ORDER / CASE NO: ORDER NO. 10-2014 ORDER / NOTICE OFsddenr.net/ogbof/Case_No_10-2014.pdf.333333% of the working interest in the Spacing Unit. By letter mailed certified mail on June

ORDER / CASE NO: ORDER NO. 10-2014

ORDER / NOTICE OF

RECOMMENDATION TYPE: POOLING AND RISK COMPENSATION

COUNTY: HARDING

LOCATION(S): T. 22N., R. 4E., S1/2 SEC. 13 AND ALL OF SEC. 24

OPERATOR: LUFF EXPLORATION COMPANY

DATE ORDER ISSUED: 10/27/2014

DATE ORDER CLOSED:

AMENDS:

AMENDED BY:

APPROVAL STATUS: APPROVED

FIELD NAME: CLARKSON RANCH FIELD

UNIT NAME:

NEAIkas.GREAIPIACES

October 27, 2014

DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES

JOE FOSS BUILDING 523 EAST CAPITOL

PIERRE, SOUTH DAKOTA 57501-3182

denr.sd.gov

John Morrison Crowley Fleck PLLP 100 West Broadway, Suite 250 Bismarck, ND 58501

Dear Mr. Morrison:

The Department of Environment and Natural Resources received an application from Brett Koenecke's office filed on behalf of Luff Exploration Company, Denver, CO — Oil and Gas Case No. 10-2014. This case was approved administratively by the Secretary of the Department of Environment and Natural Resources in accordance with South Dakota Codified Laws 45-9-74. The approved order is enclosed.

If you have any questions regarding the order, please feel free to contact me at 605.773.4201 or email at bob.townsendstate.sd.us. Thank you.

Sincerely,

6244.4z. Robert Townsend, Administrator Minerals and Mining Program

Enclosure

cy w/enc: Brett Koenecke, May, Adam, Gerdes & Thompson, P. 0. Box 160, Pierre, SD Richard George, Manager of Engineering, Luff Exploration Company,

1580 Lincoln Street, Suite 850, Denver, CO

STATE OF SOUTH DAKOTA DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES

BOARD OF MINERALS AND ENVIRONMENT

IN THE MATTER OF THE PETITION OF LUFF EXPLORATION COMPANY, DENVER, COLORADO, FOR AN ORDER POOLING ALL INTERESTS IN A SPACING UNIT FOR THE CLARKSON RANCH FIELD DESCRIBED AS THE S/2 OF SECTION 13 AND ALL OF SECTION 24, TOWNSHIP 22 NORTH, RANGE 4 EAST, HARDING

OIL AND GAS

COUNTY, SOUTH DAKOTA, AND TO

CASE NO. 10-2014 AUTHORIZE THE RECOVERY OF RISK COMPENSATION IN ADDITION TO THE PRO RATA SHARE OF REASONABLE, ACTUAL COSTS FROM THE INTEREST OF

ORDER

ANY LESSEE OR UNLEASED MINERAL OWNER WHO ELECTS NOT TO PARTICIPATE IN THE RISK AND COST OF DRILLING AND COMPLETING A WELL ON SAID SPACING UNIT; AND FOR OTHER RELIEF AS THE BOARD DEEMS APPROPRIATE.

SECRETARY'S ORDER UNDER SDCL 45-9-74

A Petition ("Petition") of Luff Exploration Company ("Luff") was submitted to the South

Dakota Board of Minerals and Environment ("Board") on September 8, 2014. The Board

prepared and published a Notice of Opportunity for Hearing ("Notice") and Luff caused a copy

of the Petition and the Notice to be served by mail or personally on each party affected by the

petition. No petition to intervene was filed in accordance with the Notice. Therefore, pursuant

to South Dakota Codified Laws (SDCL) 45-9-74, SDCL 45-9-31 through 36, and Administrative

Rules of South Dakota (ARSD) 74:12:10, and based upon Luff s Petition and the supporting

documents filed by Luff, the Secretary makes and enters the following order:

Luff represents the owners of interests in the oil and gas leasehold estate underlying all or

portions of the S/2 of Section 13 and all of Section 24, Township 22 North, Range 4 East,

Harding County, South Dakota.

Pursuant to Order No. 6-2014, these lands constitute a spacing unit for the South

Clarkson Ranch Field (the "Spacing Unit").

Luff submitted information in support of its application which establishes there are

separately owned tracts within the Spacing Unit and there are separately owned interests within

each of those tracts.

The American State Bank & Trust as trustee for the Vema Hotger Trust (the "Trust")

owns a .5% working interest under oil and gas leases covering Section 24, and as such owns

.333333% of the working interest in the Spacing Unit. By letter mailed certified mail on

June 26, 2014, and received by the Trust on June 30, 2014, Luff notified the Trust of its intent to

drill the Clarkson Ranch N-1311 well (the "Well") on the Spacing Unit and requested the Trust

sign an Authority for Expenditure ("AFE") and agree to pay its share of the costs of drilling the

Well. Alternatively, Luff offered to pay $250 per net mineral acre for an assignment of the

Trust's interest in the proposed target interval for the Well. Luff requested the Trust to either

return the signed AFE or the letter agreement for the sale of the Trust's interest within 30 days

and further advised the Trust that if it did not lease or agree to sell its interest in the Well, Luff

intended to request the Board to provide risk compensation pursuant to ARSD 74:12:10 and the

Trust could object to risk compensation by responding in opposition. The Trustee responded by

email and elected not to participate in the risk and cost of drilling the well.

