The Challenge of Energy Policy Explored at 2013 KIOGA Annual Convention Over 1,000 participants from oil and gas exploration and

Transcription

1 SEPTEMBER/OCTOBER 2013 The Challenge of Energy Policy Explored at 2013 KIOGA Annual Convention Over 1,000 participants from oil and gas exploration and production companies, service and supply companies, financial institutions, and government agencies converged on Wichita for the KIOGA 76 th Annual Meeting and Convention held August 18-20, 2013, at the awardwinning DoubleTree by Hilton Hotel Wichita Airport. Also, 91 exhibitors filled the exhibitor pavilion for a well-attended event. Many legislators, government offi cials, dignitaries and business leaders from around the nation joined in the convention including U.S. Senator Pat Roberts, U..S. Congressman Tim Huelskamp, U.S. Congresswoman Lynn Jenkins, U.S. Congressman Kevin Yoder, U.S. Congressman Mike Pompeo, Kansas Governor Sam Brownback, Kansas Attorney General Derek Schmidt, Kansas State Treasurer Ron Estes, KCC Chairman Mark Sievers, KCC Commissioner Shari Feist-Albrecht, Kansas House Speaker ProTem Peggy Mast, 10 State senators, 18 state representatives, 15 state agency officials, and other special guests. Several media outlets covered the convention including the Wichita Business Journal, The Wichita Eagle, Kansas City Star, The Hill, American Oil & Gas Reporter, The Territorial Magazine, KSN TV Wichita and KWCH TV Wichita. Reviews and comments from convention attendees were very positive. Chairman Letter... 2 The Chairman s welcome reception kicked Congress Returns...4 off the convention where the group was entertained Regulation Nation...12 by the music of De`ja` Vu AESC Post A Beatles Tribute Band. The KIOGA Convention Research in KS...18 Committee, led by Scott Ball, once again Message from KIOGA developed an outstanding President...22 program offering excellent speakers, a Legislative Interim...24 wide variety of exhibitors, and entertainment. Leaders Honored...28 Convention Coordinator, Kelly Rains, did an Domestic Energy...40 amazing job organizing the logistics. A great deal of teamwork made this year s convention an overwhelming success. Convention participants were able to share ideas, network with peers, participate in thought-provoking sessions, and hear updates on KIOGA s associational activities. Keynote Speakers Keynote Speakers at KIOGA s 76 th Annual Meeting and Convention were Art Horn and Gregg Marshall. Horn is a meteorologist from Connecticut and owner of The Art of Weather. He is an e x p e r t witness for lawyers in weatherrelated lawsuits and educates p e o p l e There s just always something about your convention that s special. You guys have a lot of momentum building. Your group always exhibits such great camaraderie and smart presentations, too. Dave Thomas, Brothers & Co., Tulsa, OK across the nation on the realities and myths of climate change. Marshall is the Wichita State University head men s basketball coach. In the season, Marshall s team fi nished in the NCAA Final Four. Horn relayed how various organizations use deceptions, half-truths, corruption, and blatant lies to attack the way our nation makes energy. Horn said proponents of man-made global warming are being challenged more and more by scientists who don t buy into the climate catastrophe scare. Scrutiny of man-made climate change arguments reveal why they are failing. Horn said nature is showing us that carbon dioxide concentrations are not ruling global temperature. Since 1998 twenty eight percent of all carbon dioxide emissions released into the atmosphere since 1850 have occurred yet there has been no warming. World-wide hurricanes are not increasing in number or strength. There has been no Category 3 or higher hurricane strikes in the United States since This year, we are on our way to having the fewest number of tornadoes since modern record keeping began. Sea...continued on page 8

2 MESSAGE from the CHAIRMAN Dear KIOGA Member: I appreciate the opportunity to serve as the Chairman of KIOGA for the next two years. KIOGA is truly the best and one of the most respected oil and gas associations in the country. That is due, in part, to wonderful individuals that take time from their jobs and families to participate as the KIOGA Board of Directors. I am eager to work with the KIOGA Board and personally thank Dwight Keen for his leadership and dedication as past KIOGA Chair and his years of involvement in KIOGA. Timothy F. SCHECK Chairman, KIOGA Mr. Ed Cross: There are many adjectives that could be used to describe our President. The one that stands out in my mind is dedicated leader. He is not only present in the federal and state legislation, but also in the local communities. He is an advocate for education and recruiting our youth to the oil and gas industry. I would like to acknowledge Kelly Rains, Brandi Biggs, and Scott Ball, as well as the countless volunteers for all their hard work throughout the year and at this year s annual convention. That is what KIOGA is about working together. During the 2013 KIOGA Annual Convention, I expressed my goal to signifi cantly increase the KIOGA membership during my Chairmanship term. Today, KIOGA has over 1400 members and is the lead state and national advocate for the Kansas independent oil and gas industry. Association membership numbers are vital to KIOGA s sustainment and growth. Increased membership enhances and increases our effectiveness as a collective voice in our industry. In an effort to further strengthen our Association, KIOGA will be kicking off a major membership drive. While KIOGA has a robust membership, there still remains far too many companies and individuals that do not belong. We must continue to build association membership to be successful against well-funded and determined adversaries. I am excited about the possibilities increased membership would bring to our organization. For current members, I thank you for your support and ask your assistance in promoting the KIOGA membership drive. Consider this, if each current member recruits a minimum of one new member to KIOGA, we will double the current membership and strengthen our network. It is crucial now more than ever that we have a united voice with decision makers so that we can further our industry while protecting our way of life. KIOGA bridges the gap between state and national leadership, and local issues, concerns, and progress. If you are not currently a member, I invite you to join and be an active supporter of the fi nest oil and gas industry in the Midwest. Additional information can be found by contacting KIOGA at our Wichita Offi ce ( ) or Topeka Offi ce ( ). Sincerely, Tim Scheck Your Chairman Growth is never by mere chance; it is the result of forces working together. James Cash Penney 2

3 KIOGA thanks the following companies for their support through advertising in our newsletter. Advertiser Page Advertiser Page Advanced O&G Data 11 Paragon Geophysical Services, Inc. 30 AJAX 33 PlainJan s 19 Baker Hughes 31 Polymer Services, LLC 41 Basic Energy Service 26 Promap 15 Blue Rock Energy Capital 35 Rainmaker Sales, Inc. 6 Breckenridge Exploration 23 SCO-JO 23 C&B Equipment, Inc. 11 Sunrise Oilfi eld Supply 39 Central Power Systems 32 Superior Pipeline Company 35 Coffeyville Resources 39 Tidelands Geophysical 21 Consolidated Oil Well Services 19 Tim Miller Oilfi eld Sales 21 Crescent Services, LLC 16 The Independent Oil & Gas Directory 15 CST Oil & Gas Corp 25 TRC 11 / 35 Dart Oil & Gas 18 Trilobite Testing 30 David Morris, P.A. 10 Ulterra 28 Drill Baby Drill 40 Wellhead Systems, Inc. 32 Duke Drilling Company, Inc. 32 Wildcat Resources 40 EnviroClean 26 Evenson Auctioneers 33 WANT TO SEE YOUR AD IN THE Foley Power Solutions 29 NEXT NEWSLETTER? Contact KIOGA today! GraybaR Electric 17 Great Plains Gas Compression 14 O: (316) F: (316) kioga@swbell.net Hartman Oil 19 IHS 7 JAS Equipment Rental 10 Jayhawk Oilfi eld Supply 21 Kimray 36 Kansas Strong 20 Lockhart Geophysical 26 Melland Engineering 32 Monster Pump 6 Murfi n Drilling Co., Inc. 28 Nex-Tech 23 NOV FiberGlass Systems 42 Oil Field Gas Field Oil and Gas Field 3

4 Congress Returns to Washington with Full Agenda Oil & Gas Tax Provisions Remain at Risk Congress returned to Washington on September 9th with the same full agenda it left in August, but now facing the immediate task of deciding if the U.S. should launch a military strike on Syria. While recent polling indicated that the situation in Syria is a growing concern for Americans, the economy in general remains the number one problem according to Americans, followed by jobs and unemployment, dissatisfaction with government, and healthcare. As Congress reconvened to debate issues related to the nation s debt and deficit, anxiety related to these issues remains high. Federal Budget & Debt Ceiling Federal Budget - After Syria, Congress most immediate tasks will be to pass a temporary spending bill to prevent much of the government from shutting down on October 1st and raising the debt ceiling before the government runs out of money to pay its bills by as early as mid-october. Passage of a temporary spending bill would buy time to work out how to fund government programs over the next 12 months, but passage of such a measure is in doubt. Republicans are considering whether to use the measure as a tool to reign-in Obama s expansion of federallysubsidized medical care, known as ObamaCare that would require millions of Americans without health insurance to either buy it or pay penalties to the Internal Revenue Service. Republican leaders have said they are eager to avoid an impasse and government shutdown. They prefer a straight-forward temporary spending bill that would keep agencies running at current budget levels, refl ecting the automatic across-the-board spending cuts known as sequester and in place for the past 6 months. A grass-roots campaign over Congress August recess to not include ObamaCare in the funding has increased pressure on House leaders to attach such a provision. Congressional Democrats and the White House are eager to reverse the cuts. Negotiations between the White House and Senate Republicans collapsed last month over disagreements on tax increases and cuts to federal benefi t programs. Without a deal, those automatic spending cuts could become entrenched through all of next year and possibly into the next several years. Debt Ceiling - The Obama Administration wants Congress to raise the $16.7 trillion cap on its borrowing authority. House Speaker Boehner and Tea Party Republicans see debt limit legislation as leverage to force further spending cuts. President Obama agreed in 2011 to Boehner s demand that spending cuts equal the size of the debt limit increase, but the president says he won t do it again. Republicans leaders say such a debt limit increase without corresponding spending cuts that Obama wants is a non-starter. House Majority Leader Eric Cantor (R-VA) said the House will move on the debt ceiling before the middle of October. What s Happening with Industry s Tax Provisions? With the turmoil in the Middle East driving up oil prices and Congress returning to work on tax reform, debt ceiling, and other issues, some policymakers could become less supportive of oil and gas tax provisions and instead use the price of oil as a call to eliminate oil and gas tax provisions as a means of funding the government. We can expect President Obama to use the Middle East turmoil as platform to call for eliminating oil and gas tax provisions to fund green energy initiatives to be less dependent on foreign oil. However, KIOGA has taken a proactive approach and see the situation as an opportunity to drive home why oil and gas tax provisions like percentage depletion and IDCs are so important for reaching energy independence which, in turn, brings about more freedom. KIOGA President Edward Cross wrote and distributed to media two editorials that emphasized the proper response to oil market price fl uctuations resulting from war and rumors of war is to retain current oil and gas tax policy that allows American oil and gas companies to produce at home more of the oil and gas our nation needs. The editorials titled Increased Domestic Energy Production Never More Important and U.S. Energy Independence is About Freedom appeared in the Hays Daily News, Gyp Hill Premier, Topeka Metro Congressman Steny Hoyer (D-MD) Senator Baucus (D-MT) News, The Wichita Eagle, and other newspapers across Kansas as well as newspapers in Illinois and Oklahoma. KIOGA met with House Minority Whip Steny Hoyer (D-MD) in mid-october. Hoyer said that he was less than optimistic about a comprehensive tax reform bill passing Congress this year. He said legislation is a long-shot unless we can forge an agreement between the White House and Congress, which is unlikely. Hoyer said new revenue is vital to any tax reform deal, which is a nonstarter for Republicans. KIOGA also met with Senate Finance Committee Chairman Max Baucus (D-MT) who said that he thought a consensus was forming around a rewrite of the corporate tax code. Baucus said he thinks the momentum that might be forming around corporate tax reform should be used as an engine for comprehensive tax reform that includes individual codes as well and not just stop with corporate tax reform. Baucus s remarks are different than those of President Obama who, last summer, offered a rewrite of the corporate code only and dedicating the new revenue to infrastructure 4...continued on page 5

