LNG AS A FUEL IN DRILLING OPERATIONS

June 14, 2012

DJ Basin LNG Rig Pilot

Initiated in early 2011, the purpose of the pilot is to demonstrate the operational and economic viability of displacing diesel and powering the majority of Noble’s rigs with LNGpowering the majority of Noble s rigs with LNG.

Pilot consists of two LNG rigs in the DJ Basin Horizontal Niobrara program, 1st quarter 2011

Ensign 121, 132 previously operating in Johah fieldRunning off of conditioned field gas

Entered contract with Prometheus Energy to provide fuel supply, mobile LNG storage and regasification kit

LNG sources for DJ operation include:

Opal, Wyoming

2Ensign ADR-1000

Lisbon Valley, Utah

Southwest Colorado

Field Gas vs. LNG - Reasoning

No infrastructure in place for on-site conditioned gas or sales ready gasconditioned gas or sales ready gas

LNG can be used at almost all locations

Consistent gas qualityConsistent gas quality97-98% Methane

Not stored under pressure not explosive orNot stored under pressure, not explosive or flammable in liquid state, no spill clean up (evaporates quickly & disperses)

Reduced emissions and cost compared to diesel

Improve domestic energy security

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Improve domestic energy security

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Mobile LNG Storage and Regasification Kit

Right Trailer(holds 10,000 gal LNG)

Vaporizer Left Trailer(holds 10,000 gal LNG)

Delivery TrailerSlot

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NOTE:  Right & Left are reversed in this view.    Right/Left nomenclature was developed for the operators who work from behind the trailers.

Mobile LNG Storage and Regasification Kit

Liquid product is run through pressure build coils on bottom of pstorage tank and then back into top of tank as gas when pressure is needed to transfer liquid to the vaporizer or other tankp

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Mobile LNG Storage and Regasification Kit

OUT OF TANK @ -256 º F & 45 PSI

7VAPORIZOR TURNS LNG FROM LIQUID TO VAPOR &

WARMS TO AMBIENT TEMPERATURE OF 51º F

LNG vs Diesel Comparison

Compared 3 rigs:Ensign 121 running off LNGEnsign 132 running off LNGEnsign 132 running off LNGH & P 315 running off diesel

Same type of wells:Niobrara Horizontal

(+/- 6800’ TVD)(+/- 4500’ Lateral)

Same operations:Full 12 months of operating dataFull days of highest power demandsy g pHow do the LNG rigs perform compared to the diesel rig?

Capital cost differential for LNG Rigs ~$1.0MM premiumT k d f l d f l t f th th i

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Tracked fuel use and fuel cost of the three rigsDoes the LNG fuel cost benefit payback the rig premium?

Lessons Learned: Site Construction

NFPA-59A: the LNG storage tank(s) will have secondary containment for ythe LNG in case the inner vessel fails in some way

5.2.2 Impounding Area and Drainage System Design and Capacity

5.2.2.1 Impounding areas serving LNG containers shall have a minimum volumetric holding capacity, V th t i f th f ll iV, that is one of the following:

– (2) For an impoundment serving more than one tank, V equals 100 percent of all tanks or 110 percent of the largest tank’s maximum liquid capacity, whichever is greater.

5.2.2.2 Impounding areas that serve only vaporization, process, or LNG transfer areas shall have a minimum volumetric capacity equal to thehave a minimum volumetric capacity equal to the greatest volume of LNG…that can be discharged into the area during a 10 minute period from any single accidental leakage source…

58’ x 50’ x 1’ high contains max volume on location at any time

Build sloped so can be driven over

The landing gear needs a solid foundation

The line from the vaporization skid to the rig needs to be buriedBuild sloped so can be driven over

No liner material needed inside containment area

At -250F liquid LNG destroys the liner

the rig needs to be buriedCan be composite type material (poly pipe)Re-use for frequent rig ups can cause leaks

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LNG on dirt vaporizes instantaneously and there is no spill to clean up

Lessons Learned: Weather

Summer operationsNo downtime issuesIce buildup on the vaporization skid reduced efficiency of LNG transfer to the vapor phaseConcern in high humidity or cold weatherA flameless heater can be used to vent exhaust over coils

