Report to

Montana Board of Oil and Gas Conservation

Scope of Workfor the

Development of aProcedures Manual

and a

Field I nspection SlrstemWork product of Montana DNRC Contract L2g22O,

this report is provided by

Montana Tech

'Ji:,'::ffTl'illJli,.,Technical CommunicationComputer Science and Software Engineering

Environ menta I Engineeri ngSafety, Health and lndustrial Hygierre

30 June 2OL2

''..'i:ir'[ u3" F ], U ffi $' ffATech,TH E UN tVEnSlw- o F rrrroNrar,rn

Exhibit 1

Table of Contents

Observations and Resu1ts................. .............4

Figure 1 - Current Inspection process .....................4

Two paths to address the recommendations of the audit........... .....................9

Scoping Team Recommendations ................9

Figure 2 - Efficiencies are achieved via automation of the reporting process......, ..........10

Tabfe 1 - Estimate of Scope of Work for Field Inspection Manual and Sy:;tem .............1,2

Legislative Audit Division Recommendations ............ j,4

Board of Oiland Gas Conservation Response............. .................. j.5

BOGC Response to Rl., R2, R3............... .................15

BOGC Response to R4............... ............16

BOGC Response to R5, R6, R7.............. ..................16

Biographical information on the members Montana Tech scoping Team ......17

Frank Ackerman, PhD. .......L7

Merle Benedict, PhD, MPH........... ........I7

William J. Drury, PhD............ ................18

Kay Eccleston, MS.......... ......................1g

John Getty, MS............. .......................1g

IntroductionThe Montana Board of Oil and Gas Conservation (BOGC) is charged with regulation of the oiland gas industry within the state. As stated on the BoGc website:

The board's regulatory action serve three primary purposes: (1) to preventwaste of oil & gas resources, (2) to conserve oil & gas by encouragingmaximum efficient recovery of the resource, and (3) to protect the correlativerights of the mineral owners, i.e,, the right of each owner to recover its fairshare of the oil & gas underlying its lands. The board also seeks to prevent oiland gas operations from harming nearby land or undlerground resources.

A performance audit of the Board of Oil and Gas Conservation Regulatory pro,gram, with areport dated September zOl'L, was conducted bythe Montana Legislative Au4it Division. Thatdocument provided a total of seven recommendations designed to respond to the concernsstated in the audit report summary as follows:

"The Board of oil and Gas conservation must improve its; inspections andenforcement processes to more effectively regulate thre 5131s,, :[7,600active oil and gas wells."

This scoping project was initiated to assist the o&G Division in addressing the concerns statedin the audit report. Specifically, Montana Tech was contracted to prrovide the followingservices:

-' "

:"

-

if';: l,#ffify..; * nn:r, :HT, Ii'J:,,. EPA UIC manual. Applicable Montana Regulations

*'':"'

!i:, ;il :il "d d" r iu"' b t "'

. Draft of RFeThese deliverables were presented first as an interim report to the BoGc at ttre April26, 2oL2meeting. The final report (this document) is to be submitted no later than June 30, 2O!2.

Montana Tech Scoping Study - Development of Procedures Manual and Sys;tem V1,.1 page 1 of I

DefinitionsAcademic departments at Montana Tech of the University of Montana and a:;sociatedpersonnel that were involved in the development of the documenrl are referred to by theirdepartment names.

o PetroleumEngineering

o Technical Communication

o Computer Science ond Software Engineeringo Environmental Engineering

o Sofety, Heolth ond lndustrial Hygiene

coGcc refers to the colorado oil and Gas conservation commission.

FIPM refers to a Montana Field Inspection Procedures Manual that would be developed underproposed Path l.

IAD refers to the Legislative Audit Division of the state of Montana. This entity is the author ofthe report that includes recommendations for modifications to ther business practices and fieldinspection procedures of the Oil and Gas Division of the Department of Natural Resources.

MBoGc refers to the Montana Board of oil and Gas Conservation, the citizen board withsupervisory responsibility of the O&G Division.

MTST refers to the Montana Tech Scoping Team, the faculty group organized to conduct thisscoping study.

O&G Division refers to the Oil and Gas Division of the Montana De;rartment crf NaturalResources and Conservation. This organization is responsible for tlre day-to-day operation ofthe oil and gas interests of the State of Montana and is supervised by the Montana Board of oiland Gas Conservation. The Montana Tech/DNRC contract Lzlzzothat produced this reportwas initiated by the O&G Division.

RBDMS is the data base used by the o&G Division of Montana and 21 other states to store dataabout oil and gas well locations, permitting and production, and to meet EpA regulations forground water protection in disposal (UlC) wells.

slrsD refers to Montana's state Information Technology services c,ivision

U/C refers to Underground Injection Control. A Ulc well is used primarily for rJisposal ofproduced fluids with no commercialvalue, such as brine.

Montana Tech scoping study - Development of Procedures Manual and system V1.1 page 2 of 1g

MethodsThe Petroleum Engineering Department served as lead on a multidisciplinary team consisting offaculty from five different departments; Petroleum Engineering, Technical Cornmunication,Computer Science and Software Engineering, Environmental Engineering and Safety, Health andIndustrial Hygiene. The goal was to bring to the project a broad ralge of expe,rtise to ensurethat the final product was as complete as possible and that it woukl provide adequateconsideration to aspects of the business, safety, environmental ancl design-fon-usability thatmight make up a complete and effective field inspection system.

The Montana Tech Scoping Team (MTST) team started the researclr with the review of severaldocuments including the audit report, the formal response to the audit from the MBoGC staff,the MBOGC inspection forms as well as the published Montana oil iand gas regulations in RuleChapter 36.22: Oil and Gas Conservation.

A ride-along was conducted on February L6,20l2with Field Inspection Supenuisor Gary Klotz.Meeting first in his Shelby office, Mr. Klotz familiarized the members of the MTST withterminology and inspection procedures. The group then engaged in several different types ofinspections regularly conducted by the State including a plugged anrd abandoned (p&A) wel,producing gas and oil wells and a disposal well.

Additional data collection methods included:

o Interviews with several O&G Division field inspectors. Thesr-'face-to-face meetingspermitted valuable additional feedback from the people on the grouncl.

o With the goal of aligning the MTST effort with the needs of rthe MBOGI3, administratorswere interviewed both via conference calls and in face-to-face meetings, includingdiscussions about creating and implementing a risked-basecl inspectiorr system.

o To clarify the position of the Legislative Audit Division (LAD), telephonr: interviews wereconducted with both the head of the LAD and the primary author of the report.

In an effort to broaden the view as much as possible, the inspection authoritiels in severaldifferent states were interviewed about their inspection systems, including Terxas, North Dakotaand Colorado. The dual goals of this effort was to understand the 'rarious approaches used aswell as to acknowledge and verify comparisons to other state inspection systems as reported bythe Legislative Audit Division of the State of Montana.

Guiding the MTST efforts were two general questions:

1. Specifically, what must be done to respond to the concerns stated in tlre LAD report?2' How can the response to the LAD concerns be leveraged to maximize the value to the

State of Montana and it's citizens.

Montana Tech Scoping Study - Development of Procedures Manual anrl System V1..1 page 3 of 1g

Observations and Results

It is clear that the staff responsible for Montana field inspections arnd enforcement is deeplyinvested in ensuring that the interests of all are considered, including tlre lancl owners, mineralrights owners, the public and the environment. They take seriously therir mandate ofconserving our natural resources and work very hard to achieve that. l-he MI'ST commends theMBOGC and specifically the o&G Division personnel for creating an environment that supportsa cohesive team.

The Scoping Team's observations mirror many of those of the Legis;lative Audiit Division withsome caveats and additions.

It was observed that the existing system contains some significant redurndancies that potentiallycontribute to sources of error and process inefficiencies. This current inspection process isdiagramed below in Figure 1.

Daily Inspection Proces;s

Figure 1 - Current Inspection processIt was observed that the inspection process is inherently multi-media. GpS systems are used toguide the inspectors to the well locations. Cell phones provide a method to contact operator

UIC Inspectionsfollow a different

procedure

Montana Tech Scoping Study - Development of Procedures Manual and System V [.1 page 4 of 19

field personnel' Hand-recorded notes of most inspection activities are 6ocumented on a DailyInspection Form. Digital photography is used to assist in the documentation process.

O&G Division field personnel and administrators seem to be in agreremelnt with respect to theneed for some method of formal training for new inspectors. While the team has apparentlyenjoyed relatively low turnover, it was clear to the MTST that the process of nratchingobservations in the field to regulatory rules is something that comes quickly only after aninspector gains substantial field

experience. The current process appears

to involve considering simultaneously all

of the regulations while making

observations at the well site. The risks

associated with achieving a 100% match

between what is observed in the fieldand the entire suite of regulations seem

to be substantial. The MTST interpretsLAD recommendation number 2 toexpress a similar concern.

One of the recommendations of the LAD

was to develop and implement a methodto prioritize well inspections based onrisk. Field Supervisor Gary Klotz was

asked by the scoping team to provide a

draft of how he would build such a

priority list. He was happy to provide

one, but made it clear that the list included only two broad categories and dicl not furtherspecify a priority. This first-draft list is as follows:

PRIMARY INSPECTION PRIORITIES

Spills/Leaks/Emergencies - tnspections and followup.Dry Hole Plugging - Witnessing and issuing plugging orders.Ulc Program - witness Mechanical Integrity Tests & Routine Inspections.Witness cementing of surface casing in new wells.Drilling rig/drill site inspections - equipment and site construction.Witness plugging of existing noncommercial oil & gas wells.Complaint Responses.

LAD Recommendation fri2 W,e recommend thedivision, under the supeuvision of the Board of Oiland Gas Conservation:

A. Develop formal policies and procedurespertaining to the inspection prograrn.

B. Ensure these policies; and procedures areapplied consistently by staff.

LAD Recommendation #1 We recommend thedivision, under the supervision of the Board of Oiland Gas Conservation, develop a formal risk-basedinspection approach that establishes inspectionpriorities.

Montana Tech Scoping Study - Development of Procedures Manual and System Vi[.1. page 5 of 1g

SECONDARY INSPECTION PRIORITI ES

Evaporation Pit Inspections.Workover/Service Rig Activities.Change of Well Ownership Compliance lnspections.Seismic Operation Inspections.Oil & Gas Wells/Lease Facility Inspections for General Rules; Complianr:e.Inspect P&A'd well sites for surface Restoration & Bond Rerlease.

Several states were contacted by the MTST to learn about their melthods and discern if therewas a modelthat could be used to support O&G Division field inspection efforts. Below is ashort summary of these contacts.

