002.Randy Wright

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D. Randall Wright

(615) 370-0755

[email protected]

wrightandcompany.com

Hart Energy Publishing

Pittsburgh, PA

November 3, 2010

EVALUATING RESERVES FOR THE MARCELLUS SHALE


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Play began in 2004 with the Range Resources Renz well

Other local companies took note

Leasing costs dramatically increased

Game on Jobs, Jobs, Jobs

In 2007, it was estimated that the play could produce 50+ Tcf

THE MARCELLUS SHALE: HOW IT ALL STARTED

EQT

Chesapeake

Atlas

Consol/CNX

Cabot

Others


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As reported August 15, 2010 for 12 Months, July 2009 June 2010

849 Horizontal and Vertical Active Gas Wells

PA MARCELLUS PRODUCING WELLS

Source: Pennsylvania Department of Environmental Protection


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Horizontal Wells Only

LEADING PRODUCERS FOR FIRST REPORTING PERIOD


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Talisman Energy USA, Inc.

53 wells 27.8 Bcf

Shell/East Resources, Inc.

25 wells 10.1 BcfCabot Oil & Gas Corp.

34 wells 23.0 Bcf

Chesapeake Appalachia LLC

45 wells 31.0 Bcf

Atlas Resources LLC

10 wells 2.2 Bcf

Range Resources Appalachia LLC

97 wells 31.0 Bcf + liquids and NGLs

EQT Production LLC

14 wells 7.6 Bcf

As reported August 15, 2010 for 12 Months, July 2009 June 2010

Horizontal Wells Only

OPERATORS WITH THE MOST PRODUCTION



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Range Resources Appalachia, LLC

5 of the top 10 producing wells

for reporting period

4.0 Bcf+ liquids and NGLs

EQT Production, LLC



5.0 Bcf

TOP 10 SW PA HORIZONTAL PRODUCING WELLSAs reported August 15, 2010 for 12 Months, July 2009 June 2010



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Cabot Oil & Gas, Corp.



6.8 Bcf

Chesapeake Appalachia, LLC



11.4 Bcf

TOP 10 NE PA HORIZONTAL PRODUCING WELLSAs reported August 15, 2010 for 12 Months, July 2009 June 2010


Bradford


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YOU HAVE HEARD/READ THE PRESS RELEASES

Initial Open Flow Rates (24-hour)

(That is why you are here.)

26 MMcf per day (Range)

21 MMcf per day (Atlas)

18 MMcf per day (Cabot)

15 MMcf per day (EQT)

First 30-day Average Rates

Lateral Length

2,500 9,000 feet

22 MMcfe per day (EQT)

11 MMcfe per day (Range) 8 MMcfe per day (Cabot)

4 MMcfe per day (CHK)


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Buyer Seller Amount

Royal Dutch Shell, PLC East Resources, Inc. $4,700,000,000

CONSOL Energy, Inc. Dominion Resources, Inc. $3,475,000,000

Reliance Industries Ltd. Atlas Energy, Inc.* $1,700,000,000

Mitsui & Company Ltd. Anadarko Petroleum Corp.* $1,400,000,000

BG Group, PLC Exco Resources, Inc.* $950,000,000

The Williams Companies Inc. Alta Resources, LLC $501,000,000

Ultra Petroleum Corp. Undisclosed $400,000,000

Reliance Industries Ltd. Carrizo Oil & Gas, Inc.* $392,000,000

Statoil ASA Chesapeake Energy Corp. $253,000,000

Reliance Industries Ltd./Atlas Energy, Inc. Undisclosed $192,000,000Sumitomo Corp. Rex Energy Corp.* $140,000,000

Chesapeake Energy Corp. Epsilon Energy* $100,000,000

Atinum Partners Co. Ltd. Gastar Exploration Ltd.* $70,000,000

TOTAL $14,273,000,000

* Indicates Joint Venture (JV)

RECENT MARCELLUS TRANSACTIONS


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PHASE IIIExploitation & Optimization(Consistency, Repeatability,

Economically Producible)

As the Number of Wells Drilled Increased

PHASE IExploratory

(Defining Reservoir Parameters)

PHASE IIResearch & Development

(Reasonable Certainty,

Reliable Technology)

Statistical

Optimization

VerticalGeoscience

Regulatory

Horizontal

Drilling

Completion

Infrastructure

Marketing

Economy

of Scale

THE MARCELLUS SHALE LEARNING CURVE


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HOW DO YOU EVALUATE SHALE RESERVES?

