1. Kevin Barnes Petroleum Accountants Society of Oklahoma February 12, 2015 Indian Oil Negotiated Rulemaking Committee

2. First notice of intent to form the committee printed in Federal Register January, 31, 2011 Second notice published August 22, 2011 Notice of establishment of the committee published in the Federal Register December 8, 2011 Appointed COPAS committee representative December 23, 2011

3. Charter: The Committee will advise the Office of Natural Resources Revenue (ONRR) on a rulemaking to address Indian oil valuation, as it relates to the major portion requirement in Indian oil and gas leases Scope of the Committee limited to the major portion calculation for oil produced from Indian leases. Committee is to Act Solely in an advisory capacity to ONRR

4. Committee members (excluding alternates): 1 Designated Federal Officer (ONRR) 2 Facilitators (CDR Associates) 4 Federal Government (3 ONRR & 1 BIA) 7 Indian (Tribal & Allottee Associations) 6 Industry (Trade Associations and Companies) Total of nine Committee meetings held from May 2012 through September 2013.

5. First meeting May 1 & 2, 2012 History of Indian oil valuation rule Overview of Indian oil production Indian sales statistics Indian oil administrative process

6. Second meeting June 18 & 19, 2012 Overview of Federal government trust responsibility to maximize revenues for royalties from Indian leases Overview of crude oil flows, prices and market differentials Pervis & Gertz Argus Platts Overview of sample major potion analysis and correlation to other initial proposals

7. Third meeting August 1 & 2, 2012 Presentation of major portion analysis normalized for quality (API gravity) Overview of previously proposed Indian oil valuation rules Methods of calculating a major portion price discussed

8. Fourth meeting September 5 & 6, 2012 Presentation of three potential approaches to major portions price calculation ONRR calculated major portion methodology Higher of gross proceeds or an index price methodology based on NYMEX Index priced methodology based on NYMEX

9. Fifth meeting October 24 & 25, 2012 Presentation of sample major portion analysis at the reservation level and field level at 50% +1 barrel and 75% for two reservations Key issues discussed Could economic factors be analyzed to determine if certain fields could be combined? If a field has < 3 payors ONRR constrained from publishing a major portion price because it basically results in sharing a company’s proprietary financial information Administrative factors involved in capturing field level information and performing calculations at that level Crude type, can this be subjective? Is quality all that must be considered?

10. Ad Hoc Subcommittee formed and tasked to Identify field names on Indian reservations Oklahoma not included due to number of fields Obtain information on the number of leases and payors per field. Identify instances of < 3 payors Provide initial recommendations on where fields may be combined

11. Sixth meeting April 17 & 18, 2013 Presentation on action items from prior meeting Identify field names on Indian reservations Information on the number of leases and payors per field Identifying instances of < 3 payors Initial recommendations on where fields may be combined ONRR provided rationale for requiring at least 3 payors Trade Secrets Act Must perform a major portion calculation ONRR provided rationale for use of designated areas Precedent for use of designated areas to provide reasonable sample of arm’s length contracts

12. Formed Ad Hoc Subcommittees to look at Designated Areas Oklahoma Ft. Berthold Uinta/Ouray Wind River Crude type / API gravity reporting

13. Sub-committees gathered information and discussed issues, however full committee made final deliberations Designated area considerations Markets served Similar Geography Number of payors Crude type Crude type / API gravity reporting considerations Different crude types System requirements Frequency (one-time / monthly) Utilizing OGOR reported API gravity FMP / sales point gravity Reporting by non-operators

14. Seventh meeting June 4 - 5, 2013 Review of Tribes/Allottees/ONRR straw man proposal Reviewed recommendations from the Ad Hoc Subcommittees. Prepared a revised straw man proposal to consider for the next meeting

15. Eighth meeting August 6 - 7, 2013 Reviewed proposal from prior meeting and further discussed Transportation/Location Differential Premium applied to Index-Based Price formula Tribal/Allottee opt-out option Created proposal to present to constituencies

16. Bob Wilkinson sent out to COPAS members 9/3/2013 Major Portion 75% from the top Designated area reservation boundary except Fort Berthold 2 Areas North and South of Little Missouri River Uintah & Ouray 2 areas Uintah and Grand Counties / Duschesne County Value reported on the higher of Index Based Formula Price Gross proceeds Crude type reported monthly on Form ONRR-2014 No reporting of API gravity

