ONRR General UPDATES copas spring 2019 meeting

1. ONRR General UPDATEScopas spring 2019 meeting Kimberly Jackson Royalty Valuation, Team A

2. The Fine Print(Our Disclaimer) Please note that the statements or opinions expressed in this ONRR presentation at the 2019 Spring COPAS Meeting do not necessarily represent the views of ONRR or the Department of the Interior.

3. A Huge Grand PASOThank You! • We appreciated the opportunity to participate! • We valued the feedback that we received from those who participated! • Suggestions for ONRR focused topics for 2021 session are welcomed! • The sooner the better, as it gives us time to prepare and line up speakers!!

4. Interior’s New Secretary • David Bernhardt was confirmed by the U.S. Senate on April 11, 2019, taking office the same day. • David Bernhardt is the 53rd Secretary of the U.S. Dept. of the Interior. • Mr. Bernhardt replaces Ryan Zinke, who resigned in December of 2018.

5. ONRR Leadership Director GregGould Audit Management Jeff Carlson Deputy Director JimSteward Revenue Reporting and Compliance Management KimbraDavis Coordination, Enforcement, Valuation andAppeals Financial Management EstherHorst Strategic Resource Management LarrySchock Indian Trust, Outreach & Coordination HeidiBadaracco Southern Federal Audit Shawna Schimke Reference & Reporting Management Lee‐AnnMartin Information &Data Management JudyWilson Western Federal Audit Judith Clark Analytics &Risk Management MikeDeBerard Compliance Management JenniferGoldblatt State and Indian Audit PatrickMilano Infrastructure& DigitalServices PatriciaDamon Royalty Valuation JohnBarder Enforcement Appeals & Regulations BonnieRobson

6. Royalty Valuation Staff!(We’ve Got NEW Folks!!) • Royalty Valuation Team A • JahedNabiyar (Geologist) • TanyiTanyi (Petroleum Engineer) • Christine Thomas (Geologist) • Royalty Valuation Team B • Kelsey Zabrusky (Petroleum Engineer) • Royalty Valuation Team C • Meghan Trujillo (Chemical Engineer)

7. Royalty Policy Committee • The Charter for the Royalty Policy Committee lapsed on April 21st, 2019 • With this lapse, the Royalty Policy Committee has officially ceased operating at this time • All Subcommittee and Working Group meetings and activities will stop

8. Payor Handbook Updates • Royalty Valuation is actively working on revising our Payor Handbook. • Two separate versions: • federal valuation • Indian valuation • Created to allow for more timely updates that can be accessed electronically! • Active content is already published and ready: https://www.onrr.gov/ReportPay/Handbooks/index.htm

9. 2016 Consolidated Rule(It’s Back….Right Now!) • 2016 Consolidated Oil and Gas Rule IS CURRENTLY IN EFFECT, retroactive to January 1st, 2017! • The suit by CA and NM that challenged the repeal of the 2016 Rule was decided by U.S. District Court (N.D. Cal.) on March 29, 2019. • Both parties have sixty days to appeal • If this takes place, the appeal goes to the Ninth Circuit Court (CA) • Industry will be given six months to implement changes to comply with the rule. • We are actively planning on rule training sessions for Industry. Stay tuned!

10. Reach Out To Us! If you have questions, please feel free to contact us via our Royalty Valuation Mailbox!! RoyaltyValuation@ONRR.gov

11. Royalty Valuation topics Amy Lunt, Supervisor Royalty Valuation Team A

12. The Fine Print(Our Disclaimer) Please note that the statements or opinions expressed in this ONRR presentation at the 2019 Spring COPAS Meeting do not necessarily represent the views of ONRR or the Department of the Interior.

13. April 25, 2019 • What we know TODAY: • As of March 29, 2019, the 2016 Rule is in effect • ONRR will comply with the Court’s Ruling • DOJ and SOL have 60 days to appeal • Information and guidance is forthcoming • Training is forthcoming 13

14. 2016 Rule Key Changes • Changes to both oil and gas • Consolidated definitions • Added, modified, and removed some definitions • Rescinded Deep Water Policy • Instituted default provision • Transportation • Disallowed pipeline loss in non-arm’s-length transportation • All transportation costs reported as allowances (no “transportation factors”) • Removed provision allowing lessees to exceed 50% limit • Adjusted Standard & Poor’s BBB bond rate multiplier from 1.3 to 1 • Clarified guidance and determination practices 14

15. 2016 Rule Key Changes • Changes to gas only • Removed gas non-arm’s-length valuation benchmarks - value is now based on: • Affiliate’s first arm’s-length sale or • Index-based option • Expanded application of processed gas valuation and reporting • Removed provision allowing lessees to exceed the 66 2/3% processing-allowance limit • Removed extraordinary processing allowance provision • Removed accounting for comparison 15

16. What Didn’t Change? • Some regulations didn’t change, or didn’t change much: • Few changes to federal oil • Indian oil and gas regulations – no changes • Marketable condition requirements – no changes • Unbundling requirements for arm’s-length gas dispositions – no changes 16

17. Resources • District Court Case: • See Order re Cross-Motions for Summary Judgment, Dkt No. 72, California v. DOI, Case No. C 17-5948 SBA (N.D. Calif.). • 2016 Rule Regulatory Language: • DO NOT USE eCFR (yet) or 2017 or 2018 Book • DO see 81 FR 43338 (July 1, 2016) • DO see that the Final Rule is available on ONRR’s website: https://www.onrr.gov/Laws_R_D/FRNotices/PDFDocs/43338.pdf 17

18. Resources • Dear Reporter Letters (high-level information): • Federal Oil and Gas Lessees (September 13, 2016) https://www.onrr.gov/about/PDFDocs/20160913.pdf • Federal and Indian Coal Lessees (October 5, 2016) https://www.onrr.gov/about/PDFDocs/20161005.pdf 18

19. Negative Index Pricesin the Permian Basin • No negative royalty reporting: • OGOR reporting won’t change • Form ONRR-2014 reporting depends on your specific situation • You cannot report zero or a negative sales value • Contact Royalty Valuation royaltyvaluation@onrr.gov with specific questions 19

20. Reporting Royalties on Liquefied Natural Gas (LNG) • To be determined: • Can liquefaction costs be deducted? If so, how? • What is marketable condition for LNG? • Usually reported as PC 03, in MMBtu and Mcf • Eligible for transportation allowances

21. In-field NGL Extraction(JT Skids, MRUs, etc.) • Small units that recover NGLs from one or several leases • Technology qualifies as “processing” under ONRR rules • Refrigeration • J-T valve cooling • Common in the Bakken because of flaring rules

22. In-field NGL Extraction(JT Skids, MRUs, etc) This is a great time to email RoyaltyValuation@onrr.gov! • Challenges: • Guidance is contract specific and design specific • Poor measurement of NGLs • Usually short term • Service contracts become sales contracts • BLM approval backlog

23. Questions Anytime ? RoyaltyValuation@onrr.gov 23