The Barnett Shale. The core area of the Barnett shale cover 6 counties.

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1 The Barnett Shale The most prolific gas play in the U.S. The core area of the Barnett shale cover 6 counties. 90% of the 7987 wells (over 6000 producing) in the core area have been drilled since Resources estimated at 26.7 TCF with producible resources estimated between 3 and 40 TCF. 177 operators are active in the play. 526 drilling permits, nearly all for horizontal wells, have been issued for Tarrant County since January 1,

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4 Comparison of Operator Skill 4

5 Wells in Barnett Shale 5

6 Land Leasing The Railroad Commission regulates drilling in Texas. An exploration company needs to lease the mineral rights of a minimum number of contiguous acres, called a unit. Units vary between 120 and 300 acres Land owners who do not lease their property in a unit become working interest partners. They can be held responsible for their share of drilling and completion costs. They earn a share of the profits based on their acreage. They are paid only if the well is successful and after all other debts are paid. 6

7 Reserves and Production Per well reserves are relatively low compared to conventional gas plays. Play success is sensitive to gas price. A large drop in gas price will stop the viability of the play. Natural gas prices need to stay above $4/Mcf for the play to stay viable. 7

8 Natural Gas Prices 8

9 Natural Gas Price 9

10 Production Wells to the west of us have averaged a little less than 1.5 million cubic feet per day initial production. Declines in production have averaged: 55% in year 1 25% in year 2 15% in year 3 10% thereafter Reserves per well have averaged 2.4 Bcf 10

11 Geology The Barnett Shale is the source, reservoir, and trap for the hydrocarbons Permeability in the microdarcy to nanodarcy range and porosity in the 0.5 to 6% range. The reservoir needs to be artificially fractured in order to produce gas. 11

12 Stratigraphy 12

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17 Fracture Technology Fracture technology is responsible for the current success in the Barnett shale play. This technology uses large amounts of water in a short period of time to develop a gas well. Addition of sand or other material to the fluid is needed to keep the induced fractures open. Most Barnett wells are horizontal wells with one or more horizontal legs extending into the target section. The legs may extend more than a mile from the surface location of the well. 17

18 Water Usage A typical vertical completion in the Barnett consumes approximately 1.2 million gallons of fresh water. A typical horizontal well completion requires 3.0 to 3.5 million gallons of fresh water. Horizontal wells are more expensive to drill and develop but have better performance and larger production volumes. Fresh water can be obtained from water wells or trucked in from nearby reservoirs. 18

19 Risks Production is related to the area of the reservoir that is fractured and the length of the fractures that are created. If fractures penetrate into the water-saturated Ellenburger limestone, excess water is drawn into the Barnett. Wells drilled through the faults of collapse features could encounter weak zones prone to water flow. 19

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21 Well Spacing The usual well spacing for vertical wells is 1 well per 40 acres. Spacing between horizontal wells is a function of the shape of the induced fractures, typically resulting in spacing of at least 450 to 600 ft. 21

22 DFW Airport Drilling Plan 22

23 Conclusions for NKNT The Barnett Shale in northeast Tarrant County is near its deepest and thickest extent. The top of the Barnett shale is expected to be between 7500 and 8000 feet below sea level and greater than 1000 ft thick. The Viola limestone should be present below the Barnett Shale acting as protection from the underlying karsted Ellenburger formation. 23

24 Conclusions for NKNT The hydrocarbons in this area should be dry gas and the maturity in the area should be high enough to generate significant production. One of the primary concerns in this area are the large amounts of fresh water needed for the drilling. The experience of the operators will determine the success and level of production of any wells in the area. Drilling in northeast Tarrant County has been slowed primarily due to the population in the area. 24