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Overview of Key Pressure Pumping Markets
Market Update




Christopher Robart (crobart@pacwestcp.com)
Principal
August 31, 2011

CONFIDENTIAL
FOR INTERNAL USE ONLY
TERMS & CONDITIONS
Information furnished in all reports produced by PacWest may be used by Client for internal purposes, as Client deems beneficial, as
long as due care is taken to hold the information confidential within Client’s organization and PacWest is not liable for the information       PacWest Consulting Partners
provided.                                                                                                                                   920 Memorial City Drive, Suite 160
                                                                                                                                                          Houston, TX 77024
All rights to the information remain with PacWest. PacWest represents that it will not breach any obligation of confidentiality with
respect to information contained in the study. PacWest will maintain in confidence and not disclose any information related to Client,
without prior written consent of the Client. PacWest will not disclose to any person, including, without limitation, any of the Client’s
competitors or suppliers, the fact that Client has engaged PacWest in this project scope, the scope of the assignment or any other
information relating to Client.
PRESSURE PUMPING MARKET UPDATE



     Agenda

       PacWest’s Market Intelligence Services

       Pressure Pumping Market Overview

       Frac Crew Deployment

       Bakken Case Study

       Questions




     Client Confidential                        © PacWest 2011 | All rights reserved | 2
PRESSURE PUMPING MARKET UPDATE



     PacWest Market Intelligence Services
       PacWest has provided its strategic intelligence capabilities to oil and gas clients for years and
       has recently begun to make them more widely available.

       Our suite of Market Intelligence services spans the following:




     Client Confidential                                                          © PacWest 2011 | All rights reserved | 3
PRESSURE PUMPING MARKET UPDATE



     Actionable Intelligence for Decision Makers

                                          Actionable Intelligence
       The PacWest team:
       ■ Transforms volumes of disparate market data, insider industry activity and expert input into
         strategic and actionable recommendations for decision-makers
       ■ Aggregates, organizes and distills a wide range of data and intelligence to provide information
         to our clients that is comprehensive, focused and strategic
       ■ Analyzes this information to assess its strategic implications and provide a clear path of action
         for each stakeholder

                                              Decision Makers




     Client Confidential                                                          © PacWest 2011 | All rights reserved | 4
PRESSURE PUMPING MARKET UPDATE



     Comprehensive Methodology
       PacWest uses a multi-pronged approach to develop its market intelligence offerings. The team:
       1) Gathers and reviews all information available publicly and via proprietary databases
       2) Engages its diverse network of industry contacts to gather real-time intelligence
       3) Processes and synthesizes raw information into actionable intelligence


                           Primary Research                          Secondary Research
      Many of the insights are based on:                   These sources are regularly consulted:
      ■ Surveys from operators and suppliers               ■ Market research and reports
      ■ In-depth interviews and conversations with         ■ Company annual reports, 10-Ks, 10-Qs
        operators and suppliers                            ■ Speeches and presentations by company
      ■ Industry-leading experts and technical               leadership and other industry experts
        specialists                                        ■ Analyst reports from leading banks
      ■ Budgetary estimates                                ■ Government data
      ■ PacWest proprietary databases




     Client Confidential                                                       © PacWest 2011 | All rights reserved | 5
PRESSURE PUMPING MARKET UPDATE



     Agenda

       PacWest’s Market Intelligence Services

       Pressure Pumping Market Overview

       Frac Crew Deployment

       Bakken Case Study

       Questions




     Client Confidential                        © PacWest 2011 | All rights reserved | 6
PRESSURE PUMPING MARKET UPDATE



                                          The US Land pressure pumping market is significantly under-supplied

                                          2011 Supply and Demand Balance – US Land Pressure Pumping

                                         200%
                                         180%              Backlog
 Pressure Pumping Capacity Utilization




                                                           New Completions
                                         160%
                                                                                                                    11,935,890 HP
                                         140%                                                                            9%
                                                                                                      735,890 HP
                                         120%
                                                                              8,534,250 HP
                                         100%
                                         80%
                                         60%                                                        11,200,000 HP       131%
                                                                                   100%
                                         40%
                                         20%
                                          0%
                                                                                  Supply                              Demand
                                              The under-supply is not expected to be relieved until late 2012 or
                                                                         early 2013
                                          Source: CIBC World Markets; Macquarie; PacWest analysis
                                          Client Confidential                                                        © PacWest 2011 | All rights reserved | 7
PRESSURE PUMPING MARKET UPDATE

                         The tight supply market is driving up prices for pressure pumping prices,
                         with cost escalation most severe in hot liquids plays

                         Forecast of Pressure Pumping Price Increases (2011 – 2014)

                         35%

                         30%               29.3%
                                                                                                                    US Land
                                                  26.1%
                                                                                                                    Bakken
                         25%
  Annual Cost Increase




                                                                                                                    Eagle Ford
                                    19.4%
                         20%                                                                                        Marcellus

                         15%                            12.5%
                                                                                 9.9%
                         10%                                                              8.9%                                                 8.2% 7.4%
                                                                          6.9%                                 7.4% 6.7%
                                                                                                        5.3%                            6.0%
                                                                                                 4.8%                      3.9%                              4.4%
                         5%

                         0%
                                               2011                                 2012                         2013                              2014




                         Source: PacWest Shale Market Research Service, 2011 Q2 Release
                         Client Confidential                                                                                  © PacWest 2011 | All rights reserved | 8
PRESSURE PUMPING MARKET UPDATE

     Manufacturers of pressure pumping equipment are operating at full
     capacity and are experiencing order backlogs up to 1-yr for critical parts

     Frac Pump Backlogs
                Weir SPM             Gardner Denver                             FMC
     Backlog currently extends    Backlog current extends      Backlog extends into 2012
      into 2012 Q1, with lead       into 2012 Q1 and backlogs     with nearly 40% of 2012
      times close to 1 year         are currently at record       capacity tentatively
     New Destiny pump line at      highs                         committed, though expect
      capacity for 2011 as of      Have seen 100%+ YoY           to see some of 2012
      late July                     increase in both pump and     demand released in H2
     Growth driven largely by      fluid end orders             Fluid Control backlog
      OE orders, which were        Current OE/AM mix stands      currently at a record
      180% ahead of plan; now       around 75/25; expect to       $421MM
      account for 55% of input      be 60/40 in 1-2 years        Currently looking at 9-12
      vs. 36% 1 year ago           Management is concerned       month lead time for
     Early 2012 customer           frac unit and component,      pumps and 2-4 weeks for
      discussions positive;         particularly engines,         flow iron
      potential for frac pump       constraints holding back
      business to be $500MM+        pressure pumping market
      in H2                         growth

     Source: PacWest analysis
     Client Confidential                                         © PacWest 2011 | All rights reserved | 9
PRESSURE PUMPING MARKET UPDATE

                       Manufacturers are responding with major capital investments to fuel
                       capacity expansions, and other actions to satisfy demand

                       Frac Pump Capacity Expansion Initiatives
                            Weir SPM                    Gardner Denver                    FMC                          New Entrants
                       In midst of $40MM              Halfway through           Unclear what portion             AXON: launching 2nd
                        upgrade to Ft. Worth            $20MM upgrade of           of a $200MM spend is              generation frac pump
Capital Investments




                        facility; increase pump         Fort Worth and Tulsa       going towards pump                and expanding
                        capacity 30-35% by              pump manufacturing         capacity expansion                capacity to support it
                        Apr 2012                        facilities; doubling      Portion of pump                  OFM: recently
                       Just announced                  capacity by Apr 2012       capacity expansions               expanded mfg. facility
                        incremental $75MM              Aggressively               coming online in H2,              40-60%
                        investment; increase            increasing aftermarket     with full completion             J-Mac: recently
                        pump capacity                   fluid end capacity;        targeted for year-end             launched frac pump
                        additional 20-25% by            already doubled YoY       Flowline capacity                 line
                        EOY 2012                        and plan on another        expansions coming
                                                        doubling in next year                                       Dixie/MSI: recently
                                                                                   online in H2                      launched frac pump
                       Implemented lean               Implemented lean          Expanding use of
                                                                                                                    Southwest/Global
                        mfg. and re-                    mfg. to increase           machine tools around
Other Initiatives




