Lessons Learned
from Natural Gas STAR Partners
                                            A
                                  NaturalGasfX
                                  EP* KKLUTION PREVENTER '
 Reduced  Emissions Completions
 Executive Summary

 High  prices and high demand  for  natural  gas have
 provided incentive for the natural gas production industry
 to develop more technologically challenging (and therefore
 more expensive) unconventional gas reserves such as tight
 sands, shale and coalbed methane.  Completion of new
 wells and re-working (workover) of existing wells in these
 tight formations  typically involve hydraulic fracturing of
 the  reservoir  to increase  well  productivity.  Industry
 reports that  hydraulic  fracturing  is  beginning to  be
 performed  in   conventional  gas  reservoirs  as  well.
 Removing the water and excess proppant (generally sand)
 during completion   and well clean-up may  result  in
 significant releases  of natural gas and therefore methane
 emissions  to  the  atmosphere.  The  U.S.  Inventory  of
 Greenhouse Gas Emissions and Sinks  1990  - 2010
 estimates that 68 billion cubic feet  (Bcf) of methane  are
 vented or flared from  unconventional completions and
 workovers.

 Reduced emissions  completions (RECs) - also known as
 reduced flaring completions or green completions — is a
 term used to describe an alternate practice that captures
 gas produced during well completions and well workovers
following hydraulic fracturing.   Portable  equipment is
brought on site to separate the gas from the  solids  and
liquids  produced during the  high-rate  flowback,  and
produce gas that can be delivered into the sales pipeline.
RECs help  to reduce methane,  VOC, and HAP emissions
during well cleanup and can  eliminate or significantly
reduce the need for flaring.

RECs have become a popular practice among Natural  Gas
STAR production partners.  A total  of thirteen different
partners have  reported performing reduced  emissions
completions in  their operations. RECs have  become  a
major source of methane emission reductions since 2000.
Between 2000 and 2009 emissions reductions from RECs
(as reported to Natural Gas STAR)  have increased from
200  MMcf (million cubic feet) to over 218,000 MMcf.
Capturing  an  additional   218,000  MMcf    represents
additional revenue from natural gas sales  of over $1.5
billion from 2000 to 2009 (assuming $7/Mcf gas prices).

Technology Background

High demand and higher prices  for natural gas in the U.S.
have resulted in increased drilling of new wells in more
                                     (Continued on page 2)
                                Economic and Environmental Benefits
Method for
Reducing
Natural Gas
Losses
Purchased
REC
Equipment
Annual
Program
Volumeof Additional Implemen-
aura as Value of Natural Gas Savings ($) Savings tation Cost
(Mcf)
$3 per Mcf
270,000 per
Vear $810,000
per year

$5 per Mcf
$1,350,000
per year
W W
$7 per Mcf
$175,000 $50Q OOQ
$1,890,000 per year
per year
CostsTs) Payback (Months)

$3 per
$121,250 Mcf
6


$5 per
Mcf
4


$7 per
Mcf
3

Incremental
REC
Contracted
Service
                10,800 per
                completion
                       $3 per Mcf   $5 per Mcf    $7 per Mcf
                          $32,400 per  $54,000 per  $75,600 per
                          completion   completion   completion
$6,930 per
completion
$32,400
 $600 per
completion
                                                                                       $3 per
                                                                                        Mcf
                               Imme-
                               diate
                                      $5 per
                                       Mcf
                          Imme-
                          diate
   General Assumptions:
   '" Assuming 9 days per completion, 1,200 Mcf gas savings per day per well, 11 barrels of condensate recovered per day per well, and cost of $3,600 per well per day for contracted services.
   b Assuming $70 per barrel of condensate.
   c Based on an annual REC program of 25 completions per year.
                                 $7 per
                                  Mcf
                        Imme-
                        diate

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Reduced  Emissions Completions
(Cont'd)
(Continued from page 1)
expensive   and   more  technologically   challenging
unconventional gas  reservoirs,  including those  in  low
porosity (tight) formations. These same high demands and
prices also justify  extra efforts to stimulate  production
from existing wells in tight reservoirs where the down-hole
pressure and gas production rates have declined, a process
known as well workovers or well-reworking. In both cases,
completions of  new  wells  in  tight  formations  and
workovers of existing wells,  one technique for improving
gas production is to fracture the reservoir rock with very
high pressure water  containing a  proppant (generally
sand) that  keeps the fractures "propped open" after water
pressure is reduced. Depending on the depth of the well,
this  process  is carried out  in several  stages,  usually
completing one 200- to 250-foot zone per stage.

