Jefferies LLCMember SIPC
The information provided in this document, including valuation discussions, represents the views of Jefferies Investment Banking. There is no assurance that the views expressed herein will be consistent with the views expressed by Jefferies Research or its Analysts. Nothing in this document should be understood as a promise or offer of favorable research coverage.
November 2018
U.S. Oil & Gas Landscape in a Volatile Oil Environment
Greg Chitty & Guy OliphintManaging Directors, Co-Heads of Americas Upstream
Jefferies LLC November 2018/
Disclaimer
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© 2018 Jefferies LLC. Member SIPC.
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Jefferies LLC November 2018/
Current Themes for U.S. Oil & Gas Development
1 Permian development will drive oil production growth in the U.S. over the long term with Bakken & Eagle Ford delivering meaningful mid-term production
2
Companies will continue to focus on optimizing operational efficiency in the core areas to drive oil growth, even in moderated price environment to provide this growth4
50+ years of inventory at current rig pace – Jefferies estimates a minimum of 400,000+ core Permian development locations with other resource plays adding 40,000+ additional core locations
5 Consolidation of the upstream sector is inevitable as public companies contemplate mergers while continuing tactical private acquisitions to achieve the most efficient growth machines
6 Robust U.S. oil, gas and NGL production will increase commodity price volatility over the near-to mid-term, as the global market digests production rebalancing and the L48 solves midstream / infrastructure issues
3 U.S. shale continues to “over-deliver” on production growth with the IEA estimating shale will contribute 9+ MMBo/d and 40-75% of global oil production growth through the mid-2020s
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Jefferies LLC November 2018/
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
$80
Source: CapIQ as of November 23, 2018.
NYMEX Crude Spot Price
After a Year of Consistent Growth in Oil Prices, Oil Has Seen an Unprecedented Price Drop
Theme – “Lower for Longer”
Jefferies Energy Conference 2017
U.S. energy companies have established multi-decade low break even well inventory
Knowns
How fast will it grow?
What companies will be best positioned to grow it?
How will global markets deal with L48 increases in oil, gas and NGLs?
Unknowns
Key Data Points
December 6 OPEC Meeting
Trade War Resolution (or not)
Fed / Interest Rate Movement
Broad Geopolitical Concerns
Long Dated (Maybe Dead) Bull Market
Theme – “U.S. Oil & Gas Landscape in a Volatile Oil
Environment”
Jefferies Energy Conference 2018
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Jefferies LLC November 2018/
Total Acreage: ~6 MM+ acresDaily Production: 1.8 MMBoe/d (77% oil)Active Horizontal Rigs: 52# of Core Oil Locations: ~4,000+Hydrocarbon Mix: Oil-weightedYears of Core Inventory: 10+
Total Acreage: ~3 MM acresDaily Production: ~0.2 MMBoe/d (75% oil)Active Horizontal Rigs: 12# of Core Oil Locations: ~11,000+Hydrocarbon Mix: Oil-weighedYears of Core Inventory: 50+
Powder River Basin
Total Acreage: ~2 MM acresDaily Production: ~1.5 MMBoe/d (44% oil)Active Horizontal Rigs: 28# of Core Oil Locations: ~5,000+Hydrocarbon Mix: Gas-weightedYears of Core Inventory: <10
DJ Basin
Total Acreage: ~5 MM acresDaily Production: ~0.2 MMBoe/d (38% oil)Active Horizontal Rigs: 3Hydrocarbon Mix: Oil and gas
Uinta Basin
Total Acreage: ~13 MM acresDaily Oil Production: ~3.6 MMBo/dDaily Gas Production ~12.4 Bcf/dActive Horizontal Rigs: 439 (54 Vertical Rigs)# of Core Oil Locations: ~525,000+Hydrocarbon Mix: Oil-weightedYears of Core Inventory: 50+
Permian Basin – Long Term Growth
Total Acreage: ~30 MM acresDaily Production: 30 Bcfe/d (97% gas)Active Horizontal Rigs: 74# of Core Gas Locations: ~14,500Hydrocarbon Mix: Gas-weightedYears of Core Inventory: 10+
Marcellus / Utica – Gas GrowthBakken – Intermediate Growth
Note: Statistics based on Baker Hughes Rig Count as of November 24, 2018, EIA and Jefferies estimates.(1) Represents Anadarko Basin statistics.