                                                                                                                     Energy: potentially
                        engineered processes            throughput                 the world to extend
                                                                                                                     launching frac pump
                       Extended H1 capacity                                       frac pump capacity
                        20-25% through
                        outsourcing
                        components, reliance
                        on 3rd party machining
                       Client Confidential        Source: PacWest analysis                                 © PacWest 2011 | All rights reserved | 10
PRESSURE PUMPING MARKET UPDATE

              On the demand side, US Land rig count has rebounded dramatically
              since 2009, driving demand of pressure pumping services

              US Land Rig Count (Aug 2009 – Aug 2011)

             2,500


             2,000


             1,500
 Land Rigs




             1,000


              500


                 0
                                                Nov-09




                                                                                                                                                            Nov-10
                              Sep-09




                                                                           Feb-10




                                                                                                      May-10




                                                                                                                                          Sep-10




                                                                                                                                                                                        Feb-11




                                                                                                                                                                                                                   May-11
                     Aug-09


                                       Oct-09


                                                         Dec-09
                                                                  Jan-10


                                                                                    Mar-10
                                                                                             Apr-10


                                                                                                               Jun-10
                                                                                                                        Jul-10
                                                                                                                                 Aug-10


                                                                                                                                                   Oct-10


                                                                                                                                                                     Dec-10
                                                                                                                                                                               Jan-11


                                                                                                                                                                                                 Mar-11
                                                                                                                                                                                                          Apr-11


                                                                                                                                                                                                                            Jun-11
                                                                                                                                                                                                                                     Jul-11
              Source: Baker Hughes
              Client Confidential                                                                                                                                             © PacWest 2011 | All rights reserved | 11
PRESSURE PUMPING MARKET UPDATE

                            The focus on oily plays is evident in the US Land rig count: oil drilling
                            activity finally overtook gas drilling activity in early 2011

                            US Land Rig Count – Oil vs. Gas (Aug 2009 – Aug 2011)

                           100%
                           90%                                                                                                                                                                                                           Oil
                           80%                                                                                                                                                                                                           Gas
 Percentage of Land Rigs




                           70%
                           60%
                           50%
                           40%
                           30%
                           20%
                           10%
                            0%
                                  Aug-09




                                                             Nov-09




                                                                                                                                              Aug-10




                                                                                                                                                                         Nov-10
                                                                               Jan-10




                                                                                                                                                                                            Jan-11
                                           Sep-09




                                                                                        Feb-10




                                                                                                                                                       Sep-10




                                                                                                                                                                                                     Feb-11
                                                    Oct-09


                                                                      Dec-09




                                                                                                 Mar-10
                                                                                                          Apr-10


                                                                                                                            Jun-10
                                                                                                                                     Jul-10




                                                                                                                                                                                  Dec-10




                                                                                                                                                                                                                                                  Jul-11
                                                                                                                   May-10




                                                                                                                                                                Oct-10




                                                                                                                                                                                                              Mar-11
                                                                                                                                                                                                                       Apr-11


                                                                                                                                                                                                                                         Jun-11
                                                                                                                                                                                                                                May-11
                            Source: Baker Hughes
                            Client Confidential                                                                                                                                            © PacWest 2011 | All rights reserved | 12
PRESSURE PUMPING MARKET UPDATE

             The dominance of unconventionals is also evident in the US Land rig
             count: increases in directional drilling has driven the rig count

             US Land Rig Count – Dir/Hor vs Vert (Aug 2009 – Aug 2011)

            2,500
                                      Directional/Horizontal
            2,000                     Vertical


            1,500
Land Rigs




            1,000


             500


                0
                    Aug-09




                                                Nov-09




                                                                                                                                 Aug-10




                                                                                                                                                            Nov-10
                                                                  Jan-10




                                                                                                                                                                               Jan-11
                             Sep-09




                                                                           Feb-10




                                                                                                                                          Sep-10




                                                                                                                                                                                        Feb-11
                                       Oct-09


                                                         Dec-09




                                                                                    Mar-10
                                                                                             Apr-10


                                                                                                               Jun-10
                                                                                                                        Jul-10




                                                                                                                                                                     Dec-10




                                                                                                                                                                                                          Apr-11




                                                                                                                                                                                                                                     Jul-11
                                                                                                      May-10




                                                                                                                                                   Oct-10




                                                                                                                                                                                                 Mar-11




                                                                                                                                                                                                                            Jun-11
                                                                                                                                                                                                                   May-11
             Source: Baker Hughes
             Client Confidential                                                                                                                                              © PacWest 2011 | All rights reserved | 13
PRESSURE PUMPING MARKET UPDATE



              Most analysts expect the rig count to increase through 2014

              US Land Average Rig Count Forecast (2011-2014)

             2,500
                         Current: 1,740 rigs (8/19/11)
                                                                                               2,089
                                                                 2,020
                                                         1,950
             2,000
                                    1,709

             1,500
 Land Rigs




             1,000


              500


                 0
                                     2011                2012    2013                          2014




              Source: PacWest Analysis; Macquarie
              Client Confidential                                        © PacWest 2011 | All rights reserved | 14
PRESSURE PUMPING MARKET UPDATE

             The Marcellus, Bakken, and Eagle Ford account for nearly 30% of US
             Land drilling activity

             Rig Count: Key Plays (Aug 2009 – Aug 2011)

            2,500
                             Other US Land (69% of US Land)
                             California shales (2% of US Land)
            2,000            Appalachian (8% of US Land)
                             Bakken (10% of US Land)
            1,500            Eagle Ford (12% of US Land)
Land Rigs




            1,000


             500


                0
                    Aug-09




                                               Nov-09




                                                                                                                                Aug-10




                                                                                                                                                           Nov-10
                                                                 Jan-10




                                                                                                                                                                              Jan-11
                             Sep-09




                                                                          Feb-10




                                                                                                                                         Sep-10




                                                                                                                                                                                       Feb-11
                                      Oct-09


                                                        Dec-09




                                                                                   Mar-10
                                                                                            Apr-10


                                                                                                              Jun-10
                                                                                                                       Jul-10




                                                                                                                                                                    Dec-10




                                                                                                                                                                                                         Apr-11




                                                                                                                                                                                                                                    Jul-11
                                                                                                     May-10




                                                                                                                                                  Oct-10




                                                                                                                                                                                                Mar-11




                                                                                                                                                                                                                           Jun-11
                                                                                                                                                                                                                  May-11
             Source: Baker Hughes
             Client Confidential                                                                                                                                             © PacWest 2011 | All rights reserved | 15
PRESSURE PUMPING MARKET UPDATE

              Eagle Ford and Bakken are in a major growth phase, California is still an
              emerging play, and the Marcellus is a relatively mature play

              Rig Count Growth Rate: Key Plays (Aug 2009 – Aug 2011)

             350%
                                      Eagle Ford (+309%)
             300%
                                      Bakken (+276%)
             250%                     Appalachian (+50%)
                                      California shales (+258%)
             200%
                                      US Land (+100%)
 Land Rigs




             150%

             100%

             50%

              0%
                                                                                                                       Jul-10




                                                                                                                                                                                                                                    Jul-11
                                               Nov-09




                                                                                                                                                           Nov-10
                             Sep-09




                                                                          Feb-10
                    Aug-09


                                      Oct-09


                                                        Dec-09
                                                                 Jan-10


                                                                                   Mar-10
                                                                                            Apr-10
                                                                                                     May-10




                                                                                                                                         Sep-10




                                                                                                                                                                                       Feb-11
                                                                                                              Jun-10


                                                                                                                                Aug-10


                                                                                                                                                  Oct-10


                                                                                                                                                                    Dec-10
                                                                                                                                                                              Jan-11


                                                                                                                                                                                                Mar-11
                                                                                                                                                                                                         Apr-11
                                                                                                                                                                                                                  May-11
                                                                                                                                                                                                                           Jun-11
             -50%


              Source: Baker Hughes
              Client Confidential                                                                                                                                            © PacWest 2011 | All rights reserved | 16
PRESSURE PUMPING MARKET UPDATE

       Liquids-rich Eagle Ford is projected to be one of the most active plays in
       the country

