New England Council Shale Gas Development. October 7, 2011 David J. Spigelmyer---VP, Government Relations Chesapeake Energy

Transcription

1 New England Council Shale Gas Development October 7, 2011 David J. Spigelmyer---VP, Government Relations Chesapeake Energy

2 CHK Overview Second-largest producer of U.S. natural gas and a Top 15 producer of U.S. liquids 1Q 11 natural gas production of ~2.7 bcf/d, total production of ~3.1 bcfe/d Most active driller in U.S. 166 operated rigs currently, ~105 non-operated rigs & ~15 info only rigs; collector of >15% of all daily drilling information generated in the U.S. 5 Rigs in the Utica 30 in the Marcellus ~50% of 2011 drilling capital in liquids plays; ~75% in 2012 Consistent production growth 21 consecutive years of sequential production growth 2010 average daily production growth was 14% Projecting two-year ( ) growth of 25% (net of asset sales) From , projecting liquids production to increase ~190% and natural gas production to grow ~6% Best assets in the industry 15.6 tcfe of proved reserves at 3/31/11 (1) (following sale of 2.5 tcfe in 1Q 11) 107 tcfe of risked unproved resource potential (289 tcfe of unrisked unproved resource potential) PXP, BP, STO, TOT,CNOOC JVs and BHP Fayetteville sale validate asset quality and value Unparalleled inventory of U.S. onshore leasehold and 3D seismic 14.3 mm net acres of U.S. onshore leasehold and 29 mm acres of 3D seismic data Data above incorporates: CHK s Outlook as of 5/2/11 Risk disclosure regarding unproved resource estimates appears on page 40 1) Based on trailing 12-month average price required by SEC rules; 16.5 tcfe based on 10-year average NYMEX prices 2

3 Chesapeake Energy Economic Impact A Look to the Future for the North East 23 rigs currently operating in Pennsylvania Over 1,500 employees PA Less than 250 employees in January 2009 Over $2.0 billion paid to landowners since 2008 Over $350 million in contracts to vendors since 2009 Over $2.5 million in community investment since Rigs currently operating in West Virginia/ 5 rigs OH 702 Chesapeake employees living in WV $57 million paid in severance tax in the past five years $46 million in contracts to WV vendors for WV operations in 2010 Over the past five years, an $800 million dollar investment to WV entities was made by Chesapeake Energy 3

4 Presentation Overview Brief History of Natural Gas Production in the Northeast Shale Development Changing the outlook for natural gas supply Addressing the hurdles: (Advisory Commission) Legislative/Regulatory Public Perceptions Softening commodity pricing Slumping demand Critical successes Jobs and economic outlook 4

5 Long Oil and Gas Well History Long history of producing natural gas in Appalachia Fueling American homes and businesses since the mid 1800s Steel industry took root in western PA/along the Great Lakes in part due to natural gas availability All steel, glass, plastics, chemicals, fertilizers, powdered metals, & pharmeuseudicals require natural gas 5

6 Shale Gas Geography Changing the Outlook for Natural Gas Supply! Shale gas is found throughout the Eastern, Southern and West-Central parts of the country within Major Sedimentary Basins Black shales within the Appalachian Basin, such as the Marcellus, are the primary focus of deep shale gas development in Pennsylvania, New York, West Virginia and Ohio 6

7 Is the Marcellus a new find? Marcellus Shale known for more than 100 years Number of factors make it economically feasible Horizontal drilling Proximity to northeast population centers Energy cost trends More than 500 trillion cubic feet of natural gas 7

8 Why now? It s American! Growing Global Oil Demand Is an American Disaster Waiting to Happen By 2020, the IEA predicts oil consumption will increase 60% During that time, China s consumption of oil will increase 7.5% each year; India will increase 5.5% each year Oil is predicted to be at least $200/bbl by 2030 To keep up with the demand, OPEC countries will have to add 64 million barrels of production per day for the next 22 years* This needed growth will require $350 billion per year on new projects OPEC only spent $390 billion on new projects from Source: International Energy Association, IEA October,

