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Wednesday, October 31, 2012

www.highsierrawater.com

(303) 815-1010

Water Infrastructure

versus Mobile Options 

for Treating and 

Disposing Water
High Sierra Water Services Team

Executive

Jim Winter

Vice President, Water Services

jwinter@highsierraenergy.com

(303) 815-1010 x 3121

Business and Project Development

Johan Themaat

jthemaat@highsierraenergy.com

(303) 815-1010 x 3152

Greg Blais

gblais@highsierraenergy.com

(303) 815-1010 x3124

Rogan McGillis

rmcgillis@highsierraenergy.com

(303) 815-1010 x 3691

High Sierra Energy, LP

3773 Cherry Creek North Dr

Suite 1000

Denver, CO 80209

+1 (303) 815-1010

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Forward Looking Statements

This presentation may include certain statements concerning

expectations for the future that are forward-looking statements as defined

by federal law. Such forward-looking statements are subject to a variety

of known and unknown risks, uncertainties, and other factors that are

difficult to predict and many of which are beyond management’s control.

An extensive list of factors that can affect future results are discussed in

the Partnership’s Annual Report on Form 10-K and other documents filed

from time to time with the Securities and Exchange Commission. The

Partnership undertakes no obligation to update or revise any forwardlooking statement to reflect new information or events.

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Table of contents

 Introduction to High Sierra Energy

 Types of shale water

 Share feedback from our customers

 The Case for and Against Mobile Solutions

 The Case for and Against Infrastructure Solutions

 Conclusion

 Q&A

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Introduction to High Sierra Energy
High Sierra Energy Overview

 Founded in 2004

 Based in Denver, CO

 Acquired by NGL Energy Partners LP in June 2012

− Stated strategy of growing Water Services

− Over 1,700 Employees

− Market Cap of ~$1.25 billion

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High Sierra Water 

Services

~22% of EBITDA

Recycling, disposal and 

transportation of oil and 

gas waste-water

NGL Logistics

~26% of HSE EBITDA

Transportation logistics 

and marketing of natural 

gas liquids

Crude Oil Logistics

~15% of HSE EBITDA

Gathering, transportation 

logistics and marketing of 

crude oil 

NGL Energy 

Partners

(NYSE: NGL)

Pro-forma EBITDA: 

$171m

Retail

~37% of EBITDA

Distribute propane to 

residential, industrial, and 

commercial customers
Diversified Geographic Footprint

NGL has a significant presence in the most prolific oil and natural gas shale plays 

in the country

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DJ

Basin

Pinedale Anticline

Jonah Field

Niobrara Shale

Green River 

Basin

Bakken

Shale

Marcellus

Shale

Wattenberg Field

Mississippi Lime

Granite Wash

Eagle Ford

Permian

Basin

Assets and marketing presence

Refinery terminal

Leased storage

Proprietary terminal

Railcar terminal

Pipeline

Crude oil segment

Natural gas liquids segment

Water Segment

NGLEP
Water Treatment or Disposal Plant

New Water Treatment / Disposal Projects

Water Transportation Services

Water Services – Expanding Footprint

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Existing Operations:

DJ Basin (Niobrara Play)

Pinedale Anticline

Permian Basin

Mississippian Lime

Eagle Ford

Expansion Opportunities:

Eagle Ford (capacity additions)

DJ Basin (capacity additions)

Marcellus Shale

Bakken

WY

CO

TX

OK

KS

ND MN

FL

WY

CO

TX

OK

KS

ND MN

WY

TX

OK

KS

Granite

Wash

Miss. Lime

Eagle Ford

DJ Basin

Green River Niobrara Shale

Basin

Bakken Shale

CO

Pinedale Anticline

Jonah Field Wattenberg Field

ND

Marcellus PA

Shale

Permian Basin
Water Services - Current Operating Assets

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Anticline (Wyoming)

Overview

Treatment of oil and gas waste-water for recycling 

or clean water discharge using a multi-patented 

process technology 

Assets include:

1 treatment & recycling plant in Wyoming

60 KBbl/d of recycling capacity

20 KBbl/d of discharge capacity

19 miles of pipeline for delivery of recycled water 

back to the field

1 deep injection well 

3.5 MMBbls of water storage capacity

DJ Basin (Colorado)

