Common use of Oil and Gas Enrollment and Stratification Clause in Contracts

Oil and Gas Enrollment and Stratification. The percentage of DSL Habitat enrolled is one indices of the protection afforded the species. A second, and perhaps more meaningful measure, is the amount of high priority habitat (i.e., areas likely to be most beneficial to the conservation of the species) potentially protected. The calculation of the percentage of habitat enrollment under the 2020 DSL CCAA may not take into account that some mineral leases in the Permian Basin are severed from the surface estate where DSL Habitat is located. A “split estate” is when ownership of the surface estate and mineral estate are severed, i.e., the surface owner does not own any rights to the underlying mineral estate, which is owned by another individual(s). Under long-established Texas legal precedent, for split estates, the mineral estate is dominant, where the mineral owner (or lessee of the mineral owner) has a right to enter and use as much of the surface as is reasonably necessary to produce and remove the minerals. See, e.g., Getty Oil Co. x. Xxxxx, 470 S.W.2d 618, 621 (Tex. 1971). Multiple distinguishable geologic strata containing oil and gas reservoirs or “plays” often have independent surface access rights via the same surface acreage. Thus, the enrollment of a property by a Participant does not necessarily preclude development or surface disturbances by a non-Participant who is not bound by the conservation measures. When non-Participants share access to the same surface as an enrolled Participant, the situation is referred to as stratification. Table 1. Summary of Stratification Observed During the TCP Implementation by Year. Amount of Stratification in DSL Habitat (Xxxxxxxx Map) 2012-20171 TCP Participant Xxxxx on TCP Enrolled Property Stratified Non- Participant Xxxxx on TCP Enrolled Property Total Xxxxx Developed on Enrolled Property 2012 40 20 60 2013 47 11 58 2015 56 11 67 2016 52 3 55 2017 15 1 16 TOTAL 236 55 291 Fifty-five non-participant xxxxx were developed on enrolled properties (i.e., were stratified). The table above shows approximately 19 percent of TCP-enrolled properties were stratified from 2012 through 2017. While non-participant development may diminish the benefit of Conservation Measures enacted on stratified property, non- participant xxxxx never exceeded 50 percent of annual development during the study period. Under the 2020 DSL CCAA, oil and gas participants that have mineral rights on stratified properties must comply with their Conservation Measures to contribute to the protection of the DSL and its habitat. Where several strata are leased to non-participants, the relative conservation value of the oil and gas participant’s Conservation Measures on the surface estate may be diminished. For this reason, the 2020 DSL CCAA has an objective to incentivize the enrollment of stratified mineral interests (see Section 8.1). Furthermore, and unique from the TCP, the 2020 DSL CCAA encourages landowner participants to work with the Administrator and lease-holders to develop a surface use or mineral management plan to reduce the occurrence and intensity of stratification. The

Oil and Gas Enrollment and Stratification. The percentage of DSL Habitat enrolled is one indices of the protection afforded the species. A second, and perhaps more meaningful measure, is the amount of high priority habitat (i.e., areas likely to be most beneficial to the conservation of the species) potentially protected. The calculation of the percentage of habitat enrollment under the 2020 DSL CCAA may not take into account that some mineral leases in the Permian Basin are severed from the surface estate where DSL Habitat is located. A “split estate” is when ownership of the surface estate and mineral estate are severed, i.e., the surface owner does not own any rights to the underlying mineral estate, which is owned by another individual(s). Under long-established Texas legal precedent, for split estates, the mineral estate is dominant, where the mineral owner (or lessee of the mineral owner) has a right to enter and use as much of the surface as is reasonably necessary to produce and remove the minerals. See, e.g., Getty Oil Co. x. Xxxxx, 470 S.W.2d 618, 621 (Tex. 1971). Multiple distinguishable geologic strata containing oil and gas reservoirs or “plays” often have independent surface access rights via the same surface acreage. Thus, the enrollment of a property by a Participant does not necessarily preclude development or surface disturbances by a non-Participant who is not bound by the conservation measures. When non-Participants share access to the same surface as an enrolled Participant, the situation is referred to as stratification. Table 1. Summary of Stratification Observed During the TCP Implementation by Year. Amount of Stratification in DSL Habitat (Xxxxxxxx Map) 2012-20171 TCP Participant Xxxxx on TCP Enrolled Property Stratified Non- Participant Xxxxx on TCP Enrolled Property Total Xxxxx Developed on Enrolled Property 2012 40 20 60 2013 47 11 58 2015 56 11 67 2016 52 3 55 2017 15 1 16 TOTAL 236 55 291 Fifty-five non-participant xxxxx were developed on enrolled properties (i.e., were stratified). The table above shows approximately 19 percent of TCP-enrolled properties were stratified from 2012 through 2017. While non-participant development may diminish the benefit of Conservation Measures enacted on stratified property, non- participant xxxxx never exceeded 50 percent of annual development during the study period. Under the 2020 DSL CCAA, oil and gas participants that have mineral rights on stratified properties must comply with their Conservation Measures to contribute to the protection of the DSL and its habitat. Where several strata are leased to non-non- participants, the relative conservation value of the oil and gas participant’s Conservation Measures on the surface estate may be diminished. For this reason, the 2020 DSL CCAA has an objective to incentivize the enrollment of stratified mineral 1 A consultant performed a preliminary analysis of stratification in DSL Habitat. Based on information available at that time, the consultant assumed that an oil and gas participant had not enrolled the property on which xxxxx were developed (new drills, recompletions, and workovers) by one of the participant’s subsidiary. The assumption was not correct. As a result, the preliminary report overstated the number of participant xxxxx and understated the number of participant xxxxx on enrolled property by 164 xxxxx. This table corrects that error. interests (see Section 8.1). Furthermore, and unique from the TCP, the 2020 DSL CCAA encourages landowner participants to work with the Administrator and lease-holders to develop a surface use or mineral management plan to reduce the occurrence and intensity of stratification. TheThe Administrator will continue to monitor stratification, conduct outreach to non-enrolled mineral interest(s), and address impacts through the Changed Circumstances process (see Section 16.1.1).

