board of university and school lands · 2020-01-20 · board of university and school lands...

BOARD OF UNIVERSITY AND SCHOOL LANDS

Governor's Conference Room Ground Floor, State Capitol January 21, 2020 at 9:00 AM

AGENDA

➢ = Board Action Requested

1. Approval of Meeting Minutes – Jodi Smith

Consideration of Approval of Land Board Meeting Minutes by voice vote.

➢ A. December 18, 2019 – pg. 1

2. Reports – Jodi Smith

A. Report of Encumbrances Issued by the Commissioner – pg. 17

B. Financial Position – pg. 19

C. Unclaimed Property Report – pg. 28

D. Energy Infrastructure and Impact Office Report – pg. 29

E. Acreage Adjustment Survey – pg. 30

F. Information Technology Update – pg. 32

3. Energy Infrastructure and Impact Office – Jodi Smith

➢ A. Energy Infrastructure and Impact Office Grant Retirement – pg. 33

4. Investments –

➢ A. Proxy Voting Policy – Second Reading – pg. 35

5. Operations – Jodi Smith

A. Minerals Valuation – pg. 64

➢ B. Repayment of Unpaid Gas Royalty – pg. 65

6. Minerals – Jodi Smith

➢ A. Oil and Gas Lease Amendment – pg. 66

7. Litigation – Jodi Smith

A. Vitesse et al Case No. 27-2019-CV-00266 – pg. 70

➢ B. Continental Resources, Inc. et al. Case No. 1:17-cv-00014 – pg. 74

➢ C. William S. Wilkinson et al. Case No. 53-2012-CV-00038 – pg. 77

➢ D. North Range et al. Case No. 27-2020-CV-00028 – pg. 80

➢ Executive session under the authority of NDCC §§ 44-04-19.1 and 44-04-19.2 for attorney

consultation with the Board’s attorneys to discuss current and pending litigation.

− Repayment of Unpaid Gas Royalty

− Continental Resources, Inc. et al. Case No. 1:17-CV-0014

− William S. Wilkinson et al. Case No. 53-2012-CV-00038

− North Range et al. Case No. 27-2020-CV-00028

Next Meeting Date – February 27, 2020

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Minutes of the Meeting of the Board of University and School Lands

December 18, 2019

The December 18, 2019 meeting of the Board of University and School Lands was called to order at 8:00 AM in the Governor’s Conference Room of the State Capitol by Chairman Doug Burgum. Members Present: Doug Burgum Governor Alvin A. Jaeger Secretary of State Wayne Stenehjem Attorney General Kelly Schmidt State Treasurer Kirsten Baesler Superintendent of Public Instruction Department of Trust Lands Personnel Present: Jodi Smith Commissioner Kristie McCusker Paralegal Kate Schirado Administrative Assistant Adam Otteson Revenue Compliance Tiffany Grossman Attorney Michael Shackleford Investments David Shipman Minerals Rick Owings EIIO Mike Humann Surface Guests in Attendance: Dave Garner Attorney General’s Office Leslie Bakken Oliver Governor’s Legal Counsel Brent Sanford Lt. Governor Josh Kevan RVK Ron Ness ND Petroleum Council Mark Hanson Nilles Law Office (Via teleconference for Sorum case only) Amy Sisk Bismarck Tribune

A P P R O V A L O F M I N U T E S A motion to approve the minutes of the November 26, 2019 meeting was made by Secretary Alvin Jaeger and seconded by Attorney General Wayne Stenehjem and the motion carried unanimously on a voice vote.

R E P O R T S

Report of Encumbrances Issued by Land Commissioner 11/16/2019 to 12/10/2019 Granted to: WEST DAKOTA WATER LLC, WILLISTON-ND For the Purpose of: Permit: Temporary Water Layflat Line Right-of-Way Number: RW0008589 Trust: A – Common Schools Legal Description: MCK-149-98-16-NE4, NW4, SE4

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Granted to: HILAND CRUDE LLC, HOUSTON-TX For the Purpose of: Easement: Drop Line-Oil Gathering Pipeline Right-of-Way Number: RW0008603 Trust: A – Common Schools Legal Description: WIL-157-99-36-SE4 Granted to: AMES SAVAGE WATER SOLUTIONS LLC, WILLISTON-ND For the Purpose of: Permit: Temporary Water Layflat Line Right-of-Way Number: RW0008621 Trust: A – Common Schools Legal Description: WIL-158-95-36-NW4, SW4 Granted to: WEST DAKOTA WATER LLC, WILLISTON-ND For the Purpose of: Permit: Temporary Water Layflat Line Right-of-Way Number: RW0008623 Trust: A – Common Schools Legal Description: WIL-156-97-16-S2SW4 LESS THE N 248 FT Granted to: ND GEOLOGICAL SURVEY, BISMARCK-ND For the Purpose of: Permit: Rare Earth Elements Exploration Right-of-Way Number: RW0008630 Trust: A – Common Schools Legal Description: SLO-136-102-16-NE4 Summary of Fall Surface Lease Auctions The 2019 fall lease auctions were completed at the beginning of November. The following table is a summary of the fall lease results as compared to the last fall we leased which was 2017; every 5 years we have an “off” year that we do not hold fall auctions.

2017 2019 Number of counties 40 34 Total tracts offered 891 1146 Number of tracts bid unleased 37 78 Number of tracts bid-up 115 146 Total amount of minimum advertised bids $1,689,266 $2,546,925 Total amount received $1,875,340 $2,418,748 Total amount collected over minimum bid $238,381 $128,177

All payments from the fall auctions have cleared and no issues remain. Commissioner Smith has approved the leases on behalf of the Board of University and School Lands. The 78 unleased tracts will be offered again in March of 2020 at the regional spring auctions.

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North Dakota Game and Fish Department Request to Purchase Trust Land Under NDCC Ch 15-09 The North Dakota Game and Fish Department has submitted an application to the Board and University School Lands (Board) to purchase 114 acres in the E½SW¼, E½W½SW¼ section 16, T130N, R50W, Richland County for a shooting range and wildlife management area under authority of N.D.C.C. Chapter 15-09 which allows for the purchase of Trust land by public entities for public purposes. An appraisal has been requested from Richland County as required under N.D.C.C. Chapter 15-09 and a second appraisal will be completed by a qualified commercial real estate appraiser to determine the value of the property at its highest and best use.

Map was provided to the Board and is available upon request. Unclaimed Property Program Report Unclaimed property is all property held, issued, or owing in the ordinary course of a holder’s business that has remained unclaimed by the owner for more than the established time frame for the type of property. It can include checks, unpaid wages, stocks, amounts payable under the terms of insurance policies, contents of safe deposit boxes, etc. An owner is a person or entity having a legal or equitable interest in property subject to the unclaimed property law. A holder can include a bank, insurance company, hospital, utility company, retailer, local government, etc. Since 1975, the Unclaimed Property Division (Division) of the Department of Trust Lands has been responsible for reuniting individuals with property presumed abandoned. The Division acts as custodian of the unclaimed property received from holders. The property is held in trust in perpetuity by the State and funds are deposited in the Common Schools Trust Fund. The 1981 Uniform Unclaimed Property Act created by the national Uniform Law Commission was adopted by the State in 1985. For the month of November 2019, the Division received 647 holder reports with a property value of $3,330,950,99 and paid 444 claims with a total value of $201,550.86. Energy Infrastructure and Impact Office Program Report The Energy Infrastructure and Impact Office (EIIO) is a division within the Department of Trust Lands (Department). EIIO provides financial assistance to local units of government that are impacted by oil and gas activity. In turn, EIIO receives a portion of the Oil and Gas Gross Production Tax. The office has been a part of the Department since 1977 and was formally known as the Energy Development Impact Office created under N.D.C.C. ch. 57-62. Over the course of the past 40 years, EIIO has dispersed over $624 million in funding. The Oil and Gas Impact Grant Fund currently has 36 grants with a balance of $15,477,345.77 as of December 9, 2019. The following shows grant activity for the last four months:

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Oil and Gas Impact Grant

Fund

Grants with

balances

Current Balance

Obligated to Grants

8/31/2019 51 $19,963,193.67 10/11/2019 41 $17,695,025.25 11/15/2019 40 $17,164,734.70 12/9/2019 36 $15,477,345.77

The Energy Impact Fund, established within Senate Bill 2013 as enacted by the Sixty-fifth Legislative Assembly, was created to supplement the Oil and Gas Impact Grant Fund for the 2017-2019 biennium. This fund currently has four grants with a balance of $4,793,191.14 as of December 9, 2019. House Bill 1013 of the Sixty-sixth Legislative Assembly requires the Commissioner of University and School Lands to transfer any unexpended funds remaining in the Energy Impact Fund when the fund is repealed on June 30, 2021, to the Oil and Gas Impact Grant Fund. The following shows grant activity for the last four months:

Energy Impact Fund

Grants with

balances

Current Balance Obligated to

Grants 8/31/2019 4 $4,971,638.80 10/11/2019 4 $4,940,103.06 11/15/2019 4 $4,793,191.14 12/9/2019 4 $4,793,191.14

The Energy Infrastructure and Impact Office is currently managing 40 grants for a total of $20,270,536.91. The following shows grant activity for the last four months:


Fund

Grants with

balances


Grants

Energy Impact Fund

Grants with

balances


Grants Total between

both Funds 8/31/2019 51 $19,963,193.67 8/31/2019 4 $4,971,638.80 $24,934,832.47 10/11/2019 41 $17,695,025.25 10/11/2019 4 $4,940,103.06 $22,635,128.31 11/15/2019 40 $17,164,734.70 11/15/2019 4 $4,793,191.14 $21,957,925.84 12/9/2019 36 $15,477,345.77 12/9/2019 4 $4,793,191.14 $20,270,536.91 Investment Update Asset Allocation The table below shows the status of the permanent trusts’ asset allocation as of November 30, 2019. The figures provided are unaudited.

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Upcoming Investment Manager Meetings The following meeting with investment manager were planned to discuss updates on strategy, compliance, and performance. Meetings will be held at DTL’s conference room. Please inform the Commissioner ahead of time if you plan to attend, so that we can make sure enough presentation materials are available. December 20, 2019, 9:00AM Northern Trust Asset Management SIIF/Capitol/Coal ($727.4M, 100% of assets) Diversified Inflation Strategies ($97.9M, 2% of PTF Assets) January 28, 2019, 9:00AM DFA EM All Cap Core Fund (DFCEX) Emerging Market Equity ($102.8M, 2.1% of PTF assets)

O P E R A T I O N S General Administration, Surface Land Management, Investments and Minerals Management Administrative Rules In House Bill 1300, the Sixty Fifth Legislative Assembly directed the Board of University and School Lands (Board) no longer be exempt from the Administrative Agencies Practice Act (Act). In Senate Bill 2264, the Sixty Sixth Legislative Assembly directed the Board be exempt from the adjudicative proceeding requirements and procedures under North Dakota Century Code §§ 28-32-21 through 28-31-51 of the Act.

Account/Asset ClassLarge Cap US Equity 14.5% 754,315,903$ 15.1% 0.6%

Mid/Small Cap US Equity 4.0% 202,207,970$ 4.1% 0.1%International Equity 14.5% 749,251,190$ 15.0% 0.5%

Emerging Market Equity 4.0% 205,491,510$ 4.1% 0.1%Total Equities 37.0% 1,911,266,573$ 38.3% 1.3%

Core Fixed Income 13.8% 731,839,196$ 14.7% 0.9%Non-Core Fixed Income 9.2% 413,438,734$ 8.3% -0.9%

Total Fixed Income 23.0% 1,145,277,930$ 22.9% -0.1%Total Absolute Return 15.0% 734,158,733$ 14.7% -0.3%

Commodities 3.0% 152,034,281$ 3.0% 0.0%MLPs 3.0% 132,922,285$ 2.7% -0.3%TIPS 2.0% 97,945,550$ 2.0% 0.0%

Natural Resource Equities 2.0% 91,541,188$ 1.8% -0.2% Total Inflation Strategies 10.0% 474,443,304$ 9.5% -0.5%

Core Real Estate 8.0% 392,016,685$ 7.9% -0.1%Core Plus Real Estate 7.0% 335,468,622$ 6.7% -0.3%

Total Real Estate 15.0% 727,485,307$ 14.6% -0.4%Total Asset 100.0% 4,992,631,847$ 100.0%

Long-Term Asset Allocation

11/30/19 Actual Allocation $

11/30/19 Actual Allocation %

11/30/19 % Diff.

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The Department of Trust Lands (Department) considered existing rules, together with policies and procedures, to incorporate necessary wording from those into rules which comply with the North Dakota Administrative Code. Revisions to rules concerning General Administration and rules for Surface Land Management, Investments, and Minerals Management were posted on the Department’s website, publication of a notice of intent was completed, and copies of the rules were sent to sponsoring legislators. A public hearing on the rules was held August 28, 2019, where the Department received oral and written comments. The Department continued to receive comments until September 9, 2019. A summary of the written comments, together with the Department’s discussion and proposed revisions to the rules, was completed. The Board approved the amended rules on September 26, 2019, which were then submitted for review by the Attorney General’s Office. The Attorney General’s Office reviewed the General Administration, Surface Land Management, Investments, and Minerals Management Administrative Rules. Those rules were presented to the Administrative Rules Committee on December 3, 2019 and will become effective January 1, 2020. A final version of the Administrative Rules will be posted on the Department’s website. Board of University and School Lands Policy Manual The Board of University and School Lands (Board) currently has a Policy Manual (Board Policy Manual). The Board also has an Investment Policy Statement that has not been officially included in the Board Policy Manual. Many of the current Board policies have been revised for inclusion in the Administrative Rules, including the majority of both the Surface Land Management Policy Manual and the Minerals Policy Manual. Those rules were presented to the Administrative Rules Committee on December 3, 2019, and those rules are scheduled to become effective January 1, 2020. Thus, it is necessary to simultaneously repeal the current Board Policy Manual and adopt the proposed revised Board Policy Manual, which would include Governance and revisions to the following sections: General (Definitions), Surface Land Management (to remove those policies that were incorporated into Administrative Rules), Investments (revisions to the Farm Loan Policy and the Investment Policy Statement), and Minerals (to remove those policies that were incorporated into Administrative Rules). Changes were noted in the red-lined version of the prior policies which was presented to the Board on November 26, 2019. Those revised portions are attached and are before the Board for a second reading. Motion: The Board adopt the proposed revisions to the North Dakota Board of University and School Lands Policy Manual to become effective January 1, 2020.

Action Record Motion Second

Aye Nay Absent Secretary Jaeger X Superintendent Baesler X Treasurer Schmidt X X Attorney General Stenehjem X X Governor Burgum X

North Dakota Board of University and School Lands revised policies for placement in the revised Board Policy Manual were provided to the Board and are available upon request.

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Energy Infrastructure and Impact Office (EIIO) Contingency Grant On September 26, 2019, the Board was presented that EIIO plans to open a contingency grant round in December 2019, using funds from the $2 million allocation appropriated by the Sixty-sixth Legislative Assembly. The grant round was opened on December 2, 2019, applications will be accepted through January 31, 2020, with scoring completed and the advisory committee meeting held in February 2020. A list of potential awards will likely be presented to the Board at the March 2020 Board meeting. The Energy Infrastructure and Impact Office recommends the following members be re-appointed to serve on the Contingency Grant Advisory Committee: Dan Kalil, Williston Township Supervisor- Williams County Jay Elkin, Stark County Commissioner- Stark County Gary Weisenberger, Mayor of Stanley- Mountrail County Philip Riely, Mayor of Watford City- McKenzie County Reinhard Hauck, Dunn County Commissioner- Dunn County Mark Spooner, Border Township Supervisor- Divide County Dave Wegner, Beach PSD #3 Superintendent- Golden Valley County Marcia Lamb, Billing County Auditor- Billings County New appointment to the committee: Kari Enget, Powers Lake Ambulance- Burke County EIIO Director Jodi Smith recommends re-appointment and appointment of these community leaders to the Contingency Grant Advisory Committee. Motion: The Board approves the Contingency Grant Advisory Committee members, listed above, to make recommendations to the Land Board on contingency Energy Infrastructure and Impact grants.


Aye Nay Absent

Secretary Jaeger X X Superintendent Baesler X Treasurer Schmidt X Attorney General Stenehjem X X Governor Burgum X

I N V E S T M E N T S Investment Policy Statement – Securities Litigation Update Although it is the policy of the Board of University and School Lands (Board) to review the Investment Policy Statement (IPS) at least every four years, it is the practice of the Commissioner to review the IPS annually and more frequently, as needed.

At the September 26, 2019, Board meeting the current IPS was adopted. During the following weeks the Commissioner and staff continued to review the Securities Litigation and Shareholder Legal Action section of the IPS that requires a change.

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The Commissioner’s discussions with the State Investment Board (SIB) and Retirement Investment Office (RIO) regarding a recent class action lawsuit revealed an opportunity to combine resources and assets on future class action lawsuits. Particularly, when taking on “lead plaintiff” status is determined to be advantageous to the trusts. This along with the onboarding of the securities litigation monitoring and claims filing service, Financial Recovery Technologies (FRT), as approved by the Board in August 2018, touched off a broader review of the securities litigation section.

FRT has reviewed and provided guidance on our policy as provided in our agreement.

As such, we are asking to revise the IPS’s Securities Litigation and Shareholder Legal Action section, specifically to:

1. Replace “custodian” with “designated agent” when referring to the monitoring of class action lawsuits.

2. Provide for more detailed expectations of the designated agent and for the department to monitor the designated agent’s performance.

3. Expand the criteria for “active participation” in class action lawsuits and harmonizes the IPS securities litigation policy with SIB’s to:

a. Clarify the Commissioner will only initiate active participation with the consent of the Board.

b. Set a dollar threshold of $5,000,000 of estimated loss for active participation and allows for the combining of assets with SIB.

c. Review of the merits of the claim and the factual basis for the action. d. Review of the defendant’s or its insurer’s ability to pay claims. e. Consider of the potential costs of taking such action.

4. Engage specialized legal counsel in accordance with relevant statute. 5. Note the hiring of a securities litigation monitoring and claims filing firm (designated agent). 6. List the criteria for the Board to consider joining litigation in Non-US/Canada jurisdictions

(language provided by FRT).

Motion: The Board adopt the proposed North Dakota Board of University and School Lands Securities Litigation Policy.


Aye Nay Absent Secretary Jaeger X X Superintendent Baesler X X Treasurer Schmidt X Attorney General Stenehjem X Governor Burgum X

Redline version was provided to the Board and is available upon request.

