Introduction to Upstream Oil & Gas Valuation

Introduction to the Upstream Sector
Table of Contents
1. Introduction
2. E&P Valuation
3. Understanding the Upstream P&L
4. E&P Ratio Analysis
5. Glossary
6. Additional Resources
1. Introduction
What are Hydrocarbons?

Fossil Fuels
Petroleum
Coal
Crude Oil
Conventional
Oil
APL Range
20-40
Condensate
APL Range
> 40
NGL
Natural Gas
Heavy Oil
APL Range
< 18
Oil Sands
Rock
Dry/Sweet
Methane (CH4)
Wet
Ethane (C2H4)
Propane (C3H8)
Buthane (C4H10)
NGL
Sour
Contains
Hydrogen
Sulfide (H10)
Common Uses for Hydrocarbons

Hydrocarbons: Organic compounds of hydrogen and carbon atoms providing the basis of all petroleum
products. Hydrocarbons exist in a solid, liquid, or gaseous state.
Crude Oil = Primary Transportation Fuel
Natural Gas = Electricity Generation
Fuels made from one barrel of crude (42 Gallons)

Gasoline
Diesel
Jet Fuel
Other
Also used to produce

Glass
Paper
Brick
Paints
Fertilizer
Plastics
Antifreeze
Explosives
Distillates/Heavy Fuel Oil - 5
Other products made from oil

Ink
Plastics
Dishwashing liquids
Deodorant
DVDs
Tires
Oil and Natural Gas are not substitute products; there is no arbitrage
opportunity from pricing anomalies
2
Spindletop, TX, 1901: The Birth of Modern Energy
http://www.priweb.org/ed/pgws/history/spindletop/spindletop.html
Energy Value Chain
Production
Processing
Transportation
Marketing
Refining
Marketing
Natural
Gas
Exploration
Crude
Oil
Production
Transportation
Upstream
Midstream
Downstream
Illustrative Well Production Profile

An E&P company owns declining assets that generate attractive cash-on-cash returns. Effective
redeployment of that cash is the key to generating return for shareholders.
Daily Production (MMcfe / d)
5,000
Initial Drilling & Completion (D&C) Cost: $5.00 million
Initial Production Rate (IP): 4.5 MMcfe/d
Estimated Ultimate Recovery (EUR): 6.5 Bcfe
4,000
PV-0: $10.3 million

PV-10: $3.7 million
3,000
Internal Rate of Return: 57%

Net Finding & Development Cost (F&D): $0.96 / Mcfe
2,000
1,000
0
2
52
102
152
Months
202
252
302
Oil and Gas Reserve Classification

Oil and Gas
Reserves
Proved
(1P)
Unproved
Possible
Probable
Four Classes of Reserves

Proved, probable, possible and potential
Developed
(PD)
Undeveloped
(PUD)
Non-Producing
(PDNP)
Main difference between classifications involves level of certainty

that such reserves will be produced as well as costs involved to
develop them
Proved reserves is only class where one definition has developed
general acceptance among petroleum engineers
Proved Reserves = 1P
1P + Probable Reserves = 2P
2P + Possible Reserves = 3P
6
Behind-Pipe
(PDBP)
Shut-In
(PDSI)
Producing
(PDP)
Commodity Prices Over Time
25.0x
$120
20.0x
$90
15.0x
$60
10.0x
$30
5.0x
$0
11/01/01
0.0x
07/02/03
03/02/05
WTI 1-Yr FWD
11/01/06
HH 1-Yr FW D
07/01/08
Oil / Gas Ratio
03/02/10
11/01/11
Gas Price ($ / Mcfe)
$150
Oil / Gas Ratio
Oil Price ($ / Bbl)
Historical relationships between oil and gas prices changed beginning in 2008 due to the emergence of
shale gas.
Gas to Oil Energy Equivalent Conversion

Conversion
6 Mcf of gas = 1 Boe: Usual ratio adopted to convert gas to oil and vice versa
Because of differences in heating value and liquids content of gas, there is no one right oil/gas conversion ratio
However, using 1,000 BTU per Mcf convention, ratio most often used for dry gas is 6,000 cf per barrel of oil
equivalent or 6 Mcf/Boe
Table of Gas / Oil Conversions
Gas Volume
Oil Equivalent
Gas Volume
Oil Equivalent
1 Mcf
0.1667 Boe
1 BCF
166,667 Boe
6 Mcf
1.0 Boe
6 BCF
1 MMBoe
1 MMcf
166.7 Boe
1 TCF
166.7 MMBoe
6 MMcf
1.0 MBoe
6 TCF
1 BBoe
10 MCF = 1 Boe Convention: Occasionally, companies will convert their gas to oil
equivalent using a ratio other than a 6:1 ratio
Historically, 10:1 has been used to better reflect the economic equivalence of gas to
oil (i.e. gas less valuable)
6:1 reflects strict calorific equivalence
10:1 is actually standard reporting equivalence in Canada
Proved Reserves Disclosure
Illustrative Valuation Exercise

($ in millions, except per-unit amounts)
Share Price
Shares
% of 52-Week High
% of 52-Week Low
$81.09
116.800
76%
146
Equity Value
Plus: Debt
Less: Cash
Other A djustments
Firm V alue
$9,471
2,563
(521)
109.4
$11,623
Operating Metrics
Proved Reserves (MMBoe)
PV-10
987
$4,894
V aluation Metrics
($ / Boe)
Firm Value / PV -10
$11.77
2.4x
10
SEC PV-10 Disclosure
11
Costs Incurred Disclosure
12
2. E&P Valuation
Valuation Overview
Future Development
Opportunities Value
Firm Value
Proved Reserves Value
13
Wide Range of Valuation Methodologies

Method
Typical Market Focus
NAV / DCF
M&A Market Focus
FV / EBITDA
Financial
Multiples
P/E
P / CFPS
$ / Boe of Reserves
$ / Net Acre
14
Suitability
E&P sector focus

Core value to defined field and risked exploration / prospect upside
Reserve report may provide material guidance
Widely understood and used in traditional industries with high earnings

visibility
Used a cross check to NAV
Not for E&P companies
Used instead of PE due to accounting differences between companies
Scoping value methodology

Often used on risked basis for upside value
Comparability dependent on reserves classification
Can be used with precedent transactions to value emerging plays

Should be calculated net of any associated production value
Valuation Methodologies
NAV / DCF analysis incorporates operating characteristics of upstream assets, and is the most commonly used
valuation methodology; multiple-based valuation provides market-based reference points.
Pros
NAV / DCF
Cons
Allows incorporation of operating

characteristics of the asset, based on
granular and detailed analysis
Requires considerable data gathering, e.g. host

government, geophysicists, petroleum
engineers, tax advisors, etc
Factors any associated risks into the value

of the asset
Estimation of expected production profile and

revenues involves a certain degree of
uncertainty and risk
Enables sensitivity analysis based on

specific parameters
Not applicable in M&A transactions; does not
factor in acquisition premium
Trading
Comparables
Reflects asset value as an ongoing

operation
Proxy for value based on industry average
Does not factor in specific operating or risk

characteristics of the asset
Comparables universe difficult to determine
Applicability limited to M&A transactions due to
inclusion of acquisition premium
Precedent
Transactions
15
Good proxy in M&A transactions; factors

acquisition premium
Proxy for value based on industry average
Does not factor in specific operating or risk

characteristics of the asset
Comparables universe difficult to determine
NAV Methodology: Assumptions

Methodology
Citi evaluated the net asset value (NAV) of Ultra

Petroleums oil and gas assets in the Marcellus Shale
and the Pinedale and Jonah Fields in Wyoming
Well economics drilled in Jonah assumed to be the

same as Pinedale wells
NAV calculated based on a development plan built

up from a projected rig count, current acreage, and
applying an assumed type curve and well-level
assumptions
Oil
Gas
Pinedale /
Jonah
Source
Marcellus
Current PDP based on historical drilling to

more accurately capture PDP decline curve
versus a linear decline
EUR (Bcfe)
4.8
HPDI
Type Curve
--
HPDI
--
3/7/11 Investor
Presentation and
peer decline
rates
--
($14.50)
UPL 2008
Reserve Report
--
Gas Differential to HH (%)
92%
3/7/11 Investor
Presentation
102%
Production Taxes (% of Rev)
12%
UPL 3Q10
Transcript
5%
LOE ($ / Mcfe) (2)
$0.46
UPL 3Q10
Transcript
$0.24
UPL 3Q10
Transcript
$0.29 (3)
UPL 3Q10
Transcript
Included in
LOE and Capex
UPL 3Q10
Transcript
Resource potential based on public guidance
Capex assumption based on public guidance
Gathering and Transportation

Cost ($ / Mcfe)
NAV to be modeled in real terms (no inflation)
Gross Well Cost ($mm)
Further adjustments to account for the hedge

program, the decrease in value attributable to
G&A needs of a going concern, non-drilling
capex, and income taxes
2011
2012
2013
2014
2015
>2016
$110.77 $109.41 $105.81 $103.53 $102.46 $102.46
4.44
4.93
5.31
5.65
6.03
6.03
3/7/11 Investor
Presentation
Oil Differential to WTI ($)
Base case price assumption based on 4/15/11 NYMEX

strip for 2011-15, held constant in 2016 and beyond
Source
4.2(1)
The calculated NAV of each asset is based on the

assumption shown to the right
Assumptions
Working Interest (%)

NRI (8 / 8ths)
Spud to Spud (days)
Undeveloped Net Acreage
Well Spacing (Acres)
Gross Well Locations (5)
(1) Weighted average of North and South assuming ~65% North composition.
Net Remaining Well Locations
(2) Includes $0.25/mcfe of gathering expense.
(3) REX transportation cost reflected at the corporate level.
(4) Based on company disclosed net wells / gross wells.
16 (5) Pinedale wells based on company disclosed total gross wells as of 12/31/09 less wells brought online in 2010.
Marcellus gross well locations based on 3,000 net locations and a 45% working interest.
3/7/11 Investor
Presentation
Peer assumption
$4.6
3/7/11 Investor
Presentation
$4.8(1)
3/7/11 Investor
Presentation
55.5% (4)
1/12/11 Investor
Presentation
45.0%
1/12/11 Investor
Presentation
80%
UPL 2008
Reserve Report
86%
17
3/7/11 Investor
Presentation
10
44,000
Company 10K
260,000
11/4/10 UBS
Research
UPL 3Q10
Transcript
Company 10K
5-10 acres; UPL

4Q10 Transcript
80
UPL 3Q10
Transcript
5,335
1/12/11 Investor
Presentation
6,667
Net Wells /
Working Interest
2,964
1/12/11 Investor
Presentation
3,000
UPL 4Q10
Transcript
NAV Methodology: Development Profile

Total Net Drilling Locations Development Plan by Play
(Targeted Development)
Total =
6,007 (1)
Ne t We lls Drille d
Pinedale
Marcellus
Total Net Wells
Pinedale
45%
Marcellus
55%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
>2020
119
82
119
82
119
82
119
82
119
82
119
82
119
82
119
82
119
82
119
82
1,814
2,178
3,006
3,000
201
201
201
201
201
201
201
201
201
201
3,992
6,007
Total
Annual Production Profile by Play (Bcfe)

2011
Ne t Production by Are a (Bcfe )
PDP
163
(2)
Pinedale
54
(2)
Marcellus
33
Total Net Prod.
UPL Guidance
Future Resource Potential

(Targeted Development)
250
250
2012
2013
2014
2015
2016
2017
2018
2019
2020
>2020
100
119
71
75
161
94
69
193
112
63
219
127
60
242
140
57
261
151
55
279
161
53
295
171
51
310
180
999
9,412
9,597
1,744
11,545
10,837
290
290
329
330
373
--
409
--
441
--
470
--
495
--
518
--
541
--
20,008
--
24,125
--
Daily Production Profile by Play (MMcfe/d)

1,600
Marcellus
48%
22,381
PDP
Pinedale
Marcellus
(2)
Pinedale
52%
1,400
Net Production (MMcfe/d)
Total (Bcfe)
Total =
Total
1,200
1,000
800
600
400
200
0
2011
17
2012
2013
2014
2015
2016
2017
2018
2019
2020
Notes: (1) Pinedale wells based on company disclosed total gross wells as of 12/31/09 less expected wells brought online in 2010 (55% working interest). Marcellus gross well locations based on
3,000 net locations and 45% working interest per 4Q10 transcript.
(2) Excludes PDP of 1,744 Bcfe.
NAV Methodology: Financial Summary

($ in millions)
Net Production (MMcfe)
Oil (MBbl)
Gas (MMcf)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
1,570
240,957
1,608
280,426
1,746
318,939
1,969
361,673
2,155
396,318
2,328
427,258
2,486
454,622
2,629
479,174
2,762
501,837
2,888
523,302
3,008
543,232
250,376
250,000
686
17.2%
290,077
290,000
795
15.9%
329,413
330,000
903
13.6%
373,489
409,250
441,227
469,537
494,948
518,407
540,633
561,281
$110.77
4.44
$109.41
4.93
$105.81
5.31
$103.53
5.65
$102.46
6.03
$102.46
6.03
$102.46
6.03
$102.46
6.03
$102.46
6.03
$102.46
6.03
$102.46
6.03
$754
250
149
$508
596
357
$403
855
510
$391
1,083
646
$382
1,304
780
$361
1,440
860
$345
1,558
930
$332
1,664
993
$319
1,761
1,051
$311
1,851
1,105
$306
1,933
1,155
Total Oil and Gas Revenue

Hedging Revenue
$1,153
148
$1,460
9
$1,769
0
$2,120
0
$2,467
0
$2,661
0
$2,834
0
$2,989
0
$3,132
0
$3,267
0
$3,393
0
Total Revenue
$/mcfe (excl hedges)
$/mcfe (incl hedges)
$1,302
$4.61
5.20
$1,470
$5.07
5.07
$1,769
$5.37
5.37
$2,120
$5.68
5.68
$2,467
$6.03
6.03
$2,661
$6.03
6.03
$2,834
$6.04
6.04
$2,989
$6.04
6.04
$3,132
$6.04
6.04
$3,267
$6.04
6.04
$3,393
$6.05
6.05
Operating Costs
Production and Property Taxes
LOE
Corporate Transportation Costs
G&A
$162
70
61
24
$105
161
63
24
$81
225
68
24
$77
278
75
24
$74
327
81
24
$70
361
87
24
$67
390
92
24
$64
416
96
24
$62
441
100
24
$60
463
104
24
$59
483
108
24
Total Operating Costs

Total Op Costs $/mcfe
$318
$1.27
$353
1.22
$398
1.21
$455
1.22
$506
1.24
$542
1.23
$573
1.22
$601
1.21
$627
1.21
$652
1.21
$675
1.20
Total Net Production (MMcfe)

Company Guidance
Daily Production (MMcfe/d)
% Growth
NYMEX Price Deck
Oil ($ / Bbl)
Gas ($ / Mcf)
Realized Sales
Proved
Pinedale
Marcellus
2011
1,023
13.4%
1,121
9.6%
1,209
7.8%
1,286
6.4%
1,356
5.4%
1,420
4.7%
1,481
4.3%
1,538
3.8%
EBITDA
EBITDA Margin
$/mcfe
$983
76%
$3.93
$1,116
76%
$3.85
$1,371
78%
$4.16
$1,666
79%
$4.46
$1,960
79%
$4.79
$2,119
80%
$4.80
$2,261
80%
$4.81
$2,387
80%
$4.82
$2,505
80%
$4.83
$2,615
80%
$4.84
$2,718
80%
$4.84
Less: Interest
$/mcfe
$89
$0.35
$88
$0.30
$87
$0.26
$87
$0.23
$84
$0.21
$79
$0.18
$74
$0.16
$65
$0.13
$53
$0.10
$33
$0.06
$20
$0.04
Less: Cash Taxes

$/mcfe
Capex
Pinedale D&C
Marcellus D&C
$0
$0.00
$38
$0.13
$118
$0.36
$216
$0.58
$318
$0.78
$371
$0.84
$420
$0.90
$467
$0.94
$511
$0.99
$555
$1.03
$596
$1.06
$547
393
$552
395
$547
395
$549
393
$549
395
$549
395
$549
393
$547
395
$549
393
$549
395
$549
395
$940
$947
$942
$942
$945
$945
$942
$942
$942
$945
$945
$43
$224
$420
$613
$725
$824
$913
$998
$1,083
$1,158
$4,135
$4,696
$5,854
Total Capex
Free Cash Flow
Cash Balance
Total Debt
Debt / EBITDA
18
($45)
$71
$1,605
1.6x
$71
$1,562
1.4x
$293
$713
$1,226
$1,889
$2,597
$3,310
$1,560
1.1x
$1,560
0.9x
$1,460
0.7x
$1,398
0.7x
$1,282
0.6x
$1,082
0.5x
$909
0.4x
$387
0.1x
$387
0.1x
NAV Methodology: Net Asset Value

Base Price Case: PV-10 based on Strip Price Deck(1)
Current Price (04/15/11)
$48.12
$16,000
$13,909
$12,000
$13,909
$4,916
$1,489
$12,562
$244
$12,420
$142
$12,319
$8,993
Implied
Share
Price
$10,726
$1,593
$70.01
$10,726
Relative to
Current
$8,000
$6,124
$4,000
45%
$2,870
$2,870
$0
P DP (P V-10)
Net Resource
(Bcfe)
1,744
Ro ckies (P V-10) M arcellus (P V10)
11,545
10,837
Base Price Case PV-10

Marcellus (excl PDP)
35%
Total Resource
Value
Net Debt
Hedges
G&A
(2)
Income Taxes
Asset Value
PDP
Rockies
Marcellus
$6,422
$41,144
$54,432
$20,276
$1.65
$0.53
$0.45
$0.58
24,125
Base Case Valuation Metrics

Total PDP
21%
Valuation Metrics
PV 10 / 2011E Production ($ / mcfe/d)
PV-10 / Resources ($ / mcfe)
PV-10 / Risked Resources ($ / mcfe)
(4)
Total
$1.65
$0.38
$0.33
$0.48
NA
$139,171
$18,907
NA
PV-10 / Acre ($ / acre)

Rockies (excl PDP)
44%
19
(3)Net
Notes: (1) 5-year NYMEX strip prices as of 4/15/11.

(2) Assumes 2010 G&A capitalized at 10x.
(3) Cash taxes post G&A. Discounted at 10%. Assumes 40% income tax rate.
(4) Assumes 75% location risking (no change to PDP value or production). Rockies and Marcellus risked PV-10 of $3,284mm and $2,685mm.
NAV Methodology: Single-Well Analysis

Type Curve Profile
4.20
0% / 100% / 0%
6.03 (2)
$0.00
102.0%
45.0%
86.0%
$4,800
$1.33
0.24
5.0%
40.1%
$6,213
2,072
$0.49
Gross EUR (Bcfe)

% Oil, Gas, NGL
1-day IP Rate (MMcfe/d)
Differential (Oil)
Differential (Gas)
Com pany Working Interest
Net Revenue Interest
Gross Capex per Well ($ in thousands)
Net F&D Costs ($/mcfe)
Net LOE ($/m cfe)
Production Taxes
IRR (NYMEX strip)
PV-0 ($ in thousands)
PV-10 ($ in thousands)
PV-10 /(MMcfe)
Marcellus
10,000
Production (Mcfe / d)
Single Well Profile (8/8ths)
Avg. Daily Prod.

