SHALE DEVELOPMENT TRENDS AND IMPLICATIONS ON VALVE NEEDS JOHN D. SELDENRUST, VICE PRESIDENT-ENGINEERING & CONSTRUCTION

Transcription

1 SHALE DEVELOPMENT TRENDS AND IMPLICATIONS ON VALVE NEEDS JOHN D. SELDENRUST, VICE PRESIDENT-ENGINEERING & CONSTRUCTION

2 WHAT IS UNCONVENTIONAL GAS? Gas that is more difficult or less economical to extract Constitutes a large proportion of the natural gas left to be extracted in North America Plays an ever-increasing role in supplementing the nation s natural gas supply Source: 2

3 NATURAL GAS SUPPLY Onshore conventional and offshore gas production continues to decline, while unconventional production grows robustly More than 90% of the increase in unconventional gas production is a result of shale gas Unconventional production comprises twothirds of the total supply by 2035 Source: INGAA, June

4 SHALE GAS PRODUCTION ON THE RISE U.S. and Canadian Shale Gas Production (Average Annual Bcf/d) 4

5 CHESAPEAKE ENERGY AND THE ENERGY SUPPLY REVOLUTION 5

6 MMCF/D RESPONSIBLE FOR ALMOST HALF OF NATURAL GAS GROWTH FOR A DECADE U.S. natural gas production has increased 10 Bcf/d from 54 Bcf/d in 2000 to 64 Bcf/d in 2011 (1) CHK s average gross operated gas production has grown 4.3 Bcf/d from 1.1 Bcf/d in 2000 to 5.4 Bcf/d in 2011 (1), 43% of total U.S. growth Over the past 11 years, CHK has moved from 2.0% to 8.3% of daily U.S. natural gas production With 2.0% of the U.S. natural gas production market share in 2000, CHK grew its gross operated production 472% from beginning of 2000 until now while the other 98% of producers grew gross operated production only 12% As CHK s natural gas production remains flat, remaining U.S. gas production will likely not be able to grow 7,000 6,000 5,000 U.S. CHK 70,000 60,000 50, % 9.0% 8.0% 7.0% CHK's Percentage of U.S. Natural Gas Production 4,000 3,000 2,000 40,000 30,000 20,000 MMCF/D 6.0% 5.0% 4.0% 3.0% 1, , % 1.0% 0.0% Source: EIA and CHK internal data 1) Data through August

7 CHK Operated Rigs % of CHK Realized Revenue % of CHK Operated Drilling and Completion Capex AGGRESSIVELY SHIFTING CAPITAL TO LIQUIDS-RICH PLAYS During 2011 CHK substantially reduced drilling on dry gas plays and is further reducing in 2012 Accelerating drilling of liquids-rich plays through YE'12 when CHK's drilling capex is 20/80% between natural gas plays and liquids-rich plays Dramatically improving drilling rates of return and unit profitability Liquids expected to be ~30% of total production and ~50% of total revenues in % 80% 60% 40% 20% 0% Total Natural Gas Capex Total Liquids Capex 20% 20% 50% 70% 87% 90% 80% 80% 50% 30% 13% 10% E 2012E 2013E Natural gas rigs Liquids-rich rigs 60% 50% 40% 30% 20% 10% 0% CHK Liquids as a % of Total Realized Revenue CHK Liquids as a % of Total Production 11% 12% 8% 8% CHK will fund shift to liquids-rich plays by decreasing gas drilling and utilizing drilling carries from new JV partners 18% 11% 29% 16% 45% 24% 52% 30% E 2012E 2013E 7 60% 50% 40% 30% 20% 10% 0%

8 Boe/d CHESAPEAKE S GROWTH IS SHIFTING TO LIQUIDS 800, , ,000 NGL Oil Associated natural gas from liquids plays Natural gas from shale plays ~250,000 b/d average in 2015 Base natural gas % Liquids ~150,000 b/d average in % 70% 60% 500,000 94,000 b/d in 3Q 11 50% 400, ,000 30,000 b/d in 1Q 09 ~2.2 Bcf/d Barnett Total JV VPP #8 ~2.8 Bcf/d Fayetteville Sale and VPP #9 ~2.8 Bcf/d ~3.2 Bcf/d 40% 30% 200,000 20% 100,000 10% 0 0% CHK s modeling indicates 2015 liquids goal of averaging 250,000 b/d should be achievable solely through organic growth 8

9 SUPPLY DRIVES PRICE STABILITY Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 USD/MMBtu Bcf/d Eagle Ford Marcellus Haynesville Fayetteville Barnett Henry Hub Price 9

