PESAAnnualMeetingOutlook for DomesticUnconventional ResourcesOctober, 2012Boerne, Texas2CHARACTERISTICS OF THE SAMPLECOMPANY TYPEMAJOR, MULTINATIONAL12%LARGEINDEPENDENT41%MEDIUM/ SMALLINDEPENDENT43%NOC/ STATEOWNED4%PERCENT OF TOTAL SAMPLETOTAL RESPONDENTS:205COMPANY LOCATIONU.S. LAND = 70%CANADA= 11%INTERNATIONAL = 19%Welling & Company2012 Hydraulic Fracturing ReportJuly, 20123ANTICIPATED HYDRAULIC FRACTURING ACTIVITY2012 AND 2013 – BY SELECTED U.S. REGIONS0 50 100 150EAGLE FORDPERMIAN BASIN (W. TX / NM)BARNETT SHALEEAST TX/ HAYNESVILLEMARCELLUS/ UTICA SHALESOKLAHOMA/ KANSAS/ MID CONTINENTWILLISTON BASIN & BAKKEN SHALEROCKIES COMBINED97.5103.4123.348.671.494.0106.767.6109.1122.3123.381.7121.2123.280.820122013AVERAGE NUMBER OF WELLS TO FRAC PER COMPANYWelling & Company%CHANGE11.9%18.3%0.0%‐9.5%14.4%28.9%15.5%19.5%4EXPECTED TREND IN FRAC ACTIVITY2014/2015 vs. 2012/2013________________________________________________________________36%30%7%70%20%58%37%3%0%20%40%60%80%U.S. LAND TOTAL CANADA INTERNATIONALEXPECT INCREASENO CHANGEEXPECT DECREASEPERCENT OF TOTAL SAMPLENETUP 7.4%UP 11.4%UP 32.8%Welling & Company5EXPECTED TREND IN FRAC ACTIVITY2014/2015 vs. 2012/2013________________________________________________________________0%25%50%75%100%TOTAL SAMPLE MAJORS LARGEINDEPENDENTSMED/ SMALLINDEPENDENTSNOCS46%50%43%44%86%30%29%33%31%14%5%7%4%5%EXPECT INCREASENO CHANGEEXPECT DECREASEPERCENT OF TOTAL SAMPLENET +15.5%+9.6%+12.6%+12.5%+62.8%Welling & Company6EXPECTED TREND IN FRAC ACTIVITY (2014/2015 vs. 2012/2013)NET INCREASE/DECREASE BY SELECTED U.S. REGIONS_____________________________________________________________________0% 10% 20% 30%EAGLE FORD SHALEHAYNESVILLE + FAYETTEVILLEMARCELLUS/ UTICA SHALEMID-CONTINENTPERMIAN BASINROCKIESWILLISTON/ BAKKENGULF COASTBARNETT SHALE5.8%1.2%14.0%22.8%13.8%10.7%7.0%10.0%8.4%NET PERCENT CHANGEWelling & Company7AVERAGE PER WELL EXPENDITURES FOR WELL FRAC SERVICESBY COMPANY TYPE AND FOCUS______________________________________________________________________$1.0$2.0$3.0$4.0$5.0 MAJORS LARGE INDY MED/ SMALL INDY NOC U.S. LAND CANADA INTERNATIONAL2.022.171.763.332.012.032.03AVERAGE EXPENDITURE PER MARKET SEGMENT (IN MILLIONS OF DOLLARS,)Welling & CompanyWelling&Company8OIL/ GAS PRICE POINTS USED IN ACTIVITY PLANNINGPOINT AT WHICH FRAC PROJECTS BECOME COMMERCIALLY VIABLE____________________________________________________________________________$0.00$25.00$50.00$75.00$100.00OIL PRICE (PER BARREL) GAS