        Eagle Ford Rig Count & Forecast
                        Rig Count – Dir/Hor vs Vertical                                                                        Average Rig Count Forecast
  Land Rigs                                                                                                       Land Rigs
                                                                                                                  350
250                                                                                                                           Current: 229 rigs (8/19/11)                     300
               Directional/Horizontal                                                                             300                                       270
200            Vertical                                                                                                                    240
                                                                                                                  250
                                                                                                                               193
150                                                                                                               200
                                                                                                                  150
100
                                                                                                                  100
 50                                                                                                                50

  0                                                                                                                  0
                                                                                                                              2011        2012             2013              2014
                                 Feb-10




                                                                                       Feb-11
      Aug-09
               Oct-09
                        Dec-09


                                          Apr-10
                                                   Jun-10
                                                            Aug-10
                                                                     Oct-10
                                                                              Dec-10


                                                                                                Apr-11
                                                                                                         Jun-11




        Source: PacWest Analysis; Macquarie; Baker Hughes
        Client Confidential                                                                                                                © PacWest 2011 | All rights reserved | 17
PRESSURE PUMPING MARKET UPDATE

                Frac Tech, BJ, and SLB are the dominant pumpers in 2011 H1 in the
                Eagle Ford, while Chesapeake is the dominant operator
                                                                                                                 PRELIMINARY ANALYSIS
                Eagle Ford Pressure Pumping Market (Jan 2011 – Jun 2011)
                                Supplier Market Share                                                Operator Market Share
           20%                                                                        40%
                      18%
                              18%                                                              35%
           18%                        17%                                             35%
           16%
                                                                                      30%
           14%                                 13%
                                                       12% 12%
Market Share




                                                                           Market Share
           12%                                                                        25%

           10%                                                                        20%        17%
                                                                 8%                                 16%
               8%                                                                     15%
               6%
                                                                                      10%
               4%                                                                                      6% 5%
                                                                      1%                  5%                   3% 3% 3% 3%
               2%                                                                                                                2% 2% 2% 1%
                                                                                                                                                    1% 1%
               0%                                                                         0%




                                                                                                      Penn…
                                                                                                       Shell
                                                                                               Chesapeake




                                                                                                   Pioneer




                                                                                                       Hess
                                                                                                Petrohawk




                                                                                                     Cabot

                                                                                                  Enervest

                                                                                                     Forest

                                                                                                  Chevron
                                                                                                    El Paso




                                                                                                        XTO

                                                                                                  Talisman

                                                                                                     Plains
                                                                                                 Anadarko


                Source: PacWest Frac DB (under development)
                Client Confidential                                                                            © PacWest 2011 | All rights reserved | 18
PRESSURE PUMPING MARKET UPDATE

       Analysts expect higher gas prices through 2014, which will drive
       significant rig count growth in the Appalachian

        Appalachian Rig Count & Forecast
                        Rig Count – Dir/Hor vs Vertical                                                                         Average Rig Count Forecast
  Land Rigs                                                                                                        Land Rigs
180                                                                                                               300     Current: 147 rigs (8/19/11)
160              Directional/Horizontal                                                                                                                                 250
                                                                                                                  250
140              Vertical
                                                                                                                                                       200
120                                                                                                               200                   175
100                                                                                                                            145
                                                                                                                  150
 80
                                                                                                                  100
 60
 40                                                                                                                50
 20
                                                                                                                    0
  0                                                                                                                            2011     2012          2013             2014
               Oct-09




                                                                     Oct-10
                        Dec-09




                                                                              Dec-10
                                 Feb-10




                                                                                       Feb-11
                                          Apr-10
                                                   Jun-10




                                                                                                Apr-11
                                                                                                         Jun-11
      Aug-09




                                                            Aug-10




        Source: PacWest Analysis; Macquarie; Baker Hughes
        Client Confidential                                                                                                              © PacWest 2011 | All rights reserved | 19
PRESSURE PUMPING MARKET UPDATE

                Halliburton is the dominant pumper in 2011 H1 in the Marcellus, while
                Chesapeake is again the dominant operator
                                                                                                                     PRELIMINARY ANALYSIS
                Marcellus Pressure Pumping Market (Jan 2011 – Jun 2011)
                                Supplier Market Share                                                   Operator Market Share
           30%                                                                           30%
                     27%                                                                          27%

           25%                                                                           25%

           20%                                                                           20%
Market Share




                                                                              Market Share
                            16%
           15%                    14%                                                    15%
                                         11% 11%                                                    11%
                                                                                                      11%
           10%                                                                           10%             9%
                                                       8%
                                                                                                              7%7%
                                                              5% 4%                                                  5%4%
               5%                                                   3%                       5%                             4%3%3%
                                                                                                                                      3%3%2%
                                                                         1%                                                                        2%
                                                                                                                                                        1%0%
               0%                                                                            0%




                                                                                                           PDC…
                                                                                                       Energy…
                                                                                                    Southwes…
                                                                                                         Atlas
                                                                                                          Shell




                                                                                                       Seneca
                                                                                                  Chesapeake




                                                                                                           EQT

                                                                                                          Exco
                                                                                                        Cabot




                                                                                                        Range

                                                                                                     Chevron
                                                                                                     Talisman




                                                                                                     Williams


                                                                                                          EOG




                                                                                                           XTO
                                                                                                    Anadarko

                Source: PacWest Frac DB (under development)
                Client Confidential                                                                              © PacWest 2011 | All rights reserved | 20
PRESSURE PUMPING MARKET UPDATE

        California shales are still a question mark in the mind of most analysts
        and they have not yet factored in its impact on the market

        California Shale* Rig Count & Forecast
                       Rig Count – Dir/Hor vs Vertical                                                                          Average Rig Count Forecast
  Land Rigs                                                                                                        Land Rigs
 50                                                                                                           35
                                                                                                                       Current: 43 rigs (8/19/11)            30
 45             Directional/Horizontal
                                                                                                              30
 40             Vertical                                                                                                                            26
 35                                                                                                           25                       22
 30
                                                                                                              20          18
 25
 20                                                                                                           15
 15                                                                                                           10
 10
  5                                                                                                            5
  0                                                                                                            0
                       Dec-…




                                                                           Dec-…
      Aug-…




                                                          Aug-…
                               Feb-10




                                                                                   Feb-11
              Oct-09




                                        Apr-10
                                                 Jun-10


                                                                  Oct-10




                                                                                            Apr-11
                                                                                                     Jun-11



                                                                                                                         2011         2012          2013     2014




        Note: California Shale rig count is focused on counties in shale plays. It includes Colusa, Fresno, Kern, Kings, Los Angeles, and Sutter counties, although the
        majority of drilling activity is in Kern county.
        Source: PacWest Analysis; Macquarie; Baker Hughes
        Client Confidential                                                                                                     © PacWest 2011 | All rights reserved | 21
PRESSURE PUMPING MARKET UPDATE

        Bakken continues to experience growth challenges, which will be
        discussed later in this presentation

        Bakken Rig Count & Forecast
                        Rig Count – Dir/Hor vs Vertical                                                                         Average Rig Count Forecast
  Land Rigs                                                                                                        Land Rigs
200                                                                                                               250     Current: 184 rigs (8/19/11)
180                 Directional/Horizontal                                                                                                                                220
                                                                                                                                                         210
                                                                                                                                        200
160                 Vertical                                                                                      200          180
140
120                                                                                                               150
100
 80                                                                                                               100
 60
                                                                                                                   50
 40
 20
                                                                                                                    0
  0                                                                                                                            2011     2012            2013             2014
                                 Feb-10




                                                                                       Feb-11
      Aug-09
               Oct-09
                        Dec-09


                                          Apr-10
                                                   Jun-10
                                                            Aug-10
                                                                     Oct-10
                                                                              Dec-10


                                                                                                Apr-11
                                                                                                         Jun-11




        Source: PacWest Analysis; Macquarie; Baker Hughes
        Client Confidential                                                                                                               © PacWest 2011 | All rights reserved | 22
PRESSURE PUMPING MARKET UPDATE



     Agenda

       PacWest’s Market Intelligence Services

       Pressure Pumping Market Overview

       Frac Crew Deployment

       Bakken Case Study

       Questions




     Client Confidential                        © PacWest 2011 | All rights reserved | 23
PRESSURE PUMPING MARKET UPDATE

     Staffing experienced crews is a critical challenge faced by pressure
     pumping service providers

