OG-14-00535, OG-14-00536, OG-14-00537

Notice: The State of North Dakota is leasing 80.00 net mineral acres. The acreage is included in a 1,268.39 acre spacing drilling unit. The leases offered will be 3/16ths royalty rate. Baytex Energy USA Ltd. has submitted an AFE to drill and complete the Nelson 7-6-161-98H 1XB well to be drilled as a single lateral horizontal well to test the Plummer-Bakken Pool formation at an approximate total vertical depth of 8,676'. Successful bidder will have the option to participate in a proposed AFE with an 6.31% WI or decline to join the AFE and be subject to the risk penalty described below. The risk penalty will not apply if the successful bidder joins the AFE. Please check the following link to view the AFE.

AFE: Nelson 7-6-161-98H 1XB

Operator Statement Regarding AFE: Baytex has spud the Nelson 7-6-161-98H 1XB well on August 9, 2014. The successful Bidder will have until September 25, 2014 to notify Baytex of their election to participate or not in the AFE.

T161N-R98W-7:
          OG-14-00535 S2NE4 containing 40 net / 80 gross acres
          OG-14-00536 NE4SW4 containing 20 net / 40 gross acres
          OG-14-00537 SE4NW4 containing 20 net / 40 gross acres

Area Activity Map

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Completions for the last 180 days in Divide County, ND (Source: DrillingInfo)

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Drilling rigs on location in Divide County, ND (Source: DrillingInfo)

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Drilling permits for the last 180 days in Divide County, ND (Source: DrillingInfo)

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The Mighty Bakken

"In the Bakken formation, the hydrocarbon-rich, but relatively impermeable upper and lower shales are widely believed to be the source rocks generating the oil that moved to the somewhat more permeable middle shale layer."

Excerpt from IPAA Article, The Mighty Bakken

Well Information:
Nelson 7-6-161-98H 1XB
Sections 6 & 7: T161N R98W
Divide County, ND
Unit Size: 1,268.39 Acres
Location: Surface location is 289' FNL & 2,075' FEL of Section 18-T161N-R98W, Divide County, North Dakota.
Operated by Baytex Energy USA Ltd.
Formation: Bakken
Field Name: Plummer
Spud Date: August 9, 2014

North Dakota Drilling Non-Consent Provisions

Persons interested in bidding on Leases OG-14-00535, OG-14-00536 and OG-14-00537 should become familiar with "risk penalty" provisions found in Section 38-08-08 of the North Dakota Century Code (NDCC) and Section 43-02-03-16.3 of the North Dakota Administrative Code (NDAC).

Provided certain conditions are satisfied, NDCC 38-08-08 allows the owner to impose a penalty on other interests in the well's spacing unit if those other interests decline to join in the risks and costs of drilling.

The North Dakota Industrial Commission oversees application of the risk penalty law and has adopted a rule to implement it. The rule is found in Section 43-02-03-16.3 of the NDAC.

NDCC 38-08-08 states that if the nonparticipating owner's interest is not subject to a lease, the risk penalty is 50%, and that if the nonparticipating owner's interest is derived from a lease, the risk penalty is 200%. These risk penalty percentages are applied to the nonparticipating owner's share of the reasonable actual costs of drilling and completing the well, and may be recovered only out of production from the pooled spacing unit.

In order to enforce a risk penalty, the owner, must make an unsuccessful, good faith attempt to have the unleased owner execute a lease - or - must make an unsuccessful, good faith attempt to have the leased owner join in and participate in the risk and cost of drilling. "Good faith attempt" is more fully described in NDAC 43-02-03-16.3.

As it pertains to Leases OG-14-00535, OG-14-00536 and OG-14-00537, the Commissioner of University & School Lands, cannot warrant which risk penalty will be assessed for non-participation.

The procedures and process outlined in NDCC 38-08-08 and NDAC 43-02-03-16.3 should be referenced and followed. Risk penalty disputes are decided by the North Dakota Industrial Commission. A dispute whether a risk penalty attaches to Leases OOG-14-00535, OG-14-00536 and OG-14-00537 and their interests, and if so the amount of the risk penalty, would be addressed at a hearing held by the Industrial Commission.

Important Notices Pertaining to North Dakota Department of Trust Land Lease Auctions

1. The tracts available for lease are sold on an as is basis, with no representations or warranties regarding the quality of title, ownership, or the accuracy and completeness of the information provided by the State;
2. The tracts available for lease are subject to the restrictions found in North Dakota Century Code (NDCC) Chapter 15-05, Leasing Coal, Oil, Gas, and Other Rights (www.legis.nd.gov/cencode/t15c05.pdf) and Administrative Rule Chapter 85-06-09 (www.land.nd.gov). Sample lease forms are available at www.land.nd.gov.
3. The burden of due diligence is the bidder's responsibility prior to any auction;
4. The lease execution date of all State leases is the effective date of auction as designated in the transactional documents; and
5. The successful bidder must make payment by wire transfer or automated clearing house (ACH) for all bonus, rental, and bidder's premium owed to the State within 7 days. The State will accept payment from only one bidder per tract; however, a bidder may make multiple payments in one wire or ACH, provided the bidder indicates which tracts are involved in the payment.