2014 AIPRO Annual Report by Arkansas Independent Producers and Royalty Owners

ANNUAL REPORT

2014

AIPRO | ARKANSAS INDEPENDENT PRODUCERS & ROYALTY OWNERS

ANNUAL REPORT 2014

President’s Message professional life has been spent in the political and public policy arena. This has allowed me to learn how important and effective a well-led and well-staffed organization serving as the voice for an industry can be. AIPRO has become that voice for Arkansas’s oil and natural gas producers. andy miller

AIPRO President

irst and foremost, special thanks to outgoing AIPRO President Mark Thomas. He has been an effective leader and a well-respected face for our industry. He is a consensus builder and a sincere man that I am proud to call my friend. Fortunately, he isn’t leaving and will remain an active member of the AIPRO Board. I also want to recognize and thank David Reynolds, a charter member of the board representing South Arkansas oil producers. David long ago recognized the need for a statewide oil and gas organization and was instrumental in the formation of AIPRO. His voice and common sense demeanor have not only been good for those in South Arkansas, but for all of our state’s oil and natural gas production community. Let me introduce myself. I began work for Southwestern Energy in 2005 and have served as Chairman of AIPRO’s Government Affairs Committee. My wife Paige and I reside in Little Rock with our six-year-old daughter. Our eldest daughter is a senior at Ole Miss, majoring in geological engineering. I grew up on a family farm in Faulkner County that sits in the middle of what is now the Fayetteville Shale Play. After graduating from the University of Arkansas, I began an 18-year tenure with the Arkansas Farm Bureau Federation, attaining the position of Senior Director of National Governmental Affairs. Most of my

Our association has worked together and earned the respect of those in the industry, as well as legislators, regulators and other community leaders. Decision makers often come to AIPRO for information or to hear our opinion on issues of importance. AIPRO is performing a critical function for our community—presenting a unified face and putting us in a better position to affect public policy. Additionally, our organization is tackling an important and long needed task: educating our own residents as to the importance of oil and gas production. AIPRO has partnered with the Arkansas Petroleum Council/ API to create the Arkansas Energy Rocks! program. This educational outreach effort is taking our message to various groups and engaging two new audiences—teachers and students. Few people outside the industry understand the science of producing oil and natural gas. This fact leaves us vulnerable to misunderstanding, misinformation and distrust. It is our responsibility to tell our story and to educate the public and our next generation of voters and workers. It’s a daunting task and our industry is behind in this endeavor. If you don’t think that’s true, take a day and visit a nearby school. Our adversaries and detractors are already there and have been for many years. They understand that the most effective way to change public policy or bring about cultural change is to mold young minds—those

who, in just a few short years, will be parents, voters and leaders. We are starting to catch up. By concentrating on the science and providing factual information, teachers are realizing the different sides of the issues. By being transparent and giving educators what they need to teach students about the extraction of fossil fuels and explaining the economic impact in Arkansas, we are changing the conversation about oil and natural gas from rhetoric to proven science. I applaud our educational and outreach efforts and challenge us to continue and increase those efforts. No one else is going to do this for us. Another challenge our organization faces as we go into 2015 is a muchchanged political landscape. AIPRO certainly has much work to do to get to know the many new local, state and federal elected officials. We look forward to working with these representatives of the people and to sharing our industry’s story with them. We can all be proud of our efforts and the relationships and partnerships we have formed. When under attack, we have pulled our coalition together to defend our industry and move business ahead in Arkansas. We live in a state that recognizes strength in numbers is far more valuable than individual accomplishments. It makes facing constant changes and challenges much more tolerable and successful. As AIPRO president, I intend to encourage further collaboration and collegiality when needed and certainly look forward to our group efforts and victories.

2014 ANNUAL REPORT

ARKANSAS INDEPENDENT PRODUCERS & ROYALTY OWNERS | AIPRO

Executive’s Message

kelly robbins

Executive Vice President

aipro’s History

Many may not be aware of AIPRO’s brief, but rich history, so this message is written to provide a glimpse of where we’ve been and what we’ve been doing. With the emergence of increased activity in the Arkansas oil and natural gas production community, a small group of representatives from our industry met at the conclusion of the 2007 state legislative session. Those involved agreed for the need to create a common voice and an advocate to participate and monitor the public policy and decision making process. Although one of the driving forces for our formation came from the emergence of the Fayetteville Shale Play, it was coupled equally with the need and desire to organize all producers, regardless of size, resource or geographic production area. At that time there were at least five producers operating in the Fayetteville Shale and the statewide rig count soared to 60 in mid-2008. Since that time, the rig count in Arkansas has dropped to 11 and there are 3 primary producers in the Fayetteville Shale. Additionally, because of an increase in vertical integration, we have seen a decline in the number of supplier/vendor/ contractors present and operating in our state. At this year’s annual meeting, Danny Ferguson, with Southwestern Energy and AIPRO’s first President, reminded

