Water Management for the 21st Century

September 24, 2015

SPE – Ft. Worth Chapter

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Resource-focused strategy, with activity concentrated in 2 of the most active U.S. fields

Operating in core Spraberry/Wolfcamp asset since early 1980s

–PXD holds ~825,000 acres in Spraberry/Wolfcamp

–Largest producer in Spraberry/Wolfcamp

–Preeminent, low-cost operator benefitting from vertical integration strategy

Best performing energy stock in S&P 500 since 2009

2nd most active driller in Texas

4th most active driller in the U.S.

Pioneer At A Glance

Total Enterprise Value ($B) ~$252014 Drilling Capex ($B) $3.1Q1 2014 Production (MBOEPD) 1862013 Reserves + Resource (BBOE) >11.0

Total Enterprise Value ($B) ~$252014 Drilling Capex ($B) $3.1Q1 2014 Production (MBOEPD) 1862013 Reserves + Resource (BBOE) >11.0

Top U.S. Fields By Rig Count(Pioneer Operated Count in Green – 38 rigs)

Baker Hughes Rig Count (10/31/14) and PXD Internal

Spraberry/Wolfcamp Gross Production By Operator3

(MBOEPD)

3) August 2014 DrillingInfo data, gross reported oil and wet gas

Developing the Permian Basin

The largest oil field in the U.S.

20,000 drilling location inventory

$200B to fully develop this field over the next 50+ years

Infrastructure needs: pipeline capacity, gas processing, water, electric power and roads

300,000 barrels of water used in a typical horizontal hydraulic fracture job

Moving away from using fresh water is the right thing to do

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Outline

Formation of Pioneer Water Management, LLC (PWM)

Supply Diversification

Infrastructure Build Out

Disposal & Recycling

Conclusions 4

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“Great Water Balance”

Establishing a Sustainable “Water Business”

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Supply sufficient water for drilling & completions

Source lower cost “non-fresh” water supplies

Study and plan for potential

disposal limitations

Develop recycling

projects in support of

“Water Balance”

Reduce transfer costs and trucks

on road

WHY was PWM Created ?

Sustainable Water Solutions– Significant ramp-up of D&C requirements (1,000,000 BPD)

– Reduce reliance on fresh water sources

– Mitigate need for disposal of produced water (Recycling)

Develop in house water expertise to support growth in West Texas– “Cradle to Grave” water planning and handling

– “One Stop Shop” supporting Drilling, Completions & Operations

Long term planning to increase water handling efficiency– Fewer trucks

– Smaller footprint

– Lower cost

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WHAT ? “In House Expertise”

1. Establish and maintain a profitable “water

business”

2. Supply sufficient water for hydraulic fracturing

3. Source lower cost “non-fresh” water supplies

4. Study and plan for potential disposal limitations

5. Develop recycling projects in support of “Water

Balance”

6. Develop 3rd party business to enhance PWM’s

profitability

7. Reduce transfer costs and trucks on road

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HOW ? “One Stop Shop” Supply

– Diversification of supply to meet growing demand• Local and external sources• Decreased reliance on fresh water

Distribution/Storage

– Permanent infrastructure planning• Truck traffic (238,000 BWPD equates to ~2,000 fewer truck

loads/day)• Smaller footprint & lower cost• 400,000 bbl. impoundments for storage of water• Storage used to meet “Peaks and Valleys” of demand

Recycling/Disposal

– Utilize produced water to meet drilling and completion demand• Minimize need to dispose of produced water• Monitoring of disposal wells

Supply Diversification

10

110

30

60

90

120

150

180

210

240

270

300

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

BW

PD

West Texas Growth Increases Water Demand

Drillin

g & Fra

c. Wate

r

Needs

Hori

zon

tal R

igs

0

0

100+

Rig Count

Demand = 2 × City of IrvingGeographic Extent = Delaware

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Supply (Diversify Water Sourcing)

• Small Volume• Minimal Infrastructure• Short Lead Time• Sustainable?

PXD Water Wells

Local “Fresh” Water Wells

• Medium Volume• Minimal Infrastructure• Short Lead Time

PXD Santa Rosa Well

Local Santa Rosa “Brackish” Wells

• Medium Volume• Reliant on

Infrastructure• Medium Lead Time• Reduces Disposal

Gradient/Fountain Quail

Local Recycling

Large “Effluent” Supply Source

• Large Volume• Long Term Deal• Reliant on

Infrastructure

3rd Party Source

Large “Brackish” Supply Source

• Large Volume• Long Term Deal• Reliant on

Infrastructure• Non-Political

Odessa Effluent

Minimize “Discounted” BBL Cost and Meet Asset Demands

Infrastructure Build Out

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Philosophy Change Required to Support Increased Rig Count

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Pond

Pond

Pond

Temp Lines Temp Lines

Smaller Foot Print, More Efficient, Lower Cost, Less Trucks

Frac. Fleet

Main Pond

Pump

Frac. Fleet

Frac. Fleet

EffluentSource

+͞Rural -͞

+͞Suburb -͞

+͞City -͞

Pond

Pond

Pond

Pump

Pump

Fresh Wells

Fresh Wells

Infrastructure PlanningInfrastructure Elements:

− Mainline

− Ponds

− Subsystems

− Source pipelines

Optimize Based On:

−Rig count

−Locations of sources

−% Recycling

−Minimized headcount (automation) 15

Mainline

Subsystem

SourcePipeline

Ponds

Pump Station

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Storage “Frac. Ponds”

400,000 BBL ponds

Standard design increase life and make ponds safer

Covers minimize evaporation

Disposal and Recycling

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Water Disposal Plans

Monitoring disposal program

Evaluating recycling technologies and increasing recycling volumes

Monitoring regulatory environment & legislation on recycling, fresh water, and brackish water

Balancing disposal and recycling

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Current Recycle Operational Overview Allows produced water to

be used for D&C operations

Multiple Options– Clean Brine

– De-Sal

Minimizes need to dispose of produced water

Operationally challenging– Currently working on 2

recycling projects

– With all in operation ~20,000 BBL/Day Recycled

Recycling Cost Discussion

Source and dispose approaching parity with minimal treatment

Recycling reduces disposal needs, lowering drilling costs

Desal costs significantly more than minimal treatment

Water quality required drives recycling costs

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Recycling Challenges

OperationsLogistical coordination

Linking of disposal network

Flow-back volume peaks

Continuous flow into recycle plant

Backup SWD for recycling

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Recycle Plant

Recycle Plant

Produced Water

Useable Product

Unusable Product(Operations)

(Operations)

(D&C/Res.)

D&C & ReservoirWater quality/gelling

Sufficient supply to meet schedule

Formation compatibility

Multi-department incremental costs/savings

PWMInfrastructure

Blending

Changing technology

Manpower

Balancing with other take-or-pay requirements

Environmental (storage/transport)

PXD Aggressively Pursuing Integrated Solutions to Recycling Challenges

Conclusions

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PWM the “One Stop Shop” for Water Achieving strong success in sourcing

– Odessa, Santa Rosa, (Midland)

Infrastructure build-out underway– Significant progress on design and construction– Sized to accommodate 3rd party sales and transport– Permanent infrastructure provide significant cost savings for all

parties

Continue to balance disposal and recycling – Recycling implementation is complex– Balance volume, logistics, and added infrastructure– Storage and transport of minimally treated produced water

adds environmental challenges

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