Energy & the Environment 2nd Annual Eckenfelder Lecture

Fort Worth, Texas July 31, 2012

Hydraulic Fracturing of Tight Oil & Gas

Davis L. Ford, Ph.D., P.E., BCEE, NAE

Davis L. Ford & Associates

Chapter 13. Treatment: Oil/Gas Exploration/Production

Residuals……………………………………...…………. 711

13.1 Introduction and Background

Information……………………………………….. 711

Introduction………………………………….…. 711

Background Information………………….…. 712

13.2 Regulations……………………………………… 717

Introduction….………………………………… 717

Federal Regulations……………….…………. 717

Exempt and Nonexempt E&P Wastes….… 720

State Regulations………………………….…. 724

Local Regulations………………………….… 725

Lease Agreements and Miscellaneous

Issues………………………………….…….. 725

13.3 E&P-Related Fluid Characterization……….. 726

13.4 E&P Treatment Processes, Waste Sources,

and Residual Reuse/Disposal………………. 729

Water Sources Description………………… 734

E&P Waste Residuals and Treatment

Options……………………………………… 735

13.5 Problems………………………………………… 744

References……………………………………… 745

McGraw-Hill, New York (2009)

In mid-2012, the U.S. is 95% or more dependent on fossil fuels (including nuclear) whereas the “green” energy sources such as ethanol, biofuels, solar, and wind are currently in the development and subsidy stages.

The discovery of enormous reserves (mostly proven) which are “tight” shale oil and gas has the potential of totally transforming the dependence of U.S. energy production and possible energy independence. This transformation is primarily attributable to horizontal drilling (now commonplace) and hydraulic fracturing (fracking or fracing or fraccing).

Energy Consumption 2009 U.S.(%) China(%) Taiwan(%) Oil 30-35 20 49 (IMPORTED) Gas 25 3 7 (LNG) (IMPORTED) Coal 20 70 32 (IMPORTED) Nuclear 15-20 1 10 Hydro/Geo 3 5 1 Renewables 2 1 1 _________________________________________________________________________ 2.4 U.S.

China 1.2

0 Total primary energy 2000 2009 consumption, in billions of metric tons of Years Source: International Energy Agency oil equivalent

Global Market Trends (2012) Source: CQG Inc; Energy Information Administration, DOE

Oil Price Global Demand Ex., U.S.* U.S. Demand* $150 72 22 125 70 21 100 68 20 75 66 19 50 64 18 25 62 17 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 * Million bbl/day

Global Market Trends (continued) • The demand of oil is becoming more global-

driven with emerging markets in India, Brazil and China.

• There are continuing higher international trade flows.

• In the U.S., the possibility of pipeline reversal at the choke point in Cushing, OK, opening more crude to Gulf Coast refineries, will bring the WTI crude benchmark more in line with the global benchmark, Brent Crude.

• The approval of the Keystone pipeline from Canada to the Texas Gulf Coast will enhance and equalize Canadian/American markets and facilitate crude exports from both countries.

Hydraulic Fracturing This is a relatively older technique used rather

sparingly in the past, but now, with the vast discovery of shale oil and gas, has become a booming technique to recover enormous amounts of heretofore unavailable fossil fuel. It has been estimated that with the price of oil in the eighty dollar ($80) per barrel or more, approximately 90% of horizontal drilling and/or fracking will become commercial with “short paybacks.”

George Mitchell (Mitchell Energy) developed the hydraulic fracking practice in the Barnett Shale in the 1980s and 1990s. Leases went up from $40 an acre to as high as $30,000 an acre.

For example, the following have combined billions of proven reserve barrels of oil as well as trillions or more of cubic feet of gas:

* the Bakken Formation in parts of Wyoming, South Dakota, North Dakota, Montana and into Canada,

*the Marcellus Formation primarily in Pennsylvania, New York, and into Canada, and

*other similar formations in the Southwest: the Barnett Shale in north Texas the Eagle Ford Shale Formation in south and

southwest Texas the Permian Basin in western Texas and

southeastern New Mexico, the Anadarko Basin in Oklahoma and the Texas

Panhandle, the Rockies in northern Colorado and Wyoming, and the Utica Shale in Ohio and surrounding areas.

