Crude Quality Impacts on Midstream in the DJ and Permian Basins May 23 rd, 2018 1
ARB MIDSTREAM OVERVIEW
About ARB Midstream Privately-held, growth-oriented company, providing complete midstream and marketing solutions for crude oil, LPGs and refined products Premier Asset Portfolio Gathering and Transportation assets in multiple resource basins across the U.S. Marketing and Logistics services for crude, LPG and refined products across North America Storage & Terminals including multi-commodity rail transloading terminals in Weld Co. Positioned for Growth Actively building portfolio and investing in America s most profitable plays Evaluating strategic acquisitions Developing producer relationships for innovative greenfield projects Industry Leading Analytics Every step in ARB's strategy is rooted in proprietary analytics that are used to understand and predict market opportunities, to reduce risk, and improve capital efficiency within individual projects 3
Key Priorities Creating Value in Midstream Markets ARB Midstream s industry experience and proprietary analytics create a risk-reduced portfolio of strategic opportunities. Analyze Identify Execute Operate Utilize in-house analytics to screen and target projects and basins that have unique opportunities to create value Identify infrastructure bottlenecks Seek under-served, longterm oil plays Experienced management team executes on opportunities quickly and efficiently Early-mover in target markets Deployment of capital through private financial backing Develop and operate assets with long-term, sustainable returns Experienced and trusted operations team manage assets safely and efficiently Create long-term relationships with producer partners and stakeholders 4
ARB Asset Base and Strategic Footprint ARB Positioning Diversified operations across multiple resource basins in the continental U.S. Strategic presence in basins with high growth outlooks Areas of involvement include crude oil and liquids marketing, rail transport, storage and pipeline gathering Currently evaluating over $500MM in acquisitions and green-field development projects Office Crude Marketing Rail Facility Storage Pipeline 5
Core Business Segments Diversified and integrated asset portfolio Description ARB Assets/Capabilities Gathering & Transportation Crude oil gathering systems 157,000 bbl/d crude gathering system in the Niobrara and Wattenberg plays in Weld County, Colorado 14,000 bbl/d truck offload capacity at Lucerne Hub with access to NGL s Grand Mesa Pipeline 170,000 bbl of storage at Lucerne Hub Marketing & Logistics Marketing and logistics for crude oil, LPGs and refined products Operations include more than 30,000 barrels per day of lease purchasing and physical crude trading across the North American inland corridor markets, including the Rockies, Cushing/Midcon, and Gulf Coast Crude capacity on multiple pipelines and >400,000 barrels of storage Storage & Terminaling Energy logistics terminals and storage facilities for crude oil, LPGs, and oilfield commodities 6,500 bbl/d of rail-to-truck crude transload capacity in the Niobrara Incremental 145,000 bbl/d crude rail terminal capacity planned in the Midland basin and Niobrara 6
Gathering + Transportation DJ Basin Positioning and Outlook Larimer County Weld County Area Positioning ARB s DJ Basin assets are focused in the core Wattenberg of Weld County Top tier producer relationships for crude oil gathering and transportation Supported by long term MVC s and acreage dedications Total dedications exceeding 200,000 gross acres > 157,000 bpd of total system throughput capacity > 170,000 bbls of total storage capacity Geographic Footprint Windsor Greeley Lucerne Area Strategy Focused on opportunities to add additional producer commitments and expand asset footprint Upside opportunities to add water and gas services in new areas of the basin Regional asset-level M&A opportunities Near-Term Outlook Increasing drilling activity on ARB dedicated acreage as commodity prices stabilize Customers currently operating five rigs on our system Development of growth projects to provide increased footprint in order to capture additional acreage Significant volume increases expected over next 12-24 months 7
