Production in the Permian Basin
- ARB Market Research -
Forecasting Production Across the Permian Basin to Determine Demand for
Midstream Infrastructure
– February 1, 2017 –
Eric R. PetersonDirector – Market Research & Analysis
WHO WE ARE• ARB Midstream is a privately-held, growth-oriented company, providing complete
midstream and marketing solutions for crude oil, LPGs and refined products
• ARB is building a portfolio of midstream assets that resolve infrastructure bottlenecks in
the most profitable North American oil plays
• ARB is supported by a management team and Board of Directors with combined energy
industry experience of over 150 years
Creating Value in Midstream Markets
3
Identify Execute Operate
Analyze
• Analyze: Every step in ARB's strategy is rooted in proprietary analytics that are used to understand and predict market opportunities, and to reduce risk and improve capital efficiency within individual projects. ARB’s analytics are complemented by the extensive industry experience of the company’s leadership team.
˗ Identify: ARB uses proprietary, in-house research to pinpoint infrastructure bottlenecks and under-served regions that are backed by oil plays with long-term, sustainable production economics.
˗ Execute: ARB efficiently deploys capital as an early mover in its target markets by utilizing private financial backing, an experienced management team and custom analytics.
˗ Operate: ARB develops assets with the intent of generating long-term, sustainable returns. ARB leverages an experienced operations team to run its assets safely and efficiently.
ARB’s Operational Footprint Focuses on the N. American Inland Corridor
4
Niobrara Connector
Permian Gateway
Platte River Gathering
Observations
U.S. Activity
• WTI forecasted to hit $56-$57 range by YE 2017
• Total rig count has increased nearly 75% from May 2016 lows
• North American production to add an incremental 1.2MM in next 2 yrs
Permian Basin
• Acreage prices and deal volume have reached record levels in 2016
• Drilling and completion enhancements boosting IP rates, EUR’s and
proppant usage
• Expansions of pipeline takeaway capacity will not be sufficient,
300kbpd of new build infrastructure needed by Q1 2019
• Timing of capacity expansions is crucial, could see price differentials
blowout if production outpaces demand build out
5
U.S. Activity
$48
$49
$50
$51
$52
$53
$54
$55
$56
$57
$58
$59
$60
$61
$62
$63
$64
$65
Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18
Fore
cast
ed W
TI P
rice
($
/bb
l)
Max
Min
Average
Forward (Jan 25, 2017)
Citigroup
Wells Fargo
According to the latest 10 banks to forecast WTI to hit $57/bbl YE 2017
7
Jan 23, 2017 –BAML believes that “oil prices will rally to $70/bblthis spring and give up $10/bbl of that rise in 2H 2017”.
Source: Bloomberg
U.S. total rig count up 263 from 2016summer lows – Jan 17, 2017
8
All Rig Count
659
Hz Rigs
537
Ver Rigs
63
Dir Rigs
59
Mthly Total Δ
+35
+38
Other
+18
+10
+10
+8
+131
+13
+9
+12
+13
Source: BakerHughes, Drilling Info
+1-10
-5
0
5
10
15
20
25
30
400
450
500
550
600
650
700
Wee
kly
Ch
ange
in R
ig C
ou
nt
Tota
l Rig
Co
un
t
U.S. Rig Count
North America will bring on 1.2MMbpd of incremental production in the next 24 months
9
+7-3
+940
+62
Source: ARB Analytics, CAPP, Drilling Info
+468
+7
-60
-96
+18
+151
(1,000) (800) (600) (400) (200)
- 200 400 600 800
1,000 1,200 1,400 1,600
Yo
Y C
han
ge in
Pro
du
ctio
n (
Mb
od
)
YoY Change in Production (Dec-Dec)
Other
Offshore
Bakken
Niobrara
Permian
Eagle Ford
Marcellus
Utica
Permian Supply
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$/A
cre
$/Acre of Selet Permian Deals
MidlandDelaware
Permian acreage prices have soared as producers rush to capture reserves
11
$-
$5
$10
$15
$20
$25
$30
20
25
30
35
40
45
50
2012 2013 2014 2015 2016
Tota
l Dea
l Val
ue
($B
)
Nu
mb
er o
f A
cqu
isit
ion
s
Permian Acquisitions
Source: Bloomberg, Company Data, Wells Fargo Securities
$17,918
$12,565
$21,070
$30,217
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Perm
