Delaware Basin Activity & Performance Revie · • The Delaware Basin is one of the most active drilling areas of the U.S., located in the Permian Basin of Texas & New Mexico. •

Copyright Mire & Associates, Inc. 2017 Delaware Basin Performance & Activity Review 1

www.mireandassociates.com

Delaware Basin Activity &

Performance Review

August 2017

EOG Resources 2016 Q4 Investor Presentation

Delaware Basin

Introduction & Findings

Delaware Basin Performance & Activity Review 2Copyright Mire & Associates, Inc. 2017

• The Delaware Basin is one of the most active drilling areas of the U.S., located in the

Permian Basin of Texas & New Mexico.

• The most frequently drilled reservoirs are the Bone Spring sand formation along with

the deeper Wolfcamp shale formation

• Mire & Associates, Inc. has reviewed data for over six thousand horizontal wells that

began producing from 2010 – 2016 along with published operator results.

• Our focus was to analyze the well performance trends from 2010-2016, operator activity

in 2016, and drilling economics at current oil & gas prices ($47 / BBL and $3 / MCF)

• Delaware Basin activity reflects economics; good for Bone Spring, very good for Wolfcamp

• IP30 rates and EURs have increased, linked to longer laterals & more proppant.

• Wolfcamp proppant loading could be yielding diminishing returns with regard to EUR

• To justify the recently reported lease acquisition prices of up to $60,000 per

acre, multiple, stacked benches (reservoirs) must be included & exploited.

U.S. Play Summary 2014, 2015, 2016


Wolfcamp Shale is the only horizontal play that had an increase in drilling for 2016.

Delaware Basin Overview


Production in the Delaware Basin doubled in 2 years, from 500,000 BOEPD in mid 2014 to 1,000,000 BOEPD in mid 2016.

Production in the Delaware Basin doubled in 2 years, from 500,000 BOEPD in mid 2014 to 1,000,000 BOEPD in mid 2016.

Only Wolfcamp & Bone Spring wells included

TexasNM

Activity trends 2010-2016


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Production Starts 2010 - 2016

Wolfcamp

Bone Spring

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Well Type 2010 - 2016

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Directional

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Completion Trends


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IP30 Rate and Reserves


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BOE per Day MBOE (6)

Wolfcamp2010 – 2016IP30 & EUR

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BOE per Day MBOE (6)

Per well rate & reserves are increasing, linked to increases in lateral length and proppant

Bone Spring2010 – 2016IP30 & EUR

Well Performance Trends 2010 - 2016


BOPD MCFD GOR BOEPD MBO MMCF GOR MBOE avg lat len avg # prop/lat ft

2010 120 310 1,209 3,900 512 137 1,344 9,810 361 4,427 474

2011 256 385 855 2,221 528 168 991 5,899 333 4,653 513

2012 423 480 941 1,960 637 223 1,254 5,623 432 4,762 579

2013 638 525 1,082 2,061 705 244 1,250 5,123 452 4,970 578

2014 678 600 1,056 1,760 776 306 1,517 4,958 559 5,227 870

2015 593 605 1,048 1,732 780 399 1,809 4,534 701 5,392 1,2222016 301 761 1,439 1,891 1,001 457 2,028 4,438 795 5,740 1,452


2010 83 475 994 2,093 641 253 857 3,387 396 4,307 334

2011 136 390 1,300 3,333 607 308 1,076 3,494 487 4,575 456

2012 181 436 1,237 2,837 642 318 1,285 4,041 532 4,709 474

2013 222 429 1,137 2,650 619 355 1,490 4,197 603 5,065 676

2014 405 468 1,738 3,714 758 467 2,532 5,422 889 5,484 1,058

2015 516 506 1,807 3,571 807 531 2,898 5,458 1,014 5,857 1,328

2016 542 695 2,180 3,137 1,058 690 2,557 3,706 1,116 6,523 1,707

Bone Spring Annual Well Performance

Wolfcamp Annual Well Performance

Year WellsInitial Production (IP30) Reserves per well (EUR) Well Design & Completion

Year WellsInitial Production (IP30) Reserves per well (EUR) Well Design & Completion

Typical Wolfcamp well EUR > 1 million BOE

Well Performance Trends 2010- 2016


Numbers in parentheses represent number of wells in the statistical sample

Initial production rates increased significantly in 2016, primarily linked to

increases in proppant loading

Initial Production Trends 2010- 2016(Normalized)


Numbers in parentheses represent number of wells in the statistical sample

Proppant loading primarily drives increase

in IP30 rates for 2016

EUR vs. Proppant Trends(Normalized)


Diminishing returns for EUR in Wolfcamp?

