1. Upstream Supply Chain UpdateDUG Eagle Ford 2012San Antonio, TXOctober 15, 2012Christopher Robart, Principalcrobart@pacwestcp.com+1 202 352 7805PacWest Consulting Partners | 920 Memorial City Dr | Suite 160 | Houston, TX 77024

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The information contained in this document is believed to be accurate, but no representation or warranty, express or implied, is made by PacWest as to the completeness, accuracy or fairness of any information contained in it. PacWest does not accept any responsibility in relation to such information, whether it be fact, opinion, or conclusion that the reader may draw. PacWest has no obligation to update any content or information provided to a client in any of its reports or materials. 2012, All rights reserved, PACWEST CONSULTING PARTNERS, LLC. If you have any questions regarding these terms of use or the content in the following presentation, please contact: PacWest Consulting Partners, LLC 920 Memorial City Way, Suite 160 Houston, TX 77024 +1 888 983 1110 www.pacwestcp.com Client Confidential PacWest 2012 | All rights reserved | 2 3. EAGLE FORD SUPPLY CHAIN UPDATE Contents 1. About PacWest 2. Eagle Ford Supply Chain Constraints - Hydraulic Fracturing Services - Proppant - Guar Gum - Water 3. Summary Client Confidential PacWest 2012 | All rights reserved | 3 4. EAGLE FORD SUPPLY CHAIN UPDATE PacWest is a boutique strategy consultancy and market intel firm specializing in energy, industrial, resources; strength in the oilfield PacWest Overview & Capabilities Consulting & Advisory Market Intelligence Products Provide strategy consulting and Offer industry-leading, granular advisory services to energy, industrial, analysis of the oilfield and resources clients Deep knowledge and strength in the Strength in the oilfield supply market pressure pumping / frac market - Often work with E&Ps or suppliers across range of industries that Employ combination of primary supply products/services to it intelligence + secondary research Generally work at C-Level or business Unique in market: apply strategy lead level consulting capabilities to turnresearch into actionable intelligenceAll key staff come from top-tier strategy firms; consulting and market intelligence capabilities reinforce/inform each other Client Confidential PacWest 2012 | All rights reserved | 4 5. EAGLE FORD SUPPLY CHAIN UPDATE Forecasts are achieved through a comprehensive methodology focused on primary intelligence, plus rigorous research, and Methodology PacWest employs a multi-pronged approach to deliver market intelligence: Primary Intelligence Secondary IntelligenceFracDBInsights are based on:Regularly consulted sources The PacWest FracDB is a On-going conversationsinclude:proprietary database thatwith PacWest source contains detailed data for Market research reportsnetwork of on-the-groundover 26,000 wells fraced in Company annual reports, the US in 2011/12field experts10-Ks, 10-Qs In-depth surveys, The database contains Speeches anddetailed data for each fracinterviews andpresentations by companyincluding:conversations withleadership and other - Operatoroperators and suppliersindustry experts - Pressure Pumper Industry-leading experts Analyst reports from - Well/API numberand technical specialistsleading banks- Frac type, chemicals, Other PacWest internal Government data TVD, water volume, etc.databases/models Client Confidential PacWest 2012 | All rights reserved | 5 6. EAGLE FORD SUPPLY CHAIN UPDATE Contents 1. About PacWest 2. Eagle Ford Supply Chain Constraints - Hydraulic Fracturing Services - Proppant - Guar Gum - Water 3. Summary Client Confidential PacWest 2012 | All rights reserved | 6 7. EAGLE FORD SUPPLY CHAIN UPDATE The Eagle Ford rig count grew by 118% between Dec 2010 and May 2011, placing incredible strain on the oil/gas supply chainWhere Have We Been? Growth in Eagle Ford Rig CountEagle Ford Rig Count (Oct-2010 Oct-2012)Comments300 The Eagle Ford rig count increased from 119 in Dec-2010 to 259 in May-2012,250 an increase of 118% in less than 18 months200 The increase in rig