Cost Effective Ways of Large Scale
Wolfcamp Development
J Ross Craft, P.E., Chairman, President & CEO
Forward-looking statements
2
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical facts, included in this presentation that address activities, events or developments that the Company expects, believes
or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this
presentation specifically include the expectations of management regarding plans, strategies, objectives, anticipated financial and operating results of the Company, including
as to the Company’s Wolfcamp shale resource play, estimated resource potential and recoverability of the oil and gas, estimated reserves and drilling locations, capital
expenditures, typical well results and well profiles, type curve, and production and operating expenses guidance included in the presentation. These statements are based on
certain assumptions made by the Company based on management's experience and technical analyses, current conditions, anticipated future developments and other factors
believed to be appropriate and believed to be reasonable by management. When used in this presentation, the words “will,” “potential,” “believe,” “intend,” “expect,” “may,”
“should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” “target,” “profile,” “model” or their negatives, other similar expressions or the statements that include those
words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such statements are subject to a
number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied
or expressed by the forward-looking statements. In particular, careful consideration should be given to the cautionary statements and risk factors described in the Company's
most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Any forward-looking statement speaks only as of the date on which such statement is made
and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as
required by applicable law.
The Securities and Exchange Commission (“SEC”) permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that
meet the SEC’s definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. The
Company uses the terms “estimated ultimate recovery” or “EUR,” reserve or resource “potential,” and other descriptions of volumes of reserves potentially recoverable through
additional drilling or recovery techniques that the SEC’s rules may prohibit the Company from including in filings with the SEC. These estimates are by their nature more
speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized by the Company.
EUR estimates, identified drilling locations and resource potential estimates have not been risked by the Company. Actual locations drilled and quantities that may be
ultimately recovered from the Company’s interest may differ substantially from the Company’s estimates. There is no commitment by the Company to drill all of the drilling
locations that have been attributed these quantities. Factors affecting ultimate recovery include the scope of the Company’s drilling project, which will be directly affected by
the availability of capital, drilling and production costs, availability of drilling and completion services and equipment, drilling results, lease expirations, regulatory approval and
actual drilling results, as well as geological and mechanical factors. Estimates of unproved reserves, type/decline curves, per well EUR and resource potential may change
significantly as development of the Company’s oil and gas assets provides additional data.
Type/decline curves, estimated EURs, resource potential, recovery factors and well costs represent Company estimates based on evaluation of petrophysical analysis, core
data and well logs, well performance from limited drilling and recompletion results and seismic data, and have not been reviewed by independent engineers. These are
presented as hypothetical recoveries if assumptions and estimates regarding recoverable hydrocarbons, recovery factors and costs prove correct. The Company has limited
production experience with this project, and accordingly, such estimates may change significantly as results from more wells are evaluated. Estimates of resource potential
and EURs do not constitute reserves, but constitute estimates of contingent resources which the SEC has determined are too speculative to include in SEC filings. Unless
otherwise noted, IRR estimates are before taxes and assume NYMEX forward-curve oil and gas pricing and Company-generated EUR and decline curve estimates based
on Company drilling and completion cost estimates that do not include land, seismic or G&A costs.
Cautionary statements regarding oil & gas quantities
Overview of Approach Resources
3
Company Overview
AREX OVERVIEW ASSET OVERVIEW
Enterprise value $619MM
High-quality reserve base167 MMBoe proved reserves
63% Liquids, 33% oil
$504 MM proved PV-10 (non-GAAP)
Permian core operating area138,000 gross (126,000 net) acres
~1+ BnBoe gross, unrisked resource potential
~1,800 Identified HZ drilling locations targeting
Wolfcamp A/B/C
2016 Capital program focused on aligning
capex with cash flowStable leasehold that is largely HBP provides for
flexible budget
Improving commodity prices would allow us to
seamlessly increase capital budget from ~$20 MM
to ~$80 MM
Note: Proved reserves and acreage as of 12/31/2015. All Boe and Mcfe calculations are based on a 6 to 1 conversion ratio. Enterprise value is equal to market capitalization using the closing share
price of $1.56 per share on 3/18/2016, plus net debt as of 12/31/2015. See “PV-10 (unaudited)” slide for reconciliation to GAAP measure.
