Chargeability of Remote Technology Centers in COPAS Model Forms: MFI Draft 1

1. COPAS Technology Team Publication ReviewAG-28 to MFI-XX • COPAS – Fall 2018 • September 20, 2018

2. Overview • MFI Draft 1 Development/Structure • Discussion Topics • Next Steps

3. MFI Scope • Develop MFI to address chargeability of Remote Technology Centers relative to COPAS Model Forms • Focus on MFI is Remote Technology Centers and not all technology • Retain important concepts from AG-28, Real Time Operations Centers, which will be retired when RTC MFI is approved • MFI to include integrated operations (production and drilling/completion) • Focus on COPAS Model Form Provisions vs. Benefits and Opinions

4. RTC MFI Key Concepts • MFI utilizes the Remote Technology Center definition from the COPAS Deepwater Model Form: “means a facility, regardless of location, having dedicated technical and/or operations staffing, that directly monitors and/or controls Joint Operations on a real-time basis.” • “Facility Labor” – labor required to operate an RTC and includes personnel responsible for maintenance of the RTC equipment and the dedicated operators of the monitoring equipment

5. RTC MFI Draft 1 • Introduction • RTC Considerations • RTC Chargeability Analysis (COPAS 1962 through COPAS Deepwater) • RTC Cost Allocation Considerations • Appendices

6. I. Introduction • Purpose of document • Reference for Operators who utilize an RTC • Provides guidance regarding chargeability of RTC costs • Provides guidance on RTC cost allocations including examples of allocation methodologies • References MFI-44 (Field Computer and Communication Systems) and AG-28 (Real Time Operations Centers) as resources

7. II. RTC Considerations • RTC Definition • RTC Related Costs • Facility • Communication, Technology • Labor • RTC Ownership • Functions Performed

8. III. RTC Chargeability Approach • RTC Facility & Computer/Communication Equipment • Provided by Operator – chargeable per Equipment and Facilities Furnished by Operator provision • Provided by 3rd party – chargeable per Services provision • Provided by Affiliate - chargeable per Affiliate provision or Equipment and Facilities Furnished by Operator if no Affiliate provision per MFI-18 (Operator Affiliates and Related Entities), or Services if certain conditions met • Facility & Computer/Communication Equipment chargeability is not determined by who provides the service but the service provided (MFI-21 Overhead Principles)

9. III. RTC Chargeability Approach • RTC Labor • Facility Labor – labor dedicated to the monitoring and/or controlling of joint operations chargeable as part of RTC facility rate • Other Labor, such as geologists, drilling and completion engineers and supervisors, which is not dedicated to the RTC but which uses the RTC as required based on the operations involved - chargeable based on the Labor and Overhead provisions

10. III. RTC Chargeability 1984 Accounting Procedure • RTC Facility & Equipment (Computer/Communication) • Operator RTC - chargeable per Section II.8 (Equipment & Facilities Furnished by Operator) • 3rd party RTC – chargeable per Section II.7 (Services) • Affiliate RTC – chargeable per MFI-18 (Operator Affiliates & Related Entities) as Equipment and Facilities Furnished by Operator if certain conditions not met - if met, chargeable as Services (Section II.7). Conditions are: • a. Affiliate must conduct substantial business with companies other than the Operator • b. Price cannot exceed lesser of 1) price offered to most favorable customer or 2) price obtainable by Operator from unrelated party providing same services in the area

11. III. RTC Chargeability 1984 Accounting Procedure • RTC Labor • Facility Labor – labor dedicated to monitoring and/or controlling of joint operations includable in rate charged for RTC • Other Labor • Only labor chargeable is Technical Employees, professional consultant services and contract services of technical personnel temporarily assigned to and directly employed in the operation of the joint property if not covered by overhead. Other provisions require labor to be “on the Joint Property” or “in the field” and RTC is not Joint Property nor in the field.