PRICE (PER MCF)$76.75$4.87$71.67$5.75$78.85$4.94$76.63$4.53$70.00$6.00$75.82$4.27$87.00$6.57TOTAL SAMPLEMAJORSLARGE INDMED/ SMALL INDNOCN. AMERICAINTERNATIONALAVERAGE PRICING LEVEL USED (IN US $)9SHARE OF FRAC JOBS TARGETING OIL OR GAS___________________________________________________________OIL54%GAS LIQUIDS/CONDENSATE25%DRY GAS21%PERCENT OF FRAC JOBS(2010 SURVEY IN RED)NORTH AMERICA INTERNATIONALWelling & CompanyOIL19%GAS LIQUIDS/CONDENSATE43%DRY GAS38%(33%)10INTENDED PURPOSE OF FRAC JOBSNEW COMPLETIONS vs RE-FRAC EXISTING WELLS___________________________________________________________NEWCOMPLETIONS89%RE-FRACEXISTINGZONES11%AVERAGE SHARE OF FRACJOBS PER COMPANY2012 2013Welling & CompanyNEWCOMPLETIONS90%RE-FRACEXISTINGZONES10%11SHARE OF FRAC JOBS TARGETING SELECTED FORMATIONS___________________________________________________________SHALES59%CARBONATES17%CONSOLIDATEDSANDSTONES18%TIGHT GAS4%COAL BEDMETHANE<1%OTHER2%PERCENT OF FRAC JOBS BY SELECTED TARGET FORMATIONS(2010 SURVEY IN RED)Welling & CompanyNORTH AMERICA SAMPLEINTERNATIONAL SAMPLESHALES22%CARBONATES11%CONSOLIDATEDSANDSTONES35%TIGHT GAS23%COAL BEDMETHANE9%(57%)(18%)(2%)(15%)(53%)(6%)(2%)(18%)(11%)(10%)12OPTIMAL SPACING BETWEEN LATERALS___________________________________________________0%10%20%30%40%200 FEET ORLESS201 TO 500FEET501 TO 750FEET751 TO 1,000FEET1,001 TO 2,000FEETOVER 2,000FEET10%19%25%27%18%1%PERCENT OF TOTALWelling & CompanyAVERAGE = 815 Feet13SHARE OF FRAC JOBS NOT MEETING PERFORMANCE EXPECTATIONS0% 10% 20% 30% 40% 50%TOTAL SAMPLEBARNETT SHALEMID-CONTINENTGULF COASTROCKIESWILLISTON/ BAKKENMARCELLUS/ UTICA SHALEPERMIAN BASINEAGLE FORD SHALEHAYNESVILLE + FAYETTEVILLECANADAINTERNATIONAL24%47%35%33%32%30%25%22%21%21%19%19%PERCENT OF TOTAL SAMPLE(2010 SURVEY IN RED)Welling & Company(24%)14ROOT CAUSE OF FRAC JOBS NOT MEETING PERFORMANCE EXPECTATIONS0% 20% 40% 60% 80%FAILURE TO UNDERSTANDSUBSURFACEPOOR FRAC DESIGNDOWNHOLE EQUIPMENT/TOOLSINEXPERIENCED CREWS /HUMAN ERRORSURFACE EQUIPMENTGEL NOT BROKEN UP73%18%14%13%12%1%PERCENT OF SAMPLE WITH JOBS NOT MEETING EXPECTATIONSWelling & Company15PRIMARY FOCUS OF RESERVOIR CHARACTERIZATIONBY SELECTED REGIONSPERCENT OF TOTAL SAMPLEWelling & Company0% 25% 50% 75% 100%CONVENTIONAL CLASTICSUNCONVENTIONAL SHALESCARBONATESTIGHT GAS SANDSHEAVY OIL15%73%15%14%52%27%28%3%15%93%11%US LANDINTERNATIONAL LANDOFFSHORE2013ReservoirCharacterizationreport16SHARE OF GEOSCIENCE GROUP’S TIME SPENT ON SELECTED TASKS-LAND SAMPLEDATA