An Approach to Recover Hydrocarbons from Currently Off-Limits Areas of the Antrim Formation, MI, Using Low-Impact Technologies

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1 An Approach to Recover Hydrocarbons from Currently Off-Limits Areas of the Antrim Formation, MI, Using Low-Impact Technologies Goal A consortium consisting of Michigan Technological University, Western Michigan University, and Jordan Development Company, LLC of Traverse City, MI, is collaborating to develop and test a new horizontal drilling strategy for satisfying environmental restrictions that currently place large tracts of prospective Antrim Shale acreage in the Michigan Basin offlimits to exploration and production. Performers Michigan Technological University, Houghton, MI Western Michigan University, Kalamazoo, MI Jordan Development Company, LLC, Traverse City, MI Benefits Significant portions of Antrim Shale acreage in Northern Michigan are currently off-limits due to State regulations requiring that wells be cased within 100 ft of the surface. This requirement is intended to reduce or eliminate contamination of groundwater and aquifers and to prevent gas leakage to the surface. The impact of such contamination on the subsurface is evident, while the impact to the atmosphere from these operations is less obvious but potentially more damaging. This project addresses both of these concerns. The proposed horizontal drilling effort will be much more efficient in producing the Antrim Shale, thus requiring far fewer wells than would be needed to drain an equivalent amount of acreage using conventionally drilled vertical wells. As a result, the environment will be less impacted and more resource will be developed. Background The Antrim Shale in Northern Michigan has been a very prolific unconventional gas producing horizon, having yielded 2.4 tcf to date. As the play has matured, efforts have been made by producers to extend the producing acreage into regions that are more challenging to gas development. A great deal of potentially productive shale lies within areas that are off-limits to gas development due to surface constraints such as topography, wetlands, or housing. Northern Michigan has become a desired area for vacation and retirement living, resulting in high-priced real estate that commingles with the fairway of the Antrim Shale play. In addition to the surface constraints on Antrim Shale development, the Michigan Department of Environmental Quality (MDEQ) requires that 100 ft of surface casing be set into bedrock below the surficial glacial drift for all drilling. This requirement is in effect to protect groundwater resources within the glacial drift. In addition to this requirement, fracture stimulation cannot be conducted within 50 ft of the base of the surface casing string. Fracture stimulation is a vital step in improving the deliverability of wells to a point that they are commercial producers. As a result of these regulations, a vast amount of productive Antrim shale can neither be accessed nor completed in a conventional manner. State casing statute Instruction 1-94 presently eliminates much rock that is virtually certain to be productive in the Antrim Formation. Less than 50 percent of the Antrim Formation has been drilled to date, with large areas to the north and northwest of the heavily drilled area void of wells. This is largely due to the restrictions in Instruction The project performers proposed solution is to drill a horizontal well offset from the target, cement and case the vertical leg as required by the regulations, then penetrate the target with a lateral offset. Results Work on this project is in its second year, having started in October On December 14, 2006, permit number was issued by the State of Michigan Department of Environmental Quality to Jordan Development Company, LLC, to drill and operate the natural gas well, AG-A-Ming 4-12 HD and HD1 in the Antrim Formation (API numbers and , Figure 1A). In December 2007, a request was sent to the DOE to substitute the State Colfax #3-28 HD in Benzie County (Figure 1B) for the AG-A-Ming 4-12 HD well since right-of-way problems precluded timely drilling of the AG-A Ming 4-12 HD. Project Summary February Michigan Technological University