Texas RRC The Railroad Commission of the State of Texas was contacted to request acopy of their inspection manual. This document was explicitly identified by LAD staff asa benchmark for evaluating the Montana field inspection program. However, accordingto those contacted by the MTST, the last Texas manual update occurrred nearly ten yearsago. Indeed, obtaining a copy of their inspection manual relquired that RRC personnelscan a printed copy, since no electronic version was availabrle. By way of explanation forthat, the Texas inspection authority indicates the manual has become redundantbecause of the adoption of a computer-guided inspection process.

North Dakota DMR The ND Department of Mineral Resources uses a computer-assisteddata collection scheme that feeds the statewide database containing inspection reports.Contacting people within the inspection authority group however was; found to be moredifficult than other states and in the interest of efficiency \ /as abandoned. Follow-onefforts in response to the LAD recommendations would probably bengfit from re-opening communication with the North Dakota field inspection authority.

Colorado's OGCC Significant time was spent interviewing v,arious people in theinspection group within the Colorado Oil and Gas Conservation Comnrission. TheCoGcc recently developed and implemented a computer-arssisted inspection systemthat obviates the need for a field inspection manual and therefore thery were not able toprovide one for us to review. The manager of Colorado's field inspection unit, MargaretAsh, was most helpful in providing access to the lT people that creater1 their system.They report that "substantial effort" was allocated to designing and innplementing thecurrent system, requiring about 300 hours of development and a 5350,000 budget tofund the project. Their system, implemented on "Tough-B<loks" with GpS, broadbandaccess and a camera, uses branching techniques to guide the inspector through theregulations most likely to apply based on historical data anrC observations made at thewell site. At least one operating company has automated ar work-ordc.r generation

Montana Tech Scoping Study - Development of Procedures Manual and System V1..1 page 6 of 1g

process based on the electronic inspection notification deli'rered electronically by theState of Colorado.

The technical director for the national Ground Water Protection Council, paul Jehn, was tappedto provide some guidance on where the inspection process is headed with re:;pect to disposalwells. Mr. Jehn made a couple of points. Several states (he cited specifically Oklahoma) arerolling out computer-aided data collection methods. However, he said that careful design ofthose systems is crucial to success, since the inspection process is too diverse for a flat, step-by-step process to be workable.

ln interviews, both the O&G Division Administrator, Tom Richmond and the petroleumGeologist, Jim Halvorson made convincing arguments for responding to the LAD concerns bycreating first a field inspection manual and updating the paper-based business processescurrently in use. The existing processes and the Risk Based Data MLanagement System (RBDMS)serve as a strongfoundation. The success of these processes supportstheir prosition that anincremental approach of developing a field inspection manual first can providle the shortestpath to addressing the concerns of the LAD.

They also express concern about the process of implementing a computer solution promptinguntenable mandates from the State of Montana information technology group, SITSD. Theexisting data base represents a significant investment on the part of the O&G Division.Leveraging this investment into the future is seen as crucial to realizing the O&G Division,smission, including satisfying on-going Federal regulations. lf State lT rules arer unbendinglyapplied to this resource, fitting this system into the existing State irrfrastructure represents asignificant risk to that ongoing mission.

Discussion

ln the opinion of the MTST the primary driver of the success of the inspectiorr program hasbeen the longevity and dedication of the current crop of field inspgctors and their support andadministrative staff. While this approach has worked well, there is; risk to ther system primarilybecause the current informal procedures for inspections appear to take a long time to learn.This is likely to be exacerbated by the expected retirement of several of the current inspectors,which also tend to be the most efficient. Aside from the risk, the I\/TST sees this as anopportunity for significant change in the procedures as well

The concerns of the department administration about implementirrg a smoot,h transition to acomputer-assisted inspection system are, in the opinion of the scoping team, reasonable. Arecent research paper on this topic put it quite succinctly:

Montana Tech Scoping Study - Development of Procedures Manual arrd System V1.1 page 7 of 1g

"lT and business strategies should complement ond support each other relative to thebusiness environment. Strotegy development should be o turo-way process between tTond business. However, we have yet to leorn how to do this," (Smith, vlcKeen, and Singh4e-s8)

ln order to achieve the recommendations of the LAD, the O&G Division will be a need todevelop and foster a collaborative environment with the SITSD. Tl.re MTST recognizes thatsignificant buy-in, and indeed resources, from the slrsD will be reoruired.

The MTST identified two distinct, but we believe interconnected, paths to adrlress the concernsof the LAD. The first is to focus on updating the business processe:> currently in use for fieldinspections by developing a printed field inspection procedures manual and arssociated trainingsystem, augmented by a follow-on project to implement the system in computerized forms.The second is to focus initially on the development of a computer-,assisted in:;pection system.The interconnection between these two paths is that both will require O&G Division resourcesto identify the individual processes that can and should be improvr:d. While the end goals ofboth of these approaches are the same, that is, creating a computer-assisted field inspectionsystem, the depth of the investment in the required elements would likely ber quite different.

The outline below provides details.

Montana Tech Scoping Study - Development of Procedures Manual and System V1.1 page g of 1g

L Paper inspection manual with follow on computer formsA. Phase L - Montana paper Field Inspection Procedures Manual (Flplvl) and associated

study of computer forms

i. Research and write paper manualii. Research Colorado and other state's computer forms systerns for similarities

and difference with Montana procedures and relgulations as embodied in thepaper manual

B. Phase 2 - Adaptation/implementation of computer formrs system rarith on-line helpedited from manual

i. Write concept of operations document and get Lruy-in from all stake holdersii. Write field inspectors user manual, system admirnistration rnanual, and

software requirements specification for Montania computer Forms oil andGas Inspection System; and get approval and budget foradaptation/im plementation.

iii. Software design document, implementation and usability tu.sting. WriteInstallation and SysOps Manual for SITSD.

iv. Delivery of Montana Computer Forms Inspectiorr system to SITSD.

ll. computer forms with manual embedded in the help linksi' Research Colorado and other states computer forms systerns, write concept

of operations document and get buy-in from all :stake holdersii. Write field inspector's user manual, system administration manual, and

software requirements specification for Montan;a computer Forms oil andGas Inspection System; and get approval and budget foradaptation/im plementation.

iii' Software design document, implementation and usability tresting. WriteInstallation and SysOps Manual for SITSD.

iv- Delivery of Montana Computer Forms lnspection system to O&G Division andthe SITSD.

Scoping Team Recommendations

It is clear to the Montana Tech Scoping Team that, regardless of the chosen p;ath, a significantamount of work ranging into hundreds of hours will be required to achieve therecommendations of the LAD (see Table 1, below.) lt is the recomrnendation of the MTSTthat

Montana Tech Scoping Study - Development of Procedures Manual and System ViL.1 page 9 of 1g

this workload, at least in part, be contracted out. This could be as simple as the temporaryhiring of a technical writer, supervised by o&G Division personnel, to implement the first partof Path l.

However the members of the MTST and the O&G Division adminisltrators appear to be inagreement that ultimately the field inspection process needs to bercome computer assisted.Significant efficiencies will be gained by doing so, both in the short term by ar:hieving the LADrecommendations at lower initial cost and in the long term by gaining efficiency in the reportingprocess as shown in Figure 2 below.

lOrh Prclcess

Computer

ore travel)

UIC Inspectionsfollow a riifferent

procedure

Figure 2 - Efficiencies are achieved via automation of tlre reporting process

While there is significant computer expertise within the O&G Divistion, the M]-ST recommendsthat outside consultants be contracted to design, develop and implement a computer-assistedinspection system. Several realities enter in to that recommendation, including the possibilityof contracting support for the system. In any case it is expected to be a time consumingprocess, likely well beyond that currently available from the existing staff. Colorado wassuccessfulwith a model in which one of the State information technology programmers waseffectively placed on L00% assignment with their oil and gas conservation grc)up. Leveraging

Montana Tech Scoping Study - Development of Procedures Manual and system Vl.1 page 10 of 1g

the experience gained by Colorado and others may significantly recluce the wprk effortrequired.

Based on conversations with states that have implemented a computer-assisted inspectionsystem some desirable characteristics include the following:

o Tablet-based PC platform with a camera, GPS and broadbarrd commurricationo GPS based system to provide current location on a map of allthe O&G wells in the state.o Abilityto click on a well and see all of the state-held data (inspection history, operator,

depth, production history. . .)o AbilitV to click on a well to be inspected and on command, have a tabbed branched,

chick-listed and annotated inspection form for easy and cornplete entry of inspectiondata.

o Guided form selection, referenced to rule numbers, based on field observations.o Rbility to attach digital photographs to the well record.o Ability to suggest other wells in the area that might be inspected, or are high risk.o Batch update with the statewide data base after each inspection run.o Integrated quality control structure, including computer and human verification.

Scope of Work

Table 1 below provides an estimate of the amount of time requirecl to complerte the variousparts of the proposed solutions. These estimates are based on the current inl'ormationavailable and MTST understanding of similar projects. For these reasons this:scope-of-workdoes not represent a proposal on the part of Montana Tech to conduct the work.

This table is split into two parts, based on the path chosen to addrerss the recommendations ofthe LAD. Path I is based on the development of a paper-based fielcl inspection manual with theintegrated development of a computer-assisted field inspection sy:;tem. path lt assumes thattraining and field procedures are encoded in the software, eliminating the ner-.d for the paperprocedures manual.

These estimates should be taken as a whole. Selecting items out of these tables without therecommended preceding work may under-estimate the final cost.

Montana Tech Scoping Study - Development of Procedures Manual and System Vil,.1 page 11 of 1g

Table I - Estimate of Scope of Work for Field Inspection Manual and System

Path | - Develop Manual thenComputer-assistedSystem EstHours

otS X -o Tech S/W O&Gf E; Task writer Ensr Div

M0lrta4a.paperField I nspection procddures

Vlanuat (FIPM) and associated study of:omputer formsResearch and write paper manual 160 40 20

[, Research Colorado and other state,scomputer forms systems for similarities anddifference with Montana procedures andregulations as embodied in the papermanual

20 40 5

L n/rite concept of operations document andyet buy-in from all stake holders

40 5

il. Write field inspectors user manual, systemadministration ma nua l, a nd softwarerequirements specif ication for Monta naComputer Forms Oil and Gas InspectionSystem; and get approval and budget foradaptation/implementation.

40 100 5

il Software deslgn document, implementation(with Montana inspection help)and usabilitytesting at Montana Tech. Write Installationand SysOps Manual for SITSD*

40 100 0

Delivery of Montana Computer FormsInspection system to O&G Division andStTSO

16 16 15

*These estimates made under the assumption thatmost of the softvrare being used in Colorado, oranother state thart has modified the Colorado system,can be readily migrated to a Tech system and needsonly to be changed to comply with the Montanainspection proced ures.

