Acquisition of Silver Hill: Strategic Entry into the Core of the Delaware Basin

Transcription

1 Acquisition of Silver Hill: Strategic Entry into the Core of the Delaware Basin October 13, 2016

2 Forward-Looking Statements Certain statements and information in this presentation may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of The words believe, expect, anticipate, plan, intend, foresee, should, would, could or other similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the volatility of commodity prices, product supply and demand, competition, access to and cost of capital, uncertainties about estimates of reserves and resource potential and the ability to add proved reserves in the future, the assumptions underlying production forecasts, our hedging strategy and results, the quality of technical data, environmental and weather risks, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the costs and results of drilling and operations, the availability of equipment, services, resources and personnel required to complete RSP s operating activities, access to and availability of transportation, processing and refining facilities, the financial strength of counterparties to the Company s credit facility and derivative contracts and the purchasers of RSP s production and third parties providing services to RSP and acts of war or terrorism. For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see our filings with the United States Securities and Exchange Commisson (SEC), including our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. Existing and prospective investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. 2

3 RSP Creates Premier Permian Pure Play in the Core of Both Basins Acquisition Highlights Highly contiguous operated position in the core of the Delaware Basin ~68,000 gross / ~41,000 net acres ~80% operated with over 80% working interest in operated properties (acreage held by one operated rig) Conducive to efficient long lateral development Meaningful current production base of ~15 MBoe/d 69% oil and 86% liquids 2 operated horizontal rigs currently running 49 producing Hz wells and 9 producing Vt wells Over 4,500 ft. of stacked pay with 7 producing, horizontal zones ~250,000 net effective horizontal acres Includes the Wolfcamp B, Lower and Upper (XY) Wolfcamp A, 3 rd Bone Spring, 2 nd Bone Spring, Avalon and Brushy Canyon Key offset operators include EOG, Anadarko, Shell, Matador and Devon, among others Decades of highly economic horizontal drilling inventory ~3,200 gross / ~1,950 net drilling locations, largely operated Accretive to cash flow, production and NAV at current strip prices Unmatched Core Midland / Delaware Position Delaware Basin Acquisition ~41,000 net acres ~3,200 gross locations Midland Basin ~60,700 net acres ~2,600 gross locations in focus area >100,000 largely contiguous net surface acres and ~512,000 net effective horizontal acres in the core of each basin Deep inventory of ~5,800 highly economic gross drilling locations with significant upside potential Stable, liquids-rich production base of ~50 MBoe/d Best-in-class operational and technical capabilities 3

4 Strategic Combination Substantially Increases Scale Gross Horizontal Drilling Locations Net Surface Acreage Current Production (MBoe/d) (1) +123% ~5, % ~101, % ~50 ~60,700 ~35 ~2,600 RSP PF RSP RSP PF RSP RSP PF RSP Net Horizontal Drilling Locations Net Effective Horizontal Acreage Current Rigs Running +115% ~3, % ~512, % 5 ~1,700 ~262,000 3 RSP PF RSP RSP (1) Represents RSP current 3-week run-rate production and Silver Hill production as of October PF RSP RSP PF RSP 4

5 RSP is a Selective Acquirer: Why Silver Hill? RSP has taken a measured approach to acquisitions successfully growing asset base without sacrificing quality Silver Hill Meets All Key Acquisition Criteria Wolfcamp Structure Map (Subsea Depths) Rock Quality: Silver Hill located in the deepest, thickest overpressured portion of the Delaware Basin characterized by low GOR Drives higher IPs, EURs and economics as well as higher density development across multiple zones Gaines Inventory includes horizontal wells with EURs of ~1.0 MMBoe and single well IRRs over 70% (1) at current strip pricing Eddy Lea Delineated: high number of producing, de-risked zones Andrews Horizontals producing in 7 zones, including multiple Wolfcamp and Bone Spring targets as well as Avalon and Brushy Canyon Affords meaningful long-term scale and enhanced NAV NEW MEXICO TEXAS Loving Winkler Contiguous: blocky acreage position Allows for efficient development with enhanced economics from the use of long-laterals Culberson Reeves Ward Scale: meaningful existing base of production and cash flow 15 MBoe/d (69% oil, 86% liquids) as of October 2016 Significantly larger production base than the majority of recently evaluated opportunities (1) Based on Management estimates. SILVER HILL ACREAGE WOLFCAMP STRUCTURE (TVDSS) CONTOUR INTERVAL = 500 Pecos 5

