The PUF Lands: A Microcosm of the Permian?

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1 The PUF Lands: A Microcosm of the Permian? Mark Houser, CEO August 10, 2017 TIPRO Summer Conference Hyatt Hill Country

2 Overview: The PUF Lands 2 UL manages surface and mineral rights of 2.1 million acres primarily in West Texas History of the land dates back to 1838 First oil discovery in ,000 wells drilled to-date 9,000 wells currently producing >20,000 wells left to drill 250 o&g companies Surface activities include: Pipelines and power line easements Grazing, ranching and hunting leases Renewables-wind and solar (coming soon!) Winery & vineyard Airports, schools, commercial businesses Groundwater sales Environmental and wildlife programs Revenue supports UT & A&M Systems via the PUF and AUF

3 3 The PUF Lands

4 University Lands: New Business Strategy 4 Create a more commercial forward-looking organization Increase technical knowledge of the resource Work with partners to promote continuous development and value creation through commodity swings by diversifying and incentivizing Assess UL internal organizational structure and statutory framework to determine best structure for land management, stewardship and value creation

5 University Lands: Economic Development Opportunities Effective Corporate Structure Oil and Gas Water Resources Solar and Wind Other Surface Activities Excellent Environmental Stewardship 5

6 PUF Lands Oil and Gas Assets million acres: ~1.4 million leased for oil and gas activity Total Net Reserves, Aug billion barrels of oil equivalent (BOE) >20,000 future drilling locations 2017 Daily Production (60% oil) ~200,000 BOE gross per day ~40,000 BOE net per day (20% royalty)

7 Wells Drilled by Calendar Year WELL COUNT Total Drilled Horizontal Drilled Base Case High Case 184 total wells drilled as of August 1 Annual Projections YTD YTD

8 PUF Lands Production (2009 Present) 8 8,000,000 18,000,000 BBLS 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 MCF 0 Dec-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 TOTAL OIL (BBLS) BOE (BBLS) TOTAL GAS (Mcf) 0

9 9 University Lands Environmental Practices Go Above and Beyond & Are Ever-Evolving Strong relationships with environmental groups and regulators Policies unique to UL that surpass regulatory requirements Commitment to prudently evolving as technology evolves UL Focus on Impacts of Resource Development 1. Seismicity 2. Land/Surface 3. Air 4. Water 5. Transportation 6. Community & Economic Sources: EIA, EPA

10 All Signs Points to Growth for Permian Basin 10 Upstream Capital Spending Permian Oil Production Long Term Oil Price Scenarios from $40-$60/bbl Permian Basin Becoming Larger Portion of Global Supply Growth Oil supply growth (million bbls/d) mm bbls/d 8% +24mm bbls/d 10% +27mm bbls/d 15% E 2020E 2023E Permian Saudi Arabia Iraq Iran North Sea Permian doubles its share of production growth Source: IHS, IEA, BP Statistical Review of World Energy, Goldman Sachs Global Investment Research

11 11 Permian Basin Rig Count vs. Rig Count on PUF Lands # of Rigs WTI ($/BBL) Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Sources: Baker Hughes, EIA, University Lands UL RIG # PERMIAN RIG # PERMIAN /12 WTI ($/BBL) 0.00

12 12 Permian Basin Production vs. Production on PUF Lands 8,000,000 7,000,000 6,000,000 5,000,000 BOE 4,000,000 3,000,000 2,000,000 1,000,000 0 Sources: DrillingInfo, University Lands UL PERMIAN /12

13 13 Permian Basin Wells Drilled vs. Wells Drilled on PUF Lands ~ wells projected for 2017 on PUF Lands YTD PERMIAN # SPUD/12 UL # SPUD Sources: DrillingInfo, University Lands

14 Strong Well Performance Across Major Basins 14 Basin # Wells Tested Northern Midland 20 Southern Midland 48 Delaware 20 Central Basin Platform 27 Wells>1000 BEOPD 97% 48% 40% 7% Primary Zone Spraberry Wolfcamp Wolfcamp San Andres *Wells drilled in last year

15 Northern Midland Basin - Well Generated Type Curves: Lower Spraberry Formation 3 Completions (2015) Producer By-well Data 924 MBOE MBOE Northern Midland Basin Public Data 770 MBOE Days

