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WHY RETURN ON CAPITAL FOR VALUING ENTERPRISES?

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ROIC -- Op Profit

OpAssets correlates with I I I

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OpAssets

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HOW DOES VALUE CREATION APPLY TO WYOMING?

• -By growing equity value from $440 million at the time of its IPO in 1997 to . $4 70 billion today, Amazon created enormous value for its shareholders and provided business and policy lessons for all enterprises to consider

• The people ofWyoming are the shareholders of this state

• As such, our leaders should be valued over time on their ability to convert ·capital into assets and generate strong sustainable returns on those assets

• Back to the trifecta

. ..,

• Is Wyoming generating strong and sustainable returns on capital?

• Is Wyoming growing or depleting assets?

• Is Wyoming generating excess cash or burning it?

; ; : .. ~.; t : ::-

VALUE CREATION FOR WYOMING

Wyomi~g should be .va_lued an-eu:i"~ftO.l;)erP.m.ent:;s ability tg .conve-rt-. . --fiJtd.o;._ ·w-· lj~ ·-·.-·-· -· ,111Jd·-.· &~ .. . . .... -·- etm~· -· ·M• ~@.~-· . (,~·- · .• • . ~ • , • . ' · , . ·. ·~ ~ •• • ·1 . • ' '. "

'¥., , . - ' , ;1 - .. .~ . ... ';;. - ~· . - ' -"'-" - •

Capital

Operating Expenses

i1JA•• Capital Investment

Revenue

Infrastructure I services

..

WYOMING HAS ENJOYED STRONG BUT VOLATILE REVENUE GROWTH

WYO: Total revenue (1980-2016)

5,000,000,000

- t

4,500,000,000

4,000,000,000 .'

3,5~,000,000

3,000,000,000

2,500,000,000

.2,000,000,000

1.500,000,000 4-------------------------:t'. ·1,000,000,000

~ soq,ooo,ooo

0 ' ~ N ~ ~ ~ ~ ~ ~ ~ 0 ~ N ~ ~ ~ ~ ~ ~ ~ C ~ N ~ 8 ~ ~ ~ ~ ~ 0 ~ N ~ V

! . ! ~ ! ~ ! ! ~ ! ! ~ ~ ~ ~ ~ ~ ~ m -~ ~ ~ ~ ~ ~ N ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ • Property tax • Severance tax • Federal mineral royalties a Sales and use tax o PWMTF Investment a Investment Income

~ ~ 0 0 N N

Source: State of Wyoming Consensus Revenue Estimating Group

p :l~lr• ~;

REVENUE GROWTH BY STATE

COMPOUND ANNUAl GROWTH RATE (1997-2016)

0" 296 "" 6" 8" North Dalcota

Vermont New Hampshire

Nevada ~mlns

ornla Arkansas Maryland Colcirado NewYodc

South Dalcota Texas Utah

Minnesota Hawaii

Oreson Arizona Vlrslnla

New Jersey Idaho

IIHnois SO STATES

North Caronna MISSKhusetts

Maine I Iowa

Tennessee Delaware Nebraska Montana

Washlnston Georsla

Rhode Island Indiana

Pennsylvania Mississippi

kansas Alabama

Florida South Carolina WestVI~nla

hlo Connecticut

Wisconsin Kentuc:ky

Oklahoma New Mexico

Louisiana Mlssourt Mlchlsan

Alaska -, NM

Source: US Census Bureau

pugt> 10

0%

Alaska r m.r North Dakota

New Hampshire \Yyomlng Vermont

NeWMexko California

AriZOf\1 Idaho

Oklahoma Connecticut

Florida Louisiana Montana Colorado ~ Oregon pelllware

Utah Massachusetts

N6wJersey Texas

GeOIBia Nevaaa Illinois Hawaii

South Carolina Vlndnlil Maine

' Kansas Tennessee

North Carolina S()STATES

West VII'Binlil A~ ISland

Alabama Nebraska NewYorlt

Washington Artcansas

Indiana Iowa

Mchll!an Onlo

Minnesota Mississippi WisconSin

Mssourl Pennsylvanlil

Maryland South Dakota

Kentuclcy

2" ""

REVENUE VOLATILITY BY STATE

ANNUAL VOLATilllY (1997-2016)

61)6 8% 1cm 1~ 14% 16% 18%

Source: US Census Bureau

pu;;e 1;

MINERALS RELATED REVENUE COMPRISES 66% OF TOTAL REVENUE

WYO: Total revenue (1980-2016)

100% lB ,., : a .. I 90%

80%

70%

60%

s~

40%

30%

20%

10%

~ . . . .

M ! ! m ! ! ! ! ! ! ! ! ~ ~- ~ ! m ! m m ~ ~ ~ ~ ~ ~ ~ • Minerals related Income • Propertyt:uc- other property a Sales and use tax- all other :a Investment income

:

Source: State of Wyoming Consensus Revenue Estimating Group

South Dakota Maryland Arkansas Kenlllcky

Minnesota New York

Penns'f'lvanla Iowa

Nevada Mssfsslppl 50 STATES

Washlnston Nebraska

Indiana North Carolina

Wiswnsln Rhode Island

Vlrslnla Tennessee

Hawaii Colorado

Ohio Texas Maine

Alabama Utah

New Jersey Kansas Illinois

Oregon West Vll'!lnfa

Missouri Massachusetts

Vermont Geo1Jla

Callforiila Delaware Montana

Idaho South Carolina

Arizona Florida

New Hampshire North Dakota

Comecllcut Michlsan

Oklahoma WVomlns Louisiana

New Mexico

0

Alaska 1 NM

.,

0.25

VOLATILITY ADJUSTED REVENUE GROWTH BY STATE

REVENUE "SHARPE RATIO" (1997-2016)

