## Quantifying The Total Costs Of Recycling Water In Tight Oil Plays To Determine How A Treatment Program Will Affect Overall Well Economics Phil Winner, President, Layne Energy Services 12 

# ACKNOWLEDGEMENTS

• Layne Christensen Corp • Our clients • Ken Carlson, Colorado State University (Colorado Energy Water Consortium) • George Kast , Produced Water Solutions • Zane Meekins, Cawley Gillespie and Associates • Jeanie Oudin, Wood Mackenzie • Jim Raney, Anadarko • John Seidle, MHA Petroleum Consultants

# WHAT SUCCESS LOOKS LIKE

34 

# OVERVIEW Oil and Gas Prices Gas $/ Mcf Oil $/

Bbl 2008 Economic crash
2011 Shale gas crash

2008 Economic crash 2011 Shale gas crash Unconventional oil Unconventional gas Conventional oil Conventional gas Unconventional oil has the most activity AND uses the 5-10x the water as vertical wells!5 Finance Plant Construction HR Sustainability Safety Diamond Core Drilling Legal Marketing Ground Stabilization IT Pipeline Rehabilitation
5 

# OVERVIEW Unconventional oil playsFinance Plant Construction HR Sustainability Safety Diamond Core Drilling Legal Marketing Ground Stabilization IT Pipeline Rehabilitation
6 

# OVERVIEW

And so these men of Hindustan Disputed loud and long, Each in his own opinion Exceeding stiff and strong, Though each was partly in the right And all were in the wrongFinance Plant Construction HR Sustainability Safety Diamond Core Drilling Legal Marketing Ground Stabilization IT Pipeline Rehabilitation
7 

# OVERVIEW

• Requires focus on full cycle economics of water. Sourcing to disposal, “cradle to grave.” • Goals: Add value in two ways... • Tangible: Cost saving adds monetary value, • Intangible: Increase sustainability, become “operator of choice,“ maintain public trust. • Trends in controlling water costs: • Increased interest in fracking with formation (produced) water. • Lowers initial cost, lowers treatment cost, minimizes formation damage. • Ability to cross-link relatively high-salinity brines. • Logistics optimization: Reduces trucking and local impact.

# E&P WATER CYCLE

8 Courtesy of Jim Raney, 2012 Anadarko Director, Engineering Global Engineering & Technology, with permission Chairman, API Committee for the Standardization of Oilfield Equipment and Materials (CSOEM) Transfer
Treatment

# INTEGRATED SOLUTIONS

9 

## SOURCING • Hydrology and new wells • Collector wells • Recycled water

# INTEGRATED SOLUTIONS

10 

## TRANSFER • Temporary: Rapid deployment flat hose, high volume, low impact • Permanent: Buried steel or poly pipe

# INTEGRATED SOLUTIONS

11 

## • TREATMENT • Mobile and scalable • Oil/water separation • Filtration • Chemical treatment, biocides • Distillation, evaporation

# UNCONVENTIONAL OIL

12 Source: Used with permission from J.Oudin, Wood Mackenzie, Water Management for Shale Plays Rockies: Home to two major unconventional oil plays: • Bakken • Niobrara Integrated water management: What is the “size of the prize?”

# BAKKEN EXAMPLE

13 Historically, drilling economics focused primarily on forecasts (“decline curve”) of oil and/or gas rate. Why the interest in water? • Hz wells use 5-10x more water than vertical wells, • Most wells now are Hz wells, and • High oil prices have increased and intensified activity. Source: with permission from J. Seidle, MHA Petroleum consultants, 2012: Economics of Selected US Shales http://copascolorado.org/assets/files/education/ED12-EandP.pdf14 

# WATER LIFE CYCLE WATER LIFE CYCLE

Frac water Bbls water/month

Months 

## Approach: apply decline curve economic analysis to evaluate water cost savings. Production data sources: NDIC (Bakken), K. Carlson, CSU, 2 nd Water Management for Shale Plays, Assessing specific shale plays-Niobrara Frac volume sources: J. Oudin, Wood Mackenzie Bakken Shale Water Management for Shale Plays, Niobrara: Western Resource Advocates . Water forecasts by Cawley, Gillespie, Associates. 

