A L A N D O W N E R S G R O U P F O R T H E C O U N T I E S I N T H E S O U T H - WE S T E R N P O R T I O N O F T H E O H I O U T I C A S H A L E P L A Y .

L E D B Y L O C A L L A N D O W N E RS , T O M A X I M I Z E T H E V A L U E O F T H E I R M I N E R A L S , A N D S E R V E T H E L O N G T E R M I N T E R E S T S O F T H E I R C O M M U N I T I E S .

Southwest Ohio Landowners Group

Perry, Muskingum, Morgan, Athens, and Licking, with potential inclusion of Meigs and Hocking Counties.

Outline South Western Ohio Landowners Group

Who am I and Why am I doing this? Jerry Shade pcshale@gmail.com

513 398-1910, fx: 513 398-0181, cell: 513 404-0486

What is the Utica Shale & How Do we Fit In?

Why form a landowner group?

What is this group about? Structure

Philosophy

Goals

Tactics

What are the membership terms?

What are the next steps?

Brief History of the Utica

2004: Range Resources Corporation drills the first Marcellus well using modern drilling technology. The Marcellus Shale is now one of the world's largest natural gas fields.

2009: The Utica Shale is drilled in successfully in Canada for natural gas. Awareness of the

Utica’s potential as the “giant under the Marcellus.” 2010: Ohio becomes the major US play for Utica wells as The Utica is shallower as it moves

West into Ohio (making it easier to reach), and more likely to contain Oil and Gas Liquids as it moves West into Ohio.

2010: O&G leases in Ohio still $10-$100 an acre. July 2011: After initial well results come in, Chesapeake announces Utica could be larger OIL

discovery than the Eagle Ford Shale in Texas. Could be the largest Oil and Gas Liquid play in the country. O&G leases in Eastern Ohio move rapidly to $5000+ an acre for major purchases.

January 2012: Chesapeake announces a shift away from Natural gas and into liquid rich

plays (such as the Utica).

All in 2011

Chesapeake Energy reported several Ohio Utica wells with peak rates of over five million cubic feet of natural gas per day along with hundreds to thousands of barrels of natural gas liquids.

ODNR estimates a recoverable Utica Shale potential between 1.3

and 5.5 billion barrels of oil and between 3.8 and 15.7 trillion cubic feet of natural gas.

During 2011, leased acreage in Ohio by 11 major producers alone

rose to over 4 million acres.

Landowner groups in the target areas, have been successful in negotiating quality lease deals with landowner friendly terms and significant land/environmental protection measures.

Geological Data From ODNR Website

Geological Data Summary

Geological data suggests that Licking, Perry, Muskingum, Morgan, and Athens counties are all in the highly valued Oil or Wet Gas windows of the Utica Shale, but could also represent the western limit of the play, and therefore may be higher risk areas.

Assuming further confirmation of estimates, the data as well as the general East to West movement of the play, suggests that these counties will soon be targeted – but how soon is still under wraps for the moment.

Why Form A Landowner Group?

EVERYTHING IS DIFFERENT

EVERYTHING IS BIGGER The Wells – The Footprint – The Straw – The Money – The Water – The Battles – The Contracts…

…and the negotiating power needs to be bigger too.

Why Join A group?

The most obvious concern is getting the best lease deal through the negotiating power of a large group – but there are many other concerns best addressed through the power of a landowner group:

Example: Existing Leases – Within Term, Held by Production, Held by Payment, etc.

Thousands of existing leases Some close to 100 years old Most not contemplating modern deep horizontal fracking wells

Key Issues Landowner cut out of bonuses & portions of royalties Cut out of additional payments for well placement, etc. Terms do not always give landowners any decision making authority on placement of wells Terms do not protect lands, water, etc. from potential damage caused by modern wells

Drillers can buy up these leases and avoid the protections negotiatiated on newer leases The only way to protect against this is through the power of the group

Likely Organizational Structure

Hybrid Model incorporating the strengths and efficiencies of small groups, with the potential need for the leverage of a much larger group.

Members agree to the total 2% commission rate At critical mass, a Non-Profit Organization is formed. Jerry Shade is the

initial director, and his law-firm is granted the initial negotiating contract with a 1% fee. The other 1% is reserved to the Non-Profit to serve the interests of the group and purposes of the non-profit.