M I N E R A L S Determination of Cottonwood Lake Navigability, Williams County The Department of Trust Lands (Department) received a written request addressed to the North Dakota State Water Commission and the Commissioner of the Board of University and School Lands (Board) from Kraken Oil & Gas II, LLC, dated November 15, 2019, requesting the State “either disclaim ownership based on non-navigability, or, if your initial determination is that the lake

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may be navigable, to commence proceedings pursuant to the newly adopted provisions in NDCC ch. 61-33.” The Sixty-Sixth Legislative Assembly passed House Bill 1202, an act to create and enact a new section to chapter 61-33 of the North Dakota Century Code, relating to determinations of navigability; to amend and reenact section 61-33-01 and subdivision e of subsection 3 of section 61-33.1-03 of the North Dakota Century Code, relating to sovereign land management definitions; and to provide for a state engineer review of determinations of navigability. Under N.D.C.C. § 61-33-02, “[a]ll sovereign lands of the state must be administered by the state engineer and the [Board] subject to the provisions of this chapter.” Under N.D.C.C. § 61-33-06, the Board “shall manage, operate, and supervise all properties transferred to it by this chapter; may enter into any agreements regarding such property; may enforce all subsurface rights of the owner in its own name; and may make and execute all instruments of release or conveyance as may be required pursuant to agreements made with respect to such assets, whether such agreements were made heretofore, or are made hereafter.” Under N.D.C.C. § 61-33-05, the State Engineer is tasked with making navigability determinations. The State Engineer is currently soliciting proposals for the search, collection, and presentation of evidence necessary for the State Engineer to make and support a determination of navigability or non-navigability of certain lakes and streams in the state. Motion: The Board formally request the State Water Commission determine the navigability of Cottonwood Lake in Williams County.


Aye Nay Absent Secretary Jaeger X X Superintendent Baesler X Treasurer Schmidt X X Attorney General Stenehjem X Governor Burgum X

L I T I G A T I O N Sorum Litigation Case: Paul Sorum, et. al. v. State of North Dakota, et. al. – Civ. No. 09-2018-CV-00089 Tribunal: Cass County District Court Judge: John C. Irby Attorney: Mark Hanson, Nilles Law Firm Opposing Counsel: Terrance W. Moore, Fintan L. Dooley Issues: The Board was named as a defendant in the above reference case which was

served on January 10, 2018. Plaintiffs have filed this action to challenge the Constitutionality of S.B. 2134 passed during the last legislative session and codified as N.D.C.C. ch. 61-33.1. Under the new legislation, “[t]he state sovereign land mineral ownership of the riverbed segments inundated by Pick-Sloan Missouri basin project dams extends only to the historical Missouri riverbed channel up to

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the ordinary high water mark.” N.D.C.C. § 61-33.1-02. S.B. 2134 established a process by which the Department of Mineral Resources is directed to procure a “qualified engineering and surveying firm” to “review the delineation of the ordinary high water mark of the corps survey segments” for the portion of the Missouri River designated as the “historical Missouri riverbed channel.” N.D.C.C. § 61-33.1-03(2), (3). Following a review process, which includes a public hearing and public comments, the North Dakota Industrial Commission must adopt final review findings which “will determine the delineation of the ordinary high water mark for the segment of the river addressed by the findings.” N.D.C.C. § 61-33.1-03(7). Plaintiffs’ complaint requests from the court a declaratory judgment finding that N.D.C.C. ch. 61-33.1 violates the Public Trust Doctrine and the Anti-Gift, Privileges and Immunities, and Local and Special Law Clauses of the North Dakota Constitution. Plaintiffs are also requesting the Court issue an injunction to prevent all state officials from further implementing and enforcing N.D.C.C. ch. 61-33.1.

History: An Answer was filed. Defendants filed a Motion to Dismiss, which was denied in April

2018. Petition for Supervisory Writ and Exercise of Original Jurisdiction was filed by Defendants and denied in May 2018. A Motion for Preliminary Injunction was brought by Plaintiffs and a hearing was held on May 21, 2018. An Order for Preliminary Injunction was filed June 26, 2018. A Scheduling Conference was held on September 6, 2018 and the following briefing deadlines were set: Summary Judgment Motions were filed October 22, 2018. Response Briefs were filed December 10, 2018. Reply Briefs were due December 21, 2018. A hearing on the Motions for Summary Judgment was held on January 4, 2019. The Order on Cross-Motions for Summary Judgment was issued on February 27, 2019, and Defendants were directed to prepare the proposed Judgment. On March 6, 2019, Defendants filed their proposed Judgment. Plaintiff’s filed a letter on March 7, 2019, advising the Court that they felt Defendants’ proposed Judgment was deficient and that they would also be submitting a proposed Judgment. Plaintiff’s proposed Judgment was filed March 8, 2019. Defendants filed a letter on March 8, 2019 advising the Court that they intended to submit a response to Plaintiffs’ proposed Judgment within 14 days. On March 19, 2019, Defendants filed an Objection to Plaintiffs’ Proposed Judgment. Thereafter, Plaintiffs filed a letter asking the Court not to rule on Defendants’ Objection until Plaintiffs have had the opportunity to be heard and further, that Plaintiffs’ intend to bring a Motion for Clarification concerning retroactive royalty refunds within 14 days. Plaintiffs filed their Response to Defendants’ Objection to Proposed Judgment and Request for Clarification and their Amended Proposed Order and Judgment on March 29, 2019. Defendants filed their Objection to Plaintiffs’ Proposed Order and Judgment (Plaintiffs’ Amended Proposed) and Reply to Plaintiffs’ Response to Defendants’ Objection to Proposed Judgment and Request for Clarification on April 8, 2019. On April 25, 2019, Judge Irby entered an Order for Entry of Judgment ordering the Clerk to enter Defendants’ Proposed Order as the Judgment of the Court. Judgment was entered on April 26, 2019. Plaintiffs’ filed a Notice of Motion for Attorney Fees, Costs, and Service Award to Plaintiffs scheduling a hearing for 1:30 p.m. June 10, 2019 in Fargo. The Notice of Entry of Order on Cross-Motions for Summary Judgment, Order for Entry of Judgment, and Judgment was filed by Defendants on May 3, 2019. On May 15, 2019, Plaintiffs filed their Motion for Attorney Fees, Costs and Service Award to Plaintiffs and the Memorandum in Support of Motion, together with supporting documents. On May 20, 2019, Plaintiffs filed their Amended Motion for Attorneys Fees, Costs and Service Award to Plaintiffs. Defendants filed an Expedited Motion for Extension of Time to Respond to Plaintiffs’ Memorandum in Support of Motion for Attorney Fees, Costs and Service Award to Plaintiffs and requested the June 10, 2019 hearing be postponed. Defendants filed, with the District Court, its Response to

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Plaintiffs’ Memorandum in Support of Motion for Attorneys Fees, Costs and Service Award to Plaintiffs on June 12, 2019. Plaintiffs’ filed their Reply Memorandum in Support of Motion for Attorney Fees, Costs and Service Award to Plaintiffs on June 19, 2019. A hearing on the motion for attorneys fees was held before the District Court on July 18, 2019. The State Defendants/Appellants filed a Notice of Appeal to the North Dakota Supreme Court (Supreme Court) on June 27, 2019. Plaintiff/Appellees/Cross-Appellants filed a Notice of Cross-Appeal dated July 10, 2019. Appellants’ Briefs were due to the Supreme Court on August 6, 2019. On July 18, 2019, the parties filed a Stipulation and Joint Motion for Appellate Briefing Schedule with the Supreme Court to allow for a decision to be rendered in the District Court on the issue of attorneys fees prior to the briefs being due to the Supreme Court. On July 19, 2019, the Joint Motion for Appellate Briefing Schedule was denied and an Order of Remand was entered by the Supreme Court temporarily remanding the case to the trial court for the limited purpose of consideration and disposition of Plaintiffs’ Motion for Attorney Fees, Costs and Service Award to Plaintiffs. The briefing schedule for briefs before the Supreme Court is stayed pending the District Court’s disposition of the attorneys fees issue. On July 24, 2019, the District Court issued its Order on Plaintiffs’ Motion for Attorney Fees, awarding attorney fees to Plaintiffs’ attorneys and service awards to Plaintiffs. An Amended Judgment was entered in the District Court on July 31, 2019. On August 1, 2019, State Defendants filed an Amended Notice of Appeal and the Order and Request for Transcript. Also on August 1, 2019, the Supreme Court provided its Notice of Filing Notice of Appeal. On August 7, 2019, the Amended Notice of Cross-Appeal was filed by Plaintiffs. The transcripts requested by the State Defendants of the January 4, 2019 summary judgment hearing and the July 18, 2019 hearing on attorney fees/costs/service award were filed with the North Dakota Supreme Court on October 4, 2019. In light of the filing of those transcripts, the Supreme Court’s clerk has advised that the State Defendants’ initial appellant brief is to be filed on November 13, 2019.

Current Status:

• Brief of Defendants, Appellants and Cross-Appellees the State of North Dakota, the Board of University and School Lands of the State of North Dakota, the North Dakota Industrial Commission, the Hon. Douglas Burgum, in his Official Capacity as Governor of the State of North Dakota, and the Hon. Wayne Stenehjem, in his Official Capacity as Attorney General of North Dakota was filed with the Supreme Court on November 13, 2019.

• A Motion for Leave to File Amicus Curiae Brief by the North Dakota Petroleum Council in Support of the Constitutionality of N.D.C.C. ch. 61-33.1 was filed with the Supreme Court on November 13, 2019.

• The Supreme Court granted the North Dakota Petroleum Council’s Motion for Leave to File Amicus Curiae Brief on November 14, 2019.

Wilkinson Litigation Case: William S. Wilkinson, et. al. v. Board of University & School Lands, Brigham

Oil & Gas, LLP; EOG Resources, Inc.; Case No. 53-2012-CV-00038 Date Filed: January, 2012 Court: Williams County District Court Judge: Paul Jacobson Attorney: Jennifer Verleger/Matthew Sagsveen/David Garner

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Opposing Counsel: Josh Swanson/Rob Stock, Lawrence Bender, Lyle Kirmis Issues: The Wilkinson lawsuit was filed on January 10, 2012. The Plaintiffs assert that they

own minerals in a 200 acre tract west of Williston. This suit was initially filed in state court as a quiet title action. The Attorney General’s Office filed an Answer and Counterclaim on February 27, 2012.

On July 1, 2014, the Plaintiffs filed an amended complaint in the case and added claims of unconstitutional takings, conversion, constructive trust and unjust enrichment, civil conspiracy and deprivation of rights under 42 U.S.C. § 1983. Plaintiffs assert in their amended complaint that the Board should be issuing leases on the west side of the Highway 85 bridge pursuant to the Phase II Investigation – the estimated location of the ordinary high watermark (OHWM) prior to inundation of Lake Sakakawea – rather than the Phase I Delineation – current location of the OHWM. Plaintiffs argue that the subject property is located under Lake Sakakawea, which did not exist at statehood, and thus the state did not acquire title to it as sovereign lands. Therefore, the State’s title to the Missouri River is limited to the channel as it existed prior to inundation of Lake Sakakawea as determined by the Phase II investigation.

In January of 2016, the State Engineer sought and was granted intervention. A joint motion for summary judgment was filed by the Board and the State Engineer on March 1, 2016. On May 18, 2016, the district court granted the motion for summary judgment finding that: (1) the subject property is located along the Missouri River, which is no doubt navigable; (2) The Phase I Delineation should be used to determine the OHWM for the subject property rather than the Phase II Investigation, and therefore the property is determined to be sovereign land of the state of North Dakota; (3) to the extent Plaintiffs are aggrieved by the Phase I Delineation, they must exhaust their administrative remedies through the State Engineer before making a claim in district court; and (4) there are no grounds to support Counts II through VII. Plaintiffs filed a notice of appeal on June 1, 2016. Both EOG Resources, Inc. and Statoil Oil and Gas LP filed cross-appeals.

On September 28, 2017, the North Dakota Supreme Court reversed the district court’s decision and remanded the case back to the district court. The Supreme Court held that:

1. Surface ownership could not be determined without the United States as a party

to the action; 2. N.D.C.C. ch. 61-33.1 has a retroactive clause and the district court did not have

an opportunity to determine if it applies and governs ownership of the minerals at issue;

3. A “takings” analysis must be conducted if the district court determines the State owns the disputed minerals; and

4. The district court erroneously made findings of disputed fact.

History: Due to the passage of S.B. 2134, the District Court ordered the case stayed and all deadlines be held in abeyance until the final review findings under S.B. 2134 are issued by the North Dakota Industrial Commission (NDIC). Plaintiff, after NDIC issued the review findings, requested a status conference with the Court to set a new trial date and other deadlines. The Board and State Engineer filed a Motion for Continued Stay of Proceedings on October 11, 2018. The telephonic status

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conference scheduled for November 2, 2018 was cancelled. A Hearing on the Motion for Continued Stay was held November 30, 2018. Defendants submitted a proposed Order and the Judge asked for Plaintiffs to submit a proposed Order, which was filed December 4, 2018. The Court issued its Order on December 12, 2018, denying the Motion for Continued Stay and requiring the parties confer on a scheduling order and submit a Rule 16 scheduling order by January 26, 2019. The State filed a Motion for Proposed Scheduling Order on January 28, 2019, and Plaintiffs filed a notice of hearing on January 31, 2019, and filed their Response to State’s Motion for Proposed Scheduling Order and Plaintiffs’ Request for Rule 16(F) Sanctions on February 1, 2019. State Defendants filed a Reply Brief in Support of Motion for Proposed Scheduling Order on February 8, 2019. Statoil & Gas LP filed a Response to State’s Motion for Proposed Scheduling Order and Plaintiff’s Proposed Scheduling Order on February 11, 2019. Plaintiffs scheduled a hearing in District Court on the Motion for Scheduling Order which was held March 5, 2019, at 2:00 p.m. The District Court didn’t rule on the scheduling motions but granted Plaintiffs’ request to file a motion for Summary Judgment within 30 days of the hearing. On April 15, 2019, Plaintiffs’ filed with the District Court a Notice of Motion, Motion for Summary Judgment, Brief in Support of Motion for Summary Judgment, Affidavit of Joshua Swanson, Notice of Hearing (requesting a hearing be held at the earliest possible date available on the Court’s calendar), and proposed Order Granting Plaintiffs’ Motion for Summary Judgment. On April 17, 2019, Plaintiffs’ filed a Notice of Hearing scheduling a hearing for 2:00 p.m. on July 30, 2019 before the Honorable Paul W. Jacobson, at the Williams County Courthouse, Williston. The parties entered into a Stipulation Extending Time to Respond to Plaintiffs’ Motion for Summary Judgment and Plaintiffs’ Time to Reply which was entered May 1, 2019. The Order Extending Time to Respond was entered May 2, 2019, extending Defendants’ time to respond to June 14, 2019, and extending Plaintiffs’ deadline to file reply to July 1, 2019. On June 10, 2019 Statoil & Gas LP filed its Opposition to Plaintiffs’ Motion for Summary Judgment. Also, on June 10, 2019, the Stipulated Motion to Dismiss Defendant XTO Energy Inc. was filed in which Plaintiffs, Cross-claimant EOG, and Defendant XTO stipulated and requested the Court dismiss XTO from the action with prejudice and without costs and disbursements to any party, as it holds no ownership interest in, right to, claim or title to any mineral interests as alleged by Plaintiffs. The Board of University and School Lands filed its Brief in Opposition to Plaintiffs’ Motion for Summary Judgment on June 14, 2019. Also filed on June 14, 2019 where the State Engineer’s Response to Brief in Opposition to Plaintiffs’ Motion for Summary and the Response of EOG Resources, Inc., to Plaintiffs’ Motion for Summary Judgment. On June 17, 2019, the Court entered its Order Dismissing Defendant XTO Energy, Inc. from the Action. On July 1, 2019, Plaintiff’s filed their Reply Brief in Support of Motion for Summary Judgment. The hearing on the Motion for Summary Judgment was held on July 30, 2019. Order Granting Plaintiffs’ Motion for Summary Judgment was entered on September 6, 2019.The proposed Judgment was submitted on September 12, 2019. The Judgment and Notice of Entry of Judgment were filed with the District Court on September 16, 2019.

Current Status:

• Board of University and School Lands’ Notice of Appeal to the North Dakota Supreme Court was filed on November 15, 2019.

Page 013

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(12/18/19)

M I N E R A L S Repayment of Unpaid Gas Royalties For over a decade, the Department of Trust Lands (Department) has persistently worked with operators to collect payment or establish escrow accounts for royalties from the production of minerals, in accordance with the Board of University and School Land’s lease, rules, and policies. In 2012, the Department sent letters to operators and lessees who reported deductions for royalties paid. In July 2017, letters were sent to all operators and lessees regarding the proper method to calculate gas royalties. Companies who were audited and found to be non-complaint with the proper calculation of gas royalties, as outlined in the July 2017 letter, received audit finding letters. All companies who have continued to be non-compliant have received additional communication regarding the proper calculation of gas royalties. The Department’s 2016 performance audit found the Department was not consistently issuing penalties and interest and recommended a policy be established. The Department adopted an internal policy regarding penalties and interest. Additionally, the Board of University and School Lands (Board) adopted a policy regarding penalties and interest, which is included in our proposed Administrative Rules. Current Department and Board policy assesses the maximum interest (18%) under N.D.C.C. § 47-16-39.1, and penalty (12%) allowed on all late royalty payments unless a request is made to the Commissioner to negotiate the interest rate. The Department’s revenue compliance procedures are configured to calculate and generate interest and penalty notices in accordance with these policies. Under the Board’s rules and policies once penalties and interest over $25,000 are assessed for late payment of royalties, only the Board can modify the amount. N.D.C.C. § 47-16-39.1 provides interest may not be applied on royalties that were escrowed since this statute permits the suspension of interest payments “in the event of a dispute of title existing that would affect distribution of royalty payments . . . .” Recommendation: The Board delegates the Commissioner to determine gas royalty repayments as discussed. No formal action was taken at this time.


Aye Nay Absent Secretary Jaeger Superintendent Baesler Treasurer Schmidt Attorney General Stenehjem Governor Burgum

The Commissioner recommends the Board consider entering executive session for consultation with legal counsel regarding pending and potential litigation. Executive session began at 8:41 AM.

Page 014

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(12/18/19)

EXECUTIVE SESSION Under the authority of North Dakota Century Code Sections 44-04-19.1 and 44-04-19.2, the Board close the meeting to the public and go into executive session for purposes of attorney consultation relating to:

• Gas Royalty Repayment Penalty and Interest


Aye Nay Absent Secretary Jaeger X X Superintendent Baesler X Treasurer Schmidt X Attorney General Stenehjem X X Governor Burgum X

EXECUTIVE SESSION

Members Present: Doug Burgum Governor Alvin A. Jaeger Secretary of State Wayne Stenehjem Attorney General Kelly Schmidt State Treasurer Kirsten Baesler Superintendent of Public Instruction Department of Trust Lands Personnel present: Jodi Smith Commissioner Kate Schirado Administrative Assistant Adam Otteson Revenue Compliance Kristie McCusker Paralegal Guests in Attendance: Brent Sanford Lieutenant Governor Leslie Bakken Oliver Governor’s Legal Counsel Dave Garner Attorney General’s Office Mark Hanson Nilles Law Office (Via teleconference for Sorum only) ___________________________________________________________________________ The executive session adjourned at 10:00 AM and the Board returned to open session and the public was invited to return to the meeting. During the executive session, the Board was provided information regarding the Gas Royalty Repayment Penalty and Interest.

