Exhibit 99.1
Horizontal Drilling in the Southern Midland Basin
KEYS TO MAXIMIZING THE RESOURCE POTENTIAL OF THE WOLFCAMP OIL SHALE PLAY
Forward-Looking Statements
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 begiven to thecautionary statementsand 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.
Cautionary Statements Regarding Oil & Gas Quantities
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 ongoing drilling program, 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 very limited production experience with these projects, 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.
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Company Overview
AREX OVERVIEW
• Enterprise value $1.1 BN
• High quality reserve base
95.5 MMBoe proved reserves 99% Permian Basin
• Permian core operating area
167,000 gross (148,000 net) acres
1+ BnBoe gross, unrisked resource potential 2,000+ Identified HZ drilling locations targeting the Wolfcamp oil shale play
• 2013 Capital program of $260 MM
Running 3 HZ rigs in the Wolfcamp shale play Targeting 30%+ production growth
ASSET OVERVIEW
Notes: Proved reserves and acreage as of 12/31/2012. 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 $24.43 per share on 3/1/2013, plus net debt as of 12/31/2012.
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Reserve Growth
RESERVE GROWTH
120
100
80
60
40
20
0
2004 2005 2006 2007 2008 2009 2010 2011 2012
Natural Gas (MMBoe) Oil & NGLs (MMbbls)
OIL RESERVE GROWTH
Strong HZ Wolfcamp Results;
40 Prepare for Large-Scale
Development
35
30
25
20
15
10 nnounced
Launched Vertical Wolfcamp
5 Wolfcamp Study Pilot Results
0
2009 2010 2011 2012
Oil (MMBbls)
• YE’12 reserves up 24% YoY
• Replaced 1,346% of reserves at a drill-bit F&D cost of $7.45/Boe
• 60.1 MMBoe proved reserves booked to Wolffork/Wolfcamp oil shale play
• Strong organic reserve growth driven by oil from HZ Wolfcamp shale
• Oil reserves up 7x since YE’09
• Oil reserves up 106% YoY
PD Oil reserves up 60% YoY
Notes: See “F&D Costs Reconciliation” slide in appendix.
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Production Growth
PRODUCTION GROWTH
9.0
8.0
7.0
6.0
5.0
40.
3.0
2.0
1.0
0.0
2004 2005 2006 2007 2008 2009 2010 2011 2012
Natural Gas (MBoe/d) Oil & NGLs (Mbbls/d)
• 2012 production increased 24% YoY
• Targeting 30%+ production growth in 2013
3.6 MMBoe – 3.9 MMBoe in 2013 2013E Production mix ~70% liquids
OIL PRODUCTION GROWTH
1200
1000
800
600
400
200
0
2009 2010 2011 2012
Oil (MBbls)
• Strong organic production growth driven by oil from horizontal Wolfcamp shale
• Oil production up 3x since 2009
• Oil production up 101% over 2011
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AREX Wolfcamp Oil Shale Resource Play
Large, primarily contiguous acreage position
Oil-rich, multiple pay zones 167,000 gross (148,000 net) acres Low acreage cost ~$500 per acre
HZ Wolfcamp resource potential up 300%+
940+ MMBoe gross, unrisked resource potential 2,096 Identified HZ Wolfcamp locations targeting the Wolfcamp A, B & C
2013 Operations
Plan to drill ~ 35 to 40 HZ wells with 3 rigs Testing “stacked-lateral” development and tighter well spacing Decrease well costs and increase efficiencies when field infrastructure projects are completed
Broad industry participation de-risking play
50 HZ Wolfcamp rigs as of March 2013
ACTIVE PARTICIPANTS IN THE PLAY
Source: Rig data from Schlumberger and Iberia.
