THE TIPRO TARGET TIPRO PRIORITY LEGISLATION FILED IN TEXAS SENATE EMINENT DOMAIN DEVELOPMENTS: HB 991, SB 421

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1 THE TIPRO TARGET VOLUME 22, NO. 3 Febuay 7, 2019 Texas Independent Poduces and Royalty Ownes Association TIPRO PRIORITY LEGISLATION FILED IN TEXAS SENATE On Wednesday of this week, State Senato Bian Bidwell (R-Ganbuy), who also seves as the Chai of the Texas Senate Committee on Natual Resouces and Economic Development, filed one of TIPRO s pioity pieces of legislation this session, aimed at incentivizing the eactivation of inactive wells. Senate Bill 533, elating to the seveance tax exemption fo oil and gas poduced fom cetain inactive wells, would emove efeences in statute to thee yea inactive wells, allowing all inactive wells to qualify fo a five-yea seveance tax exemption if they have been inactive fo two o moe yeas. The bill futhe claifies that enhanced oil ecovey (EOR) pojects and wells that have been dilled but not completed, and have no ecod of poduction, do not qualify fo this exemption. Because these ae inactive wells, and theefoe geneating no evenue o taxes, thee is no fiscal impact to the state as a esult of the tax exemption. Pe data fom the Raiload Commission of Texas (RRC), at the end of Decembe 2018 thee wee 123,610 inactive wells in Texas, which epesents appoximately 28% of the total well population in the state. Reactivation of these wells can lead to inceased gowth in evenue and job ceation fo the state, and also caies the potential to pevent those wells fom becoming ophaned, theeby educing the buden to the state. State Repesentative Dew Daby (R-San Angelo) caied this legislation fo TIPRO last session with House Bill Afte being passed out of the Texas House Committee on Ways and Means and the Texas House Committee on Calendas, the legislation unfotunately was held up on the floo of the Texas House of Repesentatives. This occued on the last day to pass bills out of the chambe due to the actions of the Feedom Caucus to delay and ultimately pevent passage of hundeds of pieces of legislation that day. TIPRO and seveal of ou membes have been woking with legislatos in the months leading up to this session to once again explain the legislation and secue authos in the Texas Senate and House of Repesentatives. State Repesentative Chis Paddie (R-Mashall), the newly appointed Chai of the Texas House Committee on Enegy Resouces, has ageed to cay the legislation in the House this session as well. You can ead the legislation and tack its pogess though the 86th session though the Texas Legislatue Online at EMINENT DOMAIN DEVELOPMENTS: HB 991, SB 421 Two identical pieces of legislation elating to eminent domain efom wee filed in the Texas House and Texas Senate on Januay 23d. House Bill 991, authoed by State Repesentative DeWayne Buns, and Senate Bill 421, by State Senato Lois Kolkhost, may sound familia to TIPRO membes- simila bills wee filed by the same two legislatos duing the 85th session in These bills have the potential to change the way oil and gas companies ae able to utilize eminent domain when developing citical infastuctue such as pipelines. They could affect compensation and enfoce new egulations on notifications to landownes. HB 991 will ensue Texas popety ownes ae espected patnes in building ou citical infastuctue while peseving ou stong tadition of popety ights. I want to thank Sen. Kolkhost, suppotes of efom in both the House and the Senate, and the many stakeholdes that have been consistently committed to eminent domain efom. said Repesentative Buns in a pess elease. Since the days of Sam Houston and Stephen F. Austin, Texans have valued ou feedom to own pivate popety. To continue that poud tadition, I filed SB 421 to see that the eminent domain pocess used by pivate entities is fai, tanspaent and that those entities ae held accountable when they take pivate land. said Senato Kolhost, longtime poponent of popety owne s ights. Neithe bill has yet been assigned to a committee. TIPRO will continue to closely monito these bills and advocate fo a common sense appoach to eminent domain that undestands the concens of popety ownes but does not impede the pogess of the oil & gas industy in Texas. Cuently, the Raiload Commission of Texas still maintains that common caie pipelines in the state have a statutoy ight of eminent domain.

