Best Practices For Negotiating With Landowners To Acquire More Local Water Supplies And Lower

Transportation Costs November 20, 2014 Presented by George A. Oggero, Senior Landman & CounselAnd so it begins...

10 This is the perception we face from landowners before even placing a stake in the ground:

### Goals and Objectives

5Throughout this presentation, my intention is to do the following: 

##  Review a few basic concepts of negotiation as they apply to the oil and gas industry 

##  Discuss the unique negotiation environments created as a result ofoil and gas operations, including, but not limited to the procurement of water and transportation thereof, and the agreements associated therewith 

##  Discuss various approaches and strategies to landowner and regulatory negotiations 

###  Disclaimer: This presentation does NOT constitute legal advice or counsel; The opinions and suggestions stated herein are NOT the opinion (i) of the presenter’s company; or (ii) (necessarily) of the presenter at any point in the future.

### Overview of Vanguard Natural Resources 

##  Vanguard Natural Resources, LLC (NASDAQ: VNR) is a publicly traded limited liability company based in Houston, Texas, focused on the acquisition, production and development oflong-lived natural gas and oil properties. 

##  Our business strategy is focused on generating stable cash flows to be distributed to our unit holders on a monthly basis. 

##  VNR’s assets consist primarily of producing and nonproducing natural gas and oil reserves located in nine producingbasins within the continental United States.
4Geographically Diversified Core Areas

4 Core AreasBasic Negotiation Concepts

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## First and foremost, there is absolutely no 

## exception to negotiation concepts that provide for a compromise of ethical obligations!Basic Negotiation Concepts... continued

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## In our line of work, the company negotiator IS the face of the oil industry 

## as far as the landowner is concerned.Basic Negotiation Concepts... continued

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## While strong-armed tactics, i.e. take-itor-leave-it perspectives, even if legal, 

## may get the deal done, they may also get a company a lawsuit, and from a policy perspective are not good for our 

## industry.Basic Negotiation Concepts... continued

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## Lookforthe win-win result. In other words, during negotiations, 

## seek out fair and equitable solutions that both the company and the landowner can accept.Negotiation Environments in Our Industry

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##  Whether your business is part of the 

## upstream, midstream, downstream, or a combination of all three, the aforementioned concepts remain true and relevant.  However, today’s discussion will be 

## limited to the negotiation environments created by...Negotiation Environments in Our Industry...continued

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## RegulatorsNegotiation Environments in Our Industry...continued

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## And...Negotiation Environments in Our Industry...continued

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## Difficult LandownersNegotiation Environments in Our Industry

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## General Guidance  When negotiating with a regulator, 

## regulating body, or a landowner, remember 3 P’s:  Preparation  Punctuality  PolitenessNegotiation Environments in Our Industry

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##  Formulate a strategy, including at least 

## one contingency  Review all facts with each discipline, i.e. Land, Legal, Operations, Accounting  Involve local assistance, e.g. a field landmanRegulators and Regulatory Bodies

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### Regulators, and regulatory bodies, differ from landowners in terms of how to approach a negotiation environment.Regulators and Regulatory Bodies

12  Regulators and regulatorybodies:  Are well-fundedviatax moneys  Have control over all aspects ofextractive industry • This provides them considerable influence over a company’s business  Are able to • Limit/eliminate permits and operations • Impose civil penalties • And in some cases, impose criminal penaltiesRegulators and Regulatory Bodies

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###  Regulators and regulatorybodies:  Receive favorable discretion from reviewing courts 

###  Until recently, uniformly able to order action without due process and without realistic supercedeas rights 

###  So with this in mind, how does a company negotiate?Negotiating with Regulators and Regulatory Bodies

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###  Have the right parties involved  The regulator or regulating body should have complete authority and a settlement 

### with that regulator or regulating body should not leave the company open to other regulator’s subsequent actions 

###  Consider the current relationship between the company and the regulator or regulatorybody  Consider the company’s local reputation in 

### the area ofoperations or proposed operationsThe Landowner

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## The Landowner “Luck is what happens when preparation meets opportunity.” – Seneca, Roman 

## PhilosopherThe Landowner

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## Finding the landowner:  Check the tax rolls, public records, or other research materials 