Luff's invitation to participate or sell its interest constituted a good faith attempt to have

the Trust participate in the risk and cost of drilling and operating the Well.

2

IT IS THEREFORE ORDERED

A. All interests in a spacing unit for the Clarkson Ranch Field described as the S/2 of

Section 13 and all of Section 24, Township 22 North, Range 4 East, Black Hills Meridian,

Harding County, South Dakota, including the interests of the Trust, are pooled for purposes of

the drilling and operation of, and production from, the Well drilled in accordance with Order No.

6-2014. Luff is hereby designated the operator and is authorized to drill, equip, and operate the

Well on the Spacing Unit. All expenses incurred in drilling, equipping and operating the Well on

the Spacing Unit, plus a reasonable charge for supervision and interest, and all production from

the Well, shall be allocated to the various tracts within the Spacing Unit on the basis of the ratio

the number of acres contained in each separately owned tract bears to the number of acres in the

Spacing Unit. Operations incident to the drilling of the Well shall be deemed for all purposes the

conduct of such operations upon each separately owned tract in the Spacing Unit, and production

allocated to each tract shall, when produced, be deemed for all purposes to have been produced

from each tract by a well drilled thereon.

B. Luff, on behalf of other working interest owners within the Spacing Unit who pay

the cost of drilling and completing the Well for the benefit of the Trust, may recover from the

Trust's share of production from the Well, exclusive of a royalty not to exceed one-eighth of the

production, the proportionate share of the reasonable actual costs of drilling, equipping and

operating the Well charged to the interest of the Trust. In accordance with ARSD 74:12:10:02,

Luff, on behalf of other working interest owners within the Spacing Unit who pay the cost of

drilling and completing the Well for the benefit of the Trust, may also recover from the Trust's

share of production from the Well, exclusive of a royalty not to exceed one-eighth of the

production, risk compensation equal to an additional 200% of the share of the reasonable actual

3

costs of drilling, reworking, side-tracking, deepening, plugging back, testing, completing and

recompleting the Well and the costs of newly acquired equipment in the Well including the

wellhead connection charged to the interest of the Trust.

C. In the event of a dispute as to the costs of drilling, equipping, or operating the

Well, the Board shall determine the costs in accordance with SDCL 45-9-35.

Dated and signed this 27th day of October 2014.

Steven M. Pirner Secretary Department of Environment and Natural Resources

4

RECEIVED OCT 2 3 2014

DEPT OF ENVIRONMENT & NATURAL RESOURCES - RAPID CITY

©TET©n ©©WEDEInF

Oil & Gas Case No. 10-2014

Clarkson Ranch Field

State of South Dakota Department of Environment and Natural Resources

Board of Minerals and Environment

October, 2014

RECEIVED OCT 2 3 2014

DEPT OF ENVIRONMENT & NATURAL RESOURCES - RAPID CITY LUFF EXPLORATION COMPANY

960.00 ac. Spacing S/2 Sec. 13, T22N-R4E All Sec. 24, T22N-R4E Harding County, South Dakota

960 acre spacing

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DEPT OF ENVIRONMENT & NATURAL VERNA HOTGER TRUST

RESOURCES - RAPID CITY

C/O AMERICAN STATE BANK & TRUST P. O. BOX 1446 WILLISTON, ND 58802-1446

Re: Clarkson Ranch N-13H SE/4SW/4 Section 13-T22N-R4E Harding County, South Dakota AFE #D14-14

To Whom It May Concern:

According to our records the Trust owns a 0.50% leasehold working interest under the All of Sec. 24, T22N-R4E, Harding County, South Dakota. These lands are included in a proposed 960 acre spacing unit comprised of the S/2 of Sec. 13 and All of Sec. 24, T22N-R4E. You were previously sent the Petition and Notice of Opportunity for Hearing related to this spacing unit. Your interest in the spacing unit is 0.333333%. Luff Exploration Company proposes to drill the referenced well and hereby invites you to participate in said well as to your working interest. We anticipate operations will commence approximately September 1, 2014.

The well is designed to be a medium radius horizontal well in the Red River "B" zone which is at a vertical depth of approximately 8,975'. Casing will be run through the curve and the horizontal lateral will be drilled as far as reasonablypractical attempting to reach the SW/4SE/4 of Sec. 24 approximately 5,900' away.

Enclosed please find our Authority for Expenditure ("AFE") to drill the Clarkson N-13H. If you elect to participate please return one executed copy of the AFE within 30 days from the date of this letter. This AFE is based on our current, best estimate of drilling costs. The actual costs may differ slightly at the time the well is drilled and you will be responsible for your share of actual costs.

As an alternative, Luff would pay you $250 per net mineral acre for an assignment of 100% of your interest in the interval described below under All of said Sec. 24, subject to you retaining a proportionately reduced overriding royalty interest equal to the difference between existing burdens and 20%. The assignment would be limited to that certain stratigraphic interval from the top of the Gunton member of the Stony Mountain Formation, found at a depth of 8,806 feet below the Kelly Bushing as identified by the Schlumberger Compensated Neutron— Formation Density Log run in the DEPCO Travers 34-24 well located in the SW% SE% of Section 24, Township 22 North, Range 4 East, Harding County, South Dakota and to include all principal zones down to the Red River "C" zone marker, found at a depth of 9,014 feet below the Kelly Bushing as identified by the same log. This will not affect your interest in the Wyoming Resources well located in Section 24 which produces from the "D" zone of the Red River

June 26, 2014 RECEIVED OCT 2 3 2014

CERTIFIED MAIL RETURN RECEIPT REOUESTED

EXHIBIT 3 Five Pages

June 26, 2014 Page Two

formation. If you elect to sell your interest as described above please sign this letter in the space provided below and return one executed copy of the letter within 30 days from the date of this letter. We will then provide you an assignment for your execution and will pay you as soon as we receive the executed assignment. This offer is subject to approval of title.

