DCN SGE00276



# Meeting Summary

T opic : Meeting with XTO Energy

, Inc. about Unconventional Oil and Gas

Meeting D ate : 18 July 201 2

Participants : Lisa Biddle, Erik Helm , Brian D’Amico

, Ahmar Siddiqui

, Tom Born , Pooja Parikh (EPA) Meghan Camp, Brent Ruminski (ERG) Robert M. Nolan ( Exxon

Mobil)
Joe Cardenas , Paul Krishna (XTO Energy)

On 18 July 201 2

, the U.S. Environmental Protection Agency (EPA ) held a meeting with XTO Energy Resources, Inc . ( XTO ) to discuss their operations in unconventional oil and gas

. Discussion topics included:

 XTO’s Current Production Activity ;

 P roject Development ;

 Well Completion and Produc tion ; and

 General C ost Information

.

Attachment 1 lists the meeting participants

. Attachment 2 pro vides a summary of costs that XTO provided during the meeting.

XTO’s Current Production Activity

XTO is an oil and gas producer based in For t Worth, Texas. In 2010, they became a subsidiary to ExxonMobil Corporation. Ownership of the drilling and production assets is held by ExxonMobil

. In 2011, XTO drilled approximately 800 wells in unconventional formations

, including shale oil, shale gas, and tight gas. XTO expects to drill [CBI redacted] to [CBI redacted] wells in 2012. According to DrillingInfo, Inc’s HPDI database

, XTO was active in the following unconventional formations as of December 2011:

 Shale o il ( Avalon & Bone Spri ng, Bakken, 1 Ba rnett, Eagle Ford

, Woodford) ;

 Shale g as ( Marellus, 2 Bakken, Barnett, Eagle Ford , Fayetteville, Haynesville, Woodford) ; and

 Tight g as (Cotton Valley, Dakota, Mesaverde)

.

1 The Energy Information Administration (EIA) classifies the Bakken as a mixture of shale and tight sandstone.

2 As of December 31, 2011, XTO operated 46 Marcellus shale gas wells in Pennsylvania. In the Marcellus, XTO currently has four active rigs and one hydraulic fracturing crew that cover Pennsylvania, Ohio, and West Virginia.Meeting Summary Page 2 of 12

DCN SGE0027 6 XTO stated that the Barnett is their most developed shale play and they are no longer leasing new property there . In the Marcellus, XTO is currently running four drilling rigs and one hydraulic fracturing crew. XTO is also beginning development in the Utica shale , which
underlies the Marcellus shale formation

. Figure 1 shows all XTO’s Marcellus wells in Pennsylvania

. 3 Through 2011, XTO operated 4 7 wells in northern and southwestern counties of Pennsylvania.

Source: EPA’s GeoPlatform map p ing tool

.

Figure 1 . XTO’s Active Shale Gas Wells in Pennsylvania in 2011

P roject Development

XTO provided information on the project development process. The following subsections outline this information in the general order they occur

.
Obtaining a Lease

Operators lease land for mineral rights in quantities called “units”. A typical unit is 640

acres of contiguous properties . Some states

, including Pennsylvania

, require operators to obtain all 640 acres of mineral rights before the operator can begin construction. In states such as Texas, New York, and Oklahoma, if a particula r operator owns 65 percent of the leases in the unit, they

can begin construction as long as the remaining acres are leased by another operator . When this

occurs , it leads to the other operators

, w ho have leases on the 640 acres

, terminat ing their lease
be cause they will never be allowed to drill. In a situation where all of the acres are not leased, an

3 PA DEP updated through December 31, 2011.Meeting Summary Page 3 of 12

DCN SGE0027 6 operator can establish the right to drill on a unit through a process called “force pulling.” This occurs when certain acreage within a unit is not leased, the operator may file for “pooling” which will pull the un

- leased acreage into the existing lease agreement for that unit.

