The Status of Unconventional Exploration in Europe

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1 The Status of Unconventional Exploration in Europe June 29, 2016 James M. Hill CalTerra Energy, LLC

2 Disclaimer I would like to say that these are my own personal views and do not necessarily reflect the opinions of former employers. And please do not make any investment decisions based on anything I say.

3 Hydrocarbon Reservoirs Deep depth, salt water aquifers below fresh water United States m 2,000-4,500 m

5 Technically Recoverable Shale Oil and Shale Gas Resources Assessment of 137 Shale Formations in 41 Countries

6 Organic Shale Gas Reservoirs Fracture Surfaces - Fresh Core Sample TCU Conference 2009, M. Vasilache 6

7 Shale Gas Mineralogy What Works Quartz Carbonate Clay Halliburton ShaleLog Presentation 2009

8 Thermal Maturity of the Eagle Ford

9 Sweet Spots

10 Unconventional Reservoirs Conclusions All Shale Reservoirs are unique. Each requires try and fail testing to finally establish economic production. Mineralogical composition influences rock mechanics, brittleness being the key. The rock has to be hard to be fractured. Reservoir characterization is critical. High Organic Carbon content (>2%), Porosity (>5%), Fluid sensitivity and Structural Complexity changes how productive the rock will be. Thermal maturity (How hot the rocks became) and gas composition is very important. Too cold, no oil. But maybe gas.. Biogenic Net thickness of the reservoir should be greater than 33 meters (100 feet ). Thicker the better. Depth to Top of the Shale Less than 4500 meters (15,000 feet). Cost of drilling gets too high.

11 Hydraulic Fracturing

$Composition Of Frac Fluids A typical fracture treatment will use very low concentrations of between 3 and 14 additive chemicals.$

12 Composition Of Frac Fluids A typical fracture treatment will use very low concentrations of between 3 and 14 additive chemicals. Each shale is unique, no single blend fits all.

13 Hydraulic Fracturing Issues The 2008 COGIS report concluded that "there [were] no indications of oil & gas related impacts to [Markham's] water well." Markham s water well was drilled through four different coal beds containing biogenic methane gas.

14 Fracturing History Fracturing can be traced to the 1860s, when liquid nitroglycerin was used to stimulate shallow, hard rock wells in Pennsylvania. The process was referred to as Shooting the Well The first experimental treatment to Hydrafrac a well for stimulation was performed in the Hugoton gas field in Grant County, Kansas, in 1947 by Stanolind Oil. Successful in Oklahoma in Treatments reached more than 3,000 wells a month for stretches during the mid-1950s. The first fracture treatments were performed with a gelled crude oil or kerosene. Water was first used as a fracture fluid in Mitchell Energy first used a Slick water Frac in the Barnett Shale in

15 Fracturing History Small treatments average approximately 60,000 gal of fluid and 100,000 lbs. of propping agent, with the largest treatments exceeding several million gal of fluid and 5 million lbs. of proppant. Fracture stimulation increases the production rate, but it is credited with adding 9 billion bbl. of oil and more than 700 TCF of gas to the US reserve base since In the 1960 s The US government experimented with using underground nuclear explosions to fracture the rock in the San Juan basin of New Mexico and the Piceance Basin of Western Colorado. Results were disappointing. (thank goodness) Since Stanolind Oil introduced hydraulic fracturing in 1949, close to 2.5 million fracture treatments have been performed worldwide.

16 U.S. EPA Draft Review - Impacts of Hydraulic Fracturing Water: Fracturing uses billions of gallons of water each year, however the use are generally less than 1% of the total annual water use. (ES-11, line 22-26) Chemicals: A list of 1,076 chemicals have been used, with the number of unique chemicals per well range from 4 to 28, average is 14. (ES-13, Line 2) Chemicals used are play specific Ground water contamination: There were 151 spills of produced fluids characterized by the EPA. None of the spills of fracturing fluid were reported to reach ground water. (ES-13, line 22) Conclusions: The report did not find evidence that (fracking) mechanisms have led to widespread, systemic impacts on drinking water resources in the United States. (ES-23, line 24)

17 Completion Operations

19 Impact Of Unconventional Reservoirs

21 Effect of Lower Oil Prices Over 100,000 jobs have been lost since 2014 and continue. Almost all Shale Reservoirs are uneconomic Many Independent Oil companies have too much Debit and are reorganizing. Write downs in Reserves- lower credit lines Resulting lower share price reduces liquidity and ability to raise equity based capital. Service companies have cut prices as much as 40% Companies continue to search for lower cost solutions to stop production declines. Re-Fracking

22 US Shale - Price Sensitivity

23 Current Projects Worldwide

26 Future Price Deck

27 European Shale Drilling Bowland Basin Cuadrilla & IGas U.K. Total Sweden Shell Poland Baltic Basin - BNK 3legs/Conoco, San Leon/Talisman, PGNiG Eastern Baltic Basin ENI & San Leon/Talisman UK Oil & Gas Saxony Basin Exxon Germany Podlasie & Lubin Basin Exxon, Chevron, PGNiG, Orlen, Marathon (Incd Nexen & Mitsui) France Fore-Sudetic Monocline SanLeon Romania Chevron Spain Mako Trough Exxon-MOL Bulgaria Moesian Platform LNG/TransAtlantic