In the event you choose not to participate in the cost and risk of the above described drilling operation or sell your interest pursuant to the above offer, be advised that Luffintends to request the Board of Minerals and Environment to provide for the recovery of risk compensation pursuant to South Dakota Administrative Rules 74:12:10. You may object to the risk compensation provision by responding in opposition to the application for the compulsory pooling order.

Sincerely,

LUFF EXPLORATION COMPANY

C ayton Chessman Exploration Manager

The undersigned, this day of July, 2014, hereby agrees to sell its interest in the stratigraphic interval described above under the terms and conditions described above.

Verna Hotger Trust

By:

w/enclosures

Luff Exploration Company Authority For Expenditure

Drill & Equip Well

Well Name: Clarkson Ranch N-13H AFE # : D14-14 Location: SE SW Sec 13, T22N, R4E, Harding County, South Dakota Luff ID: 406314101 Spacing Unit: T22N & R4E: S/2 Sec 13, All Sec 24 Date : 23-Jun-14 Field Name: Clarkson Ranch Est Start Date: 13-Sep-14 Proposed Work: Drill and complete a medium radius horizontal well in the Red

River "B" formation. TD = 15,100' MD

Prepared By: BO/RF/GR

ACCT 120;i1 0 ACCT120-16

201 4 IN 1"PikiltikM LaJb f:,b' - Dry H* COlp10100; 0:001:17.qt,41.

02 Title, Legal, & Regulatory $24,000 $24,000 04 Location, Roads & Damages $118,000 $45,000 $163,000 10 Contract Drilling - Daywork $449,000 $449,000 12 Horizontal DrIg Services $391,000 $391,000 14 Well Servicing Unit $20,000 $20,000 16 Rig Move/Mob/Demob $150,000 $150,000 18 Wireline Sevices CBL $10,000 $10,000 22 Fuel $75,000 $75,000 24 Water Source & Hauling $40,000 $15,000 $55,000 26 Bits, Coreheads & Reamers $70,000 $70,000 30 Pipe Inspection $3,000 $3,000 32 Casing Crew $73,000 $73,000 34 Cementing Services $90,000 $90,000 36 Drilling Fluids & Chemicals Includes Diesel $170,000 $170,000 40 Mud Logging Services $53,000 $53,000 42 Formation Testing $0 44 Equipment Rental $200,000 $3,000 $203,000 46 Fire, Safety & Environment $0 48 Miscellanous Trucking $2,000 $2,000 50 LEC/Contract Labor $15,000 $12,000 $27,000 54 LEC Supervision $1,000 $3,000 $4,000 56 Contract Supervision $59,000 $59,000 60 Administrative Overhead $10,000 $2,000 $12,000 64 Other Costs $15,000 $2,000 $17,000 99 Outside Operated $0

Subtotals, Intangible: $2,018,000 $102,000 $2,120,000

TANGIE41,:p qc;I#g: ACCT 120;25::, ACCT 20-26, ... . ACCT 121125

:::.:Ptii: 0)10 i:!0'OnlpleOe'n . TOIal 04 Location/Conductor/ROW $20,000 $20,000 15 Power $200,000 $200,000 48 Miscellanous Trucking $0 50 Equip Installation - LEC/Contract Labor $40,000 $40,000 54 LEC Supervision $3,000 $3,000 56 Contract Supervision $0 $0 64 Other Costs $5,000 $5,000 70 Wellhead Equipment Csghd. & Tbghd. $22,000 $0 $22,000 71 Pumping Unit/Motor/Base $191,000 $191,000 74 Casing $250,000 $0 $250,000 75 Tubing 9000' 2 Mr J55 $45,000 $45,000 76 Rods $49,000 $49,000 77 Tank Battery Inc! valves & fittings, etc $130,000 $130,000 81 Buildings $10,000 $10,000 83 Meters $3,000 $3,000 84 Subsurface Equipment $10,000 $10,000 85 Line Pipe $60,000 $60,000 86 Automation $5,000 $5,000 87 Valves, Fittings & Supplies $1,000 $1,000 89 Other Surface Equipment $33,000 $33,000 99 Outside Operated

Subtotals, Tangible: $272,000 $805,000 $1,077,000

Cost Summary: Dry Hole Completion Total Intangible Costs $2,018,000 $102,000 $2,120,000 Tangible Costs $272,000 $805,000 $1,077,000 Grand Total Well Costs $2,290,000 $907,000 $3,197,000

Luff Exploration Company Authority For Expenditure

Drill & Equip Well

Well Name: Clarkson Ranch N-13H Location: SE SW Sec 13, T22N, R4E, Harding County, South Dakota Spacing Unit: T22N & R4E: S/2 Sec 13, All Sec 24 Field Name: Clarkson Ranch Proposed Work: Drill and complete a medium radius horizontal well in the Red

