Jefferies LLC Member SIPC
2016 Jefferies Energy Conference
November 29, 2016
Ralph Eads Vice Chairman
Important Disclaimer
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© 2015 Jefferies LLC. Member SIPC.
i
Key Themes
1 Oil price likely to increase in intermediate term; could surprise on the upside
2
3
4
5
Asset level M&A activity has been very strong, driven largely by the Permian and SCOOP / STACK
Public company valuations underpinned by strong volume growth
Technological advances continue to improve recoveries ─ Bearish for natural gas prices
─ Shouldn’t drive oil prices lower
Permian Basin clearly becoming “center of gravity” for the oil industry
1
Global Oil Supply – Top 10 Global Oil Producers
Source: OPEC Annual Statistical Review 2016 Crude Oil.
2015 Global Daily Oil Production (MMBbls/d)
10,193 10,112
9,431
4,274
3,504 3,152 2,989 2,859 2,654 2,437
-
2,000
4,000
6,000
8,000
10,000
12,000
Saudi Arabia Russia United States China Iraq Iran United ArabEmirates
Kuwait Venezuela Brazil
2014-2015 % Growth 4.9% 0.2% 8.3% 1.6% 12.7% 1.1% 7.0% -0.3% -1.1% 8.1%
2
Global Oil Demand Continues to Trend Upward
Annual Global Oil Demand History Since 1970 (MMBbls/d)
0
10
20
30
40
50
60
70
80
90
100
19
70
19
71
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09
20
10
20
11
20
12
20
13
20
14
20
15
Source: BP Statistical Review of World Energy, 2016.
3
U.S. Oil Production – Unprecedented Growth
Annual U.S. Oil Production History Since 1970 (MMBbls/d)
Source: EIA U.S. Field Production of Crude Oil, October 2016.
0
2
4
6
8
10
12
19
70
19
71
19
72
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73
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74
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11
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16
4
U.S. Natural Gas Production – Sustained Growth Opening New Markets
Annual U.S. Natural Gas Production History Since 1997 (Bcf/d)
Source: EIA U.S. Dry Natural Gas Production, October 2016.
0
10
20
30
40
50
60
70
80
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
5
China, India and Other Energy Emerging Economies
1 China and India are the two key drivers for future energy demand
2
3
4
5
GDP per capita expected to triple
Other key energy growth economies which will drive 30% of energy growth include:
According to Brookings Institute, number of people considered middle class will rise from 2 billion in 2014 to 5 billion in 2030, with most of the growth in India and China
Natural gas is the largest growing energy supply, increasing 40%
Brazil Egypt Indonesia Iran Mexico
Nigeria Saudi Arabia South Africa Thailand Turkey
6
Global Demand for Energy Projected to Rise by 25 Percent from 2014 – 2040 – But Energy Efficiency Vastly Lowers Energy Per GDP Energy Demand (Quadrillion BTUs)
Source: ExxonMobil - The Outlook for Energy: A View to 2040.
7
Liquids Trade Balance by Region
North America Swings to a Net Exporter as Shale Growth Continues
Conventional crude and condensate Deepwater Demand Oil sands Tight oil NGLs Other
Source: ExxonMobil - The Outlook for Energy: A View to 2040.
8
Gas Trade Balance by Region
By 2040, Unconventional Gas Will Account for ~1/3 of Global Gas Production
Conventional production Unconventional production Demand
Source: ExxonMobil - The Outlook for Energy: A View to 2040.
9
Projected Global Fuel Demand in 2040 (Quadrillion BTUs)
Oil Remains the World’s Top Fuel, But Natural Gas Grows the Most
Source: ExxonMobil - The Outlook for Energy: A View to 2040.
10
Projected Oil Supply / Demand Dynamics (MMBbls/d)
Oil Supply Needed to Meet Future Demand
Source: ExxonMobil - The Outlook for Energy: A View to 2040 and IEA Oil Market Report, November 2016.
12.8 MMBbls/d
23.5 MMBbls/d
33.1 MMBbls/d
Projected Undersupply
Q4’16 Estimated Global Production Capacity:
99.5 MMBbls/d
Q4’16 Estimated Global Oil Demand:
97.1 MMBbls/d
60
65
70
75
80
85
90
95
100
105
2016 2017 2018 2019 2020 2021
Estimated Global Oil Demand (0.7% Annual Growth) Estimated Global Production Capacity (2.5% Annual Decline)
Estimated Global Production Capacity (5.0% Annual Decline) Estimated Global Production Capacity (7.5% Annual Decline)
11
Permian Projected To Be The Largest Oil Field In The World
Clear Folk
U. Spraberry
M. Spraberry
Jo Mill
L. Spraberry
Dean
Wolfcamp A
Wolfcamp B
Wolfcamp C
Wolfcamp D “Cline”
Strawn
Atoka
Barnett Miss Lime Woodford
(1) Jefferies estimate. (2) Source: Pioneer Natural Resources June 2015 Investor Presentation.