Bone Spring EUR trend appears to have room for continued growth.

2016 Well Performance by County


Culberson County, TX & Lea County, NM stood out in 2016


Culberson 16 800 3,200 4,000 1,333 415 4,074 9,817 1,094 5,485 998

Eddy 90 725 1,475 2,034 971 512 2,084 4,070 859 5,735 1,324

Lea 126 845 1,400 1,657 1,078 485 2,356 4,858 878 5,695 1,607

Loving 28 600 1,400 2,333 833 435 1,816 4,175 738 5,480 1,544

Reeves 21 775 1,350 1,742 1,000 603 1,261 2,091 813 7,122 1,744

Ward 15 200 530 2,650 288 180 301 1,672 230 4,845 676


Culberson 41 525 3,900 7,429 1,175 1,027 7,232 7,042 2,232 6,772 1,959

Eddy 47 725 3,300 4,552 1,275 689 4,712 6,839 1,474 5,779 1,880

Lea 41 1,450 2,600 1,793 1,883 760 1,880 2,474 1,073 5,092 2,211

Loving 180 550 760 1,382 677 759 2,142 2,822 1,116 6,072 1,549

Pecos 31 635 750 1,181 760 529 829 1,567 667 7,855 1,995

Reeves 161 625 2,075 3,320 971 909 3,917 4,309 1,562 7,216 1,645

Ward 28 645 1,125 1,744 833 516 1,236 2,395 722 7,118 1,795

Winkler 13 725 800 1,103 858 1,105 1,373 1,243 1,334 6,390 1,623

County WellsInitial Production Rates (IP30)

County WellsInitial Production Rates (IP30)

Well Design & Completion


2016 - Bone Spring Well Performance by County

2016 - Wolfcamp Well Performance by County

Reserves per well (EUR)

Reserves per well (EUR)

2016 Well Performance by County


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2016 Bone SpringPerformance by County

Reeves

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2016 WolfcampPerformance by County