For budgetary purposes, travel and other expenses should be estinrated at an additional 20%above the expected hourly cost. Appropriate ruggedized field computers at g;overnment ratesare about 52,500 each, requiring an additional investment on the order of S2i0,000.

Pathr ll - DevelopComputer-as:;isted liystem Est Hours

IA

E+G{,

Tech S/W O&GWriter Engr Div

emberlded in help linksI Research Colorado and other states

computer forms systems, write (:oncept ofoperations document and get buy-in fromall stake holders

30 80 20

wnle l|etd Inspector's user manrtal, systemadministration nranual, and soft,warereguirements spr:cif ication f o r lltonta naComputer Forms Oil and Gas InspectionSystem; and get approval and budget forada ptation/implementation.

40 100 5

ill Software design document, implementation(with Montana inspection help) and usabilitytesting at Montana Tech. Write lnstallationand SysOps Manual for SITSD.r

40 100 0

ueilvery ot Montana Computer l:ormsInspection systern to O&G Division andSITSD

16 IO

Montana Tech Scoping Study - Development of procedures Manual and System Vit.1 page 12 of 19

Gonclusion

The Performance Audit of the Board of oil and Gas Regulatory Program conducted by the LegislativeAudit Division (LAD) is viewed by the Montana Tech Scoping Team (MTslJ as an opportunity tosignificantly enhance the efficiency and transparency of the oil and gas irrspection program in Montana.However, this will not be accomplished without cost. The scope of the elFfort is suffir:iently large thatsignificant resources need to be allocated, which could be accomplished through hiring temporaryworkers or contracting the system out to an external vendor. The MTST recognizes a significant risk tothe on-going operation of the o&G Division if no additional resources arer allocated.

This scoping Report provides an estimate of the time required to address; the recomrnendationscontained in the LAD report. These estimates (Table 1) assume current best-practic€rs are used in boththe computer-assisted and text-based portions of the project, from concr:ptualization through designand implementation. The individual elements from Table 1 may also be useful as a starting point fordevelopment of a request-for-quote. In any case, it is hoped these estimates will assrist the Board of oiland Gas conservation in appropriately scaling resources to address the recommendations contained inthe audit report from the of the Montana Legislative Audit Division.

The members of the Montana Tech scoping Team would like to thank the Montana Department ofNatural Resources and especially the Board of oil and Gas conservation arnd their ad ministrative staff forthis opportunity to be of service to Montana.

Montana Tech scoping study - Development of Procedures Manual anrJ system V1..1 page 13 of 19

Appendix

The final report of the Legislative Audit Division contained a total of seven specificrecommendations.

Recommendation #1 We recommend the division, under the supervision of theBoard of oil and Gas conservation, develop a formal risk-based insper:tionapproach that establishes inspection priorities.

Recommendation #2 We recommend the division, under the supervision of theBoard of Oil and Gas Conservation:

A. Develop formal policies and procedures pertaining 1to the inspectionprogram.

B. Ensure these policies and procedures are applied consistently by staff.

Recommendation #3 we recommend the division, under the supervision of theBoard of oil and Gas Conservation, standardize how inspections and complianceactivities are documented and tracked.

Recommendation #4 We recommend the division, under the supervision of theBoard of oil and Gas conservation, strengthen enforcement activities by:

A. Ensuring compliance with existing administrative rule timelines.B. ldentifying if additional corrective action timelines are needed.c. Establishing formal guiderines for corrective action activities.

Recommendation #5 we recommend the division, under the supervision of theBoard of oil and Gas conservation, comply with state information technologypolicy to ensure a segregation of duties over management of the Oil and GasInformation System.

Recommendation #6 We recommend the division, under the supervision of theBoard of Oil and Gas Conservation, comply with statute an<t state informationtechnology policy by:

A' Developing, documenting, and maintaining an Oil and Gas InformationSystem security plan.

B, Enforcing, through automated methods, the state i.formationtechnology password poricy for the oir and Gas Information system.

Montana Tech scoping study - Development of Procedures Manual anrd System V1..1. page 14 of 1g

Recommendation #7 We recommend the division, under the supervision of theBoard of Oil and Gas Conservation, comply with state infornration tech nologypolicy by developing, documenting, testing, and maintaining an oil ancl Gas

Information System disaster recovery plan.

Board of Oiland Gas Gonservation Response

In a July 26, 20tL letter to the Legislative Auditor Tori Hunthausen, the BOGC administrativestaff provided a response to these recommendations as follows:

BOGC Response to Rl, R2, R3

We concur with recommendations l through 3. Although we fer:lthat these threerecommendations are basically the same recommendation, we believel the division andthe Board can implement the recommendations in same mann€,r: by expanding the UICprogram's inspection policies and procedures, including setting of inspection priorities,establishing standardized policies and standardizing the ass,ociated dor:umentation. Thecurrent well inspection program has been successful in achieving com;lliance with therules and regulations. lt has been responsiveto landownercomplaints, spills, leaks andother emergencies, and it has provided the Board with reliable on-the-groundinformation and observations. However, improving the docrrrmentation and consistencyof inspection results is desirable.

The inspection manual currently used in UIC will need to be reviewed and edited toreflect the broader scope of wells to be inspected. The UIC manual dops not include oiland gas production facilities and some aspects of drilling including blo'ry-out preventionand similar mechanical/safety requirements ordinarily inspected during drilling andthose sections and other new sections will need to be writtr-'n.I'he prioritization will alsoneed editing to reflect more classes of wells than the injection vvell sultset currentlyaddressed. The use of standardized inspection forms is well on its way towardimplementation; the outstanding non-standard reports and inspectiorr priorities will bereviewed to determine if separate forms are truly needed as some othrer states use. ltshould be noted that the supervision by the Board will be prclicy direction and guidanceto reflect the nature of the Board's meeting schedule and the availabk: time of theminimally compensated volunteer Board.

Montana Tech Scoping Study - Development of Procedures Manual and Sy:;tem Vi[.1 page 15 of 19

References

smith, Heather, James McKeen, and satyendra Singh. "Developing Information Technology Strategy forBusiness Value." Journal of tnformotion Technology Manogement. xvllt.l (2007): 4g-5g. print.

Engineering Enterprises, Inc., Norman oK. "Underground lnjection Contr<ll Ins;pection Manual,,,submitted to the US Environmental protection Agency (1ggS)

Administrative Rules of Montana (ARM), Title 36, Chapter 22, "otland Gars Conservations,,.

=36.22

Montana Code Annotated (MCA), various sections,

Okfahoma Corporation Commission, "Oil and Gas Field Inspector Operations lvlanual,,, (2Oj.Z)

Railroad Commission of Texas, oiland Gas Division, "Field Operations Handbqok,,, (1996)

Frank Ackerman, PhD.Frank Ackerman has 50 years of experience in all phases of software clevelopment. In 19g5 hefounded the Institute For Zero Defect software to do applied reselarch, consulting, and trainingfor software development organizations seeking to improve the cluality of th,eir software. Hispersonal experience has led him to the conviction that today's development organizations canachieve significant improvement in software quality with increased effort. Some of his currentresearch and educational activities are focused on improving current :specification, coding, test,and review techniques for the development of high quality softw,are. Dr. Aclr:erman has beenactive in either the Association for Computing Machinery or the IlEEE computer Societythroughout his career. He is a Life Member of the IEEE. presently he is an As:;ociate professor ofcomputer Science and software Engineering at Montana Tech of the university of Montana. Heis a graduate of the University of chicago and holds a ph.D. in connputer science from theUniversity of North Carolina at Chapel Hill.

Merle Benedict, PhD, MpHMerle is an assistant professor in the safety, Health and Industrial Hygiene department atMontana Tech. He teaches undergraduate courses in occupational safety anr1 health andgraduate courses in industrial hygiene. Merle possesses a bachel,or's degree in health sciencefrom BYU-ldaho and a master's degree in industrial hygiene from the University of Michigan. Heearned a Ph'D. in environmental health science also through the tJniversity of Michigan. Merle,sresearch experience includes environmentalepidemiology, reproductive health and exposureassessment' He also has industrial hygiene experience in the petroleum and healthcareindustries.

Montana Tech scoping study - Development of Procedures Manual and System V1.1 page 17 of 1g

William J. Drury, PhD.Bill Drury has been on the faculty of Montana Tech of the University r:f Monrtana since rgg2,where he is a Professor in the Environmental Engineering Department. He has a B.S. in CivilEngineering from Marquette University, a M.S. in Environmental Health Engineering fromNorthwestern University, and a Ph.D. in Civil Engineering from Monterna State University. Hisexpertise is in water and wastewater treatment and in the use environmental biotechnology forremediation purposes. He has researched the use of passive biological systems for minedrainage treatment. He is a member of the Water Environment F:ederation and the InternationalM ine Water Association.

Kay Eccleston, MSKatherine Eccleston has twenty years specialized communicatiorr and project managementexperience in industry and government settings. Her expertise includes technical writing andediting, document design and production, project management, and public relations.Katherine's industry experience includes researching, writing, editing, and producing technicalreports, procedural documentation, software manuals, on-line docurnentati,ort, pfoposdls, andwhite papers. She is highly skilled in implementing communication standards and best practices.Her past work experience includes Senior Technical Writer for Vl..C Systems in Bozeman,Montana, Technical Writer/Editor for MSE, Inc., in Butte, Montana, Assistanrt Editor for theMontana Bureau of Mines and Geology, and adjunct instructor at Mc'ntana -l-ech.

As a contractconsultant, Katherine has also worked extensively with authors ernd subject matter experts toproduce training material, technical reports and textbooks, and interpretive display materials.

For the past eight years, she has been employed as a full-time in:structor in the TechnicalCommunication Department at Montana Tech. worked at VLC, in Bozeman, Montana, Skilled atwriting/editing proposals, press releases, technical reports, procr3dures, and white papers.Katherine holds a bachelor's degree in Society and Technology arnd a master,s degree inTechnical Communication.

John Getty, MSJohn is an Instructor and Lab Director in the Petroleum Engineering Department at MontanaTech in Butte, Montana. He currently teaches Natural Gas and production Engineeringlaboratory courses at Tech as well as managing the Proppant Res;earch Division (pRD). The pRD

focuses on advancing fracture stimulation technologies, providing initial evaluations of materialfor use as a proppant and proppant performance testing per ISO standards. After graduatingfrom Colorado State University with a BS in Applied Physics, Mr. Getty worked in the oil and gasservice sector for 10 years. Over the past 25 years he has been arctively engaged in post-secondary engineering education. He recently completed a Master of Scienr:e degree in ScienceEducation at Montana State University in Bozeman, Montana.