These  new and   "workover"  wells are  completed  by
producing the fluids at a high rate to lift the excess sand to
the surface and clear the well bore and  formation to
increase   gas flow.  Typically, the gas/liquid separator
installed for normal  well flow  is not  designed for these
high liquid flow rates and three-phase  (gas, liquid  and
sand) flow. Therefore,  a common practice for this initial
well completion step has been to produce the well to a pit
or tanks where water, hydrocarbon liquids and sand are
captured and slugs of gas vented to the atmosphere or
flared. Completions can take anywhere  from one day to
several weeks during which time a substantial amount of
gas may be released to the atmosphere or flared. Testing of
production  levels  occurs  during  the  well  completion
process, and it may  be necessary to repeat  the fracture
process  to  achieve  desired  production levels  from  a
particular well.

Natural gas lost during well completion and testing can be
as much as 25 million cubic feet (MMcf) per well depending
on well production rates, the number of zones completed,
and the amount of time it takes to complete each zone.
This gas is generally unprocessed and may contain volatile
organic compounds (VOCs) and hazardous air pollutants
(HAPs) along with methane.  Flaring  gas may eliminate
most methane, VOC and HAP emissions, but open flaring
is  not always a preferred option  when the well is located
near residential areas or where there is a  high risk of
grass  or  forest  fires.    Moreover,  flaring may release
additional  carbon  dioxide and  other  criteria  pollutants
(SOx, NOx, PM and CO) to the atmosphere.

Natural Gas STAR partners have reported performing
RECs that recover much of the gas that is normally vented
or flared  during the  completion process. This  involves
installing  portable equipment that  is specially designed
and sized  for the initial high rate of water, sand, and gas
flowback  during  well completion.  The objective  is  to
capture  and deliver gas  to the  sales  line  rather  than
venting or flaring this gas.

Sand traps are used to remove the finer solids present in
the production stream.  Plug catchers are used to remove
any large  solids such as drill cuttings that could damage
the other  separation equipment.  The piping configuration
to the  sand traps  is  critical  as  the abrasion  from  high
                                      (Continued on page 3)
                         Exhibit 1:  Reduced Emissions Completion Equipment Layout
                                                                                To Dehydrator
                                                                                or Sales Line
                                            Sand Trap
                    Wellhead
                                                                        Reserve Impoundment or Tanks
     Adapted from BP.

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Reduced Emissions  Completions
(Cont'd)
(Continued from page 2)
velocity water and  sand can erode a hole in steel pipe
elbows,   creating   a  "washout"   with  water,  sand,
hydrocarbon liquids and gas in an uncontrolled flow to the
pad.  Depending on the gas gathering system, it may be
necessary to dehydrate (remove water from) the produced
gas before it enters  the  sales pipeline.  The gas may be
routed to  the permanent glycol unit for  dehydration or a
portable desiccant/glycol dehydrator used for dehydration
during the completion process.

Free water and condensate are removed from the gas in a
three phase separator. Condensate  (liquid hydrocarbons)
collected during the completion  process may be sold for
additional  revenue.  Temporary  piping  may  be used to
   Exhibit 2: Alternate Completion Procedures
 Energized Fracturing.
 Based on Natural Gas STAR partner experiences, RECs
 can also be performed in combination with energized
 fracturing, wherein inert gas such as CO 2 or nitrogen is
 mixed with the frac water under high pressure to aid in
 expelling frac water from pores in the fractured formation.
 The process is generally the same with the additional
 consideration of the composition of the flowback gas. The
 percent of inert gases in the flowback gas is, at first,
 unsuitable for delivery into the sales line.  As the fraction
 of inerts decreases, it may be possible to recover the gas
 economically. A portable membrane acid gas separation
 unit can further increase the amount of methane
 recovered for sales after a CC>2 energized fracture.