12. IV. RTC Cost Allocation Considerations • Properties Served – references not charging for unused capacity • Specific Use vs. Common Charges • Field Computer/Communication Systems – if charged directly do not include in RTC rate • Joint Property vs. Operator Benefit – admin activities not included in RTC rate • Types of Labor – facility labor, technical labor & admin labor

13. V. RTC MFI Appendices • A Cost Allocation Examples • B-F Model Form Language References from 1962 through Deepwater Model Form Accounting Procedures • G RTC Chargeability Accounting Procedure Review Summary

14. Appendix A – Layout & Rate Development • Shows pictorial examples of different Operator Owned RTC facility layouts: • Integrated RTC with dedicated Operations and Drilling/Completion activities • Dedicated Operations RTC and Undedicated Space • Dedicated Drilling/Completion RTC + Other Operator activities • Example – How to develop an RTC Facility Rate

15. Appendix A - Examples • RTC Cost Allocation Examples: • Pre-COPAS 2005, • COPAS 2005, • COPAS DWAP (using # wells), • Pre-COPAS 2005 D&C using drilling days for D&C, • 3rd Party provided RTC (AG-28)

16. Appendix B-F • Accounting Procedure language references for RTC cost component related sections from each of the COPAS Model Forms: • B = COPAS 1962 and 1968 • C = COPAS 1974 and 1976 • D = COPAS 1984 and 1986 • E = COPAS 1995 and 1998 (PTAP) • F = COPAS 2005 and Deepwater

17. Appendix G • Summary of Chargeability based on COPAS Model Form Accounting Procedure and RTC Cost Components

18. Discussion Topic #1 • RTC Capacity/Availability • RTC built based on drilling/operating 1,000 wells • RTC cost is $1,000,000 resulting in cost of $1,000/well • Actual number of wells is 500 resulting in a cost of $2,000/well • What should be the charge to each well?

19. Discussion Topic #2 • Operator #1 RTC located in the Midland district office - RTC rate includes the cost of the RTC space in this office – is this acceptable? • Operator #2 RTC located in the corporate headquarters in Houston – RTC rate includes the cost of the RTC space in this office – is this acceptable? Concern is this office has always been covered by overhead and not chargeable – now a portion is chargeable per the current draft.

20. Discussion Topic #3 • Facility Labor – labor dedicated to the monitoring and controlling of operations and includable in RTC rate • Other Non-Dedicated Labor – labor using the facility as needed based on the operations involved and chargeable per the Labor and Overhead provisions – most likely Technical Employees/Services • If geologist comes in during drilling operations to conduct geo-steering activities, does this become Facility Labor (dedicated during the drilling operations and therefore Facility Labor) or is it Technical Labor and subject to the Labor and Overhead provisions?

21. Discussion Topic #4 • Drone covers numerous properties and is controlled from a RTC by a pilot. An additional person is called in to review the pictures to determine if additional work is warranted • If 3rd party provided service, is 100% of the costs billed by the 3rd party provider chargeable/allocable? • If Operator employees provide this service, does the answer change? Is the pilot part of Facility Labor and the other person Technical Labor?

22. Discussion Topic #5 • MFI-44 Field Computer and Communication Systems – is this sufficient to allow charging RTC costs? This MFI is related to field equipment and since the RTC is likely not in the field, might not provide sufficient support for charging RTC costs.

23. Next Steps • Comments due to RTC Team (dbn.retzloff@gmail.com) by November 9, 2018 • Draft 2 availability depends on number and complexity of comments received • Team will try and have draft 2 available for Winter 2019 meeting, but if not, it will be available for the Spring 2019 meeting

24. RTC MFI-XX Comments • Individual, Company and/or Society Feedback is welcomed and appreciated • Please ensure comments include: • Contractual basis for position • “Benefits the Joint Property” does not provide substance that the RTC drafting team can use to fulfill a MFI classification

25. Team Members • Larea Arnett, ExxonMobil (Houston) • Chris Copeland, Continental Resources (Oklahoma City) • Tammy Miller-Davison, Encana (Colorado) • Janice Edmiston, AMS-PAR (Houston) • Terry McMurray, Gas Equities (Colorado) • Joy St. Pierre, Shell (New Orleans) • Deb Retzloff, Independent Consultant (Houston) • Jeff Roberson, Chevron (Houston)