Montana Tech Scoping Study - Development of Procedures Manual arrd System V1.L page 19 of 1g

Exhibit 2

Concerns from the Audit

L. Inspection procedures, documentation andrisk prioritization (Recommendations L, 2, 3)

2. Timelines and guidelines for policyenforcement and corrective actions(Recommendation 4)

3. BOGC compliance with State of Montana lTpolicies (Recommendations 5, 6 anrt 7)

6/8/20t2

Montana Board of Oil and Gas Conserrvation

FINAL REPORT

Scope of Workfor the Development of a

Procedures Manualsand a

Field Inspection System

DNRC MOU L28220Montana Tech of the University of Montana

6/8l2or2

Proposed Two-Phase Project. Phase 1- Develop scope-of-work

- Review pertinent documents. Existing procedures documentation, forms. Report from the Legislative Audit Committee. EPA UIC manual. Applicable Montana Regulations

- Write specifications. Recommended deliverables. Estimate of effort. Draft of RFQ

. Phase2-lmplement

MethodsReview of current BOGC documentsRide along - Field Supervisor Gary KlotzConference calls - BOGC personnelPrivate interviews - Field inspection personnel

Discussions with Lisa Blanford - LAD

Contact with players in enforcement and inspection

- Texas

- Colorado

- North Dakota

- Ground Water Protection Council

6/8/20L2

Daily Inspection Process

UIC Inspectionsfollow a different

procedure

RecommendedPath | - Develop Manual thenComputer-assistedSystem EstHours

, X; rrh s/w oacI E .l Task wil.r En.r N

6onbm DF h.td.ltirss6 |'oiiduFid.ncrl (FlPMl .nd r.iriichbd jtlili;ti.hMtl6.il

rr.td rd wft. oilr mriurl 1@ & 20l.r.rrch Cobn&.nd o$.r.r.t.'trompstar fomt ryrt.mt tor rlmhrtt$.nd|ff.r.ft. wtth hnbn. proc.durg.nd.tuhtloB...mbdtGd In th. Fpcr

20 {

u.pruon/tmpbmcnulon o, @mNt tomr ryi.Dwkh oDllil hbcdbdfton

ryfr. conc.pl ot otsr.tlonr docum.nt.d sVdt. fbk InrFdorr ut.r m.hu.t, ryrt.mrdalnlrtr.uon m.nul, rd sfu.r.{ctr.m.n$.tsc|ft rtlon for Mont.nr:omputcr torm3 Oll.nd O5Instsdtoniy.t.h;.nd 3.t rpprov.l.d budtcr for;rni'rh^n6r---^.-.r^-

€ t@ 5

ioturr. d.3tn &cum.ht, tmpt.m.nr.tion & 1@ o

..dn8.t Mont.n. T.ch. Wd. hrb[.ionIndSy.OF M.nu.l forstTSO.

).llv.ry of Mont.n. Comput.r tumtnrp.ctbn rwt.fr to O&c Dlvtrto..hd;friD

16 16 16

AlternativersPath ll - Develop

Computer-assistedSystem EstHours

oeGOlv

omputar tomr ryiems, write conccpt oldocumenl and gct buy-in trom

and get approv.l and budget for

at Mont.na fech. Wrih tnst.llation

6/8120L2

tion Process

ComputelrProcessers

UIC Inspectionsfollow a differe,nt

procedure

Board of Oil andGas Conservation

ffWffiwffi'*qffi&reffiTechTHE UNIVERSITY OF MONTIINA

Exhibtt 3

S/VaPA Survey of Notive ProppantResources within Montana

A proposal to:

Oil and Gas Conservation Dlivisionr

Department of Natural Resources and ConservationPO Box 201601

Helena, MT 59620-16011

Proposed by:

Department of Petroleum Englineeringand

Montana Bureau of Mines ancl GeologyMontana Tech of the University rof Montana

1300 W. Park St

Butte, MT 59701

MlsmtannTbchnoilrmn

SNaP: A Survey of Notive Proppant Resources within Montana

20 Jan20t2

Executive Summarv

Hydraulic fracturing is the process of inducing conductive fractures in oil and gas reservoirs. The processis criticalto the economic feasibility of more than 80% of oil and gas wellls drilled toclay and withoutwhich the development, for example, of the Bakken Formation in eastern Montana r,vould not havebeen possible.

The Petroleum Engineering Department, in collaboration with the Montana Bureau ,cf Mines andGeology (MBMG), seeks to initiate a survey of the State of Montana for rnaterial suitable for use as aproppant in hydraulic fracture stimulation operations. This project would provide tlre State of Montanaas well as players in the oil and gas industry with publicly-available information on the location andquality of potentially economic deposits of proppant-grade material.

lf this effort is successful and deposits of appropriate material are located that are beyond thosecurrently known, it is very likely that the effort will create a large positivr: impact on the economy of thisState. The expected market for frac sand in just that portion of the Bakken formation within Montana isnearly 525 million annually. The total annual market in the Bakken, including North Dakota, approachesa quarter of a billion dollars.

Eacksround

Proppant is the name given to both natural and man-made sand-like materials used to hold openfractures created in oil and gas wells during fracture stimulation ("fracing".) Many clifferent types ofproppants have been used in the process of hydraulic fracture stimulation ranging from walnut shells tosophisticated (and expensive) man-made materials. However, the most common proppant by far isnaturally occurring sand.

Reports published by RigData indicate that a quarter of a million oil and gas wells were started in 2010,up from about 160,000 in the previous year. In order to be economic, most of thosr: new wells requirefracturestimulation. And,becauselargeamountsoffracsandisrequirerdforeachlvell -itisnotuncommon for 100,000 lbs of material to be pumped into a well - a huge demand has developed forthis material. In spite of the extraordinary costs, operators have been known to import materialfromChina. Putting these numbers together leads to a conservative estimater that billions of pounds (1oelb)of frac sand were pumped into the ground in 2010. . . just in the United states.

Locating sources of proppant inside Montana would have the dual effect of reducing transportationcosts to fields in Montana (such as the Bakken in the eastern part of the State) and it would stimulatesignificant economic growth. As our energy needs continue to grow, so too will the demand for thismaterial. lt is estimated that the potential market for proppant in the Bakken formation will surpass5210 million in calendar year 2012. Detailed analysis is provided in the appendix.

Petroleum Engineering and the Montana Bureau of Mines and Geology at Montana TechSNoP - Montana Proppant Survey Page 1 of 8

The Petroleum Department and the MBMG have gained confidence that such deposits can be identifiedwithin Montana. Several unsolicited samples brought to us have proven to qualify per the AmericanPetroleum Institute (APl) standards.There are a number of potential sources that deserve a look. The followirrg list was compiled for thisproposal by geologists at the MBMG.

High-energy marine deposits and marginal marine sand-dune deposits are ther most likelypossibilities for quartzose sandstone with well- rounded and spherical grains. Thefollowing are those types of deposits in Montana that can ha,ye variable degrees ofcementation. Thicknesses are for the entire stratigraphic unit, not just the sandstone.

Virgelle Formation-White to light gray, fine- to coarse-grained, locally titaniferous,quartzose sandstone. Marine shoreface and foreshore envirr)nments. Central andnorthwestern Montana, but northwestern Montana Virgelle is probably betterpossibility. Thickness as much as 90 m.

Fall River Formation-Gray and brown, fine- to medium-grained, quartzose sandstonewith thin interbeds of dark gray shale at top. Nearshore marine environment. South-central Montana. Thickness as much as 70 m.

Flood Member of Blackleaf Formation-euartzose basal sandstone with interspersedlimonite flecks. Nearshore marine environment. Central and s;outhwestern Montana,but southwestern Montana Flood is probably better possibility. Thickness as much as230 m.

Sunburst Member of Kootenai Formation-Well sorted, quartzose sanrlstone withinterspersed limonite specks. Nearshore marine environment. Greal Falls area.Thickness as much as 30 m.

Goose Egg Formation-Red shale and sandstone with some interbeds of anhydrite,gypsum, and limestone. Nearshore marine, marine, and restricted marineenvironments. Pryor and Bighorn Mountains. Thickness 30 m.

Quadrant Formation-Very light gray, yellowish or pinkish, well-sorterl quartzosesandstone or quartzite, locally interbedded with subordinate limestone beds. Marineenvironment. Western Montana. Generally thickness as much as 140 m, but as thick as800 m in southwesternmost Montana.

Tensleep Formation-Very light gray sandstone interbedded with subordinat,e carbonate,shale and anhydrite. Cyclical marine, eolian, and sabkha. Pryor and Bighorrr Mountains.Thickness about 60 m.

Cameron Creek Member of Tyler Formation-Red, purple, and brown quartzosesandstone with subordinate gray shale and limestone. Central tr4ontana. Tlrickness 25-65 m.

Greybull Member of Kootenai Formation-Light brownish gray, fine- to medium-grained,well sorted, clean quartzose sandstone with interspersed limonite flecks. Occurs aschannel fill in Pryor and Bighorn Mountains. Thickness as much as 75 m.

A map showing the location of outcrops containing material potentiarlly of interest to this survey ispresented in the appendix.

Petroleum Engineering and the Montana Bureau of Mines and Geology at Montan.r TecnSNaP - Montana Proppant Survey Page 2 of 8

SNoP Proiect Description and Methodoloqv

The Petroleum Department, in cooperation with the Montana Bureau of lVlines and Geology (MBMG),seeks funding to support a study to determine the quality, an estimate of the extent iand location ofdeposits of proppant-grade material within Montana.

The project will consist of a total of five phases as identified below.

Part I - lnitial Survev of Potential Sources (year llPhase | - Planning field work

The first step in the project will be to gather information on potential formations frorn the literature andsubject experts at the MBMG. Geologic and topographic maps as well as any available imagery will beutilized to select areas for initial field examination. A very important component of this will be SusanVuke's experience in mapping sandstones in central and eastern Montana and Dick Berg's experiencealong the Rocky Mountain Front.

Phase ll - Initial field examination of potential formations

1. Those areas of best exposure and accessibility of the formations :;elected as rjetermined inPhase I will be examined. This preliminary reconnaissance will in'volve examining outcrops forfriability and assessment of the quartz content and sedimentary maturity of .the sandstone.

2. Exposures will be photographed and selected grab samples will be collected. Field notes andphotographic records will be up-loaded in near real time, to speed recordkeerping for later labanalysis.

3. Judgment will be made on sites suitable for obtaining channel samples. permission to collectchannel samples will be obtained if necessary.

4. Laboratory analysis will grade these initial samples as to their sui'tability for urse as proppant.5. Sites for additional sampling will be selected based on the potential for production of proppant-

grade material.

Phase lll - First round of channel sampling

1. At the sites selected in Phase ll, channel samples will be collectecl in increments of 5 feet foreither the thickness of the formation or through the interval that is sandstone.

