LISA CHAVARRIA STAHL, BERNAL & DAVIES, LLP AUSTIN, TEXAS PRESENTED AT: THE UNIVERSITY SCHOOL OF LAW 2008 WIND ENERGY INSTITUTE Wind Leases: Emerging Issues

Initial considerations Client counseling considerations.  Option lengths  Developer Considerations?

Financial Aspects of Wind Lease Gross Revenues - What is typically included? Excluded? Emerging Requests :  Future created state and federal green credits, pollution credits, offsetting credits  Construction claim amounts  Others ??? Are “Most Favored Nations” Clauses a good thing?

Project Build Out Landowners want to maximize number of turbines installed on property.  Small landowner considerations Landowners want contractual assurances of build out; developers need to be conservative. How do you strike the right balance?

“Shrink Wrapped Projects” Some leases allow a developer to release acreage x number of years after the project is built. The Pros and Cons of releasing acreage:  Landowner Perspective  Small tract issues  Less money  Fewer burdens?  Developer Perspective  Provides a project buffer  Future development Related Issue - Easement rights – in perpetuity v. coterminous.

Hunting Rights Landowner and developer perspectives.

Oil and Gas Exploration Texas Accommodation Doctrine  Conflicts with non-executive rights holders What should be included in accommodation agreement?  Distances from turbines; other facilities  Realistic provisions Pitfalls to avoid  Can’t we all just get along?

WIND LEASE TERM Length of term varies for Texas wind leases  Some are as long as 150 years.  Most are 30 years with an option to extend for additional periods.  Lock in royalty now?  Negotiate royalty later? How?

WIND LEASE TERM Minnesota, North Dakota and South Dakota have statutory limitations on length of a wind lease term and severance rights. Option lengths

North Dakota § Wind energy leases — Termination. A lease for wind energy purposes is void and terminates if development to produce energy from wind power has not occurred on the leasehold within five years after the lease commences. ND Cent Code §

North Dakota, § Wind easements — Creation — Term — Development required. A property owner may grant a wind easement in the same manner and with the same effect as the conveyance of an interest in real property. The easement runs with the land benefited and burdened and terminates upon the conditions stated in the easement. However, the easement is void if no development to produce energy from wind power associated with the easement has occurred within five years after the easement is created. ND Cent Code §

Minnesota Statute THIS LEGISLATION HAS BEEN PASSED: Amendment to Minn Stat § (2) …subdivision 2, is amended to read: …A wind easement, easement to install wind turbines on real property, option, or lease of wind rights shall also terminate after seven years from the date the easement is created or lease is entered into, if a wind energy project on the property to which the easement or lease applies does not begin commercial operation within the seven-year period. EFFECTIVE DATE. This section is effective the day following final enactment, and applies to wind easements created and wind rights leases entered into on and after the effective date of this section Minn. Laws ch. 136, Art. 4, § 15 (S.F. No. 145).

South Dakota Re development period: Any property owner may grant a wind easement in the same manner and with the same effect as a conveyance of an interest in real property. The easement shall be created in writing and shall be filed, duly recorded, and indexed in the office of the register of deeds of the county in which the easement is granted. Any such easement runs with the land or lands benefited and burdened and terminates upon the conditions stated in the easement, except that the term of any such easement may not exceed fifty years. Any such easement is void if no development of the potential to produce energy from wind power associated with the easement has occurred within five years after the easement began. Any payments associated with the granting or continuance of any such easement shall be made on an annual basis to the owner of record of the real property at the time the payment is made. SD Codified Laws §

Severance of Wind Rights In Texas What do we mean by that? Is this a good idea? Sever with caution! Legislation has been discussed in Texas. Suggested legislative considerations:  Don’t impede development –understand what the industry needs to continue growth;  Understand what property owners need for protection;  Transferable property rights should encourage maximizing energy output.  Understand severing wind rights can be abused – one person can control energy development.

Severance of Wind Rights (North Dakota) Severance of wind energy rights limited. Except for a wind easement created under section and as otherwise provided in this section, an interest in a resource located on a tract of land and associated with the production of energy for wind power on the tract of land may not be severed from the surface estate. However, nothing in this section may be construed to prohibit or limit the right of a seller of real estate to retain any payments associated with an existing wind energy project. ND Cent Code §

Severance of Wind Rights (South Dakota) Re severance of wind rights from land: No interest in any resource located on a tract of land and associated with the production or potential production of energy from wind power on the tract of land may be severed from the surface estate as defined in § 45-5A-3, except that such rights may be leased for a period not to exceed fifty years. Any such lease is void if no development of the potential to produce energy from wind power has occurred on the land within five years after the lease began. The payment of any such lease shall be on an annual basis. SD Codified Laws §

QUESTIONS?