E&P Operator Trends to Vertical Integration: Service Company Threat?

PacWest Consulting Partners 920 Memorial City Dr, Suite 160

Houston, TX 77024

E&P Operator Trends to Vertical Integration Strategic Threat to Service Companies?

Houston, Texas

November 14, 2011

TERMS & CONDITIONS Information furnished in all reports produced by PacWest may be used by Client for internal purposes, as Client deems beneficial, as long as due care is taken to hold the information confidential within Client’s organization and PacWest is not liable for the information provided. All rights to the information remain with PacWest. PacWest represents that it will not breach any obligation of confidentiality with respect to information contained in the study. PacWest will maintain in confidence and not disclose any information related to Client, without prior written consent of the Client. PacWest will not disclose to any person, including, without limitation, any of the Client’s competitors or suppliers, the fact that Client has engaged PacWest in this project scope, the scope of the assignment or any other information relating to Client.

Client Confidential

E&P VERTICAL INTEGRATION

© PacWest 2011 | All rights reserved | 2

Contents

1. PacWest Snapshot

2. Operator Vertical Integration

3. PacWest Market Intelligence Offerings

Client Confidential



Firm Overview & Capabilities

PacWest is a boutique strategy consultancy and market intelligence firm that specializes in unconventional oil & gas

Provide strategy consulting and advisory services to Oil & Gas

Strength in Oil & Gas supply market

- Often work with operator supply chain groups analyzing supply/demand, developing sourcing strategies, building capabilities, etc.

With oilfield suppliers, often work at C-Level or business lead

Consulting & Advisory

Offer industry-leading analysis of unconventional market

Deep knowledge and strength in the pressure pumping / frac market

Employ combination of primary intelligence + secondary research

Unique in market: apply strategy consulting capabilities to turn research into actionable intelligence

Market Intelligence Products

All key staff come from top-tier strategy firms; consulting and market intelligence capabilities reinforce/inform each other

Client Confidential



Sample of Recent PacWest Consulting Projects

A sampling of some of PacWest’s recent projects demonstrate our depth of experience in North American and international shale

We have resources in nearly every major unconventional country/region to support international shale needs

PacWest Project Client Outcome

Analyzed Bakken & Eagle Ford supply/demand; conducted demand planning exercise to develop new pressure pumping sourcing/contract strategy

Operator avoided completion delays, avoided significant additional costs

Developed Poland unconventional market entry, product/service, and JV strategy for a potential shale service company for a private equity client

PE firm focused on high-growth segments only, with the right strategic partners

Developed an innovative economic and strategic analysis of operator all-in water management costs over 20-year timeframe, for Bakken & Eagle Ford assets

Operator understood cost implications, made optimal economic decisions

Conducted a study of frac pump market focused on supplier strategic plans, manufacturing capabilities, and supply chain capabilities

Equipment manufacturer developed optimal strategic investment plans

Conducted study of evolving service company landscape in Poland, including equipment, resources, and expansion plans

Operator made better informed contract award decision

Client Confidential



Contents

1. PacWest Snapshot



Client Confidential



Contents

1. PacWest Snapshot


Drivers

Integrated Operators

Integrated Services

Pioneer Case Study

Southwestern Case Study

Strategic Implications


Client Confidential



As oil/liquids-driven activity has increased, vertical integration has become the hot new sourcing strategy amongst some operators

New Sourcing Strategy or Near-term Solution?

■ Some operators have been increasing pursuing vertical integration for key goods/services

- Is this a sourcing fad or new operator best practice?

- What is driving this trend?

- What type/size of operators are pursuing this strategy?

- What does this mean to service companies?