count strained all150 parts of the oil/gas supply chain and Rigsinfrastructure100 Shortages in the following areas havebeen particularly high profile:50- Frac equipment 0- ProppantOct-10 Dec-10Feb-11 Apr-11Jun-11 Aug-11Oct-11 Dec-11Feb-12 Apr-12Jun-12 Aug-12- Guar gum- Water Client Confidential Source: Baker Hughes PacWest 2012 | All rights reserved | 7 8. EAGLE FORD SUPPLY CHAIN UPDATE However, the supply chain in the Eagle Ford has finally caught up with the rig count; constraints are now minimal Where are We Now? Current State of the Supply Chain in the Eagle Ford Minimal supply chain constraints exist in the Eagle Ford today - The supply chain has caught up with the rig count, minimizing the vast majority of constraints Frac Services: market for frac services entered an oversupply situation starting in early 2012, oversupply is expected for the foreseeable future - Prices for frac services continue to fall as supply enters the market and demand dips Proppant: all types of proppant available in abundance - Even course sand grades (20/40 and 30/5) that were previously in shortage are now available in abundance; PacWest estimates that frac sand capacity has increased by 59% since 2010 Guar Gum: although prices have been on a roller coaster, no shortages have been reported in 2012 - Guar gum prices reached $25/kg in May 2012 but have since fallen to $3/kg - Significantly larger crop of guar seed expected in the 2012 harvest (happening now!), reducing risk of future shortage Water: still a challenge but both groundwater and surface water widely available since the drought ended in September 2012 - Sourcing water still poses a risk to drilling & completion schedules but we have received few reports of delays due to problem sourcing water Client Confidential PacWest 2012 | All rights reserved | 8 9. EAGLE FORD SUPPLY CHAIN UPDATE Contents 1. About PacWest 2. Eagle Ford Supply Chain Constraints - Hydraulic Fracturing Services - Proppant - Guar Gum - Water 3. Summary Client Confidential PacWest 2012 | All rights reserved | 9 10. EAGLE FORD SUPPLY CHAIN UPDATE A falling US land rig count (-7%) is driving a reduction in demand for hydraulic fracturing services (-8%) in 2012 US Land: Rig Count vs. Frac DemandRig Count vs. Frac Demand (11Q4-13Q4)Comments 2,000US Land Rig Count With the exception of an increase inUS Land Frac Demand13Q1, US land rig counts are expected to 1,947 1,950 drop through EOY 2013, causing a fall in 1,923 13.5 frac demand1,898 Frac service intensity is also falling,Frac Demand (MM HHP) 1,900 13.0causing incremental reductions in Rig Count1,850 1,855 1,85013.0 1,850 12.9demand, due to:1,8201,825 12.5- Redeployment of frac capacity to 1,795 1,800 lower-service intensity oil/liquids plays12.412.212.2 12.0 - Greater adoption of sliding sleeves12.112.1 1,75012.012.0 completions, reducing time per frac - Improved efficiency of frac crews, Forecast 1,700 11.5 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 reducing time per fracRigs / MM HHPPercent Change (%)- Minor changes in frac design, causing Metric11Q412Q4E13Q4E2012 2013 incremental reductions in HHP per frac Rig Count1,947 1,820 1,795 -7%-1% - Reduction in frac stages per well in gas Demand131212 -8%+1% plays by some operators Client Confidential Sources: PacWest analysis; Baker Hughes PacWest 2012 | All rights reserved | 10 11. EAGLE FORD SUPPLY CHAIN UPDATE However frac capacity is increasing (+19%) through 2012, leading to a dramatic fall in capacity utilization (-26%) US Land: Frac Services Supply vs. Demand vs. Capacity UtilizationFrac Supply, Demand, Utilization (11Q4-13Q4) Comments18Frac Demand 110% We forecast a net frac capacity increase17Frac Capacity 105% of 19% in 2012, compared to a frac104%Capacity Utilizationdemand decrease of 8%, resulting in a Frac Horsepower (MM HHP)16 100%supply/demand imbalance of 2.6 Frac Capacity Utilization 16.0 16.1 15.8 16.015 95% 15.215.6 95%million HHP14.71414.2 90% We forecast that capacity utilization,13.012.91312.4 85% 85% nearly 104% in 11Q4, will crash through13.0 12.2 12.2 12.1 12.1 12.081% 12.02012, ending the