Total Acreage: ~5 MM acresDaily Production: 1.4 Bcfe/d (92% gas)Active Horizontal Rigs: 3Hydrocarbon Mix: Gas-weighted
San Juan Basin
Permian: ~525,000+All Others: ~45,000+
Oil Inventory
Inventory & Performance of L48 Basins are Fairly Well Understood
Total Acreage: ~6 MM acresDaily Production: 1.8 MMBoe/d(1) (32% oil)Active Horizontal Rigs: 60# of Core Oil Locations: ~10,000+# of Core Gas Locations: ~15,000+Hydrocarbon Mix: Liquids-weightedYears of Core Inventory: 15+
SCOOP / STACK
Total Acreage: ~5 MM acresDaily Production: 2.6 MMBoe/d (54% oil)Active Horizontal Rigs: 78# of Core Oil Locations ~15,000+Hydrocarbon Mix: Liquids-weightedYears of Core Inventory: 10+
Eagle Ford / South Texas – Intermediate Growth
Total Acreage: ~4 MM acresDaily Production: 9.8 Bcfe/d (97% gas)Active Horizontal Rigs: 50# of Core Gas Locations: ~7,500Hydrocarbon Mix: Gas-weightedYears of Core Inventory: 10+
Haynesville – Gas Growth
Appalachia & associated gas from oil plays will dominate gas production
Gas Inventory
Permian will provide future growth
NGL Market
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Jefferies LLC November 2018/
Comparison of Global Oil Resource Plays
2 BBo
10 BBo
13 BBo
28 BBo
160 BBo
165 BBo
212 BBo
Thunder Horse (GoM)
Bakken Shale
Prudhoe Bay
Eagle Ford Shale
Ghawar (Saudi Arabia)
Midland Basin
Delaware Basin
Source: Jefferies and Pioneer Natural Resources June 2015 Investor presentation.(1) Jefferies estimate.(2) Source: Pioneer Natural Resources June 2015 Investor Presentation.
300’ 400’ 450’Gross Thickness
Upper WCB
3,000’ 4,300’
U. Spraberry
M. Spraberry
L. Spraberry
DeanWCA
WCC
WCD
Strawn
Lower WCB
Eagle Ford / Austin Chalk
Austin Chalk
Upper EFLower EF
Bakken
U. Bakken Shale
Three Forks
TF 4th Bench
Niobrara
Nio. Chalk ANio. Chalk BNio. Chalk C
Codell
L. Spr. Shale
L. Bakken Shale
Remaining Dev. Locations:13,500OOIP: 50 MMBbl / section
Remaining Dev. Locations: 10,500OOIP: 50 MMBbl / section
Remaining Dev. Locations: 30,000+OOIP: 60 MMBbl / section
3rd BS
U. WCB
Base 2nd BS
L. WCB
Cline
WCA
1st BS
2nd BS
Base 1ST BS
Midland
Remaining Dev. Locations: 247,000+OOIP: 300 MMBbl / section
Delaware
Avalon
Remaining Dev. Locations: 455,000+OOIP: 938 MMBbl / section
(1)
(2)
(2)
(1)
(2)
(2)
(2)
Comparison of Net Recoverable Oil from Global Resource Plays
The Permian Basin is Taking its Place on the World Stage
Total Permian Basin is 2.4x Ghawar
Eagle Ford & Bakken will continue to contribute rate growth over the
near/mid-term
World Class Inventory Has Clearly Been Established
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Jefferies LLC November 2018/
Permian Production vs. Other Plays (MMBo/d)(2)kk
Core of Core L48 Oil Plays Compete with Global Producers
Core Oil Type Curve Comparison (7,500’ LL)
-
200
400
600
800
1,000
1,200
1,400
1,600
- 10 20 30 40 50 60
Oil
Pro
duct
ion
(Bbl
/d)
Months
Bakken Midland Delaware Eagle Ford DJ Basin STACK
Type Curve Summary (7,500’ LL)
Core Oil Area Curves
EUR(Bo / Ft) ROI IRR Breakeven
($ / Bbl) (1) PV -10 Core Inventory
DJ Basin ~80 Bo/ft ~4.4x ~100%+ ~$25 ~$8.0 MM ~5,000+
Bakken ~126 Bo/ft ~4.0x ~100%+ ~$24 ~$10.0 MM ~4,000+
STACK ~118 Bo/ft ~5.0x ~100%+ ~$23 ~$10.0 MM ~10,000+
Midland ~135 Bo/ft ~6.0x ~100%+ ~$17 ~$15.0 MM ~100,000+
Eagle Ford ~140 Bo/ft ~11.0x ~100%+ ~$10 ~$25.0 MM ~10,000+
Delaware ~200 Bo/ft ~6.2x ~100%+ ~$10 ~$25.0 MM ~100,000+
15+ Years of Inventory
Source: Jefferies estimates and IHS - Enerdeq.(1) Assumes gas price of $3.00 per MMBtu.
