells and improve the marginal characteristics of the middle third of shale wells. What is your science knowledge level today?

HOW DOES OIL MOVE THROUGH SHALE?

R. Gonzales 28

Note that there are “Sweet Spots” in the Barnett shale (based on highest production rates). Some reasons behind this are natural fracture occurrence, operator skill, and chronological time of development.

The variability of production results, even corrected for operator differences, is a key proof that conventional methods cannot be used in unconventional reservoirs.

HAYNESVILLE SWEET SPOTS

?

As technology develops in an area, the sweet spots can change – technology dominates as the most critical factor in recovery.

HORN RIVER – 6000 ACRES ACCESSED FROM A 6 ACRE PAD

Slide Source – Brad Affleck - Apache

Questions?