PETROLEUM INDUSTRY IN MONTANA September 2008 MONTANA PETROLEUM ASSOCIATION David A. Galt, Executive Director PETROLEUM INDUSTRY IN MONTANA September 2008 MONTANA PETROLEUM ASSOCIATION David A. Galt, Executive Director

Transportation Refiners Service Companies Producers The Industry in Montana

MSU-Billings Economic Study Points   $9 BILLION: Total economic impact   12,000 TOTAL JOBS – –4,500: Direct jobs – –7,500: Indirectly supported jobs   Economic impact of an additional 1 million barrels of oil produced – –86 Full time positions – –$18.5 million in labor income   A 10% increase in drilling activity could lead to 315 additional jobs.

Employment and Wages in the Industry 2008  Oil & Gas Extraction  Refining  Transportation  Montana’s Average Annual Wage  2,985 Employees Average Pay: $57,732 Total Wages: $172,330,020  975 Employees Average Pay: $91,744 Total Wages: $89,412,551  354 Employees Average Pay: $64,487 Total Wages: $22,839,190  $31,426.20

Oil and Natural Gas Production Tax Revenue Collections Total State Share: $615,658,548 Total Local Share: $654,099,145 TOTAL $1,269,757,693

State Land Mineral Revenue by Fiscal Year

Statewide Oil Production History, 1916 through 2007

Oil Production, Rocky Mountain States

Monthly Oil Production with Well Completion Year Identified (1994 and Later)

MT Natural Gas Production 1986 through 2006

Monthly Gas Production with Well Completion Year Identified (1994 and Later)

Gas Production, Rocky Mountain States

14 U.S. Natural Gas Production and Consumption Consumption Production History Projections 21% 20.5 Tcf 26.1 Tcf 16% Net Imports Natural Gas Projections from EIA and Six Others: March 28, 2007 Source: Annual Energy Outlook 2007

Age of Natural Gas Supplies   Last year – 50% of the natural gas consumed in the US came from wells drilled in the prior 40 months   2 years ago – 50% of the natural gas consumed in the US came from wells drilled in the prior 48 months

State Acres Leased & Producing

Federal Leasing Activity In Montana Fiscal Years 1997 to Present

CHALLENGES  Access –State and Federal Public Lands –Wildlife Issues  Taxes –Production tax drilling incentive –Central Assessment of Gathering Systems

Bureau of Land Management Montana Oil & Gas Lease Sale Protest August 26, 2008 Sale--Protest Western Environmental Law Center--Protest Letter Montana Trout Unlimited--Protest Letter June 17, 2008 Sale--Protest Western Environmental Law Center--Protest Letter April 8, 2008 Sale--Protest Western Environmental Law Center--Protest Letter November 27, 2007 Sale--Protest Montana Trout Unlimited Hellgate Hunters and Anglers National Wildlife Federation Montana Wildlife Federation Theodore Roosevelt Conservation Partnership July 31, 2007 Sale--Protest Montana Trout Unlimited Theodore Roosevelt Conservation Partnership Montana Wildlife Federation Hellgate Hunters and Anglers May 30, 2007 Sale--Protest Montana Trout Unlimited March 27, 2007 Sale—Protest Montana Fish Wildlife and Parks Montana Trout Unlimited Theodore Roosevelt Conservation Partnership Jan. 15, 2007 Sale—Protest Montana Fish Wildlife and Parks

Species Involved in Protests  Sage Grouse  Sharp Tailed Grouse  Waterfowl  Bald Eagles  Eastern Red Bat  Pallid Bat  Spotted Bat  Townsend Big Eared Bat  Long-billed Curlew  Sprague’s Pipits  Baird’s Sparrows  Ferringous Hawks  Lark Buntings  Swainson’s Hawk  Grassland Song Birds  “Other” raptors  Mule Deer  Elk  Prong Horn Antelope  West Slope Cut Throat  Ling  Great Plains Toads  Spade Foot Toads

No Surface Occupancy Recommendations  Sage and Sharp Tailed Grouse—March 1 through June 15  Mule Deer Winter Range– December 1 through March 31  Water Fowl- April 1 through July 15  One quarter mile setback on rivers

Producing Wells and Sage Grouse Active Leks in Montana Red = Gas; Black = Oil; Yellow = CBNG; Green = Birds

Sage Grouse Issues in Montana Present Stipulations  No Surface Occupancy within ¼ mile of an active sage grouse lek  No new activity between March 15 th and June 30 one mile from an active lek. Proposed Stipulations  No Surface Occupancy within 1 mile of an active sage grouse lek  No new activity between March 15 th and June 30 th four miles from an active lek  No more than one well per 500 acres.

SAGE GROUSE MANAGEMENT PLAN MITIGATION STANDARD Surface Activity Prohibited ¼ mile radius (125 acres) Timing Restriction for breeding and nesting 2 mile radius (8,000 acres)

NEW FWP RECOMMENDATION Timing Restriction for breeding and nesting 4 mile radius (32,000 acres) Surface Activity Prohibited 1 mile radius (2,000 acres)

Production Tax Incentive  Current tax rate is.76% of the value of production for the first 12 months on vertical wells and 18 months for horizontal wells.  After Drilling incentive time frame tax rate reverts to standard rate of 9.26% for working interest owners  Purpose is to encourage drilling by helping operators to recoup costs. Also, to give Montana a competitive edge in the region.

 Well completion costs have increased 150%  Leasehold costs increased 200%  Operating costs increased 125%  Since 2004 rig rates have increased from $8,500 to $22,000 PER DAY  Projections for 2009 will increase 12%  New built rig rates for 2009 will range between $25,000 and $30,000 Increased Cost Factors

Central Assessment of Gathering Systems  Treats all inter-county operating units as one continuous system threatening to bring equipment usually taxed at class 8 (3%) into central assessment class.  The issue is pending before Montana supreme Court. MPA filed an Amicus Curiae Brief.  MPA analysis shows unit valuation method used in central assessment increases valuation by approximately 20%.  Raises tax rate from 3% of value to 12%, an increase of 400%  Significant increase in tax liability.

Refinery Production  8.2 Million Gallons of Products per Day –40% Distributed in Montana –60% Exported to 7 Other States  Gasoline, Diesel, Jet, Avgas, Propane, Fuel Oil, Asphalt

Fuels Production   Value of Refined Products Produced $7.3 Billion   50% of the total Manufacturing Production   10% of the total Industrial Production

Alternative Fuel Concerns  Alternative Fuels –Mandated volumetric requirements in transportation fuel. –Quality verification of 100% bio fuel –Biofuel transportation requirements: these fuels are not accepted in pipelines that transport multiple fuel types –Require infrastructure enhancement at terminals, some locations very difficult and expensive

EVENT SPONSORS ENCORE OPERATING GOUGH,SHANAHAN, JOHNSON AND WATERMAN

CONTACT INFORMATION  MONTANA PETROLEUM ASSN.  David A. Galt, Executive Director  PO Box 1186  Helena MT  (406)  

2008 Legislators’ Briefing Tour Sponsors Bitter Creek Pipelines ConocoPhillips Devon Energy Corporation Enbridge Energy Company, Inc. Encore Operating, L.P. Enerplus Resources (USA) Corporation ExxonMobil Fidelity Exploration & Production Co. Gough, Shanahan, Johnson & Waterman Montana Refining Company Noble Energy Production Williston Basin Interstate Pipeline Co.