GATHERING/LOADING/ QC/ DATAMANAGEMENT17%LOG EDITING8%SEISMIC GATHERCONDITIONING7%WELL TO SEISMICDATA CALIBRATION8%PETROPHYSICAL/ROCK PHYSICSANALYSIS11%SEISMIC INVERSION,ATTRIBUTECALCULATIONS11%SEISMIC TO ROCKPROPERTY VOLUMECREATION6%RESERVOIRMODELING OFSTRUCTURALCOMPONENTS7%GEOSTATISTICSFOR SPATIALMODELING OFSPARSE DATA5%SEDIMENTOLOGY &FACIES MAPPING8%RESERVOIRMODELING OFROCK PROPERTIES7%RESERVOIRMODELING OFFLUID PROPERTIES5%AVERAGE SHARE OF TIMEWelling & CompanyAVERAGENUMBEROFMONTHSREQUIREDTOCOMPLETEINITIALCHARACTERIZATIONONTYPICALRESERVOIR:5.4MONTHSSHAREOFPROJECTSTHATREACHTHESTAGEOFSIMULATIONANDHISTORYMATCHING:53%2013ReservoirCharacterizationreport17AGREEMENT WITH SELECTED STATEMENTS“MY HYDRAULIC FRACTURING PROJECTS DO NOT REQUIRE A HIGH DEGREE OF SPECIALIZEDEXPERTISE. ALL I REQUIRE IS RELIABLE HORSEPOWER”-100% -75% -50% -25% 0% 25% 50% 75%TOTAL SAMPLEMAJORSLARGE INDYMED/ SMALL INDYNOCUS LANDCANADAINTERNATIONAL-62%-63%-57%-65%-67%-49%-57%-87%29%31%28%29%17%40%29%5%TEND TO DISAGREETEND TO AGREEPERCENT OF TOTAL SAMPLEWelling & Company18MOST IMPORTANT TECHNOLOGY DEVELOPMENTSFOR FRAC SUPPLIERS TO FOCUS ON GOING FORWARD0% 10% 20% 30% 40% 50%MULTI-STAGE FRACTECHNIQUESENVIRONMENTALLY FRIENDLYFLUIDSEQUIPMENT QUALITY/RELIABILITYWATER MANAGEMENT &TREATMENTFRAC SIMULATION ANDMODELINGFRACTURE MAPPINGTECHNOLOGIESWATERLESS FRACTECHNOLOGIESPROPPANT ISSUES44%41%40%40%27%24%18%12%PERCENT OF TOTAL SAMPLE (MULTIPLE RESPONSES ALLOWED)Welling & Company19SHARE OF JOBS TO USE OF MULTI-ZONE FRACTURING0% 25% 50% 75% 100%TOTAL SAMPLEWILLISTON/ BAKKENMARCELLUS/ UTICA SHALEBARNETT SHALEROCKIESEAGLE FORD SHALEMID-CONTINENTHAYNESVILLE + FAYETTEVILLEPERMIAN BASINGULF COASTCANADAINTERNATIONAL84%99%98%97%95%93%91%91%83%73%96%47%PERCENT OF TOTAL SAMPLE(2010 SURVEY IN RED)(IFUSING)TYPICALNUMBEROFSTAGESPERWELL13.4(8.27)24.413.010.013.016.012.513.614.110.914.77.8Welling & Company20TREND IN AVERAGE NUMBER OF FRAC STAGES PER WELLEXPECTING INCREASE OR DECREASE OVER NEXT 2-3 YEARSEXPECTINCREASE31%EXPECTDECREASE4%NO CHANGE65%PERCENT OF SAMPLE USING MULTI-STAGE FRACTURINGREASONS FOR INCREASELONGER LATERALS – 50%SHORTER FRAC INTERVALS – 31%TECHNOLOGY ADVANCES – 14%INCREASED RECOVERY – 7%ECONOMICS – 2%OTHER – 7%REASONS FOR DECREASECOST/ ECONOMICS– 80%INCREASED RECOVERY – 20%Welling & Company21PREFERRED METHOD FOR MULTI-ZONE FRACTURING0% 25% 50% 75% 100%PLUG AND PERFGRADUATED BALL DROP SYSTEMSLIDING SLEEVE SOLUTIONSBALLS AND BAFFLESC-T W/ JETTING TOOL(WITHOUT