River "B" formation. TD = 15,100' MD

AFE # : Luff ID: Date :

Est Start Date:

D14-14 406314101 23-Jun-14 13-Sep-14

Cost Summary: Dry Hole Completion Total Intangible Costs $2,018,000 $102,000 $2,120,000 Tangible Costs $272,000 $805,000 $1,077,000 Grand Total Well Costs $2,290,000 $907,000 $3,197,000

Owner W. I. % Net Dry Hole Cost Net Comp. Cost Total Well Cost Kenneth D. Luff Trust dtd 12/1/1992, et al 84.777667% $1,941,409 $768,933 $2,710,342 David J. Blanchard 0.333333% $7,633 $3,023 $10,657 Jeffrey L. Bush 0.833333% $19,083 $7,558 $26,642 John L. & Joan Bush 0.333333% $7,633 $3,023 $10,657 Butz Brothers Leasing, a partnership 0.333333% $7,633 $3,023 $10,657 Alan Flegler 0.666667% $15,267 $6,047 $21,313 G&W Engineering, Inc. 0.333333% $7,633 $3,023 $10,657 Terry Gaudreau 0.166667% $3,817 $1,512 $5,328 Verna Hotger Trust, American State Bank, Trustee 0.333333% $7,633 $3,023 $10,657 James A. Jorgenson 1.000000% $22,900 $9,070 $31,970 Leonard M.-Jorgenson and Jorgenson Family Mineral Tru 1.000000% $22,900 $9,070 $31,970 Al Kontos estate and Susy Kontos 0.666667% $15,267 $6,047 $21,313 Tecton Energy 3.861167% $88,421 $35,021 $123,442 Greg Thompson 0.333333% $7,633 $3,023 $10,657 Tri-Star Minerals 0.333333% $7,633 $3,023 $10,657 Mark Walker 0.166667% $3,817 $1,512 $5,328 Zenergy Onshore 3.861167% $88,421 $35,021 $123,442 Thomas G. Nitka 0.666667% $15,267 $6,047 $21,313

$0 $0 $0 $0 $0 $0

$0 $0 $0 otals

100.0000% $2,290,000

$907,000 $3,197,000

Approved by:

Representing:

Date: For reporting Pomo.. only)

Address:

Telephone:

Fax:

e-mail

For delivery information visit our website at www.usps.como.

Total PeQremit A Fees ft (-1) 462 g VERNA HOTGER TRUST C/O AMERICAN STATE BANK & TRUST P. O. BOX 1446 WILLISTON, ND 58802-1446

City, St.

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Restricted Delivery Fee (Endorsement Required)

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A. Si nature

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COMPLETE THIS SECTION ON DELIVERY

C. • Delivery ■

s If YES, enter delivery address below: 0,No

D. Is delivery address dkereilt from i

SENDER: COMPLETE THIS SECTION

■ Complete items 1, 2, and 3. Also complete item 4 if Restricted Delivery is desired. ■ Print your name and address on the reverse

so that we can return the card to you. ■ Attach this card to the back of the mailpiece,

or on the front if space permits.

1. Article Addressed to:

VERNA HOTGER TRUST C/O AMERICAN STATE BANK & TRUST P. 0. BOX 1446 WILLISTON, ND 58802-1446

3. Service Type g Certified Mailo ❑ Priority Mail Express- ❑ Registered ❑ Return Receipt for Merchandise ❑ Insured Mail ❑ Collect on Delivery

4. Restricted Delivery? (Extra Fee)

❑ Yes 2. Article Number

(Transfer from service labe.,

PS Form 3811, July 2013

7013 2630 0001 5227 4702

Domestic Return Receipt

C-

Affidavit of Publication STATE OF SOUTH DAKOTA: COUNTY OF HARDING: Letitia Lister of said County and State being first duly sworn, on her oath says: That the NATION'S CENTER NEWS is a legal weekly newspaper of general circulation, printed and published in the City of Buffalo, in said County and State by Letitia Lister, and has been such a newspaper during the times hereinafter mentioned; and that said newspaper has a bonafide circulation of at least 200 copies weekly, and has been published within said County in the English lan-guage for at least one year prior to the first publication of the notice herein mentioned, and is printed in whole or in part in an office main-tained at the place of publication; and that I, Letitia Lister, the undersigned, am the Publisher of said newspaper and have personal knowledge of all the facts stated in this affidavit; and that the adver-tisement headed:

K)(73- in - aoiy

a printed copy of which is hereto attached, was printed and published in said newspaper for I successive pid consecutive weeks, the first publication being made on the jg', day oft, a0/9, and the last publication on the day of , that the full amount of fees charged for publishing same, to-wit: The sum of $38.g9 , insures solely to the benefit of the publisher of the NATION CENTER NEWS, that no agreement or understanding for a division thereof has been made with any person and that no part thereof has been agreed to be paid to any other person whomsoever.

Subscribed and sworn to before me this day of 5- , Z014

of y Public, Butte County, South Dakota IVIS/ corrnnisfion expires: 3-7-2017

Dated: September 12, 2014

RECEn SEP 2 't A

-s- Steven M. Pirner Steven M. Pimer

Secretary Published once at the

total approximate cost of $41.15.

