# Energy Water Conservation & Recycling

33 rd 

## Annual Governor’s Water Conference November 13, 2012

Richard Luedecke Vice president, Environmental, Health and Safetypage 2 www.devonenergy.com NYSE: DVN 

# The First Commercial Fracture 

# Stimulation

Velma Alma, OK March 17, 1949 • Fracture stimulation is a well

established technology with a strong environmental and safety record

• The technology has been used to complete more than 1 million wells over the past 60 years

page 2

## Devon Overview

• Well Life Cycle Phases

- Drilling

- Completion

- Production

• Regulation

• Hydraulic Fracturing: The Process



## − Technology Role

− Water 

# Presentation Outline

page 3NYSE: DVN www.devonenergy.com page 4 

### • Founded as a private company in 1971

• Became a public company in 1988

• Currently listed on the New York Stock Exchange under the ticker symbol DVN



### • Has grown from 185 employees in 1981 to more than 5,000 employees today

• Established a portfolio to provide stable production and a solid platform for future growth 

# Devon HistoryNYSE: DVN www.devonenergy.com page 5 

# Devon Today

Proved reserves:  3.0 billion BOE
(42% liquids)

Q2 2012 production: 679 MBOED

Production mix: 22% oil

15% NGLs 63% natural gas

Significant midstream business 2012e operating profit: ≈$385 million

Enterprise value:  $25 billion Jackfish Pike

Granite Wash Barnett Shale
Permian Basin Ferrier Corridor

Cana Woodford Mississippian

Tuscaloosa Shale Rockies Oil Utica Ohio

Michigan Horn River

Deep Basin

Powder River

Washakie

Haynesville/Bossier Carthage Groesbeck Oil Liquids

- Rich Dry Gaspage 6 www.devonenergy.com NYSE: DVN 

# Larger than you might think... Enterprise value

In billions of U.S. dollars

Source: Enterprise value as stated on Yahoo! Finance on Oct. 1, 2012.

# Well Life Cycle Phasespage 8 www.devonenergy.com NYSE: DVN 

# Well Life Cycle Phases

• Drilling: creating the bore hole

– Location construction

– Well construction planning

– Drilling

— implementation of the construction plan

• Installation of casing strings



### • Completion: make ready for production

– Perforate the casing

– Fracture stimulate the reservoir



### – Install production tubing

– Install surface production equipment



### • Production: efficiently extract the hydrocarbons

– Separate water, gas, liquid hydrocarbons



### – Manage operating costs

– P&Apage 9 www.devonenergy.com NYSE: DVN 

# Drillingpage 10 www.devonenergy.com NYSE: DVN 

# Regulation of Well Construction
State’s Role

• States manage the oversight and enforce federal law and 

### state rules

• Have the on

- the

- ground personnel and expertise



### • State

- led enforcement allows fit

- to

- purpose solutions for 

### localized issues

• Regulated activities :

• Well design

• Well location

• Well spacing

• Well operation

• Water management and disposal

• Waste management and disposal

• Air emissions

• Wildlife impacts

• Surface disturbance

• Worker health and safetypage 11 www.devonenergy.com NYSE: DVN 

# Groundwater protection Through proper well construction

Cement

Cement

Surface casing

Drilling fluid

Intermediate casing Conductor casing

Aquifer 2,000 ft.

4,000 ft.

6,000 ft.

8,000 ft.

10,000 ft.

13,500 ft. Impervious rock layers 

### In the Cana Field (Woodford Shale)

Production casing

Production tubing

page 11page 12 www.devonenergy.com NYSE: DVN 

# Hydraulic FracturingNYSE: DVN www.devonenergy.com 

# Technology’s Role

• In the late 1970s, George Mitchell, then president and CEO of Mitchell Energy, became concerned about the longevity of his gas reserves.

• He challenged his engineers to think outside the box and identify additional reserves on their existing leases.

• Mitchell knew when drilling through the Barnett Shale that well logs would register “a kick in gas,” but common knowledge was that the shale wasn’t porous enough to give up whatever it held.

• Despite the cautioning of his engineers and investing nearly two decades of time and millions of dollars into fracture experiments on 30 wells, many of which were at a loss, Mitchell’s persistence paid off.