Estimated Recoverable Resource (BBo)
Pay Thickness Comparison – Major Onshore Resource Plays
212 BBo
160 BBo
28 BBo
13 BBo
10 BBo
2 BBo
0 50 100 150 200 250
Permian Basin
Ghawar (Saudi Arabia)
Eagle Ford Shale
Prudhoe Bay
Bakken Shale
Thunder Horse (GoM)
Eagle Ford Barnett Combo Niobrara Bakken Marcellus
(1)
(2)
(2)
(2)
(2)
(2)
350 ft 100 – 500 ft 275 – 600 ft 30 – 120 ft 50 – 600 ft
Pay Thickness Comparison
Midland
Gross Thickness Up to 6,000 ft
12
Permian Basin Crude Production
Forecasted Permian Basin Production
Crude Production Assumptions
Production forecast based on assumed “basin-wide” type curves
─ 1,000 MBoe type curve for new horizontal wells(1)
Our base case forecasts no change in horizontal rigs from the current 186 rigs(2)
─ The 350 Rig and 400 Rig Cases assume 350 rigs and 400 rigs by 2018 and beyond
─ 1,000 Rig Case provides illustrative “upper bound” to potential production
(1) Represents processed EUR. (2) As of 11/23/2016 per Baker Hughes International.
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Per
mia
n B
asin
Oil
Pro
duct
ion
(MB
bl/d
)
Historical Production Base Case 350 Rig Case 400 Rig Case 1,000 Rig Case
13
Permian Basin Resource Summary
Key Points
Jefferies estimates a total resource potential of approximately 325 BBoe (212 BBo) across the productive core of the Midland and Delaware Basins
─ Delaware: 218 BBoe (128 BBo)
─ Midland: 106 BBoe (84 BBo)
Spacing assumptions:
─ Delaware:
Wolfcamp A: 15 wells / section(1)
Wolfcamp B: 15 wells / section
2nd Bone Spring: 8 wells / section
3rd Bone Spring: 8 wells / section
Avalon: 8 wells / section
─ Midland:
Wolfcamp A: 15 wells / section
Wolfcamp B: 15 wells / section
Mid. Spraberry: 10 wells / section
Lower Spraberry: 10 wells / section
(1) Assumes development of 8 wells / section for the Wolfcamp A-X/Y Sand in southern Eddy County, NM and northern Loving County, TX.
Total Core Surface Acreage ~7,700,000 acres
Total Core “Effective” Acreage ~20,100,000 acres
Productive Benches 5 (Delaware) 4 (Midland)
Assumed Spacing 8-15 wells / section
Number of Wells to Develop ~316,000 wells
Average EUR / Well 1,137 MBoe (730 MBo)
Total Recoverable Resource ~325 BBoe (~212 BBo)
Peak Oil Production (400 Rig Ramp)
~11,000 MBo/d
Oil Reserves Half Life (400 Rig Ramp)
~32 Years
Total Capital Needed ~$1.9 Trillion
Based on Productive Core of the Midland and Delaware Basins
14
Top 10 Permian Operators
Operator Net Acres Current Production Active Permian Rigs
~2,000,000 ~174 MBoe/d 8 rigs
~1,700,000 ~159 MBoe/d 6 rigs
~1,500,000 ~115 MBoe/d 7 rigs
~1,400,000 ~144 MBoe/d 6 rigs
~710,000 ~179 MBoe/d 15 rigs
~705,000 ~153 MBoe/d 18 rigs
~560,000 NA 6 rigs
~300,000 ~67 MBoe/d 5 rigs
~235,000 ~50 MBoe/d 8 rigs
~220,000 ~86 MBoe/d 5 rigs
Top 10 Total ~9,330,000 ~1,127 MBoe/d (35% of total)
84 rigs (37% of total)
Permian Basin Total ~3,250 MBoe/d (1) 228 rigs
Note: Acreage includes non-core Delaware and Midland Basin, Central Basin Platform and New Mexico Shelf. Source: Company filings and investor presentations, EIA and Baker Hughes. (1) Represents 2-stream production.