2. The completed channelwill be marked to identify channel breaks, photographed and the datalinked to servers at Tech.

3. The resulting samples will be evaluated in the lab.4. A comparison will be made between the grab samples obtained in phase ll and the channel

samples collected in this Phase lll. This will inform a review of the site selection to reduce thelikelihood that economic deposits are overlooked.

5. Sites for additional sampling (Phase lV) will be selected with the goal of confirming the initialresults and extending testing to identify the boundaries of the derposit.

Phase lV - Second round of channel sampling

Petroleum Engineering and the Montana Bureau of Mines and Geology at Montana TechSNoP - Montana Proppant Survey Page 3 of 8

t. After the samples gathered during the first round (Phase lll) have been testecl per the Aplprocedures additional channels will be cut in those formations or areas that appear mostpromising. These sites will be picked not only on the basis of the test results, but also by goingback to observations made during Phase ll.

2. These new samples will be analyzed for appropriate characteristics.

Phase V - Preparation of final report for publication1. Using the laboratory test data provided by Petroleum Engineering and geolo6;ic information

from the MBMG, a map will be created that will identify the formation, outcrop location,proppant characteristics and estimated extent of deposits.

2. Educational materials on working with developers and navigating the State of Montanaregulations will be developed.

3. Results of the study will be forwarded to landowners and minerall rights ownrers who permittedsampling on their land.

4. Project results will be published electronically on the MBMG website.5. The proppant data base will be advertised by submission of articles contributed to trade

magazines, technical journals and conference presentations.

Much of the work for this project will be completed by students at Montana Tech unrCer the guidance ofacademic faculty and MBMG personnel.

Budget

Funding is being requested for Part 1 (Phases I and ll) to determine the existence of potential sourceformations. lf potential source formations are identified, additional funding will be request for part 2.

1. A majority of the requested funding is for support of field and lahr personnel conducted primarilyby students at Montana Tech. This portion makes up about half of the total personnel costs..

The two principle investigators, John Getty and Dick Berg will cha rge a total of 11 months ofsalary over the three year life of the project. Mr. Getty intends to csn11nr" teaching full timeand will be charging two month's salary to the project over each of the threer years. In each ofthe project fiscal years, one of those months will be in the summer and the other will be spreadout as an overload during his regular lO-month-long academic contract. His primaryresponsibility will be directing and supervising lab analysis of the proppant samples.

The five month's salary for Dr. Berg (or his replacement upon his retirement) will be used as abuy-out from his regular duties at the MBMG over the three year life-span of the project. Hewill be primarily in charge of supervising the field crews that will be sampling the relevantformations.

Two weeks of time for Mr. Robin McCulloch are included to assist with training students insample preparation.

Mapping and GIS services required for preparation of the results for public dissemination arebudgeted for MBMG staff. One and% months salary in Year 3 is budgeted for this purpose.

Petroleum Engineering and the Montana Bureau of Mines and Geology at Montana TechSNaP - Montana Proppant Survey page 4 ofg

Most of the travel budget will be used to offset the cost of the field sampling; program.Sampling is expected to take a total of 100 days. An average of 2:00 miles per day is assumed toestimate motor vehicle costs. Sixty nights are planned at hotels ito maximize the travelefficiency. The remainder will be set aside to cover costs for tral'el to conferences andpresentations to publicize the study.

The supplies budget will be used to acquire the needed non-capital items. Channel sampleswith be obtained from formations in the field using a chisel hamrner/generator set. Two arerequired since there will be two field teams working simultaneously. ipads vrlill be utilized toprovide both photographic and written descriptions of the samples.

The remainder of the items in the Supplies category will enhance the existinlg capacity of theproppant lab in Petroleum Engineering. Because of the large number of sanrples that areexpected, some of the requested equipment will allow parallel processing tc,occur, maximizingthe efficiency of the lab personnel.

4. The equipment budget includes capital items required to achieve a sample throughput capacitysufficient to keep up with the volume of material expected from the field. The storage unit is acargo container, modified with a man-door at the center and storage racks. This unit will beused to provide long term storage for the samples acquired.

A budget spreadsheet detailing these expenditures is presented in the appendix of this document.

Summarv

Demand for proppant-grade sand is increasing at an exponential rate. Proppant is irr such short supplythat oil and gas operators are seeing well completions constrained by thr: amount and the quality of theproppant that is available. Manufacturers are ramping up to meet dema nd using an artificial proppantmaterial but the cost of this material is high and availability is still low.

The deliverables of this project will be educational materials made availarble to the students at MontanaTech, residents of the State of Montana and interested businesses worldwide.

lf, as we suspect, suitable deposits within Montana can be located the br.rrgeoning demand will spurboth home-grown businesses and could even attract investment from out-of-state companies currentlyin the business' The Petroleum Engineering Department and the Montana Bureau of Mines and Geologyare ideally situated to help make that happen.

Contact information:

2.

3.

John Getty, Instructor and Lab DirectorPetroleum EngineeringMontana Tech

1300 W. Park St

Butte, MT 59701isettv@mtech.edu(406\496-4847

Richard Berg, PlrD, Senior Research GeologistCurator, Mineral MuseumMontana Bureau of Mines and Geology1300 W. Park St

Butte, MT 5970'1dbers@mtech.erdu(4O61496-4t72

Petroleum Engineering and the Montana Bureau of Mines and Geology at Montana TechSNoP - Montana Proppant Survey Page 5 of 8

APPENDIX

SNaP Budget - Evaluatint Proppant Sources within Montana

Item Description

Pet EnPr. Pl (1 month

ield work, Der diem (5 ool, 100 davs) 50( s23 55.00( ss.00( s1.50c s11.50(:ield work, lodRinR {3 rooms, 50 nichts) 18t s'|7 55.00( s€.00( s1.86C s13.86(;ield work, mileare (200 miles/dav) 2000( s0.35 53.30( >i -Ju JbUL s7.20(Dresentations/Conf erences (2 ool) s2.500 5r..50( s3.soc ss.00(TOTAL TRAVEL s14,3fi sls.80( 57.45( s37,s6(

l1 Chisle Hammer and generator 1 50C 53.00(1) DrvinR Oven E4 00c s4.00( s4.00(

Crush cell q3 00c s3.00( s3.00(3.4 Lab Supolies (oer vear) q2 00r s2.00( s:!.00( s2.00( s6.00(3.5 Sieve set 51.s0( s1,s0( 5:r,50( s3,oo(3.6 Gram scales s60( s1.20( s1.20(3.7 Pads for field notes and photo-documentation S60( s1.80( s1.80(

rOTAt SUPPTIES s13,5{X s{i,50( s2,off s22,00(

Project Expenses

Overhead (State rate 25%)

P.oiect Cost

Petroleum Engineering and the Montana Bureau of Mines and Geology at Montana TechSNaP - Montana Proppant Survey page 6 ofg

101,016 r24,,702 80,763 306.48125.254 20,rgL 76.620

s L26.270 s 15s,878 s 100,954 s 383.101

Yrl Yr2 Y13 Total Projecl

Part 1

Market analysis

The table below provides an estimate of the size of the market for propp;lnt in the Bakken field.Additional proppant requirements for wells that are outside of the Bakken are not included in theestimate and would increase the expected market size. The well and frac sand volunre data wasobtained from the North Dakota IndustrialCommission, Department of N4ineral Resc,urces, Oil and GasDivision and the Montana Board of Oil and Gas Conservation.

Gross value estimates were obtained from US Silica and are for Ottowa \l/hite 20/40 proppant. Theprofit margin used in calculating net profit was estimated and is based orr a profit level sufficient tomake the enterprise attractive to industry.

Estimates on Frac sand requirements for Bakken drillingUnit

Cost ND DNR* MT BOGC Total Mktnew wells per year I,667 200 1,g67 wells/yrfrac sand per well (lbs) 3,OOO,00O 3,000,000frac sand per well (tons) 1,500 1,500

annual projected total consumption (tons) 2,500,000 3co,000 2,900,000 tonsGross value @ 575 per ton 75 187,500,000 22,5Cr0,000 210,000,000 processedNet profit @ S10 per ton (mine mouth) f0 25,000,000 3,OC|0,O0O 2g,000,000 Net profit

Petroleum Engineering and the Montana Bureau of Mines and Geology at Montana TechSNoP - Montana Proppant Survey Page 7 of 8

Formations of interest

This map, prepared by MBMG personnelfor this proposal, shows the locations of forrnations that willinitially be considered for inclusion in the SNoP project. This map will likely expand as the surveyidentifies additional other potential sources of proppant materials. This rnap does not include fluvialdeposits.

Petroleum Engineering and the Montana Bureau of Mines and Geology at Montana TechSNaP - Montana Proppant Survey page g of g

Possible Proppant fiource Areas

/i40 60I

SNaP Exhibtt 4 BOGC L3 JuneL2

S/VaPA Survey of Native

Proppant ResourGOSwithin Montana

A proposal by theDepartment of t"jl"J"rr Engineeri ng

Montana Bureau of Mines and Geology

1Orc12 Jdn QB, lh.na T@h

Types of proppant

Three general categories:1. Natural (sands)

. Northern White (Ottawa)

. Brown (Brady)2. Ceramics (manufactured)

. LWC

. lSq HSP (and high density)3. Other

. Light weight polymers

)@012 Jdh qry Monbn. Td

@2012, John Gettv, Montana Tech

SNoP BOGC 13 June12

US Silica 20140 Ottawa \tVhite

Mc- 110612 Montania

402012 Jdn G6' Mdan. TEh

@2012, John Getty, Montana Tech

SNoP B,OGC L3 JuneL2

jLower 48 states shale ptays Ir_.j

i:,ffi:i{

; -

sMb6dre.il,: .lJ

- d.Dd. ..rtu ry

iI

,',i'i''''l l!'

.f{1 fi'li {-,1:. .i!+- \-

I il- I vf1

o

o

Sand, Sand Everywhere

There are currently no fully-deverlopedproppant sources within MontanaDemand is outstripping supplyDemand is expected to increase- Bakken is bigger than Prudhoe Bary

- Other plays are being evaluated

Montana is ideally situated if sources offrac sand are found

@012 John G.tt Mot.na teh

@2012, John Getty, Montana Tech

SNaP EIOGC 13 June12

Possible Proppant Source Areas

I

I

i

I

*_l

Bigger than a Bread EloxOne major service company expects topump about 6,000,000,000 lb of proppant in2012 in just the Rocky Mountain Region.