0.5 0.75 1 1.25 1.5 1.75

Source; US Census Bureau

puye 13

WYOMING'S ASSETS ARE HIGHLY CORRELATED

I Two assets with correlations near 1.0 I

I Two assets ~th correlations near 0.0 - ,

I Two assets with correlations near -1.0 )

&1

[JCl!JC 1 c/

ECONOMIC HEALTH

BLOOMBERG ECONOMIC EVALUATION OF STATES (Q11997-Q12017)

-liD ·30 ·20 -10 0 10 20 30

wasn~~u Mlchlpn

Idaho California Colorado

Florida O~n SouthCa I

NewYCKic Tennessee

Indiana Ohio

Maryland Geo!Jia

Texas Utah

Nevada Massachusetts New~re

Rhode sland I Mnnesota

North Dakota -Iowa -Illinois Penns'J(vanla Comectfcut

~ Ke~ Ve = South Dakota Delaware ~

• Newlersey ~ North Carolina !-

Mal~~ Mlssou K~~ Artl~

~= Neb ~-:--

!

-

Source: Bloomberg

_,

ECONOMIC HEALTH AND REVENUE SHARP RATIO ARE CORRELATED

0 ";:1

~ Cl e­.!

Bloomberg Economic Evaluation of States vs. State Revenue .. Sharpe Ratio ..

1.50

1.30

~IISIIS 1.10

0.!10

• kiD

Meland

~­-r.::

' ~

.ark

1.~. -•~• _,;,. ~ m'f' ,.:.. .;. ·:a . '+:"" • lcl-"o II . SouthfllroliN • a: .. - - •

Al•sb •

~llallhn Ok. -··to +. 0.30

0.10

-o.lO Bloomberg Economic Evaluation of States

florida • Mkhrpn •

•

l Source: Bloomberg, US Census Bureau

J1Uf)C17

WYOMING'S REVENUE GROWTH aY SOURCE

COMPOUND ANNUAL GROWTH RATE (1980-2016)

OK N om 6J6 - 896

Severance tax- natural gas

PWMTF Income

Total mineral royalties

Property tax- coal

Property tax· natural gas

Property tax-other property

Severance tax· coal

Total revenue

Pooled lnveslmt!nt Income

Sales and use 1llC • mlnlns

Severance tax - ol

Sales and use tax· all other

Property tax -other mlneRIIs

Severance tax - other minerals ••••••••••••••••

Property tax· oU

Note: Pooled investment Income and PWMTF income based on 2002-2016 annual rates of ret~m

Sourcer State of Wyoming Consensus Revenue·Estlmatlng Group, Wyoming State Treasurer's Office

JW[j(' 18

Severance tax- od

Sewerance tax- natural sas

Property tax -nahnl ps

Property tax-oil

Sales and use tax- mining

Total mineral royalties

Severance tax- other minerals . 'SeW! ranee tax- coal

Total revenue

Prop)!rty tax -other minerals

Sa~s and use tax-all other -~

Property tax -coal

PWMTF Income

Property tax- other PfOperty

Pooled Investment Income

•

0'16

'

·~

1

i

i

-i

}.

1Im

I

I

WYOMING'S REVENUE VOLATILITI BY SOURCE

ANNUAL VOLATILITY (1980-2016)

~ D6 4m6 50'16 60%

I

I I

-

Note: Pooled investment Income and PWMTF income based on 2002-2016 annual rates of return Source: State of Wyoming Consensus Revenue Estimating Group, Wyoming State Treasurer's Office

;H:_-_,' 1.' ifJ

A

.

0.0 0.1

r Pooled Investment Income

f I Property tax -other property

{ I PWMTF Income

.f I Property t1111 -coal

f j Sales and use tliX -all other

f I Total revenue

f I Total mineral ruyaldes

.f I Sewrance tall- coal

f I Property tex -other minerals

~ I Sales and use tax • mlnlna

Severance tax- naturalps r ~ f

Property tilx- natural ps

f I Severance tax- other minerals

f Property tax -oil

Severance tax- ol ~I

WYOMING'S VOLATILITY ADJUSTED REVENUE BY SOURCE

0.2

J I I

I

I I

l I

I I

I

REVENUE "SHARPE RATIO" (1980-2016)

0.3

T J

I l_

-.

I

I

0.4 0.5 0.6 0.7 0.8 Q.9 LO L1 L2 L3

~ I _l ,_ I + ~ I I I I

I I I I

I I l I

I 1:

I i

.· I

! I

;

. !

I I I I I I I I I

Note: Pooled investment Income and PWMTFincome based on 2002·2016annual rates of return·

Source: State of Wvomlng Consensus Revenue Estimating Group, Wvomlng State Treasurer's Ortlce

page :10

,.40 .1.30

. 1.20

i.to ! ·' .1.00

l 0 0.90 ~

~b.so II

~ 0.70 ti ! 0.60 c Cll =o.so

0.40

030

D.20 f

0.10

- L 0.091.

. '

.

VOLATILITY ADJUSTED GROWTH IS SKEWED BY CONTRIBUTION

Revenue Contribution vs Revenue Sharpe Ratio

Pooled income • Property tax- other

"' -PWMTF income

" Sales and use tax- other Minerals related income 1.1 -

lD.Im 20.0K

~ ::10.cm 40.cm so.cm 60.0K 70.0K eo .em

%ofTotal Ravenue(2016}

Note: Pooled Investment income and PWMTF Income based on 2002-2016 annual rates of return Source: State of Wyoming Consensus Revenue Estimating Group, Wyoming State Treasurer's Office

; i e ~.: · · :~ ~

•