Texas Oil & Gas Association Mineral Sub-Committee Annual Property Tax Conference

The Texas Oil & Gas Association Mineral Sub-Committee is organizing its Annual Property Tax Conference on March 7-8, 2024. The committee members will discuss valuation parameters, Circuit Breaker Legislation, and meet with Appraisal Firms to summarize discussions. They will also review Texas Production of Crude Oil and Natural Gas data, as well as Price Adjustment Factors based on EIA reports. Updates on EIA's Annual Energy Outlook and Short-Term Energy Outlook impact property tax calculations for the upcoming year.

• Texas
• Oil & Gas
• Association
• Property Tax
• Conference

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1. Texas Oil & Gas Association Mineral Sub- Committee TXOGA ANNUAL PROPERTY TAX CONFERENCE TXOGA ANNUAL PROPERTY TAX CONFERENCE MARCH 7 MARCH 7- -8, 2024 8, 2024

2. Committee Members Scott Emanis Chevron Drew Harrold Merit Advisors Michael Horne Occidental Ron Kane EOG Resources Todd Metzgar Conoco Phillips Co Lauro Porto- ExxonMobil Nathan Young American Ad Valorem Tax Consultants

3. Mineral Sub Committee Activity Meet to discuss valuation parameters (This Year) Circuit Breaker Legislation Schedule meetings with the Appraisal Firms Summarize meeting discussions Report to the Membership Firm Summary File to be emailed once complete

4. Texas Production Crude Oil

5. Texas ProductionNatural Gas

8. EIA Annual Energy Outlook Next release date 2025 Report is undergoing system enhancements no release in 2024. 23.175 Texas Property Tax Code Appraisal Districts must use the EIA AEO data to calculate the Price Adjustment Factors for oil & gas if published by March 1, 2024

9. EIA January Short Term Energy Outlook Released on January 9, 2024 23.175 Texas Property Tax Code Appraisal Districts must use the EIA January STEO data to calculate the Price Adjustment Factors for oil & gas if most recent AEO published before December 1stof preceding year (12/1/23)

10. Price Adjustment Factors EIA - STEO Report released Jan 9, 2024 - Price Adjustment Factor Calculation Table 1 Prices in Nominal Dollars Oil - WTI Spot Price 2024 Price 77.99 $ 2023 Price 77.58 $ PAF 1.00528 Table 1 Prices in Nominal Dollars Natural Gas - Henry Hub Spot 2024 Price 2023 Price PAF $ $ 1.04724 2.66 2.54

11. EIA STEO ANALYSIS Pricing Comparisons from EIA Jan 23 STEO $ $ Jan 24 STEO WTI Avg 2022 WTI Avg 2023 WTI Proj 2024 Price variance from 2023 PAF % Diff to Jan 23 STEO 94.91 77.18 $ $ $ 77.58 77.99 0.81 1.0053 1.0105 0.8132 1.0% increase HH Avg 2022 HH Avg 2023 HH Proj 2024 Price variance from 2023 PAF % Diff to Jan 23 STEO $ $ 6.42 4.90 $ $ $ 2.54 2.66 (2.24) 1.0472 0.5429 0.7632 45.7% decrease

12. Producer Price Index BLS - PPI Calculation for Oil & Gas - Full Year 2023 X = index figure for current year (Base year 1982 assumed to be 100) Y = number of years between 1982 base year and current year To determine average inflation rate over any particular time span: Inflation (%) = (X / 100)^ (1 / Y) - 1 Factor 212.7 Year 2023 Escalator 1.8578% Crude Oil Natural Gas 93.2 2023 -0.1716%

13. 2024 Pricing Escalators 2024 Tax Year Oil - 23.175 Max Forecast 2024 Tax Year Gas - 23.175 Max Forecast Year Oil Price 77.58 $ Factors Notes Year Gas Price 2.54 $ Factors Notes 2023 2023 2024 2025 2026 2027 2028 2029 $ $ $ $ $ $ 77.99 79.44 80.91 82.42 83.95 85.51 1.00528 1.01858 1.01858 1.01858 1.01858 1.01858 PAF PPI PPI PPI PPI PPI 2024 2025 2026 2027 2028 2029 $ $ $ $ $ $ 2.66 2.66 2.65 2.65 2.64 2.64 1.04724 0.99828 0.99828 0.99828 0.99828 0.99828 PAF PPI PPI PPI PPI PPI

14. Appraisal Firm Meeting Notes New Contracts for 2024 CAG Scurry County CAD Appraisal None H Landrum None MAVSI None P&A Gray, Hutchinson, Knox & Ochiltree Counties TYP Comanche, Crane, Glasscock, Jeff Davis, & Wharton Counties WAG None

15. Appraisal Firm Meeting Notes Firms will use the Jan 2024 STEO to determine the PAF for Oil & Gas Pricing. No AEO report will be issued for 2024. Escalation from BLS years 2-6 Firms expect mineral values to likely decrease based on pricing scenario. No projections provided to CAD s as of meeting times 2023 Lease Operating Expenses expectations are an increase over 2022 actuals High levels of inflation during 2023 Gas appraisals, may consider some type of adjustment for current gas price scenario

16. Capitol Meeting Notes Appraisers primarily work from home Office space still in place to meet with agents/reps In person negotiations are available schedule with Appraiser. Discount rate S&D analysis ValueLine Companies 2023 base rate 13.5% plus Ad Val rate. Expenses Esc 3% for labor & repairs, 2% other categories (same as 2023) Request electronic data (excel, csv, etc.) Mineral appraisers LeLaina Taylor- Mineral Div. Mgr. Added Hailey Jordan Assignments on website.

