GAS & OIL SHALE/RESOURCE PLAYS FACTBOOK

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GULF COAST

PERMIAN BASIN What a difference higher crude oil prices can make. One of NGI’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 2005-2012, 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 2014. 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 2013. 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, 2013. 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 2013. © Copyright Intelligence Press, Inc.



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GAS & OIL SHALE/RESOURCE PLAYS FACTBOOK Permian Basin (continued) 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 Abo Formation

Type/Primary Target Tight Sands – Oil

Location NM, W. TX

Sub-Basin 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 2012. 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.

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GULF COAST

Permian Basin (continued)

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GAS & OIL SHALE/RESOURCE PLAYS FACTBOOK Permian Basin (continued) 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 2013. 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

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

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

1

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Net Acres

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Permian Net Acreage Positions Last Updated December 2013

Company

Company

Net Acres

Abraxas Petroleum

Net Acres 42,092

SM Energy

N/A

Callon Petroleum

32,600

Statoil

N/A

30,900

Summit Energy

N/A

W&T Offshore Range Resources

30,000

U.S. Energy

N/A

Antares Energy

29,880

Unit Petroleum

N/A

ENI

26,250

Yates Petroleum

N/A

2

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

GULF COAST

Permian Basin (continued)

Source: Compiled by NGI’s Shale Daily from company documents

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