### New Albany Shale Gas Research Project

Kent F. Perry 1 , Iraj Salehi 1

,

1. Gas Technology Institute

Keywords: 1. Difficult Reserves; 2. Unconventional Reserves; 3. Production 4.Monetization 5.

Technology 6.New Albany Shale 7.Gas Shales

Introduction/Background

Gas Technology Institute (GTI) is engaged in a rese arch and development project aimed at the developme nt of techniques and methods for increasing the succes s ratio and productivity of New Albany shale gas we lls

to a level where the otherwise noncommercial wells may become commercial producers. The efforts are funded by Research Partnership to Secure Energy for America (RPSEA) and supported by several producing companies targeting the development of th e New Albany gas shale. Although the project is aim ed at the development of New Albany shale gas, results will be applicable to other gas shale formations s uch as the Marcellus, Woodford, and Mancos as well as othe r low permeability gas bearing formations.

The New Albany Shale formation occurs in Illinois, Indiana, and Kentucky, but to date gas production h as been primarily from western Indiana and southwest K entucky. Figure 1 shows the boundary of the New Albany shale within the Illinois Basin and includes the hydrogen index contours for the most promising areas in the basin 1 . The volumes of in-place and technically recoverab le gas in New Albany shale have been

estimated to be between 86 and 160 trillion cubic f eet (tcf) and 1.9 to 19.2 (tcf) respectively 1

.

Figure 1 - Hydrogen index map for New Albany shale in the Illinois Basin – USGS Open File

Reference 2.

The New Albany shale project is a field-based indus try cooperative project with producer involvement a nd support, which combines scientific and technical an alyses with field data acquisition, testing, and fi eld

validation.

Eight producing companies (Atlas America, Aurora Oi l and Gas Corporation, Breitburn Energy, CNXGas, Diversified Operating Corp., NGAS, Noble Energy, an d Trendwell Energy Corp.) and nine research organizations (GTI, Texas A&M University, Bureau of Economic Geology (University of Texas), West Virgi nia University, Amherst College, University of Massachu setts, Pinnacle Technologies, and ResTech) are participating in this project.GTI has assembled a team of highly qualified expert s with outstanding background and experience to

implement the project. A comprehensive integrated project plan for geological, geochemical, reservoir 

### engineering, and production stimulation studies and a detailed field data acquisition and testing plan addressing all major issues have been prepared. Fig ure 2 is a graphical representation of the project structure depicting the flow of information and dat a between various project elements.

Figure 2 - New Albany Gas Shale Project Structure

Objectives

As with other shale gas resources, production from the New Albany shale is primarily from natural frac tures. However, because of extremely low matrix permeabili ty and limited open natural fractures, commercial production from the New Albany shale is normally ac hieved by interconnecting the natural fractures thr ough hydraulic fracture stimulations. As such, the prim ary objectives of this project are to develop techn iques and

methods for identification and characterization of natural fractures and to develop effective fracture stimulation techniques, leading to commercially acc eptable production rate and ultimate recovery. It n eeds to be mentioned that the New Albany shale is underlain by water bearing Devonian formation in some areas and this geology adds an additional problem for eff ective hydraulic fracturing, as the fractures shoul d not be allowed to grow into the water bearing zone.

Development/Methods

The methodology being applied to the New Albany Sha le research effort includes integration of all the necessary aspects of developing a shale resource. Projects will be conducted in each of the following

technical areas.

a. Geological Studies Because of the low matrix permeability characterist ic of the New Albany shale, natural fractures are the main contributors to flow, and production at a commercial rate can only be achieved by proper plac ement
of horizontal wells relative to dominant fracture o rientation. High permeability areas (sweet spots) o ccur in regions with high fracture intensity. Characterizat ion of the key fracture attributes of orientation, size distribution, intensity, and porosity/occlusion pat terns is of primary importance. The work includes a pplication of new techniques to quantify the spatial arrangeme nt of fractures including potential clusters of lar ge open fractures. Key parameters will be assessed through examination of a combination of data types. The mos t important will be cores, vertical and horizontal we ll image logs, and drilling and production data. Fr acture orientation, intensity, and spatial distribution in formation will be obtained from core and image log data.Samples have been selected from cores to be made in to polished thin sections to examine the mineral fi ll of

the fractures. Scanning electron microscope (SEM) i magery will be also used. A suite of fracture attri bute characterizations for selected areas will be prepar ed, which may include maps for attributes such as orientation, and models for attributes such as mine ral fill, size distribution and intensity. At this stage, we will identify those attributes with first order control over gas production as a tool for identification of high-potential

areas of the basin

.

