IMAGE2022 talk

1. Aging US Shale Wells:
Aging US Shale Wells:
Aging US Shale Wells:
Aging US Shale Wells:
Years of Remaining Opportunities or
Years of Remaining Opportunities or
Years of Remaining Opportunities or
Years of Remaining Opportunities or
Growing Asset Retirement
Growing Asset Retirement
Growing Asset Retirement
Growing Asset Retirement
Obligations?
Obligations?
Obligations?
Obligations?
AAPG Women’s Network Luncheon
AAPG Women’s Network Luncheon
AAPG Women’s Network Luncheon
AAPG Women’s Network Luncheon
IMAGE 2022
IMAGE 2022
IMAGE 2022
IMAGE 2022
Laura Freeman

2. Speaker
Speaker
Speaker
Speaker
2
Laura Freeman
Laura Freeman
Laura Freeman
Laura Freeman is the founder and CEO of Highpoint Global
Capital. She has been an integral part of over $5 billion in
acquisitions and divestitures including the high-profile acquisition
of all of Hunt Oil Company’s Permian Basin Assets in 2021. Laura
specializes in technical valuation, financing, and navigating the
complexities of dealmaking. She has worked various high tech and
ESG projects for clients including $100 million in funding for wind
royalties, bitcoin applications for waste gas, ESG planning, and
technology use and integration.
Laura has a Master’s in Petroleum Engineering, an MBA from UCLA
Anderson, and a bachelor’s degree in Physics. She has been
featured as an expert on M&A, finance, and Reservoir Engineering
for various magazines, industry events, and online publications
including Oil and Gas Financial Journal, Society of Petroleum
Engineers (SPE), OilPrice.com, PHDWin week, American
Association of Petroleum Geologists (AAPG), and Journal of
Petroleum Technology (JPT).

3. 3
Highpoint Activity
Highpoint Activity
Highpoint Activity
Highpoint Activity
Founded Highpoint Global Capital over 5 years ago
Highpoint is a technically focused advisory firm
Faced and challenged many of the largest banks, Private Equity firms, and largest Oil
and Gas companies and have won deals
Transacted even during down-turns and Covid years
Highlights:
• Transacted several deals over $20MM
• $100MM in funding for a client doing ESG work
• Hunt Permian deal for Vencer/Vitol
Exciting current projects:
• Portfolio management and divestiture timing work
• Navajo Nation Oil and Gas

4. 4
M&A Perspective
M&A Perspective
M&A Perspective
M&A Perspective
Warning
Warning
Warning
Warning –
–
–
– not a geology talk!
not a geology talk!
not a geology talk!
not a geology talk!
So why are you here?
There is a lot of frustration by technical experts at investment decisions
There is a lot of frustration by technical experts at investment decisions
There is a lot of frustration by technical experts at investment decisions
There is a lot of frustration by technical experts at investment decisions
• The M&A viewpoint is often not the same as the technical expert viewpoint
• The banker or PE view is often (almost always?) not the technical view
• Poor decision making without sufficient subsurface and technical understanding led to the
destruction of billion of dollars
In my opinion the industry has lost it’s way by deviating from sound technical understanding and
decision making through the “shale boom”
There are a lot of muddy waters around investment decisions – acquisitions and drilling
There is high value add for careers, companies, and the industry as a whole
There is high value add for careers, companies, and the industry as a whole
There is high value add for careers, companies, and the industry as a whole
There is high value add for careers, companies, and the industry as a whole
when geologists and geoscientists learn more about cross
when geologists and geoscientists learn more about cross
when geologists and geoscientists learn more about cross
when geologists and geoscientists learn more about cross-
-
-
-disciplinary
disciplinary
disciplinary
disciplinary
implications and financial decision making
implications and financial decision making
implications and financial decision making
implications and financial decision making

5. 5
Low
Low
Low
Low-
-
-
-Rate Wells Background
Rate Wells Background
Rate Wells Background
Rate Wells Background
Buy-side clients looking to acquire conventional assets with “no stripper wells” - oil wells under 15
bopd and gas wells under 90 Mcfpd over 12 months
Journal of Petroleum Technology (JPT) editorials Feb 2021 and Feb 2022
Folks knew there were a lot of stripper wells but many were shocked at how many
Premise seems simple but there are deep implications especially within the M&A context
With an estimated 760,000 stripper wells in the US there is a large P&A or Abandonment,
Decommissioning and Restoration (ADR) or Asset Retirement Obligation (ARO) liability that will have to
be dealt with at some point
There have been some very
muddy waters on
unconventional well
performance over the several
years – and there has been
massive capital destruction
https://nswa.us/stripper-wells/

