Political

---

Risk

Political

Economic

Technical

Above ground

Below ground

Political

•Most politically risky countries are the US and the UK •Rules change after the game has started •China and Russia- Avoid •Countries trump Companies (US/UN Sanctions eventually win- viz. Sudan, Western Sahara? )

Economic •Know your cost of capital- it is unlikely to be 10% •IRR not a great measure •Price- Peak Oil- Ye Old tank and Spigot •We do not use much condensate….. •Cost oilfield escalation is not correlated with RPI

Subsurface •(Commercial, new field) Exploration Risk is 1:20, not 1:6 •Another way of thinking about it. •Cost of Deepwater development is increasing…..esp off Africa? •Very deep water is at or beyond current technology •Shale gas requires lots of moosepasture

Why Are we Doing This ?: to increase the share price •Shareholder is rewarded by Share price growth: management should be also •Dividends signal growth slowing •Share price correlates with Reserves per Share/Production per Share (US) •Lottery ticket (UK)

Shale facts  US 40x area of the UK  20% of UK demand of 3.5 Tcf per year is 2bcf/day

Barnett

produces 5731 mmcf/d from 16,500 wells, +2457 permitted on 5000 sq. miles

Bakken produces 782,812 from 5312 wells, 6000 sq. miles, 191 rigs

Eagle Ford-8000 square miles, 3500 wells, 217 rigs  467,611 b/d oil 2694 oil wells  2 bcf/d, 72,000 b/d condensate- 955 gas wells  350 new wells per month….4643 permits 2012, 1480 1Q 2013

Typical Frac Sizes/Volume 5000 ft horizontal, 1000 tons proppant, up to 70,000 bbls of water (10,000 tons) +(biocide,(.01%),surfactant, friction reducer, clay stabilizer. 10 stages, cased, cemented, perfed Flowback about 30-40%-chemicals

It took George Mitchell 18 years to make it work,” notes Larry Brogdon, partner and chief geologist for Four Sevens Oil Company. “He is the father of the Barnett Shale. He was tenacious. He started in 1981 and it really didn’t take off until 1999. And even then, it took a long time to develop it.” “

Shale Points Unconventional exploits the source rather than conventional trap/source/seal Tight generally means low rate, previously uneconomic: “halo oil” Unlikely that the US shale exploitation conditions can be replicated elsewhere: Land owner gets royalty; wide open spaces; availability of drilling and fraccing equipment. Frac volumes are large. Well density is high, piloting takes 10 or so wells even to determine commerciality, Shale is a size classification, overpressure, Tmax appear to be gritical, thick is good. Requires brittleness- low Vclay, high organic content Economics a proxy for eroi. This is approaching breakeven. Much of the “new oil” in the US is either condensate (C5) of plant liquids: propane and butane

Well Density 80 - 120 acre spacing

What footprint would a 20 ac spacing give? Implications for drilling programs?

Cuadrilla 21-01-2013 Cuadrilla announces plans to hydraulically fracture well at Anna’s Road Cuadrilla has announced it plans to submit a planning application to Lancashire County Council to hydraulically fracture a well at its Anna’s Road site. Cuadrilla began to drill at the Anna’s Road site, and proposes to complete a vertical well with a horizontal extension there later this year, subject to planning approval. Before Cuadrilla submits the planning application to Lancashire County Council, the company would like to give residents living in the area around the site an opportunity to find out more about what is involved in the hydraulic fracturing and flow testing process.As part of this, Cuadrilla is holding a Public Information Day on Friday, 1st February, at

Balcombe protests: Policing antifracking demo cost £2.3m

Some Technical Points

Hot Shale Properties

Exponential

Hyperbolic

So What ?

EROI

34

Pilot Programs Provide Threshold Confidence  While it may take as many as 80 wells to determine what is

present,

12

10

EUR (Bcf/well)

8 6 4

2 0 0

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

# of Wells

BUT… That is NOT the purpose of a Pilot Program A Pilot Focuses on “Critical Learning”

The End

Conventional vs. Unconventional Chance and Uncertainty

Conventional Exploration Chance and Uncertainty

P10 P50 P90

< 100%

P(g) >0%

Zero Resource

Unconventional Uncertainty Volume

Production

100%

P(g)

Land Strategy 0%

Zero Resource

Cost

Drilling Learning Curve (Days)

Shamelessly lifted from Southwestern Energy Investor Presentation