Frac Hits: We Can STOP Them Presented To: Presented On: Friday, May - PowerPoint PPT Presentation

Frac Hits: We Can STOP Them Presented To: Presented On: Friday, May 31 st , 2019 Presented By: Bruce L. Randall Owner Coiled Tubing Specialties, LLC

Outline 1. The Premise 2. The Problem 3. The Paradigm 4. The Protections 5. The Pitch Bruce L. Randall / Coiled Tubing Specialties, LLC

Frac Hit Terminology: It’s Just like FOOTBALL Vertical “Parent” Well RESERVES ‘HIT’: A loss of Production & Reserves from PROPERTY ‘HIT’: Path-of-least- where Horizontal Well’s Frac Stage “X” Loss(es) of… resistance did not go (i.e., to the “Strong Side”) • Production • Reserves(?) • Cap Ex(?) • Leasehold(?) • Collateral / Borrowing Horizontal “Child” Well Base(?) “Strong Side” “Weak Side” • Stronger Pore Pressures • Weaker Pore Pressures • Stronger Rock Fabric (Stress Profile) • Weaker Rock Fabric (Stress Profile) • Stronger Fluid (Hydrocarbon) Saturations • Weaker Fluid (Hydrocarbon) Saturations • Stronger Remaining Reserves • Weaker Remaining Reserves

1. The Premise

“With current horizontal well completion practices, what we’ve F&D = $48-50/BOE accomplished is this: We’ve become very EFFICIENT at stringing together a bunch of very INEFFECTIVE frac’s (in some very lousy rocks) up & down the lateral.”

2. The Problem

The DIRECTIONAL Problem: Frac “Hit” by Child’s hits ‘Parent’ wellbore and leads to … 1) Either a diminishment…or total loss of the “hit” Parent wellbore’s production/reserves. (Typically requires a relatively expensive workover to recapture what reserves are still recoverable.) 2) A loss of at least (and typically greater than) HALF of the production/reserves that “SRV n ” (the Stimulated Reservoir Volume created and connected to the Child well from Frac Stage #”n”) was intended to capture. (Poses an immediate reserves “write-down”.)

Example: Haynesville N W E …and not only have we no DIRECTIONAL S control of our fracs… Little W coverage in stages 1,2,&5… NONE in stage 7 Do I have to drill another (W-offset) well here ??? Problem Observation 2.B: We have no DIMENSIONAL control of our fracs, EITHER. Little “H/B Layer C” coverage in stages 1,2 SPE 131783; Curry, et al; 2010

2. The Problem of Frac Hits… A. …is a Directional Problem B. …is a Dimensional Problem C. …is a Dollars Problem

Frac Hits: “ We Just Don’t Know What We’re Missing !” [Spoiler Alert: It’s Our Reserves Estimates .] By B. Olson, R. Elliott, & C. M. Matthews January 2, 2019 We believe that this … …causes this … Well Well #2 #1 Oil Markets Fracking’s Secret Problem—Oil RESERVES ‘HIT’ FRAC HIT into Wells Aren’t Producing as Much as from where Well #2’s Well #1 from Well #2’s Frac Stage “X” didn’t go Forecast …analysis reveals thousands of Frac Stage “X” locations are yielding less than their owners projected to investors… RESERVES ‘HIT’ from where Well #2’s FRAC HIT into Frac Stage “Y” didn’t go Well #1 from Well #2’s Frac Stage “Y” U NITED S TATES N ON -P ROVISIONAL P ATENT A PPLICATION FOR : M ETHOD FOR A VOIDING F RAC H ITS D URING F ORMATION S TIMULATION … so, we filed this ..… I NVENTORS : R ANDALL , B RUCE L. R ANDALL , B RADFORD G. B RISCO , D AVID P.