6. 6
High Drama
High Drama
High Drama
High Drama
“I think it misleads the investment community into believing that oil and gas experts are idiots
oil and gas experts are idiots
oil and gas experts are idiots
oil and gas experts are idiots”
“Your own statements adequately demonstrate your lack of knowledge concerning decline curve
your lack of knowledge concerning decline curve
your lack of knowledge concerning decline curve
your lack of knowledge concerning decline curve
analysis, reservoir engineering, and current shale well economics
analysis, reservoir engineering, and current shale well economics
analysis, reservoir engineering, and current shale well economics
analysis, reservoir engineering, and current shale well economics.”
“I have studied these type of examples and can tell you why this analysis is misleading and has no
this analysis is misleading and has no
this analysis is misleading and has no
this analysis is misleading and has no
baring
baring
baring
baring on practical resource development. Please reach out if you would like more information and
how to clean up this analysis”
“Regarding your focus on and romance with ESG investing, you clearly do not understand where the
you clearly do not understand where the
you clearly do not understand where the
you clearly do not understand where the
world’s energy comes from
world’s energy comes from
world’s energy comes from
world’s energy comes from”
Freeman JPT Feb 2022, Enverus source data, LinkedIn comments
Shown on
linear scale to
highlight the
rate changes

7. 7
Forecasts
Forecasts
Forecasts
Forecasts
Higher IPs have not generally translated to an upward phase shift in matrix flow or longer
fracture flow
Freeman JPT Feb 2022, Enverus source data
10
100
1,000
0 12 24 36 48 60 72 84 96
Oil
Production
Bopd
Months on production
Comparative Type Curves by Vintage
Normalized Type Curves by Year Midland County Wells
2021
2020
2019
2018
2017
2016
2015
-
100
200
300
400
500
600
700
800
900
1,000
0 1 2 3 4 5 6 7 8 9 10
Oil
Production
Bopd
Years on production
Schematic of Upward Shifted Curve
Conceptual
schematic only
Linear Log

8. 8
Basins Considered
Basins Considered
Basins Considered
Basins Considered
Bakken
Marcellus
Haynesville
Eagle Ford
Delaware
Midland

9. 9
High Level Look
High Level Look
High Level Look
High Level Look
Macro-level look for high-level takeaways from an M&A point of view, Eagle Ford example:
EIA.gov, EOG investor presentation, Enverus data for heat map

10. 10
Major US Oil Plays
Major US Oil Plays
Major US Oil Plays
Major US Oil Plays
Freeman JPT Feb 2022, Enverus source data
Why 50 bopd?
Why 50 bopd?
Why 50 bopd?
Why 50 bopd?
Somewhat arbitrary
Not as low as stripper well classification
Not meant to be an economic limit
Rates at which many wells are:
• Converging to long-life matrix flow or
supposed “terminal decline”
• Rates much, much lower than IP and
early life
Given the above – rates at which economic
considerations are much different than new
drills
Not at the P&A or ADR obligation point
which is closer to 5-10 bopd at current strip
~30% of the wells in the study are at or
under the stripper well classification of 15
bopd
At $100,000 P&A cost that is ~$2B in liability
At $30,000 P&A cost ~600MM

11. 65% 63%
0%
20%
40%
60%
80%
100%
Marcellus Haynesville
Percent of Wells in Major US Unconventional Gas Plays Producing 1 MMcfepd or Less
(18,323 Total Wells)
Percent
of
Wells
in
the
Play
Producing
1
MMcfepd
or
Less
Mcfe
0%
5%
10%
15%
20%
25%
30%
Up to 250
Mcfepd
250-500 500-1,000 1 -1.5
MMcfepd
1.5-2 2-2.5 2.5+
Marcellus Production Distribution
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Up to 250
Mcfepd
250-500 500-1,000 1 -1.5
MMcfepd
1.5-2 2-2.5 2.5+
Haynesville Production Distribution
11
Major US Gas Plays
Major US Gas Plays
Major US Gas Plays
Major US Gas Plays
Enverus August 2022
The Marcellus and Haynesville have a similar amount of wells under 1Mmcfepd but very
different distributions

12. 12
Permian Unconventional
Permian Unconventional
Permian Unconventional
Permian Unconventional
Freeman JPT Feb 2022, Enverus source data
Midland Basin Delaware Basin

13. 13
Mature Unconventional
Mature Unconventional
Mature Unconventional
Mature Unconventional
Freeman JPT Feb 2022, Enverus source data
Eagle Ford Bakken

