1. Economic Impact of Oil & Gas Industry in New Mexico Presented to NMBA Economic Forum By Steve Henke, President September 26, 2014

2. Where does our energy come from? How do we use energy?

3. World Energy Perspective

6. United States Energy Perspective

8. U.S. energy use grows slowly over the projection reflecting improving energy efficiency and slow, extended economic recovery U.S. primary energy consumption quadrillion Btu Source: EIA, Annual Energy Outlook 2013 Early Release Adam Sieminski, Platts, March 01, 2013 8 History Projections 2011 36% 20% 26% 8% 1% 32% 28% 19% 11% 9% 2% Shares of total U.S. energy Nuclear Oil and other liquids Liquid biofuels Natural gas Coal Renewables (excluding liquid biofuels) 2000 23% 39% 24% 6% 8%

9. Growth of natural gas in transportation led by heavy duty trucks (LNG) and gas to liquids (diesel)… marine and rail to come? U.S. natural gas consumption quadrillion Btu Note: Gas to liquids includes heat, power, and losses. Source: EIA, Annual Energy Outlook 2013 Early Release 9 Adam Sieminski, Platts, March 01, 2013 Pipeline fuel Light-duty vehicles 2011 HistoryProjections 95% 3% 1% 28% 38% 3% 31% 1% Buses Freight trucks Gas to liquids

10. New Mexico Perspective

11. New Mexico An Oil & Gas Producing State Producing Counties San Juan Rio Arriba Colfax Sandoval McKinley Lea Eddy Chavez Roosevelt Raton Basin

12. Frontier Areas

13. New Mexico Production Trends

14. Natural Gas Production (mcf) Source: NMOCD

15. Oil Production (barrels)

16. New Mexico Oil and Gas Industry Jobs 105,600 Direct, Indirect and Induced Jobs in New Mexico 98 drilling rigs operating in state ~ 90% in Permian Basin and 10% in San Juan Basin (Baker Hughes: September 12, 2014) – Each rig accounts for approximately 50 total employees – Average annual wages approximately $75,000+ per employee – $3,750,000 annual payroll per rig

18. New Mexico General Fund Revenues Fiscal Year 2013 ($ millions)

21. Land Grant Permanent Fund Balance Attributed to Oil & Gas Industry Balance 6-30-2013 $12,197,218,232 Percentage Attributed to Oil & Gas* x 96.6% Balance Attributed to Oil & Gas 6-30-2013 $11,782,512,812 * New Mexico Tax Research Institute, Fiscal Impacts of Oil and Natural Gas Production in New Mexico, January 2014

22. Severance Tax Permanent Fund Balance Attributed to Oil & Gas Industry Balance 6-30-2013 $4,166,990,158 Percentage Attributed to Oil & Gas* x 86% Balance Attributed to Oil & Gas 6-30-2013 $3,583,611,536 * New Mexico Tax Research Institute, Fiscal Impacts of Oil and Natural Gas Production in New Mexico, January 2014

23. Unlocking Resources through Applied Technology

25. Link to YouTube Version of Video http://youtu.be/YemKzEPugpk

26. Improvements and Innovations in Applying “New” Technology Exploration Horizontal Drilling Hydraulic Fracturing

27. Exploration Topographical maps, aerial photography, seismic studies (sound waves) and 3D data visualization

28. Horizontal Drilling and Hydraulic Fracturing

29. Long used form of well completion that along with horizontal drilling has been a game changer for oil and natural gas development in the United States. Hydraulic fracturing is a process used in nine out of ten wells in the United States, where water, sand and chemicals are pumped underground to break apart the rock and release the gas or oil. Horizontal drilling combined with multi-stage hydraulic fracturing has brought the U.S. a 100-year supply of natural gas, and is increasing domestic oil production. Hydraulic fracturing and horizontal drilling make previously marginal reserves economically recoverable. What is Hydraulic Fracturing

30. Safety Through Proper Wellhead Construction

31. Hydraulic Fracturing Job

32. Surface water Fresh water wells Municipal systems Reuse of flowback Produced water All from permitted sources Water Sources

34. Does Oil and Gas Use a Massive Amount of New Mexico’s Scarce Freshwater for Hydraulic Fracturing? 5,325 Acre Feet x 325,851 Gallons per acre foot = 1,735,156,575 Gallons Used for Hydraulic Fracturing in 2013

35. Does Oil and Gas Use a Massive Amount of New Mexico’s Scarce Freshwater for Hydraulic Fracturing? 5,325 Acre Feet used for HF ÷ 3,815,945 Total Water Use in Acre Fee.14% Water Used for Hydraulic Fracturing in 2013

36. New Mexico Water Use by Categories 2010 Source: New Mexico Water Use by Categories 2010 – New Mexico Office of State Engineer Technical Report 54

37. New Mexico Water Use by Categories 2010 Source: New Mexico Water Use by Categories 2010 – New Mexico Office of State Engineer Technical Report 54 Total: 3,815,945 Acre Feet

38. Temporary storage (tanks or lined pits) including Multi-Well Fluid Management Pits Treatment at production facilities Class II disposal wells Commercial disposal wells Municipal or commercial treatment plants All permitted/approved by appropriate regulatory agencies at the state level Flowback and Disposition Options

40. Fracturing Fluids Many different formulation depending on specifics of formation being completed Fluids create fissures Fissures kept open with propant (sand) Allow natural gas and oil to flow

41. New Mexico Oil Conservation Division – Well Design and Construction – Disposal of Flowback – Hydraulic Fracturing Fluid Disclosure Regulation

47. CBI: Confidential Business Information

48. 29 CFR 1910.1200 allows for trade secret protection of certain hydraulic fracturing fluid components Trade Secrets

51. Inappropriate Regulation and Limiting Access to Producing Areas – Federal – State – County and Local Unfounded Environmental Activism – Endangered Species Act – Hydraulic Fracturing Hysteria – Other Threats to Industry Stability and Growth

52. Key Issues for Oil and Gas Industry Access to Land – Federal – State – Tribal – Private Reasonable Regulations – Protect Environment, Groundwater, Human Health – Science Based – Reasonable Administrative Processes

53. For More Information www.nmoga.org

54. Questions?