spe 2018 - enverus · perf. ft delaware basin completion metrics, by year lbs/ft hz spuds up 229%...
TRANSCRIPT
SPE 2018PRESENTED TO: SPE
Dallas, TX | September 23, 2018
2018 2
DISCLAIMERS
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2018 3
MACRO OVERVIEWCOMMODITY FUNDAMENTALS & PRICE TRENDS
2018 4
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$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
WTI
Bre
akeve
n
($/B
bl) @
12.5
% M
AR
R &
$2.7
5/M
MB
tu H
H
Permian EF Williston Anadarko Rockies
Source: DI ProdCast
2018 5
KEY GAS BREAKEVEN THRESHOLDS
$2.40 $2.42 $2.46
$2.62 $2.64
$2.84 $2.91
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
HH
Bre
akeve
n ($
/MM
Btu
) @
12.5
% M
AR
R &
$60/B
bl
WTI
$2.60-$2.65
$2.65-$2.80$2.50-$2.60
Source: DI ProdCast
2018 6
M&A ACTIVITY 1H 18’
2018 7
2018 8
2018 9
2018 10
DELAWARE BASINBASIN OVERVIEW, DEALS, & OPPORTUNITIES
2018 11
DELAWARE BASIN: OVERVIEW
Delaware Basin GOR Delaware Basin Hz Spuds, by Year
➢The Delaware is gassier to the western extent of the basin.➢The oil window is at intersection of Ward Co., Reeves Co., and Loving Co.
Source: DI Delaware Basin Report
2018 12
DELAWARE BASIN: OVERVIEW (CONTD.)
Delaware Basin Vintage Type Curves, by Year
Delaware Basin Spuds, by Year
lbs/ftPerf. ft Delaware Basin Completion Metrics, by Year
➢ Hz spuds up 229% YoY in 2017, up to an all-time high. 2018 on track to be higher.
➢ Wells are being drilled with longer lateral lengths and more intense fracs.
➢ Average well productivity has been responding to the completion efficiencies, yielding higher type curves YoY.
➢ Since optimal lateral lengths and completion practices
have largely been established, efficiency gains have slowed down.
Source: DI Delaware Basin Report
0
200
400
600
800
1,000
1,200
1,400
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
Pro
ductio
n (
Boe/d
)
Months on Prod2013 2014 2015 2016 2017 2018
2018 13
DELAWARE BASIN: OVERVIEW (CONTD.)
➢ Permitting correlates with activity, economics, and acreage valuations.
➢ Acreage valuations > $30k/acre for PUDs in eastern part of the basin, gassier western acreage < $10k/acre.
Source: DI Delaware Basin Report, DI Market Research
Delaware Basin Permitting Heat Map (Last 2 Yrs) Delaware Basin Acreage Values
2018 14
DELAWARE BASIN: DI TYPE CURVE AREAS
Average IRR, by TC Area
Delaware Basin Target Formation Summary (Norm. to 7.5K lat & 2K lbs/ft)
➢ Wolfcamp A well delineated across whole of Delaware Basin with top tier economics, making it the most attractive formation. Wolfcamp B & 2nd & 3rd Bone Springs well delineated and highly economic where prevalent.
➢ The TX/NM Border & Northern acreage have the best economics currently due to the higher oil percentage. Although other areas boast higher EURs in some cases, these areas are significantly gassier.
Source: DI Delaware Basin Report
ZoneEUR
Gas (Bcf)
EUR Oil
(MBbl)
EUR
(MBoe)
%
Liquids
NVP10
MM$Average
IRROil BE
#
of TCs
Upper Avalon 2.56 271 1,153 65% $4.20 53% $24 4
Lower Avalon 2.59 385 1,279 68% $5.81 74% $26 8
Bone Springs 1 0.74 180 722 64% $0.54 13% $54 2
Bone Springs 2 1.13 417 808 78% $2.21 49% $38 13
Bone Springs 3 1.07 484 853 80% $4.55 52% $37 17
Wolfcamp A 1.55 564 1,100 78% $6.46 66% $32 24
Wolfcamp B 2.12 404 1,135 73% $4.32 40% $36 15
Average 1.68 386 1,010 73% $4.01 54% $35 12
AreaEUR Gas
(Bcf)
EUR Oil
(MBbl)
EUR
(MBoe)
%
Liquids
NVP10
$MMAverage
IRROil BE TCs
Avg.
TC/Area
Northern 3.02 438 776 81% $3.90 44% $40 21 2.6
Western 1.40 411 1,492 67% $6.34 65% $26 22 3.1
Border 1.65 503 1,073 76% $5.85 66% $31 16 3.2
Central 1.52 586 1,111 78% $6.46 59% $32 10 2
Southern 0.69 485 712 84% $3.52 38% $43 14 2.3
Average 1.65 485 1,033 77% $5.21 39% $35 16.6 2.6
Delaware Basin Region Summary (Norm. to 7.5K lat & 2K lbs/ft)
2018 15
DELAWARE BASIN: LARGE & MID CAP OPERATORS
➢ Large cap operators already command a vast portion of the Delaware Basin. Middle cap operators are offset to
large cap positions and are expected targets for the large cap operators as the basin continues to consolidate.