     The Quality vs. Quantity Dilemma
     ■ Completion increases = HHP increases = Frac crew increases = Need for trained staff!!
     ■ North American pressure pumping industry is expanding rapidly (~20% YoY increase
       2010-2011) and needs to add new hires to meet expansion targets
     ■ Major increases in completions require major increases in frac crews, for example:
         - Typical 25K HHP frac fleet in the Bakken requires 2-3 crews of 30 staff = 60 – 90
           experienced employees
         - PacWest forecasts an increase in frac fleets in the Bakken from 38 fleets (May 2011)
           to 52 fleets (year-end 2011) = 840-1,260 experienced employees


     ■ Fact: Critical driver of oilfield safety = experienced staff
     ■ Problem: There are no more experienced field workers left; pumpers are forced to
       manage deployment of large numbers of inexperienced employees




     Client Confidential                                                 © PacWest 2011 | All rights reserved | 24
PRESSURE PUMPING MARKET UPDATE

     Pressure pumpers are deploying equipment and staff from other
     regions when possible, but there are limitations to this approach

     Frac Fleet Redeployment

         Few Existing Deployment Options                 Majority of US Fleets dedicated
       Pumpers are deploying staff and
                                                       Pressure Pumper             % Dedicated
        equipment from nearby plays
                                                       BJ Services                    50%
       However, the prevalence of dedicated           Cudd                           60%
        contracts and ‘take-or-pay’                    Frac Tech                      70%
        relationships is constraining the              Schlumberger                 60%-70%
        number of available staff and                  Pumpco                         74%
        equipment for redeployment                     Superior                     80%-90%
                                                               Roughly 60-65% of fleets
                                                                     dedicated


     ■ For example: Calfrac has redeployed frac fleets from its Colorado base to the Bakken
       but it still does not have a sufficient facilities for major maintenance so it drives frac
       trucks back to Colorado every 1-2 months to service equipment


     Client Confidential                                                  © PacWest 2011 | All rights reserved | 25
PRESSURE PUMPING MARKET UPDATE

     Most pressure pumpers depend heavily on non-local employees to
     meet staffing needs

     Pressure Pumping “flex crews”
     ■ Flex crews = non-local employees working at a local base on a temporary basis
     ■ Flex crews typically spend 2-3 weeks working 17 hours or more per day and then have
       1-2 weeks off before returning to the local base
     ■ All service companies have reported using flex crews to some degree
         - Larger companies (e.g. Halliburton) often meet half of their staffing needs with flex
           crews in some areas
         - Smaller new entrants are sometimes forced to depend entirely on flex crews
     ■ Companies trying to hire locally, but there are few suitable potential hires in many
       hot areas (e.g. Eagle Ford, Bakken)
     ■ Pumpers have admitted that they will never be able to eliminate flex crews entirely in
       more remote areas




     Client Confidential                                                 © PacWest 2011 | All rights reserved | 26
PRESSURE PUMPING MARKET UPDATE

     There are significant differences in the commitment of pressure
     pumping companies to safety

     Employee Training & Management
     …
                           Training                              Staff Deployment
       All pressure pumpers have training              More important is how companies
        programs to orient ‘greenhats’ to the            balance the deployment of
        oilfield and provide them with the               inexperienced employees vs.
        basic knowledge and skills to safely             experienced employees in a crew
        and effectively operate frac                    Good = Majority experienced
        equipment                                        employees + minority inexperienced,
       Programs vary widely in structure,               which provides mentors upon which
        duration, and effectiveness                      greenhats can depend
       However, no training programs can               Bad = Minority experienced + majority
        substitute for solid field experience            inexperienced… a recipe for disaster

     ■ For example: A former Sanjel employee in the Bakken reports often being deployed in
       crews where the majority of staff had less than two months of oilfield experience
         - Outcome: Multiple cases of splitting iron and debilitating injuries
     Client Confidential                                                 © PacWest 2011 | All rights reserved | 27
PRESSURE PUMPING MARKET UPDATE



     Agenda

       PacWest’s Market Intelligence Services

       Pressure Pumping Market Overview

       Frac Crew Deployment

       Bakken Case Study

       Questions




     Client Confidential                        © PacWest 2011 | All rights reserved | 28
PRESSURE PUMPING MARKET UPDATE

     Overwhelming demand in the Bakken is expected to lead to a
     significant under-supply of pressure pumping capacity for 2011

     Sensitivity Analysis of 2011 Bakken Pressure Pumping Capacity Utilization
                                             250%                                                                                241%
                                                      2011 completions + backlog
     Pressure Pumping Capacity Utilization




                                                                                                                                  42%
                                                                                                      201%
                                             200%
                                                      2011 completions                                35%
                                                                               161%
                                             150%                              28%
                                                       121%
                                                        21%                                                                      199%
                                             100%
                                                                   100%                               166%
                                                              utilization of
                                                                               133%
                                                                   2011
                                             50%       100%     capacity


                                              0%
                                                        15                      20                      25                         30
                                                                                Average Stages per Well
                                              The Bakken will be 61% under-supplied in 2011, conservatively
                                                                 assuming 20 stages/well
     Sources: CIBC World Markets; Macquarie; PacWest analysis
     Client Confidential                                                                                     © PacWest 2011 | All rights reserved | 29
PRESSURE PUMPING MARKET UPDATE

                                          Demand will continue to outpace supply for pressure pumping capacity
                                          into 2012 in the Bakken

                                          Sensitivity Analysis of 2012 Bakken Pressure Pumping Capacity Utilization

                                         200%                                                                                             2012 completions + backlog
                                         180%                                                                                             2012 completions
 Pressure Pumping Capacity Utilization




                                                                159%
                                         160%                                                       152%                         146%
                                                                                                                                                                     140%
                                         140%                    45%
                                                                             100% utilization       43%
                                         120%                                                                                     42%                                 40%
                                                                                of 2012
                                                                                capacity
                                         100%
                                         80%
                                         60%                    114%                                                                                                 100%
                                                                                                    109%                         104%
                                         40%
                                         20%
                                          0%
                                                                 30%                                40%                       50%                                     60%
                                                                                                     Capacity Growth (2011 – 2012)


                                          Note: Sensitivity analysis assumes an average of 20 frac stages / well in 2012, a conservative estimate
                                          Source: CIBC World Markets; Macquarie; PacWest analysis
                                          Client Confidential                                                                                 © PacWest 2011 | All rights reserved | 30
PRESSURE PUMPING MARKET UPDATE

     Drilling & completion activity in the Bakken is up considerably and
     continued increases are forecast

     Bakken Rig Count (Aug 2009 – Aug 2011)

                 200                                                                                                                                                                                                                   184
                 180
                 160
                 140
                 120
     Rig Count




                 100
                 80                                                                                                                     Forecast Bakken D&C Activity
                 60        49                                                                                             Metric                  2011   2012     2013                                                        2014
                                                                                                                          Average rig count       180    200      210                                                          220
                 40                                                                                                       Drilling days / well     32     31       30                                                           30
                 20                                                                                                       New completions        2,053 2,355 2,555                                                            2,677
                  0
                                Sep-09


                                                  Nov-09




                                                                             Feb-10




                                                                                                                                             Sep-10


                                                                                                                                                               Nov-10




                                                                                                                                                                                          Feb-11
                                                                                      Mar-10
                                                                                               Apr-10


                                                                                                                 Jun-10
                                                                                                                           Jul-10




                                                                                                                                                                                                            Apr-11


                                                                                                                                                                                                                              Jun-11
                                                                                                                                                                                                                                       Jul-11
                       Aug-09


                                         Oct-09


                                                           Dec-09
                                                                    Jan-10




                                                                                                        May-10




                                                                                                                                                                                                   Mar-11
                                                                                                                                                                                 Jan-11




                                                                                                                                                                                                                     May-11
                                                                                                                                    Aug-10


                                                                                                                                                      Oct-10


                                                                                                                                                                        Dec-10
     Sources: Baker Hughes, Macquarie, CIBC World Markets, PacWest analysis
     Client Confidential                                                                                                                                                          © PacWest 2011 | All rights reserved | 31
PRESSURE PUMPING MARKET UPDATE

     Pressure pumping companies are significantly expanding their capacity
     in the Bakken in response to increased demand…

     Bakken Pressure Pumping Supply (May 2011)

        Halliburton                                7                                                  5                                2