28 European Shale Projects Tamboran Enegi Ireland Oil Cuadrilla Igas U.K. UK O&G Total Denmark Exxon Germany Sweden Gripen Aura PGNiG Orlen Poland ENI, Cadogan Porto w/rag Portugal Sorgenia BNK Repsol San Leon Heyco Shesa Spain True Oil Toreador Hess Total Vermilion France BNK Schuepbach OMV Austria Ukraine Chevron Romania Chevron Bulgaria LNG Transatlantic Shale Wells Drilled Shale Projects Announced

29 Why Only Success in the North America? De-risking shale plays in North America typically requires drilling about 100 wells, while achieving economies of scale requires many hundreds more.

30 The Best European Countries for Shale Exploration (Under the current restrictions)

Poland PGI estimated recoverable shale gas resources in the onshore Baltic-Podlasie-Lublin region to be 230.5 to 619.

31 Poland PGI estimated recoverable shale gas resources in the onshore Baltic-Podlasie-Lublin region to be to billion m3 (8 to 22 Tcf), with an additional to billion barrels of oil. USGS estimate is about 10% of this figure. EIA/ARI World Shale Gas and Shale Oil Resource Assessment

32 Poland - Results Only 70 shale test wells have been drilled, Only 25 wells were fracture stimulated: 15 vertical, 10 horizontal. Only the Baltic Basin had encouraging well results. A Sweet Spot has been found. Reservoirs are too thin and, or too deep in most basins. Reservoir pressures not high enough. Clay Contents too high, rocks are soft. Inflexible Government Regulation has stopped International Investment

33 United Kingdom

34 United Kingdom The recent 14th Onshore Oil and Gas Licensing Round had a total of 95 applications from 47 companies for 295 blocks. 27 blocks are being formally offered to companies involved in shale gas exploration in this round. Cuadrilla Resources tried to permit a drilling site at Roseacre Wood. Despite a positive Federal recommendations the local council voted 9 to 3 against drilling at the site. The BGS 2013 estimate of Bowland Shale resources of the U.K. at approximately 40 trillion cubic meters of shale gas, 10 TCM is technically recoverable.

35 Spain The Jurassic-age (Liassic) marine shale in the Basque-Cantabrian Basin contains an estimated 1.2 TCM (42 Tcf) of risked shale gas resource in-place

36 Spain DROPPED

37 Exploring For Organic Shale FIELD STUDIES

38 Exploring For Organic Shale FIELD STUDIES

39 Spain Energy Facts (2014 estimates) Natural Gas Production Natural Gas consumption (99.8% is Imported) Natural Gas Reserves Shale Gas Resource In-Place.024 BCM BCM 2.45 BCM 1,200 BCM With current technology this could be 20 to 30 years of gas supply at current consumption

40 Countries with Potential but Blocking Development France Banned Fracking in 2013 Netherlands - Plans to ban shale gas drilling for the next 5 years and will not renew existing exploration licenses Germany - Germany has agreed on terms of an outright 5- year ban on hydraulic fracturing. Northern Switzerland Swiss Plateau, effectively banned Fracking in 2011 Bulgaria Banned Fracking in 2012 Ireland announced that Fracking will be banned in policy planning The Spanish Congress has in March approved a resolution asking the Government to ban Fracking. Scotland this June banned Fracking forever?

Primary energy consumption by fuel 1980-2040 (quadrillion

41 Primary energy consumption by fuel (quadrillion Btu)

42 What I See in the Future The current European supply of natural gas and the reduction in use will continue to stop unconventional development for the foreseeable future. Governments with current bans on Fracking will not fight the environmental groups until a successful economic well is drilled. Energy prices will continue to be unstable until late Poland is the only country where industry has been successful with public outreach and will probably be the first country to produce commercial shale gas. Russia will continue and expand its current aggressive policies.

43 Acknowledgements BNK Petroleum, Camarillo, California US Energy Information Administration IHS Energy Services Dr. Helena Dobrova, Dr. Piotr Gawenda

44 The Status of Unconventional Exploration in Europe June 29, 2016 James M. Hill CalTerra Energy, LLC

local government authorities Local police, fire departments,

45 Hope for Europe Establish Public Trust Compliance with the rules is not enough Transparency and open dialogue Federal, regional and local government authorities Local police, fire departments, schools, hospitals, etc. Community town hall meetings University collaboration

46 Shale Production Decline

49 Russian Gas Volumes In 2015 Gazprom supplied BCM to Europe (IHS)

Shale Gas and the Outlook for U.S. Natural Gas Markets and Global Gas Resources

Shale Gas and the Outlook for U.S. Natural Gas Markets and Global Gas Resources Organization for Economic Cooperation and Development (OECD) Richard Newell, Administrator June 21, 2011 Paris, France U.S.