2 There were two main objectives for this project. One involved compliance with Michigan well site regulation embodied in Instruction 1-94 (Appendix 1) and a second involving using a new horizontal J well design (Figure 2) to recover gas from previously off-limit acreage in the Antrim Formation. Both objectives have essentially been achieved in this past year: the Regulatory task has been completely resolved and the originally proposed design of the J well has been tested in the field, although not at the proposed demonstration site. Consequently, all that remains of the field tasks is to drill the demonstration well with a revised configuration. Substitution of the Colfax #3-28 HD for the AG-A-Ming 4-12 HD well will not affect the evaluation of the J well design. 502, , , , ,000 Drogt # Aug , St. Colfax 3-28 HD St. Colfax 2-28 HD 496,000 AG-A-MING Kamp # Jun , , Bargy # Jun , , Reske # Jun Dorman B B4-26 SWD Feb , , Cherry Ke # Aug Paradis # Jun , , , , , , , , , miles 546, , , , , , ,000 Milton Bradley Project Wells Drilled by Jordan Development Company, LLC Upper Devonian (Antrim) Geologic Subcrop Posted dates are well Spud dates J. Wood, C. Asiala Milton Bradley Project Vertical Wells 07/16/ AG-A-MING 4-12 HD and 4-12 HD1 Michigan GeoRef miles LINGO Project Demonstration Site Map Colfax Project Area Benzie County, Michigan (25N-13W) St. Colfax 3-28HD (New Demonstration Well) 1/28/2007 J. Wood, C. Asiala St. Colfax 2-28HD (2nd Well near Demonstration Site) Michigan GeoRef Nearby Antrim Producing Wells Nearby Oil/Gas wells Subsurface Visualization Lab Michigan Technological University Subsurface Visualization Lab Michigan Technological University Figure 1A. Location map of project demonstration well, the AG-A-Ming 4-12HD in Antrim County, MI. Figure 1B. Location map of new project demonstration well, the St. Colfax 3-28 HD in Benzie County, MI. Project Summary February Michigan Technological University

3 Figure 2B. Planned well schematic of the State Colfax #3-28 HD in Benzie County, MI. Figure 2A. Planned well schematic of the AG-A-Ming 4-12HD "J" well configuration. Detailed Discussion Problems with the original J well design Jordan Energy had an opportunity to use the J well design proposed for this project in three recent wells drilled in the DeWard-Cleaver project in Antrim County. These wells did not produce as well as expected; in fact they performed worse than simple vertical wells drilled nearby. Figure 3A is an updated plot of production from the State Mancelona 2-12 and State Hayes 4-18 vertical wells compared with production from the State Mancelona #2-12 HD, #15-13 HD, and the #15-13A HD J wells. Figure 3B shows actual daily gas production from June 2007 through January 2008 for these same Antrim wells. Earlier it was reported that the basic problem with the J well design appeared to be the development of blockages along the horizontal leg. Two possibilities had been put forward: one, fluids are trapped in undulations in the well bore, resulting in a fluid lock, and two, material sloughs off the well, eventually blocking the gas flow. We suggested it was possible that both mechanisms operated at the same time and reinforced flow restriction. Subsequently Jordan determined that cavings from the hole were really not an issue, but that accumulated debris within the perceived undulations of an open hole well bore was the most likely cause of poor production and that this could be alleviated through the use of a downward sloping cased hole. Subsequently, while wells were drilled at DeWard-Cleaver (State Mancelona #2-12 HD, #15-13 HD, and the #15-13A HD) with the J well approach, the State Colfax 2-28 HD and 3-28 HD have been drilled with a new design, a high- angle cased hole that will be perforated. These wells will be completed in mid February and production will begin shortly thereafter. Production data currently being collected from the DeWard-Cleaver wells will be compared to the State Colfax wells to quantify the conclusions. We are optimistic that this new configuration does will solve the production problem. Figure 2A shows the original configuration of the demonstration well, while Figure 2B shows the current modification. The well design is still being tested. Project Summary February Michigan Technological University

4 DeWard-Clever Average Daily Gas Production (June 2007-Jan. 2008) Source: Jordan Development Company Vertical Wells Horizontal "J" Wells 120 ) y a d r e f/p c (m s le a S s a G STATE HAYES 4-18 (Vertical) STATE MANCELONA 2-12 (Vertical) STATE MANCELONA HD STATE MANCELONA 15-13A HD STATE MANCELONA 2-12 HD Figure 3A. Average daily production for wells in DeWard-Cleaver project (from Jordan Development Company, 2008). DeWard-Clever Daily Gas Production (June 2007-Jan. 2008) Source: Jordan Development Company 250 STATE HAYES 4-18 (Vertical) STATE MANCELONA 2-12 (Vertical) STATE MANCELONA HD STATE MANCELONA 15-13A HD STATE MANCELONA 2-12 HD 200 Daily Gas Sales (mcf) Jun-07 1-Jul-07 1-Aug-07 1-Sep-07 1-Oct-07 1-Nov-07 1-Dec-07 1-Jan-08 Figure 3B. Daily production for wells in DeWard-Cleaver project (from Jordan Development Company, 2008) Project Summary February Michigan Technological University