4
Strong Track Record of Reserve and Production Growth
5
RESERVE GROWTH
0
20
40
60
80
100
120
140
160
180
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Gas (MMBoe) Oil & NGLs (MMBbls)
• YE15 reserves up 14% YoY
• Replaced 603% of produced reserves at a drill-
bit F&D cost (non-GAAP) of $4.32/Boe
• 154.6 MMBoe proved reserves booked to HZ
Wolfcamp play
Note: See “F&D costs (unaudited)” slide for reconciliation to GAAP measure.
MMBoe
PRODUCTION GROWTH
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Natural Gas (MBoe/d) Oil & NGLs (Mbbls/d)
• 2015 Production increased 10% YoY to a
record 15.2 MBoe/d
• Anticipating production decline in 2016 with
significantly reduced capital budget
MBoe/d
Scotia Howard Weil 44th Annual Energy Conference – March 2016
6
Lowest cost structure in the Permian Basin
$7.36
$6.18$5.87
$6.65
$5.55
$4.97 $5.04
$5.44 $5.45
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
AREX LOE Historical Track Record ($/Boe) 2015 Permian Peer LOE ($/Boe)
AREX D&C Historical Track Record ($ MM) Current Permian Peer D&C Cost ($ MM)
$13.23
$9.51
$8.84
$7.83 $7.71$7.46 $7.34
$6.92 $6.63 $6.39
$5.24
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 AREX
$8.6
$7.0
$5.8$5.5
$4.5
$3.7
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
2011 2012 2013 2014 2015 Current AFE
$7.8
$6.8$6.6 $6.5
$5.8$5.5 $5.5
$5.3 $5.2 $5.0
$3.7
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 AREX
Source: Latest available company presentations and public filings. Peers include CPE, CWEI, CXO, EGN, FANG, LPI, MTDR, PE, PXD, and RSPP.
D&C Cost Reductions Have Significantly Improved
Profitability Despite Lower Commodity Prices
7
Note: HZ Wolfcamp economics assume $3.50/Mcf realized natural gas price and NGL price based on 40% of realized oil price.
0%
10%
20%
30%
40%
50%
60%
70%
$30 $40 $50 $60 $70 $80
IRR
(%
)
Realized Oil Price ($/Bbl)
$3.5MM D&C
$4.0MM D&C
$4.5MM D&C
Scotia Howard Weil 44th Annual Energy Conference – March 2016
What Determines Oil Prices
Supply• Energy prices
• OPEC & Non OPEC Capacity
• Spare Capacity
• Geo Politics
• E&P Cost & Investments
Demand• Energy prices
• Economic Growth
• Industrial Production
• Transportation
Physical Balance• Inventory
Markets & Market Sentiment• Futures, Options & Spreads
• Other Commodity Prices
• Currency Exchange Rates
• Interest rates
8
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
Ju
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-89
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-90
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-97
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n-9
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Dec
-99
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n-0
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Dec
-00
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-01
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-02
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3
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-03
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-04
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n-0
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-05
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Dec
-06
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-07
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-08
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-10
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-11
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n-1
6
Brent Spot Price ($ per Bbl.) WTI Spot Price ($ per Bbl.)
2nd Half of 97 OPEC raised
production ceilings 10%
Asian Economic Crises reduced
demand
Speculation in the Market
Crude Down 59%
9/11 Attacks
Crude Down
53%
US Financial Crisis
Created a volatile mixture of
Speculation in the Market
Crude Down 79%
PEDVSA Strike
Iraq War
Asian Growth
Weak Dollar
Speculation in the Market
Iraq & Iran cease fire
Hurricane Ivan,
Katrina & Rita
Supply Disruption
OPEC Decreases Production Targets
Unrest in Middle East
Spare Capacity
US Shale Success
Market Driven Economics
OPEC Abandons Price Targeting
Slower Growth Forecast
Speculation in the Market
Crude Down 72%
Oil is a commodity, has always been
volatile & will continue to be volatile.
The price of Oil is and has always been
determined by Supply & Demand
fundamentals and Market Sentiment.
As world population continues to
increase and people continue to
improve their living conditions, the
global demand for Oil will also continue
to increase.
Iraq Invaded Kuwait
UN Sanction reduced
World Supply by 7%
Crude Up 115%
442 MMBbls.
912 MMBbls.
+550 MMBbls.