Client Confidential



Vertical integration is driven by two primary factors: pricing and challenges obtaining equipment/services when needed

Drivers of Vertical Integration

■ Pricing pressures continue

- Supply/Demand fundamentals have driven major pricing increases across nearly every product/service

- Significant price escalation is projected to continue through 2012

- Some operators boast significant well cost savings from vertical integration

■ Security of supply is challenged

- US onshore operators continue to announce record breaking drilling programs

- Large backlogs of uncompleted wells exists for nearly every major onshore player

- Infrastructure challenges in key operating regions cause additional supply chain constraints (e.g., Bakken)

- Service companies are forced to prioritize supply of key products/services to their key customers

In addition to securing supply, some operators boast significant average well cost savings from vertical integration

Client Confidential



Contents

1. PacWest Snapshot


Drivers


Integrated Services

Pioneer Case Study




Client Confidential



A significant number of small- to medium-sized operators are currently pursuing vertical integration strategies

Vertically Integrated Operators

■ The following peers have pursued vertical integration in one or more services:

: Project Scope

Note: List of firms does not include all firms that are vertically integrated Source: PacWest analysis, company presentations, company 10-Ks

Client Confidential



The production base (i.e. cash flows) of operators pursuing vertical integration varies significantly

2010 Production (MMboe)

273

173

141

70

42

21 15 2

-

50

100

150

200

250

300

OXY CHK EOG SWN PXD SD Lewis OAS

Average = 92

Source: PacWest analysis, company presentations, company 10-Ks

Client Confidential



The scale of activity that vertically integrated operators are undertaking also varies significantly

2010 Capital Spend and Wells Drilled

US Land Capex ($billion)

0.3

0.5

0.6

0.9

1.6

2.1

5.1

8.7

0.0 2.0 4.0 6.0 8.0 10.0

OAS

SD

Lewis

PXD

OXY

SWN

EOG

CHK

US Wells Drilled

Average = 2.5 29

47

424

473

536

704

895

1,149

- 500 1,000 1,500

OAS

Lewis

SD

PXD

OXY

SWN

EOG

CHK

Average = 532

Note: Data is estimated for some operators as not all peers provide sufficient granularity in capital spending guidance; SWN wells drilled figure includes 9 gross wells drilled in Arkoma Conventional asset; Lewis Energy wells estimated based on Oasis wells/spend ratio Source: PacWest analysis, company presentations, company 10-Ks, Oil and Gas Investor

Client Confidential



Contents

1. PacWest Snapshot


Drivers


Integrated Services

Pioneer Case Study




Client Confidential



Some operators have chosen to vertically integrate across just a handful of service categories

Vertical Integration by Operator & Category Operator

Pressure Pumping

Proppant Coiled Tubing Rigs Logistics

Source: PacWest analysis, company presentations

Client Confidential



Four operators own a total of 15 pressure pumping fleets (by mid-2012) with an estimated total of 530,000 HHP

Pressure Pumping Vertical Integration

■ Chesapeake owns pressure pumping subsidiary Performance Technologies

■ Performance operates 2 fleets/60,000 HHP in MidCon and adding another 2 fleets/80,000 HHP by EOY 2011

■ Also has 15% stake in Frac Tech Services (more of a financial/hedging strategy)

■ Lewis Energy owns 2 fleets/60,000 HHP of pressure pumping capacity that it operates in the Eagle Ford

■ Pioneer currently owns 8 fleets/225,000 HHP that it operates in Spraberry (5 fleets), Eagle Ford (2 fleets), and Barnett (1 fleet)

■ Expects delivery of 3 additional fleets by mid-2012; plans to deploy them to Spraberry

■ Also owns/operates 4 CT units in Eagle Ford and Raton Basin

■ Spending $24 million to launch Oasis Well Services subsidiary

■ Committed to buying 1 single frac fleet to operate in the Bakken; likely plans to add additional fleet once it has ramped up operations

Client Confidential



Proppant Vertical Integration

EOG and Southwestern have each brought a frac sand quarry online in the last few months

Source: PacWest analysis

Southwestern

Spent $30 million in 2008 to acquire reserves in Arkansas and set up a plant

Quarry currently yielding 0.65 million tpa

Quarry went live in 2009 Q2 and supplies an estimated 70% of company sand demand

Estimates savings of $150,000 per well

EOG

Spent $65 million to set up a frac sand quarry and plant in Chippewa, Wisconsin, with a capacity of 1.7 million tpa

Sand planned for use in Eagle Ford where C&J is doing the majority of pumping under a dedicated contract

Rail contract in place with Progressive Rail and Union Pacific and trucking handled by a local company, Chippewa Sand Transport

Estimates savings of $0.5 million/well

Also operates a 2nd frac sand quarry near Ft. Spunky in Texas that it bought in 2007 H1 for Barnett pumping

