Mid-Cities Tech Club December 3, 2008

Tarrant County Urban Drilling

22

Shale Plays

New Albany Shale

FayettevilleShale

Barnett / Woodford

Shale

FloydShale

MarcellusShale

BarnettShale

HaynesvilleShale

Woodford Shale

EaglefordShale

33

Barnett ShaleIndustry Overview

Average over 3.5 Bcfe/d – 30% annual increase(1)

Average household uses Mcf each month

Over 1,200 new completions reported in 2008

Major activity focused on Tarrant, Johnson, Parker, Denton, Wise, Hood, Hill and Erath counties

Peak at 5 BCFD in 2010-2012?

Jack

Palo Pinto

Erath

Wise Denton

Parker

Tarrant

Hamilton

Bosque

Johnson

Hill

Hood

Somervell

Ft. Worth

(1) Based on 2008 data provided by the Texas Railroad Commission.

44

Barnett ShaleContinuing to Grow

Total Newark east

field production

(gas & oil) from

public records

Denton/Wise

volumes flat

Tarrant surpassed

Denton & Wise in

March 2006

Johnson surpassed

Tarrant in

November 2006

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

00 01 02 03 04 05 06 07 08

MM

CF

ED

Wise Denton Tarrant Johnson Parker Hood Other

Source: Texas Railroad Commission

Regional Geology

WEST

ProductiveArea

Barnett Shale overlies Ellenberger formation

Ellenberger is water-bearing in this area

Geologic features such a faults allow potential communication between Barnett and Ellenberger

Viola formation acts as barrier between Barnett and Ellenberger

66

Barnett ShaleCarrizo Leases / 2008 Industry Completions

Jack

Hood

Somervell

Erath

Johnson

Hill

Parker

Tarrant

Wise

Denton

Carrizo lease

Industry completion

Ft. Worth

77

Barnett Shale Tarrant County Urban Development Overview

PantegoUT-Arlington

Fort Worth

DFW

Carrizo acreage

Existing drillsite

Completions

Permits

Pipeline

Future pipeline

Thickest most gas-rich part of the Barnett sits under the urban areas in SE Tarrant County

20 sq mile area with surface partially or completely developed

Most surface owners also still own the mineral rights beneath their property

Urban Drilling

Development of this resource not possible without horizontal drilling technology

Urban Drilling - UTA

Barnett Urban Project Lifecycle

Identify & acquire rights to drillsite

Lease mineral rights surrounding drillsite

Acquire subsurface seismic data

Formulate development drilling plan

Permit wells and facilities

Drill wells

Complete wells

Install facilities

Produce natural gas!

UTA Drillsite

1212

Urban Drilling - Project Leasing

Once geologic model confirms area as prospective

Carrizo uses company and third party land professionals to coordinate mineral leasing

In urban areas, drillsite acquisition most difficult - NIMBY

Typically business or PLM degreed individuals

Mineral leasing

– Negotiate the “lease” of minerals which gives operator the right to drill and produce the minerals under property

– Lease bonus – paid to lessor (mineral owner) up front when lease is signed; in Barnett as high as $6,000 for 0.2 acre lot

– Royalty – typically 25% of all gas produced by lessee (Carrizo); 2 – 4 times the lease bonus over life of well

– UTA lease paid lower bonus and higher royalty

– Lease in effect as long as well produces

Barnett Urban Project Lifecycle

Identify & acquire rights to drillsite

Lease mineral rights surrounding drillsite

Acquire subsurface seismic data

Formulate development drilling plan

Permit wells and facilities

Drill wells

Complete wells

Install facilities

Produce natural gas!

Barnett Shale

3D Seismic

Uses sound waves to create an image of subsurface

Mathematical model of how quickly various subsurface formations reflect waves created by seismic source

Receivers are placed all around source allowing modelling in 3 dimensions

3D Seismic

Faults

3D Seismic

Faults

Remember – faults in Barnett are a possible pathway into Ellenberger and water

Barnett Urban Project Lifecycle

Identify & acquire rights to drillsite

Lease mineral rights surrounding drillsite

Acquire subsurface seismic data

Formulate development drilling plan

Permit wells and facilities

Drill wells

Complete wells

Install facilities

Produce natural gas!

