Cost Effective Ways of Large Scale

Wolfcamp Development

J Ross Craft, P.E., Chairman, President & CEO

Forward-looking statements

2

This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of

1934. All statements, other than statements of historical facts, included in this presentation that address activities, events or developments that the Company expects, believes

or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this

presentation specifically include the expectations of management regarding plans, strategies, objectives, anticipated financial and operating results of the Company, including

as to the Company’s Wolfcamp shale resource play, estimated resource potential and recoverability of the oil and gas, estimated reserves and drilling locations, capital

expenditures, typical well results and well profiles, type curve, and production and operating expenses guidance included in the presentation. These statements are based on

certain assumptions made by the Company based on management's experience and technical analyses, current conditions, anticipated future developments and other factors

believed to be appropriate and believed to be reasonable by management. When used in this presentation, the words “will,” “potential,” “believe,” “intend,” “expect,” “may,”

“should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” “target,” “profile,” “model” or their negatives, other similar expressions or the statements that include those

words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such statements are subject to a

number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied

or expressed by the forward-looking statements. In particular, careful consideration should be given to the cautionary statements and risk factors described in the Company's

most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Any forward-looking statement speaks only as of the date on which such statement is made

and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as

required by applicable law.

The Securities and Exchange Commission (“SEC”) permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that

meet the SEC’s definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. The

Company uses the terms “estimated ultimate recovery” or “EUR,” reserve or resource “potential,” and other descriptions of volumes of reserves potentially recoverable through

additional drilling or recovery techniques that the SEC’s rules may prohibit the Company from including in filings with the SEC. These estimates are by their nature more

speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized by the Company.

EUR estimates, identified drilling locations and resource potential estimates have not been risked by the Company. Actual locations drilled and quantities that may be

ultimately recovered from the Company’s interest may differ substantially from the Company’s estimates. There is no commitment by the Company to drill all of the drilling

locations that have been attributed these quantities. Factors affecting ultimate recovery include the scope of the Company’s drilling project, which will be directly affected by

the availability of capital, drilling and production costs, availability of drilling and completion services and equipment, drilling results, lease expirations, regulatory approval and

actual drilling results, as well as geological and mechanical factors. Estimates of unproved reserves, type/decline curves, per well EUR and resource potential may change

significantly as development of the Company’s oil and gas assets provides additional data.

Type/decline curves, estimated EURs, resource potential, recovery factors and well costs represent Company estimates based on evaluation of petrophysical analysis, core

data and well logs, well performance from limited drilling and recompletion results and seismic data, and have not been reviewed by independent engineers. These are

presented as hypothetical recoveries if assumptions and estimates regarding recoverable hydrocarbons, recovery factors and costs prove correct. The Company has limited

production experience with this project, and accordingly, such estimates may change significantly as results from more wells are evaluated. Estimates of resource potential

and EURs do not constitute reserves, but constitute estimates of contingent resources which the SEC has determined are too speculative to include in SEC filings. Unless

otherwise noted, IRR estimates are before taxes and assume NYMEX forward-curve oil and gas pricing and Company-generated EUR and decline curve estimates based

on Company drilling and completion cost estimates that do not include land, seismic or G&A costs.

Cautionary statements regarding oil & gas quantities

Overview of Approach Resources

3

Company Overview

AREX OVERVIEW ASSET OVERVIEW

Enterprise value $619MM

High-quality reserve base167 MMBoe proved reserves

63% Liquids, 33% oil

$504 MM proved PV-10 (non-GAAP)

Permian core operating area138,000 gross (126,000 net) acres

~1+ BnBoe gross, unrisked resource potential

~1,800 Identified HZ drilling locations targeting

Wolfcamp A/B/C

2016 Capital program focused on aligning

capex with cash flowStable leasehold that is largely HBP provides for

flexible budget

Improving commodity prices would allow us to

seamlessly increase capital budget from ~$20 MM

to ~$80 MM

Note: Proved reserves and acreage as of 12/31/2015. All Boe and Mcfe calculations are based on a 6 to 1 conversion ratio. Enterprise value is equal to market capitalization using the closing share

price of $1.56 per share on 3/18/2016, plus net debt as of 12/31/2015. See “PV-10 (unaudited)” slide for reconciliation to GAAP measure.

