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Supply Chain & Infrastructure Challenges

LatAm UCG Presentation

Buenos Aires, Argentina 13 September 2011

Alexander Robart arobart@pacwestcp.com +1 202 670 8027

2011 Alexander Robart arobart@pacwestcp.com +1 202 670 8027 PacWest Consulting Partners 7941 Katy Freeway, Suite 309

PacWest Consulting Partners 7941 Katy Freeway, Suite 309 Houston, TX 77024

LATAM UCG CONFERENCE PRESENTATION

Agenda

LATAM UCG CONFERENCE PRESENTATION Agenda

1) Introduction

2) NA Unconventional Story & Current State of Market

3)

Supply Chain & Infrastructure Implications

4) International Unconventional Development

5) US Analogue: Bakken

6) About PacWest

7) Questions

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION PacWest is a boutique strategy consultancy and market intelligence firm that specializes

PacWest is a boutique strategy consultancy and market intelligence firm that specializes in unconventional oil & gas

PacWest Business Overview

Consulting & Advisory

Provide strategy consulting and advisory services to unconventional O/G operators and suppliers, including:

- Super Majors

- Independents (incl. international)

- Big 4 service companies

- Independent pressure pumpers

- Frac equipment manufacturers

Strength in supply market

- Often work with operator procurement and supply chain groups, helping analyze supply/demand, develop sourcing strategies, building capabilities, etc.

With suppliers, often work at CXO or business lead level

Offer unique market intelligence capabilities

Market Intelligence Products

Launched market intelligence business 6 months ago due to lack of information on unconventional supply market

Core product: Shale Supply Market Service

- Analysis of unconventional supply/demand and supplier database

- Emphasis on frac market

- Includes ground-breaking Pressure Pumping Monitoring Service: granular North American fleets/capacity detail by region

Nearing completion of proprietary Frac Database that includes detailed data set of North American fracs unique in market

- Launching monthly Frac Analysis product

- Frac Database subscriptions available

LATAM UCG CONFERENCE PRESENTATION

Agenda

LATAM UCG CONFERENCE PRESENTATION Agenda

1) Introduction

2) NA Unconventional Story & Current State of Market

3)

Supply Chain & Infrastructure Implications

4) International Unconventional Development

5) US Analogue: Bakken

6) About PacWest

7) Questions

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Since 1990, shale gas production has exploded from zero to close to

Since 1990, shale gas production has exploded from zero to close to 90 bcm it now accounts for nearly one-quarter of US production

US Shale Gas Production (bcm)

one-quarter of US production US Shale Gas Production (bcm) Source: EIA, Annual Outlook for 2011 ©

Source: EIA, Annual Outlook for 2011

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION North American natural gas production is forecast to be driven largely by

North American natural gas production is forecast to be driven largely by eight US and Canadian plays

North American Shale Gas Production Additions (Bcfpd)

plays North American Shale Gas Production Additions (Bcfpd) Source: Macquarie Tristone © PacWest 2011 | All

Source: Macquarie Tristone

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION By 2030, shale gas is forecast to make up nearly half of

By 2030, shale gas is forecast to make up nearly half of US natural gas production

US Dry Gas Production (Tcf/year)

US natural gas production US Dry Gas Production (Tcf/year) Shale + Tight Gas = 67% Source:

Shale + Tight Gas = 67%

Source: EIA, Annual Outlook for 2011

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION There are now dozens of active plays in the US, but demand

There are now dozens of active plays in the US, but demand is straining the existing supply chain and infrastructure in five hot spots

Today’s US Hot Spots

DJ Basin/Niobrara

Bakken Permian Basin Eagle Ford
Bakken
Permian Basin
Eagle Ford

Granite Wash

Source: PacWest

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION These five hot spots have a several characteristics in common, but one

These five hot spots have a several characteristics in common, but one most importantly: liquids-rich!!

US Unconventional Trends

Liquids-rich

Oily or “liquids-rich” formations are the primary driver of US unconventional activity today; why? Oil and gas price divergence

- Driven by simple economics: WTI = $88 / Gas = $4; associated gas med-term low gas price

Increasing Service Intensity

Liquids formations demanding ever greater services: equipment, frac stages, proppant, chemicals, etc.

