The Permian: Value Drivers and Further Growth

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The Permian: Value Drivers and Further Growth Jessica Pair, Manager June 22, 216 UPSTREAM MIDSTREAM DOWNSTREAM FUEL & TRANSPORT

Value Drivers for Permian Performance What drives good results and generates good economics? There are a number of factors that result in a positive value for a drilling campaign, however the ultimate result can be judged on these basic factors: 1. Upstream Market Outlook Where will prices be? 2. Geographic Location of Basin Why is it valuable? 3. Completion Design How are wells being drilled and at what cost? 4. EUR (Estimated Ultimate Recovery) How much does the well produce? Upstream Outlook Location Completion EUR Where are prices heading? Where should we drill?? Price? Basin What works? at what cost?? Technique? Capex How much does it produce?? Mboe/Well Stratas Advisors. All rights reserved. 2

Upstream Market Outlook Upstream Outlook Where are prices heading? Location Completion EUR Where should we drill?? Prices? Basin What works? at what cost?? Technique? Capex How much does it produce?? Mboe/Well

MMboe $/bbl at WTI Upstream Outlook How will prices affect overall production? 18 16 14 12 1 8 $79 $95 $94 $98 $93 $5 $45 $54 $59 $12 $1 $8 $6 Shale resiliency to the depressed markets was tough at first; however, production has clearly been in decline more recently. Shale is expected to continue its struggle over the next couple years. Pent-up supply in Iran & Iraq, combined with challenged financial restructurings present notable hurdles to growing market share for US onshore. 6 4 2 $- 21 211 212 213 214 215 216 217 218 Permian Marcellus Eagle Ford Haynesville Bakken Rockies Utica Other $WTI Price Forecast $4 $2 We estimate prices will begin to recover in 217 and increase to over $5/Bbl at WTI Across the US, multiple plays have declined or shown a materially reduced rate of increase: Eagle Ford (decline) Bakken (decline) Rockies region (decline) Gassy-Regions (slowing) Stratas Advisors. All rights reserved. 4

MMboe $/bb at WTI Highlighting the Permian An Oasis in a Tough Environment 3.5 3. 2.5 2. 1.5 1..5 $79 $95 $94 $98 $93. $- 21 211 212 213 214 215 216 217 218 Permian $5 $WTI Price Forecast $45 $54 $59 $12 $1 $8 $6 $4 $2 The Permian continues to increase despite the current market environment. Multiple basins continue to attract investment: Several stacked pay zones allow for multiple hydrocarbon targets, With BE s in the low $3/bbl range for the top 25% of wells, the Permian reflects some of the lowest BE prices in US shale (high IP/EUR combined with easier access to transportation infrastructure) Large inventory of previously drilled VT and HZ wells Stratas Advisors. All rights reserved. 5

What basin is best? Upstream Outlook Where are prices heading? Location Completion EUR Where should we drill? What works? at what cost?? Price? Basin? Technique? Capex How much does it produce?? Mboe/Well

Permian Economics Where, within the core, are the best economics? (Assuming $6.mm per well D&C) Currently, unconventional drilling accounts for 65% of total completions in the Permian. Prior to 214, the Midland basin accounted for ~5% of completions and the Central Basin Platform (CBP) accounted for ~24%. (Focused within SW Midland basin counties and southern CBP counties) Median 3-Yr EUR s increase to the west of the Permian basin. Total Permian basin average EUR = 34 Mboe Median breakeven values range from low $4/bbl to above $7/bbl on a county-wide basis. Stratas Advisors. All rights reserved. 7 When highlighting the top 25% of wells drilled within each county, the median BE lowers to a range between $2-35/bbl.

Permian Economics Where, within the core, are the best economics? (Assuming $6.mm per well D&C) Currently, unconventional drilling accounts for 65% of total completions in the Permian. Prior to 214, the Midland basin accounted for ~5% of completions and the Central Basin Platform (CBP) accounted for ~24%. (Focused within SW Midland basin counties and southern CBP counties) Median 3-Yr EUR s increase to the west of the Permian basin. Total Permian basin average EUR = 34 Mboe Median breakeven values range from low $4/bbl to above $7/bbl on a county-wide basis. Stratas Advisors. All rights reserved. 8 When highlighting the top 25% of wells drilled within each county, the median BE lowers to a range between $2-35/bbl.