4

Strong Track Record of Reserve and Production Growth

5

RESERVE GROWTH

0

20

40

60

80

100

120

140

160

180

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Gas (MMBoe) Oil & NGLs (MMBbls)

• YE15 reserves up 14% YoY

• Replaced 603% of produced reserves at a drill-

bit F&D cost (non-GAAP) of $4.32/Boe

• 154.6 MMBoe proved reserves booked to HZ

Wolfcamp play

Note: See “F&D costs (unaudited)” slide for reconciliation to GAAP measure.

MMBoe

PRODUCTION GROWTH

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Natural Gas (MBoe/d) Oil & NGLs (Mbbls/d)

• 2015 Production increased 10% YoY to a

record 15.2 MBoe/d

• Anticipating production decline in 2016 with

significantly reduced capital budget

MBoe/d

Scotia Howard Weil 44th Annual Energy Conference – March 2016

6

Lowest cost structure in the Permian Basin

$7.36

$6.18$5.87

$6.65

$5.55

$4.97 $5.04

$5.44 $5.45

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

AREX LOE Historical Track Record ($/Boe) 2015 Permian Peer LOE ($/Boe)

AREX D&C Historical Track Record ($ MM) Current Permian Peer D&C Cost ($ MM)

$13.23

$9.51

$8.84

$7.83 $7.71$7.46 $7.34

$6.92 $6.63 $6.39

$5.24

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 AREX

$8.6

$7.0

$5.8$5.5

$4.5

$3.7

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

2011 2012 2013 2014 2015 Current AFE

$7.8

$6.8$6.6 $6.5

$5.8$5.5 $5.5

$5.3 $5.2 $5.0

$3.7

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 AREX

Source: Latest available company presentations and public filings. Peers include CPE, CWEI, CXO, EGN, FANG, LPI, MTDR, PE, PXD, and RSPP.

D&C Cost Reductions Have Significantly Improved

Profitability Despite Lower Commodity Prices

7

Note: HZ Wolfcamp economics assume $3.50/Mcf realized natural gas price and NGL price based on 40% of realized oil price.

0%

10%

20%

30%

40%

50%

60%

70%

$30 $40 $50 $60 $70 $80

IRR

(%

)

Realized Oil Price ($/Bbl)

$3.5MM D&C

$4.0MM D&C

$4.5MM D&C

Scotia Howard Weil 44th Annual Energy Conference – March 2016

What Determines Oil Prices

Supply• Energy prices

• OPEC & Non OPEC Capacity

• Spare Capacity

• Geo Politics

• E&P Cost & Investments

Demand• Energy prices

• Economic Growth

• Industrial Production

• Transportation

Physical Balance• Inventory

Markets & Market Sentiment• Futures, Options & Spreads

• Other Commodity Prices

• Currency Exchange Rates

• Interest rates

8

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

Ju

n-8

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Dec

-90

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Dec

-91

Ju

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Dec

-92

Ju

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-97

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n-9

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-99

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n-0

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-00

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n-0

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-01

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n-0

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-02

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n-0

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-03

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n-0

4

Dec

-04

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n-0

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Dec

-05

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n-0

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Dec

-06

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n-0

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Dec

-07

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n-0

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Dec

-08

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n-0

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Dec

-09

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n-1

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Dec

-10

Ju

n-1

1

Dec

-11

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n-1

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-14

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-15

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n-1

6

Brent Spot Price ($ per Bbl.) WTI Spot Price ($ per Bbl.)

2nd Half of 97 OPEC raised

production ceilings 10%

Asian Economic Crises reduced

demand

Speculation in the Market

Crude Down 59%

9/11 Attacks

Crude Down

53%

US Financial Crisis

Created a volatile mixture of

Speculation in the Market

Crude Down 79%

PEDVSA Strike

Iraq War

Asian Growth

Weak Dollar

Speculation in the Market

Iraq & Iran cease fire

Hurricane Ivan,

Katrina & Rita

Supply Disruption

OPEC Decreases Production Targets

Unrest in Middle East

Spare Capacity

US Shale Success

Market Driven Economics

OPEC Abandons Price Targeting

Slower Growth Forecast

Speculation in the Market

Crude Down 72%

Oil is a commodity, has always been

volatile & will continue to be volatile.

The price of Oil is and has always been

determined by Supply & Demand

fundamentals and Market Sentiment.