Decline Rate
Months
36
12
24
5,015
--
1,325
(74%)
881
(34%)
685
(22%)
48
60
571
(17%)
495
(13%)(1)
1,000
100
10
1
51
101
151
Months
201
251
301
Return Sensitivities
20
3.200
13.4%
18.0
23.2
29.2
35.9
43.3
Strip
21.1%
40.1%
32.9%
Well EUR (Bcfe)

3.700
4.200
4.700
18.8%
25.2%
32.5%
25.1
33.5
43.2
32.3
43.1
55.8
40.6
54.2
70.3
49.9
66.9
87.1
60.5
81.3
106.5
31.1%
40.1%
50.3%
27.5%
5.200
40.9%
54.5
70.5
89.3
111.2
136.7
61.9%
($/Bbl / $/MMBtu)
$3,800
3.5x
$70.00 / $4.00
3.9
$80.00 / $4.50
4.4
$90.00 / $5.00
4.8
$100.00 / $5.50
5.3
$110.00 / $6.00
5.8
$120.00 / $6.50
Strip
($/Bbl / $/MMBtu)
$70.00 / $4.00
$80.00 / $4.50
$90.00 / $5.00
$100.00 / $5.50
$110.00 / $6.00
$120.00 / $6.50
50.0%
Commodity Price
64.5%
ROI
Commodity Price
($/Bbl / $/MMBtu)
Capex per Well ($ in thousands)

$3,800
$4,300
$4,800
$5,300
$5,800
42.8%
32.3%
25.2%
20.1%
16.3%
$70.00 / $4.00
57.1
43.0
33.5
26.7
21.8
$80.00 / $4.50
73.9
55.4
43.1
34.4
28.0
$90.00 / $5.00
93.6
69.9
54.2
43.2
35.2
$100.00 / $5.50
86.6
66.9
53.2
43.3
$110.00 / $6.00 116.8
105.8
81.3
64.5
52.4
$120.00 / $6.50 143.7
Strip
($/Bbl / $/MMBtu)
Commodity Price
Commodity Price
IRR
$70.00 / $4.00
$80.00 / $4.50
$90.00 / $5.00
$100.00 / $5.50
$110.00 / $6.00
$120.00 / $6.50
Strip
4.9x
3.200
2.1x
2.4
2.6
2.9
3.2
3.5
2.8x
Capex per Well ($ in thousands)

$4,300
$4,800
$5,300
$5,800
3.1x
2.7x
2.5x
2.3x
3.5
3.1
2.8
2.6
3.9
3.5
3.1
2.9
4.3
3.8
3.5
3.2
4.7
4.2
3.8
3.5
5.1
4.6
4.1
3.8
4.3x
3.5x
3.2x
Well EUR (Bcfe)

3.700
4.200
4.700
2.4x
2.7x
3.1x
2.7
3.1
3.5
3.1
3.5
3.9
3.4
3.8
4.3
3.7
4.2
4.7
4.0
4.6
5.1
5.200
3.4x
3.8
4.3
4.7
5.2
5.6
3.4x
3.9x
3.9x
4.3x
4.8x
Source: Company filings, investor presentations.

Note: Reflects NYMEX strip pricing as of 4/15/11.
(1) Terminal decline rate = ~5%.
(2) Based on average IP rate of producing wells as of 12/31/10. 2010 average 1-day IP rate of 6.4MMcfe/d and 5.66MMcfe/d based on early Marcellus well per company investor presentation.
NAV Methodology: Consolidated Reserve Summary

($m), unless otherwise noted
Year
21
Gross
Wells
Drilled
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Rem.
396
399
397
397
398
398
397
397
397
398
398
397
397
399
396
6,120
Total
12,081 -
Net
Wells
Drilled
201
202
201
201
202
202
201
201
201
202
202
201
201
202
201
2,985
6,007 -
Revenue
Natural Gas
($M)
Net Production
Oil
Natural Gas
(MBbls)
(MMcf)
Total Net
Production
(MMcfe)
1,570
1,608
1,746
1,969
2,155
2,328
2,486
2,629
2,762
2,888
3,008
3,118
3,217
3,312
3,394
73,519
240,957
280,426
318,939
361,673
396,318
427,258
454,622
479,174
501,837
523,302
543,232
561,800
578,731
595,244
609,750
16,581,507
250,376
290,077
329,413
373,489
409,250
441,227
469,537
494,948
518,407
540,633
561,281
580,509
598,032
615,115
630,112
17,022,618
111,709
23,454,769
24,125,025
Benchmark Com m odity Prices

Oil
Natural Gas
($/bbl)
($/mcf)
$110.77
109.41
105.81
103.53
102.46
102.46
102.46
102.46
102.46
102.46
102.46
102.46
102.46
102.46
102.46
102.46
$4.44
4.93
5.31
5.65
6.03
6.03
6.03
6.03
6.03
6.03
6.03
6.03
6.03
6.03
6.03
6.03
Realized Com modity Prices

Oil
Natural Gas
NGL
($/bbl)
($/mcf)
($/bbl)
$96.27
94.91
91.31
89.03
87.96
87.96
87.96
87.96
87.96
87.96
87.96
87.96
87.96
87.96
87.96
96.27
$4.16
4.66
5.05
5.38
5.75
5.75
5.75
5.75
5.76
5.76
5.76
5.76
5.76
5.76
5.76
5.86
$0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Total
Revenue
($M)
Production
Taxes
($M)
Lease
Op Expense
($M)
Transpo
Costs
($M)
Field Level
EBITDA
($M)
Drilling and
Com pletion
($M)
Field Level
Cash Flow
($M)
Discounted CF
PV-10
($M)
($80,469)
184,600
453,241
747,717
1,040,026
1,199,315
1,342,564
1,469,767
1,586,514
1,695,224
1,798,105
1,896,234
1,984,313
2,064,627
2,147,278
73,007,624
($78,769)
159,410
356,090
534,900
676,739
709,492
722,156
718,798
705,367
685,030
660,616
633,371
602,548
569,816
538,778
5,714,525
Year
Oil
($M)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Rem.
$151,132
152,652
159,391
175,319
189,585
204,780
218,663
231,252
242,929
254,061
264,598
274,265
282,965
291,309
298,507
7,077,449
$1,001,975
1,307,783
1,609,219
1,945,167
2,277,006
2,456,421
2,615,035
2,757,393
2,888,816
3,013,239
3,128,667
3,236,307
3,334,566
3,430,411
3,514,790
97,209,313
$1,153,108
1,460,435
1,768,610
2,120,486
2,466,590
2,661,201
2,833,698
2,988,645
3,131,745
3,267,300
3,393,265
3,510,573
3,617,531
3,721,720
3,813,297
104,286,761
$125,961
149,111
175,616
208,448
240,648
258,501
274,381
288,620
301,759
314,248
325,921
336,721
346,486
355,990
364,214
8,812,407
$106,563
117,088
130,280
146,723
159,987
171,887
182,448
191,913
200,644
208,938
216,678
223,849
230,342
236,668
242,154
5,939,498
$61,259
62,573
67,519
75,250
81,421
86,990
91,955
96,392
100,480
104,382
108,052
111,421
114,437
117,372
119,858
2,444,000
$859,324
1,131,663
1,395,195
1,690,065
1,984,534
2,143,823
2,284,912
2,411,720
2,528,862
2,639,732
2,742,613
2,838,582
2,926,266
3,011,690
3,087,071
87,090,857
$939,793
947,063
941,953
942,348
944,508
944,508
942,348
941,953
942,348
944,508
944,508
942,348
941,953
947,063
939,793
14,083,233
Total
$10,468,855
$135,726,108
$146,194,963
$12,879,033
$8,705,659
$3,843,361
$120,766,910
$28,230,229
$92,536,680
$13,908,868
Public Comparables Methodology: Overview

Peer
Median
($ in millions)
UPL
RRC
EQT
QEP
COG
XCO
Share Price (as of 04/15/11)
$48.21
$39.64
$26.29
$53.40
$46.96
$38.34
$53.23
$20.74
Equity Value
Plus: Debt
Less: Cash
Other Adjustments (1)
Enterprise Value
$7,377
1,560
(71)
0
$8,866
$13,897
1,094
(16)
0
$14,975
$8,046
2,607
(56)
217
$10,815
$8,674
1,061
(3)
155
$9,887
$7,034
2,003
0
191
$9,228
$6,797
1,531
0
97
$8,425
$5,551
975
(56)
0
$6,470
$4,546
1,310
(206)
379
$6,029
$6.17
6.85
$4.66
5.94
$3.53
4.93
$4.49
5.72
$5.09
6.08
$6.48
7.87
$5.40
7.29
$2.62
3.71
$941
1,045
$1,622
2,064
$1,068
1,492
$721
919
$759
907
$1,143
1,388
$564
760
$559
793
$1,024
1,141
$1,684
2,079
$1,378
1,779
$827
1,022
$835
1,011
$1,255
1,489
$642
837
$599
840
Operating Metrics
2011E Cash Flow per Share (3)
2012E Cash Flow per Share (3)
2011E Cash Flow
2012E Cash Flow
(3)
(3)
2011E EBITDA (3)

2012E EBITDA (3)
Proved Reserves (Bcfe)
% Proved Developed
% Gas
HK
53%
97
4,937
55%
100
3,392
35%
92
4,442
49%
80
5,220
49%
100
3,031
53%
86
2,701
64%
98
1,499
55%
97
622
705
840
19.3x
7.7
12.2x
6.5
1,211
1,624
1,530
11.2x
6.1
762
877
1,080
12.2x
4.3
428
560
705
28.4x
14.0
438
477
567
32.7x
15.9
678
717
816
12.2x
6.5
407
481
564
18.2x
11.6
385
500
679
10.7x
5.8
$1,489
1.5x
1.3
$0.85
$2,112
1,773
1.4x
1.1
$0.79
$2,135
1,629
$1,078
0.6x
0.5
$0.40
$664
705
$2,551
1.9x
1.4
$2.15
$2,910
2,361
$1,058
1.3x
1.0
$0.48
$1,888
1,499
$2,003
2.4x
2.0
$0.79
$4,202
3,532
$1,531
1.2x
1.0
$0.95
$2,135
1,876
$919
1.4x
1.1
$0.53
$1,910
1,629
$1,105
1.8x
1.3
$1.34
$2,208
1,626
Valuation Metrics
Price /
2011E CFPS
2012E CFPS
7.8x
7.0
8.5x
6.7
8.5x
6.7
7.4x
5.3
11.9x
9.3
9.2x
7.7
5.9x
4.9
9.8x
7.3
7.9x
5.6
Firm Value /
2011E EBITDA
2012E EBITDA
8.7x
7.8
10.1x
7.2
8.9x
7.2
7.8x
6.1
11.9x
9.7
11.0x
9.1
6.7x
5.7
10.1x
7.7
10.1x
7.2
Current Production (MMcfe/d) (2)

2011E Production (MMcfe/d) (3)
2012E Production (MMcfe/d) (3)
Proved R / P (2)
Proved Developed R / P
Credit Statistics
Net Debt /
2011E EBITDA
2012E EBITDA
Proved Dev. Reserves ($ / Mcfe)
2011E Daily Production ($/ Mcfe/d)
2012E Daily Production ($/ Mcfe/d)
Proved Reserves ($ / Mcfe)

2011 Production ($ / Mcfe/d)
2012 Production ($ / Mcfe/d)
4,390
40%
96
SWN
$2.02
$12,578
10,556
$2.78
$12,338
10,327
$3.03
$9,219
9,786
$3.19
$12,338
10,009
Source: Company filings, investor presentations, Wall Street research. Market data as of 4/15/11.
(1)
Includes adjustments related to non-controlling interest and investments in affiliates.
Based on Q4 2010 production.
(3)
Per Wall Street mean consensus estimates.
22 (2)
$2.23
$17,646
14,016
$1.77
$19,363
16,273
$2.78
$11,748
10,327
$2.40
$13,446
11,471
$4.02
$12,055
8,878
Precedent Reserves Transactions Methodology: Overview