5 Congress..continued from page 4 projects. Republicans rejected that proposal. However, Baucus may be open to corporate tax reform only if that is the only way he can get a bill to a conference committee. KIOGA also met with House Ways & Means Committee Chairman Dave Camp (R-MI) who said that Congressman Camp (R_MI) Congressman Brady (R-TX) changes to the corporate and individual codes must move in tandem. In conversations with House Majority Leader Eric Cantor (R-VA) last summer, KIOGA learned that there is a reluctance to subject the full House to a vote on tax reform, which will eliminate or limit many popular tax provisions, if the Democrats in the Senate are unlikely to do the same. KIOGA met with Congressman Kevin Brady (R-TX) who leads the House Ways & Means Committee Energy Tax Working Group, in October. We explained that President Obama s tax reform proposal appears to spend the same dollar twice. Obama proposes spending dollars from eliminating tax provisions to reduce the corporate rate to 28% and then spend the same dollars again on $800 billion of government spending projects. We also emphasized that the preservation of percentage depletion and IDCs as a means to sustain capital availability and formation to promote continued exploration and production are necessary to: Sustain current economic recovery being fueled in large part by the energy sector, Promote energy security and domestic self-suffi ciency, and Protect consumers from historic roller-coaster on energy prices. Brady agreed with and was very receptive to our comments. He encouraged us to keep unifi ed and to continue our frequent face-to-face meetings with key policymakers. Brady plays a critical role in keeping oil and gas tax provisions out of a House Ways & Means Committee tax reform bill markup. Finally, KIOGA met with Senator Pat Roberts (R- KS) and Congresswoman Lynn Jenkins (R-KS). Both Roberts and Jenkins are key players in tax reform. Roberts is a member of the Senate Finance Committee and Jenkins is a member of the House Ways & Means Committee and Vice-Chair of the House Republican Caucus, the 5th highest-ranking position in the House Republican Caucus. Seeing a tax reform bill get out of committee this year would be a surprise. Also, neither Senator Baucus nor Congressman Camp seemed optimistic about the odds of advancing a tax overhaul during the coming showdown over the national debt. Congressman Pompeo Introduces Natural Gas Pipeline Permitting Reform Act Congressman Mike Pompeo (R-KS), along with Congressmen Jim Matheson (D-UT), Pete Olson (R-TX), Cory Gardner (R-CO), and Bill Johnson (R-OH), introduced the Natural Gas Pipeline Permitting Reform Act earlier this year. The bipartisan bill modernizes the application and review process for natural gas pipeline projects. The measure would require the various agencies charged with reviewing these projects to complete their work within a fi rm timeline. Doing so would provide greater certainty for interstate natural gas pipeline projects, but most importantly would benefi t the millions of American families who would benefi t from lower utility bills. This bipartisan piece of legislation makes common sense reforms to the natural gas pipeline permitting process, said Congressman Pompeo. We re looking forward to modernizing how we approve natural gas pipelines as natural gas becomes more prevalent as a source of electricity generation. Consumers must have affordable and reliable energy choices. Going Forward Congressman Pompeo (R-KS) KIOGA continues to explain to policymakers, the public, and the media, that the oil and natural gas industry does not receive unique treatment in the tax code. We explain how the oil and natural gas industry uses business deductions similar to those realized by other businesses in the tax code. KIOGA is providing policymakers with information that focuses on the broader benefi ts of increased oil and natural gas development to the American economy; explaining the positive contributions of American oil and natural gas made possible under the current tax system. We remain focused on the preservation of percentage depletion and IDCs. In preparation for the return of Congress, we updated our reference material and prepared quick-response strategies. KIOGA has met with 18 U.S. Senators and 21 U.S. Representatives in In mid-october, we met with Washington, D.C. media in a media dinner event. Our meetings focused on: The role of the independent oil and natural gas producer in the U.S. How oil and natural gas are explored and brought to development. The importance of capital and the need for tax policy that...continued on page 32 5

6 Newsline Update (316) Please feel free to edit and use these stories to fit your format. Let us know if there is someone you would like to hear. Currently playing on the newsline: Line 1 Line 2 Line 3 Line 4 Dawn Phoenix from the Kansas Bar Association talks about the timely and relevant legal topics that will be discussed at the upcoming 38th Annual KBA/KIOGA Oil & GasConference that will take place in Wichita on October 18th. Tim Scheck, KIOGA Chairman, discusses the concerns many oil producers, land and mineral owners, and other concerned citizens have with the proposed Grain Belt Express Clean Line Transmission Project. Art Horn, Meteorologist & Professor at Tunxis Community College, discusses why man-made climate change arguments don t survive scrutiny. Dick Schremmer, AESC President, discusses his leadership role in a national oil and gas industry organization as he begins his term as the President of the Assocation of Energy Service Companies (AESC). 6

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8 Convention...continued from page 1 level is rising at the same rate it has for the last 100 years with no acceleration. Polar bear populations are at record highs. Computer model temperature predictions are much too warm and the difference between them and measured temperature is increasing each year. Arctic sea ice loss at the end of the summer has leveled off. Horn said man-made climate change arguments are failing because they are wrong. Coach Gregg Marshall shared his views on what it takes to be a leader and presented strategies for leading during times of great change. He discussed the insights he had gained from the basketball season and related the motivational tactics used to convince a group of young men to believe in themselves and advance to the Final Four. Marshall said that he expects every athlete to play up to their potential. Marshall said the key to Wichita State s success in was preparation and playing with more passion than the opposing team. He said last year s Wichita State team thought they could beat anybody. Kansas Governor Sam Brownback addressed the convention by praising oil and gas producers contribution to the state economy. Brownback said the hope and promise of Kansas rests upon three essential building blocks; opportunity, accountability, and responsibility. He said Kansans have always believed that opportunity is what we make of it; that all of us must be held accountable for both our action and inaction; and that the future of Kansas is the responsibility of each of us. Brownback said that one of the main priorities of his Administration is to create jobs that provide meaningful increase in income and opportunity for Kansas families. He thanked the oil and gas industry for being a key player in making that priority a reality. KIOGA Board of Directors and General Membership Meeting The KIOGA Board of Directors and General Membership Meeting featured an update on association activities including governmental relation activities in Topeka and Washington, federal and state legislative and regulatory update, update of ongoing association public information program activities, and more. Dwight Keen, outgoing KIOGA Chairman, welcomed the board and updated the board on oil and gas severance tax audit issues and horizontal drilling spacing issues. David Bleakley updated the board on ongoing abandoned well issues. David Nickel updated the board on ongoing royalty payment litigation. Mike Pompeo, Kansas 4 th District Congressman, informed the board about his approach to oil and gas issues as a member of the U.S. House Energy & Commerce Committee. Jon Callen summarized the progress of the Kansas Oil & Gas Resources Fund (KOGRF) public information efforts. Edward Cross, KIOGA President, reported to membership on KIOGA s federal and state legislative and regulatory activities, communication challenge, advocacy strategy, and summarized the progress of KIOGA s public information efforts and initiatives. The board elected a new Chairman, new members to the Board of Directors, and new Advisory Board Members. Tim Scheck, Owner/Operator of Scheck Oil Operations in Russell was elected the new KIOGA Chairman, succeeding Dwight Keen of Keen Oil Company in Winfi eld who completed his two-year term as Chairman. See article in this newsletter for more information. Trade Show For the 14 th year, we were excited to host our twoday trade show. The 2013 KIOGA Convention offered the largest trade show in KIOGA history with 91 exhibitors participating in the trade show pavilion. We want to extend a special thanks to our exhibitors who made the 2013 KIOGA Annual Convention trade show a resounding success! Technical Sessions Over 1,000 participants heard technical presentations made during the Conference. The morning technical session saw an overfl ow crowd hear about federal tax reform, budget, and regulatory challenges as fi ve members of the Kansas Congressional delegation discussed how the decisions of the Obama Administration impact oil and gas producers and the economy. The panel discussion titled Over the Cliff Digging in on Taxes was moderated by KIOGA President Edward Cross and explored what policies are currently in place in Congress and what may lie ahead in future policy. Panelists included Kansas Senator Pat Roberts, Kansas 1 st District Congressman Tim Huelskamp, Kansas 2 nd District Congresswoman Lynn Jenkins, Kansas 3 rd District Congressman Kevin Yoder, and Kansas 4 th District Congressman Mike Pompeo. The panelists spent about 1 ½ hours discussing oil and gas tax and regulatory issues, providing insights into the showdown looming in Washington, D.C. this fall over the debt, healthcare, and tax reform, and answering questions from the audience. During the forum: Representative Jenkins said two coming key votes passing a...continued on page 9