Overview

Leading provider of oil and gas waste-water 

disposal services in the DJ Basin

Recycling plants added as supplement/alternative 

to disposal

Assets include:

7 water disposal facilities with 8 deep injection 

wells (2 new wells to be added by Q2, 2013)

~50 KBbl/d of current aggregate disposal capacity

One recycling plant in operation (10 KBbl/d 

capacity)

2

nd recycling plant completed, pending final 

permitting and startup (10 KBbl/d capacity)
Water Services - Current Operating Assets

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Eagle Ford

Overview

Disposal of oil and gas waste-water 

Hydrocarbon recovery

Assets include:

3 water disposal facilities with 4 

deep injection wells

~40 KBbl/d of current aggregate 

capacity

Permits approved for 6 additional 

facilities

Pursuing treatment opportunities

Mississippian (KS & OK)

Overview

Water hauling and frac tank 

rental for third parties

Assets include:

50 owned tractor / trailers in 

service for hauling water in 

Kansas and Oklahoma

65 frac tanks

Miscellaneous associated 

equipment for use in the 

completion and operation of 

wells

Permian

Overview

Disposal of oil and gas waste-water 

Hydrocarbon recovery 

Assets include:

10 KBbl/d disposal facility

Crude hauling and marketing 

assets to provide synergies with 

waste water hydrocarbon recovery

Pursuing expansion opportunities
Anticline – Pinedale, Wyoming

Sources from Pinedale Anticline and Jonah fields

 Provides treating, recycling and discharge 

services for produced and frac flow back 

waste-water

Consists of pipeline and two water treatment plants 

- a recycling plant and a discharge plant

 ~75% of water received is treated and redelivered 

back to the field, primarily through HSE’s nineteen 

mile pipeline system, with the remainder delivered 

by trucks

 ~25% of received water is further treated to 

“ultra-clean” standards and discharged into the river

Successful growth story since 2006

Strategic location and large, independent E&P clients

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Sublette County

Pinedale Anticline

Jonah

Wyoming

Pinedale 

Water 

Assets
Anticline - Pictures

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High Sierra Water Services - Colorado

The largest oil and gas waste water disposal business in Colorado

 Strategically located throughout the DJ Basin

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Weld 

County

Colorado Facilities

Existing

Seven Facilities

~49,000 bbls/day of 

capacity

Under Expansion

Additional wells at 

existing facilities 

expected to add 

18,000 bbls/day by Q2 

2013

Working with 

customers to site 

additional facilities

Pipeline project under 

evaluation

Note: Larger circles illustrate larger disposal capacity
High Sierra Water Services - Colorado

Facilities are located in the Wattenberg Field in the Denver-Julesburg Basin 

- established field additional drilling underway 

 Significant additional growth expected from horizontal and vertical drilling in the 

Niobrara shale

 7 water disposal facilities in the Denver-Julesburg Basin and plans for 2 

additional wells in early 2013 and 2 new facilities in plans.

 Disposes water from ~17,000 of the more than 21,000 wells in the DJ Basin

 Per barrel water disposal fee charged to receive, process and dispose water in 

deep injection wells

Resale of recycled water

 Commercial water treatment facilities with capacity of 10,000 bpd located at 

Platteville and Cornish

 Currently providing recycled water to major operators in the basin

Large E&P customers comprise the vast majority of our volumes

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HSWS C1 – Highest Capacity Facility

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HSWS C6 – Disposal & Recycle Facility

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Recycling Plant
HSWS C6 – Disposal & Recycle Facility

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Types of Shale Water
Oil-field water - a complex commodity

Water Supply

Primary Uses

 Fracking

 Drilling & Workovers

Key Demand Drivers

 Cyclical commodity prices

 Transportation costs

 Regulation

− Environmental concerns

− Droughts

− Traffic

Sources

 Fresh water

− Wells

− Municipalities

− Lakes & rivers

 Brine

− Wells

− Evolving story, generally available

− Recycled/treated water

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Drilling

Fracking

Workovers

Chemicals
Oil-field water – a complex commodity

Waste Water

Primary Sources

 Flowback

 Produced water

− Definitions of flowback and produced varies

Key Volume Drivers

 Flowback: Drilling activity

− Cyclical commodity prices

− Availability of freshwater/demand for recycled water

 Produced: Number and age of wells in the field

− Unique reservoir characteristics and water decline 

curves

− Limited understanding for newer shales

 Transportation costs

 Regulation

Characteristics

 Water chemistry varies significantly by play

 Flowback water

− Short term (days - weeks)