Development Planning

Engineers model projected reserves from each well

– Analysis of geology from other nearby wells

– How much gas is in-place and how much of it can each well produce

Engineers estimate the cost to drill and complete the wells

Engineers run economics to assess project viability

– Use computer programs

– Requires understanding of commodity market (natural gas)

Engineers get management approval to spend capital

1919

Urban Drilling - Project Permitting

Carrizo project engineers coordinate

Work closely with local municipality to secure approval to drill

Usually requires approval of city planning staff and city council

uses company and third party land professionals to coordinate mineral leasing

Very detailed ordinances address traffic, noise, safety, screening for drilling and production operations

Carrizo engineers must understand all facets of operations to prepare and get permits approved

NOISE SOURCEDECIBEL

LEVEL NOISE EFFECT

Jet takeoff (25 M) 150 Eardrum rupture

Aircraft carrier deck140 Earphones at high

levels

Jet takeoff (100 M) 130

Thunderclap, live rock music,120 Human pain threshold

Chain Saw, Steel Mill, Riveting, auto horn at 1 M110

Jet takeoff (305 M), outboard motor, power lawn mower, motorcycle, farm tractor, jackhammer, garbage truck

100 Serious hearing damage (8 hrs)

Busy urban street, diesel truck, food blender90 Hearing damage (8 hrs)

Garbage disposal, dishwasher, average factory, freight train (15 M)

80 Possible hearing damage

Freeway traffic at 15 M, vacuum cleaner 70 Annoying

Conversation in restaurant, office, background music60

Quiet suburb, conversation at home 50 Quiet

Library 40

Quiet rural area 30

Whisper, rustling leaves 20 Very Quiet

Breathing 10

Project Permitting - Noise

Project Permitting - Transportation

0

10

20

30

40

50

60

0 20 40 60 80 100

120

140

160

DAYS

Location Construction

Rig Move

1st Well 2nd Well 3rd Well 4th Well 5th Well

Rig Demob

Completion Ops

Tru

ck

s/D

ay

Barnett Urban Project Lifecycle

Identify & acquire rights to drillsite

Lease mineral rights surrounding drillsite

Acquire subsurface seismic data

Formulate development drilling plan

Permit wells and facilities

Drill wells

Complete wells

Install facilities

Produce natural gas!

Barnett Urban Project Lifecycle

2424

Drilling

Engineers design wells

For horizontal drilling, industry engineers have designed motors and mud systems to allow drilling up to 6,000 feet from surface site

Complex system of mechanical equipment integrated with computer technology allows drilling with minimal “footprint”

Engineers monitor ongoing daily drilling in real time to make sure wellbore is in correct location

Steering well complex – only possible with modern computing capabilities

Fracture Stimulation

Drilling rig is composed of Several Sections

– Power generation

– Derrick and draw works and sub structure

– Rotational system

– Drill string

– Mud system

– Well control equipment

– Pipe handling

– Living quarters

Drilling Rig

Fracture Stimulation

Rig is on a track which allows the rig to complete one well and commence drilling another in 4 to 6 hours vs. 3 days for a conventional skid move using bull dozers

Barnett Urban Project Lifecycle

Identify & acquire rights to drillsite

Lease mineral rights surrounding drillsite

Acquire subsurface seismic data

Formulate development drilling plan

Permit wells and facilities

Drill wells

Complete wells

Install facilities

Produce natural gas!

Fracturing Process

Fresh water

Sand

Friction Reducers and Stabilizing Chemicals

Combined in a

Blender

Transferred to pumps

with increase the pressure of the mixture

Mixture is pumped down hole and into the formation

causing cracks in the rock

The sand props the

crack open and provides a

conduit for gas to escape from the rock

Engineers determine how much sand and water to pump and at what rates and pressures to produce the most natural gas from each well

Fracture Stimulation

3131

Fracture Stimulation

Wellbore Pumped Frac Fracture Event

Fracture Stimulation

Barnett Urban Project Lifecycle

Identify & acquire rights to drillsite

Lease mineral rights surrounding drillsite

Acquire subsurface seismic data

Formulate development drilling plan

Permit wells and facilities

Drill wells

Complete wells

Install facilities

Produce natural gas!

Engineers design equipment for separation of gas from water and other impurities

Engineers design equipment for compression of gas for sale into gas pipeline

Engineers supervise construction and installation of these facilities at the wellsite after drilling and completion operations are finished

Production

Production