Permian Economics Where, within the core, are the best economics? (Assuming $6.mm per well D&C) Currently, unconventional drilling accounts for 65% of total completions in the Permian. Prior to 214, the Midland basin accounted for ~5% of completions and the Central Basin Platform (CBP) accounted for ~24%. (Focused within SW Midland basin counties and southern CBP counties) Median 3-Yr EUR s increase to the west of the Permian basin. Total Permian basin average EUR = 34 Mboe Median breakeven values range from low $4/bbl to above $7/bbl on a county-wide basis. Stratas Advisors. All rights reserved. 9 When highlighting the top 25% of wells drilled within each county, the median BE lowers to a range between $2-35/bbl.

Permian Economics Where, within the core, are the best economics? (Assuming $6.mm per well D&C) Currently, unconventional drilling accounts for 65% of total completions in the Permian. 57 447 313 EUR/ Well Prior to 214, the Midland basin accounted for ~5% of completions and the Central Basin Platform (CBP) accounted for ~24%. (Focused within SW Midland basin counties and southern CBP counties) Median 3-Yr EUR s increase to the west of the Permian basin. Total Permian basin average EUR = 34 Mboe Median breakeven values range from low $4/bbl to above $7/bbl on a county-wide basis. Stratas Advisors. All rights reserved. 1 When highlighting the top 25% of wells drilled within each county, the median BE lowers to a range between $2-35/bbl.

Total Well Completions Permian Basin Where is Activity Focusing? 2,5 2, 1,5 1, 5 In 212, almost 9, wells were completed within the overall Permian basin (TX + NM) 62% stemmed from the Midland basin, and 22% came from the Delaware. In 214, well completions decreased by 1% over 212 levels, and in 215 completions dropped 47% over the same period. In 215, completion trends in the Midland basin have held steady while completions in the Delaware have increased by ~22%. Despite drops in completions, production continues to rise due to efficiency gains, expanding target formations, and aligning proppant type to completion designs. New drill locations have begun to hone in on core counties within the Midland and Delaware basins: Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Delaware: Reeves and Loving Midland: Reagan and Midland Stratas Advisors. All rights reserved. 11

% Completions by County Permian Basin Where is Activity Focusing? 1% 9% 8% 7% 6% 5% Midland Basin In 212, almost 9, wells were completed within the overall Permian basin (TX + NM) 62% stemmed from the Midland basin, and 22% came from the Delaware. In 214, well completions decreased by 1% over 212 levels, and in 215 completions dropped 47% over the same period. In 215, completion trends in the Midland basin have held steady while completions in the Delaware have increased by ~22%. 4% 3% 2% 1% % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 MIDLAND REAGAN UPTON MARTIN GLASSCOCK HOWARD IRION CULBERSON CROCKETT STERLING BORDEN DAWSON Despite drops in completions, production continues to rise due to efficiency gains, expanding target formations, and aligning proppant type to completion designs. New drill locations have begun to hone in on core counties within the Midland and Delaware basins: Delaware: Reeves and Loving Midland: Reagan and Midland Stratas Advisors. All rights reserved. 12

% COmpletions by County Permian Basin Where is Activity Focusing? 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Delaware Basin In 212, almost 9, wells were completed within the overall Permian basin (TX + NM) 62% stemmed from the Midland basin, and 22% came from the Delaware. In 214, well completions decreased by 1% over 212 levels, and in 215 completions dropped 47% over the same period. In 215, completion trends in the Midland basin have held steady while completions in the Delaware have increased by ~22%. Despite drops in completions, production continues to rise due to efficiency gains, expanding target formations, and aligning proppant type to completion designs. New drill locations have begun to hone in on core counties within the Midland and Delaware basins: % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 REEVES LOVING EDDY WARD PECOS Delaware: Reeves and Loving Midland: Reagan and Midland Stratas Advisors. All rights reserved. 13

How are wells being completed? Upstream Outlook Where are prices heading? Location Completion EUR Where should we drill? What works? at what cost?? Price? Basin? Technique? Capex How much does it produce?? Mboe/Well