6 Economics of Delaware Basin Provide Compelling Opportunity Delaware Basin Technical Highlights Thick, oil saturated section within the over-pressured Wolfcamp and Bone Spring Wolfcamp and Bone Spring thicker in the Delaware Basin due to the more protracted subsidence history Delaware / Midland Geologic Comparison Silver Hill Type Log Top 10 Inventory Overview (1) Core Midland Basin Type Log Reservoir Glasscock Upper Wolfcamp LL (ft.) EUR (MBOE) EUR / 1,000 Strip (2) 7, >70% Wolfcamp A 7, >70% Upper Wolfcamp (XY) 4, >70% Lower Spraberry 7, % Lower Wolfcamp A 4, % 2 nd Bone Spring 4, % Wolfcamp B 7, % Middle Spraberry 7, % Wolfcamp B 4, % 3 rd Bone Spring 4, % Midland Basin Delaware Basin (1) Based on Management estimates. (2) Based on Midland Basin D&C cost of $5.5 MM (7,500 lateral) and Delaware Basin D&C costs of $5.7-$6.1 MM (4,500 lateral), depending on zone. 6

7 Silver Hill Properties Stack Up Well with Our Current Inventory Silver Hill short lateral well performance competes with and in some cases exceeds Midland basin long lateral well performance Potential for uplift in upfront deliverability and increasing ultimate recoveries from drilling longer laterals Upper Wolfcamp Cumulative Production (Boe) Bone Spring / Lower Spraberry Cumulative Production (Boe) 600, , , , , , , , , , , , Days (1) Midland Peer 1 MMBoe Type Curve Silver Hill 4,500' Upper Wolfcamp A (XY) RSP 7,500' Avg. Glasscock Upper Wolfcamp (2) Silver Hill 7,500' Upper Wolfcamp A (XY) Source: Management estimates. (1) Based on peer public filings. (2) Normalized to 7,500 based on ratio of lateral lengths Days (1) Midland Peer 1 MMBoe Type Curve Silver Hill 4,500' Bone Spring RSP 7,500' Core County Lower Spraberry Type Curve (2) Silver Hill 7,500' Bone Spring 7

8 Penn Wolfcamp Leonard Guadalupe Delaware Group Superior Delineation Drives Acreage Value Selected Delaware Basin Operator Development Targets Silver hill Cimarex MTDR Enduranc e CXO EOG Shell Brigham FANG PDCE WPX Lamar Bell Canyon Cherry Canyon Brushy Canyon t t t Avalon Shale t t t t t 1 st Bone Spring t t t t t t t t t 2 nd Bone Spring t t t t t t t t t 3 rd Bone Spring t t t t t t t t t t t Upper (XY) / Lower Wolfcamp A t t t t t t t t t t t t t t Wolfcamp B t t t t t t t t t t t t Wolfcamp C t t t t t Wolfcamp D / Cline t t Strawn Atoka TOTAL Note: Latest investor presentations, Wall Street research and Texas Railroad Commission. Disclosed Horizontal Penetration t 8

