Sarbanes-Oxley and The Impact on Land Asset Management

1. Sarbanes-Oxley and The Impact on Land Asset Management Karen L. Jones, JD, MA Policies Etc Management Services

2. Named for sponsors: Sen. Paul Sarbanes, D-Maryland Rep. Michael Oxley, R-Ohio Sarbanes-Oxley Act of 2002

3. Headlines: “WorldCom's financial bomb From the president on down, officials worried about investor confidence weigh in” – CNN/Money “Adelphia's Fall Will Bruise a Crowd The bankruptcy is hurting rivals as well as suppliers” – Business Week Why this new Legislation?

4. Headlines: Enron's Ken Lay: "There's No Other Shoe to Fall" As the energy giant's stock tumbles after Jeffrey Skilling's sudden resignation, the new CEO tries to reassure investors – Business Week “Enron Says Profit Was Overstated Troubled Energy Firm Fires 2 More Officials” “Enron Admits to Overstating Profits by $600 Million” – New York Post Online Why this new Legislation?

5. Corporate Scandal – Massive Corporate Governance Failures Worldcom/Adelphia/Healthsouth/Enron Millions lost in employee pensions, investments Consumer confidence deflated Many of the major corporate frauds occurred in the Disclosure Staging Area (core activities) Financial Statement Consolidation and Adjustments Financial Statement Notes Preparation Preparation of Supplemental SEC 10K/10Q/ and other Disclosures Frauds occurred well above the more micro Disclosure/Objectives/Processes “DOPs” area Demand for Action Why this new Legislation?

6. Most sweeping legislation affecting corporations since the 1930’s Demand for Action led to….

7. Goals SOX Purpose Statement: To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to securities laws, and for other purposes. What is the Scope of SOX?

8. Publicly traded Companies Implications for Private and Nonprofit Companies Who must comply with SOX?

9. Public Company Accounting Oversight Board To oversee the audit of public companies Auditor Independence Makes it unlawful for public accounting firm to perform audit and non-audit services Overview of SOX

10. Corporate Governance Public Company Audit Committees Corporate responsibility for financial reports Improper influence on conduct of audits Forfeiture of certain bonuses and profits Officer and Director bars and penalties Insider trades during pension fund blackout periods Rules of professional responsibility for attorneys Fair funds for investors Overview of SOX - continued

11. Enhanced Financial Disclosures Disclosures in periodic reports Enhanced conflict of interest provisions Transactions involving management and principal stockholders Management assessment of internal controls Code of ethics for senior financial officers Disclosure of audit committee financial expert Enhanced review of periodic disclosures by issuers Accounting Firm Consolidation Analyst Conflict of Interest Corporate and Criminal Fraud Accountability White-Collar Crime Penalty Enhancements Corporate Fraud and Accountability Overview of SOX - continued

12. Section 302 Requires CEO/CFO to certify quarterly/annually the effectiveness of their disclosure controls and procedures which include financial reporting controls Some Key provisions of SOX?

13. Requires CFO & CEO: to certify and assert to stakeholders that SEC disclosures, including financial statements, and all supplemental disclosures, are truthful and reliable, and management has taken appropriate steps to assure internal disclosure processes and controls are capable of consistently producing financial information stakeholders can rely on. External auditor must report on the reliability of management’s assessment on internal control. Sections 302 & 404

14. Safeguards: ways to police employees who make decisions regarding company finances Examples: Ways a company prevents employees from inflating travel expenses Making sure supplies are ordered and paid for by different people Decisions regarding write-offs for delinquent accounts The more complex the company, the more internal controls are needed Internal Controls

15. Section 401: Disclosures in Periodic Reports; Required Disclosures Annual and quarterly financial reports must disclose all material off-balance sheet transactions and other relationships with unconsolidated entities that may have a material current or future effect on the financial condition of the issuer. Pro forma financial information must be presented as not to contain untrue statements, or omit to state material facts, or provide misleading information SEC shall study off-balance sheet disclosures to determine extent of transactions, whether economics are accurately represented to investors, make recommendations to Congress. Some Key provisions of SOX – cont’d

16. Section 404 Requires company to document and evaluate the effectiveness of internal controls and procedures for financial reporting Requires external auditor to attest to management’s assertions in the annual report Some Key Provisions of SOX – Cont’d

17. Accelerated filers: date extended to first fiscal year beginning on or after November 2004 Accelerated filers must conduct evaluations and include management financial reporting, as well as the related auditor attestations, in annual reports for fiscal years ending on or after November 15, 2004, instead of June 15, 2004. Accelerated filers: US publicly traded company that has equity market capitalization of $75M or more and have filed at least one annual report. This extension is also applicable to secs 302 and 404 involving Management’s Report on Internal Control over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, and internal control over financial reporting. Compliance Deadline

18. Planning for compliance must begin today Assessment Corrective Action Establish a common risk and controls framework Do not underestimate the time and effort required to satisfy the requirements Requires company to delve into each IC and document effectiveness Some estimates for large complex organizations are in excess of 20,000 hours (equivalent to 10 FTEs) General Implications

19. If you are a publicly traded company you must comply with SOX New Rules for Audit Committees and Auditing Firms Certification Requirements for CEO and CFO Disclosure of Internal Controls Accelerated Reporting Requirements Documentation Requirements How does SOX apply to Land Asset Management?

20. 302/401/404 Disclosures Controls and Procedures Areas of concern include entire Land Asset Management Lifecycle: Inception of Lease Production Royalties Non-Producing Wells Land Sell Also: Technology, software, third-party vendors should be reviewed to ensure SOX compliance How Does SOX Apply to Land Asset Management?

21. Evaluation of Controls at the Corporate or Business Unit level: Control Environment Top down management that sets the tone and reinforces the importance of internal controls Risk Assessment Identification and analysis of relevant risk Information and Communication Establish or review all policies and procedures All policies and procedures documented or updated Policies, procedures, controls are aligned with company objectives and clearly communicated throughout management and to employees Control Activities Develop and/or reinforce internal controls Develop control activities to ensure management directives are actually carried out Monitoring and periodic updates established and timely performed over time What can be done in the business areas?

22. Questions for Consideration: What are some of the specific LAM business areas that ultimately affect the financial disclosures of the company? What are some of the more process laden areas of LAM that should be reviewed? What are some of the business areas that are typically resistant to documenting internal controls, processes or procedures that ultimately have an affect on accounts receivable/payable, and therefore affect the financial disclosures of the company? What are some key LAM areas of focus for Sarbanes-Oxley compliance purposes? Additional comments and/or questions Land Asset Management Discussion

23. Thank You