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2016 Operator Performance



Anadarko 16 750 1,500 2,000 1,000 509 944 1,855 666 4,565 536

BTA 7 1,050 2,043 1,946 1,391 522 1,963 3,761 849 4,809 1,988

Chevron 29 731 1,800 2,462 1,031 388 2,072 5,340 733 5,509 1,106

Cimarex 14 1,050 3,200 3,048 1,583 433 3,218 7,432 969 5,081 1,567

Concho 59 855 1,660 1,942 1,132 538 1,986 3,691 869 6,205 1,585

Devon 38 629 1,223 1,944 833 411 1,236 3,007 617 5,741 1,263

EOG 25 1,135 1,938 1,707 1,458 549 2,391 4,355 948 5,165 2,003

Matador 6 1,070 1,450 1,355 1,312 430 1,018 2,367 600 6,246 2,477

Mewbourne 24 846 1,272 1,504 1,058 556 1,117 2,009 742 5,471 1,358

Oxy 16 1,270 1,500 1,181 1,520 645 1,420 2,202 882 5,933 1,311


Anadarko 91 500 1,650 3,300 775 889 1,819 2,046 1,192 6,732 1,334

Apache 15 665 1,947 2,928 990 664 2,434 3,666 1,070 5,499 1,532

BHP Billiton 24 744 2,813 3,781 1,213 669 2,538 3,794 1,092 5,911 1,154

Brigham 11 591 625 1,058 695 627 488 778 708 7,590 1,683

Centennial 11 786 2,822 3,590 1,256 377 2,183 5,790 741 6,049 1,861

Cimarex 26 800 4,084 5,105 1,481 1,275 3,392 2,660 1,840 8,844 2,131

Concho 22 829 3,086 3,723 1,343 756 3,598 4,759 1,356 6,878 2,211

Conoco 9 586 2,441 4,166 993 638 2,443 3,829 1,045 6,252 1,492

EOG 68 1,510 3,015 1,997 2,013 885 2,092 2,364 1,234 5,581 2,173

Halcon 12 450 700 1,556 567 522 984 1,885 686 8,476 1,982

Jagged Peak 10 1,033 1,137 1,101 1,223 1,348 1,371 1,017 1,577 10,228 2,069

Matador 27 771 3,306 4,288 1,322 527 2,365 4,488 921 5,241 2,467

Mewbourne 24 625 3,105 4,968 1,143 549 3,525 6,421 1,137 5,855 1,574

Oxy 9 1,100 1,450 1,318 1,342 867 1,416 1,633 1,103 6,315 1,566

Parsley 8 1,043 1,687 1,617 1,324 530 686 1,294 644 7,776 2,280

Resolute 12 1,286 3,772 2,933 1,915 1,438 4,741 3,297 2,228 8,994 1,455

RKI 25 601 2,433 4,048 1,007 400 1,709 4,273 685 5,104 1,448

RSP 13 725 1,309 1,806 943 608 1,173 1,929 804 6,013 1,648

Shell 41 225 825 3,667 363 300 998 3,327 466 6,361 1,289

Silver Hill 7 825 1,180 1,430 1,022 781 998 1,278 947 6,104 1,833


2016 Bone Spring Well Performance by Operator


2016 Wolfcamp Well Performance by OperatorReserves per well (EUR)

Operator WellsInitial Production Rates (IP30)

WellsInitial Production Rates (IP30) Reserves per well (EUR)

Operator

Cimarex & Resolute had the

best well results in

2016


Anadarko, Concho & EOG were most the

active operators in 2016

2016 Most Active Operators

Well Performance, Operator


Wolfcamp Operator Trends


Resolute stands out as efficient, but with just 12 wells, this is likely driven by geology – being in a good area. Scatter in normalized EUR likely due to variation in geology. Efficient use of proppant trends to the Northwest quadrant of the normalized EUR vs. Proppant plot.

Bone Spring Operator Trends


Cimarex and Anadarko appear efficient. Scatter in normalized EUR likely due to variation in geology. Efficient use of proppant trends to the Northwest quadrant of the normalized EUR vs. Proppant plot.

2016 Top Performing Wells


Lateral Prop

BOPD MCFD BOEPD MBO MMCF MBOE Len (ft) # / Lat Ft

Cimarex Vagrant 38 A 3H Wolfcamp Culberson 1,200 4,350 1,925 2,168 8,170 3,529 10,554 2,178

Resolute South Goat 2 Unit 2204h Multi Wolfcamp Reeves 1,760 4,200 2,460 2,376 5,919 3,362 10,104 1,681

EOG Leghorn 32 State 201H Bone Spring Lea 2,500 5,700 3,450 1,999 5,500 2,916 4,933 2,416

Resolute South Mitre 2 Unit 2102H Wolfcamp Reeves 1,631 4,389 2,362 2,177 4,311 2,896 9,918 1,447

EOG Rattlesnake 21 Federal Com 701H Wolfcamp Upper Lea 3,015 5,114 3,868 1,766 3,661 2,376 7,839 1,776

Resolute North Mitre Wolfcamp Unit 2101H Wolfcamp Reeves 1,934 5,192 2,799 1,573 4,409 2,308 10,096 1,480

EOG Rattlesnake 28 Federal Com 704H Wolfcamp Upper Lea 2,319 4,652 3,094 1,789 2,859 2,266 Not Rpt 17 MM #

Apache Blue Jay Unit P103H Wolfcamp Loving 2,107 5,592 3,039 1,337 3,430 1,908 5,843 1,248

EOG Rattlesnake 21 Federal Com 702H Wolfcamp Upper Lea 2,731 5,447 3,639 1,287 2,629 1,726 7,843 1,806