15
E&P Deal Volume Since 2010
$7 $3
$9 $8
$16
$7
$24
$64 $64
$72
$40
$80
$23
$33
$43
$13
$49
$68
$53
$126
$31
$114
$79
$131
$117
$149
$157
$88
2010 2011 2012 2013 2014 2015 YTD 2016
Permian Other US International
Global E&P M&A Landscape
Source: PLS M&A Database.
Transactions over $50 MM ($ Billions)
16
U.S. Onshore E&P Deal Volume Since 2010
2016 U.S. Onshore Activity Accelerating After a Slow Start
Source: PLS M&A Database.
$57
$64
$46 $43
$75
$30
$54
-
20
40
60
80
100
120
140
160
180
$-
$25
$50
$75
$100
$125
$150
2010 2011 2012 2013 2014 2015 YTD 2016
Num
ber
of D
eals
Dea
l Val
ue
Asset Corporate JV Deals
Transactions over $50 MM ($ Billions)
17
Total E&P A&D Transactions by Buyer Type
A&D Market Participation by Sector – Who’s Buying?
Source: Jefferies internal transactions database.
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 2014 2015 2016 YTD
Public Private Private Equity MLP Majors/Int'ls Other
18
US Upstream M&A Market Overview
Key Points
M&A market experiencing a recovery due to:
─ Optimism that prices have bottomed has emerged, and many believe now is an optimal time to play ”offense”
─ Financial markets have shown material improvement in 2016
─ Strategic buyers upgrading portfolios and “equitizing” balance sheets
─ Large companies fortifying liquidity via asset sales
─ Private-equity backed companies see a “window”
Jefferies Transaction
July 2016 to Date (Transactions over $500 MM)
Date Buyer Seller Amount ($MM) Location
11/28/2016 $855 Delaware Basin
11/18/2016 $1,000 East Texas
10/31/2016 J. Cleo /
Multiple Sellers $1,765 Delaware Basin
10/25/2016 Multiple Sellers $683 Appalachia
10/18/2016 $1,600 Midland Basin
10/18/2016 $785 Bakken
10/14/2016 $742 California
10/13/2016 $2,400 Delaware Basin
9/26/2016 $2,700 Appalachia, Barnett
9/12/2016 $2,000 Gulf of Mexico
9/6/2016 $2,451 Delaware Basin
8/23/2016 $1,505 Delaware Basin
8/15/2016 $1,625 Midland Basin
8/8/2016 $980 Midland Basin
7/13/2016 $560 Delaware Basin
7/07/2016 Riverstone / Silver Run $1,735(1) Delaware Basin
(1) $1,735 MM reflects firm value per Company disclosure.
19
Acreage Map
Selected Delaware Basin Precedent Transactions
Source: PLSX, press releases, company filings, Jefferies estimates and other publicly available information. (1) Adjusted for value of production at $30,000 / Boe/d to the extent PDP value is not disclosed. (2) Total transaction value excludes $100 MM allocated to midstream infrastructure and $235 MM purchase of Marathon’s non-operated CO2 and waterflood assets. (3) Transaction includes 186,000 net acres in the Delaware Basin, 138,000 net acres on the Northwestern Shelf, 200,000 net acres in the Powder River Basin, and 1.1 million net acres in other major western basins.
Concho / Reliance
Parsley / BTA
SM / Rock Oil
QEP / RK
Pioneer / Devon
Ajax Resources
Date Buyer Seller
Trans. Value ($MM)
Net Acres
Prod. (MBoe/d)
Adjusted $ / Net Acre
11/28/2016 $855 35,195 3.5 $21,309
11/21/2016 $430 16,400 2.5 $21,646
10/31/16 $1,665(2) 35,000 7.0 $41,571
10/13/16 $2,400 41,000 15.0 $47,561
10/04/16 $135 3,293 1.2 $30,064
09/06/16 $2,451 1,624,000 29.6 NA
08/23/16 $1,505 57,000 7.0 $22,179
07/13/16 $560 19,180 1.0 $27,633
07/07/16 Riverstone / Silver Run $1,735 42,500 7.2 $35,741
Mean $30,963
Median $28,849
(1)
SM / QStar
J Cleo
(3)
Centennial / Silverback
Concho / Endurance
Diamondback / Luxe
EOG / Yates
Oxy / J. Cleo
PDC / Arris
Resolute / FireWheel
RSP / Silver Hill
Riverstone / Centennial
20
Acreage Map
Selected Midland Basin Precedent Transactions (1)
(1) Source: PLSX, press releases, company filings, Jefferies estimates and other publicly available information. (2) Adjusted for value of production at $30,000 / Boe/d to the extent PDP value is not disclosed. (3) Acquisition included ORRI in 1,440 gross acres in addition to 5,667 net acres. (4) Reflects acquisition of 15,000 net acres in the core Sale Ranch area in Martin and Midland counties. Total of 28,000 net acres acquired.