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Jefferies LLC November 2018/
-
20
40
60
80
100
120
2015 2020 2025 2030 2035
Oil
& G
as L
iqui
ds (
MM
Boe
/d)
PDP Permian Growth Other U.S. Production Other Growth Demand
Global Liquids Supply and Demand (MMBo/d)
Will the Permian be a Significant Wedge of Long-Term Growth in the World?
Source: ExxonMobil 2018 Outlook for Energy: A View to 2040 and Jefferies estimates.
Incremental Permian Production:
Daily Production (MMBoe/d)
% Total Production
% of Growth Wedge
Growth Wedge to Meet World Demand
Current Production
2.5 8.5 14.4
3% 8% 13%
12% 16% 17%
12.2
11%
17%
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Jefferies LLC November 2018/
$-
$30
$60
$90
$120
$150
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$/B
bl
MM
Bo/
d
Permian Eagle Ford Bakken Anadarko DJ / PRB Other Crude Oil Price
Permian Production vs. Other Plays (MMBo/d)(2)
Significant Long Term Oil Growth Likely to be Driven by Permian
Source: EIA Drilling Productivity Report (November 13, 2018).
Oil Production by Basin (MBo/d)
LTM Change: +827 MBo/d
LTM Change: +130 MBo/d
LTM Change: +152 MBo/d
LTM Change: +90 MBo/d
LTM Change: +28 MBo/d
LTM Change: +95 MBo/d
Last 3 Mo: +160 MBo/d
Near / Mid Term Growth in Other Regions
LTM Permian Basin production growth is ~2x all other L48 basins combined
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Jefferies LLC November 2018/
$-
$2
$4
$6
$8
$10
$12
$14
$16
-
5.0
10.0
15.0
20.0
25.0
30.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$/M
MB
tu
Bcf
/d
Permian Eagle Ford Bakken Anadarko DJ / PRB Haynesville Appalachia Natural Gas Price
Permian Production vs. Other Plays (MMBo/d)(2)
Significant Gas Growth Driven by Appalachia, Haynesville and Associated Gas From Oil Plays
Gas Production by Basin (Bcf/d)
LTM Change: +2,757 MMcf/d
LTM Change: +3,904 MMcf/d
LTM Change: +1,880 MMcf/d
3.9 Bcf/d36%
1.9 Bcf/d17%
2.8 Bcf/d25%
2.4 Bcf/d22%
LTM Growth Share
Appalachia Haynesville Permian Others
Incremental 20+ Bcfd of new gas production expected from
Permian associated gas by 2030
Source: EIA Drilling Productivity Report (November 13, 2018).
