GWPC Shale Gas and Water Use Presentation September 28, 2010

“Deep Shale Natural Gas and Water Use, Part Two:

Abundant, Affordable, and Still , ,Water Efficient”

Matthew E. Mantell, P.E.Corporate Environmental Engineer

Chesapeake Energy Corporation6100 N Western Avenue ı Oklahoma City OK 76118 ı 405-935-8000

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6100 N. Western Avenue ı Oklahoma City, OK 76118 ı 405-935-8000AskChesapeake@chk.com ı chk.com ı NYSE: CHK

Presentation Overview

Modern Energy Sources

Chesapeake Energy Operations

Advantages of Shale Gas

Keys to Shale Gas Development

Water / Energy Nexus/ gy

Water Use Efficiency by Shale Gas Play

Raw Fuel Source Water Use Comparison

Shale Gas Produced Water Reuse Shale Gas Produced Water Reuse

“Permanent Removal” of Water from Cycle

Water Use Efficiency of Power Plants

Carbon Capture and Water Efficiency

Water Intensity of Transportation Fuels

Closing Thoughts

3

g g

Modern Energy Sources

4Source: ALL Consulting, 2010

Chesapeake Energy Operating Areas

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Advantages of Deep Shale Natural Gas

Abundant in U.S.

Barnett Shale: 44 Tcf*

Affordable

Natural gas price of $5 per MMBtu

Fayetteville Shale: 42 Tcf*

Haynesville Shale: 250 Tcf*

equivalent to $30 Bbl oilCurrent oil price around $80 Bbl

Emission friendlyMarcellus Shale: 490 Tcf** 50% the carbon dioxide of coal

30% the carbon dioxide of gasolineNo mercury or PM emissions

Most widely used fuel sourceClean burning power plantsResidential useIndustrial and manufacturingCommercial space heatingTransportation fuel (CNG)

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*US Department of Energy (April 2009): Modern Shale Gas Development in the United states: a Prime,r p. 17)**Dr. Terry Engelder, Penn State University)Tcf = trillion cubic feet

a spo tat o ue (C G)

Keys to Shale Gas D l tDevelopment

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Keys to Deep Shale Natural Gas Development

1st Key: Horizontal Drilling

B i ti l ll b t t j t Begins same as vertical well, but turns just above target reservoir zone

Exposes significantly more reservoir rock to well Exposes significantly more reservoir rock to well bore surface versus a traditional vertical well

Major advantage is fewer wells drilled to access j gsame reservoir volume

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Keys to Deep Shale Natural Gas Development

2nd Key: Hydraulic FracturingProcess of creating artificial porosity (fractures) in shale formations deep underground

Water with <1% special high viscosity Water with <1% special high viscosity additives is injected under high pressure to fracture the rock

A “ i g g t” ( ll d i d A “propping agent” (usually sand carried by the water) is pumped into the fractures to keep them from closing when pumping pressure is releasedwhen pumping pressure is released

Natural gas can then flow freely from the rock pores through production well to the

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surface

Water / Energy NexusWater / Energy Nexus

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The Water / Energy Nexus

“Water is Essential for Energy Resource Development”Fuel ExtractionFuel ProcessingPower Generation Cooling

“Energy Resources are Needed for Water”Energy Resources are Needed for WaterDevelopment (raw water pumping)Processing (treatment)Distribution (potable water pumping)Distribution (potable water pumping)

“Balance” or “Nexus” is Critical but Often Overlooked when evaluating Energy Resources

Many discussions on air quality and surface pollution impactsLimited discussion on water availabilityImprove One Improve the Other

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Water Use Efficiency in Natural Gas Plays

R l i E F

Chesapeake’s Four Major Deep Shale Plays

Shale PlayAverage Water Use

Per Well 1

CHK Est. Avg. Natural Gas Production Over

Well Lifetime 2

Resulting Energy FromNatural Gas Production

Per Well(based on 1,028 Btu per Cubic Feet )3

Water Use Efficiency(in gallons per MMBtu)