Observations DJ Basin Production As operators move to pad drilling, production areas are becoming more focused Horizontal IP30 rates have shown some improvements, but individual producers are seeing big improvements DJ Basin crude production quality is getting heavier as drilling activity moves outside of the core Wattenburg Takeaway infrastructure has sufficient capacity for the coming years; economics will be driven by committed space rather than total capacity Permian Production Since 2016, Permian drilling activity has become centered within Midland and Delaware basins Horizontal IP30 rates have increased across the basin, and continue to be some of the highest in the U.S. 57% of production growth in the Permian comes from the lighter quality Delaware basin Permian takeaway capacity will be constrained through 2020, causing continued pressure on price spreads 8
DJ Basin 9
Operators are focusing on pad development, creating condensed pockets of development Jan 2016 2018 Production Larimer Weld 1,000 bpd 500 bpd 250 bpd 100 bpd Boulder Adams Denver Arapahoe 10
IP30 (bpd) IP30 (bpd) Horizontal well IP30 rates show growth over the last 2 yrs, select producers showing drastic improvements 440 DJ Basin Average Hz IP Rates 800 Select Producer IP Rates 420 700 +21% 400 600 +55% +71% 380 500 +70% 400 +10% 360 300 340 200 320 DJ Avg 2016 2017 2018 2016 2017 2018 11
Producers are targeting zones outside the lighter Wattenburg core, yielding slightly heavier crude quality API Gravity 12
New focus in production has lowered the weighted average crude quality in the DJ Basin Production by Gravity (bpd) <30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 60+ 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 PXP (90) Saddlehorn (190) Grand Mesa (150) White Cliffs (215) Year Wavg Production 2016 46.03 2018 44.62 - API Gravity 2016 2018 13
Production & Takeawway Capacity (Mbpd) Takeaway infrastructure in the DJ Basin 800 750 700 650 600 550 500 450 400 350 300 250 200 150 100 50 - Rail Pipeline Refinery 14
Permian Basin 15
Permian drilling activity becoming much more centered within Midland and Delaware Basins Production Jan 2016 Production Jan 2018 +10,000 bpd 5,000 bpd 1,000 bpd 500 bpd 16
Midland basin horizontal IP30 rates are some of the highest among U.S. basins IP30 for Hz Wells IP30 for Hz Wells 800 Delaware Basin 800 Midland Basin 700 700 600 600 500 400 500 400 300 300 200 100-200 100-2016 2018 2016 2018 17
Permian production quality has a wide spectrum, with the Delaware providing most of the lighter material API Gravity 18
57% of production growth in the Permian comes from the lighter quality Delaware basin Production by Gravity (Mbpd) <30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 Production by Gravity (Mbpd) <30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 Delaware Basin Midland Basin 400 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 - - Delaware 2016 Delaware 2018 Midland 2016 Midland 2018 19
Incremental growth in production from 2016 to 2018 largely from 40-50 API gravity crudes Change in Prod by Gravity (bpd) <30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 60+ 170,000 150,000 130,000 110,000 90,000 70,000 50,000 30,000 10,000 Gravity Growth % Total Growth 31-35 31,103 4% 36-40 252,440 28% 41-45 390,832 44% 46-50 155,502 18% 51-55 33,345 4% 56-60 4,616 1% 60+ 20,721 2% (10,000) API Gravity Delaware Midland Other 20
Production & Takeaway Capacity (Mbpd) Pricing Differentials ($/bbl) Permian takeaway capacity will be constrained through 2020, causing continued pressure on price spreads 7,500 $5 7,000 6,500 Mid-WTS Rail $- 6,000 5,500 5,000 Mid-WTI $(5) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 - Pipeline Refinery $(10) $(15) $(20) $(25) $(30) 21
Conclusions DJ Basin Production As operators move to pad drilling, production areas are becoming more focused Horizontal IP30 rates have shown some improvements, but individual producers are seeing big improvements DJ Basin crude production quality is getting heavier as drilling activity moves outside of the core Wattenburg Takeaway infrastructure has sufficient capacity for the coming years; economics will be driven by committed space rather than total capacity Permian Production Since 2016, Permian drilling activity has become centered within Midland and Delaware basins Horizontal IP30 rates have increased across the basin, and continue to be some of the highest in the U.S. 57% of production growth in the Permian comes from the lighter quality Delaware basin Permian takeaway capacity will be constrained through 2020, causing continued pressure on price spreads 22
Eric Peterson Director Market Research & Analytics eric.peterson@arbmidstream.com (720) 600-7511 Saif Imtiaz Market Analyst saif.imtiaz@arbmidstream.com (720) 439-8548 ARB Midstream 1600 Broadway, Suite 2400 Denver, CO 80202 (720) 600-7500 - ARB Market Research - May 23, 2018