Lease payments vary due to many factors including region, shale play, acreage position,

company, etc. Often, a lease include s two types of payments to the mineral rights owner. These payments include:

 Upfront bonus per acre

— Th is is a onetime payment made to the mineral rights

owner. Currently, upfront bonuses i n the Barnett are approximately [CBI redacted] per acre but once were as high as [CBI redacted] per acre. In the Marcellus, upfront bonuses are currently around [CBI redacted] per acre. These

costs vary with market demand and shale play

.

 Royalty

— Th i s is a continuous payment paid to the mineral rights owner calculated as a p ercentage of revenue. The baseline percentage is 16 percent. I n

some areas it can be as high as 25 percent.

Explorat ion

Exploration may occur before or after they actually obtain a lease depending on the specific circumstances

. Using geological data (e.g. , formation depth, formation thickness, formation slope, permeability, porosity), XTO targets the formation that is most favorable to produce ; XTO uses three exploration methods including:

 Offset p roduction data

— analysis of existing production data from n earby wells.

 Existing data logs from drilling

— analysis of data logs from drilling existing
wells

.

 Seismic

— using specially equipped trucks that send and receive sound waves through the ground

. Special service providers convert the received sound waves
into 2D or 3D images of the formation. This service costs between [CBI redacted]
and [CBI redacted] for several square miles

.

Well Pad Construction and Drilling

After XTO obtains a lease and targets the most favorable area for production, they begin
well pad site selection and construction. For site selection, they consider the following site specific qualities:

 Location relative to mineral lease

— The site should allow the wells to drain the largest possible portion of the lease

. In addition, the location of the site should
allow the horizontal legs to be drilled perpendicular to the maximum stress of the
formation.

 Flat land

— The site must have the ability to be excavated into a flat well pad at a reasonable cost . Land that is already relatively flat and s table may reduce
construction costs.Meeting Summary Page 4 of 12

DCN SGE0027 6

 Accessibility

— The operator consider s access to r oad s and natural gas pipeline

. The cheapest and most direct road access may not be possible if land owners are not willing to make agreements for passage over their proper ty

.

 Freshwater

— Freshwater availability is mo re important in regions where surface

water supplies are limited, such as the Barnett and Bakken. In places where
surface water supplies are abundant, like the Marcellus, freshwater availability is

not a s important of a consideration for site selection

.

When the desired site is selected, XTO may need to obtain surface use agreements for road access and well pad construction if the y are not included in the lease agreement. Typically, the mineral rights own er is the same person as the surface owner

, but sometimes they are different. In these cases, operators must negotiate a separate agreement with the land owner
before construction.

The total cost for XTO to establish a surface lease agreement is approximately [CBI redacted] to [CBI redacted]

. Excavation costs (including earth moving equipment, grading, environmental impact management, etc.) range between [CBI redacted] and [CBI redacted]

. These costs are h igher in regions with hilly terrain. XT O constructs each w ell pad on three to four acres and designs them to hold 12 to 16 wells (minimum is six ).

After constructing the well pad, XTO will typically drill and complete two wells. Vertical depth and horizontal leg length vary by formation. In th e Marcellus, most wells are between 6,500 to 7,000 feet deep with 2,000 to 5,000 foot laterals. After these wells successfully produce gas, XTO drills out the additional wells (typically six total) when logistics are favorable (e.g., pipeline capacity, dri lling rig availability, gas prices, lease requirements). XTO explained that the length of time between completion of the first two wells and the remaining wells is hard to predict but estimated it may be between five and 10 years. This process is called delineation.

When asked if companies will ever use the same vertical portion of the well for more than one lateral, XTO explained that there is a drilling process for “multilaterals

. ” In a multilateral well, the operat or drills on vertical bore and then drills multiple horizontal bores in different directions. XTO explained that they do not drill multilateral wells because the process is mechanically complex and has no history of reliability.

Well Completion and Produc tion

XTO provided information on the following fresh water and wastewater handling and management practices :

 Fresh Water Acquisition;

 Hydraulic Fracturing; and

 Wastewater Management Practices.Meeting Summary Page 5 of 12

DCN SGE0027 6 Fresh Water Acquisition

XTO obtains fresh water for fracturing from a variety of sources including :

 M unicipalities ;

 Public s urface wat ers (e.g., river) ; and

 P rivate ly owned surface waters (e.g., pond)

.

