Oil & Gas Lease Update

Greetings Beacon Point Homeowners!

Hopefully you have heard about the oil and gas drilling that may be occurring beneath our community and the surrounding area. There has been a lot of information floating around about this, and your Metro District Board would like to take this opportunity to provide an update and dispel any myths about the current situation.

The Board has a vote coming up in November on whether to enter into a lease agreement with Axis Exploration, LLC. or not, and we want to make sure our community homeowners are fully and accurately informed and have an opportunity to ask questions.

Regarding oil and gas mineral rights, we as individual owners and the Metro District as a property owner, are all subject to a Colorado statute adopted over fifty years ago called a “pooling statute”. (§ 34-60-116, C.R.S). Axis Exploration has secured consent from more than 45% of the Owners of the mineral interest in the project area. This means they CAN NOW move forward with their drilling plans, and they can make an application for involuntary pooling of the remaining Owners’ mineral rights if those owners have not entered into a lease agreement.

The Board does not have the ability to stop this project from moving forward. Axis Exploration could eventually decide not to drill, however that is unlikely. In short, the Board is not voting on whether to allow the drilling. It is happening. The Board is voting on HOW to move forward.

The Board engaged the services of Special Counsel to negotiate a favorable lease agreement with Axis Exploration. This lease agreement offers better financial benefits and more protections for our community than if we allow ourselves to be involuntarily pooled.

The Board now needs to vote on whether to sign the lease agreement. Regardless of whether or not we sign, this action will have no effect on the required 45% threshold, as Axis Exploration has already reached this threshold. The lease agreement will be for an initial term of 4 years, with an option to extend for an additional 2 years (with additional bonus paid at 125% of original bonus if extended).

Option 1: Sign the Lease

Pro’s

• Higher guaranteed royalty percentage (20%) of the revenue generated from the sale of oil and gas.

• Larger signing bonus of approximately $135,000 to be paid immediately, regardless of whether Axis Exploration ends up drilling or not

• Indemnification protection, meaning if we were sued in relation to a situation related to drilling we would not need to pay for our legal defense. (This does not mean we wouldbe liable, but without the indemnification we would have to hire legal counsel and pay for the defense).

• Prevents dispute about the constitutionality of Metro District being part of non-consent “involuntary pooling” group.

• Aurora believes that it would be unconstitutional for a local government to choose to not participate or not consent (Litigation is pending for a decision on this).

Con’s

• BP must be vigilant to ensure Axis Exploration is complying with the terms of the lease (typically with respect to proper royalty payments)

Option 2: Don’t Sign the Lease

Con’s

• Colorado constitutionality dispute – Aurora believes that it would be unconstitutional for a local government (such as a special district like BP) to choose to not consent because this option requires future uncertain financial obligations.

• No signing bonus

• Lower royalty rate for initial production period when production (and revenue) is greatest

• Potential for lower long-term financial income than with a lease

• Financial uncertainty once the penalty period is over because costs of operating are balanced with revenues meaning money could be owed to the Operator

• Often requires an oil and gas expert to ensure accurate accounting for costs and revenues. (After the penalty period)

• Will not have the benefits of negotiated terms related to use of Mineral Rights and payments

• Being a working interest partner of the Operator

You can find more information about this on the Beacon Point website: https://beaconpointco.com

We will also make available additional information and FAQs that were provided by Special Counsel.