• Eventually, he found that “slick water,” a combination of a surfactant, water and sand, opened the shale.

• In 2002, following Devon’s acquisition of Mitchell Energy, we coupled the technique of horizontal drilling with hydraulic fracturing to revolutionize the industry.

page 13NYSE: DVN www.devonenergy.com page 14 

# Technology’s role Why the revolution

Traps vs. shales

Migrating hydrocarbons Shale

Frack Porous and permeable reservoir layer Hydrocarbon Trap

Impermeable sealing layer organic rich source layer Fracture stimulation 5,000’

– 15,000’ below the surfaceNYSE: DVN www.devonenergy.com page 15 

# Hydraulic fracturing Key to the revolutionNYSE: DVN www.devonenergy.com 

# Mapped Fracture Treatments
Barnett Shale

Kevin Fisher, “Data Confirm Safety of Well Fracturing” The American Oil & Gas Reporter

– July 2010

page 16

# GWPC/IOGCC Chemical Registry
FracFocus

NYSE: DVN www.devonenergy.com page 17NYSE: DVN www.devonenergy.com 

# Groundwater Protection
Where’s the Problem?

• Lisa Jackson, EPA Administrator:

– Unaware “of any proven case where the fracking process itself affected water.” (U.S. Senate testimony, 05/11 )

• Taury Smith, NY State’s Top Geologist:

– “He said he has been examining the science of hydraulic fracturing the shale for three years and has found no cases in which the process has led to groundwater contamination .” (Albany Times Union, 3/14/11 )

• John Hanger, former PA DEP Secretary and Former PennFuture CEO :

– “It’s our experience in Pennsylvania that we have not had one case in which the fluids used to break off the gas from 5,000 to 8,000 feet underground have returned to contaminate ground water .” (Reuters, 10/4/10 )

• Colorado Oil and Gas Conservation Commission :

– “ There has been no verified instance of harm to groundwater caused by hydraulic fracturing .” (Regulatory Statements on Hydraulic Fracturing, 6/09 )

• Louisiana Department of Natural Resources :

– We are “ unaware of any instance of harm to groundwater in the State of Louisiana caused by the practice of hydraulic fracturing .” (Regulatory Statements on Hydraulic Fracturing, 6/09 )

• Texas Railroad Commission :

– “Though hydraulic fracturing has been used for over 60 years in Texas, our Railroad Commission records do not reflect a single documented surface or groundwater contamination case associated with hydraulic fracturing .” (Regulatory Statements on Hydraulic Fracturing, 6/09 )

page 18

# Water Use in Fracture Stimulation

# Water demand
State of Oklahoma

— 2010

SOURCE: Oklahoma Water Resources Board

page 20

# Water reuse process

• Traditional and non

- traditional water sources

– Surface water, ground water, non

- potable water, produced water, treated sewage effluent



### • Plenty of treatment options (basic to advanced)

– Blending, coagulation, electrocoagulation (EC), reverse osmosis (RO), distillation



### • Reuse reduces freshwater footprint and gains competitive edge

page 21

# Complexity continuum of treatment options

• Complexity of treatment a function of frac design and regulatory requirements

– Frac designs can be widely variable including tolerance of salts

– Regulatory requirements influence storage and conveyance options

– Some amount of “make

- up” water will be needed

– Flowback water has highly variable characteristics

page 22

# Water Recycling Barnett ShaleNYSE: DVN www.devonenergy.com page 

# Water Recycling

• Approved by the Railroad Commission of Texas in 2005

• Implemented in 2005

• Vaporizes frac flow

- back water and condenses it into 

### clean, distilled water

• Remaining concentrated water removed for disposal or utilized for controlling 

### pressures in another well completion as a “kill fluid” Ellenberger Barnett Shale

page 24

# Barnett Shale recycling facility Freshwater storage and completion activity

page 25page 26 www.devonenergy.com NYSE: DVN 

# Water Recycling Fountain Quail

• 22,500 bbls/day at peak

• 14+ million barrels processed (588+ million gallons)

• 11+ million barrels of distilled water generated (462+ million gallons)

