CHALLENGES AND ADVANCEMENTS IN PRODUCED WATER REUSE AND RECYCLING

CHALLENGES AND ADVANCEMENTS IN PRODUCED WATER REUSE AND RECYCLING MATTHEW E. MANTELL, P.E. ENGINEERING ADVISOR - COMPLETIONS TECHNOLOGY 2013 OKLAHOMA GOVERNORS WATER CONFERENCE

PRESENTATION OVERVIEW Chesapeake Operating Areas Chesapeake Water Use by Source Chesapeake Water Use by Play Produced Water Management: Key Considerations Produced Water Naming Conventions Generation of Produced Water by Play Produced Water Management: CHK Experience Application by Technology Type Direct Reuse Other Challenges Closing Thoughts

CHESAPEAKE ENERGY OPERATING AREAS 3

CHESAPEAKE WATER USE BY SOURCE Chesapeake currently utilizes or is currently exploring the use of a variety of different water source types including: Traditional water sources: Surface Water (Lakes, Ponds, Rivers), Ground Water Purchased water from: Municipalities, Regional Water Districts, River Authorities Wastewater sources: Publically Owned Wastewater Treatment Plant Effluent Industrial and Power Plant Cooling Tower Effluent Water Other non-potable sources: Groundwater Reused Produced Water Drilling Reserve Pit Water

CHESAPEAKE WATER USE BY PLAY: UNCONVENTIONAL DRY GAS BASINS Unconventional Dry Gas Basins That Produce Primarily Dry Gas Barnett Shale 250,000 Gallons used for Drilling 3,100,000 Gallons used for Fracturing ~ 3.3 Million Gallons Used Per Well Haynesville / Bossier Shale 600,000 Gallons used for Drilling 4,800,000 Gallons used for Fracturing ~ 5.4 Million Gallons Used Per Well Marcellus Shale 85,000 Gallons used for Drilling 4,400,000 Gallons used for Fracturing ~ 4.5 Million Gallons Used Per Well Based on 2012 Chesapeake Energy Operating Data 5

CHESAPEAKE WATER USE BY PLAY: UNCONVENTIONAL LIQUID RICH BASINS Liquid-Rich Plays May Include Combination of Natural Gas, Oil, and Condensate Eagle Ford Shale 125,000 Gallons used for Drilling 4,800,000 Gallons used for Fracturing ~ 4.9 Million Gallons Used Per Well Utica Shale 100,000 Gallons used for Drilling 3,700,000 Gallons used for Fracturing ~ 3.8 Million Gallons Used Per Well Mississippi Lime 100,000 Gallons used for Drilling 2,000,000 Gallons used for Fracturing ~ 2.1 Million Gallons Used Per Well Niobrara Shale 300,000 Gallons used for Drilling 3,400,000 Gallons used for Fracturing ~ 3.7 Million Gallons Used Per Well Cleveland / Tonkawa 200,000 Gallons used for Drilling 2,500,000 Gallons used for Fracturing ~ 2.7 Million Gallons Used Per Well Granite Wash 200,000 Gallons used for Drilling 4,600,000 Gallons used for Fracturing ~ 4.8 Million Gallons Used Per Well Based on 2012 Chesapeake Energy Operating Data 6

RAW FUEL SOURCE WATER EFFICIENCY Energy resource Range of gallons of water used per MMBtu of energy produced Conventional (vertical) natural gas 1 3 Chesapeake unconventional natural gas * 0.76 2.97 Coal (no slurry transport) (with slurry transport) 2 8 13 32 Nuclear (processed uranium ready to use in plant) 8 14 Conventional (vertical) oil 8 20 Chesapeake unconventional oil ** 7.88 20.39 Synfuel - coal gasification 11 26 Oil shale petroleum 22 56 Oil sands petroleum 27 68 Synfuel - Fisher Tropsch (Coal) 41 60 Enhanced oil recovery (EOR) 21 2,500 Biofuels (Irrigated Corn Ethanol, Irrigated Soy Biodiesel) > 2,500 Source: USDOE 2006 (other than CHK data) * Includes processing which can add 0-2 gallons per MMBtu ** Includes refining which consumes major portion (82% to 92%) of water needed (7-18 gal 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) 7

