Oil & GasNatural Resources Interim Committee

October 12, 2018

IDL Responsibilities Related to Oil & Gas

• OIL AND GAS CONSERVATION COMMISSION regulatesthe exploration, drilling and production of oil and gas resources to ensure the conservation of oil and gas and the protection of correlative rights and surface and groundwater.

• STATE BOARD OF LAND COMMISSIONERS oversees oil and gas leasing of state endowment trust lands and minerals

Oil & Gas Activity Update

• Western Idaho wells• 8 producing wells• 2 drilled waiting on infrastructure• 3 wells shut in• 5 wells planned for plugging and

abandonment

• Eastern Idaho• 1 permit to drill under review

Map Here

Oil & Gas Activity Update

• FY18 volumes (gas, oil and condensate)• Gas = 2,734,192 MCF (down 41%)• Condensate = 70,823 BBLs (down 49%)• NGL = 66,663 BBLs (down 56%)• Oil = 17,842 BBLs (up 29%)• Water = 53,633 BBLs (down 41%)

• FY18 production numbers down because no new wells drilled in FY17. All wells decline over time, with 3-5 year average life in conventional, fractured field like western Idaho's.

• 3 new wells drilled in FY18. Permits in queue for 2 more wells to be drilled in FY19. Production on all but one well is awaiting infrastructure.

Class II injection wells -Idaho transferred primacy to EPA

Produced vs. reported volumes

• House Bill 301aa (2017) provided direction• Spring 2018 – OGCC requested 5 years’ production data

from AM Idaho LLC• Reported volumes were nearly identical to volumes on

record• Field-wide production volumes were consistent, however

allocations to individual wells were inconsistent.

Oil & Gas Industry Forecast

• International demand for stable energy sources has lifted the United States into a major producer of oil and gas

• Idaho is poised to take advantage – Prospective operators have somewhat increased interest in our field

Oil & Gas Leasing

• 568 active IDL leases covering 38,666 acres• 146 State Endowment Trust Land leases covering 26,791 acres• 475 leases held by AM Idaho LLC; 93 leases held by 6 other operators• FY17 Rent & Fees = $28,020• FY18 Rent & Fees = $33,757

• 1 IDL lease with two producing wells• FY17 Royalties = $26,240• FY18 Royalties = $23,675• Average monthly royalty = $1,642

• 1 IDL lease with one well – application to plug and abandon

Oil & Gas Leasing Program Improvements

• Revised IDL oil & gas lease template • New detailed royalty reporting form• New online bidding service for IDL oil & gas lease

auctions

Oil & Gas Royalty Audit

• Opportune LLP (Houston, TX)• Audit period = August 2015 to December 2016• Audited royalties paid by AM Idaho LLC on 3 wells under 2 IDL

leases• Examined:

• Sales, gathering, and processing contracts• Pricing, allowable deductions, settlements, and custody point• Volume and payment reconciliations• Arms-length transactions

Oil & Gas Royalty Audit Findings

• Lack of transparency and detail in product pricing and costs

WellAve. price reported

Kingsgate spot price

Alberta spot price

State #1-17 $2.39 $2.95 $2.92 ML #1-10 $0.82 $2.95 $2.92 ML #2-10 $0.82 $2.95 $2.92

Oil & Gas Royalty Audit Findings

• Lack of contracts between Alta Mesa and Northwest Gas Processing LLC (NWGP)

• Lack of lease contract language addressing arms-length transactions

Oil & Gas Royalty Audit – Department Actions

• Require AM Idaho to conduct audit of ARM Energy Management LLC (ARM)

• Require AM Idaho to provide agreement between AM Idaho and ARM

• Require AM Idaho to provide detailed plant statements• Request payment of royalties owed on volumes of ‘off-the-lease’

plant fuel• Request AM Idaho provide disposition documentation for oil & gas

products produced at a ‘loss’