Pressure Pumping Market Growing

Oil economics and increased service intensity driving major NA pressure pumping market growth

International unconventional potential means 3-yr NA upmarket cycle could extend to 5+ yrs

Supply Markets Tight

Strong demand means that supply of critical products/services tight, particularly in hot plays

Service Companies Have Leverage

With tight markets, relationship between operators and suppliers shifting

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION On the demand side, US Land rig count has rebounded dramatically since

On the demand side, US Land rig count has rebounded dramatically since 2009 lows, driving demand of pressure pumping services

US Land Rig Count (Aug 2009 Aug 2011)

2,500 2,000 1,500 1,000 500 0 Land Rigs Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10
2,500
2,000
1,500
1,000
500
0
Land Rigs
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11

Source: Baker Hughes

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION The focus on oily plays is evident in the US Land rig

The focus on oily plays is evident in the US Land rig count: oil drilling activity finally overtook gas drilling activity in early 2011

US Land Rig Count Oil vs. Gas (Aug 2009 Aug 2011)

100% 90% Oil 80% Gas 70% 60% 50% 40% 30% 20% 10% 0% Percentage of
100%
90%
Oil
80%
Gas
70%
60%
50%
40%
30%
20%
10%
0%
Percentage of Land Rigs
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11

Source: Baker Hughes

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION The dominance of unconventionals is also evident in the US Land rig

The dominance of unconventionals is also evident in the US Land rig count: increases in directional drilling has driven the rig count

US Land Rig Count Dir/Hor vs. Vert (Aug 2009 Aug 2011)

2,500 Directional/Horizontal 2,000 Vertical 1,500 1,000 500 0 Land Rigs Aug-09 Sep-09 Oct-09 Nov-09 Dec-09
2,500
Directional/Horizontal
2,000
Vertical
1,500
1,000
500
0
Land Rigs
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11

Source: Baker Hughes

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Most analysts expect the rig count to increase through 2014

Most analysts expect the rig count to increase through 2014

US Land Average Rig Count Forecast (2011-2014)

2,500 Current: 1,740 rigs (8/19/11) 2,089 2,020 1,950 2,000 1,709 1,500 1,000 500 0 2011
2,500
Current: 1,740 rigs (8/19/11)
2,089
2,020
1,950
2,000
1,709
1,500
1,000
500
0
2011
2012
2013
2014
Land Rigs

Source: PacWest Analysis; Macquarie

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION The US Land pressure pumping market is significantly under-supplied

The US Land pressure pumping market is significantly under-supplied

2011 Supply and Demand Balance US Land Pressure Pumping

200% 180% Backlog New Completions 160% 11,935,890 HHP 140% 9% 735,890 HHP 120% 3,401,640 HHP
200%
180%
Backlog
New Completions
160%
11,935,890 HHP
140%
9%
735,890 HHP
120%
3,401,640 HHP
8,534,250 HHP
100%
80%
60%
GAP PRESENTS
CHALLENGE
11,200,000 HHP
131%
100%
40%
20%
0%
Supply
Demand
Pressure Pumping Capacity Utilization

LATAM UCG CONFERENCE PRESENTATION

Agenda

LATAM UCG CONFERENCE PRESENTATION Agenda

1) About PacWest

2) NA Unconventional Story & Current State of Market

3) Supply Chain & Infrastructure Implications

4) International Unconventional Development

5) US Analogue: Bakken

6) About PacWest

7) Questions

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Unconventional O/G carries with it significant supply chain and infrastructure

Unconventional O/G carries with it significant supply chain and infrastructure implications

Unconventional Supply Chain & Infrastructure Implications

Competition & Innovation Key

Technology and innovation made shale a reality; requires entrepreneurial supply chain to optimize for each unique unconventional formation

US has deepest and most entrepreneurial O/G supply chain, competitive environment

Higher Service Intensity

Shale demands increased products/services, requiring more people, more equipment, more consumables (water, proppant, chemicals), more transportation infrastructure

Advanced Equipment and Experience Required

Most equipment and people will be imported initially; how friendly is import regime?

Infrastructure Availability Key

Production profile of shale gas wells is shorter and steeper than for conventional, so drilling campaigns have to be closely coordinated with evacuation/take-away projects

- Delay in infrastructure can significantly impact economics

NA Supply Markets Tight Today

NA rewards high; opportunity cost deploying equipment to uncertain region?

