Managing Water Resources in the Haynesville Shale

1
Managing Water Resources in the Haynesville
Shale Red River Valley Association 84th Annual
Convention February 18-20, 2009 Bossier City, LA
2
Chesapeake Energy Corporation

• 1 producer of U.S. natural gas
• 4Q08 natural gas production of 2.130
  bcf/day 3.5 of U.S. production
• ? 1 driller in U.S.
• 119 operated rigs currently, down from 158 in
  8/08, on the way down to 105-115 operated rigs
  until gas markets rebalance (25-33 CHK operated
  rig reduction), 85 non-operated rigs 15 info
  only rigs collector of 12 of all daily
  drilling information generated in the U.S.
• (20 in our areas of interest)
• ? 1 large-cap production growth
• Increased production by 18 in 08 to 2.3
  bcfe/day and projecting increases of 5-10 in 09
  and
• 10-15 in 10 to 2.4 and 2.7 bcfe/day,
  respectively, while staying within cash resources
• ? 1 large-cap proved reserve growth
• 12.1 tcfe of proved reserves at 12/08,
  targeting 13.5-14.0 tcfe by 12/09 and 15-16 tcfe
  by 12/10
• ? 1 gas resource play
• 55 tcfe of risked unproved reserve potential
  gt10-year inventory of 35,500 net drilling
  locations
• ? 1 inventory of U.S. onshore leasehold and 3-D
  seismic
• 15 mm net acres of U.S. onshore leasehold and
  21 mm acres of 3-D seismic data

Data above incorporates Information as of
9/30/08 - Pro forma for Marcellus Shale JV with
StatoilHydro in 4Q08 Press release dated
1/27/09 CHKs Outlook as of 12/7/08 Risk
disclosure regarding unproved reserve estimates
appears on page 25
3
Chesapeake Energy Operations and Major Plays
4
Estimated Reserves and Value of Four Major
Chesapeake Shale Plays
5
Estimated Volumes of Water Used inShale Plays

• Barnett Shale
• 10,000 BBLS used for Drilling
• 70,000 BBLS used for Fracturing
• 80,000 Total BBLS Used
• Haynesville Shale
• 25,000 BBLS used for Drilling
• 75,000 BBLS used for Fracturing
• 100,000 Total BBLS Used

• Fayetteville Shale
• 1,500 BBLS used for Drilling
• 70,000 BBLS used for Fracturing
• 71,500 Total BBLS Used
• Marcellus Shale
• 2,000 BBLS used for Drilling
• 90,000 BBLS used for Fracturing
• 92,000 Total BBLS Used

Estimated Peak Year Estimated Average across
Entire Play
6
Water Used in Natural Gas Exploration and
Production

• Drilling Fluids
• Dust Suppression
• Cleaning/Flushing
• Hydraulic Fracturing

7
Water Resources and Competitive Uses in the
Haynesville Area
Industrial Municipal Commercial Military Power Irr
igation
8
Haynesville Shale Map
9
Water use in Haynesville Shale Area
NW Louisiana (8 Parish Area) and East Texas (6
County Area) Total Water Use (Surface Water and
Ground Water) by Sector
Industrial and Mining 27.3
Power Generation 13.5
Irrigation and Aquaculture 8.5
Livestock 4.0
Public Supply 46.0
Total Water Use in Haynesville Area 2.15 Billion
Barrels per Year
CHK Projected Use 0.7
Sources 1) USGS Water Use in Louisiana, 2005,
2) TWDB Water Use Database, 2004
10
Chesapeake Water Use in theHaynesville Shale

• Drilling a CHK well About 25,000 barrels
• Completing a well About 75,000 barrels
• (includes fracing)
• Total usage per well About 100,000 barrels

(One barrel 42 gallons)
Chesapeake water use in the Haynesville Shale,
based on 150 wells drilled annually, is about 15
million barrels.
Based on CHK Projection to drill an average of
150 new wells per year.
11
Haynesville Shale Water Sources

• Potential Surface water sources
• Red River
• Sabine River
• Toledo Bend and Other Surface Reservoirs
• Local Bayous and Streams
• Private Water Sources
• Private lakes and ponds
• Potential Municipal and Rural Water Purchases
• Currently evaluating the potential for municipal
  and rural water system purchase
• Water Supply Wells
• Chesapeake strategically locates ground water
  supply wells near drilling site when surface
  water is not available
• Majority of water wells pull water from the
  Carrizo-Wilcox Aquifer while some pull from the
  Red River Alluvial Aquifer

• Reuse / Waste water
• Potential for Future Use
• Marginal Groundwater Resources
• Currently evaluating potential to use wells with
  high salinity, high magnesium, or high arsenic

12
Chesapeake Operations and Water Use Procedures

• Drilling operations typically take 40-55 days to
  complete
• Fracing typically takes 5 days to complete
• Chesapeake currently using Surface Water from
  Bayous, Rivers, and Ponds for drilling and
  fracing use
• Water is stored in temporary pits prior to use
• Water is piped or trucked from the source to the
  drill site
• Where surface water or secondary sources are not
  feasible for use, ground water could be used for
  drilling and fracing.
• Benefits to GW use include reduced truck traffic
  (hauling water), less surface disturbance
  (pipelines, reservoirs), and reduced downstream
  impacts

