Adam Bedard, CEOARB Midstream, LLC

Midstream View on Rail

June 2, 2015

• Growth oriented, infrastructure development companyfocused on early stage, organic development projects

• Provide marketing and logistics services to producersand refiners

• Quantitative analytics drive development strategy• Current Projects

• DJ Basin Energy Hub: Niobrara Connector (“NiCon”)• Midland Basin (Big Spring) Energy Hub: Gateway Project

ARB Midstream Overview

2

Projects – Energy Rail Hubs

Permian GatewayNiobrara ConnectorHoward County300 acresISD: Q1 ‘16Pipe Con.Partnership with Hi-Crush (Sand In, Crude Out)

Heart of DJ225 AcresISD: Q4 ‘1579,000 b/dStorage: 200 MbblPartnership with Hi-Crush (Sand In, Crude Out)

3

Market Observations

• Uncertainty about future crude oil production adds substantial risk to new midstream projects

• Rail provides a Just-In-Time solution• Flips from “producer push” to a “refiner pull”

• Compression of diffs is changing CBR movement patterns• Rail and Pipe netbacks trending to parity• Quality deducts, pipe specs drive value of segregation• Pipe commitments have a 10x capital need from producers

compared to rail

4

UncertaintyWhat is production going to do? It depends on flat price, reduced drilling costs, improved break evens, drilled –uncompleted wells, drilling efficiencies, contracts, crude quality, CapEx, OPEC, etc., etc., etc.,

What will production do?

• Upside• High grading• Increased drilling efficiencies• Improving Breakevens• Decreased completion costs

• Rig rates have fallen 20-30%• Improving price

• WTI has closed above $50 since Feb 3

• Producers bringing rigs back• Drilled Uncompleted (DUCs)

• Downside• Flat price downside• Declining rig count• Drilled Uncompleted (DUCs)• OPEC production• Iran deal• Iraq increasing exports

6

Williston Basin: Crude oil production forecast swings by 500,000 b/d over next 5 years depending on model assumptions

-

400,000

800,000

1,200,000

1,600,000

2,000,000

2,400,000

2,800,000

Crud

e O

il Pr

oduc

tion

(b/d

)

Williston Basin - Crude Oil Production Forecast

514,000

Source: HPDI, ARB Midstream 7

Uncertainty in production is the difference in some pipes not being full

-

400,000

800,000

1,200,000

1,600,000

2,000,000

2,400,000

2,800,000

Prod

uctio

n an

d Ta

keaw

ay C

apac

ity (b

/d)

Williston Basin: Production and Takeaway Capacity

Rail

Pipe

Refinery

~640,000 b/d of new pipeline capacity announced start of 2017

Source: HPDI, ARB Midstream, Company Presentations 8

- 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000

1,000,000

Prod

uctio

n &

Tak

eaw

ay C

apac

ity (b

/d)

Williston Basin: Pipeline Capacity and Flows

Pipe Volumes Pipeline Capacity

Pipelines out of the Williston have not been full. The “stacked S/D chart” is overly simply.

9

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Crud

e O

il Pr

oduc

tion

(b/d

)

DJ Basin – Crude Oil Production Forecast

DJ Basin: Crude oil production forecast swings by 180,000 b/d over next 5 years depending on model assumptions

180,000

Source: HPDI, ARB Midstream, Company Presentations 10

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Prod

uctio

n an

d Ta

keaw

ay C

apac

ity (b

/d)

DJ Basin: Production and Takeaway Capacity

That production swing has huge impact on utilization of infrastructure

Rail

Pipe

Refinery

Producer Push

Refiner Pull

Source: HPDI, ARB Midstream, Company Presentations11

DifferentialsDifferentials are an incentive, and a risk, for CBR

Diffs in 2015YTD have come in drastically for WCS and Bakken, but have increased to the East and West Coasts over 2014

Source: Argus

ANSWTI + $8.69WTI + $4.66WTI + $5.19

Bakken@CLBWTI - $5.20WTI -$6.05WTI - $2.48

LLSWTI + $9.35WTI + $3.62WTI + $4.92

BrentWTI + $10.63

WTI + 6.39WTI + 6.65WTI

2013: $98.032014: $93.28

2015YTD: $51.09

2015YTD: Data through May 14, 2015

WCSMaya - $23.85Maya - $11.94Maya - $7.11

13

Rockies (P4) has ~ half of the loading capacity as Williston (P2).