               Sanjel                 3                        4                         2

     Schlumberger                             5                     1       1

          Frac Tech                   3                    3
                                                                                              Bakken Pressure Pumping Equipment
         BJ Services             2            1        2                                              Current dedicated     25
                                                                                                      Current spot          14
           Superior              2            1
                                                                                             Fleets   Total current         38
              Calfrac                                                                                 Future additions      14
                                 2            1
                                                                                                      Total year-end        52
            Pumpco           1        1       1                                                       Current               773
                                                                                             HHP
                                                                                                      Year-end             1,074
                Cudd             2

                         0                2            4                6                8                10                 12                 14
                          Current dedicated fleets*             Current spot fleets*             Future 2011 fleet additions
                                                  Note: “Spot” fleets are not necessarily available; only implies not in long-term dedicated
     Sources: company documents, interviews            contract; little to no scheduling availability remains for most spot fleets in the 2011
     Client Confidential                                                                                  © PacWest 2011 | All rights reserved | 32
PRESSURE PUMPING MARKET UPDATE

     … but supply chain constraints are holding back the deployment of new
     equipment and the ability to consistently supply pumping services

     Bakken Supply Chain Constraints
     Logistics
     ■ Railway (primarily BNSF) import capacity into the Bakken is limited for all products,
       particularly proppant due to the large volumes required (1 railcar has capacity of 200K
       lbs of proppant; average 3 million lbs frac job requires 15 railcars)
     Proppant
     ■ Global proppant consumption has reached unprecedented levels and most domestic
       producers are essentially sold out of product
     ■ Greatest constraint is in 20/40 raw sand
     Guar
     ■ Demand has reached record highs and the guar supply chain is not highly responsive
       due to its length (90% of raw guar seed grown in rural India)
     Equipment
     ■ Manufacturers of pumping equipment reporting order backlogs of up to 1 year
     Labor
     ■ Local labor force in the Bakken is limited and unemployment is extremely low
     Client Confidential                                              © PacWest 2011 | All rights reserved | 33
PRESSURE PUMPING MARKET UPDATE

     Bakken pressure pumping supply has been unable to keep pace with
     demand so well completion backlogs are growing

     Days Required for D&C in North Dakota
                                  180                                                                                                               172
     Spud and Completion
      Days between Well




                                  120                                                                         103                          107         118
                                          90      85 76         87        96
                                                                                    81
                                                                                              82
                                                                                                         81         99 95 98 103                 93
                                               67                    72                  67         80
                                   60                                          57
                                                           50

                                   0



     Bakken Well Count (May 2011)
                                    500
                Number of Wells




                                    400
                                    300
                                    200
                                    100
                                      0
                                                  Uncompleted                            Drilling                                Permitted
             Bakken                                  429                                  162                                        413
             Montana                                  57                                      6                                      67
             North Dakota                            372                                  156                                        346

     Sources: Montana Board of Oil & Gas; North Dakota Industrial Commission; PacWest analysis
     Client Confidential                                                                                             © PacWest 2011 | All rights reserved | 34
PRESSURE PUMPING MARKET UPDATE

     Operator D&C performance varies, in some cases depending on
     contracting practices

     Bakken Ratio of Uncompleted Wells to Active Rigs (May 2011)
                                                                                                                                              Well
                                                                                                                                             Backlog      Rigs
          Anschutz/OXY                                  1.0                                                                                     7           7
 Continental Resources                                                  1.8                                                                    45          25
     Whiting Oil & Gas                                                     1.9                                                                 29          15
                  Zenergy                                                     2.0                                                              12           6
     Brigham Oil & Gas                                                               2.4                                                       17           7
         ConocoPhillips                                                                  2.6                                                   13           5
                       Hess                                                                2.7                                                 48          18
                  Slawson                                                                      2.8                                             17           6
                 Newfield                                                                            3.0                                       15           5
        EOG Resources                                                                                      3.4                                 34          10
               Marathon                                                                                       3.6                              25           7
       Oasis Petroleum                                                                                                           4.5           27           6

                               0                    1                     2                      3                  4                    5
     Note: Well backlog is best estimate based on data from Montana and North Dakota oil/gas regulators; rig count is from April 2011
     Sources: Montana Board of Oil & Gas; North Dakota Industrial Commission; PacWest analysis
     Client Confidential                                                                                                © PacWest 2011 | All rights reserved | 35
PRESSURE PUMPING MARKET UPDATE

     The Bakken supply/demand imbalance is not expected to improve
     drastically anytime soon so operators must contract accordingly

     Implications for Contracting Strategy in the Bakken
     ■ It is important to be proactive to develop long-term solutions rather than short-term
       fixes, while considering other infrastructure challenges
     ■ Operators should include terms in contract to incentivize for safety improvements,
       performance improvement
     ■ Avoid safety incidents by forcing service companies to provide their best crews, when
       possible
     ■ Consider using greenhat clauses or crew continuity incentives, similar to drilling
       contracts




     Client Confidential                                                © PacWest 2011 | All rights reserved | 36
PRESSURE PUMPING MARKET UPDATE



     Agenda

       PacWest’s Market Intelligence Services

       Pressure Pumping Market Overview

       Frac Crew Deployment

       Bakken Case Study

       Questions




     Client Confidential                        © PacWest 2011 | All rights reserved | 37

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PacWest Global Pressure Pumping Market Overview, Sep 2011

