NDPC Executive Summary of DMR 2014 Rules

Page 1 43-02-03-01 TREATING PLANTS The purpose of the proposed amendment is to require a plant constructed to recycle production water be considered a treating plant. Comment: The definition of a treating plant is very broad. This broad definition will include treatment of cuttings and drilling mud on a well site. North Dakota allows for reserve pits for drilling mud and dry, stackable drill cuttings. This requires industry to "treat" drilling mud on location in order to ensure pits are dry. The unintended consequences of this definition will include onsite treatment and identify rigs as treating plants with the end result being discouraging the recycling of water during a clean out, a small process that serves to minimize waste and chemical use. This definition as written would also discourage the use of produced water recycle for hydraulic fracture stimulation. Exclusion of well site operations will achieve the intended result of HB 1333. The proposed rules contain 10 subsequent requirements that require careful crafting of the language contained in the definition of treating plants to eliminate unintended consequences of discouraging recycling and reuse of materials generated during the drilling and completion process. Therefore, industry proposes the following language: Treating plant means any plant permanently constructed or portable, used in the purpose of wholly or partially reclaiming, treating, processing or recycling tank bottoms, waste oils, drilling mud, waste from drilling operations, produced water and other waste related to crude oil and natural gas exploration and production whether generated onsite or offsite after being transferred to an offsite facility. This is not to be construed as to include saltwater handling and disposal operations which typically skim oil from their operations or any operations located on the site where the waste is generated. This is not to be construed as equipment utilized for treating, processing, recycling of hydraulic fracturing and flowback water during completion operations, or recycling drilling mud and/or cuttings at a well site during drilling operations. In addition, Industry is concerned that DMR may not be staffed adequately to manage the increased workload from this proposed definition change without adoption of our revisions. Page 5 43-02-03-11 ORGANIZATION REPORTS The purpose of the proposed amendment is to require operators of disposal wells and treating plants to submit contact information to the Director. The proposed amendment requires the operators of disposal wells and treating plants to file an organization report. Comment: All rule changes regarding treatment plants are subject to concern if treatment plant definition as recommended is not adopted.

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Page 7 43-02-03-14 ACCESS TO RECORDS The purpose is to assure the Commission and Director have access to records of disposal and treating plant operators. The proposed amendment authorizes the Commission and Director to have access to all records wherever located. Page 7 43-02-03-15 BONDS The purpose of the proposed amendment is to correct the site referring to bonds. The proposed amendment identifies the bonding requirements in 43-02-03-51.3. Page 10 43-02-03-16 APPLICATION FOR PERMIT TO DRILL AND RECOMPLETE The purpose of the proposed amendment is to provide emergency services with a legal street address and incorporate changes pursuant to House Bills 1333 and 1348. The proposed amendments would require an operator to include the legal street address and road access. They also outline a procedure for the permit applicant to notify offsetting landowners 1,000 feet from their proposed well and sets a deadline for landowner comments. Comment: We support the concept, but due to uncertainty feel it needs additional work during the comment period. Assignment of a County 911 address can take up to 3 weeks from application to assignment in some counties, and we understand it may not be available in other counties. Industry suggests either adding a deadline for submission of 911 address that takes into account the lag time required for 911 assignment OR substitute location description for legal street address. If 911 address is required, then a requirement for the address to be removed from the 911 system at time of reclamation or abandonment of location. The nearest lines of a governmental section, the latitude and longitude of the proposed well location to the nearest tenth of a second, the ground elevation, a location description, and the proposed road access to the nearest existing public road. Page 12 43-02-03-16.1 DESIGNATION AND RESPONSIBILITIES OF OPERATOR The purpose of the proposed amendment is to designate the operator of a treating plant and to address disputes over designation of a treating plant operator. The proposed amendments clarify that the principal on the bond is the operator of the treating plant and 43-02-03-16.2 applies to disputes over a treating plant operator. Page 12 43-02-03-16.3 RECOVERY OF A RISK PENALTY The purpose of the proposed amendment is to eliminate ambiguity in the rule. The proposed amendments clarify the invitation to participate in drilling a well must include the approximate surface location of the well and the approximate completion location if other than a vertical well.