### WATER PRODUCTION
Produced water
About 30 years...

# WATER LIFE CYCLE

Niobrara forecast to dewater faster than Bakken • 50% of flowback water recovered in first 2 years • 70% of flowback water recovered in first 5 years 

### CUMULATIVE WATER PRODUCTION

Large change in water production over time impacts: • NPV of operating expenses • Facility requirements • Supplemental source requirements 15 Months16 

# WATER COST STRUCTURE

Source: Produced Water Solutions, George Kast

Source: http://www.spe.org/ogf/print/archives/2012/02/02_12_10_Feat_Water_Hydraulic.pdf Source: Used with permission from J.Oudin, Wood Mackenzie, Water Management for Shale Plays Explanation: Water Cost Structure • Capital investment: Frac Water (Source), direct impact on NPV • Expense (LOE): Produced water, expensed over life of well. Must be discounted to see NPV impact Source: Halliburton, N. Colorado Bus. Report 10/19/12

# COST SAVING SENSITIVITY Bakken savings per well NPV of total savings

Expense Reduction ($/ Bbl ) NPV of total savings

Expense Reduction ($/ Bbl ) Frac water cost = $272,000 (0% savings) Frac water cost = $136,000 (50% savings) Frac water cost = $0 (100% savings) Frac water cost = $163,000 (0% savings) Frac water cost = $81,500 (50% savings) Frac water cost = $0 (100% savings) Niobrara savings per well Assumes base case frac water cost of $1.63/ Bbl for 100 Mbw = $163,000 Assumes base case frac water cost of $3.80/ Bbl for 71.5 Mbw = $272,000

• Every 10 % cost reduction in frac water adds $27,000 of value • Every $1.00/ Bbl of water handling savings adds $50,000 of value • Every 10 % reduction in frac water costs adds $16,000 of value • Every $1.00/ Bbl of water handling savings adds $30,000 of value 17

# COST SAVING SENSITIVITY Annual Bakken savings (1,700 wells*) NPV of total savings

Expense Reduction ($/ Bbl ) NPV of total savings

Expense Reduction ($/ Bbl ) Frac water cost = $272,000 (0% savings) Frac water cost = $136,000 (50% savings) Frac water cost = $0 (100% savings) Frac water cost = $163,000 (0% savings) Frac water cost = $81,500 (50% savings) Frac water cost = $0 (100% savings)

Annual Niobrara savings (500 wells)

*Source: Used with permission from J.Oudin, Wood Mackenzie, Water Management for Shale Plays • Every 10 % cost reduction in frac water adds $47.5 MM of value • Every $1.00 / Bbl of water handling savings adds $100 MM of value • Every 10 % cost reduction in frac water adds $8 MM of value • Every $1.00 / Bbl of water handling savings adds $12 MM of value 18Finance Plant Construction HR Sustainability Safety Diamond Core Drilling Legal Marketing Ground Stabilization IT Pipeline Rehabilitation
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# SUMMARY AND CONCLUSIONS

• Significant value can be created by reducing water management costs. • Bakken: $200 MM – $300 MM in gross, un-risked annual savings. • Niobrara: $40-$50 MM in gross, un-risked annual savings. • Standards yet to be set for managing large volumes of water at lowest possible cost. • Integrated water management has best potential to provide lowest costs solution. • Best way to evaluate options and alternatives to optimize logistics. • Greatest economic benefit comes from reducing capital for frac water. • Well over half of total water handling costs in transportation. • Puts premium on transfer, storage, and pad drilling/logistics. • Safety and sustainability earns public trust and is key to sustaining long term operations.

# INTEGRATED SOLUTIONS

20 PHIL WINNER President, Layne Energy LAYNE | water + mineral + energy 1675 Broadway, Suite 2260 | Denver, CO | 80202 Office: 303-830-0757 x101 | Cell:303-884-3398 phil.winner@layne.com | layne.com 

### Transfer Treatment Sourcing