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The Shale Energy Revolution: New Resources, New Stakeholders, New Responsibilities
Tony Vaughn, Senior Vice President
U.S.-China Oil & Gas Industry Forum
Sept. 12, 2012
NYSE: DVN www.devonenergy.com Slide 2
Devon today
Proved reserves: 3.0 billion BOE
(42% liquids)
Q2 2012 production: 679 MBOED
(37% liquids)
Sales revenue mix: 57% oil
18% NGLs
25% natural gas
(Q2 2012)
Significant midstream business
2011 operating profit: $542 million
Enterprise value: $27.6 billion
Jackfish
Pike
Granite Wash Barnett Shale
Permian Basin
Canadian Oil Potential
Cana Woodford Mississippian
Tuscaloosa Shale
Rockies Oil Utica Ohio
Michigan
Horn River
Deep Basin
Powder River
Washakie
Haynesville/Bossier
Carthage
Groesbeck
Existing operations
New areas covered by Sinopec JV
New technology What has resulted from it?
NYSE: DVN www.devonenergy.com Slide 3
“New”
• Resources
• Stakeholders
• Responsibilities
page 4 www.devonenergy.com NYSE: DVN
Technology’s role
Migrating hydrocarbons Shale
organic rich source layer
Frack Porous and permeable
reservoir layer
Hydrocarbon Trap
Impermeable
sealing layer
Fracture stimulation 5,000’ – 15,000’ below the surface
“New” resources Traps vs. shales
page 5 www.devonenergy.com NYSE: DVN
North American shale Plays and basins
Estimated resource
base increased 20%
just since 2008.
New resources, new stakeholders, new responsibilities
Current and prospective
shale plays
Basins
Utica
Eagle Ford
Monterey
Bakken
Mowry
Avalon
Sources: EIA, Potential Gas Committee
Utica
Niobrara
Woodford
Antrim
New Albany
Fayetteville
Marcellus
Tuscaloosa
Haynesville-Bossier
Barnett
Devonian (Ohio)
Worldwide shale basins
NYSE: DVN www.devonenergy.com Slide 6
Resource Estimate
U.S. — 862 Tcf
Canada — 388 Tcf
China — 1,275 Tfc
Source: EIA, 2011
New stakeholders
NYSE: DVN www.devonenergy.com page 7
• Stakeholders who haven’t seen the size or
scale of what they will see
• Other new stakeholders
– Community leaders
– Royalty owners
– Concerned citizens and/or activists
New responsibilities Addressing concerns/demystifying our work
NYSE: DVN www.devonenergy.com page 8
• Hydraulic fracturing
• Community impacts
• Water management
• Land stewardship
• Seismic activity
page 9 www.devonenergy.com NYSE: DVN
Hydraulic fracturing A brief history
Velma Alma, OK
March 17, 1949
• Hydraulic fracturing is a
well-established
technology with a strong
environmental and safety
record
• The technology has been
used to complete more
than 1 million wells over
the past 60 years
slide 9
page 11 www.devonenergy.com NYSE: DVN
Fracfocus.org Industry’s effort to demystify the process
• Created by regulators and the
Interstate Oil and Gas Compact
Commission
• Site went live in April 2011
• Industry is responding to this
voluntary disclosure effort
– 207 companies have reported
well information
– Data uploaded for more than
23,000 wells
– Devon: Nearly 900 wells
uploaded
NYSE: DVN www.devonenergy.com
Mapped fracture treatments Barnett Shale
Kevin Fisher, “Data Confirm Safety of Well Fracturing” —
American Oil & Gas Reporter, July 2010
slide 13
page 14 www.devonenergy.com NYSE: DVN
Groundwater protection Through proper well construction
Cement
Cement
Surface casing
Drilling fluid
Intermediate casing
Conductor casing
Aquifer
2,000 ft.
4,000 ft.
6,000 ft.
8,000 ft.
10,000 ft.
13,500 ft. Im
perv
ious r
ock layers
Production casing
Production tubing
page 15 www.devonenergy.com NYSE: DVN
Regulation of well construction States’ role
• States manage the oversight and enforce federal law and
state rules
– Have the on-the-ground personnel and expertise
• State-led enforcement allows fit-to-purpose solutions for
localized issues
• Regulated activities:
– well design
– well location
– well spacing
– well operation
– water management
and disposal
– air emissions
– wildlife impacts
– surface disturbance
– worker health
and safety
page 16 www.devonenergy.com NYSE: DVN
Water management Barnett: 500 million gallons recycled
Barnett Shale
• High salinity requires water to be
distilled
• Devon’s process approved by
Texas Railroad Commission in
2005
• System vaporizes flow-back
water and condenses it into
clean, distilled water
• More than 500 million gallons
recycled — enough water to
fracture 100 wells.