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Page 15 43-02-03-17 SIGN ON WELL OR FACILITY The purpose of the proposed amendment is to require identification on facilities. The proposed amendments require signage on transportation, purchasing, and processing facilities, but eliminates the requirement to be legible from a distance of 50 feet. Comment: Industry feels the rule is too broad. The type of the intended facilities or signage needs to be identified or clarified. We recommend specific reference to production-related facilities within the jurisdiction of the commission. The rule should also include implementation time either at the time of well spudding or well pad construction. Page 15 43-02-03-19 SITE CONSTRUCTION The purpose of the proposed amendment is to require operators to seek authorization prior to installing liners and fabric and document use of such items in the well file. The proposed amendments require approval from the Director prior to using fabrics and liners during construction of sites, roads, and facilities. Comment: Fabrics are commonly used during road construction to mitigate wet/soft spots particularly prevalent in the spring. Soil Cement is used in similar fashion. Spring time well site construction has benefitted greatly through the use of fabric and soil cementing or stabilization use just prior to arrival of drilling rig. These decisions are generally spot decisions in response to a set of undesirable conditions. Lag time for approval is a concern and will lead to operations slowdowns or would discourage operators from utilizing these treatments. Industry is also concerned that the term sites is too broad, and recommends retaining the word drill. This rule would add substantial workload to the DMR staff. Page 16 43-02-03-19.3 EARTHEN PITS AND OPEN RECEPTACLES The purpose of the proposed amendment is to allow the earthen pits or open receptacles to remain for more than 30 days after the operations have ceased, only after a public hearing. The proposed amendment removes the authority for the Director to allow earthen pits or open receptacles to remain for up to one year. Comment: Industry objects to this proposed amendment. The authority to extend 30-day requirement is important given the inability to predict adverse weather conditions. In many case, spring rains, snow melt and other weather conditions can prevent the closure of a receptacle within the original thirty day timeframe. The rule should provide some provision for determination on a case by case basis what would occur in situations where weather prevents closure and reclamation from beginning within thirty days. For these reasons, industry requests that original language be reinstated with the language added within reason.

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Page 17 43-02-03-19.4 DRILLING PITS The purpose of the proposed amendment is to assure that the reclamation of a drilling pit is documented in the well file. The proposed amendment requires a notice to be filed with the Director detailing the reclamation performed. Comment: We support this proposed change, but encourage the addition of the word verbal (must obtain verbal approval). Without inclusion of verbal there is a timing conflict. Page 18 43-02-03-19.5 RESERVE PIT FOR CUTTINGS FROM SHALLOW WELLS The purpose of the proposed amendment is to meet the legislative intent of Senate Bill 2014 with reference to reserve pits. The proposed amendment would allow wells drilled and completed outside the Bakken and Three Forks Formation development areas to use separate reserve pits if utilized to segregate each mud system and associated drill cuttings. Comment: We support the change but the definition is unclear. We suggest using the language formation other than the Bakken and Three Forks or otherwise further defining development areas. Page 19 43-02-03-22 DEFECTIVE CASING OR CEMENTING The purpose of the proposed amendment is to allow an operator to protect casing from external corrosion, that could develop if defective casing or cementing existed, by installing mitigation measures such as cathodic protection. The proposed amendment allows defective casing or cementing to remain if the casing can be adequately protected from external corrosion. Comment: The intent of this rule is already adequately covered by existing language. The rule also contains areas that are vague and therefore left to interpretation. Evaluation that the casing can be adequately protected from external corrosion may be difficult to determine. Industry does not agree that the use of cathodic protection is the proper solution. Page 19 43-02-03-27.1 HYDRAULIC FRACTURE STIMULATION The purpose of the proposed amendment is to provide additional safety to the hydraulic stimulation operation. The proposed amendment requires safety equipment to be installed at the top of the Christmas tree and be remotely operated from the edge of the location or other safe distance. Comment: Industry has concerns that this rule change is too prescriptive in the location of the remote operated frac valve and suggests the following language for isolation of the well bore. f. An adequately sized, function tested remote operated frac valve must be utilized at a location on the Christmas tree that provides isolation of the well bore and must be remotely operated from the edge of the location or other safe distance.

