Marcellus Shale: Business & Job Growth Drilling Overview & Marketing

Global Shale Resources 22.9 QCF NG 3,352 bbl oil United States • 2,431 TCF

• 665 TCF (27% shale)

• 223B bbl oil • 58B bbl oil

Worldwide Consumption (Annual) 113 TCF Natural Gas 31.2B bbl oil

200 & 100 year supply respectively

Local Impacts – Global Implications

US Shale Plays

How Long?

• “Multi-generational play”

• “Careers not jobs”

Marcellus / Utica / Upper Devonian

• 95,000 sq. mile aerial extent • 10,000 – 20,000 to be developed • 10 wells per square mile? • 100,000 – 200,000 total wells

• 2,500 wells per year (currently)

Evolving Shale Issues • Economics of development

• Constraints in transmission/storage

– Wells on pipeline

• Growing International Interest

Evolving Shale Issues • Evolving Technology

– Closed loop vs. tanks – Move to “green completions” – Greening of products (food grade products)

• Predictability by public & industry is critical

• Public understanding of regulatory process

• Greater Transparency Push

– Industry and Government – Fracfocus.org – Social media impacts

Oil Gas PA TX OH WV Sept 2012 1409 452 63 877 20 27 Sept 2013 1365 394 52 830 35 35

* Bakers-Hughes

Key Drivers of Development: Rigs & Price

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Natural Gas Spot Price ($/MMBTU)

Leading PA Counties Susquehanna 11 Washington 9 Lycoming 8 Wyoming 8 Greene 7

Policy Can Drive Where Development Occurs • New York • Federal

– Coal Fired Power Plants – Hydraulic Fracturing – Pipeline Development – Exporting

• Economically Driven (4-6x premium) • Contract vs spot pricing • Political/Patriotic • DOE

• State – Impact Fee / Taxes – Pipeline Regulation

• Public Input

Impact on Exporting?

• LNG Exporting (6 BCF/Day) – Deloitte $0.15 increase – EIA $0.50 - $0.70 increase – US Department of Energy (NERA) ~ $0.30 increase – Purdue Researchers ~ $0.60 increase – Charles River Assoc (DOW) $2.50 increase (8 BCF/D)

• LNG Permits Approved

– Lake Charles (LA) 2 Bcf/d – Sabine Pass (LA) 2.2 Bcf/d – Freeport (TX) 1.4 Bcf/d – Cove Point 0.77 Bcf/d

• Pipeline exporting

– Mexico • Currently 2.1 bcf/day • Project potential 7 bcf/day

– Canada • Net imports 5.8 bcf/day • Imports increasing – LNG??

Emerging Technologies - Utilization

• Vehicle Conversion – New engine technologies – New Fuel Formulations – Bi-fuel & dual fuel

• Power Gen

– Small scale – Industrial & commercial

Emerging Technologies - Utilization

• Gas to Liquids (GTL) – Old technology – Increased R & D on

small scale • Mobile LNG

– Off road – Drill rigs

US Manufacturing Renaissance

Ethylene Production • Northeast US new hub?

Methanex • $1.1 B to move methanol plant from Chile LA • World’s largest methanol supplier • 2,500 construction jobs • 1MM metric ton plant

Fertilizer Projects • 6 Major Projects (~$10B) • US Imports 50% currently • Gas accounts for 70% of cost

Supply Chain Opportunities: What & Where

• Hot spots versus overall development

• Development type/geography – Energy & Production versus sub-contractors – Basin headquarters – Regional offices/centers – Field offices – Field location

• well site, compressor station, pipeline, etc...

Master Service Agreement

• Legal contract that includes most terms that govern future transactions

• Permits quick execution of work/purchase orders that incorporate MSA terms

• Process to evaluate risks and benefits • Defines EHS and performance standards

• Safety audits & required vendor meetings

• Required for first tier suppliers

• Outline obligations and responsibilities of both parties

Master Service Agreement

What it’s not….

• Guarantee of work

• Template for all contractors or companies

• Speedy process – Market changes during negotiation may extend time

• Required for all work in the oil gas industry

Typical Elements of MSA

• Description of service or product being offered • Term of agreement • Payment amount and terms and process of payments • Performance and Warranty

– Enforceable for prime and subs. Terms such as “reasonable time” and “quality workmanship”

• Indemnification • Damages – direct, consequential • Remedies • Safety & regulatory compliance

– ISNetworld • Insurance • Venue

– Consider where work is being completed or if this covers multiple locations

Payment - Terms and Process

• May not align with your set terms

• Unique process – Proper documentation – Electronic – Added cost?

• Plan accordingly

Industry Knowledge & Updates Newsletters & Terminology

• NGI Daily – Daily News Accounts ($$) • Ohio Energy Resource Alliance – Updates on Ohio Activity (Free) • Schlumberger – Oil Field Glossary (Free) • Shale Directories (Free) • Shale Digest (SS)

Websites

• Education • Government (State & Federal) • Non-profit

Linked In Groups Google Alerts

Business Considerations The Message

• Safety • Experience • Knowledge • Commitment • Owner Involvement • High tech • Be Direct

Forms of Operation • Internal/Interwoven • Separate Division • Independent Entity

Adapt • 24/7 • Mobile • “Local” redefined • Think global

Competition or not? • New Partnerships • Backfill

Marketing & Networking • Local, State & National Trade Shows

– DUG East – OOGA Winter Meeting – Networking, B2B Events

• Chamber of Commerce/Partnerships

– Member only events – Direct marketing opportunities

• Task Forces

• Print media

• Public Meetings

• Website

• Must have • “Shale Energy Services”

Networking is Key

• Create & improve relationships

• Understand your market / decision makers – Maximize ROI

• Be seen and involved

– Events, restaurants, trade shows, public meetings – Parking lots, bars, convenience stores

• Follow up gets results

Business Considerations Financial Costs

• Soft costs • Slower pay than typical operations • Expansion (Hiring/Marketing, etc.) • Equipment • Employee

• Safety Training • PPE • Screening

• Insurance

Fitting the Oil/Gas Patch • Be ready

– Strong work ethic – Problem solver – Basic knowledge of natural gas production – Pass a drug test

• Network Properly (high contact) • Patience and perseverance (polite persistence) • Get ready

– Follow/understand the industry – Take your safety training – Have a plan

Summary

• Engage with industry

• Educate yourselves and organization

• Slow down – multi generational play

• Develop a plan

Thank You www.marcellus.psu.edu www.naturalgas.psu.edu

Matt Henderson mwhenderson@psu.edu (570) 244-1128

Photo Courtesy Penn State Marcellus Center