17. Ninth meeting September 16, 2013 Last meeting of the Committee After discussion each Committee Member was asked if they could support the rule All members affirmed but one member, who’s objection was added to the Final Committee Report

18. Agreement to the final proposal by the committee based on Filing simplicity - only one value is reported Must include crude type on Form ONRR-2014 but not API gravity Filing certainty - major portion not calculated over a year after the close of year, resulting in significant adjusted filings Assurances in the calculation of the index that Tribes/Allottees receive major portion

19. Final Report of the Indian Oil Valuation Negotiated Rulemaking Committee Published on September 30, 2013 ONRR began the process of drafting the proposed rule

20. Proposed rule published in the Federal Register June 19, 2014 Comments due by August 18, 2014

21. COPAS provided comments on the proposed rule on August 11, 2014

22. In the proposed rule, ONRR reserved the ability to eliminate or redefine how the roll is calculated. This change would be published in the Federal Register.

23. COPAS provided comments on the proposed rule on August 11, 2014 In the proposed rule, ONRR reserved the ability to eliminate or redefine how the roll is calculated. This change would be published in the Federal Register. COPAS commented that in this case Industry should also be given the opportunity to comment on the proposed change.

24. COPAS provided comments on the proposed rule on August 11, 2014 In the proposed rule, ONRR reserved the ability to eliminate or redefine how the roll is calculated. This change would be published in the Federal Register. COPAS commented that in this case Industry should also be given the opportunity to comment on the proposed change. Additional COPAS comments on items that were not a part of the Negotiated Rulemaking Committee.

25. COPAS provided comments on the proposed rule on August 11, 2014 Rather than filing Form ONRR-4410, Oil Transportation Allowance Report, lessee would submit copies of arm’s–length transportation contracts and any amendments within 2 months after the lessee reported a transportation allowance on its Form ONRR-2014. For non-arm’s length transportation, lessee must submit Form ONRR-4410, with actual cost information, within 3 months after the end of the 12 month period to which the allowance applies. These changes would mirror the Indian Gas rule.

26. COPAS provided comments on the proposed rule on August 11, 2014 COPAS supports this change but requested further guidance 1 – What is the required format in which contracts must be provided? (hardcopy, email, flash drive) 2 – What needs to be provided for FERC tariffs / transportation factors for which there are no transportation contracts? 3 – Does this apply to mainline transportation which could have hundreds of contracts when it is tied to a price pool?

27. COPAS provided comments on the proposed rule on August 11, 2014 The proposed rule eliminates the ability to net an arm’s-length transportation fee with gross proceeds, requiring lessees to report as a transportation allowance.

28. COPAS provided comments on the proposed rule on August 11, 2014 The proposed rule eliminates the ability to net an arm’s-length transportation fee with gross proceeds, requiring lessees to report as a transportation allowance. COPAS does not support eliminating transportation factors as that would not be consistent with Indian Gas regulations which state that “ONRR will not consider the transportation factor to be a transportation allowance.” This would also be a major recording change as the pricing adjustment is typically accounted for as part of the base price within our accounting systems.

29. COPAS provided comments on the proposed rule on August 11, 2014 The proposed rule would eliminate any language around requesting approval to exceed the 50% transportation allowance. ONRR states that no one has ever made this request.

30. COPAS provided comments on the proposed rule on August 11, 2014 The proposed rule would eliminate any language around requesting approval to exceed the 50% transportation allowance. ONRR states that no one has ever made this request. COPAS does not support the elimination of the capability to request to exceed the 50% as it would not be consistent with the Indian Gas regulations. Also, although no one has requested to do so previously, a situation could develop where it would exceed the 50% limit. If this would happen, the lessee should be allowed to request approval to exceed the 50% limit.

31. COPAS provided comments on the proposed rule on August 11, 2014. The final rule has not been published. At this time we do not know if or how COPAS comments will be addressed in the final rule.

32. Indian Oil Valuation Negotiated Rulemaking Committee Meeting Announcements Members Documents Meeting Materials Proposed Rule http://www.onrr.gov/Laws_R_D/IONR/