year at 78%12 80%11 78%78% 76% 75% Frac capacity will continue to increase76% 75%Forecast incrementally in 2013 (+3%), expanding10 70% 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 the supply/demand imbalance to 4 million HHP MM HHP / Utilization (%)Percent Change (%) Metric11Q4 12Q4E13Q4E 2012 2013 We forecast that capacity utilization will Demand131212-8% +1% fall incrementally through 2013, closing Supply131616+19%+3% out the year at 75% Utilization104% 78%75%-26%-2% Client ConfidentialSources: PacWest analysis PacWest 2012 | All rights reserved | 11 12. EAGLE FORD SUPPLY CHAIN UPDATE All key US plays are now in a negative frac pricing environment, with an aggregate price change of -14% forecasted for 2012 US Land: Frac Capacity Utilization vs. Price Index (New Bid / Spot Market)Aggregate Capacity and Price Index (11Q4-13Q4) Comments110%Capacity Utilization 110 Available frac capacity surpassed105%104%Price Index 105 demand in 12Q1, and we forecast a 100 rapid drop in capacity utilization of 26% Pricing Index (New Bid / Spot Market)100%102100 from 11Q4 to 12Q4 95 We forecast that aggregate US frac Frac Capacity Utilization 95%9595%91 pricing will decrease by 14% in 2012 90% 88 90 86and decrease by an additional 8% in 85% 84 82 85 2013 85% 81 80% 81%80 Frac pricing in gas plays is expected to 78%78% stabilize in late 2012 and early 2013 75% Price Index: 76% 76%75 75% 11Q3 = 100 Forecast Frac pricing in liquids plays is expected 70%70 11Q4 12Q1 12Q2 12Q312Q413Q113Q213Q313Q4 to continue to fall in 2012 and earlyUtilization (%) / Change in PricePercent Change (%)2013, with prices stabilizing in late Metric11Q4 12Q4E 13Q4E2012 2013 2013 Utilization104%78% 75%-26%-2% Price Trend +2%-4%-2% -14%-8% Client Confidential Sources: PacWest analysis PacWest 2012 | All rights reserved | 12 13. EAGLE FORD SUPPLY CHAIN UPDATE The Eagle Ford is expected to be in a negative frac pricing environment throughout 2012 Eagle Ford: Frac Supply vs. Demand vs. Capacity Utilization vs. Price IndexSupply & Demand (MM HHP) Market Trends 3.4 Despite the consistent recent historical3.1 3.13.1 3.23.0 3.0 3.1 increases, rig count is expected to fall2.9 3.0slightly for the remainder of 2012, with2.7 2.82.8a similar impact on demand 2.62.8 2.8 2.82.82.7 2.7 2.4 An influx of frac capacity has decreased 2.2 2.22.4 utilization from 109% in 11Q4 to 98% in 2.0 2.2 Forecast 12Q2, which has been reflected in 11Q4 12Q112Q212Q3 12Q4 13Q113Q2 13Q313Q4pricing Utilization & Price Index (New Bid / Spot)110% 109%120 Sources report price concessions for Price Trend:110new bids in the range of 10% to 20% in105% 11Q3 = 100Price index (11Q3 = 100) 96 10612Q1 reflected in our model Capacity Utilization 10089100%82 9097%7775 73 7271 80 Sources report prices of between98%95%94% 70 $120K and $150K per stage for LG/XL90% 92%90%89% 89%60 fracs, depending on the serviceUtilizationPrice Index 90% Forecast 50provider85%4011Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 Client Confidential Sources: company documents; field staff interviews; PacWest FracDB / FracFocus.org PacWest 2012 | All rights reserved | 13 14. EAGLE FORD SUPPLY CHAIN UPDATE Contents 1. About PacWest 2. Eagle Ford Supply Chain Constraints - Hydraulic Fracturing Services - Proppant - Guar Gum - Water 3. Summary Client Confidential PacWest 2012 | All rights reserved | 14 15. EAGLE FORD SUPPLY CHAIN UPDATE Frac sand is expected to be readily available through 2016 with the only constraints a direct result of transportation/logistics Summary of Frac Sand Market Trends Demand growth moderated due to uncertainty about commodity prices - Frac sand utilization intensity (i.e. sand demand per well) at the US aggregate level has hit a plateau and is not expected to drive meaningful demand increases Supply is expected to increase by nearly 25% between 2012 and 2013: the market is expected to be awash in sand by 2013 - Despite falling prices, frac sand economics still appear strong one source disclosed operating costs of $22/MT translating into continued economic incentives to enter the market - Geological and capital