2 Page 2 Febuay 7, 2019 THE TIPRO TARGET CHAIRMAN S MESSAGE TIPRO Membes- Duing Tuesday s State of the Union addess, Pesident Tump dedicated a simple thee sentences of the 82 minute speech to a evolution which has had you, ou TIPRO Membes, at its heat. Pesident Tump stated, We have unleashed a evolution in Ameican enegy. This enegy evolution was bon hee in Texas and at ou 73d Annual Convention, TIPRO will pesent and discuss the cuent issues facing ou industy in keeping this evolution alive. The TIPRO Annual Convention will be held at the Austin Sheaton Hotel at the Capitol fom Febuay 26th-28th. Please join us as we look in-depth at the enegy evolution and exploe the cucial legislative topics of the 86th Texas Legislatue. Ove the couse of thee days we will have numeous oppotunities to lean fom distinguished industy voices and pominent political figues, with speakes including Texas Goveno Geg Abbott, Speake of the Texas House Dennis Bonnen and Texas Comptolle Glenn Hega. We ae also poud to announce State Senato Robet Nichols as the ecipient of this yea s TIPRO Hat s Off Awad. Nichols was fist elected to epesent Texas Senate Distict 3 in Cuently, Nichols is the Chaiman of the Texas Senate Committee on Tanspotation and also seves on the Finance, Administation and Business and Commece committees. Ove the couse of his six legislative sessions, Nichols has authoed and passed legislation to potect landownes' ights, incease educational oppotunities in East Texas and efom tanspotation policies. Sen. Nichols will be honoed on the second day of ou 73d Annual Convention on Feb. 27th at the Reception and Chaiman s Dinne. TIPRO is honoed to confim that State Senato Chales Pey will also be joining us as a speake at the upcoming convention. Pey is a pacticing CPA fom Lubbock. He was fist elected to the Texas Senate in 2014 afte seving two tems in the Texas House of Repesentatives. Pey cuently chais the Senate Committee on Wate & Rual Affais and is the Vice-Chai of Health and Human Sevices. He is also a membe of the Agicultue, Ciminal Justice, Finance, and Tanspotation committees. Additionally, he is the co-chai of the State Wate Implementation Fund fo Texas (SWIFT) Advisoy Committee, and was appointed by Gov. Geg Abbott to the Southwesten States Wate Commission. Ove the couse of his caee, Senato Pey has woked tielessly fo lowe taxes, bette schools, safe communities, and individual libeties. This session, TIPRO will be monitoing legislation petaining to eminent domain, popety tax efomation and inactive wells, to name a few. Duing the convention, we will host ou annual legislative call-up, which gives ou membes the unique oppotunity to speak diectly with lawmakes. Join us and aid in infoming ou legislatos on the tuth about the oil and gas industy as they wok to make impotant decisions duing the 86th session. Specifically, we ae closely watching the following bills: HB 2 and SB 2 (popety tax efom) SB 533 (TIPRO pioity inactive well legislation) HB 991 and SB 421 (eminent domain efom) Sen. Chales Pey Sen. Robet Nichols This is you chance to voice industy concens diectly to you elected officials. If you have not aleady done so, I stongly encouage you to egiste to attend the association s 73d Annual Convention. To do so, visit TIPRO s website at o call the TIPRO office at (512) Please be sue to also encouage you business associates and colleagues to paticipate in the meeting as well. I look fowad to seeing you all at the TIPRO Convention in Austin. Eugene Gacia FEBRUARY 13, 2019 HOUSTON IPAA/TIPRO Leades in Industy Luncheon, 11:30 a.m. Houston Petoleum Club. Fo info, call: (202) TIPRO Calenda of Events FEBRUARY 13-15, 2019 HOUSTON Annual NAPE Summit, Geoge R. Bown Convention Cente. Fo info, call: (817) FEBRUARY 26-28, 2019 AUSTIN TIPRO S 73d Annual Convention, Sheaton Austin Hotel at the Capitol. Fo info, call: (512) MARCH 13, 2019 HOUSTON IPAA/TIPRO Leades in Industy Luncheon, 11:30 a.m. Houston Petoleum Club. Fo info, call: (202)