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Jefferies LLC November 2018/
$-
$2
$4
$6
$8
$10
$12
$14
$16
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$/M
MB
tu
Bcf
/d
Gas Plays Oil Plays Natural Gas Price
Permian Production vs. Other Plays (MMBo/d)(2)
Oil Plays Will Provide Significant Wedge of Future Gas / NGL Growth
Source: EIA Drilling Productivity Report (November 13, 2018).(1) Includes Appalachia and Haynesville gas production.(2) Includes Permian, Eagle Ford, Bakken, Anadarko and DJ/Powder River gas production.
Gas Production by Basin Focus (Bcf/d)
(1) (2)
LTM Change: +5,144 MMcf/d
LTM Change: +5,784 MMcf/d
Growth of oil basin gas with ~100 Bbls NGL Yield / MMcfcould be disruptive to NGL markets
5.8 Bcf/d53%
5.1 Bcf/d47%
LTM Growth Share
Gas Plays Oil Plays
Incremental 3+ MMbpd of new NGL production expected
from Permian by 2030
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Jefferies LLC November 2018/
The Race to Optimize Acreage Is On As Core Values Increase
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016 2017 2018
% P
ads
Pad
2013 & 2014 Development 2015 & 2016 Development 2017 Development 1H 2018 Development
Single Pad Pad Wells2013 & 2014 540 286 679
Single Pad Pad Wells2015 & 2016 409 658 1770
Single Pad Pad Wells2017 173 530 1583
Single Pad Pad Wells2018 192 579 1480
Operators shifting focus to pad style drilling to drive down costs and improve ultimate recoveries on a per unit basis─ Increase in lateral footage drilled in less time due to keeping rigs mobilized─ Allows to mitigate potential for infill wells to be exposed to depleted reservoir
Pad drilling has shifted from < 25% in 2013 & 2014 to > 70 % over the last two years─ 52% CAGR in Pad development over last 5 years with ~ 2.0x the amount of wells being drilled per pad
-
2
4
6
8
10
12
2013 2014 2015 2016 2017 2018
LL’ (
x1,0
00
ft)
Top Quartile Lateral Length
Proportion of Pad and Single Wells Change in Lateral Length SM Howard County Avg. Production by Formation
-
100,000
200,000
300,000
0 50 100 150 200 250 300
Cu
mu
lati
ve B
OE
Peer 1 MMboe T.C. Lower Spraberry Average
Wolfcamp A Avg Wolfcamp B Avg
SM Energy “Seinfeld” Units
B B BB B660’ 660’ 660’ 660’
WC
AW
CB
AU
AL AL
AU AU
660’ 660’
660’ 660’
AL
AU 660’
AL
AU
330’ 130’
SM Gun Barrell
Value / Acre Production Growth / Rig$50K 1 – 2 MBbl/d
Value / Acre Production Growth / Rig$100K 2 – 3 MBbl/d
Value / Acre Production Growth / Rig$150K 3 – 4 MBbl/d
Value / Acre Production Growth / Rig$250K+ 4 – 5+ MBbl/d
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Jefferies LLC November 2018/
Core Development Cubes Will Become Like Offshore Platforms
Source: Jefferies internal estimates.(1) Assumes spud to spud of 20 days.(2) Assume 4.0 WOR for Delaware Basin.(3) Assumes Delaware acreage represents 20,000 net acres. Jefferies water forecast assumes spacing by resource bench
according to the diagram above, 7,500’ LL locations, development order from most economic type curve to least, Jefferies
internal estimates for type curve volumes, development plan of 1-rig / 10,000 acres, 20-day spud-to-spud, 2 month spud to sales, fixed WOR of 4.0, 290 MBw per completion and average month-over-month decline rate of 3%. Assumes 2 rigs in 2018, 4 rigs in 2019 and 6 rigs thereafter.