9 Multi-Zone Potential Across Silver Hill Assets White Falcon 16 #1H 1 Endurance IP30: 1,813 Boepd 2 Gunner Fed 5H Concho IP30: 1,306 Boepd Rudd Draw 3H John James 1H Brunson 47 1H Brunson 38 1H 26 Silver Hill 25 Concho 24 EOG 23 EOG IP30: 1,084 Boepd IP30: 1,306 Boepd IP30: 1,635 Boepd IP30: 1,870 Boepd Brunson A 803H Silver Hill IP30: 1,027 Boepd Brunson 1121H Silver Hill IP30: 1,025 Boepd 3 Brunson 1111H Silver Hill IP30: 840 Boepd 20 University B201 Mewbourne IP30: 850 Boepd 4 Brunson C 1002H Concho IP30: 837 Boepd NEW MEXICO TEXAS 19 Rippin Wrangler 1 Anadarko IP30: 845 Boepd 5 Ragin Cajun 2H Devon IP30: 898 Boepd Bullet H (1) 18 Silver Hill 7-day IP: >1,000 Boepd State Galileo 6H EOG IP30: 2,252 Boepd Coachman Fee 4H Concho IP24: 1,142 Boepd Ludeman 1404H Silver Hill IP30: 659 Boepd Univ. Block H 9 XTO IP30: 890 Boepd Ragin Cajun 2H Excelsior 7 #7H Ludeman D 302H Ludeman D 102H H&T H Devon 10 EOG 11 Silver Hill 12 Silver Hill 13 Anadarko IP30: 898 Boepd (85% IP30: 2,003 Boepd IP30: 1,335 Boepd IP30: 1,361 Boepd IP30: 1,148 Boepd oil) Source: Silver Hill data. Note: Well results not intended to be representative across all Silver Hill assets or an indication of future well results. (1) Estimated 3 stream on 7-day average with well still cleaning up on a restricted choke Whitney Brunson EOG IP30: 1,398 Boepd Harrison 43 W102 Mewbourne IP30: 977 Boepd Falcon State #1H Energen IP30: 818 Boepd Corsair H Anadarko IP24: 2,253 Boepd 9

10 Lateral Length 24 Hour IP (Boe/d) Prop #/ft Delaware Basin Results Continuing to Improve Operators continue to optimize drilling and completion techniques including increased proppant use and longer laterals Yielding significant increase in IPs and EURs Silver Hill acreage well-positioned for long-lateral development Majority of acreage could be developed with 7,500 or 10,000 laterals Represents significant upside potential from evaluated lateral lengths of 4,500 3,500 3,000 2,500 2,000 1,500 1, Proppant Pound/ft Increasing Completion Count Currently estimated D&C costs of $5.7 $6.1 million for 4,500 lateral and $6.2 $6.5 million for 7,500 lateral; expected to decrease with full field development H14 2H14 1H15 2H15 1H16 Avg Prop #/ft Max Prop #/ft Count - Lateral Length Extending Impressive Gains in Well Performance 12, ,000 75% 10,000 8,000 6,000 4,000 2, Completion Count 4,000 3,000 2,000 1,000 60% 45% 30% 15% Oil % H14 2H14 1H15 2H15 1H16-1H H14 2H14 1H15 2H15 1H16 0% Note: Based on Loving County wells per public data. Avg Lat Length Max Lat Length Count Avg 24 HR IP (BOED) Max 24 HR IP (BOED) Avg % Oil 10

11 Cost ($/ft) / Prop (#/ft) IRR % RSP Shareholders to Participate in Accelerated Delaware Rate of Change RSP ideally positioned to apply operational and technical learnings in Midland Basin to Silver Hill assets RSP Technical Expertise Tested 10 landing targets across entire position Increased clusters per stage by 250% YTD Increased proppant loading by 40% YTD Tested 500 spacing (and less), multiple stacked zones in tandem Drilled laterals in excess of 11,000 in length Avg. Recent Silver Hill Design and Upside Potential 4,500 laterals No diverter 2,000 lbs/ft proppant loading ~$6mm D&C costs 8 clusters per stage Illustrative Delaware Single Well Returns (1) Among the first to implement diverter technology in the Midland Basin Recent 30-day IP rates for 7,500 lateral wells averaging ~150 Boe/d per 1,000 feet of lateral 1,750 1,500 1,250 1, Optimizing Drilling & Completions Methods $1,019 $921 $816 $732 $721 $667 Q1 15 Q215 Q3 15 Q4 15 Q1 16 Q ,000 17,000 14,000 11,000 8,000 5,000 2,000 1,000 Comp Cost $/ft Drill Cost $/ft Avg. Prop #/ft Avg. Oil Cum180/ft (1) Based on Management estimates and current NYMEX strip pricing. Cum 180 Oil/ft 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% BASE 20% Optimized $6.5mm D&C $5.5mm D&C $4.5mm D&C $1,444 Per Foot $1,222 Per Foot $1,000 Per Foot 11