EOG Orrtanna 20 Federal 701H Wolfcamp Upper Lea 2,394 5,096 3,243 1,211 2,577 1,641 4,910 2,468

Prod ZoneWell Name CountyOperatorInitial Production - IP30 Reserves per well (EUR)

Several of the best wells were in Lea County, NM & operated by EOG

EURs as high as 3.5 million BOE

IP30 rates as high as 3,800 BOPED

2017 Drilling Economics


*Lease cost 1,600,000$ Lease cost 1,600,000$

Drilling 1,732,360$ Drilling 1,982,255$

Completion 3,506,280$ Completion 3,979,030$

Facilities 100,000$ Facilities 100,000$

Total Well Cost 6,938,640$ Total Well Cost 7,661,285$

NPV(10) 2,208,210$ NPV(10) 5,235,480$

Payout (yr) 3.4 Payout (yr) 2.3

IRR 20% IRR 32%

*Based on 160 acre unit at $10,000 per acre

Bone Spring Wolfcamp

Using July 2017 prices: $47 / bbl and $3.00 / mcf and mid-range acreage prices,Reserves for these single well drilling economics are based on 2016 type curves.Oil price differential -10%, Gas price differential +20% (NGLs)

2016 Wolfcamp Type CurveIP30 695 BOPD & 2,180 MCFDEUR 690 MBO & 2,557 MMCFOil: Di 90.9%, b 1.25, Dm 5%

2016 Bone Spring Type CurveIP30 761 BOPD & 1,439 MCFDEUR 457 MBO & 2,028 MMCFOil: Di 99.18%, b 1.25, Dm 5%

At $10,000 per acre, single well economics are fine for Bone Spring and good for Wolfcamp.

80% Lease Net revenue interest.Well costs from 2016 EIA report and operator presentations.Operating expenses

Bone Spring Drilling EconomicsLease Price Sensitivity


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Economics for Bone Spring legacy leases are very good.

IRR above 10% until $24,000 / acre

Wolfcamp Drilling EconomicsLease Price Sensitivity


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IRR above 10% until $42,000 / acre

Economics for Wolfcamp legacy leases are great.

Lease cost based on 160 acres

Delaware Basin Summary


• Delaware Basin activity reflects economics; good for Bone Spring, very good for Wolfcamp.

• Currently, single well Bone Springs drilling economics are good until lease rates reach

~$20,000 per acre. Single well Wolfcamp economics are good to ~$35,000 per acre.

• To justify the recently reported lease acquisition prices of up to $60,000 per acre,

multiple, stacked benches (reservoirs) must be included & exploited.

• Wolfcamp proppant loading could be yielding diminishing returns with regard to EUR.

• IP30 rates and EURs have increased, linked to longer laterals and more proppant.

• Cimarex, EOG, BTA and Oxy had highest EUR and IP30 per well in 2016 for Bone Spring.

• Resolute, Cimarex, Jagged Peak, Concho and EOG had highest EUR in 2016 Wolfcamp.

• EOG and Matador had the highest IP30 / 1000 ft. lat. in 2016 for the Wolfcamp.

• Anadarko was the most active operator in the Delaware Basin during 2016.

• Resolute Natural Resources’ Wolfcamp were the best wells in 2016.

• The average 2016 Wolfcamp well should produce 690 MBO and 2.6 BCF over its life.

• 2016 Wolfcamp drilling increased by 9% while Bone Spring drilling activity declined by 57%.

Abbreviations / Terminology


SPUD The first step when starting to drill a new well.

BOPD is barrels of oil per day.

IRR is internal rate of return (of drilling investments).

MBO is thousands of barrels of oil.

MCFD is thousands of cubic feet of gas per day.

MMCF is millions of cubic feet of gas. BCF is billions of cubic feet of gas.

MBW is thousands of barrels of water.

MBOE(6) is thousands of barrels of oil equivalent, 6 MCF of gas is equivalent to 1 barrel of oil.

NPV is net present value; sum of the discounted cashflows generated from a well investment.

NPV10 is net present value at a 10% (oil industry standard) discount rate.

