Chesapeake Energy Marcellus Shale Development

1 Chesapeake Energy Marcellus Shale Development2 Chesapeake Energy Number 1 Natural Gas Driller in the Nation Exceptional Drilling Success Rate 98% The Largest Independent Producer of Natural Gas Exclusively Onshore and Domestic Exclusively Focused on Natural Gas Growth through Drill Bit and Acquisitions Founded in 1989 NYSE: CHK3 Unconventional Natural Gas DevelopmentShale Gas4 What is Shale Gas? Shale Gasis found in Organic-rich Sedimentary Rocks (Shales) that were Originally Deposited as Muds within Tidal Flats and Deep Water BasinsThese Shales have Low Permeabilityand Typically Require a Combination of Horizontal Drillingand Hydraulic Fracturingfor the Gas to be Released in Economic QuantitiesMarcellus Shale Outcrop in PennsylvaniaSource ALL Consulting, 20085 Shale Gas DistributionShale Gas is Found Throughout the Eastern, Southern and West-Central parts of the Country within Major Sedimentary BasinsBlack Shales within the Appalachian Basin, such as the Marcellus , are the Primary Focus of Shale Gas Development in West Virginia66 Scale.

2 1 inch = 275 milesAnadarkoBasinBarnettShaleSouthTexas Texas Gulf CoastArk-La-TexPermianBasinArkomaBasinAp palachian BasinMississippian & Devonian black shalesCounties with CHK leaseholdThrust BeltLaramideThrust BeltOuachitaThrust BeltEastern OverthrustBeltDelawareBasinNew AlbanyShaleWoodfordShaleAlabama ShalesBarnett and Woodford Shale PlaysFayettevilleShaleCHK field officesChesapeake Energy CorporationMarcellus ShaleBarnett ShaleHaynesville ShaleFayetteville ShaleNatural Gas Production Process8 Production ProcessThere are Five Basics Steps in the Production Selection and Well Pad the the the the Site9 Site SelectionSite Selection A Number of Factors are Considered in Selecting a Drilling Site Favorable Geology Topography Access Roads Routes for Pipelines and Utilities Proximity to Schools or Residential Areas Environmental Factors such as Wetlands and Sensitive Wildlife Habitat Available Water Source(s)10 Well Pad PreparationRural SettingWell Pads can be Located in Rural or Urban Areas Pad Preparation Requires Approximately One to Three Weeks Typically Requires 1 - 3 Acres to Construct11 Vertical Drilling Multiple Well PadsVertical Wells Up to 16 Well pads (2 acres)

3 Needed to recover the natural gas resource from 640 acres Multiple Roads with pipelines and utilities required to access the wells Total surface disturbance is ~45 acres12 Horizontal Drilling - Reduced FootprintHorizontal Wells 6 to 8 Horizontal Wells anticipated drilled from each 1 to 3 acre pad One Road with pipeline and utilities to well pad Approximately 85% Less surface disturbance than Resource Recovery with Vertical Wells13 Horizontal Well PadYost Rig #240 Victory ProspectHorizontal Well Drilled in Northern West VirginiaWell Pad can Accommodate 6 to 8 Horizontal Wells14 Drilling the Well - GroundwaterProtectionFive or more Layers of Protection are installed in the Well to Isolate the Well Bore from its Surroundings and Protect Groundwater and the Environment Surface Casing Cement, sealing the Surface Casing in Place Production Casing Cement, sealing Production Casing in Place Production Tubing On some Wells, an Additional String of Casing and Cement (Intermediate Casing) is installed15 Base of Treatable Water (BTW) is basis for surface casing depth requirements.

4 Average BTW in Marcellus wells is ~850 Surface casing and cement extends below fresh water of casing below BTW is set by the state to Protect GroundwaterProduction depth is ~4,000 - 8,500 for Marcellus Shale 3,100 to 7,600, of Non Productive Rock between production and BTWG roundwater Protection Marcellus Shale16 Drilling the Well Horizontal WellsComputer-Driven, State-of-the-Art Technology allows for Horizontal Drilling Horizontal Drillingallows for Access to a Greater Volume of the Shale Gas Reservoir Access to a Greater Volume of the Reservoir makes Shale Gas Development EconomicSource: John Perez, Copyright , 200817 Drilling the Well Good Neighbor Horizontal Drilling allows Energy Companies to AvoidHomes and Schools by Drilling from a Mile, or more, away Where Avoidanceis Not Possible, Measures can be Implemented to Reduce Disturbancesdue to Drilling Activities such as Noise and Lighting18 Drilling the Well - NoiseSound Blankets and Sound Walls can be used to Control NoiseAssociated with Drilling Activities19 Drilling the Well - LightingDirectional Lighting Illuminates Wellsite for Worker Safety Directed Downward and Shielded to Prevent Illumination of Residences, Public Roads.