#780 Sept. 18

DEPT OF ENVIRONL::''T& NATURAL. RESOURCES - CITY

STATE OF SOUTH DAKOTA

DEPARTMENT OF ENVIRONMENT AND

NATURAL RESOURCES BOARD OF

MINERALS AND ENVIRONMENT

NOTICE OF OPPORTUNITY FOR

HEARING

OIL AND GAS CASE NO. 10-2014

IN THE MATTER OF THE PETITION OF LUFF EXPLORATION COM-PANY, DENVER, COLO-RADO, FOR AN ORDER POOLING ALL INTER-ESTS IN A SPACING UNIT FOR THE CLARK-SON RANCH FIELD DE-SCRIBED AS THE S/2 OF SECTION 13 AND ALL OF SECTION 24, TOWNSHIP 22 NORTH, RANGE 4 EAST, HARD-ING COUNTY, SOUTH DAKOTA, AND TO AU-THORIZE THE RECOV-ERY OF RISK COMPEN-SATION IN ADDITION TO THE PRO RATA SHARE OF REASON-ABLE, ACTUAL COSTS FROM THE INTEREST OF ANY LESSEE OR UNLEASED MINERAL OWNER WHO ELECTS NOT TO PARTICIPATE IN THE RISK AND COST OF DRILLING AND COMPLETING A WELL ON SAID SPAC-ING UNIT; AND FOR OTHER RELIEF AS THE BOARD DEEMS AP-PROPRIATE.

Notice is hereby giv-en to Luff Exploration Company, Denver, Colo-rado, and to all interested persons that the Board of Minerals and Environ-ment, hereinafter "board," will hold a contested case hearing on the above de-scribed matter on Thurs-day, November 20, 2014, at 10:15 a.m. CST at the Matthew Environmental Education and Training Center, Joe Foss Building, 523 East Capitol Avenue, Pierre, SD 57501, for the purpose of hearing the above matter if any party intervenes and requests a hearing as provided by law.

The board has jurisdic-tion and legal authority to issue orders for the de-velopment of the oil and gas resources of the state pursuant to South Dakota Codified Laws (SDCL) Chapters 45-9 and

1-26 and to Administra-tive Rules of South Dakota (ARSD) 74:09 and 74:12. The hearing is an adver-sary proceeding and any party has the right to be represented by a lawyer. These and other due pro-cess rights will be forfeit-ed if they are not exercised at the hearing. The board may approve, conditional-ly approve, or deny the ap-plication. The board's de-cision will be based upon the evidence received at the hearing. The board's decision may be appealed to the Circuit Court and the State Supreme Court as provided by law.

If the amount in contro-versy exceeds two thou-sand five hundred dollars or if a property right may be terminated, any party to the contested case may require the agency to use the Office of Hearing Ex-aminers by giving notice of the request to the agen-cy no later than ten days after service of a notice of hearing issued pursuant to SDCL Chapter 1-26-17.

Any person who wishes to intervene in this pro-ceeding as a party must file a petition to inter-vene pursuant to ARSD 74:09:01:04 on or before October 8, 2014. The above described matter will only be heard before the board if a person inter-venes in this proceeding. If no petition to intervene is filed, the Secretary of the Department of Envi-ronment and Natural Re-sources will approve or conditionally approve the application in accordance with SDCL 45-9-74.

Notice is further given to individuals with dis-abilities that this hearing is being held in a physically accessible place. Please notify the Department of Environment and Natural Resources at least 48 hours before the public hearing if you have a disability for which special arrange-ments must be made at the hearing. The telephone number for making special arrangements is (605) 773-4201.

The application and notice of hearing are also posted on the department's website at: http://denr. sd.gov/des/og/pubhearing. aspx. Additional infor-mation about this applica-tion is available from Bob Townsend, Administrator, Minerals and Mining Pro-gram, Department of En-vironment and Natural Re-sources, 523 East Capitol Avenue, Pierre, SD 57501, telephone (605) 773-4201, email bob.townsend@ state.sd.us.

RECEIVED

SEP 2 2 2014 DEPT OF ENVIRONMENT & NATURAL

RESOURCES - RAPID Gin,



IN THE MATTER OF THE PETITION OF LUFF EXPLORATION COMPANY, DENVER, COLORADO, FOR AN ORDER POOLING ALL INTERESTS IN A SPACING UNIT FOR THE CLARKSON RANCH FIELD DESCRIBED AS THE S/2 OF SECTION 13 AND ALL OF SECTION 24, TOWNSHIP 22 NORTH, RANGE 4 EAST, HARDING COUNTY, SOUTH DAKOTA, AND TO AUTHORIZE THE RECOVERY OF RISK COMPENSATION IN ADDITION TO THE PRO RATA SHARE OF REASONABLE, ACTUAL COSTS FROM THE INTEREST OF ANY LESSEE OR UNLEASED MINERAL OWNER WHO ELECTS NOT TO PARTICIPATE IN THE RISK AND COST OF DRILLING AND COMPLETING A WELL ON SAID SPACING UNIT; AND FOR OTHER RELIEF AS THE BOARD DEEMS APPROPRIATE.

