BEFORE THE INDUSTRIAL COMMISSION

OF THE STATE OF NORTH DAKOTA

CASE NO. 22058 (CONTINUED)

ORDER NO. 24665

IN THE MATTER OF A HEARING CALLED ON

A MOTION OF THE COMMISSION TO

CONSIDER AMENDING THE CURRENT BAKKEN, BAKKEN/THR EE FORKS, AND/OR

THREE FORKS POOL FIELD RULES TO

RESTRICT OIL PRODUCTION AND/OR

IMPOSE SUCH PROVISIONS AS DEEMED

APPROPRIATE TO RE DUCE THE AMOUNT OF

FLARED GAS.

ORDER OF THE COMMISSION

THE COMMISSI ON FINDS:

(1) This cause originally came on for heari ng at 9:00 a.m. on the 22nd day of April, 2014.

(2) North Dakota Industrial Commission (Commission) Order No. 24392, signed May 14, 2014 continued the decision in this matter for an additional ninety days.

(3) This hearing was called on a motion of the Commission to c onsider amending the current Bakken, Bakken/Three Forks, and/or Three Fo rks Pool field rules to restrict oil production and/or impose such provisions as deemed appropria te to reduce the amount of flared gas.

This special hearing was scheduled to addr ess the Commission’s newly-adopted policy on reducing gas flaring. The policy goals were to reduce the flared volume of gas, reduce the number of wells flaring, and reduce the duration of flaring from wells.

Action items to reach the policy goals included re quiring Gas Capture Plans for increased density, temporary spacing, and proper spacing cases; requiring Gas Capture Plans for all applications for a permit to drill; schedule semi-annual meetings with midstream gas gathering companies to gauge the effect of Gas Capture Plans, pr oduction curtailments, contracts, and service interruptions; dedicate information technology resour ces to develop a web-based pipeline incident report form to better assess right-of-way issues; direct the Pipeline Authority to track flaring on/off the Fort Berthold Indian Reservation and report capture status versus goals; and docket this hearing to review and revise Bakken, Bakken/Three Forks, and/or Three Forks Pool rules governing production curtailment.Case No. 22058 (Continued)

Order No. 24665

(2) (4) Prior to the hearing, the Commission i ndicated it was seeking testimony of technical nature for input on the following:

a. Length of time wells should be allowed to produce at maximu m while flaring?

b. What production rate restrictions are a ppropriate for wells connected to gas gathering or beneficial uses?

c. What types of administrative approval of exemptions from production restrictions are appropriate?

d. What consideration should be given to ambient air qua lity regarding production

rates or restrictions?

e. Should production rates and restrictions be adjusted for well economics and percentage of gas captured by well s ite, field-pool, region or operator?

f. Should production rates for wells not conne cted to gas gathering or beneficial uses be reduced in stages or set at a low rate after payout?

Written comments were allowed no later than 5:00 p.m., Monday, April 21, 2014.

(5) The Commission received written comments from Toby Schweitzer of Bakken Frontier LLC, Caleb Young employed in the oil and gas indus try, Srini Raghavan of Navi Reliance Group LLC, Gary Preszler of the Nort h Dakota Chapter of the National Association of Royalty Owners,

Alexis Brinkman of the North Dakota Petroleum Council, Roger Kelley of Continental Resources Inc. representing the Domestic Energy Producers Allianc e, Tex Hall of the Mandan Hidatsa and Arikara Nation, Gordon Vaskey of Zavanna LLC, Ta ylor Reid of Oasis Pe troleum North America LLC, Kenneth Klanika of Statoil Oil and Ga s LP, Danette Welsh of ONEOK Inc., Dominic Spencer of Triangle USA Petroleu m Corporation, Andrew Logan of Ceres, Mark Borla of SM Energy Company, Lisa Casarez a member of the Fort Berthold Indi an Reservation, Adam Bishop of Hunt Oil Company, A bby Sharp and Kimberly Croll of Caliber Midstream Partners LP, Mark Wald of Blaise Energy, Jeremy Conger of WPX Energy Williston LLC, James Kennedy of Fidelity Exploration & Produc tion Company, Ralph Castille of ConocoPhillips Company, Jeff Herman of Petro-Hunt LLC, Joel Noyes of Hess Corporation, Don Morrison of the Dakota Resource Council, Brent Miller of Whiting Oil and Gas Corporatio n, Stephanie Chase of the Environmental Law & Policy Center, and Wessel Nel of Hatch Ltd.

The following concer ned land/royalty owners also subm itted written comments : Tim Stroh and Eugene Bardal.

The following concerne d citizens also submitted written commen ts: Wally Stephens , Peggy Klein, Al Coen, Susan and Paul Bultsma , Carol Nelson, Lyle and Susan Best, Pete and Vawnita Best, Galen Grote, Norma Stenslie, Joletta Bird Bear, James Stewart, Corinne L., Shelly Ventsch, Candance Kraft, Rose Veeder, Ce dar Gillette, and Curtis Bardal.