 Compression.
 In low pressure (i.e. low energy) reservoirs RECs are often
 carried out with the aid of compressors to  gas lift the
 water column up  the tubing string and/or boost the gas
 recovered in the REG separator into the sales line. Gas lift
 is accomplished by withdrawing gas from the sales line to
 route down the well casing and push the frac fluids up the
 tubing. This gas becomes part of the normal flowback that
 can be recovered  during an REG.

 When the gas recovered in the REG  separator is lower
 pressure than the sales line, some companies are
 experimenting with a compressor to boost flowback gas
 into the sales line. This technique is experimental because
 of the difficulty operating a compressor on widely
 fluctuating flowback rate. Coal bed methane well
 completion is an example where additional compression
 might be required.
connect the well to the REC skid and gathering system if
the permanent piping is not yet in place. Exhibit 1 shows a
typical layout of temporary REC portable equipment, and
Exhibit 2  explains  some  alternate,  emerging,  and/or
experimental procedures for a well completion and REC.

The equipment used during RECs is only necessary for the
time it takes to complete the well; therefore, it is essential
that  all the equipment can be readily transported from site
   Exhibit 3: Truck Mounted Reduced Emissions
               Completion Equipment
 Source: Weatherford

to site to be used in a number of well completions. A truck
mounted  skid, as  shown in  Exhibit  3, is  ideal for
transporting  the  equipment between  sites and is large
enough  to carry all the necessary  equipment.  In a large
basin that has a high level of drilling activity it may be
economic for a gas producer to build their  own REC skid.
Most  producers may prefer  contracting  a third  party
service to perform completions.

When using a third party to perform RECs, it is most cost
effective to integrate the scheduling of completions with
the annual  drilling  program. Well completion time  is
another factor to consider for scheduling a contractor for
RECs. Some well completions, such as coal bed methane,
may take  less than a day. On the other hand, completing
wells  which  fracture  various  zones, such as shale  gas
wells, may take several weeks  to complete.  For most wells,
it takes about 3 to 10 days to perform a well completion
following  a   hydraulic  fracture,  based  on  partner
experiences.
                                                                                               (Continued on page 4)

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Reduced Emissions Completions
(Cont'd)
(Continued from page 3)

Economic and Environmental Benefits

  *  Gas recovered for sales

  *  Condensate recovered for sales

  *  Reduced methane emissions

  *  Reduced loss of a  valuable  hydrocarbon  resource
     through venting and flaring of gas

  *  Reduced emissions  of  criteria and hazardous  air
     pollutants

Emissions  from  well completions  can contribute to  a
number of environmental problems. Direct venting  of
VOCs  can contribute to local  air  pollution,  HAPs  are
deemed harmful  to  human health, and methane is  a
powerful  greenhouse  gas that contributes to  climate
change. Where  it is safe, flaring  is preferred to direct
venting  because   methane,   VOCs,  and  HAPs   are
combusted, lowering pollution levels and reducing global
warming potential (GWP) of the emissions  as C02 from
combustion has  a  lower GWP than methane. RECs allow
for recovery  of  gas rather than venting  or flaring and
therefore   reduce   the  environmental  impact  of  well
completion and workover activities.

Reduced emissions completions bring economic benefits as
well as environmental benefits.  The  incremental costs
associated  with  the rental of third party equipment for
performing RECs  can be  offset by the additional revenue
from the sale of  gas and condensate. As this technology is
being perfected and equipment becomes commonplace, the
revenues in gas and condensate  sales often exceed  the
incremental costs.
                                Decision Process
                                Step 1: Evaluate candidate wells
                                Step 2: Determine costs
                                Step 3: Estimate savings
                                Step 4: Evaluate economics
Decision Process

Step 1: Evaluate candidate
wells for Reduced Emissions
Completions.
When  setting  up  an  annual  ^^^^^^^_^^^^^^^_
RECs program it is important
to examine the characteristics of the wells that are going to
be  brought  online  in  the  coming  year.  Wells   in
conventional reservoirs that  do not require a reservoir
fracture  (frac  job)  and  will produce  readily  without
stimulation can be cleared of drilling fluids and connected
                                                           to  a production line in a relatively short period of time
                                                           with minimal gas venting or flaring, and therefore usually
                                                           do not economically justify  REG equipment. Wells that
                                                           undergo  energized  fracture  using inert gases  require
                                                           special considerations because  the initial  produced  gas
                                                             State and Local Regulations
                                                             The States of Wyoming and Colorado have regulations requiring the
kimplementation of "flareless completions".  Operators of new wells in this
                                                             region are required to complete wells without flaring or venting. These
                                                             completions have reduced flaring by 70 to 90 percent.