XTO provided a range of cost for freshwater acquisition. They have paid as little as [CBI redacted] per barrel for municipal water (e.g., City of Fort Worth ) and as high as [CBI redacted] per barrel for privately owned surface waters

. Similarly, XTO pays between [CBI redacted] and [CBI redacted] per barrel for public surface water supply. These prices vary based on the project location and proximity to the source of water. XTO will typically transport fresh water to centralized freshwater impoundments prior to fracturing. Impoundments cost approximately [CBI redacted] to [CBI redacted] and hold between 50,000 and 60,000 barrels. XTO attempts to locate impoundments to serve up to four to five wells. However, an impoundment may only
serve one well in remote locations

.
Each impoundment can hold approximately half of the total volume required f or hydraulic fracturing (i.e.

, 50,000 to 60,000 barrels). Therefore, XTO must continuously refill the impoundment during the fracturing job. To minimize trucking costs, XTO uses temporary 10
inch diameter aluminum piping as much as possible to transport fr esh water from the source to the impoundment and from the impoundment to the well pad. T hey typically rent temporary piping from service providers. The use of temporary piping may require XTO to obtain addition surface use agreements from landowners. XTO e stimated they spend approximately [CBI redacted] to [CBI redacted] for approximately one mile of temporary piping over a few weeks (this includes the rental costs of pipes and pumps, as well as the cost of a service to lay the piping)

. A nominal fee is pai d to the landowners whose property must be traversed by the temporary piping.

When piping is not possible, XTO truck s the fresh water

. XTO typically contracts a third party trucking company in order to eliminate paying truckers by the hour. Trucking costs vary depending on the basin and distance between the source water, impoundment, and/or well site. Under a contract basis, XTO pays between [CBI redacted] to [CBI redacted] per barrel in the Barnett (assuming 10

- 15 miles) and between [CBI red acted] to [CBI redacted] per barrel in the Marcellus (assuming transport from Indiana, Pennsylvania to Youngstown, Ohio or approximately 100 miles ). E ach truck can hold approximately 130 barrels of freshwater and 100
barrels of wastewater

. 4

H ydraulic Frac turing

XTO provided general information on hydraulic fracturing of unconventional oil and gas
wells

. XTO fractures each well in eight to 10 stages at a rate of approximately two stages per day

. The total cost to fracture a single stage with slick water is approximately [CBI redacted]

4 When hauling wastewater, trucks can typically only hold 100 barrels of wastewater because wastewater is denser (weighs more per barrel) than freshwater.Meeting Summary Page 6 of 12

DCN SGE0027 6 (gel fractures, commonly performed in the Bakken shale play, cost approximately [CBI redacted] per stage) . XTO explained that the total cost for fracturing varies by formation and suggested it is more expensive to fracture a Ma rcellus well than a Barnett well

. Prior to fracturing each stage, XTO transports enough fresh water to complete the stage onto the well pad from the nearest freshwater impoundment via temporary piping or truck. XTO stores the fresh water in 500 barrel
frac turing tanks on the well pad. These tanks cost XTO [CBI redacted] to [CBI redacted] per day per tank to rent in addition to [CBI redacted] in transportation costs to bring the tanks to and
from the site

. If the water is piped to the tanks from a water sour ce or fresh water impoundment, XTO typically keeps 5 to 10 tanks onsite; if water is trucked to the site, XTO will maintain 40 to 50 tanks on site (which is enough for one fracturing stage ). At a rate of one to two stages per day, fracturing o ne well requires approximately one to one and a half weeks.

XTO discussed water quality requirements for hydraulic fracturing. As the water is pumped to the site, some filtration occurs through meshes within the pipeline. When the water reaches the site, it is blended with scale inhibitor

, an anti

- microbial agent , and proppant. For slickwater fracturing in the Marcellus, XTO recommends TDS concentrations of 30,000 or less. XTO explained that water with high TDS concentrations (that is, salty water ) can re duce the
effectiveness of friction reducers which are usually hydrocarbon

- based. XTO explained that they are more careful about water quality in formations that use gel

- based fracturing fluids (e.g., Bakken). For gel

- based fracturing fluids, fresh water TD S levels are desired (approximately 500 mg/L) for make

- up water.

