Attached files
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| 8-K - 8-K - Approach Resources Inc | d928648d8k.htm |
 Oil Price and the Southern
Midland Basin
J. Ross Craft / Chairman, President and CEO
May 20, 2015
Exhibit 99.1 |
 Forward-looking statements
2
This
presentation
contains
forward-looking
statements
within
the
meaning
of
Section
27A
of
the
Securities
Act
of
1933
and
Section
21E
of
the
Securities
Exchange
Act
of
1934.
All
statements,
other
than
statements
of
historical
facts,
included
in
this
presentation
that
address
activities,
events
or
developments
that
the
Company
expects,
believes
or
anticipates
will
or
may
occur
in
the
future
are
forward-looking
statements.
Without
limiting
the
generality
of
the
foregoing,
forward-looking
statements
contained
in
this
presentation
specifically
include
the
expectations
of
management
regarding
plans,
strategies,
objectives,
anticipated
financial
and
operating
results
of
the
Company,
including
as
to
the
Company’s
Wolfcamp
shale
resource
play,
estimated
resource
potential
and
recoverability
of
the
oil
and
gas,
estimated
reserves
and
drilling
locations,
capital
expenditures,
typical
well
results
and
well
profiles,
type
curve,
and
production
and
operating
expenses
guidance
included
in
the
presentation.
These
statements
are
based
on
certain
assumptions
made
by
the
Company
based
on
management's
experience
and
technical
analyses,
current
conditions,
anticipated
future
developments
and
other
factors
believed
to
be
appropriate
and
believed
to
be
reasonable
by
management.
When
used
in
this
presentation,
the
words
“will,”
“potential,”
“believe,”
“intend,”
“expect,”
“may,”
“should,”
“anticipate,”
“could,”
“estimate,”
“plan,”
“predict,”
“project,”
“target,”
“profile,”
“model”
or
their
negatives,
other
similar
expressions
or
the
statements
that
include
those
words,
are
intended
to
identify
forward-looking
statements,
although
not
all
forward-looking
statements
contain
such
identifying
words.
Such
statements
are
subject
to
a
number
of
assumptions,
risks
and
uncertainties,
many
of
which
are
beyond
the
control
of
the
Company,
which
may
cause
actual
results
to
differ
materially
from
those
implied
or
expressed
by
the
forward-looking
statements.
In
particular,
careful
consideration
should
be
given
to
the
cautionary
statements
and
risk
factors
described
in
the
Company's
most
recent
Annual
Report
on
Form
10-K
and
Quarterly
Reports
on
Form
10-Q.
Any
forward-looking
statement
speaks
only
as
of
the
date
on
which
such
statement
is
made
and
the
Company
undertakes
no
obligation
to
correct
or
update
any
forward-looking
statement,
whether
as
a
result
of
new
information,
future
events
or
otherwise,
except
as
required
by
applicable
law.
The
Securities
and
Exchange
Commission
(“SEC”)
permits
oil
and
gas
companies,
in
their
filings
with
the
SEC,
to
disclose
only
proved,
probable
and
possible
reserves
that
meet
the
SEC’s
definitions
for
such
terms,
and
price
and
cost
sensitivities
for
such
reserves,
and
prohibits
disclosure
of
resources
that
do
not
constitute
such
reserves.
The
Company
uses
the
terms
“estimated
ultimate
recovery”
or
“EUR,”
reserve
or
resource
“potential,”
and
other
descriptions
of
volumes
of
reserves
potentially
recoverable
through
additional
drilling
or
recovery
techniques
that
the
SEC’s
rules
may
prohibit
the
Company
from
including
in
filings
with
the
SEC.
These
estimates
are
by
their
nature
more
speculative
than
estimates
of
proved,
probable
and
possible
reserves
and
accordingly
are
subject
to
substantially
greater
risk
of
being
actually
realized
by
the Company.
EUR
estimates,
identified
drilling
locations
and
resource
potential
estimates
have
not
been
risked
by
the
Company.
Actual
locations
drilled
and
quantities
that
may
be
ultimately
recovered
from
the
Company’s
interest
may
differ
substantially
from
the
Company’s
estimates.
There
is
no
commitment
by
the
Company
to
drill
all
of
the
drilling
locations
that
have
been
attributed
these
quantities.
Factors
affecting
ultimate
recovery
include
the
scope
of
the
Company’s
drilling
project,
which
will
be
directly
affected
by
the
availability
of
capital,
drilling
and
production
costs,
availability
of
drilling
and
completion
services
and
equipment,
drilling
results,
lease
expirations,
regulatory
approval
and
actual
drilling
results,
as
well
as
geological
and
mechanical
factors.
Estimates
of
unproved
reserves,
type/decline
curves,
per
well
EUR
and
resource
potential
may
change
significantly
as
development
of
the
Company’s
oil
and
gas
assets
provides
additional
data.