10 TECHNOLOGY CHANGES THE GAME Revolutionizing the Drill Bit More accurate drilling trajectory Higher rates & reserves Reduce need for surface pipeline Multi-stage High Pressure Fracturing Use less surface area Generate less waste Reduce air emissions 10

11 ENVIRONMENTAL IMPACT More than 1.2 million fraced wells with limited incidents Cleaner end product natural gas as fuel Produces 30% less CO 2 than oil Produces 50% less CO 2 than coal 11

12 PAD DRILLING ADVANTAGE Up to 20 wells on a single large pad Directional Drilling from Pads Steady, long life natural gas production Capital efficient Minimizes surface impacts 12

13 CONNECTING AMERICA'S ENERGY FUTURE Chesapeake Midstream Active pipeline = 5,688 miles Connected wells = 8,000+ Gathering systems = 232 *As of Nov. 30,

14 CHESAPEAKE MIDSTREAM PARTNERS OVERVIEW Formed as Chesapeake Energy ( Chesapeake or CHK ) and Global Infrastructure Partners ( GIP ) joint venture in September 2009 Provides midstream services in leading unconventional plays including the Barnett Shale, Haynesville Shale, Marcellus Shale and Mid-Continent regions Customers include Chesapeake, Total E&P, Statoil, Anadarko Petroleum, Mitsui & Co. and other third parties Priced IPO in July 2010; NYSE: CHKM Expanded into the Haynesville Shale in December 2010 and the Marcellus Shale in December 2011 through drop-downs from CHK Value Chain: Wellhead Facilities/ Flowlines Chesapeake Midstream Partners Gathering System Gathering Facilities Pipeline Transportation Distribution Wellhead Central Delivery Points Customer 14

15 MIDSTREAM VALVE NEEDS Determining factors Acreage of the production area Distance to transmission pipelines Gas lines require larger diameters up through 24+ Oil/liquids lines generally require 12 or less Operating pressures 15

16 MIDSTREAM VALVE NEEDS Impact of gas quality Composition of flow % gas % oil % water H 2 S CO 2 Characteristics of flow Pressure Entrained liquids Entrained solids 16

17 2012 PROJECTED VALVE SPEND $2,500,000, 8% $2,000,000, 6% $2,500,000, 8% $25,000,000, 78% Quarter Turn Ball Valves Control Valves Plug Valves and Other Valves Pipeline & Through Conduit Gate Valves 17

18 ANADARKO BASIN Unconventional liquid play Total Net CHK Acreage 2.4 million net acres Variety of regions Mississippi Lime Cleveland/Tonkawa Granite Wash Negligible CO 2 and H 2 S contaminants Moving water, crude oil and wet gas Very rich natural gas associated with variety gravity crude oil Lower reservoir pressures Low-pressure gathering and compression Valves Use 3 16 steel and/or HDPE pipe Preferably ANSI 150 ball valves on gathering systems 18

19 EAGLE FORD Unconventional liquid play Total Net CHK Acreage 460,000 net acres 0-6% CO 2 % H 2 S: negligible up to 3% Moving water, crude oil and wet gas Very rich natural gas associated with variety gravity crude oil Lower reservoir pressures Low-pressure gathering and compression Valves Use 3 20 steel pipelines Primarily full-port ANSI 300 and ANSI 600 ball valves for gas Primarily through-conduit ANSI 300 gate valves for oil Where H 2 S is present, NACE-trim valves are used. Occasional full stainless steel valves used around amine treaters 19

20 HAYNESVILLE Mature lean natural gas play Total Net CHK Acreage 460,000 net acres Up to 4-5% CO 2 H 2 S present : ppm Gas play Lean gas, no hydrocarbon condensate Valves Use 4-24 steel pipe Primarily full-port ball valves, ANSI 600 High reservoir pressures, gathering compression generally not necessary Where H2S is present, NACE-trim valves are used. Occasional full stainless steel valves used around amine treaters 20

21 MARCELLUS Growing natural gas shale play Total Net CHK Acreage 1,780,000 net acres 0-2% CO 2 (no treating required) % H 2 S: negligible Gas play, primarily Some lean, some rich gas, some areas of hydrocarbon condensate Varied reservoir pressures Some gathering compression Valves Use 4 24 steel pipe Primarily full-port ANSI 600 and ANSI 300 ball valves 21

22 CHESAPEAKE MIDSTREAM Supply information Primarily use flanged, quarter-turn ball valves in pipelines ANSI 150 ANSI 300 ANSI 600 Use smaller number of rotary valves in control applications (globe, v-ball, etc.) Primarily use new manufactured valves Perceived supply limitations Flanged plug valves for blow-down applications (2 6 ) ANSI 150 ball valves (2 12 ) 22

23 QUESTIONS? 23