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# Water Management for Shale Plays
An Overview of the Niobrara Shale

Don Warlick

– Warlick Energy/Houston

Infocast 3 rd 

## Water Management for Shale Plays Conference Pittsburgh

– October 29, 2012 

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### About Warlick Energy

An oil & gas intelligence firm in based in Houston with special experience in Unconventional Resources

– has served the E&P, oilfield services & manufacturing and financial sectors since 1976

Two practice areas:

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- Market Research

-- Market studies involving new product potential, technology reviews, competitor analyses, market audit, acquisition search and evaluation, perception of image and performance, market forecasts, litigation support.

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- Unconventional Resource Reports

-- Warlick publishes a series of proprietary reports addressing unconventional oil & gas in North America.

More: www.WarlickEnergy.com

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### Leading US Unconventional Shales in 2012

– Wet Plays in Green

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### Focusing on the Niobrara

 A shale formation in NE Colorado, SW Wyoming, SW Nebraska and NW Kansas

 The DJ basin a significant part of the Niobrara, most significant drilling activity

 USGS estimates technically recoverable undiscovered continuous resources at 227 million barrels of oil, 13 million barrels of NGL and 227 BCF of natural gas

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### Describing the Niobrara

 Niobrara geology is characterized by high porosity and low permeability

 Interbedded chalk a favorable reservoir medium that’s often naturally fractured; chalk sections enhance porosity and ability to be fractured

 The DJ basin accounts for most of Niobrara, in Colorado with most active areas of play in Weld and Yuma Counties

 Richest source rocks will have total organic carbon content ranging from 3% - 8%

 Wattenberg area of the DJ basin a somewhat shallow Niobrara play north of Denver with a significant natural gas deposit which may go to 7,000 feet

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### Describing the Niobrara...more

 Significant share of activity in Colorado with more than 80% of Niobrara drilling

 A diverse play with drilling depths from 5,500

– 7,500 feet mostly in DJ basin

 Horizontal laterals currently averaging 4,000

– 5,000 feet, and will be extending

 Completion costs will range from $4 million to $6 million, average = $5.2 million

 Hydraulic fracturing a significant share, up to $2 million per HZ well

 IP rates for DJ basin well can go from 600

– 1,600 BOEPD, 800 may be average

 EURs = 300

– 400 MBOE, so a minimum you are at say $80/barrel ~ $24 million

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### Most Active Niobrara Players
Noble Energy drilling about 30% of all Niobrara wells today

 Has 440,000 net acres and production exceeding 70 MBOED

 A huge 2012 capex investment here exceeding $1 billion

 They have water and sand resources plus dedicated frac spreads

 Focused on Wattenberg with drilling and completion costs ~ $7
- $8 million

 Typical 30 - day IP’s ~ 600 BOED, 85% liquids

 EURs are in the area of 310 MBOE

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### Most Active Niobrara Players . . . more
Bonanza Creek Energy an active driller, may account for ~ 20% of Niobrara drilling

 Drilled 68 Wells last year, mostly vertical

 This year they plan ~ 120 Wells

 About 92 are vertical at slightly over $1 million each

 The balance are horizontals costing more than $4 million each

 Essentially all their activity in the Wattenberg

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### Most Active Niobrara Players . . . still more
Anadarko Petroleum could drill up to 15% of Niobrara wells this year, more growth coming

 Holds significant leasehold position in Wattenberg with primarily land - grant mineral fee acreage north of Wattenberg and into southern Wyoming

 Thereby a heavy concentration on Wattenberg horizontals, with plans for 160 wells during 2012 compared to just 40 last year

 Sales mix = 60% oil, 10% NGL, 30% natural gas; recent IEP’s around 800 BOED

 Average well cost $4.5 million

Rounding out the balance of the Niobrara there are ~ 25 operators of record, several of consequence including Devon, Whiting, EOG, Marathon, ConocoPhillips, Chesapeake with its CNOOC JV... and now Shell.

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### Drilling in the Niobrara

 Crude and liquids are the big drivers in the Niobrara, lending attractive economics

 Our forecast basis assumes continuing investment and dedication to increased drilling by Noble, Anadarko and Bonanza... EOG , ConocoPhillips, Marathon can help

10 0 200 400 600 800 1,000 1,200

2010 2011 2012 2013 2014 2015 Wells Drilled in the Niobrara Shale

High Case Mid Case Low Case

### Recent Niobrara Deals/Activity in 2012
Carrizo Oil & Gas entered a JV with two India

- based energy companies

 The deal is part of Carrizo's plan to monetize some dry gas assets and instead focus on its liquids resources.

