GULF COAST NGI PERMIAN BASIN GAS & OIL SHALE/RESOURCE PLAYS FACTBOOK

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Steven Walton
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PERMIAN BASIN What a difference higher crude oil prices can make. One of s analysts remembers an early 1999 business trip he took to the oil focused Permian Basin.

1 PERMIAN BASIN What a difference higher crude oil prices can make. One of s analysts remembers an early 1999 business trip he took to the oil focused Permian Basin. Crude oil prices were less than $20 per barrel back then, and this one town we visited was practically all boarded up. We stopped to ask a woman at a gas station where there was a good place to eat in town. She said about the only place still open was an Outback Steakhouse along the highway. When we said that sounded good, she screamed, Wow, y all must be rich! Fast forward to 2014, when the fortunes of many in the Permian Basin have taken a dramatic turn for the better, thanks in no small part to WTI prices that have surpassed $90 per barrel. Between , the overall drilling rig count and permits issued on the Texas side of the Permian grew at respective trend-line growth rates of 16% and 11% per year. Not bad for a mature play that first began producing more than 90 years ago. Two things stand out in the graph to the right, all that permitting activity has led to a significant increase in oil production in the area, with monthly Permian crude production across Texas and New Mexico rising from 843,000 barrels per day in January 2008 to an estimated 1,335,000 barrels per day by January While the pace of growth has declined since mid-2012, leading to flattish monthly production totals in the second half of 2013, we believe this is mostly the result of a lack of infrastructure and takeaway capacity, particularly in some of the more emerging portions of the play. We believe there is another 1,600,000 barrels per day of crude oil capacity slated to come on line by the end of 2015, including 700,000 barrels per day of additional capacity announced by Plains All-American in early December Two things stand out in the graph below that underscore the renewed interest in the Permian these days. One is that the Permian continues to account for a greater percentage of drilling activity in the U.S. In February 2011, the Permian claimed 21.7% of the total working rigs in the United States. That figure climbed to 26.8% as of December 13, The other, which we believe represents an important secular change, is that horizontal and directional drilling are becoming far more prevalent in the region. More traditional, vertical rigs represented 80% of the rigs in the Permian in February 2011, but that figure was down to just 49% in December

2 GAS & OIL SHALE/RESOURCE PLAYS FACTBOOK So why the big change? Certainly higher oil prices have played a big role, as previously mentioned. But the other main reason is that unconventional formations are quickly rising to prominence in the Permian, and that is attracting more investment capital to the region. Moreover, many counties in the Permian are underlain by several stacked formations that not only offer more potential reserves over the same acreage, but also improve well economics because operators can target multiple pay zones with the same well bore. For example, the Midland Basin is being actively drilled for both the Wolfcamp and Spraberry formations, while the Delaware Basin features the Wolfcamp and the Bone Springs intervals. We summarize the more prominent resource plays within the Permian in the following table: Resource Play Type/Primary Target Location Sub-Basin Abo Formation Tight Sands Oil NM, W. TX Northwestern Shelf Avalon Shale Shale Gas NM, W. TX Delaware Bone Springs (2nd & 3rd) Tight Sands Oil NM, W. TX Delaware Cline Shale Shale Oil W. TX Midland, Eastern Shelf Spraberry Tight Sands Oil W. TX Midland Wolfberry Shale/Tight Sands Oil W. TX Midland Wolfbone Shale/Tight Sands Oil W. TX Delaware Wolfcamp Shale Shale Oil NM, W. TX Delaware, Midland Yeso Formation Carbonate Oil NM Northwestern Shelf As alluded to above, the Permian basin can be broken down into a series of sub-basins, including (moving generally from west to east) the Northern portion of the Delaware Basin and the Northwestern Shelf in New Mexico, and the Southern portion of the Delaware Basin, the Central Basin Platform, the Midland Basin, and the Eastern Shelf in Texas. Most of the unconventional activity to date within the Permian has been focused within the Midland and Delaware Basins, with a good amount of activity in the Abo/Yeso intervals in the Northwestern Shelf as well. Noticeably absent from the surge in unconventional drilling is the Central Basin Platform (CBP), which we believe tends to feature more conventional formations and waterflood & CO2 operations. However, that is not to say that the CBP does not play a major role in the Permian. As shown in the map below, the CBP contains Andrews, Ector, and Gaines Counties, TX, three of the most prolific crude producing counties in the Permian. The Wolfcamp Shale underlies the CBP, so there is some potential unconventional upside to this area as well. Occidental Petroleum is easily the largest oil producer on the Texas side of the Permian, producing more than twice the amount of #2 Pioneer Natural Resources in Rounding out the top 5 are Apache Corporation, Kinder Morgan Production Co., and ExxonMobil/XTO Energy. There appears to be some disagreement among several prominent sources as to which counties should be included in the Permian Basin. The Railroad Commission of Texas (RRC) includes all counties within its Districts 7C, 8, and 8A in the varying production and other operating statistics that appear on the Permian Basin portion of its webpage, yet it includes a different slate of counties in its official definition of the play on that same site. The U.S. Energy Information Administration assumes its own mix of counties in its production estimate of the play, and the Permian Basin Coalition uses a slightly different combination as well. We summarize these variances in the following table. 24 Published by naturalgasintel.com News Data Prices Insight... since 1981 Copyright Intelligence Press, Inc.