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Wolfcamp Oil Shale Could Be One of The Largest Oil Discoveries in US
• 1,000,000 acres • 215,000 acres
• 7 billion barrel equivalent recoverable • Approximately size of Prudhoe Bay assuming 75% of 1 million acres Wolfcamp oil Field, which is the largest oil field in the shale resource commercially developable U.S. with 13 billion barrel equivalent (recovery factor ~3.5% for oil and 10% for gas) recoverable (recovery factor ~52%)
Conventional
Top 10 Largest Oil Fields in US
Shale
Tight Sand & Shale
Tight Sand
• 2,000,000 acres
• 14 billion barrel equivalent recoverable assuming 75% of 2 million acres Wolfcamp oil shale resource commercially developable (recovery factor ~3.5% for oil and 10% for gas)
Source: Data from EIA, USGS, AAPG, public domain and internal estimates.
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Wolfcamp Oil Shale Play
WOLFCAMP SHALE – WIDESPREAD, THICK, CONSISTENT & REPEATABLE
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Wolfcamp – World Class Source Rock with Desirable Shale Properties
Good Core Porosity
Richness Fair Poor
Excellent
12.0 9
.
5
10. 4 10
1 1 .
. . 0
TOC (%) 2?10 1?2 <1 10 10 10 . 10
10.0 3
.
9
4
2 8 .
.
TOC for Wolfcamp Shale from whole core of Baker A112: 8 Commonly
8.0 observed core
1 Natural
.
8 6 7 porosity
6 . 6 . values for Fractures
0 1
2.24% – 7.24% 6 6 established
6.0
7 commercial
. 6
4 . shale plays
4 2
.
9 4
.
4.0 3
Hydrocarbon Generating Potential (%)
8
. 5
porosity 2.0 1 . . 4
1 1
Core
0.0
Thermal Maturity Window Storage Space Fracability and Conductivity
R0
Porosity
7.0%
Peak Carbonate
26.2%
.6 Clay
~0.95?0.97 Total gas content from canister 25.8%
OIL desorption of Baker A112
.9
Peak 72.1 scf / ton
TOC
| 1.20 |
|
Wet Quartz etc 4.2% |
| 1.35 |
|
Gas 36.8% |
Oil Floor
Dry
Gas
| 2.0 |
|
Organic material |
Wet Gas Floor
| 3.0 |
|
Wolfcamp Shale Components |
Dry Gas Floor
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Storage Space for Oil & Gas in the Wolfcamp Shale
Open / partially open fractures Healed fractures
IMAGE LOG from lateral section of horizontal well
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Misconception vs. Facts
Misconception: Wells are gassier as the play moves southward
Gassier wells are historical Canyon, Strawn and Ellenburger wells
The Wolfcamp Shale is located in peak oil and early wet gas window. Wolfcamp wells are expected to produce more than 50% oil and ~80% liquids over the production life, supported by core data, initial production data and EUR forecast
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Wolfcamp Stacked Pay Zones
HZ TARGETS & RESOURCE POTENTIAL
HZ WOLFCAMP Wolfcamp Wolfcamp Wolfcamp
TARGET A B C
Identified locations 703 690 703
EUR (MBoe)AREX Baker A 112
LLD OHMM DPHI BVW
0.2 20 200 2,000 0.3 -0.1 0.2 0 GR API MSFL OHMM NPHI Free Hydrocarbon
0 200 0.2 20 200 2,000 0.3 -0.1 0.2 0
5500 Wolfcamp Top
5600
5700
Wolfcamp A
5800
5900
6000
Wolfcamp B
6100
6200
6300 Wolfcamp C
6400
6500
450 450 450
Gross Resource 316 310 316
Potential (MMBoe)
940+ MMBoe Total Gross Resource
Potential
Notes: Identified locations based on multi-bench development and 120-acre spacing. No locations assigned to south Project Pangea.
