Why the Permian Is the Next Hot Investment

The Permian Basin: One of the oldest oil fields

Click icon to add picture• The Permian Basin is located in west Texas and the adjoining southeastern New Mexico.

• About 29 billion barrels of oil and 75 trillion cubic feet of natural gas produced since 1921.

Photo credit: Railroad Commission of Texas

• Conventional vertical wells still account for more than 80% of production in the Permian.

• However energy research firm Wood Mackenzie says horizontal drilling is fast becoming the main driver of production growth.

• Industry experts estimate recoverable oil and natural gas resources exceed what has been produced over the last 90 years!

But a paradigm shift is underway…

…as focus shifts to horizontal drilling.

Click icon to add picture• In 2013, production from horizontal wells grew by 119% to 375,000 Boe/d.

• In the same period, output from vertical wells increased only 2%.

• Modern technology and $90/bbl crude oil prices motivate horizontal drilling.

Photo credit: Flickr/Nicholas A. Tonelli

• Stacked pay horizons and thick oily reservoirs discovered in the three sub-basins: Delaware Basin, Midland Basin, Central Basin Platform.

• The Spraberry, Wolfcamp and the Bone Spring shale formations are the most prolific.

• As a result, rig-count in the Permian up by 15.2% in 2014, the highest growth across any oil producing region in the United States.

Permian Basin rig-count at 7-year highs

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Horizontal rigs make up for almost half the total…

Photo credit: Pioneer Natural Resources/Investor Relations

…as previously uneconomical fields open up.

Click icon to add picture• Last year, 55% of capital spending in the Permian Basin directed to horizontal drilling.

• In 2012, horizontal development accounted for only 22% of capital spending – a substantial development.

Photo credit: Occidental Petroleum/Investor Relations

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Photo credit: Pioneer Natural Resources/Investor Relations

Stacked pay horizons in the Midland Basin

• Once dubbed the

“Largest Uneconomic Oil Producing Play in the World”.

• Formation is mostly made up of “Spraberry Sand”, a sand that makes oil recovery difficult.

• The rock is naturally fractured.

The Spraberry formation: A huge oil reservoir

Photo credit: Flickr/Paul Lowry

• The Spraberry

formation has already produced more than one billion barrels of oil.

• Pioneer Resources estimates net resource potential of more than 8 billion barrels of oil equivalent.

Photo credit: Flickr/Department of Energy and Climate Change

The Spraberry formation: A huge oil reservoir

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• Pioneer Natural Resources (NYSE: PXD)

• Occidental Petroleum (NYSE: OXY)

• Apache Corp. (NYSE: APA)

Major Operators in the Spraberry

The Spraberry formation: A huge oil reservoir

Data by YCharts

Click icon to add picture• Comprises four

benches: A, B, C & D.

• A & B correspond to the Upper and Middle Wolfcamp.

• C is identified as the Lower Wolfcamp.

• The D bench is referred to as the Cline shale.

Photo credit: Pioneer Natural Resources/Investor Relations

The Wolfcamp: Among the most prolific fields

• Most drilling is

focused on the Wolfcamp B.

• But Wolfcamp A and D are picking up.

• In 2013, Pioneer Resources drilled several successful appraisal wells.

• Total thickness: ~2,000 feet

Photo credit: Flickr/Martin Lopatka

The Wolfcamp: Rapid development ahead

Well Lateral

LocationCompany IP Rate Remarks Oil

content

University 7-43 10H Wolfcamp D Pioneer Resources

3,065 Boe/d 24-hr peak IP rate

74%

E.T. O’Daniel #1H Wolfcamp B Pioneer Resources

2,801 Boe/d 24-hr peak IP rate

75%

University 2-20 #12 Upper Wolfcamp B

Pioneer Resources

3,176 Boe/d 24-hr peak IP rate

83%

Abel 18 #3H Wolfcamp A Athlon Energy

1,364 Boe/d 24-hr peak IP rate

89%

Lawson #2703H Wolfcamp A Athlon Energy

1,069 Boe/d 24-hr peak IP rate

81%

Winchester 57-10 #1H Wolfcamp B Energen Corp.

2,387 Boe/d 24-hr peak IP rate

N/A

Typical Wolfcamp well results

Source: Company filings

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Total Wolfberry potential: 75 million barrels!

Photo credit: Pioneer Natural Resources/Investor Relations

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• Pioneer Natural Resources (NYSE: PXD)

• Apache Corp. (NYSE: APA)

• Concho Resources (NYSE: CXO)

• Cimarex Energy (NYSE: XEC)

Major Operators in the Wolfcamp

The Wolfcamp: Rapid development ahead

Data by YCharts

• The Bone Spring is

the most productive and highly drilled formation in the Delaware Basin.

• Formation is divided into 1st, 2nd, & 3rd Bone Spring sands.

• Gross thickness of column: 2,500 – 3,000 feet.

Photo credit: Flickr/Charles Henry

The Bone Spring: Grossing the highest returns

Bone Spring well results for Concho Resources

“Production from new wells in the Permian offsets legacy production declines. According to the Energy Information Administration, July is

forecasted to witness a 23,000 bbl/day net increase in oil production over June.”

Location Well Count 30-day average IP rate

24-hour peak IP rate

Avalon 56 690 Boe/d 1,251 Boe/d

1st Bone Spring 12 499 Boe/d 989 Boe/d

2nd Bone Spring 152 856 Boe/d 1,377 Boe/d

3rd Bone Spring 34 666 Boe/d 1,047 Boe/d

Concho Resources/Investor Relations

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• Anadarko Petroleum (NYSE: APC)

• Concho Resources (NYSE: CXO)

• EOG Resources (NYSE: EOG)

• Devon (NYSE: DVN)

Major Operators in the Bone Spring

The Bone Spring: Driving production growth

Data by YCharts

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