As world population continues to

increase and people continue to

improve their living conditions, the

global demand for Oil will also continue

to increase.

Iraq Invaded Kuwait

UN Sanction reduced

World Supply by 7%

Crude Up 115%

442 MMBbls.

912 MMBbls.

+550 MMBbls.

Data Source: EIA

Five significant downturn cycles during the past 30 years

9

IEA World Crude Supply & Demand

“Missing Barrels” Manipulation or Actual

MMBbls./day

Data Source: IEA

10

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

84.0

86.0

88.0

90.0

92.0

94.0

96.0

98.0

Over & Under (MMBbls. per day)

Over & Under ("Missing Bbls." removed)

Over & Under (Missing Bbls. & US Declineremoved)

Total Production (MMBbls. Per day)

World Consumption (MM Bbls. per day)

Total Production less "Missing Bbls."removed

Total Production less "Missing Bbls." & USShale Decline removed

Over/Under

MMBbls./day

"The tally of unaccounted-for oil — which comes from

the difference between the 1.9 million b/d presumed

surplus and the roughly 1.1 million b/d of oil

calculated by the IEA as being in transit and moved

into onland storage — rose to its highest level in 17

years last year, and this was an important factor in an

industry dominated by oversupply". V Hari, Platts

MMBbl./Day

IEA Demand Revisions

2000 - 2014

11

Prediction Oil Price may fall even further

• “We may be heading form $5” (The Economist; 3/4/1999)

Oil Prices unlikely to recover

• “After two OPEC-induced decades of expensive oil, ..the oil industry as a

whole have more or less given up hope that prices might rebound soon.”

(The Economist; Mar 4, 1999).

Demand worries over economic troubles in Asia

• “economic troubles of Asia, the region that had been expected to drive oil-

company profits for years to come.” (The Economist; Mar 4, 1999).

(El Nino) impacting demand

• The warmer-than-normal winter weather in all of the northern hemisphere

kept distillate and fuel oil prices under downward pressure in all major

product markets..” (IEA Oil Market Report; March 1998).

Shift to renewables could impact demand

• “Worries over global warming, Although the science remains inconclusive,

rich countries agreed at the Kyoto summit in 1997....”

• (The Economist; Mar 4, 1999).

Technology has reduced the cost of oil supply

• Rapid technological advances have pushed the cost of finding, developing

and producing crude oil outside the Middle East down from over $25 a

barrel…in the 1980s to around $10 now.” (The Economist; Mar 4, 1999).

Fear that Iraq will increase production

• OPEC members fear that Iraq, whose UN-constrained output rose by 1m

barrels a day in 1998, may some day be able to raise production further.”

(The Economist; Mar 4, 1999).

Fear that if oil prices rebound, new supply would come on stream

• Nor is there much chance of prices rebounding. ….Venezuela, which

breaks even at $7 a barrel, would expand production; at $10, the Gulf of

Mexico would join in; at $11, the North Sea, (The Economist; Mar 4, 1999).

OPEC is in disarray

• “The cartel is already moribund, and unless Saudi Arabia can bring it back

from the dead, ….highly unlikely.” (The Economist; Mar 4, 1999).

Prediction Oil Price may fall even further

• “Goldman Sach predict oil could fall to $20” (Bloomberg Feb 9, 2016)

Oil Prices will be “lower for longer”

• ““The lower-for-longer scenario that oil companies are predicting is going

to become lower-for-even-longer,” Philipp Chladek, London-based oil

sector analyst.” (Bloomberg; Dec 8, 2015).

Worries over China’s economic growth slowing

• “Oil prices fell in Asian trading hours on Monday as analysts expected

weaker demand from China”. (BusinessDay; Nov 2, 2015).

(El Nino) impacting demand

• “Current forecast is for a mild winter in Europe and the US. If it turns out

to be true, bulging stock levels will add further pressure…”(IEA Oil Market

Report; Nov 2015).

Shift to renewables could impact demand

• “Worries over “Climate Change” policies and the impact of global

environmental initiatives to reduce reliance on fossil fuels”. Paris

Conference in December 2015; Smith & Ripplinger; Daily Oil Bulletin

Technology has reduced the cost of oil supply

• “Horizontal multifrac wells, etc., have unlocked new resource…especially

in North America. The breakeven oil price…..in North America has fallen

from ~$80 down to ~$50.” Smith & Ripplinger; Daily Oil Bulletin

Fear that Iran will increase production

• “OPEC has had its ups and downs over the years, but now appears to be

falling apart completely, mainly because of Iran’s nuclear deal with the

west. West to lift sanctions….oil”. (Breitbart; Dec 8, 2015).

