The Business Case for Sustainable Shale Gas Development

1. John H Quigley LLC

2. The Business Case for Sustainable Shale Gas Development  John H Quigley LLC

3. University of Pittsburgh’s Shale Gas Roundtable: “Getting it right” 4 elements: • Strong, adaptive, staffed, resourced legal/reg system • Aggressive development/adoption of BMPs, operational performance standards • Investments in technology, operational innovation • Targeted research to inform continuous improvement John H Quigley LLC

4. University of Pittsburgh’s Shale Gas Roundtable: “Getting it right” m; • Aggressive development/adoption of BMPs, operational performance standards • Investments in technology, operational innovation John H Quigley LLC

5. Can the natgas industry get those two right on its own? And fast enough? John H Quigley LLC

6. Requires a paradigm shift John H Quigley LLC

7. The most effective tool to enable that shift may be… John H Quigley LLC

8. John H Quigley LLC

9. Balance Sheets and Bottom-Line Risks • KPMG identified four areas of broad, interconnected, critical risks to companies that employ hydraulic fracturing: • Physical/Environmental risks • Regulatory risks • Reputational risks • Forward-looking risks John H Quigley LLC

10. 1. Physical/Environmental Risks • Water availability • Fracking faces serious challenges in drought-prone, high water-demand areas here, abroad • Risk will worsen as global climate disruption accelerates • Any thirsty industry faces uncertain future • Weather-related events: • On-site runoff • Increased soil erosion • Threats to integrity of containment pits • Increased risk of contamination to surface, groundwater • Seismicity risk from wastewater disposal John H Quigley LLC

11. 1. P/E Risks (cont’d) • Water quality • TDS • Metals • NORM • Chemicals • Contamination of water, soil can occur from • Poor well construction • Improper disposal of fracking fluids, chemicals • Leaks, spills • Frackwater storage in open containments a big risk: • Wildlife, domestic animals • Volatilizing chemicals cause local air pollution, health impacts • What happens to injected frackwater that stays downhole may lead to increased short-/long-term risks John H Quigley LLC

12. 1. P/E Risks (cont’d) • Risks to biodiversity • Scale - In PA, @ 10 million acres – >1/3 of state’s land area – leased for shale gas exploration • Hundreds of thousands of wells, tens of thousands of miles of roads, pipelines developed in coming decades • TNC @ 60K wells: almost 10% of PA’s forest cover destroyed/damaged by Marcellus exploration alone • And that’s before development of other shale basins • Profound impacts on water, wildlife, and more John H Quigley LLC

13. 2. Regulatory Risks • Permitting, licensing, accessissues • Approval delays • Regulatory gaps • Local actions • Recordkeeping requirements, paperwork • State actions - weight limits, bonding requirements • Local actions - road reconstruction, community compensation agreements • KPMG: Decrease production, increase costs, but… • IEA’s Golden Rules for a Golden Age of Gas: following all Golden Rules adds @7% to cost of well, but landscape-level planning alone would save 5% of overall development costs • Regulations on methane capture should be cost-negative John H Quigley LLC

14. 3. Reputational Risks • Threats to company’s license to operate • Community values, attitudes, perceptions • Local impacts,incidents, accidents • Corporate compliance, business behavior, behavior/track record of vendors. • Impacts on other economic sectors, like farming, tourism. John H Quigley LLC

15. 4. Forward-looking Risks • Increasing costs of fuel, water treatment, disposal • Vendor, supply chain risks in acquisition, use, treatment, recycling, disposal of water • Increasing litigationoverpermit violations, environmental damage, contamination • Increasing liability exposure, insurance costs • Increased vendor, supply chain environmental/business risks • Increasing transparency, disclosure requirements • Bans, moratoria • A tighter regulatory environment going forward John H Quigley LLC

16. What are the common denominators among all of these risks? Water and chemicals. John H Quigley LLC

17. A Path to $ustainability • If water, toxic chemicals reduced/eliminated for hydraulic fracturing, virtually all of these costs/risks would reduced or eliminated • Acquisition, storage, handling of chemicals, water • Trucking, pipeline development • Drought/ withdrawal curtailment by river basin commissions • Water treatment, handling, storage, recycling, disposal • Reduced site development, restoration from smaller well pad footprints • Road building, bonding • Mitigating/remediating spills, leaks, ground- or surface-water contamination • Compliance reporting costs • Lobbying, legal, litigation settlement, and - maybe a lot of - PR costs John H Quigley LLC

18. A full accounting of risks, costs: • May make the business case for • Prioritizing/driving R&D, pilots • Deployment of techs, BMPs • Continuous improvement • ¾ of SGR’s “getting it right” John H Quigley LLC

19. A full accounting would also: Place cost reduction alongside risk reduction + Reconcile both society's and industry's goals + Establish/enhance social license to operate + Framework for developing a more agile regulatory approach Potential win - win situation where public is confident that their health is not in jeopardy and savings go directly to a company's bottom line. John H Quigley LLC

20. It’s time to sharpen the pencils. John H Quigley LLC

21. Contact John H Quigley LLC John.H.Quigley@gmail.com http://www.onearth.org/author/john-quigley http://johnhquigley.blogspot.com/ http://twitter.com/@JohnHQuigley John H Quigley LLC