"It’s Terrible Out There": Lack Of Greater Shale Fools Leaves Top U.S. Shale Oil Fields www.zerohedge.com Private Equity In A Bidless Panic Decline Rate Reaches New by Tyler Durden Thu, 01/24/2019 Record…. Half Million Barrels Per Day (per month) POSTED BY SRSROCCO IN ENERGY , NEWS JULY 25, 2018 https://srsroccoreport.com/ U . S . S h a l e H a s A B y G N i c l k C a u n r n i i n n g h - a m g O c t P 2 1 , 2 r 0 o 1 8 b … l a e l o n m g l i s t o f U . t u S . r n s h a a l e p c r o o f m i t … p a n A i E e s c o n a n e w r o e m s i r e t c p i l s o l a r s n t t d f r r u F o g i m g I n l i n a t n s n h g t i c e t u i a t o t l I n e s d A t e a i t t l u a y t e i l s i s f t h ( o e I r s E E h “ E a a F n l l a A e r e r g i m ) y n a d i n n u g d s t r v t y o h . l e u m S e i s g h t o l f i n r e e d i n k ” w i t h i n t h e Conclusion: E&P’s Unconventional ‘Report Card’ from Wall Street is not looking too good! Is The Permian Bull Run Coming To An End? e a l h S a l n g S i y a M s r t o The bad news coming out of the shale oil fields of America could all p R e e v e r s R e s P & E n be put down to slumping oil prices. That is certainly a big factor. But c a i e r m A h r t o N o r F s s r e S t a l as investment professionals like to say, when the tide goes out, we all o n n t i v e o n n c t u h a a l t v e r e s t s a l y n y a find out who's been skinny-dipping. r g E n e o s e s c l o n d i s m m P s S i E & s ” a e s s s t r o f n s i g g s w i n The pattern of negative news from shale country is not just related to o “ s h i s l e n s . h a o w s e d r i t w r v e s e r e e d l a t - r e price, however. Oil production, it seems, is being overstated c e a n m f o r p e r www.hartenergy.com 1 9 , 2 0 2 / / 2 , 3 By Kurt Cobb o r u t r i b o n t industry-wide by 10 percent and 50 percent in the case of some C n n , l a n K s a S u - Jan 28, 2019 , 4:00 PM CST companies, according to The Wall Street Journal .

…leading some to ask: “ Is the party over?” The Shale Boom Is About To Go Bust May 09, 2019, 6:00 PM CDT; by Nick Cunningham / J. David Hughes, Post Carbon “…drillers try to outrun the treadmill of precipitous well declines… … since 2012 … • average lateral lengths have increased 44% to over 7,000 feet ... • the volume of water used …has surged more than 250% … • In 2018 , …$70 billion on drilling 9,975 wells …with $54 billion …spent on tight oil plays • … 70% served to offset field declines and 30% to increase production • “Technology improvements appear to have hit the law of diminishing returns in terms of increasing production— they cannot reverse the realities of over-crowded wells and geology,” Hughes said. • … the Permian requires 2,121 new wells each year just to keep production flat , and in 2018 the industry drilled 4,133 wells , leading to a big jump in output. …increase in water and frac sand “have reached their limits.” BLR’s Question: How many of those 4,133 wells will never reach Pay Out??? …due to “well interference”?

Does anyone doubt horizontal wellbores’ lateral lengths continue to get longer and longer??? 813 Fig. 1. Number of wells completed in the Permian basin with lateral lengths greater than 10,000 ft. Greater use of longer laterals presents completion challenges. Chart: DrillingInfo. From: Long game: Reliable, interventionless completions for toe stages ; Travis Harris, Packers Plus Energy Services; World Oil ; April 2019 63

If you’re losing a nickel a bail, perhaps the answer is NOT to “Haul more hay.”

3. The Paradigm ( Shift )

The New York Times , Dec. 21, 2013 https://www.nytimes.com/news/the-lives-they-lived/2013/12/21/george-mitchell/ “(George) Mitchell’s fracking technique is so far the most important, and the biggest, energy innovation of this century.” --Daniel Yergin Leading Energy Industry Scholar and Expert Pulitzer Prize Winner Author: The Prize ; The Quest ; The Commanding Heights

The “Offensive” Solutions R Re-inventing completion design from the inside out R Eliminating frac hits through frac steering R Increasing exposure to “strong side” reservoir rock R Leveraging rock mechanics to optimize frac effectiveness R Ultra Deep Perforations-UDP’s (1.5” x 100, 200,…300’)

4. The Protections

“To Solve Frac Hits, Unconventional Engineering Must Revolve Around Them”, Trent Jacobs, JPT Digital Editor | 08 February 2019 Comparing Depletion Mitigation (i.e. “Defensive” Frac Hit) Strategies • Do Nothing • Parent Well: Highest risk of cleanouts, sand loading, and reduced production. • Child Well: Underperforms 20-40% compared with parent production. • Small Volume Preload and Active Pushback (may involve chemical remediation) • Parent well: Protected from cleanouts. • Child Well: Underperforms 20-40% compared with first order offset well. • Large Volume Parent Preloads • Parent Well: Minimal reserve loss, parent fracture network protected. • Child well: Underperforms by 15-35% compared with first order offset well. • Recharge Parent • Parent well: Elevates protective reservoir stress and pressure. • Child well: Improves first order offset well performance and mitigates frac asymmetry. • Refracture Parent • Parent well: Elevates protective reservoir stress and pressure, adds incremental reserves. • Child well: Optimal first order offset well performance.