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION A NA unconventional operator forecasts that pressure pumping, rigs, and water will

A NA unconventional operator forecasts that pressure pumping, rigs, and water will drive nearly 60% of 3-year 3 rd party costs across 3 plays

Operator 3 rd Party Spend by Category (3-yr)

Stimulation/Completion = 39%

0 39% 0 0 0 0 Drilling Rigs = 11% 0 Water Treatment/Disposal = 9%
0
39%
0
0
0
0
Drilling Rigs = 11%
0
Water Treatment/Disposal = 9%
OCTG = 8%
0
11%
9%
8%
D&C Fluids= 4%
Contract Labor = 4%
0
4%
4%
4%
0
3%
3%
3%
2%
2%
1%
1%
1%
1%
1%
1%
1%
1%
1%
0%
0%
0%
0
% of Total 3-Yr Spend
1% 1% 1% 1% 1% 1% 0% 0% 0% 0 % of Total 3-Yr Spend Source:

Source: PacWest Analysis; Macquarie

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Global pressure pumping capacity is the single largest supply limitation to a

Global pressure pumping capacity is the single largest supply limitation to a rapid ramp up of global shale development

Unconventional Supply Chain & Infrastructure Implications

Supply Chain & Infrastructure Implications Source: Halliburton Analysis;, Barclay’s CEO Energy -Power

Source: Halliburton Analysis;, Barclay’s CEO Energy-Power Conference, Sep 2011

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Pressure pumping demands significant quantities of consumables, which complicate

Pressure pumping demands significant quantities of consumables, which complicate sourcing and logistics

Pressure Pumping Consumables

Water

Average Eagle Ford frac requires 3-5 million gallons (80,000- 120,000 bbls) of water

Water must be sourced, potentially

pre-treated, and

transported to frac site via trucks or pipes

10-40% of water flows back over 30-day period what do you do with flowback?

- Treat it?

- Dispose it?

Source: PacWest analysis

Proppant

Average Bakken frac requires 1.5 million lbs of sand equivalent to 15 rail cars

North American supply is already extremely

tight, though many

new projects coming online over next 18 months

Logistics costs 50+% of sand costs within NA

What are economic sources of proppant in Argentina?

Chemicals

Huge volumes of chemicals used during completion

Chemicals blends used are highly specific to a particular formation

key elements of

innovation

There are already shortages of some key chemical inputs

Logistics of getting chemicals to site challenging in areas with limited infrastructure

LATAM UCG CONFERENCE PRESENTATION

Agenda

LATAM UCG CONFERENCE PRESENTATION Agenda

1) About PacWest

2) NA Unconventional Story & Current State of Market

3) Supply Chain & Infrastructure Implications

4) International Unconventional Development

5) US Analogue: Bakken

6) About PacWest

7) Questions

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION A recent study on global shale gas resources sized up resources across

A recent study on global shale gas resources sized up resources across 14 regions outside the US

Global Shale Resources

across 14 regions outside the US Global Shale Resources Source: EIA, World Shale Gas Resources Report

Source: EIA, World Shale Gas Resources Report

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION A new study by the Baker Institute forecasts shale gas production across

A new study by the Baker Institute forecasts shale gas production across key regions through 2040

Global Shale Resource Estimates & Production Forecasts

Global Shale Resource Estimates (bcf)

India 63 France 180 Poland 187 Brazil 226 Algeria 231 Libya 290 Canada 388 S
India
63
France
180
Poland
187
Brazil
226
Algeria
231
Libya
290
Canada
388
S Africa
485
Mexico
681
Agentina
774
USA
862
China
1,275
-
200
400
600
800
1,000
1,200
1,400

Gas Production Forecasts (tcf)

70

60

50

40

30

20

10

0

India France Poland Brazil Algeria Libya Canada Mexico Argentina USA China 2010 2015 2020 2025
India
France
Poland
Brazil
Algeria
Libya
Canada
Mexico
Argentina
USA
China
2010
2015
2020
2025
2030
2035
2040

Source: EIA, World Shale Gas Resources Report; Baker Institute, Shale Gas and US National Security

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION However, more than just technically recoverable resources are required to successfully

However, more than just technically recoverable resources are required to successfully produce unconventionals; many critical risk factors

Indirect IndirectDirect

Non-Technical Risks Factors

Demand

Direct

Supply Chain

Domestic E&P Industry

Markets

Regulatory

Frameworks

Infrastructure

Indirect

Development

Constraints

Source: PacWest Analysis

The level of natural gas demand within the country and neighboring countries that can serve as consumers

Quality of existing supply chain, number of rigs currently in-country, ease of entry for new players, etc.

Number of existing domestic E&P firms, level of unconventional experience, ease of entry, etc.

Regulatory structure, midstream/downstream demand dynamics, etc.

Fragmentation, tax policies, government incentives for unconventional development, etc.