Date
Acquiror
Target / Seller
Location
2010/03/18 Opon International

Fidelity E&P; MDU
2010/03/15
Resources
2009/08/10 Williams Companies
Delta Petroleum
Piceance
Undisclosed
2009/03/03 Undisclosed
2008/11/03 Devon
Chevron
Chicago Energy
Associates
Dominion
Laramie Energy
Koch Exploration
Undisclosed
Undisclosed
Uinta
Piceance
Piceance
Piceance
Green River Basin
2004/12/06 Berry Petroleum
J-W Operating Company
2004/09/01
2004/08/27
2004/08/27
2004/07/22
2004/06/29
2003/06/06
Calpine
Undisclosed
Calpine
Various
SG Interests
MarkWest
2008/05/05 Whiting
2007/06/04
2007/04/18
2006/03/09
2006/01/27
2005/02/23
XTO
Plains E&P
Black Hills
Berry Petroleum
Whiting
Bill Barrett
Pogo Producing
Pogo Producing
Western Gas
Energen
XTO
2003/04/09 XTO
2003/03/11
2002/11/25
2002/11/06
2002/08/01
2002/04/18
2002/04/11
2002/04/01
2001/01/09
Sacramento Municipal
Utility District
XTO
Westport Resources
EnCana
EnCana
MRO; XTO
Bill Barrett
Texaco
2000/10/25 Barrett Resources
Transaction
Value ($ MM)
(Bcfe)
R/P
Transaction Value /
Reserves Daily Prod.
($ / Mcfe) ($ / Mcfe/d)
Adj. Transaction Value / (1)

Reserves
Daily Prod.
($ / Mcfe)
($ / Mcfe/d)
$400
32
9.2
95%
NA
9.5
$3.22
$11,124
$3.03
$10,486
Green River Basin
113
63
14.5
92
81
11.9
1.49
6,464
1.40
6,091
Orion Energy
Piceance
258
150
24.0
100
NA
17.1
0.65
4,031
0.55
3,448
Berry Petroleum
Denver-Julesburg (D-J)
154
126
18.0
100
NA
19.2
1.11
7,778
1.00
7,035
Uinta
779
210
40.0
100
66
14.4
3.71
19,483
2.34
12,268
365
115
19.0
98
22
16.6
3.17
19,211
1.34
8,136
2,500
945
51
159
65
1,060
384
40
26
50
200.0
36.0
1.9
1.0
6.3
95
97
100
100
98
64
NA
22
NA
68
14.5
29.2
57.0
71.2
22.0
1.69
2.13
1.27
3.19
1.29
8,937
22,692
26,500
83,000
10,317
0.96
1.22
0.69
1.57
0.91
5,075
12,961
14,415
40,886
7,310
Denver-Julesburg (D-J)
105
87
8.8
100
39
27.1
1.21
11,932
0.84
8,348
Piceance
San Juan Basin
San Juan Basin
San Juan Basin
San Juan Basin
San Juan Basin
Raton/Hugoton/San
Juan
137
106
83
82
263
61
50
56
44
60
240
50
NA
8.4
6.6
NA
NA
9.5
98
100
100
100
80
100
56
NA
NA
NA
50
NA
NA
18.3
18.3
NA
NA
14.4
2.74
1.89
1.89
1.37
1.03
1.21
NA
12,607
12,591
NA
NA
6,369
2.16
1.40
1.40
1.00
1.10
0.87
NA
9,354
9,342
NA
NA
4,585
400
311
60.0
100
77
14.2
1.20
6,232
1.06
5,499
El Paso
San Juan Basin
138
163
16.0
100
NA
28.0
0.84
8,625
0.65
6,634
JM Huber
El Paso
Williams Companies
El Paso
CMS Energy
Williams Companies
EnerVest
San Juan Basin

Uinta
Jonah Field
Piceance
Powder River Basin
Wind River
San Juan Basin
160
502
350
293
101
74
121
154
600
395
300
110
58
204
29.0
80.0
106.7
38.0
14.0
27.9
21.5
100
100
96
85
100
100
100
79
47
68
NA
NA
NA
NA
14.5
20.5
10.1
21.6
21.6
5.7
26.0
1.04
0.84
0.79
0.93
0.67
1.23
0.53
5,517
6,275
2,911
7,349
5,253
2,573
5,056
1.16
0.98
1.12
1.50
0.88
1.57
0.38
6,156
7,369
4,151
11,872
6,909
3,280
3,559
53
75
5.2
100
20
39.5
0.65
9,309
0.65
9,437
98%
100
54% 22.5
60
18.3
$1.53
1.22
$12,886
8,625
$1.21
1.08
$8,984
7,310
Williams Companies
Uinta
Kansas City Power & Light Raton Basin
Mean
Median
23
Proved Reserves
(MMcfe/d) % Gas % PD
Source: John S. Herold, Inc.

(1) Adjusted based on 12/7/10 strip of $89.90 / Bbl and $4.54 / MMBtu
Precedent Acreage Transactions Methodology: Overview

Date
Acquiror
Target / Seller
Location
2010/11/15
2010/11/09
2010/10/06
2010/09/22
2010/08/31
2010/07/20
2010/08/05
2010/05/28
2010/05/28
2010/05/10
2010/04/21
2010/04/09
2010/03/26
2010/03/15
2010/03/02
2010/02/16
2010/01/19
2009/12/21
2009/10/29
2009/09/30
2009/09/30
2009/09/18
2009/08/19
2009/06/22
2009/06/09
2008/11/11
2008/11/04
2008/06/30
2008/04/15
Newfield Exploration
Chevron
Chesapeake Energy
Atinum Partners
Sumitomo
Trans Energy
Reliance Industries
Royal Dutch Shell
Penn Virginia
BG Group
Atlas, Reliance
Reliance Industries
Statoil Hydro
CONSOL Energy
EQT
Mitsui
Chesapeake Energy
Ultra Petroleum
Magnum Hunter Resources
Chesapeake Energy
Fortuna Energy
Undisclosed
Enerplus Resources
Williams Companies
Kohlberg Kravis Roberts
Statoil Hydro
Carrizo Oil & Gas
Antero Resources
XTO Energy
EOG Resources
Marcellus
Atlas Energy
Marcellus
Marcellus
Anschutz Exploration
Gastar Exploration
Marcellus
Rex Energy
Marcellus
Republic Energy
Marcellus
Carrizo Oil & Gas
Marcellus
East Resources / Kohlberg Kravis Roberts
Marcellus
Marcellus
Undisclosed
EXCO Resources
Marcellus
Undisclosed
Marcellus
Atlas Energy
Marcellus
Chesapeake Energy
Marcellus
Dominion Resources
Marcellus
Undisclosed
Marcellus
Anadarko
Marcellus
Epsilon Energy
Marcellus
NCL Appalachian Partners
Marcellus
Triad Energy
Marcellus
Wyoming County Landowners Group Marcellus
Friendsville Group
Marcellus
Epsilon Energy
Marcellus
Chief Oil & Gas
Marcellus
Rex Energy
Marcellus
East Resources
Marcellus
Chesapeake Energy
Marcellus
Avista Capital Partners
Marcellus
Dominion Resources
Marcellus
Linn Energy
Marcellus
Mean JV
Median JV
24
Source: John S. Herold, Inc.

Mean M&A
(1) Acreage represents Reliance JV AMI acreage only. Excludes Laurel Mountain and AHD value.
Median M&A
$900mm of value allocated to proved reserves and hedges, 105,000 Utica / Collingwood acres values
at $1,000 / acre, 144,000 non-Marcellus JV acres valued at $2,000 / acre.
(2) Value allocated assuming $8,000 / Mcfe/d of production and $250 / acre for non-Marcellus acreage
(3) Value allocated to existing production at $10,000 / Mcfe/d
Total
Value ($ MM)
$405.0
3,703.0
850.0
70.0
140.0
27.0
392.0
4,700.0
19.5
950.0
191.9
1,700.0
253.0
3,475.0
280.0
1,400.0
100.0
400.0
81.0
212.8
192.0
12.7
406.0
33.0
350.0
3,375.0
71.5
347.0
600.0
Net
Acreage
50,000
342,000
500,000
17,100
15,555
3,800
62,600
650,000
10,000
93,000
42,344
120,000
59,000
491,393
58,000
100,000
5,750
80,000
47,000
37,000
35,000
3,734
116,000
22,000
650,000
585,000
77,500
114,259
152,000
$ / Acre
$8,100
7,084
1,700 (1)
4,094
9,000
7,105
6,262
6,385
1,950
(2)
8,073
4,532
14,167
4,288
(3)
4,797
4,828
14,000
(4)
10,530
5,000
1,000 (5)
5,751
5,486
3,401
3,500
1,500
538
5,769
923
3,037 (6)
1,645
$6,696
6,016
$4,047
4,797
Drivers of Value
Good Oil & Gas Property = Good Real Estate
Good Rock
Attractive Location
Low Costs
High Oil or Gas-in-place
Relative supply and demand

for the commodity
Shallow reservoir = lower cost

drilling
Quality hydrocarbon
Rockies vs. Appalachia
Ability of the hydrocarbon to
flow through rock
(permeability)
Some rock tougher to drill
Proximity to Transportation
Infrastructure
Friendly operating
environment
Low operating costs

Low water cut
Infrastructure in place
(roads, electricity, etc)
Fiscal regime
Alaska vs. West Texas
25
3. Understanding the Upstream P&L
Land and Leasing Issues

E&P companies rarely own the land on which they drill, but instead will lease mineral rights
Usually, the lessor (owner) receives an upfront cash payment (bonus payment) in addition to a
percentage of the oil and gas revenue generated by the lease (royalty)
Royalties in the Lower 48 typically range from 12.5% to 25%, but terms are negotiated, and vary
widely
A typical lease gives a company (lessee) a period of three to five years to generate commercial
production on the lease
Once commercial production is established, a lease is said to be held-by-production (HBP)
If no production is established, the expires
Future lease expirations often have a substantial impact on a companys drilling plans as companies
will plan drilling programs to lock up acreage that expires in the near-term
Large, contiguous blocks of acreage are preferred as they provide operators with greater flexibility in
locking up acreage
Leasing terms from the federal government tend to be more favorable due to longer lease terms
More common in the Rockies
26
Operating Drivers
Revenue = Price * Quantity
Expenses
Gross (Wellhead) Production
Production Taxes, which include:
Less: royalties
Severance Taxes (Percent of Revenue)
Net Production
Ad Valorem Taxes (Percent of Revenue,

but net of Severance)
Note: Production generally shown in daily terms

Lease Operating Costs (fixed and
variable components, sometimes
Benchmark (NYMEX) Prices
simplified to a $ per Mcfe or Boe basis)
Less: Basis
Less / Plus: Quality differences
Less: Transportation Costs
= Realized Prices
SG&A (generally a fixed cost)

