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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 forward

looking 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

6 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

7 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 NGLEPWater Treatment or Disposal Plant

New Water Treatment / Disposal Projects Water Transportation Services 

# Water Services

– Expanding Footprint

8 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 Niobrara Shale Green River Basin Bakken Shale

CO Pinedale Anticline
Jonah Field Wattenberg Field ND

PA Marcellus Shale

Permian Basin

# Water Services

- Current Operating Assets

9

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

10

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

11 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

13 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

16 

### 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

19 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

20 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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# Oil

field 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

23 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 3 rd 

### 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

31 

### Semi

mobile 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 3 rd 

### 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