  • 1. Overview of Key Pressure Pumping Markets Market Update Christopher Robart (crobart@pacwestcp.com) Principal August 31, 2011 CONFIDENTIAL FOR INTERNAL USE ONLY TERMS & CONDITIONS Information furnished in all reports produced by PacWest may be used by Client for internal purposes, as Client deems beneficial, as long as due care is taken to hold the information confidential within Client’s organization and PacWest is not liable for the information PacWest Consulting Partners provided. 920 Memorial City Drive, Suite 160 Houston, TX 77024 All rights to the information remain with PacWest. PacWest represents that it will not breach any obligation of confidentiality with respect to information contained in the study. PacWest will maintain in confidence and not disclose any information related to Client, without prior written consent of the Client. PacWest will not disclose to any person, including, without limitation, any of the Client’s competitors or suppliers, the fact that Client has engaged PacWest in this project scope, the scope of the assignment or any other information relating to Client.
  • 2. PRESSURE PUMPING MARKET UPDATE Agenda PacWest’s Market Intelligence Services Pressure Pumping Market Overview Frac Crew Deployment Bakken Case Study Questions Client Confidential © PacWest 2011 | All rights reserved | 2
  • 3. PRESSURE PUMPING MARKET UPDATE PacWest Market Intelligence Services PacWest has provided its strategic intelligence capabilities to oil and gas clients for years and has recently begun to make them more widely available. Our suite of Market Intelligence services spans the following: Client Confidential © PacWest 2011 | All rights reserved | 3
  • 4. PRESSURE PUMPING MARKET UPDATE Actionable Intelligence for Decision Makers Actionable Intelligence The PacWest team: ■ Transforms volumes of disparate market data, insider industry activity and expert input into strategic and actionable recommendations for decision-makers ■ Aggregates, organizes and distills a wide range of data and intelligence to provide information to our clients that is comprehensive, focused and strategic ■ Analyzes this information to assess its strategic implications and provide a clear path of action for each stakeholder Decision Makers Client Confidential © PacWest 2011 | All rights reserved | 4
  • 5. PRESSURE PUMPING MARKET UPDATE Comprehensive Methodology PacWest uses a multi-pronged approach to develop its market intelligence offerings. The team: 1) Gathers and reviews all information available publicly and via proprietary databases 2) Engages its diverse network of industry contacts to gather real-time intelligence 3) Processes and synthesizes raw information into actionable intelligence Primary Research Secondary Research Many of the insights are based on: These sources are regularly consulted: ■ Surveys from operators and suppliers ■ Market research and reports ■ In-depth interviews and conversations with ■ Company annual reports, 10-Ks, 10-Qs operators and suppliers ■ Speeches and presentations by company ■ Industry-leading experts and technical leadership and other industry experts specialists ■ Analyst reports from leading banks ■ Budgetary estimates ■ Government data ■ PacWest proprietary databases Client Confidential © PacWest 2011 | All rights reserved | 5
  • 6. PRESSURE PUMPING MARKET UPDATE Agenda PacWest’s Market Intelligence Services Pressure Pumping Market Overview Frac Crew Deployment Bakken Case Study Questions Client Confidential © PacWest 2011 | All rights reserved | 6
  • 7. PRESSURE PUMPING MARKET UPDATE The US Land pressure pumping market is significantly under-supplied 2011 Supply and Demand Balance – US Land Pressure Pumping 200% 180% Backlog Pressure Pumping Capacity Utilization New Completions 160% 11,935,890 HP 140% 9% 735,890 HP 120% 8,534,250 HP 100% 80% 60% 11,200,000 HP 131% 100% 40% 20% 0% Supply Demand The under-supply is not expected to be relieved until late 2012 or early 2013 Source: CIBC World Markets; Macquarie; PacWest analysis Client Confidential © PacWest 2011 | All rights reserved | 7
  • 8. PRESSURE PUMPING MARKET UPDATE The tight supply market is driving up prices for pressure pumping prices, with cost escalation most severe in hot liquids plays Forecast of Pressure Pumping Price Increases (2011 – 2014) 35% 30% 29.3% US Land 26.1% Bakken 25% Annual Cost Increase Eagle Ford 19.4% 20% Marcellus 15% 12.5% 9.9% 10% 8.9% 8.2% 7.4% 6.9% 7.4% 6.7% 5.3% 6.0% 4.8% 3.9% 4.4% 5% 0% 2011 2012 2013 2014 Source: PacWest Shale Market Research Service, 2011 Q2 Release Client Confidential © PacWest 2011 | All rights reserved | 8
  • 9. PRESSURE PUMPING MARKET UPDATE Manufacturers of pressure pumping equipment are operating at full capacity and are experiencing order backlogs up to 1-yr for critical parts Frac Pump Backlogs Weir SPM Gardner Denver FMC  Backlog currently extends  Backlog current extends  Backlog extends into 2012 into 2012 Q1, with lead into 2012 Q1 and backlogs with nearly 40% of 2012 times close to 1 year are currently at record capacity tentatively  New Destiny pump line at highs committed, though expect capacity for 2011 as of  Have seen 100%+ YoY to see some of 2012 late July increase in both pump and demand released in H2  Growth driven largely by fluid end orders  Fluid Control backlog OE orders, which were  Current OE/AM mix stands currently at a record 180% ahead of plan; now around 75/25; expect to $421MM account for 55% of input be 60/40 in 1-2 years  Currently looking at 9-12 vs. 36% 1 year ago  Management is concerned month lead time for  Early 2012 customer frac unit and component, pumps and 2-4 weeks for discussions positive; particularly engines, flow iron potential for frac pump constraints holding back business to be $500MM+ pressure pumping market in H2 growth Source: PacWest analysis Client Confidential © PacWest 2011 | All rights reserved | 9
  • 10. PRESSURE PUMPING MARKET UPDATE Manufacturers are responding with major capital investments to fuel capacity expansions, and other actions to satisfy demand Frac Pump Capacity Expansion Initiatives Weir SPM Gardner Denver FMC New Entrants  In midst of $40MM  Halfway through  Unclear what portion  AXON: launching 2nd upgrade to Ft. Worth $20MM upgrade of of a $200MM spend is generation frac pump Capital Investments facility; increase pump Fort Worth and Tulsa going towards pump and expanding capacity 30-35% by pump manufacturing capacity expansion capacity to support it Apr 2012 facilities; doubling  Portion of pump  OFM: recently  Just announced capacity by Apr 2012 capacity expansions expanded mfg. facility incremental $75MM  Aggressively coming online in H2, 40-60% investment; increase increasing aftermarket with full completion  J-Mac: recently pump capacity fluid end capacity; targeted for year-end launched frac pump additional 20-25% by already doubled YoY  Flowline capacity line EOY 2012 and plan on another expansions coming doubling in next year  Dixie/MSI: recently online in H2 launched frac pump  Implemented lean  Implemented lean  Expanding use of  Southwest/Global mfg. and re- mfg. to increase machine tools around Other Initiatives Energy: potentially engineered processes throughput the world to extend launching frac pump  Extended H1 capacity frac pump capacity 20-25% through outsourcing components, reliance on 3rd party machining Client Confidential Source: PacWest analysis © PacWest 2011 | All rights reserved | 10
  • 11. PRESSURE PUMPING MARKET UPDATE On the demand side, US Land rig count has rebounded dramatically since 2009, driving demand of pressure pumping services US Land Rig Count (Aug 2009 – Aug 2011) 2,500 2,000 1,500 Land Rigs 1,000 500 0 Nov-09 Nov-10 Sep-09 Feb-10 May-10 Sep-10 Feb-11 May-11 Aug-09 Oct-09 Dec-09 Jan-10 Mar-10 Apr-10 Jun-10 Jul-10 Aug-10 Oct-10 Dec-10 Jan-11 Mar-11 Apr-11 Jun-11 Jul-11 Source: Baker Hughes Client Confidential © PacWest 2011 | All rights reserved | 11
  • 12. PRESSURE PUMPING MARKET UPDATE The focus on oily plays is evident in the US Land rig count: oil drilling activity finally overtook gas drilling activity in early 2011 US Land Rig Count – Oil vs. Gas (Aug 2009 – Aug 2011) 100% 90% Oil 80% Gas Percentage of Land Rigs 70% 60% 50% 40% 30% 20% 10% 0% Aug-09 Nov-09 Aug-10 Nov-10 Jan-10 Jan-11 Sep-09 Feb-10 Sep-10 Feb-11 Oct-09 Dec-09 Mar-10 Apr-10 Jun-10 Jul-10 Dec-10 Jul-11 May-10 Oct-10 Mar-11 Apr-11 Jun-11 May-11 Source: Baker Hughes Client Confidential © PacWest 2011 | All rights reserved | 12
