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AAPL Texas Land Institute

September 11, 2012

Houston, TX

Natural Gas Processing Capacity in the Eagle Ford Shale

Josh WeberSenior Vice President, Commercial and Business Development

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Forward-Looking Statement

Statements contained in this presentation that include company expectations or predictions should be considered forward-looking statements.

It is important to note that the actual results of company earnings could differ materially from those projected in such forward-looking statements.

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Agenda

• Howard Energy Partners overview• Location and timing of capacity additions• Selecting optimal plant locations• Efficiencies and economics of gas processing• Reducing lead time to plant in-service• Potential royalty considerations

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Howard Midstream Energy Partners, LLC (“HEP”) is a private midstream company with operations primarily focused in the Eagle Ford Shale

Founders Mike Howard (Former President of Midstream for Energy Transfer Partners) Brad Bynum (Former CFO of Hall-Houston Exploration Partners)

Company Strategy Customer driven, asset oriented solutions to gathering and processing needs (engineering,

construction, ownership and operations) Organic growth projects supplemented with strategic acquisitions Top-tier management and technical capabilities Long-term focus

Assets Started operations June 2011 concurrent with the acquisition of two private companies

- Texas Pipeline (250 miles of rich gathering pipeline)- Bottom Line Services (midstream energy services)

Constructed 30 mile rich header in Dimmit County and put into service October 2011 Completed acquisition of Meritage Midstream’s Eagle Ford and Cuervo Creek gathering

systems in April 2012 (170 miles of rich and lean gathering pipeline)

Howard Energy Partners Overview

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Howard Energy Partners Asset Map

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Existing Natural Gas Processing Capacity

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Where Will New Infrastructure Be Available?(New and Planned Processing Plants in Bold)

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How have plants developed relative to production?Eagle Ford benefits by having existing infrastructure

2008 2009 2010 2011 2012

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2008 2009 2010 2011 2012

How have plants developed relative to production?Activity ramps up during 2010 and capacity additions planned

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2008 2009 2010 2011 2012

How have plants developed relative to production?Significant expansion occurs in 2012 and beyond

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Selecting optimal plant locations

Proximity to:- Producing Area or P/L Infrastructure- Liquids takeaway (P/L, Trucking, Injection Stations)- Gas Residue P/L InfrastructureExpansion of existing plants should be explored

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How much total capacity is being added?New and Planned Processing PlantsPlant Name Estimated Startup Owner/Operator Announced

Capacity (MMcf/d)Yoakum Plant Phase 2 2012 Enterprise 300

Chisholm Plant 2012 ETC 120

Woodsboro Plant 2012 Southcross Energy 200

Silver Oak Plant 2012 Teak Midstream 200

Reveille Plant 2013 HEP 200

Houston Central Phase 2 2013 Copano Field Services LLC 400

Karnes County Plant 2013 ETC 200

Eagle Plant 2013 DCP Midstream 200

Flag City Plant 2013 Boardwalk Field Services 150

Jackson County Phase 1 2013 ETC 600

Yoakum Plant Phase 3 2013 Enterprise 300

Brasada Plant 2013 Western Gas Partners 200

Houston Central Phase 3 2014 Copano Field Services LLC 400

Jackson County Phase 2 2014 ETC 200

Jackson County Phase 3 2014 ETC 200

TOTAL 3,870

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Historical Conventional South Texas Gas AnalysisLower GPM

Total GPM – 3.681173 Btu/CF

1.75148%

1.13731%

0.3379%

0.1755%

0.2778%

Ethane (C2)

Propane (C3)

n-Butane (nC4)

IsoButane (iC4)

Natural Gasoline (C5+)

Prior to the Eagle Ford, most conventional S. Texas gas had fewer NGLs per cubic foot

Plants already in place were designed to handle gas in the 2-4 GPM range

Richer gas was small volumes associated with oil wells

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Unprocessed Value Processed Value$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$2.46

$0.53

$0.45 $0.26

$0.90

$0.31 Ethane (C2)

Propane (C3)

IsoButane (iC4)

n-Butane (nC4)

Natural Gasoline (C5+)

Natural Gas

Older plant technologies still add valueAlthough not as much attributed to ethane

Assumed component recoveries

50% C2 95% C3 95% C4+

Estimated fuel usage of 3.25%

Nymex price of $2.75/MMBtu with a ($0.05) basis differential

Current OPIS NGL pricing for August

$4.91/Mcf

$3.17/Mcf

$1.75/Mcf*

* Margin does not include processing, transportation, or fractionation fees

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Shift in NGL Barrel Composition“Typical” Barrel has become lighter over the past decade

2002 2012

37% 43%

29%28%

7%7%11% 9%

16% 13%

Natural GasolineIsoButanen-ButanePropaneEthane

Source: Tudor Pickering Holt , EIA

Enhanced ethane recoveries most significant contributor to lighter barrel

Shale gas tends to contain higher ethane percentages

Lighter products (ethane and propane) are not as linked to crude prices and exhibit greater volatility

Ethane dependent on petrochemical demand and rejection capabilities can be limited

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Typical Eagle Ford Gas AnalysisHigher GPM, Increased Ethane Contribution

Total GPM – 5.541251 Btu/CF

Eagle Ford wet gas is richer than historical S. Texas gas

However, an increased portion of the gas stream is derived from ethane

GPM for Eagle Ford gas ranges from 5.0 to 7.0

3.14257%

1.28423%

0.3877%

0.2024%

0.52710%

Ethane (C2)

Propane (C3)

n-Butane (nC4)

IsoButane (iC4)

Natural Gasoline (C5+)

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Processing creates significant valueEspecially when utilizing efficient cryogenic processing

Assumed component recoveries

90% C2 98% C3 100% C4+

Estimated fuel usage of 1.75%

Nymex price of $2.75/MMBtu with a ($0.05) basis differential

Current OPIS NGL pricing for August

Unprocessed Value Processed Value$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$2.20

$1.08

$0.55 $0.32

$1.13

$1.01

Ethane (C2)

Propane (C3)

IsoButane (iC4)

n-Butane (nC4)

Natural Gasoline (C5+)

Natural Gas

$6.30/Mcf

$3.38/Mcf

$2.92/Mcf*

* Margin does not include processing, transportation, or fractionation fees

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• Streamline the in-house process• Pay vendors for expedited equipment deliveries

– Can be costly

• Consider using rental compression vs. purchased• Find ways to develop project in phases• Limit equipment specifications

– Stay as close as possible to base packages

• Offer performance bonuses for early delivery• Fabricate in the shop as opposed to the field• Take some risk and obtain a plant and compression early!

How can I develop capacity faster?

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• 200 MMcfd cryogenic processing plant

• Expected operational date of Sept. 2013

• High ethane recoveries (~90%)

• Anchored by producers with lower GPM conventional gas

• Ability to accept some quantities of richer Eagle Ford gas

Or, look for existing capacity on the marketAnd we happen to know where to find some of it…

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• Point of sale can greatly affect value of royalty payments– Sale at wellhead, plant tailgate, or further downstream

• Percent of Proceeds (POP) deals vs. fixed fee processing• How are fees associated with processing categorized?

– Which components are potentially deductible?

• Be aware of lease clauses with minimum commodity price floors– Both on natural gas and NGLs– Might be triggered when processing commences

• Statements can be more complicated and greater potential for confusion may exist

• Value of NGLs should raise overall well economics and allow more wells to be drilled– Creates additional value for both producer and mineral owners

What are the royalty considerations?

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Q&A