Recent Developments & Technology

Recent Developments

Notice to operators (NTO)

On May 2, 2017, the Colorado Oil and Gas Commission issued a Notice to Operators (NTO) to verify the location of all flowlines associated with operated wells and the integrity of those flowlines. SRC has completed all field work associated with the NTO and filed the required paperwork regarding its operations ahead of the June 30, 2017 deadline.

Successfully drilled and completed 22 Evans wells with over 230,000 lateral feet of wellbore

Drilling and completions activity on the Evans pads commenced in the 3rd quarter of 2016 and the 22 wells were completed in four tranches of 5 – 6 wells each. The final tranche of 5 wells was turned to production in April of 2017.

Converted to 3-Stream Reporting

Beginning with the first quarter of 2017, SRC began reporting production using a 3-stream sales reporting method. Previously SRC reported production on a 2-stream wellhead sales reporting method. The conversion more accurately conveys the Company’s production metrics and provide more comparable results versus SRC’s peers, as well as conform to industry convention. The conversion results in an uplift to barrels of oil equivalent (“BOE”) volumes as natural gas liquids (“NGL”) and dry gas volumes will be disclosed separately whereas previously SRC only disclosed wet gas volumes. This has no material impact on revenues as NGL revenues will replace the premium to benchmark Henry Hub prices that the Company realized historically on its wet gas sales volumes.

DCP plans the addition of two natural gas plants

SRC, in collaboration with several of its peers, worked closely with DCP Midstream (DCP) and is pleased by DCP’s recently announced plans to expand gathering and processing capacity in the DJ Basin. The plan includes a new 200 MMcf/d processing plant (Mewbourn 3) as well as the expansion of the Grand Parkway gathering system, both expected to be completed by the end of 2018. Additional compression and plant bypass infrastructure will add 40 MMcf/d during the summer of 2017 to address shorter term needs. In addition, the producers and DCP have agreed to the framework for an additional 200 MMcf/d processing plant expected to be in service by mid-2019. This additional gathering and processing capacity should significantly reduce the potential natural gas midstream constraints that may arise with increased operator activity in the basin.

Technology

SRC Energy is at the forefront of applying new technologies to improve drilling efficiencies, to reduce costs and to maximize well production, including:

Advanced horizontal drilling techniques:

Currently drilling horizontal wells on spacing that potentially allows up to 24 wells per section.

Utilizing an internally developed 3-D Earth Model which helps us design and drill wellbores that optimizes our exposure to the most productive rock.

The use of rotary steerable tools in unconventional plays has improved our ability to drill high quality wellbores which reduces some of the complexities around completion activities.

Monobore well designs reduce cycle-times and costs while providing the opportunity for more efficient completions.

New well completion and stimulation techniques:

Increases cash flow and investment returns

Mid and extended reach lateral wells are becoming a larger percentage of the operated horizontal wells, which could produce more efficient returns on capital than standard length laterals.