Artem Abramov Rystad Energy February 27, 2018 · Bakken Permian Eagle Ford * Includes horizontal activity within Permian, Williston, Eagle Ford, Anadarko and Niobrara regions Source:

Artem Abramov

Rystad Energy

February 27, 2018

U.S. oil production is set to grow by 2.7 MMBbld from Dec-17 to Dec-19

Source: Rystad Energy NASWellCube, Rystad Energy research and analysis

2

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19

Rystad Energy (Feb 17)

Rystad Energy (May 17)

Rystad Energy (Feb 18) Surpassing 11 MMBbld in early 4Q18

U.S. crude oil and lease condensate production forecast evolution

Million barrels per day

Surpassing 12.5 MMBbld in 4Q19

Rystad Energy Base Case:

WTI of 65 and 61 USD/Bbl

for 2018 and 2019 respectively

Main drivers of recent recovery are Permian, Bakken, Niobrara and Anadarko

Essentially flat development in Eagle Ford and Gulf of Mexico (net of seasonal effects)

-800

-600

-400

-200

0

200

400

600

800

1,000

Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17

Permian

Gulf of Mexico

Eagle Ford

Bakken

Niobrara & Anadarko

Other

Source: Rystad Energy NASWellCube, Rystad Energy research and analysis

3

Cumulative oil production change since April 2015 by basin

Thousand barrels per day

YoY (Dec-16) YoY (Dec-17)

+279 +726

+118 -20

-311 +63

-215 +256

-62 +229

-256 +0

Activity has been recovering strongly for 1.5 years

* Includes horizontal activity within Permian, Williston, Eagle Ford, Anadarko and Niobrara regions

Source: Rystad Energy NASWellCube

4

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17

Drilled wells

Completed wells

U.S. Shale Oil: horizontal drilling and completion activity by quarter*

Number of wells

Drilling: 140% growth, 2Q16 – 4Q17

Completions: 80% growth, 2Q16 – 4Q17

Number of drilled uncompleted horizontal oil wells increased by 70% from mid-2016 to YE 2017

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17

Anadarko

Niobrara

Bakken

Permian

Eagle Ford

* Includes horizontal activity within Permian, Williston, Eagle Ford, Anadarko and Niobrara regions


5

U.S. Shale Oil: evolution of horizontal DUC inventory, monthly

Number of wells

Abnormal DUCs have largely returned to their normal state

Some capacity bottlenecks have been recently observed in Texas plays

0%

10%

20%

30%

40%

50%

60%

70%

Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17

Eagle Ford

Permian

Bakken

Niobrara

Anadarko

* Includes wells which were spud more than 7 months ago


6

U.S. Shale Oil: evolution of abnormal horizontal DUC inventory, monthly*

% of total DUCs

Average lateral length per completion by quarter and play

Feet

Typical lateral length has reached 7,000 feet in Delaware, STACK and Eagle Ford

Proppant intensity has stopped growing in all major plays recently


Average proppant intensity by quarter and play

Pounds per foot

7

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17

Bakken

DJ Basin

Eagle Ford

STACK

Delaware

Midland

0

500

1,000

1,500

2,000

2,500

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17

Bakken

DJ Basin

Eagle Ford

STACK

Delaware

Midland

It is too early to talk about inflection points for well configuration and productivity

Several major prospective plays remain in early days of development


8

0

2,000

4,000

6,000

8,000

10,000

12,000

12/7/2012 12/12/2013 12/17/2014 12/22/2015 12/26/2016 12/31/2017

Eastern Delaware Trend: well configuration learning curve

Lateral length (Y-Axis), completion date (X-axis), proppant per foot (point size)

Decline curves have been improving systematically for 5-6 years

Portfolio effect: play-level type curves do not reveal actual productivity improvements

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

Midland Delaware Eagle Ford Bakken

2011-2015 vintages 2016 2017

Source; Rystad Energy NASWellCube

9

First year oil decline curves for horizontal wells by production start year (median)

Barrels of oil per month

Bottom-line for well economics

Shale players can absorb significant service cost inflation if WTI stays above 60 USD/Bbl