Haynesville 5.6 million gallons 6.5 billion cubic feet 6.68 trillion Btu 0.84

Marcellus 5.6 million gallons 5.2 billion cubic feet 5.35 trillion Btu 1.05

Barnett 4.0 million gallons 3.0 billion cubic feet 3.08 trillion Btu 1.30

Fayetteville 4.3 million gallons 2.6 billion cubic feet 2.67 trillion Btu 1.61

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Source: 1Chesapeake Energy 2009b, 2Chesapeake Energy 2009c, 3USDOE 2007British Thermal Unit (Btu)Million British Thermal Units (MMBtu)

Raw Fuel Source Water Use Efficiency

Energy resourceRange of gallons of water used per MMBtu of energy produced

Chesapeake deep shale natural gas * 0 84 – 1 61Chesapeake deep shale natural gas 0.84 – 1.61

Conventional natural gas 1 – 3

Coal (no slurry transport)(with slurry transport)

2 – 813 – 32

Nuclear (processed uranium ready to use in plant) 8 – 14

Conventional oil 8 – 20

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

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Source: USDOE 2006 (other than CHK data)*Does not include processing which can add from 0 - 2 gallons per MMBtuSolar 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)

Fuel Source Water Use Efficiency

Wind and solar notesS l d i d t i l d d i i t blSolar and wind power not included in previous table

Require virtually no water for processingMost water efficientC l “b l d” hCurrently not “baseload” worthy

― Wind: 0.5% of all U.S. energy in 2008

― Solar: 0.1% of all U.S. energy in 2008

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Raw Fuel Source Water Use Efficiency:Geography / Location

Geography Plays Important Role in Fuel Source Water EfficiencySource Water Efficiency

Values in table are location independent

Energy demands of fuel transport not Energy demands of fuel transport not considered

If considered:If considered:

― Locally produced fuels would be given higher “value”

― Imported fuels less water efficient lower “value”

» Foreign Oil, Alaskan Oil and Gas, Off-Shore Oil and Gas

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Keys to Produced Water Reuse

Produced Water Volumes / Generation Prefer higher volumes initially with lower longer term

production (logistics is key)production (logistics is key)

Dissolved Parameters Blending for Reuse Chlorides and Total Dissolved Solids (TDS) G ll t l ki g t l j t d t i Generally not looking at removal, just determines

freshwater blending ratios

● Suspended Parameters Filtering Prior to Reuse Turbidity and Total Suspended Solids (TSS) Turbidity and Total Suspended Solids (TSS) Can determine filtration rates, size of filter,

operational performance

Other Parameters of Concern Other Parameters of Concern Water “hardness” compounds (e.g. Calcium and

Magnesium) can cause significant scaling issues and problems with fracturing additives

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a d p ob e s t actu g add t es

Produced Water Reuse and Recycling: Barnett and Fayetteville Shale

Barnett ShaleReuse limited by high volumes of water produced

d id il bili f Cl II SWDand wide availability of Class II SWDsGenerally high TDS, low TSS, moderate scaling tendencyCurrently treating and reusing water in the Currently treating and reusing water in the Southern portion of the play

Fayetteville ShaleRelatively good quality produced water suitable for Relatively good quality produced water suitable for reuse with sufficient initial volumesLow TDS, low TSS and low scaling tendencyCHK is meeting portion of drilling and fracturing CHK is meeting portion of drilling and fracturing needs with reuse

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Produced Water Reuse and Recycling: Haynesville and Marcellus Shale

Haynesville ShaleSmall volume of produced water initially (compared to other major plays)(compared to other major plays)Very poor quality produced water (high TDS, high TSS, high scaling tendency)Water volumes, poor quality, and the resulting p q y geconomics have prevented reuse

Marcellus ShaleExcellent potential for reuse. Significant volumes initially with quick drop-off.Moderate to high TDS managed with blending, moderate TSS managed with filtrationRelatively high scaling tendency (high Ca, Mg), but proven to work with monitoring program

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Criticism of Oil and Natural Gas Water Use

Concerns of the so called “permanent removal” of water from the effective hydrologic cycle.