                                                             For more information, visit: http://deq.state.wy.us/

                                                           captured by the REG equipment would not meet pipeline
                                                           specifications due to the inert gas content.  However,  as
                                                           the amount of inerts  decreases,  the  quality of the gas
                                                           might be sufficient to meet pipeline specifications.  In the
                                                           case of C02 energized fracks,  the use of portable acid gas
                                                           removal  membrane  separators  will improve  gas quality
                                                           and make it possible to direct gas to the pipeline (see Case
                                                           Studies section for more information).

                                                           Exploratory and delineation wells in areas that do not yet
                                                           have sales pipelines in close proximity to the wells are not
                                                           candidates for RECs as the infrastructure is not in place to
                                                           receive the  recovered gas.  In  depleted or low  pressure
                                                           fields with low energy  reservoirs,  implementing a RECs
                                                           program   would  most  likely  require the  addition  of
                                                           compression to overcome  ^^^^^^^^^^^^^^^^^^_
                                                           the sales  line pressures-
                                                           an  approach that is still
                                                           under  development and
                                                           may add  significant cost
                                                           to implementation.
Selecting a Basis for Costs and
Savings
  *  Estimate the number of
•     producing gas wells that will
     be drilled in the next year
                                                                                           Evaluate well depth and
                                                                                           reservoir characteristics
     Determine whether
     additional equipment is
     necessary to bring recovered
     gas up to pipeline
     specifications

     Estimate time needed for
     each completion

Wells   that    require
hydraulic  fracturing  to
stimulate or enhance gas
production  may  need  a
lengthy  completion,  and
therefore   are    good
candidates   for   RECs.
Lengthy   completions
mean  that  a  significant
amount  of  gas  may  be
vented or flared  that could potentially be recovered and
sold for additional revenue to justify the additional cost of
a REG. If newly drilled wells  are in close proximity,  they

                                      (Continued on page 5)


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Reduced  Emissions Completions
(Cont'd)
(Continued from page 4)
could share the REG equipment to minimize transport, set-
up, and equipment rental costs.

Step 2: Determine the costs of a REC program.
Most Natural Gas STAR partners report using third party
contractors  to  perform  RECs  on  wells  within  their
producing fields.  It  should be  noted that third party
contractors are also often used to perform traditional well
completions. Therefore, the economics presented deal with
incremental costs to carry out RECs versus traditional
completions.

Generally,  the third  party  contractor  will  charge  a
commissioning fee for transporting  and setting  up the
equipment for each well completion within the operator's
producing field. Some RECs vendors have their equipment
mounted on a  single  trailer  while  others  lay down
individual skids that must be connected with temporary
piping  at each site. The incremental cost associated with
transportation between well sites in the operator's field
and  connection of the REC equipment within the  normal
flowback piping from the wellhead to an impoundment or
tank is generally around $600/completion.

In addition to the commissioning fee, there is a daily cost
for equipment rental and labor  to perform each REC. As
mentioned  above,  when  evaluating  the  costs  of well
completions, it is important to  consider the incremental
cost  of a REC over a traditional completion rather than
focusing on the total cost. REC  vendors and Natural Gas
STAR  partners have  reported  the  incremental  cost of
equipment rental and labor to recover natural gas during
completion   ranging  from  $700  to  $6,500/day   over  a
traditional  completion. Equipment costs associated with
REC's will vary from well to well. High production rates
may require larger equipment to perform the REC and will
increase costs. If permanent equipment such as a glycol
dehydrator is already installed at the well site, REC costs
may be reduced as this equipment can be used rather than
bringing a portable dehydrator on-site, assuming the flow-
back rate  does not exceed the  capacity of the equipment.
Exhibit 4:
One-time
Transportation and
Incremental Set-up
Costs
$600 per well
Typical Costs for
Incremental REC
Equipment Rental and
Labor Costs
$700 to $6,500 per day
RECs
Well Clean-up
Time
3 to 10 days
Some operators report installing equipment that  can be
used in the RECs as a normal part of wellhead equipment,
such as oversized three-phase separators, further reducing
incremental REC  costs.  Well  completions usually  take
between 1 to 30 days to clean out the well bore, complete
well testing, and tie into the permanent sales line. Wells
requiring  multiple fractures  of  a  tight  formation  to
stimulate gas flow may require additional completion time.
Exhibit  4  shows  the  typical  costs  associated  with
undertaking a REC at a single well.