Product Mix

m Sandr Ceramicr Resirrr Other

I@&12 Jdn c.tty, Monlahr TFh

4O2012, John Getty, Montana Tech

SNaP B,OGC 13 JuneL2

Economics of Frac Sarndin the Bakken

I@12 Jdn G.ny hrm. Teh

Two Part Project

Personnel

Travel

Supplies

Equipment

Fac & Admin (lDC 25%)

Totals

Part 1 - lnitialsurvey of PotentialSources (year 1)

Part2 - Detailed Sampling to estimate deposit size, inrproveestimate of quality (Years 2 and 3)

l002012 John Qtly Monbn. TFh

$48,216

$14,300

$13,500

$25,000

$25,254

$126,270

O2012, John Getty, Montana Tech

SNaP

ContactJohn Getty, Instructor & Lab DirectorPetroleum Engineering(406) 496-4847, jgetty@mtech.edu

InformationMontana Tech

1300 W Park St.

Butte, MT ti9701References

1 u. s Energy Information Administration, Annuar Energy ouflook 201 2 Earry Rerease overview2. The Oil Drum,3. rnflationData.com, ' accessed 12Feb2o12

12Feb2O12 , accessed

4. Frac Sand in Wisconsin, B. A. Brown, Wig@nsin Geologi€l and Naturat History Survey,, accessed 1 3Feb20125. US Sili€ web site, locations page, , accessed 2OFeb2O, 26. "Proppants: Where in the Wortd", R Bockwith, JpT, April 2O1j , p36,

, accessed 22Feb2rl127. WTRG Economics, US rotary Rig Count Active Rigs, short term,

6 ru'gnt time imag€ of williston basin courtesy of the lmage Science and Analysis Laboratory, NASA Johnson spac6

to $lr3n"?ilT*tofthelnterior,"oilandGasLeaseutilization-onshoreandoffshore,R€,porrtothepresidenl,,

'1 1. Retsch, , accesssd llua(2112l2 North Dakota Industriar commission, Department of Minerar Resources, oir and Gas Diviriion'1 3. Montana Board of Oil and Gas Conseryationl4 "Montana Tech Graduate presentall$,rrcluJe Hydraurics, Geometry & Azimuth", syfan, F., presentatron

delivered at Montana Tech, Butte, MT. 6Mar2O1 2

6

BOGC 13 June12

SNaPSurvey of Native Proppant

Collaborative effort between MontanaBureau of Mines and Geology, petroleumrEngineering. Use existing geological maps to identify,

access to outcrops. Collect and evaluate samptes. Produce and publish a map product that

can be used for development ofresources.

11@012 Jd. C.ii), Md!n. Teh

@2012, John Gettv, Montana Tech

Exhibit 5

CONCERNING SPACING UNIT SIZE AND ALIGNMENT

I AM MAKING THIS STATEMENT ON BEHALF OF NUMEROUS PEO]PLE AND O'THER FRIENDS

AND FAMILY TRUSTS THAT HAVE MTNERAL INTERESTS IN MONTANA. PRII\,IARILY

PEOPLE TN M.F.B..NEMLMOA.

WE WOULD LIKE TO SEE SPACING UNITS COMPRISED OF TWO FIALF SECTIONS.

ESPECIALLY WHEN GEOLOGISTS SAY LATERALS ONLY DRAIN 5OO FT. PERP]ENDICULAR

TO LATERAL BORES. IT WOULD STILL ACCOMMODATE TWO MILE LATERALS WITHOUT

TIEING UP EXCESSIVE ACREAGE FOR LONG PERIODS, THAT COULD OTHER\ilISE BE

RELEASED. REASON IS THAT IT COULD BE A LOT OF YEARS BEFORE THE ORIGINAL

DRILLER GETS BACK TO COMPLETE THE INFILLS.

IN A RECENT CASE THE COMPANY THAT DRILLED A WELL IN E,ACH OF THIREE SPACING

UNITS (3840 AcTes).-SUBSEQUENTLY SOLD OUT TO ANOTHER COIWPANY TH.,\T INTENDS To

USE THE INCOME FROM THOSE WELLS TO FINANCE THEIR DEVE;LOPMENT OF NEW

LEASES IN THE BASIN. THEIR LAND DEPARTMENT EXPECTS THI\T THEIR NEWLY

ACQUIRED DEVELOPMENTS WILL TAKE YEARS TO COMPLETE" T}ASED ON I'RESENT

TIME LINES OF PROGRESS.

ANOTHER COMPANY CEO STATED THAT HIS COMPANY EXPECTS T}IAT I'T WILL TAKE

ABOUT I I YEARS TO COMPLETE THEIR INITIAL DRILLING TN EAIJTERN MO.NT.-MAINLY

ROOSEVELT, RICHLAND AND SHERIDAN CO. IN TFIAT CASE A SI\'ALL PRODUCING WELL

COULD TIE UP GREATER PRODUCTION IN SAME SPACING.

DWIGHT E. VANNATTA6740HWY 327BAINVILLE.MT 59212

406-',769-2156 HOME406-769-7156 CELL

Exhibit 6

CONCERNING NOTIFICATION OF PEOPTE OR ENTMES TTIATHA\TE SURFACH OR MINERALI$MERESTS IN SPACING UNTTS OR DRII,IING PERIIITTAPPIJICJITIONS

NUMEROUS PEOPTE TI{TNK fiIAT TIIE PRESENT NOI'IFICATION RULE OUGHT TO BE

AMEITDED BYADDING T}IATAI,I SURFACE AND MINERAL OWNERS IN, AIiID ADIACEI{T

TO, SPACING ITNITS OR DRIIIING PERMIT APPTICATIONS, BE NOTTIFIED IN IYRmNG

SIMULTAI'IEOUS TO 1IIE PUBIJC NOTICE. ITIE TIME FRAME SHOULD BE.AT L,EA,ST

ITIIR1Y(3o)DAYS INSTEAD OF TEN (IO) DAS. E\/EN TTIOUGH'TI{ff MAY NOT HAVE

EQUAL STIARES,ITIEY DO HAVE AN EQURI, RIG}TT TO KNOW. TI{IS STATEMETiIT COMES

BECAUSE TI{ERE }TAVE BEETiI NiISTANCES WHERE fiIE SMAI,IER.INTEREST OWNERS IIAVE

BEMiI IGNORED IINTIL Oft COMPAIVIES WERE FORCED TO NOTIFY OR TO COIIITACT TT{EM,

HOPING NOT TO HAVE TO PAY TTIEM FOR AI\IYMING.

DWIGTITVANNATTA6740l{ltrrY 32?BAIIiMIIILE, IvtT. 592 I 2

HOME 406-?69-2156cELt 406-769-7156

TI{IS COMMENT AND REQUEST IS AI"SO ON BETIALF OF VIRGINITi NITES OF IBII,LINGS, MIAIUD ROCIffNITES OF FAIRVIEW. MT.

Exhibit 7

COMMETiIT QUEST'ION

ITWA.S MYT'NDERSTATiIDING TI{ATAWATER PERMTTFOR OIL OR GA.S EXPTORATION

OR IN HIGTTWAY CONSIN.UCITON COUTD BE ISSUED VERY QUICKtY, BI'TTTII] D.N.R.C.

INFORMED ME TIIAT IT COULD TAKE UP TO SIX (6) MODrTI{S OR MORE, AM'tO CHECK

vvnH oNE oF THE SEVEN STATE ENTmES II{AT PLAY A RoLE IN j{DMIMSTE,RING

MOI{TAIiIAWATER RIGHTS AND STATEWIDE WATERADIUDICATION. THAT PROCESS LED

To A "TEMPoRARY PERMIT" FoR WATER USED FoR OIt oR G,q,S EXPLoRATTON oR IN

HIGHWAY CONSTRUCTION, BTIT IT TIJLS A PREDETERMINED EKPIRATION DAI]E.

[{AYBE, AIV "DITERIM PERMIT'' COTITD BE ISSUED SOONERWHILIJ THE "PROVISIONAL

PERMTT'' IS PROCESSED TINDER 85-2-3I I MCA. HOWEVER, TT MA]r BE POSSNITE FOR A

STATE AGENCY TO INFTUENCE TI{E D.N.R.C. TO PRIORMZE AND EKPEDITE'ITIE WATER

PERMIT APPUCATIONS FOR OIt OR GAS EKPLoRATION, LIKE II{E HIGHWAY DEPT

EKPEDffES WATER PERMITS FOR HIGHWAY CONSTR.UCIION.

woULD THE BOARD CONSIDER wRmNG A LEHER To rHE D.N.R,C. 6gp pEreuEST TT{EM

TO PRIORIIIZE AIiID EI(PEDffi WATER APPIJCAI'IONS FOR OIt OR cAS EXPLTCRATION

BECAUSE TI{ERE IS A BACK tOG FOR FRACING AND A DIRE NEED FOR FRAC WATER?

PLEA,SE SERIOUSTY CONSIDER TTIIS REQUEST, BECAUSE SOME OF THE WJ{TER WEI.I.S,

TITAT HA\IE BEET{ USED FOR FRACING ARE NOW BEING USED FOR IRRIGATION, TI{USLY

LESS FRAC WATER. AISO, COMPOTTNDING THIS SUIIATION, IS llllE SHORTX'GE OF WATER

IN ND T1{AT WILI EVENIUALLY STOP WAIER COMING FROM ND TO FRAC MOlirTAM OIt

wErJs.

THANK YOU

DWIGITTVAIiINAITA6?40 rI\rnr 327BAII\MII,LE, MT

HOME 406-?69-2156cELt 406.769-7t56

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INTO STAIE SPECIAL REVENUE ACCOUNT 6/1/12

PerGntageFY12 FY1 1 FY12 FY1 1

Production Tax 1,892,587 1,562,946 1 2iProduction Tax 233,675 265.464 O.A8

Permit Fees 62,850 54.300Permit Feos 219,400 208.650

Recovery Filing Fee

on lnvestments 11,2A1 40332 O 2AProeeds 1.160

Tax Rebate 491of Documents 6,821 7,496 O 91

Reimburs€mts 246 25 3oo

$ 2,428,019 $ 2.164.979 1.12

REVENUE |NTO DAMAGE MITIGATION ACCOaJNr as ot U1/12

FY1 1

Transfer rn from Orphan Share 0RIT Intarest 0Bond Forteitures O

Reimburse for Fencing (Segelman) 2,800

Interest on Investmenls 833TOTAL $ 3.633

REVENUE,NfO GENERAL FUND FROM F/iNES as ot 6/1/12

Brandon Oil

Orl I Gas LLC

FY'12

20

10

2080

10

5,000

120

10

90

4,900

20

10

10

10

1,000

40340

100

50

30

50

901,040

120s,0001,100

5,000

70

6080

130

8070

30

6070

(5,000)

6070

30070

100

2,500200

1,000

500

James D

James D

Montana One LLC

Oil Co

ACCOUNT BALANCES Ail12tnc

Slawson Exploration Co Gas ERA

Mitigation

En€rgy Inc

Pacific GeneralOilfield Water Serui€ IncWadman (Frank Mallsr)