0

10

20

30

40

50

60

70

80

AP

C -

Weld

County

FA

NG

- M

idla

nd N

ort

h

CLR

- B

akken C

ore

PX

D -

Mid

land S

outh

NB

L -

Weld

County

BH

P -

Eagle

Ford

Ea

st

WP

X -

Bakken

Core

MT

DR

- D

ela

ware

NM

RS

PP

- M

idla

nd N

ort

h

PE

- M

idla

nd S

outh

CH

K -

Ea

gle

Fo

rd C

entr

al

HK

- B

akke

n C

ore

SR

CI -

We

ld C

ounty

EO

G -

Eagle

Ford

East

CX

O -

Mid

land N

ort

h

BB

G -

Weld

County

XO

G -

We

ld C

ounty

CO

P -

Eagle

Fo

rd E

ast

EO

G -

Dela

ware

NM

EC

A -

Mid

land N

ort

h

PX

D -

Mid

land N

ort

h

ME

W -

Dela

wa

re N

M

CP

E -

Mid

land N

ort

h

CH

K -

Ea

gle

Fo

rd W

est

XO

M -

Mid

lan

d N

ort

h

CH

K -

ST

AC

K

EC

A -

Eagle

Ford

Ea

st

CV

X -

Mid

land N

ort

h

EO

G -

Eagle

Ford

Centr

al

AP

C -

De

law

are

TX

DV

N -

ST

AC

K

SM

- M

idla

nd S

outh

ER

F -

Bakken C

ore

NF

X -

Bakken C

ore

ST

O -

Bakken C

ore

AL

TA

- S

TA

CK

EO

G -

Pow

der

Riv

er

EP

E -

Mid

land S

outh

EO

G -

Dela

ware

TX

CX

O -

Dela

ware

TX

PD

CE

- W

eld

County

MU

R -

Eagle

Fo

rd E

ast

MR

O -

Eagle

Fo

rd C

entr

al

EO

G -

Bakken C

ore

DV

N -

Dela

ware

NM

LP

I -

Mid

land S

outh

CX

O -

Mid

land S

outh

QE

P -

Bakken C

ore

CO

P -

Bakken C

ore

CR

ZO

- E

agle

Fo

rd C

entr

al

IQ Range

Median

* Includes acreage positions with at least 50 horizontal oil well completions in 2016-2017, which produced for at least 4 months (for breakeven price validation purposes)

Source: Rystad Energy NASWellCube Premium

10

WTI breakeven oil prices in 2016-2017 for 50 most commercial acreage positions with significant current activity*

Dollars per barrel

History

Recent recovery has moved base decline towards all-time high level by YE 2017

3.1 MMBbld needs to be offset in 2018-2019 to maintain flat production…

0

1,000

2,000

3,000

4,000

5,000

6,000

Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19

2017

2016

2015

2014

Pre-2014


11

Base production as of .. December 2014 December 2015 December 2016 December 2017

Decline 12 months (MBbld) -2,319 -2,069 -1,567 -2,294 (E)

Decline 12 months (%) -50% -46% -37% -39% (E)

Decline 24 months (MBbld) -3,031 -2,609 -2,118 (E) -3,144 (E)

Decline 24 months (%) -66% -58% -49% (E) -54% (E)

U.S. oil production from horizontal wells by production start year


Forecast

... current activity level is already sufficient to offset base decline

Horizontal oil production is set to grow by 2.8 MMBbld (Dec-17 to Dec-19)


12

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2019

2018

2017

2016

2015

2014

Pre-2014

History Forecast

U.S. oil production from horizontal wells by production start year


Such growth requires only 45% increase in completion activity from 4Q17 to 4Q19

Upside is limited amid pressure pumping and proppant supply constraints


13

0

200

400

600

800

1000

1200

1400

1600

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2019

2018

2017

2016

2015

2014

Pre-2014

Spudded wells (RHS)

Completed wells (RHS)

History Forecast

U.S. oil production from horizontal wells by production start year and monthly horizontal activity (RHS)

