EVALUATING RESERVES FOR THE MARCELLUS SHALE Hart Energy Publishing Pittsburgh, PA November 3, 2010

D. Randall Wright (615) 370-0755 [email protected] wrightandcompany.com

THE MARCELLUS SHALE: HOW IT ALL STARTED Play began in 2004 with the Range Resources Renz well Other “local” companies took note • Cabot • Atlas • Chesapeake • Consol/CNX • EQT • Others

 In 2007, it was estimated that the play could produce 50+ Tcf  Leasing costs dramatically increased  Game on – Jobs, Jobs, Jobs

PA MARCELLUS PRODUCING WELLS As reported August 15, 2010 for 12 Months, July 2009 – June 2010 849 Horizontal and Vertical Active Gas Wells

Source: Pennsylvania Department of Environmental Protection

LEADING PRODUCERS FOR FIRST REPORTING PERIOD Horizontal Wells Only

OPERATORS WITH THE MOST PRODUCTION As reported August 15, 2010 for 12 Months, July 2009 – June 2010 Horizontal Wells Only Talisman Energy USA, Inc. 53 wells – 27.8 Bcf Shell/East Resources, Inc. 25 wells – 10.1 Bcf

Cabot Oil & Gas Corp. 34 wells – 23.0 Bcf Chesapeake Appalachia LLC 45 wells – 31.0 Bcf

Range Resources Appalachia LLC 97 wells – 31.0 Bcf + liquids and NGLs

Atlas Resources LLC 10 wells – 2.2 Bcf

EQT Production LLC 14 wells – 7.6 Bcf

Source: Pennsylvania Department of Environmental Protection

TOP 10 SW PA HORIZONTAL PRODUCING WELLS As reported August 15, 2010 for 12 Months, July 2009 – June 2010

Range Resources Appalachia, LLC 5 of the top 10 producing wells for reporting period 4.0 Bcf + liquids and NGLs

Source: Pennsylvania Department of Environmental Protection

EQT Production, LLC 5 of the top 10 producing wells for reporting period 5.0 Bcf

TOP 10 NE PA HORIZONTAL PRODUCING WELLS As reported August 15, 2010 for 12 Months, July 2009 – June 2010

Bradford

Chesapeake Appalachia, LLC 6 of the top 10 producing wells for reporting period 11.4 Bcf

Source: Pennsylvania Department of Environmental Protection

Cabot Oil & Gas, Corp. 4 of the top 10 producing wells for reporting period 6.8 Bcf

YOU HAVE HEARD/READ THE PRESS RELEASES (That is why you are here.)

 Initial Open Flow Rates (24-hour) • 26 MMcf per day (Range) • 21 MMcf per day (Atlas) • 18 MMcf per day (Cabot) • 15 MMcf per day (EQT)  First 30-day Average Rates • 22 MMcfe per day (EQT) • 11 MMcfe per day (Range) • 8 MMcfe per day (Cabot) • 4 MMcfe per day (CHK)  Lateral Length • 2,500 – 9,000 feet

RECENT MARCELLUS TRANSACTIONS Buyer Royal Dutch Shell, PLC

Seller East Resources, Inc.

Amount $4,700,000,000

CONSOL Energy, Inc.

Dominion Resources, Inc.

$3,475,000,000

Reliance Industries Ltd.

Atlas Energy, Inc.*

$1,700,000,000

Mitsui & Company Ltd.

Anadarko Petroleum Corp.*

$1,400,000,000

BG Group, PLC

Exco Resources, Inc.*

$950,000,000

The Williams Companies Inc.

Alta Resources, LLC

$501,000,000

Ultra Petroleum Corp.

Undisclosed

$400,000,000

Reliance Industries Ltd.

Carrizo Oil & Gas, Inc.*

$392,000,000

Statoil ASA

Chesapeake Energy Corp.

$253,000,000

Reliance Industries Ltd./Atlas Energy, Inc.

Undisclosed

$192,000,000

Sumitomo Corp.

Rex Energy Corp.*

$140,000,000

Chesapeake Energy Corp.

Epsilon Energy*

$100,000,000

Atinum Partners Co. Ltd.

Gastar Exploration Ltd.*

TOTAL * Indicates Joint Venture (JV)

$70,000,000 $14,273,000,000

THE MARCELLUS SHALE LEARNING CURVE PHASE I

PHASE II

PHASE III

Exploratory (Defining Reservoir Parameters)

Research & Development (Reasonable Certainty, Reliable Technology)

Exploitation & Optimization (Consistency, Repeatability, Economically Producible)

Economy of Scale Infrastructure Marketing

Completion

Drilling

Horizontal

Regulatory Vertical

Geoscience

As the Number of Wells Drilled Increased

Statistical Optimization

HOW DO YOU EVALUATE SHALE RESERVES?

