South  Texas:  A  New  Look  DUG  Eagle  Ford  Conference  San  Antonio,  Texas  October  12,  2011  

William  E.  (Bill)  Deupree  President  &  CEO  

Finding Hidden Reserves in South Texas

Escondido

Olmos

Eagle Ford

Today

Company Overview Focus

Strategy

Well Comparisons

Concluding Remarks

Company Overview

Senior Management Team More than 200 wells drilled together since 2004

•  Bill Deupree, President & CEO

•  Mark Semmelbeck, PhD, VP Engineering

•  Kurt von Plonski, VP Operations

•  David Wrather, VP Land

Focused A&D Concise three-county area in South Texas Multi-pay gas and oil reserves in Webb, LaSalle & McMullen Counties

•  Escondido | Olmos | Wilcox

•  Eagle Ford Shale

Company Overview

Escondido Resources LP: 2004 – 2007

• Sold in three years: $250 million

• Equity partner: EnCap Investments LP

• Focus: Escondido | Olmos

La Salle, Webb and Dimmit counties

•  163 wells drilled, 95% success rate, all vertical

• Peak production: 25 mmcfe/d, 190 wells

Company Overview

Escondido Resources II LLC: 2007 to present

•  $115 million sale of LaSalle County Eagle Ford rights in 2010

•  2nd partnership with EnCap

• Focus: Escondido | Olmos | Eagle Ford

Webb, La Salle & McMullen Counties

•  44 wells drilled to date: 19 vertical, 25 horizontal, 95% success

• Current Production Capability: 60 mmcfe/d

Horizontal wells > 90%

•  2 active rigs

Nov 2004: FORM Escondido Resources LP Equity partner: EnCap Investments L.P. $50 MM increased to $75 MM

Dec 2009 First Eagle Ford well 5,600 ft lateral 19 frac stages 1 bcf in first 8 months

Jan 2005 Acquire 31 producing wells (5 MMcfe/d) Olmos/Escondido Trend Webb/La Salle/Dimmit 12,000 net acres

Major Events

Oct 2007 SALE $250 MM 3:1 ROI 163 wells drilled 25 MMcfe/d production

Nov 2007: FORM Escondido Resources II EnCap Investments L.P. $80 MM increased to $200 MM

Oct 2011 60 MMcfe/d production

60,000 total acres Drilling 25th horizontal well

>2.5 tcf gross resource potential •  1/3 in Olmos/Escondido •  2/3 in Eagle Ford

Dec 2010 $115 MM SALE 11,050 acres Eagle Ford oil/condensate La Salle County

Jan 2011 Completed best well in Escondido trend ever IPR - 12 MMcfe/d 1 bcf in first 5 months

Focus – South Texas

EAGLE  FORD  OIL  WINDOW  

EAGLE  FORD  RICH  GAS  WINDOW  

EAGLE  FORD  DRY  GAS  WINDOW  

ESCONDIDO  &  OLMOS  SANDSTONES  

Focus – South Texas

•  >70  horizontal  Escondido  and  Olmos  wells  drilled  to  date  in  Webb  County.    

•  7,000  mcf/d    Average  IP  for  

           15  completed  Escondido  wells  

Focus - Escondido & Olmos

Producing  wells  PermiWed  wells  

Strategy

#1 Apply new technology to old, established fields •  Escondido and Olmos Target reservoirs •  Escondido I: drilled vertical wells with multi-stage fracs co-mingling Escondido & Olmos

•  Escondido II: horizontal drilling targets each formation separately

•  Now employing Longer laterals, modified frac techniques

#2 Drill a mix of Shallow Escondido and Olmos wells and deeper Eagle Ford wells •  80% of 2012 budget targets shallow reservoirs; 20% for Eagle Ford •  New wells 100% horizontal •  2 rigs

Strategy

#3 Hold deep Eagle Ford rights •  Shallow horizontal drilling allows us to hold •  Wait for gas prices to improve

#4. Economies of scale •  95% success rate •  Finding & development costs +/- $2.00/mcfe •  Lifting costs < $0.20/mcfe

LA  SALLE  

McMULLEN  

WEBB  

Mexico  

Laredo  

Cotulla  

Strategy

#5. Create value via:

Large acreage position of >60,000 acres

Large inventory of

>600 repeatable drilling locations

In multiple objectives with 2.5+ tcf gross resource potential 200+ bcf proved reserves

Pre-­‐2000  wells  IPR        250  mcf/d  EUR      500  mmcf  

Post-­‐2000  wells  IPR          500  mcf/d  EUR      700  mmcf  

Sun  TSH  Area  –  La  Salle  County  

Well Comparisons: Escondido I

Ver\cal  wells    IPR          500  mcf/d  EUR      800  mmcf  

Horizontal  wells    IPR          7,000  mcf/d  EUR      4,800  mmcf  

Owen  Area  –  Webb  County  

Well Comparisons: Escondido II

                     Ver:cal          Horizontal      The  Difference

Capital Costs $1.5mm $4.5mm 3x

IP Rate 500 mcf/d 7,000 mcf/d 14x

EUR 0.8 bcf 4.8bcf 6x

               

Vertical or Horizontal?

Our results there aren’t too bad either

•  1st well: 1 bcf in 8 months

•  1.4 bcf cumulative to date

•  2 mmcf/d current production

•  5,600’ lateral

•  19 frac stages

•  7.0 bcf EUR

IPR        7,000  mcf/d  EUR    7.0  bcf  

What about the Eagle Ford?

Remember this?

Escondido Olmos

(for now)

Eagle Ford

Gas Production

Shallow & Deep Forecasts to 2016

0  

50  

100  

150  

200  

250  

300  

01/10   01/11   01/12   01/13   01/14   01/15   01/16  

gas  prod

uc\o

n  -­‐  m

mcf/d   Escondido/Olmos   Eagle  Ford  

3  rigs   4  rigs   4  rigs  2  rigs  

We are well-positioned for growth

A major player in one of the most active plays in America

Acreage strategically located to take advantage of very profitable shallow drilling opportunities in the Escondido and Olmos formations while maintaining deep Eagle Ford rights

Economics of horizontal drilling in Escondido and Olmos are excellent, even in a low gas price environment

Takeaways

A Parting Thought

Find  another  cartoon  ?  

80%  Escondido  &  Olmos  (non-­‐shale)    and  20%  Eagle  Ford    (shale)  

Bill Deupree President & CEO Escondido Resources II Bill@Escondido-Resources.com 281.359.6780

Midland (Operations office) 432.683.4600 Houston (Land office) 713.662-0332

www.Escondido-Resources.com

Thank you