Estimated Relative Cost per Wet Ton Mile (Oil and Products)

Pipelines 0.5 Rail 10-15 Trucks 20-30

Federal Environmental Legislation (Graph Courtesy of Army Environmental Center,

Aberdeen Proving Ground, MD)

There are environmental laws and regulations currently applied to the conventional drilling and production of oil and gas. The paramount federal statutes primarily include:

• Resource, Conservation and Recovery Act (RCRA)

• Safe Drinking Water Act (SDWA). Both became law in the 1970s, although

RCRA Regulations were not promulgated until 1980, and the SWDA, as well as RCRA, are amended in proscribed intervals.

At the federal level, up until 1997, EPA did not consider fracking to fall under the purview of the Safe Drinking Water Act (SDWA). In 2004, EPA released a study that concluded the threat to drinking water was “minimal” and were still exempted from the SDWA (originally intended to regulated disposal wells).

In 2005, federal law exempted oil fracking chemicals except diesel.

In 2009, Congress considered new legislation (FRAC Act of 2009) which would amend the SDWA and allow EPA to regulate states without EPA “primacy” in underground injection control progress. Additionally, this bill would require complete disclosure of all chemicals used in the injection fluid mix. A partial list of chemical constituents used as additives in the fracking process by the State of New York Department of Environmental Protec- tion (NY DEC) is listed in Table 1.

Chemical disclosure in the fracking for many years was generally considered as “proprietary” by service companies, but certain chemical additives such as diesel were prohibited by federal law (Clean Water Act Amendments) in 2005.

The State of Texas recently passed a fracking bill which requires all drillers/service companies to list all chemicals and amounts used by July, 2012.

Table 1 Additives Used in Fracturing Operations

The oil and gas (O&G) exploration and production industries and their service providers have been provided with selected exemptions both at the federal and state levels. The environmental impacts and regulations and the exploration and production (E&P) companies and their service providers have been defined by case histories, technical experience, case law, and overall enhancement of knowledge.

Quick Facts CWEI (NASDQ) Daily production 12,000-18,000 BOE PUDs 55,000 MBOE

Financials: Annual Net Revenues: $25-40 million Market Cap: approx. $950 million Approx. $2 - $4 per share Produced Water Estimate: (10,000 bbls/day) (8 bbls produced water/bbl oil) 80,000 bbls produced water x 42 gpb “Cut” is the oil field term. Typically, the CWEI “cut” has

been around 10% (bbls oil and gas equivalent to bbls produced water).

Approx. 3.4 MGD produced water Population equivalent water demand: 24,000 – 30,000

Quick Facts (continued…) Regulations

The Texas Railroad Commission is the regulatory authority for E&P operations in the State of Texas (through Memoranda of Agreement with the Texas Commission of Environmental Quality, TCEQ).

Permits are required to drill (W-1), as are full closure completion reports (W-2). These reports are very comprehensive, i.e. fracking information, propants used, frack water use, and other well completion information.

Permits also are required for produced water disposal (underground re-injection to non-producing zones, (disposal wells) or secondary recovery to producing zones, (injection wells).) The E&P companies may drill their own re-injection wells or use commercial wells, depending on location and economics. Right-of-way pipelines typically include dedicated oil or gas lines as well as dedicated produced water lines.

Produced Water Quality Ranges, mg/l

Total Dissolved Solids (TDS) 20,000-100,000 Chlorides 10,000-50,000 Oil and Grease less than 30 Barium 10-100 Total Hydrocarbon less than 50 Chromium 20-30 Mercury normally <4 Zinc 40-200 Copper 0-100

Production/Injection Well (Secondary Recovery or Waste Disposal)

In a review of the current literature, there is little if any subsurface drinking water contamination attributable directly to fracking chemicals (EPA, 2010).

With respect to gas migration a recent study by Duke University was published through the National Academy of Sciences (NAS). The study claims that fracking has contaminated drinking water with methane gas. One would first question the statistical accuracy of this study, as only 68 wells were analyzed across Pennsylvania and New York where more than 20,000 water wells are drilled annually, and no fracking injection chemicals were detected in any of the 68 wells analyzed.

It is interesting to note that the Chairman of Exxon, Rex Tillerson, recently testified to Congress that there was (little or) no evidence that over one million fracking operations contaminated drinking water aquifers.