Differential
Exploration Costs, depending on whether

a company chooses full cost or
successful efforts accounting
Added back to calculate EBITDAX for
comparability purposes
DD&A calculation is complex
27
Calculating Production
Current Production
Net wells = gross wells * average working interest (W.I.)
Gross: wells in which you own an interest
Working interest: percent that you own
Note: all company-level disclosure is generally on a net basis
Production = net wells * average net production per well
Net production per well = wellhead production less royalties
Future Production
Remaining drilling inventory (locations)= risked acreage / well spacing
Production = type curve * wells drilled
Risked acreage = total acreage * risk rate
Wells drilled per year = rigs operating * (365 / spud-to-spud)
28
Illustrative Horizontal Well Bore Schematic

Denson 2H-15
Denson 2H-15
200' FSL & 300' FWL
Sec 10-1N-10E
Coal
Oklahoma
9 5/8", 36#, J-55 csg
688' GL, 710' KB

December 1, 2009
Set @ 295'
Cmt w/ 210 sxs.
Cmt top @ 6150'
KOP @ 7440'
5 1/2" P-110, 17# csg set @ 13057'
Cmt w/ 880 sxs
LP @ 8360' (81.68 deg - 8012' TVD)
TD @13057'
90.57 deg
7838' TVD
PBD @ 13000'
Top of
8270'
8700'
9110'
9496'
10040'
10470'
10910'
11355'
11790'
12230'
12670'
4' perf guns

6 jspf
96 holes/stg
8370'
8470'
8570'
8800'
8900'
8990'
9190'
9280'
9380'
9540'
9590'
9640'
10130'
10230'
10330'
10565'
10675'
10770'
11010'
11110'
11200'
11450'
11550'
11650'
11890'
11990'
12090'
12330'
12430'
12530'
12810'
12950'
9690'
9740'
9790'
9885'
29
Illustrative 80-Acre Horizontal Well Spacing

175
175
#2
#3
#4
#5
#7
#8
4930 Laterals
5280
330
660
660
175
175
660 x 7 + (330 + 330) = 5,280
1 section = 640 acres, or 1 square mile

30
#6
4930 Laterals
#1
330
Realizing Pricing Subject to Many Issues
Commodity
Benchmark
Pricing
Differentials
Transportation
WTI
Realized
Pricing
Quality
Quality
Brent
Location
Henry Hub
Location
31
New Pipeline Capacity Has Reduced Woodford Basis

$14.00
Fall 08 Financial Crisis
$12.00
$ / MMBtu
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
Jan-08
Jul-08
Centerpoint East
Jan-09
Panhandle East
A: REX West Pipeline goes into service.

B: Texas Gulf Crossing Pipeline goes into service.
32
Jul-09
Jan-10
Jul-10
Henry Hub
C: Midcontinental Express Pipeline goes into service.

D: REX East Pipeline goes into service.
Accounting Discussion
E&P companies may choose from two different accounting methods for exploration and dry well expenses: full cost
or successful efforts.
Full Cost
Successful Efforts
Capitalize all costs associated with drilling,

including dry hole and G&G and G&A costs
Capitalize only costs of successful wells
Higher carrying value of PP&E

Generally, higher earnings than Successful Efforts
from lower expense associated with dry holes
In theory, identical cash from operations relative
to Successful Efforts
Preference of smaller companies with more
volatile earnings
More stringent ceiling test required to avoid build
up of unrecovered costs
Carrying value compared to after-tax, pre-G&A
PV-10 of cash flow
33
Expense of dry hole and G&G and G&A costs as

incurred
Lower carrying value of PP&E
Generally, lower earnings than Full Cost from
higher expense associated with dry holes
In theory, identical cash from operations relative
to Full Cost
Preference of larger companies
Unusual to book asset impairments due to regular
expensing of unsuccessful efforts
Carrying value compared to pre-tax, pre-G&A,
undiscounted value of cash flow
4. E&P Ratio Analysis
Reserve Replacement Cost and Rate

Pioneer Natural Resources Company
Reserve Replacement Costs per boe (RRC) are computed by taking total costs incurred (proved and
unproved property acquisition costs, exploration costs and development costs) during the applicable
period as the numerator and dividing by the total oil equivalent reserve changes associated with
discoveries and extensions, revisions in estimates, improved recovery and purchase of proved reserves
in place as the denominator
Reserve Replacement Rates are computed by dividing production for the period into the total reserve
changes for the period used in the denominator for computing RRC reduced by volumes sold during the
period
Pioneer Nat Res Summary Worldwide
Capital Efficiencies Measures
(1) All Sources
(a) Reserve Replacement Cost
Total Costs Incurred (US$ MM)
Net Reserves Added (MMBOE)
Extensions and discoveries
Improved recovery
Revisions of previous estimates
Purchase of reserves in place
Total Net Reserves Added (MMBOE)
Reserve Replacement Cost (US$ / BOE)
JS Herold
Other Source
34
$
$
5
Worldwide
3
United States
1 Year
3 Years
5 Years
2000
1998-00
1996-00
340 $
1,004 $
5,460
38.0
27.5
7.4
72.9
4.66
4.66
NA
$
$
59.2
70.7
14.7
144.6
6.94
6.94
NA
$
$
66.6
191.3
474.6
732.5
7.45
7.45
NA
$
$
1 Year
3 Years
5 Years
2000
1998-00
1996-00
204 $
640 $
3,908
15.9
29.9
5.9
51.8
3.94
3.94
NA
$
$
17.0
74.8
5.9
97.8
6.55
6.55
NA
$
$
23.1
195.9
320.7
539.8
7.24
7.24
NA
(b) Reserve Replacement Rate I

Total net reserves added (MMBOE)
Production (MMBOE)
Reserve Replacement Rate (%)
72.9
43.6
167%
144.6
157.5
92%
732.5
216.8
338%
51.8
30.9
168%
97.8
117.0
84%
539.8
175.4
308%
(c) Reserve Replacement Rate II

Reserves Added Less Sales (MMBOE)
Total net reserves added (MMBOE)
Less: sales of reserves in place
Total Reserves Added Less Sales (MMBOE)
Production (MMBOE)
JS Herold
Other Source
72.9
(6.6)
66.3
43.6
152%
NA
NA
144.6
(120.5)
24.1
157.5
15%
NA
NA
732.5
(184.3)
548.2
216.8
253%
NA
NA
51.8
(6.6)
45.2
30.9
146%
146%
NA
97.8
(104.1)
(6.3)
117.0
(5%)
NA
NA
539.8
(136.5)
403.3
175.4
230%
230%
NA
F&D Cost and Rate

Finding and Development Costs per boe (FDC) are computed by taking as the numerator total costs
incurred less costs of proved property acquisitions and dividing by a denominator comprised of the total
oil equivalent reserve changes for the period associated with discoveries and extensions, revisions in
estimates and improved recoveries (costs associated with proved property purchases are excluded)
Finding and Development Replacement Rates are computed by dividing production for the period into
the total reserve changes associated with discoveries and extensions, revisions in estimates and
improved recoveries
(2) Finding & Development
(d) Finding & Development Costs
Costs Incurred (US$ MM)
Unproved property acquisition
Exploration
Development
Reserves Added (MMBOE)
Improved recovery
Revisions of previous estimates
Finding & Development Cost (US$ / BOE)
JS Herold
Other Source
(e) Reserve Replacement Rate
Production (MMBOE)
JS Herold
Other Source
(3) Finding & Development (No Revisions)
(f) Finding & Development Costs
Improved recovery
(g) Reserve Replacement Rate
Production (MMBOE)
35
2000
$
$
$
$
31
131
142
304
38.0
27.5
65.5
4.64
4.64
NA
Worldwide
1998-00
$
$
$
$
65.5
43.6
150%
150%
NA
37
323
544
905
59.2
70.7
129.9
6.97
6.97
NA
1996-00
$
$
$
$
129.9
157.5
82%
82%
NA
581
458
965
2,003
66.6
191.3
257.9
7.77
7.77
NA
38.0
38.0
7.99
38.0
43.6
87%
59.2
157.5
38%
$
$
$
$
257.9
216.8
119%
119%
NA
Worldwide
2000
1998-00
1996-00
304 $
905 $
2,003
59.2
59.2
15.29
2000
66.6
66.6
30.07
66.6
216.8
31%
United States
1998-00
28
65
85
178
15.9
29.9
45.8
3.88
3.88
NA
$
$
$
$
45.8
30.9
149%
149%
NA
65
170
358
594
17.0
74.8
91.9
6.46
6.46
NA
1996-00
$
$
$
$
91.9
117.0
79%
79%
NA
162
290
770
1,222
23.1
195.9
219.0
5.58
5.58
NA
219.0
175.4
125%
125%
NA
United States
2000
1998-00
1996-00
178 $
594 $
1,222
15.9
15.9
11.20
15.9
30.9
52%
17.0
17.0
34.85
17.0
117.0
15%
23.1
23.1
52.88
23.1
175.4
13%
E&P Capital Efficiency Data


(4) Exploration and Development
(h) Finding & Development Costs
Exploration
Development
2000
$
$
(i) Reserve Replacement Rate

Production (MMBOE)
(5) Proved Reserve Acquisitions
(j) Proved Reserve Replacement Cost
Cost of proved property acquisition ($ MM)
Reserves added through proved acq (MMBOE)
Proved Reserve Replacement Cost (US$ / BOE)
(k) Reserve Replacement Rate
Reserves added through proved acq (MMBOE)
Production (MMBOE)
36
$
$
Worldwide
1998-00
1996-00
131
142
273 $
38.0
7.17 $
323
544
868 $
59.2
14.66 $
458
965
1,423
66.6
21.36
38.0
43.6
87%
59.2
157.5
38%
66.6
216.8
31%
Worldwide
2000
1998-00
1996-00
36 $
99 $
3,457
7.4
14.7
474.6
4.90 $
6.73 $
7.28
7.4
43.6
17%
14.7
157.5
9%
474.6
216.8
219%
2000
$
$
$
$
United States
1998-00
1996-00
65
85
150 $
15.9
9.42 $
170
358
528 $
17.0
31.01 $
290
770
1,060
23.1
45.87
15.9
30.9
52%
17.0
117.0
15%
23.1
175.4
13%
United States
2000
1998-00
1996-00
26 $
47 $
2,686
5.9
5.9
320.7
4.41 $
7.89 $
8.38
5.9
30.9
19%
5.9
117.0
5%
320.7
175.4
183%
Per Barrel Income and Cash Flow