PRODUCED WATER MANAGEMENT: KEY CONSIDERATIONS 8

PRODUCED WATER NAMING CONVENTIONS Produced Water ALL water that is returned to the surface through a well borehole Made up of water injected during fracture stimulation process as well as natural formation water Typically is produced for the lifespan of a well (quantities vary significantly by play) Flowback Process Term associated with the PROCESS Process allows the well to flow back excess fluids and sand Actual duration of the process varies from well to well and play to play The distinction of flowback water and produced water has nothing to do with water quality. ALL flowback water IS produced water

PRODUCED WATER GENERATION BY PLAY: INITIAL PRODUCED WATER Quantity and rate of water production are important for reuse Need large volume of water over short time period Helps ensure effectiveness of process Initial defined as first 10 days of flowback and production Mississippi Lime Initial volume of water very high Barnett, Eagle Ford, Granite Wash, Cleveland/Tonkawa, Niobrara, Utica, Marcellus Initial volume of water moderate Haynesville Shale Initial Volume of water low 10

PRODUCED WATER GENERATION BY PLAY: LONG TERM PRODUCED WATER Very high long term produced water generating play Mississippi Lime (N / NW OK) High long term produced water generating plays Barnett Shale (DFW Texas), Cleveland / Tonkawa (NW OK) Formation characteristics result in high produced water generation Higher volumes of natural formation water present in/near target formation Moderate long term produced water generating plays Granite Wash (W OK, TX Panhandle), Niobrara (WY), Eagle Ford Shale (S TX) Formation characteristics allow less fluid production per MMCFe Relatively desiccated formations (dry) Low long term produced water generating plays Marcellus Shale (PA, WV), Haynesville Shale (LA, E TX), Utica Shale (OH) Shale formation characteristics tend to trap fluids Highly desiccated formations (very dry) Capillary pressure difference pulls water away from wellbore (known as imbibition) 11

WATER QUALITY TREATMENT / REUSE Chlorides and TDS Blending for Reuse Generally not looking at removal, determines freshwater blending ratios Very high TDS increases friction in hydraulic fracturing process Suspended Parameters Filtering Prior to Reuse Turbidity and Total Suspended Solids (TSS) Can determine filtration rates, size of filter, performance High solids can plug well and decrease biocide effectiveness Other Parameters of Concern Residual hydrocarbons (liquid plays) can foul membranes / filters Water hardness compounds can interfere with fracturing additives Sulfates can be used by bacteria to create hydrogen sulfide Barium can combine with sulfates to create scale* High iron precipitate creating emulsions and plugging Bacteria is always a concern * Barium is only a concern in presence of sulfates or other compounds that can form scale 12

PRODUCED WATER REUSE AND RECYCLING: THE CHESAPEAKE EXPERIENCE 13

SEDIMENTATION AND FILTRATION Sedimentation Most basic of all treatment processes (nothing added, no energy) Involves storing fluid for period of time to allow suspended solids to fall out of solution Only effective for suspended solid particles. If solids entrained by any mechanism in fluid, they won t settle out Filtration Porus media sock or sand column filters most common Inexpensive and disposable (filter sock) or back washable Easy to operate simply measure pressure differential across filter CHK Application: Marcellus Shale Numerous service providers offering these treatment services Produced water quality is suitable for sedimentation and filtration due to low hydrocarbon content and low scaling tendency Tremendously successful program: Water disposal reduced by > 95% Extremely cost effective: reduces transportation, water acquisition and disposal costs 14

CHEMICAL PRECIPITATION Treatment Specifics Traditional wastewater treatment process, tried and true, many providers Chemicals mixed in to coagulate particles followed by settling tank to allow for precipitation Typically less expensive than other options but does not treat for TDS or hydrocarbons CHK Application: Utica Shale CHK utilized chemical precipitation to treat produced water and drilling wastewater for reuse Chemical precipitation done with aluminum chloride to remove suspended solids Simple 10 micron filter utilized for remaining solids removal Biocide dosing throughout process to control bacteria Treated water tested and blended in subsequent completion operations (manage Fe, Ca, Mg) Costs are higher than filtration but much lower than membrane and distillation systems 15

DISSOLVED AIR FLOATATION Treatment Specifics Chemical / polymer and air / gas driven process, works by floating contaminants to surface of tank for removal By inducing air or gas up through the water, solids particles coagulate and float to the top. Hydrocarbon removal and separation is excellent since these molecules naturally float Cost competitive with chemical precipitation and great option for hydrocarbon removal. One of the top choice for treatment in emerging liquid plays. CHK Application: Niobrara, Eagle Ford Shale (Potential) Currently evaluating options for DAF/IGF unit for use in the Powder River Basin (Niobrara) Cost structure is competitive Unit projected to produce 1-5% skim waste per day (depending on solids and hydrocarbon content) Footprint of unit is small (~15 x 20 ) for 2,500 BPD unit 16