b. Geochemical Analysis Hydrocarbon gases contained in the New Albany shale consist of thermogenic gas evolved from thermally matured organic material and biogenic met hane resulting from bacterial digestion of carbon compounds. While the evolution of thermogenic metha ne normally ceases upon uplift of the formation, bacterial activities continue as long as the enviro nment remains amenable to bacterial growth. To arri ve at a reliable resource estimate and to identify favorabl e regions within the basin, a comprehensive geochem ical investigation is being performed. Key activities in clude field data acquisition, including sampling of gas and co-produced water, as well as laboratory tests incl uding gas chromatography and mass spectropy for measurement of total organic content. In addition, the microbial population of the New Albany shale wi ll be determined from water samples. Planned data analysi s also includes microbial analysis consisting of DA PIstained cell counts from individual wells, molecula r fingerprinting based on total DNA for community structure, and total RNA to identify active communi ty members. Attempts will be made to isolate and cu lture novel methanogens to determine rates of methane pro duction. Also, microbial community structure in the New Albany shale will be compared with that of the Antrim Shale to assess whether any observed differences influence production rates and total ga s content in the shales.

c. Formation Evaluation Identification of producing zones in New Albany sha le wells and determination of reservoir properties from well logs is a nontrivial problem. Intrinsic physic al properties of shale are such that conventional f ormation evaluation techniques are not applicable, and techn iques specific to the New Albany shale must be developed. Emphasis will be placed on borehole imag ing, coring, and geochemical techniques as well as seismic imaging where possible. The activities iden tified for this task include fracture identificatio n from logs such as FMI, CAST and construction of borehole maps of dip projections of fractures within specific distances from boreholes. Log analysis work include s the development of advanced methodology for calculation of shale porosity, water and bitumen sa turations, free gas saturation, and adsorbed gas th rough

correlation with core data.

d. Reservoir Engineering Pressure buildup tests in horizontal and hydraulica lly fractured wells can be difficult to interpret because these tests involve many unknown parameters and pressure transient tests require very long durations ( i.e., months). Producers need to have a reliable estimate of production to make decisions regarding well completion and to evaluate the finan cial and operational requirements of the field. Thi s effort is devoted to the analysis/interpretation of the av ailable pressure transient test data obtained from the gas shales study area as well as new pressure transient data. Production data analysis is focused on produ ction analysis for horizontal and hydraulically fractured wells. In addition, the project plans to develop n ew pressure transient models for horizontal and fractu red wells.

e. Fracture Modeling Commercial production from tight sands and shale fo rmations invariably involves hydraulic fracturing of the formation. Although several hydraulic fractu ring simulators have been developed during the last twenty years, none is capable of predicting fracture growt h in the presence of natural fractures. In particul ar, it is necessary to use a model capable of dealing with in jection-induced fracture propagation near natural discontinuities such as joints, faults, and bedding planes. The work in this area is focused on the development of knowledge and analytic models for su ch fractures.

f. Fracture Design and Fracture Diagnostics Design and quality control of fracture stimulations and fracture diagnostic surveys using tiltmeter an d microseismic fracture imaging for independent verif ication of fracture design as well as monitoring an d control of fracture growth is absolutely critical. Integration of stimulation, production data, and re servoir engineering technologies will be performed to succe ssfully evaluate and optimize hydraulic fracturing of the reservoirs. Current completion/stimulation practice s will be evaluated in the New Albany Shale and fie ld experiments will be conducted to measure hydraulic fracture geometry and evaluate stimulation

effectiveness. Integration of the results of field experiments wit h geologic, geophysical, completion and production data to optimize development of the New Albany shale will be conducted.g. Best Practice Analysis

