MARCELLUS SHALE NATURAL GAS DEVELOPMENT IN THE SHENANDOAH VALLEY. OPPORTUNITIES & ISSUES October 28, 2010

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1 MARCELLUS SHALE NATURAL GAS DEVELOPMENT IN THE SHENANDOAH VALLEY OPPORTUNITIES & ISSUES October 28, 2010 Department of Mines, Minerals and Energy Division of Gas and Oil

2 Virginia s Natural Gas Regulatory Process Governor McDonnell s s Energy Policy Department of Mines, Minerals and Energy Virginia Gas and Oil Board Division of Gas and Oil History and Summary

3 State Energy Policy Governor McDonnell Broad development of state s energy resources Energy Capital of the East Coast Supports development of this valuable energy resource, safely and in an environmentally responsible way Department of Mines, Minerals and Energy Mission To enhance the development and conservation of energy and mineral resources in a safe and environmentally sound manner to support a more productive economy

4 Gas and Oil Production Trends Billion Cubic Feet

5 Gas and Oil Production Trends Number of Wells ,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ,303 6,426 4,132 3,058 1,

6 Department of Mines, Minerals and Energy Goals Provide for worker safety and health at mineral resource and, gas and oil extraction sites Eliminate off-site environmental damages and ensure the proper restoration of lands used for mineral resource and, gas and oil operations Support economic development and energy jobs Examine and provide information about Virginia s s geology and mineral resources Advance energy efficiency and renewable energy development

7 Virginia Gas and Oil Board Foster, encourage, and promote the safe and efficient exploration for and development, production, and utilization of gas and oil resources Board members are appointed by the Governor DMME's Division of Gas and Oil serves as staff to the Board

8 Virginia Gas and Oil Board Duties Establish gas and oil drilling units and field rules Issue rules, regulations or orders to prevent waste and protect correlative rights Classify pools and wells as gas, oil or coalbed methane Force pooling of area drained by a well if the operator does not own or lease 100% interest Hear appeals from parties aggrieved by a decision or order by the Director Provisional Gas Unit for Horizontal Well Gas Tract 3 Gas Tract 2 Gas Tract 4 Gas Tract 1

9 Virginia Gas and Oil Board Duties Board hearings third Tuesday of month Notice and docket published on Virginia Town Hall DMME DGO web page Notice published in newspaper in area of application Petitions before Board accompanied by Affidavit of Due Diligence and Notice

10 DMME Division of Gas and Oil Duties Regulation of gas and oil operations to ensure environmental protection, public and worker safety Receive and review notice and applications for permits Issue or deny permits Regulate and inspect drilling and operations Ensure surface and groundwater protection Ensure proper drilling and produced water management Ensure proper land reclamation, well plugging Investigate incidents and complaints

11 Gas and Oil Permits Notice Requirements Notice of a permit applications given to Surface, coal and mineral owners on the tract where the well is to be drilled Coal and mineral owners within 500 feet of the proposed well location Surface owners where the surface is to be disturbed Gas and oil owners or any natural gas storage field operator within defined areas around the well County Administrator where the well is to be located General public through newspaper notice

12 Gas and Oil Permit Application Requirements Company registration Surety bond Affidavit of notice individual and publishing Well location plat engineer/surveyor certified Technical data sheet (geologic formations) Drilling plan Operations plan Plugging and abandonment plan Technical data sheet for gathering pipelines Plan for disposal of drilling and produced fluids

13 Gas and Oil Operations Plan Requirements Proposed site access and development plan Review of VDOT and public access roads near site Construction Plan Water Management and Fluids Plan Road and pipeline right-of-way development Design and specifications of primary or alternate pits Site materials handling Erosion and Sediment Control / Stormwater Controls to prevent off-site disturbance / degradation Slope stability / Brush barriers / other controls Reclamation Fluids management from pit Drill cuttings and solids disposal Permanent vegetative cover / two growing seasons minimum

14 Gas and Oil Operations Plan Requirements Stimulation of Formations Plan and prediction of formations to be penetrated Design of well bore Stimulation plan Produced Fluids Tank batteries and berms Disposal of produced fluids Listing of EPA Class II injection wells or other measure to be used Red Zone Site review to ensure public and worker safety Site review to ensure protection of the environment

15 Gas and Oil Inspector s Permit Review Completes application and on-site reviews Site description and site plans accurate? Operations plan appropriate for site? Erosion and sediment control / Stormwater management drilling site, roads, gathering pipelines Review Analysis of well water samples within 750 feet of proposed well Mineral formations by depth Active mining or development in the area

16 Gas and Oil Inspector s Permit Review Drilling and casing plan to protect groundwater Surface conductor Water protection string Production string Cementing plan Production tubing Other casing/tubing as needed due to site conditions Drilling and produced water disposal Pits Disposal on-site no discharge Disposal off site at permitted facility injection well or sewage treatment plant

17 Groundwater Virginia cements the production string into the intermediate casing

18 Gas and Oil Inspector s Permit Review Certified well plat Safety plan including Red Zone areas VDOT road access permit Gathering pipelines, tanks and associated facilities Reclamation plan Equipment removal Grading and re-vegetation

19 DMME Division of Gas and Oil Risk-Based Inspection Frequency Pre-permit Site construction Drilling Cementing Stabilization Operation Plugging & final reclamation

20 Gas and Oil Compliance History DEFICIENCIES & VIOLATIONS CORRECTED 100% 80% 60% 40% 20% 0% 1st 08 2nd 08 3rd 08 4th 08 1st 09 2nd 09 3rd 09 4th 09 1st 10 2nd 10 3rd 10 4th 10 1st 11 % Correction 2-Yr. Rolling Ave.

21 Gas and Oil Operator Required Reports Notice before commencement Drilling report and logs Completion report Transportation manifest for fluids Production reports Plugging details and certification

22 Gas Well Plugging and Abandonment Review of well bore and casing program Plugging and Abandonment plan receives final review and approval Surface monument required after plugging Surface Monument required (unless in agricultural area) Site re-vegetation plan Inspections during plugging and after final reclamation Records of abandoned wells retained by Division

23 Gas and Oil Public Safety Protect against potential hazards and off-site impacts associated with the construction, operation, and reclamation of natural gas and oil wells, pipelines, rights of way, and associated facilities Red Zones Areas where permitted work could pose a danger for workers, the public, and the environment

24 Marcellus Shale Considerations Drilling Fluids Review of available source water and withdrawals coordinate with DEQ Independent lab analysis of ground or surface water to be used for fracing Ensure waters meet state antidegradation policy Water management plan Details of drilling fluid or additives to be used Disposal

25 Marcellus Shale Considerations Fracing and Produced Fluids High priority on protection of the environment and local ground and surface water resources Begins with the permitting process and the identification of the well location, surface elevation, and a prediction of surface and mineral resources to be penetrated by each well bore Permits includes a schematic diagram and description of the well bore casing program that details the multiple layers of steel casing and cement around each casing leg Ensures no intrusion or contamination of local freshwater aquifers

26 Marcellus Shale Considerations Fracing and Produced Fluids Historical fracing processes in Virginia use a nitrogen-based foam frac Some water fracs completed in Southwest Virginia Expect most in Marcellus Shale to be water-based frac jobs The typical depth of the hydraulic fracs for natural gas wells is 3000 to 6000 feet expected to be similar for Marcellus Shale

27 Formation Stimulation (Hydraulic Fracing) Hydraulic Fracing has been used for decades in the stimulation of tight formations to give-up gas The horizontal sections are limited due to geologic structures and extend between 3500 and 5000 feet Treatable Groundwater Aquifers Private Water Well Municipal Water Well < 1,000 feet Protective steel casing and cement to surface to protect groundwater Protective steel casing Shale Fractures Stage Approximate distance from Surface 3,000 to 6,000 feet

28 Fracing Fluid Ingredients

29 Gas and Oil Incident Management Scheduled response exercises with localities DMME working relationships with Follows National Incident Management System (NIMS) protocol Uses STARS radio for interoperability communications

30 Gas and Oil Local Authority , Virginia Gas and Oil Act, Exclusivity of regulation and enforcement No county, city, town or other political subdivision of the Commonwealth shall impose any condition, or require any other local license, permit, fee or bond to perform any gas, oil, or geophysical operations which varies from or is in addition to the requirements of this chapter. However, no provision of this chapter shall be construed to limit or supersede the jurisdiction and requirements of other state agencies, local land-use ordinances, regulations of general purpose or , , , , and

31 Statewide Gas and Oil Permit History New On-shore Exploration Areas

32 Regional Gas and Oil Permit History Rockingham County New Frontier Exploration RO-0001, Whetzel 1 well Yankee Exploration RO-0027, Moyers 1 well.

33 Regional Gas and Oil Permit History Previous exploration from 1950 to 1983 The proposed Ennis #1 Marcellus well is strategically located from historical exploration files, geologic research and modern seismic testing

34 Environmental Compliance and Partnerships Promoting Best Practices The Nature Conservancy Virginia / U.S. Department of Forestry The Clinch Valley Program area covers 2,200 square miles encompassing the watersheds of the Clinch, Powell and Holston rivers. These last free-flowing reaches of the Tennessee River system harbor the highest concentration of imperiled species in the continental United States. Our innovative strategies include the Clinch-Powell Clean Rivers Initiative; Flint Gap pilot project, demonstrating ecological restoration, reforestation, and carbon sequestration on coal mined lands; and Conservation Forestry Program, through which we work with private landowners to promote economically productive and ecologically healthy working forests.

35 DMME Division of Gas and Oil Contact David E. Asbury Jr. Division of Gas and Oil Director Department of Mines, Minerals and Energy P.O. Box 159, 135 Highlands Drive Lebanon, VA (276)