Data Source: EIA
Five significant downturn cycles during the past 30 years
9
IEA World Crude Supply & Demand
“Missing Barrels” Manipulation or Actual
MMBbls./day
Data Source: IEA
10
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
84.0
86.0
88.0
90.0
92.0
94.0
96.0
98.0
Over & Under (MMBbls. per day)
Over & Under ("Missing Bbls." removed)
Over & Under (Missing Bbls. & US Declineremoved)
Total Production (MMBbls. Per day)
World Consumption (MM Bbls. per day)
Total Production less "Missing Bbls."removed
Total Production less "Missing Bbls." & USShale Decline removed
Over/Under
MMBbls./day
"The tally of unaccounted-for oil — which comes from
the difference between the 1.9 million b/d presumed
surplus and the roughly 1.1 million b/d of oil
calculated by the IEA as being in transit and moved
into onland storage — rose to its highest level in 17
years last year, and this was an important factor in an
industry dominated by oversupply". V Hari, Platts
MMBbl./Day
IEA Demand Revisions
2000 - 2014
11
Prediction Oil Price may fall even further
• “We may be heading form $5” (The Economist; 3/4/1999)
Oil Prices unlikely to recover
• “After two OPEC-induced decades of expensive oil, ..the oil industry as a
whole have more or less given up hope that prices might rebound soon.”
(The Economist; Mar 4, 1999).
Demand worries over economic troubles in Asia
• “economic troubles of Asia, the region that had been expected to drive oil-
company profits for years to come.” (The Economist; Mar 4, 1999).
(El Nino) impacting demand
• The warmer-than-normal winter weather in all of the northern hemisphere
kept distillate and fuel oil prices under downward pressure in all major
product markets..” (IEA Oil Market Report; March 1998).
Shift to renewables could impact demand
• “Worries over global warming, Although the science remains inconclusive,
rich countries agreed at the Kyoto summit in 1997....”
• (The Economist; Mar 4, 1999).
Technology has reduced the cost of oil supply
• Rapid technological advances have pushed the cost of finding, developing
and producing crude oil outside the Middle East down from over $25 a
barrel…in the 1980s to around $10 now.” (The Economist; Mar 4, 1999).
Fear that Iraq will increase production
• OPEC members fear that Iraq, whose UN-constrained output rose by 1m
barrels a day in 1998, may some day be able to raise production further.”
(The Economist; Mar 4, 1999).
Fear that if oil prices rebound, new supply would come on stream
• Nor is there much chance of prices rebounding. ….Venezuela, which
breaks even at $7 a barrel, would expand production; at $10, the Gulf of
Mexico would join in; at $11, the North Sea, (The Economist; Mar 4, 1999).
OPEC is in disarray
• “The cartel is already moribund, and unless Saudi Arabia can bring it back
from the dead, ….highly unlikely.” (The Economist; Mar 4, 1999).
Prediction Oil Price may fall even further
• “Goldman Sach predict oil could fall to $20” (Bloomberg Feb 9, 2016)
Oil Prices will be “lower for longer”
• ““The lower-for-longer scenario that oil companies are predicting is going
to become lower-for-even-longer,” Philipp Chladek, London-based oil
sector analyst.” (Bloomberg; Dec 8, 2015).
Worries over China’s economic growth slowing
• “Oil prices fell in Asian trading hours on Monday as analysts expected
weaker demand from China”. (BusinessDay; Nov 2, 2015).
(El Nino) impacting demand
• “Current forecast is for a mild winter in Europe and the US. If it turns out
to be true, bulging stock levels will add further pressure…”(IEA Oil Market
Report; Nov 2015).
Shift to renewables could impact demand
• “Worries over “Climate Change” policies and the impact of global
environmental initiatives to reduce reliance on fossil fuels”. Paris
Conference in December 2015; Smith & Ripplinger; Daily Oil Bulletin
Technology has reduced the cost of oil supply
• “Horizontal multifrac wells, etc., have unlocked new resource…especially
in North America. The breakeven oil price…..in North America has fallen
from ~$80 down to ~$50.” Smith & Ripplinger; Daily Oil Bulletin
Fear that Iran will increase production
• “OPEC has had its ups and downs over the years, but now appears to be
falling apart completely, mainly because of Iran’s nuclear deal with the
west. West to lift sanctions….oil”. (Breitbart; Dec 8, 2015).