Most water used in shale gas development either remains in the formation or returns as either remains in the formation or returns as produced waterThe preferred method for disposal of produced water is through permitted Class II produced water is through permitted Class II SWDsArgument that this is a different type of “consumption” than the evaporation of water consumption than the evaporation of water from a power plant and other types of “consumption”

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Natural Gas Combustion:Water Vapor Generation

Balanced Methane Combustion Reaction: CH4 + 2O2 CO2 + 2H2O

Water Vapor Production Calculation Assumptions:1. Typical Natural Gas Makeup: ~ 95% Methane (remaining ~ 5% as Ethane, Propane, Butane, etc)

2. Take conservative approach any only use methane to calculate water vapor *

3. Assume normal temperature and pressure (68oF and 1 atm)

4. Volume of 1 mole of CH4 at 68oF is 0.0026 mole/cu-ft

5. Molecular weight of water is 18 lb/lb mole

6. Liquid water density at 68oF is 8.33 lb/gallon

Volume of Water Vapor Produced per Million Cubic Feet of Natural Gas(1 000 000 ft f CH ) (0 95) (0 0026 lb l CH / ft f CH ) (2 lb l H O / 1 lb l CH ) (18 lb H O / 1 lb (1,000,000 cu-ft of CH4) x (0.95) x (0.0026 lb mol CH4 / cu-ft of CH4) x (2 lb mol H2O / 1 lb mol CH4) x (18 lb H2O / 1 lb mol H2O) x (1 gal H2O / 8.33 lb H2O) = 10,675 gallons

Approx 10,675 gallons of water produced per MMCF of natural gas combusted

This equates to approx 525 MMCF of natural gas needed to combust to produce an q pp g pequivalent amount of water used in a Marcellus frac job

A typical CHK Marcellus Shale well is projected to produce approx 5,200 MMCF of natural gas over its lifetime. Based on current data, it takes an average CHK Marcellus Well < 6 months to produce 525 MCF of natural Gas

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months to produce 525 MCF of natural Gas

* Not all natural gas that is consumed is combusted. According to 1995 DOE Topical Report, approximately 3.5% of natural gas isused as feedstock for ammonia, methanol, and ethylene production.

Typical Efficiencies of Thermoelectric Power Plants

14% Flue Gas 36%

Cooling

100% F l

33% Cooling Water

100% Fuel

gWater

50% Electricity

Fuel Water

15% Electricity

%

Natural Gas Combined Cycle Coal /Biomass Steam Turbine

52% Unconverted Solar

Concentrating Solar

SynGas (Coal) Combined Cycle Nuclear Steam Turbine

21Source: Adapted from Stillwell et al. 2009

Carbon Capture and the Parasitic Effect on Power Generation and Water Use

Three of the power plant types evaluated emit CO2

Natural Gas Combined Cycle (NGCC)Integrated Gasification (SynGas from Coal) Combined Integrated Gasification (SynGas from Coal) Combined Cycle (IGCC)Coal / Biomass Steam Turbine

Believed technological solution is the use of carbon capture, (combined with deep geological sequestration)

Commonly overlooked in the discussion of carbon t i th iti ff t th b t capture is the parasitic effect the carbon capture

technology has on power generation efficiency

When the efficiency of a power plant is decreased, additional generating capacity must be brought online additional generating capacity must be brought online to maintain the plant’s previous electrical output

Results in a reduction of the water efficiency of power plants that incorporate carbon capture

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Closed-Loop Cooling Power Generation Water Use Efficiency and the Carbon Capture Effect

Power Plant Type

Average Gallons of Water Consumed in Power Plant per MWh of Electricity Produced

Power Plant Type

No Carbon Capture

With CarbonCapture

% Increase

Natural Gas Combined Cycle (NGCC) 190 217 + 14%

Integrated Gasification (SynGas from Coal), Combined Cycle (IGCC)

330 376 + 14%

Coal / Biomass Steam Turbine 420 563 + 34%

Concentrating Solar 750 750 N/A

Nuclear Steam Turbine 590 590 N/A

G h l S 1 400 1 400 N/AGeothermal Steam 1,400 1,400 N/A

Hydroelectric 4,500* 4,500 N/A

Source: Adapted from Hightower 2008, Carbon Capture Date from USDOE/NETL 2007

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*Due to direct evaporation from multi-use holding reservoirNote: Wind turbines and photovoltaic solar panels have negligible water demandsMWh: Mega-Watt-Hour