Local groups operate independently with board members being elected to

the Non-Profit directly from the smaller groups based on blocks of acreage Ultimately, the representative board takes over the direction and

governance of the Non-Profit group

Group Philosophy – Goals – Tactics

Philosophy / Negotiation 1. Start now 2. Patiently & Consistently apply a Rule of Reason 3.Don’t stop

Philosophy is the groups consistent method, manner, attitude, culture

We are striving for a shared philosophy that: Recognizes interests not just as landowners , but as “mineral rights” owners Recognizes the value of working together, and the power of working together, includes “getting the best deal” but also

extends beyond “the deal” and into nearly every aspect of our lives Recognizes the transformational magnitude of the Utica shale potential in the present, near–term future, and long term future

Therefore, we do not wait for them to come to us, we start “negotiation” now in our organization, education, preparation, and communications – so that we are prepared

For example - We have… Contacted all major drillers Contacted the most successful landowner groups Contacted other law-firms in the areas experiencing the most Utica action Acquired actual signed leases representing some of the best landowner terms in the Country

For example - We will be…

Clearing title of lands with tacked and expired leases Mapping landowners in the areas where the group has a presence Mapping existing leases in the areas where the group has a presence Mapping lease assignments and transfers to the major players in the areas where the group has a presence…

These and other activities are all building blocks to getting the best deal, and maximizing the shale potential for our landowners, our land, and our cities and towns.

Patiently & Consistently applying a “Rule of Reason”

Not Greed: I want a deal NOW! Example: Goose who laid the golden egg

Not Arrogance: I will get a better deal than anyone else! Example: Man in the flood waiting for God to save him.

Not Unreasonable: I want what I want because I want it! Example: The bulldog Attorney

The rule of reason is an expression of American Values and Common Sense: We are mineral owners who want a fair & equitable deal, and we

know the logical and moral reason or underpinning for our demands,

… and we recognize that the people on the other side of the table are businessmen who are also entitled to a fair and equitable deal

Don’t Stop

Pre-Lease The name of the game of negotiation is consistently giving the

other party a reason to move off their last position – So we continue to strengthen our position, and we continue to communicate with interested parties

Post-Lease The group and the negotiation don’t stop simply because a

lease has been procured, or drilling has commenced . There will be continuing issues:

If there is damage to our roads/water/Etc.

Bidding for major facility locations

Issues with an influx of workers

Continuing Goals

A. Build Negotiating Power Numbers

Knowledge

Cohesion

Build infrastructure to efficiently communicate & work

B. Maximize Perry County Return / Minimize Risk Implementing Philosophy & Tactics

Get the best lease we can

Build an infrastructure to develop lasting economies of scale

Doing a thing better, faster, cheaper, by doing more of it

C. Repeat A. & B.: Pre-Lease – Lease - Post Lease

Pre-Lease Tactics

Develop Knowledge / Strength / Cohesion Be owners of mineral rights and Understand the play as best as possible Understand the Lease Contract and the provisions that we require, that we want, and that

we can live with Develop contract and non-contract contingencies

Continue to build the size of the overall group while maintaining the flexibility and trust associated with smaller groups

Determine Existing Rights Clear dead leases Clear Title Issues Mapping: Owners & Lessee’s & Producers

Continue External Communications Drillers, Experts, Media, Government, Neighbors, Leaseholders

Tax/Financial/Estate Planning Quarterly Tax Payments: Create / Maximize ROTH IRA/IRA Contributions / Create / Maximize Educational/529 Contributions / Charitable

Contributions Entity (LLC or Corporate) Creation & Management: Division of Land / Mineral Rights For Depreciation:

One Example – LLC One Advantage - divides income in a progressive tax system

Tx Rate Up to Paid On Tax Total Tax Effective Rate Assume 163 acres bonus @ $4000 = $652,350

