New Albany Shale Gas Project

Project Review Presented at

RPSEA Unconventional Gas Conference 2010

Golden, CO. April 6, 2010

Iraj Salehi

Gas Technology Institute

2

New Albany ShaleAn Industry-RPSEA Cooperative R&D Project

Illinois Basin

86 to 160 Tcf New Albany

Shale ( Gas-in-Place)

• Large Geographic Area

• Multiple States• Complex Geology• Low Permeability

Large GIP with Limited

Production (.3 Bcf/y)+

Technically Complex =

R&D Target

3

New Albany ShaleA Fully Integrated Project

Reservoir Engineering

Formation Evaluation Geochemistry

Hydraulic Fracturing

Geology

Production Data

Research Quality Field Data

9 Industry participants providing data and wells of opportunity for field data acquisition and testing

9 Research organizations and 2 service companies performing the research together with engineers and geologists from the host companies

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Project Structure and Tasks

Field Data Acquisition, GTI

Geology, BEG

Geochemistry, Amherst

Formation Evaluation, ResTech

Fracture Modeling, A&M

Fracture DiagnosticsPinnacle

Reservoir Engineering, A&M, WVU

Technology Transfer, GTI

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> 360 feet of cores and complete suit of logs were taken for geological, geochemical, formation evaluation, reservoir engineering, and rock mechanics studies.

> 45 water samples for study of methanogenic bacterial population were taken.

> Production data from over 250 wells obtained.

> Several cores from public repositories studied.

> One geologic field trip carried out> Surveyed a Reversed Vertical Seismic

Profile (RVSP) for determination of the dominant natural fractures from velocity anisotropy

New Albany ShaleField Data Acquisition

RVSP

6

Field Data Acquisition

> Coop work with CNX; Evaluation of Zipper Frac in NAS

─ Received log and core data─ Cored and logged a pilot hole─ CNX shall drill two parallel horizontal

wells─ Project will use fracture modeling and

microseismic imaging─ CNX shall provide production data

Coring & Logging in CNX well SA-005

7

Field Data Acquisition

> Coop work with NGAS

─ NGAS provides production data used

for Reservoir Engineering studies

─ Cored and logged a pilot hole

─ Geochemical and petrophysical

analysis of cores

─ Microseismic imaging of hydraulic

fractures completed

─ Production from the coop well awaits

installation of nitrogen rejection unit

Warsaw

Sellersburg

Ft. Payne

New Albany

Salem

Warsaw

Sellersburg

Ft. Payne

New Albany

Salem

Warsaw

Sellersburg

Ft. Payne

New Albany

Salem

88

> Two cores from Noble Energy were studied. The project, in cooperation and cost sharing of Daugherty Petroleum (NGAS) and CNX Gas cut a total of 360 feet of cores that are being studied by BEG and other researchers.

> One geologic field trip carried out. > Natural fractures in the NAS are common

and have diverse origins.> Steep, partly or completely sealed

fractures are likely most important for completions in NAS.

> Calcite-sealed fractures form weak planes.> More complex fracture fill gives stronger

planes.

New Albany ShaleGeology

Location Of Cooperative Wells

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> 45 water samples were.> Extracted DNA from samples of microbial

population.> Analyzed 12 NAS samples from 12 cores.> Performed geochemical analysis on gas

samples from 10 NAS wells. > Currently completing bacteria and archaea 16S

clone libraries> High alkalinity and enriched residual 13C from

dissolved inorganic carbon that correlate with biogenic gas formation in previous studies have been observed.

> Analysis of Antrim samples indicates that bacterial methane generation continues and may have noticeable slowed the down production decline rate.

New Albany ShaleGeochemistry

Wells sampled, summer 2008 & summer 2009

1010

> 41 sets of logs and core data received from producing companies.

> Developed the cost matrix for various logging, coring, and core analyses for the project.

> Data from several geochemical analyses were aggregated to arrive at an average desorption isotherm.

> Investigated the effects of adsorbed gas on density and porosity calculation from logs and verified that the adsorbed gas has a 0.37 g/cc.

New Albany ShaleFormation Evaluation

0 200 400 600 800 1000 1200 1400 1600 1800 20000

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40

60

80

100

120

Methane Adsorption Isotherm For Two Noble Wells in Sullivan County, Indiana,and Daugherty Well 2485-21 in Christian County, KY New Albany Shale

Daugherty Well 2485-21

Meas'd Data, Well #1

Meas'd Data,Well #2

Normalized Data, Well Daugherty 2488

Normalized Data, Well #1

Normalized Data, Well #2

Best Fit Isotherm, Two Wells

SE KY Isotherm, Three Wells

Shrewsbury KY Isotherm

Maple Corners KY Isotherm

Daugherty Well 2485-21 Isotherm

Pressure, psia

Gas

Con

tent

, sc

f/to

n

1111

> Determine effectiveness of the horizontal open-hole packer completion process in New Albany Shale and determine azimuth and extent of hydraulic fractures.

> Designed 3 microseismic and one tiltmeter fracture diagnostic surveys and performed a microseismic imaging in well DPI-2485.

> A second microseismic fracture imaging survey on well SA-005 is scheduled for April, 2010.