Fear that if oil prices rebound, shale oil production will ramp up
• “Shale will be a new swing producer of sorts," said Yasser Elguindi of
economic consultants Medley Global Advisors. (Reuters; Sep 23, 2015).
OPEC is in disarray
• “The 13-member Organization of the Petroleum Exporting Countries,…
40 percent of the world’s crude oil, took no action to shore up the
market…in disarray after meeting in Vienna.” (AFP; Dec 5, 2015).
Similarities of the 1999 Collapse of Oil 1999 2015
Norrep Capital Management Ltd.
12
Global Rig Count
Compared to Brent Crude Prices
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
$65.00
$70.00
$75.00
$80.00
$85.00
$90.00
$95.00
$100.00
$105.00
$110.00
$115.00
$120.00
$125.00
$130.00
$135.00
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
Active Rig Count
Middle East Rig Count U.S. Rig Count Total World Rig Count Brent Spot Price ($ per Bbl.)
Brent Crude
Total Rig Count
1442 (all regions) 420 Rigs Working
in US as of April 2016
Middle East Rig Count
397 as of March 2016
While low oil prices have been a welcome relief at the pump, the impact
to oil producing nations could be dire, leading to the potential sovereign
default and economic collapse of several nations. While Venezuela, Iran
and Russia are normally singled out as those to fall first, even the United
States has been negatively affected. These problems will only worsen if
oil prices remain low for a prolonged period of time. Adam Hayes, CFA
US$/Bbl.
Data Source: Baker Hughes Rig Data
EIA Production Data
13
Saudi Arabia Production & Rig Count
59
68
7784
88
86
74
79
89
98
104108
120
126
124 120
129
124
1
2
3
4
5
6
7
8
9
10
11
0
20
40
60
80
100
120
140
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
Oil Rigs Gas Rigs Total Rigs Oil Production Daily Oil Production
MMBbls/dayRig Count
Data Source: Baker Hughes, IEA
14
Fiscal Break-Even Price
(Brent Crude, US $/Bbl)
Data Source: EIA, IEA
314.00
304.00
268.97
207.56
106.98
104.97
94.69
97.55
105.64
95.84
96.11
92.99
88.15
82.68
81.04
75.90
87.16
70.42
72.57
67.51
69.72
60.63
55.51
57.77
49.07
51.79
45.55
42.73
$0.00 $50.00 $100.00 $150.00 $200.00 $250.00 $300.00 $350.00
2015
2016
Turkmenistan
Kuwait
Qatar
Azerbaijan
UAE
Iran
Iraq
Kazakhstan
Algeria
Saudi Arabia
Oman
Bahrain
Libya
Yemen
$45.86 per Bbl. April 2016 Close
The fiscal break-even oil price is the average oil
price which is needed for an oil exporting country
to balance its budget in a particular year. It is an
important metric for a country’s fiscal
vulnerability to oil. If the break-even price is
higher than the market price budgets cannot be
balanced.
15
Rodger Andrew; Low Oil Price and Budget deficits & OPECIMF 2015 World Economic Outlook
Budget Balance as Percentage of GDP 2014 2015
16
46.0
24.921.0
13.0 12.6
7.24.4 3.3 2.7 2.1
0
10
20
30
40
50
Re
sou
rce
Po
ten
tial
(B
BO
E)
0
200
400
600
800
1,000
1,200
1,400
1,600
We
ll C
ou
nt
Year
Midland Basin Wolfcamp Shale - Largest Discovery Ever
Made in the U.S.
17
Southern
Midland Basin
Northern
Midland Basin
Source: DrillingInfo and IHS
~2,900 wells drilled
~67,000 remaining locations
More than 50 years of drilling
inventory
• Wolfcamp is the largest oil discovery made in the
U.S.
• Approach is a pioneer in the Wolfcamp oil shale
horizontal development
• Wolfcamp shale spreads
more than 8mm acres
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1 31 61 91 121 151 181 211 241 271 301 331 361 391
2015 Wolfcamp B&C bench completions
Average completed lateral length = 6886'
Enhanced completion design drives outperformance from 2015 wells
18
Note: Production data normalized for operational downtimeNote: Production data normalized for operational downtime
Cu
mu
lati
ve
Pro
du
cti
on
(B
oe
)
Time (Day)
19
Oil Pipelines – Key in Reducing Price
Differential
20
Reducing Transportation Cost
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00Tr
ansp
ort
atio
n C
ost
($
/Bb
l) Over 6X return on investment in
±16 mo.