Quality of existing midstream, ease of developing new

infrastructure, etc.

Water, population densities, political/social acceptance, etc.

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Besides Argentina, China and Poland have made the most progress in exploring

Besides Argentina, China and Poland have made the most progress in exploring their shale acreage

Shale Status: China & Poland

China

Multiple US majors active in China under JVs

Early exploration work progressing in target basins

Promising frac equipment JV relationships set up to supply

manufacture frac pumps in China (Weir

SPM and Shengli Highland)

Strong incentives to encourage production

Proven capability and commitment to building infrastructure

Poland

Multiple wells drilled by key operators (i.e. PGNiG) with gas shows from multiple wells

SLB recently completed 13-stage frac for 3Legs Resources

Exploration programs on-going with

many more wells to drill under

concession minimum requirements

Capital beginning to flow to develop domestic supply chain

Logistics/ transportation issues already emerging

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Australia has made significant progress on CBM, while India has a long

Australia has made significant progress on CBM, while India has a long way to go on shale

Shale Status: Australia & India

Australia

Strong geology, economic incentives, regulatory framework

Making significant progress towards significant CBM production

Numerous domestic and international operators participating

Significant supply chain bottlenecks

emerging across multiple products/ services need for greater supply chain support

Infrastructure availability inland poses challenges

Shale exploration still early stage

Water sourcing for fracing will present challenges

India

Geology still uncertain SLB fraced wells for ONGC in West Bengal (Damodar Valley Basin) and Assam

Economic incentives and regulatory framework still TBD

DGH has delayed shale concession

round several times currently targeted

for 2012 Q1

Resources relatively small, but growing energy demand and limited domestic resources mean they are important

Major challenges developing infrastructure in the country do not bode well for pace of development

Will likely be 3-5 years behind China

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION There have been some recent roadblocks to shale production in select countries

There have been some recent roadblocks to shale production in select countries around the world

Global Shale Resources

■ Sweden: Has seen protests to ■ Canada: Quebec put temporary moratorium in place Shell’s
Sweden: Has seen protests to
Canada: Quebec put temporary
moratorium in place
Shell’s exploration activity
EU: Considering stricter
shale guidelines to the
protests of Poland
UK: Has seen protests, then
embrace by government;
Cuadrilla put its exploration
activities on hold after minor
seismic activities during drilling
France: Recently put a shale
moratorium in place, putting
exploration activity in the highly
promising Paris Basin on hold
for now
India: Licensing round
delayed until 2012 Q1
South Africa: Temporary
moratorium in place pending
assessment of environmental
impact report – government
recently requested a new
version of the report, delaying
release another 6 months
Source: EIA, World Shale Gas Resources Report

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION One thing to keep in mind is how supply chain needs differ

One thing to keep in mind is how supply chain needs differ for exploration versus development phases

Exploration vs. Development Phase

Exploration Phase

Data collection exercise

Goal: collect enough data to prove that hydrocarbons are present

Priorities: speed, logistical simplicity

Willingness-to-pay: relatively high

Staffing: in-country team small

Development Phase

Supply chain development and mgmt

Goal: build a long-term supply base that will help you reduce costs and optimize production, while minimizing risks

Priorities: cost management, diversification

Willingness-to-pay: low to moderate

Staffing: build local resources

Implications
Implications

Bundling strategies are common to simplify logistics, mgmt, admin

Work with local equipment providers

(i.e. rigs) if possible for speed

Big 4 and majors often best positioned

More likely to distribute work between majors and local players

Willing to invest time/effort in building

local supply base

Fwd-looking sourcing strategies

LATAM UCG CONFERENCE PRESENTATION

Agenda

LATAM UCG CONFERENCE PRESENTATION Agenda

1) About PacWest

2) NA Unconventional Story & Current State of Market

3) Supply Chain & Infrastructure Implications

4) International Unconventional Development

5) US Analogue: Bakken

6) About PacWest

7) Questions

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION The US Bakken play has boomed over last two years, placing significant

The US Bakken play has boomed over last two years, placing significant strains on existing infrastructure and supply chain

The Bakken Formation

infrastructure and supply chain The Bakken Formation Source: Continental Resources US Analogue: Bakken Formation

Source: Continental Resources

US Analogue: Bakken

Formation

Huge contiguous oil accumulation spanning North Dakota and Wyoming in the US, Saskatchewan and Manitoba in