Client Confidential



Five operators own/operate a total of nearly 200 drilling rigs across their US operations

Rigs Vertical Integration

■ Owns a total of ~115 drilling rigs across 2 drilling rig subsidiaries

■ Nomac owns ~95 rigs; launched in 2001 with $26 million investment

■ Acquired Bronco Drilling (22 rigs) in Apr 2011 for $315 million

■ Plans to add another ~30 newbuild by 2013; goal is to own 2/3rds of total rigs

■ Recently added 3 drilling rigs to bring total company-owned rig count to 13

■ All rigs are operating in South Texas

■ Currently owns/operates 15 rigs in the Spraberry, 40% of its total rig count

■ Also owns/operates 2 additional rigs in its Raton Basin asset

■ Set up a drilling subsidiary in 2005, DeSoto Drilling Inc. (DDI), which owns 11 rigs

■ DDI owns/operates 11 rigs, all but one of the horizontal rigs in play; remaining rig is on month-to-month contract

■ Owns 20 drilling rigs total: 14 in Permian, 5 in MidCon, and 1 in WTO

■ Owns a small fleet of workover rigs

Client Confidential



Contents

1. PacWest Snapshot


Drivers


Integrated Services

Pioneer Case Study




Client Confidential



Pioneer’s 2011 capital spend is forecast to be $2.1 billion, with 62% allocated to Permian and 13% to vertical integration

Pioneer 2011 Capital Spend ($billion)

0.3

0.9

1.6

1.7

1.7

2.1

2.3

2.8

2.9

5.2

6.4

0.0 2.0 4.0 6.0 8.0

MUR

NBL

MRO

APA

HES

PXD

DVN

OXY

APC

CHK

EOG

Note: Data is estimated for some peers are not all peers provide sufficient granularity in capital spending guidance

$0.10 $0.10

$0.12

$0.21

$0.30 $1.30

Alaska Other Eagle Ford

Barnett Combo Vertical Int./Facil. Spraberry

Average = 2.6

US Land Capex Pioneer Capex


Client Confidential



Pioneer’s vertical integration strategy extends to rigs, pressure pumping equipment, and various other surface equipment

Pioneer’s Vertical Integration Approach

■ Pioneer has chosen to vertically integrate (i.e. own and operate) many of its critical services that are typically delivered by service companies and are generally the largest spend categories

■ It has vertically integrated in the following service areas:

- Drilling rigs: currently owns 15 rigs

- Frac fleets: by year-end 2011, it will own 8 frac fleets and it expects delivery of 3 fleets in mid-2012 for a total of roughly 300,000 HHP that is company-owned

- Coiled tubing units: by year-end, it will own 4 CT units

- Pulling units: currently owns 31 pulling units

- Various other equipment including water hauling trucks, BOPs, frac tanks, etc.

- Also includes yards, buildings, and storage facilities to support vertical integration

■ While the company does not own frac sand quarries itself (as does EOG), it does source its frac sand directly, through Carmeuse and potentially suppliers, rather than relying on 3rd parties

- It has sand supply in place through 2015

■ It has also contracted for cementing services through 2016

■ Pioneer received 12 rigs and 3 frac fleets near year-end 2010; given equipment order lead times, it likely began implementing its vertical integration strategy during the middle of 2010


Client Confidential



Pioneer has pursued vertical integration in all of its core unconventional assets that it is currently developing

Pioneer Assets

PXD Asset Details Vertical

Integration

Permian Largest operator in the Spraberry trend and is one of the most active developers in the Permian

Raton Basin

Largest operator in the Raton CBM basin where it is focused on shale resource development

Eagle Ford Owns 310,000 gross acres which it is aggressively developing

Barnett Combo

Owns significant assets in the wet gas zone of the play in the NW; currently developing

Alaska Entered the North Slope in 2002 and discovered the Oooguruk gas field in 2003, which it brought online in 2008

South Africa

45% interest owner with PetroSA in offshore asset that now produces small amount of gas

Hugoton Operates 600+ gas wells and has working interest in 1200+; owns majority of gathering/processing infrastructure; new development activity minimal until gas prices recover

Edwards Long history in the trend; development minimal until gas prices recover Source: PacWest analysis, company presentations