Centralized Compression Facilities
and Gas Lifting Lines – Necessity In Reducing Initial
Capital Investments And Future Rental Costs
21
22
CPF 5CPF 1 CPF 2 CPF 3 CPF 4
Dehy
CS
~ 5
00
ft
Wells
Configuration of Well Pad Serviced by Single Independent
Compressor – Inefficient and High Cost
High Pressure Sale line
High Pressure Sale line
Low Pressure Gas
Gather lineHigh Pressure
Gas Lift Line
Central Processing
Facility
Compressor Station
Gas Dehydration Plant
Cost ~ $11.9M / Well / month for the 1st 30 months
Dehy
CS
Dehy
CS
Dehy
CS
Dehy
CS
23
CPF 5CPF 1 CPF 2 CPF 3 CPF 4
Low Pressure
Gathering Line
0.75 miles
CS
0.75 miles
Dehy
~ 2000 ft
~ 5
00
ft
High Pressure Sale / Gas Lift line
Wells
CPF 10CPF 6 CPF 7 CPF 8 CPF 9
Low Pressure
Gathering Line
CS
Dehy
Well Pads Serviced by Centralized Compressor and Shared
Gas Lift System – Efficient and Significant Cost Saving
Cost ~ $4.3 M / Well / month for the 1st 30 months
This configuration saves $7.6 M / well / month for the 1st 30 months
Or $228M/well for the 1st 30 months
Water Recycling And Transportation Lines – Must
Have In Sustainable Large Scale Development
24
One of the Most Important Challenges in Developing the
Wolfcamp Shale Play – Availability of Frac Water
25
• A typical 7500’ WFMP lateral in the Midland Basin uses more than 200,000 Bbls of water
• 13.5 billion barrels of water is required to develop the remaining resources or 200 to 270 million barrels of water
per year for the next 50 years
Reservoir
Storage
for Feb 2016
Perc
en
t F
ull
• Mean annual precipitation is less than 18 inches
• Evaporation rate exceeds precipitation
• Midland/Odessa is currently at the second lowest
reservoir capacity in Texas with only ~ 20% full
Data from the 2016 Region F Water Plan prepared for the Region F Water Planning Group by
Freese and Nichols, Inc. and LBG-Guyton Associates, Inc.
Region F Supply and Demand
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2020 2030 2040 2050 2060 2070
Wat
er
(MM
Bb
ls)
Year
Manufacturing Livestock Steam Electric Power Mining
Municipal Irrigation SUPPLY
Irrigation
Municipal
MiningSteam ElectricLivestockManufacturing
Supply
Image are from www.waterdatafortexas.org/reservoirs and www.twdb.texas.gov
• Water demand is significantly higher than supply
0
50
100
150
200
250
300
2020 2030 2040 2050 2060 2070
Wat
er
(MM
Bb
ls)
Year
Mining Water Allocated (MMBbls)
Potential Water Needed for WolfcampDevelopment
Midland Basin – Significant Shortage of Frac Water Supply
26
• Wolfcamp oil shale
development using
mining water allocated
is not sustainable
• Need alternative water
source to develop this
vast resource
Data from www.twdb.texas.gov
Midland Basin – Significant Cost for Sourcing, Transporting &
Disposing Frac Water
27
$4-5 per barrel
$
$
$$$
$$$
Water Sourcing Well
Well Pad
Salt Water Disposal Well
Lease Road
Local Highway
Lease Road
Local Highway
$800,000 - $1,000,000 per well
Road damage
Air pollution
Road damage
Air pollution $54 billion - $67 billion
For the remaining wells
28
• Best practice for water
conservation and improving water
use efficiency
• Reduces demand on fresh water
sources
• Reduces road damage & air
pollution
• Reduces D&C cost
• Reduces SWD cost
• Designed one of the highest
industry KPI for water
treatment
Bacteria
Sulfates
Heavy metals
Fines
AREX Flowback and Produced Water Recycle Facility
29
AREX Flowback and Produced Water Recycle Facility
32,000 BBL Dirty
Water Tank Skim Oil Sales
Flowback & Produced Water Offloading Terminal & Separation Facility
Flowback & Produced Water Supply
90 BPM Pump StationWater Treatment
& Filtration Facility
63,000 BBL Treated Water Tank
44,000 BBL Treated Water Tank
8” F
low
bac
k &
Pro
du
ced
Sal
twat
er L
ine
8” L
ow
Ch
lori
de
Trea
ted
Fra
c W
ater
Su
pp
ly L
ine
20”
Trea
ted
Flo
wb
ack
& P
rod
uce
d F
rac
Wat
er S
up
ply
Lin
e
32,000 BBL
Treated Water Tank
N
63,000 BBL Treated Water Tank
63,000 BBL Treated Water Tank
