2018 DUG Permian Basin Conference

Transcription

1 2018 DUG Permian Basin Conference Southern Midland Basin Update J. Ross Craft Chairman & CEO MAY 22, 2018

2 Forward-looking statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of All statements, other than statements of historical facts, included in this presentation that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this presentation specifically include the expectations of management regarding plans, strategies, objectives, anticipated financial and operating results of the Company, including as to the Company s Wolfcamp shale resource play, estimated resource potential and recoverability of the oil and gas, estimated reserves and drilling locations, capital expenditures, typical well results and well profiles, type curve, and production and operating expenses guidance included in the presentation. These statements are based on certain assumptions made by the Company based on management's experience and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and believed to be reasonable by management. When used in this presentation, the words will, potential, believe, intend, expect, may, should, anticipate, could, estimate, plan, predict, project, target, profile, model or their negatives, other similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. In particular, careful consideration should be given to the cautionary statements and risk factors described in the Company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. Cautionary statements regarding oil & gas quantities The Securities and Exchange Commission ( SEC ) permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC s definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. The Company uses the terms estimated ultimate recovery or ( EUR ), reserve or resource potential, and other descriptions of volumes of reserves potentially recoverable through additional drilling or recovery techniques that the SEC s rules may prohibit the Company from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized by the Company. EUR estimates, identified drilling locations and resource potential estimates have not been risked by the Company. Actual locations drilled and quantities that may be ultimately recovered from the Company s interest may differ substantially from the Company s estimates. There is no commitment by the Company to drill all of the drilling locations that have been attributed these quantities. Factors affecting ultimate recovery include the scope of the Company s drilling project, which will be directly affected by the availability of capital, drilling and production costs, availability of drilling and completion services and equipment, drilling results, lease expirations, regulatory approval and actual drilling results, as well as geological and mechanical factors. Estimates of unproved reserves, type/decline curves, per well EUR and resource potential may change significantly as development of the Company s oil and gas assets provides additional data. Type/decline curves, estimated EURs, resource potential, recovery factors and well costs represent Company estimates based on evaluation of petrophysical analysis, core data and well logs, well performance from limited drilling and recompletion results and seismic data, and have not been reviewed by independent engineers. These are presented as hypothetical recoveries if assumptions and estimates regarding recoverable hydrocarbons, recovery factors and costs prove correct. The Company has limited production experience with this project, and accordingly, such estimates may change significantly as results from more wells are evaluated. Estimates of resource potential and EURs do not constitute reserves, but constitute estimates of contingent resources which the SEC has determined are too speculative to include in SEC filings. Unless otherwise noted, internal rate of return ( IRR ) estimates are before taxes and assume New York Mercantile Exchange ( NYMEX ) forward-curve oil and gas pricing and Company-generated EUR and decline curve estimates based on Company drilling and completion cost estimates that do not include land, seismic or general and administrative ( G&A ) costs. 2

3 Solid foundation for long-term value APPROACH RESOURCES OVERVIEW Enterprise value $637 MM 1 High-quality reserve base MMBoe proved reserves 2 60% liquids, 28% oil $582.2 MM PV-10 (non-gaap) at NYMEX strip 3 Permian Basin core operating area 165,000 gross (149,000 net) acres ~1 BnBoe gross, unrisked resource potential ~1,350 identified HZ drilling locations CRANE ~100% working interest PECOS Large contiguous acreage position with multiple benches Prolific Wolfcamp shale is the largest estimate of unconventional oil ever assessed in North America by USGS 4 Large-scale infrastructure facilitates efficient development now and creates additional shareholder value through future monetization opportunity 329,000 BBL capacity water recycling facility Centralized compressor and gas lift infrastructure UPTON ASSET OVERVIEW TOM GREEN 1. Enterprise value is equal to market capitalization using net debt and the share count as of 3/31/2018, and the TERRELL closing share price of $2.78 per share as of 4/30/ Proved reserves as of 12/31/2017. All Boe and Mcfe calculations are based on a 6 to 1 conversion ratio. Reserves were estimated using SEC pricing at December 31, 2017 and were calculated based on the first-ofthe-month, twelve month average prices for oil, NGLs and natural gas of $51.34 per BBL, $18.67 per Bbl and Stable leasehold that is largely HBP provides for flexible budget $2.99 per MMBtu, respectively, adjusted for basis differentials, grade and quality. 3. See slide 27 for reconciliation of PV-10 using SEC pricing to the Standardized Measure of Discounted Future Improving commodity prices would allow us to seamlessly increase capital Net Cash Flows, and the NYMEX strip pricing as of December 31, budget, funded with operating cash flow 4. Per USGS estimates - VAL VERDE EDWA Capital program focused on aligning capex with cash flow WOLFCAMP SHALE RESOURCES PLAY REAGAN PANGEA WEST CROCKETT IRION PROJECT PANGEA SCHLEICHER SUTTON 3