13
Water Use Comparison Drilling vs. Golf Course

• Use
• One natural gas well, during its projected 45-60
  day construction period, uses about 100,000
  barrels of water
• Comparison
• Shreveport-Bossiers 10 golf courses, use a
  similar amount of water (100,000 barrels) in
  about two days

(One barrel 42 gallons)
Source Colorado State University Agricultural
and Resource Policy Report, April 2004
14
Water Use Comparison Toledo Bend and Red River
Examples

• Use
• At 150 wells per year and 100,000 barrels per
  well, Chesapeake will use approx 15 million
  barrels of water a year
• Comparisons
• Equivalent to a 0.1-inch elevation change in the
  Toledo Bend Reservoir
• Equivalent to less than 2 hours of Red River
  flow (as measured at Shreveport) or 0.02 of the
  average annual flow volume

(One barrel 42 gallons)
15
Major Regulatory Issues Louisiana

• Surface Water Owned by State
• Or political subdivisions as mandated in LA Civil
  Code Article 450
• No current state-wide policy for surface water
  management
• Cooperative management from watershed entities
• Lead Agencies that Supervise and Control Surface
  Water
• Louisiana Dept of Natural Resources (LDNR)
• Louisiana Dept of Wildlife and Fisheries (LDWF)
• Other Agencies Involved in Surface Water
  Regulations
• Army Corps of Engineers must be consulted
  regarding supply intake facilties
• Louisiana Dept of Environmental Quality may also
  require water quality
  certification to determine impact on surface
  water quality from intake facility
• Ground Water
• Regulated by LDNR Office of Conservation (OC)
• Appointed to manage, protect, and conserve
  states ground water resources
• Commissioner of Conservation regulates water well
  drilling activities
• Exception is domestic drilling activities

16
Major Regulatory Issues Texas

• Ground Water in Texas is Privately Owned
• Rule of Capture Provides that Ground Water Must
  be Beneficially Used
• Cannot be pumped maliciously to harm a neighbor
  or cause land subsidence
• Many areas managed by Ground Water Conservation
  Districts (GWCD)
• Districts are empowered to regulate ground water
• Protects future ground water availability
• Surface Water in Texas is owned by the State
  (held in trust for citizens)
• State (TCEQ) grants right to use surface water
  Utilizes a prioritization system
• Many river basins have own authorities

17
Water Resource ChallengesMoving Forward

• Competition for resources
• Multiple users in areas
• Use of water resource to produce another resource
• Proper planning
• Open communication with agencies and public
• Identification of non-competitive resources
• Wastewater reuse
• Non-potable sources
• Strategic capture of surface flows during wet
  season
• Perception of excessive use
• Transient use
• Education
• Use of treatment technologies where practical
• No magic bullet
• Recycling/treatment of flowback and produced
  waters
• Treatment of saline groundwaters

18
Flowback and Produced Water Management

• Initial flowback water is relatively fresh but
  quickly becomes more saline
• Produced water is mostly highly saline formation
  water that contains some hydrocarbons
• Produced water occurs for the life of a
  Haynesville Shale producing well and is typically
  65,000 barrels of water per well
• Produced water is chemically analyzed for
  hydrocarbons, metals and other naturally
  occurring elements
• Current disposal of both flowback and produced
  water is to a permitted Class II underground
  injection well

19
Underground Injection Well (UIC)Classification
Class I A well utilized for industrial or
municipal waste disposal Class II A well
utilized for enhanced recovery injection, oil/gas
storage, or oil and gas waste fluid
disposal Class III Solution mining wells (brine
wells, etc) Class IV (banned) Wells injecting
into a Underground Source of Drinking
Water Class V Wells not covered under classes
I-IV (e.g. aquifer remediation, heat pump/ac
return flow well, etc) Class VI (proposed) Wells
used for carbon sequestration
Class I Class II Class III Class V
20
Injection Wells

• Class II injection well
• Licensed to dispose of waste water and materials
  associated with the production of oil and natural
  gas
• 167,000 operating in the United States
• 53,000 operating in Texas
• 3,207 operating in Louisiana
• Salt Water Disposal Well
• Subset of Class II Injection Well licensed for
  disposal of water generated from the production
  of oil and gas.
• Salt water disposal wells are used to dispose of
  flowback and produced water from the Haynesville
  Shale.

21
Conclusions

• Chesapeake utilizes surface water and other
  sources of development water for supply where
  feasible in the Haynesville Shale
• Chesapeakes overall water use in the Haynesville
  Shale area is very small compared to other water
  uses (projected to be 0.7 of total use)
• Chesapeake Energy is actively evaluating
  opportunities to reuse and recycle water
• Chesapeake is also looking for opportunities to
  utilize alternative water resources including
  wastewater effluent and brackish ground water
• Chesapeake is looking to reduce the overall water
  impact by spreading out water use through
  multiple sources

22
Chesapeake Energy Corporation 333 Texas Street,
Shreveport, Louisiana 71101 318.746.7388
www.chk.com