9 2013 Convention...continued from page 8 federal budget before it expires in October, and raising the federal debt ceiling sometime in October give Republicans leverage to force changes. She said, Republicans are not going to fold like a cheap suit, like we have on a couple of occasions. We are going to try to fi x the problem, and the only way to fi x the problem is to fi x the tax code and some of our autopilot spending programs like Medicare and Obamacare. Representative Huelskamp said that he for one was willing to do what it takes to force change. He said, I don t believe in shutting down the government, but I do believe in shutting down Obamacare. He also said the key to revitalizing the U.S. economy lay in eliminating unneeded regulation. He cited a study that showed for every federal regulator eliminated, 98 private sector jobs are created. Despite those fi ndings, the Obama Administration continues to introduce new regulations. Senator Roberts said Obamacare was one step removed from national health insurance. He said We have to stop this. Turning to the 2014 elections, Roberts said Republicans could win enough seats in 2014 to gain a majority in the Senate, but that might not be enough to drive their agenda consistently. He said. It s possible that we could gain six seats. To make a difference we really need 10. If we get a majority, we get three or four who hold out and want something. Representative Yoder said regulatory overreach by the EPA is a threat imposed not by Congress, but entirely by the Obama EPA. This administration wanted a cap-and-trade system to regulate greenhouse gases, but Congress said no. So beginning in early 2009, EPA began putting together a house of cards to regulate emissions of carbon dioxide. The agency declared that emissions endangered public health. That premise has been used by EPA to launch an unparalleled onslaught. The result has been a series of regulations that will ultimately affect every citizen, every industry, really every aspect of our economy and way of life. Representative Pompeo said the reality of the Affordable care Act (Obamacare) is already beginning to help Republicans make their case. He said, Americans are starting to see the true facts of the Affordable Care Act and it s not what the president told them it would be. In discussing regulatory matters, Congressman Huelskamp said that to keep the EPA from circumventing the legislative process, Congress needs to defund EPA s ability to write these regulations. Congressman Yoder agreed saying Congress needs to step in saying No, we are not going to fund that because you need to act through the will of the people. Jenkins suggested the Obama Administration had lost some support from environmental groups and one way for the Administration to cover its left fl ank was to back increased regulatory action. Roberts pointed out a strong executive branch was an advantage on national security issues, but the legislative branch held responsibility for crafting the nation s laws. Too often the White House imposed regulatory authority without involving Congress, he said. Congressman Pompeo said the House can pass all kinds of bills that reign in government spending and regulatory overreach, but they die in the Senate. The only way to fi x this, he postulated, is to use the power of the ballot box. In another morning seminar, Scott Jackson of DuPont discussed Dupont s research into the application of Microbial Enhanced Oil Recovery (MEOR) technology for waterfl ood reservoirs. The presentation reviewed the mechanisms examined and how ongoing research has provided many insights into the appropriate application of MEOR. Afternoon technical sessions saw Karen Vines, Vice President and Director of Employee Benefi ts Governance and Compliance at IMA, Inc., discuss some of the key elements that will help individuals and organizations navigate through the post health care reform landscape while minimizing fi nancial exposure and maintaining compliance. Also, Dr. Walter L. Manger, Professor of Geology, Emeritus at the University of Arkansas enlightened the audience with a technical presentation discussing the geological variances that are creating challenges for developing economic Mississippian Lime wells across Kansas and Oklahoma. Manger looked at how Mississippian Lime sequence stratigraphy and depositional dynamics have made high-grading the best reservoir locations diffi cult and provided insight into potential stimulation changes by differences in facies. Entertainment Convention attendees enjoyed the dynamic and energetic music of Ernie Biggs Dueling Pianos...continued on page 10 9

10 2013 Convention..continued from page 9 as we celebrated KIOGA s 2013 Annual Convention Committee Chair, Scott Ball s KIOGA Late Night Show. Golf, Sporting Clays, Gin Rummy, Bingo and Ladies Events The Annual KIOGA Golf Tournament hosted over 200 golfers and was held at Crestview Country Club using both the North and South Courses. The KIOGA Sporting Clays Tournament, gin rummy, and Bingo Bash also saw nearly 100 participants. The KIOGA ladies events were well attended and included a visit to the Kansas Star Casino with a fabulous lunch at the upscale Woodfire Grille Steakhouse inside the casino. The ladies events also included a brunch at The Forum Theatre and a special showing of the production Nunsense. Special thanks goes to our members, sponsors, contributors, supporters, and exhibitors for making the KIOGA 76 th Annual Meeting and Convention a resounding success. With this year s convention behind us, we begin planning for more value-added features to make next year s convention even more successful! Kansas Mineral Drilling And Division Order Title Opinions Real Estate Transactions DAVID A. MORRIS, P.A. ATTORNEY AT LAW 3500 N. Rock Road, Bldg 1100 Wichita, Kansas Telephone: Fax address: dmorris@damlaw.net 10

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12 12 Regulation Nation Obama Oversees Expansion of the Regulatory State President Obama continues to take a strong role on the regulatory front to push environmental proposals. Obama has overseen a dramatic expansion of the regulatory state. The reach of the executive branch has advanced steadily on Obama s watch, further solidifying the power of bureaucrats who churn out regulations. American oil and natural gas producers are under siege from agencies like the EPA, USFWS, BLM, and others. President Obama signaled his intent to use the machinery of government to further his policy goals after the 2010 elections, declaring: Where Congress won t act, I will. Since then, the administration has pressed ahead unilaterally on several fronts including hydraulic fracturing, endangered species, climate change, and more. Hydraulic Fracturing On May 16th, the U.S. Bureau of Land Management (BLM) released its proposed well stimulation and hydraulic fracturing regulation for Federal and Indian Lands. KIOGA submitted comments expressing our opposition to BLM s proposed rule because it imposes costs that are not commensurate with any benefi ts the rule might provide and because the proposed rule is duplicative of State s efforts to regulate oil and natural gas. The proposed rule imposes signifi cant compliance costs without providing any environmental benefi t or additional protection. The BLM s economic analysis is inadequate, omitting several cost categories. The BLM says compliance costs range from $3,138 - $5,011 per well. An independent analysis estimates costs per well to be $96,913. KIOGA s comments asked the BLM to withdraw the regulatory proposal. Also, Governor Brownback signed a Republican Governor s Association letter asking the same. The public comment period for the proposed regulations closed in late August and BLM is now reviewing hundreds of thousands of comments before making a decision on the rule, which will likely take place in The original intent of the rule was to ensure that the hydraulic fracturing process does not contaminate groundwater. The BLM proposal is made up of three primary elements: disclosing the chemicals used in fracking; ensuring wells are constructed soundly; and making sure that wastewater is managed safely after the fracking process. The relationship among the federal government, oil and gas companies, and state regulators is getting more tense. The BLM is writing regulations controlling oil and gas drilling on Federal and Indian Lands even though many states already have rules on the books. This issue is important even for states that don t have Federal and/or Indian Lands because the federal government will most assuredly pressure all states to adopt the federal standards. KIOGA participated in a meeting with Interior Secretary Sally Jewell in August. Jewell said BLM is trying to fi nd a balance for states that do have strong regulations in place. She said that of the 30 states that are producing oil and gas, 13 have not promulgated any regulations controlling hydraulic fracturing and that BLM therefore felt the need to adopt a base rule. KIOGA told her that number (13) would be signifi cantly lower depending on how regulation and hydraulic fracturing are defi ned. Jewell said she is interested in setting up a process for states to seek and get approval for a variance from parts of the rules that are covered by state rules. However, the variance process remains unclear and uncertain because BLM would have unfettered discretion to revoke or modify the variance. Federal permit approval is estimated to take about 270 days. In early September, Congressman Rob Bishop (R-UT) questioned the comments made by the National Park Service on the proposed BLM hydraulic fracturing rules. The National Park Service comments relied heavily on Cornell Professor Anthony Ingraffea s claims regarding methane leakage from oil and natural gas wells that have been discredited by other scientists as well as the Department of Energy and the EPA. Bishop, who is a member of the House Natural Resources Committee and Chair of the Subcommittee on Public Lands and Environmental Regulation, asked National Park Service Director Jon Jarvis to answer specifi c questions about the Service s comments to BLM. Bishop said the comments were inconsistent with scientifi c integrity policy, do not clearly differentiate between facts and opinions, and do not adequately characterize the uncertainty on which its scientifi c judgments are based. Bishop asked the Service to answer the questions by October 15th. U.S. House Majority Leader Eric Cantor (R-VA) is developing legislation that prohibits the federal government from duplicating state hydraulic fracturing regulations. KIOGA visited Cantor s offi ce in mid-october and took an early position in favor of that legislative proposal. House Majority Leader Eric Cantor (R-VA) Congressman Rob Bishop (R-UT) Endangered Species Lesser Prairie Chicken Some interesting developments regarding the Lesser Prairie Chicken (LPC). The LPC ranges over a fi vestate area (KS, OK, TX, NM, & CO) and all ten Senators from the states as well as all fi ve Governors signed a letter endorsing the Range Wide Plan (RWP) and twoyear effort of the collaborating state wildlife agencies. The RWP approach is the best means for our industry to try to minimize the chances of a threatened listing for the LPC. Some integrated companies (Exxon, Chevron, & BP) and few large independents along with a few organizations like the Environmental Defense Fund (EDF) and the Kansas Farm Bureau favor a different approach one that calls for establishing a land credit banking system. Exxon and...continued on page 13