Case Current Near Term Future
Gross Acres 20,000 20,000 20,000
Gross OOIP 29.3 BBbl 29.3 BBbl 29.3 BBbl
EUR/ft (Bone/Wolfcamp)
70/110 Bo 90/135 Bo 150/250 Bo
Sticks / Section 68 108 180
Recovery Factor (%) 3.2% 6.2% 17.6%
Gross Asset Oil Recovered 0.9 BBbl 1.8 BBbl 5.2 BBbl
Gross NGL Vols Recovered 0.27 BBbl 0.54 BBbl 1.56 BBbl
Post-shrunk Gas MMCF 2.0 Tcf 3.9 Tcf 11.4 Tcf
Rig Years / Section (1) 2.8 4.4 7.4
Gross Produced Water – 20k (2) 3.6 BBbl Water 7.2 BBbl Water 20.8 BBbl Water
Delaware Basin “Cube” Will Spawn Many Business Opportunities Beyond Typical Upstream
Gross Water Forecast for 20,000 Acres(3)
Wells / zoneOOIP (MMBo / section)
1st Bone Spring
1st Bone Shale
2nd Bone Spring
2nd Bone Shale
3rd Bone Spring
Wolfcamp A
Upper Wolfcamp B
Lower Wolfcamp B
11
52
20
73
26
12
91
79
52
28
22
28
62
28
21
65
2Avalon Shale 2
42
87
WORBw/bo
12
22
3.5
56
32
.5
2958
87 87
177225
318
407
44 5680
102111141
199
255
11 14 20 25
2018 2019 2020 2021
Frac Water (MBw/d) Water (MBw/d) Oil (MBo/d) Pre Shrunk Gas (MMcf/d) NGL (MBbl/d)
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Jefferies LLC November 2018/
hgk
Core Acreage Value Reaches Record at Recent Lease Sale
Acres $ / Acre Winning Bid
640 $95,001 Matador
901 $95,001 Matador
1,179 $86,514 Matador
1,240 $81,889 Matador
240 $72,101 Tap Rock
200 $66,501 Percheron Professional Services
601 $65,509 Blue Devil Exploration
400 $64,832 Marathon
480 $63,203 Marathon
1,200 $62,861 Tap Rock
320 $59,112 Tap Rock
559 $55,113 Marathon
920 $54,601 Chevron
160 $52,501 Marathon
80 $47,590 Matador
120 $47,583 Tap Rock
1,120 $46,401 Franklin Mountain Energy
640 $46,008 Novo O&G
640 $46,008 Novo O&G
240 $45,705 Matador
880 $45,003 Franklin Mountain Energy
160 $45,001 Matador
921 $42,501 Franklin Mountain Energy
320 $42,401 Franklin Mountain Energy
200 $39,501 Marathon
160 $35,068 Franklin Mountain Energy
80 $35,005 XTO
120 $35,002 COG Operating
120 $33,001 XTO
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Key Points
Leases transacted at multiples ranging from $30,000 to $95,000 an acre
Results of lease sale indicates that operators now well understand the multiple de-risked and highly prolific target horizons in SE New Mexico
Values still trade inside Jefferies calculated NAV/acre by a wide margin (assuming acreage drilled early in inventory)
2
3
4
5
6
7
89
10
11
12
1314
15
16
17
18
19
20
21
22
23
24
25
26
27
2829
1
Eddy Lea
Culberson Reeves Loving Winkler
Texas
New Mexico
> $60K / Acre
$50K – $60K / Acre
$40K – $50K / Acre
$30K – $40K / Acre
$20K – $30K / Acre
$10K – $20K / Acre
< $10K / Acre
Federal Lease Sale Acreage
$75K – $90K / Acre
$60K – $75K / Acre
$45K – $60K / Acre
$30K – $45K / Acre
$15K – $30K / Acre
$5K – $15K / Acre
Delaware PV-25 Analysis
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Jefferies LLC November 2018/
Consolidation & Tactical Acquisitions / Mergers Will Continue to Grow in Midland Basin
Midland Basin Intrinsic Value ($/Net Acre) Map Date Buyer SellerValue($MM)
NetAcres
Prod. (Net MBoe/d)
Adjusted$ / Net Acre(1)
10/17/18 $950 20,800 11.2 $29,519
8/14/18 $9,200 179,000 97.4 $35,073
8/8/2018 $1,245 25,493 12.1 $34,598
04/04/18 $100 5,420 1.0 $12,832
03/28/18 $9,500 91,887 62.4 $83,015
07/26/17JM Cox
Resources $732 13,800 0.6 $51,671
06/19/17 $600 12,400 3.0 $41,129
03/24/17 $105 3,048 NA $34,449
03/15/17 $266 20,500 1.5 $10,780
02/07/17 $2,800 71,000 3.6 $36,683(2)
01/19/17 $345 10,000 1.9 $28,950
01/10/17 $402 17,800 1.2 $20,562
11/08/16 $324 20,900 2.3 $12,172
10/18/16 $1,600 35,700 2.4 $42,801
09/06/16 $327 5,667(3) 2.3 $45,937
08/25/16 $405 16,000 0.9 $23,625
08/15/16 $1,625 40,000 10.0 $28,125(4)
(3) Acquisition included ORRI in 1,440 gross acres in addition to 5,667 net acres.(4) Adjusted for disclosed value for production: $500 MM.
