SPE MOSCOW

1. SPE MOSCOW Differential Value…Do You Have It? Don Wolcott The Role of Know-How, Performance, and Technology in Establishing Differential Value

2. What is Differential in Business? • Good Performance • Quality…Value=Quality/Price • Delivering Results • Identifying Opportunities, Having positive ideas. WHEN THE BOSS WALKS TO THE SHARED PRINTER I PRINT 10 COPIES DISLOYAL #!@*@! IS THAT YOUR RESUME? IT’S DON’S

3. Differentiation For Success • The Role of Know-How and Technology • The Two Business Activities Performance and Execution • Establishing Differential Value • Russian Fracturing Performance

4. “It’s The Know How!” Everybody Has Access To The Same Technology

7. Why is Know-How Differential? • Knowing How to: • Calculate Technical Potential • Create Necessary Data • Identify Performance Gaps • Select Fit For Purpose Technology

8. Performance Defined • Quality of Results Relative to Potential • Examples: • Throttle held to the floor; Car is traveling on an excellent road at 200 kph. Good or Bad? • Restaurant increased unit of sales from 100 to 150 (a 50% increase). Good or Bad? Should MGMT be happy? • A bigger number does not necessarily translate to better performance • If you don’t know the potential you can not evaluate performance

9. Performance Perforating Diameter, Length & SPM Flowrate, pwf, pwh Fracturing, kf, wf, xf New Well, Location, Depth, Tubular size Execution Gun selection, run the guns Run Pump Design treatment and pump job Drill the well, select fluids Oil Business Activity Core: Calculating Modelling Perf. Specs. Core: Technology Project Management Service

10. POTENTIAL: = Reservoir Pressure = Operations Effectiveness = Engineering Effectiveness Defining Potential

11. Fracturing Activity 2005 • 300,000 Metric Tons Pumped • 5000 Fracture Treatments • Biggest Known Job 450 Tons (04) • Biggest Job in ’05 403 Tons • 10 Jobs over 300 Tons

12. Fracturing Activity ’05 Cont. • Average Job 60 Tons • Maximize Productivity • Lower Perm (1 to 10 md) 110 Tons • Higher Perm (10 to 50 md) 45 Tons • Remedial q<10t/d Job Size = 20 Tons

13. Design Optimum Curve: Optimal Geometry for Given Np = Maximium JD

14. Proppant Quality Pumped Percentage of Total, % 1k to 2k Perm, D > 2000 700 – 1k 400 - 700 < 400 Perm @ 4000 psi (272 atm) crush

15. Larger Average Smaller Remedial

16. Placement Technology Drives JD Inspect & Punish Larger Average Smaller Remedial

17. Performance and Quality… Its In The DESIGN ! PERFORMANCE AND QUALITY A MODERN CHALLENGE Book Of Quality Book Of Quality

18. How To Get Quality…Its Not New • “Quality Is Job 1” • “Quality By Design”

19. Quality Assurance Programs • Shewhart System • TQM • Continuos Quality Improvement • Re-Engineering • ISO 9000 • Six Sigma All Programs Measure Performance to Assess Quality They do not conduct mass inspection for Quality

20. Deming Award • Japan’s Award for Quality – Deming Prize Medal • Awarded to best company for development of quality control and management in Japan • Prior to Quality Revolution, Japan Produced Cheap Shoddy Imitations • Deming Awarded Second Order of the Sacred Treasure by Emperor Hirohito

21. Deming’s PhilosophyTo Improved Quality • “Cease dependence on mass inspection…build quality into the product in the first place”. • “End lowest tender contracts…instead require meaningful measures of quality along with price”.

22. Placement Technology Drives JD Inspect & Punish Larger Average Smaller Remedial

23. Max Net Press Research 6mm Width 250 M Length 1000 D Prop Engineering Opportunity Bigger 30mm Width 250 M Length 1000 D Prop Avg Job Smaller Performance Opportunity Technical Limit JD = 1.27

24. Objective YUKOS `03 North Slope Rx Mtn Asia North Sea Middle East W. Texas Oil Field Management Matrix 1 Database 102,713 active wells 24,380,430 bopd 30% world oil per day 505 fields 0.5 Engineering Skill Level(JD/JDpot) Russia 0.1 0 0% 50% 100% Operations Management Effectiveness (Dp/Dppot)

25. Playing with this video game I get Performance Production & Recovery

26. Thank You