PACKER)C-T W/ JETTING TOOL (WITH PACKER)BALL SEALERS/ BIO-BALLS83%15%10%7%7%6%2%82%16%13%7%5%2%2%CURRENT METHODFUTURE METHODPERCENT OF USING MULTI-ZONE FRACTURINGWelling & Company22IMPORTANCE PLACED ON ENVIRONMENTALLY FRIENDLY FLUIDSWHEN SELECTING A FRAC SERVICE SUPPLIER_____________________________________________________________________0% 25% 50% 75% 100%TOTAL SAMPLEHAYNESVILLE + FAYETTEVILLEEAGLE FORD SHALEGULF COASTROCKIESMARCELLUS / UTICA SHALEPERMIAN BASINMID-CONTINENTWILLISTON/ BAKKENBARNETT SHALECANADAINTERNATIONAL23%29%24%17%10%8%8%20%42%40%29%41%50%10%33%17%64%33%40%47%47%30%29%24%33%60%59%50%18%50%40%33%11%7%13%11%20%25%18%17%20%MUST HAVEMAJOR FACTORSOMEWHAT IMPORTANTNOT IMPORTANTPERCENT OF RESPECTIVE SAMPLESWelling & Company23SHARE OF FRAC JOBS RUNNING POST-JOB PERFORMANCE EVALUATION0% 25% 50% 75% 100%TOTAL SAMPLEMARCELLUS/ UTICA SHALEROCKIESHAYNESVILLE + FAYETTEVILLEWILLISTON/ BAKKENPERMIAN BASINMID-CONTINENTGULF COASTEAGLE FORD SHALEBARNETT SHALECANADAINTERNATIONAL47%69%53%50%42%39%33%33%32%30%18%78%PERCENT OF TOTAL SAMPLEWelling & Company24POST-JOB PERFORMANCE EVALUATION TESTS TYPICALLY RUN0% 20% 40% 60% 80%PRODUCTION LOGSSURFACE FLOWMEASUREMENTTRACERSFRACTURE HEIGHT LOGMASS BALANCEMICROSEISMICPRESURE ANALYSIS63%40%37%12%12%4%3%PERCENT OF SAMPLE RUNNING POST-JOB EVALUATIONS(2010 SURVEY IN RED)Welling & Company(60%)(6%)(9%)(33%)(24%)25SHARE OF WELLS UTILIZING PAD FRACTURINGCURRENT USE AND EXPECTED USE OVER NEXT 2-3 YEARS0% 25% 50% 75% 100%TOTAL SAMPLEMARCELLUS/ UTICA SHALEEAGLE FORD SHALEHAYNESVILLE + FAYETTEVILLEWILLISTON/ BAKKENROCKIESMID-CONTINENTBARNETT SHALEGULF COASTPERMIAN BASINCANADAINTERNATIONAL43%57%53%41%38%34%34%21%15%9%75%23%44%71%58%45%52%47%42%16%10%18%75%24%CURRENT USEFUTURE USEAVERAGE SHARE OF WELLS PER COMPANYWelling & Company26VALUE SEEN IN USING NATURAL GAS TO POWER FRAC EQUIPMENT___________________________________________________________GREAT31%MODERATE31%SLIGHT NOREALVALUE10%NO REALVALUE28%PERCENT OF TOTAL SAMPLEWelling & CompanyPERCEIVED VALUEYES38%MAYBE36%NO26%WILLING TO PAY MORE FORNATURAL GAS POWERED FLEETWATER ISSUES_______________________________2728“ARE YOU EXPERIENCING PROBLEMS GAINING ACCESS TO WATERFOR YOUR FRAC OPERATIONS?”