Canada

- ~14,700 square-miles; largest ever assessed by USGS

Challenges

Existing infrastructure limited

Has seen tremendous growth over last two years

Growth has placed major strains on the supply chain

Effectively starting from zero

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Since late-2009, the rig count has increased 2.5-times with counts forecast at

Since late-2009, the rig count has increased 2.5-times with counts forecast at 200+ rigs beyond this year

Bakken Rig Count & Forecast

Rig Count Dir/Hor vs. Vertical

Average Rig Count Forecast

Land Rigs Land Rigs 200 Current: 184 rigs (8/19/11) 250 180 Directional/Horizontal 220 210 200
Land Rigs
Land Rigs
200
Current: 184 rigs (8/19/11)
250
180
Directional/Horizontal
220
210
200
160
Vertical
200
180
140
120
150
100
80
100
60
40
50
20
0
0
2011
2012
2013
2014
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11

Source: PacWest Analysis; Macquarie; Baker Hughes

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Overwhelming demand in the Bakken is expected to lead to a significant

Overwhelming demand in the Bakken is expected to lead to a significant under-supply of pressure pumping capacity for 2011

Sensitivity Analysis of 2011 Bakken Pressure Pumping Capacity Utilization

250% 241% 2011 completions + backlog 42% 201% 200% 2011 completions 35% 161% 150% 28%
250%
241%
2011 completions + backlog
42%
201%
200%
2011 completions
35%
161%
150%
28%
121%
21%
199%
100%
100%
166%
utilization of
133%
2011
50%
100%
capacity
0%
15
20
25
30
Pressure Pumping Capacity Utilization

Average Stages per Well

The Bakken will be 61% under-supplied in 2011, conservatively assuming 20 stages/well

Sources: CIBC World Markets; Macquarie; PacWest analysis

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Demand will continue to outpace supply for pressure pumping capacity into 2012

Demand will continue to outpace supply for pressure pumping capacity into 2012 in the Bakken

Sensitivity Analysis of 2012 Bakken Pressure Pumping Capacity Utilization

200% 2012 completions + backlog 2012 completions 180% 159% 160% 152% 146% 140% 140% 45%
200%
2012 completions + backlog
2012 completions
180%
159%
160%
152%
146%
140%
140%
45%
43%
120%
100% utilization
of 2012
capacity
42%
40%
100%
80%
60%
100%
114%
109%
104%
40%
20%
0%
30%
40%
50%
60%
Pressure Pumping Capacity Utilization

Capacity Growth (2011 2012)

Note: Sensitivity analysis assumes an average of 20 frac stages / well in 2012, a conservative estimate

Source: CIBC World Markets; Macquarie; PacWest analysis

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Staffing experienced crews is a critical challenge faced by pressure pumping service

Staffing experienced crews is a critical challenge faced by pressure pumping service providers

The Quality vs. Quantity Dilemma

Completion increases = HHP increases = Frac crew increases = Need for trained staff!!

North American pressure pumping industry is expanding rapidly (~20% YoY increase 2010-2011) and needs to add new hires to meet expansion targets

Major increases in completions require major increases in frac crews, for example:

- Typical 25K HHP frac fleet in the Bakken requires 2-3 crews of 30 staff = 60 90 experienced employees

- PacWest forecasts an increase in frac fleets in the Bakken from 38 fleets (May 2011)

to 52 fleets (year-end 2011) = 840-1,260 experienced employees

Fact: Critical driver of oilfield safety = experienced staff

Problem: There are no more experienced field workers left; pumpers are forced to manage deployment of large numbers of inexperienced employees

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Supply chain constraints are holding back the deployment of new equipment and

Supply chain constraints are holding back the deployment of new equipment and the ability to consistently supply pumping services

Bakken Supply Chain Constraints

Logistics

Railway (primarily BNSF) import capacity into the Bakken is limited for all products, particularly proppant due to the large volumes required (1 railcar has capacity of 200K lbs of proppant; average 3 million lbs frac job requires 15 railcars)

Proppant

Global proppant consumption has reached unprecedented levels and most domestic

producers are essentially sold out of product

Greatest constraint is in 20/40 raw sand

Guar

Demand has reached record highs and the guar supply chain is not highly responsive due to its length (90% of raw guar seed grown in rural India)

Equipment

Manufacturers of pumping equipment reporting order backlogs of up to 1 year

Labor

Local labor force in the Bakken is limited and unemployment is extremely low

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Bakken pressure pumping supply has been unable to keep pace with demand

Bakken pressure pumping supply has been unable to keep pace with demand so well completion backlogs are growing

