Shale Gas Drilling Doing the Job Right! Cuadrilla Resources Limited

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2 GASLAND Claims Gas in Colorado water well, burning water tap Proven that gas was naturally occurring in water well No connection with any nearby gas wells Fish killed in Pennsylvania stream Caused by acidic water from local mine drainage No connection with any nearby gas wells High levels of benzene in residents at Dish, Texas Study proved overall levels of benzene in residents were normal Those with higher than normal levels were smokers No connection to any nearby gas wells

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4 WHO IS CUADRILLA? Cuadrillais an independent UK based energy company formed in 2008 Primary goal is to explore unconventional oil and gas opportunities in Europe Currently has licence areas in UK, Netherlands and Poland

5 What is Shale Gas? Shale gas is natural gas produced from shales Unconventional refers to the rocks not the extraction technique. Shalesare where the gas is formed Very low permeability hence the rocks need to be hydraulically fractured to release the gas Shale gas is transforming the energy mix in the US. Shale has increased from 1% to approximately 40% of gas supply in the last 10 years The US have now gone from gas importers to gas exporters with the UK last winter importing shale gas from the US

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7 The Good News Shale Gas Exploration is SAFE! Fracingdoes not cause groundwater contamination (neither from frac chemicals nor natural gas) Frac chemicals used by Cuadrilla are simple and safe Chemical contamination in shallow water can only happen from surface spills due to improper handling or containment (US EPA recently testified there are no known cases of frac water getting into ground water from the frac zone) Natural gas can only get to a shallow water zone as a direct result of poor well construction Gas leakage to groundwater is very rare, but easily repairable Best News -These issues are entirely PREVENTABLE by understanding the potential problems and doing the job right

8 More Good News After 6 Months of Intense Study, the UK Agrees SHALE GAS GETS SUPPORT FROM MPS NEW REPORT: SHALE GAS Shale gas drilling in the UK has been given the go-ahead by MPs in a new report looking at the impact it could have on water supplies, energy security and greenhouse gas emissions. Safety The inquiry found no evidence that the hydraulic fracturing process involved in shale gas extraction known as fracking - poses a direct risk to underground water aquifers provided the drilling well is constructed properly. The Committee concluded that, on balance, a moratorium in the UK is not justified or necessary at present. The MPs, nevertheless, urge DECC to monitor drilling activity extremely closely in its early stages in order to assess its impact on air and water quality. Tim YeoMP, Chair of the Committee said: There has been a lot of hot air recently about the dangers of shale gas drilling, but our inquiry found no evidence to support the main concern that UK water supplies would be put at risk. There appears to be nothing inherently dangerous about the process of fracking itself and as long as the integrity of the well is maintained shale gas extraction should be safe. The Government s regulatory agencies must of course be vigilant and monitor drilling closely to ensure that air and water quality is not being affected.

9 And the State of NY also agrees After extensive research, the NY moratorium on fracing was lifted on July 1, 2011 Some of the key conditions now required in NY are already being usedby Cuadrilla and other European oil/gas operators (Ex. Setting intermediate casing above main producing fm)

10 Prevention of Groundwater Contamination Must prevent (1) Leakage at surface (2) Leakage from wellbore

11 Protection of Shallow Water From Surface Leakage of Chemicals, Drilling Waste, Fuel, etc

12 Cuadrilla Drilling Rig (from Drillmec in Italy)

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14 Water Monitoring Program Surface Water ponds, streams, nearby water wells Shallow wells (15 to 30 m) installed around site for continuous gas monitoring. Drilling Waste check before sending to landfill or fluid disposal facility Frac FlowbackWater check all flowbackwater for salts, heavy metals, radioactivity before sending to a disposal facility

15 Groundwater Contamination From Well Leakage US Environmental Protection Agency (EPA) recently testified that they do not know of any case where frac fluids and chemicals have contaminated groundwater. So lets focus on natural gas in groundwater.

16 Natural Gas In Groundwater RARE --more than 40,000 new land wells drilled in US each year, with fewer than a dozen cases of wells leaking natural gas to groundwater REPAIRABLE --easy to locate point of leakage and fix it PREVENTABLE using industry best practices for well design and construction prevents gas leakage

17 How Can Deep Gas Reach Shallow Water Zone? There are no recorded cases where shallow water has been contaminated from excessive frac height in deep oil or gas zones... NONE! Groundwater contamination with gas is nearly alwaysa result of poor well design along with gas channeling Gas channelingis particularly a problem in over-pressured gas reservoirs (ex. Marcellus Shale PA, NY, Wva)

18 Understanding The Well Cementing Process

19 Drilling

20 Pull drill pipe and bit out of hole

21 Install Casing and Prepare For Cement Job

22 Cementing Equipment

23 Start Cement Job

24 Mix Pump Required Cement Volume

25 Displace Cement With Fluid And Rubber Plug

26 Finished Job Fluid Inside Casing - Liquid Cement Outside Casing - Gas Stays In Place

27 Gas Channeling Very Difficult To Occur, But Can Happen

28 Cement Starts To Set And Support Its Own Weight

29 What If Hydrostatic Pressure Falls Below Reservoir Pressure? While Rare, Gas Can Actually Enter Cement Column And Start To Rise

30 Permeability (md) Slu rry Po re Pressu re (B ars)

31 The Simple Fix For Preventing Gas Channeling Good cement system (low free water, right angle set) Good cement placement (pipe movement, centralizers) Keep hydrostatic head low enough to prevent over-pressuring the exposed formations (2 stage cement jobs) Use special additives that expand cement Use of latex additives to plug permeability in the slurry column during setting And remember ---Good well construction offsets any issues associated with the rare occurrence of gas channeling

32 PROBLEM Gas Channeling along with Poor Well Construction

33 Example --Poor Well Design (sometimes used in N. America to save money)

34 Gas Channeling During Cement Setting No Shallow Water Protection With This Design

35 With Poor Well Construction A Nearby Shallow Water Well Could Be Affected

36 Gas ChannelingIs REPAIRABLE (typically 3 to 5 days)

37 Repair Process (locate leak, isolate, cement, check success)

38 Well Integrity Restored

39 Doing The Job Right

40 Geologic Sequence in Bowland Basin

41 Surface Casing

42 Intermediate Casing

43 Production Casing

44 Frac Lowest Shale Zones

45 Frac Middle Shale Zones

46 Frac Upper Shale Zones

47 Produce Gas From Well Subsurface Safety Valve, Tubing, Packer, Fluid Barrier

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49 Premium Gas Seal Threads Used In Europe

50 Gas Channel Mitigation In Bowland Shale

51 Compare Results --- Good vs. Poor Design

52 Gas Channelling - CONCLUSION Gas Channelingis difficult to occur, but under right conditions can happen Its easily preventable with good cement design In the unlikely event that it does occur, a proper designed well will trap any channeledgas and keep it insidethe casing and away from shallow groundwater.

53 So next time you see this...

54 Remember.... This movie gives a misleading portrayal of the oil & gas industry The oil & gas industry completelyunderstand the drilling process and how potential problems can occur And by using industry best practices in the well design and construction process, all of these problems will be prevented Do the job right ---safe well, with no problems!

55 SHALE GAS DRILLING Doing the job right! Any Questions? Chris Hird