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4 GAS & OIL SHALE/RESOURCE PLAYS FACTBOOK Counties Our definition of the Permian includes all counties identified by the Texas Railroad Commission, EIA, and Permian Basin Coalition as being prospective for the Permian that had any actual crude oil production through the first 10 months of NOTE: this list includes counties whose production rounded to 0.0 in the Estimated Cumulative Jan-Oct 2013 Permian Basin Crude Oil Production By County chart above. Texas: Andrews, Borden, Cochran, Coke, Concho, Cottle, Crane, Crockett, Crosby, Culberson, Dawson, Dickens, Ector, Edwards, Floyd, Gaines, Garza, Glasscock, Hale, Hockley, Howard, Irion, Kent, Kimble, King, Knox, Lamb, Loving, Lubbock, Lynn, Martin, McColluch, Menard, Midland, Mitchell, Motley, Nolan, Pecos, Reagan, Reeves, Runnels, Schleicher, Scurry, Sterling, Stonewall, Sutton, Taylor, Terrell, Terry, Tom Green, Upton, Val Verde, Ward, Winkler, Yoakum New Mexico: Chaves, Eddy, Lea, Roosevelt Permian NatGas Pipelines Atmos, El Paso, Energy Transfer, Enterprise Texas Pipeline, KM Texas, NGPL, Northern Natural, Oneok Westex Transmission, Transwestern, Waha Hub Permian Net Acreage Positions Last Updated December 2013 Company Net Acres Company Net Acres Occidental Petroleum 1,745,000 Quicksilver Resources 26,250 Apache* 1,600,000 Resolute Energy 24,800 Chevron 1,500,000 Chaparral Energy 19,000 Devon Energy 1,300,000 Eagle Rock Energy Partners* 16,090 ConocoPhillips 1,100,000 Sandridge 15,500 Pioneer Resources 640,000 Three Rivers Natural Resource Holdings II 15,000 Concho Resources 630,000 EV Energy Partners 11,778 Shell 618,000 Caza Oil & Gas 3,312 Cimarex 437,693 Big Sky Petroleum 2,300 BHP Billiton 433,000 PetroQuest 1,600 ExxonMobil 400,000 Adams Resources Exploration N/A Anadarko Petroleum 330,000 Bopco LP N/A EOG Resources 320,000 Citation Oil & Gas N/A Energen 300,000 Endeavor Energy Resources N/A Clayton Williams 170,000 Fasken Oil & Ranch N/A FireWheel Energy LLC 150,000 Field Point Petroleum N/A Approach Resources 148,000 Halcon Resources N/A EP Energy 138,130 Henry Resources N/A Whiting Petroleum 128,317 Hess N/A Linn Energy 1 104,000 JM Cox Resources N/A Broad Oak Energy 65,000 LCX Energy N/A Diamondback Energy 65,000 Legacy Resources N/A Forest Oil 63,500 Lynden Energy N/A Vanguard Natural Resources* 61,415 Mewbourne Oil N/A Berry Petroleum 60,000 Parallel Petroleum N/A CrownQuest 60,000 Richland Resources N/A EXCO Resources 46,712 Sheridan Production Partners II N/A 26 Published by naturalgasintel.com News Data Prices Insight... since 1981 Copyright Intelligence Press, Inc.

5 Permian Net Acreage Positions Last Updated December 2013 Company Net Acres Company Net Acres Abraxas Petroleum 42,092 SM Energy N/A Callon Petroleum 32,600 Statoil N/A W&T Offshore 30,900 Summit Energy N/A Range Resources 2 30,000 U.S. Energy N/A Antares Energy 29,880 Unit Petroleum N/A ENI 26,250 Yates Petroleum N/A In a March 2011 investor presentation, Occidental Petroleum notes that there are more than 1,500 operators in the Permian basin. *Estimate 1 Pro forma for East Goldsmith acquisition 2 Assumes successful sale of 70,000 acres announced 12/3/2013 Source: Compiled by s Shale Daily from company documents 27

The New Horizontal Permian Basin

The New Horizontal Permian Basin Joseph Bachmann 504.582.2637 josephb@howardweil.com Philip Stuart 504.582.2554 philips@howardweil.com Brian Corales 504.582.2555 brianc@howardweil.com Blake Fernandez 504.582.2528 blakef@howardweil.com