Fear that if oil prices rebound, shale oil production will ramp up

• “Shale will be a new swing producer of sorts," said Yasser Elguindi of

economic consultants Medley Global Advisors. (Reuters; Sep 23, 2015).

OPEC is in disarray

• “The 13-member Organization of the Petroleum Exporting Countries,…

40 percent of the world’s crude oil, took no action to shore up the

market…in disarray after meeting in Vienna.” (AFP; Dec 5, 2015).

Similarities of the 1999 Collapse of Oil 1999 2015

Norrep Capital Management Ltd.

12

Global Rig Count

Compared to Brent Crude Prices

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

$65.00

$70.00

$75.00

$80.00

$85.00

$90.00

$95.00

$100.00

$105.00

$110.00

$115.00

$120.00

$125.00

$130.00

$135.00

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

Active Rig Count

Middle East Rig Count U.S. Rig Count Total World Rig Count Brent Spot Price ($ per Bbl.)

Brent Crude

Total Rig Count

1442 (all regions) 420 Rigs Working

in US as of April 2016

Middle East Rig Count

397 as of March 2016

While low oil prices have been a welcome relief at the pump, the impact

to oil producing nations could be dire, leading to the potential sovereign

default and economic collapse of several nations. While Venezuela, Iran

and Russia are normally singled out as those to fall first, even the United

States has been negatively affected. These problems will only worsen if

oil prices remain low for a prolonged period of time. Adam Hayes, CFA

US$/Bbl.

Data Source: Baker Hughes Rig Data

EIA Production Data

13

Saudi Arabia Production & Rig Count

59

68

7784

88

86

74

79

89

98

104108

120

126

124 120

129

124

1

2

3

4

5

6

7

8

9

10

11

0

20

40

60

80

100

120

140

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

Oil Rigs Gas Rigs Total Rigs Oil Production Daily Oil Production

MMBbls/dayRig Count

Data Source: Baker Hughes, IEA

14

Fiscal Break-Even Price

(Brent Crude, US $/Bbl)

Data Source: EIA, IEA

314.00

304.00

268.97

207.56

106.98

104.97

94.69

97.55

105.64

95.84

96.11

92.99

88.15

82.68

81.04

75.90

87.16

70.42

72.57

67.51

69.72

60.63

55.51

57.77

49.07

51.79

45.55

42.73

$0.00 $50.00 $100.00 $150.00 $200.00 $250.00 $300.00 $350.00

2015

2016

Turkmenistan

Kuwait

Qatar

Azerbaijan

UAE

Iran

Iraq

Kazakhstan

Algeria

Saudi Arabia

Oman

Bahrain

Libya

Yemen

$45.86 per Bbl. April 2016 Close

The fiscal break-even oil price is the average oil

price which is needed for an oil exporting country

to balance its budget in a particular year. It is an

important metric for a country’s fiscal

vulnerability to oil. If the break-even price is

higher than the market price budgets cannot be

balanced.

15

Rodger Andrew; Low Oil Price and Budget deficits & OPECIMF 2015 World Economic Outlook

Budget Balance as Percentage of GDP 2014 2015

16

46.0

24.921.0

13.0 12.6

7.24.4 3.3 2.7 2.1

0

10

20

30

40

50

Re

sou

rce

Po

ten

tial

(B

BO

E)

0

200

400

600

800

1,000

1,200

1,400

1,600

We

ll C

ou

nt

Year

Midland Basin Wolfcamp Shale - Largest Discovery Ever

Made in the U.S.

17

Southern

Midland Basin

Northern

Midland Basin

Source: DrillingInfo and IHS

~2,900 wells drilled

~67,000 remaining locations

More than 50 years of drilling

inventory

• Wolfcamp is the largest oil discovery made in the

U.S.