13 Regulation Nation.continued from page 12 EDF have been attempting to get Texas Governor Rick Perry to reconsider his position of support for the RWP. Exxon and EDF asked Governor Perry to have the Texas Parks & Wildlife Agency pull out of the fi ve-state RWP plan and support their land cap-and-trade proposal. KIOGA President Edward Cross visited with Governor Brownback about this issue to make sure Governor Brownback knew where the Kansas industry stood and provide him with some facts. Cross told the Governor that the land credit bank system promoted by Exxon and the EDF would be a profi t-making enterprise for certain investors and that costs to developers particularly oil and natural gas explorers could preclude smaller companies from competing for leases or drilling wells. No government-sanctioned regulatory program should create a competitive advantage for one company over others. Cross shared with the Governor that the RWP allows companies and individuals to voluntarily participate in conservation of LPC habitat while simultaneously continuing energy, agriculture, utilities, and other forms of development and recreation. He also expressed to the Governor that the RWP developed by the five state wildlife agencies is the only tool being developed to preclude the listing of the LPC. The Exxon/EDF plan concedes defeat and assumes that the LPC will be listed. If we concede defeat on the LPC the Obama USFWS will force 300 other species onto the endangered list without the benefi t of any scientifi c research. KIOGA urged Governor Brownback to not only support the RWP effort, but to also encourage Texas Governor Perry to resist the Exxon/EDF effort and continue to support the fi ve-state RWP plan. LPC Challenges - KIOGA is working with our colleagues at the Domestic Energy Producers Alliance (DEPA) to explore possible legal challenges to LPC listing under the Endangered Species Act (ESA). KIOGA President Edward Cross is an executive board member of DEPA and is working with DEPA to explore potential legal challenges to LPC listing based on Agency failure to follow rulemaking procedures under the Administrative Procedure Act, employing the Data Quality Act to question Agency data, information, and science, Agency failure to adhere to the Regulatory Flexibility Act, and more. Also, 29 western Kansas counties have formed the Kansas Natural Resource Coalition (KNRC) to facilitate government-to-government coordination during major federal action. The KNRC is taking a reset approach to the LPC listing proposal by invoking a longstanding statutory requirement that federal agencies coordinate with local governments. By invoking Coordination, KNRC is focusing on the procedural omissions, technical defi ciencies, and lack of economic studies required by federal policy and multiple Executive Orders. Climate Change President Obama unveiled his vast new anticarbon agenda last June. The goal of the plan is said to be to reduce carbon emissions in the U.S. to control global climate change. EPA NSPS Standards - The EPA continues using authority granted by the Clean Air Act to draft a host of rules that are designed to combat climate change. KIOGA joined the Domestic Energy Producers Alliance (DEPA) last year in fi ling a suit in the D.C. Circuit Court of Appeals challenging the EPA s New Source Performance Standards (NSPS) promulgated for the oil and natural gas industry. On the same day, we also petitioned the EPA to reconsider certain aspects of the regulations that disproportionately impact the smaller, independent natural gas producers. Issues of particular concern are the highly complex and technical low pressure gas well defi nition that was allegedly intended to provide relief for low pressure wells and EPA s inappropriate use of industry-wide averages to calculate the cost-effectiveness of various requirements on well completions and storage tanks. We are in the process of evaluating specifi c issues to raise on appeal of the regulatory package. For example, EPA s assumptions and subsequent controls on storage tanks are suspect. In the proposed rule, EPA suggested that emission controls on storage tanks emitting more than 10 tons per year ( TPY ) of VOCs would be cost-effective. Almost unanimously, industry argued that the threshold should be 12 TPY. In the fi nal rule, EPA lowered the threshold to 6 TPY. Industry also took exception to EPA s estimate of the number of storage tanks affected by the proposed regulations. EPA estimated that only 304 tanks would be affected nationwide. Commenters estimated the number would exceed 10,000 in Texas alone. The issues associated with storage tank controls are also covered by the petition for reconsideration. Another issue under consideration is EPA s failure to differentiate low production vertical and some horizontal wells that utilize hydraulic fracturing techniques that are dramatically different in scale and how those differences impact the cost-effectiveness of EPA s controls. KIOGA s petitions provide standing to fi le legal action if necessary, or at least the opportunity to pursue legal action if we so desire. Man-Made Climate Change Arguments are Failing - A recent report to the UN Intergovernmental Panel on Climate Change (IPCC) has led some scientists to claim that the world is heading for a period of cooling that will not end until the middle of this century. If correct, it contradicts computer forecasts of imminent catastrophic warming. Despite the original forecasts, major climate research centers now accept that there has been a pause in global warming since Meteorologist Art Horn shared with us at the 2013 KIOGA Annual Convention in August that scrutiny of man-made climate change arguments reveal why they are failing. Horn said nature is showing us that carbon dioxide concentrations are not ruling global temperatures. Since 1998, 28% of all carbon dioxide emissions released into the atmosphere since 1850 have occurred yet there has been no warming. Hurricanes have become a major part of the public relations campaign for...continued on page 15 13

14 Former KIOGA Chairman Dick Schremmer, President of Bear Petroleum, Inc. and Gressel Oilfi eld Service in Haysville, was recently elected by a national oil and gas organization to serve in a national leadership post. The Association of Energy Service Companies (AESC) elected Schremmer to serve as the AESC President during the AESC Annual Meeting in Carlsbad, California in July. The AESC represents the energy service industry through a network of national committees and local chapters. Schremmer, who has been involved in the formation of various oil fi eld service businesses and production companies, also serves as Vice Chairman of the Liaison Schremmer Elected to National Post Former KIOGA Chairman to Lead AESC Committee of Cooperating Oil & Gas Associations, a national organization of 29 state oil and gas associations who collaborate to organize strategies to meet grass-root industry concerns and execute on critical objectives. Schremmer said he is looking forward to traveling across the country and meeting AESC members at their local chapters and gaining their perspectives on the key issues the industry faces today. Schremmer follows in the footsteps of other KIOGA leaders who have served in national oil and gas industry leadership posts. Kenny Gates is a past-president of the AESC and Dave Murfi n is a past-chairman of the National Stripper Well Association (NSWA) and past-chairman of the Liaison Committee of Cooperating Oil & Gas Associations. KIOGA is proud that one of our members and former Chairman was recognized and elected for national leadership responsibility. KIOGA congratulates Dick and offer him our best wishes for success! 14

15 Regulation Nation..continued from page 13 radical action on climate change. After Hurricane Sandy hit the Eastern Seaboard last fall, environmental activists fell over themselves attempting to claim that the intensity of the storm was a result of greenhouse gas emissions. Worldwide hurricanes are not increasing in number or strength. There has been no Category 3 or higher hurricane strikes the U.S. since This year, in the U.S., we are on our way to having the fewest number of tornadoes since modern record keeping began. Sea level is rising at the same rate it has for the last 100 years with no acceleration. Polar bear populations are at record highs. Computer model temperature predictions are much too warm and the difference between them and measured temperature is increasing each year. Man-made climate change arguments are failing because they are wrong. Responses to Challengers of Man-Made Climate Change President Obama said, I don t have much patience for people who deny climate change and referred to challengers as belonging to the Flat Earth Society. Picking up on Obama s comments, environmental activists attempt to marginalize man-made climate change challengers by calling them deniers. But what is a denier? Rodney Leach (Lord Leach) of Fairford aptly defi ned what a denier is. He said, A denier denies certainty on a complex and still young scientifi c subject. A denier questions assumptions about the near irrelevance of solar, oceanic, and other anthropogenic infl uences on temperature. A denier prefers evidence to model projections. A denier tests alarming predictions against actual observations. In short, a denier exhibits the symptoms of a genuine seeker after scientifi c truth. President Obama s climate change policies are not making energy more affordable. In fact, his climate change policies are resulting in higher costs, more bureaucracy, and greater economic pain. There is little doubt that the damage being done by climate change policies currently exceed the damage being done by climate change. What the FERC! President Obama s choice to head the Federal Energy Regulatory Commission (FERC), Ron Binz, is facing much scrutiny in the U.S. Senate. Recent reports indicate Binz, the former head of Colorado s Public Utilities Commission, has been coordinating his campaign to gain a position on FERC with alternative energy companies, Democrat lobbyists, and green-technology strategists. Opponents to Binz s nomination say the lobbying effort is evidence that environmental activists are trying to expand Obama s global-warming agenda to FERC. In the past, Binz has expressed his belief that government edicts and dictates rather than cost or marketplace should drive energy supply. 15

16 Kansas Energy Conference October 1-2, 2013 Manhattan, KS AAPG Midcontinent Section Meeting October 12-15, 2013 Wichita, KS KBA/KIOGA Oil & Gas Conference October 18, 2013 Wichita, KS Governor s Water Conference October 24, 2013 Manhattan, KS 2013 Midwest Energy Policy Conf. October 29-30, 2013 St. Louis, MO IOGCC Annual Meeting November 4-6, 2013 Long Beach, CA IPAA Annual Meeting November 7-9, 2013 San Antonio, TX Desk and Derrick Industry Appreciation Luncheon November 12, 2013 Wichita, KS Suppliers Party December 11, 2013 Wichita, KS Leadership in Water Management Water Transfer Drilling & Frac Water Resourcing Water Well Drilling Flowback Services Equipment Rental Environmental Services crescentservices.net