− May be very high volume (~30% of injected)

− Contains

− Primarily frac water and chemicals with limited 

subsurface contaminants

 Produced water 

− Long term 

− Volume characterized by decline curve unique to 

reservoir, region, play and well type

− Contains primarily subsurface contaminants, 

sometimes in very high concentrations

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Drilling

Fracking

Workovers

Flowback

Produced water

Chemicals

Waste water

Short term
Oil-field water – Adding to complexity

Who is regulating what?

 Still in flux between Federal and State

 Permitting issues in flux

 Highly political issue

Who owns the water?

 In certain states, ownership remains with state

Environmental issues

 Evolving impact on traditional disposal options: pits, inj. wells

 Air emissions from pits and evaporation technologies

 Restrictions may result in higher processing costs

Transportation

 Local transportation restrictions may limit delivery periods

 Availability of high quality service providers

 Viability of pipeline construction (rights of ways)

Liability and Indemnification

 Where does a producer’s liability go with the water changing hand, being transported and being processed

 Implication from concentrated waste streams

− Liquids: Injection wells

− Solids: Land fills

− NORMs: Hazardous waste

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Oilfield 

water

Commodity 

Prices Transportation 

Costs

Federal 

Regulation

State 

Regulation

Fresh water 

availability

Brine 

availability Fracking 

activity

Number of 

wells in field

Reservoir 

characteristics

Water 

ownership 

laws

Environmental 

issues

Liability and 

Indemnification
Feedback From Our Customers
What our customers are saying

High Sierra gains valuable insight from daily interaction with our top tier 

E&P customers

Navigating an established relationship triangle

 Water processor, drilling service provider and producer

 Information disconnects internally, externally and regionally

Elevated interest in mobile solutions for fracking water

 Reduces both disposal and source water volumes

 Less focused on produced water issues due to lower volumes per well

 Economics remains challenging, but large market opportunity

Increasingly concerned about water supply, treatment and disposal options

 Focus and level of concern varies by customer and geographic region

 Customer learning curve is steep, and information sharing essential

Want to minimize trucks on the road

 Highly visible to communities, traffic, road damage

 Significant economic impact

 Highly visible environmental issues: Emissions and noise

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Producer

Water 

Processor Driller
What our customers are saying

Concerned about public perception, but economics drive decisions

 Realize industry must be responsible actor in communities

 Increasing concern about “rogue” industry player giving industry a black eye

 Willing to act ... if ... the price is right and perceived risk acceptable

Operators focused on processing large volumes of water

 Difficult to get interest from producers at less than 5,000 bbls/day capacities

Operators need comfort about availability of consistent quality and quantity

 Impact on recycled water chemistry from dynamic incoming wastewater 

chemistry

Some of our target customers are still choosing to keep water sourcing and 

treatment internal

 Continue with status quo

− Historically majority of water sources and disposal wells privately operated 

and owned by operator

 Doubt 3rd party can keep up with aggressive and secretive drilling programs

 Certain customers focused on vertical integration

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Mobile Solutions
The Case For Mobile Solutions

Elevated level of interest from customers

 Follows well understood oil field service model

− Just another piece of equipment on the pad

 Greatly reduces water transportation needs

− Double impact: Each barrel reused saves disposal and source 

transportation costs

 May lower water storage needs during fracking

 Lower per unit capital costs of system

 Permitting issues may be simpler

 System may be custom designed for an individual well/operator/service 

provider

 Mobile assets may be redeployed as drilling activity shifts

 For less complex treatment processes, systems may provide 

sufficient capacities

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The Case Against Mobile Solutions

Logistics and Business Model issues

 Requires costly mobilization and de-mobilization of equipment from field

− Part of oil field service business model (ready at short notice)

