Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing

1. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing By Susan Williams February 2012The analyses, opinions and perspectives herein are the sole responsibility of Sustainable Investments Institute(Si2). The material in this report may be reproduced and distributed without advance permission, but only if at-tributed. If reproduced substantially or entirely, it should include all copyright and trademark notices.

2. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2AcknowledgementsThis report was made possible with a generous grant from the IRRC Institute. To enhance the objectivityof the report, Si2 engaged a small editorial advisory board representing environmental organizations,industry and investment managers. The board members provided valuable feedback on the content ofthe report prior to its publication and served as resources on specific issues. The board members gavegenerously of their time and knowledge, and the resulting report more fully and accurately informs inves-tors of the risks and opportunities of shale gas development. The reports conclusions are Si2s alone,however. The editorial advisory board members include George King, Global Technology Consultant, andSarah Teslik, Senior Vice President – Policy and Governance, Apache Corp.; Michael Parker, TechnicalAdvisor, ExxonMobil Production Co.; Mark Boling, Executive Vice President and General Counsel, South-western Energy Co.; Richard Liroff, Executive Director, Investor Environmental Health Network; Evan Bra-nosky, Associate, and Amanda Stevens, Shale Gas Program, World Resources Institute; and Steven Heim,Managing Director and Director of ESG Research and Shareholder Engagement, Boston Common AssetManagement.Company officials at Carrizo Oil & Gas, Chesapeake Energy, ExxonMobil, Range Resources, SouthwesternEnergy and WPX Energy (formerly Williams Cos.) reviewed and commented on their company profiles.Richard Liroff and Fred Sweet provided a constant flow of related news items. Heidi Welsh and PeterDeSimone of Si2 provided editorial assistance.The Sustainable Investments Institute (Si2) is a The IRRC Institute is a not-for-profit organizationnon-profit membership organization founded in established in 2006 to provide thought leadership2010 to conduct impartial research and publish at the intersection of corporate responsibility andreports on organized efforts to influence corpo- the informational needs of investors. The IRRCrate behavior. Si2 provides online tools and in- Institute ensures its research is widely available atdepth reports that enable investors to make in- no charge to investors, corporate officials, academ-formed, independent decisions on shareholder ics, policymakers, the news media, and all interest-proposals. It also conducts related research on ed stakeholders.special topics. Si2’s funding comes from a consor- For more information, please contact:tium of the largest endowed colleges and univer-sities, other large institutional investors and Jon Lukomnikgrants such as the one that made this report pos- Executive Directorsible. IRRC Institute One Exchange PlazaFor more information, please contact: 55 Broadway, 11th Fl.Heidi Welsh New York, NY 10006Executive Director P: 212-344-2424 F: 212-344-247421122 Park Hall Road info@irrcinstitute.orgBoonsboro, MD 21713 www.irrcinstitute.orgP: 301-432-4721heidi@siinstitute.orgwww.siinstitute.org Copyright © 2012, IRRC Institute Si2 holds an irrevocable, non-exclusive, royalty-free, worldwide license in perpetuity to the contents of this report.

3. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Table of ContentsKey Findings ........................................................................................................ 5Executive Summary ............................................................................................ 8 Environmental and Social Impacts ...................................................................................................... 9 Report Organization .......................................................................................................................... 10 Key Questions for Investors .............................................................................................................. 11I. Environmental & Social Impacts ..................................................................... 14 Land Use Changes ............................................................................................................................. 14 Community Impacts .......................................................................................................................... 17 Freshwater Consumption .................................................................................................................. 18 Water Quality .................................................................................................................................... 20 Air Quality ......................................................................................................................................... 28II. Regulatory Oversight .................................................................................... 31 State Regulations .............................................................................................................................. 31 Proposed Federal Regulation ............................................................................................................ 32III. Key Accounting Issues .................................................................................. 37 Reserve and Production Estimates ................................................................................................... 37 Greenhouse Gas Emission Estimates ................................................................................................ 39IV. Shareholder Campaign on Hydrofracking ..................................................... 42 Disclosure Resolutions ...................................................................................................................... 42 Proponents’ Objectives ..................................................................................................................... 42 Company Responses ......................................................................................................................... 43Appendix I: Company Profiles ........................................................................... 47 Notes on Company Profiles ............................................................................................................... 47 Anadarko Petroleum Corp. ............................................................................................................... 50 Cabot Oil & Gas Corp......................................................................................................................... 52 Carrizo Oil & Gas Corp. ...................................................................................................................... 54 Chesapeake Energy Corp................................................................................................................... 56 Chevron Corp. ................................................................................................................................... 58 Exxon Mobil Corp. ............................................................................................................................. 60 Hess Corp. ......................................................................................................................................... 62 Range Resources Corporation ........................................................................................................... 64 Southwestern Energy Co. .................................................................................................................. 66 WPX Energy ....................................................................................................................................... 68Appendix II: Key Stakeholders .......................................................................... 70Appendix III: Additional Resources ................................................................... 73 3

4. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Boxes Box 1: Key U.S. Shale Gas Plays ................................................................................................................ 7 Box 2: Broad Issues for Investors to Consider ....................................................................................... 12 Box 3: Hydraulic Fracturing and Horizontal Drilling of Shale Gas .......................................................... 13 Box 4: Access Rights Can Lead to Conflict .............................................................................................. 16 Box 5: Bans and Moratoria..................................................................................................................... 18 Box 6: Fracking Fluid Chemicals ............................................................................................................. 22 Box 7: High-Profile Violations ................................................................................................................ 24 Box 8: Earthquakes................................................................................................................................. 25 Box 9: Upcoming Reports, Legislation and Decisions to Watch ............................................................ 34 Box 10: Obama Administration Actions ................................................................................................. 35 Box 11: Showcase of Three States (New York, Pennsylvania and West Virginia) .................................. 36 Box 12: Sample Best Practices ............................................................................................................... 45Sidebar Water: An Emerging Risk Management Issue ........................................................................................ 19Tables Table 1: 2012 Hydraulic Fracturing Disclosure Resolutions ................................................................... 42 Table 2: 2010-2011 Hydraulic Fracturing Disclosure Resolutions.......................................................... 43 4

5. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Key Findings The economic benefits of U.S. shale gas development are substantial. The degree to which companies and their investors can capitalize on this opportunity and profitably tap these vast domestic shale resources depends on reducing environmental and social risks to gain public support. Public apprehension over potential adverse environmental impacts and industrialization of rural and suburban areas have heightened the regulatory, reputational and legal risks associated with shale gas development and, in some instances, led to restrictions on drilling. Shale gas development presents unique management challenges—but not unique technological challenges—to prevent or significantly mitigate potential known adverse impacts on water, air and land. The basic techniques and methods to prevent pollution are similar to ones that have been employed in conventional onshore natural gas development for many years. Emerging issues, such as a possible link between associated disposal wells and earthquakes, bear watching but are not likely to be show stoppers. Industry is likely to develop alternatives or institute preventive measures in response. Although the U.S. natural gas industry may be technologically capable, it is unclear if the industry has the will or near-term financial incentives to avoid environmental and social impacts that could lead to continued controversy and additional bans, moratoria or restrictions on drilling. An industry-wide commitment to transparency, best practices and continuous improvement, rather than mere compliance with existing regulations, is essential to reducing environmental and social risks. While such an industry commitment may raise near-term costs, lack of such a commitment could severely limit or curtail domestic shale gas drilling and lead to higher long-term costs. o States provide primary government oversight of the oil and gas industry, creating a frag- mented and uneven regulatory environment. State regulations vary in their emphasis on and standards to reduce impacts to water, air and land. Most companies do not voluntarily employ methods or processes designed to meet the most stringent state standards throughout their operations. Given the speed of technological development in shale gas development and its rapid spread to states with limited regulatory experience in natural gas development, regulators are likely to continue playing “catch up.” Mere compliance with existing regulation may still result in incidents that raise the public’s ire. o While environmental groups favor natural gas over other fossil fuels, they say industry is not taking sufficient measures to reduce risks to public health and the environment and have been frustrated by the lack of federal government standards and oversight. The recent sharp rise in domestic shale gas production has made improving industry practices and addressing associated externalities even more imperative for environmental activists. o Some areas, such as New York City’s watershed that provides unfiltered drinking water for more than eight million people, will likely be no-go areas. The risk of any environmental contamination is too great. Three key issues make it challenging for the industry to secure more public support: o Technical—Hydraulically fracking a conventional (non-shale) vertical well with a single fracture treatment generally requires 50,000 to 100,000 gallons of fluid. Fracking a horizontal shale well requires from one to eight million gallons of water and thousands more gallons of chemicals than a conventional vertical gas well. These volumes have implications for water 5

6. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 consumption, wastewater management, chemical transport and storage, and possibly truck traffic, depending on how the water and wastewater are transported. Moreover, some companies are drilling multiple wells from a single pad to reduce costs and the footprint on the land. While this approach addresses some environmental impacts, it concentrates others, including air emissions and truck traffic carrying water, chemicals, wastewater and equipment to and from a single site. o Scale—Some states are anticipating thousands of shale gas wells to be drilled within a few years. If contamination problems occur at only a small percentage of shale gas wells, numerous residents and communities can still be affected by development. o Location—Because of the location of shale formations, development is spreading to areas not familiar with natural gas development, including the Northeast. Practices and proce- dures deemed acceptable by regulators and the public in remote areas, or in states and communities that have grown up with and become financially dependent on the oil and gas industry, may not pass muster in new areas that have been free of petrochemical drilling. Communities new to natural gas development are proving to be less tolerant and more scru- tinizing of the associated environmental impacts than communities where gas production has occurred historically. Rapid technological innovation to reduce environmental impacts is occurring, and industry can and has shown a willingness to respond quickly to issues of concern. Examples include the growth in recycling of hydraulic fracturing fluids returned from wells, and the quick response of companies operating in the Marcellus Shale to stop sending wastewater to treatment plants when requested by the state. Commercial and investment opportunities to reduce environmental impacts also are evi- dent, as seen by the growth of recycling technologies and new “green” fracturing fluid products. The social impacts of shale gas development on communities are difficult to mitigate and also more subjective to judge. Where some see an influx of jobs, economic development and tax and lease payments that can boost sagging rural economies, others perceive infrastructure degradation and industrialization imposed on rural and suburban areas not seeking change. While some of the social impacts can be mitigated, many communities lack the tools to address the broad and cumulative impacts of accelerated shale gas development that can alter a community’s identity. Even if environmental concerns can be addressed, some communities may remain opposed to shale gas development because they oppose industrialization of their surroundings. Shale gas development in many ways has been an economic victim of its own success. Natural gas prices hit a two-year low at the beginning of this year, brought on in large part by estimates of economically viable shale gas development. Natural gas fell to around $2.50 per million British thermal units (BTU), compared to a high of more than $13 per million BTU in 2008. As a result of falling gas prices, companies have been moving from primarily methane-dominated dry shale gas plays to development of “liquids-rich” gas plays, which produce not only dry natural gas but profitable liquids such as propane and butane, and oil shale plays. The reduced emphasis on dry shale gas plays is allowing regulators in those areas with dry shale gas formations more time to develop and implement regulations. Conversely, low natural gas prices make it more challenging for companies to absorb new costs associated with reducing environmental impacts in these plays. Most importantly, despite the economic climate, drilling will continue in dry shale gas plays because producers often have a limited time to begin drilling once they sign a lease with landowners. 6

7. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Box 1: Key U.S. Shale Gas PlaysIn early 2012, the U.S. Energy Information Administration (EIA) released its Annual Energy Outlook 2012 EarlyRelease Overview, which estimated 482 trillion cubic feet (tcf) of unproved technically recoverable onshore shalegas resources in the lower 48 states. In a July 2011 analysis (modified by the 2012 outlook), the EIA focused on dis-covered shale plays totaling 454 tcf. Four of the largest include:  114 trillion cubic feet (25 percent) in the Marcellus Shale, more than a mile beneath portions of Pennsyl- vania, New York, Ohio and West Virginia. Range Resources began producing the first gas from the Marcel- lus shale in 2005.  75 tcf (17 percent) in the Haynesville Shale, more than two miles below the surface of northwestern Louisi- ana, southwestern Arkansas and eastern Texas. Chesapeake Energy and Encana were among the first to begin drilling in this play in the mid-2000s.  43 tcf (10 percent) in the Barnett Shale, about one and a half miles under north Texas, including the Dal- las/Fort Worth area. Mitchell Energy (now Devon Energy) first paired large-scale horizontal drilling with fracking here in 1995, and the play took off in 2003.  32 tcf (7 percent) in the Fayetteville Shale, which varies in depth from 1,500 feet to 6,500 feet under north central Arkansas. Southwestern Energy pioneered development of this shale in 2003.“Liquids-rich” shale plays include the Eagle Ford in south Texas and the newly discovered Utica in Pennsylvania andOhio that hold gas, gas liquids and oil. Oil shale plays include the Bakken in North Dakota and Niobrara in Colorado. 7

8. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Executive SummaryThe U.S. natural gas industry has invested billions of dollars in shale gas properties over the last fewyears. Technological advancements are making it possible for companies to economically extract naturalgas from vast shale formations around the world, including shale plays potentially underlying one-quarterof the United States. American companies have taken the lead in developing these newly accessible re-sources, prompting government officials, energy analysts and companies to hail domestic shale gas de-velopment as a “game-changer,” “the most positive event in the U.S. energy outlook in 50 years,” and the“Dawn of a New Gas Era.” The U.S. Energy Information Administration (EIA) is projecting a 25 percentincrease in domestic natural gas production between 2009 and 2035 to 26.3 trillion cubic feet, with shalegas driving this dramatic growth. Shale gas’s portion of U.S. natural gas production has climbed from lessthan 2 percent in 2001 to nearly 30 percent today, and EIA projects it will reach 49 percent by 2035. Al-together, energy analysts now estimate there is enough natural gas to supply the country for at least 100years at current rates of consumption. The transformation is such that companies now are eyeing liquidnatural gas import terminals on the Gulf Coast for conversion into export terminals.The benefits could be substantial. An influx of domestic natural gas could lead the country towardgreater energy independence, enhanced national security and a greener energy future. The U.S. naturalgas industry could boost profits, drive economic development and job creation, generate revenues forlocal, state and federal governments, and provide income for residents who lease their land for drilling.Low-cost natural gas also is spurring several U.S. industries that use gas for fuel or feed stocks to investin U.S. plants that make chemicals, plastics, fertilizers, steel and other products.While shale gas reserves are vast and the economic benefits potentially enormous, the key question forinvestors is how much of this natural gas can be extracted and delivered to the market at a profit whilehaving minimal impact on the environment. A number of challenges have beset the U.S. natural gas in-dustry as it has begun tapping these unconventional resources. The rapid pace of development over thelast few years, combined with high-profile incidents of drinking water contamination, have led to publicapprehension over the effects on drinking water sources and imposed industrialization of rural and sub-urban communities. Shale gas production is expected to increase in almost every region in the country.Some of the greatest controversy has been in areas of Pennsylvania and New York, where there hasbeen minimal experience with gas drilling and highly valued watersheds that serve millions of people.Intense media scrutiny has triggered several government investigations, not only into the environmentalimpacts of natural gas development, but also corporate estimates of natural gas reserves and wellproductivity. With sides so polarized, and often emotional, misinformation is rife on all sides.The public outcry has undoubtedly heightened the regulatory, reputational and legal risks associatedwith shale gas development for companies and investors. Several state governments have imposed defacto bans on drilling while they review whether existing regulations adequately protect public health.Even states that have not put restrictions on drilling are revising regulations. The federal government,which has exerted limited oversight over natural gas development, is regulating some activities for thefirst time and finding additional ways to assert its authority. As a result, regulatory costs are on the rise,particularly for companies that have not adopted internal standards that exceed compliance with exist-ing regulation.Costs associated with reputational and legal risks have been exemplified by the experiences of Cabot Oil &Gas and Chesapeake Energy. These two firms have become well-known for contamination incidents andhave paid millions of dollars in fines or restitution and face civil litigation. Pennsylvania also has bannedCabot from drilling in part of the state since April 2010. Alleged damages from shale gas development arethe subject of more than three dozen lawsuits, including ten class actions, according to Sedgwick LLP, an 8

9. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2international litigation and business law firm. Plaintiffs are seeking compensation for past injuries,medical monitoring, diminution of property value, remediation and restoration and punitive damages.Corporate recognition and management of these risks, or lack thereof, will therefore affect the econom-ics of shale gas development. The industry is facing several new regulations, reports and evaluationsreleased in late 2011 and planned for 2012 and beyond, even as policymakers and regulators race tokeep pace with shale gas expansion. Calls for more stringent oversight and increased data collectionand transparency have become a consistent theme. Lack of available and publicly reported data is bothhindering good decision making by corporations, investors and regulators and contributing to the inabil-ity to address public concerns.Companies have a good story to tell of technological development and adaptation, and many have be-gun providing more information to investors and the public on their shale gas operations. While manyhave begun to report on their efforts to reduce environmental impact, such as recycling wastewater,finding alternative sources to freshwater and instituting closed loop systems, few are backing up anec-dotal descriptions with hard data. How companies respond to further calls for transparency and adher-ence to best practices will influence whether the operating environment will improve or whether futurerounds of even more stringent regulation or outright bans on drilling will ensue. Given the public scruti-ny, a few bad actors may put the entire industry’s license to operate at risk.Environmental and Social ImpactsSimilar to other energy sources, including conventional natural gas development, shale gas developmenthas impacts on water, air and land, and also on the people and communities in which development occurs.Freshwater supply: Shale gas development is conducted in proximity to valuable surface water andground water and itself requires significant amounts of water. Companies have proven to be innovativein their use, reuse and disposal of water. Still, the potential for drinking water contamination is at theforefront of public concerns. Contamination has occurred primarily through methane migration, poorwastewater management and chemical spills. Yet practices and processes to significantly reduce theserisks are widely known and generally practiced in the industry. Poor implementation of these practicesand processes generally has been the reason for contamination. Also, public apprehension over chemi-cal additives to fracturing fluids lies at the heart of the contamination issue. Using fracturing fluid that isvoid of hazardous or toxic chemicals and fully disclosing all chemical additives could address much ofthis concern. Some companies have been taking steps in this direction, although others maintain cur-rent fracking fluid compositions are more efficient, less expensive and do not pose a danger to the envi-ronment given concentration levels. Most companies are now voluntarily posting data on some chemi-cals, although more chemicals could be disclosed. State regulations increasingly are requiring publicdisclosure of chemicals.Wastewater disposal: Wastewater also is an important issue, given the large volumes of water requiredto frack a well and the narrow disposal options. The two main options are deep well disposal and recy-cling. Deep well disposal is the most common. However, it recently has been linked to small earth-quakes. Technologies are available to recycle wastewater—some companies in the Marcellus Shale re-cycle close to 100 percent of their wastewater already—but it can be more costly than deep well dispos-al and generally produces a solid waste that then must be disposed. (This presents another reason toreduce the toxicity of fracking fluids.) Few companies are bringing their wastewater to water treatmentplants for disposal today. Most Western states ban the disposal of wastewater into surface waters, andPennsylvania asked companies to halt this practice in 2011. Nonetheless, the EPA announced it wouldpropose new standards in 2014 for natural gas wastewater before it can be brought to treatment plants. 9

10. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Air: Unlike water, which primarily is a local issue, air emissions not only affect local air quality but alsopotentially have implications for climate change. Air emissions are among shale gas’s most disputedenvironmental impacts, although developments in the coming year will help to clarify and address someoutstanding questions. Air emissions include volatile organic compounds, air toxics and methane.Technological fixes exist to capture most air emissions, and some of these solutions would be requiredunder proposed federal air regulations slated for release in April 2012. In addition, a voluntary industryinitiative and federal greenhouse gas reporting requirements will begin to produce data in 2012 that willhelp fill a current void and inform hotly contested disputes between the U.S. Environmental ProtectionAgency (EPA) and industry over the amount of methane emissions from shale gas operations and thecost of capturing them.Land and community: Shale gas development also can significantly alter landscapes and the characterof rural and residential areas. The bulk of the surface disturbances related to the well pad can be tem-porary if appropriate restoration efforts are undertaken. Yet regrowth in forested areas can take manyyears, and related infrastructure like gas processing plants and compressor stations are relatively per-manent. Businesses dependent on tourism and residents specifically choosing their community for itsundeveloped character are concerned that scenic areas will be converted into industrial zones, with agrowing permanent network of well pads, pipelines, access roads and related infrastructure. Additionalconcerns are that the network of pipelines and roads, particularly if they require clearing, can fragmentland and enable or accelerate additional development in the area. An influx of temporary workers canalso have economic and social repercussions for a region. In addition to having concerns about waterand air pollution noted above, communities commonly complain about truck traffic, road degradationand noise. Communities also can become polarized as residents take sides on this issue or when allwithin the community bear the impacts yet only some directly benefit financially.Report OrganizationThis report is designed to help investors and others assess the risks and rewards of shale gas develop-ment. As part of its value as an evaluative tool, this report includes key questions for investors as well asbroader issues they may want to consider, such as the implications of extending the era in which fossilfuels predominate.The report examines the following topics:  the primary environmental and social impacts of shale gas development, including associated risks and examples of corporate mitigation measures and innovations. These include: o land use changes o community impacts o freshwater consumption o water quality, and o air quality;  the U.S. regulatory framework under which companies operate;  recent controversies involving the key accounting issues of natural gas reserve and production estimates and greenhouse gas emissions; and  the ongoing shareholder campaign seeking increased disclosure on hydraulic fracturing activities. 10

11. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Three appendices accompany this report. Appendix 1 includes 2-page profiles of 10 publicly tradedshale gas developers, ranging from multinational oil and gas companies to mid-size independent energycompanies to a small independent primarily dedicated to shale gas development. The profiles aredesigned to provide a snapshot of a companys level of involvement in shale gas development, itsdisclosure of associated risks and mitigation measures, its track record in this area, the level ofmanagement oversight and related shareholder activity. The profiled companies include: Anadarko Petroleum Chevron Range Resources Cabot Oil & Gas ExxonMobil Southwestern Energy Carrizo Oil & Gas Hess WPX Energy (formerly Williams Cos.) Chesapeake EnergyAppendix 2 identifies key stakeholders in the debate over shale gas development.Appendix 3 includes available resources for further exploration of shale gas development issues.Finally, a note on terminology is needed. Hydraulic fracturing and horizontal drilling are the key compo-nents of the new technological developments providing access to shale formations. (See Box 3, p. 13,for a description of these processes.) In its narrowest sense, hydraulic fracturing represents only a por-tion of the process, namely when pressurized water creates fissures that allow natural gas to escapefrom the shale to be produced through the well. But the term “hydraulic fracturing” has become awidely used catchphrase to encompass all of the activities associated with shale gas development—fromexploration, construction of a well pad, delivery of water and chemicals, horizontal drilling and produc-tion, management of wastes and delivery of gas to end markets. This report addresses impacts fromshale gas development broadly defined.Key Questions for InvestorsDisclosure Are companies disclosing sufficient information about their shale gas operations and their potential impact on shareholder value?  Form 10-K and 10-Qs: What is the quality of disclosure in these annual and quarterly reports related to risks, including potential risks associated with environmental issues and regulatory developments; compliance costs; violations; lawsuits; location of shale gas reserves; and production and reserve estimates?  Other stakeholder communications: Does the company provide adequate information on its prevention and mitigation measures related to the environmental and social impacts of shale gas development? Does the company disclose quantitative data related to its shale gas operations with appropriate specificity? Does the company disclose challenges specific to a shale gas play it is developing, such as availability of freshwater resources?  Investor presentations: Are company reserve and production estimates in investor presentations consistent with those in securities filings? Are companies revising their estimates on a timely basis to reflect new data on productivity, costs and gas prices? Are companies providing realistic assessments given the level of hard data available?Management Practices Are companies adequately managing the risks associated with shale gas development? 11

12. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2  Has the company demonstrated that its board of directors and senior management are engaged in risk management, including assessing the environmental and social impacts of shale gas development?  Is the company taking sufficient action to ensure that its operations are conducted in an environmentally responsible manner? ‒ Has the company moved beyond state-by-state regulatory compliance and instituted internal and consistent standards that approach best practice? ‒ Has it demonstrated a commitment to continuous improvement processes related to shale gas development?  Is the company adequately positioned to adapt to a changing regulatory and operating environment?Investment Strategies Is the company effectively positioned to capitalize on the new market opportunities associated with natural gas development? Box 2: Broad Issues for Investors to Consider In addition to corporate-specific questions that would help investors evaluate companies pursuing shale gas development, investors also may want to consider a number of additional issues critical to the future of shale gas development, but beyond the scope of this report. • Global development: The United States is at the forefront of shale gas development, yet shale gas formations are present throughout the world. What are the economic implications for U.S. investment if and when other countries start tapping their shale gas reserves? What are the opportunities for U.S. companies to extract gas in other countries? • U.S. marketplace: Is the U.S. marketplace prepared to increasingly utilize natural gas? Some U.S. industries are quickly ramping up domestic operations to take advantage of lower energy and feedstock costs resulting from the shale gas boom. Companies are pursuing the conversion of liquid natural gas import terminals on the Gulf Coast into export terminals. What is the likely demand for natural gas in electrical power generation? What is the likely demand for compressed natural gas (CNG) fleet or passenger vehicles and liquefied natural gas (LNG) long-haul truck vehicles? • Implications for renewable energy: Shale gas development is making it possible to extend the fossil fuels era. Given the surge in domestic gas production, will natural gas become a bridge fuel to a clean energy economy or an obstacle? Will low gas prices and plentiful supply deter investments in renewables? Will gas be coupled with intermittent renewable resources to provide reliable power sources or will gas compete with renewables? • Climate change implications: If shale gas development reduces or delays renewable energy development, or if improved data collection and life-cycle analysis bear out increased estimates of methane emissions from shale gas, will natural gas lose critical support from the environmental community? Would the industry lose subsidies from the federal government? • Infrastructure planning and cumulative impacts: What role should investors and individual companies have in addressing the cumulative impacts of shale gas development on communities? 12

13. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Box 3: Hydraulic Fracturing and Horizontal Drilling of Shale Gas Example of hydraulic fracturing for shale development, February 2012 Reproduced courtesy of the American Petroleum Institute The hallmark of modern shale gas development is the extensive use of horizontal drilling and high‐volume hydraulic fracturing—two essential features that have made natural gas extraction from unconventional, low- permeability formations, such as shale, economically viable. Extracting natural gas from shale is a multi-step process. First, similar to the extraction of natural gas trapped in a conventional underground reservoir, a well operator drills a vertical section of a well that is “cased” with steel pipe and isolated with cement to prevent migration of produced well fluids or natural gas into freshwater aquifers. Then the operator curves the well as it nears the shale formation, which typically is several thousand feet or more beneath the surface, until the operator can employ horizontal drilling that may extend from 1,000 to 6,000 feet or more through the shale layer. The operator may case all or some remaining portions of the well with steel pipe and cement, depending on local geological/hydrological conditions and applicable state law. Next comes the multi-stage fracture stimulation process, which can take several days to complete. In the far end of the horizontal well (the “toe”), operators use a perforating device to make small holes that penetrate the casing, the cement that surrounds the casing, and a short distance into the shale formation. Fracking fluid—a mixture primarily of water, but also chemicals and a proppant (usually sand) to prop open fissures—is injected into the well under thousands of pounds of pressure to fracture the shale rock further. The fracking process opens access to millions of tiny fractures and fissures in the body of the shale and allows the natural gas, which is locked in the fractures, to escape and flow into the wellbore for extraction. This process of perforating and fracking is repeated in several sections or “stages” until the entire horizontal section of the well is fracked. Altogether, each well requires from one to eight million gallons of fracking fluid (about 100,000 to 600,000 gallons per section that is fracked). From 5 to 50 percent of the fluid injected into the well resurfaces; the actual amount is highly dependent on the characteristics of the specific shale. 13

14. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 I. Environmental & Social ImpactsLand Use ChangesDrilling pads: A shale gas drilling complex typically encompasses from three to 10 acres. Clearing land inheavily forested areas, or converting agricultural land or land near residences, can have significant landuse impacts. Areas where drilling is a new phenomenon seem to be particularly sensitive.Developing shale gas requires preparing a pad site for the drilling rig and related equipment. A drillingwell pad can be quite large, so as to accommodate multiple wells and support facilities, including spacefor heavy trucks delivering or removing water, chemicals, wastewater or equipment; surface impound-ments or tanks to hold water, wastewater and drillings cuttings; the drilling rig and related equipment;and sometimes housing for workers. (At the same time, by consolidating operations at one location formultiple horizontal wells that access considerable acreage, larger pads can mitigate cumulative land useimpacts that would otherwise stem from multiple pads.) Some holding pits serving multiple wells can beas large as a football field. For short periods, drilling rigs from 50 to more than 100 feet tall can domi-nate the vista during the drilling process. Once natural gas production has begun, the pad site is signifi-cantly reduced to host well heads, a smaller amount of equipment, several water or condensate storagetanks and a metering system to measure natural gas production. The number of storage tanks generallyincreases commensurately with the number of well heads.Local pipelines and related infrastructure: The infrastructure needed to transport recovered naturalgas from the wellhead to market includes a gathering system of low pressure, small diameter pipelinesthat transport raw natural gas to a processing plant, a larger interstate or intrastate pipeline and then afinal distribution network. New pipelines may be installed through traditional open trenching, boringunderneath the ground or a combination of the two. When completed and restored, the right of wayfor a pipeline remains cleared, resembling an open meadow and nearly undetectable when traversingfarm or open land but a noticeable swath through forest or developed land. Although some processing Drilling site in the Marcellus Shale. Source: www.marcellus-shale.us 14

15. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Gas processing plant in the Marcellus Shale. Source: www.marcellus-shale.orgis done at the wellhead, gas processing plants miles away further remove any liquids from the gas tocreate pipeline quality gas. Gathering systems may need field compressors to move gas to processingplants, and larger compressor stations generally are sited every 40 to 100 miles to move gas along thepipeline and generally contain some type of liquid separator.Interstate pipelines: More than half of the interstate natural-gas pipeline projects proposed to federalenergy regulators since the beginning of 2010 involve Pennsylvania—at a cost estimated at more than$2 billion, according to the Associated Press. One new interstate project, the MARC I line from northernPennsylvanias rural Endless Mountains region into New York, has generated controversy and illustratesthe difficulty in siting new interstate gas pipelines. The Federal Energy Regulatory Commission (FERC)approved the pipeline in November, but environmental groups and the EPA expressed concerns aboutits potential environmental impact and whether it is necessary. The EPA contends the line would frag-ment an undeveloped swath of forest and farm land 39 miles long and potentially stress sensitivestreams in an area that supports a robust ecosystem, high quality of life and recreation. The EPA notesthe likelihood of secondary and cumulative impacts, pointing out that the MARC I line would “co-existwith, if not induce or accommodate, development of new gas wells” and related infrastructure. Certifi-cation by FERC gives a company the right to seek court approval to take property by eminent domain. Mitigation and innovation—Companies are taking a number of measures to reduce the footprint ofdrilling and address environmental impacts on the land.  Erosion and sediment control includes controlling stormwater discharges and preventing surface runoff from site construction activities. States oversee related permitting, and the Inde- pendent Petroleum Association of America has outlined voluntary stormwater management practices.  Multi-well drilling pads allow multiple horizontal wells to be drilled in multiple directions from a single pad. Concentrating drilling activity results in fewer roads, pipelines and drill sites. Apache and Encana in Canada’s Horn River Basin are using 6.3 acre pads to effectively capture gas from 5,000 acres. Given the large area they access from one pad, operators have a relatively 15

16. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 high degree of flexibility in deciding where to locate these pads which allows companies to take environmental concerns into account more easily in their siting decisions.Additional land use mitigation measures include:  shared new access roads and/or pipelines;  pipelines (sometimes temporary surface-laid) rather than roads to move water from centralized storage facilities to the well pad. (Surface laid pipelines could be used to move wastewater but would require additional monitoring);  co-locating dual pipelines for gas and freshwater in the same trench;  temporary earthen impoundments and portable, above-ground holding ponds (PortaDams) to store water; and  restoration efforts, which involve landscaping and contouring the property as closely as possible to pre-drilling conditions. Box 4: Access Rights Can Lead to Conflict Two issues exacerbating the social and environmental impacts of shale gas development are the thorny matters of severed surface and subsurface rights and forced pooling. Severed surface and subsurface rights: Several states, including Colorado, Pennsylvania, Texas and West Virgin- ia, allow one owner to hold surface rights and another to hold subsurface rights for gas, oil and minerals. Entities holding subsurface rights have rights to reasonable use of the surface in order to access the natural gas—rights that have led to conflicts with homeowners opposed to natural gas development. This issue is particularly acute in areas where there has not been historical drilling activity and homeowners were either unaware of, or did not understand the significance of, this separation of ownership rights. Despite their opposition, property owners who do not own subsurface rights may have a well drilled on their property, leading to a loss of acreage, decrease in property value and no choice but to deal with the noise and emissions associated with gas development. Opponents to fracking have illustrated this point by circulating pic- tures of drilling rigs in close proximity to unwilling homeowners concerned about, or experiencing, adverse health effects. Critics also point out that state setback requirements vary widely, and may not have been developed with severed surface and subsurface rights in mind. Property owners typically receive some compensation, but it does not compensate for any loss in property value. In Pennsylvania, where the state retains subsurface rights on just 20 percent of its parkland, debate also is ongoing about whether gas companies should be allowed to exer- cise their subsurface rights on public land. Forced pooling: Another controversial subsurface rights issue is “forced pooling,” which allows drillers to gain access to natural gas beneath someone’s land without their permission—even if they hold subsurface rights. Some 39 states have varied forms of forced pooling laws. Generally, drillers can access gas from a common underground reservoir if they have negotiated leases for a threshold percentage of an entire area. Drillers generally are not allowed to drill surface wells on un-leased land, but they can use horizontal wells to access the gas. One large landowner can trigger forced pooling even if the majority of families in a neighborhood are opposed. Oper- ators must pay a proportionate share of royalty fees to all subsurface rights holders in the pooled unit. Critics say forced pooling was designed with conventional oil and gas deposits in mind and that it is inappropriate for shale gas. They contrast the uncontrollable nature of a conventional gas deposit, which allows gas to move around relatively freely, to shale gas, which cannot be extracted without deliberate and planned horizontal drilling and fracturing. Supporters of forced pooling say such laws are necessary to support the most efficient subsurface development of the shale gas resource while minimizing the surface impact of the development activities. 16

17. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Community ImpactsIn addition to land use changes, social impacts can dramatically alter a community’s way of life. The great-est direct impact associated with gas development occurs over several months as workers clear the areaand prepare a well pad, set up the drilling rig, drill, frack, install operational equipment and prepare thewell for production. If many wells are drilled from the same pad, this process can extend to a couple ofyears, according to Range Resources.Drilling and fracking: To drill and prepare a well takes up to 100 workers, though only one is needed tooperate a well in the long term production phase. Drilling, which occurs around the clock, may take fourto six weeks and can produce noise, dust, light pollution and diesel emissions. Fracking may take anoth-er three or four days, and this operation usually is restricted to daylight hours, although transporting thewater needed can be an around-the-clock operation.Truck traffic and temporary workers: Truck traffic associated with shale gas development is a commoncomplaint of many communities. It takes 200 trucks to transport one million gallons of water, and frack-ing of shale gas wells requires from one to eight million gallons per well. Wastewater also must be re-moved. In addition, some 30 to 45 semi-trucks are needed to move and assemble a rig that can drilldown 10,000 feet. Additional trucks also carry sand, waste and other equipment (including heavy ma-chinery like bulldozers and graders) along back roads, sometimes in wintry conditions. Local road infra-structure can quickly become degraded and communities often spend more on road maintenance. De-pending on the number of wells being drilled in an area, a community may experience these impacts formany years. New workers with good wages moving to the area are a double-edged sword. They canbring economic benefits and activity, but because of the sudden influx, also can drive up local housingprices, making regions less affordable to long-time residents. Temporary workers also sometimes canaffect the social fabric of a community. The combination of these factors often drives up costs for po-lice, fire and social welfare broadly. Conflicts also can arise between neighbors if the same party doesnot own both the surface and mineral rights to a property over a shale formation. (See Box 4: AccessRights Can Lead to Conflict, p. 16.)Local regulation: Land use regulation typically is done at the local government level; there are few re-gional land use processes in place to coordinate oversight of shale gas development spread over severalcounties. Local authority varies by state, and some towns have tried to assert their authority by institutingbans on shale gas development. (See Box 5: Bans and Moratoria, p. 18.) In addition, more than 100Pennsylvania towns have enacted ordinances to limit or regulate such drilling. In many instances, pendinglawsuits will determine whether such local bans and local regulations are legal. In other instances, munic-ipalities have had to abandon their challenges because they lack the resources for a lengthy legal battle. Mitigation and innovation—Measures include:  community engagement, such as outreach, education, notification and coordination of local development;  routing impact fees to local authorities;  voluntary road monitoring and maintenance programs;  scheduling truck traffic around school busing and commuting hours or routes;  dust mitigation;  sharing access roads and coordinating infrastructure planning with other companies (keeping in mind anti-trust provisions);  finding alternatives to truck delivery and removal, including water pipelines;  training the local work force to fill shale development jobs; 17

18. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2  providing housing for temporary workers;  noise abatement, including remote siting, noise cancelling barriers and equipment designs; and  shifting to electric or natural gas as a fuel on the well pad to avoid diesel emissions.Freshwater ConsumptionThe drilling, cementing and hydraulic fracturing of shale gas wells requires large volumes of water andresults in a net loss of water. From 50 to 95 percent of the hydraulic fracturing fluid pumped down awell does not return to the surface. Water that does return from the well is no longer a freshwater re-source as it is becomes a component of fracturing fluid or produced water. This wastewater generallyeither is recycled or disposed of in deep wells, making it unavailable for other uses.Fracking a shale gas well uses the lion’s share of the water—from one to eight million gallons per well(as many as 1,600 truckloads). Wells also can be fracked more than once to increase productivity. Thispractice has been used in vertical wells in shale formations, but has been applied to a small number ofhorizontal wells and is becoming less likely to be used in the future as operators learn how to optimizeinitial fracture treatments. Box 5: Bans and Moratoria  New York and Maryland have de facto temporary hydraulic fracturing bans in place, effectively halting new drilling while they conduct reviews. In June 2011, Maryland Governor Martin O’Malley (D) signed an Executive Order establishing the Marcellus Shale Safe Drilling Initiative, which essentially bans drilling pending the conclusion of a two-year study by the Maryland Department of Environment. Portions of western Maryland lie atop the Marcellus Shale. (See Box 10 for more on New York, p. 36.)  New Jersey Governor Chris Christie (R) proposed a one-year moratorium on hydraulic fracturing operations in the state in August 2011, after vetoing a bill passed by the state legislature that would have permanently banned it. Notably, New Jersey is not a natural gas producing state, and does not lie atop the Marcellus Shale. New Jersey does have a vote on the Delaware River Basin Commission (see below).  The Delaware River Basin Commission (DRBC) has had a de facto drilling moratorium in the Delaware River Watershed since May 2010, when the commission halted new permits while it drafted its first-ever rules regulating natural gas drilling. The DRBC is a federal-interstate compact government agency that coordinates withdrawals for drinking water, agriculture, recreation and resource development (such as shale gas). Its five members include the governors of the four basin states—Pennsylvania, New York, New Jersey and Delaware—and a federal representative of the U.S. Army Corps of Engineers. The DRBC repeatedly has postponed meetings to consider draft gas drilling regulations published in December 2010. Most recently, a November 2011 meeting was postponed when the governors of New York and Delaware indicated they would vote against the new rules. No new meeting date has been announced. The draft regulations are more stringent than Pennsylvanias rules, requiring pre-and post- drilling testing of ground and surface waters, $125,000 bond per gas well and disclosure of chemical additives, including the volume used. Numerous companies are affected; for example, the majority of the Marcellus acreage of Hess is in the Delaware River Basin.  New York City; Buffalo, N.Y.; and Pittsburgh and Philadelphia, Pa., have either called for bans or banned all fracking activities outright.  Voters in three Pennsylvania towns voted for the first time in November 2011 on initiatives seeking to ban hydraulic fracturing. Results were mixed, although each individual vote was decisive. Referendums in Warren and Peters Township went down to defeat while one in State College passed. 18

19. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2The drilling process, itself, uses far less water. Opera-tors mix water with clay and, sometimes, chemicaladditives to control the well, cool and lubricate the Water: An Emerging Riskdrill bit and carry rock cuttings to the surface. Management IssueChesapeake Energy reports that drilling a typical deep Water increasingly is becoming a risk managementshale natural gas and oil well requires between issue for corporations. The Carbon Disclosure65,000 and 600,000 gallons of water, depending on Project (CDP), with backing from 137 institutionalthe depth of the well. investors representing $16 trillion in assets, has identified water as its second strategic issue ofLarge water withdrawals increasingly are being regu- interest (after carbon) to investors. In 2010, thelated, and often are subject to limits. Most states CDP sent out its first annual water questionnaire torequire an analysis of how water withdrawals from more than 300 of the world’s 500 largestwatersheds will affect the hydrology and ecosystems corporations, focusing on sectors including oil andas part of the permitting process. Data collected gas that are water intensive or are particularlyfrom these studies inform daily withdrawal limits. In exposed to water-related risks.some states, a river basin commission or water re- Notably, of 190 companies responding to the CDP’ssources board, such as the Susquehanna River Basin 2011 questionnaire, nearly 60 percent report thatCommission or the Delaware River Basin Commission, responsibility for water-related issues lies at thecontrol water withdrawals. In other places, water is board level, and 93 percent have developed specificowned by private individuals who can allocate it at water policies, strategies and plans. In addition totheir discretion. In 2011, New York began requiring a water availability being an operational matter for corporations, it increasingly is becoming a reputa-special permit to withdraw large volumes of water for tional risk as competition for water increases.industrial and commercial purposes, saying thestate’s “plentiful water resources are under pressure In September 2011, Ceres, with funding from theby heavy demands from increasing commercial, in- IRRC Institute (which also sponsored this report), released a new tool for investors and companies todustrial, and public uses as well as the need to main- evaluate risks and opportunities associated withtain river and stream flows for fisheries, wetlands, business exposure to global water supply threats.and other environmental needs.” West Virginia is Ceres Aqua Gauge: A Framework for 21st Centurydeveloping a global positioning system website for Water Risk Management, developed with inputwater withdrawals that will plot withdrawal points from 50 investors, companies and public interestand estimated volumes. groups, allows investors to judge a company’s water management strategies against industry peers andRegional and local distinctions largely determine the detailed definitions of leading practice.significance of water consumption. Areas with lim-ited supply, whether it is a constant condition or theresult of drought, can affect local operations. While water is abundant in Marcellus Shale states, Texasexperienced its worst single-year drought ever in 2011, with some municipalities’ traditional sources ofwater so depleted that they needed to rely on trucked-in water for basic drinking and washing. As aresult, Apache had to curtail some drilling for lack of water in Texas and Oklahoma. There is a real pos-sibility that access to freshwater could become more difficult, costly and controversial, prompting com-panies to find alternatives. Apache, for example, has had success using produced brine water for frac-turing.Comparisons to other uses: There is considerable debate about the water intensity of shale gas devel-opment in comparison to other fuels and to other uses, such as agriculture or municipal use. The UnitedStates Geological Service reports on water use in the United States, but its Estimated Use of Water in theUnited States in 2010 report is behind schedule and not expected to be completed until 2014. The lastupdate was 2005, prior to the widespread use of hydraulic fracturing of horizontal wells. 19

20. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Range Resources compares three to four mil- Range of Gallons oflion gallons of water used to fracture a shale well 1 Water Used per Energy Resourceto water usage at a typical golf course for nine MMBTU of Energydays, adding that ten times as much water is re- Produced 2quired to produce the equivalent amount of en- Chesapeake deep shale natural gas* 0.84 - 3.32ergy from coal and that ethanol production can Conventional natural gas 1–3require as much as a thousand times more water Coal (no slurry transport) 2–8to yield the same amount of energy from naturalgas. ExxonMobil says the amount of freshwa- Coal (with slurry transport) 13 – 32ter required for drilling and fracking a typical Nuclear (uranium ready to use in a 8 – 14horizontal well is usually equivalent to about power plant)three to six Olympic-size (50 meters by 25 me- Chesapeake deep shale oil** 7.96 - 19.25ters) swimming pools. Chesapeake includes Conventional oil 8 - 20the following chart comparing water usage Synfuel - coal gasification 11 – 26among various energy sources on its website. Oil shale petroleum 22 – 56While informative, the usefulness of the anal- Oil sands petroleum 27 – 68ogies and comparative analyses is somewhat Synfuel - Fisher Tropsch (from coal) 41 – 60limited, since water is a local resource, withwater stress varying greatly by location. In Enhanced oil recovery (EOR) 21 - 2,500other words, the environmental impact of Biofuels (Irrigated Corn Ethanol, > 2,500withdrawing an Olympic size swimming pool’s Irrigated Soy Biodesiel) 1 Source: "Deep Shale Natural Gas: Abundant, Affordable, and Stillworth of water is different in the Hill Country Water Efficient", GWPC 2011of Texas than in northern Pennsylvania. 2 The transport of natural gas can add between zero and two gal- Mitigation and innovation—Companies lons per MMBTU *Includes processing which can add 0-2 gallons per MMBTUare pursuing a variety of techniques and tech- **Includes refining which consumes major portion (90%) of waternologies to reduce freshwater demand. To needed (7-18 gal per MMBTU)minimize contamination, companies typically Solar and wind not included in table (require virtually no wateruse freshwater for near surface drilling and for processing) Values in table are location independent (domestically producedcementing, but companies are finding alterna- fuels are more water efficient than imported fuels)tives to freshwater in fracturing fluids. Theyare recycling their own produced water and hydraulic fracturing fluids, using wastewater from otherindustrial sources and tapping brackish or saline aquifers. They also are creating impoundments to storerainwater or surface water when flows are greatest and avoid withdrawals when water availability islow, or when other industries and agriculture are making greater demand on water sources.Water QualityWater that comes back out of the well is referred to in this report as wastewater. It includes residual drill-ing and fracking fluids and produced water (naturally occurring water originating from the shale for-mation). Following fracturing of the well, the composition of the wastewater that flows back changesfrom an initial flow of primarily residual fracturing fluids to water dominated by the salt level of the shale.This “flowback” period generally lasts from a few days to a few months, with the rate of water recoveryusually dropping rapidly as gas production starts. Accordingly, operators typically send the large early vol-umes of returning fluids to storage facilities for the first few days. The wastewater is then treated for re-use or disposed. As gas production continues, processing equipment separates the water and gas. Boththe amount and composition of the wastewater vary substantially among shale gas plays. In the BarnettShale, for example, there can be significant amounts of saline water produced with shale gas. 20

21. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Fracking operation in the Marcellus Shale. Source: www.marcellus-shale.usWhile much public interest has focused on the chemicals in the fracturing fluid (See Box 6: Fracking Flu-id Chemicals, p. 22), the produced water originating from the shale formation may include brine, gases,heavy metals, organic compounds and naturally occurring radioactive elements (NORM). The NaturalResource Defense Council (NRDC) petitioned the EPA in 2010 to regulate oil and gas wastes, includingdrilling fluids and cuttings, produced water and used hydraulic fracturing fluids, under Subtitle C ofthe Resource Conservation and Recovery Act, which regulates hazardous waste. In its petition, theNRDC contends that it is a common misconception that produced water is relatively clean and says thatinstead it can contain arsenic, lead, hexavalent chromium, barium, chloride, sodium, sulfates andother minerals, and may be radioactive. Most shales do not report unusual NORM levels in producedfluids, although NORMs are common in some New York and Pennsylvania areas. The Pennsylvania De-partment of Environmental Protection sampled seven waterways in late 2010 following shale gaswastewater disposal and found NORM to be at or below acceptable background levels.Potential Avenues of ContaminationThe potential for shale gas development to contaminate underground or surface sources of freshwatercan take multiple avenues, although most occur on the surface. These include accidental spills, faultywell construction, and poor wastewater management. Techniques and methods to prevent contamina-tion through these avenues are similar to ones that have been employed in conventional onshore natu-ral gas development for many years.Wellbore integrityState regulators have identified faulty cementing of well casings as a source of methane migration fromconventional gas production and now shale gas production. (See Box 7 for a description of high-profile 21

22. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Box 6: Fracking Fluid ChemicalsFracking fluid for shale gas formations generally is more than 99 percent water and proppant (usually sand), withthe remainder chemical additives. Chemical additives serve a variety of purposes, including preventing scale andbacterial growth and reducing friction. They also vary from one geologic basin or formation to another. Althoughthe additives comprise a relatively small percentage of total fluids, given the millions of gallons of fluids used ineach well, they still can amount to tens of thousands of gallons of chemicals per well.As part of a Draft Supplemental Generic Environmental Impact Statement (SGEIS) related to high volume hydraulicfracturing, the New York State Department of Environmental Conservation (DEC) collected data on many of theadditives proposed for use in fracturing shale formations in New York. (See Box 11 for more on New York’s SGEIS,p. 36.) Six service companies and 15 chemical suppliers provided the DEC with data on 235 products. The DECdetermined that it had complete product composition disclosure on only 167 of those products. It also found thatthe products contained 322 unique chemicals with Chemical Abstracts Service (CAS) Numbers (unique numericalidentifiers assigned to every chemical) disclosed and at least 21 additional compounds with undisclosed CAS Num-bers due to many mixtures being involved. Mitigation and innovation—Companies have been working to reduce the amount and toxicity of thechemicals they use. Chesapeake Energy reports on its website that it has reduced additives in fracking fluids by 25percent. In May 2011, Baker-Hughes announced the launch of its BJ SmartCare™ family of environmentallypreferred fracturing fluids and additives. Also in May 2011, Halliburton announced that El Paso was the firstcompany to use all three of its proprietary CleanSuite™ production enhancement technologies for both hydraulicfracturing and water treatment. Frac Tech reports its “Slickwater Green Customizable Powder Blend” additive hasbeen "designed using principles of green chemistry" that result in no leftover chemicals, and that its powder formcan reduce risks of liquid chemical spills. As for proprietary fracking fluid, companies could add a chemical tracerthat would enable the source to be identified should contamination occur.Public concerns about possible water contamination have been exacerbated by the lack of information on specificchemicals in the fracking fluids. While the industry is moving toward more disclosure, a significant debate contin-ues over the level of reporting required by government regulation. Three points of contention concern 1) the de-termination of hazardous chemicals, 2) trade secret exemptions and 3) ease of public access to data.Reporting requirements and proprietary exclusions: At present, each company must produce a Material SafetyData Sheet (MSDS) developed for workers and first responders that describes additives used in fracture stimula-tion at each well location. At issue is that the MSDS only reports chemicals deemed to be hazardous in an occupa-tional setting under standards adopted by the U.S. Occupational Safety and Health Administration (OSHA). MSDSreporting does not include other chemicals that might be hazardous if human exposure occurs through environ-mental pathways, such as bioaccumulation in the food chain if a chemical is spilled into a waterway. Several statesnow require companies to provide a listing of all non-proprietary chemicals in fracking fluid, not just those deemedhazardous by OSHA.As for trade secret exemptions, many companies (generally service providers to gas companies) consider portionsof their drilling fluid formulas, including the composition and concentrations, to be proprietary information. Theyinclude only a trade name, and not individual chemicals, on the MSDS. OSHA governs standards for what is con-sidered a trade secret, although some states make the final determination while other states allow companies tomake that determination themselves. While a company may withhold a specific chemical identity from the MSDS,OSHA standards require the company to disclose the hazardous chemical’s properties and effects. OSHA stand-ards also provide for the specific chemical identity to be made available to health professionals, employees anddesignated representatives under certain circumstances.Public disclosure: While there are no federal requirements for public disclosure of chemicals in fracking fluids,voluntary and state-mandated disclosure is on the rise. Companies and state regulators are concluding that thehigh level of public concern warrants easy access to data, although all states allow trade secret exemptions. 22

23. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 FracFocus.org has become the premier source for voluntary information on fracking fluids, and some state and company websites also provide information. Range Resources, Halliburton, EQT and Chief Oil & Gas were among the first to post information on their fracking fluids beginning in 2010. Not all companies are on board, however. Carrizo Oil & Gas noted in its 2010 10-K that proposed “legislation would require, among other things, the reporting and public disclosure of chemicals used in the fracturing process, which could make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings against producers and service providers.” Cabot Oil & Gas included a similar statement in its 2010 10-K. FracFocus—FracFocus is a U.S. hydraulic fracturing chemical registry website that is jointly operated by the Ground Water Protection Council (GWPC) and the Interstate Oil and Gas Compact Commission. Partic- ipating companies, numbering 80 as of November 2011, voluntarily report chemicals in wells hydraulically fractured since January 1, 2011, or the date they registered. Users may run a query by state, county, operator and/or well name for a specific well to generate a report that lists the trade name, supplier, purpose, chemical ingredients, Chemical Abstract Service Number (CAS#), and maximum percentage of ingredients in the mix, when available. The report also includes the fracture date and sometimes the well depth and water volume used. Initially, FracFocus posted only the chemicals that appear on a Material Safety Data Sheet, but in September 2011 the GWPC announced that FracFocus would provide for the reporting of all chemicals added to the fracking fluid, except for proprietary chemicals. Limitations—While the FracFocus website is a significant step forward in public disclosure for nearby property owners, as currently constructed it is of limited value to investors. The chemical information does not reside in an accessible database that can be queried or in a spreadsheet format, which makes it impracti- cal to aggregate data by company or to identify which companies use a particular chemical. Colorado adopted a public disclosure rule in December 2011 that requires the Colorado Oil and Gas Conservation Commis- sion to build its own searchable database if FracFocus hasn’t taken steps to make its data searchable by 2013. Also, FracFocus does not have a singular interpretation of what is considered proprietary, as it follows each state’s lead on this issue and state interpretations vary. State requirements: Eight states—Arkansas, Colorado, Louisiana, Michigan, Montana, Pennsylvania, Texas and Wyoming—require public disclosure of hydraulic fracturing chemicals to varying degrees. Wyoming was the first state to require disclosure; it passed regulations requiring disclosure of chemicals injected underground on a well-by-well basis in 2010. Colorado has the most recent and comprehensive law that calls for drillers to disclose not only all non-proprietary chemicals in hydraulic fracturing but also their concentrations. Drillers must also disclose the chemical family of any proprietary chemical and its concentration. Additional states, including Wyoming, Arkansas and Texas, require disclosure of all non-proprietary chemicals (but not concentrations), while others require disclosure only of chemicals on the MSDS. The table below provides further information on state requirements and methods. State Chemical Disclosure Requirements and Methods AR CO LA MI MT PA TX WY Requires disclosure of all non-proprietary chemicals X X X X State determines which chemicals are proprietary X X X Company determines which chemicals are proprietary X X X X X State requires chemicals to be posted on FracFocus X X X* X* State posts chemicals on own website X X X ** X *Montana requires companies to post chemicals on FracFocus or provide it to the Montana Oil and Gas Board. **Pennsylvania requires companies to disclose non-proprietary chemicals to its Department of Environmental Protection, but does not post the data online. Access to the data requires filing a request under the Right-to-Know process. 23

24. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2drinking water contamination incidents, below.) Typically, the methane is from shallower, usually non-commercial, formations through which the well was drilled and not from the shale formation. Methaneis not toxic if ingested, but can be explosive if it accumulates. Well casings near the top of the verticalportion of wells pass through ground water aquifers. To prevent the release of gas and well fluids intoaquifers, steel pipe, known as surface casing, is cemented into place as a routine part of well construc-tion. The depth of the casing typically is determined by site-specific conditions and state regulatory re-quirements.Mitigation and innovation: The American Petroleum Institute has highlighted industry best practices inits Well Construction and Integrity Guidelines for Hydraulic Fracturing Operations. In addition, South-western Energy has been working with the Environmental Defense Fund (EDF) on a set of model stand-ards for safe drilling. The project partners sent a draft to a number of state regulators in September2011 and note that the model rules go further than most U.S. state regulations now in place. Specificmeasures that can be taken to assure the integrity of cement jobs and overall well integrity includepressure testing and cement bond logs, which measure the quality of the cement bond or seal betweenthe casing and the formation. Other measures to address a concerned public include conducting base-line testing of nearby water wells and sharing results with well owners prior to gas development, as wellas adding an easily identifiable chemical tracer to hydraulic fracturing fluids. Box 7: High-Profile ViolationsDebate continues over the efficacy of drilling and fracking regulations in part because of well-publicized violations inthe shale gas industry. In December 2010, Cabot Oil & Gas agreed to pay $4.1 million to 19 families in Dimock, Pa., affected by methane contamination attributed to faulty shale gas wells. The company maintains that the methane in Dimock water supplies occurs naturally and is not a result of its gas drilling activities. However, the company also agreed to offer to install whole-house gas mitigation devices and pay the state $500,000. Previously, state regulators had halted Cabot from drilling in the Dimock area in April 2010 and also temporarily suspended review of Cabot’s pending permit applications statewide. Although the state resumed review of Cabot’s permits outside Dimock and recently granted Cabot’s request to stop water delivery to the families in November 2011, no decision has been made on resumed drilling in Dimock. In addition, not all families accepted the 2010 agreement, and litigation is ongoing. The families say they have suffered neurologic, gastrointestinal and dermatologic symptoms from exposure to tainted water. In 2009, Pennsylvania ordered Cabot to suspend fracking operations for nine days following three spills of thousands of gallons of fracking fluids by contractors Baker Tank and Halliburton. The state subsequently fined Cabot $180,000 for spills throughout the state in 2009. In May 2011, Pennsylvania officials fined Chesapeake Energy $900,000—the single largest state fine ever levied on an oil or gas operator—for contaminating the water supplies of 16 families in Bradford County and $188,000 for a tank fire at a drilling site. The state attributed the contamination to improper casing and cementing of wells. A month earlier, thousands of gallons of fracking fluids leaked from a well owned by Chesapeake Energy near Canton in Bradford County, Pa. For two days, the fluids spilled across farm fields and entered a tributary of a creek, and seven nearby families were temporarily relocated. The company voluntarily suspended hydraulic fracturing operations for three weeks. In July 2010, state regulators fined EOG Resources and its contractor, C.C. Forbes, $400,000 and issued a 40-day suspension of their operations in Pennsylvania following a well blow-out at a drilling site in Clearfield County, Pa. The state determined that the companies used untrained personnel, failed to use proper well control pro- cedures and failed to promptly notify officials. Fracking fluid and gas shot 75 feet into the air for 16 hours. 24

25. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Box 8: Earthquakes Seismic activity has been tied to shale gas development, although it generally has been linked to underground wells used to dispose of wastewater, rather than the fracking process itself, and is unusual. Regulations for disposal wells have focused on protecting aquifers, not preventing seismic activity. Yet because fluid injection has the potential to change the prevailing stress regime underground, it has the potential to set off minor seismic events. Seismologists at Southern Methodist University in Dallas said a wastewater injection well was a plausible cause of numerous small earthquakes in Texas in 2008 and 2009. In December 2010, the Arkansas Oil and Gas Commission imposed a moratorium on new wastewater disposal wells in an area that had begun experiencing thousands of earthquakes, nearly all too small to be felt. In March 2011, the commission asked Chesapeake Energy and Clarita to shut down wastewater disposal wells close to a fault after Arkansas experi- enced its largest earthquake (magnitude 4.7) in 35 years. The Commission also placed a moratorium on new disposal wells in a 1,100 square mile area. In Ohio, where companies dispose of shale gas wastewater from Ohio and neighboring Pennsylvania, officials shut down a disposal well in January 2012 and put another four slated to open on hold after 11 earthquakes, including a 4.0-magnitude earthquake, occurred near Youngs- town over eight months. In the United Kingdom, a November 2011 report by U.K. energy company Cuadrilla Resources found “strong evidence” that two minor earthquakes and 48 weaker seismic events resulted from hydraulic fracking operations. The company noted, however, that the events were the result of a “rare combination of geological factors.” The company and the government reached an agreement in June 2011 to suspend shale gas test drilling until its consequences were better understood. Mitigation and innovation: Measures include evaluation of the rock formations below and overlying the well bottom before drilling commences; periodic measurements of earth stresses and microseismic monitoring with public disclosure of results; and limiting pressure and volumes of fluid injected down a well.Wastewater Management and DisposalLaws forbid operators from directly discharging wastewater from shale gas extraction to waterways.The two options primarily used today to manage wastewater are underground disposal wells and recy-cling. Lesser used options include wastewater treatment prior to discharge in public waterways andevaporation in open storage pondsGeneral preventive measures to help ensure against contamination from wastewater include the use ofsecondary containments, mats, catchments and ground water monitors, as well as the establishment ofbuffers around surface waters. Many gas producing states have had manifest systems in place fordecades to track waste, including wastewater, if moved offsite from a natural gas drilling operation.SEAB (the Shale Gas Production Subcommittee of the Secretary of Energy Advisory Board) has called forstates to manifest all transfers of water among different locations, including measuring and recordingdata from flowback operations.Underground disposal wells: In many states, operators inject wastewater into underground geologicformations for permanent disposal. This can be the lowest cost option, but the option is region-specific.In Texass Barnett Shale, wastewater can be reinjected into permeable rock more than a mile under-ground. Injection is not feasible in much of the Marcellus Shale region, however, because operatorshave not identified any formation with sufficient porosity and permeability to accept large quantities ofwastewater. Underground disposal also has recently been linked to small earthquakes. Although avail-able data is insufficient to conclusively make a connection, state regulators have asked companies todiscontinue use of specific wastewater disposal wells. (See Box 8: Earthquakes, above.) 25

26. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Water impoundments in the Marcellus Shale. Source: www.marcellus-shale.usEvaporation pits and/or containment pits: Some companies use pits, ponds or holding tanks to storewastewater or drilling mud and cuttings before they are disposed of or reused. (Pits also are used tostore freshwater for drilling and fracking.) In some instances, operators dig drilling waste pits and thenbury them. In arid regions companies use open pits and tanks to evaporate liquid from the solid pollu-tants. Full evaporation ultimately leaves precipitated solids that must be disposed in a landfill. Thesesolids are regulated under Resource Conservation and Recovery Act (RCRA) subtitle D and classified asnonhazardous waste, although as noted earlier the NRDC has petitioned the EPA to regulate them as ahazardous waste. The waste typically goes to industrial landfills that test it prior to accepting it. Statesusually require pits to be built to specifications that include ground compaction, multiple, heavy wallliners, monitoring methods to detect leakage and stormwater control measures. In fall 2011, somewastewater ponds in Pennsylvania overflowed as a result of Tropical Storm Lee. Environmentalists alsoare concerned that evaporative pits may allow air emissions of volatile organic compounds and otherpollutants. In addition, birds and wildlife, and sometimes domesticated animals like cattle, mistake the-se pits for freshwater sources. Mitigation and innovation—Companies increasingly are replacing open pits with closed-loop fluidsystems that keep fluids within a series of pipes and watertight tanks inside secondary containment.(Operators also are increasingly using closed-loop systems for drilling waste and related fluids.) Somestates, such as New York, are proposing to ban open containment. Additional measures include estab-lishing setback requirements for open pits, measuring the composition of wastewater stored in evapora-tive ponds for appropriate disposal or treatment since contaminants and radioactivity can become moreconcentrated as water evaporates, and placing a fence around open pits to keep them off limits to ani-mals.Recycling: The opportunities for recycling wastewater differ substantially among the various shaleplays. In the Eagle Ford Shale area in Texas, very little, if any, water is returned from the well after hy-draulic fracturing. In contrast, from 20 to 50 percent of the fracturing fluid is produced as flowback wa-ter in the Marcellus Shale, where disposal options are limited. As a result, producers in Pennsylvania’s 26

27. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Marcellus Shale reuse on average nearly 60 percent of their recovered water in new fracking jobs, andthis percentage is expected to increase, according to the Marcellus Shale Coalition’s website. RangeResources reports saving $200,000 at each well by recycling 100 percent of its flowback water in its coreoperating area in southwestern Pennsylvania. Chesapeake Energy reports annual savings of $12 millionfrom recycling wastewater in the Marcellus Shale. Typically, recycled wastewater is treated and thenmixed with freshwater and chemical additives to the achieved desired characteristics for the frackingfluid.Some companies, including ones in areas of high volume operations such as the Permian Basin of westTexas and southeast New Mexico, may recycle produced water from conventional wells and dispose offrack flowback, given that frack flowback can be more costly to treat for reuse. The availability of dis-posal wells and produced water will influence the level of frack fluid recycling. Disposal costs (includingtransport) in Texas are lower than disposal costs in Pennsylvania. Therefore, treatments to recyclefracking fluid make economic sense in Pennsylvania but not in Texas.In addition to being a more costly option, recycling wastewater typically produces sludge that can con-tain a variety of chemicals, salts and radioactive materials and other contaminants. Companies mustdispose of this material as a solid waste. Mitigation and innovation—Companies can use a growing suite of onsite wastewater recyclingtechnologies. General Electric unveiled a mobile evaporator in September 2010 that can be used on siteto recycle wastewater, and Siemens offers a FracTreat™ mobile wastewater treatment system. Inaddition, Integrated Water Technologies developed the FracPureTM treatment process in January 2011designed to treat 100 percent of flowback water to drinking water quality. Ecosphere Technologies’oxidation technology offers companies a chemical-free alternative to recycling high volumes of water,and WaterTectonics uses an electric coagulation treatment system to avoid the use of chemicals.In another form of recycling, some operators are selling briny wastewater to communities to spread onroads both for de-icing in the winter and dust suppression in the summer. Environmentalists questionwhether contaminants are in the wastewater, but states like West Virginia and Pennsylvania and indus-try sources do not believe these concerns are warranted.Wastewater treatment: In October 2011, some well operators in Pennsylvania, Colorado and Oklahomawere sending shale gas wastewater off-site for treatment prior to both surface discharge and reuse,according to an EPA press release (elucidated by Si2 communication with the EPA). Treatment of shalegas wastewater became an issue in 2011 in Pennsylvania, which has limited wastewater disposal op-tions. Companies were sending wastewater to municipal wastewater treatment plants, which treatedthe water and then discharged it into rivers that supply drinking water to Pittsburgh, Harrisburg, Balti-more and Philadelphia. Media reports, most prominently a series of articles in The New York Times,raised concerns that these publicly operated plants were neither designed nor capable of removing drill-ing waste contaminants. In March 2011, the EPA sent a letter to environmental officials in Pennsylvanianoting data that indicated “variable and sometimes high concentrations of materials that may present athreat to human health and aquatic environment, including radionuclides, organic chemicals, metals andtotal dissolved solids” and urged the state to increase monitoring, especially for radionuclides. In April,concerns about elevated levels of bromide, a salt, in state waterways led Pennsylvania regulators to re-quest that companies stop sending wastewater to municipal treatment plants that may not be equippedto treat it. Companies operating in the Marcellus Shale discontinued this practice within two days of thestate’s request, according to the Marcellus Shale Coalition. Mitigation and innovation—Currently, a small number of municipal and commercial facilities inPennsylvania have been approved to treat shale gas wastewater for recycling, according to the Marcel-lus Shale Coalition. More plants, purpose-built for the task by private industry, are planned. In October 27

28. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si22011, the EPA announced plans to develop national pretreatment standards. Shale gas wastewaterwould have to meet those standards before going to a treatment facility and being discharged into sur-face waters. Current thinking is that the standards would be applicable beginning in 2015. (See the sec-tion on Federal Regulation for more, pp. 32-34).Chemical and fuel spillsThe potential for spills exists when companies transport, store and mix chemicals into the fracking fluidor when they transport, store or use fuel on-site. Chemicals generally are stored in tanks at the drillingsite before use.Mitigation and innovation: The greatest reduction in this risk would result from all chemical additivesbeing nontoxic and nonhazardous. Worker training and contractor training and management also areimportant factors in reducing spills and detecting leaks. Additional measures include use of dry chemicaladditives, secondary containment structures for all fracturing additive containers and staging areas andcollision-proof totes.FissuresBecause shale gas formations typically are separated from the freshwater table by several thousand feetof impermeable rock, fissures in the shale formation created in a well-designed fracturing process arehighly unlikely sources of contamination of either fracking chemicals or methane. However, such con-tamination is not impossible, particularly in less typical geologic formations. In December 2011 the EPAreleased preliminary findings that link chemicals in Pavillion, Wyoming’s drinking water to hydraulic frac-turing, although the situation differs from most shale gas development underway today. The wells inquestion are shallow vertical wells drilled only about 1,220 feet into sandstone in close proximity todrinking water wells. Another complicating factor is old wells drilled 40 years ago that may be allowingseepage into the water supply. The stock of Encana, which drilled the wells, dropped more than 6 per-cent in response to the EPA’s findings.Mitigation and innovation: In general, mitigation involves avoiding areas susceptible to such fissure-related contamination. Measures to do so include evaluation of stratigraphic confinement before drill-ing the well; designing the hydraulic fracturing treatment with sophisticated computer modeling soft-ware; and using technologies like periodic microseismic surveys to confirm the accuracy of the hydraulicfracturing design and that hydraulic fracture growth is limited to gas producing formations. Companiesalso conduct area reviews to identify manmade features, such as abandoned gas or water wells, whichcould serve as conduits for gas.Air QualityShale gas development can result in numerous air emissions, including volatile organic compounds(VOCs); air toxics, such as benzene, ethyl benzene, and n-hexane; and methane, the primary constituentof natural gas. (Methane is a greenhouse gas more than 20 times more potent than carbon dioxide, ac-cording to the EPA.) VOCs contribute to the formation of ozone or smog, which is linked to a wide rangeof health effects, including aggravated asthma, increased emergency room visits and hospital admis-sions, and premature death. Air toxics are known, or suspected, to cause cancer and other serioushealth effects.The EPA estimates that the oil and natural gas industry is the largest industrial source of VOC emissionsand that oil and natural gas production and processing accounts for nearly 40 percent of all U.S. me-thane emissions, making the industry the nation’s single largest methane source. The accuracy of theEPA’s estimates is the subject of much debate among federal and state regulators, certain environmen- 28

29. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2tal groups and the natural gas industry. (See the section below on Mitigation and Innovation, p. 30, andthe section on Greenhouse Gas Emission Estimates for more on this issue, pp. 39-41.)Well completions: Some of the largest air emissions in shale gas development can occur as fracturedwells are being prepared for production. During a stage of well completion that generally lasts fromthree to 10 days, fracturing fluids, water from the shale formation and gas come to the surface at highvelocity and volume. This mixture can include a high volume of VOCs and methane, along with air tox-ics. Because the gas/liquid separator used for normal well flow is not designed for these high liquid flowrates and three-phase (gas, liquid and solid) flow, a common practice has been to separate the gas fromthe fluids and flare (burn) the gas. Flaring gas eliminates most methane, VOC and hazardous air pollu-tants, but flaring also releases carbon dioxide and other pollutants to the atmosphere. In some situa-tions, operators simply vent the gas, which results in methane emissions. Methane venting is still donein exploration wells when no pipeline connection is in place, but it is rarely done in development wells.Increasingly, companies are using reduced emissions completions (RECs), also known as “reduced flaringcompletions” or “green completions.” In these cases, companies bring portable equipment on-site toseparate the gas from the solids and liquids produced during the high-rate flowback, and produce gasand heavier hydrocarbons that then can be treated and sold.Wet gas, which can come up with oil and contains less methane and more liquid hydrocarbons, can posea larger air toxics problem than the dry gas being extracted from the shale gas formations that are thefocus of this report. The U.S. Energy Information Administration reported that more than one-third ofNorth Dakota’s 2011 natural gas production, primarily in the Bakken Shale oil play, was flared or other-wise not brought to market because of insufficient natural gas pipeline capacity and processing facilities.Additional sources: Other processes and equipment also can emit VOCs, methane and/or air toxics.These include field compressors and compressor stations, which move gas along the pipeline; pneumaticcontrollers, which are automated instruments used at wells, gas processing plants and compressor sta-tions to maintain conditions such as liquid level, pressure or temperature; storage tanks and pits; natu-ral gas processing plants; and leaks in the pipelines. In addition, drilling is an energy-intensive business;diesel engines and generators provide power to the drilling rigs and other onsite equipment that runaround the clock. Diesel also fuels the numerous heavy trucks carrying freshwater, chemicals, waste-water and equipment to and from the site.Local effects: Significant air quality impacts from oil and gas operations in Wyoming, Colorado, Utah andTexas are well documented, and air quality issues are of increasing concern in the Marcellus region aswell, according to SEAB, a board advising the Secretary of Energy on shale gas production. Emissions arean issue in the Dallas-Fort Worth area of Texas, which sits on the Barnett Shale. In December 2011, theEPA added Wise and Hood Counties to the Dallas-Fort Worth nonattainment area for failing to meetfederal ozone standards. The EPA attributed a high growth of emissions in Wise County “in large part togrowth in emissions from Barnett Shale gas production development, but also due to growth in pop-ulation." The EPA also attributed the growth in Hood County’s emissions to oil and gas development.Also in December 2011, the EPA notified Wyoming that it supports the state’s 2009 recommendation todesignate the Upper Green River Basin in southwest Wyoming as an ozone nonattainment area. In2009, the Green River Basin’s Sublette County, a sparsely populated county with two of the nation’s topproducing natural gas fields, failed to meet federal standards for air quality. In spring 2011, ozone levelsregistered higher than any recorded in the prior year in Los Angeles. Air emissions from gas operationscontribute to ozone creation, which is brought on by a combination of Sublette County’s bright sun-shine, snow on the ground and temperature inversions during winter months. 29

30. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Mitigation and innovation—For the first time, the EPA has proposed air regulations for new wellsthat are hydraulically fractured as well as for additional oil and gas facilities. (See the section on FederalRegulation, p. 32.) If fully implemented, the EPA estimates that its regulations would produce an indus-try-wide 25 percent reduction in VOCs, a 26 percent reduction in methane, and a nearly 30 percent re-duction in air toxics. A key feature of the EPA’s proposal is use of reduced emissions completions (RECs)noted above. The EPA estimates that use of RECs reduces VOC emissions from completions of hydrau-lically fractured wells by 95 percent, and that methane emissions also would be significantly reduced.Some states, such as Wyoming and Colorado, require green completions in certain circumstances. Anumber of companies, including Devon Energy and WPX Energy, (formerly Williams Cos.), are voluntari-ly using this process through the EPA’s Natural Gas STAR program.The EPA further estimates that the industry can recover its costs in about 60 days for RECs, and withinabout one year for other emission reduction equipment. Industry takes issue with the EPA’s estimates,arguing that (among other issues) the agency has overestimated emission rates, underestimated currentuse of the RECs and underestimated the full cost of RECs, including manpower and equipment costs.The American Petroleum Institute, for instance, estimates that the average cost per ton of VOCs withoutassociated sales from the flowback is $33,748, versus the EPA’s estimate of $1,516; the average cost perton of VOCs with sales is $27,579, versus the EPA’s net gain of $99; and the overall cost to the industryfor doing RECs in 2015 would be $782.6 million versus the EPA’s benefit estimate of $20.2 million. Be-cause companies have not been reporting data on fugitive emissions, it is difficult to assess actual emis-sion rates and how widely RECs are used. Initiatives are underway to fill this void, however. In responseto EPA’s proposed air regulations, industry is gathering industry-wide air emissions data and plans torelease a report in the near future. New greenhouse gas reporting rules also should start producing rel-evant data in 2012. (See the section on Federal Regulation, p. 32.) To date, companies have had littleeconomic incentive to capture methane emissions. California is the only state planning to place a priceon greenhouse gas emissions, and no national cap-and-trade program is on the horizon.Other measures companies can take to reduce air emissions are minimizing truck traffic; installing low-bleed and no-bleed pneumatic devices; stepping up leak detection, including the use of infraredtechnology; implementing repair programs that aggressively seal condensers, pipelines and wellheads;installing vapor recovery units on storage tanks; and reducing the use of diesel engines for surfacepower and replacing them with natural gas engines or electricity, where available. 30

31. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 II. Regulatory OversightFederal, state and local laws affect each step of the drilling and fracking process. Regulations and relat-ed policies are changing as the fracking process comes under increased scrutiny by legislative bodies,federal and state environmental agencies, industry, environmental organizations, the media and thegeneral public. The federal government has exerted limited oversight of oil and gas development, in-cluding shale gas development, with most authority to regulate these operations vested in state oil andgas regulatory programs. The New York Times notes that parts of at least seven of 15 federal environ-mental laws that regulate most other heavy industries do not have authority over natural gas drilling.Recently, however, the federal government has announced several proposals to increase its oversight ofshale gas-related activities. At the same time, the federal government and individual states are allstruggling with budget deficits, making it extremely difficult to fund current oversight and enforcementactivities, let alone keep pace with burgeoning gas development. In addition, even when regulators findviolations, the resulting financial penalties often are too small to act as an economic deterrent.Regulation at what level? Ongoing debate exists over whether the states or the federal governmentshould be taking the lead in overseeing shale gas operations. Those in favor of state-led oversight arguethat state authorities are better positioned to account for issues concerning unique geological and hy-drological characteristics and other local factors that vary significantly throughout the country. Stateregulators also typically have on-site experience with fracturing sites in their area. In 2009, theGroundwater Protection Council surveyed the regulatory frameworks of 27 states, representing nearlyall U.S. oil and natural gas production, and concluded that “state oil and gas regulations are adequatelydesigned to directly protect water resources through the application of specific programmatic elements,such as permitting, waste handling, well construction, well plugging, and temporary abandonment re-quirements.” Supporters of state-led oversight also say that state regulators can respond more quicklyto changing developments and point out that there are many examples where a state already has im-plemented recommendations of SEAB, a board advising the Secretary of Energy on shale gas production.Others, including environmental groups, would like more natural gas activities to be regulated underfederal law. They would like to see more uniformity in government standards and question whetherstates are up to the task of regulating such a rapidly growing industry. They point out that state regula-tion is uneven and, in some instances, weak. Moreover, depending on whether the impacts focus on air,water or land, the stringency of regulations can vary within a state. Some also argue that states de-pendent on the oil and gas industry as an anchor of their economy may be reluctant to impose morestringent rules on the industry.State RegulationsDespite the debate, it seems likely states will continue to take the regulatory lead over shale gas devel-opment given the current political climate. Shale gas development continues to spread, drawing newstates into the mix. In October 2011, the Groundwater Protection Council counted 32 gas-producingstates. Most states experiencing the shale boom either are reviewing or revising their regulations andpermitting requirements. Many also are raising permit fees and considering enacting or raising impactfees or taxes to generate revenue to fund additional oversight positions at environmental agencies.Several nonprofit organizations are working to strengthen state regulations. The State Review of Oil andNatural Gas Environmental Regulations (STRONGER) assists states in documenting environmental regu-lations associated with natural gas exploration, development and production. STRONGER posts com-pleted state reviews on its website. It also developed hydraulic fracturing guidelines in February 2010 31

32. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2that outline the key elements of effective state oil and gas environmental regulatory programs and es-tablish environmental goals or objectives for those programs. The guidelines do not establish specificnumerical criteria or prescriptive regulatory standards for states, given that the “states vary too much inclimate, geology, hydrology, topography, and other factors to be amenable to one‐size‐fits‐all regula-tion.” Additional working groups include the Interstate Oil and Gas Compact Commission (IOGCC) andthe Groundwater Protection Council, which in addition to overseeing the FracFocus disclosure websitehas developed a Risk Based Data Management System that helps states collect and publicly share dataassociated with their oil and gas regulatory programs.Evaluation of state regulations by investors is no easy task. Some 32 states have distinct regulatoryframeworks, and authority for regulating shale-related gas development activities, such as drilling per-mits, wastewater disposal and air emissions, typically is drawn from several different statutes and regu-lations within each state. Responsibilities often lie with more than one state agency. Oklahoma is at-tempting to collate its regulations for hydraulic fracturing activities into one source, but is unique in thisendeavor.Proposed Federal RegulationFollowing are proposals and new rules to exert additional federal authority through laws or regulationsrelating to shale gas development. (Initiatives by the Obama Administration are describe in Box 10, p. 35.)EPA’s Proposed Air RegulationsIn July 2011, the Environmental Protection Agency (EPA) proposed the first federal air standards for newwells that are hydraulically fractured, existing wells that are fractured or refractured and additional oiland gas facilities, such as compressors, pneumatic controllers and storage vessels. Up to now, the EPAhas only promulgated New Source Performance Standards for natural gas processing plants. The EPAsays its proposal is based on proven technology and best practices that the oil and gas industry is usingin some states today. The proposal, slated for release in a final rule in April 2012, includes four air regu-lations for the oil and natural gas industry: 1) a new source performance standard for VOCs; 2) a new source performance standard for sulfur dioxide; 3) an air toxics standard for oil and natural gas production; and 4) an air toxics standard for natural gas transmission and storage.As noted earlier, industry strongly disputes the EPA’s emissions estimates and emission reduction costs.Conversely, a coalition of 13 environmental groups says a major limitation is that the proposal does notaddress many existing sources, such as conventional gas or oil wells, even though existing sources areresponsible for the lion’s share of emissions. These environmental groups also say the EPA has failed todirectly regulate additional pollutants emitted by the industry, including methane, particulate matter,hydrogen sulfides and nitrogen oxides. (The EPA estimates methane will be reduced as a collateral ben-efit of regulating VOCs.) SEAB also stressed the need for the EPA to directly control methane emissionsand for the new rules to encompass existing sources.GHG reporting rules: In a related development, gas companies will begin reporting additional green-house gas (GHG) emissions data to the EPA by September 2012. In November 2010, the EPA finalizedreporting requirements for the oil and natural gas industry under its Greenhouse Gas ReportingProgram. The 2010 ruling expanded the scope of existing reporting requirements to include fugitive andvented greenhouse gas emissions beginning in January 2011. As a result, for the first time under the 32

33. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Clean Air Act, thousands of small facilities will have to be counted in the pollution reporting inventory.This final rule requires petroleum and natural gas facilities that emit 25,000 metric tons or more of car-bon dioxide (CO2) equivalent per year to report annual methane (CH4) and CO2 emissions from equip-ment leaks and venting, and emissions of CO2, CH4, and nitrous oxide (N2O) from gas flaring and onshorepetroleum and natural gas production combustion emissions, as well as from combustion emissionsfrom stationary equipment involved in natural gas distribution.Because most producers do not normally track the information the EPA requires for this rule, the EPA isallowing operators to use "Best Available Monitoring Methods (BAMM)" for 2011 data. BAMM includesupplier data, monitoring methods currently used by the facility that do not meet the relevant parts ofthe EPA’s rule, engineering calculations, and/or other company records. To continue to use BAMM for2012 data and beyond, however, operators must submit extension requests to the EPA. Environmentalgroups see substantial verification problems with BAMM.Safe Drinking Water Act (SDWA)This act regulates the process for disposing of wastewater, or flowback, in underground geologic for-mations known as disposal wells. The SDWA does not have authority to regulate hydraulic fracturing,however, including pumping fracking fluids into a natural gas well, except if they contain diesel. Under-ground injection of flowback for disposal is regulated either through the EPA’s Underground InjectionControl (UIC) program or by a state granted primary UIC enforcement authority by the EPA.Proposed diesel guidance: The EPA has authority to regulate fracturing when diesel is used and for thefirst time is developing permitting guidance for oil and gas hydraulic fracturing activities that use dieselfuels in fracking fluids. The EPA held a public comment period in fall 2011 and is expected to issue a fi-nal guidance in early 2012. The EPA then will have to develop implementation rules in states, such asPennsylvania and New York, where it implements the UIC program. The 33 states that have primary en-forcement authority for the UIC injection program also will have to develop their own rules to imple-ment the EPA guidance. As a result, implementation could easily take until late 2012. A key issue is howbroadly the EPA will define diesel. Drillers are concerned it will include the chemical constituents thatmake up diesel and therefore capture a wide array of petroleum-based solvents used in fracturing.Some companies have used diesel fuel in hydraulic fracturing fluids as a solvent and dispersant, althoughthe number is in decline. Cost-effective substitutes are available, but diesel is convenient to use in thefield because it is already present for use as fuel for generators and compressors. In 2003, major opera-tors involved in coal bed methane development signed a memorandum of agreement with the EPAagreeing to eliminate diesel fuel when conducting hydraulic fracturing operations near undergroundsources of drinking water.Proposed FRAC Act: In March 2011, U.S. Sen. Robert Casey (D-Pa.) reintroduced the Fracturing Respon-sibility and Awareness of Chemicals Act (S. 587/H.R. 1084), or FRAC Act, which would expand the EPA’sauthority under the Safe Drinking Water Act to regulate the underground injection of fracturing fluids.In addition, the bill would require companies to publicly disclose chemicals in their fracking fluids, in-cluding identification of the chemical constituents of mixtures, Chemical Abstracts Service numbers foreach chemical and constituent, material safety data sheets when available, and the anticipated volumeof each chemical to be used. A Senate subcommittee of the Committee on Environment and PublicWorks held hearings on the bill in April 2011. 33

34. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Clean Water Act (CWA)The Clean Water Act establishes the National Pollutant Discharge Elimination System (NPDES) permit pro-gram; it controls water pollution by regulating point sources that discharge pollutants into the nation’swaters. In most cases, the NPDES permit program is administered by authorized states. The EPA has ju-risdiction over stormwater discharges from construction activities at oil and gas exploration and produc-tion operations only if the stormwater runoff is contaminated with oil, grease or hazardous substances.Proposed standards: In October 2011, the EPA announced its intent to solicit comments in 2014 onnatural gas wastewater standards it plans to develop for shale gas and coal bed wastewater before itgoes to a treatment facility. Noting that it reviewed data that documented "elevated levels of pollutantsentering surface waters as a result of inadequate treatment at facilities,” the EPA is concerned that“some shale gas wastewater is transported to treatment plants, many of which are not properlyequipped to treat this type of wastewater.”Department of InteriorThe U.S. Department of the Interior announced in October 2011 that it will issue rules on hydraulic fractur-ing on public lands, particularly well integrity standards and disclosure requirements for fracking fluids. Box 9: Upcoming Reports, Legislation and Decisions to Watch Environmental Protection Agency:  A two-year EPA study to assess the impacts of hydraulic fracturing on drinking water and ground water. Initial research results will be available in fall 2012 and the full report is planned for release in 2014.  New air regulations slated for completion in April 2012.  Proposed hydraulic fracturing wastewater regulations scheduled to be announced in 2014.  Final permitting guidance for the use of diesel in fracking fluids expected in early 2012. State/regional developments:  The public comment period on New York State Department of Environmental Conservation’s (DEC) revised draft Supplemental Generic Environmental Impact Statement (SGEIS) ended Jan. 12, 2012. Drilling permits for high volume hydraulically fractured wells have been deferred since December 2010 until the final SGEIS’s completion.  New York State attorney general’s office could release of information acquired through subpoenas sent to oil and gas companies in 2011 seeking disclosures on well productivity and risks of hydraulic fracturing.  The Delaware River Basin Commission’s (DRBC) first rules regulating natural gas drilling will be considered at a special meeting, but no date has been set. In November 2011, the DRBC canceled its third attempt to vote on the proposed rules. Approval would mean lifting a de facto drilling moratorium in the Delaware River Watershed that has been in place since May 2010.  The Maryland Department of Environment will complete a two-year review in 2013. Drilling permits have been deferred until its completion.  New Jersey’s one-year moratorium on fracking operations ends in August 2012. SEC investigations: The SEC could release information acquired through subpoenas or comment letters sent to natural gas companies in 2011. FRAC Act: Sen. Robert Casey (D-Pa.) introduced the Fracturing Responsibility and Awareness of Chemicals Act (S. 587/H.R. 1084), known as the FRAC Act, in March 2011. The act would expand EPA’s authority to regulate the underground injection of fracturing fluids and require public disclosure of fracking fluid chemicals. The bill is sitting in subcommittees of the Senate Environment and Public Works Committee and the House Energy and Commerce Committee. No further action is scheduled as of February 2012. 34

35. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Box 10: Obama Administration ActionsThe Obama administration has spearheaded three research efforts related to shale gas development:Shale Gas Production Subcommittee: President Obama’s ”Blueprint for a Secure Energy Future,” issued inMarch 2011, presented a two-fold charge to U.S. Energy Secretary Steven Chu with respect to fracking. The firstwas to issue an interim report identifying immediate steps that could be taken to improve the safety and envi-ronmental performance of fracking. The second was to develop consensus recommended advice to federal andstate agencies on practices for shale extraction to ensure the protection of public health and the environment.Accordingly, a Shale Gas Production Subcommittee of the Secretary of Energy Advisory Board (SEAB) issued aninterim report in August 2011 and a final report in November 2011. John Deutch, an institute professor at theMassachusetts Institute of Technology and a former director of the Central Intelligence Agency and deputy de-fense secretary led the seven-member subcommittee.Both the interim and final report call for greater regulatory oversight and for the industry to provide more dataon overall operations. The interim report included 20 recommendations with the objective of continuous im-provement in reducing the environmental impact of shale gas production, while the final report focused on therecommendations’ implementation. The final report noted that progress in implementing its recommendedmeasures “is less than the Subcommittee hoped” and cautioned that “whether its approach is followed or not,some concerted and sustained action is needed to avoid excessive environmental impacts of shale gas produc-tion and the consequent risk of public opposition to its continuation and expansion.”The reports call for, among other things, the assessment of baseline water quality conditions before drillingstarts, disclosure of the composition of drilling wastewater and measurement of air emissions, especially me-thane, associated with the drilling process. The reports also recommend stronger standards for well construc-tion and wastewater management and call for the creation of a national database of public information on shalegas operations. The reports also urge the natural gas industry to help create a national organization, with exter-nal stakeholders, that is dedicated to continuous improvement of best practices for extracting shale gas.EPA study: In March 2010, the EPA announced that it would undertake a comprehensive two-year study to as-sess the impacts of hydraulic fracturing on drinking water and ground water at the request of the U.S. House ofRepresentatives Appropriations Conference Committee and the White House. Initial research results will beavailable in fall 2012 and the full report is planned for release in 2014. The EPA announced its final research planin November 2011, following a series of public meetings across the nation and review by the Science AdvisoryBoard, an independent panel of scientists. The final study plan looks at the full cycle of water in hydraulic frac-turing, from the acquisition of the water, through the mixing of chemicals and actual fracturing, to the post-fracturing stage, including the management of flowback and produced or used water as well as its ultimatetreatment and disposal. Earlier in 2011, the EPA announced its selection of locations for five retrospective andtwo prospective case studies. The five retrospective sites are in the Barnett Shale in Wise County, Tex.; the Mar-cellus Shale in Bradford and Susquehanna Counties, Pa., as well as Washington County, Pa.; the Bakken Oil Shalein Killdeer and Dunn Counties, N.D.; and the Raton Basin, Colo. The two prospective sites are in the HaynesvilleShale in DeSoto Parish, La., and the Marcellus Shale in Washington County, Pa.At present, the federal Safe Drinking Water Act does not directly oversee underground injection of fracking fluidsor propping agents (other than diesel fuels) related to gas production. In 2004, the EPA released a study,Evaluation of Impacts to Underground Sources of Drinking Water by Hydraulic Fracturing of Coalbed MethaneReservoirs: National Study Final Report, that found “’the injection of hydraulic fracturing fluids into CBM [coal-bed methane] wells poses minimal threats to USDWs [underground sources of drinking water].’”Prudent Development: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources wasdeveloped by the National Petroleum Council (NPC) at the request of Secretary of Energy Dr. Stephen Chu. TheSeptember 2011 report suggests that “natural gas is a good near-term answer for reducing America’s carbonfootprint.” It reviews the North American natural gas supply chain and infrastructure potential, the contributionof natural gas to a low-carbon energy portfolio, strategies to mitigate environmental impacts of increasedproduction and the role of technology in developing reserves. 35

36. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Box 11: Showcase of Three StatesNew York, Pennsylvania and West Virginia each have handled the surge in shale gas development differently.New York: New York is in the midst of a de facto ban on high volume hydraulic fracturing for shale gas that beganin December 2010. Former Governor David Patterson vetoed a six-month ban on hydraulic fracturing passed bythe New York legislature, but instead issued an Executive Order that defers the issuance of any permits for highvolume hydraulic fracturing operations until the completion of the New York State Department of EnvironmentalConservation’s (DEC) Supplemental Generic Environmental Impact Statement (SGEIS). The DEC released a draftSGEIS on shale gas development in September 2009 and then a revised draft in September 2011, along with a sup-plemental analysis of community and socioeconomic impacts. A comment period extended through Jan. 12, 2012.The DEC is proposing to allow hydrofracking on most private land but not on state land or inside New York City’supstate watershed or a watershed used by Syracuse—the only unfiltered supplies of municipal water in the state—and in primary aquifers. Other draft recommendations would not allow surface impoundments for flowback waterand would require an additional string of cemented well casing (intermediate casing) to prevent the migration ofnatural gas, as well as a new permit process requiring strict stormwater control measures, a special permit towithdraw large volumes of water, tracking of drilling and production waste and full analysis and state and federalapprovals before a water treatment facility could accept flowback water. Proposed buffers around New York’swaterways are as much as 20 times larger than in neighboring Pennsylvania.Pennsylvania: Pennsylvania has seen a dramatic rise in the number of shale gas wells drilled in the last few years.Companies have applied for more than 9,500 well permits in the Marcellus Shale since 2005, and more than 4,200wells have been drilled. In contrast to New York, Pennsylvania never stopped drilling on private land, and a defacto ban on state land instituted by then-Governor Edward Rendell (D) in October 2010 was rescinded in February2011 by newly-elected Governor Tom Corbett (R).Governor Corbett also immediately began development of a Marcellus Shale Proposal, creating an advisory Com-mission that issued 96 recommendations in July 2011. In October 2011, Governor Corbett announced a plan toimplement many of the recommendations, including changes to enhance environmental standards and a drillingimpact fee. Environmentalists widely criticized the plan, saying the proposed impact fee is too low and the regula-tions fall well short of protecting the commonwealths water and air resources. Pennsylvania is one of the onlymajor drilling states not to impose an extraction tax on shale gas. Accepted recommendations also include in-creasing well set-back requirements, increasing well bonding amounts, doubling penalties for violations, and ex-panding the distance and duration of an unconventional gas operator’s “presumed liability” for impairing waterquality.West Virginia: In December 2011, the West Virginia legislature passed a regulatory package to address horizontaldrilling in the state’s Marcellus Shale. The new law replaces an emergency rule that went into effect in August2011 that allowed drilling to continue but added additional permitting and operational requirements in responseto an executive order by Governor Earl Ray Tomblin (D). The new measures increase permit fees from around$400 to $10,000 for an initial well, and to $5,000 for each additional well at that site. New wells must be kept 250feet from a water well, 300 feet from a natural trout stream, 625 feet from occupied houses and 1,000 feet from apublic water supply intake. The new measure also includes prior notice provisions to both mineral and surfaceowners, and a new compensation statute for surface owners, in part to address issues that have arisen when sur-face owners do not own mineral rights beneath their land. (See Box 4: Access Rights Can Lead to Conflict, p. 16.)Environmental groups said the setback provisions are insufficient, while industry said the fees are too high.The law affects well sites that disturb three acres or more or use more than 210,000 gallons of water during anyone-month period. The legislation includes provisions for the West Virginia Department of Environmental Protec-tion (WVDEP) to promulgate further rules in the near term regarding air quality and well cementing and casingissues. The measure also codifies water use and wastewater handling regulations in place. In January 2010, theWVDEP had issued a permit addendum requiring operators planning to use more than about 200,000 gallons ofwater to detail in advance their expected volumes, sources and disposal methods. In March 2010, the WVDEP alsobegan requiring post-use reporting. 36

37. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 III. Key Accounting IssuesReserve and Production EstimatesNatural gas reserves are central to assessing a gas company’s value. The U.S. Securities and ExchangeCommission (SEC) requires companies to report on proved reserves—the quantities of oil and naturalgas companies estimate they can recover from known reservoirs under existing economic conditions,operating methods and government regulations. Drilling results, production and historical trends de-termine these amounts. At present, the Modernization of Oil and Gas Reporting rules released in De-cember 2008 by the SEC govern the way companies should report their oil and gas reserves. In October2009, the SEC’s Division of Corporation Finance issued Compliance & Disclosure Interpretations to clarifythe new rules. These rules require disclosing oil and gas proved reserves by significant geographic areawhen such reserves represent more than 15 percent of total proved reserves.Forecasting reserves is an imperfect science that becomes even more imperfect when tapping a relative-ly new and unconventional resource that lacks historical data. The ultimate size of technically recovera-ble shale gas resources is uncertain, and estimates will change as additional information is gainedthrough experience. Because most shale gas wells are only a few years old, their long-term productivityis untested. Production in emerging shale plays has concentrated on areas with the highest known pro-duction rates, and many shale plays are so large that most of the play has not been extensively tested.Production rates achieved to date may not be representative of future production rates across the for-mation. The Energy Information Agency (EIA) reports that experience to date shows production ratesfrom neighboring shale gas wells can vary by as much as a factor of three, and that production rates fordifferent wells in the same formation can vary by as much as a factor of 10. In comparison to conven-tional natural gas development, where unsuccessful exploration can turn up dry holes, the risk of notfinding shale gas decreases, but the risk associated with well productivity goes up. Most gas companiesestimate that production will drop sharply after the first few years but then level off, allowing mostwells to produce gas for decades.Natural gas prices also have significant implications for estimating accessible reserves, yet the price ofgas has been notoriously unstable, as witnessed by the swing from $13 per million BTU in July 2008 toaround $2.50 per million BTU in February 2012. In 2011 the EIA revised its methodology for determiningnatural gas prices to better reflect a decoupling of oil and natural gas prices, in part because of the in-crease in U.S. shale gas supply and improvements in natural gas extraction technologies. The regulatoryenvironment, driven by environmental impacts, also can lead to increased costs or limits on productivitythat affect future reserve estimates. On the positive side, technological developments and increasedunderstanding of a shale’s characteristics are likely to improve future production and bring down costs,as well as decrease uncertainty in estimates.The New York Times reports: In June 2011, The New York Times published several articles not onlyquestioning government and corporate reserve estimates, but also whether corporations were knowing-ly overbooking their reserves. The paper claimed that interviews with employees and internal emailsand documents indicated companies were purposefully slow to incorporate new productivity and costdata into their estimates. The Times reported that wells were not performing as well as expected andthat data and industry analysts suggested that less than 20 percent of the area heralded by companiesas productive in the Barnett, Haynesville and Fayetteville Shales was likely to be profitable under currentmarket conditions. The Times said: The data show that while there are some very active wells, they are often surrounded by vast zones of less-productive wells that in some cases cost more to drill and operate than the gas they 37

38. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 produce is worth. Also, the amount of gas produced by many of the successful wells is falling much faster than initially predicted by energy companies, making it more difficult for them to turn a profit over the long run.Industry groups, such as Energy in Depth, and others, including Forbes magazine and investment ana-lysts, refuted The New York Times articles. The New York Times even included two Op-Eds criticizing thearticles by its Public Editor, whose role is to respond to complaints and comments from the public andmonitors the papers journalistic practices. Nonetheless, as discussed below, federal lawmakers calledon several agencies, including the SEC, the EIA and the Government Accountability Office, to investigatewhether the natural gas industry has provided an accurate picture to investors of the long-term profita-bility of their wells and the amount of gas these wells can produce. In addition, the New York attorneygeneral also is conducting a broad investigation.SEC actions: In June 2011, Rep. Maurice Hinchey (D-N.Y.), a senior member of the House AppropriationsCommittee, sent a letter to the SEC calling for an investigation into whether investors have been “inten-tionally misled” and questioning whether companies “may be taking advantages of loopholes in SECregulations to artificially inflate estimates of their gas reserves.” The letter further asked the SEC toconsider updating its reporting requirements to require companies to reveal the methodologies andtechnologies they use to develop reserve estimates and to require third-party reserve audits. Subpoenas—In summer 2011, the SEC issued subpoenas to at least two shale gas producers—Quicksilver Resources and ExCO Resources—requesting information about proved reserve estimatesfrom shale gas wells and the actual productivity of producing shale wells. Quicksilver’s June 2011 10-Qnoted that the SEC informed both companies that a number of other shale gas producers had receivedsimilar subpoenas and that the SEC’s investigation arose out of recent press reports questioning the pro-jected decline curves and economics of shale gas wells. Comment letters—On another front, the staff of the SEC’s Division of Corporation Finance issuedcomment letters focusing on fracking to companies as part of their reviews of registration statementsand other filings. Letters sent in summer 2011 requested additional disclosure on a number of issues. Asampling of requests in the comment letters was provided in an analysis by the law firm Covington &Burling, LLP (emphasis added):  expanded disclosure of the company’s use of hydraulic fracturing, including identifying the locations where it is used and acreage or reserves with which hydraulic fracturing is associated;  disclosure of whether the company has been cited, found in violation of, or sued for issues relating to the company’s hydraulic fracturing operations (including the circumstances of any such actions, the company’s response, and penalties assessed);  expanded discussion of risks related to possible changes in applicable laws related to hydraulic fracturing;  disclosure of the costs and funding associated with hydraulic fracturing operations;  disclosure regarding the steps the company has taken to minimize potential environmental impacts from its hydraulic fracturing operations;  disclosure of contractual provisions that might subject the company to environmental-related damages or that would indemnify the company for such amounts, and risks for which the company is insured, related to its hydraulic fracturing operations;  identifying for the staff chemicals used in the company’s fracking fluid; and  providing the staff with information regarding the amount of water used in the hydraulic fracturing process.The SEC also asked some oil and gas companies in summer 2011 to reduce the number of years theypredict their shale gas wells will produce, according to The New York Times.New York actions: As part of another investigation into whether energy companies have accurately de-scribed to investors the prospects for their shale gas wells, New York attorney general Eric Schneider- 38

39. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2man issued subpoenas in the summer of 2011 to three energy companies—Range Resources, Cabot Oil& Gas and Goodrich Petroleum. The subpoenas requested documents and information regarding thecompanies’ shale and unconventional reservoir reserves calculations. The subpoenas also focused onpossible discrepancies between what companies have told investors about natural gas well performanceand costs and what is revealed in their federal filings, sources told The New York Times. Schneidermanreportedly also asked Chesapeake Energy to respond to similar questions.The attorney general is using a New York law called the Martin Act that gives him broad powers overbusinesses and allows him to obtain and publicly disclose an unusual amount of information. The lawhas been used as a tool in other instances to gather information and increase public disclosure. Schnei-derman also has used the Martin Act to investigate major Wall Street banks involved in the mortgage-backed securities crisis and other accusations of financial impropriety. In 2002, Former New York attor-ney general Eliot Spitzer used the law to investigate Wall Street firms, including Merrill Lynch and Salo-mon Smith Barney, and in 2007 former New York attorney general Andrew Cuomo used the law to sub-poena energy companies about potential financial liabilities related to climate change. Cuomo reachedsettlement agreements with subpoenaed companies that called for additional public disclosure, and in2010 the SEC issued interpretive guidance clarifying disclosure requirements that apply to climatechange.Earlier, in June 2011, Schneiderman subpoenaed companies—Talisman, Chesapeake Energy, EOG Re-sources, Baker Hughes and Anadarko—to obtain documents related to disclosures on the risks of hy-drofracking, according to the Times.Greenhouse Gas Emission EstimatesNatural gas when burned emits less than half the level of GHGs as coal, and two-thirds the level of pe-troleum, per BTU. However, some recent life-cycle analyses (LCA) that look beyond combustion arefinding a larger GHG footprint for natural gas than previously estimated. Factors affecting these anal-yses include an increase in fugitive emissions estimates and higher estimated GHG emissions from shalegas production than from conventional gas production. In addition, methane—the primary componentof natural gas—is of growing concern given the projected rise in natural gas production and revisedemissions estimates by the U.S. Environmental Protection Agency (EPA). Methane is more than 20 timesmore potent a greenhouse gas (GHG) than carbon dioxide, the primary emission when coal is burned.At the same time, industry and others strongly dispute the EPA’s new estimates of methane emissionsand disagree that shale gas prodution has higher methane emissions, saying researchers using suchestimates are reaching inaccurate conclusions.A September 2011 study by the National Center for Atmospheric Research concluded that a greaterreliance on natural gas in place of coal would fail to significantly slow down climate change, citing thecomplex and sometimes conflicting ways in which fossil fuel burning affects the earth’s climate.These competing analyses highlight the need for more publicly available methane emissions data fromnatural gas production and more detailed analysis of life-cycle emissions. Scientists and policymakersacknowledge that a lack of data hinders conclusive analysis. SEAB, a board advising the Secretary of En-ergy on shale gas production, recommended in August 2011 that immediate steps be taken to gatherbetter data and conduct a federal analysis of lifecycle greenhouse gas footprint of shale gas operationsin comparison to other fuels. As noted in the section on Proposed Federal Regulations, the EPA’s GHGreporting rules will help shed light on this issue by producing new data in 2012 on emissions in the natu-ral gas industry. In addition, the EPA’s proposed air standards for new natural gas wells should codifysome emission reduction practices that many in industry say are already widely used today. 39

40. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Following is a brief description of recent reports related to shale gas’s carbon advantage.EPAIn April 2011, the U.S. Environmental Protection Agency reported a very substantial increase in itsmethane emissions estimate from U.S. natural gas systems. The increases largely are from changes inmethodology and the addition of unconventional (largely shale) gas well completions and workovers(when major maintenance or remedial treatments of wells occur). The EPA released revisedmethodologies for estimating fugitive methane emissions from natural gas systems as part of the re-lease of its Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2009. The agency revised itsmethodologies for gas well cleanups and condensate storage tanks, and used new data sources for cen-trifugal compressors with wet seals, unconventional gas well completions and unconventional gas wellworkovers. The net effect of these changes was an increase in total estimated methane emissions fromnatural gas systems of between 46.5 and 119.7 percent each year between 1990 and 2008, resulting inan overall annual average increase of 66.4 percent, or 79.3 million metric tons. The EPA estimates U.S.natural gas systems emitted a total of 221.1 million metric tons of carbon dioxide equivalent in 2009.Industry and reports, including one by IHS Cambridge Energy Research Associates, have challenged theEPA’s estimates, saying they are overstated and not reflective of current industry practices.Cornell studyCornell professor Robert Howarth published a paper in April 2011 in the journal Climatic Change con-cluding that the carbon footprint for shale gas is greater than that for conventional gas or oil whenviewed on any time horizon, but particularly over 20 years, given that methane has a shorter atmos-pheric lifetime than CO2. More importantly, “Compared to coal, the footprint of shale gas is at least 20percent greater and perhaps more than twice as great on the 20-year horizon and is comparable whencompared over 100 years,” stated Howarth. He estimates up to eight percent of the methane fromshale gas production escapes to the atmosphere in venting and leaks over the lifetime of a well, an esti-mate which is at least 30 percent greater, and perhaps more than twice as great, as fugitive emissionsfrom conventional gas. The study’s findings have been widely refuted, with critics pointing in large partto underlying low quality data and significant overestimations of fugitive emissions.NCARA study released in September 2011 by Tom Wigley, a senior research associate at the National Centerfor Atmospheric Research (NCAR), found that greater reliance on natural gas in place of coal would failto significantly slow down climate change. The report’s computer simulations indicate that a worldwide,partial shift from coal to natural gas would slightly accelerate climate change through at least 2050,even if no methane leaked from natural gas operations, and through as late as 2140 if there were sub-stantial leaks. After that, the greater reliance on natural gas would begin to slow down the increase inglobal average temperature, but only by a few tenths of a degree. Wigley’s new study incorporates thecooling effects of sulfur particles associated with coal burning and analyzed the climatic influences ofmethane, which affects other atmospheric gases such as ozone and water vapor.DB Climate Change AdvisorsDB Climate Change Advisors, part of Deutsche Bank, in collaboration with Worldwatch Institute and ICFInternational, published a research note in August 2011 that compared life-cycle GHG emissions from 40

41. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2natural gas and coal. The authors concluded that “while our LCA finds that the EPAs updated estimatesof methane emissions from natural gas systems do not undercut the greenhouse gas advantage ofnatural gas over coal, methane is nevertheless of concern as a GHG, and requires further attention.”The report noted that several recent bottom-up life-cycle studies, including the Carnegie Mellon analysisnoted below, had found the production of a unit of shale gas to be more GHG-intensive than that ofconventional natural gas. The report added that “if the upstream emissions associated with shale gasproduction are not mitigated, a growing share of shale gas would increase the average life-cyclegreenhouse gas footprint of the total U.S. natural gas supply.”Carnegie Mellon UniversityAn August 2011 Carnegie Mellon University study concluded that GHG emissions from Marcellus Shalegas used to generate electricity would be 20 to 50 percent lower than those for coal (in the absence ofany effective carbon capture and storage processes) when estimating the life-cycle greenhouse gasemissions of the two fossil fuels over 100 years. Published in the peer-reviewed journal EnvironmentalResearch Letters, the study found that shale gas emissions represented an 11 percent increase in GHGemissions relative to average domestic gas (excluding combustion) and a 3 percent increase relative tothe life-cycle emissions when combustion is included. The authors noted, however, that there issignificant uncertainty in their Marcellus shale GHG emission estimates because of eventual productionvolumes and variability in flaring, construction and transportation. 41

42. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 IV. Shareholder Campaign on HydrofrackingThe shareholder campaign on hydraulic fracturing will enter its third year in the 2012 proxy season. For2012, an investor coalition led by the Investor Environmental Health Network (IEHN) (comprised of so-cially responsible investing firms with an aggregate of more than $30 billion in assets under manage-ment) and Green Century Capital Management filed 10 proposals seeking increased disclosure on com-panies’ hydraulic fracturing activities. (See Table 1 for a full listing of 2012 resolutions.) In 2010 and2011, the investor coalition filed 22 similar proposals. (See Table 2 for a full listing of 2010 and 2011resolutions.)The campaign reflects an in-creasing desire from investors Table 1: 2012 Hydraulic Fracturing Disclosure Resolutionsfor additional information fromcompanies and has produced Company Primary Proponent Mtg/Statusboth unusually high votes and Anadarko Petroleum Trillium Asset Management Maymany agreements between Chesapeake Energy Mercy Investment June Chevron Sisters of St. Francis Maycampaigners and companies EOG Resources Green Century Capital Management withdrawnabout more disclosure. The ExxonMobil As You Sow Foundation Mayfive resolutions that came to a Noble Energy Green Century Capital Management Aprilvote in 2011 received the most Penn Virginia Miller/Howard Investments withdrawnsupport of any environmental Range Resources New York State Common Retirement Fund Mayissue raised in the 2011 proxy Stone Energy Miller/Howard Investments Mayseason, and the most con- Ultra Petroleum As You Sow Foundation Maysistent support for any environmental issue, ever. All but one of the five earned more than 40 percentsupport of the shares voted for and against the proposals. In 2010, the resolutions received an averageof 30 percent support—a strong showing for a first year resolution.In 2010 and 2011, the proponents withdrew another nine resolutions, generally after companies agreedto fuller disclosure. The proponents note that companies now report in much greater detail in their se-curities filings than they did when the campaign began two years ago.Dialogue between companies and investors: In parallel with the shareholder campaign and starting in2010, Boston Common Asset Management, a socially responsible mutual fund, organized a series ofmeetings with investors, Apache and other companies about risks, best practices and disclosure forhydraulic fracturing operations. This dialogue resulted in a set of recommendations that the IEHN andthe Interfaith Center on Corporate Responsibility (ICCR) issued in December 2011, Extracting the Facts:An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations. (See Box 12, p. 45, for moreon this report.)Proponents’ ObjectivesThe coalition of investors led by IEHN and Green Century Funds included the New York State CommonRetirement Fund, the As You Sow Foundation, Miller/Howard Investments, Trillium Asset Management,the Park Foundation, Boston Common Asset Management, affiliates of ICCR, First Affirmative FinancialNetwork, the Shareholder Association for Research & Education, Pax World Management and theSustainability Group.The 2010 and 2011 proposals were nearly identical in terms of what actions they requested manage-ment to take. A sample resolution asked for: 42

43. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 1. Known and potential environmental impacts of the company’s fracturing operations; and 2. Policy options for our company to adopt, above and beyond regulatory requirements and our companys existing efforts, to reduce or eliminate hazards to air, water, and soil quality from fracturing operations.Proponents also asked a handful of companies for managements evaluation of the potential magnitudeof material risks, short and long term, that this issue may pose to the companys finances or operations.The proponents rec-ommend that compa- Table 2: 2010-2011 Hydraulic Fracturing Disclosure Resolutionsnies explore efforts Votes (11)such as reducing toxici- Status/ty of fracturing chemi- Company Year Primary Proponent Vote (%)cals, recycling Cabot Oil & Gas 2010 New York State Common Retirement Fund 35.9%wastewater, monitor- Carrizo Oil & Gas 2011 New York State Common Retirement Fund 43.7%ing water quality prior Chesapeake Energy 2010 Green Century Capital Management 25.4% Chevron 2011 Sisters of St. Francis 40.4%to drilling and institut- Energen 2011 Miller/Howard Investments 49.4%ing cement bond log- EOG Resources 2010 Green Century Capital Management 30.9%ging. They also believe 2010 26.2% ExxonMobil As You Sow Foundationthat given contamina- 2011 28.1%tion incidents and the Ultra Petroleum 2010 Green Century Capital Management 21.2%regulatory morass of 2011 As You Sow Foundation 41.7% Williams Companies 2010 Green Century Capital Management 41.8%weak and uneven con- Withdrawn or Omitted (11)trols, companies must Anadarko Petroleum 2011 Trillium Asset Management withdrawntake measures above Cabot Oil & Gas 2011 New York State Common Retirement Fund withdrawnand beyond regulatory 2010 El Paso Miller/Howard Investments withdrawnrequirements to reduce 2011environmental hazards Energen 2010 Miller/Howard Investments withdrawn EQT 2010 Miller/Howard Investments omittedto protect their own Hess 2010 New York State Common Retirement Fund withdrawnlong-term financial in- Range Resources 2010 New York State Common Retirement Fund withdrawnterests. Compliance SM Energy 2011 New York State Common Retirement Fund withdrawnwith existing regulation Southwestern Energy 2011 Domini Social Investments withdrawnhas become insuffi- no mtg XTO Energy 2010 New York State Common Retirement Fundcient, say the propo- (merger)nents.Company ResponsesInitially, most of the companies challenged the resolutions at the SEC in 2010, arguing they could be ex-cluded under the “ordinary business” provision of the Shareholder Proposal Rule and for other reasons.Aside from an omission due to insufficient proof of stock ownership, the SEC disagreed in every case.The SEC’s 2010 decisions affirmed a new policy announced in fall 2009 that says proposals related tofinancial implications of environmental risks cannot be excluded automatically on ordinary businessgrounds. The following year, the SEC continued to favor disclosure, rejecting ExxonMobil’s challenge—the only challenge on substantive grounds in 2011—that it already had substantially implemented theproposal by including a special section on drilling and fracking in its most recent Corporate CitizenshipReport. The commission staff decided that ExxonMobil’s “practices and policies do not compare favora-bly with the guidelines of the proposal.” The commission staff had made a similar determination in2010 with respect to Chesapeake Energy, which not only addresses the issue on its website but has cre- 43

44. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2ated a website devoted to this issue. Chesapeake had also challenged the resolution on “ordinary busi-ness” grounds.As noted above, 11 resolutions went to a vote, while proponents withdrew nine resolutions, includingseven in response to corporate commitments, typically to increased disclosure. For those resolutionscoming to a vote, most companies stated that drilling and fracking poses no significant risks to the envi-ronment, noting that they operate in a highly regulated industry. Some added that management is re-sponsible for evaluating and responding to operational, financial and litigation risks, as well as the envi-ronmental impact of the company’s operations. Some companies also said that information on hydrau-lic fracturing already is available, including on their websites. Thus, preparing the requested reportwould be a significant and burdensome undertaking and waste of corporate resources, they argued.Carizzo Oil & Gas also argued that providing additional information about its hydraulic fracturing opera-tions would put it at a competitive disadvantage. 44

45. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Box 12: Sample Best Practices Companies are employing best practices in many instances. In addition, industry, government, environmental groups and shareholder proponents are promoting best practices. In December 2011, the Investor Environ- mental Health Network and the Interfaith Center on Corporate Responsibility published Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations. The guide offers best practice recommendations to energy companies for reporting and reducing risks and impacts related to shale gas operations using hydraulic fracturing. The American Petroleum Institute developed a set of five documents highlighting best practices and providing guidance for risk management associated with hydraulic fracturing. The areas covered include well construction and integrity, water management, mitigation of surface impacts, isola- tion of potential flow zones during construction and environmental protection of onshore oil and gas production operations. The EPA’s Natural gas STAR program encourages natural gas companies to adopt cost- effective technologies and practices that improve operational efficiency and reduce emissions of methane. Because of the rapid technological and production advances underpinning shale gas development, however, some best practices will become obsolete. Moreover, the regional diversity of shale gas formations does not lend itself to prescriptive lists of operational best practices. Companies need to make a commitment to the process of continuous improvement—supported and overseen at the highest management levels—to prevent and mitigate environmental and social impacts and their associated risks. To follow is a sampling of measures companies are taking to minimize the impacts of shale gas development:  Well integrity (cementing and casing)—Southwestern Energy is developing model well integrity standards with the Environmental Defense Fund.  Baseline water testing—Hess had a baseline water testing radius of 5,000 feet for three exploratory wells in the Marcellus Shale. Anadarko Petroleum samples water wells within 2,500 feet of drilling locations in Pennsylvania. A third party verifies the results, which are shared with landowners. Cabot Oil & Gas has similar practices.  Recycling wastewater—Range Resources, Cabot Oil & Gas, Chesapeake Energy and WPX Energy recycle all, or nearly all, of their flowback water in certain Marcellus Shale operations.  Closed-loop drilling fluid systems—All of ExxonMobil’s drilling rigs in the Marcellus region use closed loop drilling fluid systems and have eliminated drilling pits.  “Green” fracturing fluids—Baker Hughes, Halliburton and Frac Tech each have produced a line of environmentally-friendly fracking fluids.  “Green completions”—Williams Cos. and Devon Energy use special equipment to separate gas and liquid hydrocarbons from flowback as part of the EPA’s Natural Gas STAR program.  Leak detections—Anadarko Petroleum and Southwestern Energy report using specialized infrared cameras to detect fugitive air emissions.  Notices of violations—Talisman posts details about its Notices of Violation in Pennsylvania. While this information is available on the state’s website, Talisman provides easy access as well as a chart that describes how Talisman is responding to the violations.  Contractor management—Cabot Oil & Gas has a two-page Question and Answer document on its Contractor Management Program on its website.  Reduced truck traffic—Apache and EnCana reduced truck traffic by roughly 60 to 80 percent in Cana- da’s Horn River Basin. They use brine water from an on-site formation in a closed loop fracturing system and transport sand by rail.  Switching from diesel fuel to natural gas or electric to power drilling rigs—In July 2011, Chesapeake Energy announced it was converting at least 100 of its drilling rigs and all of its planned hydraulic fracturing equipment to run on LNG. 45

46. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Appendix I: Company ProfilesAppendix 1 includes a sampling of 10 companies involved in shale gas development in the Marcellus,Haynesville, Barnett and/or Fayetteville Shales. Si2 chose the following firms because they illustrate dif-ferent levels of involvement in shale gas development—characteristics that have a significant impact oninvestors’ assessments of the risks and opportunities firms present.  Two of the companies—ExxonMobil and Chevron—are among the “Big 5” major integrated oil and gas companies. ExxonMobil became the nation’s largest U.S. natural gas producer in 2010 when it acquired XTO Energy, while Chevron boosted its capacity with the February 2011 pur- chase of Atlas Energy.  At the other end of the spectrum, Carrizo Oil & Gas is the smallest (with revenues of less than $140 million) of the 10 profiled companies, but derived nearly 90 percent of its natural gas production from the Barnett Shale in 2010.  Similarly, Southwestern Energy pioneered development of the Fayetteville Shale and derived nearly 90 percent of its U.S. natural gas production from that play in 2010.  Both Chesapeake Energy, the nation’s second largest producer of natural gas, and Range Re- sources, which was the first to apply modern drilling technologies to the Marcellus Shale, also are heavily vested in shale gas development. The four shale gas plays examined in this report represented 60 percent or more of their U.S. natural gas production in 2010.  In contrast, Anadarko Petroleum and WPX Energy (the former exploration and production business of Williams Cos.) are active in shale gas development even though their reserves in one or more of these four plays represented 5 percent or less of their total U.S. proved natural gas reserves in 2010.  Hess is an interesting company in that it has been stymied from developing its acreage in the Marcellus Shale because of a drilling moratorium in the Delaware River Basin, but it nonetheless has been proactive in developing mitigation measures and reporting on them to shareholders and the public.  Finally, Cabot Oil & Gas derived nearly 40 percent of its U.S. natural gas production from the Marcellus shale in 2010 and was the best performing energy stock in the S&P 500 in 2011.Profile sections: Each company profile provides:  a brief company description,  a snapshot of a companys level of involvement in the four shale gas plays named above,  disclosure of associated risks and mitigation measures,  board oversight,  a company’s track record in this area, and  shareholder activity.Descriptions and sources of information for each of the six sections included in the company profilesfollow. Si2 provided each company with an opportunity to provide clarifying comments on its profilebefore publication; Anadarko Petroleum, Cabot Oil & Gas, Chevron and Hess declined. 46

47. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Notes on Company ProfilesThe profiles begin with a summary that includes a brief description of a company’s operations, identifies its prima-ry U.S. onshore natural gas operations and lists its revenues and number of employees as an indicator of size.Sources: Form 10-Ks, annual reports, company websitesU.S. Shale Gas Reserves and Natural Gas ProductionU.S. shale gas locations (net acres): Identifies acreage in four shale gas plays: Marcellus, Haynesville, Barnett andFayetteville. See Box 1: Key U.S. Shale Gas Plays (p. 7) for more information on each of these plays. (In some in-stances, the Haynesville Shale is referred to as the Haynesville/Bossier Shale; the Bossier Shale lies above theHaynesville Shale.)U.S. proved natural gas reserves (billions of cubic feet): Represents all U.S. proved natural gas reserves (conven-tional and unconventional). Companies commonly measure natural gas in billions of cubic feet (Bcf) and millionsof cubic feet per day (MMcf/d). One billion cubic feet is approximately equal to one trillion British thermal units(BTU).% shale gas reserves: Indicates the percentage of the company’s total proved reserves in the Marcellus, Haynes-ville, Barnett and/or Fayetteville Shales. U.S. Securities and Exchange Commission rules require companies to dis-close oil and gas proved reserves by significant geographic area when such reserves represent more than 15 per-cent of total proved reserves. For larger companies, this means their securities filings may not contain informationidentifying their reserves in specific plays, even though they may have substantial holdings there.U.S. natural gas production (Bcf & million cubic feet/day): Represents total 2010 U.S. natural gas production.% produced from shale gas reserves: Indicates the percentage produced from Marcellus, Haynesville, Barnettand/or Fayetteville Shale reserves in 2010.Second quarter 2011 (MMcf/d): Total U.S. natural gas production in the second quarter of 2011 compared toproduction a year earlier; these figures indicate a company’s gas production trend.Sources (for all but Second quarter 2011): Form 10-Ks, websites or company communications. Data is as of Dec.31, 2010, unless otherwise noted.Source for Second Quarter 2011: Natural Gas Supply Association’s “Top 40 Natural Gas Producers Second Quarter2011”Public Disclosure of Risks/Mitigation This section assesses a company’s disclosure of risks and pre-vention or mitigation measures associated with its shale gas Regulatory Risks Identified Chemical Restrictionsdevelopment. Water Disclosure Air on DrillingRisk Identification FederalForm 10-K/10-Qs: Provides a summary description of risks Stateidentified in annual (10-K) and quarterly (10-Q) securities fil-ings.Identification of risks: Yes/No; if yes, the profile notes if the risks identified are regulatory, financial and/or legal.The accompanying table identifies the specific type of regulatory risk the company identifies, if any, and whether itassociated the regulatory risk with the state or federal government. 47

48. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Additional Company Communications Company discusses prevention orDiscussion of mitigation measures: Yes/No; if yes, the mitigation measures relating to:profile notes the extent of a company’s discussion, Water delivery Fracking fluid toxicitywhich Si2 characterizes as extensive, moderate or lim- Fresh water storage Solid waste storageited. The accompanying table identifies specific pre-ventive or mitigation measures the company discusses Wastewater storage Chemical storagein one or more of the following communications. For Wastewater recycling Spill preventionthe first three (annual report, sustainability/EHS re- Wastewater disposal Air emissionsport and website), a summary description of any dis- Baseline water testing Surface disturbanceclosure appears; for voluntary reporting, each profile Well integrity evaluation Fuel switchingindicates where the disclosure can be found. Contractor oversight Truck traffic/road wear  2010 annual report Noise Community engagement  Sustainability/Environmental Health and Safety (EHS) report  Website  Voluntary disclosure of chemicals in fracking fluid: Disclosure falls into three categories: 1. Company reports only chemicals determined to be hazardous by Occupational Safety and Health Ad- ministration (OSHA) and includes proprietary exemptions 2. Company reports all chemicals added to fracking fluid and includes proprietary exemptions. 3. Company reports all chemicals added to fracking fluid and does not have any proprietary exemptions. States require different levels of disclosure, and companies often comply with disclosure requirements state-by-state. As a result, a company may provide a higher level of disclosure in one state than another. This report does not identify the company as complying with the highest level of disclosure unless it does so throughout its operations. (See Box 6, p. 22, for more on disclosure of chemicals in fracking fluids.)  Voluntary posting of violations  Voluntary reporting of greenhouse gas emissionsBoard OversightThis section identifies oversight of risk management and/or environmental responsibilities at the board of direc-tors’ level, indicating which board committee is responsible in each case.Sources: Proxy statements or company websites unless otherwise noted.Violations/Fines/LitigationThis section provides an indication of a company’s track record in shale gas development, although the emphasis ison the Marcellus Shale. While the report covers four shale gas plays, data on violations is most readily available inPennsylvania. Similarly, media coverage, including that from grassroots sources, of violations and fines is mostrobust for the Marcellus.Marcellus Shale wells drilled: The Pennsylvania Department of Environmental Protection’s (PaDEP) Office of Oiland Gas Management reports on the number of wells drilled by each operator on an annual basis. The 2011 WellsDrilled By Operator as of 11/30/2011 report, the most recent available, has data through November 2011. ThePADEP is revamping its website and the 2010 and 2009 “Wells Drilled by Operator” reports Si2 used for these pro-files no longer appear on its website as of January 2012. The reports are slated to be reposted, and in the mean-time data can be aggregated through the PaDEP’s SPUD Data Report, which shows the "Spud date" (the date drill-ing began), as reported by the operator to a state oil & gas inspector. 48

49. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Marcellus Shale violations: The PaDEP also Recent Marcellus Shale Wells & Violationsposts inspections, violations and enforcements in Wells Inspec- Violations Enforce-the Marcellus Shale. The PADEP issues violations Drilled tions Total EH&S Adm. mentsin two categories: 1) administrative and 2) envi- 2009ronmental, health and safety (EH&S). The PaDEP 2010designations make a distinction between those 2011*violations that represent a failure to comply witha rule with no actual or potential impact to the Totalenvironment (Administrative) and those viola- *Wells through Nov.; inspections, violations and enforcements through Oct. Source: Pennsylvania Department of Environmental Protectiontions of a rule that have an actual or greater po-tential to affect the environment (EH&S). If a company does not address a violation within a designatedtimeframe, the PaDEP then issues an enforcement action against the company.Si2 used a report that aggregated data by company for these company profiles, but as of January 2012 it is nolonger available on the PaDEP’s website. Instead, the PaDEP has a new Oil and Gas Compliance Report that showsall inspections that resulted in a violation or enforcement action assigned by the Oil and Gas Program.Sources: Form 10-Ks, Form 10-Qs, media reports, Pennsylvania Department of Environmental ProtectionShareholder ActivityIn 2010 and 2011, an investor coalition led by the Investor Environmental Health Network (IEHN) and Green Centu-ry Capital Management filed 22 proposals seeking increased disclosure on companies’ hydraulic fracturing activi-ties, and particularly efforts to mitigate environmental impacts. Investors have filed additional proposals for con-sideration in the 2012 proxy season, as noted in Section IV above (pp. 42-44) on the shareholder campaign. Thissection identifies shareholder resolutions filed at a profiled company, as well as the outcome or status of the reso-lution and the primary filer.Sources: Sustainable Investments Institute (Si2) and the Investor Environmental Health Network 49

50. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Anadarko Petroleum Corp.Anadarko Petroleum is among the world’s largest independent oil and natural 2010 revenues $10.8 billion*gas exploration and production companies. In 2010, natural gas represented 56 2010 employees 4,400percent of Anadarko’s product mix. The company operates worldwide, although *Anadarko noted in its 2010its U.S. operations accounted for 89 percent of both total sales volumes and total annual report that a “significantproved reserves in 2010. Anadarko’s U.S. assets include positions in onshore portion of our record sales vol-resource plays in the Rocky Mountains region, the southern United States and umes and reserve growth result-the Appalachian basin. Anadarko is focusing on liquids-rich opportunities, and in ed from accelerated activity in our U.S. onshore shale plays.”2010 the Marcellus Shale was the only major area where Anadarko continued todrill solely for dry natural gas, citing the “proximity to premium markets that further enhance the already robusteconomics of the play.” In early 2010, Mitsui & Co. agreed to fund up to $1.5 billion of Anadarko’s share of capitalexpenditures in the Marcellus Shale to earn a 32.5 percent interest in its Marcellus shale assets. In June 2011, NewYork attorney general Eric Schneiderman subpoenaed Anadarko, along with four other companies, to obtain doc-uments related to disclosures on the risks of hydrofracking, according to The New York Times. U.S. Shale Gas Reserves and Natural Gas Production Shale Gas Locations Proved Natural Gas Reserves Natural Gas Production (net acres) (billions of cubic feet) Total 8,117 Bcf 2010 Bcf 829 Bcf* Developed 5,982 Bcf 2010 million cubic ft/day 2,272 MMcf/d*Marcellus 330,000 Undeveloped 2,135 Bcf #Haynesville 80,000 % produced from shale gas NA % shale gas <3.5% Q2 2011 2,326 MMcf/d** Q2 2010 2,324 MMcf/d**Data as of Dec. 31, 2010 unless otherwise noted *Sales of natural gas **Source: NGSA # Gross production in Marcellus of 330 MMcf/d in Dec. 2010, up from 40 MMcf/d in Jan. 2010.Public Disclosure of Related Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: The 2010 10-K has one paragraph ad-dressing risks of a possible amendment to the federal Safe Regulatory Risks IdentifiedDrinking Water Act. The June 2011 10-Q and Sept. 2011 Chemical Restrictions10-Q have four paragraphs outlining risks, primarily possi- Water Disclosure Air on Drillingble environmental regulations, specific to hydraulic frac- Federal X X Xturing; this discussion also notes that members of Con- State X Xgress have called on the SEC to investigate “any possiblemisleading of investors or the public regarding the economic feasibility of pursuing natural-gas deposits in shalesby means of hydraulic fracturing, and the U.S. Energy Information Administration to provide a better understand-ing of that agency’s estimates regarding natural-gas reserves, including reserves from shale formations, as well asuncertainties associated with those estimates.” Identification of risks—Yes; regulatory risk are discussed in the 2010 10-K and regulatory, financial and legalrisks are discussed in the 2011 10-Qs.Additional Company CommunicationsDiscussion of mitigation measures: Yes; extensive2010 annual report: Incorporates the 2010 Form 10-K. No additional discussion beyond the risks mentioned above. 50

51. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si22011 EHS brochure: No discussion of risks/mitigation. Company discusses prevention orWebsite: Anadarko has four pages on its web site mitigation measures relating to:addressing hydraulic fracturing of shale gas. A section Water delivery X Fracking fluid toxicityon “safeguarding water” discusses pressure testing Fresh water storage X Solid waste storage Xand cement logging of wells, pipelines and temporarystorage systems for freshwater, a closed loop drilling Wastewater storage X Chemical storageprocess, wastewater storage in steel tanks and Wastewater recycling X Spill prevention Xwastewater recycling. The company notes an award Wastewater disposal Air emissions Xfor its water management system in Utah that creates Baseline water testing X Surface disturbance Xtemporary staging sites on existing well pads that Well integrity evaluation X Fuel switchingtreat recycled flowback water for reuse and move thefiltered water directly to the next operation via tem- Contractor oversight Truck traffic/road wear Xporary pipelines. These pipelines minimize additional Noise Community engagementsurface disturbance, truck traffic and associated emis-sions. Anadarko also has a four-page question and answer piece on fracking, which discusses the measures aboveas well as baseline water testing, spill prevention and efforts to reduce air emissions, including infrared cameras todetect fugitive emissions, pipeline construction, equipment consolidation and scheduling arrangements that re-duce the need for trucks. Lastly, Anadarko has a two-page fact sheet on the Marcellus Shale that repeats some ofthese measures.Voluntary disclosure of chemicals in fracking fluid (by individual well): Yes; FracFocus. Company complies withstate requirements; it includes proprietary exemptions and does not always disclose all non-proprietary chemicals.Voluntary posting of violations: NoVoluntary reporting of greenhouse gas emissions: Yes; websiteBoard OversightBoard committee with environmental responsibilities: None specifically disclosed.Board committee with risk management oversight responsibilities: The Audit Committee reviews and discusseswith management significant financial risk exposures, and the steps management has taken to monitor and miti-gate such exposures. In addition, to facilitate oversight of potential risk exposures that have not been specificallydelegated to any board committee, the board periodically meets with members of an Internal Risk Council to re-view and assess the company’s risk-management process and to discuss significant risk exposures.Violations/Fines/LitigationAmong Anadarko’s violations was a spill of 8,000 Recent Marcellus Shale Wells & Violationsto 12,000 gallons of synthetic-based mud in a Wells Inspec- Violations Enforce-Pennsylvania state forest in March 2010. In Feb- Drilled tions Total EH&S Adm. mentsruary 2011, a truck serving an Anadarko well 2009 20 - - - - -crashed and spilled 3,400 gallons of used fracking 2010 92 44 80 34 46 13fluid. 2011* 172 27 61 33 28 5 Total 284 71 141 67 74 18Shareholder Activity *Wells through Nov.; inspections, violations and enforcements through Oct. Source: Pennsylvania Department of Environmental ProtectionIn 2011, the As You Sow Foundation withdrew ashareholder resolution asking for a report on hydraulic fracturing after the company shared a draft of planned up-dates to its website on management of related risks and agreed to continued dialogue. Trillium Asset Manage-ment has filed a hydraulic fracturing disclosure resolution for vote at Anadarko’s 2012 annual meeting. 51

52. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Cabot Oil & Gas Corp.Cabot Oil & Gas is an independent natural gas producer, with its entire resource 2010 revenues $884 millionbase located in the continental United States. The company’s reserves are fo- 2010 employees 409cused in both conventional and unconventional basins in Appalachia, the RockyMountains, the Mid-Continent and the Gulf Coast. Cabot’s activity focuses on the Marcellus Shale, where it begandrilling in 2006, and on multiple plays including the Haynesville Shale and the liquids-rich Eagle Ford Shale in Texas.In 2011, third parties agreed to fund all of the cost to drill and complete certain Haynesville and Bossier Shale wellsin exchange for a 75 percent working interest in related leaseholds. Cabot also has been divesting some of itsproperties, including some Haynesville and Bossier Shale oil and gas properties in east Texas in May 2011 for $47million. The company sold oil and gas properties in Colorado, Utah and Wyoming for $285 million in July 2011 andits Woodford shale prospect in Oklahoma for $15.9 million in June 2010. Cabot also sold its gathering infrastruc-ture in Pennsylvania in December 2010. In August 2011, the New York attorney general’s office issued Cabot asubpoena requesting documents and information regarding its shale and unconventional reservoir reserves calcu-lations. Cabot is cooperating with the attorney general’s office. U.S. Shale Gas Reserves and Natural Gas ProductionShale Gas Locations Proved Natural Gas Reserves Natural Gas Production(net acres) (billions of cubic feet) Total 2,644 Bcf 2010 Bcf 125.5 Bcf Developed 1,681 Bcf 2010 million cubic ft/day -Marcellus NA Undeveloped 963 BcfHaynesville NA % shale gas 46% + % produced from shale gas 39% (Marcellus) Marcellus 46% Q2 2011 474 MMcf/d* Haynesville NA Q2 2010 318 MMcf/d*Data as of Dec. 31, 2010 unless otherwise noted *Source: NGSAPublic Disclosure of Related Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: The 2010 10-K has one paragraph on Regulatory Risks Identifiedpotential federal and state regulations related to hydraulic Chemical Restrictionsfracturing. Cabot noted that public disclosure of the Water Disclosure Air on Drillingchemical makeup of fracturing fluids “could make it easier Federal X X Xfor third parties to initiate litigation against us in the event State X X Xof perceived problems with drinking water wells in the vicinity of an oil or gas well or other alleged environmentalproblems.” There is no discussion in the June or Sept. 2011 10-Qs. Identification of risks—Yes; regulatory, financial and legal risks are discussed in the 2010 10-K.Additional company communicationsDiscussion of mitigation measures: Yes; extensive2010 annual report: The report includes several paragraphs on community relations in Susquehanna County, Pa.Sustainability/EHS report: The company does not publish a sustainability or EHS report.Website: Cabot has a “Natural Gas Facts” section of its website that includes a hydraulic fracturing “FrequentlyAsked Questions” document, a Water Protocol document, a Contractor Management document and a rebuttal tothe documentary Gasland. Cabot also includes a “Community Outreach and Education” section of its website thatincludes numerous fact sheets on hydraulic fracturing and discusses its outreach programs.Voluntary disclosure of chemicals in fracking fluid (by individual well): Yes; FracFocus. The company includesproprietary exemptions and does not always disclose all non-proprietary chemicals. 52

53. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Voluntary posting of violations: No Company discusses prevention orVoluntary reporting of greenhouse gas emissions: No mitigation measures relating to: Water delivery Fracking fluid toxicity XBoard Oversight Fresh water storage Solid waste storage Wastewater storage X Chemical storageBoard committee with environmental responsibili- Wastewater recycling X Spill preventionties: Safety and Environmental Affairs Committee Wastewater disposal Air emissions XBoard committee with risk management oversight Baseline water testing X Surface disturbance Xresponsibilities: Audit Committee Well integrity evaluation X Fuel switching Contractor oversight X Truck traffic/road wear XViolations/Fines/Litigation Noise Community engagement XIn December 2010, Cabot Oil & Gas agreed to pay $4.1million to 19 families in Dimock, Pa., affected by methane contamination that Pennsylvania regulators attributedto faulty shale gas wells. The company maintains that the methane in Dimock water supplies occurs naturally andis not a result of its activities. Under the agreement, Cabot also offered to install whole-house gas mitigation de-vices, remediated two wells and paid the state $500,000. Previously, the company plugged and abandoned threevertical wells and brought a fourth well into compliance. In April 2010, state regulators halted Cabot from drillingin the Dimock area and also temporarily suspended review of Cabot’s pending permit applications statewide. Nodecision has been made on resumed drilling in Dimock, although the state granted Cabot’s request to stop waterdelivery to the families in November 2011. Some families appealed the December 2010 agreement to the Penn-sylvania Environmental Hearing Board, which expects to hold a hearing in 2012, and have sued Cabot. At the endof September 2011, Cabot had paid $1.3 million in related fines and penalties to the state, paid $2 million to sevenhouseholds and accrued a $2.2 million settlement liability.Between 2005 and Feb. 1, 2011, the Pennsylva- Recent Marcellus Shale Wells & Violationsnia Department of Environmental Protection Wells Inspec- Violations Enforce-(PaDEP) fined Cabot four times for a total of Drilled tions Total EH&S Adm. ments$192,000 (not including fines associated with 2009 32 - - - - -wells described above), according to an analysis 2010 47 60 113 39 74 17by the Pittsburgh Post-Gazette based on a Right- 2011* 54 58 118 53 65 14to-Know request of PaDEP fines against Marcel-lus Shale-related companies. Cabot tied for the Total 133 118 231 92 139 31sixth highest number of fines and had the fourth *Wells through Nov.; inspections, violations and enforcements through Oct. Source: Pennsylvania Department of Environmental Protectionlargest total dollar amount. Altogether, thePaDEP imposed 89 fines for a total of $2.1 million during that period, according to the analysis. The PaDEP alsoordered Cabot to suspend fracking operations for nine days in 2009 after contractors had three spills within oneweek of thousands of gallons of fracking fluids. Cabot’s September 2011 10-Q also notes that the PaDEP issued thecompany a number of Notices of Violations and that resulting fines could result in monetary sanctions in excess of$100,000.Shareholder ActivityIn 2011, the New York State Common Retirement Fund (NYSCRF) withdrew a shareholder resolution asking for areport on hydraulic fracturing in response to corporate commitments. NYSCRF brought a similar resolution to avote in 2010 that received support from 35.9 percent of the shares voted. 53

54. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Carrizo Oil & Gas Corp.Carrizo Oil & Gas is an independent energy company engaged in the explora- 2010 revenues $139.5 milliontion, development and production of oil and gas in the United States and the 2010 employees 132United Kingdom’s North Sea. The company’s operations principally are focusedin the Marcellus and Barnett Shales, the liquids-rich Eagle Ford Shale in Texas, the Niobrara Formation in Coloradoand the Huntington Field in the North Sea. In 2010, Carrizo announced a growth strategy in crude oil and liquids-rich plays, and in 2011 sold 13,000 leased acres in the Barnett Shale and reached agreements on several Eagle Fordlease purchases. Also in 2011, Carrizo expanded operations to the liquids-rich Utica Shale, holding a 10 percentinterest in a joint venture with Avista Capital Partners that acquired 15,000 net acres. Carrizo conducts a substan-tial portion of its operations through joint ventures. In the Marcellus Shale, Carrizo has a 40 percent working in-terest in a joint venture with Reliance Industries, the largest multinational company in India, and a 50 percent in-terest in a joint venture with Vista Capital Holdings. In the Barnett Shale, Carrizo has a strategic alliance with Sumi-tomo Corp. In 2010, natural gas represented approximately 80 percent of Carrizo’s proved reserves. U.S. Shale Gas Reserves and Natural Gas ProductionShale Gas Locations Proved Natural Gas Reserves Natural Gas Production(net acres) (billions of cubic feet) 1 2010 Bcf 35.7 BcfMarcellus 117,921 Total 670 Bcf 2 2010 million cubic ft/day 98 MMcf/dBarnett 44,810Fayetteville 20,000 % produced from shale gas 87% (Barnett) % shale gas 93% + Barnett 93% First six months 2011 98 MMcf/d*1 887 developed, 117,034 undeveloped *Source: Carrizo Oil & Gas2 25,595 developed, 19,215 undevelopedData as of Dec. 31, 2010 unless otherwise notedPublic Disclosure of Related Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: The 2010 10-K and June 2011 10-Q Regulatory Risks Identifiedinclude a lengthy paragraph on hydraulic fracturing fo- Chemical Restrictionscused primarily on regulatory initiatives, as well as an ear- Water Disclosure Air on Drillinglier reference to possible air emissions regulations, point- Federal X X X Xing to the Barnett Shale area as an example. The para- State X X X Xgraph includes a warning that “proposed legislation would require, among other things, the reporting and publicdisclosure of chemicals used in the fracturing process, which could make it easier for third parties opposing thehydraulic fracturing process to initiate legal proceedings against producers and service providers.” The Sept. 201110-Q includes a similar paragraph and adds information on regulatory developments in Pennsylvania. The 201010-K also discusses risks associated with acquiring adequate supplies of water. Identification of risks—Yes; primarily regulatory risks and also financial and legal risks are discussed in the 2010 10-K and 2011 10-Qs.Additional company communicationsDiscussion of mitigation measures: Yes; limited2010 annual report: The report incorporates the 2010 Form 10-K. There is no additional discussion beyond therisks mentioned above.Sustainability/EHS report: The company does not publish a sustainability or EHS report. 54

55. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Company website: Carrizo Oil & Gas has posted a Company discusses prevention orvideo on its website describing the horizontal drillingprocess. Its website also has pages dedicated to mitigation measures relating to:“Owner Relations” for property owners in the Marcel- Water delivery Fracking fluid toxicitylus and Barnett Shales that address community rela- Fresh water storage Solid waste storagetions, leasing tips and royalty checks. Wastewater storage Chemical storageVoluntary disclosure of chemicals in fracking fluid (by Wastewater recycling Spill preventionindividual well): No Wastewater disposal Air emissionsVoluntary posting of related violations: No Baseline water testing Surface disturbanceVoluntary reporting of greenhouse gas emissions: Well integrity evaluation Fuel switchingNo Contractor oversight Truck traffic/road wear Noise Community engagement XBoard OversightBoard committee with environmental responsibilities: None specifically disclosed.Board committee with risk management oversight responsibilities: None specifically disclosed.Violations/Fines/Litigation Recent Marcellus Shale Wells & Violations Wells Inspec- Violations Enforce-In response to a shareholder resolution, the Drilled tions Total EH&S Adm. mentscompany reported in its 2011 proxy statement 2009 1 - - - - -that it was not aware of any hydraulic fracturing- 2010 4 1 2 1 1 1related incidents resulting in environmental con- 2011* 44 20 34 22 12 3tamination at any of its operations. Total 49 21 36 23 13 4 *Wells through Nov.; inspections, violations and enforcements through Oct.Shareholder Activity Source: Pennsylvania Department of Environmental ProtectionA 2011 shareholder resolution asking for a report on hydraulic fracturing received support from 43.7 percent ofthe shares voted. The New York State Common Retirement Fund was the primary filer. 55

56. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Chesapeake Energy Corp.Chesapeake Energy is the second-largest U.S. producer of natural gas and a Top 2010 revenues $9.4 billion15 producer of oil and natural gas liquids. The company discovers and develops 2010 employees 10,000unconventional natural gas and oil fields onshore in the United States, and in2010 natural gas represented 89 percent of its total production. In 2010 Chesapeake announced a strategic shiftfrom focusing exclusively on natural gas to a balanced focus on natural gas and liquids. In 2011, it sold its assets inthe Fayetteville Shale to BHP Billiton Petroleum while retaining its interests in the Barnett, Haynesville/Bossier,Marcellus and Pearsall (in Texas) Shales. Since 2008, Chesapeake has entered into various joint ventures to furtherdevelop the four shale gas plays and the liquids-rich Eagle Ford Shale, Utica Shale and Niobrara play with PlainsExploration & Production, BP America, Statoil, Total and the Chinese National Offshore Oil Co. The company alsohas operations in Ohio, Texas, Oklahoma, Wyoming, Colorado and New Mexico and also owns midstream, com-pression, drilling, trucking, pressure pumping and other oilfield service assets. U.S. Shale Gas Reserves and Natural Gas ProductionShale Gas Locations Proved Natural Gas Reserves Natural Gas Production(net acres) (billions of cubic feet) Total 15,455 Bcf 2010 Bcf 924.9 Bcf Developed 8,246 Bcf 2010 million cubic ft/day -Marcellus 1,671,000 Undeveloped 7,209 Bcf 1Fayetteville 601,000 % produced from shale gas 62%  69% in Q3 2011Haynesville/ % shale gas 63% Haynesville 26%  43% Bossier 527,000 Haynesville 23% Barnett 18%  14%Barnett 217,000 Barnett 19% Fayetteville 12%  0% Fayetteville 16% Marcellus 6%  12% Marcellus 5% Q2 2011 2,575 MMcf/d* Q2 2010 2,497 MMcf/d*1 Sold to BHP Billiton Petroleum in 2011 *Source: NGSAData as of Dec. 31, 2010 unless otherwise notedPublic Disclosure of Related Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: The 2010 10-K has a short paragraph Regulatory Risks Identifiednoting the possibility of new federal, state or local laws or Chemical Restrictionsregulations related to hydraulic fracturing. There was no Water Disclosure Air on Drillingdiscussion in the June or Sept. 2011 10-Qs. Federal (specific risk areas not discussed) State Identification of risks—Yes; regulatory and financialrisks are discussed in the 2010 10-K.Additional company communicationsDiscussion of mitigation measures: Yes; extensive discussion of shale gas development; moderate discussion ofmitigation measures2010 annual report: The report notes Chesapeake’s efforts to reduce chemical additives in fracking fluids, usemulti-well padsites to reduce its footprint, eliminate soil erosion, restore local vegetation, control surface waterrunoff, recycle wastewater and generally use Best Management Practices to reduce environmental impact.Sustainability/EHS report: The company does not publish a sustainability or EHS report.Website: An “Environment” section on the company website discusses mitigation measures noted in the annualreport in more detail. Sections on water and air identify specific measures, such as “green completions” that re-duce VOCs and methane emissions, and include numerous fact sheets. The company also makes numerous fact 56

57. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2sheets, videos and animations available on the Media Company discusses prevention orsection of its website. In addition, the company has aseparate website, Ask Chesapeake, with similar infor- mitigation measures relating to:mation on its shale gas development. Water delivery X Fracking fluid toxicity X Fresh water storage X Solid waste storageVoluntary disclosure of chemicals in fracking fluid (byindividual well): Yes; FracFocus. The company dis- Wastewater storage X Chemical storagecloses all information provided by vendors, who do Wastewater recycling X Spill preventionnot always disclose all non-proprietary chemicals. Wastewater disposal X Air emissions XVoluntary posting of violations: No Baseline water testing Surface disturbance XVoluntary reporting of greenhouse gas emissions: No Well integrity evaluation X Fuel switching Contractor oversight Truck traffic/road wear XBoard Oversight Noise X Community engagement XBoard committee with environmental responsibilities: None specifically disclosed.Board committee with risk management oversight responsibilities: Management presents significant risks andpossible approaches to mitigate such risks to the full board or one or more of its three committees (Audit, Com-pensation and Nominating and Corporate Governance).Violations/Fines/LitigationIn May 2011, the Pennsylvania Department of Recent Marcellus Shale Wells & ViolationsEnvironmental Protection (PaDEP) fined Chesa- Wells Inspec- Violations Enforce-peake Energy $900,000—the single largest fine Drilled tions Total EH&S Adm. mentsever levied on an oil or gas operator in the state. 2009 96 - - - - -The PaDEP determined that Chesapeake failed to 2010 181 72 134 71 63 30prevent the migration of natural gas into the 2011* 244 81 133 69 64 12water supplies of 16 families in Bradford County.Chesapeake disagrees with the determination Total 521 153 267 140 127 42but also agreed to donate $200,000 to the *Wells through Nov.; inspections, violations and enforcements through Oct. Source: Pennsylvania Department of Environmental ProtectionPaDEP’s well-plugging fund. Separately, in May2011 the company agreed to pay a fine of $188,000 in connection with a February 2011 condensate separator tankfire at a drilling site in Washington County that injured three subcontractors.A month earlier, a Chesapeake Energy well blew out in Bradford County and spilled thousands of gallons of dilutedfracking fluids into a tributary stream; seven nearby families were temporarily relocated and the company volun-tarily suspended fracking operations for three weeks. The PaDEP has rendered findings of no impact. Chesapeakeestimates in its September 2011 10-Q that resolution of two unrelated compliance orders alleging violations of thePennsylvania Clean Streams Law “can reasonably be expected to include monetary sanctions in excess of$100,000.” Chesapeake also estimates in its 2010 10-K that resolution of an EPA compliance order related to CleanWater Act permitting requirements in West Virginia will include monetary sanctions exceeding $100,000.Litigation: Chesapeake is facing five lawsuits alleging water contamination, including a class action, as a result ofdrilling in the Barnett, Fayetteville and Marcellus Shales. Chesapeake also has been named in a class action suitalleging that disposal wells associated with shale gas development have caused earthquakes in Arkansas.Shareholder ActivityA 2010 shareholder resolution asking for a report on hydraulic fracturing received support from 25.4 percent ofthe shares voted. The primary filer was Green Century Capital Management. Mercy investment, which is affiliatedwith the Interfaith Center on Corporate Responsibility, has filed a hydraulic fracturing disclosure resolution for voteat Chesapeake Energy’s 2012 annual meeting. 57

58. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Chevron Corp.Chevron is the second largest integrated energy company in the country, and 2010 revenues $198 billionamong the largest companies in the world. Crude oil and natural gas liquids rep- 2010 employees 58,267resented nearly 70 percent of Chevron’s production in 2010, including in theUnited States, which represents about one-quarter of Chevron’s oil & gas production. Chevron has been buildingits gas reserves recently, most notably with the $4.5 billion acquisition in February 2011 of Atlas Energy, which had486,000 net acres in the Marcellus Shale and 623,000 net acres in the Utica Shale. As part of the deal, Chevronalso acquired a 49 percent interest in a venture with Williams Cos. that owns intrastate and natural gas gatheringlines in the Marcellus region, and a 60 percent interest in a joint venture with Reliance Industries, a major drillingcontractor. Since then, Chevron has acquired additional acreage in the Marcellus Shale, including from Chief Oiland Gas and Tug Hill. In 2010 and 2011, Chevron also acquired shale gas acreages in Canada and licenses in EasternEurope. U.S. Shale Gas Reserves and Natural Gas ProductionShale Gas Locations Proved Natural Gas Reserves 1 Natural Gas Production(net acres) (billions of cubic feet) Total 2,472 Bcf 2010 Bcf - Developed 2,113 Bcf 2010 million cubic ft/day 1,314 MMcf/dMarcellus 700,000+ Undeveloped 359 BcfHaynesville 70,000+ % produced from shale gas NA % shale gas NA Q2 2011 1,299 MMcf/d* Q2 2010 1,317 MMcf/d*1 Net acres as of November 2011 *Source: NGSAData as of Dec. 31, 2010 unless otherwise notedPublic Disclosure of Related Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: There is no discussion of risks or miti- Regulatory Risks Identifiedgation measures related to hydraulic fracturing in the Chemical Restrictions2010 10-K or in the Sept. or June 2011 10-Qs. Water Disclosure Air on Drilling Federal Identification of risks—No (none) StateAdditional company communicationsDiscussion of mitigation measures: Yes; limited2010 annual report: There is no discussion of related risks or mitigation measures.Sustainability/EHS report: The 2010 Corporate Responsibility Report does not include discussion of related risks ormitigation measures.Website: A shale gas section on the company website discusses pressure testing wells, lining pits for wastewater,recycling wastewater and delivering fresh water via pipelines.Voluntary disclosure of chemicals in fracking fluid (by individual well): Yes; FracFocus. The company includesproprietary exemptions. It is unknown if Chevron discloses all non-proprietary chemicals or only non-proprietarychemicals deemed hazardous by OSHA.Voluntary posting of violations: NoVoluntary reporting of greenhouse gas emissions: Yes; website and 2010 Corporate Responsibility Report. 58

59. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Board Oversight Company discusses prevention or mitigation measures relating to:Board committee with environmental responsibili- Water delivery X Fracking fluid toxicityties: Public Policy Fresh water storage Solid waste storageBoard committee with risk management oversight Wastewater storage X Chemical storageresponsibilities: The full board and its four commit-tees—Audit, Board Nominating and Governance, Wastewater recycling X Spill preventionManagement Compensation and Public Policy— Wastewater disposal Air emissionsprovide oversight of Chevron’s risk management poli- Baseline water testing Surface disturbance Xcies and practices. Well integrity evaluation X Fuel switching Contractor oversight Truck traffic/road wear XViolations/Fines/Litigation Noise Community engagementBetween 2005 and Feb. 1, 2011, the Pennsylvania De-partment of Environmental Protection (PaDEP) fined Atlas Energy Resources six times for a total of $295,300, ac-cording to an analysis by the Pittsburgh Post-Gazette based on a Right-to-Know request of PaDEP fines againstMarcellus Shale-related companies. Atlas had the fourth highest number of fines and second largest total dollaramount. Altogether, the PaDEP imposed 89 fines for a total of $2.1 million during that period, according to theanalysis.In August 2010, the PaDEP fined Atlas $97,350 Recent Marcellus Shale Wells & Violationsfor allowing wastewater to overflow a holding pit Wells Inspec- Violations Enforce-in Washington County, Pa., in December 2009 Drilled tions Total EH&S Adm. mentsand contaminate a tributary of Dunkle Run in the 2009 114 - - - - -Buffalo Creek watershed. Atlas also failed to 2010 43 12 16 9 7 15report the spill. Atlas Energy says the spill had no 2011* 70 1 24 15 9 2negative environmental consequences. Total 227 13 40 24 16 17In January 2010, the PaDEP fined Atlas Energy Figures include Atlas Resources and Chevron Appalachia$85,000 for discharging waste and improperly *Wells through Nov.; inspections, violations and enforcements through Oct.building well facilities at 13 locations from late Source: Pennsylvania Department of Environmental Protection2008 through July 2009.Litigation: In September 2009, landowner George Zimmerman of Washington County, Pa., sued Atlas for pollutinghis land and water with fracking fluids. He alleges that independent water tests found concentrations of sevencarcinogenic chemicals above screening levels established by U.S. Environmental Protection Agency as warrantingfurther investigation at three sites near his home. In March 2010, a fire broke out at an Atlas gas drilling site onZimmerman’s land when gas on the surface of stored wastewater caught fire.Shareholder ActivityA 2011 shareholder resolution asking for a report on hydraulic fracturing received support from 40.4 percent ofthe shares voted. The primary filers were the Sisters of St. Francis, who are affiliated with the Interfaith Center onCorporate Responsibility. The Sisters of St. Francis also have filed a hydraulic fracturing disclosure resolution forvote at Chevron’s 2012 annual meeting. 59

60. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Exxon Mobil Corp.ExxonMobil is the worlds largest publicly traded natural gas producer. Its busi- 2010 revenues $370.1 billionness covers the whole range of oil- and gas-related activity, including explora- 2010 employees 83,600tion, extraction, refining, transportation and sale of natural gas and petroleumproducts, plus petrochemicals. ExxonMobil became the nation’s largest U.S. natural gas producer in June 2010,following its $41 billion acquisition of XTO Energy, nearly tripling its U.S. gas production and acquiring holdings inseveral U.S. shale plays. ExxonMobil has continued to acquire unconventional assets in multiple North Americanshale gas locations, including the Horn River Basin in British Columbia. ExxonMobil’s Outlook for Energy: A View to2030 forecasts natural gas overtaking coal consumption by 2020 due, in part, to the supplies of shale gas that canbe recovered through drilling and fracking. At present, natural gas represents about half of ExxonMobil’s total U.S.production. U.S. Shale Gas Reserves and Natural Gas ProductionShale Gas Locations Proved Natural Gas Reserves Natural Gas Production(net acres) (billions of cubic feet) Total 26,111 Bcf 2010 Bcf -Marcellus 700,000+ Developed 15,441 Bcf 2010 million cubic ft/day 2,596 MMcf/d*Barnett 277,000 Undeveloped 10,670 BcfFayetteville 157,000 % produced from shale gas NAHaynesville 100,000 % shale gas NA Q2 2011 3,842 MMcf/d** Q2 2010 3,909 MMcf/d**Data as of Dec. 31, 2010 unless otherwise noted *Gas available for sale **Source: NGSAPublic Disclosure of Related Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: The 2010 10-K has one paragraph on Regulatory Risks Identifiedregulatory and litigation risks that lists hydraulic fracturing Chemical Restrictionsas an issue where changes in laws or regulations could Water Disclosure Air on Drilling“increase our cost of compliance or reduce or delay avail- Federal (specific risk areas not discussed)able business opportunities.” The June & Sept. 2011 10- StateQs have no discussion. Identification of risks—Yes; regulatory and financial risks are discussed in the 2010 10-K.Additional company communicationsDiscussion of mitigation measures: Yes; moderate2010 annual report: There is no discussion of risks or mitigation measures.Sustainability/EHS report: The 2010 Corporate Citizenship Report includes two pages on hydraulic fracturing thatinclude discussion of wastewater recycling; pipelines for delivering fresh water, which reduce the need for holdingpits and truck traffic; and closed loop drilling systems, which eliminate the need for drilling waste pits and reduce asite’s footprint.Website: ExxonMobil’s website contains information similar to the 2010 Corporate Citizenship Report. It also hasa dedicated website on natural gas that focuses on shale gas development and hydraulic fracturing. The “Safetyand Responsibility” section of this website notes community engagement, truck schedules, noise abatement andmulti-well pads that limit surface impact. 60

61. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Voluntary disclosure of chemicals in fracking fluid (by Company discusses prevention orindividual well): Yes; FracFocus. The company dis-closes all non-proprietary chemicals. mitigation measures relating to: Water delivery X Fracking fluid toxicityVoluntary posting of violations: No Fresh water storage X Solid waste storage XVoluntary reporting of greenhouse gas emissions: Wastewater storage Chemical storageYes; website and 2010 Corporate Citizenship Report. Wastewater recycling X Spill prevention Wastewater disposal Air emissionsBoard Oversight Baseline water testing Surface disturbance XBoard committee with environmental responsibili- Well integrity evaluation Fuel switchingties: Public Issues and Contributions Committee Contractor oversight Truck traffic/road wear XBoard committee with risk management oversight Noise X Community engagement Xresponsibilities: The full board has responsibility forrisk oversight, and each committee—Audit, BoardAffairs, Compensation, Finance and Public Issues andContributions—focuses on specific key areas of risk.Violations/Fines/Litigation Between 2005 and Feb. 1, 2011, the Pennsylva- Recent Marcellus Shale Wells & Violationsnia Department of Environmental Protection Wells Inspec- Violations Enforce-(PaDEP) fined XTO Energy four times for a total Drilled tions Total EH&S Adm. mentsof $166,630, according to an analysis by the 2009 8 - - - - -Pittsburgh Post-Gazette based on a Right-to- 2010 22 25 66 38 28 16Know request of PaDEP fines against Marcellus 2011* 14 35 71 45 26 7Shale-related companies. XTO tied for the sixthhighest number of fines and had the fifth largest Total 44 60 137 83 54 23total dollar amount. Altogether, the PaDEP im- *Wells through Nov.; inspections, violations and enforcements through Oct. Source: Pennsylvania Department of Environmental Protectionposed 89 fines for a total of $2.1 million duringthat period, according to the analysis.In November 2010, an open valve on a tank holding wastewater at an XTO drilling pad led to wastewater reachinga nearby stream in Penn Township, Lycoming County, Pa. XTO failed to notify the PaDEP of the incident, and Exx-onMobil’s 2010 10-K estimates that the PaDEP may seek a penalty in excess of $100,000. XTO did not admit to aviolation for the alleged release, but agreed to cooperate with the PaDEP in responding to and remediating it.The Arkansas Public Policy Panel, a nonprofit focused on economic and social justice, conducted an analysis of Ar-kansas Department of Environmental Quality (ADEQ) inspections in the Fayetteville Shale from July 2006 to August2010. The ADEQ conducted 45 inspections at XTO Energy sites and 80 percent resulted in a total of 62 violations ofwater and other environmental laws, according to the panel. Comparatively, the panel identified 538 state inspec-tions in total, with 54 percent finding more than 500 individual violations.Shareholder ActivityShareholder resolutions asking for a report on hydraulic fracturing received support from 28.1 percent of theshares voted in 2011 and 26.2 percent support in 2010. The As You Sow Foundation, which was the primary filer ofboth resolutions, also has filed a hydraulic fracturing disclosure resolution for vote at ExxonMobil’s 2012 annualmeeting. 61

62. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Hess Corp.Hess is a global integrated energy company engaged in the exploration and pro- 2010 revenues $33.9 billionduction of crude oil and natural gas, as well as the refining and marketing of pe- 2010 employees 13,800troleum products, natural gas and electricity. Natural gas represented around 28percent of the company’s worldwide proved reserves at the end of 2010, when nearly a quarter of the company’stotal proved oil and gas reserves were in the United States. U.S. operations represented 16 percent of the compa-ny’s 2010 natural gas production. U.S. operations included offshore properties in the Gulf of Mexico, as well asonshore properties in the Bakken oil shale in North Dakota and in the Permian Basin oil field in West Texas. In theMarcellus Shale, Hess is the operator and holds a 100 percent interest on approximately 53,000 net acres andholds a 50 percent non-operating interest in approximately 38,000 net acres. In 2010, Hess drilled three verticalexploration wells in the Marcellus Shale. The majority of this acreage, however, is in the Delaware River Basin areawhere a drilling moratorium is in place until the Delaware River Basin Commission establishes new drilling regula-tions. (See Box 4, p. 16 for more.) Also during 2010, Hess acquired approximately 90,000 net acres in the liquids-rich Eagle Ford shale formation in Texas, and in September 2011 it acquired 185,000 net acres in the Utica Shaleplay in eastern Ohio.. U.S. Shale Gas Reserves and Natural Gas ProductionShale Gas Locations Proved Natural Gas Reserves Natural Gas Production(net acres) (billions of cubic feet) Total 280 Bcf 2010 Bcf - Developed 199 Bcf 2010 million cubic ft/day 108 MMcf/d Undeveloped 81 BcfMarcellus 53,000 % produced from shale gas 0% % shale gas NA Q2 2011 100 MMcf/d* Q2 2010 102 MMcf/d*Data as of Dec. 31, 2010 unless otherwise noted *Source: NGSAPublic Disclosure of Related Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: The 2010 10-K has a short paragraph Regulatory Risks Identifiednoting that regulatory bodies responding to concerns Chemical Restrictionsabout hydraulic fracturing “may impose temporary mora- Water Disclosure Air on Drillingtoriums and new regulations on such drilling operations Federal Xthat would likely have the effect of delaying and increasing State Xthe cost of such operations.” The June & September 2011 10-Qs have no discussion. Identification of risks—Yes; regulatory and financial risks are discussed in the 2010 10-K.Additional company communicationsDiscussion of mitigation measures: Yes; moderate2010 annual report: The report incorporates the 2010 Form 10-K. There is no additional discussion beyond therisks mentioned above.Sustainability/EHS report: The 2010 Corporate Sustainability Report notes that “all of our unconventional acquisi-tions involve several levels of risk management, including identification of baseline environmental conditions andpotential oil and gas development constraints.” The company reports meeting with four Marcellus Shale vendorsto discuss its preference for environmentally friendly additives in fracking fluid and its interest in recycling pro-duced water. Hess also noted consultation with property owners on well pad and ancillary facilities siting in theMarcellus Shale, and the use of risk-based screening to select well pad sites and reduce their potential environ-mental impact. Hess has performed baseline soil sampling and incorporated soil handling and erosion controls 62

63. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2into its construction process. Hess also has commis- Company discusses prevention orsioned a reverse osmosis plant that will meet the ma-jority of its water requirements in North Dakota by mitigation measures relating to:removing dissolved solids from brackish water from an Water delivery X Fracking fluid toxicity Xunderground aquifer. Fresh water storage Solid waste storageWebsite: There is nothing distinct from the online Wastewater storage Chemical storage2010 Corporate Sustainability Report noted above. Wastewater recycling X Spill preventionVoluntary disclosure of chemicals in fracking fluid: Wastewater disposal Air emissionsYes; FracFocus. The company includes proprietary Baseline water testing X Surface disturbance Xexemptions. It is unknown if Hess discloses all non- Well integrity evaluation Fuel switchingproprietary chemicals or only non-proprietary chemi- Contractor oversight Truck traffic/road wearcals deemed hazardous by OSHA. Noise Community engagement XVoluntary posting of violations: NoVoluntary reporting of greenhouse gas emissions: Yes; 2010 Corporate Sustainability Report and website.Board OversightBoard committee with environmental responsibilities: Audit CommitteeBoard committee with risk management oversight responsibilities: Audit Committee. In addition, the full boardhas oversight of the company’s risk management policies.Violations/Fines/LitigationIn August 2011, Hess received a violation for an Recent Marcellus Shale Wells & Violationsinadequate, insufficient or improperly installed Wells Inspec- Violations Enforce-casing after an inspector saw bubbling outside Drilled tions Total EH&S Adm. mentsthe casing, and a Hess representative confirmed 2009 0 - - - - -the bubbling was methane. The company also 2010 3 3 6 4 2 1received a violation for failing to report the de- 2011* 0 1 2 1 1 0fective casing within 24 hours or submit a plan tocorrect it within 30 days. Total 3 4 8 5 3 1 *Wells through Nov.; inspections, violations and enforcements through Oct. Source: Pennsylvania Department of Environmental ProtectionShareholder ActivityIn 2010, the New York State Common Retirement Fund withdrew a shareholder resolution asking for a report onhydraulic fracturing in response to corporate commitments. 63

64. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Range Resources CorporationRange Resources Corporation is among the nation’s leading independent natural 2010 revenues $1 billiongas and oil companies. The company operates primarily in the Appalachian and 2010 employees 713Southwestern regions of the United States. Some 80 percent of its proved re-serves are natural gas, and a large portion of its drilling inventory consists of unconventional resource plays target-ing shale and coal bed methane natural gas reservoirs. In 2004, Range Resources was the first company to success-fully apply modern drilling technologies in the Marcellus Shale. The company has continued to focus on the Mar-cellus, selling its legacy tight gas sand properties in Ohio for $323 million in 2010 and its Barnett Shale properties,which made up 20 percent of its production, for $889 million in 2011. The New York attorney general’s office is-sued Range Resources a subpoena requesting documents and information regarding its shale and conventional gasoperations in 2011. Range Resources says it responded to the request by providing information that is all publiclyavailable. U.S. Shale Gas Reserves and Natural Gas ProductionShale Gas Locations Proved Natural Gas Reserves 1 Natural Gas Production(net acres) (billions of cubic feet) Total 3,566 Bcf 2010 Bcf 142 Bcf Developed 1,763 Bcf 2010 million cubic ft/day 389 MMcf/d Undeveloped 1,803 BcfMarcellus 1,100,000 % produced from shale gas 60% % shale gas approx. 66% Q2 2011 361 MMcf/d* Q2 2010 279 MMcf/d*1 Net acres as of November 2011 *Source: NGSAData as of Dec. 31, 2010 unless otherwise notedPublic Disclosure of Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: The 2010 10-K has one paragraph on Regulatory Risks Identifiedpossible changes to the Safe Drinking Water Act related to Chemical Restrictionshydraulic fracturing and a lengthy paragraph describing Water Disclosure Air on Drillingadditional regulatory risks stemming from new legislation Federal X X Xand regulatory initiatives specific to hydraulic fracturing. State X X X XThere is no discussion in the June or Sept. 2011 10-Qs. Identification of risks—Yes; regulatory and financial risks are discussed in the 2010 10-K.Additional company communicationsDiscussion of mitigation measures: Yes, extensive2010 annual report: The report discusses the company’s community engagement efforts and notes that in 2009 itwas the first in the industry to attempt to recycle water used in drilling. The report also notes that in 2010 it be-came the first company to publicly disclose the hydraulic fracking fluid mixture it used in the Marcellus Shale.Sustainability/EHS report: The company does not publish a sustainability or EHS report.Website: Range has a dedicated website on its Marcellus Shale drilling operations and has a question and answerpiece on fracking on the company website. The Q&A piece discusses baseline water testing; measures to ensurewell integrity; freshwater sources; wastewater recycling, storage and disposal; transportation and mixing of chemi-cals; and spill prevention.Voluntary disclosure of chemicals in fracking fluid (by individual well): Yes; website and FracFocus. As notedabove, Range Resources was the first company to publicly disclose its hydraulic fracking fluid in the MarcellusShale. The company discloses chemicals in accordance with state requirements; it discloses only chemicals deter- 64

65. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2mined hazardous by OSHA in Pennsylvania and pro- Company discusses prevention orvided broader disclosure in Texas. The company doesnot include proprietary exemptions. mitigation measures relating to: Water delivery X Fracking fluid toxicity XVoluntary posting of violations: No Fresh water storage Solid waste storageVoluntary reporting of greenhouse gas emissions: No Wastewater storage X Chemical storage X Wastewater recycling X Spill prevention XBoard Oversight Wastewater disposal X Air emissions Baseline water testing X Surface disturbance XBoard committee with environmental responsibili- Well integrity evaluation Fuel switchingties: Company told Si2 that its full board undertakes acontinuous evaluation of environmental matters. Contractor oversight X Truck traffic/road wear X Noise X Community engagementBoard committee with risk management over-sight responsibilities: The full board regularly evaluates the risk of the company and oversees risk identificationand evaluation. Each committee—Audit, Compensation and Governance and Nominating—evaluates specific risks.Violations/Fines/LitigationBetween 2005 and Feb. 1, 2011, the Pennsylva- Recent Marcellus Shale Wells & Violationsnia Department of Environmental Protection Wells Inspec- Violations Enforce-(PaDEP) fined Range Resources seven times for a Drilled tions Total EH&S Adm. mentstotal of $288,875, according to an analysis by the 2009 121 - - - - -Pittsburgh Post-Gazette based on a Right-to- 2010 133 23 40 27 13 14Know request of PaDEP fines against Marcellus 2011* 159 32 60 38 22 14Shale-related companies. Range tied for the se-cond highest number of fines and had the third Total 413 55 100 65 35 28largest total dollar amount. Altogether, the *Wells through Nov.; inspections, violations and enforcements through Oct. Source: Pennsylvania Department of Environmental ProtectionPaDEP imposed 89 fines for a total of $2.1 millionduring that period, according to the analysis. Range’s fines included $140,000 for a broken pipeline joint that al-lowed about 10,500 gallons of drill pit wastewater to leak into a nearby stream in 2009. Range says that none ofits Marcellus Shale violations have a continuing impact on the environment and that many were self-reported.In December 2010, the U.S. Environmental Protection Agency (EPA) issued an administrative order to Range toshut down two gas wells in the Barnett Shale after concluding that they contributed to natural gas in two waterwells in southern Parker County, Texas. Range has appealed the order. In March 2011, the Texas Railroad Com-mission absolved Range of wrongdoing, finding that gas in the water wells likely came from the Strawn geologicalformation. The EPA responded that it is standing by its belief that gas drilling contributed to the contaminationand said it would not comply with a Texas request to rescind its earlier order.Litigation: Owners of one of the wells in Parker County described above sued Range Resources in the spring of2011, claiming that natural gas drilling has contaminated their well water with benzene, toluene and ethane, aswell as a large amount of methane gas. Range Resources has countersued, charging a testing conspiracy.In August 2011, a Pennsylvania family settled a lawsuit against drillers and compressor station operators, includingRange Resources, alleging air pollution and water contamination from shale gas development harmed their health.Shareholder ActivityIn 2010, the New York State Common Retirement Fund (NYSCRF) withdrew a shareholder resolution asking for areport on hydraulic fracturing in response to corporate commitments. The NYSCRF has filed a hydraulic fracturingdisclosure resolution for vote at Range Resource’s 2012 annual meeting. 65

66. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Southwestern Energy Co.Southwestern Energy is an independent energy company whose primary business 2010 revenues $2.6 billionis exploring for and producing natural gas in North America. Southwestern pio- 2010 employees 2,088neered development of the Fayetteville Shale underlying parts of Arkansas in2003; its current operations remain focused there. The company began drilling in the Marcellus Shale in Pennsylva-nia in 2010. It also has a conventional drilling program in the Arkoma Basin in Arkansas and has exploration and pro-duction activities in Oklahoma, Texas and New Brunswick, Canada. Southwestern also engages in natural gas gatheringactivities in Arkansas, Texas and Pennsylvania. Southwestern Energy is collaborating with the Environmental De-fense Fund (EDF) on model standards for safe drilling and model standards for air emissions. The company alsoworked with EDF and other industry partners on public disclosure legislation for hydraulic fracturing fluids in Texas. U.S. Shale Gas Reserves and Natural Gas ProductionShale Gas Locations Proved Natural Gas Reserves 1 Natural Gas Production(net acres) (billions of cubic feet) Total 4,930 Bcf 2010 Bcf 403.6 Bcf Developed 2,687 Bcf 2010 million cubic ft/day 1,106 MMcf/d Undeveloped 2,243 BcfFayetteville 915,884 % produced from shale gas 87%Marcellus 173,009 % shale gas 89% Fayetteville 87% Fayetteville 88% Marcellus <1% Marcellus 1% Q2 2011 1,347 MMcf/d* Q2 2010 1,077 MMcf/d*1 Net acres as of November 2011 *Source: NGSAData as of Dec. 31, 2010 unless otherwise notedPublic Disclosure of Related Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: The 2010 10-K has one paragraph de- Regulatory Risks Identifiedscribing potential regulations related to hydraulic fractur- Chemical Restrictionsing, one paragraph noting risks associated with adequate Water Disclosure Air on Drillingwater supplies and cost-effective water disposal and one Federal X X X Xparagraph discussing greenhouse gas emissions. South- State X Xwestern notes that it is focused on unconventional resources and that “the production of hydrocarbons from thesesources has an energy intensity that is a number of times higher than that for production from conventionalsources. Therefore, we expect that the carbon dioxide, or CO 2, intensity of our production will increase in thelong-term.” The June & Sept. 2011 10-Qs each briefly note risks associated with “legislation relating to hydraulicfracturing.” Identification of risks—Yes; regulatory and financial risks are discussed in the 2010 10-K and regulatory risks in the2011 10-Qs.Additional company communicationsDiscussion of mitigation measures: Yes; extensive2010 annual report: The report incorporates the 2010 Form 10-K. There is no additional discussion beyond therisks mentioned above.Sustainability/EHS report: The company does not publish a sustainability or EHS report.Website: Southwestern has a section of its website entitled, “Our Responsibility,” which identifies its initiatives toreduce its impact, particularly on air and water. Initiatives include “green completions” to prevent emissions ofVOCs and methane during well completion, vapor recovery systems on condensate storage tanks, infrared cameras 66

67. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2to detect fugitive emissions and a fresh water collec- Company discusses prevention ortion and transfer system using pipelines. It also has apage describing its well integrity standards. mitigation measures relating to: Water delivery X Fracking fluid toxicityVoluntary disclosure of chemicals in fracking fluid (by Fresh water storage X Solid waste storageindividual well): Yes; FracFocus. The company dis-closes all information provided by vendors, who do Wastewater storage Chemical storagenot always disclose all non-proprietary chemicals. Wastewater recycling X Spill preventionVoluntary posting of violations: No Wastewater disposal X Air emissions X Baseline water testing Surface disturbance XVoluntary reporting of greenhouse gas emissions:Yes (methane emissions reduction); website and EPA’s Well integrity evaluation X Fuel switchingNatural Gas STAR summary report. Contractor oversight X Truck traffic/road wear X Noise Community engagement XBoard OversightBoard committee with environmental responsibilities: None specifically disclosed.Board committee with risk management oversight responsibilities: The Audit Committee has oversight responsi-bility relating to evaluation of enterprise risk issues, and the entire board engages in a review of the company’s“strategic plan and the principal current and future risk exposures of the Company.”Violations/Fines/LitigationThe Arkansas Public Policy Panel, a nonprofit Recent Marcellus Shale Wells & Violationsfocused on economic and social justice, conduct- Wells Inspec- Violations Enforce-ed an analysis of Arkansas Department of Envi- Drilled tions Total EH&S Adm. mentsronmental Quality (ADEQ) inspections in the 2009 0 - - - - -Fayetteville Shale from July 2006 to August 2010. 2010 20 4 13 7 6 3The ADEQ conducted 160 inspections at South- 2011* 40 9 21 13 8 2western Energy sites and 53 percent resulted in atotal of 143 violations of water and other envi- Total 60 13 34 20 14 5ronmental laws, according to the panel. Com- *Wells through Nov.; inspections, violations and enforcements through Oct. Source: Pennsylvania Department of Environmental Protectionparatively, the panel identified 538 state inspec-tions in total, with 54 percent finding more than 500 individual violations.In spring 2010, Southwestern Energy Production paid $50,000 to the Susquehanna River Basin Commission for be-ginning construction activity at a natural gas well pad without having secured a permit from the commission.Litigation: In September 2010, 13 families in Lenox Township, Susquehanna County, Pa., filed suit against South-western Energy for allegedly contaminating their water, making them ill and damaging their property. The familiescite spills and discharges of drilling waste, as well as improper casing of a gas well drilled in April 2008. The com-pany notes that water samples taken from nearby water wells both before and during drilling showed that all pa-rameters tested were below maximum contaminant levels. The company adds that the Pennsylvania Departmentof Environmental Protection has found no direct evidence of contamination from SEPCO’s drilling operations.In May 2011, two related class actions alleging personal injury and property damage claims as a result of South-western Energy’s drilling in the Fayetteville Shale in Arkansas were filed. One suit filed against Southwestern andChesapeake Energy claims drilling contaminated well water, and another alleges groundwater, air and soil contam-ination that has caused diminution in property values.Shareholder ActivityIn 2011, Domini Social Investments withdrew a shareholder resolution asking for a report on hydraulic fracturing,citing the company’s candor about the risks and misconceptions surrounding hydraulic fracturing and a commit-ment to improved website disclosure. 67

68. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2WPX EnergyWPX Energy began trading on the New York Stock Exchange in Janu- 2010 revenues $9.6 billion*ary 2012 following its spin-off from the Williams Cos. WPX Energy is 2010 employees 5,022 (WPX Energy 1,200)the former exploration and production business of Williams, which *Exploration and Production: $4 billionwas the tenth largest natural gas producer in the United States in2010. With nearly 97 percent of its domestic proved reserves in natural gas, WPX has been producing natural gasfrom unconventional formations since the early 1990s, including tight-sands gas, coal-bed methane and shale.WPX is focused on building a large-scale presence in the Marcellus Shale, having invested more than $1 billionthere since 2009. WPX also acquired holdings in North Dakota’s Bakken oil play In December 2010. At present, itslargest area of concentrated development is in the Piceance basin in northwestern Colorado. WPX also has pro-duction areas in the Barnett Shale in Texas, the Powder River basin in Wyoming and the San Juan basin in NewMexico and Colorado. International activities, primarily in Argentina, represent approximately five percent of itstotal international and domestic proved reserves.Given that WPX only recently became a stand-alone company, the information in this profile reflects the WilliamsCos. and its exploration and production operations before the spin-off. U.S. Shale Gas Reserves and Natural Gas ProductionShale Gas Locations Proved Natural Gas Reserves 1 Natural Gas Production(net acres) (billions of cubic feet equiv. ) Total 4,272 Bcfe 2010 Bcf 420 Bcf Developed 2,498 Bcfe 2010 million cubic ft/day 1,185 MMcf/dMarcellus 99,301 Undeveloped 1,774 BcfeBarnett 29,482 % shale gas 5% % produced from shale gas approx. 6% Barnett 4.4% Q2 2011 1,203 MMcf/d* Marcellus 0.6% Q2 2010 1,099 MMcf/d*1 Represents gas & oil reserves, 97% of which are gas. *Source: NGSAData as of Dec. 31, 2010 unless otherwise notedPublic Disclosure of Related Risks and Mitigation MeasuresRisk IdentificationForm 10-K/10-Qs: The 2010 10-K has a short paragraph Regulatory Risks Identifiednoting new state and local rules and moratoria on hydrau- Chemical Restrictionslic fracturing and the possibility of additional related fed- Water Disclosure Air on Drillingeral, state or local laws or regulations, including the De- Federal Xpartment of Interior’s plans for public disclosure of frack- State Xing chemicals. There is no discussion in the June or Sept. 2011 10-Qs. Identification of risks—Yes; regulatory risks are discussed in the 2010 10-K.Additional company communicationsDiscussion of mitigation measures: Yes; moderate2010 annual report: The report incorporates the 2010 Form 10-K. There is no additional discussion beyond therisks mentioned above.Sustainability/EHS report: The 2010 Corporate Responsibility Report discusses community engagement,wastewater recycling, “green completions” to reduce fugitive air emissions, road wear and reducing the size of drillpads. The 2010 report also references the 2009 Corporate Responsibility Report, which includes five pages on hy-draulic fracturing. In addition to the measures noted in the 2010 report, the 2009 report includes discussion ofpressure testing, cement logging and reuse of well pads for off-site water and equipment storage.Website: There is nothing distinct from the online 2010 Corporate Responsibility Report noted above. 68

69. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Voluntary disclosure of chemicals in fracking fluid (by Company discusses prevention orindividual well): Yes; FracFocus. The company dis-closes only chemicals determined hazardous by OSHA mitigation measures relating to:and includes proprietary exemptions. WPX plans to Water delivery X Fracking fluid toxicitybroaden its disclosure in 2012 based on laws pending Fresh water storage X Solid waste storagein certain states. Wastewater storage Chemical storageVoluntary posting of violations: Yes; the online 2010 Wastewater recycling X Spill preventionCorporate Responsibility Report states that in 2010 Wastewater disposal X Air emissions XWilliams reported 123 spills associated with its explo- Baseline water testing Surface disturbance Xration and production operations to either a state or Well integrity evaluation X Fuel switchingfederal regulatory agency. Contractor oversight Truck traffic/road wear XVoluntary reporting of greenhouse gas emissions: Noise Community engagement XYes; online 2010 Corporate Responsibility Report.Board OversightBoard committee with environmental responsibilities: None specifically disclosed.Board committee with risk management oversight responsibilities: Committees of the board govern an annualrisk assurance process. The Audit Committee annually reviews and provides feedback on a list of the top risks, andthe most appropriate board committee further reviews the top risks.Violations/Fines/Litigation Recent Marcellus Shale Wells & Violations Wells Inspec- Violations Enforce- Drilled tions Total EH&S Adm. ments2009 0 - - - - -2010 21 6 8 2 6 22011* 60 34 55 26 29 13Total 81 40 63 28 35 15*Wells through Nov.; inspections, violations and enforcements through Oct.Source: Pennsylvania Department of Environmental ProtectionShareholder ActivityA 2010 shareholder resolution asking Williams Cos. for a report on hydraulic fracturing received support from 41.8percent of the shares voted. Green Century Capital Management was the primary filer. 69

70. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Appendix II: Key StakeholdersIndustryAmerica’s Natural Gas Alliance http://www.anga.us Comprised of 30 of North America’s largest gas producers, the Alliance has launched a national campaign to highlight the industry’s commitment to Safe and Responsible Development.American Petroleum Institute http://www.api.org With more than 400 corporate members, the API is a national trade association that represents all aspects of America’s oil and natural gas industry. API developed a set of five documents highlighting best practices and providing guidance for risk management associated with hydraulic fracturing.Barnett Shale Energy Education Council http://www.bseec.org Founded by eight companies operating in the Barnett Shale, the Council provides information to the public about gas drilling and production in the Barnett Shale region in North Texas.Energy in Depth http://www.energyindepth.org Launched by the Independent Petroleum Association of America in 2009, Energy In Depth is a research, education and public outreach campaign “focused on getting the facts out about the promise and potential of re- sponsibly developing America’s onshore energy resource base—especially abundant sources of oil and natural gas from shale and other ‘tight’ reservoirs across the country.”Independent Petroleum Association of America http://www.ipaa.org IPAA is a national trade association that represents thousands of independent oil and natural gas producers and service companies across the United States.Marcellus Shale Coalition http://marcelluscoalition.org/ The Marcellus Shale Coalition is committed to the responsible development of natural gas from the Marcellus Shale. Its members, including more than 40 board members who are natural gas companies, work to address issues with regulations; local, county, state and federal government officials; and communities.NaturalGas.org http://www.naturalgas.org NaturalGas.org is a website developed and maintained by the Natural Gas Supply Association (NGSA), whose members produce approximately one-third of the U.S. natural gas supply. 70

71. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Environmental OrganizationsClean Air Task Force http://www.catf.us/ CATF is a nonprofit organization dedicated to reducing atmospheric pollution through research, advocacy and private sector collaboration. Climate is a key focus of CATF staff, which includes senior engineers, MBAs, scientists, attorneys and communications specialists.Environmental Defense Fund www.edf.org EDF links science, economics, law and innovative private-sector partnerships to address environmental problems. Its staff includes 340 scientists, economists and other professionals. EDF is collaborating with industry on model well integrity standards and model air standards for natural gas development.Natural Resources Defense Council http://www.nrdc.org/ The NRDC is an environmental action group staffed with more than 350 lawyers, scientists and other professionals. The NRDC is following hydraulic fracturing on Switchboard, the staff blog of the NRDC.Sierra Club http://www.sierraclub.org/ The Sierra Club is the nation’s oldest and largest grassroots environmental advocacy group. Natural gas re- form is one of the seven goals listed on its website.Marcellus-Shale.us http://www.marcellus-shale.us/ Website provides photos, information, opinions, stories, news and public meeting announcements about the Marcellus Shale.Additional Nonprofit OrganizationsFracFocus http://fracfocus.org/ This hydraulic fracturing chemical registry website is a joint project of the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission.Groundwater Protection Council http://www.gwpc.org/home/GWPC_Home.dwt The GWPC is a national association of state ground water and underground injection control agencies whose mission is “to promote the protection and conservation of ground water resources for all beneficial uses, rec- ognizing ground water as a critical component of the ecosystem." With the Interstate Oil and Gas Compact Commission, it created FracFocus. The Council also has a project to extend and expand the Risk Based Data Management System, which allows states to exchange information about defined parameters of importance to hydraulic fracturing operations. 71

72. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Interstate Oil and Gas Compact Commission http://www.iogcc.state.ok.us/ The Interstate Oil and Gas Compact Commission is a multi-state government agency that promotes the conservation and efficient recovery of domestic oil and natural gas resources while protecting health, safety and the environment. With the Ground Water Protection Council, it created FracFocus.State Review of Oil and Natural Gas Environmental Regulations http://www.strongerinc.org/ STRONGER is a non-profit, multi-stakeholder organization whose purpose is to assist states in documenting the environmental regulations associated with exploration, development and production of crude oil and natural gas.Shareholder ProponentsInvestor Environmental Health Network http://iehn.org/home.phpGreen Century Funds http://www.greencentury.com/New York State Common Retirement Fund http://www.osc.state.ny.us/pension/index.htmAs You Sow Foundation http://www.asyousow.org/Miller/Howard Investments http://www.mhinvest.com/Trillium Asset Management http://trilliuminvest.com/Park Foundation http://www.parkfoundation.org/Interfaith Center on Corporate Responsibility http://www.iccr.org/ 72

73. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2 Appendix III: Additional ResourcesAnnual Energy Outlook 2012 Early Release Overview http://www.eia.gov/forecasts/aeo/er/ U.S. Energy Information Administration, April 2011Annual Energy Outlook 2011 http://www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf U.S. Energy Information Administration, April 2011Blueprint for a Secure Energy Future http://www.whitehouse.gov/sites/default/files/blueprint_secure_energy_future.pdf The White House, March 2011Ceres Aqua Gauge: A Framework for 21st Century Water Risk Management http://www.ceres.org/aquagauge Ceres, World Business Council for Sustainable Development, IRRC Institute and Irbaris, September 2011CDP Water Disclosure Global Report 2011 https://www.cdproject.net/CDPResults/CDP-Water-Disclosure-Global-Report-2011.pdf Carbon Disclosure Project, November 2011“Drilling Down” series http://www.nytimes.com/interactive/us/DRILLING_DOWN_SERIES.html The New York Times, 2011Estimating Frac Risk and Improving Frac Performance in Unconventional Gas and Oil Wells http://gekengineering.com/Downloads/Free_Downloads/Estimating_and_Explaining_Fracture_Risk_and_Impr oving_Fracture_Performance_in_Unconventional_Gas_and_Oil_Wells.pdf George King, Apache Corp., January 2012Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations http://iehn.org/publications.reports.frackguidance.php Investor Environmental Health Network and the Interfaith Center on Corporate Responsibility, December 2011Modern Shale Gas Development in the United States: A Primer http://www.netl.doe.gov/technologies/oil-gas/publications/epreports/shale_gas_primer_2009.pdf Prepared by the Ground Water Protection Council and ALL Consulting for the U.S. Department of Energy Of- fice of Fossil Energy and National Energy Technology Laboratory, 2009“Natural Gas Extraction — Hydraulic Fracturing” website http://www.epa.gov/hydraulicfracture/ U.S. Environmental Protection AgencyNatural Gas STAR Program http://www.epa.gov/gasstar/ U.S. Environmental Protection AgencyPrudent Development: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resource http://www.npc.org/Prudent_Development.html National Petroleum Council at the request of the U.S. Secretary of Energy, September 2011Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays http://www.eia.gov/analysis/studies/usshalegas/ U.S. Energy Information Administration, July 2011 73

74. Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Si2Secretary of Energy Advisory Board Natural Gas Subcommittee’s Interim and Final Reports http://www.shalegas.energy.gov/ U.S. Department of Energy, August 2011 and November 2011Shale Gas: Applying Technology to Solve America’s Energy Choices http://www.netl.doe.gov/technologies/oil-gas/publications/brochures/Shale_Gas_March_2011.pdf National Energy Technology Laboratory brochure, March 2011Schlumberger Oilfield Glossary http://www.glossary.oilfield.slb.com/ Schlumberger Limited, 2011 74

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