(6) The Commission received oral comments at the hearing from Lyle Best a landowner near Watford City, Ron Ness of the North Dakota Petroleum Council, Brad Aman of Continental Resources Inc., Roger Kelley of Continental Re sources Inc. representing the Domestic Energy Producers Alliance, Jeremy Cong er of WPX Energy W illiston LLC, Brent Miller of Whiting Oil and Gas Corporation, Da nette Welsch of ONEOK Inc., Brian Cebull of GUIT LL C, Ralph Castille of ConocoPhillips Company, Theodora Bird Bear of the Dakota Resource Council, Scott Skokos of the Dakota Resource Council, Lance Langford of Statoil Oil & Gas LP, Tony Lucero ofCase No. 22058 (Continued)

Order No. 24665

(3) Enerplus Resources USA Corpora tion, Tom Wheeler of Northwest Landowners Association, Mark Borla of SM Energy Company, Bryant Winn of Petro-Hunt LLC, Dan Grossman of the Environmental Defense Fund, Jerrold Mayer of Zavanna LLC, Walter Breidenstein of Gas Technologies, Wayde Schafer of the Sierra Clu b, Andy Peterson of the Greater North Dakota Chamber, Toby Schweitzer of Bakken Frontier LL C, Carey Doyle of the Mandan Hidatsa and Arikara Nation, and William McCabe of Missouri River Resources.

(7) Having allowed all interested persons an opportunity to be heard and having heard, reviewed, and considered all testimony and evidence presented, the Commission makes the following conclusions. Much of the testimony was relevant, but did not address the six topics on which the Commission sought testimony.

(8) The typical Bakken, Bakken/Three Forks, a nd/or Three Forks Pool is defined as that accumulation of oil and gas found in the interval from 50 feet above the Bakken Formation to above the top of the Birdbear Formation within th e limits of any given field. To ease confusion, the Pool will collectively be hereinafte r referred to as the Bakken Pool.

(9) Development of Bakken P ools in North Dakota is curre ntly ongoing and encompasses over 15,000 square miles of land . Total gas plant capacity in North Dakota exceeds total gas production in the state although many bottlenecks exis t in the current gas gathering infrastructure due to the high liquid content of the gas, the prolific volumes of oil and gas during initial production, increasing pipeline pressure that requires installation of additional compressors, and in some cases undersized pipe. Most operators are prudently attempting to connect their wells to a gas gathering system, but due to many aforementi oned constraints in the gas gathering systems, much of the gas is not processed.

(10) Bakken Pools producing in North Dakota are oil reservoirs and gas is produced in

association with the oil at the wellhead as a by-product of oil production. The value of the oil produced far exceeds the value of any gas pr oduced in association with the oil.

(11) Leasehold interests in some Bakken Pool spacing units are not yet held by production. The initial horizontal well drilled in such spacing units should be allowed to produce at its maximum efficient rate, regardless if the well is connected to a gas gathering system. Allowing such wells to produce at a maximum efficient rate will allow valuable inform ation to be obtained in order to make decisions with regard to future we lls and infrastructure requirements in the spacing

unit.

(12) Some Bakken Pool spacing units are being developed where the operator is aware that the existing gas gathering infrastructure is insuffic ient to allow surplus gas to be processed through the gas gathering system. In instances where signif icant amounts of surplus gas is flared due to the insufficient collection system, pr oduction should be restricted unle ss significant amounts of surplus gas is captured for beneficial consumption, or utilized in a value-added process.

(13) Some Bakken Pools could ha ve up to five separate horiz ontal targets, resulting in as many as twenty-eight wells w ithin the same spacing unit.

(14) Various time frames fo r maximum efficient rates were suggested. North Dakota’s production of Bakken Pool associated gas is t ypically associated with an unusually highCase No. 22058 (Continued)

Order No. 24665

(4) temperature, pressure, and liquid content. Initial production decline is also very rapid, due to the highly fractured nature of the completion interval.

(15) The Commission believes the North Dakot a Petroleum Council’s Flaring Task Force’s targets of capturing 74% of the gas by Octo ber 1, 2014; 77% by January 1, 2015; 85% by January 1, 2016; and 90% by October 1, 2020 with pot ential for 95% capture are attainable and should be adopted as gas capture goals by the Commission. The restrictions imposed by this order will strive to meet such goals.

(16) Production restrictions imposed by th e Commission will constitu te force majeure in most producer/gas gatherer contracts and excuse parties from performing certain parts of the contract while production re strictions are imposed.

(17) Delineation drilling activity versus multi- well development requires separate and unique

solutions.

(18) Pipeline construction across rough topograp hy or around surface waters causes delays in connecting wells to a gas gathering system.

(19) Flexibility is required due to surf ace landowner, tribal, and federal government right-of-way delays; temporary midstream down-time for system upgrades and maintenance; federal regulatory restrictions or delays; safety issues; delayed access to electrical power; and possible reservoir damage.

(20) Well payout and economics should not be used to determine production restrictions.

(21) Some well site va lue-added processes that utilize the su rplus gas in a be neficial manner

are economic.

(22) Commission production records indicate the ma jority of gas flared in North Dakota is from wells already connected to a gas gathering system. Such wells should not be excluded from gas capture goals adopted by the Commission.

(23) Some flared gas contai ns components that if improperly combusted could cause air quality degradation and health issues.

(24) On the Fort Berthold Indian Reserva tion, many Bakken Pools are also within the jurisdiction of the Mandan Hidatsa and Arikara (MHA) Nation and Bureau of Land Management (BLM). In some cases, companie s must comply with MHA Nation, BLM, and Commission rules.

The Commission should work with federal and tribal authorities to ensure that restrictions imposed herein provide clarity and protection of correlativ e rights for the oil and gas companies operating in the respective jurisdictions.

(25) The production allowances and restrictions imposed herein will provide for the effective and efficient recovery of oil from the Bakken Pool, encourage rapid development, avoid the drilling of unnecessary wells, and prevent waste in a manner that will protect correlative rights.Case No. 22058 (Continued)

Order No. 24665

(5) IT IS THEREFORE ORDERED:

(1) All Commission orders allowing wells co mpleted in a Bakken, Bakken/Three Forks, and/or Three Forks Pool to produce at a maximum efficient rate shall remain in full force and effect through September 30, 2014. All wells completed in a Bakken, Bakken/Three Forks, and/or

Three Forks Pool are hereafter allowed to produce at a maximum efficient rate through September 30, 2014. After Septem ber 30, 2014, the gas capture from all existing wells shall be evaluated and oil production from all existing an d future wells shall not exceed the production

allowances herein.

(2) The first horizontal well completed in a Bakken, Bakk en/Three Forks, and/or Three Forks Pool non-overlapping spacing unit shall be allowed to produce at a maximum efficient rate.

(3) All wells completed in a Bakken, Bakken/Three Forks, and/or Three Forks Pool that have received an exemption to North Dakota Century Code Section 38-08-06.4 shall be allowed to produce at a maximum efficient rate.

(4) All infill horizontal we lls, including overlapping spacing units, completed in a Bakken, Bakken/Three Forks, and/or Th ree Forks Pool, shall be allo wed to produce at a maximum efficient rate for a period of 90 days comm encing on the first day oil is produced through well-head equipment into tanks from the ultimat e producing interval afte r casing has been run; after that, such wells shall be al lowed to continue to produce at a maximum efficient rate if the well or operator meets or exceeds the Commissi on approved gas capture goa ls. The gas capture percentage shall be calculated by summing monthly gas sold plus m onthly gas used on lease plus monthly gas processed in a Commission approve d beneficial manner, divided by the total monthly volume of associated gas produced by the operator. The operator is allowed to remove the initial 14 days of flowback gas in the total monthly volum e calculation. The Commission will accept compliance with the gas capture goals by well, fi eld, county, or statewide by operator. If such gas capture pe rcentage is not attained at ma ximum efficient rate, the well(s)

shall be restricted to 200 barr els of oil per day if at leas t 60% of the monthly volume of associated gas produced from the well is captured, ot herwise oil production fr om such wells shall not exceed 100 barrels of oil per day.

The Commission will recognize the following as su rplus gas being utilized in a beneficial

manner:

a. Equipped with an electrical generator that consumes surplus gas from the well;

b. Equipped with a system that intakes th e surplus gas and natural gas liquids volume from the well for beneficial consumption by means of compression to liquid for use as fuel, transport to a processing facility, production of petrochemicals or fertilizer , conversion to liquid fuels, separating and collecting the propane and heavier hydrocarbons; and

c. Equipped with other value-added processe s as approved by the Director which reduce the volume or intensity of the flare by more than 60%.

(5) If the flaring of gas produced with crude oil from a Bakken, Bakken/Three Forks, and/or Three Forks Pool is determined by the North Dakota Department of Health as causing aCase No. 22058 (Continued)

Order No. 24665

(6) violation of the North Dakota Air Pollution Cont rol Rules (North Dakota Administrative Code Article 33-15), production from the respec tive pool may be further restricted.

(6) This order shall remain in full force and effect until fu rther order of the Commission.

Dated this 1st day of July, 2014.

INDUSTRIAL COMMISSION

STATE OF NORTH DAKOTA

/s/ Jack Dalrymple, Governor

/s/ Wayne Stenehje m, Attorney General

/s/ Doug Goehring, Ag riculture Commissioner