Page 015

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(12/18/19)

I N V E S T M E N T S October Investment Reports – 3rd Quarter 2019 Josh Kevan from RVK will review the performance of the Board of University and School Land’s (Board) investment program for the period ending October 31, 2019. The first report to be reviewed is prepared by RVK to enable the Board to monitor and evaluate the collective performance of the permanent trusts’ investments and the performance of individual managers within the program. In order to provide an overview of the program and highlight critical information, an executive summary has been incorporated into the Board report. A more comprehensive, detailed report is also available. Next, Josh will touch on the performance of the Ultra-Short portfolio in which the Strategic Investment and Improvements Fund, the Coal Development Trust Fund and the Capitol Building Fund are invested. RVK provided report copies to the Board and are available upon request. Survey of Sovereign Wealth Funds Josh Kevan from RVK will provide the Board some insight and perspectives from RVK’s Survey of US Sovereign Wealth Funds. RVK conducted a survey of US Sovereign Wealth Funds in order to gain additional understanding of the unique structures of the US based funds. The Survey covers the domestic peer group to the permanent trusts. The presentation includes information gathered by RVK via the survey and interviews with senior investment staff across the various funds, RVK consulting teams that serve those funds, and publicly available data covering: fund objectives, assets allocation, performance, constraints, spending models, and governance and decision making structures. RVK provided report copies to the Board and are available upon request.

A D J O U R N There being no further business, the meeting was adjourned at 11:00 AM. ________________________________ Doug Burgum, Chairman Board of University and School Lands ________________________________ Jodi Smith, Secretary Board of University and School Lands

Page 016

ITEM 2A

MEMORANDUM TO THE BOARD OF UNIVERSITY AND SCHOOL LANDS January 21, 2020

RE: Report of Encumbrances Issued by Land Commissioner (12/11/2019 to 1/14/2020): No Action Requested Granted to: TRUE OIL LLC, CASPER-WY For the Purpose of: Surface Damage Agreement Amend: Well-Horizontal Oil Well Right-of-Way Number: RW0008273 Date Issued: 1/9/2020 Application Fee: N/A Right-of-way Income: N/A Damage Payment to Lessee: N/A Trust: A-Common Schools Length (Rods): N/A Area (Acres): N/A Legal Description: MCK-148-101-36-NE4 Granted to: CATES EARTH SCIENCE TECHNOLOGIES INC, BISMARCK-ND For the Purpose of: Permit: Temporary Water Layflat Line Right-of-Way Number: RW0008629 Date Issued: 12/11/2019 Application Fee: $100.00 Right-of-way Income: $2,640.00 Damage Payment to Lessee: N/A Trust: A-Common Schools Length (Rods): 160.00 Area (Acres): N/A Legal Description: MOU-151-92-36-W2NE4SW4, NW4SW4, S2SW4 Granted to: SELECT ENERGY SERVICES LLC, WILLISTON-ND For the Purpose of: Permit: Temporary Water Layflat Line Right-of-Way Number: RW0008634 Date Issued: 12/11/2019 Application Fee: $100.00 Right-of-way Income: $5,727.00 Damage Payment to Lessee: N/A Trust: A-Common Schools Length (Rods): 345.00 Area (Acres): N/A Legal Description: WIL-158-95-36-SE4, SW4

Page 017

ITEM 2A

Granted to: EAST VALLEY INDUSTRIAL PARK LLC, DENVER-CO For the Purpose of: Easement Amend: Railroad Right-of-Way Right-of-Way Number: RW0008638 Date Issued: 12/27/2019 Application Fee: $100.00 Right-of-way Income: N/A Damage Payment to Lessee: N/A Trust: A-Common Schools Length (Rods): N/A Area (Acres): N/A Legal Description: WIL-154-100-16-NE4, NW4 Granted to: TABLEROCK SURVEY, LLC, THE WOODLANDS-TX For the Purpose of: Permit: Planning & Preconstruction Survey Right-of-Way Number: RW0008644 Date Issued: 12/30/2019 Application Fee: $100.00 Right-of-way Income: $500.00 Damage Payment to Lessee: N/A Trust: A-Common Schools Length (Rods): N/A Area (Acres): N/A Legal Description: N/A Granted to: WEST DAKOTA WATER LLC, WILLISTON-ND For the Purpose of: Permit: Temporary Water Layflat Line Right-of-Way Number: RW0008645 Date Issued: 1/8/2020 Application Fee: $100.00 Right-of-way Income: $5,705.00 Damage Payment to Lessee: N/A Trust: A-Common Schools Length (Rods): 345.00 Area (Acres): N/A Legal Description: WIL-156-95-16-SE4, SW4 Granted to: ND GEOLOGICAL SURVEY, BISMARCK-ND For the Purpose of: Permit Amend: Rare Earth Elements Exploration Right-of-Way Number: RW0008646 Date Issued: 12/30/2019 Application Fee: N/A Right-of-way Income: N/A Damage Payment to Lessee: N/A Trust: A-Common Schools Length (Rods): N/A Area (Acres): N/A Legal Description: SLO-136-102-16-NE4

Page 018

ITEM 2B

NORTH DAKOTABOARD OF UNIVERSITY AND SCHOOL LANDS

Financial Position Report(Unaudited)

For period ended November 30, 2019

Page 019

Assets by Trust: November 30, 2019 November 30, 2018Common Schools $4,747,952,539 $4,277,168,406North Dakota State University 74,079,896 68,043,185 School for the Blind 13,143,524 11,492,272 School for the Deaf 21,897,129 20,480,714 State Hospital 14,943,695 14,141,732 Ellendale * 22,993,039 20,663,732 Valley City State University 13,270,917 12,249,258 Mayville State University 8,433,192 7,384,940 Youth Correctional Center 24,659,556 22,379,983 State College of Science 18,814,048 16,377,503 School of Mines ** 22,696,461 20,272,412 Veterans Home 5,506,695 5,192,300 University of North Dakota 35,503,903 31,753,736 Capitol Building 5,878,476 5,198,211 Strategic Investment and Improvements 728,533,636 648,507,361 Coal Development 70,740,297 70,090,771 Indian Cultural Education Trust 1,308,043 1,241,959 Theodore Roosevelt Presidental Library 15,463,444 -

Total $5,845,818,490 $5,252,638,475

Assets by Type:Cash $84,924,444 $52,307,281Receivables 7,356,205 8,968,428 Investments *** 5,690,323,398 4,957,687,515 Office Building (Net of Depreciation) 414,051 469,891 Farm Loans 9,491,364 9,580,187 Energy Construction Loans 950,898 1,012,592 Energy Development Impact Loans 10,966,568 11,682,724 School Construction Loans (Coal) 41,391,562 44,670,542 Due to/from Other Trusts and Agencies - 166,259,315

Total $5,845,818,490 $5,252,638,475

* Ellendale Trust

The following entities are equal beneficiaries of the Ellendale Trust:Dickinson State University School for the BlindMinot State University Veterans HomeDakota College at Bottineau State Hospital

State College of Science - Wahpeton** School of Mines

Benefits of the original grant to the School of Mines are distributed to the University of North Dakota.*** InvestmentsIncludes available cash available for loans, investments, abandoned stock and claimant liability.

Board of University and School LandsComparative Financial Position (Unaudited)

Schedule of Net Assets

ITEM 2BPage 020

Combined Permanent TrustsNovember 30, 2019 November 30, 2018

Balance SheetAssets:

Cash $59,745,484 $37,473,025Interest Receivable 4,080,884 6,643,956 Investments 4,965,808,473 4,473,294,511 Farm Loans 9,491,364 9,580,187 Energy Construction Loans 950,898 1,012,592 Due from Other Agencies - 16,670,493 Office Building (Net of Depreciation) 414,051 469,891

Total Assets $5,040,491,154 $4,545,144,655

Liabilities:Unclaimed Property Claimant Liability $16,551,604 $17,510,901Due to Other Trusts - -Due to Other Funds 44,956 33,579 Accounts Payable

Total Liabilities 16,596,560 17,544,480

Equity:Fund Balance 4,919,177,984 4,571,686,280 Net Income/(Loss) 104,716,610 (44,086,105)

Total Liabilities and Equity $5,040,491,154 $4,545,144,655

Income StatementIncome:

Investment Income $33,116,795 $42,393,392Realized Gain/(Loss) (6,153,842) (21,490,359) Unrealized Gain/(Loss) 62,775,051 (117,168,359) Royalties - Oil and Gas 51,237,042 62,549,759 Royalties - Coal 204,632 163,317 Royalties - Aggregate 42,784 15,000 Bonuses - Oil and Gas 8,105,513 281,071 Bonuses - Coal 24,000 -Rents - Surface 4,661,834 3,765,733 Rents - Mineral 113,365 21,490 Rents - Coal 22,732 36,500 Rents - Office Building - -Gain/Loss on Sale of Land - OREO - -Sale of Capital Asset 25,000 -Oil Extraction Tax Income 26,840,773 44,615,921 Unclaimed Property Income 9,212,696 9,074,567

Total Income 190,228,375 24,258,032

Expenses and Transfers:Investment Expense 2,516,463 3,074,401 In-Lieu and 5% County Payments - -Administrative Expense 1,297,023 1,248,747 Operating Expense - Building 198,279 20,989 Transfers to Beneficiaries 81,500,000 64,000,000

Total Expense and Transfers 85,511,765 68,344,137 Net Income/(Loss) $104,716,610 ($44,086,105)


ITEM 2BPage 021

Capitol Building Trust

November 30, 2019 November 30, 2018Balance Sheet

Assets:Cash $266,675 $165,470Interest Receivable 36,146 25,749 Investments 5,575,655 5,006,992

Total Assets $5,878,476 $5,198,211

Liabilities:Due to Other Trusts and Agencies $0 $0

Equity:Fund Balance 6,548,608 4,723,483 Net Income (670,132) 474,728

Total Liabilities and Equity $5,878,476 $5,198,211

Income Statement Income:

Investment Income $74,498 $58,145Realized Gain(Loss) 19,660 2,670 Unrealized Gain/(Loss) (16,116) 3,083 Rents - Surface 68,657 36,550 Rents - Mineral 1,602 240 Royalties - Oil and Gas 347,254 384,552 Bonuses - Oil and Gas 802 -

Royalties - Coal - -

Royalties - Aggregate - -

Total Income 496,357 485,240

Expenses and Transfers:Investment Expense 1,848 813 In-Lieu and 5% County Payments - - Administrative Expense 10,281 9,699 Transfers to Facility Management 1,154,360 -

Total Expense and Transfers 1,166,489 10,512

Net Income/(Loss) ($670,132) $474,728


ITEM 2B

Page 022

Coal Development Trust

November 30, 2019 November 30, 2018Balance Sheet

Assets:Cash $334,351 $111,067Interest Receivable 338,027 302,466 Investments 17,709,790 13,241,636 Coal Impact Loans 10,966,568 11,682,724 School Construction Loans 41,391,562 44,670,542 Due from other Trusts and Agencies - 274,444

Total Assets $70,740,298 $70,282,879

Liabilities:Accounts Payable $0 $192,111

Equity:Fund Balance 70,296,353 69,591,292 Net Income 443,945 499,476



Investment Income $186,239 $112,547Interest on School Construction Loans 221,144 212,303 Realized Gain/(Loss) 54,337 7,307 Unrealized Gain/(Loss) (46,649) 9,102 Coal Severance Tax Income 117,234 213,896

Total Income 532,305 555,155

Expenses and Transfers:Investment 5,526 2,211 Administrative 356 796 Transfers to General Fund 82,478 52,672

Total Expense and Transfers 88,360 55,679

Net Income/(Loss) $443,945 $499,476


ITEM 2BPage 023

Strategic Investment and Improvements FundNovember 30, 2019 November 30, 2018

Balance SheetAssets:

Cash $24,444,512 $14,554,466Interest Receivable 2,918,165 1,995,419 Investments 701,170,959 482,450,988Due from other Trusts or Agencies - 149,506,488

Total Assets $728,533,636 $648,507,361

Liabilities:Accounts Payable $0 $0

Equity:Fund Balance 1,134,326,018 354,701,097 Net Income (405,792,382) 293,806,264



Investment Income $7,324,341 $2,397,122Realized Gain/(Loss) 2,018,280 167,675 Unrealized Gain/(Loss) (1,759,643) 78,235 Interest on Fuel Prod Facility - 83,294 Royalties - Oil and Gas 29,234,816 36,964,486 Bonuses - Oil and Gas 1,160,500 2,142,112 Royalties - Coal 141,786 149,956 Rents - Mineral 49,910 34,411 Tax Income - Oil Extraction & Production Distribution - 377,921,664

Total Income 38,169,990 419,938,955

Expenses and Transfers:Administrative 606,753 370,531 Investment Expense 176,076 28,424 Transfers to General Fund 382,200,000 124,000,000 Transfer to State Highway Patrol - 358,000 Transfer to Commerce Department 3,000,000 1,000,000 Transfer to Adjutant General 2,502,253 300,000 Transfer to ND Department of Health - 75,736 Transfer to Energy Infrastructure& Impact Office 2,000,000 -Transfer to Aeronautics Commission 20,000,000 -Transfer from ND Parks & Recreation 1,877,500 -Transfer to Information Technology Department 5,150,000 -Transfer to Industrial Commission 270,000 -Transfer to Bank of North Dakota 25,137,707 -Transfer to ND Department of Corrections 1,218,000 -Transfer from Public Service Commission (52,818) -Transfer from Department of Health Department (67,310) -Transfer from Attorney General Office (6,387) -Transfer from State Highway Patrol (49,403) -

Total Expense and Transfers 443,962,372 126,132,691 Net Income/(Loss) ($405,792,382) $293,806,264


ITEM 2BPage 024

As of November 30, 2019 the SIIF had a fund balance of $728,533,636. The fund balance is made up of two parts. The committed fund balance is that portion of the fund that has either been set aside until potential title disputes related to certain riverbed leases have been resolved or appropriated by the legislature. The uncommitted fund balance is the portion of the fund that is unencumbered, and is thus available to be spent or dedicate to other programs as the legislature deems appropriate. The uncommitted fund balance was $27,524,927 as of November 30, 2019.

ITEM 2BPage 025

Indian Cultural TrustNovember 30, 2019 November 30, 2018

Fiduciary Net PositionAssets:

Cash 474$ 3,253$ Interest receivable 157 837 Investments 1,307,412 1,237,869

Total Assets 1,308,043 1,241,959

Liabilities:Accounts payable - -

Total Liabilities - -

Net Position:Net position restricted 1,308,043 1,241,959

Total Net Position 1,308,043$ 1,241,959$

Changes in Fiduciary Net PositionAdditions:

Contributions: Donations - -

Total Contributions -$ -$

Investment Income:Net change in fair value of investments 14,867 (38,444) Interest 8,562 11,681 Less investment expense (655) (845)

Net Investment Income 22,774 (27,608)

Miscellaneous Income 4 26 Total Additions 22,778 (27,582)

Deductions:Payments in accordance with Trust agreement - - Administrative expenses - 164

Total Deductions - 164

Change in net position held in Trust for:Private-Purpose 22,778 (27,746)

Total Change in Net Position 22,778 (27,746)

Net Position - Beginning of Year 1,285,265 1,269,707 Net Position - November 30, 2019 1,308,043$ 1,241,961$

Board of University and School LandsComparative Fiduciary Statements (Unaudited)

ITEM 2B

Page 026

Indian Cultural TrustNovember 30, 2019

Fiduciary Net PositionAssets:

Cash 132,948$ Interest receivable (17,173) Investments 15,347,670

Total Assets 15,463,444

Liabilities:Accounts payable -

Total Liabilities -

Net Position:Net position restricted 15,463,444

Total Net Position 15,463,444$

Changes in Fiduciary Net PositionAdditions:

Contributions: Donations -

Total Contributions -$

Investment Income:Net change in fair value of investments 312,477 Interest 22,301 Less investment expense 4,282

Net Investment Income 330,496

Miscellaneous Income 82,200 Total Additions 412,697

Deductions:Payments in accordance with Trust agreement - Administrative expenses -

Total Deductions -

Change in net position held in Trust for:Private-Purpose 412,697

Total Change in Net Position 412,697

Net Position - Beginning of Year 15,050,748 Net Position - November 30, 2019 15,463,445$

Comparative Fiduciary Statements (Unaudited)Board of University and School Lands

ITEM 2BPage 027

ITEM 2C


RE: Unclaimed Property Program Report

(No Action Requested) Unclaimed property is all property held, issued, or owing in the ordinary course of a holder’s business that has remained unclaimed by the owner for more than the established time frame for the type of property. It can include checks, unpaid wages, stocks, amounts payable under the terms of insurance policies, contents of safe deposit boxes, etc. An owner is a person or entity having a legal or equitable interest in property subject to the unclaimed property law. A holder can include a bank, insurance company, hospital, utility company, retailer, local government, etc. Since 1975, the Unclaimed Property Division (Division) of the Department of Trust Lands has been responsible for reuniting individuals with property presumed abandoned. The Division acts as custodian of the unclaimed property received from holders. The property is held in trust in perpetuity by the State and funds are deposited in the Common Schools Trust Fund. The 1981 Uniform Unclaimed Property Act created by the national Uniform Law Commission was adopted by the State in 1985. For the month of December 2019, the Division received 49 holder reports with a property value of $779,445 and paid 569 claims with a total value of $296,952.

Page 028

ITEM 2D


RE: Energy Infrastructure and Impact Office Program Report

(No Action Requested) The Energy Infrastructure and Impact Office (EIIO) is a division within the Department of Trust Lands (Department). EIIO provides financial assistance to local units of government that are impacted by oil and gas activity. In turn, EIIO receives a portion of the Oil and Gas Gross Production Tax. The office has been a part of the Department since 1977 and was formally known as the Energy Development Impact Office created under N.D.C.C. ch. 57-62. Over the course of the past 40 years, EIIO has dispersed over $624 million in funding. The Oil and Gas Impact Grant Fund currently has 30 grants with a balance of $14,388,087.28 as of December 31, 2019. The following shows grant activity for the last four months:


Fund

Grants with

balances

Current Balance

Obligated to Grants

10/11/2019 41 $17,695,025.25

11/15/2019 40 $17,164,734.70

12/9/2019 36 $15,477,345.77

12/31/2019 30 $14,388,087.28

The Energy Impact Fund, established within Senate Bill 2013 as enacted by the Sixty-fifth Legislative Assembly, was created to supplement the Oil and Gas Impact Grant Fund for the 2017-2019 biennium. This fund currently has four grants with a balance of $4,108,325.39 as of December 31, 2019. House Bill 1013 of the Sixty-sixth Legislative Assembly requires the Commissioner of University and School Lands to transfer any unexpended funds remaining in the Energy Impact Fund when the fund is repealed on June 30, 2021, to the Oil and Gas Impact Grant Fund. The following shows grant activity for the last four months:

Energy Impact Fund

Grants with

balances


Grants

10/11/2019 4 $4,940,103.06

11/15/2019 4 $4,793,191.14

12/9/2019 4 $4,793,191.14

12/31/2019 4 $4,108,325.39 The Energy Infrastructure and Impact Office is currently managing 34 grants for a total of $20,270,536.91. The following shows grant activity for the last four months:


Fund

Grants with

balances


Grants

Energy Impact Fund

Grants with

balances


Grants Total between

both Funds

10/11/2019 41 $17,695,025.25 10/11/2019 4 $4,940,103.06 $22,635,128.31

11/15/2019 40 $17,164,734.70 11/15/2019 4 $4,793,191.14 $21,957,925.84

12/9/2019 36 $15,477,345.77 12/9/2019 4 $4,793,191.14 $20,270,536.91

12/31/2019 30 $14,388,087.28 12/31/2019 4 $4,108,325.39 $18,496,412.67

Page 029

ITEM 2E


RE: Acreage Adjustment Survey

(No Action Requested)

Senate Bill 2211 of the Sixty-Sixth Legislative Assembly amended N.D.C.C. ch. 61-33.1 relating to the ownership of mineral rights of land subject to inundation by Pick-Sloan Missouri basin project dams. Under N.D.C.C. § 61-33.1-03(8), the Department executed a contract with Kadrmas, Lee & Jackson, Inc. “to analyze the final review findings and determine the acreage on a quarter-quarter basis or government lot basis above and below the ordinary high water mark as delineated by the final review findings of the industrial commission.” The contract’s scope of work concludes twelve months from the date of execution, at a total cost of $1,088,635.