Holdrngs LPoalridgo Disposal & Petroleum

Sheridan FacilityOil & Gas LTD

Amen€n Energy GroupWolf Production Company

Energy Seruies LLC (Jake OiWolf Productaon Company

Energy IncPacific General lnc

yon oilEnergy

Energv Seruices LLC (Jake Olrank Eaxter

oilF Parsell Partnership

JH Oil Co

James D. Hofland

Quinque Oil

Harry KnaupRoland Orl & GasBensun Energy LLCSlochcin lncRefund Frank Baxter

CA Holdings LPShay

oilJack Grynberg

Bank GasWell Servr@ (Poor Boy Oil)

Ameri€n Energy GroupZimmerman

Partners

Energy LLC 60

BOND FORFE'TURES AS ('F U1/12Go inao Damaga Mlaigation Account

American Iechnrcal Ttadrng Compan

GRANT BALANCES. 6/1/12

Name

2009 Northern2009 Southern2007 Tank Battery201 lSouthern - TankBattery2

TOTALS

CONTRACT - 6/l/12

2 Teachers WorkshooStudy - MT Tech

Scope of Work - MT TechMaintenance Services. lnc

Legal Services - LegalAvenue Mall

Liquid Gold Well Service, Inc. - 09 NorthernLiquid Gold Well Service, Inc. - 09 SouthernC-Brewer - 07 & 11 Southern Tank Batterv

TOTALS

AuthorizedAmt Expended

300,000 0300,000 0304,847 166,048204,951 0

43,000179,091

6,25027,45860,000

400165,000165,000424,650

{t,0547',ts

16,07826,933

40000

166,048

218.229

Balance

30c,00030c,000138,799204,951

43,000171,037

5,53511,3i3,067

$1 ,109.798 $166,048

I Or),

tot),2s,3,602

Legal Services Expenditures in Fy12

Case

Amt Spent Last Svc DateBOGC Duties 26,933 04t12

Total

933

Montana Board of Oil and Gas ConservationSummary of Bond Activity

41241 201 2 Through 61 1 21 20 1 2

Approved

Amount:

Purpose:

Exhibit 9

5t18t2012

$4,500.00

Limited Bond

Approved

Antelope Resources, Inc.

Billings MT

Certificate of Deposit $4,500 00

365 L1

FIRST STATE BANK OF SHELB\/

Comet Ridge Resources, LLC

Denver CO

Surety Bond

714 Ml

$5O,OOO.OO RLI INSURANCE COMPANY

Approved

Amount:

Purpose:

5t't5t2012

$50,000.00

Multiple Well Bond

Continental Resources Inc

Oklahoma City OK

Surety Bond

Continental Resources Inc

Oklahoma City OK

Surety Bond

1550 T1

$1O,OOO.OO RLIINSURANCECOMPANY

Approved

Amount:

Purpose:

4t24t2012

$10,000,00

UIC Single Well Bond

1550 T2

$1O,OOO OO RLI INSURANCE COMPANY

Approved

Amount.

Purpose:

4t24t2012

$10,000.00

UIC Single Well Bond

East Outlook Operations, LLC

Bozeman MT

Certificate of Deposit

712 c1

$10,000.00 Stockman Bank of Montana

Approved

Amount:

PurF,ose

5t10t2012

$10,000.00

Single Well Bond

Hawley & Desimon

Conrad MT3360 Gl

$5,000.00 Stockman Bank of Montana

Approved

Amc,unt:

Purrrose:

5t29t2012

$s,000 00

Single Well Bond

Letter of Credit

lver J. Johannesen

Loring MT717 D1

$5,000.00 The First State Bank of Matta

Approved

Amount:

PurSrose:

6t4t2012

$5,000 00

Domestic Well Bond

Certificate of Deoosit

Legacy Reserves Operating LP

Midland TX

Surety Bond

713 T2

$10,000.00 U.S. Speciatty Insurance Co

Approved

Amount:

Purpose:

6t5t2012

$10,000.00

UIC Single Well Bond

Legacy Reserves Operating LP

Midland TX

Surety Bond

713 T1

$10,000.00 U.S. Specialty Insurance Co

Approved

Amount:

Purpose.

611t2012

$10,000.00

UIC Single Well Bond

Legacy Reserves Operating LP

Midland TX713 M1

U.S. Specialty Insurance Co

Approved

Amount:

Purl>ose:

5t11t2012

$50,000.00

Multiple Well Bond

Surety Bond $50,000.00

Page 1 of 2

Approved

Shale Bakken Investment Corporation

Clearmont WY

Surety Bond

Montana Board of Oil and Gas ConseruationSummary of Bond Activity

41241201 2 Through 6t 1 2t20 i2

$50,000.00

711 M1

Liberty Mutual Insurance Company

593 c4

$5,000.00 Lexon Insurance Company

624 M1

$5O,OOO OO RLI INSURANCE COMPANY

App'oved

Amount:

Pur;rose:

Approved

Amount:

Purlnse:

n"fa,a""O

Amcrunt:

Purpose:

sirzotz$50,000 00

Multiple Well Bond

5t14t2012

$5,000.00Single Well Bond

- inarzntz

$50,000.00Multiple Well Bond

Three Forks Resources, LLC

Denver CO

Surety Bond

Released

El Paso eaP Company, LPHouston TX

Surety Bond

El Paso E&P Company, L.P

Houston TX

Suretv Bond

624 T'l

$1O,OOO.OO RLI INSURANCE COMPANY

Petro-Canada Resources (USA) Inc

Denver CO

Surety Bond

475 M1

$5O,OOO,OO FIDELTTY & DEPOSIT CO. OF MD

Rele,ased

Amount:

Pur;nse:

Relerased

Amount:

Purpose:

5t16t2012

$10,000 00

UIC Single Weil Bond

6t8t2012

$50,000.00Multiple Wetl Bond

Quaneco, LLC

Woodland Hills CA594 M1 Relerased

Am()unt:

Purpose:

5/23t2012

$50,000.00Multiple Well Bond

Surety Bond

Surety Bond$50,000 00 Markel lnsurance Company$50,000.00 American Safety Casualty Insurance Company

Page 2 ol 2

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Docket Applicant Status RequestSlawson Exploration Company Inc

Slawson Exploration Company Inc

Slawson Exploration Company Inc

Slawson Exploration Company Inc

Slawson Exploration Company Inc

Slawson Exploration Company Inc

Slawson Exploration Company llcSlawson Exploration Company Inc

Slawson Exploration Company lncSlawson Exploration Company Inc

Slawson Exploration Company Inc

Slawson Exploration Company Inc

Cirque Resources LPXTO Energy lnc.

XTO Energy Inc.

XTO Energy Inc.

Fidelity Exploration & Production Co,

Fidelity Exploratlon & Productlon Co

Fidelity Exploration & Productlon C9,

Fidelity Exploration & Production Co.

Fidelity Exploration & Production Co.

Fidelity Exploration & Production Co.

Fidelity Exploration & Production Co.

Fidelity Exploration & Production CoFidelity Exploration & Productlon Co-,

Shale Bakken lnvestment CorporationShale Bakken Investment CorporationShale Bakken lnvestment CorporationMarathon Oil CompanyMarathon Oil CompanyMarathon Oil CompanyMarathon Oil CompanyMarathon Oil CompanyMarathon Oil CompanyTrue Oil LLC

Oasis Petroleum North America LLC

Oasis Petroleum, lnc.Oasis Petroleum. Inc.Oasis Petroleum, lnc.Oasis Petroleum, lnc.Oasis Petroleum, Inc.Samson Oil and Gas USA Montana, lnc.

Samson Oil and Gas USA Montana, lnc.

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DefaultDefaultDefaultDefaultDefaultDefauitDefauliDefaultDefaultDefauliDefaultDefaultDefaultDefaultDefaultDbfauitDefaultDefaultDefaultDefauliDefaultDefaultDefaultDefaultDefaulfDefauIDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefaultDefault

243-2012246-2012247-2012248-2012249-2012250-2012251-201,252-2012257-2012258-2012259-2012261-2012271-2012279-2012281-2012282-201/28e-20122go-2012291-2012292-2012294-201229t5-2012296-2012297-2012298-2012300-201,i302-2012i3o3-2012

304-20123A5-20123A6-20123A7-20123t08-2012309-2012310-2612

"311-2012312-2012313-2012317-2012319-2012320-2012334-2012336-2012

DEFAU LT DOCKET, 6l L4/2AL2 Exlribit 11

Page 1 of 2

DEFAU LT DOCKET, 6/ L4/20L2

337-20123,43-2012gq+-zotzgqs-z.olzzat-201291-2012

198-2012

266-2012

267-2012

268-2012

269-2012

WhitlnO Oyl and Gas Corpolation

WhitlnO Oil and Gas Corporation

Whiting Oil and Gas Corporation

Whiting Oil and Gas Corporation

DefaultDefaultDefaultDefaultDetauttDefaultDefault

Vacate Field/RuleTemp. SpacingTemp SpacingTemp. SpacingException - ProductionClass ll Permitremp. bpaclng

Sprriug Amendment

Spacing Amendment

Spacing Amendment

Spacing Amendment

Page 2 of 2

Docket Applicant Status Request

314-2012318-2012

315-2012326-2012

316-2012327-2012

321-2012322-2012323-2012324-2012325-2012328-2012

329-2012

Slawson Explolatigl Cgppqny I nc-

Slawson Expforgtlo1 Company IncSlawsgn Explolatlol Company !nc

Slawson Exploration Company lncSlawson Exploration Company lnc

Slawson Exploration Company IncSlawson Exploration Compgny lnc

Slawson Exploration Company lncSlawson Exploration Company Inc

Oasis Petroleum, lnc.Oasis Petroleum, lnc.

Oasis Petroleum, Inc.Oasis Petroleum, lnc.

Oasis Petroleum, Inc,

Oasis Petrole_um, 11.,"

Oasis Petroleum, lnC.

Oisis Petroleum, ll",Oasis Petroleum, Inc.Oasis Petroleum, Inc.Oasis Petroleum, Inc.Oasis Petroleum, Inc.

Brigham Oil & Gas LP

Temp SpacingTemp. SpacingSpacing

SpacingWell [)ensity

SpacingPooling

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SpacingWell Density

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SpacingI

Temp. Spacing

Spaci'rgWell Density

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242-2012245-2012zsg-zotz

254-2012260-2012

255-2012264-2012

256-2012263-2012

213-2012277-2012z8o-2012

274-2012283-2012

276-2012

XTO Energy Inc.

XTO Energy In9: _

XTO Energy Inc.

XTO Energy inc _

XTO Energy Inc.

XTO Energy Inc.