Anadarko Petroleum Corporation
Oil and gas differentials
Realized oil and gas revenue per BOE
Lease operating expense per BOE
Cash netback per BOE
Oil and Gas Disclosure: Select Income,
Cash Flow and Operating Data
1998A
1999A
FYE Dec 31
2000A
Oil and Gas Disclosure:

Per Barrel Economics
(US$ / BOE)
1997
1999
2000
Total Production
Liquids (MMBBL)
Gas (BCF)
Oil Equivalent (MMBOE 6:1)
1998A
14.5
179.0
44.3
17.8
177.0
47.3
21.1
170.0
49.4
47.0
385.0
111.2
Blended Benchmark Commodity Price (1)

Oil and Gas Blended Differential
Realized Oil and Gas Revenue
16.76
(2.00)
14.76
13.20
(1.84)
11.37
16.04
(2.15)
13.89
27.72
(2.51)
25.21
Average Realized Commodity Prices

Liquids (US$ / BBL)
Natural Gas (US$ / MCF)
16.76
2.30
11.05
1.92
15.76
2.08
25.29
4.13
Average Benchmark Commodity Prices

WTI oil spot (US$ / BBL)
Henry Hub gas spot (US$ / MCF)
Lease Operating Expenses

General and Administrative
Cash Netback (i.e., EBITDAX)
(3.56)
0.00
11.20
(3.66)
0.00
7.70
(3.23)
0.00
10.66
(5.17)
0.00
20.04
20.58
2.48
14.38
2.08
19.30
2.27
30.37
4.30
Oil and Gas DD&A

Oil and Gas Operating Income (EBIT)
(4.09)
7.11
(3.88)
3.82
(3.97)
6.70
(5.13)
14.91
Commodity Differentials
Liquids (US$ / BBL)
Natural Gas (US$ / MCF)
(3.83)
(0.18)
(3.33)
(0.16)
(3.54)
(0.19)
(5.07)
(0.17)
Oil and Gas Income Taxes

Oil and Gas Net Income (NOPAT)
(2.52)
4.59
(1.37)
2.45
(2.83)
3.87
(5.78)
9.13
Oil and Gas Revenues (US$ MM)

Liquids sales
Gas sales
Total Oil and Gas Revenues
7.59
6.24
6.46
9.28
242.6
411.7
654.29
197.8
339.8
537.6
333.0
353.6
686.6
1,213.0
1,590.1
2,803.0
Oil and Gas Costs and Expenses (US$ MM)

Production costs (incl. prod taxes)
Other operating costs
General and administrative
Exploration expense
Impairment costs
Book DD&A
Total Oil and Gas Costs and Expenses
(157.8)
0.0
0.0
0.0
0.0
(181.2)
(339.0)
(173.2)
0.0
0.0
0.0
0.0
(183.6)
(356.8)
(159.5)
0.0
0.0
0.0
0.0
(196.2)
(355.7)
(575.0)
0.0
0.0
0.0
0.0
(570.0)
(1,145.0)
1,658.0
Oil and Gas Analyst Cash Flow
315.3
180.8
331.0
Oil and Gas Income Taxes
(US$ MM)
(111.7)
(64.8)
(139.7)
Oil and Gas Net Inc (NOPAT)
(US$ MM)
203.6
116.0
191.3
1,015.0
496.4
364.4
527.2
2,228.0
FYE Dec 31
1997A
1998A
1999A
FYE Dec 31
2000A
203.6
181.2
0.0
(48.3)
336.5
116.0
183.6
0.0
(4.5)
295.1
191.3
196.2
0.0
(68.1)
319.4
1,015.0
570.0
0.0
(553.7)
1,031.3
(55.6)
(231.1)
(363.7)
(650.4)
(177.3)
(305.2)
(377.2)
(859.7)
(92.9)
(206.7)
(353.5)
(653.1)
(7,047.0)
(415.0)
(1,054.0)
(8,516.0)
Note: Oil and Gas EBITDAX (US$ MM)

Oil and Gas Disclosure: Select Income,
Cash Flow and Operating Data (cont'd)
(US$ MM)
Net Income
DD&A
Exploration Expense + Impairment
Deferred Taxes
Oil and Gas Capital Expenditures
Acquisitions
Exploration
Development
Total Oil and Gas Capital Expenditures
Approximate Oil and Gas Free Cash Flow
Source of data
(643.0)
(314.0)
(564.6)
(333.7)
(7,484.7)
12/97 10-K
12/98 10-K
12/99 10-K
12/00 10-K
FYE Dec 31
1997A
1998
FYE Dec 31
1999A
2000A
Oil and Gas Earnings B4 Int & Tax (EBIT)
37
FYE Dec 31
1997A
(1) Based on WTI oil and Henry Hub natural gas spot prices using co's actual production mix in given year
Full-Cycle Economic Costs

Landscape of E&P Costs
Full-cycle costs are the total
capital and operating costs of
producing oil
Full cycle costs are sum of
Reserve replacement cost
+ Production cost
Full cycle costs generally
exclude G&A, interest and
transportation costs
A companys full cycle costs
are very much tied to the
region(s) in which it operates
U .S . L a rg e -C a p E x p lo ra tio n a n d P ro d u c tio n S e c to r
Y e a r 2 0 0 0 F u ll C yc le E c o n o m ic s ($ /B O E )
3 -Y r A ll S o u rc e s
2000 L ease
2000
F u ll-C yc le
R e s e rv e R e p la c e O p e ra tin g
G &A
E c o n o m ic
m e n t C o s ts
E xpen ses
C o st
C o s ts
(6 M C F / B b l)
H is to ric a l F u ll C yc le E c o n o m ic s ($ /B O E )
2000
1999
1998
3 -Y r A v e r a g e
(1 9 9 8 -0 0 )
B u rlin g to n
5 .8 0
7 .1 6
0 .0 0
1 2 .9 6
1 2 .9 6
1 1 .1 1
1 1 .4 2
1 1 .8 3
O c e a n E n e rg y
6 .0 8
5 .1 8
0 .0 0
1 1 .2 7
1 1 .2 7
1 1 .0 0
1 2 .4 3
1 1 .5 6
K e rr-M c G e e
5 .5 9
5 .8 4
0 .0 0
1 1 .4 3
1 1 .4 3
1 0 .9 8
1 3 .3 3
1 1 .9 1
P io n e e r N a t R e s
6 .9 4
5 .8 9
0 .0 0
1 2 .8 3
1 2 .8 3
1 2 .1 6
1 2 .8 4
1 2 .6 1
D e v o n E n e rg y
6 .5 7
4 .9 4
0 .0 0
1 1 .5 0
1 1 .5 0
9 .2 9
9 .6 3
1 0 .1 4
X T O E n e rg y
3 .8 1
5 .2 6
0 .0 0
9 .0 7
9 .0 7
8 .8 3
8 .7 8
8 .8 9
A n a d a rk o P e tro le u m
6 .3 0
5 .1 7
0 .0 0
1 1 .4 7
1 1 .4 7
7 .0 8
7 .0 2
8 .5 3
U n o c a l C o rp .
7 .1 0
3 .8 2
0 .0 0
1 0 .9 2
1 0 .9 2
1 0 .5 3
1 1 .4 3
1 0 .9 6
N o b le A ffilia te s
7 .6 5
4 .3 1
0 .0 0
1 1 .9 6
1 1 .9 6
9 .1 9
1 0 .9 4
1 0 .7 0
A p a c h e C o rp .
5 .6 1
3 .2 3
0 .0 0
8 .8 4
8 .8 4
8 .5 5
8 .9 2
8 .7 7
E O G R e s o u rc e s
5 .8 7
3 .2 5
0 .0 0
9 .1 1
9 .1 1
7 .5 5
5 .6 8
7 .4 5
M ean
6 .1 2
4 .9 1
1 1 .0 3
1 1 .0 3
9 .6 6
1 0 .2 2
1 0 .3 0
M e d ia n
6 .0 8
5 .1 7
1 1 .4 3
1 1 .4 3
9 .2 9
1 0 .9 4
1 0 .7 0
The Full-Cycle Cost of Oil ($/Bbl)

Regional Basis
38
Iraq
2.50
Other Latin America
5.52
Kazakhstan
7.00
Western Canada
9.25
Kuwait
3.80
Alaska
5.70
Mexico
7.20
North Sea
9.85
Saudi Arabia
4.00
Nigeria
5.75
US Lower 48
8.10
Indonesia
10.50
Venezuela
4.23
Oman
6.25
China-Onshore
8.90
China Offshore
11.80
Iran
4.50
Algeria
7.00
Angola
9.00
Brazil
12.50
Abu Dhabi
5.00
Western Siberia
7.00
US GOM
9.00
US Stripper Wells
15.17
Economics of the Large Cap E&P Sector

Full-Cycle Costs, ROCEs and Commodity Prices
Full-Cycle Costs ($/bbl)
Reserve Replacement
$6.50
Operating Cost3.57
Full-Cycle Cost$10.07
Cash Break-Even
WTI Price ($/bbl)
Full-Cycle Cost$10.07
Gen. & Admin. 1.00
Differential to WTI2.28
Break-Even WTI$13.35
At current costs and $18.50 oil

prices, the large cap companies
exactly earn their cost of capital
E&P companies have found it
devilishly hard to return their
cost of capital
Capital-intensive business
Historical lack of capital
discipline
Dependent on commodity
prices, which can fluctuate
wildly
Best opportunity set available to
majors, not independent E&Ps
39
Returns and Full-Cycle Economics(1)(2)

Return on Capital Employed (%)
20
(%)
$24.00 Oil
18.7%
$22.00 Oil
15.1%
18
16
14
12
$19.72 Oil (10-yr Average

WTI Price [1990-99])
10
11.2%
$18.50 Oil
9.0%
$18.00 Oil
8.1%
$16.00 Oil
4.6%
$14.00 Oil
1.1%
9.0% Large Cap

E&P Cost of Capital
0
$3
$5
$7
$9
$11
Full-Cycle Economics ($/boe)