3 Page 3 Febuay 7, 2019 THE TIPRO TARGET STATE OF THE UNION & STATE OF THE STATE TOUT OIL & GAS On Feb. 5th, Pesident Tump deliveed his State of the Union speech despite scheduling issues amidst ising tension suounding the histoic govenment shutdown. The pesident focused on bipatisanship and coopeation, emaking The agenda I will lay out this evening is not a Republican agenda o a Democat agenda. It is the agenda of the Ameican people. The pesident addessed many diffeent issues in his speech, fom bode secuity to abotion, potecting ou veteans to affodable healthcae. In tems of the economy, the pesident highlighted the gowth of oil and gas, noting that We have unleashed a evolution in Ameican enegy -- the United States is now the numbe one poduce of oil and natual gas in the wold. And now, fo the fist time in 65 yeas, we ae a net expote of enegy. In Septembe, 2018 the US Enegy Infomation Administation (EIA) eleased a epot that stated the US had supassed Saudi Aabia and Russia to take the spot of wold s top oil poduce. The Independent Enegy Association epoted that thanks to the shale evolution, the US will become a net expote of oil in the late 2020s. The EIA pedicted the US will expot moe enegy than it impots in Januay, howeve, the US is not yet a net expote of enegy. Notably, the pesident did not bing up coal, an enegy secto he has suppoted since his candidacy. Ealie in the day, Texas Goveno Geg Abbott deliveed his State of the State addess. He stated by emaking on the high volume of people moving to Texas in seach of feedom. He noted the gowth the Texas economy has seen ove the past yea, touching on ecod-low unemployment ates, new job ceation and ising wages. He attibuted a good potion of this success to the oil and gas industy, and paticulaly paised LNG expot facilities. Texas is numbe one in oil and gas poduction. In fact, Ameica will be enegy independent by next yea, said Abbott. The goveno was moe specific than the pesident, noting that Texas LNG expot facilities ae helping emeging economies acoss the globe wean themselves off of coal and instead use clean buning natual gas poduced ight hee in Texas. He bought attention to the fact that nitogen oxide levels in the state have been educed by 45% despite the incease in oil and gas poduction. Although the goveno sang high paises fo oil and gas, his speech did not make clea how he plans to incease school finance and safety and fulfill his aggessive tax efom agenda. Both the pesident and the goveno ecognized the impotance of Texas oil and gas to the oveall economy of the United States. This is geat news as the industy continues to expand beyond expectation. TIPRO looks fowad to heaing moe fom Goveno Abbott at ou 73d Annual Convention. TALENT SHORTAGE IN UPSTREAM One of the biggest issues facing the oil and gas industy is a lack of up and coming talent. The low unemployment ate of 1-2% in the industy is telling of the oveall shotage of wokes. As the industy begins to apidly expand, paticulaly in Texas, thee is a demand fo taining pogams that can teach industy skills, such as those pogams in the Pemian Basin. With the ight state policies in place, Texas can pepae the wokfoce of the futue to allow the continued success of the oil and gas industy and othe key sectos. This will continue to be a top pioity, and ou industy is committed to finding solutions though the Texas Legislatue, by suppoting industy taining pogams to addess skill gaps and by woking with vaious institutions and state agencies to pomote the Texas oil and natual gas industy and the high paying jobs it povides. We also know this is a pioity fo leadeship in the Texas Legislatue, Ed Longanecke, TIPRO pesident, said. EXXONMOBIL EXPANSION IN BEAUMONT On Jan. 29th, ExxonMobil published a pess elease detailing plans to expand upon thei Beaumont Refiney. The company has eached a final investment decision fo a new unit and constuction is aleady undeway. Its expected that this new unit has the potential to incease the efiney s cude-pocessing capacity by moe than 65%. ExxonMobil pedicts poduction by The thid cude unit, which will focus on light cude efining, will take advantage of the incease in Pemian poduction. With access to teminals, ailways, pipelines and wateways neaby, the Beaumont efiney is stategically positioned to benefit fom Pemian poduction gowth, Byan Milton, pesident of ExxonMobil Fuels and Lubicants Company, said in the elease. It s expected that constuction will bing 1,850 jobs to the aea between pemanent jobs at the poject s completion.