XTO fractures each stage with 12,000 barrels of hydraulic fracturing fluid and 300,000 to 400,000 pounds of proppant

. 5 With eight to 10 stages per well , XTO may use four to five million gallons of hydraulic fracturing fluid and 2.4 to 4 million pounds of sand. A typical stage is approximately 500 fe et of the horizontal leg

. In the Marcellus, XTO is currently moving towards shortening the stage lengths to 280 to 300 feet to increa se production , which will increase the
total number of stages per well. However, XTO estimates that shorter stages will still require 12,000 barrels of fracturing fluid , which may result in higher total volumes of hydraulic fracturing fluid per well

.

XTO estimated the flowback process lasts 30 to 60 days. During this period , XTO
collects the flowback in five 500 barrel fracturing tanks. Because the flowback flow rate is relatively high, trucks must empty the fracturing tanks dail y until the flow rate d ecreases. In most formations, approximately 40 percent of the injected fracturing fluid returns as flowback. After the flowback period, the wastewater is considered produced water and is routed to onsite above ground storage tanks. Table 1 provides approximate percentages of fracturing fluid that returns during flowback and produced water volume flow rates by formation. XTO believes the Barnett
shale contains naturally occurring formation water directly above and below the shale layer

. Although XTO has not been active in unconventional formations for more than 10 years, they estimate the life of a well to be 20 to 30 years.

5 XTO’s proppant is a mixture of 20

- 40 and 40

- 70 sand.Meeting Summary Page 7 of 12

DCN SGE0027 6 Table 1

. Wastewater Generation by Formation

Formation Percent of Fracturing

Volume Returned During Flowback (% ) Produced Water Flow Rate (barrels per day)

Marcellus 20

– 30 2

– 4

Barnett 40 30

– 40
Haynesville 20

– 30 2

– 4

Most other
formations 40 7

– 10

When asked if an operator would ever hydraulically fracture two wells on the same pad at the same time, XTO explained that there are several fracturing techniques that involve simultaneous fracturing, but XTO does not use these techniques. These include:

 “Simul fracture”: Using this technique, two wells are fractured at the same time, which creates a pressure barrier between the wells and forces the fractures outward in separate directions.

 “Zipper fracture:” Using this technique, the operator alternately perfora tes and fractures well stages on two side

- by

- side wells. For example, the operator will perforate the first stage of Well B while fracturing the first stage of Well A. Next, the operator will fracture the first stage of Well B while perforating the second stage of Well A. This process continues in this pattern until all stages are complete, and causes the fractures to form in the space between the two wells.

Wastewater Management Practices

XTO provided information on their wastewater management practices for each unconventional formation in which they operate

. During the flowback period, XTO collects the
flowback in the same 500 barrel fracturing tanks that were used to store freshwater during the hydraulic fracturing process. As mentioned previously, XTO rents these tanks at a rate of approximately [CBI redacted] to [CBI redacted] per day. When the well switches to production mode, the produced water is collected and stored in above ground storage tanks at the well pad. Limitations on the capacity and num ber of above ground storage tanks varies by state, county, and sometimes by city due to differences in regulations. For example, the City of Forth Worth limits its sizes to 300 to 400 barrels per tank. In western Texas, XTO is able to use 3,000 barrel
tank s if needed. XTO prefers to have 400 to 500 barrel tanks, which is permitted in the Marcellus Region.

