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1 August 6 - 7, 2018 Federal Reserve Bank of Dallas Dallas, Texas Energy and the Economy: Charting the Course Ahead Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Unconventional Oil and Gas C. H. Scott Rees, III

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Page 1: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

1August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Unconventional Oil and Gas

C. H. Scott Rees, III

Page 2: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

2August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Disclaimer

This presentation is for general information and illustrative purposes only—its contents should be considered in

context of the entire presentation and the date on which it is presented. All estimates, exhibits, and opinions

presented herein are subject to change. As in all aspects of oil and gas evaluation, there are uncertainties inherent

in the interpretation of engineering and geoscience data; therefore, our opinions necessarily represent only

informed professional judgment. We make no representations or warranties of any kind, express or implied, about

the completeness, accuracy, reliability, or suitability of the information contained herein; we will not be responsible

for any consequence associated with the reliance on such information. Unless indicated otherwise, the information

contained herein does not constitute professional advice or opinions, and it should be considered to be a work in

progress. Netherland, Sewell & Associates, Inc. (NSAI) is a Texas Registered Engineering Firm, No. F-2699.

Copyright 2018 NSAI. All rights reserved.

Page 3: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

3August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Presentation Outline

• Unconventional oil and gas development activity in the US

• Trends and observations

• Potential and issues of major basins

Page 4: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

4August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Historical Rig Activity in the United States

Daily OilDaily Gas

$12

0$1

0

$5

0$

4

$100$

2 $10

5$

4

$35$1.5

0

$

3

2,500

2,000

1,500

1,000

500

Rig

Co

un

t

US Rig Count Activity1,987Rig

s

932 Rigs

2,000 Rigs

1,905 Rigs

490 Rigs

US Horizontal Rig % Activity

1T

10B

85%

28%

100

80

60

40

20

Rig

Co

un

t

Rig

Co

un

t (P

erce

nt)

1,000

800

600

400

200

2008 2009 2011 2013 20172010 2012 2014 2015 2016 2008 2009 2011 2013 20172010 2012 2014 2015 2016

Co

mp

leti

on

s p

er M

on

th

5

4

3

2

1

Avg

Dai

ly O

il (

MM

BO

/D)

50

40

30

20

10 Avg

Dai

ly G

as (

BC

F/D

)

2008 2009 2011 2013 20172010

2012 2014 2015 2016 20182008 2009 2011 2013 20172010 2012 2014 2015 2016 2018

$120$10

$50$4

$100$

2$105$4

$35$1.5

$

7

5

$

3

70%

15%

$12

0$1

0

$5

0$

4

$100$

2 $10

5$

4

$35$1.5

0

$

3

1,987Rig

s

932 Rigs

2,000 Rigs

1,905 Rigs

490 Rigs

$120$10

$50$4

$100$

2$105$4

$35$1.5

$75$3

1,018Rigs

Horizontal Wells

Page 5: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

5August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Impact of Horizontal Drilling – Wells Drilled from 2000 to 2014

• Cumulative production for Pre-2015 oil wells: 4.8 billion barrels of oil (BBO), 9.0 trillion cubic feet (TCF) of gas

• Estimated ultimate recovery (EUR): ~9 BBO, ~15 TCF

2000 – 2014 Wells• Peak well count 28,750• 168 MBO/well cumulative• 300+ MBO/well EUR

2000 – 2014 Wells• Peak well count 33,791• 2.1 BCF/well cumulative• 4+ BCF/well EUR

Wel

l Co

un

t (T

ho

usa

nd

s)

Gas

Rat

e (B

CF/

D)

Cumulative Gas (TCF)

Wel

l Co

un

t (T

ho

usa

nd

s)

Oil

Rat

e (M

BO

/D)

Cumulative Oil (MMBBL)

Bakken, Eagle Ford, and Permian HZ Oil Wells Marcellus, Haynesville, Utica, Eagle Ford, Barnett,