Case No. 10-2014

AFFIDAVIT OF HAND DELIVERY

CLAYTON CHESSMAN, being duly sworn on oath, deposes and says that he is Exploration Manager for Luff Exploration Company, the applicant in the above entitled matter, that I personally hand delivered, on September 17, 2014, a copy of Luff's Petition and the Notice of Public Hearing in said matter to Kenneth D. Luff, Trustee of the Kenneth D. Luff Trust dated December 1, 1992, at 1580 Lincoln Street, Suite 850, Denver, Colorado 80203.

on Chessman

STATE OF COLORADO ) COUNTY OF DENVER )

Sworn and subscribed before me on the 18th day of September, 2014

fr—utt-c4 leuuLL Kristal Davila - Notary Public My Commission Expires 06/24/2015




Case No. 10-2014

AFFIDAVIT OF MAILING

CLAYTON CHESSMAN, being duly sworn on oath, deposes and says that he is Exploration Manager for Luff Exploration Company, the applicant in the above entitled matter, that on September 17, 2014, under his direction there were mailed, by certified mail-return receipt requested, true and correct copies of Luff's Petition and the Notice of Public Hearing in said matter to each of the persons/entities affected by the Petition. From review of the records of Luff Exploration Company, the persons/entities shown on the attached Exhibit "A" are those persons/entities affected by the petition. Copies of the "Certified Mail Receipts" are attached hereto as Exhibit "B". The Domestic Return Receipts (green cards) will be submitted prior to the hearing date.

Cldyton Chessman

STATE OF COLORADO ) COUNTY OF DENVER )

Sworn and subscribed before me on the 18th day of September, 2014

Kristal Davila - Notary Public My Commission Expires 06/24/2015

RECEIVED SEP 2 2 2014


EXHIBIT "A" PAGE I OF 1 CASE NO. 10-2014 SPACING: S/2 OF SECTION 13 AND ALL OF SECTION 24, T22N, R4E HARDING COUNTY, SOUTH DAKOTA

JOHN L. & JOAN BUSH 28364 184TH STREET PIERRE, SD 57501

FISCHER OIL AND GAS, INC. 5749 83RD STREET SOUTH GRAND FORKS, ND 58201-9120

DAVID J. BLANCHARD 620 THIRD STREET LANGDON, ND 58249

BUTZ FAMILY PROPERTIES, LLP P. 0. BOX 1208 MINOT, ND 58702-1208

ALAN FLEGLER 619 EAST 11TH STREET WILLISTON, ND 58801

JEFFREY L. BUSH 18467 282ND AVENUE PIERRE, SD 57501

ENERGY DEVELOPMENT FUND 1993-A C/O WYOMING RESOURCES CORPORATION 1508 MT. VIEW ROAD, SUITE 105 RAPID CITY, SD 57702

G & W ENGINEERING, INC. 4541 SOUTH NAVAJO ENGLEWOOD, CO 80110

TERRY GAUDREAU P. O. BOX 508 WILLISTON, ND 58801

JAMES A. JORGENSON JORGENSON FAMILY MINERAL TRUST LEONARD M. JORGENSON P. O. BOX 727 KENMARE, ND 58746

THOMAS G. NITKA 17914 GREAT GLEN HOUSTON, TX 77084

ADA R. PIKE SUB TRUST B ROBERT E. STEINER AND SUZANNE STEINER ZELLER, CO-TRUSTEES 453 VIA ARBOLES SAN MARCOS, CA 92069-3420

STATE OF SOUTH DAKOTA COMMISSIONER OF SCHOOL & PUBLIC LANDS 500 EAST CAPITOL PIERRE, SD 57501

TRI-STAR MINERALS C/O MIKE FITZMAURICE P. 0. BOX 3086 MINOT, ND 58702

VERNA HOTGER TRUST C/O AMERICAN STATE BANK & TRUST P. O. BOX 1446 WILLISTON, ND 58802-1446

SUSY B. KONTOS P. O. BOX 1134 BISMARCK, ND 58502

JOHN W. OBERLITNER 2208 LOCKWOOD DRIVE RAPID CITY, SD 57702

PINE OIL COMPANY P. O. BOX 6151 BISMARCK, ND 58506-6151

GREG THOMPSON 414 S. 30TH STREET PHILOMATH, OR 97370

PHILIP VAN SCHUYLER 323 W. JEFFERSON STREET, #209 BOISE, ID 83702

DENNIS JOHNSON P. 0. BOX 405 RAPID CITY, SD 57709

RICHARD ROBERTSON MELONE GENE ELIZABETH MELONE 3207 ALTA VISTA DRIVE LARAMIE, WY 82072

OXOX OIL, LTD. C/O JAY BREWSTER 6150 MAGIC CANYON ROAD RAPID CITY, SD 57702

CATHRYN MELONE SOULE' 7870 JOHNSTON ROAD PLEASANTON, CA 94588

ALYCE TRAVERS FAMILY TRUST TRAVERS EDUCATIONAL MINERAL TRUST THOMAS W. REICHERT, TRUSTEE 116 WEST VILLARD DICKINSON, ND 58601 5120

MARK WALKER 1478 EAST SEASIDE COURT BOISE, ID 83706

WYOMING RESOURCES CORPORATION HAAN OIL COMPANY 1508 MT. VIEW ROAD, SUITE 105 RAPID CITY, SD 57702

ZENERGY ONSHORE PROPERTIES, LLC 6100 S. YALE AVENUE, SUITE 1700 TULSA, OK 74136 RECEIVED

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DEPT OF ENVIRO

NMENT & NATURAL

RESOURCES - RAPID M

Y

DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES

JOE FOSS BUILDING 523 EAST CAPITOL

PIERRE, SOUTH DAKOTA 57501-3182 denr.sd.gov

September 12, 2014

Brett Koenecke May, Adam, Gerdes & Thompson LLP P. 0. Box 160 Pierre, SD 57501-0160

Dear Mr. Koenecke:

Enclosed is a copy of the Notice of Opportunity for Hearing for Luff Exploration Company's application requesting a pooling order and risk compensation for a spacing unit in Harding County, SD, Oil and Gas Case No. 10-2014. The notice has been sent to the Nation's Center News, Buffalo, SD, for publication on September 18, 2014.