Page 030

ITEM 2F


______________________________________________________________________________ RE: Information Technology Project Status Update

(No Action Requested) The Department of Trust Land’s (Department) 2017-2019 biennial budget appropriation includes $3.6 million to replace legacy information technology (IT) systems as authorized by Senate Bill 2013 of the Sixty-fifth Legislative Assembly. Severe limitations in the current IT system, including redundant manual processes, have hampered efficiencies. Many of the Department’s core data management systems were developed in the 1980s and 1990s, using designs and tools no longer supported by vendors. Some supplemental system improvements and purchases have been implemented; however, the outdated database structure restricts many potential improvements. There are several key IT systems related themes throughout the Department. They include: Systems Limitations

• Accounting and financial systems do not have internal controls and standard reporting

• Paper-centric processes

• Document creation tools require manual editing

• Systems are not integrated with each other (e.g., Accounting and Minerals)

• Lack of up-to-date GIS capabilities Automation and Efficiency

• Lack of computer systems to support and enforce process consistency

• Manual tasks require keying and re-keying inputs

• Lack of automated workflows and workflow tracking Reporting

• Lack of automated reports and dashboards

• Inability to provide timely financial reports and analysis

• Limited visibility into performance information On April 29, 2019, the new system for Unclaimed Property was successfully launched. In 2017, Department created a Request for Proposals (RFP) for the Land Management and Accounting functions; however, the number of responses were limited and those proposals did not meet the Department’s requirements. Subsequently, the Department issued an RFP for the Financial Management and Accounting (FMA) system in October 2018. In December 2019, the Department awarded a contract to Ernst and Young to implement the Microsoft Dynamics 365 for Finance and Operations system with an estimated go-live date of June 2020. On December 16, 2019, the Department issued the RFP for the Land Management system with responses due February 2020.

Page 032

ITEM 3A


RE: Energy Infrastructure and Impact Office Retirement of Grant In August 2014, the Board of University and School Lands (Board) awarded a $1 million grant, Grant G150012, to the City of Ross to repair its sewage lagoon system and to begin expanding the capacity on the interior and exterior walls of the current lagoon. The City of Ross did not begin the project in 2016 due to mis-communication resulting in the city believing the grant was one of the 59 suspended in February of 2016 as a result of declining tax revenue. The City of Ross requested, and the Board approved in June 2017, an extension until December 31, 2019 to overcome obstacles including to purchase easements, design the repair, seek bids, and complete the lagoon repairs. Another extension was requested and approved by the Director of EIIO, to June 15, 2019. In the spring of 2019, it was determined that unanticipated erosion occurred on the berms of the cells of the lagoon due to a lack of protection from wind. The original plan was to reconstruct the berms but not add riprap due to cost. With funds remaining in Grant G150012, the City of Ross added riprap, a permanent layer of large, angular stone used to protect the soil surface against erosion, so the ponds could continue to operate for many years to come with minimal if any repairs anticipated. The final project completion date was October 2019. The City of Ross completed the project and had grant funds left in the amount of $394,109.24. The following recommended retirement of Grant G150012 is provided for the Board’s consideration:

Political Sub Grant Awarded Paid Balance Project

CITY OF ROSS G150012 $1,000,000 $605,890.76 $394,109.24

WASTEWATER TREATMENT FACILITY

EXPANSION

Recommendation: The Board retire Grant G150012 in the amount of $394,109.24 and that the Board declare these funds within the Oil and Gas Impact Grant Fund as contingent for future unmet needs.


Aye Nay Absent

Secretary Jaeger

Superintendent Baesler

Treasurer Schmidt

Attorney General Stenehjem

Governor Burgum

Attachment : City of Ross Memo

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ITEM 4A


RE: Investment Policy Statement – Proxy Voting Update – Second Reading Although it is the policy of the Board of University and School Lands (Board) to review the Investment Policy Statement (IPS) at least every four years, it is the practice of the Commissioner to review the IPS annually and more frequently, as needed.

At the September 26, 2019 Board meeting the current IPS was adopted. During the following weeks the State Treasurer, Commissioner and staff have discussed modifying the proxy voting section of the IPS to ensure investment managers continue to vote shares in a manner that is to the best interest of the trusts as it relates to environmental, social and governance (ESG) issues. ESG has become a tool for some large investors who are pushing managers to use proxy votes to virtue signal, particularly on environmental issues related to oil and gas exploration and production.

As such, it is recommended the IPS’s Proxy Voting section be revised. The revision makes clear that the Board expects proxy votes on behalf of the trusts to be:

1. “…in a manner consistent with the long-term interests and objectives of the investment program.”

2. “…based solely on enhancing or protecting long-term value to the assets under its control and not on establishing or endorsing social policy.”

3. “…only those factors that relate to the economic value of the Board’s investments and shall not subordinate the interests of the Funds to unrelated objectives.”

The revision also requires that:

1. “Managers shall submit written reports to the Commissioner by December 31 of each year advising of the manner in which each proxy was voted during the preceding calendar year and notify the Commissioner of controversial matters which may be subject to proxy voting.”

2. “…the Commissioner [specifically the investment staff] shall regularly review related proxy votes by the Managers. Any proxy votes deemed by the Commissioner to be contrary to the interests of the Funds under the Board’s responsibility, shall be fully explained by the Manager in writing and brought to the Board for its review.”

If approved after this second reading, the Commissioner will transmit the new policy to all of the investment managers currently managing funds on the Board’s behalf.

Recommendation: That the Board approve the update to the Investment Policy Statement’s Proxy Voting section.


Aye Nay Absent

Secretary Jaeger

Superintendent Baesler Treasurer Schmidt


Governor Burgum

Attachment – Investment Policy Statement – Proxy Voting section

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ND Board of University and School Lands

Investment Policy Statement

An Investment Management Framework for North Dakota’s Permanent Trust Funds, the

Capitol Building Fund, the Strategic Investment and Improvements Fund, the Coal

Development Trust Fund, and the Indian Cultural Education Trust

Revised 12/18/2019

TABLE OF CONTENTS

Mission Statement ...........................................................................................................................................................2

General Authority .............................................................................................................................................................2

Investment Authority .......................................................................................................................................................2

Purpose of This Policy .....................................................................................................................................................2

Investment Philosophy ....................................................................................................................................................3

Roles and Responsibilities ..............................................................................................................................................4

The Prudent Investor Rule ..............................................................................................................................................6

Social and Economically Targeted Investing ................................................................................................................6

Conflicts of Interest ..........................................................................................................................................................7

External Manager Selection and Evaluation .................................................................................................................7

General Investment Restrictions and/or Guidelines ...................................................................................................9

Securities Litigation and Shareholder Legal Activism .............................................................................................. 10

Securities Lending ....................................................................................................................................................... 133

Proxy Voting ................................................................................................................................................................. 133

Funds Administered by the Board ............................................................................................................................ 133

Permanent Trust Funds .............................................................................................................................................. 144

Strategic Investment and Improvements Fund (SIIF) ............................................................................................. 221

Capitol Building Fund ................................................................................................................................................. 233

Coal Development Trust Fund ................................................................................................................................... 255

Indian Cultural Education Trust ................................................................................................................................ 277

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Mission Statement

The mission of the Board of University and School Lands is to manage the assets of the permanent trusts in

a manner that preserves the purchasing power of the funds and maintains stable distributions to fund

beneficiaries and to manage all other assets and programs entrusted to the Board in a prudent,

professional manner, in accordance with the Constitution of North Dakota and applicable state law.

General Authority

On February 22, 1889 Congress passed the Enabling Act, dividing Dakota Territory into two states and

authorizing the people to form the constitution and government of the state of North Dakota. This act

granted a significant amount of land to support common schools, colleges, universities, the state capitol,

and other public institutions. North Dakota Constitution article IX, which became effective at statehood on

November 2, 1889, entrusted the management of these lands to the "board of university and school lands"

(the Board). The Board is made up of the governor as chairman, the secretary of state as vice-chair, the

attorney general, superintendent of public instruction, and the state treasurer.

Investment Authority

The North Dakota Constitution states that the Board “has control of the appraisement, sale, rental, and

disposal of all school and university lands, and the proceeds from the sale of such lands shall be invested as

provided by law.”1 State law further requires that the Board “shall apply the prudent investor rule in

investing the permanent funds under its control.”2

Purpose of This Policy

This Investment Policy Statement (Policy) governs the investment of assets for the thirteen Permanent Trust

Funds, the Strategic Investment and Improvements Fund (SIIF), the Capitol Building Fund, the Coal

Development Trust Fund, and the Indian Cultural Education Trust (collectively, Funds). It is established to

provide a framework for the management of those assets and sets forth the Board’s investment objectives,

philosophy, guidelines, and practices. The Policy is not intended to be a static, one-time document but is

designed to capture investment opportunities while providing parameters that ensure prudence and care in

the execution of the investment program. No investment or action pursuant to an investment may be taken

unless permitted by this Policy or by action of the Board; any exceptions must be approved by the Board.

The Policy provides guidance for fiduciaries which include the Board, the Commissioner of University and

School Lands (Commissioner), investment managers, investment consultants, and custodians. It is the intent

of the Policy to provide the foundation for management of the Funds' assets in a prudent manner including

the standards by which the Board can evaluate the Commissioner, investment managers, investment

consultants, custodians and other service providers.

1 N.D. Const. art. IX, § 3 2 N.D.C.C. § 15-03-04

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This Policy is supplemented by the Commissioner’s operating procedures and policies, as well as detailed

information within contractual agreements with investment managers.

Investment Philosophy

In order to meet the above investment objectives, the Board has adopted the following principles:

• Strategic asset allocation is a fiduciary duty and allocation across asset classes is the most important

determinant of return variability and long-term total return.

• Risk is an unavoidable component of investing and is a major factor that must be taken into account

in assessing investment policy and strategy.

• Diversification by asset class and within asset classes is a primary risk control element.

• Each trust or fund invested by the Board shall have a strategic asset allocation and investment

strategy that is appropriate given its specific requirements for return, risk, time horizon, and

liquidity.

Capital Markets Theory

Return

In order to meet the objective of the Funds, the Board strives to achieve the highest level of investment

performance that is compatible with its risk tolerance and prudent investment practices. The Board’s

mechanism for setting return goals will be accomplished by selecting specific benchmarks that match the

objective and time horizon of each fund. The Funds will have a goal for long-term returns to meet or exceed

its formal benchmark over a full market cycle, while minimizing the costs associated with implementation of

the asset allocation through efficient use of internal and/or external resources.

Risk

The investment risk philosophy for the Funds is based on the principles of capital market theory that are

generally accepted and followed by institutional investors, who by definition are long-term oriented

investors. This philosophy holds that:

• Increasing risk is rewarded with compensating returns over time; therefore prudent risk taking is a

necessary element of long-term investing.

• Risk can be mitigated through diversification of asset classes and investment approaches, as well as

diversification of individual securities.

• The primary determinant of long-term investment performance is the strategic or long-term

allocation of assets among various asset classes.

• Relative performance of various asset classes is unpredictable in the short-term and attempts to

shift tactically between asset classes or implementation strategies shall not be undertaken by the

Board.

Given these principles, the Board has established a long-term asset allocation policy for each fund that

balances the returns needed to meet the fund’s objectives and the risk level that is appropriate for that fund

under existing and anticipated circumstances. In determining its risk posture, the Board has considered

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each fund’s purpose and characteristics, current and projected financial condition, liquidity needs, sources

of contribution, income, and general economic conditions.

Diversification

The Board will choose an investment strategy for each Fund utilizing an appropriate long-term, diversified

asset allocation approach. Diversification distributes a portfolio across many investments to avoid excessive

exposure to any one source of risk. Other considerations in asset allocation modeling should take into

account the purpose of the fund, the size and financial condition of the fund, and general economic

conditions. These factors are not intended to be limiting; rather, they are outlined as a general indication of

the importance of diversification to proper asset allocation. Under such an allocation, each Fund’s assets

may be invested by active and/or passive managers, and by diverse investment strategies and styles within

each asset class. The Board will determine the proper allocation among asset classes and investment

managers, based on advice and analysis provided by the Commissioner and/or Consultants.

Formal Review Schedule

The Board recognizes that though the investments are subject to short-term volatility, the Board shall

maintain a long-term investment focus. This prevents ad-hoc revisions to the philosophy and policies in

reaction to either speculation or short-term market fluctuations. In order to preserve this long-term view,

the Board has adopted the following formal review schedule:

Formal Review Agenda Item Formal Review Schedule

Asset Allocation Policy At least every four years

Manager Structure Policy At least every four years

Investment Policy At least every four years

Total Fund Performance At least quarterly

Asset Class Composite Performance At least quarterly

Investment Manager Performance At least quarterly

Roles and Responsibilities

The Board

The Board of University and School Lands is the primary body charged with overseeing investment activities

relating to the Funds. Members of the Board are fiduciaries subject to the statutory and common law duties

of a fiduciary.

The Board’s mandate, in turn, is to manage each fund entrusted to it ethically and optimally, working to

achieve the highest level of investment performance within acceptable levels of risk. The Board is

responsible for prudent investment of the Funds. The Board will operate the investment program in

compliance with all applicable federal and State laws and regulations. The Board is responsible for

establishing and maintaining all policies and guidelines by which the Funds are managed, and by which the

Commissioner operates.

The Board relies on the Commissioner and any external contractors to properly administer the Funds and

implement the Funds’ investment strategies. The roles of each party as fiduciaries must be clearly identified;

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such identification increases operational efficiency, ensures clear lines of responsibility, and reduces or

eliminates duplication of effort.

The Commissioner

The Board of University and School Lands is required to appoint a commissioner to act on its behalf.3 The

office of the Commissioner of University and School Lands (the Commissioner)4 has a primary responsibility

to manage the permanent educational trust funds and assets under the Board’s control as outlined in law.

When used in this Policy, the term Commissioner is inclusive of the Department of Trust Lands' Chief

Investment Officer and investment staff. State law also gives the office of the Commissioner the

responsibility for managing the state Unclaimed Property Division, and the Energy Infrastructure and Impact

Office.

The Commissioner is responsible for implementing Board policy, the day to day management of the

investment program, and implementing a process for selection and termination of investment managers

that is sufficiently transparent for the Board to understand the process and provide meaningful oversight.

Investment Consultant

The Investment Consultant (Consultant) is hired by and reports directly to the Board. The Consultant's duty

is to assist the Board in oversight, and the Commissioner in managing the investment process. This

includes regular meetings with the Board to provide an independent perspective on the Funds’ goals,

structure, performance, and managers. The Consultant will render investment advice to the Board

regarding such matters as investment policy, strategy, overall portfolio monitoring and composition, and

diversification of investments. The Consultant will conduct ongoing due diligence of external investment

managers. The Consultant does not have any discretionary authority with respect to investments; the

Board makes all final decisions regarding any investments.

Investment Managers

Investment managers (Managers) are hired by and serve at the pleasure of the Board. The Commissioner

will provide the Managers with explicit written investment guidelines5 which detail permissible securities,

investment strategies, and performance evaluation criteria. Each Manager will select, buy, and sell specific

securities or investments within the parameters specified in their investment guidelines and in adherence to

this Policy or to other policies set forth by the Board. Managers will construct and manage investment

portfolios that are consistent with the investment philosophy and disciplines for which they were hired.

Managers will provide performance reporting at intervals specified by the Commissioner.

Custodian

A custodian bank is a specialized financial institution hired by the Board to safeguard the Funds’ financial

assets; they are a third party that operates separately from Managers. The custodian(s) will collect income

and safely keep all cash and securities, process all transactions, and provide monthly accounting/investment

3 N.D.C.C. § 15-02-01; Specific responsibilities of the Board and the Commissioner are set out in N.D.C.C. ch. 15-01 through 15-08.1. 4 Commissioner of University and School Lands is the statutory name; in 2011 the Board adopted The Department of Trust Lands as the

common reference to the agency. 5 In cases where the Board has selected investments in commingled or mutual funds, the offering document becomes the specific

investment guidelines.

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reports to the Commissioner and Consultant. The custodian may also provide securities lending,

commission recapture, transition management, securities litigation monitoring, or other services for the

Funds.

The Prudent Investor Rule

North Dakota statute dictates that the Board apply the prudent investor rule in investing the Permanent

Trust Funds under its control. The law states:

The “prudent investor rule” means that in making investments the board shall exercise the same

judgment and care, under the circumstances then prevailing and limitations of North Dakota and

federal law, that an institutional investor of ordinary prudence, discretion, and intelligence exercises

in the management of large investments entrusted to it, not in regard to speculation but in regard to

the permanent disposition of funds, considering probable safety of capital as well as probable

investment returns.6

It is the Board’s intent to invest all of the Funds in accordance with the Prudent Investor Rule.

Social and Economically Targeted Investing

Social investing is defined as the practice of aligning one's investment policies with social responsibility.

Some of the issues and topics addressed by social investing promoters include environmental causes,

avoidance of tobacco producers, avoidance of politically sensitive parts of the world, and workers’ rights.

With different sets of values, what one investor may deem irresponsible, another may consider good policy.

The Board shall not use the Funds to participate in activist efforts to implement a social agenda regarding

ownership of specific securities or efforts of shareholders to bring about social change.

Economically targeted investing is defined as an investment designed to create economic benefits for a

targeted geographic area, group of people, or sector of the economy. Economically targeted investing is

barred when investing the Permanent Trust Funds, the Capitol Building Fund, and the Indian Cultural

Education Trust, unless the investment meets the Exclusive Benefit Rule.

Exclusive Benefit Rule

The Exclusive Benefit Rule is met if the following four conditions are satisfied:

• The cost does not exceed the fair market value at the time of investment.

• The investment provides an equivalent or superior rate of return for a similar investment with a

similar time horizon and similar risk.

• Sufficient liquidity is maintained to permit timely distributions.

• The safeguards and diversity to which a prudent investor would adhere are present.

6 N.D.C.C. § 15-03-04

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Economically targeted investing is allowed within the Coal Development Trust Fund and the Strategic

Investment and Improvement Fund, if the investment meets the purpose of the fund and is directed by law.

Conflicts of Interest

Members of the Board, the Commissioner, employees of the Commissioner, Managers, Consultants, and

custodians involved in the investment process will refrain from personal business activity that could conflict

with the proper execution and management of the Board’s investment program, or that could impair their

ability to make impartial recommendations and decisions. These parties are required to reveal all

relationships that could create or appear to create a conflict of interest in their unbiased involvement in the

investment process.