Woodford, and Fayetteville HZ Gas Wells

• Cumulative production for these gas wells: 70 TCF, 0.7 BBO

• Estimated ultimate recovery: ~150 TCF, ~1.4 BBO

Page 6: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

6August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Well Performance Trends Normalized by Lateral Length

1st

Year

Cu

mu

lati

ve O

il /

Late

ral L

engt

h (

BO

/ ft

)

Proppant (Lbs/ft)

Completion Year

Lateral Length (ft)

Utica

Marcellus

D-J

SCOOP/STACK

Page 7: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

7August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Well Spacing and Improving Completions

Excerpts from RSP Permian 2Q17 Investor Presentation

325’

180’

200’

220’

LowerSpraberry

Dean

WCA

WCB

Microseismic Case Study: Confirming Near-Wellbore Stimulation

Excerpts from RSP Permian 2Q17 Investor Presentation

Excerpt from Goodrich 2017 Investor Presentation

Page 8: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

8August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Well Spacing - Eagle Ford Well Density Map

10 wells/section (~500 ft. spacing between laterals)

June 2018

17,037 completed wells24 rigs

Normalized Well Count per 640 acres

1 section = 640 acres(1 sq. mile)

Page 9: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

9August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Well Spacing - Bakken and Three Forks Well Density Maps

6 wells/section (~880 ft. spacing between laterals)

June 2018

4,299 completed

wells16 rigs

June 2018

11,816 completed

wells34 rigs

Normalized Well Count

Normalized Well Count

1 section = 640 acres(1 sq. mile)

Page 10: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

10August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Well Spacing - Haynesville Well Density Map

5 wells/section (~1,050 ft. spacing between laterals)

June 2018

3,849 completed

wells38 rigs

1 section = 640 acres(1 sq. mile)

Page 11: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

11August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Distance from Producing well

2,761 WCB PDP+860 PDP

1,617 WCA PDP+727 PDP

1,116 SPBY PDP+586 PDP

North

Central

South

Blue areas are developed at 4 or greater wells per section in landing zone mapped

Well Spacing – Midland Basin Well Density Maps

Page 12: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

12August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Impact of Well Density on Performance

• Increased well density eventually results in interference and decreased well performance for subsequent wells

• Performance for widely spaced initial wells may not be representative of future full-development performance

Well Spacing (wells per 640-acre section)

1st

Yea

r C

um

Oil

/ La

tera

l Len

gth

(B

O/

ft)

1 section = 640 acres(1 sq. mile)

Page 13: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

13August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Unconventional Well Development Patterns

• Well spacing in map view is not the only spacing issue to consider

• Plays in US have multiple productive intervals and consideration should be given to the 3D aspects of the development patterns

Page 14: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

14August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Optimizing Well Spacing

• Operators plan to optimize development economics

• Economics dependent on price outlook, well spacing, interference and potential of loss opportunity is not downspaced early

Page 15: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

15August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Summary

• Each play and horizon within each play has its own unique characteristics.

• Still improving completion techniques and drilling longer laterals, but…

• Still in early to mid- stages of development in most active basins.

• Many operators seeing necessity of changing completion designs to match with well spacing plans

• Development potential dependent on many variables, including:

• Ultimate well spacing

• Price Outlook

• Economics

Page 16: Unconventional Oil and Gas - Federal Reserve Bank of Dallas Reserve Bank of Dallas & Federal Reserve Bank of Kansas City Netherland, Sewell & Associates, Inc. Presentation Outline

16August 6 - 7, 2018Federal Reserve Bank of DallasDallas, Texas

Energy and the Economy: Charting the Course Ahead

Federal Reserve Bank of Dallas & Federal Reserve Bank of Kansas City

Netherland, Sewell & Associates, Inc.

Worldwide Petroleum ConsultantsEngineering, Geology, Geophysics, Petrophysics

Dallas: 214-969-5401

Houston: 713-654-4950

[email protected]

www.netherlandsewell.comYEARS OFSERVICE

SINCE 1961

Netherland, Sewell & Associates, Inc.