Concho / Reliance
Parsley / BTA
SM / Rock Oil
QEP / RK
Pioneer / Devon
Date Buyer Seller
Trans. Value ($MM)
Net Acres
Prod. (MBoe/d)
Adjusted $ / Net Acre
10/18/16 $1,600 35,700 2.4 $42,801
09/06/16 $327 5,667 2.3 $47,556
08/15/16 $1,625 40,000 10.0 $28,125
08/15/16 $400 9,140 0.3 $42,877
08/08/16 $980 24,783 4.9 $33,612
06/21/16 $600 9,400 1.4 $59,362
06/15/16 $435 15,000 1.0 $27,000
Mean $40,190
Median $42,801
(2)
(4)
(3)
Callon / Element
SM / QStar
21
PV-15 @ NYMEX ($ / Undeveloped Net Acre)(1)
What’s a Permian Acre Worth?
Note: Represents ~520 gross locations in the Middle Spraberry, Lower Spraberry, Wolfcamp A and Wolfcamp B across 10,000 net acres in Midland Co. (1) Assumes NYMEX strip pricing as of November 28, 2016.
$177,452
$150,595
$129,458
$113,073
$100,031
$-
$50,000
$100,000
$150,000
$200,000
10 15 20 25 30
Project Development Time Frame (Years)
Illustrative Example: 10,000 Acre Midland Basin Development Program
22
Market Reaction to Recent Strategic Acquisitions Recently Announced Strategic Acquisitions Have Been Received Extremely Well by the Market
Stock Price Performance ($ / Share)
$29.30
$31.06
08/05/16 08/08/16
Stock Price Performance ($ / Share)
$13.16
$14.48
06/17/16 06/20/16
Description of Asset
Date June 20, 2016
Size / Basin $888 MM / STACK
Net Acres 61,000 acres
Production 9.0 MBoe/d
Total Resource 700 MMBoe
Description of Asset
Date August 8, 2016
Size / Basin $980 MM / Midland
Net Acres 24,783 acres
Production 4.9 MBoe/d
PDP Reserves 6 MMBoe
Description of Asset
Date April 19, 2016
Size / Basin $301 MM / Midland
Net Acres 14,089 acres
Production 1.9 MBoe/d
PDP Reserves 4 MMBoe
Stock Price Performance ($ / Share)
$8.92
$10.00
4/19/2016 4/20/2016
Buyer Seller Buyer Seller Buyer Seller
23
E&P Debt Performance
Source: CapIQ as of 11/21/16. (1) Yield indices illustrate weighted average yield based on size of issuance. (2) A Index includes issues from COP and OXY. (3) BBB Index includes issues from APA, APC, DVN, ECA, EOG, EQT, HES, MRO, MUR, NBL, PXD and XEC. (4) BB Index includes issues from the following : AR, CXO, CLR, EGN, FANG, NFX, PDCE, QEP and SWN. (5) B Index includes issues from the following: CRZO, CrownRock, GPOR, LPI, MRD, MTDR, OAS, RICE, RSPP, SM, SN, WLL, and WPX. (6) CCC Index includes issues from the following : ALTA, AREX, BBG, CRC, CWEI, DNR, EVEP, LGCY, LNR and NOG. (7) Permian comps include AREX, CPE, CXO, FANG, EGN, LPI, MTDR, PE, PXD, REI, CWEI and RSPP.
Capital Markets Environment Is Improving
E&P Equity Index Performance LTM Performance Performance Since 02/15/16
1.9%
5.4% 3.0%
14.8% 6.6% 5.8%
43% 50% 12% 11%
(1)%
2%
(15)%
13%
(51)% (60)%
183%
124%
61% 86% 84%
115%
46% 23%
(6)% (30)%
Permian Small Caps Appalachia Large Caps Bakken Mid-Con Niobrara Majors MLPs GOM
0%
10%
20%
30%
40%
50%
60%
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16
A Index BBB Index BB Index B Index CCC Index Permian Comps(2) (3) (4) (5) (6) (7)
Peak Yield %
54.3
23.7%
12.5%
8.1%
4.0%
11.2%
24
Public Debt Issuances ($MM)
Public Common Equity Issuances ($MM)
Upstream Public Market New Issue Activity
Note: Analysis excludes private company issuances, private placements, and exchange offers.
