Water Management for the 21 st Century August 19, 2015 SPE Dallas Chapter
Pioneer At A Glance Total Enterprise Value ($B) ~$25 2014 Drilling Capex ($B) $3.1 Q1 2014 Production (MBOEPD) 186 2013 Reserves + Resource (BBOE) >11.0 310 Top U.S. Fields By Rig Count (Pioneer Operated Count in Green 38 rigs) 220 218 192 Resource-focused strategy, with activity concentrated in 2 of the most active U.S. fields 30 8 84 78 62 59 49 46 41 23 Operating in core Spraberry/Wolfcamp asset since early 1980s PXD holds ~825,000 acres in Spraberry/Wolfcamp Largest producer in Spraberry/Wolfcamp Preeminent, low-cost operator benefitting from vertical integration strategy Best performing energy stock in S&P 500 since 2009 2nd most active driller in Texas 4th most active driller in the U.S. Baker Hughes Rig Count (10/31/14) and PXD Internal Spraberry/Wolfcamp Gross Production By Operator 3 (MBOEPD) 3) August 2014 DrillingInfo data, gross reported oil and wet gas
Developing the Permian Basin The largest oil field in the U.S. 20,000 drilling location inventory $200B to fully develop this field over the next 50+ years Infrastructure needs: pipeline capacity, gas processing, water, electric power and roads 300,000 barrels of water used in a typical horizontal hydraulic fracture job Moving away from using fresh water is the right thing to do 3
Outline Formation of Pioneer Water Management, LLC (PWM) Supply Diversification Infrastructure Build Out Disposal & Recycling Conclusions 4
Great Water Balance 5
Establishing a Sustainable Water Business Supply sufficient water for drilling & completions Reduce transfer costs and trucks on road Source lower cost non-fresh water supplies Develop recycling projects in support of Water Balance Study and plan for potential disposal limitations 6
WHY was PWM Created? Sustainable Water Solutions Significant ramp-up of D&C requirements (1,000,000 BPD) Reduce reliance on fresh water sources Mitigate need for disposal of produced water (Recycling) Develop in house water expertise to support growth in West Texas Cradle to Grave water planning and handling One Stop Shop supporting Drilling, Completions & Operations Long term planning to increase water handling efficiency Fewer trucks Smaller footprint Lower cost 7
WHAT? In House Expertise 1. Establish and maintain a profitable water business 2. Supply sufficient water for hydraulic fracturing 3. Source lower cost non-fresh water supplies 4. Study and plan for potential disposal limitations 5. Develop recycling projects in support of Water Balance 6. Develop 3 rd party business to enhance PWM s profitability 7. Reduce transfer costs and trucks on road 8
HOW? One Stop Shop Supply Diversification of supply to meet growing demand Local and external sources Decreased reliance on fresh water Distribution/Storage Permanent infrastructure planning Truck traffic (238,000 BWPD equates to ~2,000 fewer truck loads/day) Smaller footprint & lower cost 400,000 bbl. impoundments for storage of water Storage used to meet Peaks and Valleys of demand Recycling/Disposal Utilize produced water to meet drilling and completion demand Minimize need to dispose of produced water Monitoring of disposal wells 9
Supply Diversification 10
West Texas Growth Increases Water Demand 1,000,000 Demand = 2 City of Irving Geographic Extent = Delaware 300 900,000 270 800,000 240 BWPD 700,000 600,000 500,000 400,000 210 100+ 180 150 120 Horizontal Rigs 300,000 90 200,000 60 100,000 30 0 0 0 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 11
Supply (Diversify Water Sourcing) Minimize Discounted BBL Cost and Meet Asset Demands Small Volume Minimal Infrastructure Short Lead Time Sustainable? PXD Water Wells Medium Volume Minimal Infrastructure Short Lead Time PXD Santa Rosa Well Medium Volume Reliant on Infrastructure Medium Lead Time Reduces Disposal Gradient/Fountain Quail Local Fresh Water Wells Local Santa Rosa Brackish Wells Local Recycling Large Volume Long Term Deal Reliant on Infrastructure Non-Political Odessa Effluent Large Volume Long Term Deal Reliant on Infrastructure 3 rd Party Source Large Effluent Supply Source Large Brackish Supply Source 12
Infrastructure Build Out 13
Philosophy Change Required to Support Increased Rig Count Smaller Foot Print, More Efficient, Lower Cost, Less Trucks Rural City Fresh Wells Pond Pump Temp Lines Frac. Fleet Pond Fresh Wells Temp Lines Suburb Effluent Source Main Pond Frac. Fleet Pump Pond Pond Pump Frac. Fleet Pond Pond 14
Infrastructure Planning Source Pipeline Mainline Subsystem Infrastructure Elements: Mainline Ponds Subsystems Source pipelines Optimize Based On: Rig count Pump Station Locations of sources % Recycling Ponds Minimized headcount (automation) 15
Storage Frac. Ponds 400,000 BBL ponds Standard design increase life and make ponds safer Covers minimize evaporation 16
Disposal and Recycling 17
Water Disposal Plans Monitoring disposal program Evaluating recycling technologies and increasing recycling volumes Monitoring regulatory environment & legislation on recycling, fresh water, and brackish water Balancing disposal and recycling 18
Current Recycle Operational Overview Allows produced water to be used for D&C operations Multiple Options Clean Brine De-Sal Minimizes need to dispose of produced water Operationally challenging Currently working on 2 recycling projects With all in operation ~20,000 BBL/Day Recycled 19
Recycling Cost Discussion Source and dispose approaching parity with minimal treatment Recycling reduces disposal needs, lowering drilling costs Desal costs significantly more than minimal treatment Water quality required drives recycling costs 20
Recycling Challenges Produced Water (Operations) Recycle Plant Useable Product (D&C/Res.) Unusable Product (Operations) Operations Logistical coordination Linking of disposal network Flow-back volume peaks Continuous flow into recycle plant Backup SWD for recycling Infrastructure Blending PWM Changing technology Manpower Balancing with other take-orpay requirements Environmental (storage/transport) D&C & Reservoir Water quality/gelling Sufficient supply to meet schedule Formation compatibility Multi-department incremental costs/savings PXD Aggressively Pursuing Integrated Solutions to Recycling Challenges 21
Conclusions 22
PWM the One Stop Shop for Water Achieving strong success in sourcing Odessa, Santa Rosa, (Midland) Infrastructure build-out underway Significant progress on design and construction Sized to accommodate 3 rd party sales and transport Permanent infrastructure provide significant cost savings for all parties Continue to balance disposal and recycling Recycling implementation is complex Balance volume, logistics, and added infrastructure Storage and transport of minimally treated produced water adds environmental challenges 23