___________________________________________________________________________________0% 20% 40% 60% 80% 100%TOTAL SAMPLEMARCELLUS/ UTICA SHALEEAGLE FORD SHALEHAYNESVILLE + FAYETTEVILLEWILLISTON/ BAKKENROCKIESMID-CONTINENTBARNETT SHALEGULF COASTPERMIAN BASINCANADAINTERNATIONAL18%17%16%20%15%12%9%43%29%19%21%23%33%32%12%30%35%26%57%27%24%38%16%59%50%52%68%55%53%65%73%47%43%63%YESIN SOME CASES/ AREASNO PROBLEMSPERCENT OF TOTAL SAMPLEWelling & Company29REGULATORY TRENDS RELATED TO WATER ISSUES“What trends concern you most?”0% 10% 20% 30%EPA/ GOVERNMENTINTRUSIONDISPOSALLOCAL AVAILABILITY/ACCESSUSAGE LIMITS/ALLOCATIONSTRUCKING/ TRANSPORTRE-USE/ RECYCLINGFLOWBACK TREATMENTPERMITTINGNO USE OF FRESHWATERCOST22%22%22%14%11%10%9%7%7%5%PERCENT OF TOTAL SAMPLEWelling & Company30TECHNOLOGIES SUPPLIERS SHOULD FURTHER DEVELOPTO HELP MEET OPERATIONAL REQUIREMENTS GOING FORWARD0% 25% 50% 75%RECYCLING OFFLOWBACK WATERABILITY TO USEWASTEWATERTECHNOLOGIES TOREDUCE WATERUSAGEWATER-FREEALTERNATIVES65%36%31%24%PERCENT OF TOTAL SAMPLEWelling & Company31TYPICAL WATER SOURCE FOR FRAC OPERATIONS0% 20% 40% 60%SURFACE WATERSOURCESUBSURFACE WATERWELLCITY/ MUNICIPALSOURCERECYCLED WATERFROM OPERATIONSINDUSTRIALWASTEWATER SOURCE34%40%17%9%1%40%36%16%7%1%13%51%19%15%3%TOTAL SAMPLENORTH AMERICAINTERNATIONALSHARE OF WATER USE BY SOURCEWelling & Company32AVERAGE TOTAL WATER CONSUMPTIONPER WELL___________________________________________________0%10%20%30%LESS THAN1 MILLIONGALLONS1.0 TO 2.0MILLIONGALLONS2.1 TO 3.0MILLIONGALLONS3.1 TO 4.0MILLIONGALLONS4.1 TO 5.0MILLIONGALLONS5.1 TO 6.0MILLIONGALLONS6.1 TO 8.0MILLIONGALLONSOVER 8MILLIONGALLONS8%22%19%12%13%12%9%5%PERCENT OF TOTALWelling & CompanyMEDIAN TOTAL WATER CONSUMPTION:3,150,000 GALLONSREPORTED HIGH: 10.5 MILLION GALS33AVERAGE WATER COST PER BARREL___________________________________________________0%10%20%30%25 CENTSOR LESS26 TO 50CENTS51 CENTSTO $1.00$1.01 TO$2.00$2.01 TO$3.00$3.01 TO$5.00OVER $5.0018%22%17%15%15%9%4%AVERAGE PER COMPANYWelling & CompanyAVERAGE WATER COST PER BBL:TOTAL SAMPLE = $1.66U.S. LAND = $1.55INTERNATIONAL = $1.7534FLOWBACK WATERSHARE OF FLOWBACK WATER RECYCLED FOR REUSE vs DISPOSED___________________________________________________________________________________0% 20% 40% 60% 80% 100%TOTAL SAMPLEMARCELLUS/ UTICA SHALEHAYNESVILLE + FAYETTEVILLEMID-CONTINENTEAGLE FORD SHALEROCKIESBARNETT SHALEGULF COASTPERMIAN BASINWILLISTON/ BAKKENCANADAINTERNATIONAL23%74%30%25%16%14%13%10%7%5%22%15%77%26%70%75%84%86%87%90%93%95%78%85%RECYCLEDDISPOSEDPERCENT OF FLOWBACK WATER PER COMPANYWelling & Company35METHOD OF RECYCLING WATERPERCENT OF SAMPLE RECYCLING WATERWelling & CompanyFILTERSOLIDS ONLY54%ADDITIONALTREATMENTREQUIRED46%36EXPECTING TO INCREASE