For low energy reservoirs, gas from the sales line may be
routed down the well casing to create artificial gas lift, as
mentioned in Exhibit 2.  Depending on the depth of the
well, a different quantity of gas will be required to lift the
fluids and clean  out  the well. Using  average  reservoir
                                     (Continued on page 7)
Exhibit 5: Sizing and Fuel
•.I M n u /•« Pressure Required to Lift Fluids
• well Depth (ft) . . .
3,000
5,000
8,000
10,000
a Based on sales line pressures between
1,319 + Sales line pressure
2,323 + Sales line pressure
3,716 + Sales line pressure
4,645 + Sales line pressure
100 — 1,000 psig.
Consumption for Booster Compressor
Gas Required to
Lift Fluids (Mcf)a
195-310
315-430
495 — 610
615 — 730

Compressor Size
(horsepower)3
195 — 780
400 — 1,500
765 - 2,800
1,040 — 3,900

Compressor Fuel
Consumption
(Mcf/hr)a
2-7
3-13
7-24
9 — 33


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Reduced Emissions Completions
(Cont'd)
                   Exhibit 6:  Example Cost Calculation of a 25 Well Annual REC Program
Given:
W = Number of completions per year
D = Well depth in feet (ft)
Ps = Sales line pressure in pounds per square inch gauge (psig)
Ts = Time required for transportation and set-up (days/well)
Tc = Time required for well clean-up (days/well)
O = Operating time for compressor to lift fluids (hr/well)
F = Compressor fuel consumption rate (Mcf/hr)
G = Gas from pipeline routed to casing to lift fluids (Mcf/well), typically used on low energy reservoirs
Cs = Transportation and set-up cost ($/well)
Ce = Equipment and labor cost ($/day)
Pg = Sales line gas price ($/Mcf)

W =    25 wells/yr
D =    8000ft
PS =    100 psig
Ts =    1 day/well
Tc =    9 days/well
O =    24 hr/well
F =    10 Mcf/hr
G =    500 Mcf/well (See Exhibit 4)
Cs =    $600/well
Ce =    $2,000/day
Ps =    $7/Mcf
Calculate Total Transportation and Set-up Cost - CTs

CTS = W*CS

ds = 25 wells/yr * $600/well
CTS=$15,000/yr

Calculate Total Equipment Rental and Labor Cost - CEL

CEL = W * (Ts + T0) * Ce

CEL = 25 wells/yr * (1 day/well + 9 days/well) * $2,000/day
CEL = $500,000/yr

Calculate Other Costs - C0

C0 = W * [(O * F) + G] * Pg

C0 = 25 wells/yr * [( 24 hr/well * 10 Mcf/hr) + 500 Mcf/well] * $7/Mcf
C0 = $129,500/yr

Total Annual REC Program Cost - CT
CT = $15,000/yr + $500,000/yr + $129,500/yr
CT = $644,500/yr

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Reduced Emissions Completions
(Cont'd)
(Continued from page 5)
depths for major US basins and engineering calculations,
Exhibit 5 shows various  estimates  of the volume of gas
required to lift fluids for different well depths.

A REG annual program may consist of completing  25
wells/year within a producer's operating region. Exhibit 6
shows an estimate of typical REG program costs.

Step 3: Estimate Savings from RECs.
Gas recovered  from RECs  can vary widely because the
amount of gas recovered depends on  a number of variables
such  as  reservoir pressure, production rate,  amount of
fluids lifted, and total completion time. Exhibit 7 shows
the range of recovered gas  and condensate reported  by
Natural Gas STAR partners. Partners also have reported
that  not  all   the  gas  that  is  produced  during  well
completions may be captured for sales.  Fluids from  high
pressure wells are often routed directly to the frac tank in
the initial stages of completion as the fluids are often being
produced at a rate that is  too high for the REG equipment.
Where inert gas is used to energize the frac, the initial gas
production may have  to  be flared  until  the  gas meets
pipeline specifications. Alternatively, a portable acid gas
membrane separator may be used to recover methane rich
gas from C02. As the flow rate of fluids drops and gas is
encountered,  backflow is  then  switched over to the  REC
equipment so   that  the  gas  may  be  captured.  Gas
compressed from the sales  line to lift fluids will also be
recovered in  addition  to  the gas  produced  from  the
reservoir.  The volume of  gas needed to  lift fluids can be
estimated based on the well depth and sales line pressure.
Gas saved during RECs  can be translated directly into
methane  emissions reductions based on the methane
content of the produced gas.
 Nelson Price Indexes