Manager Selection and Evaluation

When analyzing and evaluating any Manager, the Board believes it is important to review the Manager

within the context of the structure of the entire asset class and portfolio, and not in isolation. A key to

portfolio construction is diversification, not just by asset class but within each asset class. The goal of

diversification is to be exposed to different investment strategies, which will have different performance and

risk patterns. Diversification is optimal when strategies are complementary.

Search and Selection

The Board has established the following guidelines for hiring Managers. In establishing these guidelines, it

is the Board’s intention to assure all interested parties that decisions made in carrying out these actions

occur in a full disclosure environment characterized by competitive selection, objective evaluation, and

proper documentation. Any action to hire a manager should be based on one or more of the following

observations:

• Identification of a new asset class or approach which has been approved in advance by the Board

• A need for diversification of managers and styles within an existing asset class

• A need to replace an investment manager

• A need to retain additional managers in order to reach an asset class structure target

The selection of new Managers will adhere to a consistent process to ensure a competitive and transparent

search involving proper evaluation and due diligence of candidates, and selection of Managers that best

demonstrate the characteristics sought in a specific search. The Commissioner will ensure that the

objectives for the mandate are clearly articulated and that pricing is reflective of the market. The evaluation

process may be conducted by the Commissioner or the Consultant and will include but not be limited to the

following steps:

1. Establish investment manager selection criteria

2. Identify qualified candidates through minimum qualification screening

3. Quantitative screening

4. Qualitative screening

5. Manager interviews

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6. Analysis of quantitative and qualitative factors including portfolio fit and structure

The Commissioner will prepare documentation of the search process; this documentation will include

disclosure of all relevant issues and related due diligence. When reviewing the documentation, the Board

shall ensure that decisions were well reasoned, thoroughly considered, and prudent.

Monitoring, Evaluation, and Termination of Managers

The decision to retain a Manager can have the same potential impact on the returns of an asset class

composite as manager selection decisions and should be given the same degree of attention. The Board

recognizes investment and management decisions directed at individual managers must be evaluated not in

isolation but in the context of the overall structure of the asset class and the Fund’s portfolio as a whole. To

maintain the discipline necessary for a long-term focus, the Board will monitor and evaluate the

performance of Managers and identify the specific problems and concerns that may affect returns, with the

following objectives:

• Foster a long-term approach to manager evaluation

• Provide a review of the manager’s “fit” in the overall asset class composite

• Provide a logical and statistically valid framework for manager skill evaluation

• Promote timely and appropriate responses to actual and potential performance issues

• Provide flexibility to allow application across all asset classes, management styles and market

environments

Monitoring and evaluation relies on a process that includes:

1. Monthly reports from the custodian and Managers to the Commissioner

2. Quarterly performance reports from the Commissioner and Consultant for the Board. These reports

will detail performance of the Funds, asset class composites, and the performance of individual

managers against established benchmarks, as well as peer ranks for each category

3. Qualitative analysis generated in the course of regular, on-going contact between a Manager, the

Commissioner, and the Consultant

Manager Termination Guidelines

From time to time it will be necessary for the Board to terminate a contractual relationship with a Manager;

these actions must be viewed in the context of the entire portfolio and as a business decision. The Board

has established guidelines to assist in making these termination decisions. The overriding consideration

with respect to all decisions is that they shall be made solely in the best interest of the beneficiaries of the

Funds.

Any action to terminate a manager should be based on one or more of the following criteria:

1. Significant changes in firm ownership and/or structure

2. Loss of one or more key personnel

3. Significant loss of clients and/or assets under management

4. Shifts in the firm’s philosophy or process

5. Significant and persistent lack of responsiveness to client requests

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6. Changes in the Board’s investment strategy eliminating the need for a particular style or strategy

7. Violations of the Investment Policy or guidelines

8. Unsatisfactory investment performance

9. Identification of a new asset class or approach which has been approved in advance by the

Board

10. Need for diversification of styles within an existing asset class

11. Need to reduce exposure to a single manager

12. Any other issue or situation of which the Commissioner, Consultant, and/or Board become

aware that is deemed material

Prior to the termination decision, all relevant considerations and issues should be identified and

documented in Board meeting minutes and supporting documents. It is the Board’s intent to have a plan in

place before termination of a Manager. The Commissioner will redeploy the assets of a terminated

manager’s portfolio in an expedient and prudent manner, which may involve hiring a third party to facilitate

the transition or liquidation of assets.

General Investment Restrictions and/or Guidelines

1. All investments made shall be subject to the quality and diversification restrictions established by

the Prudent Investor Rule.

2. According to North Dakota law, the Board may not purchase as sole owner commercial or

residential real property in the State.7

3. Assets may be held in commingled funds and/or privately managed separate accounts. Exposure

through commingled funds and mutual funds shall be evaluated on a case-specific basis through

analysis of that fund’s offering document. Upon review by the Commissioner and approval by the

Board, this offering document becomes the specific investment guidelines for that allocation.

4. No more than 5% of the stock of any corporation may be purchased.

5. The securities representing debt and equity of any one company shall not exceed 6% of the market

value of any Manager’s portfolio without prior approval from the Commissioner; such approval shall

be reported to the Board.

6. Cash equivalents held by Managers can be disruptive to the allocation process. Unless otherwise

authorized, Managers are expected to be fully invested in the types of securities for which they have

responsibility.

7. Any use of leverage will be consistent with the strategy for which the Board hired the Manager. Use

of leverage will be controlled as appropriate in the Manager’s specific guidelines.

8. The Board recognizes that the Funds are exposed to currency risk through international equity, fixed

income, and absolute return mandates; the Board prefers to utilize unhedged benchmarks and does

not require its Managers to hedge the currency exposure in their portfolios.

7 N.D.C.C. § 15-03-04

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Securities Litigation and Shareholder Legal Activism

In carrying out its fiduciary duties to prudently invest and manage the assets entrusted to it, the Board

invests in the securities of various public companies, or issuers. From time to time, class action lawsuits are

brought against the issuers, directors, and/or officers for alleged violations of federal and state securities

laws relating to various disclosure obligations and other breaches of fiduciary or other duties. As

shareholders, the trust funds under the Board’s control are putative members of the alleged classes.

At the present time, the Board relies on a designated agent to monitor settled class action securities

litigation where the Funds have an interest. In resolved litigation, unless directed otherwise, the designated

agent files proofs of claim on behalf of the Funds and posts disbursements or settlements to the

appropriate portfolios as litigation settlement proceeds are received. The designated agent will provide the

Department with its most current class action procedures and will follow such procedures on behalf of the

Department. The designated agents class action procedures shall include reviewing various information

sources for notification of class action suits, identifying transactions within the class period for the security

involved and determining account eligibility and filing proof of claim and supporting documentation.

Department Investment staff will monitor the designated agent’s compliance with the Securities Litigation

Policy. Investment staff will review all notices and information concerning potential or pending class action

litigation that are received by the Department. The Commissioner will report periodically to the Board on

recoveries realized as a result of class action participation.

Although there may be value in influencing an eventual settlement or in pursuing a separate legal action in a

lawsuit, the administration and opportunity costs can be substantial. The Board uses a monitoring approach

to securities litigation to avoid the diversion of staff, financial, and legal resources in building and applying

collective plaintiffs’ arguments through depositions, discovery, and documentation. Serving as the lead

plaintiff does not obtain any additional financial benefit, but rather a lead in a class action suit shares any

final judgment or settlement with the class members on an equal, per share basis.8 Opting out of a “class” or

objecting to the terms of a proposed settlement and pursuing independent legal remedies may also be

pursued although the administration and opportunity costs can be substantial and involve significant

attorney’s fees, costs, and expenses which may or may not be recovered.

The Commissioner will initiate active participation in securities cases only upon prior approval by the Board.

Prior to bringing any recommendation to the Board, the Commissioner will assess the merits and prospects

for active participation by reference to the criteria and factors outlined below. The Board, in consultation

with the Attorney General, may consider more active forms of legal engagement in cases where:

1. Where the action is in the US, and the estimated loss is a minimum of $5,000,000 of assets under

management of the Board, or from the combined assets under management of the Board and the

North Dakota State Investment Board; and

2. the trust funds are among the largest shareholders of the defendant issuer; and

3. service as a lead plaintiff or opting out of a proposed settlement to the “class” of claimants would be

in the best interest of the Funds

8 The lead plaintiff may recover attorney’s fees, costs, and expenses if the lawsuit is successful or a settlement is obtained.

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4. the prima facia merits of the claim for loss, and the factual basis for the action, recognizing that the

full discovery process will not commence until the class has been certified by the court in which such

case is to be filed.

5. The potential that any defendants or insurers will be able to pay an adequate recovery to the class,

without impairing the value of any current security holdings of the Board may yet hold in issuer in

the portfolio.

6. Potential costs that may be incurred. Special consideration must be given to any case that must be

filed in a non-U.S. venue under the “Morrison” criteria established by the U.S. Supreme Court in a

2010 decision, since costs of litigation and potential liabilities of unsuccessful claims may be

significant.

The Board may engage one or more legal firms that specialize in prosecuting security class action cases; any

such engagement is subject to special appointment requirements of N.D.C.C. § 54-12-08. For these purposes

only, such firm(s) may be granted ongoing access to security holdings information through the custodian

bank or designated agent.

The Board may contract with firms that provide securities litigation monitoring/tracking services if it

determines it is prudent. In August of 2018 the Board approved the hiring of a securities litigation

monitoring and claims filing firm; that firm is currently being brought onboard. In addition to providing

litigation monitoring and claims filing services, the firm will work the Commissioner to develop a revised

securities litigation policy for the Board.

• NON-U.S./CANADA PASSIVE CLASS AND GROUP RECOVERY EFFORTS: The Board has engaged a

securities litigation monitoring and claims filing firm to identify and submit claims in non-

U.S./Canada matters that involve passive claim filing regardless of loss size. To the greatest extent

possible, the participation process will be automated. Our funds may serve as lead or representative

plaintiffs in passive participation matters if the factors specified below for active participation have

been met; or if there are other overriding considerations. The current “Passive” International

Jurisdictions include Australia, Dutch Foundations and United Kingdom Regulatory Action

Compensation Schemes.

• NON US/CANADA GROUP OPT-IN LITIGATION: The risks associated with direct litigation outside of

the U.S. vary by country and our participation will need to be evaluated on a matter-by-matter basis.

However, countries can be grouped into three risk profile categories - low, medium, and high - with

minimum damages thresholds set for each risk group to limit consideration to those matters where

our funds’ losses exceed these amounts.

The Board has engaged a securities litigation monitoring and claims firm to (a) identify “opt in” or group

litigation, arbitration, settlement and/or other recovery efforts outside of the U.S. and Canada for which

they may be eligible and provide damages estimates based on the methodologies accepted under local law,

if they exist and recognizing that this will often be uncertain. The Board will compare those damages

estimates against pre-defined loss thresholds below and, if damages exceed threshold amounts, evaluate

whether participation in the matter will be in the Fund’s best interest.

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The following initial damages thresholds are based on perceived risks associated with recovery efforts in

each country. The Board will periodically review these thresholds and make any necessary adjustments

based on experience, updated information about specific risks, and other factors.

Jurisdictional Description Damages Threshold

Low risk jurisdictions including Japan To be inserted Ranges to

be considered from $100k to $500k

Medium risk jurisdictions including Germany, Austria, Belgium, Switzerland, Denmark, Spain, Finland, France, Hong Kong, Indonesia, Ireland, Italy, Korea, Luxembourg, Malaysia, Norway, New Zealand, Portugal, Sweden, and Thailand

To be inserted

$1 mil to $5 mil

High risk jurisdictions including Taiwan9 and the United Kingdom To be inserted

Greater than $7.5

When losses exceed threshold amounts, our funds should consider the following:

• The merits of the case in light of the remedies available under local law.

• Their expected losses and percentage recoveries or results from past matters in that country, if

available.

• The process and administrative burden to joining a particular litigation or settlement effort.

• The costs associated with involvement including attorney fees, litigation expenses, and any other

potential expense covered by the litigation funder without recourse to the funds.

• How the organizers intend to protect our funds from the risk of adverse party cost shifting.

• If the litigation or settlement is funded, the identity of the funder, the percentage and cost

reimbursement the funder will take from the recovery if the efforts succeed.

• The lawyers handling the case including their reputation, past results, and terms of representation

like fee structures, expenses, and contingencies.

• The registration requirements, the potential evidentiary and/or discovery burdens to the funds, and

any other administrative burden that may be required from them including any obligation to travel.

• The extent to which the funds’ involvement will be disclosed to opposing parties and/or the public.

• Any other reasonable considerations.

9 While Taiwan is among the most active non-US/Canada jurisdictions, our funds are not likely to have eligibility and given the risks involved, they should limit their participation to situations where money has already been recovered.

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Securities Lending

The objective of the securities lending program is to generate incremental income from overnight and

certain term loans of securities. The Funds may participate in a securities lending program.

The program will utilize a high-quality and conservative collateral re-investment approach that safeguards

the return of principal and maintains adequate daily liquidity to support trade settlement activity and

portfolio restructuring activities. Each securities lending agent will ensure that specific guidelines are in

place as to the quality, duration, liquidity and diversification of securities lending collateral.

The Board requires collateral for loans. The use of assets in any securities lending engagements should:

1. Earn a competitive market return through conservative securities lending practices, consistently with

the preservation of capital.

2. Minimize risk with respect to both the borrower and the collateral,

3. Operate the securities lending program so that it will not interfere with the management of overall

investment portfolio and strategies.

Unless explicitly exempted by the Board, the lending agent shall provide indemnification against losses

arising from borrower default, insolvency, and failure to comply with the terms and conditions of the

lending agreements.

The Commissioner shall provide a report to the Board annually, outlining the performance and status of the

securities lending program.

Proxy Voting

The Board believes that proxies should be voted; it delegates authority to vote shares to each Manager and

expects Managers to vote shares. The principle behind this policy is that Managers have specific reasons for

holding shares and will vote shares in a way the Manager believes will best add value to those

shares. Managers shall submit written reports to the Commissioner upon request advising of the manner in

which each proxy was voted during the preceding period.

An exception to the above policy regarding voting of proxies is for shares held by the Board on behalf of

holders of unclaimed property. As a passive holder of these particular shares the Board chooses not to

exercise voting rights on the owners’ behalf.

Funds Administered by the Board

The pages that follow describe the various funds administered by the Board.

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14

Permanent Trust Funds

On February 22, 1889, Congress passed "An act to provide for the division of Dakota [Territory] into two

states, and to enable the people of North Dakota, South Dakota, Montana and Washington to form

constitutions and state governments . . . ." This Act is commonly known as the Enabling Act. This act granted

land to the new states "for the support of common schools," which in North Dakota’s case totaled more

than 2.5 million acres. Further land grants in this legislation provided for the support of colleges,

universities, the state capitol, and other public institutions. These additional grants totaled approximately

668,000 acres, bringing the grand total of Enabling Act land grants to nearly 3.2 million acres.

Purpose

The land grant from the federal government at statehood10 and the state constitution11 both provide that

the Board of University and School Lands manage the trust land and minerals and associated proceeds, for

the exclusive benefit of education and institutional support. In accordance with Article IX of the North

Dakota Constitution as well as federal law12, the perpetual trust funds must be managed to:

1. Preserve purchasing power

2. Maintain stable distributions to trust beneficiaries

Chapter 15-03 of the North Dakota Century Code governs the management of the Permanent Trust Funds,

including the requirement that any investments conform to the prudent investor rule.

Listing of Permanent Trust Funds

The following are the beneficiaries of the Permanent Trust Funds described in Article IX of the North Dakota

Constitution:

1. Common Schools (K-12)

2. North Dakota State University

3. University of North Dakota

4. Mayville State University

5. ND Youth Correctional Center

6. Ellendale State College13

7. Valley City State University

8. State College of Science

9. School for the Blind

10. School for the Deaf

11. State Hospital

12. School of Mines (UND)

13. Veterans Home

10 The Enabling Act of February 22, 1889 (25 Stat. 676, ch. 180) 11 N.D. Const. art. IX, §§ 2, 3 12 7 U.S.C. § 309 and 25 Stat. 676, ch. 180 13 Beneficiaries of the Ellendale permanent trust are now Dickinson State University, Minot State University, Dakota College at

Bottineau, Veterans Home, School for the Blind, State Hospital, and the State College of Science as directed in 1973 N.D. Sess. Laws ch.

176.

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15

Funding Sources

Funding Sources Common to All Permanent Trust Funds

Each permanent trust individually owns surface land tracts and mineral rights that provide revenue from

agricultural leases, oil and gas royalties and lease bonuses, as well as other productive uses of the surface

and mineral lands owned by each trust.

Common Schools

The Common Schools Trust Fund is the largest of the Permanent Trust Funds administered by the Board. In

addition to the revenues from the surface lands, minerals, and investments that the Permanent Trust Funds

own, the Common Schools Trust Fund also receives funding from the following sources:

1. 10 percent of the oil extraction taxes collected by the state14

2. Net unclaimed property proceeds collected by the Department15 until such time that property may

be reunited with its owner.

Distribution Policy

Article IX, Section 2 of the North Dakota Constitution states:

Distributions from an educational or charitable institution's trust fund must be faithfully used and

applied each year for the benefit of the institution and no part of the fund may ever be diverted,

even temporarily, from this purpose or used for any purpose other than the maintenance of the

institution, as provided by law.

The distribution formula16 is also described in Article IX , Section 2:

[B]iennial distributions from the perpetual trust funds must be ten percent of the five-year average

value of trust assets, excluding the value of lands and minerals. The average value of trust assets is

determined by using the assets' ending value for the fiscal year that ends one year before the

beginning of the biennium and the assets' ending value for the four preceding fiscal years. Equal

amounts must be distributed during each year of the biennium.

The year-end values used to calculate permanent trust distributions, as described in Article IX above, is the

fund balance of each trust found in the Board’s audited financial statements. When determining biennial

distributions for the permanent trusts, annual distributions for each trust are rounded to the nearest one

thousand dollars.

By statute, distributions from the Common Schools Trust Fund are paid to school districts monthly, from

August to April of each fiscal year, through the state tuition fund.17 . At the request of the Office of

14 N.D. Const. art. X, § 24 15 N.D.C.C. § 47-30.1-23 and N.D. Const. art. IX, § 1 16 This distribution formula is the result of a constitutional amendment that was approved by North Dakota voters on November 7,

2006. This constitutional change was validated at the federal level by the passing of the Omnibus Public Land Management Act of 2009

(Pub. L. No. 111-11, 123 Stat. 1446) which amended the First Morrill Act (The Act of July 2, 1862 [7 U.S.C. 301 et seq.]) and the Enabling

Act of February 22, 1889 (25 Stat. 676, ch. 180). Prior to these changes, distributions for the Permanent Trust Funds were based on

projections of interest and income for the funds; distributions could only be paid out of interest earned. 17 N.D.C.C. § 15.1-28-01

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16

Management and Budget, effective fiscal year 2018, distributions from the Common Schools Trust Fund will

be made in relatively equal amounts from August to April of each fiscal year.

Distributions from the other 12 Permanent Trust Funds are made in equal amounts during January and June

of each fiscal year and are distributed directly to the benefitting institutions.

