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  • Production in the Permian Basin

    - ARB Market Research -

    Forecasting Production Across the Permian Basin to Determine Demand for

    Midstream Infrastructure

    February 1, 2017

    Eric R. PetersonDirector Market Research & Analysis

  • WHO WE ARE ARB Midstream is a privately-held, growth-oriented company, providing complete

    midstream and marketing solutions for crude oil, LPGs and refined products

    ARB is building a portfolio of midstream assets that resolve infrastructure bottlenecks in

    the most profitable North American oil plays

    ARB is supported by a management team and Board of Directors with combined energy

    industry experience of over 150 years

  • Creating Value in Midstream Markets

    3

    Identify Execute Operate

    Analyze

    Analyze: Every step in ARB's strategy is rooted in proprietary analytics that are used to understand and predict market opportunities, and to reduce risk and improve capital efficiency within individual projects. ARBs analytics are complemented by the extensive industry experience of the companys leadership team.

    Identify: ARB uses proprietary, in-house research to pinpoint infrastructure bottlenecks and under-served regions that are backed by oil plays with long-term, sustainable production economics.

    Execute: ARB efficiently deploys capital as an early mover in its target markets by utilizing private financial backing, an experienced management team and custom analytics.

    Operate: ARB develops assets with the intent of generating long-term, sustainable returns. ARB leverages an experienced operations team to run its assets safely and efficiently.

  • ARBs Operational Footprint Focuses on the N. American Inland Corridor

    4

    Niobrara Connector

    Permian Gateway

    Platte River Gathering

  • Observations

    U.S. Activity

    WTI forecasted to hit $56-$57 range by YE 2017

    Total rig count has increased nearly 75% from May 2016 lows

    North American production to add an incremental 1.2MM in next 2 yrs

    Permian Basin

    Acreage prices and deal volume have reached record levels in 2016

    Drilling and completion enhancements boosting IP rates, EURs and

    proppant usage

    Expansions of pipeline takeaway capacity will not be sufficient,

    300kbpd of new build infrastructure needed by Q1 2019

    Timing of capacity expansions is crucial, could see price differentials

    blowout if production outpaces demand build out

    5

  • U.S. Activity

  • $48

    $49

    $50

    $51

    $52

    $53

    $54

    $55

    $56

    $57

    $58

    $59

    $60

    $61

    $62

    $63

    $64

    $65

    Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18

    Fore

    cast

    ed W

    TI P

    rice

    ($

    /bb

    l)

    Max

    Min

    Average

    Forward (Jan 25, 2017)

    Citigroup

    Wells Fargo

    According to the latest 10 banks to forecast WTI to hit $57/bbl YE 2017

    7

    Jan 23, 2017 BAML believes that oil prices will rally to $70/bblthis spring and give up $10/bbl of that rise in 2H 2017.

    Source: Bloomberg

  • U.S. total rig count up 263 from 2016summer lows Jan 17, 2017

    8

    All Rig Count

    659

    Hz Rigs

    537

    Ver Rigs

    63

    Dir Rigs

    59

    Mthly Total

    +35

    +38

    Other

    +18

    +10

    +10

    +8

    +131

    +13

    +9

    +12

    +13

    Source: BakerHughes, Drilling Info

    +1-10

    -5

    0

    5

    10

    15

    20

    25

    30

    400

    450

    500

    550

    600

    650

    700

    Wee

    kly

    Ch

    ange

    in R

    ig C

    ou

    nt

    Tota

    l Rig

    Co

    un

    t

    U.S. Rig Count

  • North America will bring on 1.2MMbpd of incremental production in the next 24 months

    9

    +7-3

    +940

    +62

    Source: ARB Analytics, CAPP, Drilling Info

    +468

    +7

    -60

    -96

    +18

    +151

    (1,000) (800) (600) (400) (200)

    - 200 400 600 800

    1,000 1,200 1,400 1,600

    Yo

    Y C

    han

    ge in

    Pro

    du

    ctio

    n (

    Mb

    od

    )

    YoY Change in Production (Dec-Dec)

    Other

    Offshore

    Bakken

    Niobrara

    Permian

    Eagle Ford

    Marcellus

    Utica

  • Permian Supply

  • $-

    $10,000

    $20,000

    $30,000

    $40,000

    $50,000

    $60,000

    $/A

    cre

    $/Acre of Selet Permian Deals

    MidlandDelaware

    Permian acreage prices have soared as producers rush to capture reserves

    11

    $-

    $5

    $10

    $15

    $20

    $25

    $30

    20

    25

    30

    35

    40

    45

    50

    2012 2013 2014 2015 2016

    Tota

    l Dea

    l Val

    ue

    ($B

    )

    Nu

    mb

    er o

    f A

    cqu

    isit

    ion

    s

    Permian Acquisitions

    Source: Bloomberg, Company Data, Wells Fargo Securities

    $17,918

    $12,565

    $21,070

    $30,217

    $0

    $5,000

    $10,000

    $15,000

    $20,000

    $25,000

    $30,000

    $35,000

    Perm

    ian

    Cap

    Ex S

    pen

    din

    g ($

    MM

    )

    Permian CapEx Spending

  • Permits filed for horizontal wells doubled through 2016

    12

    350

    400

    450

    500

    550

    600

    650

    700

    750

    800

    850

    Q12015

    Q22015

    Q32015

    Q42015

    Q12016

    Q22016

    Q32016

    Q42016

    Hz

    Perm

    its

    File

    d b

    y Q

    tr

    Delaware Midland

    0 50 100 150 200 250

    MIDLAND (TX)

