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. ARB’s analytics are complemented by the extensive industry experience of the company’s 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.

ARB’s 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, EUR’s 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 Δ

+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<20 Mbpd<10 Mbpd<1 Mbpd

Production Loss<2 Mbpd<10 Mbpd+10 Mbpd

Source: ARB Analytics, Drilling Info

12

10

17

2021

23

50 71

-

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

• SXL’s acquisition of Vitol’s crude logistics assets

• SXL’s 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, EUR’s 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

eric.peterson@arbmidstream.com

(720) 600-7511

ARB Midstream1600 Broadway, Suite 2400

Denver, CO 80202

(720) 600-7511

Contact Info: