Property Information Update

North Dakota Drilling Non-Consent Provisions

Persons interested in bidding on Tract OG-11-01142 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 Tract OG-11-01142, 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 Tract OG-11-01142 and its interests, and if so the amount of the risk penalty, would be addressed at a hearing held by the Industrial Commission.

LEASE NO. 11-01142

Update: The AFE for this tract was updated on November 15, 2011, with the following information: "The subject well was spud on October 11, 2011."

Sheralee Dolezal USA 14-10H well, Sections 3 and 10-T144N-R94W 5th PM

The State's 80.0 net mineral acres represents a 6.250000% working interest in the 1280 acre proposed spacing unit for the Sheralee Dolezal USA 14-10H well.

Department of Mineral Resources records show that the operator, Marathon Oil Company, spud the well on October 3, 2011. The well is currently in confidential status.

The lease is the standard lease form with a 1/6th royalty rate.

The successful bidder will be offered the opportunity to participate in this well after the lease sale. The Department of Trust Lands has received an AFE for this well.