Source: DI Market Research
2018 16
DELAWARE BASIN: SMALL CAP & PE OPERATORS
➢ Small cap operators are noticeably on the fringes of the basin, but several still offer sizeable positions & contiguity.
➢ PE-backed E&Ps have continued to move toward fringes as investments in the core have been largely realized.
Source: DI Market Research
2018 17
DELAWARE BASIN: DEALS IN PLAY & ACTIVITY
1. Increased leasing has taken place to the southern extent of the basin deep into Reeves Co. & Pecos Co.
2. Deals in play are largely away from
the core and discontinuous, making it ever more important to have offset position in order to be able to drill longer laterals and realize maximum value.
3. Although activity is moving south, the larger, continuous deals in play to the south are pushing the boundaries of the basin and may be
more viable targets for PE-backed E&Ps looking to prove and flip.
Source: DI Market Research
1
2
3
2018 18
DELAWARE BASIN: TRANSACTION OVERVIEW
➢ Deal flow increased notably from 3Q2015 to 1Q2017, but has slowed down since. However, recent large acquisitions have kept 2018 lively (BP’s BHP acquisition & Diamondback’s Energen acquisition both have Delaware components).
➢ The slow down is largely due to investor pressure for public companies to “return to returns.” However, consolidation will continue as operators look to expand their Permian portfolios and search for G&A, service cost, contiguous acreage, and
operational efficiencies.
Metrics, Transactions (> $100MM) by Quarter
Deal Count
Source: DI Market Research
2018 19
DELAWARE BASIN: RECENT ACQUISITIONS
July 2018: BP acquired BHP’s Delaw are assets for an estimated $3.4B @ PUD of $41K/acre. Position is not heavily drilled and only decently contiguous, but is w ell delineated by offset operators. 83K net acres.
March 2018: Concho acquires RSP Permian for $9.5B @ PUD of $75K/Acre. Largest ever acquisition in the Permian. Position is largely contiguous and heavily delineated. Concho now runs the most rigs in the Permian. 45K net acres and allow s for 2-mile long lateral development.
August 2018: Diamondback acquires Energen for $9.2B @ PUD of $34K/acre. Diamondback is now third largest producer in Permian. +72K net acres in the DW. Signif icant midstream and SWD assets retained in transaction.
Source: DI Market Research
2018 20
DELAWARE BASIN: DEAL VALUATIONSJ
an
. 20
16
Oct.
20
16
Au
g. 2
01
7
Ma
r. 2
01
8
Silver Hill enters in 2013 with
acquisition from Clayton Williams
(11K net acres, $12MM @
$1.3K/acre). Jan 2016, Concho sells
14K acres to Silver Hill for $290MM
@ $13K/acre.
Silver Hill flips the 41K
position to RSP for $2.4B @
$45K/acre. Silver Hill
delineates the position to 6
horizons prior to sale.
RSP continued A&D activity
in the area with 2 deals for
$245MM @ ~$20K/acre.
Concho acquires RSP for $9.5B
@ $75K/acre for. RSP had 45K
net acres in this Delaware asset.
Deal Spotlight: Full Circle from $1.3K/Acre to $75K/AcreDelaware Basin Acreage Values
Source: DI Market Research
2018 21
DELAWARE BASIN: DEBT COMPARISONCarrizo: Debt ~$1.5B, Market Cap $2.0B
Resolute: Debt ~$668MM, Market Cap $723MM
Callon: Debt ~$1.0B, Market Cap $2.6B
Jagged Peak: Debt ~$490MM, Market Cap $2.7B
Source: DI Capitalize
2018 22
MIDLAND BASINBASIN OVERVIEW, DEALS, & OPPORTUNITIES
2018 23
MIDLAND BASIN: OVERVIEW
Midland Basin GOR Midland Basin Hz Spuds, by Year
➢Midland Basin originally developed in the southern part of the basin, where wells had a higher GOR. ➢Since downturn in 2014, activity has moved to northern part of the basin with higher oil cuts.
Source: DI Midland Basin Report
2018 24
MIDLAND BASIN: OVERVIEW (CONTD.)
0
200
400
600
800
1,000
1,200
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
Pro
ductio
n (
Boe/d
)
Months on Prod
2013 2014 2015 2016 2017 2018
Midland Basin Vintage Type Curves, by Year
Midland Basin Spuds, by Year
lbs/ftPerf. ft Midland Basin Completion Metrics, by Year
➢ Hz spuds up 46% YoY in 2017, up to an all-time high. 2018 on track to be higher.
➢ Wells are being drilled with longer lateral lengths and more intense fracs.
➢ Average well productivity has been responding to the completion efficiencies, yielding higher type curves YoY.
➢ As optimal lateral lengths and completion practices have
largely been established, efficiency gains may slow down.
Source: DI Midland Basin Report
2018 25
MIDLAND BASIN: OVERVIEW (CONTD.)