 Equipment and staff utilization management

 Equipment damage and liability during transportation and set-up

 Waste stream (liquid and solids) management, transportation and disposal

 Demand for, and cost of, services driven by cyclical drilling activity

Limited footprint and space available at well head

 Requires a compromise on efficiency, reliability and/or operating costs

 Full range of treatment options are unavailable in optimum capacities

 Limited access and lower efficiency of people, power and chemicals

Required capacity may not be economical in a mobile form

 For more challenging water, capacity and reliability requires larger systems 

with additional pre-treatment, which increases footprint and cost

 Evaporation and biological treatment options are limited at sufficient capacities

 Lower capacities increases need for storage and/or fresh water 

supplementation

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Infrastructure Solutions
The Case For Infrastructure Solutions

Economies of scale

 Efficient power, chemical, employee, infrastructure costs

 Lower capital cost per barrel of capacity

 Capital and operating costs and risks shared between multiple producers

Operationally efficient

 Robust process options available

 Able to treat a wide range of water types to a specific quality at high capacities

 Higher utilization with no mobilization/demobilization downtime

 Controlled operating and employee environment

 Bulk energy and chemical supply

 Waste streams can be handled in bulk

 More consistent inflow water quality due to aggregation from multiple 

wells/operators and service providers

Minimal environmental footprint

 Multiple mitigation options available at permanent facility

Long term, predictable, bankable business model

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The Case Against Infrastructure Solutions

Higher transportation costs

 Distances from well to facility may be significant

− Mitigants include pipelines and implementing a hub and spoke model

May require long-term customer commitment due to larger upfront capital 

investment

 > $10 million not unusual, with large advanced treatment plant > $50m

Long construction period

 Requires partnership approach with advanced planning and information 

sharing

More involved permitting process

Because of its long-term nature, targets produced rather than fracking volumes

 Facility design capacities may not be sufficient for short-term fracking water 

volume peaks

 Shortfall may be mitigated by

− Planning and communication

− Temporary storage options

− Mobile system supplementation

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The Optimal Solution?

Semi-mobile hub-and-spoke system may be highly efficient option for producers 

with multiple new wells in close proximity

 Serves a number of well pads during fracking program and is moved less 

frequently

 Temporary pipeline installations or if not possible, short trucking distances

 Short term peak capacity needs may be addressed by on pad storage and 

mobile treatment options

 Long term capacity needs may be addressed

by permanent facilities as field matures

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Semimobile 

plant

Pad 1

Pad 2

Pad 3

Pad 4

Pad 5

Pad 6
Outsourcing Water Processing Services

Some producers are keeping water sourcing and treatment internal

 Vertically integrated business model (do everything from well to market)

 Most have a resistance to changing from the status quo

− Historically majority of water sources and disposal wells privately operated 

and owned by operator

− Reduces perceived risk of service availability and liability

 Aversion to information sharing and long term contracts

 Doubt that 3rd party can keep up with aggressive and dynamic drilling plan

However, outsourcing to a dedicated and skilled water operator has a 

number of important advantages

 Releases capital to be deployed in E&P activities and spreads the capital cost 

and construction risk of water facilities between multiple producers

 Sharpens organization focus on core-competency, the discovery and 

production of hydrocarbons. Water is a complicated business in itself

 Reduces liability, but choosing the right partner is critical

 Optimizes assets by increasing utilization and achieving economies of scale

 Facilitates larger facilities with more robust water treatment options

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Conclusion
Conclusions

High Sierra Water Services is a leading oil-field waste-water treatment 

company in our operating regions, backed by an established national 

midstream company

 We are currently focused on the infrastructure side of the water treatment 

business

Oil-field water is not a simple commodity, which drives a need for multiple 

solutions and multiple players

Mobile solutions are ideally suited for simple flowback water treatment for 

reuse

Infrastructure solutions are well suited for complex water treatment and 

produced water

The optimal approach depends on multiple factors and may be a hybrid of 

permanent facilities tied in by pipeline, supplemented by semi-mobile and 

mobile systems for short-term water peaks

High Sierra can assist you in developing the optimal approach

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www.HighSierraWater.com

(303) 815-1010

Jim Winter – Vice President Water Services

jwinter@highsierraenergy.com 

Johan Themaat – Business Development

jthemaat@highsierraenergy.com