9 Why Now? Shale Development Changing the outlook for natural gas and liquids supply North American Product Abundant Affordable Clean Economics: Jobs, Jobs and Jobs! Public Issues: Management of Production Processes Hydraulic Fracturing Water use/disposal Water protection Land Use Reclamation 9

10 Addressing Public Perceptions: Water Usage: regulated process by the river basins commissions and states Water Disposal: Reuse and recycling has been an extraordinary success story Road Damage: In PA, operators rebuilding much of the outdated road infrastructure Out of state employment: Over 70% local hires since late 2009 Jobs impacts overstated (PA based): 156,656 PSU v. 140,000 DOL---ALL GOOD! Gas is being shipped overseas: Impact on US economy for imported oil is unsustainable. 10

11 Regulatory Addressing the Challenges 2008 Voluntary Permitting Fee Increase: Instituted a pay-as-you-go system with the Department average permit went from $100/permit to over $3,500/permit Prior to the voluntary increase, DEP had fewer than 90 people assigned to the Oil and Gas program. Today, 202 staff members are assigned to compliance and permit review. 84 of whom are devoted exclusively to well site inspection. New Oil and Gas Office in Williamsport In 2008 Frac chemical disclosure Chapter 78 rules on casing design TDS rules Water well testing 11

12 Water Use: Efficiency of Deep Shale Production Chesapeake s Four Major Deep Shale Plays Shale Play Average Water Use Per Well CHK Est. Avg. Natural Gas Production Over Well Lifetime Resulting Energy From Natural Gas Production Per Well (based on 1,028 Btu per Cubic Feet ) 3 Water Use Efficiency (in gallons per MMBtu) Haynesville 5.6 million gallons 6.5 billion cubic feet 6.68 trillion Btu 0.84 Marcellus 5.6 million gallons 5.2 billion cubic feet 5.35 trillion Btu 1.05 Barnett 4.0 million gallons 2.65 billion cubic feet 2.72 trillion Btu 1.47 Fayetteville 4.2 million gallons 2.4 billion cubic feet 2.47 trillion Btu 1.70 British Thermal Unit (Btu) Million British Thermal Units (MMBtu) 12

13 Raw Fuel Source Water Efficiency How well are we using our water resources for all energy? Energy resource Range of gallons of water used per MMBtu of energy produced Chesapeake deep shale natural gas Marcellus Shale 1 Conventional natural gas 1 3 Coal (no slurry transport) (with slurry transport) Nuclear (processed uranium ready to use in plant) 8 14 Conventional oil 8 20 Synfuel - coal gasification Oil shale petroleum Tar sands petroleum Synfuel - Fisher Tropsch (Coal) Enhanced oil recovery (EOR) 21 2,500 Biofuels (Irrigated Corn Ethanol, Irrigated Soy Biodiesel) > 2,500 Source: USDOE 2006 (other than CHK data) * Does not include processing which can add from 0-2 gallons per MMBtu Solar and wind not included in table (require virtually no water for processing) Values in table are location independent (domestically produced fuels are more water efficient than imported fuels) 13

14 Water Intensity of Transportation Fuels Ethanol from Irrigated Corn Grain Ethanol from Irrigated Corn Stover Biodiesel from Irrigated Soybeans Hydrogen via Electrolysis Syn Diesel from Coal Electric Vehicle (Electric from Nuclear)* Oil Sands Gasoline Syn Diesel from Natural Gas Oil Shale Gasoline Electric Vehicle (Electric from Coal)* Gasoline Electric Vehicle (Electric from Shale NG)* Diesel CNG using Electricity for Compression Hydrogen from Natural Gas CNG using NG Generator for Compression ,000 10, ,900 Gasoline with 10% irrigated ethanol blend: ~ 200 gallons water consumed per 100 miles driven Average Consumption: Gallons of Water Per 100 Miles Driven 2,800 Compressed Natural Gas (CNG) Source: Adapted from King and Webber 2008a; *Adapted from King and Webber 2008b, combined with data from USDOE