12 Acquisition Structure and Financing Overview Transaction Details RSP to acquire Silver Hill Energy Partners, LLC ( SHEP I ) and Silver Hill E&P II, LLC ( SHEP II ) for $2.4 billion, based on the 20-day volume weighted average price of RSP shares as of October 12, Consideration includes $1.25 billion in cash and 31.0 million shares of RSP common stock SHEP I to receive $604 million of cash consideration and ~15.0 million RSP shares Expected to close in Q SHEP II to receive $646 million of cash consideration and ~16.0 million RSP shares Expected to close in Q Issuance of shares to SHEP II subject to a vote by existing RSP shareholders Cash portion of the acquisition anticipated to be financed through combination of equity and debt Target financing expected to be leverage neutral or result in lower leverage metrics on a forwardlooking and pro forma basis Kyle D. Miller, CEO of Silver Hill, is expected to join RSP s Board of Directors upon closing of SHEP II Strong Balance Sheet Primed for Acceleration With strong liquidity, no near-term maturities, an improved hedge position and attractive returns, RSP is well positioned to accelerate activity beyond current levels $600MM borrowing base RSP anticipates borrowing base will be increased upon closing SHEP I and SHEP II transactions 53% of 4Q 16E oil production hedged at a weighted average floor price of $43.49/Bbl (1) 56% of 2017E oil production hedged at a weighted average floor price of $44.63/Bbl (1) Leverage Neutral Transaction Bolstered Hedge Position Maintain Significant Liquidity Positioned to Accelerate Development Supportive Partner in Kayne Anderson (1) Weighted average floor assumes the long put in three way collars and put spreads and reflects the impact of premiums paid. 12

13 Hedging Program Summary RSP opportunistically layers on hedges to protect returns and support planned capital expenditures Recently executed additional hedging arrangements to protect remaining 2016 and 2017 volumes Deferred premium put structure allows RSP to retain upside to future oil price increases Hedge Contract Detail Hedged Oil Volumes (Bbls/d) (5) Crude Oil (Bbl, $/Bbl) 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 Three-Way Collars (1) 120, ,000 Ceiling Floor Short Put $74.41 $55.00 $45.00 $54.25 $45.00 $35.00 Costless Collars (1) 450,000 1,137,500 1,150,000 1,150,000 Ceiling Floor $59.75 $45.00 $60.05 $45.00 $60.05 $45.00 $60.05 $45.00 Deferred Premium Puts / Put Spreads (1) 1,125, , , , ,000 Floor Short Put Deferred Premium (2) $45.00 ($2.74) Total Hedge 1,245,000 Weighted Average Floor (3) $43.49 $45.00 $35.00 ($2.32) 1,800,000 $44.13 $48.50 ($4.00) 2,047,500 $44.78 $48.50 ($4.00) 2,070,000 $44.78 $48.50 ($4.00) 2,070,000 $ ,000 20,000 15,000 10,000 5,000 70% 60% 50% 40% 30% Natural Gas (MMBtu, $/MMBtu) 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 Costless Collars (4) 900, , , ,000 Ceiling $3.64 Floor $3.00 $3.64 $3.00 $3.64 $3.00 $3.64 $ % Q Three Way Collars Deferred Premium Puts Costless Collars % Oil Hedged (1) The crude oil derivative contracts are settled based on the arithmetic average of the closing settlement price for the front month contract NYMEX price of West Texas Intermediate Light Sweet Crude. (2) The deferred premium is not paid until expiration date, aligning cash inflows and outflows with the settlement of the derivative contract. (3) Weighted average floor assumes the long put in three way collars and put spreads and reflects the impact of premiums paid. (4) The natural gas derivative contracts are settled based on the last trading day s closing price for the front month contract relevant to each period. (5) Utilizing 4Q16 and 2017 midpoint oil volume guidance. 13