4 Company Highlights Accomplishments 136% increase in proved reserves % increase in production Completed 187 HZ Wells (average drilled lateral length 7,485 ) (average wellhead EUR 747 MBOE, 63% liquids) 50% reduction in D&C cost % improvement in Type Curve EUR , 3 upward revisions in 6 years 35% decrease in yearly LOE Large scale Infrastructure System (over 500 miles of buried pipe) 329,000 Bbl. water recycling facility (4.6 MMbbl. of produced water recycled) Built 50 mile midstream oil pipeline, divested for 6x of initial investment within 1 yr. of project completion (retained transportation rights) 2017 Accomplishments Strengthened balance sheet and reduced long-term debt by $127.1 million, $35 million in future interest expense Extension of credit agreement maturity to 2020, no near term debt maturity, enhances financial flexibility Accretive acquisition - Pangea West bolton acquisition, funded by equity, adds production and approximately 40,000 Ac. Year-end 2017 proved reserves totaled MMBoe representing a 16% increase YOY 2017 LOE $4.23 per BOE Drilling program funded by operating cash flow Pilot tested miscible gas flooding EOR project, with encouraging results, by utilizing gas gathering and gas lift systems 4

5 Strong track record of efficiently managing through price cycles MBOE MMBOE Production Growth Reserve Growth NG Liquid NG Liquid 5

6 6

7 Approach continues to achieve one of the lowest cost structures in the basin AREX D&C Historical Track Record ($ MM) and Type Curve EUR (MBOE) 50% reduction in well cost 55% improvement in Type Curve 7

8 Cumulative Production (BOE) Enhanced completion technique driving improved well performance 1 st year cumulative production 100,000 90,000 80,000 70,000 2 nd Qtr st Qtr Wells Completed Stage spacing Cluster Spacing 43 to 22 Sand Concentration Lbs./Ft. 1,156 2,200 Stimulation Fluid Bbl./Ft Average Wellhead EUR 795 MBOE, 62% Liquids 60,000 50,000 40,000 30,000 20,000 10,000 0 Production Normalized to a 7,500' lateral and for operational downtime Days 8

9 Science wells First year cumulative production compared to 700 Mboe type curve New completion technique 3 wells completed 5/ in Project Pangea (B&C) & 1 in Pangea West (A) Average stage spacing 174 2,000 lbs./ft. average sand concentration Metal oxide nanoparticles pumped throughout stimulation treatment Production Normalized to a 7,500' lateral and for operational downtime First Quarter 2018 Results May 3,

10 Pangea West science well First year cumulative production as compared to 700 MBOE type curve Production Normalized to a 7,500' lateral and for operational downtime 10

11 Wellhead IRR Strong recent well performance and risk of wide gas basis differentials support redeploying drilling capital from Project Pangea to Pangea West Illustrative type curve IRRs 45% Historical ($0.35)/Mcf gas differential Assumed ($1.75)/Mcf gas differential 40% 43% 35% 30% 25% 30% 31% 29% 20% 24% 15% 10% Pangea type curve $4.3mm D&C Pangea West type curve $4.3mm D&C Pangea type curve $4.3mm D&C Pangea West type curve $4.3mm D&C Pangea West science well $4.7mm D&C Redeploying capital to reduce gas price risk Assumes $65/bbl. WTI price, $2.75/Mcf Henry Hub price and NGL price realization at 37% of WTI 11

12 Wolfcamp Shale success creates temporary takeaway bottleneck Average Waha Differential ~$0.15/MMBTU (Only 11.8% of the time > $0.30/MMBTU) Beginning of Wolfcamp Horizontal Development DUG Permian May 22,

13 Wolfcamp Shale success creates temporary takeaway bottleneck Average Midland WTI Differential ~$2.01/BBL (Only 15.5% of the time > $5.00/BBL) Beginning of Wolfcamp Horizontal Development DUG Permian May 22,