Type/decline
curves,
estimated
EURs,
resource
potential,
recovery
factors
and
well
costs
represent
Company
estimates
based
on
evaluation
of
petrophysical
analysis,
core
data
and
well
logs,
well
performance
from
limited
drilling
and
recompletion
results
and
seismic
data,
and
have
not
been
reviewed
by
independent
engineers.
These
are
presented
as
hypothetical
recoveries
if
assumptions
and
estimates
regarding
recoverable
hydrocarbons,
recovery
factors
and
costs
prove
correct.
The
Company
has
limited
production
experience
with
this
project,
and
accordingly,
such
estimates
may
change
significantly
as
results
from
more
wells
are
evaluated.
Estimates
of
resource
potential
and
EURs
do
not
constitute
reserves,
but
constitute
estimates
of
contingent
resources
which
the
SEC
has
determined
are
too
speculative
to
include
in
SEC
filings.
Unless
otherwise
noted,
IRR
estimates
are
before
taxes
and
assume
NYMEX
forward-curve
oil
and
gas
pricing
and
Company-generated
EUR
and
decline
curve
estimates
based
on
Company
drilling
and
completion
cost
estimates
that
do
not
include
land,
seismic
or
G&A
costs.
Cautionary statements regarding oil & gas quantities
|
 Company overview
3
AREX OVERVIEW
ASSET OVERVIEW
Enterprise value $804MM
High-quality reserve base
146 MMBoe proved reserves
66% Liquids, 38% oil
$1.4 BN proved PV-10
Permian core operating area
147,000 gross (134,000 net) acres
~1+ BnBoe gross, unrisked resource potential
~2,000 Identified HZ drilling locations targeting
Wolfcamp A/B/C
2015 Capital program focused on flexibility and
returns
Running an average of 1 HZ rig in the Wolfcamp
shale play with a capital budget of approximately
$160 MM
Note:
Proved
reserves
as
of
12/31/2014
and
acreage
as
of
3/31/2015.
All
Boe
and
Mcfe
calculations
are
based
on
a
6
to
1
conversion
ratio.
Enterprise
value
is
equal
to
market
capitalization
using
the
closing
share
price
of
$8.48
per
share
on
5/5/2015,
plus
net
debt
as
of
3/31/2015.
See
“PV-10
(unaudited)”
slide. |
 Strong track record of reserve and production growth
4
•
YE14 reserves up 27% YoY
•
Replaced 819% of produced reserves at a
drill-bit F&D cost of $8.94/Boe
•
124.8 MMBoe proved reserves booked to HZ
Wolfcamp play
•
2014 Production increased 47% YoY
•
Targeting 10-14% production growth in
2015
Note:
See
“Drill-bit
F&D
cost
(unaudited)”
slide.
RESERVE GROWTH
PRODUCTION GROWTH |
 Four
significant downturn cycles during past 20 years 5
WTI Cushing
Spot Price
Brent
Spot Price
59%
12/19/1996 –
12/10/1998
53%
9/20/2000 –
11/15/2001
79%
7/3/2008 –
12/23/2008
60%
6/20/2014 –
3/17/2015
3.8 yrs
7.8 yrs
6 yrs
Asian Economic
Crisis
9/11 Attacks
US Financial Crisis
•
Success of US
Shale Plays
•
OPEC
Competing for
Market Share
•
US
Government
Trying to
Sanction the
Russian
Economy
•
China &
Europe
Forecasting
Slower Growth
Oil is a commodity, has
always been volatile, and
will continue to be volatile
World population continues
to increase and people
continue to improve their
living conditions –
therefore
the demand for oil will
continue to increase |
 Wall
Street is focusing on next quarter, but we need to focus on long term
6
Average Brent Oil Price = $93 / bbl
Average WTI Oil Price = $87 / bbl
Over Last 7.5 Years Beginning When Oil Price Reached $80/BBL
Including 2008 and Current Down Cycles
•
Success of US Shale Plays
•
OPEC Competing for Market
Share
•
US Government Trying to
Sanction the Russian
Economy
•
China & Europe Forecasting
Slower Growth
Oil is a finite resource and our
industry will do well over a long
investment horizon |
 Is
this time really different from 2008-2009 downturn? 7
|
 Fraclog and Refrac
8
•
There has, is and will always be
drilled, but uncompleted wells in our
normal course of business
•
During
the
2
nd
quarter
of
2011,
Halliburton reported 3,500 wells
were uncompleted in the US
•
The uncompleted wells in Ohio and
Pennsylvania are mainly gas wells
and will have no or minimum impact
to oil production
•
Uncompleted oil wells will require
over $10 billion of additional capital
investment to complete
•
Even if all the 4,731 wells are
turned to sales simultaneously, the
impact on global supply is 0.3%
•
The impact of refrac to global
supply is even less |
 $184.00
$151.00
$145.00
$131.00
$130.00
$127.00
$123.00
$107.00
$106.00
$103.00
$101.00
$98.00
$80.00
$77.30
$60.00
$54.00
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
$180.00
$200.00
Libya
Venezuela
Yeman
Algeria
Iran
Bahrain
Nigeria
Russia
S. Arabia
Oman
Iraq
Angola
Ecuador
UAE
Qatar
Kuwait
Fiscal Break-Even Price (Brent, USD/bbl)
May 15th Brent Crude Price ($66.98)
How long can OPEC sustain the price war for market
share?
