IPAA Oil & Gas Investment Symposium April 11, 2011
Company overview Areas of operation AREX highlights Enterprise value 960 MM 4.7 MBoe/d Q4 2010 production 59.7 MMBoe proved reserves 96% Permian Basin 52% Oil & NGLs 52% Proved developed No proved reserves currently booked for…
Key investor highlights Concentrated geographic footprint focused on West Texas Midland Basin oil/liquids rich plays 133,000+ net, primarily contiguous acres, 100% operated More than 525 wells drilled by Approach since 2004, with a…
2010-11 Highlights Wolffork oil shale resource play Three stacked pay zones, the Clearfork, Dean and Wolfcamp Shale 2,500 feet of gross pay Wolffork possible reserves 38.7 MMBoe Expanded core acreage position in the Midland Basin…
Strong track record of reserve and production growth Reserve growth Production growth 60 7.0 55% Oil & NGLs 51% Oil & NGLs 6.0 50 5.0 40 4.0 30 3.0 20 Proved reserves (MMBoe) 2.0 Production (MBoe/d) 10…
Well-balanced reserve mix Reserve mix at December 31, 2009 Reserve mix at December 31, 2010 23% 51% Oil & NGLs Oil & NGLs 77% 49% Natural Gas Natural Gas 43% 51% Proved Proved Developed Developed 57% 49% Proved Proved…
2011 Capital budget 2011 Plan Targeting 50%+ Production Growth in 2011 2011 capital budget 7 6.5 130 MM for drilling and recompletion projects 6 in Project Pangea 5 Production (MBoe/d) 4.3 4 76 MM for February 2011 38% WI…
Overview of AREXs Midland Basin assets Proved reserves: 57.3 MMBoe Project Pangea Net acres: 133,000 REAGAN IRION Recent acreage acquisitions increased Midland Basin acreage position to 153,000 gross (133,000 net) acres…
Wolffork pilot program Phase II Recent pilot well results Pilot wells A, B and C completed in the Canyon and Wolffork with five frac stages Pilot wells D and E recompleted in the Wolfcamp zone with two and three frac stages,…
2011 Pilot program What are our objectives 2011 Pilot program objectives Delineate Wolffork oil shale play across Project Pangea with a combination of vertical, horizontal and recompletion projects Improve initial production rates…
Wolffork Oil Shale Resource Play Midland Basin
AREX acreage is favorably located in Southern Midland Basin Wolfberry Well Winkler Midland Ector Sterling Coke Glasscock Midland Basin Wolfberry Play Upton Eastern Delaware Ward Shelf Basin Crane Wolfberry Play Tom Green…
Recent leasing activity in the Wolffork play Large independents and a major enter the Southern Midland Basin through UTs Lease Sale APPROACH ACREAGE EL PASO EOG PIONEER PIONEER CONOCO-PHILLIPS ANGELLE DONOHUE HIGHMOUNT…
Recent drilling activity in Southern Midland Basin Drilling activity in Southern Midland Basin University 43-10 1H Munson 2701H 64-728 BOEPD 1/2011-2/2011 Noelke A 1H REAGAN Faudree 1 IRION University 40 A 1H Linthicum 5H…
Wolffork play recognition Why didnt others recognize the play Crockett County has been viewed as a gassy area when oil and gas price ratio ranges from 16 to 20, operators are pursuing oily plays Almost all published, regional maps…
Structural cross-section across Big Lake Fault N S Union Oil Co of Cal Texas Gulf Inc Texas Gulf Inc Borden Sam H John R Scott Etal D 2 TXL 1 Wolters D 1 Wolters 1 13,973 5,022 7,275 Spraberry Dean Wolfcamp Cisco…
AREX Wolfcamp producers and shows Existing producers and show wells suggest that the Wolfcamp is hydrocarbon-charged AREX - Cinco Terry AREX Ozona Northeast Wolfcamp Pilot Recompletions Wolfcamp Pilot Recompletions Addie Clayton…
AREX shale play evaluation process Creating value through detailed technical evaluation TOC Hydrocarbon generating potential R0 - Tmax - TAI Thermal maturity for hydrocarbon generation Shale Rock Properties Storage capacity…
Creating value through detailed technical evaluation of Wolfcamp shale World class source rock in oil window Significant oil & gas storage space TOC for Wolfcamp Shale from whole core of Baker A112: Oil & gas storage criteria for…