A recent finding from The University of Texas Energy Institute notes there “is no link between extraction (fracking) operations and groundwater contamination.” The fracking operations that “we’ve seen are of no, minor, or small impact.”

Austin American-Statesman, Section B, November 10, 2011

• A solar panel requires 20,000 acres to produce 1,000 MW of power.

• A gas-fired power plant requires 10-15 acres.

Growing Demand for Fresh Water • The use of fresh water as a fracking source brings

up the question of alternative sources, i.e., 1. domestic wastewater effluents 2. produced (mixed) water reuse, recycle 3. treated industrial effluents 4. flowback capture and recycle • There are major technical and economic issues

involved. The service providers have the obligation to develop frack water chemistry and formulation, critical for successful hydraulic fracking. Even though chemical disclosures are now required, the total chemistry and formulation for fracking water is precise and primarily proprietary.

• It is also interesting to note that the revenue per gallon of irrigation water, for example, corn, produces only a small fraction of revenue as produced per gallon of fresh water. The ratio is approximately 15,000 more dollars produced per fack gal. as compared to irrigation gal.

• As one cannot use oil as a food source like one can use corn, this leads to a totally different field of allocating fresh water for domestic consumption/industrial use in the most cost-effective and efficient way.

Growing Demand for Fresh Water (continued…)

• 0.5 to 3 gallons of water is required to refine 1 gallon of crude oil to 1 gallon of gasoline.

• 1,500 gallons of water is required to ferment irrigated corn into 1 gallon of ethanol. The energy input to create ethanol exceeds its product energy.

• A wind farm requires 40,000 acres to produce 1,000 MW of power.

Growing Demand for Fresh Water (continued…)

NPDES Requirements for Produced Water Effluent

City of Lubbock, Texas Treated Effluent Quality (Smith, et al.)

Analysis in mg/l Lubbock Total hardness (as CaCO3) 290 COD 32-129 BOD 8-22 Virus probably present Total organic carbon 20 Suspended solids 8-19 Total dissolved solids 1194-1235 Dissolved oxygen 2-6 Total N 12-15 NH4-N 2-4 NO3-N 5-8 Org.-N 3-4 Total P 11-12 Chloride 318 Calcium 39 Magnesium 24 Sodium 344 Potassium 16 Alkalinity 236-262 Sodium adsorption-ratio 6 pH, units 7.4-7.5 Fecal coliform, MPN per 100 ml <200

City of Aurora, Colorado Treated Effluent for Fracking Water in 2012

• The City of Aurora, Colorado has recently consummated a contract with Anadarko Petroleum Corporation (Houston, Texas) to use approximately 1.3 million gallons per day to be used for hydraulic fracturing in the Wattenberg field in northern Colorado. Anadarko will pay the City $9.5 million for this purpose, over five years. This daily cost to Anadarko is 3 to 4 times the going rate cost for the privilege. Therefore, the City will use this money to pay off water company debt and possibly a small rebate to current water customers. (Aurora Sentinel, July 5, 2012)

• This is an excellent example of water reuse, exchanging possibly fresh water for treated effluent, which is normally discharged to the South Platt River and finds its way to Nebraska.

In summary, hydraulic fracking is, and will continue to be, a critical component of U.S. energy independence. A huge majority of U.S. proven underground reserves, both oil and gas, are from “tight” formations, mostly shale.

The regulations under the RCRA and SDWA (and possibly under OSHA) will most likely become more stringent and chemical specific as the economic attractions of fracking become more pronounced and important to the U.S. dependence on fossil fuels as its primary source.

Remember: GDP = Consumption Investments Government spending Exports minus Imports

Conclusion: When the U.S. becomes energy

independent, the GDP goes up accordingly. This is a major national issue.