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Page 23 43-02-03-28 SAFETY REGULATION The purpose of the proposed amendment is to provide additional protection and safety. The proposed amendment requires all electric generators to be 150 feet from any producing well or oil tank. Operators will also be required to notify the operators of offsetting wells when fracture stimulating their wells. Comment: The expansion of the 150 offset applicability to all electric generators (previously only portable electric lighting generators) from a producing well or oil tank is contrary to current trend of minimizing pad size. Industry suggests that all existing well pads should be grandfathered and the rule only apply to those wells pads constructed after April 1, 2014. Industry is also concerned with the obligation of operators to notify the operator of an offset well that is on confidential status, and we encourage further review. Language recommendations: Placement as close as one hundred twenty-five feet may be allowed if flame or spark arrestor is utilized on the equipment. The operator conducting any well stimulation shall give notice up to 7 days prior and not less than twenty four hours to any operator of a well completed in the same pool if publically available information indicates the completion intervals are within one thousand three hundred twenty feet of one another. Page 23 43-02-03-29 WELL AND LEASE EQUIPMENT The purpose of the proposed amendment is to outline pipeline requirements and a procedure for reporting the location of pipelines installed pursuant to House Bill 1333. The proposed amendments outline general installation and abandonment requirements, and requirements for reporting pipelines both installed and abandoned. Comment: We recommend that the sixth requirement for the affidavit to be submitted after an underground gathering pipeline is put into service be changed from [t]he pipeline depth of burial, to the pipeline minimum depth of burial at time of construction. The proposed amendments to NDAC 43-02-03-29 include requirements for abandoning underground gathering pipelines. We recommend sixth requirement for abandoning pipelines Leave in a safe condition be deleted. This wording is vague and undefined as well as unnecessary since compliance with the first five requirements will ensure that abandoned pipelines are left in a safe condition. We also recommend adding the following language: An underground gathering pipeline shall not be construed to include buried piping utilized to connect flares, tanks, treater, or other equipment located entirely within the boundary of a well site or production facility. Finally, we are concerned that there may be some uncertainty as to which pipelines these requirements apply. We recommend that the first sentence of the second new paragraph to the regulation be revised to read as follows: Within one hundred eighty days of placing an underground gathering pipeline into service after August 1, 2013, and by February 1, 2015 for underground gathering pipelines placed into service after August 1, 2011 and before August 1, 2013, the operator

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Page 25 43-02-03-30 NOTIFICATION OF FIRES, LEAKS, SPILLS, OR BLOWOUTS The purpose of the proposed amendment is to comply with the statute changes of reporting fires, leaks, spills, or blowouts pursuant to House Bill 1149*. The proposed amendments require all such reports to include information required under North Dakota Century Code 37-17.1-01, as provided in House Bill 1149*. Comment: We support the concept but are concerned about adopting reference to another section of code not specific to oil and gas. Industry recommends retaining the stricken language, deleting the words pursuant to and inserting the following language after the word reoccurrence: , and if applicable all information required by Page 26 43-02-03-34 METHOD OF PLUGGING The purpose of the proposed amendment is to correct the cite in the rule. The proposed amendment states sites must be reclaimed pursuant to NDAC 43-02-03-34.1, which replaces the incorrect cite of NDAC 43-02-03-19. Page 26 43-02-03-34.1 RECLAMATION OF SURFACE The purpose of the proposed amendment is to clarify that treating plants must be reclaimed when decommissioned and document why certain roads and sites are allowed to remain. The proposed amendment requires all decommissioned treating plants to be reclaimed and all site and road reclamation waivers to be filed with the County Recorders Office. Comment: This rule makes good sense and industry supports it, with the recommendation of inserting the word documented in subsection 5 as follows: and shall record documentation of the waiver with the recorder of the county in which the site or road is located. Page 27 43-02-03-38.1 PRESERVATION OF CORES AND SAMPLES The purpose of the proposed amendment is to provide flexibility in obtaining samples and filing cores. They also require additional information to be filed in standard boxes. The proposed amendments provide that the State Geologist can set sampling requirements, requires the file and API numbers to be included on the sample boxes, allows a 30-day extension to file reports, and increases the time in which cores must be filed from 90 to 180 days. Comment: It would be helpful for language to be more specific and less left to individual interpretation. Page 28 43-02-03-48 MEASUREMENT OF OIL The purpose of the proposed amendment is to clarify that the producer must determine the volume of oil using the same method as transporters and purchasers. The proposed amendment requires all volumes to be corrected to a base pressure of 14.73 pounds per square inch absolute.