• 110 wells fracked with recycled water

# Water Reuse Cana Woodfordpage 28 www.devonenergy.com NYSE: DVN 

# Opportunities for water reuse
Cana Woodford Shale

• Exceptional produced water quality in the Cana Woodford Shale

– Very low total dissolved solids (TDS)



### – Early stages of produced water quality about 12,000 TDS

– Later stages of produced water quality about 20,000 TDS

– Potential exists to reuse these fluids, thus reducing the demand 

### for fresh water

• Current quantities available for re

- use:

– 26,000 barrels (1.1 million gallons) per day of produced fluid 

### from 196 wellspage 29 www.devonenergy.com NYSE: DVN 

# Developing a new pit rule for produced water

• With the development of the Cana

- Woodford Shale, Oklahoma regulators and Devon recognized the use of larger pits to store produced waters from the 

### flowback process

• Earlier regulations allowed only for temporary storage

• New revised regulations include enhanced construction and design requirements and permitting optionspage 30 www.devonenergy.com NYSE: DVN 

# Water reuse facility Settling pond, Cana

- Woodford

• SWD well/injection pumps disposal capacity of 30,000 bpd 

### @ 1500 psi

• Truck unloading station with above

- ground settling tank 

### capacity of 6,000 barrels ( bbls )

• Fully automated with level alarms, meters for allocation, and chloride level

• Currently taking 20,000 bpd from infill well produced water

• Plan to recycle 4MM bbls in 2012page 31 www.devonenergy.com NYSE: DVN 

# Cana

- Woodford Water Re

- Use 

# Facility

– Storage Pond

• 575’ x 575’ 7.5 Acres Depth 12’

• 502,000 BBL Capacity plus 2’ Freeboard

• 60 Mil High Density Polyethylene Liner

• Leak Detection System

• Automated:

– Level Indication

– Chloride Levelpage 32 www.devonenergy.com NYSE: DVN 

# Water reuse pipeline
Cana

- Woodford

• 12”, 10”, and 8” Star fiberglass pipe, rating 450 psi @ 200 degrees (infill Flowback temp 175 deg F)

• Will handle 30,000 bpd flowback rate for all 30 sections

• Can deliver 70+BPM to 10 infill sections for stimulation

• Capable of delivering 30

- 70 BPM to remaining 20 infill sections for Stimulation

• Flowed 150,000 BBLS in last 2 weeks from Brooks wellspage 33 www.devonenergy.com NYSE: DVN 

# Cana

- Woodford reuse facility Summary

• A disposal well is located next to the re

- use facility to handle excess water

• Pipelines to handle 30,000 bpd will soon connect to 33 sections.

• Result: reuse water will contribute to completion of 270 wellspage 34 www.devonenergy.com NYSE: DVN 

# Pipeline for recycling operations

# Thank You.

# Seismicitypage 37 www.devonenergy.com NYSE: DVN 

# Demystifying seismic events Purported connection to E&P activity

• Experts’ consensus: Low risk managed through good practices

• “We don't see any connection between fracking and earthquakes of any concern to society.”

— Bill Ellsworth, senior U.S. Geological Survey 

### geophysicist, to E&E News , April 23, 2012.

• Fewer than 30 out of 150,000 U.S. disposal wells have had any alleged connection to seismic activity

• Generally no damage from those events

• Devon uses advanced seismic imaging technology and interpretation methods to identify and avoid faults.

• Industry expanding water recycling/reuse programs to reduce need for disposal wellspage 38 www.devonenergy.com NYSE: DVN 

# Seismic risk in context Seismic array monitoring example

Total Array Areal coverage is 3 square miles. Source: Spectraseis Array location map Horizontal Well Paths Seismic Stations That form the Seismic Array 

### Frank 11 100

– Station layout

.

East

- West dimension is 12,000 feet (2.3 miles) North - South dimension is 7000 feet (1.3 miles)page 39 www.devonenergy.com NYSE: DVN 

# Seismic risk in context Comparison of frack and trains

0.8 80



### 0 

### 10 20 30 40 50 60 70 80 90

1



### Relative Seismic Amplitudes

Hydraulic Fracture Event Freight Train 

### Vibrations