14 Updated Guidance and 3Q 16 Update 1H 2016 Actuals and Revised Full Year Guidance Revised Revised 1H 2016 August Production Actual Guidance Guidance Average Daily Production (Boe/d) 25,505 26,500-28,500 28,500-29,500 % Oil 75% 75% - 76% 73% - 75% % Natural Gas 11% 10% - 11% 10% - 11% % NGLs 14% 13% - 14% 14% - 15% Income Statement ($/Boe) LOE (Including Workovers) $5.45 $ $6.00 $ $6.00 Gathering & Transportation $0.40 $ $0.50 $ $0.50 Exploration Expenses $0.10 $ $0.15 $ $0.15 Cash G&A $2.12 $ $2.25 $ $2.25 Recurring Non-Cash G&A $1.42 $ $1.50 $ $1.50 DD&A $19.79 $ $21.00 $ $21.00 Prod. & Ad Val. (% of Rev.) 6.6% 6.0% - 7.0% 6.0% - 7.0% Capital Expenditures ($MM) Drilling & Completion $122.1 $270 - $290 $280 - $290 Infrastructure & Other $3.4 $15 - $25 $15 - $25 Total Development Capital $125.5 $285 - $315 $295 - $315 % Non-Operated 18% 10% - 15% 10% - 15% Completions Operated Gross Hz Operated Gross Vt (1) 3Q 16 Operational Update Average daily production of 29,761 Boe/d (73% oil) 24% increase vs. 3Q 15 13% increase vs. 2Q 16 Current 3-week run-rate production of ~35.0 MBoe/d Average Realized Prices (excluding hedges) Oil: $42.60/Bbl Natural Gas: $2.27/Mcf NGLs: $10.82/Bbl Preliminary 2017 Outlook 2017 Production: 52,000 56,000 Boe/d Oil: 72% - 74% Natural Gas: 11% - 12% NGLs: 14% - 15% Total Development Capital: $570 - $630 million Drilling & Completion: $520 - $560MM Infrastructure & Other: $50 - $70MM % Non-Operated: 10% - 15% (1) Prior guidance reflects that which was published by RSP in August

15 Value Proposition to RSP Shareholders Accretive to cash flow, production and net asset value Decades of highly economic drilling inventory provides capital allocation optionality High-graded, balanced development program accelerates value realization Technical and operational expertise suited to unlock additional value through further completion optimization and downspacing Long-Term Shareholder Value Creation 15

16 Q&A 16

17 Additional Disclosures Supplemental Non-GAAP Financial Measures We define Adjusted EBITDAX as oil and gas revenues including net cash receipts (payments) on settled derivative instruments and premiums paid on put options that settled during the period, less lease operating expenses, production and ad valorem taxes, and general and administrative expenses excluding stock based compensation. Adjusted net income deducts from Adjusted EBITDAX depreciation, depletion, and amortization, accretion on asset retirement obligations, exploration expenses, interest expense, stock-based compensation and adjusted income tax expense. Management believes Adjusted EBITDAX and adjusted net income are useful because they allow us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above in arriving at Adjusted EBITDAX and adjusted net income because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX and adjusted net income should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDAX and adjusted net income are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. Our computations of Adjusted EBITDAX and adjusted net income may not be comparable to other similarly titled measures of other companies. Certain Reserve Information Cautionary Note to U.S. Investors: The SEC prohibits oil and gas companies, in their filings with the SEC, from disclosing estimates of oil or gas resources other than reserves, as that term is defined by the SEC. This presentation discloses estimates of quantities of oil and gas using certain terms, such as estimated ultimate recovery, EUR or other descriptions of volumes of reserves, which terms include quantities of oil and gas that may not meet the SEC s definitions of proved, probable and possible reserves, and which the SEC s guidelines strictly prohibit the Company from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of being recovered by the Company. U.S. investors are urged to consider closely the disclosures in the Company s periodic filings with the SEC. Such filings are available from the Company at 3141 Hood Street, Suite 500, Dallas, Texas 75219, Attention: Investor Relations, and the Company s website at These filings also can be obtained from the SEC by calling SEC