Creating value through detailed technical evaluation of Wolfcamp shale (contd) Hydrocarbon pathway to wellbore Wolfcamp shale components Depth (feet) W E likely high fracture density areas Porosity 4,000 7.0% Carbonate 26.2%…
Regional correlation University 40-13 1H 12.5 miles Baker A 112 Bailey 310 12.8 miles SW Irion Co Cinco Terry Ozona NE DPHI DPHI DPHI 0.3 -0.1 0.3 -0.1 0.3 -0.1 GR API NPHI GR API NPHI GR API NPHI 0 200 0.3 -0.1 0 200 0.3 -0.1 0…
Over 2,500 feet of gross pay in the Wolffork AREX Baker A 112 LLD OHMM DPHI BVW 0.2 20 200 2,000 0.3 -0.1 0.2 0 GR API MSFL OHMM NPHI Free Hydrocarbon 0 200 0.2 20 200 2,000 0.3 -0.1 0.2 0 0.2 20 200 2,000 0.3 -0.1 0.2 0 GR API…
Hydrocarbons in place estimate & potential well recovery Vertical well Hydrocarbons in Place / Potential Hydrocarbon Recovery Factor Well Spacing 640 Acre Reservoir Recoverable / Well Formation Oil MMBOE Acre Boe EQUIVALENT…
Technical analysis is supported by early drilling and recompletion results Wolfcamp horizontal (EOG 40-13-1H) Wolfcamp vertical recompletion (AREX U42-15-2) Modeled after Approach U42-15-2 well Initial Potential 54 BOE (Gas=10…
Wolffork economics summary (estimated) Approachs technical evaluation yields Original Oil & Gas in Place resource per section of 118 MMboe for Wolfcamp shale and 63 MMboe for Dean/Clearfork EUR estimates support conservative recovery…
Wolffork economics (estimated) Further opportunity for improvement on EURs and well costs Wolffork recompletion IRR sensitivity Canyon Wolffork new drill IRR sensitivity EUR improvement EUR improvement Improvement (25%) 0% +25% +50%…
Oil shale play comparison How does the Wolffork play stack up against other commercial shale oil plays Barnett Oil SHALE Wolffork Bakken Eagle Ford Niobrara Combo BASIN Midland Williston Fort Worth South Texas DJ Basin Late…
Technical evaluation derisks Wolffork play concept Creating value through detailed technical evaluation TOC Hydrocarbon generating potential R0 - Tmax - TAI Thermal maturity for hydrocarbon generation Shale Rock Properties…
Key takeaways The WOLFCAMP Is a world class source rock with significant hydrocarbon-generating potential thermally matured and currently located in peak oil generation and early gas generation window The WOLFCAMP Has storage…
Appendix
2010 Operating and financial highlights 2010 Highlights Year Ended (in thousands, except per-share metrics) December 31, Variance 2010 2009 (%) Revenues 57,581 40,648 42 % Net income (loss) 7,462 (5,229) 243 % Net income (loss)…
2011 Guidance Production and operating and expenses guidance Targeting 50%+ Y/Y production growth 2011 Guidance Production Total (MBoe) 2,300 2,450 Percent oil and NGLs 55% Operating costs and expenses (per Boe) Lease…
Liquidity Liquidity as of 2/28/2011 55% of borrowing base available (in thousands) 2/28/2011 Borrowing base 150,000 Cash and cash equivalents 2,422 Outstanding letters of credit (350) Long-term debt (67,000) Liquidity…
F&D costs reconciliation and reserve replacement ratio (unaudited) Natural Gas Oil & NGLs Total We believe that providing measures of finding and development, or F&D, AREX Historical Reserve Summary (Mmcf) (MBbl) (MMboe) cost is useful…
Adjusted net income reconciliation (unaudited) The amounts included in the calculation of adjusted net income and adjusted net income per diluted share below were computed in accordance with GAAP. We believe adjusted net income and…
EBITDAX reconciliation (unaudited) We define EBITDAX as net income, plus (1) exploration expense, (2) impairment of unproved properties, (3) depletion, depreciation and amortization expense, (4) share-based compensation expense, (5)…
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