The intent of best practice analysis is to compile drilling, completion, fracture stimulation, and pro duction and create a comprehensive database that reflects the r ange of practices in the New Albany shale. Once the database is populated with data from a statisticall y significant number of wells, a series of objectiv e numerical analyses based on fuzzy logic and artific ial intelligence techniques will be carried out to determine the optimal combination of operational parameters t hat result in the most favorable production instanc es. Upon completion of these analyses results will be v erified with hard data from the field and augment t he data driven results with engineering driven conclusions to arrive at field-verified best practices for dril ling and completion of New Albany shale wells.

h. Environmental and Water Management Studies The shift of New Albany shale gas from an emerging to an existing resource category entails drilling and completion of thousands of wells, establishment of gathering systems, processing plants, compresso r stations, and so forth. Subsequent to determination of substantial producible reserve and upon identif ication of technically effective and economically optimal d evelopment technologies, determination of environme ntal impacts of these operations and facilities in terms of water requirement and waste management is an imperative. In addition, water resources to meet th e needs of the upstream and downstream operations m ust be identified and a prudent water management scheme be designed.

i. Field Data Acquisition and Verification, Coordin ation and Technology Transfer The prerequisite of success for a field-based proje ct is the acquisition of reliable data and timely testing of results so that dependable data are prov ided for analytic work and designs. Procedures are

checked in the field and modified based on test res ults. The New Albany Shale project includes extensi ve field data acquisition and testing including sampli ng, coring, logging, hydraulic fracturing, fracture diagnostics, and production logging. Specifically, two production logging, two hydraulic fracturing experiments, and four fracture diagnostic surveys a re planned. In a multifaceted field-based research, prudent coordination, and open communication are of essence. Preparation of clear and comprehensive reports will be used to extend the technology beyon d the limited individuals and companies, expanding the information to other applicable regions. In the New Albany shale project, all independent research organizations will prepare a stand-alone detailed r eport describing the scientific bases and results f rom their

work. The work of the various contributors will be used to develop an integrated analysis of the facto rs controlling economic production in the New Albany S hale, which will be captured in Best Practices

recommendations.

Results

Experimental results established thus far as part o f the ongoing research experiment are reported in t he following sections.

Geologic Study Results 3

The primary geologic focus is on description and ch aracterization of natural fractures in the New Alba ny Shale. Outcrops of New Albany Shale in Kentucky and Indiana were visited and sampled. In addition, sev eral cores were viewed and sampled for further investiga tions. Because production from the New Albany Shal e is primarily from natural fractures, knowledge of t he orientation of dominant fracture system is criti cal for placement of horizontal wells such that these wells intersect the maximum number of fractures

One of the best exposures of the regional joint pat tern occurs on the Indiana bank of the Ohio River a t New Albany (Fig. 3). The dominant joint set trends ENE, individual fractures extending several hundreds of feet. A secondary set trend almost orthogonal to the domina nt set, but abutting relationships suggest they are broadly coeval. Both joint sets are steeply dipping and have no mineralization on the joint.Figure 3 - Map Illustrating New Albany Shale Outcro p Area 3

Barren joints were not observed in the cores that w ere examined. The barren fractures in core that wer e observed are interpreted as being induced fractures on the basis of petal centerline geometries, and t he observation that they did not have the oxide staini ng that is ubiquitous in outcrop. It is important t o establish the significance of these fractures relative to bot h biogenic and thermogenic parts of the play.

Many other fractures in core and outcrop were obser ved and are of interest and merit further study. Th ese are described briefly below, along with a statement of how they may or may not be relevant for gas production.

Compacted fibrous quartz-dolomite-bitumen veins wer e observed in outcrops. The veins are very wide relative to their height, and commonly contain bitu men in vuggy openings, termed geodes by other worke rs. These large veins were not observed in the cores. H owever, in the outcrops and cores we did observe smaller fractures, confined to pyrite-rich layers t hat also show compaction structures, and that provi de support structures for the bedding and compaction f abric, which is deflected down on either side of th e fracture (Fig. 4). It is not known at this stage if these small fractures are related in any way to th e large

fractures.Figure 4 - Small, Early, Compacted Veins, Fill Like ly Dolomite; and (picture to right) Example from

New Albany Shale Core at 2,804 ft. Height of Fractu res Approximately 3 cm. Reference 3.