EVAPORATION Treatment Specifics Very simple, use natural process of evaporation to turn produced water into water vapor Energy intensive, no fluid recovery Used simply as a waste volume reduction mechanism Depending on energy/heat source, costs can vary considerably Some vendors offer ability to run off of waste heat sources CHK Application: Barnett Shale From late 2009 until 2012 CHK tested and operated an evaporation unit at a Barnett Shale salt water disposal well location System was designed to run off of waste heat from nearby compressor station (no need to consume fuel) Some performance hiccups, but enabled the reduction of a significant volume of water from going to disposal 17

THERMAL DISTILLATION VIA MVR Treatment Specifics Mechanical Vapor Recompression (MVR, most common distillation method in oil field) utilizes low pressure to evaporate water and mechanically recompress steam to produce distilled water MVR requires pretreatment with chemical precipitation or dissolved air floatation to remove suspended solids and hydrocarbons Due to thermal process and pretreatment, costs are higher than pretreatment systems alone Extremely high quality distilled water output (lowers logistic risk) CHK Application: Anadarko Basin Chesapeake successfully tested a MVR treatment unit in Summer 2012 on Cleveland Sand and Granite Wash wells in NW Oklahoma Excellent performance on both projects Logistics and permitting have delayed longer term utilization Clean brine found suitable to use as clay stabilizer 18

ELECTRO-COAGULATION AND CRYSTALLIZATION Electro-Coagulation Electrically driven treatment process that utilizes few chemicals Electric charge passed through fluid stream changes surface charge on particles causing them to coagulate and settle out of solution Wide availability of providers, good at removing suspended solids, iron and metals Does not treat TDS or hydrocarbons, can be energy intensive and requires more experienced operators CHK currently piloting technology in Utica Shale Crystallization Comprehensive system resulting in zero liquid waste discharge (only sludge, salt, and distilled water outputs) Most advanced treatment possible, requires initial pretreatment, distillation, and finally pressure driven crystallization Most expensive treatment option, but eliminates liquid disposal Designed for treatment of large volumes of water (large facilities) Investigated for use in Marcellus, but no current or planned future use 19

MEMBRANE SYSTEMS Reverse Osmosis Technology is improving coatings, materials, etc Very prone to scaling without comprehensive pretreatment Need experienced operators and can be energy intensive Low tolerance on water quality variation and output efficiency is low with high TDS brine CHK has yet to find suitable application for technology Membrane Distillation Technology is combination of lower cost membrane and thermal distillation System uses temperature difference between hot, high TDS produced water and cool distilled water to initiate evaporation through a membrane Result is low pressure, low temperature and lower cost advanced treatment option (lower cost than distillation) Technology is developing and cost structure still to be determined CHK piloted the technology in Summer of 2013 in Barnett shale 20

DIRECT REUSE (LIMITED TREATMENT) Brine tolerant additives Many chemical suppliers are developing brine tolerant fracturing chemical additives that can handle high volumes of high TDS produced water without a reduction in chemical performance Base water quality must still have low suspended solids and hydrocarbon content and bacteria must be managed (with appropriate biocide) Additives targeted for use in brine include friction reducers (for slickwater systems) and gelling agents, cross-linkers, and buffers (for use in higher viscosity crosslinked gel systems) CHK Application: Mississippi Lime Since late 2011, CHK has implemented a direct reuse program on horizontal Mississippi Lime wells that utilized 100% high TDS produced water Well performance appears to be unaffected and no freshwater used on these wells Direct reuse is particularly wells suited for high water producing, low suspended solid produced water like the Mississippi Lime Benefits include elimination of disposal needs/fees Disadvantage is slight cost increase of salt tolerant FR Hydrocarbon content must be managed as it will cause issues with friction reducer 21

LEASING COMPLICATIONS TO REUSE CHK Case in Point: Eagle Ford Shale CHK has very large leases in Eagle Ford few landowners Ground water use clause in lease agreements Large number of lease arrangements require purchase of groundwater from landowner Commonly required for all operations on lease Generates significant revenue ($$ millions) for landowner Groundwater wells drilled by operator and water sold to operators by landowner Complications to Reuse Operators put in difficult position regarding reuse possibilities Potential solution is to still pay landowner same fee, but use reuse water instead of fresh water Not always an option because some landowners want truck traffic limited (trucking reuse water as opposed to water from location) Creates additional economic burden on operators (paying treatment, transport, and still paying fresh water cost) 22

