1

PERMIAN WATER OUTLOOK

FEBRUARY 26, 2019

DATA.INSIGHT.OUTCOMES

30 YEARS OF ENERGY DATA INNOVATION

Transforming complex data into actionable, high value intelligence for responsible and profitable decisions about water resources and the water

services market.

Provide comprehensive assessment of Permian Basin water utilization to address future water management approaches.

I. Derive estimates of future:

▪ Water use

▪ Water production

▪ Available disposal capacity

II. Assess water management business structure:

▪ Range of appropriate solutions

▪ Identification of best practices

▪ Consideration of appropriate economies of scale

▪ Impacts of technology

3

B3 Water Study Objectives

I. Permian Basin water budget (study inputs/assumptions):

▪ Oil & gas production forecast

▪ Water use forecast

▪ Water production forecast

II. Current activities:

▪ Water production validation

▪ Pressure forecasts

4

Outline

5

Oil+Gas Production Forecast

0

20

40

60

80

100

2018 2020 2022 2024 2026 2028

$/b

bl

Oil

0

1

2

3

4

5

2018 2020 2022 2024 2026 2028$

/mm

btu

Natural Gas

6

Low price scenario: CME forward curve 11/17/2018High price scenario: Drillinginfo 3Q18 forecast

Forward Price Curves

year year

7

Permian Operator Breakevens

0

20

40

60

80

100

Source: Drillinginfo ProdCast and B3

Most major Permian Basin producers operate Tier 1 and 2 properties with half-cycle breakeven costs <$55

Bre

ake

ven

Pri

ce (

$)

Permian Basin Operator Breakevens

$55

Tier 1

Tier 2

Tier 3

0

2

4

6

8

10

12

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

High price scenario

Low price scenario

Pro

du

ctio

n (

mm

bo

e/d

ay)

8Source: Drillinginfo Prodcast and B3

Year

Permian Basin Production Scenarios

8-10 mmboe/day forecasted Permian Basin production by 2029

Low price scenario with 10% IP improvement Low price scenario with 10% IP improvement & 10% greater costLow price scenario with 10% greater costLow price scenario with 10% IP improvement & 10% greater cost & 15% greater well spacing

9

Water Use Forecast

10

Frack Water Forecast Methodology

→ X=

Production/Month

(Forecasted)

Wells Drilled/Month

Average Water

Use/Well

Water Use/Year

10Subareas

37 DifferentSub-Subareas(e.g., Bone Springs, Spraberry, Wolfcamp)

3 Tiers Based on DI Estimates ofBreakeven Price

Water Use Forecast Methodology

=

0

100

200

300

400

500

600

700

800

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Ne

w D

rilli

ng

(We

lls/M

on

th)

High price scenario

11Source: Drillinginfo and B3

Higher price scenario drives development of ~50% more wells by 2028

Low price scenario

Year

Permian Basin Drilling Scenarios

0

1,000

2,000

3,000

4,000

5,000

DE Bone. Spg DE Spraberry DE Wolfcamp Mid - Sprab Mid - Wolf

Mean

High

Low

Median

12Source: FracFocus and B3

Water Use Per Frac Varies WidelyA

vera

ge W

ate

r U

se (

mb

bl/

we

ll)Water Use (2017)

13

0

1

2

3

4

5

6

7

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

High price scenario (mean)

High price scenario (median)

Wat

er

Use

(m

mb

bl/

day

)

Source: FracFocus and B3

Low price scenario (mean)

Low price scenario (median)

Year

Permian Basin Forecasted Water Use

2019: 1.2 Bbbls

2028: 1.8 Bbbls

2028: 1.2 Bbbls

2023: 0.9 Bbbls

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Water Production Forecast

15Source: B3

Permian Sub-Basin Water Use Comparison

0.0

0.5

1.0

1.5

2.0

0

5

10

15

20

2016 2017 2018

BOE

Water:BOE

Water

Mean = 1.90:1

Low Price Scenario

Permian Basin Forecasted Water ProductionP

rod

uct

ion

(m

mb

bl/

day

)