It is the applicant's responsibility to serve notice on those persons "....whose property may be affected..." as specified in South Dakota Codified Laws 45-9-58. Therefore, following service of the notice, please file the following with our office:

1. Affidavit of Notification (service of notification must oc early enough to allow persons notified time to intervene in the case)

2. Certified mail return receipts 3. A list of persons notified

Also be advised that, before an order authorizing risk compensation is entered, Administrative Rules of South Dakota 74:12:10:01 requires the applicant to:

1. Provide proof that an unsuccessful, good-faith attempt was made to have the nonparticipating owner execute a lease or participate in the risk and cost of unit operations; and

2. Notify the nonparticipating owner with proof of service that the applicant intends to request the board to provide for the recovery of risk compensation and that the nonparticipating owner may object to the risk compensation provision by responding in opposition to the application for the compulsory pooling order.

Brett Koenecke Page Two September 12, 2014

If you have any questions, please feel free to contact me at (605) 773-4201.

Sincerely,

C:20140,44 1:~111111411001

Robert Townsend, Administrator Minerals and Mining Program

Enclosure

cc wienc via email: John Morrison, Crowley Fleck PLLP, P. O. Box 2798, Bismarck, ND Richard George, Manager of Engineering, Luff Exploration Company,

1580 Lincoln Street, Suite 850, DenverS0 Roxanne Giedd, Deputy Attorney General, Office of the Attorney General,

Pierre, SD




NOTICE OF

OPPORTUNITY FOR HEARING

OIL AND GAS CASE NO. 10-2014

Notice is hereby given to Luff Exploration Company, Denver, Colorado, and to all interested persons that the Board of Minerals and Environment, hereinafter "board," will hold a contested case hearing on the above described matter on Thursday, November 20, 2014, at 10:15 a.m. CST at the Matthew Environmental Education and Training Center, Joe Foss Building, 523 East Capitol Avenue, Pierre, SD 57501, for the purpose of hearing the above matter if any party intervenes and requests a hearing as provided by law.

The board has jurisdiction and legal authority to issue orders for the development of the oil and gas resources of the state pursuant to South Dakota Codified Laws (SDCL) Chapters 45-9 and 1-26 and to Administrative Rules of South Dakota (ARSD) 74:09 and 74:12. The hearing is an adversary proceeding and any party has the right to be represented by a lawyer. These and other due process rights will be forfeited if they are not exercised at the hearing. The board may approve, conditionally approve, or deny the application. The board's decision will be based upon the evidence received at the hearing. The board's decision may be appealed to the Circuit Court and the State Supreme Court as provided by law.

If the amount in controversy exceeds two thousand five hundred dollars or if a property right may be terminated, any party to the contested case may require the agency to use the Office of Hearing Examiners by giving notice of the request to the agency no later than ten days after service of a notice of hearing issued pursuant to SDCL Chapter 1-26-17.

Any person who wishes to intervene in this proceeding as a party must file a petition to intervene pursuant to ARSD 74:09:01:04 on or before October 8, 2014. The above described matter will only be heard before the board if a person intervenes in this proceeding. If no petition to

intervene is filed, the Secretary of the Department of Environment and Natural Resources will approve or conditionally approve the application in accordance with SDCL 45-9-74.

Notice is further given to individuals with disabilities that this hearing is being held in a physically accessible place. Please notify the Department of Environment and Natural Resources at least 48 hours before the public hearing if you have a disability for which special arrangements must be made at the hearing. The telephone number for making special arrangements is (605) 773-4201.

The application and notice of hearing are also posted on the department's website at: lutp://denr.sd.gov/des/og/pubhearing.aspx. Additional information about this application is available from Bob Townsend, Administrator, Minerals and Mining Program, Department of Environment and Natural Resources, 523 East Capitol Avenue, Pierre, SD 57501, telephone (605) 773-4201, email bob.townsendralstate.sd.us.

Dated: September 12, 2014

Steven M. Pirner Secretary

Published once at the total approximate cost of

2

ROBERT B. ANDERSON

TIMOTHY M. ENGEL

MICHAEL F. SHAW

BRETT KOENECKE

CHRISTINA L. KLINGER

JUSTIN L. BELL

DOUGLAS A. ABRAHAM

KARA C. SEMMLER

MAY ADAM a,. tat WWW.MAGT.COM

September 8, 2014

Writer's E-mail: [email protected]

OF COUNSEL DAVID A. GERDES

CHARLES M. THOMPSON

GLENN W. MARTENS 1881-1968 KARL GOLDSMITH 1886-1966

BRENT A. WILBUR 1949-2006

TELEPHONE 605 224-8803

FAX

605 224-6289

Department of Environment and Natural Resources Minerals & Mining Program, - Oil and Gas Section 2050 West Main, Suite #1 Rapid City, SD 57702-2493

RE: Clarkson Ranch Field Our file: 4385.54

Dear Sirs:

Enclosed please find the original Petition as referenced above. Please file the same. If you have any questions, please feel free to contact me. Thank you for your attention to this.