 In order to account for inflation in equipment and operating & maintenance
 costs, Nelson-Farrar Quarterly Cost Indexes (available in the first issue of each
 quarter in the Oil and Gas Journal) are used to update costs in the Lessons
 Learned documents.
 The "Refinery Operation Index" is used to revise operating costs while the
 "Machinery: Oilfield Itemized Refining Cost Index" is used to update equipment
 costs.
 To use these indexes in the future, simply look up the most current Nelson-
 Farrar index number divide that by the February 2011 Nelson-Farrar index
 number, and, finally, multiply by the appropriate costs in the Lessons Learned.
Exhibit 7: Ranges of Gas and Condensate Savings
Produced Gas
Savings
(Mcf/day/well)
500 to 2,000
Gas-Lift Savings
(Mcf/well)
See Exhibit 4
Condensate
Savings
(bbl/day/well)
Zero to several
hundred
In addition to gas savings, valuable condensate may also
be recovered from the REC three-phase  separator. The
amount of condensate that can be recovered during a REC
is  dependent  on  the  reservoir  conditions  and fluid
compositions. Condensate may  also be lost if fluids  are
produced  directly to the frac tank before switching to the
REC equipment.

Exhibit 8 shows  typical values of gas and condensate
savings during the REC process.

Step 4: Evaluate REC economics.
The  example application of an REC program to 25 wells
within  a  producing field can  yield  a  total  theoretical
revenue of $2,152,500  based on  the  assumptions  listed
above  from  the  sale   of natural gas  and  condensate.
Equipment rental, labor, and other costs associated with
implementing this program  are  estimated  to be  only
$644,500 (see Exhibit 5) resulting in an annual theoretical
profit  of  $1,508,000.   To  maintain  a  profitable REC
program,  it is important to move efficiently from well to
well within a producing field so that there is little down
time when paying for  equipment rental  and labor. Other
factors  that affect the profitability of an REC program
include the amount of condensate recovery and sales price,
the need  for additional compressors,  the  amount of  gas
recovered, and sales price.

Exhibit 9 shows  a five year  cash flow  projection  for
carrying out  a 25 well per year  REC program. In this
example,  the equipment necessary to perform RECs has
been purchased by the operator  rather than using a third
party contractor to perform the service. The capital cost of
a simple  REC set-up without a portable compressor has
been reported by British Petroleum (BP) to be $500,000.
                                                                                                  (Continued on page 9)

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Reduced Emissions  Completions
(Cont'd)
                            Exhibit 8: Savings of a 25 Well Annual REC Program
Given:
W = Number of completions per year
D = Well depth in feet (ft)
PS = Sales line pressure in pounds per square inch gage (psig)
Sp = Produced gas savings (Mcf/day)
Tc = Time recovered gas flows to sales line in days (days/well)
Sc = Condensate savings (bbl/well)
G = Gas used to lift fluids (Mcf/well), typically used on low energy reservoirs
Pg = Sales line gas price ($/Mcf)
PI = Natural gas liquids price ($/bbl)

W =    25 wells/yr
D =    8000ft
PS =    100 psig
Sp =    1,200 Mcf/day
Tc =    9 days/well
Sc =    100 bbl/well
G =    500 Mcf/well (See Exhibit 4)
Pg =    $7/Mcf
PI =    $70/bbl
Calculate Produced Gas Savings

SPG = W * (Sp * T0) * Pg

SPG = 25 wells/yr * (1,200 Mcf/day * 9 days/well) * $7/Mcf
SpG = $l,890,000/yr
Calculate Other Savings

S0 = W * [(G * Pg) + (So * Pi)]

S0 = 25 wells/yr * [(500 Mcf/well * $7/Mcf) + (100 bbl/well * $70/bbl)]
S0 = $262,500/yr
Total Savings - ST

ST = SPG + So
ST = $l,890,000/yr + $262,500/yr
ST = $2,152,500/yr

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Reduced Emissions Completions
(Cont'd)
(Continued from page 7)
Purchasing a REG set-up will eliminate equipment rental
costs  and leave labor  and  transportation  as  the  only
operating  costs for  the duration  of the program.  The
economics for this example are quite favorable and feature
a very high net present value and rate of return.