Investment Objective

The assets of the Permanent Trust Funds are invested with a perpetual time horizon, in a manner that seeks

to balance the longer-term goal of preserving the purchasing power of the trusts with the shorter-term goal

of maintaining a stable stream of distributions to beneficiaries. The long-term nature of the funds,

combined with a disciplined investment approach, provide the ability to the Permanent Trust Funds to

withstand short-term volatility, to profit from periods of elevated risk aversion, and to be rewarded for

providing liquidity.

The Permanent Trust Funds are invested by the Board in a single comingled pool, along with the Indian

Cultural Education Trust (described further on page 27).

Strategic Asset Allocation

The Board recognizes that the most important determinant of long-term return and risk is the asset

allocation decision. The asset allocation decision is intended to reflect the return objective and risk tolerance

expressed in this Investment Policy Statement. It is designed to provide the highest probability of meeting

the Funds’ objectives at a level of risk and liquidity that is acceptable to the Board. In establishing its risk

tolerance, the Board considers the Funds’ ability to withstand short- and intermediate-term volatility in

investment performance and fluctuations in financial condition of the Funds.

To determine the strategic asset allocation target, the Board, with assistance from the Commissioner and

Consultant, examines the historical and projected risk and return of the approved asset classes, the

correlation among these asset classes as well as the effect the expected investment performance will have

on the obligations of the Funds. Based on its long-term return expectations and its determination of the

appropriate risk tolerance for the Funds, the Board has chosen the following strategic asset allocation policy

for the Permanent Trust Funds:

Asset Class

Strategic Asset

Allocation Target

Minimum

Maximum

Broad US Equity 18.5% 13.5% 23.5%

Broad International Equity 18.5% 13.5% 23.5%

Fixed Income 23% 18% 28%

Absolute Return 15% 10% 20%

Real Estate 15% 10% 20%

Diversified Inflation Strategies 10% 5% 15%

The Board and the Commissioner will review the strategic asset allocation policy at least annually for

reasonableness relative to significant economic and market changes or to changes in the Funds’ long-term

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17

goals and objectives. A formal asset allocation study will be conducted at least every four years to verify or

amend the targets.

Recognizing that a long-term target allocation utilizing alternative asset classes can take a matter of years to

implement prudently, the Board delegates implementation of strategic asset allocation policy to the

Commissioner including funding of alternative asset classes and setting interim asset allocation targets.

Rebalancing

Rebalancing is the term that describes the periodic movement of funds from one asset or asset class to

another in order to realign assets to the strategic asset allocation target. A rebalancing strategy is an

important element of asset allocation policy. Systematic rebalancing can reduce portfolio volatility and

increase portfolio return over the long-term. However, frequent rebalancing resulting from excessively tight

ranges can lead to unnecessary transaction costs.

The Commissioner is responsible for developing and implementing a rebalancing plan that is appropriate

for existing market conditions, with a primary objective of minimizing transaction costs, market impact,

opportunity costs and portfolio disruptions. To the extent possible, cash flows and revenues will be used to

maintain the strategic target allocation. The Commissioner may make minor changes among asset classes

and within individual asset classes to more effectively maintain proper exposure to the strategic asset

allocation and asset class portfolio structures.

Recognizing that at times it may be impractical or costly to reallocate assets when an upper or lower limit is

breached, the asset class will be rebalanced to within its strategic asset allocation range as soon as is

practically possible, subject to reasonable transaction costs.

Benchmarks

One return objective to be considered when evaluating the Funds’ performance is measured by applying the

investment performance of the asset class benchmarks to the Funds’ strategic asset allocation target. The

Policy Index permits the Board to compare the Funds’ actual performance to its total fund benchmark, and

to measure the contribution of active investment management and policy adherence.

The Board has selected the following Policy Index for the Permanent Trust Funds:

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18

Asset Class Policy Index Strategic Asset Allocation Target

Broad US Equity Russell 3000 Index 18.5%

Broad International Equity MSCI ACWI Ex USA IMI 18.5%

Fixed Income Barclays US Universal Index 23%

Absolute Return Absolute Return Custom Index1 15%

Real Estate NCREIF ODCE Index 15%

Diversified Inflation Strategies DIS Custom Index2 10% 1 Absolute Return Custom Index: 60% Equity (MSCI All Country World IMI), 40% Fixed Income (Barclays US Aggregate Bond Index)

2 DIS Custom Index: 30% Commodities (Bloomberg Commodities Index ex-energy), 30% MLPs (S&P MLP Index), 20% TIPS (Barclays US

TIPS), 20% Natural Resource Equities (S&P Global Natural Resources Index).

Recognizing that a long-term target allocation to alternative asset classes can often take a matter of years to

implement prudently, the Board will also review an Interim Policy benchmark which will be adjusted as the

Commissioner makes progress towards its long-term strategic asset allocation target.

Permitted Investments18

The Board may invest in the following securities and investment activities as long as such investments

comply with the Prudent Investor Rule19. Fund of Fund strategies are allowable in any of the asset classes.

All investments are subject to approval of the Board and satisfactory legal review of applicable contractual

terms and conditions.

Equity

1. Preferred stock, common stock, initial public offerings, Real Estate Investment Trusts (REIT’s),

securities of foreign issuers listed on U.S. Exchanges, and any security convertible to common stock

or American Depository Receipts (ADR’s) that are registered by the U.S. Securities and Exchange

Commission (SEC) of any corporation whose securities are listed on at least one U.S. stock exchange

that has been approved by or is controlled by the SEC or on the National Association of Securities

Dealers (NASD). Global mandates may be considered.

2. Preferred stock, common stock, and convertible issues of any non-U.S. Corporation; which may be

denominated in non U.S dollars, provided that the securities are traded on one or more national

stock exchanges or included in a nationally recognized list of stocks; and the Board shall not be

invested in more than ten percent of the voting stock of any company.

Fixed Income

1. Bonds, notes, or other obligations of the United States government, its agencies, government-

sponsored enterprises, corporations, or instrumentalities for which the credit of the United States

government is pledged for the payment of the principal and interest. Global mandates may be

considered.

2. Bonds, notes or other obligations issued by a state, its municipalities, or other political subdivisions,

that have received an investment grade bond rating.

18 Investments listed here are for general information purposes only. Each manager retained by the Board will be given specific

guidelines with regard to permissible investments relevant to their mandate. 19 N.D.C.C. § 15-03-04. See page 5 for more about the Prudent Investor Rule.

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19

3. Bonds, notes, commercial paper or other obligations of any corporation organized and operating

within the United States.

4. Debt obligations of non-U.S. governmental or quasi-governmental entities, these may be

denominated in foreign currencies; obligations, including but not limited to bonds, notes or

commercial paper with an investment grade rating (unless otherwise approved by the Board) of any

corporation organized outside of the United States. Currency transactions, including spot or cash

basis currency transactions, forward contracts and buying or selling options or futures on foreign

currencies, shall be permitted.

5. Collateralized obligations, including but not limited to mortgages, held in trust that: (1) are publicly

traded and are registered by the SEC or other Self-Regulatory Organization (SRO) and (2) have

underlying collateral that is either an obligation of the United States government or else has a credit

rating above or equal to BBB according to the Standard and Poor's rating system or Baa according

to the Moody's investors rating system or their equivalent by a national statistical ratings

organization (NSRO) registered with the SEC(unless otherwise approved by the Board).

6. Derivatives including forwards, futures, options, mortgage derivatives, structured notes, and swaps.

7. High yield fixed income securities rated below 'BBB' according to the Standard and Poor's rating

system and below 'Baa' according to the Moody's investors rating system.

8. Loans, warrants and other forms of debt approved by the Board, and managed in conjunction with

the Bank of North Dakota, such as farm loans and energy construction loan, as long as the

investment meets the Exclusive Benefit Rule described on page 6 of this Policy.

Real Estate

Real Estate Partnerships, including investments in private vehicles through limited partnerships or

limited liability companies that have an ownership interest in direct real estate properties, whether

income-producing or non-income producing. The investment strategies may include “core” and

“value added” strategies, which derive their return from both income and appreciation.

Absolute Return

Liquid multi-asset/global tactical asset allocation (GTAA) funds that have the ability to shift capital

tactically based on relative valuations, providing broad diversification across a range of global

investments.

Diversified Inflation Strategies

1. Inflation-indexed bonds, including investments in actively or passively managed investment vehicles.

Treasury Inflation Protected Securities (TIPS) are an example of inflation-indexed bonds.

2. Commodities, including but not limited to futures and/or swaps on individually traded commodities

or indexes comprising groups of commodities like the Goldman Sachs Commodity Index (GSCI) or

Bloomberg Commodities Index.

3. Master Limited Partnerships (MLPs) focused in energy sector including companies that own or

operate energy assets or are involved in the transportation, processing, and storage of natural

resources. May invest in MLP units issued in private investment in public equity (PIPE) transactions.

4. Natural resources securities including securities of natural resource companies and industrial

companies related to the natural resources industry and instruments that derive their value from

natural resources.

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20

Cash Investment Guidelines

The Commissioner will focus on quality when investing cash positions. Cash is an asset class that should

emphasize minimal risk. Cash positions will be kept to the minimum necessary for liquidity, distributions

and ongoing investment activities. Eligible securities include:

1. Repos secured by U. S. obligations or other securities backed by the U.S., A1 or P1 commercial

paper, corporate obligations rated AA or better and maturing in five years or less, or asset-backed

securities rated AAA. All repo collateral must have a market value of at least 102% of the market

value of the contract;

2. Commercial paper issued by corporations organized and operating within the U.S. and rated “prime”

quality by a national rating service;

3. Prime bankers’ acceptances issued by money center banks;

4. Funding agreements rated at least AA by a nationally recognized rating agency. As used in this

paragraph, "funding agreement" means a floating or variable rate insurance company contract that

is a general obligation of an insurance company organized and operating within the United States

and that is senior to all other debt issued by the company;

5. Time deposits, with banks incorporated in the United States or time deposits that are fully

guaranteed by banks incorporated in the United States.

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21

Strategic Investment and Improvements Fund (SIIF)

Fund Purpose

The Strategic Investment and Improvements Fund (SIIF), was created July 1, 2011 with merger of the Lands

and Minerals Trust Fund and the Permanent Oil Tax Trust Fund.20 The SIIF holds the assets and collects the

revenues earned from State owned mineral acres. The SIIF also receives a substantial portion of the oil and

gas production and extraction taxes collected by the State. The Board is responsible for managing the

physical and financial assets of the SIIF.

The purpose of the SIIF is to provide for one-time expenditures relating to improving state infrastructure or

for initiatives to improve efficiency and effectiveness of state government.

Funding Sources

The SIIF collects the revenues earned from the mineral acres owned by the State, including those formerly

owned by the Bank of North Dakota and State Treasurer, as well as the sovereign minerals located under

navigable rivers and lakes. The SIIF also receives a portion of the oil and gas production and extraction

taxes collected by the State.21 Legislative changes to the oil tax revenue allocations are common and can

have a major impact on the timing and amount oil taxes collected by the SIIF each biennium.

Distribution Policy

There is no explicit distribution policy or objective; rather the Board is responsible for making sure funds are

available to distribute or transfer when needed and as appropriated. The SIIF can be appropriated or

obligated by the Legislature every two years, though State law dictates that the SIIF should be appropriated

only to the extent that the moneys are estimated to be available at the beginning of the biennium in which

the appropriations are authorized.22


State law provides no guidance as to how the assets of the SIIF should be invested; however, due to the

short-term nature of spending decisions and the uncertainty of the fund’s mineral based revenues, the

Board invests the SIIF with a focus on principal preservation and liquidity. The Board has adopted an

investment objective for the SIIF that provides for a diversified portfolio of fixed income securities that will

exceed on a multi-quarter basis, net of fees, the return of the benchmark described below.


Due to the expendable nature of the SIIF, the strategic asset allocation for the fund is 100% low duration

investment grade fixed income investments.

20 N.D.C.C. § 15-08.1-08 and § 61-33-07 21 N.D.C.C. § 57-51.1-07.5 22 N.D.C.C. § 15-08.1-08

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22

Investment Guidelines

The SIIF will be invested in a high quality portfolio that includes a combination of Treasuries, corporate

bonds, asset and mortgaged backed securities, and commercial paper and will adhere to the following

guidelines:

• Minimum average quality of AA

• Minimum quality for any security of BBB (limited to 10%)

• Neutral weighted average maturity of 1 year, range of 6 months to 1.5 years

• Maximum maturity: 3 years for fixed rate, 5 years for floating rate

• No more than 50% in investment grade corporate and agency backed securities

• Not more than 2% of the fund will be invested with any single issuer

Benchmark

The benchmark is composed of 50% of the three-month U.S. Treasury Bill and 50% Barclays 1 – 3 Year Gov’t

Corp Index.

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23

Capitol Building Fund

Fund Purpose

The Capitol Building Fund was created at statehood with a grant of land from the federal government. The

purpose of the fund, as described in the Enabling Act of 1889, is to provide for “public buildings at the

capital”.23 The Capitol Building Fund was created under Article IX of the North Dakota Constitution;

however, unlike the other trusts, this fund is not permanent in that the entire fund is subject to legislative

appropriation each biennium.

The Capitol Grounds Planning Commission is responsible for managing all of the assets of the Capitol

Building Fund.24 The Board’s role is to invest and manage the various assets of the fund, as directed by the

Capitol Grounds Planning Commission. These roles are statutory, not constitutional in nature; the law

specifically states:

The capitol grounds planning commission shall have general powers to superintend the

administration of the capitol building fund, its interest and income fund, and its investments and

properties. It may cause any lands now held in such funds to be sold at market value, direct the

conversion of any securities now held by such funds to cash, approve expenditures from such funds

subject to law and legislative appropriations, and to do all other things necessary to carry out the

intent and purposes of this section. The board of university and school lands or its designee, on the

commission's behalf, shall see to the investment and management of the capitol building fund and

its interest and income fund and shall account to the commission concerning these funds at the

commission's request.25

Funding Sources

The Capitol Building Fund generates revenues from the almost 10,000 surface acres and more than 27,000

mineral acres, which provide revenue from agricultural leases, mineral royalties and lease bonuses.

Distribution Policy

Since the Capitol Building Fund is a fully expendable fund, there is no distribution policy or objective; rather

the Board is responsible for making sure funds are available to distribute or transfer when needed and as

appropriated.

State law provides a continuing appropriation of up to $175,000 per biennium that is available to the Capital

Ground Planning Commission without requiring a legislative appropriation for a given biennium.26

Historically, the legislature has also included a $25,000 biennial appropriation for the operations of the

Capitol Grounds Planning Commission.

23 The Enabling Act of February 22, 1889 (25 Stat. 676, chapter 180) 24 N.D.C.C. § 48-10-02 25 N.D.C.C. § 48-10-02 26 N.D.C.C. § 48-10-02

Page 058

24


Due to the fact that the entire balance of this fund can be appropriated by the legislature each biennium

and the uncertainty of the fund’s mineral based revenues, the Board has adopted an investment objective

with a focus on principal preservation and liquidity.


Due to the expendable nature of the Capitol Building Fund, the Capital Grounds Planning Commission has

adopted a strategic asset allocation for the fund that is 100% fixed income investments.

Investment Guidelines27

The Capital Grounds Planning Commission has adopted guidelines to invest the fund in a high quality

portfolio that includes a combination of Treasuries, corporate bonds, asset and mortgaged backed

securities, and commercial paper and will adhere to the following guidelines:



• Neutral weighted average maturity of 1 year, range of 6 months to 1.5 years




Benchmark


Corp Index.

27 Due to the common investment objectives, strategic asset allocation, and investment guidelines, the assets of the Capitol Building

Fund may be pooled with the SIIF for investment purposes.

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25

Coal Development Trust Fund

Fund Purpose

The Coal Development Trust Fund is a permanent trust established under Article X, Section 21 of the North

Dakota Constitution. The primary purpose of the fund is to provide loans to coal-impacted counties, cities,

and school districts and to provide construction loans to school districts; any money that is not in use for

loans may be invested by the Board. The trust fund must be perpetual and held in trust as a replacement

for depleted natural resources.28 Both the Constitution and state law mandate that the income earned by

the fund be used first to replace any uncollectable loans and the balance must be deposited into the

General Fund.29

Funding Sources

State law provides that 15% of coal severance tax revenues be deposited into the fund.30 The Constitution

provides that up to 70% of the taxes deposited into the fund each year may be appropriated by the

legislature for lignite research, development, and clean coal demonstration projects approved by the

industrial commission.31 Thus, the Coal Development Trust Fund retains only 30% of the money deposited

into the fund, which averages about $500,000 per year.

Distribution Policy

The income earned by this fund each year must be used first to replace uncollectible loans made from the

fund and the balance must be deposited in the State's general fund. The estimated fiscal year income for

this fund is distributed in June of each year; any difference between estimated and actual income is

distributed in November or December of each year, once final audited financial statements have been

received.


Preservation of capital and added value over the benchmark over a full market cycle through active

management of the portfolio subject to the investment guidelines set forth below.


Due to the expendable nature of the income earned by the Coal Development Trust Fund, and the provision

in state law about replacing any lost principal with income, the strategic asset allocation for the fund is 100%

fixed income investments.

Investment Guidelines

The Coal Development Trust will be invested in a high quality portfolio that includes a combination of

Treasuries, corporate bonds, asset and mortgaged backed securities, and commercial paper and will adhere

to the following guidelines:


28 N.D.C.C. § 57-62-02 29 N.D. Const. art. X, § 21 and N.D.C.C. § 57-62-02 30 N.D.C.C. § 57-62-02 31 N.D. Const. art. X, § 21

Page 060

26


• Neutral weighted average maturity of 1 year range of 6 months to 1.5 years




Benchmark


Corp Index.

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27

Indian Cultural Education Trust

Fund Purpose

The Indian Cultural Education Trust was created in 2003 for the purpose of generating income to benefit

Indian culture.32 State law authorizes the Board to accept donations of money or land for this trust to be

managed in the same manner that it manages its other trust land and financial assets, subject to state law

and a required donor agreement with one or more federally recognized Indian tribes located in North

Dakota, South Dakota, Montana, Minnesota, or Wyoming.

Three Affiliated Tribes Cultural Education Account

The Three Affiliated Tribes Cultural Education Account is the sole account in the trust, which serves to

benefit the Mandan, Hidatsa & Arikara Nation Cultural Education Foundation. Under an agreement signed

by the tribe, North American Coal, and the Commissioner, the Board must manage and invest this account

exactly as the Permanent Trust Funds are managed and invested.

Funding Sources

Initial funding of the account was a result of donations of both money and land by North American Coal to

the cultural education account. Revenue earned from the donated lands is deposited into the account.

Further donations of land or money from Individuals or organizations may provide additional funding to the

account.

Distribution Policy

The distribution calculation for the Indian Cultural Education Trust is identical to that of the Permanent

Trust Funds as detailed on page 15, however, the specific donor agreement for an account may dedicate a

portion of the amount available to distribute to principal.33

The Three Affiliated Tribes Cultural Education Account donor agreement has mandated that no less than

25% of the annual amount available to distribute go to principal. Each year, the Commissioner notifies the

Mandan, Hidatsa & Arikara Nation Cultural Education Foundation as to the amount eligible for

disbursement. If written request for the disbursement is received by the Commissioner by March 31st, all or

a portion of that amount shall be distributed as specified in the donor agreement.