  • 13. PRESSURE PUMPING MARKET UPDATE The dominance of unconventionals is also evident in the US Land rig count: increases in directional drilling has driven the rig count US Land Rig Count – Dir/Hor vs Vert (Aug 2009 – Aug 2011) 2,500 Directional/Horizontal 2,000 Vertical 1,500 Land Rigs 1,000 500 0 Aug-09 Nov-09 Aug-10 Nov-10 Jan-10 Jan-11 Sep-09 Feb-10 Sep-10 Feb-11 Oct-09 Dec-09 Mar-10 Apr-10 Jun-10 Jul-10 Dec-10 Apr-11 Jul-11 May-10 Oct-10 Mar-11 Jun-11 May-11 Source: Baker Hughes Client Confidential © PacWest 2011 | All rights reserved | 13
  • 14. PRESSURE PUMPING MARKET UPDATE Most analysts expect the rig count to increase through 2014 US Land Average Rig Count Forecast (2011-2014) 2,500 Current: 1,740 rigs (8/19/11) 2,089 2,020 1,950 2,000 1,709 1,500 Land Rigs 1,000 500 0 2011 2012 2013 2014 Source: PacWest Analysis; Macquarie Client Confidential © PacWest 2011 | All rights reserved | 14
  • 15. PRESSURE PUMPING MARKET UPDATE The Marcellus, Bakken, and Eagle Ford account for nearly 30% of US Land drilling activity Rig Count: Key Plays (Aug 2009 – Aug 2011) 2,500 Other US Land (69% of US Land) California shales (2% of US Land) 2,000 Appalachian (8% of US Land) Bakken (10% of US Land) 1,500 Eagle Ford (12% of US Land) Land Rigs 1,000 500 0 Aug-09 Nov-09 Aug-10 Nov-10 Jan-10 Jan-11 Sep-09 Feb-10 Sep-10 Feb-11 Oct-09 Dec-09 Mar-10 Apr-10 Jun-10 Jul-10 Dec-10 Apr-11 Jul-11 May-10 Oct-10 Mar-11 Jun-11 May-11 Source: Baker Hughes Client Confidential © PacWest 2011 | All rights reserved | 15
  • 16. PRESSURE PUMPING MARKET UPDATE Eagle Ford and Bakken are in a major growth phase, California is still an emerging play, and the Marcellus is a relatively mature play Rig Count Growth Rate: Key Plays (Aug 2009 – Aug 2011) 350% Eagle Ford (+309%) 300% Bakken (+276%) 250% Appalachian (+50%) California shales (+258%) 200% US Land (+100%) Land Rigs 150% 100% 50% 0% Jul-10 Jul-11 Nov-09 Nov-10 Sep-09 Feb-10 Aug-09 Oct-09 Dec-09 Jan-10 Mar-10 Apr-10 May-10 Sep-10 Feb-11 Jun-10 Aug-10 Oct-10 Dec-10 Jan-11 Mar-11 Apr-11 May-11 Jun-11 -50% Source: Baker Hughes Client Confidential © PacWest 2011 | All rights reserved | 16
  • 17. PRESSURE PUMPING MARKET UPDATE Liquids-rich Eagle Ford is projected to be one of the most active plays in the country Eagle Ford Rig Count & Forecast Rig Count – Dir/Hor vs Vertical Average Rig Count Forecast Land Rigs Land Rigs 350 250 Current: 229 rigs (8/19/11) 300 Directional/Horizontal 300 270 200 Vertical 240 250 193 150 200 150 100 100 50 50 0 0 2011 2012 2013 2014 Feb-10 Feb-11 Aug-09 Oct-09 Dec-09 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Apr-11 Jun-11 Source: PacWest Analysis; Macquarie; Baker Hughes Client Confidential © PacWest 2011 | All rights reserved | 17
  • 18. PRESSURE PUMPING MARKET UPDATE Frac Tech, BJ, and SLB are the dominant pumpers in 2011 H1 in the Eagle Ford, while Chesapeake is the dominant operator PRELIMINARY ANALYSIS Eagle Ford Pressure Pumping Market (Jan 2011 – Jun 2011) Supplier Market Share Operator Market Share 20% 40% 18% 18% 35% 18% 17% 35% 16% 30% 14% 13% 12% 12% Market Share Market Share 12% 25% 10% 20% 17% 8% 16% 8% 15% 6% 10% 4% 6% 5% 1% 5% 3% 3% 3% 3% 2% 2% 2% 2% 1% 1% 1% 0% 0% Penn… Shell Chesapeake Pioneer Hess Petrohawk Cabot Enervest Forest Chevron El Paso XTO Talisman Plains Anadarko Source: PacWest Frac DB (under development) Client Confidential © PacWest 2011 | All rights reserved | 18
  • 19. PRESSURE PUMPING MARKET UPDATE Analysts expect higher gas prices through 2014, which will drive significant rig count growth in the Appalachian Appalachian Rig Count & Forecast Rig Count – Dir/Hor vs Vertical Average Rig Count Forecast Land Rigs Land Rigs 180 300 Current: 147 rigs (8/19/11) 160 Directional/Horizontal 250 250 140 Vertical 200 120 200 175 100 145 150 80 100 60 40 50 20 0 0 2011 2012 2013 2014 Oct-09 Oct-10 Dec-09 Dec-10 Feb-10 Feb-11 Apr-10 Jun-10 Apr-11 Jun-11 Aug-09 Aug-10 Source: PacWest Analysis; Macquarie; Baker Hughes Client Confidential © PacWest 2011 | All rights reserved | 19
  • 20. PRESSURE PUMPING MARKET UPDATE Halliburton is the dominant pumper in 2011 H1 in the Marcellus, while Chesapeake is again the dominant operator PRELIMINARY ANALYSIS Marcellus Pressure Pumping Market (Jan 2011 – Jun 2011) Supplier Market Share Operator Market Share 30% 30% 27% 27% 25% 25% 20% 20% Market Share Market Share 16% 15% 14% 15% 11% 11% 11% 11% 10% 10% 9% 8% 7%7% 5% 4% 5%4% 5% 3% 5% 4%3%3% 3%3%2% 1% 2% 1%0% 0% 0% PDC… Energy… Southwes… Atlas Shell Seneca Chesapeake EQT Exco Cabot Range Chevron Talisman Williams EOG XTO Anadarko Source: PacWest Frac DB (under development) Client Confidential © PacWest 2011 | All rights reserved | 20
  • 21. PRESSURE PUMPING MARKET UPDATE California shales are still a question mark in the mind of most analysts and they have not yet factored in its impact on the market California Shale* Rig Count & Forecast Rig Count – Dir/Hor vs Vertical Average Rig Count Forecast Land Rigs Land Rigs 50 35 Current: 43 rigs (8/19/11) 30 45 Directional/Horizontal 30 40 Vertical 26 35 25 22 30 20 18 25 20 15 15 10 10 5 5 0 0 Dec-… Dec-… Aug-… Aug-… Feb-10 Feb-11 Oct-09 Apr-10 Jun-10 Oct-10 Apr-11 Jun-11 2011 2012 2013 2014 Note: California Shale rig count is focused on counties in shale plays. It includes Colusa, Fresno, Kern, Kings, Los Angeles, and Sutter counties, although the majority of drilling activity is in Kern county. Source: PacWest Analysis; Macquarie; Baker Hughes Client Confidential © PacWest 2011 | All rights reserved | 21
  • 22. PRESSURE PUMPING MARKET UPDATE Bakken continues to experience growth challenges, which will be discussed later in this presentation Bakken Rig Count & Forecast Rig Count – Dir/Hor vs Vertical Average Rig Count Forecast Land Rigs Land Rigs 200 250 Current: 184 rigs (8/19/11) 180 Directional/Horizontal 220 210 200 160 Vertical 200 180 140 120 150 100 80 100 60 50 40 20 0 0 2011 2012 2013 2014 Feb-10 Feb-11 Aug-09 Oct-09 Dec-09 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Apr-11 Jun-11 Source: PacWest Analysis; Macquarie; Baker Hughes Client Confidential © PacWest 2011 | All rights reserved | 22
  • 23. PRESSURE PUMPING MARKET UPDATE Agenda PacWest’s Market Intelligence Services Pressure Pumping Market Overview Frac Crew Deployment Bakken Case Study Questions Client Confidential © PacWest 2011 | All rights reserved | 23
  • 24. PRESSURE PUMPING MARKET UPDATE Staffing experienced crews is a critical challenge faced by pressure pumping service providers The Quality vs. Quantity Dilemma ■ Completion increases = HHP increases = Frac crew increases = Need for trained staff!! ■ North American pressure pumping industry is expanding rapidly (~20% YoY increase 2010-2011) and needs to add new hires to meet expansion targets ■ Major increases in completions require major increases in frac crews, for example: - Typical 25K HHP frac fleet in the Bakken requires 2-3 crews of 30 staff = 60 – 90 experienced employees - PacWest forecasts an increase in frac fleets in the Bakken from 38 fleets (May 2011) to 52 fleets (year-end 2011) = 840-1,260 experienced employees ■ Fact: Critical driver of oilfield safety = experienced staff ■ Problem: There are no more experienced field workers left; pumpers are forced to manage deployment of large numbers of inexperienced employees Client Confidential © PacWest 2011 | All rights reserved | 24
  • 25. PRESSURE PUMPING MARKET UPDATE Pressure pumpers are deploying equipment and staff from other regions when possible, but there are limitations to this approach Frac Fleet Redeployment Few Existing Deployment Options Majority of US Fleets dedicated  Pumpers are deploying staff and Pressure Pumper % Dedicated equipment from nearby plays BJ Services 50%  However, the prevalence of dedicated Cudd 60% contracts and ‘take-or-pay’ Frac Tech 70% relationships is constraining the Schlumberger 60%-70% number of available staff and Pumpco 74% equipment for redeployment Superior 80%-90% Roughly 60-65% of fleets dedicated ■ For example: Calfrac has redeployed frac fleets from its Colorado base to the Bakken but it still does not have a sufficient facilities for major maintenance so it drives frac trucks back to Colorado every 1-2 months to service equipment Client Confidential © PacWest 2011 | All rights reserved | 25
