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

1. PETROLEUM INDUSTRY IN MONTANASeptember 2008MONTANA PETROLEUM ASSOCIATIONDavid A. Galt, Executive Director

2. The Industry in Montana Transportation Refiners Service Companies Producers

3. 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.

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

5. 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

6. State Land Mineral Revenue by Fiscal Year

7. Statewide Oil Production History, 1916 through 2007

8. Oil Production, Rocky Mountain States

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

11. MT Natural Gas Production 1986 through 2006

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

13. Gas Production, Rocky Mountain States

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

15. 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

16. State Acres Leased & Producing

17. Federal Leasing Activity In MontanaFiscal Years 1997 to Present

18. CHALLENGES • Access • State and Federal Public Lands • Wildlife Issues • Taxes • Production tax drilling incentive • Central Assessment of Gathering Systems

19. Bureau of Land ManagementMontana 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--ProtestWestern Environmental Law Center--Protest Letter April 8, 2008 Sale--Protest Western Environmental Law Center--Protest Letter November 27, 2007 Sale--ProtestMontana 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

20. 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

21. 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

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

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

24. SAGE GROUSE MANAGEMENT PLANMITIGATION STANDARD Timing Restrictionfor breeding and nesting2 mile radius (8,000 acres) Surface Activity Prohibited¼ mile radius (125 acres)

25. NEW FWP RECOMMENDATION Timing Restrictionfor breeding and nesting4 mile radius (32,000 acres) Surface Activity Prohibited1 mile radius (2,000 acres)

26. 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.

27. Increased Cost Factors1999-2007 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

28. 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.

29. 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

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

31. 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

32. EVENT SPONSORS ENCORE OPERATING GOUGH,SHANAHAN, JOHNSON AND WATERMAN

33. CONTACT INFORMATION MONTANA PETROLEUM ASSN. David A. Galt, Executive Director PO Box 1186 Helena MT (406) 442.7582 MPA@montanapetroleum.org www.montanapetroleum.org

34. 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.