Investment Objective, Strategic Asset Allocation, and Investment Guidelines

Like the Permanent Trust Funds, the investment objective is to preserve purchasing power and maintain

stable distributions with a long-term investment horizon. The assets of the Indian Cultural Education Trust

are pooled with the Permanent Trust Funds. The strategic asset allocation, benchmarks, and investment

guidelines are identical to those of the Permanent Trust Funds, which can be found in the corresponding

sections beginning on page 16 of this Policy.

32 N.D.C.C. ch. 15-68 33 N.D.C.C. § 15-68-04

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28

History

Adopted: 8/27/2015

Revised: 9/29/2016

Revised: 10/26/2017

Revised: 09/26/2019

Revised: 12/18/2019

Page 063

ITEM 5A


RE: Mineral Valuation

(No Action Requested)

Senate Bill 1013 of the Sixty-Sixth Legislative Assembly approved one-time funding for a mineral valuation study. The Department of Trust Lands (Department) has been tasked with conducting a study to determine the estimated value of the mineral assets, 2.6 million acres, held in trust by the Board of University and School Lands (Board).

The oil and gas mineral estate assessment (Assessment) will reflect the estimated value of oil and gas mineral assets managed by the Board. This Assessment is complicated by the mineral assets’ sheer size, variance in geological aspects, and topography.

The Request for Proposal for the Assessment was released September 20, 2019. A Notice of Intent to Award was issued to MineralTracker LLC on January 2, 2020. The Department expects to execute a contract in January 2020 with MineralTracker, LLC. MineralTracker is based in Watford City, North Dakota, and is owned and operated by petroleum engineers with extensive experience in the valuation of non-operated oil and gas properties, including mineral and royalty interests in the Williston Basin of North Dakota. To execute on the mineral valuation, MineralTracker shall consider all Proved Developed Producing wells currently under the Board’s management and perform decline curve analysis to project future oil, gas, and water production for each well. For any undeveloped mineral acreage in which oil and gas reserves are prospective but unproven, market rate conversions related to the recent leasing bonus payments shall be employed. Once the data is compiled and the findings completed, those findings will be presented to the Board. The Department looks forward to the opportunity to lead the nation in this effort, as no other state agency or federal entity has embarked on such an endeavor to summarize the estimated value of their assets.

Page 064

ITEM 5B


RE: Repayment of Unpaid Gas Royalties For over a decade, the Department of Trust Lands (Department) has persistently worked with operators to collect payment or establish escrow accounts for royalties from the production of minerals, in accordance with the Board of University and School Land’s lease, rules, and policies. In 2012, the Department sent letters to operators and lessees who reported deductions for royalties paid. In July 2017, letters were sent to all operators and lessees regarding the proper method to calculate gas royalties. Companies who were audited and found to be non-complaint with the proper calculation of gas royalties, as outlined in the July 2017 letter, received audit finding letters. All companies who have continued to be non-compliant have received additional communication regarding the proper calculation of gas royalties. The Department’s 2016 performance audit found the Department was not consistently issuing penalties and interest and recommended a policy be established. The Department adopted an internal policy regarding penalties and interest. Additionally, the Board of University and School Lands (Board) adopted a policy regarding penalties and interest, which is included in our proposed Administrative Rules. Current Department and Board policy assesses the maximum interest (18%) under N.D.C.C. § 47-16-39.1, and penalty (12%) allowed on all late royalty payments unless a request is made to the Commissioner to negotiate the interest rate. The Department’s revenue compliance procedures are configured to calculate and generate interest and penalty notices in accordance with these policies. Under the Board’s rules and policies once penalties and interest over $25,000 are assessed for late payment of royalties, only the Board can modify the amount. N.D.C.C. § 47-16-39.1 provides interest may not be applied on royalties that were escrowed since this statute permits the suspension of interest payments “in the event of a dispute of title existing that would affect distribution of royalty payments . . . .” Recommendation: The Board delegates the Commissioner to determine gas royalty repayments as discussed.


Aye Nay Absent

Secretary Jaeger

Superintendent Baesler

Treasurer Schmidt

Attorney General Stenehjem Governor Burgum

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ITEM 6A


RE: Oil and Gas Lease Amendment In House Bill 1300, the Sixty Fifth Legislative Assembly directed the Board of University and School Lands (Board) no longer be exempt from the Administrative Agencies Practice Act (Act). In Senate Bill 2264, the Sixty Sixth Legislative Assembly directed the Board be exempt from the adjudicative proceeding requirements and procedures under North Dakota Century Code §§ 28-32-21 through 28-31-51 of the Act. Those rules became effective January 1, 2020. A final version of the Administrative Rules has been posted on the Department’s website. The Board’s Oil and Gas rules are long-standing. Each lease that is entered into is bound by the rules in place at the time of the lease execution. With the Board revising the rules into Board Policies, the Board’s Oil and Gas Lease will need to be revised to reflect the word “rules” instead of “policies”. Recommendation: The Board amend the Board Oil and Gas Lease to reflect the Administrative Rules.


Aye Nay Absent

Secretary Jaeger

Superintendent Baesler Treasurer Schmidt


Governor Burgum

Attachment 1 – Oil and Gas Lease of the North Dakota Board of University and Schools Lands

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ITEM 6A 1

OIL AND GAS LEASE Lease Number

OG-______ Rentals for this lease have been paid through the primary term. This lease, executed _________________, between the State of North Dakota acting by and through the Board of University and School Lands and its agent, the Commissioner of University and School Lands, 1707 North 9th Street, Bismarck, ND 58501, hereinafter called "lessor," and

hereinafter called "lessee." 1. Lessor, in consideration of $ 2080, and the initial annual delay rental of $ 80, the receipt of which is acknowledged, and of the royalties, covenants, and conditions contained herein to be kept and performed by the lessee, does lease exclusively to lessee the property described below, for the purpose of exploring for drilling for, and producing oil and/or gas from the leased premises; for a primary term of five years and as long thereafter as oil and/or gas may be produced in commercial quantities and subject to other provisions as provided herein; and with the right of ingress and egress and the right to use as much of the leased premises as shall be reasonably necessary to the purpose of this lease including but not limited to constructing and maintaining wellpads, roads, pipelines, communication lines, and other structures, appliances, and equipment. When the surface is owned by Lessor, the construction of a well pad and appurtenances thereto, such as a separate tank battery, roads, pipelines, communication lines, and electrical lines, shall be subject to review and approval by Lessor before construction begins. 2. If lessor owns an interest less than the whole and undivided fee in the leased premises, the royalties under paragraph 4 and payments under paragraphs 8 and 10 shall be paid lessor in the proportion which lessor's interest bears to the whole and undivided fee. Lessor neither warrants nor agrees to defend title to the leased premises, except that all bonuses and rentals will be returned to the lessee in the event lessor does not have a lawful right to lease the leased premises for oil and/or gas exploration and production.

3. If no well be commenced on the leased premises on or before the anniversary date of the lease during the primary term, this lease shall terminate unless lessee by said date shall pay lessor, the annual delay rental specified in paragraph 1, payment of such sum shall cover the privilege of deferring the commencement of a well for one year from said date.

4. ROYALTIES:

A. Lessee agrees to pay lessor a royalty of one sixth. B. Lessee agrees to pay lessor the royalty on oil based upon gross production or the market value thereof, at the option of lessor, such value to be determined by 1) the highest posted price, plus premium, if any, paid for oil, condensate, distillate, or other liquid hydrocarbons, respectively, of a like type and gravity for the field where produced and when run, or 2) the highest market price thereof paid for the area where produced and when run, or 3) the gross proceeds of sale, whichever is greater. Lessee agrees that before any gas produced from the land hereby leased is sold, used or processed in a plant, it will be run free of cost to lessor through an adequate oil and gas separator of conventional type or other equipment at least as efficient to the end that all liquid hydrocarbons recoverable from the gas by such means will be recovered. Upon written consent of lessor, the requirement that such gas be run through such a separator or other equipment may be waived upon such terms and conditions as prescribed by lessor. C. Lessee agrees to pay lessor the royalty on any gas, produced and marketed, based on gross production or the market value thereof, at the option of the lessor, such value to be based on gross proceeds of sale where such sale constitutes an arm's length transaction. D. Lessee agrees to pay lessor the royalty on carbon black, sulphur or any other products produced or manufactured from gas (excepting liquid hydrocarbons) whether said gas be "casinghead", "dry" or any other gas, by fractionating, burning or any other processing, based on gross production of such products, or the market value thereof, at the option of lessor, such market

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ITEM 6A 1

value to be the lessee's share of the average gross proceeds of sale for each of the products where such sale constitutes an arm's length transaction. E. If a sale of gas, carbon black, sulphur, or any other products produced or manufactured from gas, including liquid hydrocarbons recovered from gas processed in a plant, does not constitute an arm's length transaction the payment of royalties not taken in kind shall be governed by the policies rules of the Board of University and School Lands in effect on the date of this lease. F. All royalties on oil, gas, carbon black, sulphur, or any other products shall be payable on an amount equal to the full value of all consideration for such products in whatever form or forms, which directly or indirectly compensates, credits, or benefits lessee. G. Notwithstanding anything contained herein to the contrary, lessor may, at its option, upon not less than sixty (60) days notice to lessee, require at any time or from time to time that payment of all or any royalties accruing to lessor under this lease be made in kind at the well without deduction for the cost of producing, gathering, storing, separating, treating, dehydrating, vapor recovery, compressing, processing, transporting, conditioning, removing impurities, depreciation, risk capital, and otherwise making the oil, gas and other products hereunder ready for sale or use; in such event lessor will provide its own tankage when necessary and will indemnify lessee against all tort claims arising from the taking of royalty in kind. H. No royalty shall be payable on any oil and/or gas unavoidably lost or on any gas as may represent this lease's proportionate share of any fuel used to process gas produced hereunder in any processing plant. Notwithstanding anything contained herein to the contrary, lessee may recycle gas for gas lift purposes on the leased premises or for injection into any oil or gas producing formation underlying the leased premises after the liquid hydrocarbons contained in the gas have been removed and no royalties shall be payable on the gas so recycled until such time as the same may thereafter be produced and sold or used by lessee in such manner as to entitle lessor to a royalty thereon under the royalty provisions of this lease. Lessee shall have the free use of oil, gas, saltwater, and other products produced from the leased premises where the same are reasonably used by lessee to produce oil and/or gas in commercial quantities from the leased premises. I. Notwithstanding anything contained herein to the contrary, royalties due under this lease shall be subject to any lawful price controls governing the oil and/or gas produced from the leased premises.

5. All royalties not taken in kind and other payments under this lease shall be paid to the Commissioner of University and School Lands, North Dakota Department of Trust Lands, 1707 North 9th Street, PO Box 5523, Bismarck, ND 58506-5523, in accordance with the rules policies of the Board of University and School Lands in effect on the date of this lease.

6. During the primary term, if prior to discovery of oil and/or gas on the leased premises, lessee should drill a dry hole or holes thereon, or if after discovery of oil and/or gas the production thereof should cease from any cause, this lease shall not terminate if lessee commences additional drilling or reworking operations within sixty (60) days thereafter or resumes the payment of the annual delay rental as provided in paragraph 3 of this lease on or before the anniversary date next ensuing after the expiration of sixty (60) days from the date of completion of the dry hole(s) or cessation of production. If lessee should drill a dry hole during the last year of the primary term, lessee's rights shall remain in full force and effect without further operations or payments of annual delay rentals until the expiration of the primary term.

7. In the event that production of oil and/or gas in commercial quantities on the leased premises, after once obtained shall cease for any cause at or after the expiration of the primary term, this lease shall not terminate if lessee commences additional drilling or reworking operations on the leased premises within sixty (60) days after such cessations, and this lease shall remain in full force and effect so long as such operations continue in good faith, without interruptions totaling more than thirty (30) days during any such operations; if any such operations result in the production of oil and/or gas, this lease shall remain in full force and effect as long as oil and/or gas is produced in commercial quantities.

8. If, at the expiration of the primary term, production of oil and/or gas has not been obtained in commercial quantities on the

leased premises but drilling, testing, completion, recompletion, reworking, deepening, plugging back, or repairing operations are being conducted thereon in good faith, lessee may, on or before the expiration of the primary term, file a written application with the Commissioner of University and School Lands for a one hundred eighty (180) day extension of this lease, such application to be accompanied by a payment of ten dollars ($10.00) per acre, and the Commissioner shall, in writing, extend this lease for a period of one hundred eighty (180) days beyond the expiration of the primary term and as long as oil and/or gas is produced in commercial quantities; lessee may, as long as such drilling, testing, or completion operations are being conducted in good faith, make written application to the Commissioner, on or before the expiration of the initial extended period of one hundred eighty (180) days for an additional extension of one hundred eighty (180) days, such application to be accompanied by a payment of twenty dollars ($20.00) per acre, and the Commissioner shall, in writing, extend this lease for an additional one hundred eighty (180) day period from and after the expiration of the initial extended period of one hundred eighty (180) days, and as long as oil and/or gas is produced in commercial quantities; this lease shall not be extended for more than a total of three hundred sixty (360) days from and after the expiration of the primary term unless production in commercial quantities has been obtained or unless extended by some other provision hereof.

9. After a well producing, or capable of producing, oil and/or gas has been completed on the leased premises, lessee shall exercise the diligence of a reasonably prudent operator in drilling such additional well or wells as may be reasonably necessary for the proper development of the leased premises and in marketing the production therefrom. Lessee shall adequately protect the leased premises from drainage from adjacent lands or leases. Without limiting the generality of the preceding sentence, if oil and/or gas is produced in commercial quantities from adjacent state owned mineral land leased at a lesser royalty or any other adjacent mineral land where the well is within one thousand (1,000) feet of the leased premises and where the leased premises are not entitled to an interest in such well by reason of spacing, pooling, or unitization, lessee shall, within one hundred twenty (120) days after completion of such well, and subject to oil and gas conservation laws, rules, and orders, 1) diligently begin in good faith the drilling of a corresponding offset well on the leased premises, or on lands pooled therewith, and such offset well shall be drilled to such depth as may be necessary to prevent the drainage of the leased premises, 2) agree with lessor to pay a compensatory royalty in lieu of the drilling of an offset well, 3) release sufficient leased acreage (not less than a governmental quarter-quarter section or comparable legal subdivision) to avoid the offset requisites, or 4) apply to lessor for a waiver of the offset obligation the granting of which shall be subject to the sole discretion and approval of the Board of University and School Lands. If an offset well is drilled lessee shall use all means necessary in a good faith effort to make such offset well produce oil and/or gas in commercial quantities.

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ITEM 6A 1

10. In the event lessee discovers gas in commercial quantities but is unable to market same and this lease is not otherwise being maintained in force and effect, lessee may pay the sum of $1,600.00 per annum for each well capable of producing gas in commercial quantities; such payment shall be made prior to the expiration of the primary term of this lease or if the primary term has expired within sixty (60) days after lessee shuts in such well or ceases to produce gas therefrom or within sixty (60) days after this lease ceases to be otherwise maintained in force and effect. If such payment is made, this lease shall be considered to be a producing lease and such shut-in gas well payment shall extend the term of this lease for a period of one (1) year from the end of the primary term or, if after the primary term, from the first day of the month next succeeding the month in which such well was shut in or production ceased or this lease ceased to be otherwise maintained in force and effect. Thereafter, if no suitable market for such gas exists, lessee may extend this lease for two (2) additional and successive periods of one (1) year each by the payment of a like sum of money each year as above provided, on or before the expiration of the extended term. If, while this lease is being maintained in force and effect by payment of such shut-in gas well payments, gas should be sold from a well or wells situated within 1,000 feet of the leased premises and completed in the same producing reservoir, or in any case where drainage is occurring, the right to further extend this lease by such shut-in gas well payments shall cease and this lease shall remain in force and effect for the remainder of the current one-year period for which the shut-in gas well payment has been made and for an additional period not to exceed two (2) years from the expiration of the primary term by payment by lessee of compensatory royalty at the royalty rate provided for herein, of the value of production from the well completed in the same producing reservoir from which gas is being sold and which is situated within 1,000 feet of or draining the leased premises on which such shut-in gas well is situated; this compensatory royalty shall be paid monthly to lessor beginning on or before the last day of the month next succeeding the month in which such gas is sold, provided further that such compensatory royalties paid in any twelve-month period must be at least equal to the annual shut-in gas well payment provided for herein. Nothing herein shall relieve lessee of the obligation of reasonable development, nor of the obligation to drill offset wells as required by law or by this lease.

11. Whenever as a result of war, rebellion, riots, acts of God, or a governmental law, order, or regulation, other than a law in Title 15 or Chapter 38-09 of the North Dakota Century Code and other than an order or regulation of the Board of University and School Lands (unless such order or regulation specifically provides otherwise), lessee, despite his good faith effort, is prevented from exercising any rights or performing any obligations under this lease, and this lease is not kept in force and effect by other provisions contained herein, this lease shall remain in full force and effect for the period of such prevention provided lessee acts diligently, when possible, to legally overcome such law, order, or regulation that is preventing lessee from exercising any rights under this lease. This provision shall not operate to extend the lease for a period of more than two (2) years. The operation of this paragraph shall not release lessee from paying royalties on actual production, compensatory royalty under paragraph 9 or the continuing payment of any sum in accordance with a shut-in agreement entered into under paragraph 10. Lessee shall pay lessor the amount of the annual rental specified in paragraph 1 for each year during the period of prevention unless lessor is receiving other compensation under this lease.

12. Lessee agrees to indemnify lessor from any and all lawful claims against lessor for loss, injury or damage resulting from the activities of lessee under this lease.

13. This lease shall be subject to all rules policies of the Board of University and School Lands in effect on the date of this lease; such rules policies are herein incorporated by reference. If lessee shall fail or refuse to make the payment of any sum due under the lease or if any of the terms of this lease shall be violated, this lease may be cancelled by lessor in accordance with such rules policies.

14. The rights of Lessee hereunder may not be assigned or subleased in whole or in part without Lessor’s prior written consent.

15. Time is of the essence; however, sufficient time allowances will be given so that a lease will not expire due to delays resulting from the failure of the Board of University and School Lands to act on a proposal under paragraph 9 of this lease. 16. The lessor hereby reserves and retains title to any and all historical, archaeological, and paleontological materials, whether such materials are found upon the surface or below the surface of the land. If the lessee discovers a historical, archaeological, or paleontological resource during its operations on the leased premises, the lessee shall immediately stop work and do nothing to disturb or alter the resource. The lessee shall notify the North Dakota Department of Trust Lands and shall not resume work until the North Dakota Department of Trust Lands notifies the lessee what protective measures, if any, the Commissioner may require to preserve or protect the resource. 17. The covenants, conditions, and agreements contained herein shall extend to and be binding upon the heirs, executors, administrators, successors, or assigns of the lessee.