page 17 www.devonenergy.com NYSE: DVN
Water management A few Devon examples
• West-Central Oklahoma
– Exceptional flowback and produced water quality allows for reuse
– Built pipeline system and 500,000-barrel storage pond
– 600,000 barrels reused in first three months
• Texas Panhandle
– Already reusing water for
hydraulic fracturing
– New pipeline will reduce truck
traffic for hauling reusable
water
page 18 www.devonenergy.com NYSE: DVN
Water management A few Devon examples
• Canada — SAGD oil production using brackish water
— Similar plan for other Jackfish phases and for Pike
• Ohio — Purchased treated wastewater from town of Savannah
— Temporary pipeline connects town lagoon to Devon’s first hydraulic
fracturing job
• Louisiana — Cooperative agreement with state for running surface water
— Devon pays 15 cents per 1,000 gallons
NYSE: DVN www.devonenergy.com
Freshwater users
In the Barnett Shale region
(Source: Texerra; L. Peter Galusky, Jr. Ph.D., P.E., www.texerra.com)
slide 19
page 20 www.devonenergy.com NYSE: DVN
Water sustainability principles
• Devon is committed to the principles of conservation and re-use of water
where feasible through the following:
– Educating and working closely with governmental authorities and
members of the public concerning water usage needs and the necessity
of water management
– Identifying usage needs, determining resource availability and
monitoring water use
– Applying conservation practices and identifying opportunities to
improve water use efficiency
– Employing economically and operationally feasible alternatives to fresh
water usage
– Advocating for appropriate regulations on water use and re-use
– Continuing to employ prudent operating practices to ensure the
protection of surface and groundwater
– Planning for operations to continue if water availability becomes
constrained
page 21 www.devonenergy.com NYSE: DVN
Demystifying seismic events Purported connection to E&P activity
• Experts’ consensus: Low risk managed through good practices
• “We don't see any connection between fracking and earthquakes of any
concern to society.” — Bill Ellsworth, senior U.S. Geological Survey
geophysicist, to E&E News, April 23, 2012.
• Fewer than 30 out of 150,000 U.S. disposal wells have had any alleged
connection to seismic activity
• Generally no damage from those events
• Devon uses advanced seismic imaging technology and interpretation
methods to identify and avoid faults.
• Industry expanding water recycling/reuse programs to reduce need for
disposal wells
page 22 www.devonenergy.com NYSE: DVN
Seismic risk in context Seismic array monitoring example
Total array areal coverage is 3 square miles.
Source: Spectraseis Array location map
Horizontal
Well Paths Seismic stations
that form the
seismic array
Frank 11 100 – Station layout
.
East-West dimension is
12,000 feet (2.3 miles)
Nort
h-S
outh
dim
ensi
on is
7,0
00 f
eet
(1.3
miles)
page 23 www.devonenergy.com NYSE: DVN
Seismic risk in context Comparison of frack and trains
0.8
80
0
10
20
30
40
50
60
70
80
90
1
Relative Seismic Amplitudes
Hydraulic FractureEvent
Freight TrainVibrations
page 24 www.devonenergy.com NYSE: DVN
Land matters Maximizing value while earning trust
Lake Benbrook, Texas
• Two pads
• 56 wells
• On-site disposal well
reduced truck traffic
• BLM calls project
“spectacular”
page 25 www.devonenergy.com NYSE: DVN
API standards for hydraulic fracturing
• Well construction and integrity guidelines
• Water management associated with HF
• Practices for mitigating surface impacts
• Environmental protection for onshore production
• Isolating potential flow zones during construction
• More information: EnergyFromShale.org
page 26 www.devonenergy.com NYSE: DVN
API’s public workshops Explaining hydraulic fracturing
Completed
Little Rock, AR
Raleigh, NC
Annapolis, MD
Trenton, NJ
Charleston, WV
Denver, CO
Completed
Columbus, OH
Albany, NY
Bismarck, ND
Lafayette, LA
Lansing, MI
Washington, D.C.
Dates TBD
Baton Rouge, LA
Oklahoma City, OK
Santa Fe, NM
San Antonio, TX
page 28 www.devonenergy.com NYSE: DVN
In summary
• New technology has created:
– New resources
– New stakeholders
– New responsibilities
• One major responsibility is educating the public, especially these new
stakeholders, about:
– Water consumption and management efforts
– Hydraulic fracturing
– Truck traffic
– Land impact
– Seismic activity