Average # of Days to Drill Average Lateral Length (Ft) Average Proppant Mass per Foot (Lbs/Ft) Average Lateral Length (Ft) Permian Basin What is happening with lateral lengths and cycle times? 45 Avg Days to Drill vs. Lateral Length: Q1 14-Q1 16 6, 1,2 Avg Proppant per Lateral Foot vs. Lateral Length: Q1 14-Q1 16 6, 4 5, 1, 5, 35 3 4, 8 4, 25 3, 6 3, 2 15 2, 4 2, 1 1, 2 1, 5 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Average of Lateral Length (Ft) Average of Days to Drill Average of Lateral Length (Ft) Average of Propp Per Lat Foot (Lbs/Ft) Average lateral lengths in the basin are currently 4,875 ft, up over 8% from early 212 levels, which averaged only 2,687 Ft. Current proppant per lateral foot (1,153 lbs/ft) has more than doubled since early 212 (572 lbs/ft). Stratas Advisors. All rights reserved. 15

% of Frac Type Used % of Proppant Used Permian Basin How are wells being completed? 1% Frac Type Market Share: Q1 14-Q1 16 Proppant Type Market Share: Q1 14-Q1 16 1% 9% 9% 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Slickwater SlickCrossLinkHyb CrossLink SlickLinGelHyb LinearGel Acid Foam CO2 N2 Sand Only Sand + Resin Resin Only Sand + Resin + Ceramic Propless Sand + Ceramic Ceramic Only Resin + Ceramic The Permian has shifted to using slickwater fracs. Data since Jan. 216 indicates this method in over 5% of completions, basin-wide. Sand has typically been widely used as the preferred proppant type; however, starting in 215, it became the dominate proppant type, reflected in almost 65% of all completions. Stratas Advisors. All rights reserved. 16

Permian Basin Breakeven versus EUR profile $1 Median BE by SubBasin ($/bbl at WTI) $9 $8 $7 $6 $5 $4 $3 $2 $1 $ 213 214 215 Central Basin Platform Delaware Midland Northwest Shelf Stratas Advisors. All rights reserved. 17

Permian Basin Breakeven versus EUR profile $4 Median Breakeven of Top 25% of Wells Drilled ($/bbl at WTI) Top 25% of Wells Drilled: 212-215 $35 $3 $25 SubBasin Northwest Shelf Median EUR (Mboe) Median BE ($/bbl at WTI) 258 $ 31.8 $2 $15 Delaware 269 $ 33. Midland 264 $ 3.6 $1 $5 Central Basin Platform 275 $ 31.8 $ 213 214 215 Delaware Central Basin Platform Northwest Shelf Midland Stratas Advisors. All rights reserved. 18

Core County Case Studies

Average # of Days to Drill Average Lateral Length (Ft) Average Proppant Mass per Foot (Lbs/Ft) Average Lateral Length (Ft) Loving County Median EUR of 57 Mboe and Median BE of $28/bbl for Top 25% of Wells 5 Avg Days to Drill vs. Lateral Length: Q1 14-Q1 16 6, 1,6 Avg Proppant per Lateral Foot vs. Lateral Length: Q1 14-Q1 16 6, 45 4 5, 1,4 1,2 5, 35 3 4, 1, 4, 25 3, 8 3, 2 15 1 5 2, 1, 6 4 2 2, 1, Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Average Lateral Length (Ft) Average of Days to Drill Average Lateral Length (Ft) Average Proppant Per lat Foot (Lbs/Ft) Stratas Advisors. All rights reserved. 2

% of Frac Type Used % of Proppant Used Loving County How are wells being completed? Frac Type Market Share: Q1 14-Q1 16 Proppant Type Market Share: Q1 14-Q1 16 1% 1% 9% 9% 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Slickwater CrossLink SlickCrossLinkHyb LinearGel SlickLinGelHyb Sand Only Sand + Resin Sand + Ceramic Ceramic Only Propless Resin + Ceramic Resin Only Sand + Resin + Ceramic Stratas Advisors. All rights reserved. 21

