September 24, 2012 Oklahoma City, OK

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1 Prepared For: SSEB's 52nd Annual Meeting Prepared By: Vello A. Kuuskraa, President ADVANCED RESOURCES INTERNATIONAL, INC. Arlington, VA September 24, 2012 Oklahoma City, OK 1

2 After several decades of decline, Oklahoma s oil and gas industry is in revival, with production of natural gas and petroleum liquids (crude oil, lease condensate and NGLs) steadily rising. Natural Gas Production (Dry) (Bcfd) Petroleum Liquids Production (Barrels/Day) , ,000 Mid ,000 Pursuit of clean energy technologies such as utilization (and storage) of CO 2 with enhanced oil recovery and shale gas/ tight oil could further boost Oklahoma s oil and gas industry. 2

3 Numerous firms, such as Whiting and Chaparral, are already actively using CO 2 -EOR in Oklahoma. Whiting Petroleum has a major CO 2 -EOR project, providing over 15,000 barrels of oil per day, underway in the Postle (Morrow) oil field of western Oklahoma. The company has steadily expanded the CO 2 flood to 39,000 acres today. Chaparral Energy also has a CO 2 -EOR project in western Oklahoma at Camrick (Morrow) oil field, producing nearly 2,000 barrels per day. In addition, the company has a miscible and an immiscible CO 2 flood at Sho-Vel-Tum in southern Oklahoma. Two additional CO 2 -EOR projects are underway in the N.E. Purdy and Bradley units of the Golden Trend in south-central Oklahoma. 3

4 There are currently six CO 2 -EOR floods in Oklahoma: Two CO 2 floods are in the Postle and Camrick field areas in the Oklahoma panhandle. Four CO 2 floods are in the Sho-Vel-Tum and Golden Trend fields in central Oklahoma. Current CO2-EOR Flood Current CO 2 -EOR Floods 4

5 Arkalon Ethanol Plant Coffeyville Fertilizer Plant Over 400 miles of CO 2 pipelines already exist in Oklahoma. Agrium Fertilizer Plant Existing CO 2 Pipelines Planned CO 2 Pipelines Proposed CO 2 Pipelines Koch Fertilizer Plant A new 50+ mile, 50 MMcfd pipeline is under construction linking the Coffeyville Fertilizer Plant with the Burbank oil field. Western Oklahoma CO 2 -EOR projects are linked to natural as well as anthropogenic CO 2 supplies. Oklahoma s CO 2 Pipelines Source: Chaparral Energy,

6 In addition to existing projects, numerous additional CO 2 -EOR floods are being considered for Oklahoma. Chaparral Energy budgeted $83 million in 2011 and $127 million in 2012 for CO 2 EOR, including the CO 2 flood in the one billion plus barrel (OOIP) Burbank oil field area. Overall, Chaparral has identified a large number of oil fields, holding nearly four billion barrels (OOIP), as favorable for CO 2 - EOR. Chaparral anticipates 200 million barrels (net) of oil recovery from applying CO 2 -EOR in these fields. Chaparral s stated corporate goals are long-term growth through CO 2 -EOR and productive use of anthropogenic CO 2. 6

7 Our company s recent studies show that the CO 2 -EOR potential for Oklahoma is quite promising: A large number of Oklahoma s large oil fields are technically favorable for CO 2 -EOR, under today s State of Art Technology: No. of Large Fields 87 Original Oil In-Place 30 billion Application of Next Generation CO 2 -EOR Technology, which includes chemicals/fluids to lower miscibility pressure and nearmiscible CO 2 -EOR (plus other advances), would expand the number of oil fields and the size of the oil resource favorable for CO 2 -EOR in Oklahoma: No. of Large Fields 99 Original Oil In-Place 34 billion 7

8 The volume of economically recoverable oil (assuming $90/B oil price, a $40/mt CO 2 price and a 20% ROR (before tax)) depends greatly on CO 2 -EOR technology: State of Art 5.1 Billion Barrels Next Generation 9.3 Billion Barrels Application of CO 2 -EOR to the numerous smaller Oklahoma oil fields would substantially increase these numbers. As a point of comparison, Oklahoma crude oil proved reserves (end of 2010) were 0.7 billion barrels. 8

9 The economically feasible CO 2 -EOR potential creates a major market demand for CO 2, which can only be meet by anthropogenic CO 2 -- capture of CO 2 from natural gas plants, industrial sources, power plants and coal-to-liquids facilities. State of Art 1,660 MMmt Next Generation 2,510 MMmt Assuming a flat 35 year demand for CO 2, the annual CO 2 requirements would be as follows: MMmt/Yr Bcfd No. of 1 GW Size Power Plants State of Art Next Generation