5 A Possible Solution The DeWard-Cleaver wells appear to have solved the problem, and this design will be incorporated into the demonstration well, perhaps with minor modifications. Task List Data Collection (Task 1.0) Project databases are being organized and documented for the Project Handbook. This includes incorporating updates from the MI DEQ and MPSC when new data is made available. Some details are documented below. Formation Tops. Measured depths (MD) and true vertical depths (TVD) of formation tops (glacial drift base) are stored in a table by API number, formation code, and method obtained. There are multiple records for some formation tops because top picks from multiple sources are stored in the database. When creating structure and isopach maps, gridding algorithms should be used with one value for each x-y coordinate. A set of instructions and database queries will be included in the Project Handbook that will explain how the formation tops are chosen from the database. For example, when a TVD depth is present in a slanted well, it is chosen over MD. Also, we have developed a sequence of choices for the method obtained. Data Category Well Locations Formation Tops Production Data Gravity Data Digital Well Logs Raster Logs Source Michigan DEQ Michigan DEQ Michigan DEQ (Oil-Gas-Water, 1982 present) Michigan Public Service Commission (Gas and CO 2, 1990 present) Michigan Tech Historic Production (Oil-Gas-Water, Annual by Field ) Jordan Development Company, LLC Michigan Bouguer Anomaly data (University of Texas at El Paso website for GeoNet United States Gravity Data Repository System, accessed Oct. 2007) LAS files MTU Michigan DEQ Mapping (Task 2.0) Structure and isopach maps for the Lachine, Paxton, and Norwood formations have been created for the Northern Michigan Antrim production region, the original project area of Antrim County, and for the new demonstration area in Benzie County. Gravity Anomaly maps have also been created for these regions and a series of 5-year production maps has been created. All of these figures have been inserted into the project handbook. Figure 4 (below) shows the acreage that will be opened up as a result of the new interpretation of Michigan instruction This map was constructed using wells sited under 1-94, i. e. these wells delineate the northern boundary dictated by previous interpretation of Project Summary February Michigan Technological University

6 550,000 Emmet Cheboygan Presque Isle Charlevoix 500, Antrim Otsego Montmorency Alpena Leelanau 450,000 Benzie Gr Traverse Kalkaska Crawford Oscoda Alcona Manistee Wexford Missaukee Roscommon Ogemaw Iosco 400, , , , ,000 Michigan Antrim Gas Production. Total Gas Production by Project Location: Upper Devonian (Antrim) Geologic Subcrop Antrim 100 ft. Line J. Wood, C. Asiala Antrim Gas Production Wells 07/16/ AG-A-MING 4-12 HD and 4-12 HD1 Michigan GeoRef Subsurface Visualization Lab Michigan Technological University Total Gas Production to 500, ,000 to 1,000,000 1,000,000 to 2,000,000 2,000,000 to 3,000,000 3,000,000 to 5,000,000 5,000,000 to 20,000, miles Figure 4. Additional Antrim acreage (north of heavy black line) open for exploration/production as a result of this project. The map above (Figure 4) shows total gas production from the Antrim from 2000 through The colored squares show the level of gas production from 2000 to 2005 for producing projects by section. The heavy black line just above the producing area indicates the northern border of where Antrim gas wells can be drilled following the State of Michigan regulations requiring 100 feet of casing below the glacial drift or any fresh water aquifers. The gray area above this line shows the additional Antrim acreage that will become available for exploration and production as a result of the interpretation of the 1-94 Instruction for this project. Regulatory (Task 3.0) This task was satisfactorily resolved when the Michigan DNR decided to permit the AG-A-MING demonstration well without modification of the instruction The permit was issued on December 14, 2006 for the AG-A-MING well (see map, Figure 1). Under this Permit (58153) the Michigan DNR, accepted the concept of the J well (Figure 2). Synthesis (Task 5.0 Year 1 and Year 2) The Antrim Play Handbook has been outlined and materials have been gathered for inclusion into the handbook. The Well Schematics section has been updated to include original plans for the AG-A-MING well site, and schematics for the DeWard-Cleaver wells in Antrim County and the Colfax wells in Benzie County. Antrim Play Handbook Outline 1. Table of Contents 2. Abstract 3. ANTRIM SHALE, Late Devonian 4. Databases 4.1 API Numbers explanation Project Summary February Michigan Technological University