Days Required for D&C in North Dakota

180 172 120 118 81 103 99 96 98 103 107 93 90 85 87
180
172
120
118
81 103 99
96
98 103 107 93
90
85
87
95
76
81
72
80
67
67 82
60
57
50
0
Days between Well
Spud and Completion

Bakken Well Count (May 2011)

500 400 300 200 100 0 Uncompleted Drilling Permitted Bakken 429 162 413 Montana 57
500
400
300
200
100
0
Uncompleted
Drilling
Permitted
Bakken
429
162
413
Montana
57
6
67
North Dakota
372
156
346
Number of Wells

Sources: Montana Board of Oil & Gas; North Dakota Industrial Commission; PacWest analysis

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION Operator D&C performance varies, in some cases depending on contracting practices

Operator D&C performance varies, in some cases depending on contracting practices

Bakken Ratio of Uncompleted Wells to Active Rigs (May 2011)

Anschutz/OXY Continental Resources Whiting Oil & Gas Zenergy Brigham Oil & Gas ConocoPhillips Hess Slawson Newfield EOG Resources Marathon Oasis Petroleum

Well

Rigs Backlog 1.0 7 7 1.8 45 25 1.9 29 15 2.0 12 6 2.4
Rigs
Backlog
1.0
7
7
1.8
45
25
1.9
29
15
2.0
12
6
2.4
17
7
2.6
13
5
2.7
48
18
2.8
17
6
3.0
15
5
3.4
34
10
3.6
25
7
4.5
27
6
0
1
2
3
4
5

Note: Well backlog is best estimate based on data from Montana and North Dakota oil/gas regulators; rig count is from April 2011 Sources: Montana Board of Oil & Gas; North Dakota Industrial Commission; PacWest analysis

LATAM UCG CONFERENCE PRESENTATION

Agenda

LATAM UCG CONFERENCE PRESENTATION Agenda

1) Introduction

2) NA Unconventional Story & Current State of Market

3) Supply Chain & Infrastructure Implications

4) International Unconventional Development

5) US Analogue: Bakken

6) About PacWest

7) Questions

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION A sampling of some of PacWest’s recent projects demonstrate our depth of

A sampling of some of PacWest’s recent projects demonstrate our depth of experience in North American and international shale

Sample of Recent PacWest Consulting Projects

Conducted a study of operator sourcing strategies for a large independent North American unconventional E&P operator with a focus on 6 categories: drilling rigs, workover/service rigs, logistics, OCTG, water, and pressure pumping

Conducted an innovative economic and strategic analysis of operator all-in shale water management costs over 20-year timeframe, from sourcing all the way through to treatment/disposal, for Bakken and Eagle Ford acreage

Conducted a study of the frac pump market focused on supplier strategic plans, manufacturing capabilities, and supply chain structure

Analyzed Bakken and Eagle Ford supply/demand and conducted demand planning exercise to develop new pressure pumping sourcing and contract strategy to avoid continued completion delays for a large independent E&P operator

Developed Poland unconventional market entry, product/service, and JV strategy for a potential shale service company for a private equity client

LATAM UCG CONFERENCE PRESENTATION

LATAM UCG CONFERENCE PRESENTATION PacWest unique combination of strategic and analytical capabilities with strong market

PacWest unique combination of strategic and analytical capabilities with strong market intelligence offer a unique service

PacWest Market Intelligence Capabilities

PacWest Difference

Key differentiator: turning market data and intelligence into meaningful and actionable information

Transform volumes of disparate market data, industry insider activity, and field- level intelligence and expert input into

strategic and actionable

recommendations for decision-makers

Aggregate, organize and distill a wide range of data and intelligence to provide information to our clients that is comprehensive, focused, and strategic

Analyze this information to assess its strategic implications and provide a clear path of action for each stakeholder

Shale Supply Market Service

Subscription-based market intelligence product with quarterly releases

Includes multiple components:

- Unconventional Supplier Database:

100+ suppliers

- Supplier Market Insights report

- Monthly Frac Analysis report

- Pressure Pumping Monitoring report

- D&C Cost Escalation report

All components are also available as stand-alone products

Frac Database high value frac data set first product of its kind available on market

LATAM UCG CONFERENCE PRESENTATION

Agenda

LATAM UCG CONFERENCE PRESENTATION Agenda

1) Introduction

2) NA Unconventional Story & Current State of Market

3) Supply Chain & Infrastructure Implications

4) International Unconventional Development

5) US Analogue: Bakken

6) About PacWest

7) Questions