Very truly yours,

MAY, 'AS• M, GERDES & THOMPSON LLP

w BRETT KOENECKE

BK/sjs

Enclosure

Cc/encl: John W. Morrison

MAY, ADAM, GERDES & THOMPSON LLP

503 SOUTH PIERRE STREET • P.O. Box 160 PIERRE, SOUTH DAKOTA 57501-0160

RECEIVED

SEP I 0 20V1 DEPT OF ENVIRONMENT & NATURAL




IN THE MATTER OF THE PETITION OF LUFF EXPLORATION COMPANY, DENVER, Case No. COLORADO, FOR AN ORDER POOLING ALL INTERESTS IN A SPACING UNIT FOR THE CLARKSON RANCH FIELD

PETITION

DESCRIBED AS THE S/2 OF SECTION 13 AND ALL OF SECTION 24, TOWNSHIP 22 NORTH, RANGE 4 EAST, HARDING COUNTY, SOUTH DAKOTA, AND TO AUTHORIZE THE RECOVERY OF RISK COMPENSATION IN ADDITION TO THE PRO RATA SHARE OF REASONABLE, ACTUAL COSTS FROM THE INTEREST OF ANY LESSEE OR UNLEASED MINERAL OWNER WHO ELECTS NOT TO PARTICIPATE IN THE RISK AND COST OF DRILLING AND COMPLETING A WELL ON SAID SPACING UNIT; AND FOR OTHER RELIEF AS THE BOARD DEEMS APPROPRIATE.

COMES NOW the petitioner, Luff Exploration Company ("Luff'), and respectfully

alleges as follows:

1. Luff represents the owners of interests in the oil and gas leasehold estate

underlying all or portions of the S/2 of Section 13 and all of Section 24, Township 22 North,

Range 4 East, Harding County, South Dakota.

2. By Secretary's Order dated July 28, 2014 in Case No. 6-2014, said lands were

designated as a 960-acre spacing unit for the Clarkson Ranch Field. The order also authorized

issuance of a permit to drill a horizontal well on said spacing unit, which was subsequently

issued to Luff by the Department of Environment and Natural Resources on August 14, 2014.


DEPT OF ENVIRONMENT & NATURAL RESOURCES - RAPID CM, 1

3. There are separately owned tracts and/or separately owned interests within tracts

within said proposed spacing unit.

4. Luff has attempted to secure a lease from all unleased mineral owners or joinder

in the drilling of a well by all lessees or unleased owners who elect not to lease in such spacing

unit, but as of the date of this application, one working interest owner, the American State Bank

& Trust Company as trustee for the Verna Hoger Trust (the "Trustee") has communicated to

Luff that it wished to be force pooled. By letter dated June 26, 2014, sent by certified mail,

return receipt requested, Luff made a final offer to the Trustee, requesting that it either

participate or assign its interest to Luff subject to a retained overriding royalty interest. Luff

also advised the Trustee that if it elected not to participate in the well, Luff intended to request

the board to provide for the recovery of risk compensation and that the Trustee may object to the

risk compensation by responding in opposition to the application for a compulsory pooling order.

In accordance with Section 74:12:10:01 ARSD, Luff will file proof of service of such offer upon

the owner prior to the hearing or the entry of an order in this matter. The Trustee responded by

email and elected not to participate in the risk and cost of drilling the well.

5. Luff desires that the Board pool all interests in said spacing unit in accordance

with SDCL 45-9-31, and that Luff be authorized to drill, equip and operate the well in

accordance with SDCL 45-9-32.

6. Luff further desires that the order provide that Luff is allowed to recover from the

share of production attributable to the Trustee, the Trustee's pro rata share of the reasonable,

actual costs of drilling, completing, equipping and operating a well on the spacing unit, plus,

pursuant to ARSD Chapter 74:12:10, a risk compensation equal to two hundred percent of the

reasonable actual costs of drilling, reworking, side-tracking, deepening, plugging back, testing,

RECEIVED SEP 1 Q 2014

2 DEPT OF ENVIRONMENT & NATURAL RESOURCES - RAPID CITY

completing and recompleting the well and the costs of newly acquired equipment in the well

including the wellhead connection.

7. The Board is authorized to grant the requested pooling order by SDCL 45-9-31

through 45-9-36.

WHEREFORE, petitioner respectfully requests that the Board issue its notice of

opportunity for hearing and, if any interested party intervenes in accordance with said notice, set

this matter for hearing at the regularly scheduled hearings on November 19, 2014, or such other

date as may be established by the Board and that thereafter the Board enter its order granting the

relief requested. If no interested party intervenes, petitioner requests that the Secretary enter an

order granting the relief requested.

Dated this 8th day of September, 2014.

LUFF EXPLORATION COMPANY

John W. Morrison CROWLEY FLECK PLLP Suite 600, 400 East Broadway P.O. Box 2798 Bismarck, ND 58502

MAY, ADAM, GERDES & THOMPSON, L.L.P. 503 South Pierre Street P.O. Box 160 Pierre, SD 1-0160

By: .447—

BRETT M. KOENECKE


DEPT OF ENVIRONMENT & NATURAL

3 REFOUP'71 P CITV

Documents

ORDER / CASE NO: ORDER NO. 10-2014 ORDER / NOTICE OFsddenr.net/ogbof/Case_No_10-2014.pdf.333333% of the working interest in the Spacing Unit. By letter mailed certified mail on June