7 4.2 Well Locations Database 4.3 Formation Tops 4.4 Production Data Michigan DEQ Production Data Michigan Public Service Commission Gas Production Data Michigan Tech Historic Production Data 4.5 Well Logs 4.6 Gravity Data 5. Gravity Anomaly Maps 6. Geologic Structural Contour Maps 7. Isopach Contour Maps 8. Production Maps and Charts 9. Well Schematics 10. Horizontal Well Bore 10.1 Well Drilling Acronym List 10.2 Jordan Development Drilling Plan for Demonstration Well 11. Best Practices for Co-produced CO 2 Disposal Demonstration Wells (Task 6.0) As mentioned earlier, a demonstration well planned for the project at the AG-A-MING site has been held up by right-of-way negotiations, but two J wells that incorporated the project design were drilled at other nearby Antrim sites, the State Mancelona #2-12 HD, the State Mancelona #15-13 HD, and the State Mancelona #15-13A HD (see map Figure 5). A request has been sent to DOE to substitute the State Colfax #3-28 HD for the AG-A-Ming 4-12 HD for the demonstration well. The State Colfax #3-28 has been spudded and successfully completed in January Production lines are currently being installed and we expect to have in hand at least 9 months of production data from the demonstration well. These data can be combined with the DeWard-Cleaver wells to demonstrate the effect of the changes in the J well design on actual production. We feel that this will greatly enhance the case history we propose for the project handbook. 490, ,000 Antrim County Otsego County 488, ,000 State Mancelona 2-12 HD3 12 mcf per day State Mancelona mcf per day , , State Hayes mcf per day ,000 State Mancelona HD2 40 mcf per day State Mancelona 15-13A HD1&2 70 mcf per day 483, , , , , , , , , ,000 DeWard-Clever Project Wells Drilled by Jordan Development Company, LLC miles Average Daily Production Rates are Posted J. Wood, C. Asiala DeWard-Clever Project Horizontal Wells 07/16/2007 DeWard-Clever Project Vertical Wells Michigan GeoRef Subsurface Visualization Lab Michigan Technological University Figure 5. Location map of the DeWard-Cleaver project where the "J" well configuration has been tried. Project Summary February Michigan Technological University