CLOSING THOUGHTS Unconventional oil and gas development Uses water primarily during drilling and stimulation Produces tremendous amount of energy over the lifespan of a well Relatively efficient use of water based on amount of energy produced During a drought, perception becomes reality Industry must continue to be forthcoming about water use in drilling and hydraulic fracturing reuse efforts Disposal in emerging liquid rich plays is adequate, but perceived lack of water supply will drive reuse (differs from reasons for reuse in Northeast U.S.) Produced water reuse dependent on 3 factors 1) Quantity, 2) Duration (flow and rate), and 3) Quality of produced water Treatment Technology Continuing to Advance But development of brine tolerant chemical additives may be real game changer CHK is continuing to look for ways to expand successful produced water reuse programs across all major operating areas 23

CHALLENGES AND ADVANCEMENTS IN PRODUCED WATER REUSE AND RECYCLING MATT MANTELL ENGINEERING ADVISOR COMPLETIONS TECHNOLOGY

EXTRA (REFERENCE)

KEYS TO UNCONVENTIONAL OIL AND NATURAL GAS DEVELOPMENT 1 st Key: Horizontal Drilling Begins same as vertical well, but turns just above target reservoir zone Exposes significantly more reservoir rock to well bore surface versus a traditional vertical well Major advance is fewer wells drilled to access same reservoir volume Vertical unconventional wells are rarely economic 26

KEYS TO UNCONVENTIONAL OIL AND NATURAL GAS DEVELOPMENT 2 nd Key: Hydraulic Fracturing Process of creating thin fractures in rock formations deep underground Water with a small percentage of special chemical additives is injected under high pressure to fracture the rock A proppant agent (usually sand) is pumped into the fracturing to keep them from closing when pumping pressure is released Natural gas or oil can then flow freely from the rock pores to the fractures, into the wellbore and up to the surface 27

THE WATER / ENERGY NEXUS Water is Essential for Energy Resource Development Fuel Extraction Fuel Processing Power Generation Cooling Energy Resources are Needed for Water Development (raw water pumping) Processing (treatment) Distribution (potable water pumping) Balance or Nexus is Critical but often Overlooked when Evaluating Energy Resources Many discussions on air quality and surface pollution impacts Limited discussion on water availability Improve One Improve the Other 28

WATER USE EFFICIENCY BY PLAY Play Average Water Use Per Well 1 CHK Est. Avg. Natural Gas Equivalent Production Over Well Lifetime 2 Assumed % Energy from Source 2 Resulting Energy Production Per Well Over Well Lifetime 3 Water Use Efficiency (in gallons per MMBtu) 4 Marcellus Shale Haynesville Shale 4.5 million gallons 5.75 billion cubic feet (gas) ~ 100% Gas 5.91 trillion Btu (total) 0.76 5.4 million gallons 6.50 billion cubic feet (gas) ~ 100% Gas 6.68 trillion Btu (total) 0.81 Utica Shale 3.8 million gallons 4.2 billon cubic feet equiv (oil and gas) ~25% Oil ~75% Gas 4.3 trillion Btu (total) 0.88 Barnett Shale 3.3 million gallons 3.30 billion cubic feet (gas) ~ 100% Gas 3.39 trillion Btu (total) 0.97 Granite Wash 4.8 million gallons 3.8 billion cubic feet equiv (oil and gas) ~ 25% Oil ~ 75% Gas 3.9 trillion Btu (total) 1.23 Source: 1 Chesapeake Energy 2012, 2 Chesapeake Energy Data 3 Based on 1,028 Btu / Cubic Foot Gas and 5,800,000 Btu per BBL oil, USDOE 2011, 4 Does not include processing British Thermal Unit (Btu), Million British Thermal Units (MMBtu) 29

