This document discusses oil and gas development in North Dakota. It provides an overview of the Bakken and Three Forks formations, noting they contain an estimated 149 billion barrels of recoverable oil. Production has increased North Dakota's ranking from 9th to 4th in the US for oil production. The document also reviews North Dakota's oil and gas tax policies and their economic impacts, and proposes some desired changes to make the state more competitive.

1. Welcome Welcome Mineral Owners November 13, 2009

2. Oil and Gas in ND What it means to ND Mineral Owners North Dakota Oil and Gas Overview; Bakken and Three Forks Economic Impact; developments trends Challenges: Oil and Gas Tax Policy 4. Changes to tax policy

3. Bakken and Three Forks

4. Bakken-Three Forks Play Moved ND from 9 th to 4 th in U.S. 149 Billion Barrels 1-2% Recoverable 2.1 billion recoverable Three Forks 50% size of the Bakken

7. Drilling follows economics 0% 50% 100% 150% 200% 250% 300% 350% Change in Oil Price (WTI) Change in Drilling Activity Change in Production Peak D rilling: 98 Rigs (Nov 2008) Peak Oil Price $145/Bbl Low Oil Price: $31/Bbl 54 Rigs $69/Bbl 299 KBD

8. The Bakken/Three Forks: 1,057 Bakken and Three Forks wells 3,422 drilling and spacing units approved 335 of 381 wells past 12 months 10,000 drilling and spacing units possible

9. Recently in North Dakota 08/08 1/09 NYMEX Price per Barrel $147 $31 ND Price Per Barrel $125 $24 Difference is Distribution, not quality Production ( BOPD) 215,000 187,000 Rigs 98 31 120 Jobs for Each Rig

10. Current Status: NYMEX $77 ND prices $68 Production 230,000 Rigs 62 Eco-pads: 10% cost saving 4 wells @ pad; less trucks

11. North Dakota’s Economy NDSU Study $8 B illion Gross Business Volume $400 M illion Royalties 46,000 Jobs

12. Contributions to North Dakota Oil and Gas Production Taxes 2007-2009 $794,000,000 General Fund $71 M School Trust Fund $37.7 M Foundation/Stabilization Fund $37.7 M Permanent Oil Tax Trust Fund $475 M (POTTF) Water Resources Trust Fund $75.4 M * *(05-07: $25.82M; 07-09 projected: $41M)

13. ND Oil Trust Fund $794 Million 2007-2009 $6.5 million Veterans Home $350,00 Peace Garden $23 million Higher Ed $115 Million Property Tax 2007-2008 $300 Million Property Tax 2009

14. 1. Market Forces Price/Economics/Costs Infrastructure (price discounts) Housing/labor/roads 2. Public Policy/ND/US US Tax Policy ND Tax Policy 1. Market Forces Price/Economics/Costs Infrastructure (price discounts) Housing/labor/roads 2. Public Policy/ND/US US Tax Policy ND Tax Policy Challenges

15. EOG Rail Facility at Stanley ND Images provided by EOG

16. ND Oil Taxes Third Highest in the US 5% Gross Production 6.5% Extraction 11.5 % 0ff Gross Revenue

17. 11.5% Tax Impact to Mineral Owners 11.5% paid by mineral owner too Impedes Mineral Development

18. Hor/Vert Horizontal & Vertical Production By Month 1986 Through September 2006 Slide Text

19. Robert Harms 701-471-0959 www.northernproducers.com North Dakota Tax Policy? Desired change: 9% “off ramp” -from extraction tax- in lieu of price triggers -retain gross production rate -increase investment in ND -increase tax revenues (more production) -Bakken more economic; not “millionaire” oil wells

20. North Dakota Tax Policy cont. Makes ND more competitive (MT-0%-9%) Improves Revenue Forecasting Moves toward flat, more simplified tax system Improves business climate-for long range planning

21. North Dakota Legislation House Bill 1235 11.5% 7% New Drilling Incentive $4.5 million; 75,000 barrels; 18 months Expires in 36 months Not applicable above $70

22. Robert Harms 701-471-0959 www.northernproducers.com