Christy Thompson Bluestone Natural Resources

Fort Worth, Tx Jun 29, 2016

EFFECTIVE APPROACHES TO OPTIMIZE CHEMICAL USAGE

WITHOUT OVER TREATING WELLS AND KEEPING COSTS LOW

DOWNHOLE FAILURES

WATER VARIANCE REPORT

CHEMICAL INVENTORY REPORT

DOWNHOLE TEMPERATURE

H2S SCAVENGER

TANK PLACEMENT

REMOTE TANK MONITORING

•  Chemical Company was using one chemical with same treat rate (ppm) for all wells: •  10 bwpd or •  2400 bwpd

•  Producer was not supplying production data to Chemical Company

HISTORY 2010

28 DAYS PRODUCTION = HOLE IN TUBING

HOLE IN TUBING IN 28 DAYS OF PRODUCTION REPLACED ENTIRE STRING

Acid Gas Corrosion 3.6% CO2 100,000 Chlorides 2400 bwpd 300 psi tubing pressure

CO2 CORROSION – INADEQUATE CORROSION INHIBITOR CONCENTRATION

CREATED WATER VARIANCE REPORT WEEKLY MEETINGS W/ CHEMICAL VENDOR:

NEW ACCT MGR AND CHEM FIELD TECHS INFO DISCUSSED WITH CHEMICAL COMPANY:

NEW WELLS ONLINE DATES PRODUCTION DATA (BWPD, BOPD, MCFD) WORK-OVER FINDINGS SOLIDS ANALYSES WATER REPORTS & ANALYSES CHEMICAL PUMP NEEDS

NEW CHEMICAL PROTOCOL

ROUTINE WATER REPORT SENT TO CHEMICAL VENDOR FOR OPTIMIZED CHEMICAL

Water Variance Report - Barnett North

12/25/2015 - 1/24/2016 1/1/2016 - 1/31/2016

Average Average Well Name Route API Net

Gas (MCF)

Water (Bbls)

Oil (Bbls)

Casing PSI

Tubing PSI

Net Gas

(MCF)

Water (Bbls)

Oil (Bbls)

Casing PSI

Tubing PSI

% Diff in

Water

BBL Diff in Water

MONTHLY CHEMICAL INVENTORY REPORT Glen Rose Days in month

May-16 31

Product Use Cost per Unit PPM Unit Wells using chemical Spend By ProductHSW4118 H2S Scavenger per gallon 0 -$ RCS9049 C/SI Concentrate 75 per gallon 0 -$ RCS9049E C/SI Less Act 150 per gallon 0 -$ RCS9049A C/SI Least Act 500 per gallon 0 -$ FMW8056 Foamer C/SI 1000 per gallon 0 -$ FMW9191E Foamer C/SI 1000 per gallon 0 -$ FMW8075 Foamer C/SI 1000 per gallon 0 -$ FMW9267E Foamer C/SI 150 per gallon 0 -$

Total 0 -$

Monthly Chemical Cost: -$

Total Wells Total SpendFM/C/SI 0 -$ (SCAV + C/SI)/MCFC/SI 0 -$ (C/SI)/BBLWH2S 0 -$ Batch TreatmentsBATCH -$ Cost Per Week InjecitonNo Chem 0 -$

TOTAL WELLS 0 -$

Monthly Cost Delivered: -$

Foreman Monthly $ $/Bbl water $/MCF Average Bbl water Cost Per WellCB -$ #DIV/0! #DIV/0! #DIV/0! #DIV/0!NB -$ #DIV/0! #DIV/0! #DIV/0! #DIV/0!RA -$ #DIV/0! #DIV/0! #DIV/0! #DIV/0!

Foreman $ CISI $ CISI/Bblw $ CISI/MCFCB -$ #DIV/0! #DIV/0!NB -$ #DIV/0! #DIV/0!RA -$ #DIV/0! #DIV/0!

Foreman $ Foamer $ Foamer/Bblw $ Foamer/MCFCB -$ #DIV/0! #DIV/0!NB -$ #DIV/0! #DIV/0!RA -$ #DIV/0! #DIV/0!

Foreman $ Scavenger $ Scavenger/Bblw $ Scavenger/MCFCB -$ #DIV/0! #DIV/0!NB -$ #DIV/0! #DIV/0!RA -$ #DIV/0! #DIV/0!