meeting attendees of the importance of our association. He recalled the association made a point of unifying and representing all three of Arkansas’s distinct producing regions, which have a combined footprint in 25 of our state’s 75 counties. He observed that an individual company with properties in only one producing areas would have limited influence and impact on elected officials in state and federal legislative bodies. However, such a company gains a critical mass of influence once it becomes a part of AIPRO and joins forces with companies operating in the other two areas. He stated, “Geographically, none of Arkansas’s producing areas really line up with heavy population areas. Basically, Arkansas’s main population centers have no oil and gas production. AIPRO is critical for combining our influence and actually having a chance to influence a legislative committee or chamber.” In closing he reported that the natural gas price slump and industry consolidation had caused AIPRO’s numbers to slip. Therefore, he exhorted members to expand the association’s rolls. “Tell the story to your vendors and suppliers,” Ferguson urged. “Individually, none of us carry a very big stick. When we are united, we can have a major impact.” expanding activities Despite the decrease in activity, AIPRO has increased and expanded our offerings and outreach. Most will recall AIPRO’s involvement in combating efforts to increase the severance tax rate on natural gas. Additionally, AIPRO has continued to combat legislative and regulatory attacks and has increased public education and outreach activities. We are proud of our involvement to create the Arkansas STEPS Network and

we continue to support the monthly STEPS training opportunities related to HS&E issues (more specific information about this program is included in this publication). We are especially pleased with the recent formation of Arkansas Energy Rocks!, created in cooperation with the American Petroleum Institute/Arkansas Petroleum Council. Find additional information on this exciting new addition and other association efforts in this annual report. Committee work Through committees, we have been active on various fronts. Via AIPRO’s Regulatory Committee, we helped establish comments on the U.S. Fish & Wildlife Service’s proposed critical habitat designation for threatened/ endangered species and participated in crafting joint comments to EPA’s proposal to alter the definition of “Waters of the U.S.” Our Property Tax Committee has also been active in monitoring and responding to actions related to the assessment of property taxes on our industry’s equipment. The future of AIPRO and our ongoing, united work is very bright. Current efforts will evolve in 2015 to establish a 501(c)(3) education foundation and the establishment of an on-line buyers’ guide, which will allow those who provide goods and service to our industry to highlight their presence and offerings. aipro’s future As that common voice that was created just a few years ago, we continue to not only speak for this important industry, but to listen, participate and educate others about who we are, what we do and how we are positively impacting our nation now and providing great promise for the generations to come.

AIPRO | ARKANSAS INDEPENDENT PRODUCERS & ROYALTY OWNERS

ANNUAL REPORT 2014

annual meeting

ttendees and participants at AIPRO’s 6th Annual Meeting, held October 21-22 at the Embassy Suites in Little Rock, were treated to an excellent variety of topics and presentations—from industry professionals and researchers to elected officials, state agency representatives and safety professionals. Current and future policy makers and elected officials, including U.S. Senator Mark Pryor and U.S. Rep. Steve Womack, shared their positions and views on issues of concern to our industry. We were also delighted to have an unscheduled appearance by Oklahoma Congressman James Lankford, recently elected to the U.S. Senate. Additionally, Governor-Elect Asa Hutchinson and former U.S. Rep. Mike Ross spoke to meeting attendees. Lucas Frances represented Energy In Depth, a research and education campaign designed to share accurate information about the promise and potential of responsibly developing our country’s onshore energy resources. He gave information about the ongoing attacks and efforts to discredit our industry and, in particular, the practice of hydraulic fracturing.

completed process to update the Arkansas Water Plan. This effort has been ongoing for over two years and will be deliberated by the state legislature in the upcoming session. Closer to home, past AIPRO President Danny Ferguson, with Southwestern Energy, reminded attendees about the importance and need for our association’s continued efforts and presence, and Paige Miller updated everyone on the development of the Arkansas Energy Rocks! program. Carlos Reynolds, OSHA Area Director in the Little Rock office, spoke briefly about the Arkansas STEPS Network and how OSHA has partnered with STEPS to help reduce workplace injuries and deaths. Rick Ingram with BP North America Gas, and the National STEPS Network Chair, educated attendees about how STEPS began, as well as why it is important to have an effective safety program. Shawn Jackson with the Arkansas Natural Resources Commission provided an update on the nearly-

Duke University’s Energy Initiative was represented by Daniel Raimi, who is involved in research to gauge the impact and influence from shale plays on communities and the services provided by local governments. The Fayetteville Shale has been given positive marks in this research. Finally, meeting attendees were given the opportunity to unwind, network and laugh during wonderful meals, the Exhibitor Reception and outdoor events, including golfing and a sporting clays shoot. Entertainment was provided during the Southwestern Energy-sponsored dinner and the XTO Energy luncheon by motivational and magical speakers. Special thanks once again to the AIPRO sponsors, members and supporters who made this meeting possible, and to the exhibitors who shared information about the goods and services they provide to our industry. (Left to right) Danny Ferguson, Murray Williams, Howard Vernon and Mark Thomas at Blue Rock Sportsmans Club for the sporting clays shoot.

Andy Miller (left) and Kelly Robbins (right) present a gavel to outgoing AIPRO President Mark Thomas (center) in honor of his service to the association.