Evaluating unconventional resources and serving the petroleum industry for over 22 Years

THE MARCELLUS SHALE: Some basic geology…

GEOSCIENCE Defining Reservoir Parameters

 Depth: 2,000 to 9,000 feet  Net Pay: 25 to 300 feet  Porosity: 2 to 12 percent  Matrix Permeability: 50 to 800 nanodarcies

 Water Saturation: 10 to 35 percent  Pressure Gradient: 0.4 to 0.7 psi/ft  Original Gas in Place (OGIP): 25 to 200 Bcf/sq. mi.  Recovery Factor: 15 to 40 percent

STRUCTURE MAP Subsea Depth – Base of the Marcellus

MARCELLUS GROSS ISOPACH MAP

Source: W.D. Von Gonten & Co. (used with permission)

AREAS OF POTENTIAL HYDROCARBON PRODUCTION

ESTIMATING RESERVES  Volumetrics • Porosity • Thickness • Original Gas in Place (OGIP) • Recovery Factor

SHALE PETROPHYSICS AND VOLUMETRICS • Free Gas •

Gas Filled Porosity •

Kerogen Created Porosity

•

Inter-Connected Porosity

•

Formation Thickness, Pressure, Temperature

•

Drainage Area

•

Recovery Factor (RF) •

Varies by Permeability

•

Varies by Stimulation Coverage

• Adsorbed Gas •

Gas Content (scf/ton) •

•

Based on Correlations

RF Varies by Pressure

MARCELLUS SWEET SPOTS MAY EMERGE Based on Activity and Production to Date

ESTIMATING RESERVES  Volumetrics • Porosity • Thickness • Recovery Factor • Original Gas in Place (OGIP)  Performance • Type Curves • Statistical Analysis • Probability Analysis 

Reserves per 1,000 feet lateral (wellhead)

FIVE OPERATOR TYPE CURVES Southwest PA Area 10000

Range of Values Based on ARIES™

IP “b” Factor Initial Decline EUR

2.4 – 6.5 MMcf/D 1.5 – 1.7 62.5 – 72% 3.4 – 5.0 Bcfe

Mcfe/D 1000

100 0

6

12

18

24

30

36

42

48

54

60

66

Months Source: Various Public Websites

72

78

84

90

96

102 108 114 120

NINE OPERATOR TYPE CURVES Northeast PA Area 100000

Range of Values Based on ARIES™

IP “b” Factor Initial Decline EUR

4.1 – 12.2 MMcf/D 1.2 – 2.0 63 – 77.5% 3.75 – 7.0 Bcfe

10000

Mcf/d

1000

100 0

6

12

18

Source: Various Public Websites

24

30

36

42

48

54

60

Months

66

72

78

84

90

96

102 108 114 120

NORMALIZE PEAK MONTH TREND ANALYSIS Example Data Trend Parameters Based on ARIES™

IP “b” Factor Initial Decline EUR

3.5 MMcf/D 1.7 70% 4.0 Bcf (approximately)

STATISTICAL ANALYSIS IN RESOURCE PLAYS  Society of Petroleum Evaluation Engineers (SPEE) • Monograph 3:  Repeatable results  Continuous hydrocarbon system that is regional in extent  Offset well performance may not be a reliable predictor  Wright’s experience suggests that EURs usually exhibit a lognormal distribution  Resource plays can become highly predictable IF there is a large sample size

PROBABILITY PLOT - VOLUMETRICS Hamilton Group OGIP per Square Mile (Bcf/Mi2) Example Data

Lognormal Regression

P10

P50

P90

PROBABILITY PLOT - VOLUMETRICS Marcellus OGIP per Square Mile (Bcf/Mi2) Example Data

Lognormal Regression

P10

P50

P90

PROBABILITY PLOT – WELL PERFORMANCE BASED EUR per 1,000 feet Effective Lateral Length (MMcfe/1,000 ft.) Example Data Lognormal Regression

RISKS AND ONGOING CHALLENGES  Rig and service crew availability  Placement of laterals, effectiveness of completions

 Statewide regulatory issues Water use and disposal

Gas leakage and groundwater contamination issues  Pipeline capacity, transportation bottlenecks  Plants, processing and installation  Gas and liquids pricing

WHAT DOES WRIGHT EXPECT NOW?  More wells » more data » more accurate reserves estimates

 Play to continue rapid development toward statistical and mature phases  Drilling/Completion techniques to improve  Infrastructure to provide outlets to markets  Average EURs, lateral lengths, optimal spacing, efficiencies to be more clearly defined

THANK YOU! D. Randall Wright (615) 370-0755 [email protected]

wrightandcompany.com

Sometimes the Wright choice is obvious.