Client Confidential



Spraberry is Pioneer’s core asset accounting for nearly two-thirds of capex and it has pursued vertical integration most aggressively here

Pioneer Spraberry Development

Supply Discussion 2011 Wells Put on Production

■ Quarter-by-quarter supply chain activity:

- Q1: 4 frac fleets (3 company-owned, 1 dedicated 3rd party)

- Q2: in May increased to 6 frac fleets (4 company-owned, 2 dedicated 3rd party)

- Q4: Adding 5th company-owned frac fleet

■ The company owns 14 drilling rigs (40%)

■ As of Q4, the company will own 5 frac fleets, representing 71% of capacity, in addition 2 dedicated fleets with Baker Hughes

- Ordered an additional 3 fleets which it expects to receive in mid-2012

■ The company also owns 23 pulling units and various other equipment, including water hauling trucks, frac tanks, BOPs, construction equipment, and fishing tools

110

146

230 235

-

50

100

150

200

250

Q1 Q2 Q3E Q4E

Source: PacWest analysis, company presentations (in some cases, exact well counts are estimates)

Rigs 30 35 45 by YE

Client Confidential



Pioneer is running 12 rigs in the Eagle Ford and has deployed company-owned frac fleets and coiled tubing units in the play

Pioneer Eagle Ford Development

Supply Discussion 2011 Wells Put on Production

■ Quarter-by-quarter supply chain activity:

- Q2: deployed 1st company-owned frac fleet in addition to dedicated fleet

- Q3: brought 6th and 7th CGPs online

- Q4: Adding 2rd company-owned frac fleet; bringing 8th CGP online

■ As of Q4, the company will own 2 frac fleets, representing 67% of capacity, in addition to a dedicated frac fleet with Weatherford

- Second company-owned fleet is expected to be delivered during Q4

■ The company also owns a single coiled tubing unit and expects delivery of a second CT unit during Q4

■ Testing white frac sand (10 wells) in shallower areas; generating $700 million savings/well

4

18

35 35

-

10

20

30

40

Q1 Q2 Q3E Q4E

Rigs 8 10 12 12


Client Confidential



The company has also pursued vertical integration in the Barnett and Raton, its other two core unconventional resource plays

Pioneer Barnett & Raton Development

Raton Supply Discussion

■ The company currently owns 2 drilling rigs

■ The company currently owns 1 frac fleets

- Does not appear to be using any 3rd party pumpers for additional fracs

■ The company owns 2 coiled tubing units

■ The company owns 8 pulling units

■ The company also owns and operates a frac fluids laboratory in the Raton basin, which presumably serves all of Pioneer’s frac fleets across its assets


Barnett Supply Discussion

■ The company has 2 rigs currently under contract with 3rd parties

- Plans to increase to 4 rigs by year-end

■ Deployed 1 company-owned frac fleet in 2011 Q2

- Has also used Weatherford and Baker Hughes to frac wells

■ The company also owns a single coiled tubing unit and expects delivery of a 2nd CT unit during Q4

Client Confidential



Pioneer claims that its vertical integration model will generate a 45% IRR on a third-party savings basis, excluding managerial burdens

Pioneer Vertical Integration Savings

■ Pioneer has spent $440 million on vertical integration over 2011:

- $300 million for equipment delivered in 2011

- $140 million for equipment to be delivered in the middle of 2012 (3 frac fleets and other)

- Likely spent additional capital in 2009 to reserve orders

■ Pioneer claims that the $440 million investment will generate a 45% IRR before taxes, though that is strictly on a cash savings basis and does not include incremental managerial burdens of these “businesses”; does not consider cost of capital

Service Area/Savings Spraberry Eagle Ford Barnett Total

Frac Fleets

YE Fleets 5 2 1 8

Fracs/Fleet/Year ~115 ~55 ~60 ~93

Savings/Frac $0.35MM $1.70MM $0.75MM $0.58MM

Annual Savings $200MM $185MM $45MM $430MM

Rigs & Other Services

Annual Savings $30MM - - $30MM

Annualized Cash Savings $230MM $185MM $45MM $460MM Source: PacWest analysis, company presentations