  • 26. PRESSURE PUMPING MARKET UPDATE Most pressure pumpers depend heavily on non-local employees to meet staffing needs Pressure Pumping “flex crews” ■ Flex crews = non-local employees working at a local base on a temporary basis ■ Flex crews typically spend 2-3 weeks working 17 hours or more per day and then have 1-2 weeks off before returning to the local base ■ All service companies have reported using flex crews to some degree - Larger companies (e.g. Halliburton) often meet half of their staffing needs with flex crews in some areas - Smaller new entrants are sometimes forced to depend entirely on flex crews ■ Companies trying to hire locally, but there are few suitable potential hires in many hot areas (e.g. Eagle Ford, Bakken) ■ Pumpers have admitted that they will never be able to eliminate flex crews entirely in more remote areas Client Confidential © PacWest 2011 | All rights reserved | 26
  • 27. PRESSURE PUMPING MARKET UPDATE There are significant differences in the commitment of pressure pumping companies to safety Employee Training & Management … Training Staff Deployment  All pressure pumpers have training  More important is how companies programs to orient ‘greenhats’ to the balance the deployment of oilfield and provide them with the inexperienced employees vs. basic knowledge and skills to safely experienced employees in a crew and effectively operate frac  Good = Majority experienced equipment employees + minority inexperienced,  Programs vary widely in structure, which provides mentors upon which duration, and effectiveness greenhats can depend  However, no training programs can  Bad = Minority experienced + majority substitute for solid field experience inexperienced… a recipe for disaster ■ For example: A former Sanjel employee in the Bakken reports often being deployed in crews where the majority of staff had less than two months of oilfield experience - Outcome: Multiple cases of splitting iron and debilitating injuries Client Confidential © PacWest 2011 | All rights reserved | 27
  • 28. PRESSURE PUMPING MARKET UPDATE Agenda PacWest’s Market Intelligence Services Pressure Pumping Market Overview Frac Crew Deployment Bakken Case Study Questions Client Confidential © PacWest 2011 | All rights reserved | 28
  • 29. PRESSURE PUMPING MARKET UPDATE Overwhelming demand in the Bakken is expected to lead to a significant under-supply of pressure pumping capacity for 2011 Sensitivity Analysis of 2011 Bakken Pressure Pumping Capacity Utilization 250% 241% 2011 completions + backlog Pressure Pumping Capacity Utilization 42% 201% 200% 2011 completions 35% 161% 150% 28% 121% 21% 199% 100% 100% 166% utilization of 133% 2011 50% 100% capacity 0% 15 20 25 30 Average Stages per Well The Bakken will be 61% under-supplied in 2011, conservatively assuming 20 stages/well Sources: CIBC World Markets; Macquarie; PacWest analysis Client Confidential © PacWest 2011 | All rights reserved | 29
  • 30. PRESSURE PUMPING MARKET UPDATE Demand will continue to outpace supply for pressure pumping capacity into 2012 in the Bakken Sensitivity Analysis of 2012 Bakken Pressure Pumping Capacity Utilization 200% 2012 completions + backlog 180% 2012 completions Pressure Pumping Capacity Utilization 159% 160% 152% 146% 140% 140% 45% 100% utilization 43% 120% 42% 40% of 2012 capacity 100% 80% 60% 114% 100% 109% 104% 40% 20% 0% 30% 40% 50% 60% Capacity Growth (2011 – 2012) Note: Sensitivity analysis assumes an average of 20 frac stages / well in 2012, a conservative estimate Source: CIBC World Markets; Macquarie; PacWest analysis Client Confidential © PacWest 2011 | All rights reserved | 30
  • 31. PRESSURE PUMPING MARKET UPDATE Drilling & completion activity in the Bakken is up considerably and continued increases are forecast Bakken Rig Count (Aug 2009 – Aug 2011) 200 184 180 160 140 120 Rig Count 100 80 Forecast Bakken D&C Activity 60 49 Metric 2011 2012 2013 2014 Average rig count 180 200 210 220 40 Drilling days / well 32 31 30 30 20 New completions 2,053 2,355 2,555 2,677 0 Sep-09 Nov-09 Feb-10 Sep-10 Nov-10 Feb-11 Mar-10 Apr-10 Jun-10 Jul-10 Apr-11 Jun-11 Jul-11 Aug-09 Oct-09 Dec-09 Jan-10 May-10 Mar-11 Jan-11 May-11 Aug-10 Oct-10 Dec-10 Sources: Baker Hughes, Macquarie, CIBC World Markets, PacWest analysis Client Confidential © PacWest 2011 | All rights reserved | 31
  • 32. PRESSURE PUMPING MARKET UPDATE Pressure pumping companies are significantly expanding their capacity in the Bakken in response to increased demand… Bakken Pressure Pumping Supply (May 2011) Halliburton 7 5 2 Sanjel 3 4 2 Schlumberger 5 1 1 Frac Tech 3 3 Bakken Pressure Pumping Equipment BJ Services 2 1 2 Current dedicated 25 Current spot 14 Superior 2 1 Fleets Total current 38 Calfrac Future additions 14 2 1 Total year-end 52 Pumpco 1 1 1 Current 773 HHP Year-end 1,074 Cudd 2 0 2 4 6 8 10 12 14 Current dedicated fleets* Current spot fleets* Future 2011 fleet additions Note: “Spot” fleets are not necessarily available; only implies not in long-term dedicated Sources: company documents, interviews contract; little to no scheduling availability remains for most spot fleets in the 2011 Client Confidential © PacWest 2011 | All rights reserved | 32
  • 33. PRESSURE PUMPING MARKET UPDATE … but supply chain constraints are holding back the deployment of new equipment and the ability to consistently supply pumping services Bakken Supply Chain Constraints Logistics ■ Railway (primarily BNSF) import capacity into the Bakken is limited for all products, particularly proppant due to the large volumes required (1 railcar has capacity of 200K lbs of proppant; average 3 million lbs frac job requires 15 railcars) Proppant ■ Global proppant consumption has reached unprecedented levels and most domestic producers are essentially sold out of product ■ Greatest constraint is in 20/40 raw sand Guar ■ Demand has reached record highs and the guar supply chain is not highly responsive due to its length (90% of raw guar seed grown in rural India) Equipment ■ Manufacturers of pumping equipment reporting order backlogs of up to 1 year Labor ■ Local labor force in the Bakken is limited and unemployment is extremely low Client Confidential © PacWest 2011 | All rights reserved | 33
  • 34. PRESSURE PUMPING MARKET UPDATE Bakken pressure pumping supply has been unable to keep pace with demand so well completion backlogs are growing Days Required for D&C in North Dakota 180 172 Spud and Completion Days between Well 120 103 107 118 90 85 76 87 96 81 82 81 99 95 98 103 93 67 72 67 80 60 57 50 0 Bakken Well Count (May 2011) 500 Number of Wells 400 300 200 100 0 Uncompleted Drilling Permitted Bakken 429 162 413 Montana 57 6 67 North Dakota 372 156 346 Sources: Montana Board of Oil & Gas; North Dakota Industrial Commission; PacWest analysis Client Confidential © PacWest 2011 | All rights reserved | 34
  • 35. PRESSURE PUMPING MARKET UPDATE Operator D&C performance varies, in some cases depending on contracting practices Bakken Ratio of Uncompleted Wells to Active Rigs (May 2011) Well Backlog Rigs Anschutz/OXY 1.0 7 7 Continental Resources 1.8 45 25 Whiting Oil & Gas 1.9 29 15 Zenergy 2.0 12 6 Brigham Oil & Gas 2.4 17 7 ConocoPhillips 2.6 13 5 Hess 2.7 48 18 Slawson 2.8 17 6 Newfield 3.0 15 5 EOG Resources 3.4 34 10 Marathon 3.6 25 7 Oasis Petroleum 4.5 27 6 0 1 2 3 4 5 Note: Well backlog is best estimate based on data from Montana and North Dakota oil/gas regulators; rig count is from April 2011 Sources: Montana Board of Oil & Gas; North Dakota Industrial Commission; PacWest analysis Client Confidential © PacWest 2011 | All rights reserved | 35
  • 36. PRESSURE PUMPING MARKET UPDATE The Bakken supply/demand imbalance is not expected to improve drastically anytime soon so operators must contract accordingly Implications for Contracting Strategy in the Bakken ■ It is important to be proactive to develop long-term solutions rather than short-term fixes, while considering other infrastructure challenges ■ Operators should include terms in contract to incentivize for safety improvements, performance improvement ■ Avoid safety incidents by forcing service companies to provide their best crews, when possible ■ Consider using greenhat clauses or crew continuity incentives, similar to drilling contracts Client Confidential © PacWest 2011 | All rights reserved | 36
  • 37. PRESSURE PUMPING MARKET UPDATE Agenda PacWest’s Market Intelligence Services Pressure Pumping Market Overview Frac Crew Deployment Bakken Case Study Questions Client Confidential © PacWest 2011 | All rights reserved | 37