8 Summary Recent wells drilled in DeWard-Cleaver and now at Colfax in Benzie County have provided production data showing the effect of the project well on production. As a result we have cased the horizontal leg of the production wells and production has improved. We have a positive result for the resolution of the regulatory task; the Michigan DNR accepted the J well design as compliant with Instruction This will open the way for exploration and production in areas of the Antrim that drillers previously avoided. We applied the unfavorable results from the DeWard-Cleaver horizontal wells to lessons learned category and proceeded to redesign the J well to a new configuration that did overcome the problems with the original design. The lessons learned have been written up in Appendix 2, and will be included in the project reports and handbook. In a way the delay in spudding the demonstration well has benefited the project by allowing us to test the proposed well design in additional wells before committing it to the project well. We thus had the opportunity to correct problems uncovered. We are including these results and the details of the DeWard-Cleaver wells into the project reports and the project handbook. We have a detailed map (Figure 4) of the additional Antrim acreage that will become available for exploration and production as a result of the interpretation of the 1-94 Instruction for this project. Also, we can begin to monitor CO 2 production from the new DeWard-Cleaver wells (both vertical and horizontal) as well as continue with our efforts to obtain historical production records. Current Status (January 31, 2008) All project tasks are on schedule. Even the drilling of the project demonstration well is now on time, pending DOE approval to substitute the Colfax #3-28 for the AG-A-Ming The project results assigned to the demonstration well have been achieved through the drilling of the DeWard-Cleaver wells and the recent Colfax well. The remaining 8 months of this project will be spent monitoring the horizontal wells (DeWard-Cleaver and Colfax), reporting the results from the cased demonstration well, and analyzing the CO 2 production and disposal from these wells. Publications/Presentations Annual Project Meeting, Sailport Resort, Tampa FL. March 8-9, 2008 Annual Project Meeting, Sailport Resort, Tampa FL. March 10-11, 2008 (pending) Project Update Meetings, Jordan Development Company, LLC, Traverse City, MI. November 2006, April 2007, July 2007, November 2007, December 2007 Funding This project was selected under solicitation, DE-PS26-06NT15570, Low Impact Natural Gas and Oil (LINGO). Project Start: October 1, 2006 Project End: September 30, 2008 Anticipated DOE Contribution: $499,672 Performer Contribution: $635,171 (77 percent of total) Contact Information NETL Jesse Garcia (jesse.garcia@netl.doe.gov or ) MTU James R. Wood (jrw@mtu.edu or Project Summary February Michigan Technological University

9 Appendix 1. Instruction 1-94 Project Summary February Michigan Technological University

10 Appendix 2. Lessons Learned Lessons Learned Deward Cleaver Horizontal Drilling Experience Jordan Development Company, LLC (Jordan) drilled three open hole lateral Antrim Shale tests in the Deward Cleaver Field within Mancelona East Township of Antrim County between June of 2006 to July of The approach used to drill these three wells is identical to the well design originally proposed for the A-Ga-Ming #4-12 HD demonstration well. The Deward Cleaver wells consisted of directionally drilled pilot holes which were cased, from which open hole laterals were drilled at a 90 degree or greater inclination. The open hole laterals were oriented to allow fluids to drain back out of the laterals and into the pilot holes. An electric submersible pump was then set below the open hole windows within the pilot holes to enable produced water to be removed from the well. The resultant production from these open hole laterals did not meet anticipated production expectations. Upon review, Jordan has gained a great deal of insight as to improvements in the drilling and completion approach going forward to improve well production. The first potential weakness in the drilling approach taken in the Deward Cleaver is that the exit for each lateral creates a lip at the casing window. This lip results in a point of fluid backup, whereby the produced water draining back to the pilot hole must rise up before entering the casing and being pumped from the hole. The result is a pressure drop which adversely effects production. The open hole laterals were designed to gradually rise over their length to allow all produced water to drain back to the pilot hole. Jordan and its drilling contractors were very diligent in the effort to accomplish a smooth and gradual incline to the lateral placement. However, it is nearly impossible to avoid slight dips and valleys within the well path. As such, several sumps are formed within the lateral which trap produced fluid, hamper production, and potentially render portions of the lateral unproductive. Another potential issue with the original design is in the effect of drilling damage within the open hole laterals. During lateral drilling, the ability to efficiently remove cuttings becomes increasingly difficult as the hole extends further out. As a result, cuttings begin to accumulate along the hole and are finely ground to a paste as drilling progresses. This shaley paste causes formation damage which is very difficult to remove as the clay fines are inert to stimulation treatments such as acid. Project Summary February Michigan Technological University

11 As formation pressure depletes, the total effect of these drilling and design inefficiencies can greatly hamper gas deliverability. Jordan is now employing a new design which incorporates drilling a 75 to 80 degrees angle hole through the Antrim. This high angle hole is then cased and completed through pipe with eight to fourteen perforated and fracture stimulated zones. A pump is then run in below all zones to lift produced water from the well. The main advantage of the new design is that fluids drain directly and efficiently into the production casing. In this way, the well is produced in a more conventional means through perforations with no fluid back-ups or traps. In addition, by discretely stimulating multiple zones utilizing fracture treatments, the effect of any drilling damage is completely removed. Jordan views this new drilling and completion approach far superior to the original design for future Antrim Shale development. Project Summary February Michigan Technological University