32,000 BBL
Treated Water Tank
32,000 BBL
Treated Water Tank
Centralized
SWD Hauling
Station
12” Poly
4” Connections
Flowback / Produced Water
Separator
Dirty Water Tank
Chemical Treatment & Centrifuge
Treated Water Tank
Pump Station & Water Supply Line
0
5,000
10,000
15,000
20,000
25,000
30,000
Rec
ycle
d W
ater
(B
bls
/d)
AREX Water Recycling Facility Successfully Implemented
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• Started up in March 2015
• Ramped up during April 2015
• Recycled up to 100% of AREX daily flowback/produced water volumes
• More than 2.2 million barrels of water treated
• More than $7mm of cost saved or value created in the first 6 months of operation
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Over 500 miles of pipelines in place
• More than 100 MMcfg/d gathering and gas
lifting capacity
• Expandable up to 500 MMcfg/d
One Centralized Super Water Recycle Center
• 2.2 MM Bbls flowback and produced water
recycled during 1st six months of operation
• Reduced D&C cost by $450,000 per well
• Reduced LOE by over $4MM
• Reduced current SWD cost by ~$10,000/d
Established Infrastructure in Place Is Critical to Low
Cost Structure
Flowback / Producing Well
Significant Cost Saving for Using Recycled Water for
Fracing
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$2 per barrel
Free
Wellpad
Via existing water
gathering lines
$27 billion - $41 billion saving
For the remaining wells in
Midland Basin
Via existing water
transportation lines
$0.25 per
barrel
$0.25 per
barrel
$1.50 per
barrel
Free
Water Recycling
Center
Cost for recycled water
$2 - $3 per barrel
Cost saving for using recycled water
$400,000 - $600,000 per well
Cost saving for using recycled water
• Saudi Arabia is not solely responsible for the collapse of oil prices but rather a combination of US Shale success, slowing economies, “Herd Mentality” & misguided governmental policies.
• Oil is a commodity, has always been volatile, and will continue to be volatile. Supply & Demand Fundamentalslong term, as well as market sentiment short term, establishes the price of oil.
• World population continues to increase and people continue to improve their living conditions – therefore the demand for oil will continue to increase.
• The last time the miscellaneous to balance/“Missing Barrels” item was this large, implying an oversupplied market, was in 1997/98 when the issue triggered criticism of the IEA's statistics. Either supply is overstated or demand is understated or international inventories are understated or a combination of all three.
• Wolfcamp oil shale play in the Midland Basin spreads more than 8MM acres, contains estimated commercially recoverable reserves of 46 billion barrels of oil equivalent, and is the largest discovery ever made in the U.S. and one of the largest in the world.
• Significant frac capital and water are required to develop this vast resource: Oil pipelines reduce road damage, surface disturbance, truck cost, and ultimately oil differential by
$5/bbl. and create additional 115 billion dollars of value for investors. Building centralized compression facilities and gas-lift systems reduces pipelines, increases
compression efficiency, saves fuel cost, and creates additional 15 billion dollars of value during the 1st 30 months of bringing new wells online.
An estimated 13.5 billion barrels of water is required to develop this significant discovery. Water recycling is not only necessary in solving the frac water shortage issue, but also saves investors 54 –67 billions dollars for souring, transporting and disposing frac and produced water.
• Early investment on infrastructure build-out ensures strong support from the communities we operate, reduces drilling, completing and operating cost significantly and generates significant value and better rate of return for the investors.
Summary
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