(1) Where applicable, existing production valued at $30,000 / Boe/d.(2) Adjusted for $87.5 MM in DUC inventory.
40K – 60K
Legend
60K – 80K
80K – 100K
100K – 120K
Key Areas
Type Curve Areas
4K – 20K
20K – 40K
$ / Acre Metrics Still Trading Inside Jefferies’ NAV / Acre
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Jefferies LLC November 2018/
What Does This Market Want?
LTM Stock Price Performance
2017 & 2018 Financial Performance - Independent Company Results (1)
Source: CapIQ as of November 23, 2018.(1) Includes independent energy companies with a market cap over $1B.
2017
2018E
$68.3 B
$101.5 B
EBITDA
$18.52
$25.51
EBITDA / Bbl
($3.38)
$2.02
FCF / Bbl
(8)%
60%
(10)%
(70)%
87%
(27)%
(72)%
164%
(34)%
(100%)
(50%)
0%
50%
100%
150%
200%
7/25/14 - 2/11/16 2/11/16 - 10/3/18 10/3/18 - 11/23/18
S&P 500 S&P E&P Index NYMEX Oil
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Jefferies LLC November 2018/
Comparison of Global
Source: CapIQ as of November 23, 2018.
2018 YTD Debt Reduction, Share Buybacks and Dividend Payments ($MM)
CFOs Pulling all the Levers
Dividends Paid Stock Repurchases Debt Reduction
$4,634
$10,966
$50,967
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Jefferies LLC November 2018/
Company 1 2 3 4 5 6 7 8 9 10 11 12 13
Stock Price Performance (26%) (17%) (2%) 3% 40% (26%) 7% (40%) 8% (31%) (10%) 8% 1%
Distributions (% Mkt Cap)
14% 10% 7% 5% 4% 3% 3% 2% 1% 1% 0% 0% 0%
Executed Buyback ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
R² = 0.0322
(50%)
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
30%
40%
50%
0% 5% 10% 15%
Sto
ck P
rice
Per
from
ance
2018 YTD Distributions as % of Market Cap
Company 1 2 3 4 5 6 7 8 9 10 11 12 13
Stock Price Performance 40% 3% (2%) 8% 8% (10%) 7% 1% (17%) (40%) (26%) (26%) (31%)
US Oil % (1) 68% 67% 66% 64% 59% 59% 57% 55% 41% 38% 32% 32% 30%
LQA $/Boe (2) $36.54 $47.67 $31.73 $34.51 $35.74 $32.32 $26.71 $37.02 $34.87 $32.43 $19.90 $13.32 $16.70
Correlating Market Themes to Actual Share Price Performance
Lower 48 Oil Percentage (of Total) vs. Share Price Performance
R² = 0.7234
(50%)
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
30%
40%
50%
30% 40% 50% 60% 70%
Sto
ck P
rice
Per
from
ance
U.S. Production % Oil
Total Distributions to Shareholders vs. Share Price Performance
No correlation demonstrated between stock buybacks and dividends to share performance
Stocks have demonstrated a strong response to Lower 48 oil production (and productive capacity)
Stock Price Performance Since January 1, 2017
(1) L48 oil production as a percent of total U.S. production.(2) Reflects EBITDA over total production for Q3 2018.
