Buenos Aires, 7 al 10 de agosto de 2012

1. Environmentally Friendly Drilling Fluids for Unconventional Shale James Friedheim Quan Guo M-I SWACO Buenos Aires, 7 al 10 de agosto de 2012

2. Shale Gas in Argentina “Argentina is the country with the third highest geological potential for these types of hydrocarbons (shale gas), after China and the United States” - Annual Energy Outlook 2011 The study assessed the viability of 48 shale gas basins in 32 countries and estimated Argentina’s shale gas reserves at 774 trillion cubic feet (TCF), 60 times greater than the country’s current conventional reserves. Furthermore, Argentina possesses almost 12% of the global shale gas resources, with the Neuquen Basis showing greatest potential. Overview of Argentina Shale Gas Fields – (from Investment U article The Next Big Shale Gas Boom by Justin Dove, Investment U Research; Friday, October 7, 2011)

3. All Shale Not the Same! • Unconventional resource requires unconventional thinking

4. Traditional Fluids Selection Techniques May Not Apply….. • Effective and useful shale-fluids interaction tests – Shale Hydration Test, Dispersion Test, Slake Durability Test, … • These traditional shale-fluids interaction and fluids selection tests are not effective for gas shale

5. Shale Play – Fluid Design • Each shale play is different and fluids should be tailored for each formation • Shale plays are usually less reactive (swelling), but are micro-fractured and can be very easily destabilized by fluid or filtrate • The overburden is different • Some High-Temperature shale plays (such as Haynesville) demand temperature stability, good rheology and densities up to > 19 ppg Oil/Gas Shales Tend to be Hard and Organically Rich Old Shales Still Can Be Unstable in Freshwater Fracture Tendency Allows Water Access

6. OBM/SBM Still Drilling Fluid Predominately Used • Advantages • Cost* • Readily available* • Good temperature stability • Provides good hole stability & shale stability • Tolerates contaminants well • Low torque & drag while drilling & running casing • Concerns • Cost** • Availability** • Downhole losses Concerns Environmental Acceptability • Toxic Compounds* • Slow degradation Rates* • Cuttings Disposal (except PARALAND) Human Exposure Factors • High vapor emissions • Aromatic & Cyclic hydrocarbons in the vapor, and consider carcinogenic* *) diesel **)synthetics

7. Shale Gas Water-based Mud Design Goal Develop a low cost, environmentally friendly WBM drilling fluid (fresh water) for the shale plays • Straight-forward, simple, cost-conscious design. • Environmentally friendly – precludes the use of chloride-containing materials. • Provide shale stability to low-reactivity, fissile shale Concept • Water invasion into the shale formations weakens the wellbore – not so much a chemical process! • Normal fluid loss additives are not able to form a filter cake and therefore cannot stop the invasion of fluids, especially water. • Focus more on wellbore stability than shale inhibition for long open hole section using WBM • Address issue of lubricity for both drilling and running casing high permeability thick filter cake low permeability virtually no filter cake Physical Plugging • Blocks entry of fluid into the formation • No decrease in stability • Inert chemistry

8. SMT (Shale Membrane Test) Fluid at fixed flow rate and pressure Typical Test Regime Brine matches water activity of the shale Brine/Drilling fluid Nanomaterial and drilling fluid Can be repeated several times P1 300 psi Top Cap Pressure differences ∆P(t) at top and bottom are used to calculate permeability properties Epoxy Base Pressurized with brine that matches the water activity of the shale 50 psi P2 Paper # • Paper Title • Presenter Name

9. SMT Results†Atoka Shale P1 P2 † ) Sensoy, T, Chenevert, M. E. and Sharma, M. “Minimizing Water Invasion in Shales Using Nanoparticles.” paper SPE 124429 presented at the 2009 SPE Annual Technical Conference and Exhibition, 4-7 October 2009, New Orleans, Louisiana.

10. What do we mean by Nano Particles?

11. Virus 150 nm WARP 1.5 μm Barite – 15,000 nm WARP – 1,500 nm Flu virus – 150 nm Barite – 15,000 nm WARP – 1,500 nm Barite – 15,000 nm WARP – 1,500 nm Flu virus – 150 nm Nanoparticles – 15 nm Barite – 15,000 nm

12. Silica Nanoparticle Screening Design Considerations • Cost • Various coatings/treatments & Number of treatments • Reactive groups • Temperature stability • Rheology effects • Sizes 5-100 nm • Compatibility with ions in a range of concentrations Faster tests and better availability than shale samples 5 nm 10-30 nm 40-50 nm 70-100 nm

13. Nanoparticle Characterization 40000x magnification, scale bar 50 nm 40000x magnification, scale bar 50 nm • Cryo-Transmission Electron Microscopy (TEM) performed at Rice University • Right image is the best performing sample • The images will be used to better understand their filtration behavior

14. Optimizing Nanoparticle Loading • Full mud formulation designed for maximum efficiency • Loading reduced from 29% to 3% (10 ppb, Nanoparticle slurry) • Permeability reduction is permanent • Strong stabilization of shale by blocking fluid access

15. General Fluid Formulation Duovis: xanthan based rheology modifier which gives us suspension properties EMI-690 sufonated styrene-butadiene copolymer with optimized fluid loss performance Resinex: Phenol formaldehyde resin used for additional filtration control Glydril GP 100: blend of glycols used for shale inhibition, fluid loss and baseline friction coefficient reduction Lubricant: General purpose Lubricant for WBM, usually vegetable oil derivative EMI-2545: Nanosilica solution for physical shale plugging EMS 2520

16. Fracture Shale Consideration • Formulated drilling fluid with 10ppb nanoparticles (10% EMI-2545) • 99% reduction in shale permeability • Permeability reduction held after flushing with brine (88% after 6 hours) Fracture

17. Additional Data on EMS 2520 Effect of lubricant package seen at higher loadings Environmental Testing Mysid Shrimp testing both additive (nanosilica) and ShaleGas Drilling Fluid easily passLC50 protocol

18. Summary • Novel approach to shale stabilization specifically focused on Unconventional Shale Plays source Rock by physical plugging of Shale Pores utilizing Nanoparticles: • Provides high stability • Especially coupled with designed fluid formulation (EMS-2520) even for fractured shale • Environmentally designed (freshwater (without chlorides)) • Applicable for HT fluids • Applicability to other type of shale • Couple with chemical inhibition • Robust testing protocol • Performance additives for enhanced lubricity

19. Thank You • We would like to thank Dr Ji Lou for his support and help on the SMT equipment and work. • Questions?