It is unlikely that these large veins will affect p roduction as they seem to be mostly confined to the Blocher Member, which is well below the usually targeted Cl egg Creek Member. However, our observations so far are restricted to a very few outcrops. Vertical cor es may not sample them as they are spaced several m eters apart. They are worth further study, however, becau se they record fluid conditions at an early point i n the burial of the New Albany Shale. The smaller veins a re apparently more widespread, but because they are confined to pyrite layers may not affect production significantly. However, arrays of small veins can act as mechanical discontinuities for hydraulic fractures causing the hydraulic fractures to split or be defl ected.

In the underlying limestone and the very base of th e Blocher Member there is a second set of filled fr actures. These are networks or en echelon arrays and are cal cite filled. These are not compacted and areinterpr eted to be later than the dolomite-quartz filled veins d escribed above.

In the cores several examples of steep, sealed, or partly sealed fractures were observed. Some have smeared cement fill and have been interpreted as fa ults. These sets are likely to be important either for enhancing permeability or as influences over hydrau lic fracture propagation.

Because of the difference in depth of the biogenic and thermogenic plays we think that the barren join ts are of possible importance for the biogenic play but ar e unlikely to play a role in the thermogenic play. The fractures observed in core could all potentially pl ay a role in either directly influencing the permea bility or affecting hydraulic fracture propagation.

Well Drilling and Completion 4

Multiple well drilling and completion geometries ha ve been investigated within the New Albany Shale including the following list of geometries:

• Open hole lateral wells with cased sump

o Vertical pilot holes

o Deviated pilot holes

• Open hole lateral wells with no sump

• Intersection of vertical well with open hole later al

o Intersection occurs in early portion of lateral

o Intersection occurs at toe of lateral

• Multiple open hole laterals

• Stacked

• Dual opposing

• V-shaped

• Pitchfork

Horizontal and high angle lateral wells are develop ing as the preferred geometry as opposed to vertica l holes although vertical wells are still being considered. Figure 5 illustrates a open hole lateral well geom etry.Figure 5 – Toe-up Open Hole Lateral Well Completion Geometry (From John Hunter, Aurora Oil and

Gas 4

The concept is to drill a long lateral section of t he New Albany shale with the end (toe) of the wellb ore higher than the wellbore portion (heel) near the vertical section. This allows any water produced in the ope n hole

section to flow downhill to the heel section where it can be pumped out of the well by a downhole pump placed in the cased section of the wellbore.

Well geometries of this type can be fractured or pr oduced without fracture stimulation treatments. Wh ile stimulation is the preferred approach some areas of the New Albany are underlain by a water wet dolomi te formation. If fracture treatments grow downward to this section the well economics can be negatively impacted by the subsequent water production.

In areas where the water wet dolomite is not an iss ue the preferred completion procedure usually inclu des hydraulic stimulation. A number of issues need to be considered for proper well completion design inc luding the following items:

• Cost containment

o Necessary for acceptable economics

• Open hole lateral(s) with no stimulation required

o Prior local knowledge of reservoir needed

o Minimize reservoir damage while drilling

• Assume that stimulation will be required?

o High volume acid treatment to dissolve calcite

o Fracture stimulation to connect with natural fract ures

o Open hole vs. cased hole

• Recover gas reserves from all organic members?

o Most laterals have targeted only the Clegg Creek m ember

o Blocher member is generally separated by impermeab le Selmier member

• Optimize drilling geometry for pump placement

o Necessary for water removal and reduction of back pressureHydraulic Fracturing and Hydraulic Fracture Design 5

Figure – 6 Possible Hydraulic Fracture Configuratio ns in the New Albany Shale 5

The research efforts on hydraulic fracturing are fo cusing on the potential to model a New Albany Shale hydraulic fracture treatment with a 3-D fracture si mulator. Results to date indicate this is a diffic ult task to accomplish. Figure 6 is a plan view of two horizon tal wells each being fracture stimulated at four po ints. On this figure, the colored dots denote the location m icroseismic events associated with hydraulic fractu ring. Note that a simple bi-wing induced fracture (left s ide Figure 6) may be an indication of a lack of nat ural fracturing. This can be a real problem in a margina l play in that a substantially reduced surface area is exposed to the reservoir creating challenging well economics.