Average # of Days to Drill Average Lateral Length (Ft) Average Proppant Mas per Lateral Foot (Ft) Average Lateral Length (Ft) Reeves County Median EUR of 447 Mboe and Median BE of $26/bbl for Top 25% of Wells Avg Days to Drill vs. Lateral Length: Q1 14-Q1 16 Avg Proppant per Lateral Foot vs. Lateral Length: Q1 14-Q1 16 7 6, 1,4 6, 6 5, 1,2 5, 5 4, 1, 4, 4 8 3, 3, 3 6 2 2, 4 2, 1 1, 2 1, Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Average Lateral Length (Ft) Average of Days to Drill Average Lateral Length (Ft) Average Proppant Per lat Foot (Lbs/Ft) Stratas Advisors. All rights reserved. 22

% of Frac Type Used % Proppant Used Reeves County How are wells being completed? Frac Type Market Share: Q1 14-Q1 16 Proppant Type Market Share: Q1 14-Q1 16 1% 9% 8% 7% 1% 9% 8% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Slickwater SlickCrossLinkHyb CrossLink SlickLinGelHyb LinearGel % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Sand Only Sand + Resin Sand + Ceramic Ceramic Only Propless Resin + Ceramic Resin Only Sand + Resin + Ceramic Stratas Advisors. All rights reserved. 23

Average # of Days to Drill Average Lateral Length (Ft) Average Proppant Mass per Lateral Foot (Lbs/Ft) Average Lateral Length (Ft) Midland County Median EUR of 313 Mboe and Median BE of $26/bbl for Top 25% of Wells Avg Days to Drill vs. Lateral Length: Q1 14-Q1 16 Avg Proppant per Lateral Foot vs. Lateral Length: Q1 14-Q1 16 6 7, 1,4 7, 5 6, 1,2 6, 4 5, 1, 5, 4, 8 4, 3 3, 6 3, 2 2, 4 2, 1 1, 2 1, Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Average of Lateral Length (Ft) Average of Days to Drill Average of Lateral Length (Ft) Average of Propp Per lat Foot (Lbs/Ft) Stratas Advisors. All rights reserved. 24

% Frac Type Used % Proppant Type Used Midland County How are wells being completed? Frac Type Market Share: Q1 14-Q1 16 Proppant Type Market Share: Q1 14-Q1 16 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Sand Only Sand + Resin Sand + Resin + Ceramic Sand + Ceramic Slickwater SlickCrossLinkHyb SlickLinGelHyb CrossLink Acid LinearGel Propless Ceramic Only Resin + Ceramic Resin Only Stratas Advisors. All rights reserved. 25

In Conclusion Do the economics in the Permian work within today s market? The core of the Permian resides heavily within approximately 4 counties in terms of EUR and BE s below $5-6/bbl. These counties demonstrate median EUR s >25 Mboe, with the largest EUR of 57 Mboe in Loving County. The core of the core lives within Loving, Reeves, and Midland counties. With a median BE below $3/bbl and EUR between 3-5 Mboe within the top 25% of wells drilled, within these top 3 counties, the core of the play can continue unharmed in the current market. Completions trends have shifted to using more raw sands as the main proppant source. Operators are also increasing the use of slickwater fracing as a cheaper yet effective method for enhancing ultimate recovery rates. Under an assumed market price of approximately $44/Bbl, the Permian will likely continue its forward momentum and remain the top producer in terms of activity and cost in NA. We will likely see more A&D and activity shifts into the basin where operators can maximize recovery potential under minimal capital investment. Stratas Advisors expects that the upstream market will continue to show signs of improvement through 217, with average WTI prices hovering around or above $5/bbl, which we believe will allow other areas to rebuild and ultimately grow market share. Stratas Advisors. All rights reserved. 26

Jessica Pair jpair@stratasadvisors.com 713-26-464 Q & A

We can help you develop a deeper understanding of the developments that are shaping the future of oil & gas. Our support includes customized consulting that is focused on a client s specific strategic objectives, competitive challenges & asset base. Additionally, we offer support through subscription services & comprehensive market studies. UPSTREAM MIDSTREAM DOWNSTREAM FUEL & TRANSPORT 1616 South Voss Road Suite 675 Houston, TX 7757 United States TEL +1.713.26.6426 stratasadvisors.com Brussels Denver Houston London Melbourne New York San Diego Singapore W ashington, D.C.

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