Power Generation Water Use Efficiency Parasitic Effect of Carbon Capture

700

800

Avg Consumption for Fuel (gal / MWh)704

750(Including raw fuel source and carbon capture input)

500

600

Avg Consumption for Fuel (gal / MWh)Avg Consumption for Cooling (gal / MWh)Consumption for CCS gal / MWh

s of W

ater Per 

Gen

erated

 

516

620

300

400

500

ption: Gallons

h Electricity

 G

453472

200

300

Consum

pMWh

123 114

204

232

0

100

Deep Shale Natural Gas Combined Cycle

Integrated Gasification (from Coal) Combined Cycle

Coal Steam Turbine Nuclear Steam Turbine Concentrating Solar*

1452

0

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y ( ) y

Source: USDOE 2006 (other than CHK data) and USDOE/ NETL 2007*Average consumption for fuels; Chesapeake dataMWh = megawatt-hour

Transportation Fuels and Water Use

Conventional Petroleum and Gasoline Dominate U.S. Market97% of all fuelsSome contain 10% ethanol blend to reduce air emissions

Currently Looking at “Unconventional” and “Alternative” FuelsN C ti l Li id F il F l (f l f l il h l t d )Non-Conventional Liquid Fossil Fuels (fuels from coal, oil shale, tar sands)Biofuels (ethanol, biodiesel)Compressed Natural GasHydrogen (carrier source)

Major “Push” to Electric VehiclesM j f f h d d l tMajor focus of research and developmentPerceived to be “green” (how is electricity generated?)Increase in water use “overlooked”

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Water Intensity of Transportation Fuels

Hydrogen via Electrolysis

Biodiesel from Irrigated Soybeans

Ethanol from Irrigated Corn

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800

2,350

Syn Diesel from Natural Gas

Oil Sands Gasoline

Electric Vehicle (Electric from Nuclear)*

Syn Diesel from Coal

27 5

33

35

38.5

Gasoline

Electric Vehicle (Electric from Coal)*

Ethanol from Non-Irrigated Corn

Oil Shale Gasoline

Syn Diesel from Natural Gas

10 5

23

25

26

27.5

Gasoline with 10% irrigated ethanol blend: ~ 200 gallons

Hydrogen from Natural Gas

CNG using Electricity for Compression

Diesel

Electric Vehicle (Electric from Shale NG)*

Gasoline

6

6.5

8

10

10.5 gwater consumed per 100 miles driven

1 10 100 1,000 10,000

Biodiesel from Non-Irrigated Soybeans

CNG using NG Generator for Compression

Hydrogen from Natural Gas

1.5

3

6

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Consumption: Gallons of Water Per 100 Miles DrivenCompressed Natural Gas (CNG)Source: Adapted from King and Webber 2008a; *Adapted from King and Webber 2008b, combined with data from USDOE 2006Non-irrigated biofuels not shown on plot above

Closing Thoughts

Deep Shale Natural GasUses water primarily during drilling and stimulationProduces tremendous amount of energy over the lifespan of a wellgy pMisconception that drilling and hydraulic fracturing processes use a “large” volume of water, and that this volume of water is “lost” from water cycle

Raw Fuel Source Water Use EfficiencyNatural Gas (including Shale Gas), Wind, and Solar are most efficientShale gas operators continuing to try and reuse produced water where feasibleWater Vapor from Natural Gas combustion more than offsets “loss”

P G i W U Effi iPower Generation Water Use EfficiencyNatural Gas Combined Cycle (NGCC) Plants are among most efficient, even with carbon capture

Transportation Fuel Water Use EfficiencyTransportation Fuel Water Use EfficiencyConventional fuels are relatively water efficient, but natural gas based fuels are betterWater efficiency of electric vehicles highly dependent on generation source

Location is Important!

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Location is Important!Water and energy used to transport people and productsWhen fuel is imported, there are unintended environmental impacts

2010 GWPC Water / Energy SymposiumEnergy Symposium

Matthew E. Mantell, P.E.Corporate Environmental Engineer

Chesapeake Energy Corporation6100 N Western Avenue ı Oklahoma City OK 76118 ı 405-935-8000

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6100 N. Western Avenue ı Oklahoma City, OK 76118 ı 405-935-8000AskChesapeake@chk.com ı chk.com ı NYSE: CHK