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18 What s Going on With Oil & Gas Research in Kansas? University of Kansas Proposed Earth, Energy & Environment Center Oil and gas research is an important tool for Kansas independent oil and natural gas producers. This article marks the fi rst in a series of articles that will look at some of the oil and gas research being done in Kansas. This article focuses on some of the newest projects being developed at the University of Kansas (KU). Other university and college projects in Kansas will be reviewed in future KIOGA newsletters. KU Earth, Energy & Environment Center Today s oil and natural gas industry demands geologists and petroleum engineers collaborate and work together effectively to achieve productivity, economic effi ciency, and environmental safety. At KU, this integration is well underway and gaining momentum. KU s new Earth, Energy & Environment (EEE) Center Project will enhance these cross-functional skills by allowing earth scientists and petroleum engineers to take classes, work in the fi eld, and complete real-world projects together. The EEE Center is a state-of-the-art project that will transform KU s opportunities for impact. The project is envisioned as a place where KU can: Achieve a dynamic interface between the KU and the Kansas oil and gas industry; Advance industry-relevant research and speed technology transfer; Fully integrate Geology and Petroleum Engineering; Train the next generation of innovative, ethical industry leaders. The EEE Center will bring together a highly innovative team of geologists and engineers who benefi t greatly from interaction. Cutting-edge research and teaching labs, extensive computing power, 3D visualization, and active learning classrooms will attract outstanding faculty and students. Expanded labs will: Accelerate and expand TORP s ability to partner with industry More than triple existing computing power for stratigraphy, GIS, LiDAR, reservoir characterization and analysis Double KU s capacity for stable isotope analysis Dramatically speed experimental work on dolomite diagenesis. New labs will include: Extensive core layout and scanning: enabling calibration of well logs to core PVT: allowing fl uid/rock interaction research at high pressure and temperature 3D visualization: enabling high-resolution techniques (CT, gamma, GPR) to image fl uid fl ow through fractured media The EEE Center Industry Outreach Conference Center will include a 160-seat auditorium, a 30-seat high-tech collaboration lab, a 10-work-station hospitality suite for industry visitors, and a business center. This facility will welcome the industry to KU as never before. Here KU plans to host workshops, training, and topical conferences and consistently engage oil and gas developers with our faculty and students. KU plans to shape relevant research questions and develop an active pipeline between KU and the industry. Funding to date ($20 million and counting) suggests that the Earth, Energy & Environment Center at KU will be the house that independent oil and gas built. KU looks forward to collaborating with industry to make this project a success. 18

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22 22 We have the Opportunity to Control our Energy Future A Message from your KIOGA President Edward Cross One of the most watched indicators of our country s economic health is employment. Through the last several years of slow economic recovery, we know that the oil and natural gas industry has been one of the few bright spots in our economy. A recent report from IHS shows the oil and natural gas industry supported more than 9.8 million American jobs last year. That s 600,000 more jobs than the industry supported just two years earlier. The report also showed that unconventional oil and natural gas development increased U.S. household disposable income by $1,200 in 2012 and is projected to increase to $3,500 by 2025, due to reduced costs of energy and other goods and services. The oil and natural gas industry supports jobs in all 50 states. In Kansas, the industry supports nearly 67,000 jobs and over $3 billion in family income. In areas of Kansas where oil and natural gas are found, the industry represents a quarter of the jobs in some counties and 60% to 70% of the property tax. The oil and natural gas industry is a dependable and stable element of the Kansas economy today and will be a critical part of the economy going forward. It wasn t long ago that some in America thought we were coming to the end of our energy options that we faced a future based on scarcity of resources that meant rising prices and costs that could wreak havoc on our economy. Today, we face a far different future one in which the U.S. is the world s largest producer of natural gas and could soon be the largest producer of oil. This energy revolution is great news for every taxpayer, consumer, motorist, and business in America. Game-changing innovations in horizontal drilling and hydraulic fracturing are creating hundreds of thousands of new jobs every year. Furthermore, the availability of lower-cost energy has U.S. manufacturing poised to experience a revolution as well, meaning more jobs and economic benefi t here at home. Reduced energy imports and increased global competitiveness of U.S. energy-intensive industries is projected to contribute $180 billion to trade balance in The IHS report projects a total of more than $2.4 trillion will be invested in the upstream oil and natural gas industry between now and The American oil and natural gas revolution has generated a spectacular expansion of domestic energy production and has moved our country to a point where energy independence is within reach. For the fi rst time in generations, America s path to true energy security seems clear. And if we get our energy policy right today, this could be just the beginning. That is KIOGA s message to members of Congress as they returned to Washington in September. We need policy leaders who will pursue sensible energy policies and will let science guide their decisions, not political ideology. And this becomes a problem when looking at the stark difference between the rate of new energy development on private and state lands versus federal land. While oil and natural gas exploration and production on state and private lands has created thousands of new jobs and greatly improved our energy security, oil production on federally-controlled areas fell more than 23% from 2010 to 2012 and is today below what it was in The economic activity in the oil and natural gas sector is happening despite federal government action. Comparing the job increases in the oil and natural gas sector to that of government sponsored energy effi ciency programs provides a comparison for policymakers who have sought government energy management program as a means to create jobs. The comparison shows clearly that the private sector s response to markets, investment, and technology provides far more benefi ts than government dictates and subsidies. The job increases in the oil and natural gas sectors of our economy without government intervention dwarf those from heavyhanded Washington, D.C. edicts to the private sector. KIOGA continues our vigilant efforts working with key Congressional policymakers to try to get our energy policy right. To keep them focused on the facts, we continue our robust public information and public advocacy campaigns to promote sensible energy policy that will improve America s energy supply and national security. We continually update our fact sheets, issue briefs, and other reference materials explaining how the oil and natural gas industry can create more jobs, reduce the defi cit, and enhance our nation s security. Ultimately, it would be unforgivable if, based on fl awed science or outdated assumptions, this country were to abdicate its responsibility to future generations by missing this opportunity to lead on energy and to put control of our energy future back into our own hands. Thanks to our abundant natural resources and the technology we ve developed to access them, we have the chance to be a dominant player in global energy markets and guarantee our energy security for decades to come. The benefi ts for American families, businesses, national security and our long-term energy security demand that we seize this opportunity!

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24 24 Several Challenges Emerge in Legislative Interim Tax Audits - Proposed Regulations - and More The challenges facing the Kansas oil and natural gas industry have grown in number and complexity. In addition to the federal challenges coming from Washington, a number of state issues are beginning to emerge. KIOGA has been busy preparing for the upcoming 2014 regular Kansas legislative session which begins in January Many KIOGA members have been participating in legislative and regulatory meetings focusing on issues important to the independent oil and natural gas industry. Special Legislative Session The Kansas Legislature opened a special session on September 3rd primarily to address the state s Hard-50 murder sentencing law and to approve a handful of confi rmations. The special session lasted two days. No oil and gas issues emerged. Oil & Gas Severance Tax Audit Issues Several producers have recently expressed frustrations with Kansas Department of Revenue (KDOR) oil and natural gas severance tax audits. The KDOR issued Notice that announced the KDOR s intent to rigidly enforce the deadline for filing Kansas severance tax returns. Also, a number of producers received oil severance tax audit requests from the KDOR that required signifi cant amount of time and resources to compile and often asked for information already in the public domain. In addition, several producers received natural gas severance tax audit assessments that artifi cially increase natural gas prices in excess of what is received by the producer to calculate gross value of the natural gas. KIOGA President Edward Cross met with Richard Cram (KDOR Director of Policy & Research) in late August to discuss the Kansas severance tax returns issue. KDOR issued Notice that said the KDOR intended to rigidly enforce the deadline for fi ling Kansas severance tax returns. Although taxes are not due until the 20th day of the second month following production, KDOR is asking that the severance tax returns report be submitted by the last day of the month following production. KIOGA explained to Mr. Cram that the information KDOR is requesting is not available to natural gas producers by the fi ling deadline. Mr. Cram circulated our concerns internally at the KDOR and said they want to fi x the procedure so that taxes and the Kansas severance tax report is due at a time when all information is available. That may require a statutory change and KIOGA continues to meet with the KDOR to see what change might be proposed and what might be the best procedure for pursuing a technical statutory change. Cross also met with Michael Boekhaus (KDOR Audit Administrator) in early September and discussed several errors on KDOR s part on the KDOR assessment things like assessing value based on the highest number which would appear on a remittance to royalty owners or the index price identifi ed on a gas purchase contract. KIOGA discussed the fact that KDOR s request for information strains the resources of many producers and much of the information requested in already in the public domain. KIOGA members Steve Dillard, David Nickel, Alan Banta, and Emma Richmond joined Cross in a meeting with Mr. Boekhaus and 6 other KDOR Audit Services personnel on September 12th. KIOGA discussed and detailed several KDOR audit issues. KIOGA expressed our concern with the KDOR assessing natural gas severance tax based on index price identifi ed on a gas purchase contract when the tax has historically followed the intent of the law to value and tax natural gas on the value the operator receives. KIOGA also discussed concerns about KDOR deducting producing days for natural gas wells that are open to the pipeline, but unable to overcome pipeline pressure. Finally, KIOGA discussed KDOR audit requests for compilation of information like pumper gauges and notes that require excessive time and resources to complete when much of the information is available in the public domain. The meetings have been productive for communicating the concerns and needs of the industry and KDOR and have set the stage for more discussions. KIOGA continues to work with KDOR to resolve these issues. Royalty Payment Issues The Kansas Court of Appeals recently ruled that the royalty clause of an oil and gas lease provides for a royalty payment of the proceeds from the sale of gas at the well, and the term proceeds refers to the gross sale price in the contract between the gas purchaser and the lessee, producer, or seller, so long as the contractual rate per thousand cubic feet has been approved by the applicable regulatory authority. If the lessee, producer, or seller claims that it is entitled to compute and pay royalties based upon an amount less than the gross sale price, it must fi nd the authority to do so somewhere other than in the lease s royalty clause. For purposes of calculating royalty payments, the lessee, producer, seller is not allowed to deduct the cost of the stipulated price adjustments contained in the gas purchase agreements from the gross sale price of the gas, even though the gas purchaser, according to the terms of its gas purchase agreement, or otherwise, withholds the price adjustments from its payment to the lessee, producer, or seller. KIOGA submitted an amicus brief in this matter that was contrary to the outcome of the case. The case has been petitioned to the Kansas Supreme Court to review the decision. Proposed KCC Hydraulic Fracturing Regulations - Hydraulic fracturing has been and continues to be effectively regulated by the Kansas Corporation Commission (KCC). All of the laws, regulations, and permits that apply to oil and natural gas exploration and production activities also apply to hydraulic fracturing. These include laws and regulations related to well design, location, spacing, operation, and abandonment as well as environmental activities and discharges, including water management and disposal, waste management and disposal, underground injection, surface disturbance, worker health and safety. In 2012, hydraulic fracturing legislation was signed into law in Kansas. That legislation...continued on page 25