Evaluating unconventional resources

and serving the petroleum industry

for over 22 Years


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THE MARCELLUS SHALE:Some basic geology


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GEOSCIENCEDefining Reservoir Parameters

Depth: 2,000 to 9,000 feet

Net Pay: 25 to 300 feet

Porosity: 2 to 12 percent

Matrix Permeability: 50 to 800 nanodarcies

Water Saturation: 10 to 35 percent

Pressure Gradient: 0.4 to 0.7 psi/ft

Recovery Factor: 15 to 40 percent

Original Gas in Place (OGIP): 25 to 200 Bcf/sq. mi.


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STRUCTURE MAPSubsea Depth Base of the Marcellus


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MARCELLUS GROSS ISOPACH MAP

Source: W.D. Von Gonten & Co. (used with permission)


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AREAS OF POTENTIAL HYDROCARBON PRODUCTION


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ESTIMATING RESERVES

Volumetrics Porosity

Thickness

Original Gas in Place (OGIP)

Recovery Factor
http://www.northdakotaoilandgas.com/nd_oil.htm


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SHALE PETROPHYSICS AND VOLUMETRICS

Free Gas Gas Filled Porosity

Kerogen Created Porosity

Inter-Connected Porosity

Formation Thickness, Pressure, Temperature

Drainage Area Recovery Factor (RF)

Varies by Permeability

Varies by Stimulation Coverage

Adsorbed Gas Gas Content (scf/ton)

Based on Correlations

RF Varies by Pressure


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MARCELLUS SWEET SPOTS MAY EMERGEBased on Activity and Production to Date


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ESTIMATING RESERVES

Volumetrics Porosity

Thickness

Recovery Factor

Performance

Type Curves

Statistical Analysis

Probability Analysis

Reserves per 1,000 feet lateral (wellhead)

Original Gas in Place (OGIP)
http://www.northdakotaoilandgas.com/nd_oil.htm


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100

1000

10000

100000

0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120

Mcf/d

Months

NINE OPERATOR TYPE CURVESNortheast PA Area

Range of ValuesBased on ARIES

IP 4.1 12.2 MMcf/D

b Factor 1.2 2.0

Initial Decline 63 77.5%

EUR 3.75 7.0 Bcfe

Source: Various Public Websites


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NORMALIZE PEAK MONTH TREND ANALYSISExample Data

Trend ParametersBased on ARIES

IP 3.5 MMcf/D

b Factor 1.7

Initial Decline 70%

EUR 4.0 Bcf (approximately)


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STATISTICAL ANALYSIS IN RESOURCE PLAYS

Society of Petroleum Evaluation Engineers (SPEE) Monograph 3:

Wrights experience suggests that EURs usuallyexhibit a lognormal distribution

Repeatable results

Continuous hydrocarbon system that is

regional in extent

Offset well performance may not be a reliable

predictor

Resource plays can become highly predictable IF

there is a large sample size


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PROBABILITY PLOT - VOLUMETRICSHamilton Group OGIP per Square Mile (Bcf/Mi2)

Example Data

P90

P50

P10

Lognormal Regression


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P90

PROBABILITY PLOT - VOLUMETRICSMarcellus OGIP per Square Mile (Bcf/Mi2)

Example Data


P50

P10


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PROBABILITY PLOT WELL PERFORMANCE BASEDEUR per 1,000 feet Effective Lateral Length

(MMcfe/1,000 ft.)

Example Data



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RISKS AND ONGOING CHALLENGES

Rig and service crew availability

Placement of laterals, effectiveness of completions

Pipeline capacity, transportation bottlenecks

Gas leakage and groundwater contamination issues

Statewide regulatory issues

Water use and disposal

Plants, processing and installation

Gas and liquids pricing


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WHAT DOES WRIGHT EXPECT NOW?

More wells more data more accurate reservesestimates

Drilling/Completion techniques to improve

Average EURs, lateral lengths, optimal spacing,

efficiencies to be more clearly defined

Play to continue rapid development toward

statistical and mature phases

Infrastructure to provide outlets to markets


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D. Randall Wright

(615) 370-0755

[email protected]

THANK

YOU!

Sometimes theWrightchoice is obvious.

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002.Randy Wright