14 LACT APROACHFACILITY Centralized infrastructure drives capital and operating efficiencies PANGEA WEST Reagan PW DCP Tap Receipt Point Receipt Point Irion Crockett Schleicher Owned Electrical Shannon West Sales Point SHANNON WEST Pit 2 AMISTAD PW CS #1 PW Pit AQUISITION GATHERING 228HA 204HA LACT PW Commingle PW Facility 5701 SWD Pit 1 NE 1 SWD Shannon NE Sales Point Alto SWD Facility BLK 50 Compressor Receipt Point Receipt Point Receipt Point JPE Energy BLK 45 DCP Tap Receipt Point BLK 45 N Compressors 1401 SWD BLK 45 S Compressors Baker CS Baker DCP Tap Water Recycling Center 329,000 Bbl Capacity Receipt Point LACT 1 2 NORTH & CENTRAL PANGEA BLK 42 CS Recycle Pit Facility Pit X SWD Nabors 16-1 SWD Midway Truck Baker 42 Commingle 190 Station Station Facility Baker Pit LACT Pit Pit 2 LACT Baker 1 2 Pit BLK 42 / CT DCP Tap Low pressure gas gathering system & high pressure gas lift system reduces downtime & stabilizes production declines, increasing profit margins Miscible gas flooding system in place, initial pilot program resulted in positive early time results, improved oil recovery methods could result in a substantial improvement to our liquid recoveries Produced water infrastructure & recycling facility reduces D&C & LOE cost Oil gathering system combined with long-term Cushing contract minimizes differential swings Baker 101 SWD OZONA Jim Terry Pit CT Compressor West 2106 SWD Childress Pit DCP Processing Plants Moore Pit Elliott Facility Gas gathering lines Approach Bailey Compressor Childress Pit JCTFACILITY DCP Tap BLK 54 Pit BLK 54 Compressor SOUTH PANGEA Rousselot Pit DCP Tap Sutton 14

15 AREX flowback and produced water recycle facility 15

16 AREX gas lift infrastructure successfully used in Wolfcamp gas injection pilot program BLK 45 North BLK 45 South 33 Wells with Positive Production Impact 21 Injection Wells +300 MMcf of gas injected over a 20 day period Recent pilot test indicates that gas can be reinjected back into the producing wells to increase well production and potentially well recoveries by utilizing existing gas lift infrastructure Production Corridor Gas Injection Line Gas Gathering Line Oil Gathering Line Water Gathering Line Water Supply / Transportation Line Baker 16

17 Investment Highlights Concentrated geographic footprint in Permian Basin liquids-rich play, 100% operated 149,000 net acres, MMBoe 60% liquids Large scale infrastructure system results in sustainable low cost operating expense & industry leading D&C cost structure Significant organic growth potential ~1,350 horizontal drilling locations across 3 Wolfcamp benches Large scale high pressure gas lift system can be used for secondary miscible gas flooding, results from pilot program encouraging Enhanced completion design results in a 37% increase in Type Curve & improved ROR s Continue to focus on right-sizing our balance sheet through continued debt reduction & operating substantially within cash-flow Continue to focus on identifying, evaluating & executing strategic acquisition opportunities 17

18 Thank You 18

19 Appendix

20 PV-10 (unaudited) The present value of our proved reserves, discounted at 10% ( PV-10 ), was estimated at $521 million at December 31, 2017, and was calculated based on the first-of-the-month, twelve-month average prices for oil, NGLs and gas, of $51.34 per Bbl of oil, $18.67 per Bbl of NGLs and $2.99 per MMBtu of natural gas, adjusted for basis differentials, grade and quality. PV-10 is our estimate of the present value of future net revenues from proved oil and gas reserves after deducting estimated production and ad valorem taxes, future capital costs and operating expenses, but before deducting any estimates of future income taxes. The estimated future net revenues are discounted at an annual rate of 10% to determine their present value. We believe PV-10 to be an important measure for evaluating the relative significance of our oil and gas properties and that the presentation of the non-gaap financial measure of PV-10 provides useful information to investors because it is widely used by professional analysts and investors in evaluating oil and gas companies. Because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid, we believe the use of a pre-tax measure is valuable for evaluating the Company. Webelieve that PV-10 is a financial measure routinely used and calculated similarly by other companies in the oil and gas industry. The following table reconciles PV-10 to our standardized measure of discounted future net cash flows, the most directly comparable measure calculated and presented in accordance with GAAP. PV-10 should not be considered as an alternative to the standardized measure as computed under GAAP. (in millions) December 31, 2017 PV-10 $ Less income taxes: Undiscounted future income taxes (323.3) 10% discount factor Future discounted income taxes (60.2) Standardized measure of discounted future net cash flows $ At NYMEX strip pricing at December 31, 2017, PV-10 is $582.2 million. The following table summarizes the NYMEX strip prices at December 31, (1) Oil (per Bbl) $ $ $ $ $ Natural Gas (per MMBtu) $ 2.84 $ 2.81 $ 2.82 $ 2.85 $ Subsequent year prices were held flat for the remaining lives of the properties 2. NGLs prices per Bbl were estimated at 40% of the oil strip price 20