4 Page 4 Febuay 7, 2019 THE TIPRO TARGET SPECIAL THANKS TO ALL SPONSORS OF TIPRO S 73 RD ANNUAL CONVENTION: 73 RD ANNUAL CONVENTION SPONSORSHIP OPPORTUNITIES SPONSORSHIP LEVELS PLEASE CHECK DESIRED SPONSORSHIP CHOICE GOLD $10,000 SILVER $7,500 BRONZE $5,000 BLUE RIBBON $3,500 RED RIBBON $2,500 WHITE RIBBON $1,500 SUPPORTING SPONSOR $500 Fo moe infomation on sponsoship please visit o contact Joanne McCod Reynolds at joanne@tipo.og

5 73 d Annual Convention AUSTIN - TX FEBRUARY 26-28, 2019 TEXAS INDEPENDENT PRODUCERS & ROYALTY OWNERS ASSOCIATION TIPRO will host its 73d Annual Convention as state lawmakes convene in Austin fo the 86th Legislative Session. Goveno Abbot will join a stong lineup of speakes, including newly elected Texas House Speake Dennis Bonnen and Comptolle Glenn Hega. Registe today fo this high pofile event with exceptional content, speakes and many unique oppotunities to inteface with key elected officials and industy colleagues. Texas Goveno Geg Abbott Steve Mooe Economist Texas House Speake Dennis Bonnen Comptolle Glenn Hega Lees Rodionov Schlumbege Timm Schneide Citi Reseach Geg Leveille ConocoPhillips ATTENDEE INFORMATION REGISTER ONLINE AT Name Company: Addess: REGISTRATION MEMBERS ATTENDEE SPOUSE $495 INCLUDES ALL AGENDA EVENTS & MEALS $375 WEDNESDAY ONLY $395 City/State/Zip: NON-MEMBERS $695 $475 $595 INCLUDES ALL AGENDA EVENTS & MEALS & 1 YEAR MEMBERSHIP Phone: Spouse: Have special dietay needs o othe consideations? Please contact TIPRO staff at (512) PAYMENT INFORMATION MARK IF ATTENDING ATTENDEE SPOUSE WELCOME RECEPTION BREAKFAST LUNCH DINNER LEGISLATIVE CALL UP RESERVE A ROOM TODAY $219 GROUP RATE SHERATON AUSTIN HOTEL Total: Pint Name: Billing Addess: Cedit Cad No.: Signatue: Payment Method: VISA MASTERCARD Company: Exp. Date: CID: Registation foms must be accompanied by payment. CANCELLATION POLICY AMEX CHECK NO: In ode to eceive a efund, TIPRO must be notified of you cancellation no late than Fiday, Febuay 15, Retun egistation fom to TIPRO at: 919 Congess Avenue, Suite 1000, Austin, Texas o fax to (512)

6 73d Annual Convention & Legislative Call- Up A G E N D A 1:00 PM 1:30 PM 3:00 PM 5:30 PM 8:00 AM 9:00 AM 9:15 AM 9:45 AM 10:30 AM 11:15 AM 12:00 PM 2:00 PM 2:30 PM 3:00 PM 3:45 PM 4:30 6:00 PM 8:00 AM 8:40 AM 9:00 AM 12-1:00 PM Registation Opens Audit Committee Meeting TIPRO Boad Meeting TIPRO Welcome Reception Beakfast Tuesday, Febuay 26 th Wednesday, Febuay 27 th Geneal Session Welcome & Sponso Recognition Ed Longanecke, Pesident, TIPRO Opening Remaks Eugene Gacia, TIPRO Chaiman, Pesident, Hud Entepises Dennis Bonnen, Speake of the Texas House of Repesentatives Geg Leveille, Chief Technology Office, ConocoPhillips Timm Schneide, Managing Diecto, Pipelines, Midsteam & MLPs, Citi Reseach Lees Rodionov, Pesident, Noth Ameica Land, Schlumbege Netwoking Lunch Texas Goveno Geg Abbott Texas Comptolle Glenn Hega Economic Outlook: Stephen Mooe, Economist, Political Wite & Commentato Senato Chales Pey TIPRO Membeship Meeting Aftenoon Beak Reception & Chaiman s Dinne 2019 Hat s Off Awad - Senato Robet Nichols Beakfast & Call Up Biefing Buses depat fo Texas Capital Texas Legislato Meetings Thusday, Febuay 28 th Light Boxed Lunch and Depatues

7 Page 7 Febuay 7, 2019 THE TIPRO TARGET NEW MEXICO JOINS US CLIMATE ALLIANCE New Mexico Goveno Michelle Lujan Gisham signed an executive ode on Jan. 29th with the pupose of dastically educing geenhouse emissions in the state. The ode will bing New Mexico into compliance with goals established by the US Climate Alliance, a goup that aims to fulfill the goals of the 2015 Pais climate ageement. New Mexico is the 20th state to commit to the goup. The ode calls fo a 45% eduction of heat-tapping gas by 2030 as compaed to 2005 levels. Moe specifically, Lujan Gisham s ode equies the New Mexico Enegy, Mineals, and Natual Resouces Depatment to impose new egulations on methane emissions. These new egulations will most likely affect opeations in the Pemian Basin, and TIPRO will continue to monito the situation and infom ou membes of any new developments. WATER SCARCITY, NEW PARTNERSHIPS The Pemian Basin may be ich in oil, but gaining access to that valuable esouce