MEGALEX Carbon fiber sucker rods 4/25/2011 1

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1 4/25/2011 1

2 Presenter MEGALEX Mitchell Hale, P.E. Professional Professional Engineer, California US Patent # Sequential Hydraulic Fracturing of a Subsurface Formation 1989 Education BS Petroleum Engineering, Louisiana State (LSU) MBA, University California Los Angeles (UCLA) Experience Mobil Oil, Production Engineer (5 yrs) Darco/LS, Vice President (8 yrs) LS Petrochem Equipment, Director (14 yrs) Lone Star ALS, President (3 yrs+) Megalex, LLC founder 2

3 Megalex Carbon Fiber Sucker Rods High strength Small diameter Fatigue resistant Light weight High temperature Corrosion resistant 3

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6 Megalex Rod Specifications MEGALEX Dimensional Properties Rod Body Diameter in 5/8 Rod Area in API pin size in 3/4 Diameter of end Fitting in 1-5/8 Rod Length ft 37.5 Total Weight w/ one coupling lbs Weight per ft. w/ one coupling lb/ft Lengths of pony rods ft 18, 9, 6, 3 Mechanical Properties Ulitmate Tensile Strength psi 235,000 Modulus of Elasticity psi 23.6 x 10 6 Speed of Sound ft/sec 32,488 Working Load lbs 36,500 Proof Load lbs 40,000 Temperature Rating F 273 Stress Range Diagram MLX Megalex End Fitting Steel KD

7 Customer Benefits MEGALEX Production from Deeper Depths Drilling, Completion, and Capital costs Operations and Maintenance costs Well Life and Ultimate Recovery 7

8 Customer Benefit Greater Production from Deeper Depths MEGALEX Pr Op Dr Rv Steel & FG data from Fiberflex marketing material. Megalex maximum production vs. depth information based on 1 diameter Megalex rods 8

9 Customer Benefit Longer stroke unit can increase production without gearbox over-torque due to light-weight rods MEGALEX Pr Op Dr Rv Max stroke 168 Max stroke 192 9

10 Customer Benefit MEGALEX Reduced Drilling, Completion & Capital costs Pr Dr Op Rv 5-1/2" Well 4-1/2" Well 2-7/8" tubing 2-3/8" tubing +/- 40' +/- 40' Hole: 17-1/2" Hole: 13-1/2" +/- 1,550' +/- 1,550' Megalex rods enable drilling slimhole well for same production Hole: 12-1/4" Hole: 9-3/4" EX) Andrews County, TX Well Depth: 9,450 ft 6,000' 6,000' Hole: 7-7/8" Hole: 6-3/4" TD 9,450' 9,450' TD 9,450' 9,450' Savings: $254,000 drilling 4-1/2 well instead of 5-1/2 Savings Double for 12,000 ft. well 10

11 Customer Benefit MEGALEX Reduced Operations and Maintenance costs Pr Dr Op Rv Smaller pumping unit Lower electrical cost Less corrosion inhibitor 11

12 Customer Benefit MEGALEX Reduced Operations and Maintenance costs Megalex rods enable the use of poly-lined tubing Pr Dr Op Rv Poly-lined tubing reduces frequency of tubing failures caused by rod-tubing wear Poly-lined tubing increases tubing life 10x 5/8 Megalex rods have the endurance strength of 1 HS steel with the coupling OD of ¾ steel Photo courtesy of Western Falcon 12

13 Customer Benefit Megalex rods easily fit inside poly-lined tubing MEGALEX Pr Dr Op Rv 13

14 Customer Benefit Low Bending Stiffness = Low side-wall loading MEGALEX Pr Dr Op Rv 5/8 Megalex rods are 88% LESS STIFF as 1 steel rods, resulting in low side-wall loading around bends and dog-legs Ideal for multi-well pad-drill-site wells 14

15 Megalex has 57% less risk for loss-of-displacement compared to steel Megalex MEGALEX Pr Dr Op Rv 37.5 ft ft Steel ft. 25 ft. 25 ft. Megalex: 4 fewer loss-of-displacement opportunities over a 75 ft. stand of steel rods 15

16 Megalex has 40% less risk for loss-of-displacement compared to fiberglass Megalex MEGALEX Pr Dr Op Rv 37.5 ft ft Fiberglass ft ft. Megalex: 2 fewer loss-of-displacement opportunities over a 75 ft. stand of fiberglass rods 16