Table 1 summarize s XTO’s wastewater management practices on a formation basis. XTO manages the majority of their wastewater through reuse and underground injection. For underground injection, XTO estimated that they u se 50 percent XTO

- operated injection we lls and 50 percent commercially

- operated injection wells. In Texas, underground injection costs approximately [CBI redacted] per barrel for disposal and [ CBI redacted] for trucking from the well pad to the injection well.Meeting Summary Page 8 of 12

DCN SGE0027 6 For reuse in slickwater fracturing fluids , XTO provided a general rule of thumb that hydraulic fracturing fluid should not contain more than 30,000 mg/L TDS after blending. Above 30,000 m g/L, the effectiveness of friction reducer additives in the fracturing fluid is reduced

. Although current technology can allow friction reducers to be used with higher TDS
concentrations than in the past, it also increases the cost for additives. Reus e in the Bakken 6 is also challenging because most wells are fractured using gel fracturing techniques, which require
fresh water. XTO also explained that they do not r euse wastewater from one formation type (e.g., shale gas ) in another formation type (e.g., tig ht gas ) because of chemical incompatibilities

.

Table 2 . XTO’s Nationwide Wastewater Management Practices

Formation or
Basin Production Type General Wastewater Management Practices
Eagle F ord Shale oil and gas Mostly underground injection

. a

Haynesville Shale gas Mostly underground injection because re use is not technically feasible due to high fracturing

pressures

. Woodford Shale oil and gas Mostly underground injection

. Fayetteville Shale gas Reuse as much as possible due to l imited underground injection

. Bakken Shale oil and gas b Mostly underground injection. Limited reuse because make up water for fracturing must be

similar to fresh water.

Pieance Tight gas Reuse as much as possible

, then underground injection

. Marcellus Shale gas Reuse as much as possible

, then underground injection

. Utica Shale oil and gas Reuse as much as possible

, then underground injection

.

a

— XTO suggest ed that some companies reuse 100 percent of wastewater in the Eagle

F ord but XTO does not. b

— The Bakken produce s both oil and gas. Some of the gas is flared and some is collected for production.

In the Marcellus, XTO estimated they currently reuse 55 percent of their wastewater in fracturing and truck 45 percent to Ohio underground injection wells. For the wastewater that
XTO re uses, they use one of the following options:

 Direct r euse without any treatment ;

 R euse after onsite treatment at the well pad or at central field location; or

 R euse after treatment a t a centralized waste treat ment (CWT) facility

.

6 The Energy Information Administ ration (EIA) classifies the Bakken as a mixture of shale and tight sandstone.Meeting Summary Page 9 of 12

DCN SGE0027 6 For onsite treatment at the well pad or at central field locations, XTO uses third party treaters
such as Waste Management of Pennsylvania ( W aste Management ) 7 and Bosque Disposal Systems, LLC (Bosque)

. 8 Onsite treatment technologies include filtration

, electro coagulation, or

ozone 9 depending on the wastewater quality. XTO estimated that this type of onsite treatment for

reuse costs between [CB I redacted] and [CBI redacted] per barrel.

Table 3 provides XTO’s 2011 Marcellus wastewater management practices in Pennsylvania as provided in the Pennsylvania Department of Environmental Protection (PA

DEP ) Oil and Gas Reporting Database

. The majority o f the wastewater volume XTO reported

sen ding to CWTs was treated by Waste Management

. XTO clarified that Waste Management is a third party treater who offers electro coagulation for onsite treatment prior to reuse. Onsite treatment typically results in a solid or sludge waste stream that must be disposed of in a permitted landfill. XTO stated that in a typical day they will treat hundreds of barrels of flowback using electro coagulation and generate 200 to 300 barre ls of sludge that must be disposed of.

Table 3 . XTO's 2011 Marcellus Shale Wastewater Management in Pennsylvania

Management Practice Percentage (% ) Volume

( barrels )

Reuse a 8 37,341

Centralized Waste Treatment (CWT)

— Reuse 44 210,846

Underground Injection 48 232,406

Landfill <1 429

Total 100 481,022

a

— XTO utilized CWT s that return treated wastewater to the operator for reuse in fracturing (e.g., Reserved Environmental Services , Inc.) and

facilities that treat and discharge (e.g., Pennsylvania B rine). Source: PA DEP’s Oil and Gas Reporting Database.

General C ost Information

XTO provided additional cost information. Attachment 2 summarizes all cost information XTO provided. For accounting purposes, XTO classifies costs at the well level into completion ( i.e., capital) and production (i.e., operating ) costs. XTO estimated that a “ hurdle rate” or
minimal rate of return on investment at the well or project level is [CBI redacted] . XTO estimated that operating (i.e., wastewater management) costs are approximately [CBI redacted]

to [CBI redacted] per thousand cubic feet (MCF). This estimate represents a nationwide range.

7 According to Waste Management’s website, the company recently acquired Heartland Technology Partners (HTP), a company that offers mobile evaporation/condensation treatment unit s. More information about HTP is available at: http://www.heartlandtechnologypartners.com/

. 8 According to Bosque’s website, they are active in the Permian Basin and Barnett, Eagle Ford, Fayetteville, and Bakken shale plays. More information about Bosque is available at: http://www.bosquesyst ems.com/index

- 2.html

. 9 Ozone wastewater treatment oxidizes pollutants in wastewater so they can be filtered.Meeting Summary Page 10 of 12

DCN SGE0027 6 XTO also estimated that the Pennsylvania POTWs they sent wastewater to in the past charged approximately [CBI redacted] to [CBI redacted] per barrel.Meeting Summary Page 11 of 12

DCN SGE00276 Attachment 1

Table A

- 1. List of Meeting Participants

Name Affiliation Phone Email

Joe Cardenas XTO Energy 817

- 885

- 1225 Joe_Cardenas@xtoenergy.com

Robert M. Nolan ExxonMobil 202

- 862

- 2003 Robert.m.nolan@exxonmobile.com

Paul Krishna XTO Energy 817

- 885

- 1171 Paul_krishna@xtoenergy.com

Lisa Biddle US EPA 202

- 566

- 0350 Biddle.Lisa@epamail.epa.gov

Erik Helm US EPA 202

- 566

- 1049 Helm.Erik@epa.gov
Brian D’Amico US EPA 202

- 566

- 1069 Damico.Brian@epa.gov Ahmar Siddiqui US EPA 202

- 566

- 1044 Siddiqui.ahmar@Epa.gov

Tom Born US EPA 202

- 566

- 1001 Born.thomas@Epa.gov Pooja Parikh US EPA 202

- 564

- 0839 Parikh.pooja@Epa.gov Meghan Camp ERG 703

- 633

- 1684 meghan.camp@erg.com

Brent Ruminski ERG 703

- 633

- 1701 brent.ruminski@erg.comMeeting Summary Page 12 of 12

DCN SGE0027 6 A TTACHMENT 2

Table A

- 2. Summary of Costs Provided by XTO

Process Cost Notes
Well Construction and Development

Well pad construction [CBI redacted] Includes excavation

.
Hydraulic fracturing (one stage) [CBI redacted] Cost to hydraulically fracture a single
stage

. Freshwater Acquisition

Municipal [CBI redacted] This price is from the City of Fort Worth,

TX.

Private property [CBI redacted]
Freshwater and Wastewater Storage
Freshwater impoundment [CBI redacted] Hold between 50,000 and 60,000 barrels.

Fresh Water and Flowback Storage [CBI redacted] Rental cost for 500 barrel fracturing
tanks.
Temporary piping (10 inch aluminum) [CBI redacted] Total cost to rent temporary piping for a fracturing job over a few weeks.

Wastewater Treatment

Onsite treatment for reuse [CBI redacted] This treatment includes filtration, electro coagulation, or ozone. It includes bacteria, TSS, and select ion removal.

UIC in TX [CBI redacted] Total cost for trucking and disposal of wastewater in Texas underground injection wells.

UIC in Ohio [CBI redacted] Total cost for trucking and disposal of Pennsylvania wastewater in Ohio injection wells.

Treatment at a POTW [CBI redacted]

Other General Costs

Return on investment [ CBI redacted] XTO estimated the “hur dl e rate” for projects.

Operating cost [CBI redacted] This is the operating cost at the project

level. This includes costs for staffing and
man hours for maintenance.

Trucking [CBI redacted] Each truck holds 130 barrels of fresh

water and 100 barrels of wastewater. This cost represents short trips such as from the producing well to underground injection well in Texas, w hich is usually
2 or 3 miles.