barriers to entry are relatively low, i.e. there is lots of decent sand available and capital is available for greenfield and brownfield projects - Recent barrier to entry includes environmental health and safety concerns spurred by silicosis risks; permitting new sand facilities in or near populated areas is becoming more of a challenge Pricing is expected to decline sharply in the near-term but fall moderately in the long-term - Sand suppliers have already discussed a number of contract renegotiations, and indicate they have made price concessions during these sessions - Competitive advantages may now center on logistical capabilities Client Confidential PacWest 2012 | All rights reserved | 15 16. EAGLE FORD SUPPLY CHAIN UPDATE We forecast moderate growth in the near-term but strong long-term growth in the frac sand market Frac Sand Supply & Demand Trends Frac Sand Supply vs. Demand (MM MT) Discussion100 We expect frac sand supply to Supply 88 90 grow by 25% between 2012 Demand 80 8074 and 20136979 70 Supply of frac sand is expected 6055 67to surpass demand from 201247 60 through 2016 5044 56 52 40 49 Even coarse grades of sand,heavily constrained in 2010 3035and 2011, are widely available 20in todays market 10 Demand for fine grades is Forecast0expected to increase in2010 20112012 2013 2014 2015 20162015/2016, as a result of a gas MetricGrowth (12-16)CAGR (12-16) Demand 53%11%price forecast above $4.50 Supply60%13% Client Confidential Source: PacWest Analysis PacWest 2012 | All rights reserved | 16 17. EAGLE FORD SUPPLY CHAIN UPDATE We forecast that average frac sand prices will drop 8% in 2013 but that price will stabilize through 2016 Frac Sand Pricing Trends (average price: contract + spot)Frac Sand Mine-Gate Price Outlook ($/MT) Discussion $90 Prices are expected to decline over the long-term, but will do $80 so gradually Key exception will be 2013, $70 where price will fall much faster $60 - Recent analysis suggests a$59 drop of nearly 8% between $50$532012 and 2013 $48 $50$49 $49 $40 The supply/demand imbalance will stabilize after 2013,Forecast resulting in stable prices as well $30 2011 2012 20132014 2015 2016Composite20/4030/5040/70 Source: PacWest Analysis Client Confidential PacWest 2012 | All rights reserved | 17 18. EAGLE FORD SUPPLY CHAIN UPDATEThe use of ceramics and resin-coated sand has increased in the EagleFord in 2012Eagle Ford: Frequency of Proppant Usage Frequency of Proppant Usage (% of wells)Comments 15%Use of RCS & The use of both RCS and 13%ceramics increasing!!!ceramics has been on therise in early 2012Frequency of Proppant Usage (% of Wells)11% The use of ceramics in the10%10% 10% 9%9% Eagle Ford increased 8% 8%9% 8% dramatically in early 20127% 9% 5%8% Sources in the field validate 6% 5%the increased usage of 5% 5% 5% 5%RCS/ceramics3% 4% 4%4% 4%4%- They report superior 3%3%3% 3% production results 0% 0% 0% 0% 1%compared to frac sand in 0% 90 and 180 day IP figures Resin-coated Sand CeramicSource: PacWest analysis; PacWest FracDB / FracFocus.orgClient Confidential PacWest 2012 | All rights reserved | 18 19. EAGLE FORD SUPPLY CHAIN UPDATE Contents 1. About PacWest 2. Eagle Ford Supply Chain Constraints - Hydraulic Fracturing Services - Proppant - Guar Gum - Water 3. Summary Client Confidential PacWest 2012 | All rights reserved | 19 20. EAGLE FORD SUPPLY CHAIN UPDATEConstrained supply and increasing demand, exacerbated by hoarding byIndians and stockpiling by OFS drove price surgeSupply & Demand DriversSupply Demand Extremely small 2011 harvest led to Strong oilfield demand increases 2009-2011seedstock tightness- Continued rig/frac activity increases; shift - Catastrophic monsoon in 2011 led to from gas- to liquids-driven activity: oil well extremely low yields and small harvestconsumes 2.5x more gum than gas well OFS stockpiling of guar gum. Aggressive Historic To Early 2012 Limited carryover seedstock- Steady oilfield demand increases since 2009purchases to build stockpiles and avoid consumed virtually all of 2010 harvestshortages in March-May 2012 Hoarding exacerbated seedstock constraints;- Effectively