FrackingThe Debate, the Facts, and the Path Forward

2016 NGVAmerica Annual Meeting & Industry SummitSeptember 9, 2016

Colorado Oil & Gas Association (COGA)

• Founded 1984

• Nationally Recognized Trade Association Focused on Issues in Colorado

• Over 300 Member Companies• Major and Independent Oil & Gas Companies• Service Companies• Mid-Stream Companies• Support Services

Today’s Talk

•Fracking Fundamentals•Public Narrative•Political Developments•Path Forward

Fracking Fundamentals

Definition• The use of fluids to create

a crack by hydraulic pressure

• The continued injection of fluids into the created crack fracture to make it grow larger

• The placement of small granular solids into the crack to ensure the crack remains open after the hydraulic pressure is no longer applied

Why HF a Well?

• Increase the Rate at which the well is capable of producing oil or gas

• Most unconventional formations Requirehydraulic fracturing to be economic

• Does not increase total Reserves

Why HF a Well? Electronic Microscope Image of Rock

Magnification: 1000X Filename: S0178.tif

Width of a human hair

100 µm

Fractures and Proppant

Misperception: Hydraulic Fracturing is Injecting Fluids

into Groundwater

Drilling Distance

Wells Fargo Center ~700 ft

7000 ft.

Aquifer 400-800 ft.

Steel Casing Purpose

• Protect ground water• Provide stable wellbore

during drilling operation• Provide well control during

drilling Depth Requirements

• Set by State and BLM regulations

• Extends below the aquifer Cement Helps

• Protect casing from corrosion

• Provide zonal isolation• Support casing in wellbore

HF Fluids

HF FluidsAdditive Main Compound Common Use Diluted Acid Hydrochloricor, Muriatic Acid Swimming Pools Biocide Glutaraldehyde Dental Disinfectant Breaker Ammonium Persulfate Bleaching Hair Crosslinker Borate Salts Laundry Detergents Iron Control Citric Acid Food Additive Gelling Agent Guar Gum Biscuits Scale Inhibitor Ethylene Glycol Antifreeze Surfactant Isopropanol Glass Cleaner Friction Reducer Polyacrylamide Water and Soil Treatment

FracFocus Website

14

Improved Search

HF Disclosure Example

Misperception:

Drilling is Getting Riskier

“HydraFrac” Process• July of 1947 - Stanolind Oil and Gas

• 1st Job: Klepper No. 1 gelled kerosene/gasoline mix• Hugoton Gas Field, Kansas

• Late 1948 - Patent issued, 23 wells H.F. before commercial application began

• In 1949, The Halliburton Oil Well Cementing Co. was granted an exclusive license to pump the new “Hydrafrac” process

• 332 wells were treated first 12 months• 75% success rate

Boulder Oil Field - 1903

Boulder Oil Field Today

Footprint

1 Well Pad or 32?

Misperception:

Drilling and Hydraulic Fracturing

Use Too Much Water

Agriculture 85.6%

Municipal7.0%

Recreation and Fisheries6.1%

Large Industry0.69%

Thermoelectric Power Generation

0.39%

Hydraulic Fracturing, 0.09%

Snowmaking0.03%

Other Energy Development*

0.03%

Industrial1.18%

Source: Colorado Division of Water Resources*Other energy development includes solar, coal, natural gas, and uranium developmentNotes: 5-year hydraulic fracturing totals are estimates; a small margin of error should be noted when analyzing final results. Total water amounts and percentages will vary slightly from year-to-year based on supplies from varying snowpack and demands resulting from varying climatic conditions.

Colorado Water Utilization by Sector, 2008-2012Agriculture uses the majority of Colorado water; energy sector consumes

less than 1% of total

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

10000000

City Use Agriculture Excess Hydraulic Fracturing

Thou

sand

s of

Gal

lons

Uses

Greeley Water 2011

8.5 Billion

Gallons: 34%

9.1 Billion

Gallons: 36%

.49 Billion

Gallons: 2%

7.1 Billion Gallons:

28%

Source: Greeley Water/Sanitation

Misperception: Hydraulic Fracturing is Destroying our

Air

Is Natural Gas Clean?

• Cleanest-burning hydrocarbon fuel

• Combustion products are primarily CO2 and water vapor

Colorado’s O&G Industry• 54,000+ active wells • $1.2B in public revenue• $15.8B production value in 2014• $4.1B in employee income to CO households in 2014• $31.7B in total economic output• 102,700 direct and indirect jobs in Colorado • Average annual wage for direct employee is $105,000 –

50% higher than the state average for all industry • $160 Million in state royalties, rents, and bonuses in 2014

Sources: University of Colorado Boulder Leeds School of Business Research Division Oil and Gas Industry Economic and Fiscal Contributions in Colorado by County, 2014- Published December 2015

Average household energy costs in Colorado ($1,551 per year) are 23 percent less than the national average, primarily due to historically lower natural gas prices in the state, according to EIA's Residential Energy Consumption Survey.

The Fracking Debate

The Perception of Concerns

The Reality of Concerns

National Campaigns Target CO

Bans and Moratoria • Moratoria Descriptions

• Longmont – Indefinite ban on fracking and production• Boulder – A 5-year ban on fracking and production• Lafayette – A 5-year ban that could be interpreted to prohibit

even gas pipelines and residential delivery.• Broomfield – A 2-year moratorium slightly improved by a

supportive city council.• Ft. Collins – A 5-year fracking ban. • Loveland – A 2-year moratorium for further study but possibly

interpreted as indefinite pending voter recall.

Ballot Initiatives & Governor’s Task Force

• Governor’s Executive Order Sept. 2014, established task force comprised of 21 representatives from local government, civic organizations, environmental interests, agriculture, and impacted industries (7/7/7).

• Mission: To make recommendations for COGCC rules or state legislation to “harmonize” state and local regulation of oil and gas development in Colorado.

• Public meetings across the state from Sept. 2014 – Feb. 2015. • 9 of 34 recommendations passed by requisite super-majority

• #75 – Local Control of Oil and Gas Development – preempt state law

• #78 – 2500’ Setback from all new oil and gas facilities and “Areas of Special Concern”

2,500 Foot Setback – Effectively Bans Development

Current 500 footSetbacks

2,500 foot Setbacks with areas of special concern

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Lesson 1

Lesson 2

Lesson 3• HF Disclosure• Drinking Water Protection• Setbacks and Mitigation• Spill Reporting• Air Emissions• Enforcement &

Penalty• Taskforce Rulemaking

Lesson 4

Lesson 5

www.coga.orgsarah@coga.org@ColoradoOilGas

Questions?