Equity and Debt Capital Markets Still Willing to Participate for High Quality Assets and Operators
# of Issues 0 1 9 7 10 5 5 1 0 0 2 1 3 4 8 0 2 5 1 7 12 2 1
$5,544
$996
$3,044
$5,511
$792
$1,529 $1,415
$303 $176
$1,286
$466 $116 $256
$2,119
$6,900
$972
$1,463 $1,533
$2,824 $2,319 $2,084
$2,460
$72 $-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16
Tran
sact
ion
Valu
e ($
MM
)
$- $350
$6,100
$3,050
$4,845
$3,400
$2,789
$200 $- $-
$1,530 $850
$1,250 $1,520
$7,425
$-
$711
$1,656
$142
$3,488
$7,461
$1,150 $500
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16
Tran
sact
ion
Valu
e ($
MM
)
# of Issues 3 6 12 3 6 4 1 1 3 2 1 1 4 8 4 5 6 5 6 4 5 4 1
1H 2015: ~$13.4 B (34 deals)
2H 2015: ~$2.6 B (9 deals)
2016 YTD: ~$28.3 B (52 deals)
1H 2015: ~$17.7 B (32 deals)
2H 2015: ~$5.4 B (9 deals)
2016 YTD: ~$25.3 B (45 deals)
25
Selected Permian Focused E&P Companies
Company Equity Value
Enterprise Value
EV / EBITDA Production Growth LTM Stock Price % Change 2017 2018 2016-2018
$2,429 $2,487 9.5x 5.7x 66% 60%
$19,203 $22,038 12.5x 9.8x 34% 20%
$7,604 $6,789 12.4x 7.7x 58% 25%
$7,130 $8,224 13.8x 8.5x 68% 79%
$29,386 $30,004 12.4x 8.8x 33% 20%
$6,295 $7,382 12.7x 8.2x 61% 41%
Mean $12,008 $12,821 12.2x 8.1x 53% 41%
As of September 30, 2016 ($ Millions)
(1)
(1) Pro Forma for October 2016 notes issuance and Howard County acquisitions of 5,952 net acres (closed 10/20/2016). (2) Pro forma for acquisition of 16,400 acres in Eddy and Lea Counties, New Mexico on 11/21/2016. (3) Pro forma for 10/20/2016 debt issuances and 10/27/2016 tender offer. (4) Pro forma for closing of Glasscock County acquisition (closed 10/4/2016). (5) Pro forma for Silver Hill Acquisition (41,000 net acres in southern Delaware Basin) on 10/13/2016.
(2)
(3)
(5)
(4)
26
Normalized EUR Evolution
1.4
2.0
2.7
2014 2015 Current
Improvement in EURs for Selected Plays
Haynesville Shale (Bcf / 1,000’) (3)
121 132
158
2014 2015 Current
Delaware Basin (MBoe / 1,000’) (4)
103
151 159
2014 2015 Current
Eagle Ford Shale (MBoe / 1,000’) (1)
62
77 82
2014 2015 Current
Williston Basin (MBoe / 1,000’) (2)
(1) Metrics include publicly available data from the following operators: CHK, CRZO, CWEI (Eastern Eagle Ford), ECA, EOG, EPE, MRO, NBL, PXD, SFY and SM. “Current” represents the most recent publicly reported data for each operator. Public disclosures represent Lower Eagle Ford completions. EURs represent type wells across all phase windows, including wet gas.
(2) Metrics include publicly available data from the following operators: CLR, HES, EOG, ERF, MRO, OAS, QEP, SM, WLL and WPX. “Current” represents the most recent publicly reported data for each operator. Public disclosures represent Middle Bakken and Three Forks completions.
(3) Metrics include publicly available data from the following operators: CHK, ECA and EPE. (4) Metrics include publicly available data from the following operators: APA, APC, CWEI, CXO, EGN, EOG, MTDR, OXY, REN, WPX, XEC. “Current” represents the most recent publicly reported data for each
operator. Public disclosures represent Bone Spring and Wolfcamp completions. 27