Breaking Through Fact and Fiction:

“Fracking” and the Shale Revolution

March 22, 2013

Claude E. Cooke, Jr.

1

Hydraulic fracturing is an important innovation with

impact across the world

35%

23%

21%

15%

6%

Social Media

GPS

iPhone

FrackingTechnology

Other

Participants of WSJ executive conference in Singapore were

asked: “What is the best innovation of recent times?”

Source: Wall Street Journal, Feb 26, 2013

2

Background of hydraulic fracturing

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Is it “Fracking” or “Fracing” and why do we do it?

Popular / press definition (Fracking)

• “’Fracking’ refers to the entire exploration and production process, including horizontal

drilling, fracturing, and extraction of the gas via the well, rather than an engineering

process for fracturing low permeability rock”

– KKR: Historic Opportunities From the Shale Gas Revolution (2012)

Technical definition of hydraulic fracturing (fracing, “frac’ing”)

• Forming a crack (fracture) in rock using hydraulic fluid pressure

• Classical fracturing: Simple vertical fractures created in vertical well

• Shale fracturing: Complex fracture “network” created in horizontal well

Why fracture an oil / gas well?

• Improve economics in all but high-producing wells (faster payback, more reserves)

• In many reservoirs, rock is not permeable enough to produce oil / gas economically

without fracturing, so wells would not be drilled without fracturing (more reserves)

4

Hydraulic fracturing is not a new technology; oil / gas

wells have leveraged the technology for 60+ years…

• 1947: First well intentionally hydraulically fractured (Hugoton Field, KS)

• 1948: R.F. Farris and J.B. Clark (Stanolind) file patents on the same day

• 1949: First commercial jobs (Oklahoma and Texas) on the same day

First Intentional Fracture First Commercial Fracture

Source: SPE Monograph, Halliburton

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…However, the last ~10 years have seen a rapid increase

in hydraulic fracturing activity driven by “shale” gas

SPE Papers

Horsepower (MM)

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61

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2.1 2.3 2.9 3.9 5.7

7.2 7.9 10.0

15.0 18.0

0

5

10

15

20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0.5% CAGR

28% CAGR

15% CAGR

North American pressure pumping horsepower

Society of Petroleum Engineers publications discussing hydraulic fracturing

Source: Society of Petroleum Engineers (publications): Includes: “Hydraulic Fracturing”, “Fracing”, and “Fracking”, Spears and Associates – Tulsa (Horsepower)

6

The “Shale Revolution” will impact much of the USA;

fracturing is a key part of developing the resources

Source: EIA

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Furthermore, the global impact of the technology’s

application is just beginning to be understood

Source: PacWest Consulting Partners

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Hydraulic fracturing basics: Geology, theory, and application

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Hydrocarbons are found trapped in rocks; shale is a

“source rock” for conventional oil / gas

Source: Canada National Energy Board

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In conventional and shale rocks, oil / gas is held in the

“pores” of the rock; larger spaces are easier to produce

Sandstone

Permeability: 1 Darcy

Limestone

Permeability: 1 Darcy

Shale

Permeability: 0.000001 Darcy

We are now producing oil / gas

from rocks >1 million time less

permeable than ~50 years ago

Source: Kansas Geological Society

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Rock outcroppings give us a basic view into what might

be occurring in shales underground

Source: ALL Consulting (2008), Brian Cardotte – Oklahoma Geological Survey (2007)

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Simple Fracture Complex Fracture

Complex Fracture

With Fissure Opening

Complex Fracture

Network

Simple Fracture Complex Fracture

Complex Fracture

With Fissure Opening

Complex Fracture

Network

Fractures are created to allow oil / gas to flow out of the

rock and into the wellbore

In shale

fracturing, the

more fractures

the better

Source: Pinnacle

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Fundamentals of vertical well fracturing: Pump the “pad”

fluid to open cracks in the rock

Source: Ralph Veach

14

Fundamentals of vertical well fracturing: Pump the

proppant slurry to ensure the fracture stays open

Source: Ralph Veach

15

Fundamentals of vertical well fracturing: Flow frac water

back to surface and put well on production

Source: Ralph Veach

16

Shale fracturing applies the same principles as vertical

fracturing; “stacks” many frac jobs in a horizontal well

The “Shale

Revolution”

would not have

been possible

without

directional

drilling

Source: Canada National Energy Board

17

Horizontal wells are completed in “stages”; each stage

is like a separate frac job

Source: CARBO Ceramics, Marathon Oil

Link to original animation:

http://www.youtube.com/watch?v=mitLngz03dg

Additional hydraulic fracturing animation:

http://www.youtube.com/watch?v=VY34PQUiwOQ

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Significant water, proppant,

time, and cost incurred too

•Water: ~6 million gallons

•Sand / proppant: 8 million

pounds

•Horsepower: 10,000

•Stages: 8 - 40

•Time: 1 week

•Cost: $1,500,00 - $3,000,000

Hydraulic fracturing is an industrial process and

requires specialized equipment

Heavy equipment is required to

execute a successful frac job

Frac pump

Water tank

Blender

Data van

Source: CalFrac, Trican Services, Dragon Equipment

19

Combined, the equipment makes up a “frac spread”

which moves onto the well site when drilling is complete

Source: Kansas Geological Society, DOE / NETL (Dec 2011)

20

To understand what is happening below the surface,

micro-seismic is often used to measure fracture creation

Source: Pinnacle

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Micro-seismic can create a detailed picture of fracture

creation and often to optimize the treatment in real-time

Monitoring

well

Horizontal

wellbore

Source: Canada National Energy Board

22

Aggregating micro-seismic data in the Barnett Shale

creates a picture of fracture activity across the “play”

Source: Pinnacle / Halliburton

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Environmental concerns / Looking forward

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Recently, the environmental impact of hydraulic

fracturing has come under close scrutiny

Common concerns Background / details of concerns

Air pollution

Groundwater

contamination

Earthquakes

• Release of greenhouse gases by venting

and flaring during flowback

• Estimated 500-1,000 truck loads

per well on local roads

• Small surface spills

• Flowback water can contain contaminants

• Well construction may not seal

off water zone

• Sustained injection for water disposal

into active seismic area

Road traffic / noise

Surface water pollution

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5

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Looking forward, there are still many areas for

innovation in hydraulic fracturing

New materials and procedures

to create more fracture length

/ surface area

Technologies to clean or

re-use fracturing water

(less net water use)

Reduce surface footprint and

utilize natural gas-powered

equipment

Create more fracture

conductivity

Develop new

diagnostic tools Pump “Smart” proppant

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Questions and Discussion

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