Oil and Gas Enrollment and Stratification. The percentage of DSL Habitat enrolled is one indices of the protection afforded the species. A second, and perhaps more meaningful measure, is the amount of high priority habitat (i.e., areas likely to be most beneficial to the conservation of the species) potentially protected. The calculation of the percentage of habitat enrollment under the 2020 DSL CCAA may TCP did not take into account that some mineral leases in the Permian Basin are severed from the surface estate where DSL Habitat is located. A “split estate” is when ownership of the surface estate and mineral estate are severed, i.e., the surface owner does not own any rights to the underlying mineral estate, which is owned by another individual(s). Under long-established Texas legal precedent, for split estates, the mineral estate is dominant, where the mineral owner (or lessee of the mineral owner) has a right to enter and use as much of the surface as is reasonably necessary to produce and remove the minerals. See, e.g., Getty Oil Co. x. Xxxxx, 470 S.W.2d 618, 621 (Tex. 1971). Multiple distinguishable geologic strata containing oil and gas reservoirs or “plays” often have independent surface access rights via the same surface acreage. Thus, the enrollment of a property by a Participant participant does not necessarily preclude development or surface disturbances by a non-Participant participant who is not bound by the conservation measures. When non-Participants participants share access to the same surface as an enrolled Participant, the situation is referred to as stratification. An analysis of the magnitude of stratification in DSL Habitat using records of well development from the Texas Railroad Commission from 2012 through 2017 is summarized in Table 1, below. Table 1. Summary of Stratification Observed During the TCP Implementation by Year. Amount of Stratification in DSL Habitat (Xxxxxxxx Map) 2012-20171 TCP Participant Xxxxx on TCP Enrolled Property Stratified Non- Participant Xxxxx on TCP Enrolled Property Total Xxxxx Developed on Enrolled Property 2012 40 20 60 2013 47 11 58 2015 56 11 67 2016 52 3 55 2017 15 1 16 TOTAL 236 55 291 Fifty-five non-participant xxxxx were developed on enrolled properties (i.e., were stratified). The table above shows approximately 19 percent of TCP-enrolled properties were stratified from 2012 through 2017. While non-participant development may diminish the benefit of Conservation Measures enacted on stratified property, non- non-participant xxxxx never exceeded 50 percent of annual development during the study period. Under the 2020 DSL CCAA, oil and gas participants that have mineral rights on stratified properties must comply with their Conservation Measures to contribute to the protection of the DSL and its habitat. Where several strata are leased to non-participants, the relative conservation value of the oil and gas participant’s Conservation Measures on the surface 1 A consultant performed a preliminary analysis of stratification in DSL Habitat. Based on information available at that time, the consultant assumed that an oil and gas participant had not enrolled the property on which xxxxx were developed (new drills, recompletions, and workovers) by one of the participant’s subsidiary. The assumption was not correct. As a result, the preliminary report overstated the number of participant xxxxx and understated the number of participant xxxxx on enrolled property by 164 xxxxx. This table corrects that error. estate may be diminished. For this reason, the 2020 DSL CCAA has an objective to incentivize the enrollment of stratified mineral interests (see Section 8.1). Furthermore, and unique from the TCP, the 2020 DSL CCAA encourages requires landowner participants to work with the Administrator and lease-holders to develop a surface use or mineral management plan to reduce the occurrence and intensity of stratificationstratification (see Section 8.3.1). TheThe Administrator will continue to monitor stratification and address impacts through the Changed Circumstances process (see Section 16.1.1).