###  Involve local assistance, e.g. a field landman 

###  Make the initial contact with the landowner  Visit the proposed locationThe Landowner

12 Visit the landowner’s property: Have alternate routes and locationsThe Landowner

12 Visit the landowner’s property : Determine the terrainThe Landowner

12 Visit the landowner’s property : Determine the well placementNegotiatingwith the Landowner

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##  When a landowner comes calling, whether it be via email or telephone, they believe their issue or question should be the most 

## importantthing to the company  Take the time to answer an email or return 

## a phone call  Doing so fosters good relationsNegotiating with the Landowner

12  “Demonstrating people skills (i.e. intangible ‘soft skills’) is paramount to being an effective and successful landman / businessperson...If you get the highest score ever on the CPL exam and are very technically competent, but you can’t listen, empathize, show passion and compassion or demonstrate genuine caring and selflessness, people will not be drawn to you nor will they be energized in your presence. Your credibility will be diminished and you will be, at best, marginally effective in this business.” - Don Walker, ExxonMobilLandman, MentorNegotiating with the Landowner: Other Considerations

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### Agreements  Before entering into any lease or agreement 

### for water use or purpose, be sure to determine how any agreement could be affected by any local water district or 

### conservation organization  Determine what permits are required, noting any that could affect negotiations with the 

### landownerNegotiating with the Landowner: Other Considerations 

### Agreements – Specific to Each Operation  Also consider the following when drafting 

### agreements forwater use:  Surface damages  Surface usage/traffic  Costs  Easements  MaintenanceNegotiating with the Landowner: Other Considerations 

## AgreementsNegotiating with the Landowner: Other Considerations



### Agreements – the Oil and Gas Lease  Under the typical oil and gas lease, the lessee has 

### the right to use as much of the surface estate (which includes subsurface water) as is necessary to explore for and produce the minerals  Some leases prohibit groundwater use without the 

### landowner’s consent, or require additional compensation for use ofthe landowner’s water  Consider addressing water gathering and 

### transportation facilities in the leaseNegotiating with the Landowner: Other Considerations

Agreements – Litigation as a last resort  As alast resort, consider litigation  Certain states have codified rules regarding surface use, surface owner compensation, in the mineral development environment  AK, AK, CO, IL, IN, KT, LA, MT, NM, ND, OK, PA, SD, TN, UT, WV, WY  The purpose ofthese are to provide guaranteed compensation to surface owners for certain damages incurred as a result of mineral operations, regardless ofwhether usewas reasonable  Most Acts require some form ofattempt to first negotiate with the surface owner prior to seeking relief in the courts. Typically measured by “good faith.”Negotiating with the Landowner: Other Considerations

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##  Before any meeting or conversation, ask yourself, “Am I in control of myself today?” 

##  Ifyou answer no, reschedule.  Treat landowners with respect, even when it is not served.  Landowners talk.Negotiating with the Landowner: Other Considerations

12  When communicating with a landowner, always speak in general terms  We plan to drill 3 wells in this section.  Our expectations are to use only riverwater during operations.  Mygoal is to have this completed within...  Listen more than you speak  Manytimes the landowner simplywants to be heard.  Take note of all landowner issues and concerns with the proposed operations/deal/agreement, regardless ofrelevance, value or age  Never rush  Let their priorities be your priorities  Always ask, “Is there anything else?”  Seek assistance from the courts only as a last resortNegotiating with the Landowner: Other Considerations

12  When communicating with a landowner, always speak in general terms  We plan to drill 3 wells in this section.  Our expectations are to use only riverwater during operations.  Mygoal is to have this completed within...  Listen more than you speak  Manytimes the landowner simplywants to be heard.  Take note of all landowner issues and concerns with the proposed operations/deal/agreement, regardless ofrelevance, value or age  Never rush  Let their priorities be your priorities  Always ask, “Is there anything else?”  Seek assistance from the courts only as a last resortNegotiating with the Landowner: Other Considerations

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## There is nothing wrong with shutting a 

## meeting down and stepping away, whether it be for five minutes, or rescheduling all together.Credits and Contact Information

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### My sincerest appreciation and gratitude goes to:  Sharon Stephenson and Ira Lemm, for the 

### opportunity to present today, and for their patience as I completed this presentation; and  Monica Robb, who thoroughly critiqued and 

### contributed to this presentation. If you have any questions or comments, please feel 

### free to email me at goggero@vnrllc.com.