Pitchfork Ranch -NM 23,000 ACRES MORE OR LESS, HELD IN FEE, STATE LEASEHOLD ACRES, IDEALLY POSITIONED TO CAPTURE OILFIELD DISPOSAL, SWDS AND

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1 Pitchfork Ranch -NM 23,000 ACRES MORE OR LESS, HELD IN FEE, STATE LEASEHOLD ACRES, IDEALLY POSITIONED TO CAPTURE OILFIELD DISPOSAL, SWDS AND LUCRATIVE WATER SUPPLY TRADE IN THE HEART OF THE DELAWARE BASIN. EXPANDING CURRENT CASH FLOW WITH ROBUST GROWTH TRAJECTORY SUPPORTED BY LONG-TERM INDUSTRY COMMITMENT. For internal use only 1

2 Summary The Pitchfork Cattle Company, LLC holds title to 23,000 acres, more or less, of contiguous surface acres in Lea County, New Mexico. Seller also owns at least 130 net mineral acres from that same surface area, comprising some 500+ royalty acres. The remaining net mineral acres are owned by third-party interests. The Seller will dispose of the surface, minerals and existing businesses as per the valuation in the summary slide for the best offer. Ranch lands run across 10 miles east-to-west and 9 miles north-to-south, more or less, through the heart of the New Mexico Permian Basin. The strategic location of the ranch makes it an ideal location to launch a first-to market recycled water and disposal program. The strategic partnership between the ranch and a proven, publicly traded water development partner will succeed in changing water use across a state where water scarcity is at an all-time high. As of January 2018, the property has significant present and potential value from the following revenue sources: Water sales & Water trespass Disposal & Recycling Caliche Quarrying Surface Damage Pipeline Easements, ROW, 2

3 Rig Activity in Area Located in LEA county in the Delaware basin of the Permian. Significant oilfield presence as seen in updated Rig Data snapshot below and DI Lease Map. Currently, 13 active rigs within a 5 square-mile radius. Pitchfork Ranch lies in the heart of the play between Jal and Carlsbad, NM. 20 miles (10 miles on north and south side of highway) could be dedicated to the sale of crucial access easements, ROW, and commercial real estate along Hwy 128. Sub-surface of Pitchfork has been identified as one of the most hydrocarbon rich areas in the Delaware Basin. Current lease bonuses exceed $10,000 per nma. Permits Located on Pitchfork RigData as of 31 December

4 Current Customers Current MSAs and Customers: Concho Resources Matador Resources Devon Energy Apache Corporation Chevron Corporation Mewbourne Oil Company Kaiser Francis Resources Centennial Resource Dev. EOG OWL 4

5 Signed Memorandum of Understanding In early January, 2018, Pitchfork Ranch signed MOU with major water recycling firm Both Parties to the MOU have copies of the final contract in hand Signing scheduled for week of February 2, 2018 The publicly traded midstream partner approaches water recycling from a scientific perspective Using patented technology, produced water is chemically altered to renew its life-cycle Company recently hired a top-level Baker Hughes chemist to join its staff and direct this project Recycling firm will construct three $10 million water recycling plants on the Pitchfork Ranch Company plans the construction of as many as 10 facilities Revenue schedule with the 3 facilities currently being staked, producing at capacity: $48 million estimated annual water recycling royalty revenue by 2020 $4 million estimated annual skim oil royalty revenue by 2020 $6 million estimated annual water disposal royalty revenue by

6 Water Business WATER SUPPLY FROM THE RANCH HAS THE POTENTIAL TO EXCEED OTHER BUSINESS LINES AS THE ACCESSIBLE RESOURCES BENEATH ITS SURFACE CONVERGE WITH AN INSATIABLE DEMAND For internal use only 6

7 Water Market With the abundance of frac quality water driven by recycling efforts, water sales have the ability to scale quickly. Marathon Oil has agreed to allow Pitchfork s water partner to take all of its produced water and flowback for recycling and disposal. Similar agreements are being negotiated with area Operators. Off-lease water used on the ranch is subject to a $0.25 pbbl through-put or trespass fee. This sale features 4 exploratory water permits, transferable at closing, and several other valid permits for all depths. These permits were acquired prior to new water well restrictions issued by the State Engineer s Office for thestateofnewmexico. 7

8 Ranch Activity The maps below underscore the activity on and around the Pitchfork Ranch Each operator represents a likely customer for water recycling and disposal Fig. 1-North of Ranch Fig. 2-South of Ranch 8

9 Waste Water Disposal POTENTIAL FOR NUMEROUS SALT WATER INJECTION WELLS CONNECTED TO 20 MILES OF HIGHWAY FRONTAGE. For internal use only 9

10 Current SWD on Ranch One (01) SWD is currently operating on the Pitchfork Ranch The changes by the State Engineer s Office regarding the depth of SWDs has raised the cost associated with drilling and completing the same. New SWDs are required to be completed in the Devonian, at a depth of between 17,000-18,000 ft. A geological anomaly may exist on Pitchfork that would allow for a number of SWD completions in the Delaware Sands. The pinchout is currently under scrutiny, but appears promising, offering the potential to avoid to costs of deep Devonian wells. 10

11 Pipeline & Easements THE SURFACE OWNER S PROTECTION ACT, OR SOPA, PROVIDES STATUTORY COMPENSATION FOR SURFACE OWNERS FOR UPSTREAM AND MIDSTREAM ACTIVITIES ON THE RANCH FEE AND STATE LEASEHOLD. For internal use only 11