5 And Buildings20 Completing the Well21 Hydraulic FracturingAfter the Rig leaves, Hydraulic Fracturing ( Fracing ) Begins Fracing is a Process to Stimulate Natural Gasfrom the Hard Shale Water is Mixed with Proppant(such as Sand or Bauxite) and Pumped into the Shale Reservoir under High Pressure This Process Fractures the Shale to Release the Gas Several Days to Only Conducted during Daylight Hours22 Treatment - Fracturing ProcessWaterConcentrated gelFrac fluid additivesFrac fluid mixing/blendingProppantmixing/blendingHi gh-pressure pumping equipmentWellhead connectionSource: Schlumberger23 Site Layout Rock Cave WellChesapeake Rock Cave Marcellus Shale Well, West VirginiaGel Slurry Tanker TruckChemical Storage TrucksFrac Head/Goat HeadData Monitoring VanFrac PumpsFrac Tanks Hold Flowback WaterSand Storage UnitsBlender PumpsFrac Tanks Hold Flowback Water24 Hydraulic Fracturing Elements25 Fracture Fluid Make-up26 Typical Fracture Fluid Make-upCommon Fracture Mixtures are made up of greater than 85% Water by Weight (including weight of the sand proppant) and are 98% or more Waterby Volume (sand proppant not included).

6 The Additives that are incorporated to Control corrosion, reduce friction, Prevent bacterial growth, etc. represent approximately 2% or lessof the mixture. 27 Water Resource Planning and EstimatedUse for the Marcellus ShaleEstimated Water use by Chesapeake for the Marcellus Shale Area2,000 BBLS used for Drilling60,000 BBLS used for Fracturing **62,000 Total BBLS UsedCHKP rojected Wells per Year: 700*Projected Total Water Use per Year: 43 Million BBLS*Estimated Peak Year** Estimated Average across Entire Play Development area Establish extent of play Evaluate Hydraulic/hydrogeologicconnectivity Establish baseline data and projected water use Compile data on water users Water resource data Surface water and availability Wastewater discharges Produced water quality Define regulatory structure Identify opportunities28 Water use in Marcellus Shale AreaPublic and : USGS Estimated Use of Water in US, County Level Data for 2000 Total Water Use in Marcellus Area.

7 85 Billion Barrels per YearTotal Water Use (Surface Water and Ground Water) in Central PA (32 County Area), Southern NY (10 County Area), Northern WV (29 County Area), Western VA and MD (5 County Area), and Eastern OH (3 County Area) by SectorNotable Other Uses (too small to show on chart): CHK Projected Use: : Use in the Susquehanna River BasinSource: Susquehanna River Basin Commission30 Typical Fracture Fluid Make-upChesapeake Marcellus Shale Well Fracture Fluid, West Virginia31 Water Management - Flowback WaterFlowback Water consists of the Initial Water that is returned to the surface after Hydraulic Fracturing is completed.

8 Consists of Frac Make-up Water combined with Natural Formation Water with a higher Water is piped to Steel Frac Tanks onsite and transported offsite for Treatment or Disposal in Permitted Class II Marcellus Shale Well, West Virginia 32 Water Management Produced WaterOnsite Tanks are used to Store Produced WaterProduced Water is Naturally Occurring Waterfound in the Shale Typically has a High Chloride Content requiring either Treatment or Disposal in a Permitted Class II UIC Well. Berms and Containment Structures are used to Contain any Releaseof Produced Water33 Production/On-going OperationsProduction to Sales Well is completed Connected to sales line Gas and fluids reach surface Gas and fluids are separated by the Separator Gas travels thru sales meter to pipeline Pipeline carries gas to market Fluids are retained on location in tanks until removed via pipeline or truck34 Reclaiming the site35 Reclaiming the Site Site is reclaimed and landscaped Install appropriate permanent fencing as needed Energy company returns regularly to.

9 Maintain equipment Monitor production rate36 The Workforce37 Workforce Development 2006 POGAM shows significant job growth ahead More than 1,000 full-time jobs through 2009--From Oil and Gas Producers More than 600 full-time jobs through 2009--From Service Companies38 Most Difficult jobs to fill Drillers Drilling & Service Rig Hands Oil Field Truck Drivers Oil Field equipment operators Geologists and geophysical staff Production workers (pumpers and well tenders) Engineers Landmen39 Compressed Natural Gas(CNG)40 Natural Gas is Located in Shale Formations Across the CountrySource: American Clean Skies Foundation Navigant Study41 Natural Gas is America s Own Energy AnswerTHE TIME FOR CLEAN FUELSS olar, Wind,andNatural Gas(Including Natural Gas Vehicles) are what the needs to turn back the clock on GHG emissions and reduce our dependence on foreign oil42 CNG The Basics Utility quality gas