WHAT DOES A RESERVOIR ENGINEER DO? November 15, 2011

Reservoir Engineering  What is a reservoir engineer?  Works with geologists to determine hydrocarbons in place  OOIP – Original Oil In Place EUR – Estimated Ultimate Recovery  Evaluates development scenarios  Uses production models to estimate timing of recovery  Tools of the Trade  Data sources – public data, internal assessments, industry studies  Software  Aries – used in evaluating decline curves, economics, and reserves  Enertia – cost/production reporting  Prodview –production tracking  PERC – drilling data/reports  Drilling Info/PI Dwights – used to access public production data 2

Reservoir Engineering  Decline Curves/Models 3 COG – 1 (producing)

Reservoir Engineering  Decline Curves/Models 4 Production Model

Reservoir Engineering  Reserves  Calculated amount of oil/gas that is expected to be produced from a well or field  Economics are considered  Barrel of Oil Equivalent (BOE, MBOE)  1 BO = 6 MCF = 1 BOE  Five reserve categories (RSVCAT)  PDP, PNP, PUD, PROB, POSS RES Proven Unproven Most ValuedLeast Valued  Reserves are calculated with reasonable certainty 5 Uncertainty Increases

Reservoir Engineering  Securities and Exchange Commission (SEC)  Regulates/standardizes how companies determine reserves  Holds companies accountable for proven reserves  Concho’s Internal Reserve Process  Mid-year update  End of year reserves  Third Party Independent Engineering Review  Netherland-Sewell & Associates (TX Assets)  Cawley Gillespie & Associates (NM Assets)  Concho 2010 YE Reserves  MMBOE total reserves (323.5 MMBOE proved) 6

Reservoir Engineering  Economic Evaluations  Company’s base pricing assumptions updated monthly  NYMEX average price used for year end evaluations (SEC req.)  Rate of Return (ROR, IRR)  Used to determine the attractiveness of a project  Concho aims to invest in projects with > 20% ROR  Price sensitivity is considered for 20% ROR  PV-10 (PW-10)  Present Value (Worth) of a project discounted at 10% per year over the project’s life  Cash Flow  A detailed summary of the project’s money stream over time 7

Reservoir Engineering  Within Concho  Asset level reservoir engineers  Work to optimize reservoir performance in a specific area  Determine reserves for a specific asset  Evaluate project economics  Corporate reservoir engineers  Company-wide reserves  Exploration outside of core areas  Technical support for business development  Acquisitions/divestitures  Marbob  Bakken  Permian packages 8

Your Turn!  Questions  Feedback/comments 9