17 Customer Benefit MEGALEX Better Fatigue resistance than Steel or FG Pr Dr Op Rv Carbon Fiber 60% of tensile strength Steel 40% of tensile strength Fiberglass <20% of tensile strength Excerpt from SPE 28523, 1994 Delmonte, J., Properties of Carbon/Graphite Composite% 1987, published by Kriager Publishing Co. 17

18 Modified Goodman Diagram Megalex Stress Range Diagram T = 235,000 psi Megalex superior fatigue strength 120,000 psi 50,000 psi T T. 2.8 Megalex T UHS Steel 80,000 psi T ,000 psi 18

19 Customer Benefit Greater well life and greater ultimate recovery Drill-Deeper wells produced on SRP MEGALEX Pr Op Dr Rv 5-1/2 casing 2-7/8 tubing 5-1/2 casing Cement squeeze 4 liner 2-3/8 tubing 19

20 Customer Benefit MEGALEX Greater well life and greater ultimate recovery Gas well dewatering: SRP brings Liquid level below perfs. Pr Dr Op Rv 2-3/8 tubing 2-3/8 tubing Gas Gas 4 casing 200 psig. Plunger Lift 4 casing Sucker Rod Pump High perfs. Limited drawdown Reduced Ultimate Recovery 0 psig. Reduced perfs. Maximum drawdown Greater Ultimate Recovery H2O H2O 20

21 Why Sucker Rod Pumping (SRP)? High Efficiency 50% - 60% Efficiency Gas Lift 60-70% Hydraulic Pump 70-75% ESP & PC Pump 75-85% Sucker Rod Pump >90% 90% Drawdown Greatest well drawdown Norm Hein, Hi Vol. Sucker Rod Lift, Sucker Rod Pumping Workshop, Sep

22 Megalex Comparison with Fiberglass & UHS Steel MEGALEX Unit 5/8" MEGALEX 1-1/4" Fiberglass 1" UHS Steel Rod Body Diameter in Rod Body Area in Standard Rod length ft Avg. Wt. per Ft. w/ coupling lb/ft Wt. of rod w/ one coupling lbs Wt. of one 75' stand of rods lbs Wt. 5/8" Megalex as % of 1-1/4" FG & 1" Steel - 24% 12% API Pin Size in 3/4" 1" 1" Max Diameter (End fitting/coupling) in Modulus of Elasticity (stretch capability ) psi x x x 10 6 Ultimate Tensile Strength psi. 235,000 90, , ,000 Temperature Rating F no limit 22

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36 Megalex Results ft. of Megalex Pump Depth, ft. PPRL, lbs. before PPRL, lbs. after Avg. Rod % before Avg. Rod % after GB torque % before GB torque % after Denbury CC 2,680 8,650 35,700 24,500 77% 63% 107% 84% Denbury ELOB 2,800 8,400 25,000 25,000 86% 67% 104% 92% Well #3 4,400 9,800 43,700 26,500 85% 62% 93% 56% 36

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39 Summary Optimal Use In Ditch wells: D-T-C-H D T C H Deep Tight Corrosive Hot 39

40 Deep Optimal in wells with TVD 10,000 ft. and deeper (challenging for fiberglass due to rod stretch, and steel due to rod weight) Enabling technology to rod pump deeper than 16,000 ft. (considered the technological limit for sucker rod pumping) 40

41 Tight Allow deep rod pumping in 2-3/8 tbg. Operate within poly-lined tubing w/o sacrificing rod strength 41

42 Corrosive Same resistance to H2S and CO2 as FG End fittings are Grade KD material Enable use of corrosion resistant API Grade C rods on bottom 42

43 Operational Advantages Smaller pumping unit Lower electrical / chemical costs Reduced tbg. leaks (poly-lined tbg.) Easy to space pump Set pump below perfs 43

44 Hot Max operating temp: 273º F 44

45 Economic Advantages Drill cheaper slim-hole wells Lift oil instead of steel rods Lower cost artificial lift system Enable drill-deeper 45

46 Enabling Technology Marginal reserves become economic De-water deep gas wells Sucker rod pump deeper than technologically possible before 46

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48 Contact: Mitchell Hale Tel: /25/