Client Confidential



Contents

1. PacWest Snapshot


Drivers


Integrated Services

Pioneer Case Study




Client Confidential



Southwestern forecasts that it will spend $2 billion in capital over 2011, with nearly 2/3rd of that spend in the Fayetteville

2011 Capital Spend ($billion)

0.3

0.9

1.6

1.7

1.7

2.0

2.1

2.3

2.8

2.9

3.0

5.2

6.4

0.0 2.0 4.0 6.0 8.0

MUR

NBL

MRO

APA

HES

SWN

PXD

DVN

OXY

APC

MRO

CHK

EOG

Note: Data is estimated for some peers are not all peers provide sufficient granularity in capital spending guidance

61% 15%

9%

10%

3% 2%

Fayetteville Appalachia New Ventures

Midstream Corp Other Areas

Average = 2.6

US Land Capex Southwestern Capex


Client Confidential



Since 2007 Q1, Southwestern’s new producing wells per quarter has increased 25% YoY, while its rig count has decreased 11% YoY

Fayetteville Development, wells put on production (2007 Q1 – 2011 Q2)

58

46

74 77 75 83

97

74

120 111

93

122

106

143 145

159

137

149

-

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2


2007: 255

2008: 329

2009: 446

2010: 553 286

16 19 14 12 18 Rigs

Client Confidential



Southwestern has succeeded in reducing drilling days per well by 17% YoY for an average 53% reduction since 2007

Fayetteville Development


Well Cost Days to Drill

17

14

12 11

8

-

10

20

2007 2008 2009 2010 2011 H1

$2.90 $3.00 $2.90 $2.80 $2.80

$-

$1.00

$2.00

$3.00

$4.00

2007 2008 2009 2010 2011 H1

Client Confidential



Southwestern has chosen to pursue a vertical integration strategy only in its core Fayetteville asset

Southwestern Assets

SWN Asset Proved

Reserves (Bcf)

Details Vertical

Integration

Fayetteville 4,345

Focus of the company’s E&P operations; the company owns nearly 1 million net acres in the play; as of EOY 2010, company had spud 2,445 wells in play since commencement in 2004

Conventional Arkoma

226

Traditional area of operations located in western Arkansas; have recently expanded activity to the south and east of the traditional fairway area, but has significantly reduced capital spend

Appalachia 38 Owns nearly 175,000 net acres in play in NE Pennsylvania and have participated in a total of 25 wells since drilling commenced in 2009

East Texas 321 Active in region since 2000 in Cotton Valley and has expanded activities to target Haynesville/Bossier


Client Confidential



Southwestern’s vertical integration strategy extends to drilling rigs, sand, water sourcing, water hauling, in-field logistics, and civil works

Fayetteville Vertical Integration Strategy Frac Sand

Spent $30 million in 2008 to acquire reserves in Arkansas and set up plant

Quarry went live in 2009 Q2 and supplies roughly 70% of company sand demand, saving estimated $150,000 per frac job

Water Hauling

Owns a network of water hauling trucks to handle the majority of its water hauling needs internally

Drilling Rigs

Set up a drilling subsidiary in 2005, DeSoto Drilling Inc. (DDI), which owns 11 rigs

DDI owns/operates 11 rigs, all but one of the horizontal rigs in play; remaining rig is on month-to-month contract

Water Sourcing

Sources all water internally, though this is quite common among operators

Experimenting with fracs to reduce water consumption 10% (~$60,000/job)

The company claims to save an estimated $0.3 million per well as a result its vertical integration efforts

Civil Works/Well Site Prep

Company handles site work that contractors might otherwise do, particularly pressure pumpers

In-field Logistics

Owns a network of trucks to handle the majority of in-field hauling needs internally

Client Confidential



Southwestern employs Schlumberger, Calfrac, and Cudd for its pressure pumping services in the Fayetteville

Fayetteville Pressure Pumping Strategy

Source: PacWest analysis, PacWest FracDB, company presentations (in some cases, exact well counts are estimates)

Discussion 2011 Frac Jobs

20 21 29

25 29

14 15 17

14 13

16 16

18

15 13 11

10 9

11 11

10

9 7 4

0

10

20

30

40

50

60

Jan Feb Mar Apr May Jun Jul Aug

Southwestern employs three different pressure pumpers in the Fayetteville

- Schlumberger, Calfrac, and Cudd

Each pumper is on a 1-year contract that started in the February-March timeframe; each operates under a slightly different contract