WATER USE EFFICIENCY BY PLAY (CONTINUED) Play Average Water Use Per Well 1 CHK Est. Avg. Natural Gas Equivalent Production Over Well Lifetime 2 Assumed % Energy from Source 2 Resulting Energy Production Per Well Over Well Lifetime 3 Water Use Efficiency (in gallons per MMBtu) 4 Cleveland / Tonkawa 2.7 million gallons 2.0 billion cubic feet equiv (oil and gas) ~ 50% Oil ~ 50% Gas 2.05 trillion Btu (total) 1.32 Mississippi Lime 2.1 million gallons 1.4 billion cubic feet equiv (oil and gas) ~ 40% Oil ~ 60% Gas 1.44 trillion BTU (total) 1.46 Eagle Ford Shale 4.9 million gallons 3.0 billion cubic feet equiv (oil and gas) ~ 75% Oil ~ 25% Gas 3.1 trillion Btu (total) 1.58 Niobrara 3.7 million gallons 1.5 billion cubic feet equiv (oil and gas) ~ 69% Oil ~ 31% Gas 1.55 trillion Btu (total) 2.39 Source: 1 Chesapeake Energy 2012, 2 Chesapeake Energy Data 3 Based on 1,028 Btu / Cubic Foot Gas and 5,800,000 Btu per BBL oil, USDOE 2011, 4 Does not include processing British Thermal Unit (Btu), Million British Thermal Units (MMBtu) 30

RAW FUEL SOURCE WATER EFFICIENCY Energy resource Range of gallons of water used per MMBtu of energy produced Conventional (vertical) natural gas 1 3 Chesapeake deep shale natural gas * 0.76 2.97 Coal (no slurry transport) (with slurry transport) 2 8 13 32 Nuclear (processed uranium ready to use in plant) 8 14 Conventional (vertical) oil 8 20 Chesapeake shale oil ** 7.88 20.39 Synfuel - coal gasification 11 26 Oil shale petroleum 22 56 Oil sands petroleum 27 68 Synfuel - Fisher Tropsch (Coal) 41 60 Enhanced oil recovery (EOR) 21 2,500 Biofuels (Irrigated Corn Ethanol, Irrigated Soy Biodiesel) > 2,500 Source: USDOE 2006 (other than CHK data) * Includes processing which can add 0-2 gallons per MMBtu ** Includes refining which consumes major portion (82% to 92%) of water needed (7-18 gal 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) 31

OTHER WATER EFFICIENCY NOTES Oil and Liquids Refining (based on USDOE 2006) 1 Refining requires between 7 gal to 18 gal of water per MMBTU of Energy Liquid play water efficiency jumps to 7.0 to 20.4 gal water pre MMBTU when refining included Only ~ 10% of the water needed to produce refined hydrocarbons from unconventional wells is associated with drilling and fracturing Solar and Wind Not Included in Previous Table Require virtually no water for processing (a little for washing, etc) They are the most water efficient but are currently not baseload worthy Wind made up 1.17% and Solar 0.18% of all U.S. Energy in 2011 By Contract: Petroleum 36%, Natural Gas 26%, Coal 20%, Nuclear 8% Geography Plays an Important Role in Fuel Source Water Efficiency Values in previous table are location independent Energy demands associated with fuel transport are not considered Sources: 1 USDOE 2006: Energy Demands on Water Resources: Report to Congress on the Interdependency of Energy and Water 2 US Energy Information Administration: Total Energy Statistics, Annual Energy Review 2011 British Thermal Unit (Btu), Million British Thermal Units (MMBtu) 32

CRITICISM OF OIL AND NATURAL GAS WATER USE Concerns about the permanent removal of water from the effective hydrologic cycle Most water used in shale development either remains in the formation or returns as produced water The preferred method for disposal of produced water is through permitted Class II SWDs Argument that this is a different type of consumption than the evaporation of water from a power plant and other types of consumption 33

NATURAL GAS COMBUSTION: WATER VAPOR GENERATION Balanced Methane combustion reaction: CH 4 + 2O 2 CO 2 + 2H 2 O Volume of water vapor produced per Million Cubic Feet of Natural Gas combusted: 10,675 gallons Need to combust 525 MMCF of natural gas* to produce an equivalent amount of water (as vapor) used to drill and complete a typical Marcellus Shale well Based on current production trends, it takes an average CHK Marcellus Well < 6 months to produce 525 MMCF of natural gas * Not all natural gas that is consumed is combusted. According to 1995 DOE Topical Report, approximately 3.5% of natural gas is used as feedstock for ammonia, methanol, and ethylene production 34

POWER GENERATION WATER USE EFFICIENCY Source: USDOE 2006 (other than CHK data) and USDOE/ NETL 2007 *Average consumption for fuels; Chesapeake data MWh = megawatt-hour 35

WATER INTENSITY OF TRANSPORTATION FUELS Compressed Natural Gas (CNG) Source: Adapted from King and Webber 2008a; *Adapted from King and Webber 2008b, combined with data from USDOE 2006 Non-irrigated biofuels not shown on plot above 36