14. 14
Why Does it Matter?
Why Does it Matter?
Why Does it Matter?
Why Does it Matter?
• US Unconventional Plays are aging fast
• Many HZ wells are moving into matrix type flow after only 3-5 years, with much lower rates
• Generally payouts must happen fast or won’t happen at all
• After the first 3-5 years there are often issues with economic viability of HZ wells especially in M&A
− Fixed OpEx “keep the lights on” (much higher than conventional VT)
− Repeat failures and workover costs when a well goes down
− Higher rates of terminal decline
− Burden of G&A, COPAS, and capital structures (ex aggregator PE firms with high fees)
− Limited options on increasing production (ex re-fracs and EOR)
Much lower flow rates to support
OpEx, well work and capital structure
Freeman JPT Feb 2022, Enverus source data

15. 15
Sample Well
Sample Well
Sample Well
Sample Well –
–
–
– Single Phase Oil
Single Phase Oil
Single Phase Oil
Single Phase Oil
Unconventional well in later-
life terminal decline
30 Bopd GROSS as-of 8/1/2022
~8% exp annual decline
100% WI, 75% NRI
$80/bbl with
Additional -$3.50 deduct
$8,000/well/month OpEx
4.6% Oil Sev Tax, 2.5% AdVal
No income taxes
No P&A
No workovers
No company overhead
Positive cash flow for ~20
years
PHDwin v2 model
$3.85 MM non disc CF
$2.36 MM PV10

16. 16
Oil Well Economics
Oil Well Economics
Oil Well Economics
Oil Well Economics -
-
-
- Pricing
Pricing
Pricing
Pricing
Scenario (ALL have additional
Scenario (ALL have additional
Scenario (ALL have additional
Scenario (ALL have additional -
-
-
-$2.50 diff)
$2.50 diff)
$2.50 diff)
$2.50 diff) Well PV10 ($M)
Well PV10 ($M)
Well PV10 ($M)
Well PV10 ($M) Well Life (Years)
Well Life (Years)
Well Life (Years)
Well Life (Years)
Starting Assumptions $80/bbl $2.36 21.8
8/15/2022 Strip $2.19 20.3*
$75 Flat $2.15 21.0
$65 Flat $1.74 19.2
$55 Flat $1.33 17.13
8/15/2022 WTI Strip*
8/15/2022 WTI Strip*
8/15/2022 WTI Strip*
8/15/2022 WTI Strip*
Start Month Price
Aug 2022 $90.53
Jan 2023 $84.76
Jan 2024 $78.80
Jan 2025 $74.38
*Jan 2026 and on $70.89
• At high oil prices many profitability issues do not “show up”
• Lot of “gotchas” when oil price falls again
• Does NOT consider hedging
• No overhead, return hurdles, cost of capital, capital structure consideration, or fees
No overhead, return hurdles, cost of capital, capital structure consideration, or fees
No overhead, return hurdles, cost of capital, capital structure consideration, or fees
No overhead, return hurdles, cost of capital, capital structure consideration, or fees
$30
$40
$50
$60
$70
$80
$90
5-year Average WTI Forward Strip Pricing
5-year strip ave
LTM ave
Ave -$5
Ave +$5
Forward strip annual 5-year average of CME Financial Futures - CS running monthly average of daily spot, 2 from D Purvis are Spot CL,
LTM is Ave of 5-year averages

17. 17
Workovers
Workovers
Workovers
Workovers
For later-life HZ wells the ECL is often when the well goes down and won’t pay out a
workover or will take a long time to pay out a workover (increased risk)
Year
Year
Year
Year
Average
Average
Average
Average
Monthly Cash
Monthly Cash
Monthly Cash
Monthly Cash
Flow $M
Flow $M
Flow $M
Flow $M
Months to pay
Months to pay
Months to pay
Months to pay
out $100M
out $100M
out $100M
out $100M
workover
workover
workover
workover
2022 31 3.2
2023 29 3.5
2024 26 3.9
2025 23 4.3
2026 21 4.8
2027 18 5.4
2028 16 6.1
2029 14 7.0
2030 13 8.0
2031 11 9.2
2032 9 10.6
2033 8 12.5
2034 7 14.9
2035 6 18.1
2036 4 22.3
2037 3 29.0
2038 3 39.5
2039 2 59.2
2040 1 106.6
2041 0.3 288.3
0
20
40
60
80
100
120
Approx
Months
to
Payout
Approximate Time to Payout
Approximate Time to Payout
Approximate Time to Payout
Approximate Time to Payout
$100,000 Workover
$100,000 Workover
$100,000 Workover
$100,000 Workover
(Sample Well $65/bbl)