• Approach is a pioneer in the Wolfcamp oil shale

horizontal development

• Wolfcamp shale spreads

more than 8mm acres

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1 31 61 91 121 151 181 211 241 271 301 331 361 391

2015 Wolfcamp B&C bench completions

Average completed lateral length = 6886'

Enhanced completion design drives outperformance from 2015 wells

18

Note: Production data normalized for operational downtimeNote: Production data normalized for operational downtime

Cu

mu

lati

ve

Pro

du

cti

on

(B

oe

)

Time (Day)

19

Oil Pipelines – Key in Reducing Price

Differential

20

Reducing Transportation Cost

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00Tr

ansp

ort

atio

n C

ost

($

/Bb

l) Over 6X return on investment in

±16 mo.

Centralized Compression Facilities

and Gas Lifting Lines – Necessity In Reducing Initial

Capital Investments And Future Rental Costs

21

22

CPF 5CPF 1 CPF 2 CPF 3 CPF 4

Dehy

CS

~ 5

00

ft

Wells

Configuration of Well Pad Serviced by Single Independent

Compressor – Inefficient and High Cost

High Pressure Sale line

High Pressure Sale line

Low Pressure Gas

Gather lineHigh Pressure

Gas Lift Line

Central Processing

Facility

Compressor Station

Gas Dehydration Plant

Cost ~ $11.9M / Well / month for the 1st 30 months

Dehy

CS

Dehy

CS

Dehy

CS

Dehy

CS

23

CPF 5CPF 1 CPF 2 CPF 3 CPF 4

Low Pressure

Gathering Line

0.75 miles

CS

0.75 miles

Dehy

~ 2000 ft

~ 5

00

ft

High Pressure Sale / Gas Lift line

Wells

CPF 10CPF 6 CPF 7 CPF 8 CPF 9

Low Pressure

Gathering Line

CS

Dehy

Well Pads Serviced by Centralized Compressor and Shared

Gas Lift System – Efficient and Significant Cost Saving

Cost ~ $4.3 M / Well / month for the 1st 30 months

This configuration saves $7.6 M / well / month for the 1st 30 months

Or $228M/well for the 1st 30 months

Water Recycling And Transportation Lines – Must

Have In Sustainable Large Scale Development

24

One of the Most Important Challenges in Developing the

Wolfcamp Shale Play – Availability of Frac Water

25

• A typical 7500’ WFMP lateral in the Midland Basin uses more than 200,000 Bbls of water

• 13.5 billion barrels of water is required to develop the remaining resources or 200 to 270 million barrels of water

per year for the next 50 years

Reservoir

Storage

for Feb 2016

Perc

en

t F

ull

• Mean annual precipitation is less than 18 inches

• Evaporation rate exceeds precipitation

• Midland/Odessa is currently at the second lowest

reservoir capacity in Texas with only ~ 20% full

Data from the 2016 Region F Water Plan prepared for the Region F Water Planning Group by

Freese and Nichols, Inc. and LBG-Guyton Associates, Inc.

Region F Supply and Demand

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2020 2030 2040 2050 2060 2070

Wat

er

(MM

Bb

ls)

Year

Manufacturing Livestock Steam Electric Power Mining

Municipal Irrigation SUPPLY

Irrigation

Municipal

MiningSteam ElectricLivestockManufacturing

Supply

Image are from www.waterdatafortexas.org/reservoirs and www.twdb.texas.gov

• Water demand is significantly higher than supply

0

50

100

150

200

250

300

2020 2030 2040 2050 2060 2070

Wat

er

(MM

Bb

ls)

Year

Mining Water Allocated (MMBbls)

Potential Water Needed for WolfcampDevelopment

Midland Basin – Significant Shortage of Frac Water Supply

26

• Wolfcamp oil shale

development using

mining water allocated

is not sustainable

• Need alternative water

source to develop this

vast resource

Data from www.twdb.texas.gov

Midland Basin – Significant Cost for Sourcing, Transporting &

Disposing Frac Water

27

$4-5 per barrel

$

$

$$$

$$$

Water Sourcing Well

Well Pad

Salt Water Disposal Well

Lease Road

Local Highway

Lease Road

Local Highway

$800,000 - $1,000,000 per well

Road damage

Air pollution

Road damage

Air pollution $54 billion - $67 billion

For the remaining wells

28

• Best practice for water

conservation and improving water

use efficiency

• Reduces demand on fresh water

sources

• Reduces road damage & air

pollution

• Reduces D&C cost

• Reduces SWD cost

• Designed one of the highest

industry KPI for water

treatment

Bacteria

Sulfates

Heavy metals

Fines

AREX Flowback and Produced Water Recycle Facility

29

AREX Flowback and Produced Water Recycle Facility

32,000 BBL Dirty

Water Tank Skim Oil Sales

Flowback & Produced Water Offloading Terminal & Separation Facility

Flowback & Produced Water Supply

90 BPM Pump StationWater Treatment

& Filtration Facility

63,000 BBL Treated Water Tank

44,000 BBL Treated Water Tank

8” F

low

bac

k &

Pro

du

ced

Sal

twat

er L

ine

8” L

ow

Ch

lori

de

Trea

ted

Fra

c W

ater

Su

pp

ly L

ine

20”