ian
Cap
Ex S
pen
din
g ($
MM
)
Permian CapEx Spending
Permits filed for horizontal wells doubled through 2016
12
350
400
450
500
550
600
650
700
750
800
850
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Hz
Perm
its
File
d b
y Q
tr
Delaware Midland
0 50 100 150 200 250
MIDLAND (TX)
REEVES (TX)
LOVING (TX)
MARTIN (TX)
UPTON (TX)
HOWARD (TX)
REAGAN (TX)
EDDY (NM)
GLASSCOCK (TX)
LEA (NM)
CULBERSON (TX)
PECOS (TX)
WARD (TX)
WINKLER (TX)
Source: Drilling Info
Over time, drilling activity has concentrated to the Delaware and Midland Basins
13
Hz Rigs
Ver Rigs
Dir Rigs
Delaware
Midland
Source: ARB, Drilling Info, EIA
221 Hz Rigs
Jan 17, 2017
Average Hz well IP rates in the Permian are currently some of the highest in the nation
14
200
250
300
350
400
450
500
550
600
650
700
Midland Delaware
Avg
. An
nu
al 3
0-D
ay H
z IP
Rat
e (b
pd
)
2012 2013 2014 2015 2016
37%
37%
16%
21%
19%
14%
10%
38%
*Visual of 2016 30-Day IP rates (Jan 2016 – Oct 2016)
Source: ARB, Drilling Info, EIA
-
20
40
60
80
100
120
140
160
180
200
220
- 6 12 18 24 30 36
Cu
mm
ula
tive
Cru
de
Pro
du
ctio
n (
Mb
bls
)
Months Producing
Permian Hz Well Crude Oil EUR by Vintage
Producers continue to boost Hz well EURs with less wells drilled per year
15
2016 2015
2014
2013
2012
600
700
800
900
1,000
1,100
1,200
1,300
1,400
Hz
Wel
l Sta
rts
Per
Year
Permian Hz Well Starts Per Year
Source: ARB, Drilling Info
Change and Acceleration in Production Point to Areas of Infrastructure Need Aug ‘15 – Aug ‘16
16
15
Production Gain
+20 Mbpd<20 Mbpd<10 Mbpd<1 Mbpd
Production Loss<2 Mbpd<10 Mbpd+10 Mbpd
Source: ARB Analytics, Drilling Info
12
10
17
2021
23
50 71
-
50
100
150
200
250
300
Sep
t '1
6 C
rud
e P
rod
uct
ion
(M
bp
d)
Crude Gravity
Crude quality varies across the Permian with the lightest bbls coming from Western Delaware
17
Midland
Delaware
Other
Source: ARB Analytics, Drilling Info
Sand Usage in the Permian will increase by more than 3x in the next 2 yrs
18
-
2
4
6
8
10
12
14
16
2014 2015 2016 2017 2018
San
d U
sage
(M
MTo
ns)
Total Basin Sand Usage
Other Delaware MidlandSource: ARB Analytics, NavPort
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
2014 2015 2016
San
d U
sage
Per
Hz
Wel
l (To
ns)
Hz Well Sand Usage
Delaware Midland
Permian Demand
Current Permian Basin Pipeline Infrastructure
20Source: Genscape – Aug 2016
Midstream acquisitions and project developments
Large 2016 and YTD 2017 transactions of gathering assets
• SXL’s acquisition of Vitol’s crude logistics assets
• SXL’s joint venture with XOM to combine Permian assets
• Targa acquires Outrigger systems for $1.5B
• PAA buys ACC System for $1.2B
Pipeline Flex Capacity Additions
• PAA Cactus: +60kbpd (Mid-2017)
• BridgeTex: +100kbpd (Mid-2017)
New Pipeline Builds Planned
• Midland-Sealy Pipeline (Q3 2018)
21
Permian Basin in need of additional new build pipeline capacity as early as Q4 2018
22Source: ARB Analytics, Drilling Info, Market Research
-$35
-$30
-$25
-$20
-$15
-$10
-$5
$0
$5
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
3,600
Pri
ce S
pre
ad (
$/b
bl)
Pro
du
ctio
n &
Tak
eaw
ay C
apac
ity
(Mb
pd
) Mid-Cush
Mid-HLS
Refinery
Pipeline
Rail
Conclusions
U.S. Activity
• WTI forecasted to hit $56-$57 range by YE 2017
• Total rig count has increased nearly 75% from May 2016 lows
• North American production to add an incremental 1.2MM in next 2 yrs
Permian Basin
• Acreage prices and deal volume have reached record levels in 2016
• Drilling and completion enhancements boosting IP rates, EUR’s and
proppant usage
• Expansions of pipeline takeaway capacity will not be sufficient,
300kbpd of new build infrastructure needed by Q1 2019
• Timing of capacity expansions is crucial, could see price differentials
blowout if production outpaces demand build out
23
- ARB Market Research -– February 1, 2017 –
Eric PetersonDirector – Market Research & Analysis
(720) 600-7511
ARB Midstream1600 Broadway, Suite 2400
Denver, CO 80202
(720) 600-7511
Contact Info:
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