Producers with  high  levels  of localized  drilling  and
workover  activity may benefit from  constructing  and
operating their own REG equipment. As illustrated above,
even though large capital outlay is required to construct a
REG skid, a high rate of return can be achieved if the
equipment is in continuous use. If the operator is unable to
keep the equipment busy on their  own wells, they may
contract it out to other operators to maximize usage of the
equipment.

When  assessing REG economics,  the gas  price  may
influence the  decision making  process;  therefore,  it is
important to examine the economics  of undertaking a REG
                                    (Continued on page 10)
Exhibit 10: Gas Price Impact on Economic Analysis of Hypothetical 25 Well Annual REC Program with
Purchased Equipment
1 Gas Price |

Total Savings
Payback (months)
IRR
r™,
$3/Mcf
$985,000
7
172%
$2,522,084
$5/Mcf
$1,525,000
5
280%
$4,383,015
$7/Mcf
$2,065,000
4
389%
$6,243,947
$8/Mcf
$2,335,000
3
443%
$7,174,413
$10/Mcf
$2,875,000
3
551%
$9,035,345
Exhibit 9: Economics for Hypothetical 25 Well Annual REC Program with Purchased Equipment
IYear 0 Year 1
Volume of Natural Gas Savings ,7n mn
(Mcf/yr)a ^/u,uuu
Value of Natural Gas Savings 1 SQn nnn
($/year)a i,asu,uuu
Additional Savings ($/yr)a 175,000
Set-up Costs ($/yr)b (15,000)
Equipment Costs ($)b (500,000)
Labor Costs ($/yr)c (106,250)
(Net Annual Cash Flow ($) (500,000) 1,943,750

a See Exhibit 7.
"See Exhibit 5.
c Labor costs for purchased REC equipment estimated as 50% of Equipment
d Net present value based on 10% discount rate over five years.
Year 2 Year 3
270,000 270,000
1,890,000 1,890,000
175,000 175,000
(15,000) (15,000)

(106,250) (106,250)
1,943,750 1,943,750
Year 4
270,000
1,890,000
175,000
(15,000)

(106,250)
1,943,750
YearS
270,000
1,890,000
175,000
(15,000)

(106,250)
1,943,750
Internal Rate of Return = 389%
NPV (Net Present Value)d= $6,243,947
Payback Period = 3 months
Rental and Labor costs in Exhibit 3.

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Reduced  Emissions Completions
(Cont'd)
(Continued from page 9)
program as natural gas prices change. Exhibit 10 shows an
economic analysis of performing the 25 well per year REG
program in Exhibit 8 at different gas prices.

Partner Experience

This  section highlights  specific  experiences  reported  by
Natural Gas STAR Partners.
                                       (Continued on page 11)
                Partner Company A
      Implemented RECs in the Fort Worth Basin of
      Texas

      RECs performed on 30 wells, with an incremental
      cost of $8,700 per well
      Average 11,900 Mcf of natural gas sold versus
      vented per well
     -   Natural gas flow and sales occur 9 days out of 2 to 3
         weeks of well completion
     —   Low pressure gas sent to gas plant
     —   Conservative net value of gas saved is $50,000 per well
      Expects total emission reduction of 1.5 to 2 Bcf in
      2005 for 30 wells

                Partner Company B
      Implemented RECs in the Jonah/Pinedale Fields in
      Wyoming
      RECs performed on 242 wells, which included
      energized hydraulic fracturing using C02 and N2 at
      an average cost of $110,000 per REG.

      Average 119,000 Mcf of natural gas sold versus
      vented per well
     —  Well pressure will vary from reservoir to reservoir
     —  Reductions will vary for each particular region
     —  Conservative net value of gas saved is $500,000 per
        well
      From 2001 to 2006,  recovered 29 Bcf of gas from
      the wells in these fields.