pulled demand forward,players across all parts of Indian value chain exacerbating demand increases engaged in seedstock hoarding OFS direct sourcing - Increased seedstock constraints and price - Shift in sourcing strategies to direct sourcing increases in early part of 2011-2012by many medium sized OFS players - Some cases of market manipulation, though - Inflationary factor impacting perceived less importantdemand Late 2012 Planting expansion in 2012 will increase OFS using previously built up stockpiles;seedstock supply, though unclear to what purchase demand low and prices decliningextentClient Confidential PacWest 2012 | All rights reserved | 20 21. EAGLE FORD SUPPLY CHAIN UPDATE Still too early to determine results of harvest; magnitude of planting increase will determine price, but constraints unlikely Guar Gum Price Outlook Guar Gum Price Forecast, FOB India ($/kg)Discussion$10.0 Price has fallen dramaticallyfrom a high of $25/kg in May $9.02012 Scenario 1: $8.0Moderate Planting Increase Customers in wait-and-seemode, driving down current $7.0 demand Harvest size still unclear; size $6.0of planting increase over2011 will drive size of $5.0harvest $4.0 Assuming moderate plantingScenario 2: increase (10-20%), expect $3.0 Large Planting Increase prices to range $6-7/kgmuch of 2013 $2.0 Assuming large increase(100%), expect prices near$3 for most of year Source: PacWest Analysis Client Confidential PacWest 2012 | All rights reserved | 21 22. EAGLE FORD SUPPLY CHAIN UPDATE Contents 1. About PacWest 2. Eagle Ford Supply Chain Constraints - Hydraulic Fracturing Services - Proppant - Guar Gum - Water 3. Summary Client Confidential PacWest 2012 | All rights reserved | 22 23. EAGLE FORD SUPPLY CHAIN UPDATEThere is little pressure for recycle/reuse of frac flowback water due towide availability of water and disposal wellsWater Demand for Hydraulic Fracturing in the Eagle FordWater Demand for HF in the Eagle Ford Discussion 130105,000 Disposal is the main method forWater Required for Hydraulic Fracturing in the Eagle 120102,434managing frac flowback given the 110101,168abundance of wells100,000 100 100,488 - Water disposal costs averageAverage Water / Well (BBL)90 $2.30/bbl 96,78780 Ford (MM BBL) 94,645 95,000 - Regulatory pressure is low,70 Water Required for HF in EF (MM BBL)supporting disposal solutions6050 EF Frac Flowback Water (MM BBL)90,000 - Flowback volumes are relatively low (~10%)40 Avg. Water/Well (BBL)30 Water stress is driving interest in85,00020 treatment/re-use10 - EF market for water treatment 080,000 services is an estimated $7011Q111Q211Q311Q4 12Q112Q212Q3 12Q413Q1 13Q213Q3 13Q4 million The water pre-treatment market is Year Avg. Water/WellTotal EF Water EF Frac Flowback growing substantially, driven by 2011 99,125 bbl291 MM bbl 29 MM bbl uptake of biocides and scale- 2012102,278 bbl 409 MM bbl41 MM bbl inhibitorsClient ConfidentialSource: PacWest Analysis; PacWest FracDB / FracFocus.org PacWest 2012 | All rights reserved | 23 24. EAGLE FORD SUPPLY CHAIN UPDATE Contents 1. About PacWest 2. Eagle Ford Supply Chain Constraints - Hydraulic Fracturing Services - Proppant - Guar Gum - Water 3. Summary Client Confidential PacWest 2012 | All rights reserved | 24 25. EAGLE FORD SUPPLY CHAIN UPDATE Near-term Eagle Ford supply constraints are minimal, only short-term, intermittent issues are foreseen until overall US activity ramps up Eagle Ford Supply Chain Summary The upstream supply chain in the Eagle Ford has finally caught up with the rig count; constraints are now minimal Minor shortages are expected from time to time in the near-term, due primarily to problems with planning, logistics, and transportation We dont expect any major upstream supply chain issues in the Eagle Ford until natural gas prices return and overall US D&C activity ramps up Client Confidential PacWest 2012 | All rights reserved | 25 26. EAGLE FORD SUPPLY CHAIN UPDATE Questions & Answers??? Christopher Robart Principal, PacWest Consulting Partners crobart@pacwestcp.com +1 202 352 7805 Client Confidential PacWest 2012 | All rights reserved | 26