Mar. filing joint

0.1 $ 17,400 $ 17,400 $ 1,740 $ 1,740 10%

0.15 $ 70,700 $ 53,300 $ 7,995 $ 9,735 14%

0.25 $ 142,700 $ 72,000 $ 18,000 $ 27,735 19%

0.28 $ 217,450 $ 74,750 $ 20,930 $ 48,665 22%

0.33 $ 338,350 $ 120,900 $ 39,897 $ 88,562 26%

0.35 $ 338,351

INDIV. MAX IRA

Taxpr A $ 652,350 $ 313,999 $ 109,900 $ 198,462 30% $6000

LLC

Taxpr A $ 217,450 $ 48,665 $6000

Taxpr B $ 217,450 $ 48,665 $6000

Taxpr C $ 217,450 $ 48,665 $6000

Total Tax $ 145,995 22%

Savings $ 52,467 8% At 50,000 acres, savings is $16,000,000

*Simplified model assumes $0 initial income for B & C

Lease Negotiation Tactics

Negotiating Lease Takes Diligence / Legal Knowledge / Creativity Understanding the modern O&G Lease Reviewing and searching out the best leases from around the county Talking to people who have experienced the leases, the problems, what works, what doesn’t, what they wish they would

have done differently Find creative solutions where necessary

The modern O&G lease is a long and complex document: We will begin to lay out and explain ALL of the components of a modern O&G lease . Example: One Clause of 20+ Clauses: Habendum:

The habendum clause is the opening paragraph of the oil and gas lease and typically grants the lessee a lease in all or a portion of the mineral estate owned by the landowner. This clause can also specify the specific rights the lessee will have to drill upon the land, including the placement of tanks, equipment, access roads, storage of gas, seismic testing, or the operation of an injection well.

ISSUES: Additional Payments for additional activities

• Wells, underground pipes, roads, storage etc.

Location • Landowner control of placement of additional activities on the land

Maintenance & Aesthetics Lessee responsible for maintaining certain quality of the roads, landscaping around wells, etc.

• Prohibition or Additional Compensation

For destruction of trees or other surface features or uses • Certain uses prohibited without separate contract and separate compensation

No storage wells, injection wells, use of water already in or on the land. • Utica Shale drilling can require in excess of 1,000,000 to 4,000,000 gallons of water, which should not come from the

landowners water features or tables without full disclosure of the impact and additional compensation • Injection wells are essentially underground landfills for the brine produced by injection wells and should be strictly

prohibited without full disclosure of the impact and additional compensation.

Post-Lease – Pre-Drill Activities

Baselines For Everything Water, landscape, etc.

Tax Issues

Estate Planning

Knowing Who the Bad Guys Are

Dealing with problems/opportunites as they arise

Perry County Long Term Development Jobs

Education

Philanthropy

Likely Membership Terms

2% Commission ½ For Flexibility in Getting the help we need or combining groups ½ For County Infrastructure & Systems and/or County Development

Or $50 Per Acre Upfront Fee Build Infrastructure & Systems Faster while sharing the risk ½ of estimated commission

Initial 5 Day Commitment - (a landowner can get out of the group with a simple 5 day notice) Power comes from shared commitment, trust, and numbers not control by long term contract

Democracy - Not Bureaucracy Every term of every major deal explained and understood and voted on

All can join Those who have signed with others, Those whose rights are limited,

Could create leverage to maximize overall county return (by negotiating bulk deals with leaseholders)

– But it is one acre = one vote in one group Those who do not have current control of their mineral rights cannot vote

Clear Understanding of and Waiver of Potential Conflicts As the group expands there will be overlapping interests such as leaseholders, and landowners of

the same land. Attempts can be made to reconcile these issues, but it must be understood that these conflicts will arise as incidental to the overriding purpose of the group

Next Steps

A. Get the word out

B. Self help

C. Volunteerism

D. Fee structure / Workers

E. Infrastructure

F. Communications

A. Word of mouth, email, flyers, small group meetings, large presentation meetings. About the group to increase membership also educational in terms of procedures for title work,

mapping, tax planning, status of negotiations, etc.

B. For those who are inclined, getting down to the Courthouse and establishing the existence

and scope of their own mineral rights

C. Volunteers for such things as title searches, meeting locations, passing out flyers, website

work, etc.

D. Fee Structure – to complete title work, lease terminations, etc. for those not inclined to do it on their own Title work can take hours for a single plot of land and the total

cost cannot be advanced Fee based on the lowest feasible rate to cover the expenses Offered to both group and non-group members, with a lower

cost for members Will also likely need paid workers, primarily for title work,

meeting organization and assistance, updating information networks – (so if you know someone interested have them email me)

E. Infrastructure / F. Communications Local office space, web, phone, and mail procedures, will be

set up shortly to accommodate the needs of the group etc.

Jerry Shade 513 398-1910 513 404-0486 pcshale@gmail.com j

More detailed process and sign up information will be coming soon – for now simply indicate interest in joining the group by emailing us at:

pcshale@gmail.com