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Wolfcamp A—Microseismic Data
Map View
Frac Width 500’ – 600’
X-Section View Looking West
Frac Height 300’ – 350’
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Wolfcamp B—Microseismic Data
Map View
Frac Width 500’ – 600’
X-Section View Looking West
Frac Height 300’ – 350’
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Wolfcamp C—Microseismic Data
Map View
Frac Width 500’ – 600’
X-Section View Looking West
Frac Height 300’ – 350’
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Multiple Lateral “Stacking”—Potential Scenarios
X-section View
(heel to toe)
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Multiple Lateral “Stacking” – Effective Frac “Volumes”
X-section View
(heel to toe)
Allows “maximum” volumes of shale “reservoir” to be fraced
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Preferred Development Scenarios
Preferred Development to Maximize Section 1 Recovery Factor & Minimize Surface Damage
Section 2
Section 3
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AREX HZ Wolfcamp Activity
U 50 A 603HA
• 3-D Seismic acquisition completed. Data processing in progress
• Targeting HZ pilot well in 2Q’13
Notes: Acreage as of 12/31/2012.
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HZ Wolfcamp Well Performance
CONTINUED STRONG WELLS RESULTS – TRACKING ABOVE THE TYPE CURVE
1,200
B Bench Wells A Bench Wells
1,100
45 A 701H 45 F 2303H PW 6601H
45 D 902H 45 F 2304H PW 6602H
1,000 45 C 803H 45 A 703H 45 D 905H
45 B 2401H 45 B 2403H
45 E 1101H 45 B 2402H Legend
45 F 2301H CT J 1003H
900 Daily Production Data from 45 F 2302H 45 C 806H B Bench well data
45 C 805H PW 6507H Recent B bench well
AREX Recent 7 Horizontal Wells 45 C 804H 45 E 1102H data from 7 wells
G 2208H 45 G 2209H
s) 800 45 45 G 2216H 45 G 2217H A Bench well data
Baker B 206H Baker B 207H e
Curve
NGL 700
600 Daily Production Data from
ncluding AREX A Bench Wells
500
i
(BOE 400 450 MBoe Type Curve
uction 300
Prod 200
Daily 100
0 0 60 120 180 240 300 360 420 480
Time (Days)
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AREX HZ Wolfcamp Economics
Horizontal
Play Type Wolfcamp
Avg. EUR (gross) 450 MBoe
Targeted Well Cost $5.5 MM
Potential Locations 2,096
Gross Resource 940+ MMBoe
Potential
BTAX IRR SENSITIVITIES
80
70
60
(%) 50
IRR 40
30
20
10
0
350 400 450 500 550
Well EUR (MBoe)
$100 / bbl $90 / bbl $80 / bbl $70 / bbl
• Horizontal drilling improves recoveries and returns
• Multiple, stacked horizontal targets
• 7,000’+ lateral length
• ~80% of EUR made up of oil and NGLs (58% OIL)
• 3 HZ rigs running in Project Pangea / Pangea West
Notes: Identified locations based on multi-bench development and 120-acre spacing for HZ Wolfcamp. No locations assigned to south Project Pangea.
HZ Wolfcamp Economics assume NYMEX-Henry Hub strip and NGL price based on 40% of WTI. 21
Infrastructure for Large-Scale Development
Reagan ion
Pangea Crockett Schleicher
West
North & Central Pangea
• Reducing D&C Cost to $5.5 MM or lower South Pangea
• Reducing LOE
• Minimizing truck traffic and surface disturbance
• Increasing project profit margin
Sutton
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Summary
Wolfcamp Oil Shale Resource Play
THE WOLFCAMP IS
??a world class source rock
??located in peak oil generation and early gas generation window
THE WOLFCAMP HAS
??storage space, including matrix porosity, natural fractures, and organic materials
??mineral compositions and lithology similar to the Wolfberry and Eagle Ford Shale ??high density of natural fractures observed in whole cores, image logs and
3-D seismic data
??significant estimated oil and gas in place with 119 to 182 MMBoe per 640 acres ??well results with attractive investment rate of return and validating our early view
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