➢ Permitting correlates with activity, economics, and acreage valuations.
➢ Acreage valuations > $30k/acre for PUDs in northern part of the basin, gassier southern acreage < $10k/acre.
Source: DI Midland Basin Report, DI Market Research
Midland Basin Permitting Heat Map (Last 2 Yrs) Midland Basin Acreage Values
Driven by QEP
2018 26
MIDLAND BASIN: DI TYPE CURVE AREAS
ZoneEUR Gas
(MMcf)
EUR Oil
(MBbl)
EUR
(MBoe)
%
Liquids
NVP10
(MM$)Avg.
IRR
Oil BE
($/Bbl WTI)
% TCs
NPV10>0
WC A 1,013 507 856 81% $4.94 50% $39 77%
WC B 1,302 384 833 74% $2.93 30% $43 88%
LS 743 559 816 85% $5.14 48% $38 92%
Other 1,381 348 824 74% $2.21 27% $46 83%
Average 1,110 450 832 79% $3.81 39% $41 84%
Average IRR, by TC Area
Midlands Basin Target Formation Summary (Normalized to 10K lat & 2K lbs/ft)
➢ Wolfcamp B is the most actively targeted zone and had consistent results across the basin.
➢ Wolfcamp A generally has better economics, but it carries more regional risk as almost ¼ of the Wolfcamp A wells in the different DI Type Curve Areas were uneconomic under current market conditions.
➢ Lower Spraberry has excellent economics due to highest oil percentage, but has only been widely delineated in the northern extent of the basin.
➢ Other target formations include the Upper Spraberry, WolfcampC, and Wolfcamp D. There are very few DI Type Curve Areas in which they are delineated.
Source: DI Midland Basin Report
2018 27
MIDLAND BASIN: TRANSACTION OVERVIEW➢ Deal flow was notably high 3Q2015 to 1Q2017, but has slowed down (except for the RSP/Concho deal). ➢ This is largely due to investor pressure for public companies to “return to returns.” COG and FANG were able to make
large acquisitions from operating inside cash flow.➢ The rising $/Acre for PUD has been driven by the northern extent of the basin. The recent decrease in value is due to
PDP asset sales (mainly in the southern extent of the basin) which generally trade higher on production multiples.
➢ In the past 4 quarters, there has been a rising divergence between prices and PDP ($/flowing Boe). Both sides of the market are cautious, but this has recently driven a large volume of PDP transactions across the L48. Many PDP assets are for sale in the southern Midland Basin with increasing pressure on operators to reduce debt.
Metrics, Transactions (> $100MM) by Quarter
Deal Count
Source: DI Market Research
2018 28
MIDLAND BASIN: DEALS IN PLAY & ACTIVITY
1. Increased leasing has taken place in Scurry Co., which is on the Eastern Shelf. Operators are taking a chance on the outskirts of the basin. Several Wolfcamp D & Cline wells were drilled in Sterling county
several years ago, but only produced marginal results.
2. Deals in play are effectively a buffer zone between leasing and spuds over the past
18 months in the northern part of the basin.
3. Leasing continues to push the basin boundaries. Murphy E&P has been active on University Lands in Gaines Co., Dawson
Co. and Andrews Co.
4. A large amount of consolidated positions are in play in the south, representing PDP assets with infill and recompletion upside.
Will more PE follow Triple Crown's move in southeast portion of the play?
Deals in Play (via DI Market Research)
Spuds over past 18 months
Leases taken over past 18 months
1
2
3
4
Source: DI Market Research
2018 29
MIDLAND BASIN: LARGE & MID CAP OPERATORS
Source: DI Market Research
2018 30
MIDLAND BASIN: PE ACTIVITY & POSITIONS
Source: DI Market Research
➢ There has been a growing number of PE backed E&P rigs in the basin.
➢ Private companies have acquired large land positions from early A&D transactions or legacy assets. The A&D market
remains active for private to private transactions.➢ Ex: Endeavor sold ~70K net acres to Double Eagle III
for undisclosed amount in 2018.
0
5
10
15
20
25
30
35
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2014 2015 2016 2017 2018
HZ R
IG C
OU
NT
Private E&P Activity
Sum of CROWNQUEST Sum of ENDEAVOR
Sum of HUNT Sum of SABLE PERMIAN
Sum of SURGE Sum of SEQUITUR
2018 31
MIDLAND BASIN: PE FUND YEARS
➢ The map shows PE funds with Midland Basin positions, colored by fund year.
➢ There is still some PE transactions from portfolios funded in 2017, but activity has cooled from the 2016
Permian rush.
➢ There has been an increase of Private Equity backed royalty and mineral companies in the Permian, where it is difficult to acquire operated land positions for
a low cost.
➢ Newly funded PE companies are focusing on the basin fringes. If they validate that the formations are profitable in these areas, we expect most to flip their positions.
➢ Exit strategy concerns of PE backed companies are increasing as larger operators struggle to stay within cashflow.
Source: DI Market Research
2018 32
THANK YOU