Total MCFD AND BWPD CB Monthly Total (CB) NB Monthly Total (NB) RA Monthly Total (RA)MCF/D 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000BW/D 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000MCF/D CI/SI 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000BW/D CI/SI 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000MCF/D Foamer 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000BW/D Foamer 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000MCF/D Scavenger 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000BW/D Scavenger 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000

Monthly Chemical Report DashboardBluestone Natural Resources

MONTHLY TOTALS

Avg Monthly Spend/Cost by Foreman

Avg Monthly Spend CISI/by Foreman

Avg Monthly Spend Foamer/by Foreman

Avg Monthly Spend Scavenger/by Foreman

MonthlyChemicalSpendbyProduct

MONTHLY CHEMICAL INVENTORY REPORT

WELL MASTER ROUTE LEASE WELL #

FOREMAN INITIA

LS

MCFDBW

PD

TANK STYLE

TANK SIZE

PUMP TYPE

CHEM TYPE

CHEM NAME

TARGET PPM

ADDITIONAL COMMENTS

•  Matched Water Variance Report to Monthly Chem Inventory Report

•  Calculated Effective Treat Rates •  (BWPD and Recommended PPM)

•  Pump Variance - Over/under chemical injected •  Chemical Ordering Tool •  Back Check Tool •  Identified multiple wellsite items in one document

Separate Tech Report for chemical changes, pump down, findings on site, etc - ongoing – not monthly

Route # Lease Pad MCFD BWPD Gas Lift Packer Plunger Chemical Injection Point Tank Size Pump Type Chemical Type Chemical Name Target PPM Required Qts/Day Cost/Gallon

Beginning Inventory Date Beginning Inventory Gallons Ending Inventory Date Ending Inventory Gallons Delivered Gallons Gallons Used Costs Delivered Time Period Qts/Day for Time Period Over or Under Qts/Day Monthly Usage (Gal) Cost/BBl/Day Cost of Chemical Used Cost/MCF Original Chemical Start Date

MONTHLY CHEMICAL INVENTORY REPORT EXCEL

FULL BODY NORMALIZED SEAMLESS TUBING – INADEQUATE CHEMICAL CONCENTRATION

2 3/8 J-55 Tubing Metallurgy

ERW - ELECTRIC RESISTANCE WELDED CORROSION AT WELD

NOT FULL BODY NORMALIZED TUBING

Speedway A3 flowed up casing 7 months; GLV Washed; CI-SI U-tubing at 3000’ Ft;

DOWNHOLE TEMPERATURE ISSUE

•  ESP – Electrical Submersible Pump

•  Downhole Chemistry Rated (200 Deg) – No Issues

•  Installed ESP – Downhole Corrosion/Scale “paraffin like substance” – seized the ESP •  Chemical overheated due to ESP Downhole

Temperature (275 Deg) •  Switched to chemical rated at 325 Deg

•  Pipeline Spec 4 ppm at Sales Meter Run

•  99 H2S Scavenger pumps

•  $300K/YR Scavenger

•  No fully defined Pipeline Spec

•  200 H2S Scavenger pumps

•  $700K/YR Scavenger

BARNETT SHALE H2S SCAVENGER OPTIMIZATION

1st Year 2nd Year

3rd Year: 37 pumps $15K/yr

2016: Turned OFF all scavenger pumps under new ownership

•  Biocide Treatments •  Pipeline Specifications ( ? ppm) •  Atomizers vs Drip •  Injection points

•  Increased Retention Time in Pipeline •  Correct usage of H2S Analyzer Tubes •  Follow up after Biocide treat, Frac Activity slows, etc

FORT STOCKTON: DUAL ATOMIZERS

TO INCREASE CHEMICAL CONTACT TIME

DUAL HEAD PUMP W/ 80 W SOLAR PANEL & TWO BATTERIES

CHEMICAL TANKS IN DESIGNATED AREA TO SAVE FROM DESTRUCTION BY WELL WORK CREWS

CHEMICAL TANK PLACEMENT ON BARNETT WELLSITE

REMOTE MONITORING

Calcium Carbonate, Sand at EOT -Without Plunger: Bottom 12” of Tubing at Pressure Differential -With Plunger:

-Below Bumper Spring -On plunger and Internal tubing

DISCUSSION ITEMS

CURRENT UNRESOLVED CHEMICAL PERFORMANCE ISSUES

CALCIUM CARBONATE, SAND AT EOT

CALCIUM CARBONATE, SAND AT EOT

SCALE ON PLUNGER

“SOME OF US WILL DO OUR JOBS WELL AND SOME WILL

NOT, BUT WE WILL BE JUDGED BY ONLY ONE THING

– THE RESULT.”

VINCE LOMBARDI