Trea

ted

Flo

wb

ack

& P

rod

uce

d F

rac

Wat

er S

up

ply

Lin

e

32,000 BBL

Treated Water Tank

N

63,000 BBL Treated Water Tank

63,000 BBL Treated Water Tank

32,000 BBL

Treated Water Tank

32,000 BBL

Treated Water Tank

Centralized

SWD Hauling

Station

12” Poly

4” Connections

Flowback / Produced Water

Separator

Dirty Water Tank

Chemical Treatment & Centrifuge

Treated Water Tank

Pump Station & Water Supply Line

0

5,000

10,000

15,000

20,000

25,000

30,000

Rec

ycle

d W

ater

(B

bls

/d)

AREX Water Recycling Facility Successfully Implemented

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• Started up in March 2015

• Ramped up during April 2015

• Recycled up to 100% of AREX daily flowback/produced water volumes

• More than 2.2 million barrels of water treated

• More than $7mm of cost saved or value created in the first 6 months of operation

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Over 500 miles of pipelines in place

• More than 100 MMcfg/d gathering and gas

lifting capacity

• Expandable up to 500 MMcfg/d

One Centralized Super Water Recycle Center

• 2.2 MM Bbls flowback and produced water

recycled during 1st six months of operation

• Reduced D&C cost by $450,000 per well

• Reduced LOE by over $4MM

• Reduced current SWD cost by ~$10,000/d

Established Infrastructure in Place Is Critical to Low

Cost Structure

Flowback / Producing Well

Significant Cost Saving for Using Recycled Water for

Fracing

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$2 per barrel

Free

Wellpad

Via existing water

gathering lines

$27 billion - $41 billion saving

For the remaining wells in

Midland Basin

Via existing water

transportation lines

$0.25 per

barrel

$0.25 per

barrel

$1.50 per

barrel

Free

Water Recycling

Center

Cost for recycled water

$2 - $3 per barrel

Cost saving for using recycled water

$400,000 - $600,000 per well

Cost saving for using recycled water

• Saudi Arabia is not solely responsible for the collapse of oil prices but rather a combination of US Shale success, slowing economies, “Herd Mentality” & misguided governmental policies.

• Oil is a commodity, has always been volatile, and will continue to be volatile. Supply & Demand Fundamentalslong term, as well as market sentiment short term, establishes the price of oil.

• World population continues to increase and people continue to improve their living conditions – therefore the demand for oil will continue to increase.

• The last time the miscellaneous to balance/“Missing Barrels” item was this large, implying an oversupplied market, was in 1997/98 when the issue triggered criticism of the IEA's statistics. Either supply is overstated or demand is understated or international inventories are understated or a combination of all three.

• Wolfcamp oil shale play in the Midland Basin spreads more than 8MM acres, contains estimated commercially recoverable reserves of 46 billion barrels of oil equivalent, and is the largest discovery ever made in the U.S. and one of the largest in the world.

• Significant frac capital and water are required to develop this vast resource: Oil pipelines reduce road damage, surface disturbance, truck cost, and ultimately oil differential by

$5/bbl. and create additional 115 billion dollars of value for investors. Building centralized compression facilities and gas-lift systems reduces pipelines, increases

compression efficiency, saves fuel cost, and creates additional 15 billion dollars of value during the 1st 30 months of bringing new wells online.

An estimated 13.5 billion barrels of water is required to develop this significant discovery. Water recycling is not only necessary in solving the frac water shortage issue, but also saves investors 54 –67 billions dollars for souring, transporting and disposing frac and produced water.

• Early investment on infrastructure build-out ensures strong support from the communities we operate, reduces drilling, completing and operating cost significantly and generates significant value and better rate of return for the investors.

Summary

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