(Reserve Replacement Cost + Operating Cost [$/boe])
Notes
1. Returns calculated on replacement cost basis: ROCE equals NOPAT/replacement cost capital where (a) NOPAT equals EBITDAX less replacement cost of production less
cash taxes, and (b) replacement cost capital equals beginning proved reserves times historical (then 3-year average) reserve replacement cost
2. Large cap E&P sector full-cycle economics of $10.07/bbl as per JS Herold, which breaks down as $6.50/bbl for reserve replacement cost plus $3.57/bbl for operating cost.
Additionally, to calculate returns, $1.00/bbl for general and administrative costs are added to the full-cycle costs and $2.28/bbl for the average differential to WTI oil is
subtracted from the WTI price
$13
Calculating ROCEs in the E&P Sector

So Many Choices, So Little Time...
EVAAnalysis (US$ MM)

Net Operating Profit After Tax (NOPAT)
Recurring EBIT (B4 Expl Expense)
Other Recurring Cash Income
Less: Cash Taxes (Unlevered)
NOPAT
Cash Taxes (Unlevered)
Cash Taxes (Levered)
Addback: Tax Savings fromInterest (35.0%)
Cash Taxes (Unlevered)
1998A
1999A
FYEDec 31
2000A
124.3
23.2
(26.4)
121.1
59.2
55.6
(66.1)
48.7
201.2
88.8
(70.5)
219.5
406.5
39.8
(61.3)
385.0
(a) Reported NOPAT

Operating EBIT (B4 Expl Expense)
Less: Unlevered Cash Taxes
NOPAT (After-Tax EBIT)
(8.6)
(57.5)
(66.1)
(10.8)
(59.6)
(70.5)
(4.6)
(56.7)
(61.3)
Net Capital Expenditures

Total Gross Cap Expenditures
Other Sources / Uses of Cash
Proceeds fromAsset Sales
Less: DD&A(proxy for Maintenance Capex)
(456.9)
0.0
115.7
212.4
(128.7)
(538.9)
0.0
21.9
337.3
(179.7)
(191.5)
0.0
390.5
236.0
435.0
(299.7)
2.4
102.7
214.9
20.4
Net New Investment

Investment in Net Working Capital
Net NewInvestment
(128.7)
(39.3)
(168.0)
(179.7)
86.0
(93.7)
435.0
(49.6)
385.5
20.4
(44.0)
(23.6)
35%
Correct
Invested Capital
Invested Capital: Beginning
Addition: Net NewInvestment
Invested Capital: Ending
ROIC(NOPAT / Beginning Invested Capital)

Economic Profit (ROIC- WACC) * IC
40
1998A
1999A
FYE Dec 31
2000A
121.1
(168.0)
(47.0)
48.7
(93.7)
(45.0)
219.5
385.5
605.0
385.0
(23.6)
361.5
(0.0)
0.0
0.0
0.0
Howabout purchase accounting adjustments?
----3,498.4
8.0%
3,498.4
93.7
3,592.0
3,592.0
(385.5)
3,206.6
3,206.6
23.6
3,230.1
280
(231)
287
(68)
257
128
1.4%
(231)
6.1%
(68)
12.0%
128
124
(26)
98
59
(66)
(7)
201
(70)
131
407
(61)
345
(b) Capital Employed (Historical Cost)

Total Debt
Less: Cash
Minority Interest
Preferred Stock at Book Value
Common Equity at Book Value
Capital Employed
1,950
(73)
0
0
1,549
3,425
2,175
(59)
0
0
789
2,905
1,746
(35)
0
0
775
2,486
1,579
(26)
0
0
905
2,458
(c) ROCE I
Reported NOPAT
Capital Employed, beginning
ROCE
98
3,425
2.9%
(7)
3,425
(0.2%)
131
2,905
4.5%
345
2,486
13.9%
(2) ROCE II
(a) Reported NOPAT
124
(26)
98
(b) Capital Employed (EVA Method)

Addition: Net New Investment
----3,498
3,498
94
3,592
3,592
(385)
3,207
3,207
24
3,230
(c) ROCE II
Reported NOPAT
ROCE
98
3,498
2.8%
(7)
3,498
(0.2%)
131
3,592
3.6%
345
3,207
10.8%
FYE Dec 31
1997A
1998A
1999A
FYE Dec 31
2000A
Pioneer Nat Res Returns on

Capital Employed (ROCE)
(US$ MM)
59
(66)
(7)
201
(70)
131
407
(61)
345
(3) ROCE III

This ROCE is like (1) above except that NOPAT is adjusted to have uniform tax rate (across this and other companies)
(a) Tax-Adjusted NOPAT

Less: Assumed Taxes (35%)
FYE Dec 31
1997A
1998A
1999A
FYE Dec 31
2000A
(4) ROCE IV
This ROCE is like (3) above except that it keeps running tally of invested capital using EVA framework
This ROCE is like (1) above except that it keeps running tally of invested capital using EVA framework
Unlevered Free Cash Flow

NOPAT
Less: Net NewInvestment
Unlevered Free Cash Flow
Economic Profit
Capital charge (WACC[8.0%] * IC)
Economic profit (NOPAT - Cap charge)
FYE Dec 31
1997A
(1) ROCE I
This is traditional ROCE: uses actual cash taxes and capital at historical cost from balance sheet
0.7
(27.1)
(26.4)
Check (Two Free Cash Flows equal [=0?])
Pioneer Nat Res ROCE Calculations

(US$ MM)
FYEDec 31
1997A
124
(44)
81
59
(21)
38
201
(70)
131
407
(142)
264
(b) Capital Employed (Historical Cost)

Total Debt
Less: Cash
Minority Interest
Preferred Stock at Book Value
Common Equity at Book Value
Capital Employed
1,950
(73)
0
0
1,549
3,425
2,175
(59)
0
0
789
2,905
1,746
(35)
0
0
775
2,486
1,579
(26)
0
0
905
2,458
(c) ROCE III

Tax-Adjusted NOPAT
ROCE
81
3,425
2.4%
38
3,425
1.1%
131
2,905
4.5%
264
2,486
10.6%
35%
(a) Tax-Adjusted NOPAT

35%
124
(44)
81
59
(21)
38
201
(70)
131
407
(142)
264
(b) Capital Employed (EVA Method)

Addition: Net New Investment
----3,498
3,498
94
3,592
3,592
(385)
3,207
3,207
24
3,230
(c) ROCE IV
Tax-Adjusted NOPAT
ROCE
81
3,498
2.3%
38
3,498
1.1%
131
3,592
3.6%
264
3,207
8.2%
FYE Dec 31
1997A
1998A
1999A
FYE Dec 31
2000A

(US$ MM)
(5) ROCE V
This is meant to be best economic ROCE measure for an E&P company; accounting-warped DD&A is
replaced with economic cost of generating associated EBITDAX (i.e., production times reserve replacement cost); actual taxes are used; and accounting-capital is replaced w/ economic cost of replacing capital
(a) Normalized NOPAT

EBITDAX
Less: Replacement Cost of Production
Normalized NOPAT
337
(249)
(26)
61
397
(544)
(66)
(214)
437
(427)
(70)
(60)
621
(302)
(61)
258
(b) Replacement Cost Capital

Proved Reserves Bgn Yr (MMBOE 6:1)
3-Yr Avg Reserve Repl Cost ($/BOE)
Replacement Cost of Reserves
Net Working Capital and Other Assets
Replacement Cost Capital
302
7.04
2,127
(91)
2,036
762
8.65
6,590
(129)
6,461
677
8.36
5,659
(17)
5,641
605
6.94
4,203
(57)
4,146
(c) ROCE V
Normalized NOPAT
ROCE
61
2,036
3.0%
(214)
6,461
(3.3%)
(60)
5,641
(1.1%)
258
4,146
6.2%
35.4
7.04
249
62.9
8.65
544
51.1
8.36
427
43.6
6.94
302
1998A
1999A
(d) Replacement Cost of Production

Production in Year (MMBOE 6:1)
Replacement Cost of Production
(US$ MM)
FYE Dec 31
1997A
FYE Dec 31
2000A
(6) ROCE VI
This ROCE is like (5) above except that NOPAT is adjusted to have uniform tax rate (across all companies)
(a) Tax-Adjusted Normalized NOPAT

EBITDAX
Less: Replacement Cost of Production
35%
Tax-Adjusted Normalized NOPAT
(b) Replacement Cost Capital
Proved Reserves Bgn Yr (MMBOE 6:1)
Replacement Cost of Reserves
Net Working Capital and Other Assets
(c) ROCE VI
Tax-Adjusted Normalized NOPAT
337
(249)
(31)
57
397
(544)
52
(96)
437
(427)
(4)
7
621
(302)
(112)
207
302
7.04
2,127
(91)
2,036
762
8.65
6,590
(129)
6,461
677
8.36
5,659
(17)
5,641
605
6.94
4,203
(57)
4,146
57
(96)
207
5. Glossary
Glossary of Key Petroleum Terms

Abandon To discontinue attempts to produce oil or gas from a well or lease and to plug the reservoir in accordance with
regulatory requirements.
AFE (Authority for Expenditure) A form used during the planning process for a well about to be drilled. It includes an
estimate of costs to be incurred in the IDC category and in the tangible equipment category. The form represents a
budget for the project against which actual expenditures are compared.
Associated gas Natural gas, occurring in the form of a gas cap, overlying an oil zone.
Behind Pipe Reserves expected to be recovered from zones in existing wells which will require additional completion
work or future recompletion prior to the start of production.
Bonus The consideration paid by the lessee to the lessor upon execution of an oil and gas lease.
Carried interest An agreement under which one party (carrying party) agrees to pay for a portion or for all of the
development and operating costs of another party (carried party) on a property in which both own a portion of the working
interest. The carrying party is able to recover a specified amount of costs from the carried partys share of the revenue
from production, if any, from the property.
Christmas tree A term applied to the valves and fittings assembled at the top of a well to control the flow of oil.
Completion Refers to the work performed and the installation of permanent equipment for the production of oil or gas
from a recently drilled well.
Condensate A light hydrocarbon liquid which is in a gaseous state in the reservoir but which becomes liquid at the
surface.
Conveyance The assignment or transfer of mineral rights to another person.
Cost center The geological, geographical, or legal unit with which costs and revenues are identified and accumulated.
Examples are the lease, the field, and the country.
Depletion Amortization of capitalized costs of a mineral property. The deduction is based upon minerals produced. For
Federal income tax purposes depletion may be based on the amount of gross income from the property.
41
Glossary of Key Petroleum Terms (Contd)