USE OF RECYCLED WATER FOR FRAC OPERATIONSDURING NEXT 2-3 YEARS___________________________________________________________________________________0% 20% 40% 60% 80% 100%TOTAL SAMPLEMARCELLUS/ UTICA SHALEHAYNESVILLE + FAYETTEVILLEMID-CONTINENTEAGLE FORD SHALEROCKIESBARNETT SHALEGULF COASTPERMIAN BASINWILLISTON/ BAKKENCANADAINTERNATIONAL55%50%67%68%60%100%86%100%67%56%58%26%12%5%8%10%31%16%21%20%32%21%16%20%14%9%21%32%13%13%4%16%10%24%13%5%21%YESMAYBENODON'T KNOWPERCENT OF TOTAL SAMPLEWelling & Company37RECYCLING & DISPOSAL OF FLOWBACK WATERAVERAGE COST PER BARREL___________________________________________________0%10%20%30%40%$1.00 OR LESS $1.01 TO $2.00 $2.01TO $3.00 $3.01 TO$5.00 OVER $5.0021%23%23%23%9%17%35%17%21%10%RECYCLING COSTDISPOSAL COSTPERCENT OF TOTAL SAMPLEWelling & CompanyMEDIAN RECYCLING COSTPER BBL: $2.50MEDIAN DISPOSAL COST PER BBL: $2.0038“ARE YOU ANTICIPATING ANY PROBLEMS WITH ONGOING ACCESS TODISPOSAL WELLS IN THE AREAS WHERE YOU ARE DRILLING?”___________________________________________________________________________________0% 20% 40% 60% 80% 100%TOTAL SAMPLEBARNETT SHALEMARCELLUS/ UTICA SHALEPERMIAN BASINEAGLE FORD SHALEROCKIESMID-CONTINENTGULF COASTWILLISTON/ BAKKENHAYNESVILLE + FAYETTEVILLECANADAINTERNATIONAL22%71%50%43%33%25%25%22%21%20%10%11%10%9%19%4%25%5%21%8%19%6%68%29%41%38%63%50%70%78%58%72%71%83%YESIN SOME CASES/ AREASNO PROBLEMSPERCENT OF TOTAL SAMPLEWelling & Company39ACTIONS TAKEN TO ADDRESS SHORTAGE OF DISPOSAL WELLS0% 20% 40% 60%DRILL OUR OWN WELLSRECYCLING OPTIONSTRUCK OUTUNDER EVALUATION46%34%16%12%PERCENT OF SAMPLE WITH ANTICIPATED SHORTAGE OF DISPOSAL WELLSWelling & Company40APPROACH TO WATER TREATMENT MOST LIKELY TO PURSUE0% 25% 50% 75%WILL USE 3RD PARTYTECHNOLOGYPROVIDERPERFORM WATERTREATMENT IN HOUSEWILL LOOK TOSERVICE COMPANY/FRAC PROVIDER63%36%27%PERCENT OF TOTAL SAMPLEWelling & Company41PREFERENCE FOR SINGLE INTEGRATED SUPPLIERSFOR WATER TRANSPORT, STORAGE AND TREATMENT________________________________________________________________0%25%50%75%100%TOTAL SAMPLE MAJORS LARGEINDEPENDENTSMED/ SMALLINDEPENDENTS47%73%45%46%53%27%55%54%PREFER SINGLE INTEGRATED SUPPLIERPREFER SEPARATE SUPPLIERSPERCENT OF TOTAL SAMPLEWelling & CompanyOverallTrend&FutureisPositivePotentialRiskstoMonitor•Regulatory(airemissions&water)•Economy(particularlyifoilpricesdipbelow$75)AdvancesinTechnologytoMonitor•SlidingSleeves•Waterrecycling•Frac techniques•SubsurfacecharacterizationandunderstandingQuestions?