- Contracts are bid year-to-year

The company’s pressure pumping demands are some of the most basic in the industry

- Frac depths range from 2,000 to 5,000 feet with ~5,000 feet laterals

- Currently running 100% slickwater fracs

Company has seen pressure pumping price increases in the 4-5% range over 2011, significantly less than most other operators in the area

Note: Data from Jun, Jul, and Aug does not yet include all fracs completed during those months

Legend: Schlumberger Calfrac Cudd

Pumper Share:

Schlumberger 48%

Calfrac 32%

Cudd 20%

Client Confidential



Contents

1. PacWest Snapshot


Drivers


Integrated Services

Pioneer Case Study




Client Confidential



If timed properly, vertical integration can yield significant near-term benefits to operators, but the model also entails significant risks

Vertical Integration Strategic Considerations

Risks

■ Bear risk of idle equipment/staff if price environment necessitates activity reduction

■ Added enterprise complexity can potentially serve as distraction for management/staff

■ Potentially increases per well costs if service business is not operated efficiently

Benefits

■ Ensures equipment availability and avoids delays during a tight supply market

■ Potentially lowers per well costs if service business is operated efficiently

Implications

■ Model can yield significant benefits during times of tight supply but those benefits become marginal as supply market loosens and turn negative as the market collapses

■ Operators need to be strategic about the “exit opportunity” – requires market foresight to know when the market is going to loosen and when to you should get out of the business

■ North American supply market is just beginning to loosen from its peak in mid-2011 and things appear to be likely to equalize by late-2012 or early-2013

– Market opportunity for vertical integration may be over for operators

Client Confidential



Greater operator vertical integration represents a potential strategic threat to service companies

Strategic Threat?

■ Larger independents increasing looking at peer’s well cost advantages with a keen eye

- Baker Hughes leadership should be aware of these cost advantages for pricing decisions

■ However, several factors reduce the vertical integration opportunity:

- Backlogs for frac fleets and other key equipment currently exceed 9-12 months in many cases

- Market tightness in key equipment and services appears to be loosening and moving towards a more stable balance – the ideal time to seize the opportunity was likely 12-18 months ago, when a handful of prescient operators placed orders

■ Given this, PacWest does not believe vertical integration is a new, long-term operator sourcing trend

- It is an interesting short- to medium-term trend to note and monitor, but it does not represent a meaningful strategic threat to service companies

Client Confidential



Contents

1. PacWest Snapshot



Client Confidential



Market Intelligence Offerings

PacWest currently offers multiple unconventional market intelligence product offerings to support subscriber decision-making

Breakdown of pressure pumping fleets/capacity by basin and supplier with strategic analysis of latest regional supply market trends

Interactive database of 100+ critical unconventional suppliers

Cost escalation forecast for major D&C categories

Detailed breakdown of frac activity by basin, operator, pumper

Database of fracs including basin, operator, pumper, chemicals, chemical suppliers

Client Confidential



PumpingIQ provides the only granular breakdown of regional fleets/capacity by pressure pumper and analysis of market trends

Focus Markets Fleet/Capacity Breakdown & Trends

Bakken

Eagle Ford

Permian

DJ Basin

Anadarko

Marcellus

Uinta/Piceance/Green River

Haynesville

Fayetteville

Barnett

On-going monitoring of pressure pumping fleets and capacity in major US onshore frac markets

Granular regional breakdowns of fleets/capacity by pumper

Key customers by pumper

Detailed discussion of major trends and strategic insights for each region and US market in aggregate

PumpingIQ is the only granular fleet breakdown available in the market

Client Confidential



SupplierIQ is an interactive database of 100+ suppliers that are critical players in shale supply markets

Profile Contents Supplier Analysis

PacWest Supplier Classification

Company Overview & Analysis

Service Offerings

Geographic Footprint

Financials

Customers

Organizational Footprint

Detailed discussion of Service Offerings: 15 product/services that are critical for shale production

Interactive database of 100+ companies that supply critical D&C products/services for shale production