     BP Experience in Green River Basin
   Implemented RECs in the Green River Basin of
   Wyoming

   RECs performed on 106 wells, which consisted of
   high and low pressure wells
   Average 3,300 Mcf of natural gas sold versus
   vented per well
   -   Well pressure will vary from reservoir to reservoir
   -   Reductions will vary for each particular region
   -   Conservative net value of gas saved is $20,000 per
      well
   Natural gas emission reductions of 350,000 Mcf in
   2002

   Total of 6,700 barrels of condensate recovered per
   year total for 106 wells
   Through the end of 2005, this partner reports a
   total of 4.17 Bcf of gas and more than 53,000
   barrels of condensate recovered and sold rather
   than flared. This is a combination of activities in
   the Wamsutter and Jonah/Pinedale fields.

Noble Experience in Ellis County, Oklahoma
*  Implemented RECs on 10 wells using energized
   fracturing.
^

.
Employed membrane separation in which the
permeate was a CCh rich stream that was vented
and the residue was primarily hydrocarbons
which were recovered.
Total cost of $325,000.
Total gas savings of 170 MMcf.
Estimated net profits to be $340,000
For more information, see the Partner Profile
Article in the Spring 2011 Natural Gas STAR
Partner Updated available at:
http://epa.gov/gasstar/newsroom/
partnerupdatespring2011.html

                                                                                                           10

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Reduced  Emissions  Completions
(Cont'd)
(Continued from page 10)

Lessons Learned

  *  Incremental  costs  of recovering  natural gas and
     condensate   during   well   completions   following
     hydraulic fracturing result from the use of additional
     equipment such as sand traps, separators, portable
     compressors,  membrane acid gas removal units and
     desiccant dehydrators that are designed for high rate
     flowback.

  *  During the  hydraulic fracture completion process,
     sands, liquids, and gases produced from the well are
     separated and collected individually. Natural gas and
     gas  liquids captured  during the completion may  be
     sold for additional revenue.

  *  Implementing a  REG program  will  reduce flaring
     which may be  a particular advantage where open
     flaring is  undesirable  (populated areas)  or unsafe
     (risk of fire).

  *  Wells that do not require hydraulic fracturing are not
     good candidates for reduced emissions completions.
     REG can be used with portable membrane acid  gas
     separators for COz energized fractures.

  *  Methane   emissions  reductions  achieved  through
     performing RECs may be reported to the Natural Gas
     STAR Program unless RECs are required by law (as
     in the Jonah-Pinedale area in WY).
References

Alberts, Jerry. Williams Company. Personal contact.

American Petroleum Institute. Basic Petroleum Data Book, Volume XXV,
    Number 1.  February 2005.

Bylin, Carey. U.S. EPA. Gas STAR Program Manager

Department of Energy. GASIS, Gas Information System.  Release 2 -
    June 1999.

Fernandez,  Roger. U.S. EPA. Gas STAR Program Manager

McAllister, E.W., Pipeline Rules of Thumb Handbook, 4th Edition, 1998.

Middleman,  Stanley.  An Introduction to  Fluid Dynamics, Principles  of
    Analysis and Design.  1998.

Perry, Robert H., Don W. Green.  Perry's Chemical  Engineers Handbook,
    7th Edition.  1997.

Pontiff, Mike. Newfield Exploration Company.  Personal contact.

Process Associates  of  America.  "Reciprocating  Compressor Sizing."
    Available on the  web at: http://www.processassociates.com/process/
    rotating/recip_s.htm.

Smith, Reid. BP PLC.  Personal contact.

Smuin, Bobby. BRECO, Incorporated. Personal contact.

U.S.  EPA.  "The Natural  Gas STAR Partner Update - Spring 2004."
    Available  on   the  web   at:  http://www.epa.gov/gasstar/pdf/
    partnerupdate.pdf

Wadas, Janelle. Noble Energy Inc. 2010 Annual Implementation Workshop
    Presentation titled "Reducing Vented Flowback Emissions from C02
    Fractured Gas Wells Using Membrane Technology". Available on the
    web  at:   http://epa.gov/gasstar/documents/workshops/2010-annual-
    conf/01wadas.pdf

Waltzer, Suzanne. U.S. EPA. Gas STAR Program Manager
                                                              Appendix
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