2gg-2012 Fidelity Exploration & Production Co.I

301-2012 Shale Bakken Inveitment Corporation

DOCKETS TO BE HEARD, 6h4120L2 Exhibit'121

Page 1 of 2

231-2012233-2012237-2012

330-2012331-2012332-2012

zsis-2otr2

3'5Oit-2012

394-2011

351-2012

352-2012

isg-zotz

Brigham Oil & Gas LPBrigham Oil & Gas LP

,Brigham Oil & G9s

-LP

Anadarko Minerals, Inc.

Anadarko Minerals, Inc.Anadarko Minerals, Inc.

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DOCKETS TO BE HEARD, 6lL4l20r2

Page 2 of 2

FORT PECKTRIBES Exhibit 13

Assiniboine & Sioux

yl-inda Nelson, Chair MT Board of Oiland GAs

469 Griffin Road

Medicine Lake, MT 59247

Rho nda Knudsen, Superintendent

BIA Poplar Agency

P.O. Box 637

Poplar, MT 59255

Debbie Johnson Morford, Field Manager

Bureau of Land Management

Miles City Field Office

1.11Garryowen Road

Miles City, MT 59301

May27,2OI2

RE: Oiland Gasdrillingstipulations approved bythe Fort PeckAssiniboine and Sioux Tribes

Dear Colleagues;

At the regular board meeting on May 15th ,2OL2, the Fort Peck Tribal Executive Board passed Resolution

#26-790-2L2-5 that set out Oil and Gas stipulations/lease conditions for exploration and production

activities on the Reservation. I am enclosing a copy of the Resolution with this letter for your review.

The stipulation/lease conditions are on page 2 of the enclosed resolution.

As exploration intensifies on the Reservation, the Tribal Executive Board remains very concerned about

the impacts to our people, their homes, and way of life here on the Reservation. In an effort to control

some of the effects of the increased oil and gas activity, my natural resource staff has developed some

stipulations/lease conditions we would like to see incorporated into Applications for Permit to Drill.

These stipulations/lease conditions are being incorporated and enforced in other geographic location

across the United States where drilling and production activities are being initiated rrear neighborhoods

and communities.

Recently, the Fort Peck Tribes completed an Order on Consent with a drilling compa ny for violations ofthe Tribes' Solid Waste Code. The Order included these provisions in addition to su,:cessfully addressing

the core solid waste violations. Due to the fact that the Tribes are not the primary authority for issuing

APD's, we are requesting that your permits include them in order to ensure consistelncy across the

Reservation.

Poplar, Montana 59255

,/il,-t,.rf-lDtiP.O. Box'1027 (406) 768-2300

Tribal members and non- members on the Reservation have expressed concerns with hydro-fracking as

wellas oiland gas development activities. North Dakota has witnessed the rapid changes to the qualityof their natural environment due to the heavy exploration activities. These stipulations/lease

conditions represent our initial efforts to try to minimize some of the effects of the potential

development in our area.

Some of the stipulations may already be included in your permit documents. lf so, I and my staff wouldlike to discuss what your agency is currently including and if you have any questions regarding thestipulation/lease conditions we are requesting be added. I have two staff leads worlring on this issue:Deb Madison, Environmental Programs Manager,406.768.2389 and Jeanne Spaur, Nlanning Lake

Refuge, 406.768.2329.

ln any event, we would like to have a formal response to whether you can/will include them into yourfuture permits for drilling or what issues you foresee with their inclusion in the permits. I thank you inadvance for your consideration of this matter and am look forward to working together to address ourconcerns,

Chairman

Fort Peck Assiniboine and Sioux Tribes

Cc: Tom Richmond, Administrator,

file

enc.: 1 - Resolution #26-790-212-5

MT Board of Oil and Gas

RES OLUTTON #26-790-20t2-0 s TRIBAL GOVERNMENTAdnrinistrative

WHEREAS, the Fort Peck Tribal Executive Board is the duly elected body representirLg the Assiniboine &Sioux Tribes of the Fort Peck Reservation and is empowered to act in behalf of the Tribes. All actions shallbeadherent to provisions set forth in the 1960 Constitution and By-Laws, and

WHEREAS, the Tribal Office of Environmental Protection has compiled best management practices to protecthuman, wildlife, and ecosystem health related to 1) on-site pits; 2) transport truck air emissions and trafficvolume; 3) noise and light pollution; 4) surface disturbances; 5) water source, use, and protection, AMD

WHEREAS, Federal agencies such as the Bureau of Land Management and the Bureau of Indian Affairsapprove leases for Oil and Gas companies doing business on the Reservation, and

WHEREAS, the State has a similar Agency which is the Montana Board of Oil and Gas which also approvesOil and Gas drilling on fee lands within the exterior boundaries of the Reservation, ancl

WF{EREAS, the best management practices should be communicated to these leasing rluthorities and encouraS;ethem to incorporate them into their leasing stipulations for oil and gas drilling on the Fort Peck IndianReservation, So

I-HEREFORE BE IT RESOLVED, tiie Tribal Executive Board approves the best maniagemem practices listedabove and authorizes OEP to submit these practices for inclusion in lease approvals by the State of Montana a:rdthe Bureau of indian Affairs, and in the Bureau of Land Management's Application Pern-rit to Drill permits as

lease stipulations and

THEREFORE BE IT ALSO RESOLVED, that the Chairman is authorized to submit l]rese best managementpractices as lease stipuiations to the Bureau of Land Management and other relevant al3encies.

CERTIFICATION

I, the undersigned Secretary/Accountant of the Tribal Executive Board of the Assinibc,ine and Sioux Tribes ofthe Fort Peck Indian Reservation, hereby ccrtifu that the Tribal Executive Board is cornposed of 12 votingmembers of whom 10 constituting a quorum were present at a Recessed Regular meeting duly called andconvened this 15th day of May,20I) and that the foregoing resolutiott *u, d.,ly adopted at such a meeting bythe affirmative vote of i 0 for and 2 absent.

APPROVED:

The Office of Environmental Protection and the Manning Lake Wetlands Tribal Wildlife Refugerecommend the following best management practices for Tribal support of and rreferral to the Bureau ofLand Managemcnt for inclusion in Application Permit To Drill stipulations:

1. On-Site Pits: There will be no pits on-site or on the Reservation used to containliquid hydrocarbons except those amounts not capable of separation on-site from producedwater, drilling muds and flowback fluids in nonnal well drilling and development activities.

2. Transport Truck Air Emissions: Transport trucks shall meet all F'ederal DOTvehicle guidelines and Oil Companies shall request that vendors use their newest low-emissionsenrrinmonr Oii Companies shall require vendor use of Ultra-Low Sulfur Dieserl ("ULSD") whiievYury^rrerrr, \

contractors are hauling for said Company, subject to fuel availability at whoiesale and retail saleslocatiotts within 50 miies of the wells being serviced. Oil Companies shall use their best effortsto ensure on-site vehicle idling times are minimizedby Sarnson and its vendors.

3. Transport Truck Traffic Volume: To minimize transport truck usage of roadswithin the Reservation, Oil Companies will consider and use when practicable alternate liquidstransport methods such as pipeline and rail transport.

4. Noise: For oil and gas production activities, the night / day allowable noise levelsare 50/55 db(A) (Residential / Agricultural / Rural Standards), measured at the location of thenearesl affected residence. For driiling and compietions activities, the night / d.ay allowablenoise levels are 65/70 db(A) (Light-lndustrial Standards), measured at the iocation of the nearestaffected residence.

5. Light Pollution: For oil and gas production activities, all fixture:s, except upwardlighting to illuminate flags and lights used for holiday decorations, shall be fully downcast anclopaquely shielded. "Fully downcast and opaquely shielded" shall mean fixtures constructed sothat light rays emitted are projected below, and not above, thc fixture. Lightinll shall be soplaced as to prevent their light rays or illumination from being cast beyond property lines, andthe light source (bulb) shall not be visible beyond property lines. No light soru'ce shall bedirectly visible to any motor vehicle operated from a road or street or from any residential areawithin a distance of 300 feet measured from the ligirt source. These lighting requirements applyat all times except as temporarily required for safety or in case of ernergency.

6. Surface Disturbance: Oil Companies shall minimize surface dis;turbance andconsoiidate operations as much as reasonably practicable through the use of centralized wellpads and directional or horizontal wells, with a goal of limiting drill pad density to two per 640acres. Operator is required to minimize significant negative impacts to floodplains and surfacewater bodies.

7. Surface Water / Groundwater Sampline Plan: Oil Companies vzill complete abaseline groundwater quality sampling program acceptable to the Office using existing andavailabie area groundwater weils within one mile of the wells listed on Appenclix A, and towhich Oil Companies are reasonably able to obtain acoess for sampling. The Operator wiiiprovide a plan outlining its procedure for defrning background concentrations of various

constituents of the groundwater sampled, and for identifying constituent concentrations abovebackground.

Prior to commencement of new oil/gas well drilling, the available grou.ndwater samplingpoint(s) within one mile of wells will be sampled and tested to establish baseline values. Startingon the day drilling begins, water from the available groundwater sampling point(s) shall besarnpled and tested at least once each calendar quarter through the first year ofproduction, thenannually thereafter, or more frequently if directed by OEp.

A final groundwater / surface water sampling round is required one yeal after the Oil andGas well(s) have been plugged and abandoned. if the sampling indicates no inrpact to the waterfrom Oil and Gas activities, sarnpling and analysis may be terminated, All aspects of thegroundwater monitoring program shall be to the operator's account. Operator shall provide thesampling results to the OEP and MT DNRC Groundwater Information Center.

8. Gr.oundwater Protection: Oil Companies will use only air, water, or water-baseddrilling mud through and to at least 200 feet below identified potable groundwilter aquifers.

9. Water Use: Oil Companies will design operations to use non-potable water asreasonably practicable to minimize the use of potable water.

10. Water Source: Oil Companies wili work with local water boards, municipalitiesand other agencies to identifu suitable non-potable water sources.

INE

From:Sent:To:Subject:

Alan Engelke [engel@nemont.net]Tuesday, July 31, 2012 3:39 pM

Perrigo, Territhe "special statewide temporary spacing unit notification changes"

To: The Board of Oil and Gas Commission

From: The Northeast Montana Land and Mineral Owners Association, Inc.

Re: speciar statewide temporary spacing notification changes

The Association's position is that publication of notice in the county newspaper is n,ot adequate orsufficient!

The NEMLMoA respectfully request the Board of oil and Gas commission adopt a policy of the oilcompany making written notification to each mineralowner in the spacing unit before the application orpermit to drill is filed.

we think this is necessary because of the problems and concerns that our membership have dealt within the past, such as mineral acres in the spacing that are not leased, and mineral owners that live out ofthe area or out of state.

Thank you for taking this matter into consideration.

The NEMLMOA Board of Directors