18. 18
OpEx Example
OpEx Example
OpEx Example
OpEx Example
0
50
100
150
200
250
7/1/2019 7/1/2020 7/1/2021 7/1/2022 7/1/2023
Oil
Prod
Bopd
Oil Production
$18,940
$11,509
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
7/1/2019 7/1/2020 7/1/2021 7/1/2022 7/1/2023
OpEx
$/well/month
OpEx
Fixed $18,940/month
Variable Lender Model
40% less 36
months out
Lender cost model:
Lender cost model:
Lender cost model:
Lender cost model:
$7,448/well/month fixed
Oil variable OpEx
$1.71/bbl
Gas transportation
$1.36/mcf
Fixed cost model:
Fixed cost model:
Fixed cost model:
Fixed cost model:
LTM LOS Ave excluding
2 high months:
$18,940/well/month
First 36 months out
First 36 months out
First 36 months out
First 36 months out –
–
–
– variable model is 40% less than fixed
variable model is 40% less than fixed
variable model is 40% less than fixed
variable model is 40% less than fixed
Over time the fixed and variable components diverge even further as production gets
lower and lower – in reality the OpEx is somewhere in between the models

19. 19
Additional Considerations
Additional Considerations
Additional Considerations
Additional Considerations
Terminal declines
Terminal declines
Terminal declines
Terminal declines
• Seeing many areas where terminal decline is much steeper than originally forecast
• Many wells show erratic production and repeat failures with downtime

20. 20
Additional Considerations
Additional Considerations
Additional Considerations
Additional Considerations
Production Improvement
Production Improvement
Production Improvement
Production Improvement
• Mixed re-frac results based on play, operator, prior development, benches, etc
• Most would agree the “jury’s still out”
• Mineral companies seeing a lot of variation by operator and location in the play, watching
attempts in the more mature Bakken and Eagle Ford for what’s to come in the Permian
• EOR being done in a few places – for example EOG in the Eagle Ford
Financial Considerations for Potential Buyers
Financial Considerations for Potential Buyers
Financial Considerations for Potential Buyers
Financial Considerations for Potential Buyers
• Overhead and G&A
• Fee structures – example PE running pref rate before hitting waterfall
• Return hurdles and cost of capital
• Hold and cash flow case is motivating for would be sellers in the high price environment
• Buyer-seller gap driven by major divergence in valuations using cash flow, PV, and flowing
barrel comps

21. 21
P&A Obligations
P&A Obligations
P&A Obligations
P&A Obligations
~30% of the wells in the study are at or under the stripper well classification of 15 bopd
At $100,000 P&A cost that is ~$2B in liability
At $30,000 P&A cost ~600MM
With ~760,000 stripper wells in the US even at $30,000 P&A that is ~$23B
~$65,000/well
For 760,000 wells
$50 Billion!
https://www.texastribune.org/2022/08/26/oil-gas-wells-infrastructure-money-texas-railroad-commission/

22. 22
Takeaways
Takeaways
Takeaways
Takeaways
US Unconventional Plays are aging fast
Many HZ wells are moving into matrix type flow after only 3-5 years, with much lower rates
At lower commodity prices it becomes much more difficult to operate these wells at a profit,
especially when considering full cycle M&A
Production improvement has proven difficult (ex re-fracs and EOR)
Operational excellence and controlling costs become the driver for profitability (weren’t a focus
during the shale boom)
As rates continue to drop, there is opportunity for those who can operate lean and make money
versus larger operators and financial-type groups
Will there be sufficient technical improvements to give these wells a second life
or will 10’s of thousands of wells depend on controlling OpEx?
How will the geology of an area impact attempts at increasing production?
How will M&A evolve considering the maturity of US assets?

23. 23
AAPG Women’s Network
AAPG Women’s Network
AAPG Women’s Network
AAPG Women’s Network
Thank you to the AAPG Women’s Network for sponsoring
Women are not the only underrepresented group in M&A and O&G Investment Banking
• Age – too “young” and “too old”
• Race
• Technical folks
• Others
My mentor’s advice, “The world is what you make of it, friend. If it doesn’t fit, you make
alterations” Stella in the movie Silverado
It’s not pretty and you are going to have to work hard and toughen up to setbacks and criticism
Best advice I can give:

24. 24
Parting Thought
Parting Thought
Parting Thought
Parting Thought
Enthusiasm is one of the most powerful engines of success.
When you do a thing, do it with all your heart. Put your whole soul into
it. Stamp it with your personality.
Be active, be energetic, be enthusiastic and faithful and you will
accomplish your objective.
Nothing great was ever achieved without enthusiasm.
- Ralph Waldo Emerson