25 Challenges Emerge..continued from page 24 said that if there were need for additional regulation of hydraulic fracturing in Kansas, the KCC was authorized to promulgate such regulation. The legislation clearly put regulation of hydraulic fracturing in the regulatory process. KIOGA supports the state regulatory process and have been an active participant in KCC public meetings focusing on the development of hydraulic fracturing disclosure regulations. Hydraulic fracturing is subject to a rigorous and well-established regulatory process developed in accordance to the geology, hydrology, climate, topography, industry characteristics, development history, state legal structures, population density, and local economics unique to each state. KIOGA provided testimony (both written and oral) in support of the proposed KCC hydraulic fracturing disclosure regulations at a KCC hearing on August 15th. KIOGA believes the proposed KCC hydraulic fracturing disclosure regulations refl ect the unique characteristics of Kansas and provide adequate environmental protections while encouraging economic growth. Abandoned Wells Open Docket KIOGA joined comments from EKOGA on August 6th regarding the KCC open docket on the general investigation of abandoned wells in Kansas and responsibility for plugging such wells (the Quest case). The comments were prepared by David Bleakley, KIOGA board member and EKOGA board member, who was also an expert witness and intervener in the original Show Cause Order. The comments affi rmed the KCC s fi ndings and recommended that the docket be closed and the Commission direct the KCC Oil & Gas Advisory Committee and its Rules and Regulations Subcommittee consider appropriate amendments or changes to regulations which are consistent with the fi ndings and conclusions of the KCC. Proposed SFM Explosives Regulations The Kansas State Fire Marshal (SFM) recently proposed new explosives regulations that could affect several wireline/ perforating companies in Kansas. The proposed new regulations would require additional liability insurance, new handler permits for those individuals who physically inventory explosive magazines, and require refresher training approved by the SFM for a blaster permit. KIOGA President Edward Cross presented comments at a SFM hearing on these new proposed regulations on September 11th. Cross expressed industry concerns about SFM requiring liability insurance beyond industry standards, costly additional training requirements, and whether current industry training modules would be approved by SFM or if wireline/perforating companies would be required to take training courses that would be largely unrelated to our industry. Cross expressed KIOGA opposition to proposed SFM regulations that appear to be duplicative of federal ATF, DOT, OSHA, and MSHA regulations. project. The 700-mile overhead, high voltage direct current transmission line will deliver wind energy from Kansas to Missouri, Illinois, Indiana, and states farther east. Several producers have expressed concerns about how this project will affect current oil and natural gas wells and the drilling of future wells. The concerns center around the proposed route the line is taking through historical and key Kansas oil and natural gas fi elds. If the transmission line project deters the drilling of future oil and natural gas wells or has an impact on existing oil and natural gas wells, it would have a signifi cant impact on revenue to the state of Kansas as well as local communities/counties. The transmission line project has been granted a 10-year state tax abatement while tax revenue from oil and gas activity is gained immediately. KIOGA Chairman Tim Scheck prepared a distributed a letter to the editor expressing these concerns. Scheck encouraged oil producers, landowners, community leaders, and concerned citizens to voice any concerns or endorsements of the Grain Belt Express Clean Line project to the KCC. Other Issues As we approach the 2014 Kansas Legislative Session, KIOGA remains vigilant in monitoring potential threats and opportunities. The KDOR Property Valuation Division will be holding a meeting in Garden City on October 2nd to discuss the 2014 Oil & Gas Appraisal Guide for KIOGA will be participating in the meeting. Grain Belt Express Clean Line Concerns Several KIOGA members have recently expressed concern about the Grain Belt Express Clean Line transmission line 25

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27 Tony Carlson - Initiatives, Inc. - Lenexa, KS Richard Pasek - Reinhardt Services, Inc. - Russell, KS Flavious Smith - Forestar - Denver, CO Keith Hofmann - Future Acquisition Company, LLC - Houston, TX Zack K. Wiggins - Martin, Pringle, Oliver, Wallace & Bauer, LLP - Wichita, KS Chelsey Carlson - Fleetmatics - Rolliing Meadows, IL Mike Montgomery - Trek Resources, Inc. - Dallas TX Conrad Mirochna - Trek Resources, Inc. - Dallas TX Jim Standley - Linn Energy - Houston, TX Tony Grant - Engineering America - Olathe, KS Wayne Kieffer - Hays Chevrolet - Hays, KS Richard L. Payne - Foundation Energy Management - Fort Worth, TX Joseph D. Combs - Murfi n Drilling Company, Inc. - Wichita, KS Logan Magruder - Taos Resources Operating Company, LLC - Houston, TX Douglas Wicklund - Wicklund Petroleum Corporation - Naples, FL Aaron K. Kilgariff - AKK, LLC - Wichita, KS Paul Mangan - MV Purchasing - Wichita, KS James Malone & Sam Brock - BM Operations - Russell, KS Cathy Pocock - MV Purchasing - Oklahoma City, OK Melvin & Janice Stoppel - Stoppel Supply Co., Inc. - Russell, KS Gene Gottschalk - High Plains Machine Works, Inc. - Hays, KS Bryan K. Collins - RSS Services, Inc. - Garden City, KS Heath Long - Global Cementing LLC - Russell, KS Matt Ulrich - Matt s Cat - Russell, KS Jack Krier - Main Street Media, Inc. - Russell, KS Howard Washburn - Washburn Energies, Inc. - Bel Aire, KS Daniel Hefl in - Kansas CNG - Wichita, KS Steve Trueblood - USA Express - Russell, KS Pat Hilger - Hilger Enterprises - Russell, KS Ronald & Marilyn Davis - Russell, KS John Dreiling - Dreiling Field Services, LLC - Hays, KS Icer Vaughan - Addis Petroleum LC - Wichita, KS Fred Weigel - Leigew, LLC - Russell, KS Charles Ramsay/Robert Plante - H&C Oil Operating, Inc. - Plainville, KS Tim Gulick - C&G Drilling Company - Eureka, KS Buz Lukens - Brace Fox, LLC - Benton, KS Joseph A. Schremmer - Withers, Gough, Pike, Pfaff & Peterson, LLC - Wichita, KS Rob Dove - Dove Chevrolet-Buick-Cadillac - Great Bend, KS Brian C. Gensch - AGH Wealth Advisors - Wichita, KS 27

28 Kansas Oil & Gas Industry Leaders Honored Richard Koll and Adam Beren Recognized for their Leadership Two KIOGA Board Members were recognized for their dedication, participation, and commitment to the Kansas oil and natural gas industry during the KIOGA Board Meeting on August 18th and at the 2013 KIOGA Annual Convention on August 19th. Richard Koll received the 2013 KIOGA President s Leadership Award and Adam Beren received the 2013 KIOGA Outstanding Service Award. KIOGA President s Leadership Award A special award to recognize individuals who have made unique contributions to the success of KIOGA s state and/or federal advocacy efforts. These individuals often subordinate their personal gain to help the industry as a whole by providing insights, time, consideration, and leadership to KIOGA to address critical and key state and federal advocacy issues and concerns. The recipient of the 2013 KIOGA President s Leadership Award is Richard Koll. Richard has served as chairman of KIOGA s Ad Valorem Tax Committee for many years and voluntarily provides many, many hours and days of time, effort, insights, and leadership addressing oil and gas industry ad valorem tax issues and concerns for the Kansas oil and natural gas industry as a whole with the Kansas Department of Revenue, county assessors, and more. Richard s tireless efforts have saved the Kansas oil and natural gas industry millions of dollars over the years. Honoring Richard with the KIOGA President s Leadership Award is a small way we can say thank you to Richard for his amazing dedication, commitment, and efforts. Richard joins past KIOGA President s Leadership Award winners David Nickel and Steve Dillard. KIOGA Outstanding Service Award A special award to recognize individuals who have made unique contributions to the success of KIOGA s public information, energy education, and/or public outreach efforts. These individuals often subordinate their personal gain to help industry as a whole with their tireless efforts and contributions to KIOGA s public information, energy education, and public outreach efforts. The recipient of the 2013 KIOGA Outstanding Service Award is Adam Beren of Berexco LLC. Adam has taken an active and lead role in developing basic, entrylevel oilfi eld training for the Kansas oil and natural gas industry. Adam s efforts are addressing a critical need of the Kansas oil and natural gas industry. Also, over the past several years Adam has provided invaluable insights and input to KIOGA s public information efforts addressing federal policy and regulatory issues. Honoring Adam with the KIOGA Outstanding Service Award is a small way we can say thank you to Adam for his amazing dedication, commitment, and efforts. Adam joins past KIOGA Outstanding Service Award winner Alan DeGood. The success of KIOGA s advocacy and public information efforts are made possible by the amazing efforts of our members. KIOGA is delighted to have the opportunity to honor these two individuals who have made a positive difference for all of us. When Every Run Counts TM Use lateral forces to fail rock, not your bit. Reduced torque Minimized vibration Higher ROP Longer bit life Improved well bores F O COUNTER E C Average ROP Gonzales County South Texas 28 CONTRACTORS AND PRODUCERS 250 N. Water, Suite 300, Wichita, KS Serving the Oil and Gas Industry Since Ulterra CounterForce Competitor Offsets

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31 Produce more oil from your Kansas wells. We ve rejuvenated more than 240 Kansas wells with our reservoir conformance treatments reducing the average water cut by up to 89% and boosting incremental oil production by as much as 240% Baker Hughes Incorporated. All Rights Reserved /2013 Draw on local experience for fast, effective water conformance and shutoff. Every extra barrel of water your well produces costs you more money. Some costs are related to treatment and disposal, but your biggest cost is often lost oil production. With a comprehensive line of gel and polymer systems, we deliver customized treatments using liquid- or drypolymer systems, or a combination of the two, to increase your oil-to-water ratios, minimize water production, and extend your well s productive life. Contact us at ResPRO.KS@bakerhughes.com and we ll deploy one of our Kansas-based ResPRO TM reservoir conformance units to help boost your oil recovery from the Arbuckle and other formations. Advancing Reservoir Performance ResPRO applications Topeka Wichita bakerhughes.com/respro 31