Attachment A Pictorial Fracking Process

by

Davis L. Ford

Regarding: CWEI Fracking Contract with Halliburton

Site Visits:

2011: Andrews County, Texas 2012: Reeves County, Texas

Simplified Flow Diagram Hydraulic Fracking Process

Fresh Water Reservoir for 12-Stage Frack (to 11,000 ft depth) 2 Million Gal. Fresh Water Required

Fresh Water is Pumped to a Series of Frack Tanks at Site

The Equipment Starts to Arrive Everything Related to Frack Process is Mobile

On Site Haliburton on Contract with CWEI

Mountain Mover Complex Automated Proppant System

Massive Mobile Pumps and Appurtenances Arrive

Chemicals Arrive on Site This Chemical Additive contains

“Ethanol and Heavy Aromatic Naptha”

The Mobile Site “Command and Control Center”

Haliburton Frack Team Gets Last Minute Instructions on

Safety and Operations

The “T Belt” Mixing Blender, Frack Water, Gel, Biocides, and Clay, Surfactant Recipe Is Fed to the Injection Pumping System for Injection into the Well Casing, Perforated, and Ready for the

High Pressure Fracturing Process

Operational Control Metrics During the Fracking Process in the Various Zones Are Primarily Pressure, Injection Velocity and

Continuously Monitored Viscosity

References • American Petroleum Institute: “Measuring the Economic and Energy Impacts of

Proposals to Regulate Hydraulic Fracking” (2009). • Wall Street Journal: “The Facts About Fracking,” June 25, 26, 2011. • Internet, Hydraulic Fracturing Search (2011). • Chesapeake Energy Web Site: www.hydraulicfracturing.com/Pages/information.aspx • U.S. Congress, EPA, Safe Drinking Water Act and Amendments (1974, 1986, 1996,

Proposed “Frac Amendments,” 2009). • Wall Street Journal, “Texas Passes Fracking Disclosure Law,” posted Jan. 22, 2011. • New York Times: “Texas: Drillers Must Disclose Fracking Chemicals,” June 20 (2011) • New York Department of Environmental Conservation: “Proposed List of Fracking

Chemicals” (2011). • National Academy of Sciences Proceedings: “Duke University Study – Water

Contamination/Fracking Natural Gas Wells,” May 10, 2011. • Ford, Davis L.: Earnest F. Gloyna Lecture Series, Johns Hopkins University, “Energy

and the Environment,” Baltimore, Md. (2009). • Ford, Davis L.: W. Wesley Eckenfelder Lecture Series, “Energy and the Environment,”

U.S. Military Academy (2011) and Lamar University (2011). • Eckenfelder, W. W., D. L. Ford, and A.J. Englande: Industrial Water Quality,

McGraw-Hill (2009). • University of Texas, Graduate School of Business Sponsored Conference: “Energy

Forum,” Austin, Texas, Feb. 3, 4 (2011). • Charlez, Philippe A.: Rock Mechanics: Petroleum Applications, Editions Technip

(1997).

References (continued…) • Montgomery, Carl T. and Michael B. Smith: “Hydraulic Fracturing: History of an

Enduring Technology,” Journal of Petroleum, December 2010. • Technology (Society of Petroleum Engineers) 62 (12): 26-32. ISSN 0149-2136.

http://www.spe.org/jpt/print/archives/2010/12/10Hydraulic.pdf. Retrieved January 5, 2011.

• “The Barnett Shale.” http://www.nknt.org/Exhibits/Barnett_shale_points2.pdf. • Gidley, J. L., et al. (editors): Recent Advances in Hydraulic Fracturing, SPE

Monograph, SPE, Richardson, Texas (1989). • Frank, U. and N. Barkley: “Remediation of Low Permeability Subsurface Formations

by Fracturing Enhancement of Soil Vapor Extraction,” Journal of Hazardous Materials, Volume 40, Issue 2, Soil Remediation: Application of Innovative and standard Technologies, February 1995, Pages 191-201, ISSN 0304-3894, DOI: 10.1016/0304-3894(94)00069-S

• “Evaluation of Impacts to Underground Sources of Drinking Water by Hydraulic Fracturing of Coalbed Methane Reservoirs; National Study Final Report,”

• “Oil and Gas air Pollution.” Earthworks. http://www.earthworksaction.org/oilgasairpollution.cfm. Retrieved May 11 (2011)

• U.S. Environmental Protection Agency: “Hydraulic Fracturing.” EPA’s Draft Hydraulic Fracturing Study Plan, Retrieved April 6, 2011. http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/index.cfm.

• Tudorpickering Holt & Co.: Reservoir Research, July 2011. • Austin American Statesman, Section B, November 10, 2011. • “Anadarko Drill – Water Deal Runs Deep,” Aurora Sentinel, July 5, 2012. • Smith, E., et al.: “A Study of the Reuse of Reused Water and Groundwater” (1980).