12 Pipeline Over its economic life, a Permian Basin horizontal well uses about 15 million gallons of water. As of January 2018, Pitchfork Ranch exploration activity is underlined by the 182 drilling permits filed with the New Mexico Oil Conservation Division. The permits will target the hydrocarbon rich Bone Springs 1, 2 & 3 formations, as well as Wolfcamp A, B and XYZ. Pipeline easements account for 25%-30% of annual revenues to date. Pitchfork has negotiated contract fees as high as $350 per rod as compensation for pipeline construction with Mark West. West has plans to develop an eighty(80) acre gas treatment facility on the ranch, beginning in Revenues from West pipeline alone should exceed $1MM annually. 12

13 Pipeline Economics NATURAL GAS Along with Mark West s future plans, existing facilities on the ranch include operations by Sunoco, Lucid and Agave. These midstream activities require expansion that keeps pace with upstream exploration. WATER PIPELINE Temporarywater-linesarechargedafeeonaperbarrelbasisof$0.25pbbl. The ranch s recycling partner will install temporary and hardline to deliver recycled water to operators, capture flowback and produced water, and recycle or dispose of the same, in return for a 50% net royalty paid to the ranch owner.* 13

14 Surface Damage & Royalties BECAUSE SURFACE OWNERS ARE GENEROUSLY COMPENSATED FOR DAMAGE TO THEIR FEE AND STATE LEASEHOLD ACREAGE, IN NEW MEXICO, FEES GENERATED BY SURFACE USE AND COMPENSATION AGREEMENTS DRIVE A VARIETY OF REVENUE STREAMS. For internal use only 14

15 Surface-In 2006, New Mexico Enacted SOPA-The Surface Owner s Protection Act. SOPA requires damage payments for both fee lands and state held grazing lease rights from Operator to Owner. Hundreds of horizontal wells will be completed on the Pitchfork over the next three (3) years. Damage payments include remuneration for: well-pad construction, new and existing road maintenance, power-lines, frac ponds, and temporary water lines. Surface Use and Compensation Agreements have been executed with: EOG, Concho, GMT (now Centennial), Matador and Marathon. 15

16 Minerals and NPRIs Minerals rights in the Texas-side of the Permian Basin can sell for $60,000 per royalty acre. New Mexico s Permian minerals currently sell for around $15,000 per royalty acre. Leases executed at a 25% royalty can command a price between $30,000-$60,000 per net mineral acre. With a combination of 130 net mineral acres, more or less, and roughly the same number of Non-Participating Royalty Interests, the minerals under Pitchfork could exceed a value of $10,0000,

17 Cost-effective Drilling Means Big Returns At Pitchfork Ranch Assuming market conditions remain the same or improve over the next 2-3 years, hundreds of horizontal wells will be completed under the Pitchfork Ranch. The Pitchfork has an abundant quarry for caliche that E&Ps dealing with the Pitchfork are obligated to purchase from the ranch for the many roads, padsites, and underground pipelines that are necessary components for oil and gas exploration. The following tangibles support increased growth of midstream and upstream activity on Pitchfork Ranch: industry leading technology driven re-cycled water, onsite availability of building materials, operational SWD, increasing demand for pipeline, and Pitchfork s central location in the Delaware Basin. 17

18 Valuation Summary A VALUATION SUMMARY FOR ALL CURRENT/POTENTIAL REVENUE STREAMS FROM THE SUBJECT LANDS. For internal use only 18

19 Financial Expectations The Pitchfork Ranch has many unique qualities that make it a strong revenue source, including its size, minerals, and strategic location. Given these benefits, the following is a summary of our analysis: Recurring Revenue Low estimate High estimate Term easements (ROW) $750,000 $1,250,000 Current water sales $400,000 $500, to-20 acre parcel sales for commercial use $500,000 $1,000,000 Water recycling royalty payments, including skim recovery (pending completion of MOU) $50,000,000 $80,000,000 Water disposal royalty payments, SWD wells (Pending completion of MOU) $6,000,000 $10,000,000 Estimated recurring revenue (by 2020) $57,650,000 $92,750,000 Land fill, potential revenue $2,500,000 $5,000,000 Estimted potential recurring revenue (by 2020) $60,150,000 $97,750,000 Estimated one-time sales Per horizontal well 200 Horizontal wells 1000 Horizontal wells One-time Sales or per NMA, or per ton, 150 Net mineral acres 150 Net mineral acres or per pore space 30 pore spaces 40 pore spaces Low est. High est. Low estimate High estimate Low estimate High estimate Surface damage/horizontal well $50,000 $75,000 $10,000,000 $15,000,000 $50,000,000 $75,000,000 Net mineral acres $20,000 $30,000 $3,000,000 $4,500,000 $3,000,000 $4,500,000 Sand sale ($10-$15/ton)(5,000 lbs/lateral ft, 5,500 ft avg lateral) $137,500 $206,250 $27,500,000 $41,250,000 $137,500,000 $206,250,000 Caliche Quarrying/well (including roads) $25,000 $50,000 $750,000 $1,500,000 $25,000,000 $50,000,000 Estimated one-time revenue $41,250,000 $62,250,000 $215,500,000 $335,750,000 19

20 Acknowledgements Photographs courtesy of Robert D. Flaherty, Fine Art Photography. All rights reserved. 20