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Page 28 43-02-03-51 TREATING PLANT REQUIREMENTS AND NOTICE The purpose of the proposed amendment is to comply with the statute changes addressing notification requirements pursuant to House Bill 1333 and to streamline the treating plant rules. The proposed amendments require the Commission to give at least a 15-day notice to the County Auditor of any application in which a request for a treating plant is received, as provided in House Bill 1333. They also move the treating plant requirements to other newly created sections of the Administrative Code. Page 29 43-02-03-51.1 TREATING PLANT PERMIT REQUIREMENTS The purpose of the proposed amendment is to clarify the treating plant rule currently under NDAC 43-02-0351 by addressing treating permit requirements in this new section. This section will ease confusion of what information is necessary to file a complete application. The proposed addition outlines the general requirements to be included in a treating plant application. Page 30 43-02-03-51.2 TREATING PLANT SITING The purpose of the proposed amendment is to clarify the treating plant rule currently under NDAC 43-02-03-51 by addressing treating permit siting in this new section. The proposed addition states a treating plant cannot be sited in a geologically or hydrologically sensitive area. Comment: Industry does not object to this proposed rule change as long as the definition of treating plant is adopted as recommended for 43-02-03-01. Restricting location of temporary/portable treatment plants could eliminate industrys ability to conduct mud processing on site. This rule would also affect every drilling rig because North Dakota allows for pits for drill mud and dry, stackable drill cuttings, therefore temporary/portable mud processing takes place on every drilling location. Page 30 43-02-03-51.3 TREATING PLANT CONSTRUCTION AND OPERATION The purpose of the proposed amendment is to clarify the treating plant rule currently under NDAC 43-02-03-51 by addressing treating permit siting in this new section. These requirements are currently included in a Commission order approving a treating plant application. The proposed addition outlines the general construction and operational requirements for a treating plant. Comment: We support the proposed rule change and encourage a careful review of the language since these are completely new regulations with substantial implications. Page 33 43-02-03-51.4 TREATING PLANT NOTICE OF INTENT TO ABANDON Comment: Note to drafters there is a typo on the word plant in subsection 1.

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Page 33 43-02-03-55 ABANDONMENT OF TREATMENT PLANTS The purpose of the proposed amendment is to clarify when a treating plant is considered abandoned. The proposed amendment clarifies that the removal of treating plant equipment or the failure to use a treating plant for one year constitutes abandonment of the treating plant. Comment: Idling a treating plant for one year should not constitute abandonment and the requirement to reclaim. There could be valid economic reasons to idle a plant for more than a year and the rule as written does not allow for a waiver of the requirement to abandon the plant. The equipment will be on surface and visible, hence there is little concern for unnoticed pollution. Also, the rule as written could be interpreted as the removal of any piece of treating plant equipment would constitute abandonment. The rule should provide an allowance for the Director to issue a waiver. Page 34 43-02-03-60.2 FLARING EXEMPTION The purpose of the proposed amendment is to comply with the statute changes addressing gas flaring pursuant to House Bill 1134. The proposed amendments require an applicant seeking an exemption to NDCC 38-8-06.4 to document that it is economically infeasible to equip the well with a system that intakes 75% of the gas and natural gas liquids volume for beneficial consumption, as provided in House Bill 1134. Comment: We support the intent of HB 1134 and this rule to encourage remote capture of natural gas at the well site and encourage flare reducing technologies. Page 36 43-02-03-60.3 APPLICATION FOR TEMPORARY GAS TAX EXEMPTION The purpose of the proposed amendment is to comply with the statue changes addressing gas flaring pursuant to House Bill 1134. The proposed addition outlines the application procedure to certify a well for a temporary gas tax exemption, as provided in House Bill 1134. Page 37 43-02-03-80 RAIL FACILITY OPERATORS The purpose of the proposed amendment is to clarify rail facility operators are subject to the rule. The proposed amendment requires the operator of any oil rail facility to report the amount of oil received and shipped out of the facility monthly. Page 38 43-02-03-81 TREATING PLANT OPERATORS The purpose of the proposed amendment is to clarify treating plant operators are subject to the rule. The proposed amendment requires the operator of a treating plant to obtain the Directors approval prior to transporting any oil from the facility.