Year

0

5

10

15

20

2019 2021 2023 2025 2027 2029

1.90:1

Wate

r:BO

E

2.05:1

1.60:1

16

CURRENT OIL TO WATER RATIOS IMPLY LARGE PRODUCED WATER VOLUMES

0

5

10

15

20

25

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Low price scenario

Low price scenario

Source: B3

2028: 5.6 Bbbls

2028: 7.0 Bbbls

High price scenario

Permian Sub-Basin Water Use ComparisonProduction and Use ComparisonW

ate

r (m

mb

bl/

day

)

Year

High price scenario

2028: 1.8 Bbbls

2028: 1.2 Bbbls

Production

Use

2019: 1.2 Bbbls

2019: 4.1 Bbbls

2023: 0.9 Bbbls

1717

• Production economics in the Permian Basin are generally sub-$55 half-cycle breakeven in many Tier 1 and Tier 2 areas.

• Given the likelihood that prices fluctuate between $55 and $75 for the foreseeable future, water demand for hydraulic fracking will be between 0.9 and 1.8 Bbbls per year.

• Dependent on number and location of new wells, produced water volume is expected to exceed maximum water demand by 3x-5xfor the given production scenarios.

• Over the next decade, 35-60 B bbl of water in excess of water use for hydraulic fracturing will need to be managed. Reuse is, at best, a partial solution.

Summary of Findings to Date

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Current activities

Permian Basin Pressure

Permian Basin Pressure Water Production Validation

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Solaris DJK 48 SWD 1900

800

700

600

500

400

300

200

100

0

• P-18 (Skim Oil/Condensate Report) provides water, oil, and condensate amounts received at commercial disposal facilities from producing properties.

• Data collected in platform being used to derive monthly lease-level water production and WOR.

Vo

lum

e (

mb

bl)

Permian Basin Pressure • Empirical/anecdotal evidence suggests

increasing pressure and seismic activity due to subsurface produced water disposal.

• Pressures increases are expected to be both local (generally transitory) and distributed (more persistent), influenced by the rate of fluid injection, the cumulative volume of fluid injection, and associated rock properties.

“The San Andres Problem” (Guidon)OnlineiSource:ihttp://www.aade.org/app/download/7247547316/Th+SanAndresProblem_Permian+AADE_5-10-18.pdf

• Basin-wide description/prediction of spatial and temporal pressure is currently hindered by lack of aggregation/analysis of available geologic and injection data.

Permian Basin Pressure Permian Basin Pressure

Pressure/Rate Limits

101

67

101 102

85

54

3829

13 15

0

20

40

60

80

100

120

Nu

mb

er o

f W

ells

Fraction of Permitted Pressure

Permian Basin (Texas)

238

156

89

53

26 20 12 8 2 10

50

100

150

200

250

Nu

mb

er o

f W

ells

Fraction of Permitted Rate

Mean: 0.36Median: 0.34s2: 0.24

Mean: 0.19Median: 0.14s2: 0.17

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Pressure Modeling• B3 is using industry standard

groundwater flow simulation software to generate pressure forecasts at Basin and subarea scales.

• Models to account for static/dynamic formation and fluid properties and be calibrated to historical fluid injection/pressure response.

• Results intended to be used to address the nexus of localized, near-wellbore pressure perturbations due to active injection and larger-scale, background pressure changes attributed to cumulative disposal.

Pressure Modeling for Capacity EstimationPressure Modeling for Capacity Estimation

Phi-H Upper DMG

Inputs:• Basin structure• Basin stratigraphy• Basin rock and fluid properties • Injection rates/cumulative volumes• Downhole pressure• Well properties/distribution

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Appendices

2424

Absolute Water Disposal (2010-2017)

Total

Midland Basin

Delaware Basin

Other

2525

Relative Water Disposal (2010-2017)

Midland Basin

Delaware Basin

Other