32 Congress...continued from page 5 supports American development, namely the preservation of percentage depletion and IDCs. (KIOGA prepared an editorial about oil and natural gas tax provisions titled Why Oil & Gas Tax Provisions are not Subsidies that was shared with DC media.) The importance of small businesses that produce American oil that offsets the need for foreign oil, and The facts about hydraulic fracturing. The bottom line is we still have many challenges ahead of us. KIOGA remains focused and hard-charging and has established a forward-looking presence with a number of key policymakers. We will continue to be diligent in the process and will continue to take the industry s case directly to those in Congress during the remainder of DUKE DRILLING COMPANY, INC. CONTRACT DRILLING VERTICAL & HORIZONTAL 11 RIGS Serving Kansas and Oklahoma Over 100 years combined experience to offer the finest in wellhead equipment. Our specialty product lines include: Wellheads Flow Tees Boxes 100 S. Main, Suite 410 Wichita, Ks., nd St./P.O. Box 823 Great Bend, Ks We offer custom equipment. We are completely interchangeable with Larkin, Huber and Hinderliter. Proud Member of KIOGA & EKOGA. 32 Now serving the Permian Basin from our warehouse facility at

33 KBA/KIOGA Oil & Gas Conference Coming October 18th! Mark your calendars for Friday, October 18, 2013 for this year s KBA/KIOGA Oil & Gas Conference. The conference will be held at the Hyatt Regency Hotel located at 400 West Waterman in Wichita. Advancements throughout the oil and gas industry have brought a number of changes to legal issues that regulate the oil and gas industry. In order to keep abreast of these changes, the Kansas Bar Association (KBA) and KIOGA are coming together for the 38 th year to offer continuing legal education (CLE) seminars approved for CLE credit in Kansas and Missouri. Several topics of interest to oil and gas producers will be presented at this year s meeting. Topics include: Recent Developments in Oil & Gas Law What is My Mineral (or royalty) worth? How to Deal With Valuation Issues KCC Update Clearing Title of Old Severed Mineral Interests Marketable Product Rule Ethics The conference has been approved for 7.0 hours of continuing legal education (CLE) credit in Kansas and Missouri, including 1.0 hour of ethics and professionalism. Make plans to join us on October 18 th to share ideas, network with peers, and participate in thought-provoking seminars. Selling Oil & Gas Production at Auction Since 1975 Regularly scheduled bi-monthly auctions December 5, N. Rock Road, Suite 140 Wichita, Kansas Tank Rentals Equipment Rentals Construction Water Transfer Pipeline Roustabout Containment and more

34 KIOGA Educational Activities at Kansas State Fair Spotlight Kansas Role in the Development of Energy 34 For the 14th consecutive year, KIOGA participated in the Kansas State Fair. KIOGA s long-standing presence at the Kansas State Fair has proven to be very effective for building good will and providing opportunity to communicate with the public. The 2013 Kansas State Fair marks the event s 100 year anniversary and provided an opportunity to focus on the historical signifi - cance of the Kansas oil and gas industry. The Kansas oil industry celebrated our sesquicentennial (150 year anniversary) in 2010 and the Kansas State Fair 100 year anniversary provided a unique opportunity to spotlight Kansas role as a leader in the development of energy. Treating fair-goers from across Kansas with informational material explaining the truth about the oil and gas industry, volunteer KIOGA members presented the Kansas oil and gas industry in a positive light during this year s Kansas State Fair. More than 300,000 visitors attended this year s Kansas State Fair that ran September 6 th -15 th. The KIOGA oil and gas industry educational exhibit is a worthy investment of time and resources especially when speaking to crowds of curious people, said Kelly Rains, KIOGA s fair exhibit coordinator. Amazing adventures awaited passer-bys. KIOGA unveiled our new oil and gas production display. The display exhibited small scale working models of oilfi eld equipment commonly used during the exploration and production of crude oil and natural gas in Kansas. A big Thank You goes out to Clarence Denning with Murfin Drilling Company. Clarence spent countless hours building the models and then several more transporting them to Hutchinson. Thank you, also, to Derrick at Bear Petroleum for helping to pack up the models and deliver them to Wichita. If you didn t get a chance to visit the booth, stop by the Wichita offi ce and see them in action. These interactive exhibits and models allowed fairgoers the opportunity to gain a better understanding of how oil and gas is formed, discovered, and produced in Kansas and why it is so important to our economy and standard of living. What a great way to connect to people of all ages who need affordable and reliable energy, said Rains. A special thanks goes to the John Niernberger for preparing an interactive pipe screw activity that drew much interest and assured the KIOGA booth was always well-attended. In addition, KIOGA energy education material and data provided facts, statistics, and information about the Kansas oil and gas industry. KIOGA relies on an extensive volunteer network for staffi ng the fair exhibit. Several KIOGA members stepped up and volunteered their time to interact with fair-goers. Special thanks go to the following volunteers and the companies that allowed them time to staff the KIOGA booth: JoAnn Aguilera, Mull Drilling Co., Inc. Bob Bass - National Oilwell Bette Bassford - Seal Tite Lining Bob & Shelley Bayer - Lario Oil & Gas Brandi Biggs - KIOGA Bryan Clark - Clark Marketing Ed & Michele Cross - KIOGA Alan DeGood - Trek Resources Kelley Edgar - Edgar Oil Linda Feist - Bachman Production Specialties Clinton Franey - Kansas Strong Kenny Gates - Pratt Well Service, Inc. Brian Gaudreau - Vess Oil Corp Bill & Judy Hess - Cobalt Energy Brent & Kristie Homeier - Mai Oil / Scheck Oil David Jervis - Range Oil Company Dwight & Lenore Keen - Keen Oil Company Jeff Kennedy - Martin Pringle Dan & Rosie Klaus - Basic Energy/Sunrise Supply Andrea Krauss - John O. Farmer, Inc. Bob Krehbiel - Attorney Kathryn Langrehr - Langrehr & Co. Jerry Mason - Duke Drilling Ernie Morrison - Mull Drilling Co., Inc. Chris & Mica Nelson - Apollo Energies, Inc. John Niernberger - Ritchie Exploration Mike & Jan Novy - Novy Oil & Gas, Inc. Larry Richardson - Pickrell Drilling Co., Inc. Tim & Barbara Scheck - Scheck Oil Operations Dick & Janice Schremmer - Bear Petroleum Carol Schuetze - Territorial Magazine Mark Sheve - Mull Drilling Co., Inc. Bob Swann - Swann Resources, Inc. Darrel Walters - Berentz Drilling Co. J.L. White - Kansas Strong Haley Wilkinson - Kansas Strong Bill Wix- Attorney The KIOGA Educational Foundation sponsored the educational booth at the Kansas State Fair for the 14 th consecutive year. If you would like to make a donation to the foundation or fi nd more information about our energy education programs, please contact Kelly Rains at the KIOGA Wichita offi ce at or Mark Shreve at

35 SOMETIMES, THE BIGGEST NUMBER IS ZERO Kimray provides non-venting and electronic controls that exceed EPA regulations. Zero emissions, Zero issues. electro hydraulic actuator non-vent regulator electric glycol pump electric gen ii ISO 9001:2008 API Q1 (405) KIMRAY.COM 35

36 KIOGA Convention Sponsors 2013 Thank You for Supporting the 76th Annual Convention 36 WILDCATTER SPONSOR $15,000 or more Palomino Petroleum, Inc. BLACK GOLD SPONSOR $10,000 or more IMA, Inc. PLATINUM SPONSOR $7,500 or more Cochran Chemical Company, Inc. GOLD SPONSORS $5,000 or more Basic Energy Services Coffeyville Resources Colt Energy, Inc. Consolidated Oil We ll Services, LLC Jayhawk Oilfi eld Supply, Inc. Kimray, Inc. Linn Energy Maclaskey Oilfi eld Services Mai Oil Operations, Inc. Mull Drilling Company, Inc. MV Purchasing, LLC Polymer Services SandRidge Energy Trilobite Testing, Inc. / Monster Pump Operations, Inc. SILVER SPONSORS $2,500 or more AKA Energy Group, LLC Atlas Pipeline WestOK Baker Hughes, Inc. Berexco, LLC Breckenridge Exploration Company D.S. & W. Well Servicing, Inc. DCP Midstream, LP Empire Energy E&P, LLC Insurance Planning, Inc. JP Energy Lockhart Geophysical Company Murfi n Drilling Co., Inc. NCRA Plains Marketing, LP Pratt Well Service, Inc. Raymond Oil Co., Inc. Scheck Oil Operations Southwind Drilling, Inc. Swift Services, Inc. Tim Miller Oilfi eld Sales TREK AEC, LLC & American Energies Pipeline Vincent Oil Corporation BRONZE SPONSORS - $1,000 or more Abercrombie Energy, LLC Apollo Energies, Inc. BKD, LLP CPAs & Advisors Blue Goose Drilling Co.,, Inc. Buckeye Corporation Central Power Systems & Services CFMI, LLC dba Wallace Energy Clafl in Pump & Supply, Inc. Commerce Bank Corrosion DC, Inc. Crawford Supply Co. Daystar Petroleum, Inc. Discovery Drilling Co, Inc. Duke Drilling Company, Inc. Edmiston Oil Company, Inc. Evenson Auctioneers Gore Oil Company H&B Petroleum Corporation Halliburton High Sierra Crude Oil & Marketing INTRUST Bank J & D Pump & Supply, LLC JACAM Chemicals 2013 K & N Petroleum, Inc. Knighton Oil Company, Inc. McCoy Petroleum Corporation McDonald Tank Co. Mid-Continent Safety, A DXP Company Midwestern Pipeworks, Inc. MTM Petroleum, Inc. Mud-Co / Service Mud, Inc. Nalco Champion, an Ecolab Company ONEOK Field Services Company, LLC OXY USA, Inc. Pacer Energy Marketing Paragon Geophysical Services, Inc. Pickrell Drilling Co., Inc. Pioneer Energy Services Ritchie Exploration, Inc. Shakespeare Oil Company, Inc. Stelbar Oil Corporation Sullivan and Cook / Petroleum Consultants, Inc. Sunrise Oilfi eld Supply, Inc. Superior Pipeline Company Sweetman Investments, LLC T & C Consulting TGT Petroleum Corporation THE DICKSTER Tidelands Geophysical Tomcat Drilling, LLC Trans Pacifi c Oil Corporation Truck Parts & Equipment, Inc. VAL Energy Wellkeeper White Exploration, Inc. Woolsey Operating Company, LLC