9
Source: Deutsche Bank, MEES, IMF CITI |
 Successful oil shale plays in North America will not only be
the key to our energy independence, but also to world
economic growth
10
•
Africa & Europe
decline
•
Asia & Oceania and
Central & South
America stabilize
•
Eurasia increases
slightly
•
Middle East increases
moderately
•
North America
increases significantly
due to oil shale plays
Time
Time
Successful development of oil shale plays in North America will
be the key to world Economic growth
Middle East countries require oil prices to be $90 per barrel or
above to balance their national budget and maintain social
stability
Source: OPEC |
 Midland Basin -
Wolfcamp Horizontal Well Activity
11
18.3%
Northern
Midland Basin
81.7%
Southern Midland Basin
Source: DrillingInfo and IHS |
 Midland Basin -
IP and Drilling & Completion Cost
12
Source:
Company
releases/presentations,
DrillingInfo,
IHS,
public
databases,
and
internal
studies.
Note:
Three-stream
IP
estimated
using
0.1539
Bbl
per
Mcf
and
25%
shrinkage
factor.
Entire Midland
Basin P-
50%
Average IP
689 BOE
Southern
Midland Basin
Northern
Midland Basin |
 AREX
HZ Wolfcamp Well Performance 13
AREX HZ WOLFCAMP (BOE/D)
Note:
Daily
production
normalized
for
operational
downtime.
Gas
EUR
is
unprocessed
wellhead
volume.
Oil EUR = 230 MBBL
Well EUR = 510 MBOE
Gas EUR = 1,271 MMCF
Average
GOR
=
5,000
–
6,000
N = 93 Wells
AREX Wolfcamp Horizontal Type Curve
Year-end 2014 |
 Probability Distribution of AREX 93 Type Curve Wells at
Year-end 2014
14 |
 Proven track record of delivering lowest D&C cost in the
Midland Basin
15
Approach’s annual average horizontal well D&C cost
|
 Established infrastructure in place is critical to low cost
structure
16 |
 AREX
Flowback and Produced Water Recycle Facility 17
•
Reduce drilling and completion
cost by $450K per well
•
Reduce LOE by up to $1.00 per
BOE
•
Eliminate usage of potable fresh
water for completion
•
Minimize surface disturbance
•
Skim oil sale up to 200 Bbls per
day -
more than sufficient to pay
for facility operating expense
329,000 Bbl Capacity Facility |
 Water recycling facility successfully started in March 2015
18
Recent Recycled Water Volumes
•
The
water
recycling
facility
was
ramped
up
during
March
2015
and
now
successfully
recycles
up
to
70+%
of
AREX
daily
flowback
water
volumes
•
More
than
1
million
barrels
of
water
treated
so
far |
 D&C Cost reductions will significantly improve profitability
19
Note:
HZ
Wolfcamp
economics
assume
$4.00/Mcf
realized
natural
gas
price
and
NGL
price
based
on
40%
of
realized
oil
price. |
 Summary
20
•
Oil
is
a
commodity,
has
always
been
volatile,
and
will
continue
to
be
volatile
•
World
population
continues
to
increase
and
people
continue
to
improve
their
living
conditions
–
therefore
the
demand
for
oil
will
continue
to
increase
•
Oil
is
a
finite
resource
and
our
industry
will
do
well
over
a
long
investment
horizon
•
Price
war
for
market
share
is
short-sighted
–
OPEC
countries
need
higher
oil
prices
than
US
Independents
•
The
impact
of
fraclog
and
refrac
wells
to
global
supply
is
minimal
•
Successful
oil
shale
plays
in
North
America
will
not
only
be
the
key
to
our
energy
independence,
but
also
to
world
economic
growth
•
Wolfcamp
oil
shale
play
is
the
largest
discovery
ever
made
in
North
America
and
one
of
the
largest
in
the
world.
It
generates
acceptable
rates
of
return
in
both
Northern
and
Southern
Midland
Basins
even
in
the
current
price
environment
due
to
excellent
shale
rock
properties
and
innovative
approach
to
cost
cutting
by
installing
infrastructure
and
water
recycling
facilities |
 21 |