If the natural fracture network consists of multipl e parallel and orthogonal induced fractures then th e likely hydraulic fracture development is most likely to re semble the geometry depicted on the right hand side of Figure 6. It should be noted that this case is beyo nd the capability of most hydraulic fracture simula tors to adequately model. This creates a potential conundru m that only uneconomic wells can be adequately modeled by current simulators.

Experience thus far in the New Albany Shale with hy draulic fracturing has yielded a cross section of experiences with varying results. Large waterfracs in a shallow, normally pressured shale may not be viable due to the inability to adequately recover the frac turing fluids. Substantial experimentation with 70 to 85 quality foams has indicated that large foam fractur e treatments may be acceptable in terms of preventi ng water blockage, but generally have unacceptable vis cosity. Foam viscosity can be 80 to 100 times that of water and 4,000 to 5,000 times that of nitrogen. Lo w viscosity promotes network complexity while high viscosity promotes fracture simplicity.

Straight nitrogen is utilized in the shallower New Albany Shale wells almost exclusively. Some limited experimentation is taking place with high quality ( +95 quality) foam systems as well as misting fluids using propane and other mechanisms to reduce water and lo wer viscosity. A major paradigm shift may be necessary for hydraulic fracture stimulations in or der to make the New Albany Shale a first class shal e

resource

Production Methods 4

The New Albany Shale in many regions produces some water which needs to be removed from the wellbore to allow gas to flow unimpeded. Also, in the areas where hydraulic fracture treatments are conducted t here is

a considerable volume of treatment water that needs to be removed from the wellbore. The Initial pump of choice for some operators is the progressive cavity pump (Figure 7 – for surface configuration of prog ressive cavity pump) which is well suited for high water vo lumes. It is however problematic when installed in curved

wellbores.Figure 7–Surface Configuration for Progressive Cavi ty Pump – From Aurora Oil and Gas 4

Electrical Submersible Pumps (ESP) are utilized in some areas where well depths exceed the depth at wh ich water well pumps can be utilized. These pumps are m ore expensive but required due to the depth from which pumping must take place. Heat generated by e lectrical submersible pumps (ESP) may result in rap id calcium carbonate scale buildup which is another pr oduction characteristic that must be considered.

Gas lift is another water handling procedure being tested by some operators. At least two operators ha ve employed chamber-lift method in horizontal wells wi th mixed success

Beam pumps (Figure 8) are evolving into a preferred production method for handling water production in the New Albany shale. Operators need to be prepared for corrosion and scale issues that impact tubing and

rods.Figure 8 - Beam Pump Installed on Flood Plain in Ne w Albany Shale Region, Illinois Basin 4

Gas Production Infrastructure 4
Gas production infrastructure needs for producing N ew Albany Shale gas is strongly related to the low volume low pressure production characteristics enco untered. Specifically, the objective is to minimiz e back pressure in order to enable low reservoir pressures to maximize gas desorption. This requires both low pressure gathering systems and low pressure product ion facilities be designed and installed. Very oft en large diameter polyethylene pipe is used for both g as production lines and lines for moving water to d isposal facilities (Figure 9).

Figure 9 - New Albany Shale Gas and Water Lines Pri or to Burial 4

Compressor stations are located both at satellite l ocations and central facilities. Satellite location s are the first stage of compression and are usually electric modular screw compressors providing the first stag e of compression. These electric compressors provide fo r lower capital cost, lower maintenance and are environmentally preferred. Reciprocating compressor s provide 3 stages of compression to attain pipelin e pressure and are normally located at a central prod uction facility and can be either electric or gas d riven.The advantages of this low pressure system design p rovide a significant reduction in capital expenditu res.

Increased production rates are realized due to redu ced back pressure on the wells and the commercial l ife of wells is extended due to reduced costs. Facility ca pacities can be optimized over the life of the well s as development takes place based on economics and tech nical factors.