Networking is an important function of the AIPRO Annual Meeting.

2014 ANNUAL REPORT

ARKANSAS INDEPENDENT PRODUCERS & ROYALTY OWNERS | AIPRO

education and public outreach - arkansasenergyrocks.com

ver the past 18 months, AIPRO has been working with the American Petroleum Institute/Arkansas Petroleum Council to design a program for Arkansas students and educators about the science and technology involved in producing our state’s energy resources. The first step was to design and develop a website featuring oil-andnatural-gas-related lesson plans that are correlated to state education standards. To make this possible, more than 30 Arkansas teachers were engaged and introduced to oil and natural gas production in our state. These educators produced lesson plans that are now available online at arkansasenergyrocks.com. This site provides both teachers and students with a wealth of information and educational activities. Another significant development occurred in June with the first Teacher Energy Education Workshop. The event was filled to capacity with 22 educators from across the state who came to Southwestern Energy’s regional offices in Conway to learn more about oil and natural gas production in Arkansas. In addition to classroom presentations on various aspects of production, including regulatory oversight and the economic impacts, participating teachers spent a full day in the field exploring and touring well, drilling and hydraulic fracturing sites. Attendees heard from the directors of the Arkansas Oil and Gas Commission, Arkansas Department of Environmental Quality, local elected officials, producers from all three production areas, The Nature Conservancy, chambers of commerce and more. Additionally, personnel from the University of Arkansas Community

College at Morrilton discussed the Petroleum Technology program available at their campus, and teachers learned about the many, varied career opportunities available in the industry. Educators who participated, whether by writing correlated lesson plans or attending the summer workshop, received Arkansas Department of Education-approved Professional Development hours or credits. participant comments “Overall, this was an incredible experience. I appreciate Southwestern Energy opening their company up to us.”

“I feel very lucky to have been able to hear the speakers you chose. George was a wealth of information and it was truly a special treat to listen to him. The resources that are available to me will be utilized.” “Great learning experience. I feel that I have a much better understanding of oil and natural gas, laws, etc.” “A fantastic workshop! Correct amount of information presented in the correct sequence. Field trip was perfect for putting everything in perspective.” “Fantastic job of informing us of the real facts and science behind the Fayetteville Shale!”

2014 Teacher energy EDUCATION workshop

n July, Arkansas Energy Rocks! (AER) received the Arkansas Society of Association Executives’ Overall Excellence in Communications Award. The judges commended AER on having a “very comprehensive campaign that is well researched from multiple stakeholder and constituent groups.” They found the design and layout of the website to be “effective and impressively executed” and the judges also appreciated the methods used to engage teachers. (Left to right) Tom Parker and Kelly Robbins, executive vice presidents for Arkansas Petroleum Council and AIPRO, respectively, gave credit to Paige Miller and Mary Ann Halsey for their direction on this exciting program. Designer Kevin Cates was also commended for his work on AER’s website.

AIPRO | ARKANSAS INDEPENDENT PRODUCERS & ROYALTY OWNERS

ANNUAL REPORT 2014

arsteps network - arstepsnetwork.org Please join us at 8 a.m. on January 15 at the community center in Heber Springs for our 2015 kick-off!

mission

To promote safety, health and environmental improvement in the exploration and production of oil and gas in U.S. onshore operations. The National STEPS Network fosters a work environment that relies upon open communication and trust. Arkansas STEPS Network was founded in 2011. OSHA provides training, materials and support at every meeting. Following are the members of the STEPS board: • Jeremy Cox, Southwestern Energy, Chairman • Bill Brown, XTO Energy Inc., CoChairman • Leslie Davis, Harbor Environmental and Safety, Treasurer • Michele Easter, AIPRO, Meeting Coordinator • Mark Landers, BHP Billiton Petroleum • Caleb Larru, Redland Energy Services Classes are, with few exceptions, provided for free to all employees of the oil and natural gas industry in Arkansas. Locations vary, but most are in north central Arkansas, with some in south Arkansas. The average monthly attendance is 57.

2014 topics

February • Waste Management • SPCC • Spill Response • Internal Audits March • Fall Protection • Walking Working Surfaces • Harness Inspections • Competent Person Awareness • Competent Person Certification April • Incipient Fire Fighting

Exhibitors

• Fire Extinguisher Training • Flammable Combustible Materials May • Confined Space Rescue • Hot Work • Monitoring & Calibrations • Permitting June • Heat Stress Awareness • Heat Stress Prevention • Snakes, Spiders and Ticks June (South Arkansas) • Heat Stress Awareness July • Rigging Awareness • Inspections August • Incident Investigations • Emergency Action Plans September • First Aid/CPR/AED Certification September (South Arkansas) • Incident Investigations October • ATV Safety • Winter Safety • Hunting Safety November • Supervisor Drug and Alcohol Awareness Training Participants practice fire extinguisher training at the April STEPS meeting.

H2O Track Industrial Splicing Harbor Environmental and Safety Lone Star Safety OSHA/Arkansas Dept. of Labor Thompson Driving