16 16 Increasing UL s Internal Technical Emphasis: Determining Full-Field Development Source: University Lands & IHS Study of 98,000 acres of PUF Lands in Andrews County, Texas July 2011 saw the first unconventional horizontal well drilled anywhere on PUF Lands DELINEATION STRATEGY: Promotes Single Well Pads, Sequential Completions, Nimbleness FULL-FIELD DEVELOPMENT STRATEGY: Promotes Scale, Multi-well pads, Simultaneous/ Sequential Fracing Since then, ~440 Horizontal wells have been drilled on PUF Lands in the blue area only

17 17 Technical Emphasis: Determining Resource Potential Full-Field Zone Geologic Model Select UL Sections, Andrews County, TX 2016 Estimate: 400 MMBOE in 3 zones 2017 Estimate: STOIIP/S ec (MMSTB) Area = 98,000 acres (UL Blocks 5-8) Total STOIIP = 19,701 MMSTB Ave STOIIP/Sec = 130 MMSTB Multi-zone Model Effective PHI & Sw Model 800 MMBOE in 3 zones 1700 MMBOE in 7 zones Significant economic potential over time

18 Ozona Arch: A New Definition = University Lands (UL) Acreage Central Basin Platform Seismic Data: 1 = Central Big Lake NW Pangea 3D 2 = E. Crockett SE Pangea 3D Big Lake Fault Todd Elkhorn Fault Old Ozona Arch Reagan 1 Crockett. New Ozona Arch 2 Irion Previous Industry Convention: Wolfcamp Formation poor to the south Thins atop Ozona Arch Poor production Acreage valuable only north of Big Lake Fault Seismic evaluation: Improve Ozona Arch definition Able to confirm Wolfcamp formation present south of Big Lake Fault Opens up UL acreage to south for Wolfcamp Exploration/Development Concept/outline conform to those of industry partners

19 19 UL Lease Sale #128 September 20, Tracts, 397,000 acres 276,000 acres all depths 121,000 acres depth severed Leases sold in lots to promote Hz drilling 22 lots created by joining 232 tracts, 94,000 acres. Average lot is 4,300 acres Increases value to lessee by creating the ability to drill horizontally without interference from third parties. Tract list is live on EnergyNet Lease bidding opens August 20 th Sale closes September 20 th, 10AM Hosted by:

20 University Lands Lease Form #48 20 Modernized to fit current industry practices and technology Encourages full development with specific terms that go beyond the implied covenant to develop, e.g. addition of a shallow rights Pugh clause Affirms UL s commitment to environmental stewardship, including the reduction of light pollution and promotion of best industry practices for emissions control Reflects a balanced approach and UL s goals to support operators in their responsible development PUF lands, while protecting lands that the State of Texas will own forever

21 21 PUF Lands O&G Future Growth Should Mirror Permian Basin 30,000,000 NET Barrel of Oil Equivalent (BOE) 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 Growth contingent upon activity and driven by economics! - HISTORICAL PROVED DEVELOPED PRODUCING PROVED DEVELOPED NON-PRODUCING PROVED UNDEVELOPED NET RESERVES (Risked at 70%) PROBABLE RESERVES (Risked at 50%) POSSIBLE RESERVES (Risked at 50%)

22 22 New Business Line: UL Water Management UL plays leading role in strategic water issues in West Texas Positioned over major & minor aquifers Water sales to municipalities; water districts; oil and gas companies Initiated new per barrel charge for oil and gas water use Water infrastructure dispersed and controlled by various companies/groups; many looking to participate in infrastructure development - desalination, brackish water use/recycling, etc. Thousands $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 UL Groundwater Revenue $125 $260 $280 $1,010 $856 $1,211 $1,463 $1, Sep 2016-Oct 2016-Nov 2016-Dec 2017-Jan 2017-Feb 2017-Mar 2017-Apr

23 23 New Business Line: Solar Energy Development UL acreage in the Mojave of Texas Potential customer base of UT and A&M Systems Long-term prices appear attractive compared to natural gas Currently evaluating 2-3 solar development projects ranging from megawatts per location O&G producers also interested in solar to power field operations Source: UT Austin Energy Institute

24 University Lands: 20 Year Vision 24 Oil and gas production will be predominant revenue source Drilling inventory of 30+ years at normalized rates Assuming consistent development activity and continued technical momentum, production levels could increase % over time Technology enhancements in all areas of operating activity, including environmental performance Water resources will be a significant contributor to infrastructure improvement and development in West Texas Solar energy will be further developed across University Lands acreage

25 25 Thank you!