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Page 38 43-02-03-88.1 NOTIFICATION REQUIREMENTS FOR DISPOSAL APPLICATIONS The purpose of the proposed amendment is to comply with the statute changes addressing notification requirements of disposal applications, pursuant to House Bill 1333. The proposed amendment requires the Commission to give at least a 15-day notice to the County Auditor of any application in which a request for a disposal application is received, as provided in House Bill 1333. Comment: Industry supports this change. Page 39 43-02-05-04 PERMIT REQUIREMENTS The purpose of the proposed amendment is to clarify the permit requirements of a disposal well and pursuant to House Bill 1333, to comply with the statute changes addressing safety concerns of disposal applications. The proposed amendments clarify the top and bottom confining zones of the injection zone must be identified, requires the size and purpose of all tanks, location and height of all dikes, liner location, flowline location, and proposed road access to nearest existing public road and the authority to build such access. Comment: Industry supports this change with the assumption that this rule only applies to new injection wells, not existing. Page 42 43-02-05-05 SITING Comment: We do not see the reason for removing the word new, as it appears to result in retroactive applicability to existing disposal wells. Page 42 43-02-08-01 QUALIFYING PERIOD The purpose of the proposed amendment is to comply with the statute changes addressing changes in the stripper well determinations, pursuant to House Bill 1198. The proposed amendment acknowledges that a well can have a qualifying period. Page 43 43-02-08-02 WORKING INTEREST NOTIFICATION The purpose of the proposed amendment is to clarify the stripper well rules and remove the requirement of the applicant to notify all working interest owners of the stripper well application. The proposed amendments clarify that an application for either a stripper well or a stripper well property can be submitted and removes the requirement that all mineral interest owners be notified of the application. Comment: Industry supports this change. Page 44 43-02-08-02.1 PROPERTY DETERMINATION The purpose of the proposed amendment is to clarify the rule and comply with the statue changes addressing changes in the stripper well determinations, pursuant to House Bill 1198. The proposed amendments clarify that a Unit, a spacing unit, contiguous tracts within a lease, and a single well competed prior to July 2, 2013 are all considered 9|Page

properties. Pursuant to House Bill 1198, the amendments also state a single well drilled and completed after June 30, 2013 is considered a single well stripper well, that any stripper well property status of a well previously qualified will expire upon reentry or recompletion, and additional wells can be added to a stripper property only if they were completed prior to July 1, 2013. Page 45 43-02-08-03 STRIPPER WELL OR PROPERTY STATUS The purpose of the proposed amendment is to clarify the rule and comply with the statute changes addressing changes in the stripper well determinations, pursuant to House Bill 1198. The proposed amendments clarify that the Director will consider applications for stripper well status and applications for stripper well property status. Pursuant to House Bill 1198, the amendments also state that to qualify for such stripper status, production from a well outside the Bakken and Three Forks Formations with a well depth of more than 10,000 feet must not exceed an average of 30 barrels of oil per day and production from a will in the Bakken and Three Forks formations with a well depth of more than 10,000 feet must not exceed an average of 35 barrels of oil per day. Page 47 43-02-08-04 AMENDED APPLICATION The purpose of the proposed amendment is to clarify the stripper well rules. The proposed amendment clarifies the Director will issue a determination of a stripper well or a stripper well property within 30 days of receiving an amended application. Page 47 43-02-08-05 ADVERSELY AFFECTED PERSONS PETITION The purpose of the proposed amendment is to clarify the stripper well rules. The proposed amendment clarifies that any person adversely affected by a determination of the Director for a stripper well or stripper well property status may within 30 days, petition for a hearing. Page 47 43-02-08-11 STRIPPER WELL RECORDS The purpose of the proposed amendment is to clarify the stripper well rules. The proposed amendment clarifies that any operator desiring to classify a well or property as a stripper well property shall keep records for a period of at least 6 years. Page 49 43-02-12-04 PLUG MARKING The purpose of the proposed amendment is to update our rules with technology advances. The proposed amendment removes the need to include a description of the identifying marks the applicant will use on plugs placed in seismic shot holes since Page 50 43-02-12-07 DRILLING AND PLUGGING REQUIREMENTS The purpose of the proposed amendment is to update our rules with technology advances and to assure the seismic shot holes are properly plugged. The proposed amendment removes the need to mark plugs placed in seismic shot holes with identifying marks, since the holes are now identified by latitude/longitude coordinates and filed with the Commission. The proposed amendments also only allow dry cuttings to be utilized when plugging a shot hole since wet cuttings tend to bridge off and result in improper plugging. 10 | P a g e