37 KIOGA Convention Sponsors 2013 Thank You for Supporting the 76th Annual Convention GENERAL SPONSORS - $300 or more Albert Hogoboom Oilfi eld Trucking, Inc. Anderson Energy, Inc. Bachman Production Specialties, Inc. Bank of Oklahoma Beauchamp Oil & Royalty Co. Berentz Drilling Company Butterfl y Supply/Great Plains Inspection Cathodic Systems, LLC DaMar Resources, Inc. Deutsch Oil Company Dick s Engine Machine Service, Inc. Exploration Geophysics, Inc. Express Well Service & Supply, Inc. F & M Bank & Trust Co. F.G. Holl Company, LLC Geo. R. Shaw Living Trust Grand Mesa Operating Co. Hi-La Engine, Pump & Supply, Inc. J. Fred Hambright, Inc. John O. Farmer, Inc. Jones Gas Corporation Kansas Acid, Inc. Keen Oil Company, LLC Lario Oil & Gas Company Log Tech of Kansas, Inc. Lotus Operating Co., LLC Martin Pringle Law Firm Maverick Drilling, LLC Mohican Petroleum, Inc. Nabors Completion & Production Services Co. National Oilwell Varco Norris Sucker Rods Novy Oil & Gas, Inc. Orecat Energy, Inc. Orvie Howell Parrish Oil Company, LC Pintail Petroleum Ralfe Reber Range Oil Company, Inc. S.R. Weilert Oil, LLC Territorial Magazine The Trees Oil Company TRC Rod Services of Oklahoma Wyoming Casing Service THANK YOU FOR ANOTHER GREAT YEAR! KIOGA@swbell.net for a link to the pictures HOSPITALITY ROOM HOSTS Allied Oil & Gas Services Danco Systems Halliburton Artifi cial Lift Hess Services, Inc. INAalert/Black Gold Technologies/Southwind Drilling John Crane Production Specialists K.E. Andrews Maclaskey Oilfi eld Services Tim Miller Oilfi eld Sales TREK AEC Wellhead Systems Wellkeeper 37

38 38 76th KIOGA Annual Meeting Elects Tim Scheck KIOGA Chairman Tim Scheck, owner/operator of Scheck Oil Operations in Russell was elected the KIOGA Chairman at the KIOGA board meeting held during the KIOGA Annual Convention on August 18 th. Scheck brings a unique set of skills and leadership at a time when the challenges facing the oil and gas industry are equally unique. Scheck said he wanted to focus on signifi cantly increasing KIOGA membership during his tenure as KIOGA Chairman. Scheck replaces outgoing Chairman Dwight Keen of Winfield, who completed his two-year term at KIOGA s Annual Convention in Wichita on August 20 th. Thirty-one of the 66 Directors were elected to fi ll the vacancies from expired terms on the KIOGA Board of Directors. The following 31 Directors will join the remaining 35 Directors on the KIOGA Board: Steven C. Anderson, Mull Drilling Company, Inc., Wichita, KS Keith Befort, Allied Oil & Gas Services, LLC, Wichita, KS Adam E. Beren, Berexco LLC, Wichita, KS Thomas E. Blair, Tomco Oil, Inc., Atlanta, KS Ron Cook, Petroleum Consultants, Overland Park, KS Kent Duetsch, Duetsch Oil Company, Wichita, KS Shawn Devlin, Viking Resources, Inc., Wichita, KS Mark Evenson, Evenson Auctioneers, Inc., Wichita, KS Kraig L. Gross, Kansas Natural Gas, Inc., Hays, KS Rick Hiebsch, Vincent Oil Corporation, Wichita, KS Barry Hill, Vess Oil Corporation, Wichita, KS David Jervis, Range Oil Company, Inc., Wichita, KS Jeff Kennedy, Martin Pringle Oliver Wallace & Bauer LLP, Wichita, KS Dan Klaus, Basic Energy Services, LP, Wichita, KS Earl M. Mac McKnighton, Knighton Oil Company, Inc., Wichita, KS Kurt Mai, Mai Oil Operations, Inc., Dallas, TX Brock McPherson, McPherson & McVey Law offices, Great Bend, KS Michael E. Montgomery, Trek AEC, LLC, Dallas, TX Todd Morgenstern, Southwind Drilling, Inc., Ellinwood, KS Margery Nagel, F.G. Holl Company, LLC, Wichita, KS Ed Nemnich, K&N Petroleum, Inc., Ellinwood, KS William S. Raymond, Raymond Oil Company, Inc., Wichita, KS Eugene A. Reif, Pickrell Drilling Company, Inc., Wichita, KS Michael J. Reilly, Grand Mesa Operating Company, Wichita, KS Scott Ritchie III, Ritchie Exploration, Inc., Wichita, KS Ryan J. Schweizer, McCoy Petroleum Corp, Wichita, KS Rick Stinson, Lario Oil & Gas Company, Wichita, KS Darrel G. Walters, Berentz Drilling Company, Inc., Wichita, KS K. Robert Watchous, Palomino Petroleum, Inc., Newton, KS Charles Wilson, Berexco, Inc., Wichita, KS I. Wayne Woolsey, Woolsey Energy Corporation, Wichita, KS The Directors unanimously elected the following officers: Chairman Tim Scheck, Scheck Oil Operations, Russell, KS Southwest Vice Chairman Kenneth S. White, White Exploration, Inc., Wichita, KS Northeast Vice Chairman Nick Powell, Colt Energy, Inc., Fairway, KS South Central Vice Chairman Alan Banta, Trans Pacifi c Oil Corporation, Wichita, KS Treasurer Scott Fraizer, Woolsey Operating Company, LLC, Wichita, KS The following Advisory Board Members were also elected: Thornton E. Anderson, Anderson Energy, Inc., Wichita, KS James W. Rockhold, Rockhold Engineering, Inc., Great Bend, KS Lee Banks, Banks Oil Company, Wichita, KS

39 Providing the products and services required from casing point to production point with maintenance support in between Exclusive S-55 casing Tank batteries Down hole pump shops at each store Sucker rods New and used pumping units Pipe, valves and fittings Pumping unit gear box oil recycling New and used engines Line Pipe (steel, poly, fiberglass) Fleet of on-site parts trailers 39

40 Increased Domestic Energy Production The current conflict in the Middle East only underscores the need for increased domestic energy production. Unrest in oil producing regions around the world will always cause fl uctuations in the price of oil. Markets will always react to uncertainty, whatever the source. At its core, U.S. energy independence is about freedom. When the U.S. is not reliant upon oil from confl ict regions, we have more fl exibility in responding to these inevitable crises. More energy independence gives the U.S. the ability to walk away from or not be drawn into regional confl icts in order to impose oil market stability. Current policy on oil and gas tax provisions - namely cost recovery mechanisms like percentage depletion cost recovery and expensing of intangible drilling and development costs (also known as IDCs) - has produced an American oil and gas revolution that has resulted in a spectacular expansion of domestic energy production and has moved our country to a point where energy independence is within reach. U.S. oil imports are now less than 37% when they were over 60% just fi ve years ago and we measure Never More Important natural gas reserves in centuries. Thanks to more domestic oil and natural gas development, we are becoming more energy independent every day. The proper response to market fl uctuations resulting from war and rumors of war is to redouble our efforts at achieving energy independence. Misguided proposals to eliminate critical oil and natural gas tax provisions would only serve to undermine U.S. energy production. The solution is to allow American oil and natural gas companies to produce at home more of the oil and natural gas we know our nation is demanding. By encouraging more development of our nation s ample oil and natural gas resources rather than relying so much on imports, we could signifi cantly enhance our national security. Contrary to what some in politics and the media have said, the oil and natural gas industry currently enjoys no unique tax credits or deductions. Since its inception, the U.S. tax code has allowed corporate tax payers the ability to recover costs and to be taxed only on net income. These cost recovery mechanisms or tax provisions, also known in policy circles as tax expenditures, should in no way be confused with subsidy, i.e., direct government spending. Oil and natural gas tax provisions like percentage depletion and IDCs are neither loopholes nor subsidies, but are simply cost recovery mechanisms similar to those used by other industries. These tax provisions are critical for independent oil and natural gas producers to sustain capital availability and formation to promote continued oil and natural gas exploration and production activity. Market-created jobs, rather than those directly created and supported by the government, is a key benefi t of increased oil and natural gas exploration and production activity. Energy access, not taxes are the key to moving our nation toward energy independence and unlocking new jobs for Americans. America has spilled far too much blood and treasure in confl ict regions due to our dependency on foreign oil. Oil and natural gas tax provisions like percentage depletion and IDCs allow American energy producers to put that money back into exploration and development of U.S. oil and natural gas supplies, creating jobs and strengthening freedom. (This editorial was written by KIOGA President Edward Cross and appeared in media throughout Kansas and elsewhere) 40 Lesli Town Phone: (913) Fax: (913) lesli@dbdoil.com Oil & Gas Consulting Services KCC Filings via KOLAR Accounting/Records keeping Operator License Insurance Management Drilling Intents Oil & Gas Lease Research Waste Transfer Coordinate sub contractors Pit Closure KDOT Compliance Completion Reports Oil & Gas Lease Exemptions Injection Well Application GPS Mapping Transfer of Operator Personnel Management Well Inventory Oil & Gas County Assessments Water Injection Reports Tier II Reporting/SPCC plans Experience Bachelor s Degree in Business 3 rd Generation Oil Business QuickBooks KOLAR/LEO7 KS Dept. of Revenue Oil & Gas Div. of Property Valuation Training EKOGA & KIOGA Member

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