New Albany Shale Gas Project

1. 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 • Large Geographic Area • Multiple States • Complex Geology • Low Permeability Large GIP with Limited Production (.3 Bcf/y) + Technically Complex = R&D Target 86 to 160 Tcf New Albany Shale ( Gas-in-Place)

3. New Albany ShaleA Fully Integrated Project Research Quality Field Data Formation Evaluation Geology Geochemistry Production Data Hydraulic Fracturing Reservoir Engineering • 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

4. Project Structure and Tasks • Field Data Acquisition, GTI • Geology, BEG • Geochemistry, Amherst • Formation Evaluation, ResTech • Fracture Modeling, A&M • Fracture Diagnostics Pinnacle • Reservoir Engineering, • A&M, WVU • Technology Transfer, GTI

5. New Albany ShaleField Data Acquisition • 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 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

8. New Albany ShaleGeology • 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. Location Of Cooperative Wells

9. New Albany ShaleGeochemistry Wells sampled, summer 2008 & summer 2009 • 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.

10. New Albany ShaleFormation Evaluation • 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.

11. New Albany ShaleFracture Diagnostic • 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.

12. Microseismic Mapping in the Western Kentucky Low-Pressure NAS • Horizontal stresses minand maxwere lower in the NAS than in bounding layers, suggesting that (in absence of geological features) vertical confinement may be generally expected. • 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

13. 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

14. Reservoir Engineering 30 Year Production: Arps exponential .14 BSCF Arps Hyperbolic .74 BSCF Modified Hyperbolic .26 BSCF

15. Reservoir Engineering / Best Practice Analysis • 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.

16. Fracture Modeling Interaction between natural and hydraulic fractures • 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. Minimum principle stress after 10 minutes of injection in NGAS well

17. 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.

18. Technology Transfer

19. 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