often equies wate, a fa moe scace esouce in the egion. This scacity has diven the value of wate ights in the egion to new heights. Toby Daden, a West Texas landowne sold the wate ights to his 37,000-ace anch, KC7, fo $32.5 million in While legal toubles have slowed down the deal, this value is telling of the high wate demand in the aea. Moe ecently, Univesity Lands has patneed with both H2O Midsteam and Layne Wate Midsteam to ty and fill the need fo moe wate. The new ventue, UL Wate Midsteam LLC (ULWM), will souce goundwate and gathe, tanspot, ecycle and dispose of poduced wate. ULWM will seve the Delawae Basin using pipes athe than tucks; this new infastuctue will be an attempt to meet the high demand in an innovative and efficient manne. ULWM also has the potential to incease the Pemanent Univesity Fund, which continues to suppot education in the state of Texas. RRC OILFIELD CLEANUP PROGRAM UPDATE Accoding to the Texas Raiload Commission s annual Oilfield Cleanup Pogam epot, the state spent $23 million plugging abandoned wells in That money pimaily came fom pemitting and egulatoy fees paid by the oil and gas industy. The epot stated that 1,300 wells wee plugged out of the total of 13,710 inactive, noncompliant wells. This is the highest numbe of noncompliant wells since PROPERTY TAX REFORM On Thusday, Jan. 31st, Goveno Geg Abbott, Lieutenant Goveno Dan Patick and Speake of the Texas House Dennis Bonnen announced thei suppot fo Senate Bill 2 and House Bill 2, elating to ad valoem taxation, identical pieces of legislation that suppot a 2.5% limit on popety tax hikes by school disticts, cities, counties and othe taxing entities. These govenmental entities have decied unfunded mandates in past yeas, claiming that the state and fedeal govenment have passed laws to equie new and expanded sevices fom local juisdictions without poviding any inceased funding. While the Goveno, Lieutenant Goveno and Speake have said they intend to incease funding to fill any funding gap these new estictions on ad valoem taxation could impose, they have not specified whee that funding would come fom. In pevious sessions, effots to pass 6% and 4% estictions have failed. If this ule wee to be implemented, it would be a histoic development in Texas popety tax laws. VENEZUELA SANCTIONS PUSH OIL PRICES UPWARD On Monday, Jan. 28th, the US imposed sanctions on Petóleos de Venezuela, S.A (PDVSA) in esponse to contovesy suounding the e-election of Pesident Maduo. This could be a majo blow to the Maduo egime, as the US is thei biggest oil custome and oil is thei biggest souce of evenue. In 2018, the US impoted an aveage of 500,000 baels pe day fom Venezuela. The new sanctions pohibit diect payment to PDVSA fom the US, but do not completely ban tansactions. In esponse to the sanctions, US efineies ae tuning to domestic sou cude gades as a eplacement. In addition to the newfound eliance on domestic souces, the Tump Administation has consideed tapping into the county s emegency eseve of cude, which includes 396 million baels of sou oil. In addition to the sanctions, Saudi Aabia has continued to pull back on poduction in 2019, pushing oil pices upwad, with Bent Cude eaching $63.63 a bael and West Texas Intemediate futues at an impessive $ Anothe blow to PDVSA, though supposedly unelated, came on the 31st when PetoChina announced it would be dopping PDVSA as an equity patne fo its planned oil efiney in southen China, epoted Reutes. On Feb. 5th, Pesident Tump eiteated Ameica s ecognition of Juan Gaido as the ightful pesident of Venezuela in his State of the Union addess.

8 NAPEexpo.com NAPE SUMMIT MIT E OIL & GAS SP PROSPECT EXPO AND GLOBAL BUSINESS S CONFERENCE ENC FEB 2019 GEORGE E R. BROWN CONVENTION CENTER HOUSTON, O TX ATTEND EXHIBIT SPONSOR om THE TIPRO TARGET THE TIPRO TARGET Texas Independent Poduces & Royalty Ownes Association With nealy 3,000 membes, TIPRO is the nation s lagest statewide association epesenting both independent poduces and oyalty ownes. Ou membes include small family-owned companies, the lagest publicly taded independents and lage and small mineal estates and tusts. 919 Congess Avenue, Suite 1000 Austin, Texas Phone: (512) Fax: (512)