10 The single largest constraint to expanded use of CO 2 -EOR in Oklahoma is having sufficient, affordably priced supplies of CO 2. Other actions that would expand the use of CO 2 -EOR in Oklahoma include: Improving the fundamental data base on oil, gas and water production, on reservoir characteristics and on unitization status. Testing the applicability (and impact) of next generation CO 2 - EOR technology at various Oklahoma oil fields. Assessing the oil resource (and production potential) in residual oil zones (ROZ) below and beyond Oklahoma oil fields.* Facilitating construction of CO 2 pipelines. *Melzer Consulting, Advanced Resources International and the Oklahoma State University have made a proposal to RPSEA to study the ROZ potential in Oklahoma. 10

11 Oklahoma also has significant shale gas and tight oil resources in the Anadarko, Arkoma and Ardmore basins. The Anadarko Basin is home to a series of emerging unconventional oil and gas plays, including: Cana Woodford Shale play Mississippi Lime tight oil play Granite Wash liquids-rich tight gas play Marmaton and Cleveland tight oil plays 11

12 The Devonian/Mississippian-age Cana Woodford Shale Play is currently centered in Canadian and Blaine counties. The Cana Woodford Shale offers a large, multi-resource (dry gas, wet gas and oil/ condensate) opportunity. Started in 2007/2008 with Devon Energy s drilling of 23 Hz wells. As of end of 2011, 314 Hz wells have been drilled with Cimarex, Continental, Marathon and Newfield active. During 1Q-2012, 46 rigs were in use, with oil and gas production at 90,000 BOED, (primarily wet gas).

13 The Mississippian-age horizontal well tight oil play in the Mississippi Lime is a wet gas and oil play located on the northern border of Oklahoma. Conversion of a vertical well to a highly productive Hz well tight oil play. About 14,700 vertical wells Nearly 1,000 Hz wells SandRidge and Chesapeake are two major operators with 45 rigs; Devon/Sinopec have entered the play with 6 rigs. Operators are looking to extend the Mississippian Lime play eastward in Oklahoma and northward into Kansas.

14 The Pennsylvanian-age Granite Wash liquids-rich tight gas play is located in Beckham, Roger Mills and Washita counties of western Oklahoma. This deep (10,000 to 15,000 ) tight gas play contains a sequence of sands within a 1,500 thick intervals. Starting in 2008, Hz well drilling has replaced vertical wells, particularly in Oklahoma. Apache, with its acquisition of Cordillera, is the dominant lease holder, followed by Chesapeake and Forest Oil. 1Q-2012 production is in excess of 1 Bcfed, with about 25% condensate and 75% wet gas.

15 The vertically stacked Pennsylvania-age Cleveland and Tonkawa tight oil plays are also located in western Oklahoma. While overshadowed by the Granite Wash and other Anadarko Basin plays, the Cleveland/Tonkawa is under active development. Chesapeake and EOG, plus a series of technically savvy independents (Jones Energy, Mewbourne Oil and Holmes Exploration), are the largest lease holders. Other stacked unconventional gas and oil plays in this area include the Marmaton and Hogshooter.

16 Our company s recent assessments indicate that the technically recoverable oil, gas and natural gas liquids resources (from these four Anadarko Basin shale gas and tight oil plays) are considerable: Nearly 48 Tcf of dry gas (after NGL removal and gas shrinkage) About 4.4 billion barrels of light oil/condensate About 6.1 billion barrels of natural gas liquids (assuming high efficiency cryogenic gas processing) The recoverable shale gas and oil resources in the Arkoma and Ardmore (Woodford Shale) plays would add to these totals. 16

17 The economically feasible portion of this technically recoverable unconventional hydrocarbon resource will be less but still quite substantial, depending on: Long-term oil and gas prices plus drilling, stimulation and other service costs Accessible markets, particularly for natural gas and natural gas liquids Advances in technology that improve recoveries (EURs) per well and reduce costs (e.g., improved drilling efficiencies, recycling of produced water, pad drilling). 17

18 The Oklahoma energy industry can benefit greatly from participating in clean energy development. Capture and sale of CO 2 to the EOR industry can create a source of revenues for Oklahoma s fertilizer, gas processing and power industries. Successful pursuit of enhanced oil recovery in Oklahoma s mature oil fields depends on having access to large, new sources of CO 2. Oklahoma s numerous shale gas and tight oil plays provide major new development opportunities for Oklahoma s oil and gas industry. Advances in CO 2 -EOR, shale gas and tight oil technologies will improve the size of the price and its economics. 18

19 Oklahoma Rising: Opportunities from Clean Energy Development Advanced Resources International Office Locations Washington, DC 4501 Fairfax Drive, Suite 910 Arlington, VA Phone: (703) Fax: (703) Houston, Texas Westheimer, Suite 520 Houston, TX Phone: (281) Fax: (281)