Development well A well drilled to gain access to oil or gas classified as proved reserves.
Dry hole An exploratory or development well that does not produce oil or gas in commercial quantities.
Estimated Ultimate Recovery (EUR) The amount of oil and gas expected to be economically recovered from a reservoir
or field by the end of its producing life. Estimated ultimate recovery can be referenced to a well, a field, or a basin.
Exploration well All wells drilled to search for or produce oil or gas, except development wells and development-type
stratigraphic test wells drilled to gain access to proved reserves.
Farm-out Transfer of all or part of the operating rights from the working interest owner to an assignee, who assumes all
or some of the burden of development, for an interest in the property. The assignor usually retains an overriding royalty but
may retain any type of interest.
Field An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual
geologic structural feature and/or stratigraphic feature.
Fluid injection Inducing gas or liquids into a reservoir to move oil toward the well bore.
Fracturing / Fracing A procedure to stimulate production by forcing under high pressure a mixture of oil ad sand into the
formation.
Gravity A standard API gravity scale which is related to specific gravity of a petroleum fluid based on a technical formula.
Held-by-production (BHP) A provision in an oil, gas and mineral lease that perpetuates a companys right to operate a
property or concession as long as the property or concession produces a minimum paying quantity of oil or gas. Also
abbreviated as HBP.
42

IDC (Intangible Drilling Cost) Any cost which in itself has no salvage value and is necessary for and incident to the
drilling of wells and getting them ready for production. IDC can also occur when deepening or plugging back a previously
drilled oil or gas well, or an abandoned well, to a different formation. IDCs are expensed for tax purposes, which result in
companies that actively drill having a very low tax liability.
IP (Initial Production) The measurement of a well's production at the outset. Often measured either over 24 hours or
30-days.
Lease (1) A contract in which the owner of minerals gives an oil company the right to explore for, develop, and produce
minerals from the property. (2) Any transfer where the owner of a mineral interest assigns all or part of the operating
rights to another party but retains a continuing non-operating interest in production from the property.
Lifting costs Costs of operating wells for the production of oil and gas (producing costs), loosely analogous to LOE, or
Lease operating costs
Net profits interest (NPI) An interest in production created from the working interest and measured by a certain
percentage of the net profits (as defined in the contract) from the operation of the property.
Non-operating interest An interest in minerals. The holder of this interest does not have the responsibility or bear the
cost of developing and producing the minerals.
Net revenue interest (NRI) A share of production after all burdens, such as royalty and overriding royalty, have been
deducted from the working interest. It is the percentage of production that each party actually receives.
Offset well Well drilled on one tract of land to prevent drainage of oil or gas to a nearby tract on which a well has been
drilled.
Operator Organization that obtains (buys or leases) the right to drill and produce oil and/or natural gas from the owner of
a specified location. The operator of an oil or gas well or field.
43

Overriding royalty (ORRI) A royalty interest that is created out of the operating interest. Its term is coextensive with
that of the operating interest from which it was created.
Percentage depletion A deduction for Federal income tax purposes based on the gross income from mineral
properties. Percentage depletion is in lieu of cost depletion. Also known as statutory depletion.
Permeability The measure of the ease with which oil can move through a reservoir.
Plug back To seal off a lower formation in a well bore in order to produce from a higher formation.
Porosity The relative volume of the pore space compared to the total bulk volume of the reservoir.
Production taxes Taxes levied by state governments on mineral production based on the value and/or quantity of
production. Also called severance taxes.
Proved developed reserves Reserves which can be expected to be recovered through existing wells with existing
equipment and operating methods.
Proved reserves Quantities of reserves that, based on geologic and engineering data, appear with reasonable certainty
to be recoverable in the future from know oil and gas reserves under existing economic and operating conditions.
Proved undeveloped reserves Reserves which are expected to be recovered from new wells in undrilled proved
acreage, or from existing wells where relatively major expenditures are required for completion.
Regulatory spacing The regulation of both the location and the number of wells which can be drilled into a common
reservoir (for conservation purposed). Regulations established by an agency of a state or government.
Reservoir A porous, permeable, subsurface rock formation containing trapped oil, natural gas, or water.
44

Revenue interest The percentage of revenue received by a working interest after payment of royalties
Rig The derrick or mast, drawworks and attendant surface equipment of a drilling unit.
Royalty An interest in the oil and gas in place that entitles the holder to a specified fraction, in kind or in value, of the
total production from the property, free of any expense of development and operation. The basic royalty interest is
retained by the lessor of the oil/gas property in the original lease agreement.
Secondary recovery The use of such devices as water-flooding, gas-injection and other methods to recover oil beyond
that which can by natural flowing or by pumping.
Shut-in well A producing well (more often on gas properties than oil properties) that has been closed down temporarily.
Sidetrack A secondary wellbore drilled away from the original hole. It is possible to have multiple sidetracks, each of
which might be drilled for a different reason. A sidetracking operation may be done intentionally or may occur accidentally.
Spud To start the well drilling process by removing rock, dirt and other sedimentary material with the drill bit. To apply
weight to a troublesome drilling section, usually by moving the drilling string up and down, in hopes that the section will
drill faster.
Stripper well A well nearing the end of its productive life; very little oil is being produced. For certain tax applications,
wells with less than 10 B/D of production.
Take-or-pay contracts An agreement in which a gas purchaser agrees to take a minimum quantity of gas per year if he
is not prevented form doing so by circumstances beyond his control and if the gas is available for delivery. If the
purchaser does not take the minimum quantity, he is required to pay for the minimum quantity at the contract price;
normally, he may make up deficiency amounts in future years if he purchases in excess of minimum amounts.
Tangible assets The cost of assets that in themselves have a salvage value.
45

Tertiary recovery The use of sophisticated techniques such as flooding the reservoir with chemicals to increase the
production of oil or gas.
Unitization An agreement under which two or more persons owning operating mineral properties agree to have the
properties operating on a unified basis and further agree to share in production from all the properties on a stipulated
percentage or fractional basis regardless of from which property the oil or gas is produced. All owners of economic
interests in the properties should be involved in the agreement.
Viscosity The ability of a fluid to flow as a result of its physical characteristics.
Waterflooding A method of secondary recovery, in which water is injected into an oil reservoir for the purpose of
washing the oil out of the reservoir rock and into the bore of a producing well.
Well spacing the space or acreage allocated to a well. The aerial extent that a well could drain (the volume) from a
reservoir. It is a conservation measure that identifies the location and number of wells that can be drilled to drain a
reservoir. Depending on the geologic structure, size of the reservoir and whether it is oil or gas, spacing could be as small
as 10 acres and as large as 640 acres.
Wellhead Flow control equipment located at the top of the casing string at the surface of the wellbore.
Wildcat An exploratory well drilled in an unknown or unproven area.
Workover Essentially, refurbishment of a well to improve its flow rate. Workover includes any of several operations on a
well to restore or increase production when a reservoir stops producing at the rate it should. Many workover jobs involve
treating the reservoir rock, rather than the equipment in the well. Workover jobs typically take a few days to several weeks
to complete.
Working interest (WI) The interest in the oil and gas in place which is burdened with the cost of development and
operation of the property. The mineral interest minus the royalty interest equals the working interest. Also called the
operating interest.
46
6. Additional Resources
Additional Resources
Macro Information:
http://www.naturalgas.org/index.asp
http://www.eia.gov/natural_gas/data_publications/natural_gas_monthly/ngm.html
http://www.woodmacresearch.com/cgi-bin/wmprod/portal/corp/corpPortal.jsp
http://www.ihs.com/
http://www.oilandgasinvestor.com/
http://www.UGcenter.com
http://www.info.drillinginfo.com
Public Filings:
http://www.sec.gov/edgar/searchedgar/companysearch.html
http://www.sedar.com/search/search_form_pc_en.htm
Rig Counts:
http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm
http://www.smithprodserv.com/%24ca88deed-1360-463d-a271-5b959eb7fb87
Glossaries:
http://www.spe.org/industry/docs/GlossaryPetroleumReserves-ResourcesDefinitions_2005.pdf
http://www.spectraenergy.com/Natural-Gas-101/Glossary-of-Energy-Terms/
http://media.corporate-ir.net/media_files/irol/70/70888/pdf/Glossary_of_Drillings_Terms_041805.pdf
http://www.glossary.oilfield.slb.com/default.cfm
http://www.eia.gov/emeu/iea/glossary.html
47

Introduction to Upstream Oil & Gas Valuation

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Introduction to Upstream Oil & Gas Valuation

Uploaded by

Copyright:

Available Formats

Introduction to the Upstream Sector

What are Hydrocarbons?

Common Uses for Hydrocarbons

Natural Gas = Electricity Generation

Fuels made from one barrel of crude (42 Gallons)

Also used to produce

Distillates/Heavy Fuel Oil - 5

Other products made from oil

Spindletop, TX, 1901: The Birth of Modern Energy

Energy Value Chain

Illustrative Well Production Profile

Daily Production (MMcfe / d)

PV-0: $10.3 million

Internal Rate of Return: 57%

Oil and Gas Reserve Classification

Four Classes of Reserves

Main difference between classifications involves level of certainty

Commodity Prices Over Time

Gas Price ($ / Mcfe)

Oil / Gas Ratio

Oil Price ($ / Bbl)

Gas to Oil Energy Equivalent Conversion

Proved Reserves Disclosure

Illustrative Valuation Exercise

SEC PV-10 Disclosure

Costs Incurred Disclosure

Proved Reserves Value

Wide Range of Valuation Methodologies

Typical Market Focus

M&A Market Focus

E&P sector focus

Widely understood and used in traditional industries with high earnings

Used instead of PE due to accounting differences between companies

Scoping value methodology

Can be used with precedent transactions to value emerging plays

Allows incorporation of operating

Requires considerable data gathering, e.g. host

Factors any associated risks into the value

Estimation of expected production profile and

Enables sensitivity analysis based on

Reflects asset value as an ongoing

Does not factor in specific operating or risk

Good proxy in M&A transactions; factors

Does not factor in specific operating or risk

NAV Methodology: Assumptions

Citi evaluated the net asset value (NAV) of Ultra

Well economics drilled in Jonah assumed to be the

NAV calculated based on a development plan built

Current PDP based on historical drilling to

Gas Differential to HH (%)

Production Taxes (% of Rev)

LOE ($ / Mcfe) (2)

Resource potential based on public guidance

Capex assumption based on public guidance

Gathering and Transportation

NAV to be modeled in real terms (no inflation)

Gross Well Cost ($mm)

Further adjustments to account for the hedge

Oil Differential to WTI ($)

Base case price assumption based on 4/15/11 NYMEX

The calculated NAV of each asset is based on the

Working Interest (%)