PADD 2(1.4 MMb/d)

PADD 4(700 Mbbl/d)

PADD 3

Source: Various Industry Sources14

Volumes railed from PADD 4 to PADD 3 now exceed volumes from PADD 2 (Williston) to PADD 3

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Rail

Mov

emen

ts (b

/d)

PADD to PADD Rail Movements

PADD 2 to PADD 3 (b/d) PADD 3 to PADD 3 (b/d) PADD 4 to PADD 3 (b/d)Source: EIA

15

Rail can compete with pipeline econs

$15

Cost Includes Trucking, Transload, Rail Car Cost, Freight Rate, PLA, and FSC

Market Rail Offers Better Netback

West Coast If ANS-WTI > $3.50 +/-quality

East Coast If Brent-WTI > $6 +/-quality

Gulf Coast Parity +/- quality

Rail to West Coast can provide higher netbacks that pipe to Cushing, but diffs are converging

$(5)

$-

$5

$10

$15

$20

$25

$30

Pric

e Di

ffere

ntia

ls ($

/bbl

)

ANS-WTI

Rail

Win

s

Source: Argus, ARB Midstream17

Forward Curve for ANS-WTI suggests $3.56/bbl, which is nearly parity between rail and pipe

$-

$1

$2

$3

$4

$5

$6

Forw

ard

Curv

e ($

/bbl

)

ANS-WTI

Source: Argus18

QualityRail enables refiners to pull the barrels they want

Most of DJ Production growth is API>40

-

50,000

100,000

150,000

200,000

250,000

300,000

Crud

e O

il Pr

oduc

tion

(b/d

)

DJ Basin Colorado - Production By API

API<10 API<20 API<30 API<40 API<50 API<60 API<70 API>=70Source: HPDI

20

Pipeline specs leave barrels in the market

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Prod

uctio

n (b

/d)

DJ Basin: Production By API

White Cliffs Specs

PXP “NIO” Specs

Source: HPDI, FERC 21

Quality Matters: Deduct from posted price -$5 for 60 degree API in Cush

$(16)

$(14)

$(12)

$(10)

$(8)

$(6)

$(4)

$(2)

$-

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73

Disc

ount

from

WTI

($/b

bl)

Prod

uctio

n (b

/d)

DJ Production By API & Gravity Deduct

Prod By quality DeductSource: HPDI, Various refiners 22

Capital RequirementProducers are in capital conservation mode, and are less eager to make long term commitments

Pipe vs. Rail

• Rail• Lower capital cost• Fast to market (Site permitting,

construction much faster)• Scalable• Neat barrel• Shorter contracts (2-3 year

commitments vs. 10 years for pipeline)

• Faster transit times which reduces inventory risk

• Access to coastal areas not connected via pipe

• O/D flexibility• Can capitalize on arbitrage• Longer-term opportunities

• Future exports of crude• Public perception & Safety

concerns

• Pipeline• Longer lead time• Higher capital cost• Lower variable costs

24

Pipe vs. Rail – Producers have to commit 10X Capital for Pipe

Producer Commitment:Rail: $29,200,000 Pipe: $292,000,000

Cost of Fill: 13,540,000

$-

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

Capital cost

Capital Cost

Rail Pipeline

Assumptions:

Pipeline Capacity: 100,000 b/d

Pipeline Length: 550 miles

Pipeline Diameter: 20”

Producer Throughput: 20,000 b/d

Oil Price: $60/bbl

Term:

Rail: 2 Years

Pipe: 10 Years

Tariff:

Rail: $2/bbl

Pipe: $4/bbl 25

Market Observations

• Uncertainty about future crude oil production adds substantial risk to new midstream projects

• Rail provides a Just-In-Time solution• Flips from “producer push” to a “refiner pull”

• Compression of diffs is changing CBR movement patterns• Rail and Pipe netbacks trending to parity• Quality deducts, pipe specs drive value of segregation• Pipe commitments have a 10x capital need from producers

compared to rail

26

EndAdam Bedard, CEOadam.bedard@arbmidstream.com