National Academy of Sciences

Washington, DC

December 1, 2016

Mark K. Boling President

Unconventional Hydrocarbon Development:

Strategies for Managing Risks and Minimizing Negative Legacy Issues

IDENTIFY the risks

1 Implement strategies to

MITIGATE the risks

3 ASSESS

the probability of occurrence and potential

impact of each risk

2

1 3 2

Risk Management

1

PERCEIVED RISK

ACTUAL RISK RISK INFORMATION

GAP

Assessing Risk

ACTUAL RISK

PERCEIVED RISK

COLLABORATION AND RISK

COMMUNICATION

EFFECTIVE RISK MANAGEMENT

PERCEIVED RISK

ACTUAL RISK

PUBLIC TRUST & ACCEPTANCE

ACTUAL RISK

PERCEIVED RISK

2

Mitigating Risk by Influencing Behavior

Regulatory Influencers • Command-and-Control Regulations

- Regulations that dictate specific technologies or practices for conducting operations.

• Performance-Based Regulations - Regulations that establish performance standards and allow

industry some operational flexibility in determining how to meet such standards.

• Incentive-Based Regulations - Regulations that encourage private investment to achieve

public policy objectives unrelated to the risk mitigation goals of regulation.

3

Mitigating Risk by Influencing Behavior

Stakeholder Opinions • Investors

- Actions taken by institutional investors, wall street analysts, rating agencies, etc. that influence a company’s behavior (e.g. influencing the public’s desire to own the company’s stock).

• Consumers - Actions taken by consumers of the company’s product that

change the company’s behavior (e.g. exerting their collective purchasing power).

• Public - Actions or opinions expressed by a significant number of

individuals that either directly or indirectly influence a company’s behavior (e.g., concern over losing their social license to operate; changing political pressures)

4

Mitigating Risk by Influencing Behavior

Internal Influencers • “Tone-at-the-Top” • Incentive Compensation

- Internal company standards of performance that • Target the specific environmental

and/or social impacts that need changing • Establish appropriate metrics for measuring the

achievement of the performance goals • Provide meaningful incentive compensation for achieving

or surpassing the stated goals

5

FRESH WATER AQUIFER ZONE

SHALLOW PRODUCING ZONE

CONDUCTOR PIPE

SURFACE CASING

PRODUCTION CASING

TARGET PRODUCING ZONE

MITIGATING WELL INTEGRITY RISKS

1. Assess adequacy of current well integrity regulations.

2. Incentivize advancements in cement chemistry and cementing practices.

3. Incentivize development of new cement evaluation tools.

Mitigating Water Risks

1. Require Integrated Water Management Plan addressing all water use, recycling, treatment, transportation and disposal issues.

2. Incentivize development of technologies that reduce/eliminate fresh water as the base fluid for hydraulic fracturing.

3. Resolve regulatory barriers to maximizing recycling, on-site treatment and centralized treatment of wastewater.

4. Assess adequacy of regulations designed to mitigate induced seismicity risks.

7

National Academy of Sciences

Washington, DC

December 1, 2016

Mark K. Boling President

Unconventional Hydrocarbon Development:

Strategies for Managing Risks and Minimizing Negative Legacy Issues