Database is updated quarterly with new suppliers; updates made to existing suppliers bi-annually

Subscribers can request supplier additions

Offer two forms of subscription to database: full SupplierIQ access or a subset of suppliers, customized to subscriber needs

SupplierIQ provides insightful snapshots of your key suppliers and competitors

Client Confidential



CostIQ provides a forecast of cost increases for key drilling and completion cost drivers

Cost Segments Forecast Analysis

Drilling

- Land rigs

- OCTG

- Drilling fluids

- Cementing services

Completion

- Pressure pumping services

- Proppant

- Frac chemicals

- Completion hardware

- Completion rigs

3-year forecast of D&C cost escalation, segmented into major categories

Includes strategic discussion of trends driving increases and/or decreases

Updated bi-annually (every 6 months)

PacWest utilizes three quantitative methods to forecast prices changes for each market segment:

- Multi-variable regression

- Demand/supply models

- Macroeconomic models

CostIQ provides 3-year cost forecasts for each key US region

Client Confidential



FracIQ is the source of frac activity data by operator and pressure pumper, with data broken down US-wide and regionally

Contents Product Overview

Aggregate US fracs:

- By operator

- By pressure pumper

Regional breakdown of fracs:

- By operator

- By pressure pumper

- By frac type

Operator and pumper relationships

Frac practices, including chemicals usage

The definitive subscription publication on frac activity across the US

Summary of fracs by region, operator, pressure pumper

Market share by pumper and operator across multiple metrics

Strategic analysis of frac trends and market dynamics, including implications for operators, pressure pumpers, and other stakeholders

Updated quarterly

Your “Land Rig Newsletter” for the frac market – available late 2011

Client Confidential



FracDB is the definitive database of fracs and frac chemicals that can be used to conduct sophisticated market analyses

Data Elements Product Overview

Frac date

Well number, API number

Operator

TVD

Water volume

Pressure Pumper

Play

Chemical type

Chemical ingredient

Chemical supplier

Contact us for more detail

Database of US fracs and frac chemicals, built into a rich structured data set

- The data set already contains nearly 7,000 fracs conducted in 2011

A sophisticated tool that can be used to run a variety of analyses:

- Pressure pumping/frac market share

- Completion chemicals market share

- Regional frac design practices

- And dozens of other analyses…

Updated quarterly

FracDB is a powerful tool for the sophisticated market analyst – available late 2011

Client Confidential



The ShaleIQ bundled product provides access to 3 useful products at a reduced price point

Breakdown of pressure pumping fleets/capacity

by basin and supplier with strategic analysis of latest

regional supply market trends

Interactive database of 100+ critical

unconventional suppliers

Cost escalation forecast for major D&C categories

The ShaleIQ bundle is a valuable resource to add to your decision-making toolkit

Bundle Includes

Client Confidential



Actionable Intelligence

Transforms volumes of disparate market data, insider industry activity and expert input into strategic and actionable recommendations for decision-makers

Aggregates, organizes and distills a wide range of data and intelligence to provide information to our clients that is comprehensive, focused and strategic

Analyzes this information to assess its strategic implications and provide a clear path of action for each stakeholder

PacWest delivers actionable intelligence that is designed to provide strategic recommendations to key decision-makers

Decision-Makers

Client Confidential



Methodology

PacWest uses a multi-pronged approach to develop its market intelligence offerings; the team:

1) Gathers and reviews all information available publicly and via proprietary databases

2) Engages its diverse network of industry contacts to gather real-time intelligence

3) Processes and synthesizes raw information into actionable intelligence

PacWest employs a comprehensive methodology that relies on primary intelligence and rigorous research and analysis

Insights are based on:

Constant conversations with our source network of field experts on-the-ground

Surveys from operators and suppliers

In-depth interviews and conversations with operators and suppliers

Industry-leading experts and technical specialists

PacWest internal databases

Primary Intelligence Gathering

These sources are regularly consulted:

Market research and reports

Company annual reports, 10-Ks, 10-Qs

Speeches and presentations by company leadership and other industry experts

Analyst reports from leading banks

Government data

Secondary Research

E&P Operator Trends to Vertical Integration: Service Company Threat?

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Transcript of E&P Operator Trends to Vertical Integration: Service Company Threat?