Payout length of time required to recover all costs (drilling, completion, lease & operating costs).

Proppant is sand or other material to prop open hydraulically generated fractures.

Lateral refers to the horizontal portion of the wellbore.

IP30 is the average Initial Production rate over the first 30 days of production.

EUR is the estimated ultimate recovery (per well), based on decline analysis.

GOR is the producing gas oil rate (SCF/BBL)

SummaryMr. Mire is a senior reservoir and production engineer with thirty (30) years of experience in E&P. This experiencehas been gained at major and independent oil companies and by projects done for Tier I consulting firms RyderScott Company and Netherland, Sewell & Associates. Domestic experience includes Louisiana, Texas, Gulf ofMexico, Mid-Continent, and Rocky Mountains. International experience includes Mexico, South America, Iraq,Trinidad, and Asia. He has proven skills in reservoir and production engineering, operations, reserves estimation,Monte Carlo simulation, nodal analysis, field studies, and property evaluations.

EducationB.S., Petroleum EngineeringUniversity of Louisiana at Lafayette, 1982

Texas Professional Engineer #115886

Experience – 30 yearsMire & Associates, Inc., Houston 2004 – presentBP America, Houston 2001 – 2003Independent Consultant, Lafayette, LA 1999 – 2001Subsurface Consultants, Lafayette, LA 1993 – 1998Black Gold Production Co., Hammond, LA 1991 – 1993Independent Consultant, Morgan City, LA 1988 – 1991Texaco, Inc., Morgan City, LA 1983 – 1987

Kurt Mire, P.E.Reservoir Engineering/Project Management

Senior Engineering Consultant

SummaryMr. Moomaw is a petroleum engineer with 20 years of diverse E&P experience. He has performed reserves andacquisition evaluations, pressure transient analyses, field studies and has designed & supervised fracturestimulations. James has skills in reservoir engineering, well test analysis, workover identification and reservesreporting. He has worked on projects in Texas, Oklahoma, Louisiana, Alabama, New Mexico, Colorado, Utah,Wyoming, Montana, North Dakota, the Gulf of Mexico, Iraq and Tunisia.

EducationBS Petroleum Engineering, 1997, Texas A&M UniversityNYMEX Energy Risk Management Certificate - UHTexas Professional Engineer #125383

Experience – 20 yearsMire & Associates, Inc. 2011 – 2017Sierra Hamilton LLC 2013 - 2015BC Johnson Associates 2008 – 2011High Mount Exploration & Production LLC 2008 - 2008BP America Production Company 2006 - 2008El Paso Production Company 2004 - 2006Contract Engineer BP, Burlington, Chevron 2002 - 2004ARC Pressure Data 2001 - 2002BJ Services Company 1997 - 2000

James Moomaw, P.E.Reservoir Engineer

Consultant

SummaryMrs. Seidel is an IT professional with more than 20 years of experience in selecting, developing, and supportingscientific computing solutions for the oil industry. She worked as a project manager on systems ranging fromGeographic Information Systems, Oracle database design and maintenance, and integrated upstream G&Gsystems including Landmark and Finder/Geoquest. In 2011, Diane began working as an engineeringtechnologist/reserves analyst for Mire & Associates. Diane is proficient in using Excel and PHDWin to collect andanalyze production data in support of reserve reports, field evaluations and royalty acquisitions. She is skilled inusing online data sources such as IHS Energy, Drilling Info and various state oil & gas data sites.

EducationBachelor of Science in Computer Science, 1982Baylor University, Magna Cum Laude

Graduate coursework in Computer Science 1983 – 1985 University of Texas at Dallas

Experience – 23 yearsMire & Associates, Inc., Houston 2011 – presentArco International Oil & Gas, Plano TX 1990 – 2000Arco Oil & Gas Co., Plano TX 1983 – 1990E-Systems, Inc., Greenville TX 1982 – 1983

Diane SeidelEngineering Technologist

Consultant

Delaware Basin Activity & Performance Revie · • The Delaware Basin is one of the most active drilling areas of the U.S., located in the Permian Basin of Texas & New Mexico. •

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