 OIL and Indian Oil Corp. have acquired an undivided 30% non

- operated interest in substantially all of Carrizo's assets and operations prospective for Niobrara Formation oil development in Weld and Adams Counties , Colorado for ~$ 82.5 million

Quicksilver, Shell enter into a JV

 They will jointly develop their Niobrara oil and gas interests in the Sand Wash Basin in northwest Colorado. Closing is expected before year

- end 2012.

 The deal involves 850,000 acres with each company retaining a 50% WI in ~330,000 acres, retaining a right to a 50% interest in any acquisition within the area.

 Shell will be the operator of the majority of the JV

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### Recent Niobrara Deals/Activity in 2012 . . . more
DCP Midstream to double Denver

- Julesburg capacity

 They recently began construction on their 110

- MMCFD LaSalle gas plant in Weld County, CO

 In addition they are building two compressor stations to complement the facility, which should be in service by 2H 2013

. Noble Energy announces plans to spend $8 billion in the Niobrara

 Houston

- based Noble Energy Inc. announced plans to invest $8 billion in its Colorado investments over the next 5 years, developing Niobrara wells.

 They expanded their holdings to 880,000 acres, now experimenting with increasing well density

 They plan to spend ~ $ 1.3 billion in Colorado in 2012.

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### What’s Important in Water Management

 Technology must be effective, satisfying all protocols imposed by oversight and regulatory entities (vendors’ oilfield history a plus)

 Quality of disposed/released volumes should be equal to or better than standards set
for all volume releases into streams

 Re - use of treated water is much more important since earlier Marcellus upsets

 Costs must be reasonable, especially in light of growing water volumes

 Oil & gas companies are concerned about vendors taking responsibility for handling and being responsible for volume treatment, recycling, disposal.

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### Water/Fluids Management for the Life of the Well

 We estimate that 520 to 690 shale wells will be drilled this year in the Niobrara

 By the end of2012 the Niobrara is estimated to have the following number of wells Shale Wells 1,156 Conventional, Other 8,798 Total 9,954

 Two opportunities for equipment , chemicals and services in the shales:

- Those used in the drilling & completion process in managing frac flowback plus related fluids (such as drilling fluids, etc.)

- Those required for long

- term production & maintenance, largely involved with managing produced water

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### Water/Fluids Management for the Life of the Well...more

 Flowback and drilling fluids in shale well completions

- Today’s hydraulic fracturing of shale wells call for 2

- 4 million gallons of water per well

- In most of the plays the frac flowback is the volume of returned water, chemicals, proppant that comes back up the wellbore

- Typical frac flowback volumes can be at least 25% of frac fluid volumes

- e.g. a shale well with 4 million gallons on a frac job can have ~ 1 million gallons in flowback

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 Produced water and fluids

- Over a 25

- year lifetime a typical US gas shale well can have 4 million gallons of produced fluids while a typical oil well averages ~ 18 million gallons

- In many older US wells the water:oil production ratio can be > 50:1

- Principal constituents of produced fluids can include salt/brine, oil and grease (a measure of organic chemical compounds), various natural inorganic and organic compounds and naturally occurring radioactive materials or NORM.

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### Markets for Services in the Niobrara

 The top 7 US liquids
- rich shales will account for more than $54 billion in all types of oilfield services expenditures this year

 Of that total we estimate $1.3 to $1.7 billion is for Engineering & Environmental plus Water Management equipment and services

 The Niobrara’s share could be as high as $275 million.
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### Niobrara Summary

 Remember...we are talking Colorado where there is more focused oversight and environmental concern which is characteristic of the Rocky Mountain states

 As in the other shales, the EPA, State entities, regional and water
- focused organizations will continue to oversee water management issues

 Thereby, the operators will be more careful, will also depend on water management and environmental service companies for guidance

 The Niobrara now has significant momentum provided by shale play leaders like Noble, Anadarko, Bonanza Creek and a few others. There is also more support to development via new entries by companies like Shell, etc.

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### End of Presentation 

# Water Management for Shale Plays
An Overview of the Niobrara Shale

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