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A flameless heater can be used to vent exhaust over coilsKnocking buildup off with a broom is sufficient

Lessons Learned: Weather

Winter operations (-18F)Reliable operationSignificant ice buildup on vaporizer coils did occur in coldSignificant ice buildup on vaporizer coils did occur in cold weatherHandful of blackouts last winter, cold weather is suspected cause Evaluating a new combined vaporizer/storage unit that heats liquid LNG independent of ambient temperature

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liquid LNG independent of ambient temperature

Lessons Learned: General Observations

Must operate larger gas engines (Cat 3516) to run an ADR 1000 on LNG, vs. Cat 3512 to run same rig on diesel

Once up and running the system runs itself without much issue, only trouble would be if there was a leak

Installed automated emergency shut downs last December, to shut down LNG feed when the line loses pressure or is disconnected

One interruption in fuel supply during winter of 2011

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Pre-Startup Assumptions

One gallon of diesel has 1.7 times the energy g gydensity as one gallon of LNG

LNG gal = 82,000 BTUDiesel gal = 135,000 BTUDiesel gal 135,000 BTU

Average daily LNG consumption per rig will be 2,500 gallons. Highest peak consumption , g g p pnot expected to exceed 5,000 gallons of LNG per day per rig

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LNG vs Diesel Fuel Usage Comparison

Average daily (monthly basis)

Ensign 121 = 2380 gal/day

Ensign 132 = 2500 gal/day

H & P 315= 1440 gal/dayNote: LNG rigs do require diesel power and g q p

consume diesel fuel during rig moves

3500

4000

y)

LNG to Diesel usage ratio: both i 1 7 ll f1500

2000

2500

3000

age

(Gal

lons

/day

Ensign 121

Ensign 132

rigs 1.7 gallons of LNG to 1 gallon of diesel

0

500

1000

1500

1 1 1 1 1 1 1 1 1 1 2 2 2 2 2

Fuel

usa H & P 315

Avg LNG

Avg Diesel

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Mar

-11

Apr-

11

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

Mar

-12

Apr-

12

May

-12

Operating Month

Peak Consumption Average Daily Savings

Actual fuel costs 03/2011 - 4/2012

LNG costs include additional transportation, equipment and h

p , q poperator charges

12 month average savings of $1,100-$2,000 per day

Total fuel savings over 12 months (03/11-02/12): $1.3MM

$250,000.0

$150,000.0

$200,000.0

ngs

($)

$0 0

$50,000.0

$100,000.0

Savi

n

Ensign 132

Ensign 121

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$0.0

Mar

-11

Apr-

11

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

Mar

-12

Apr-

12

May

-12

Operating Month

Conclusions

Drilling department is confident of continued success with LNG rigs

Operationally, LNG very comparable to diesel rigsRedesign of vaporizer should eliminate blackouts

E o o i e e f o bleEconomics are very favorableAverage daily savings over diesel of $1800/day/rig12 month savings of $1.3MM for 2 rigs on LNGProjected LNG premium payback ~2 yrs

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Plan Forward

Rig Fleet Expansions

Two new duel fuel LNG rigs operating in DJ by 4th Qtr 2012

D l f l i $300K d t $1MM f d di t d LNGDuel fuel premium ~$300K compared to $1MM for dedicated LNG Diesel displacement is lower

LNG conversion of existing H&P rigs ~2nd Qtr 2013

T t ti l f t d l f l LNG i i A l hi b 4thTentative plan for two new duel fuel LNG rigs in Appalachia by 4th

qtr 2012

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Noble’s LNG/CNG Vehicle Program

DJ Water hauler 10 LNG truck commitment by 3rd qtr 2012

Two additional vendors now interestedEnCana providing LNG via mobile refueler

14 field pickups converted bifuel CNG in DJ to date Plans14 field pickups converted bifuel CNG in DJ to date. Plans to convert entire fleet (~300)

Partner/supporter of Weld Co. Smart Energy Project –/ pp gy jProvided matching funds for grants for three public CNG stations

C itt d $5 illi fi t h CNGCommitted $5 million over five years to purchase CNG school buses and refueling station infrastructure in Weld County (DJ)

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2 Honda Civics for pool cars and employee usage

Thank you

Questions???Questions???

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