Commissioner of University and School Lands

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ITEM 7A


RE: Vitesse Litigation (No Action Requested) Case: Vitesse Oil, LLC; Vitesse Energy, LLC; and Iron Oil Operating LLC v. State of

North Dakota; North Dakota Board of University and School Lands; and Jodi A. Smith, Commissioner of University and School Lands, Case No. 27-2019-CV-00266;

Date Filed: June 11, 2019 Court: McKenzie County District Court Judge: Robin Schmidt Attorney: David Garner Opposing Counsel: Lawrence Bender, Spencer Ptacek

Issues: On June 7, 2019, the Attorney General’s Office was served with a complaint in the above referenced case. This case is requesting a judgment be entered under Chapter 32-12 of the North Dakota Century Code quieting title in Leases in favor of Plaintiffs; a judgment be entered under Chapter 32-12 of the North Dakota Century Code declaring that the Leases remain valid and in effect with respect to all of the Subject Lands based on the force majeure provision of the Board’s lease; that the Court enter a temporary restraining order, preliminary injunction, and permanent injunction, prohibiting Defendants from selling or attempting to sell new leases covering the oil and gas in and under the Subject Lands or otherwise interfering with Plaintiffs exclusive right to explore for and produce the same; and that Plaintiffs be awarded their costs and reasonable attorney fees.

History: The Summons and Complaint were served on the State of North Dakota and the Board of University and School Lands, by service on the Attorney General’s Office on June 7, 2019. The action was filed on June 11, 2019. The State’s Answer was filed with the District Court June 28, 2019. A scheduling conference was held on October 2, 2019. The parties will work on a scheduling order. Lessee’s Motion for Leave to Amend complaint filed October 14, 2019. Order Granting Plaintiffs’ Motion for Leave to Amend was entered on October 30, 2019.

Current Status:

• On December 17, 2019, a Notice of Telephonic Scheduling Conference was filed by the court, setting a telephonic scheduling conference for January 22, 2020 at 11:15 a.m.

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Procedures for Executive Session regarding Attorney Consultation and Consideration of Closed Records

Overview

1) The governing body must first meet in open session.

2) During the meeting’s open session the governing body must announce the topics

to be discussed in executive session and the legal authority to hold it.

3) If the executive session’s purpose is attorney consultation, the governing body

must pass a motion to hold an executive session. If executive session’s purpose

is to review confidential records a motion is not needed, though one could be

entertained and acted on. The difference is that attorney consultation is not

necessarily confidential but rather has “exempt” status, giving the governing body

the option to consult with its attorney either in open session or in executive

session. Confidential records, on the other hand, cannot be opened to the public

and so the governing body is obligated to review them in executive session.

4) The executive session must be recorded (electronically, audio, or video) and the

recording maintained for 6 months.

5) Only topics announced in open session may be discussed in executive session.

6) When the governing body returns to open session, it is not obligated to discuss

or even summarize what occurred in executive session. But if “final action” is to

be taken, the motion on the decision must be made and voted on in open

session. If, however, the motion would reveal “too much,” then the motion can

be abbreviated. A motion can be made and voted on in executive session so

long as it is repeated and voted on in open session. “Final actions” DO NOT

include guidance given by the governing body to its attorney or other negotiator

regarding strategy, litigation, negotiation, etc. (See NDCC §44-04-19.2(2)(e) for

further details.)

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Recommended Motion to be made in open session:

Under the authority of North Dakota Century Code Sections 44-04-19.1 and 44-04-19.2, the Board close the meeting to the public and go into executive session for purposes of attorney consultation relating to:

• Repayment of Unpaid Gas Royalty

• Continental Resources, Inc. et al. Case No. 1:17-CV-00014

• William S. Wilkinson et al. Case No. 53-2012-CV-00038

• North Range et al. Case No. 27-2020-CV-00028

Action Record Motion Second Aye Nay Absent Secretary Jaeger Superintendent Baesler Treasurer Schmidt Attorney General Stenehjem Governor Burgum

Statement: “This executive session will be recorded and all Board members are reminded that the discussion during executive session must be limited to the announced purpose for entering into executive session, which is anticipated to last approximately one hour.

The Board is meeting in executive session to provide guidance or instructions to its attorneys regarding the identified litigation. Any formal action by the Board will occur after it reconvenes in open session.

Board members, their staff, employees of the Department of Trust Lands and counsel with the Attorney General staff will remain, but the public is asked to leave the room.

The executive session will begin at: ______AM, and will commence with a new audio recording device. When the executive session ends the Board will reconvene in open session.”

3

Statements upon return to open session: State the time at which the executive session adjourned and that the public has been invited to return to the meeting room. State that the Board is back in open session. State that during its executive session, the Board provided its attorney with guidance regarding litigation relating to the sovereign lands’ minerals claims. [The guidance or instructions to attorney does not have to be announced or voted upon.] State that no final action will be taken at this time as a result of the executive session discussion

-or- .

Ask for a formal motion and a vote on it. Move to the next agenda item.

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ITEM 7B


RE: Continental Interpleader Litigation (No Action Requested) Case: Continental Resources, Inc. v. North Dakota Board of University and School

Lands, et al., Case No. 1:17-cv-00014 Date Filed: December 23, 2016 Court: Federal District Court, 8th Circuit Judge: Honorable Daniel Hovland Attorney: Charles Carvell, David Garner, and Jen Verleger Opposing Counsel: Lawrence Bender, David Ogden, Paul Wolfson, John S. Most Issues: In December 2016, Continental Resources, Inc. (Continental) brought an

interpleader action against the Board of University and School Lands and the United States regarding certain lands underlying Continental operated wells located in McKenzie, Mountrail, and Williams Counties. This case involves a disagreement between the State and United States over the location of the ordinary high watermark—and consequently title to underlying minerals—on federally owned land along the now inundated historic Missouri River. Continental is requesting the Court determine the property interests for the disputed lands so that Continental can correctly distribute the proceeds from the affected wells. Continental has claimed that there is “great doubt as to which Defendant is entitled to be paid royalties related to the Disputed Lands.” Currently, Continental is paying the United States its full royalty based on the acreage it claims. The remaining royalty, over and above what is due the United States, is being escrowed with the Bank of North Dakota pursuant to the Board’s rules.

History: The United States removed this action to federal district court on January 11, 2017.

The Board filed its answer to the complaint on February 13, 2017. The United States filed its answer to the complaint on May 12, 2017. An Amended Complaint was filed by Continental Resources on September 14, 2017. The United States filed a Motion to Dismiss for Lack of Subject Matter Jurisdiction on October 18, 2017. In support of its motion, the United States alleges that it has not waived its sovereign immunity under the Quiet Title Act and that the interpleader action is moot under S.B. 2134.

The Board filed a response on December 20, 2017 opposing the motion to dismiss. Continental filed a response and the United States filed its reply. The United States filed a reply on March 16, 2018. The Board filed a Surreply to the Motion to Dismiss on April, 16, 2018. The Order Denying the United States’ Motion to Dismiss for Lack of Subject Matter Jurisdiction was entered on December 31, 2018. The Order provided that North Dakota and the United States confer and submit a proposed scheduling order to the Court no later than sixty days from the date of the order. On January 8, 2019 the United States filed its Motion to Stay Action Due to Lapse of Appropriations. On January 10, 2019, the Court granted the United States’ Motion and cancelled the January 24, 2019 scheduling conference. The Order stated the “action is stayed until appropriations are restored and Department attorneys and the Bureau of Land Management personnel are permitted to resume their usual civil litigation functions.” A January 10, 2019 docket entry provides

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ITEM 7B

“Deadlines and Hearings Terminated.” The United States filed a Notice of Restoration of Appropriations on January 28, 2019, which requested the Court set a new scheduling conference date. On January 30, 2019, the Court issued an order granting the motion for scheduling conference, requiring the parties submit a revised scheduling/discovery plan by March 15, 2019, and setting a telephonic scheduling conference for 10:00 a.m., March 18, 2019. The parties filed a Joint Motion for Extension of Time to File Scheduling Proposal and Participate in Scheduling Conference on March 12, 2019, due to appointment of Magistrate Judge Clare Hochalter, replacing Magistrate Judge Charles Miller, and the recusal of Shaun Pettigrew of the Environment and Natural Resources Division of the Department of Justice, with John S. Most as his replacement. The Court entered an Order granting the extension to April 12, 2019 and a scheduling conference was reset for April 15, 2019. The Scheduling Conference was held on April 15, 2019. On June 14, 2019, the Board of University and School Lands filed its Amended Answer to Amended Complaint with Statement of Claim. By August 13, 2019, the United States shall shall assert its claims, if any, to the disputed stake. After the August 13, 2019 filing, the proceedings will be stayed until September 19, 2019 or another date set by the Court. During the stay, the United States and the Board are to discuss whether the dispute that gave rise to the litigation can be resolved. By no later than September 19, 2019, the United States and Board shall inform the Court of the status of their discussions and the Court will consider a schedule for the case. A Status Conference was set for September 20, 2019 before Magistrate Judge Clare R. Hochhalter. On August 1, 2019, the Status Conference previously set for September 20 was reset to October 11, 2019 at 10 a.m. before Magistrate Judge Clare R. Hochhalter. On August 13, 2019, the United States filed a Motion for Extension of Time to Plead and Assert Affirmative Claims and the Motion was granted on the same day, giving the United States until August 27, 2019 to file. The United States filed their Answer to Amended Complaint on August 27, 2019. On October 3, 2019, Defendants filed a joint motion and memornadum for postponement of the October 11, 2019 status conference by 90 days. On October 4, 2019, the Court entered an Order granting the motion to continue status conference. Status conference was reset to January 13, 2020, at 9 a.m. via telephone before Magistrate Clare R. Hochhalter. United States Department of Justice advised it will be working with the United States Department of Interior – Bureau of Land Management regarding a settlement proposal. On November 8, 2019, the Board received an email from the US DOJ in response to the Board’s request that the federal government start settlement discussions by making a proposal to the Board. The email states the federal government believes its OHWM surveys are accurate, and cited N.D.C.C. § 61-33.1-06, which states: “Notwithstanding any provision of this chapter to the contrary, the ordinary high water mark of the historical Missouri riverbed channel abutting . . . public domain lands . . . must be determined by the branch of cadastral study of the [BLM] in accordance with federal law.” Relying on this statute, US DOJ suggests that the federal surveys are presumptively accurate, and then states: “we respectfully suggest that the best and most appropriate path forward would be for representatives of North Dakota to identify the specific areas where it believes the agency erred in identifying the OHWM and proffer the evidence on which it bases that belief. BLM would then assess that evidence in good faith to ascertain if a compromise, aimed at reducing litigation risk, is possible.”

Current Status:

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ITEM 7B

• Status conference was held January 13, 2020 and another status conference was set for April 7, 2020.

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ITEM 7C


RE: Wilkinson Litigation (No Action Requested) Case: William S. Wilkinson, et. al. v. Board of University & School Lands, Brigham

Oil & Gas, LLP; EOG Resources, Inc.; Case No. 53-2012-CV-00038 Date Filed: January, 2012 Court: Williams County District Court Judge: Paul Jacobson Attorney: Jennifer Verleger/Matthew Sagsveen/David Garner Opposing Counsel: Josh Swanson/Rob Stock, Lawrence Bender, Lyle Kirmis Issues: The Wilkinson lawsuit was filed on January 10, 2012. The Plaintiffs assert that they

own minerals in a 200 acre tract west of Williston. This suit was initially filed in state court as a quiet title action. The Attorney General’s Office filed an Answer and Counterclaim on February 27, 2012.

On July 1, 2014, the Plaintiffs filed an amended complaint in the case and added claims of unconstitutional takings, conversion, constructive trust and unjust enrichment, civil conspiracy and deprivation of rights under 42 U.S.C. § 1983. Plaintiffs assert in their amended complaint that the Board should be issuing leases on the west side of the Highway 85 bridge pursuant to the Phase II Investigation – the estimated location of the ordinary high watermark (OHWM) prior to inundation of Lake Sakakawea – rather than the Phase I Delineation – current location of the OHWM. Plaintiffs argue that the subject property is located under Lake Sakakawea, which did not exist at statehood, and thus the state did not acquire title to it as sovereign lands. Therefore, the State’s title to the Missouri River is limited to the channel as it existed prior to inundation of Lake Sakakawea as determined by the Phase II investigation.

In January of 2016, the State Engineer sought and was granted intervention. A joint motion for summary judgment was filed by the Board and the State Engineer on March 1, 2016. On May 18, 2016, the district court granted the motion for summary judgment finding that: (1) the subject property is located along the Missouri River, which is no doubt navigable; (2) The Phase I Delineation should be used to determine the OHWM for the subject property rather than the Phase II Investigation, and therefore the property is determined to be sovereign land of the state of North Dakota; (3) to the extent Plaintiffs are aggrieved by the Phase I Delineation, they must exhaust their administrative remedies through the State Engineer before making a claim in district court; and (4) there are no grounds to support Counts II through VII. Plaintiffs filed a notice of appeal on June 1, 2016. Both EOG Resources, Inc. and Statoil Oil and Gas LP filed cross-appeals.

On September 28, 2017, the North Dakota Supreme Court reversed the district court’s decision and remanded the case back to the district court. The Supreme Court held that:

1. Surface ownership could not be determined without the United States as a

party to the action;

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ITEM 7C

2. N.D.C.C. ch. 61-33.1 has a retroactive clause and the district court did not have an opportunity to determine if it applies and governs ownership of the minerals at issue;

3. A “takings” analysis must be conducted if the district court determines the State owns the disputed minerals; and

4. The district court erroneously made findings of disputed fact.

History: Due to the passage of S.B. 2134, the District Court ordered the case stayed and all deadlines be held in abeyance until the final review findings under S.B. 2134 are issued by the North Dakota Industrial Commission (NDIC). Plaintiff, after NDIC issued the review findings, requested a status conference with the Court to set a new trial date and other deadlines. The Board and State Engineer filed a Motion for Continued Stay of Proceedings on October 11, 2018. The telephonic status conference scheduled for November 2, 2018 was cancelled. A Hearing on the Motion for Continued Stay was held November 30, 2018. Defendants submitted a proposed Order and the Judge asked for Plaintiffs to submit a proposed Order, which was filed December 4, 2018. The Court issued its Order on December 12, 2018, denying the Motion for Continued Stay and requiring the parties confer on a scheduling order and submit a Rule 16 scheduling order by January 26, 2019. The State filed a Motion for Proposed Scheduling Order on January 28, 2019, and Plaintiffs filed a notice of hearing on January 31, 2019, and filed their Response to State’s Motion for Proposed Scheduling Order and Plaintiffs’ Request for Rule 16(F) Sanctions on February 1, 2019. State Defendants filed a Reply Brief in Support of Motion for Proposed Scheduling Order on February 8, 2019. Statoil & Gas LP filed a Response to State’s Motion for Proposed Scheduling Order and Plaintiff’s Proposed Scheduling Order on February 11, 2019. Plaintiffs scheduled a hearing in District Court on the Motion for Scheduling Order which was held March 5, 2019, at 2:00 p.m. The District Court didn’t rule on the scheduling motions but granted Plaintiffs’ request to file a motion for Summary Judgment within 30 days of the hearing. On April 15, 2019, Plaintiffs’ filed with the District Court a Notice of Motion, Motion for Summary Judgment, Brief in Support of Motion for Summary Judgment, Affidavit of Joshua Swanson, Notice of Hearing (requesting a hearing be held at the earliest possible date available on the Court’s calendar), and proposed Order Granting Plaintiffs’ Motion for Summary Judgment. On April 17, 2019, Plaintiffs’ filed a Notice of Hearing scheduling a hearing for 2:00 p.m. on July 30, 2019 before the Honorable Paul W. Jacobson, at the Williams County Courthouse, Williston. The parties entered into a Stipulation Extending Time to Respond to Plaintiffs’ Motion for Summary Judgment and Plaintiffs’ Time to Reply which was entered May 1, 2019. The Order Extending Time to Respond was entered May 2, 2019, extending Defendants’ time to respond to June 14, 2019, and extending Plaintiffs’ deadline to file reply to July 1, 2019. On June 10, 2019 Statoil & Gas LP filed its Opposition to Plaintiffs’ Motion for Summary Judgment. Also, on June 10, 2019, the Stipulated Motion to Dismiss Defendant XTO Energy Inc. was filed in which Plaintiffs, Cross-claimant EOG, and Defendant XTO stipulated and requested the Court dismiss XTO from the action with prejudice and without costs and disbursements to any party, as it holds no ownership interest in, right to, claim or title to any mineral interests as alleged by Plaintiffs. The Board of University and School Lands filed its Brief in Opposition to Plaintiffs’ Motion for Summary Judgment on June 14, 2019. Also filed on June 14, 2019 where the State Engineer’s Response to Brief in Opposition to Plaintiffs’ Motion for Summary and the Response of EOG Resources, Inc., to Plaintiffs’ Motion for Summary Judgment. On June 17, 2019, the Court entered its Order Dismissing Defendant XTO Energy, Inc. from the Action. On July 1, 2019, Plaintiff’s filed their Reply Brief

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ITEM 7C

in Support of Motion for Summary Judgment. The hearing on the Motion for Summary Judgment was held on July 30, 2019. Order Granting Plaintiffs’ Motion for Summary Judgment was entered on September 6, 2019.The proposed Judgment was submitted on September 12, 2019. The Judgment and Notice of Entry of Judgment were filed with the District Court on September 16, 2019. Board of University and School Lands’ Notice of Appeal to the North Dakota Supreme Court was filed on November 15, 2019. State Engineer’s Notice of Appeal to the North Dakota Supreme Court was filed on November 15, 2019. Notice of Appeal to North Dakota Supreme Court filed by Statoil Oil & Gas LP f/k/a Brigham Oil & Gas, LLP on November 27, 2019. Appellant’s Initial Briefs were due December 12, 2019; however, a Joint Motion for Extension of Time to File Briefs was filed and an extension was granted on December 13, 2019, with all briefs being due to the Supreme Court as follows:

• Appellants’ (including Board of University and School Lands) Initial Briefs - January 13, 2020;

• Appellees’ Response Briefs – March 2, 2020; and

• Appellants’ (including Board of University and School Lands) Reply Briefs – March 16, 2020.

Current Status:

• On January 13, 2020, the Brief of Appellant, Board of University and School Lands was filed with the Supreme Court. Appellant North Dakota State Engineer’s Principal Brief was also filed on January 13, 2020.

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ITEM 7D


RE: North Range Resources Litigation (No Action Requested) Case: North Range Resources, LLC v. State of North Dakota, North Dakota Board

of University and School Lands, Jodi Smith, Commissioner of University and School Lands, Case No. 27-2020-CV-00028

Date Filed: January 16, 2020 Court: McKenzie County District Court Judge: Honorable Daniel El-Dweek Attorney: David Garner Opposing Counsel: Lawrence Bender, Spencer D. Ptacek Issues: On January 15, 2020, North Range Resources served a Summons and Complaint

on State of North Dakota, the North Dakota Board of University and School Lands, and the Commissioner. This case is requesting a judgment be entered under Chapter 32-12 of the North Dakota Century Code quieting title in Leases in favor of Plaintiffs; a judgment be entered under Chapter 32-23 of the North Dakota Century Code declaring that the Leases remain valid and in effect with respect to all of the Subject Lands; and that Plaintiffs be awarded their costs and reasonable attorney fees.

History: Current Status:

• Summons and Complaint was served on January 15, 2020, with the Answer being due in 21 days.

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board of university and school lands · 2020-01-20 · board of university and school lands...

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