New Albany Shale Production and Reserves 4

The peak gas production volumes for most New Albany Shale wells are usually attained in the first 30 d ays of well production. This is followed by a somewhat immediate and significant production decline follo wed by a shallow hyperbolic decline. Gas reserves are lon g-lived with production occurring up to 50 years. F igure 10 illustrates expected production from a New Alban y Shale horizontal well with a 2500 ft. lateral sec tion. Initial gas production rates are on the order of 27 5 mcf/day declining to 100 mcf/day in the first 24 months of production. Initial water rates are on the order o f 200 bbls per day declining to 70 bbls per day aft er 24 months. Cumulative gas production estimated after 40 years is just over 1 billion cubic feet of gas.

Figure 10 – New Albany Shale Gas Production Profile for a 2500 ft. Horizontal Well 4

Well costs for a New Albany Shale horizontal well w ith hydraulic fracture stimulation can exceed one m illion U.S. dollars. In addition to this capital investme nt are operating expenses over a long time period ( 40 Years). Operating expenses can include water liftin g, transport and disposal, gas compression, well workovers to maintain pumps, gas processing expense s to remove CO2 and nitrogen and road and site maintenance. Other expenses include royalties and severance taxes.

Overall economics surrounding the current New Alban y Shale are very challenging at today’s gas prices.

Summary/Conclusions/Perspectives

The New Albany Shale contains vast reserves of natu ral gas, but technological challenges have posed a hindrance to economic development. A number of acti ve horizontal drilling programs are currently under way to extract biogenic gas.

The naturally fractured rock supporting biogenic ga s generation in the New Albany Shale is not particu larly similar to other well-publicized shale plays. Care should be taken when transferring outside technolo gies to the New Albany Shale. A number of elements need to be collectively considered for development of the New Albany Shale resource as well as other shales. Figure 11 illustrates eight important areas that s hould
be investigated for every play 6 . The importance of each of these elements can be different for each shaleplay and can contribute to the success of the play in different ways and varying quantitative values. Each

should be carefully examined.

Figure 11 – Elements to be Considered for Developme nt of a Successful Gas Shale Play 6

Well drilling and completion design is then based o n the attributes of the play as determined by the geosciences topics investigated early in the cycle life. Each shale play can differ significantly and with the New Albany Shale there can be significant differenc es from one portion of the Illinois Geologic Basin to another part of the basin. Carefully consideration of all elements for success and using caution when transferring a technology that has worked in anothe r region without careful field testing will be of o ngoing importance.

New research continues to investigate the most effe ctive well completion design and practices and will need to continue to unlock this vast gas resource.

Acknowledgements Funding for this project is provided by Research Partnership to Secure Energy for America ( RPSEA) through the Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Resources Research and Development Program authorized by the Energy Policy Act (EPAct) of 2005. RPSEA is a non-profit corporation established to help meet the nation's g rowing need for hydrocarbon resources produced from reservoirs in America; formed by a consortium of pr emier U.S. energy research universities, industry a nd independent research organizations.

References [1] BEG/PTTC presentation, November 2006 [2] USGS Open-File Report 03-07, Higley et al, “The New Albany shale Petroleum System, Illinois

Basin” [3] Bureau of Economic Geology – Gas Technology Ins titute Quarterly Research Report; August to

October 2008. [4] Presentation by John Hunter, Aurora Oil and Gas

, “The New Albany Shale from an Antrim Shale Operator’s Perspective” , RPSEA Mid-Continent Gas Shales Forum, June 4, 200 9, Chicago, Illinois [5] Presentation by Douglas Walser, Pinnacle Techno logies, “Fracture Design & Simplistic 3-D Parametric Modeling New Albany Shale Project” RPSEA Mid-Continent Gas Shales Forum, June 4, 2009, Chicago, Illinois, [6] Presentation by Dr. John Curtis, Colorado Schoo l of Mines/Potential Gas Agency, “Shale Gas: From Onerous Stepchild to Premier Resource”, RPSEA Mid-Continent Gas Shales Forum, June 4, 2009, Chicago, Illinois