Texas Oil & Gas Association Mineral Sub- Committee ANNUAL - PowerPoint PPT Presentation

Texas Oil & Gas Association Mineral Sub- Committee ANNUAL TXOGA PROPERTY TA TAX CONFERENCE FEBRUARY 18-19, 2020

Committee Members ➢ Brad Bailey – Conoco Phillips Co ➢ Michael Horne – Occidental ➢ Ron Kane – EOG Resources ➢ Damien Larsen – Stancil Property Tax ➢ Lauro Porto- ExxonMobil ➢ Randy Prince – Chevron ➢ Rich Sanchez – Merit Advisors ➢ Nathan Young – American Ad Valorem Tax Consultants

Mineral Sub Committee Activity ➢ Meet to discuss valuation parameters ➢ Schedule meetings with the Appraisal Firms ➢ Summarize meeting discussions ➢ Report to the Membership ▪ Firm Summary File to be emailed once complete

Texas Production – Crude Oil

Top 10 Producers – Crude Oil

Texas Production – Natural Gas

Top 10 Producers – Gas

EIA Annual Energy Outlook ➢ Released on January 29, 2020. ➢ §23.175 Texas Property Tax Code ▪ Appraisal districts must use the EIA AEO data to calculate the Price Adjustment Factors for oil & gas if published by March 1, 2020

Price Adjustment factors EIA - Price Adjustment factor - AEO Report released January 29, 2020 Table 12 Prices in Nominal Dollars Table 13 Prices in Nominal Dollars Oil - WTI Spot Price Natural Gas - Henry Hub Spot 2020 Price $ 54.43 2020 Price $ 2.49 2019 Price $ 56.26 2019 Price $ 2.57 MAF 0.96747 MAF 0.96887

EIA STEO vs. AEO EIA's STEO vs. AEO Oil - WTI Spot Price Dec 19 STEO Jan 20 STEO Feb 20 STEO 2020 AEO 2020 Oil $ 55.00 $ 59.25 $ 55.71 $ 54.43 2019 Oil $ 56.70 $ 57.02 $ 57.02 $ 56.26 2020 PAF 0.9700 1.0391 0.9770 0.9675 Spot WTI Price - 2/11/2020 $ 49.75 Natural Gas - Henry Hub Spot (MMBTU) Dec 19 STEO Jan 20 STEO Feb 20 STEO 2020 AEO 2020 Gas $ 2.45 $ 2.33 $ 2.21 $ 2.49 2019 GAS $ 2.59 $ 2.57 $ 2.57 $ 2.57 2020 PAF 0.9459 0.9066 0.8599 0.9689 Spot HH Gas Price - 2/11/2020 $ 1.79

Producer Price Index BLS - PPI Calculation for Oil & Gas - Full Year 2019 X = index figure for current year (Base year 1982 assumed to be 100) Y = number of years between 1982 base year and current year To determine average inflation rate over any particular time span: Inflation (%) = (X / 100)^ (1 / Y) - 1 Crude Oil Natural Gas Factor 157.8 85.6 Year 2019 2019 Escalator 1.2405% -0.4193%

2020 Pricing Escalators 2020 Tax Year 2020 Tax Year Oil - 23.175 Max Forecast Gas - 23.175 Max Forecast Year Oil Price Factors Notes Year Gas Price Factors Notes 2019 $ 56.26 2019 $ 2.57 2020 $ 54.43 0.96747 PAF 2020 $ 2.49 0.96887 PAF 2021 $ 55.11 1.01240 PPI 2021 $ 2.48 0.99581 PPI 2022 $ 55.79 1.01240 PPI 2022 $ 2.47 0.99581 PPI 2023 $ 56.48 1.01240 PPI 2023 $ 2.46 0.99581 PPI 2024 $ 57.18 1.01240 PPI 2024 $ 2.45 0.99581 PPI 2025 $ 57.89 1.01240 PPI 2025 $ 2.44 0.99581 PPI

Appraisal Firm Meeting Notes New Contracts for 2020 ➢ CAG – Cooke & Val Verde Counties ➢ P&A – Childress, Comal and Gillespie Counties ➢ TYP – Coryell, Dallam, Gray, Hutchinson, Jasper and Kimble Counties ➢ Reeves County – In House

Appraisal Firm Meeting Notes ➢ Firms will use the 2020 AEO to determine the PAF for Oil & Gas Pricing. ➢ Escalation from BLS – years 2-6 ➢ Firms indicated they will adjust discount rates from 2019 or adjust property specific. ➢ Firms expect mineral values to decrease based on pricing scenario.

Lease Operating Expenses ➢ CAG – will use actual 2019 LOE. Lease operating costs categorized as fixed & variable. Yr 1 – Flat. Escalation will vary based on category classification. (Range from .9 to 1.02 based on Oil Esc.) ➢ P&A – will use 2019 actual or historic. Oil lease – de-esc 3% year 1,Flat year 2 thru 6. Gas lease – de-esc 3% year 1, hold flat all years until reaching economic limit. ➢ TYP – Use 2019 actual or historical. LOE esc .8% for first 5 years then held flat for subsequent years until reaching the economic limit. ➢ WAG – will use 2019 actual or de-escalate historical up to 20%. Will escalate .8% years 2-6 and hold flat until economic limit. ➢ Requests sent to HLA & MAVSI

Capitol Meeting Notes ➢ CAGI – Discount rate – S&D analysis – ValueLine Companies (15% Base Rate) ➢ Min – 14.5% to Max 22%. ➢ 10 plus well units – reduce wells (1/2 decl *well count per year) ➢ Website enhancements – Notices are now available on line. ➢ Counties are requesting new copies of AOA’s. ➢ New Counties – Cooke – Ken Hitt, Val Verde, Jeff Ronk

Pritchard & Abbott Meeting Notes ➢ Retirements – Vic Henderson & Mac Jourdan, FTW – Mark Stewart, AMA ➢ New Appraisers – Mason Patterson FTW, Malachi Ashley AMA ➢ Calculates individual County base prices from Comptroller data. ➢ Discount Rates – reduced 1% all properties ➢ Equipment value – Discount rate reduced to 5% (2019 5.5%)

Thos. Y Pickett Meeting Notes ➢ 2020 value reductions – Est 15% decrease. ➢ Discount rate – 1% increase – 16%. ➢ Added Mack Jourdan for 2020 Mineral Appraisal.

Wardlaw Meeting Notes ➢ Expects to increase discount rate. Rate to be finalized. ➢ Requesting variable pricing WI vs. RI ➢ RI – Free of deducts – higher price ➢ Marketing costs – won’t use 100% reported ➢ LaSalle – Support for low gas prices. ➢ Identify Gas lift or EOR projects.

Other Topics Discussed ➢ Drilling Permit wells ▪ Placing on Roll in appraisal cycle. ➢ Unknown Interests ▪ Correction of prior year roll once identified. ➢ County Crossover Leases – Value Allocation ▪ Leasehold acreage vs lateral length

Questions? THANK YOU