17. Pritchard & Abbott Meeting Notes Opened office in Tyler. Henderson office Closed. Mineral Appraisers Cindy Fox Asst. Mgr. - Ft. Worth Div. AMA Trevor Sifuentes HOU Bryan Llornes SAN Macy Watts, Thomas Stubbs, Randy Prince TYL Crystal Meadows, Joe Bailey Pricing Jan STEO for PAF Calculation Oil pricing Start with County Average (Default $75.31) Gas Pricing Start with lease actual average price. (Default $2.48) LOE Oil - Hold flat. Gas - Flat year 1, deescalate 1% years 2 6 Discount Rates same range as last year. Oil 10 24% gas 12 16%

18. Thos. Y Pickett Meeting Notes 2024 Valuations Expect decreases in valuation (esp. gas properties) based on pricing LOE for 2023 appraisals 1 % esc for years 2-6. May consider additional escalation Discount rate 16% base rate plus the Ad Val rate New Office in Addison (14665 Midway Road Suite 100) Appraisers added Alex Gonzales. Jean Ann Siler retired. Check website for appraisal cut-off dates

19. Wardlaw Meeting Notes Initial change Mineral equipment value Move to Personal roll (L2) Required rendering of Oil & Gas production equipment Retracted request, moving value to Realty (R2) No PP return required. Appraiser Atilio Usseglio departed WAG. Base Discount Rate 15.96% Comptroller Manual Plan to send notices by April 14th. Schedule appointments ASAP LOE escalation - Use 7% increase over 2023 Requests LOE Detail in EXCEL format start with Lease # for each category No intention to use variable cost.

20. Other Firm Notes CAD Appraisal LLC No change in Contracts. Opened office in San Antonio. Hugh Landrum Contracts - lost Wharton County Morgan Ad Valorem No change in contracts. Default prices TBD.

21. Circuit Breaker Discussions SB 2 Circuit Breaker Appraisal Cap and Industry Oil & Gas Properties (mineral valuations) are Non-Homestead Real Property which makes them subject to the 20% appraisal cap. What was the legislature s intent regarding mineral valuations? What is the definition of a new improvement as related to a producing mineral lease? How will well workovers be treated? How will oil well additions be valued on an existing lease? How is a sale of an oil & gas property impacted? How will this impact unknown royalty interests or corrections to the division of interest? How will right of ways be impacted for midstream assets? Could downstream assets be impacted? How do we ensure the circuit breaker will be equally interpreted among appraisal districts? Summer 2023 Ad Hoc Circuit Breaker Committee formed to review law and how to apply to mineral, midstream & downstream appraisal and assessment

22. Circuit Breaker Discussions February 2024 Conclusions and recommendations by the Mineral Sub- Committee: Oil & Gas interests are subject to and qualify under Section 23.231 Applied on and individual account or ownership parcel level Application will follow jurisdictional boundaries of County / Appraisal District 2023 account value is the base year. 2024 value < $5MM lessor of FMV or the 2023 value times 1.2 (20%). Change in Operator per RRC Records reset of base year. Corporate restructure or subsidiary does not constitute a reset. Changes is royalty ownership reset base year. Repairs, w/o, fracks, lift mechanisms does not constitute a new improvement New wells in a combined oil lease part of the property and NOT a new improvement. (Cannot be identified through public production or pricing info.)

23. Circuit Breaker Discussions February 2024 Conclusions and recommendations by the Mineral Sub- Committee (continued): All 2024 lease values if under $5MM - lessor of FMV or the 2023 value times 1.2 (20%). Gas leases one lease = RRC # new wells would be set as a base year.

24. Circuit Breaker Discussions Firm Meeting Notes In general the firms agreed with the Committee recommendations. Notes from committee meetings CAG Talked with Law Firms for opinion. Met with other Firms to address issues. WAG Agreed new wells in an existing lease is subject to CAP (Reserve right to analyze) Rescinded BPP rendering requirement for production equipment 2023 value * 1.2 will be 2024 comparable value. Over $5 MM, excluded from measurement Any 2023 value greater than $4,166,667 would not be subject to Circuit Breaker. P&A Oil & Gas Individual accounts based on tax roll. TYP Limited by software capabilities.

25. Questions? THANK YOU