New Albany ShaleFracture Diagnostic

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Microseismic Mapping in the Western Kentucky Low-Pressure NAS

Warsaw

Sellersburg

Ft. Payne

New Albany

Salem

Toolstring 2

Toolstring 1

• Designed 3 microseismic and one tiltmeter fracture diagnostic surveys and performed a microseismic imaging in well DPI-2485

• Low-μ fluid (± 1MMSCF N2) created adequate length (1,000 – 1,600 ft) & high degree of far-field complexity, but may require minimal propping

• excessive height growth during the last 3 stages indicates the presence of fault

• Primary induced azimuth of N85°E suggests optimal area lateral azimuth of N15°W

• Horizontal stresses min and max were lower

in the NAS than in bounding layers, suggesting that (in absence of geological features) vertical confinement may be generally expected.

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Reservoir Engineering

> Reservoir engineering studies have been challenging due to extremely low permeability and data scarcity. The project has adopted a two-pronged approach

> Texas A&M is using various analytic and numerical techniques and West Virginia University is developing a top-down AI-geostatistical approach for field–level reservoir evaluation.

Pressure profile after 1 and 5 years of production

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Reservoir Engineering

30 Year Production:Arps exponential .14 BSCFArps Hyperbolic .74 BSCFModified Hyperbolic .26 BSCF

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> Parallel to the A&M studies, West Virginia University is taking a field-level approach using the FRACGEN and NFFLOW simulation packages.

> Using production data from over 250 wells obtained from Kentucky Geological Survey, WVU is developing an AI-based reservoir engineering technique for field study.

> Combination of the two approaches will be a valuable tool for reserve estimate and production forecasting.

Reservoir Engineering / Best Practice Analysis

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Fracture Modeling

- Parametric simulation nearing completion

- Modeling of NGAS well fracturing suggests that pore pressure distribution resulting from nitrogen injection has increased the virgin pore pressure by as much as 4 MPa in a large zone around the fracture. Although the calculated stress state does not show intact rock failure, the increased pore pressure is likely to trigger slip on pre-exiting cracks and induce micro-seismicity as in observed in the field.

Hydraulic fracture

Natural fault

d

xL = 0.15

2.969

1.184

1.38

4

2.96

9

y

0 0.5 1 1.5 2 2.5 30

0.5

1

1.5

2

2.5

3

0 0.5 1 1.5 2 2.5 30

0.5

1

1.5

2

2.5

3

0 0.5 1 1.5 2 2.5 30

0.5

1

1.5

2

2.5

3

Interaction between natural and hydraulic fractures

(a) 1.0 1.0x y ; (b) 2.0 1.0x y ; (c) 1.0 2.0x y .

Minimum principle stress after 10 minutes of injection in NGAS well

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Environmental Considerations

>States of Emphasis: Kentucky and Indiana

>Primary Regulatory Agencies Contacted─ Kentucky: Department of Natural Resources (DNR)

─ Indiana: Indiana Dept of Environ Mgt and the DNR

>Responses from Regulatory Agencies─ Minimal Environmental Impact

─ No or Minimal Flowback Water

─ Low Flow Produced Water -- stored in 50 bbl tanks, then transported to permitted Class II injection wells.

─ No Air Issues have surfaced (e.g. VOC’s)

─ Minimal Solid Waste Issues.

>Conclusion: NAS Enjoys Minimal Environmental Barriers.

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Technology Transfer

Major Publications & Presentations Venue Date

New Albany Shale Project HART’s Unconventional Natural Gas Report Dec-08

Identification of microbial in Illinois basin AAPG Bulletin Mar-09

Shale Evaluation New Albany Shale SPWLA Spring Topical Conference Philadelphia, Pa Mar-09

New Albany Shale Gas GTI Cooperative Project SPWLA Spring Topical Conference Philadelphia, Pa Mar-09

New Albany Shale Project Update RPSEA Unconventional Gas Meeting, Golden, CO Apr-09

Natural Franc in the NAS and their importance for production International Coaled and Shale Gas Symposium May-09

New Albany Shale Project Update GTI Forum Chicago, ill Jun-09

New Albany Shale Gas Project A Joint Industry Project Touch Briefings Exploration & Production Aug-09

Top-Down Intelligent Reservoir Modeling of NAS SPE Eastern Regional Meeting Charleston Sep-09

Economic Impact of Reservoir properties in NAS SPE Eastern Regional Meeting Charleston Sep-09

New Albany Shale Gas Research Project. World Gas Conference Buenos Aires, Argentina Sep-09

Poster Presentation of New Albany shale NAPE Conference Houston, Texas Feb-10

New Albany Shale Gas Project A Joint Industry Project American Oil & Gas Reporter Jun- 10

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Conclusions & Discussions

Project has developed knowledge and information for removing uncertainties regarding economics of New Albany Shale Gas, e.g.; reserve assessment, well performance; and development of efficient completion techniques

There are no environmental or regulatory obstacles at this time

Major Results: Gas content Gas type thermo vs bio result Fracture Stimulation

The NAS Resource: Is not a Barnett or Marcellus, but a truly a nanodarcy resource for the most parts Requires gas price support While D&C cost improvements have been significant; still requires a D&C cost breakthrough Approach to NAS will require economy of scale Nanodarcy technology is not yet developed NAS is a Barnett of the future with ongoing development. Technologies developed will be transferable to other shale gas basins that are presently

considered marginal