    REEVES (TX)

    LOVING (TX)

    MARTIN (TX)

    UPTON (TX)

    HOWARD (TX)

    REAGAN (TX)

    EDDY (NM)

    GLASSCOCK (TX)

    LEA (NM)

    CULBERSON (TX)

    PECOS (TX)

    WARD (TX)

    WINKLER (TX)

    Source: Drilling Info

  • Over time, drilling activity has concentrated to the Delaware and Midland Basins

    13

    Hz Rigs

    Ver Rigs

    Dir Rigs

    Delaware

    Midland

    Source: ARB, Drilling Info, EIA

    221 Hz Rigs

    Jan 17, 2017

  • Average Hz well IP rates in the Permian are currently some of the highest in the nation

    14

    200

    250

    300

    350

    400

    450

    500

    550

    600

    650

    700

    Midland Delaware

    Avg

    . An

    nu

    al 3

    0-D

    ay H

    z IP

    Rat

    e (b

    pd

    )

    2012 2013 2014 2015 2016

    37%

    37%

    16%

    21%

    19%

    14%

    10%

    38%

    *Visual of 2016 30-Day IP rates (Jan 2016 Oct 2016)

    Source: ARB, Drilling Info, EIA

  • -

    20

    40

    60

    80

    100

    120

    140

    160

    180

    200

    220

    - 6 12 18 24 30 36

    Cu

    mm

    ula

    tive

    Cru

    de

    Pro

    du

    ctio

    n (

    Mb

    bls

    )

    Months Producing

    Permian Hz Well Crude Oil EUR by Vintage

    Producers continue to boost Hz well EURs with less wells drilled per year

    15

    2016 2015

    2014

    2013

    2012

    600

    700

    800

    900

    1,000

    1,100

    1,200

    1,300

    1,400

    Hz

    Wel

    l Sta

    rts

    Per

    Year

    Permian Hz Well Starts Per Year

    Source: ARB, Drilling Info

  • Change and Acceleration in Production Point to Areas of Infrastructure Need Aug 15 Aug 16

    16

    15

    Production Gain

    +20 Mbpd

  • -

    50

    100

    150

    200

    250

    300

    Sep

    t '1

    6 C

    rud

    e P

    rod

    uct

    ion

    (M

    bp

    d)

    Crude Gravity

    Crude quality varies across the Permian with the lightest bbls coming from Western Delaware

    17

    Midland

    Delaware

    Other

    Source: ARB Analytics, Drilling Info

  • Sand Usage in the Permian will increase by more than 3x in the next 2 yrs

    18

    -

    2

    4

    6

    8

    10

    12

    14

    16

    2014 2015 2016 2017 2018

    San

    d U

    sage

    (M

    MTo

    ns)

    Total Basin Sand Usage

    Other Delaware MidlandSource: ARB Analytics, NavPort

    2,000

    2,500

    3,000

    3,500

    4,000

    4,500

    5,000

    5,500

    6,000

    6,500

    7,000

    2014 2015 2016

    San

    d U

    sage

    Per

    Hz

    Wel

    l (To

    ns)

    Hz Well Sand Usage

    Delaware Midland

  • Permian Demand

  • Current Permian Basin Pipeline Infrastructure

    20Source: Genscape Aug 2016

  • Midstream acquisitions and project developments

    Large 2016 and YTD 2017 transactions of gathering assets

    SXLs acquisition of Vitols crude logistics assets

    SXLs joint venture with XOM to combine Permian assets

    Targa acquires Outrigger systems for $1.5B

    PAA buys ACC System for $1.2B

    Pipeline Flex Capacity Additions

    PAA Cactus: +60kbpd (Mid-2017)

    BridgeTex: +100kbpd (Mid-2017)

    New Pipeline Builds Planned

    Midland-Sealy Pipeline (Q3 2018)

    21

  • Permian Basin in need of additional new build pipeline capacity as early as Q4 2018

    22Source: ARB Analytics, Drilling Info, Market Research

    -$35

    -$30

    -$25

    -$20

    -$15

    -$10

    -$5

    $0

    $5

    -

    200

    400

    600

    800

    1,000

    1,200

    1,400

    1,600

    1,800

    2,000

    2,200

    2,400

    2,600

    2,800

    3,000

    3,200

    3,400

    3,600

    Pri

    ce S

    pre

    ad (

    $/b

    bl)

    Pro

    du

    ctio

    n &

    Tak

    eaw

    ay C

    apac

    ity

    (Mb

    pd

    ) Mid-Cush

    Mid-HLS

    Refinery

    Pipeline

    Rail

  • Conclusions

    U.S. Activity

    WTI forecasted to hit $56-$57 range by YE 2017

    Total rig count has increased nearly 75% from May 2016 lows

    North American production to add an incremental 1.2MM in next 2 yrs

    Permian Basin

    Acreage prices and deal volume have reached record levels in 2016

    Drilling and completion enhancements boosting IP rates, EURs and

    proppant usage

    Expansions of pipeline takeaway capacity will not be sufficient,

    300kbpd of new build infrastructure needed by Q1 2019

    Timing of capacity expansions is crucial, could see price differentials

    blowout if production outpaces demand build out

    23

  • - ARB Market Research - February 1, 2017

    Eric PetersonDirector Market Research & Analysis

    [email protected]

    (720) 600-7511

    ARB Midstream1600 Broadway, Suite 2400

    Denver, CO 80202

    (720) 600-7511

    Contact Info:

    mailto:[email protected]