15 What happens to the water? Process Currently recycling / reusing nearly 100% of produced water via improved filtering processes Produced water during frac flowback process collected and stored in holding tanks onsite Produced water pumped from the tanks through 20-micron filter Filtered fluid is pumped into a clean storage tank Prior to re-use in frac, the water is tested for remaining chlorides not removed in filtration process Test results determine the rate at which the filtered water can be blended with fresh water during the frac job Benefits Reduction in the volume of wastewater means less water sent offsite for disposal Less fresh water needed for fracturing operations means reduced impact on local supplies Reduced truck traffic (less water hauled) means lower impact on roads, noise and air Filtration process does not require substantial amounts of energy like other processes that remove salts (i.e. reverse osmosis membranes, distillation) Helps reduce the cost of operations 15

16 Drilling the Well- Groundwater Protection 16

17 Well Completion-Hydraulic Fracturing: What is it and is it safe? After the drilling rig is removed, hydraulic fracturing ( fracing ) begins Not new technology; has been in use since after World War II More than 1.2 million wells have been hydraulically fractured in United States w/o a single case of groundwater contamination Water is mixed with proppant (such as sand) and pumped into the shale reservoir under pressure 99.25% of fracturing fluid is made up of water and sand Generally takes several days per wellbore Additives fully disclosed on FracFocus.org For more information on hydraulic fracturing, please visit AskChesapeake.com 17

18 Typical Northern Marcellus Shale Fracturing Products Fresh Water, 80.25% Recycled Water 14.00% Sand, 5.00% Other, 0.752% Acid Package: % Acid (15% HCL): % Iron Control: % Corrosion Inhibitor: % Friction Reducer, 0.07% Anti-Bacterial Agent, 0.03% Scale Inhibitor, 0.02% Reported values are calculated as percentage of fracturing fluid by VOLUME For more information, see the Marcellus Shale Hydraulic Fracturing Fact Sheet on 18

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20 Softening Commodity Pricing/Low Demand Huge risk to PA: Rig counts already softening due to softening in commodity pricing Much of the focus going to wet gas and oily plays (Utica Eagleford) Nat gas selling at $3.75/MCF Pipeline access also critical to development Demand down but improvements coming Natural gas use in vehicle fleets continued export of American dollars into the Middle East at $1.2 B/day is unsustainable Electric Generation potential is huge SO WHY NOW? 20

21 Why Now? The Future: Economic Opportunity May 2010: (PSU Researchers)--Study of Economic Impact Economic Value: $ Billion $ Billion $ Billion State/Local Taxes* $1.085 Billion $1.231 Billion $2.003 Billion Total Jobs: 139, , ,420 Key Date: 2014, when Pennsylvania becomes natural gas exporter *Approximately 30 percent of total tax burden remains at local level. 21

22 Benefits of Natural Gas Clean The cleanest fossil fuel Dramatic reductions in SO2 No Mercury Negligible Particulates 80 percent less NOx than current generation fuels Carbon Light 50% less carbon dioxide than coal, 30% less than oil. Large transportation potential 8 million NG vehicles worldwide. Only 150,000 in US. Tremendous electric generation potential. Excellent partner fuel as renewable electricity production grows. 22

23 Abundant Affordable American Abundant Domestic Supply Barnett Shale: 44 Tcf* Fayetteville Shale: 42 Tcf* Haynesville Shale: 250 Tcf* Marcellus Shale: 490 Tcf** Total equates to nearly 40 years of national supply Affordable Natural gas price of $4.50 per MMBtu equivalent to $33 Bbl oil Current oil price around $100 Bbl Versatile Most Widely Used Fuel Clean burning power plants Residential use Industrial and manufacturing Commercial space heating Transportation fuel (CNG) *US Department of Energy (April 2009): Modern Shale Gas Development in the United states: a Prime,r p. 1 **Dr. Terry Engelder, Penn State University) Tcf = trillion cubic feet 23

24 Questions? 24