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Jefferies LLC November 2018/
What Drives M&A From Here?
1 Growth of L48 Resource and Production (Discussed)
2
Build a Brand - Ability to Attract Large Institutional Investors3
Limited Edition - Scarcity of Remaining Scaled Onshore Oil Assets
4 Greed is Good – G&A Synergies Support Traditional M&A Metrics
17
Jefferies LLC November 2018/
Number of Deals Net Acres Value ($MM)12 416,263 $31,436
Source: PLS as of November 23, 2018.
Delaware Basin Transactions Over $500 MM Since 2015
Limited Edition - Scarcity of Remaining Scaled Onshore Oil Assets
Midland Basin Transactions Over $500 MM Since 2015
Buyer / Seller
Buyer / Seller
Number of Deals Net Acres Value ($MM)24 3,179,436 $35,125
18
Jefferies LLC November 2018/
Build a Brand - Ability to Attract Large Institutional Investors
Company A Company B Company C Company D
Market Cap($MM)
$27,000 $12,000 $2,500 $500
6-MonthADTV ($MM)
$300 $220 $60 $20
YTD Value Traded ($MM)
$62,000 $45,000 $13,000 $4,500
InstitutionalShareholderBreakdown
Larger Companies with Greater Trading Liquidity Have Attracted Bigger Funds with the Ability to Accumulate Sizable Equity Positions
Key Points
Investors with large AUM are more favorable shareholders for several reasons:
─ Larger funds take larger positions
─ Generally more patient with volatility
─ Deeper pockets to support subsequent equity raises
Source: Factset, Bloomberg data. 2Q18 account holdings are based on 13F filings as of 6/30/2018.
> $20 B
$10 B - $20 B
$5 B - $10 B
< $5 B
> $20 B
$10 B - $20 B
$5 B - $10 B
< $5 B
> $20 B
$10 B - $20 B
$5 B - $10 B
< $5 B
> $20 B
$10 B - $20 B
$5 B - $10 B
< $5 B
19
Jefferies LLC November 2018/
34%
30%
28%
24%
23%
21% 21%20%
20%
18% 18% 18%17% 17%
14%13% 13%
12%11%
11% 11%10% 10%
9% 9% 9%
7%
5%
3% 3%
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA AB AC AD
Capitalized SG&A as a Percent of Market Cap (1)
Greed is Good – G&A Synergies Support Traditional M&A Metrics
Average: 15.3%
Source: Company filings and CapIQ as of November 23, 2018.(1) LQA cash G&A is capitalized at TEV/2018E multiple.
Average Premium Paid prior to announcement of M&A
deals in 2018 is 21%
20
Jefferies LLC November 2018/
Public Investors Need to Embrace New Business Models
Reliable Oil
Low Cost Gas
PDP
Delineated, high quality oil inventory
─ Primarily Bakken and Eagle Ford focused
─ Potential to consolidate legacy and private operators
High deliverability gas proximate to the Gulf Coast
─ Primarily Haynesville and SCOOP/STACK/MERGE focused
─ Scaled businesses have been established and are IPO ready
Low decline PDP assets – gas and oil
─ Provide immediate and durable distribution capacity
─ Current asset pricing provides potential for cash on cash return
Non-Permian E&P assets can still support: Return on capital (not just of), Free cash flow generation and current return to shareholders, Growth via acquisitions driven by traditional financial metrics
21
Jefferies LLC November 2018/
$272
$95
$80
$24 $10 $5 $7
$-
$50
$100
$150
$200
$250
$300
Diversified(Oil-Weighted)
Permian Basin Diversified(Gas-Weighted)
AppalachianBasin
Rockies Mid-Continent Eagle Ford
Mar
ket
Cap
ital
izat
ion
($B
n)
Total Market Capitalization by Region
Regional Distribution ($Bn)
$272
$95 $80
$24
$5 $7
$0.6
$1
$1 $1
$2
$3
$1
$10
Public Investors Need to Embrace New Business Models (Cont’d)
Source: CapIQ as of November 23, 2018.
22