Thousand barrels per day Number of wells

Price elasticity of short-term shale production forecast is significant in 50-70 USD/Bbl range

1.6 MMBbld difference for Dec-19 between WTI@50 and WTI@70 scenarios

Source: Rystad Energy NASWellCube Premium, Rystad Energy research and analysis

14

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19

New production (WTI@70)

New production (RE base case)



Base production (YE 2017)

History Forecast

U.S. oil production from horizontal wells: outlook by WTI price scenario


Permian oil takeaway capacity situation is set to remain tight in 2018-2020

Bottlenecks are set to remain soft unless EPIC is delayed

Source: Rystad Energy Shale Trends Report January 2018

15

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2016 Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Q32018

Q42018

Q12019

Q22019

Q32019

Q42019

Q12020

Q22020

Q32020

Q42020

Basin West Texas Gulf

Amdel and White Oil Centurion North

Longhorn BridgeTex

Cactus Permian Express II

Midland-to-Sealy Permian Express III

EPIC Delaware-Cushing pipeline

Cactus II Gray Oak

South Texas Gateway Rail

Local refining demand Oil production

Permian oil takeaway capacity by pipeline and expected production


Forecast

3036

41

6156

41

78

113

149

174

210

0

50

100

150

200

250

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Appalachia Permian Eagle Ford Bakken DJ Basin Mid-Con Rest of US

Frac sand market is in unchartered waters, with demand expected to reach 113 MM

tons in 2018; further upside exists if oil prices stay at current levels

16

Frac Sand Demand

Source: Rystad Energy ShaleIntel

US Land: Frac Sand Demand (MM tons)

“In-basin” sands have significantly changed the frac sand supply landscape and is

expected to gain market share in 2018

17

75%

17%

8%

2014

Northern White Sand Brown Sand Other

Breakdown of Frac Sand Supply, By Type ProppantIntel 18Q2 / March 2018

Source: Rystad Energy Research & Analysis

54%

15%

25%

6%

2018

Northern White Sand Brown Sand In-Basin Sand Other

Forecast

1,244 1,290 1,255

2,682

3,616

4,321

4,739

5,691

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2014 2015 2016 2017 2018 2019 2020 2021

Trucking and poor road infrastructure are significant bottlenecks; increased well site

storage and other innovative solutions could partially mitigate these issues

18

Permian: Frac Sand Trucking Demand ProppantIntel 18Q2 / March 2018

Source: Rystad Energy Research & Analysis

Permian: Frac Sand Trucks on Road per Day

Labor and workable equipment are the most immediate bottlenecks in the pressure

pumping market; service companies also wary of recent upturn

19

Bottlenecks – Pressure Pumping Market

Source: Rystad Energy ShaleIntel

Frac Crews

Frac Equipment

• Workers laid off in 2014 reluctant to return; many have new jobs and families; living in West Texas man-camps unappealing even with financial incentives

• Increased frac times in 2017 relative to 2016 levels could be pointing to existing issues with inexperienced frac crews

• Need to staff more people per frac crew to maintain 24 hour operations

• There is less working frac equipment now relative to 2014, prior to the downturn

• Many new-builds are replacing old equipment, rather than making new spreads due to significant portion of cold-stacked equipment being deemed beyond repair

• Service companies are reluctant to use Tier 4 engines, as they are more expensive to purchase and maintain and may have other teething issues

InsightBottleneck

Equipment Lead Times

• New-build equipment takes more than 6 months from order to delivery

• Manufacturers themselves may need to add capacity

Service Company Attitude

• Many service companies are wary of short-lived upturn; many remember oversupply in 2015 and 2016

• Service companies might wait for $80/bbl. to $100/bbl. WTI before aggressively expanding capacity

• Service companies have expressed concerns that even with higher oil prices it would be difficult to quickly expand capacity due to labor and other factors

Documents

Artem Abramov Rystad Energy February 27, 2018 · Bakken Permian Eagle Ford * Includes horizontal activity within Permian, Williston, Eagle Ford, Anadarko and Niobrara regions Source: