board of university and school lands · 2020. 7. 24. · 88 (06/25/2020) minutes of the meeting of...

BOARD OF UNIVERSITY AND SCHOOL LANDS Pioneer Meeting Room

State Capitol July 29, 2020 at 9:00 AM

AGENDA = Board Action Requested

1. Approval of Meeting Minutes – Jodi SmithConsideration of Approval of Land Board Meeting Minutes by voice vote.

A. June 25, 2020 – pg. 2

2. Reports – Jodi SmithA. June Shut-In Report – pg. 19B. June Extension Report – pg. 25C. June Report of Encumbrances -- pg. 26D. June Unclaimed Property Report – pg. 31E. April Financial Position – pg. 32F. Investments Update – pg. 41

3. Energy Infrastructure and Impact Office – Jodi Smith A. Contingency Grant Round Recommendations – pg. 42

4. Investments – Michael Shackelford A. Opportunistic Investments – pg. 44

5. Operations – Jodi Smith A. Continuing Appropriation Authority Policy – Second Reading – pg. 100 B. Payment Criteria Policy – Repeal – pg. 103 C. Assigned Fund Balance – pg. 105

6. Litigation – Jodi Smith A. United States Department of Interior M – 37056 – pg. 109 B. Mandan, Hidatsa, and Arikara Nation vs. United States of America, 1:20-cv-00859-MCW C. Mandan, Hidatsa, and Arikara Nation vs. United States Department of Interior, et al.,

1:20-cv-01918 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:-

Next Meeting Date – August 27, 2020

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

June 26, 2020

The June 26, 2020 meeting of the Board of University and School Lands was called to order at 8:05 AM in the Coteau Meeting 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 Dennis Chua Investment Analyst – via Microsoft Teams Susan Dollinger Unclaimed Property Administrator – via Microsoft Teams Bradley Fettig Mineral Title Specialist – via Microsoft Teams Michael Humann Surface Division Director Beverly Jacobson Revenue Compliance Division Kristie McCusker Paralegal Catelin Newell Administrative Staff Officer Adam Otteson Revenue Compliance Division Director Rick Owings Administrative Officer – via Microsoft Teams Mike Shackelford Investment Division Director David Shipman Minerals Division Director – via Microsoft Teams Kayla Spangelo Range Management Specialist – via Microsoft Teams

Guests in Attendance: Brady Pelton ND Petroleum Council Emily Johnson Kadrmas, Lee & Jackson (KLJ) Quentin Obrigewitsch Kadrmas, Lee & Jackson (KLJ) Gary Hagen Constituent Dave Garner Office of the Attorney General Charles Carvell Office of the Attorney General Leslie Bakken Oliver Governor’s Legal Counsel – via Microsoft Teams Reice Haase Governor’s Policy Advisor – via Microsoft Teams Steve Mahanay Novarca - via Microsoft Teams Thomas Welsh Novarca - via Microsoft Teams Lynn D. Helms Department of Mineral Resources – via Microsoft Teams Geoff Simon Western Dakota Energy Association - via Microsoft Teams Jack Dura Bismarck Tribune – via Microsoft Teams Joel Brown Mineral Tracker – via Microsoft Teams Craig C. Smith Guest via Microsoft Teams Dave Thompson Guest via Microsoft Teams Dee Alexander Guest via Microsoft Teams Josh J Demorrett Guest via Microsoft Teams Dennis Blank Guest via Microsoft Teams Eric Ocwieja Guest via Microsoft Teams Ernst Guest via Microsoft Teams Kari S Gibson Guest via Microsoft Teams

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Gloria Cash Guest via Microsoft Teams Jacob Notermann Guest via Microsoft Teams James Alexander Guest via Microsoft Teams Jeremy Turley Guest via Microsoft Teams Kevin Thies Guest via Microsoft Teams Marcel Staub Guest via Microsoft Teams Mary Guest via Microsoft Teams Mike Lee Guest via Microsoft Teams Peter Guest via Microsoft Teams Andrea H. Pfennig Guest via Microsoft Teams

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 May 28, 2020 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

May Shut-In Report

Granted to: Luff Exploration Company For the Purpose of: COVID-19 Date Issued: 05/14/2020 Trust: L– Bank of North Dakota Lease: OG-12-01019;OG-12-01020;OG-12-01021

Granted to: Luff Exploration Company For the Purpose of: COVID-19 Date Issued: 05/14/2020 Trust: A – Common Schools Lease: OG-13-00008

Granted to: Marathon Oil Company For the Purpose of: COVID-19 Date Issued: 05/14/2020 Trust: R – Sovereign Lands Lease: OG-09-00949; OG-05-00905;OG-00906; OG-10-00747;

OG-10-00748

Granted to: Prima Exploration For the Purpose of: COVID-19 Date Issued: 05/14/2020 Trust: A – Common Schools Lease: OG -12-00866; OG- 12-00867; OG- 12-00868

Granted to: Prima Exploration For the Purpose of: COVID-19 Date Issued: 05/14/2020 Application Fee: $10.00 Trust: A – Common Schools Lease: OG- 12-00869

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May Encumbrances Report

Granted to: EQUINOR PIPELINES LLC, WILLISTON-ND For the Purpose of: Pipeline-Multiple Pipelines Right-of-Way Number: RW0008466 Trust: A – Common Schools Legal Description: WIL-155-100-36-NW4

Granted to: LOWER YELLOWSTONE RURAL ELECTRIC INC,SIDNEY-MT For the Purpose of: Electric-Transmission Line Right-of-Way Number: RW0008633 Trust: A – Common Schools Legal Description: WIL-154-104-36-SE4, SW4

Granted to: OE2 NORTH LLC, DENVER-CO For the Purpose of: Pipeline-Gas Gathering Pipeline Right-of-Way Number: RW0008664 Trust: A – Common Schools Legal Description: WIL-156-97-36-SE4

Granted to: CATES EARTH SCIENCE TECHNOLOGIES INC, BISMARCK-ND For the Purpose of: Temporary Water Layflat Line Right-of-Way Number: RW0008700 Trust: A – Common Schools Legal Description: MOU-150-92-10-S2SW4 Legal Description: MOU-151-92-36-W2NE4SW4, NW4SW4, S2SW4 May Unclaimed Property 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 May 2020, the Division received 55 holder reports with a property value of $527,441 and paid 501 claims with a total value of $364,778. 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.

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The Oil and Gas Impact Grant Fund currently has 28 grants with a balance of $6,846,538.19 as of June 5, 2020. The following shows grant activity for the last five months:

Oil and Gas Impact Grant

Fund

Grants with

balances

Current Balance

Obligated to Grants

12/31/2019 30 $14,388,087.28 2/13/2020 21 $7,207,988.75 5/13/2020 28 $7,049,556.08 6/5/2020 28 $6,846,538.19

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 three grants with a balance of $2,394,929.22 as of June 5, 2020. 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 five months:

Energy Impact Fund

Grants with

balances

Current Balance Obligated to

Grants 12/31/2019 4 $4,108,325.39 2/13/2020 3 $3,447,448.60 5/13/2020 3 $2,394,929.22 6/5/2020 3 $2,394,929.22

The Energy Infrastructure and Impact Office is currently managing 31 grants for a total of $9,241,467.41. The following shows grant activity for the last four months:

Oil and Gas Impact Grant

Fund

Grants with

balances


Grants

Energy Impact Fund

Grants with

balances


Grants Total between

both Funds 12/31/2019 30 $14,388,087.28 12/31/2019 4 $4,108,325.39 $18,496,412.67 2/13/2020 21 $7,207,988.75 2/13/2020 3 $3,447,448.60 $10,655,437.35 5/13/2020 31 $7,049,556.08 5/13/2020 3 $2,394,929.22 $9,444,485.30 6/5/2020 31 $6,846,538.19 6/5/2020 3 $2,394,929.22 $9,241,467.41 EIIO emailed grantees with a current balance reminding them to submit their biannual progress report due on June 20, 2020 per N.D.C.C. § 85-02-03-06.

Progress report. 1. The grantee shall submit to the director a biannual progress report, prescribed by the energy infrastructure and impact office. The biannual progress report must be received by the energy infrastructure and impact office by the twentieth day of June and December of every year of the project.

2. The director may conduct onsite project status visits to review and document utilization of the grant. The director shall provide advance notice to the grantee of any project status

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visits. The grantee shall provide the director with any project documentation upon request by the director; assist with inspection of equipment purchased, completed construction, or review of any other project expenditures; and provide a description of the remaining budget and timeline for the project.

3. If a grantee is delinquent in submitting a progress report or does not comply with theproject status visit, the director may delay grant reimbursements.

History: Effective January 1, 2019. General Authority: NDCC 28-32-02 Law Implemented: NDCC 57-62-05

The Financial Report (Unaudited) for period ending March 31, 2020 was presented to the Board for review and is available at the Department upon request.

Investment Updates

Portfolio Rebalancing Updates On May 8, 2020, the Treasury Inflation-Protected Securities (TIPS) Fund was liquidated and the proceeds were transferred to an actively managed “Transition Account”. This new account is similar to the SIIF-UltraShort Bonds account and is designed to hold all cash proceeds as we continue to do a disciplined liquidation of all the Diversified Inflation Strategy (DIS) investments.

As of June 12, 2020, $30M has been withdrawn from Gresham. Additionally, Van Eck liquidations have reached a total of $52M. Thus far, $184.5M has been withdrawn from DIS and transferred to the Transition Account. Future liquidations will depend on the market situation with the end of June as the target of full redemption.

All legal documents had been reviewed and submitted for the $100M commitment to the Varde Dislocation Fund LP and the Department of Trust Lands staff is waiting for the initial capital call.

Asset Allocation The table below shows the status of the permanent trusts’ asset allocation as of June 12, 2020. The figures provided are unaudited.

As ofJune 12, 2020 ̙ ̘Broad US Equity 905,331,860.87 18.8% 19.0% 14.0% 24.0%

Broad Int'l Equity 917,842,371.80 19.1% 19.0% 14.0% 24.0%

Fixed Income 1,108,107,002.69 23.1% 22.0% 17.0% 27.0%

Transition Account 184,629,391.14 3.8% 0.0% -5.0% 5.0%

Absolute Return 726,266,787.20 15.1% 15.0% 10.0% 20.0%

DIS 219,994,918.96 4.6% 0.0% -5.0% 5.0%

Real Estate 744,590,727.00 15.5% 15.0% 10.0% 20.0%

Private Equity - 0.0% 5.0% 0.0% 10.0%

Private Infrastructure - 0.0% 5.0% 0.0% 10.0%

Opportunistic Investments - 0.0% 0.0% -5.0% 5.0%

Portfolio Total 4,806,763,059.66 100.0%

Market Value $

Actual TargetLower Range

Upper Range

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Actual Target

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Upcoming Investment Manager Meetings There are no upcoming meetings scheduled.

I N V E S T M E N T S

Novarca - Investment Fees and Costs Analysis Services Consultant Update

On March 28, 2019, the Board directed the Commissioner to engage Novarca to review the investment fees of the assets under the Board’s authority. Novarca’s general approach involved a detailed look at costs experienced by a given investment mandate, with a focus on identifying and reducing fees and expenses related to managing, transacting, and holding assets. The firm reviewed expenses and identified options that serve as a basis to renegotiate fee arrangements with investment managers.

The Commissioner entered into an agreement with Novarca on June 13, 2019, under which Novarca would conduct a study of the fees of the Board’s various investment mandates and negotiate with investment managers to reduce fees paid by the Board’s trust funds. Novarca is compensated solely through a contingency fee in which they are only paid a portion of realized savings in the amount of 27.5% of any fee savings the Board’s trust funds realized by Novarca’s efforts.

Novarca began a study of the investment fees of the Board’s various investment mandates in June 2019 and completed the study in December 2019. Generally, Novarca found that the fees paid by the Board’s trust funds were competitive with the industry. Nevertheless, Novarca believed there was opportunity for further fee savings with certain managers. In January 2020, Novarca began negotiating with several investment managers to reduce management fees paid by the Board’s trust funds.

Result: Novarca was able to successfully negotiate a lower fee with Payden & Rygel on the Long-Term Bond mandate. The new fee terms are in line with the fees paid on the JP Morgan Intermediate Bond mandate, which had been lowered just prior to engaging Novarca. The net fee savings are approximately $83,400 for the first year and may be higher if the mandate grows over time. This represents 0.024% savings on the mandate and 0.002% for the permanent trust funds.

Novarca has not been successful on any other mandates, which would indicate the Board’s trust funds’ fees remain industry competitive.

Theodore Roosevelt Presidential Library and Museum Endowment Fund Asset Management Agreement

Senate Bill 2001 of the Sixty-Sixth Legislative Assembly created a $50 million endowment for the proposed Theodore Roosevelt Presidential Library and Museum. The state-funded endowment will be created if $100 million in private donations is first raised for construction of the library and museum. The fund’s earnings will be used for operations and maintenance of the library and museum once the Theodore Roosevelt Presidential Library Foundation has raised or secured binding pledges for $100 million.

Attached is the proposed Theodore Roosevelt Presidential Library and Museum Endowment Fund Asset Management Agreement (Agreement) by and between the Office of the North Dakota Governor, the Board of University and School Lands (Board), and the Theodore Roosevelt Presidential Library Foundation to manage the assets of the Theodore Roosevelt Presidential Library and Museum Endowment Fund.

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The Agreement provides for the establishment of an investment account maintained by the Board. It provides for the investment of assets as a permanent trust fund to be managed under the prudent investor rule, pursuant to N.D.C.C. §15-03-04.

The Agreement further provides for the distribution of investment returns for the uses specified in N.D.C.C. § 54-07-12:

There is created in the state treasury the Theodore Roosevelt presidential library and museum endowment fund. The governor may provide for the fund to be invested under the supervision of the board of university and school lands. The interest and earnings of the fund are appropriated to the governor on a continuing basis to pay interest expenses on a loan from the Bank of North Dakota and to provide grants pursuant to this section.

The Agreement will replace the Agreement executed in September 2019 and provides additional guidance regarding the distribution of funds and a mechanism for the Department of Trust Lands to cover expenses associated with the management of the endowment. This final version is available at the Department upon request.

Motion: The Board enter into the Theodore Roosevelt Presidential Library and Museum Endowment Fund Asset Management Agreement with the Office of the North Dakota Governor and the Theodore Roosevelt Presidential Library Foundation to manage the assets of the Theodore Roosevelt Presidential Library and Museum Endowment Fund with the prudent investment of the fund assets as a permanent trust fund.

Action Record Motion Second Aye Nay Absent Secretary Jaeger X X Superintendent Baesler X Treasurer Schmidt X Attorney General Stenehjem X X Governor Burgum X

M I N E R A L S M A N A G E M E N T

Acreage Adjustment Survey

Under North Dakota law, the Board of University and School Lands (Board) is vested with the authority to manage state-owned minerals including the oil, gas, and related hydrocarbons within the beds of the State’s navigable waters. On behalf of the State, the Board oversees the Strategic Investment and Improvements Fund (SIIF) which collects the revenues from these sovereign minerals.

The Sixty-Fifth Legislative Assembly's adoption of Senate Bill 2134 (SB 2134), codified as N.D.C.C. ch. 61-33.1, sought to establish state ownership of minerals below the ordinary high water mark of the historical Missouri riverbed channel (Historical OHWM) subject to inundation by Pick-Sloan Missouri basin project dams.” The bill directed the North Dakota Department of Mineral Resources (DMR) to procure a qualified engineering and surveying firm to conduct a review of the US Army Corp of Engineers (USACE) survey segments limited only to the corps survey segments from the northern boundary of the Fort Berthold Indian reservation to the southern border of sections 33 and 34, township 153 north, range 102 west

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The Historical OHWM review as prepared by Wenck Associates, Inc. (Review) was presented to the North Dakota Industrial Commission (NDIC) on April 17, 2018. Thereafter, the NDIC issued its September 27, 2018 Order of the Commission, Order No. 29129, approving the Review. Information concerning the Review can be found on DMR’s website. In response to comments, NDIC Order No. 29129 found, among other things, that:

1. "[T]he Wenck Study was not intended to provide accurate acreage allocations for property transfer which is outside the scope of the legislation; the data sets provided to Wenck for use in calculating acreages represent the most efficient method for determination of areas necessary for decisions by the [NDIC]; no land surveying was done nor contracted to be done in the course of [the Wenck] study." Order at 4.

2. "[T]he cost to complete the necessary research and surveys to apportion property significantly exceeds the appropriated funds." Id.

3. "[A]dequate documentation and data for parties to determine how interests might be impacted were provided in the Wenck Study and subsequent communications." Id.

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 Board contracted with Kadrmas, Lee & Jackson, Inc. (KLJ) “to analyze the final review findings and determine the acreage on a quarter-quarter basis or government lot basis above and below the [Historical OHWM] as delineated by the final review findings of the industrial commission.” The contract’s scope of work concluded twelve months from the date of execution, May 30, 2019, at a total cost of $1,088,635. KLJ dedicated 35 team members and over 7,000 hours to completing the project. The project utilized all available data, records, and resources including the Review, the PLSS, Bureau of Land Management (BLM) General Land Office (GLO) updated Master Title Plats (available at the BLM), original GLO Survey Plats (available at the North Dakota State Water Commission), BLM field notes, and any other relevant data, records and resources. Where previous survey data was not available, lacking, or otherwise unusable, the KLJ project was required to conduct the field work necessary to supply the necessary data to complete and/or verify accurate boundaries within the Project Area. KLJ is available to review the methodology they used to calculate the acreage adjustments and answer any questions the Board may have regarding the acreage adjustment results. KLJ has provided the Department of Trust Lands (Department) with a Final Report for Acreage Determination along the Ordinary High Water Mark as adopted by the North Dakota Industrial Commission Order No. 29129 which will be available on the Department’s website. The Department will not be recommending approval of the south half of T153N, R102W Sections 19, 20, 21, 22, 23, 25, 26, 27, 28, 29, 30, 33, 34, and 36. will be necessary (Attachment 1). Additionally, the Department will not be recommending approval of T152N R93W Section 11 Lot 2 and Section 10 Lot 6 (Attachment 2). Upon the Board’s adoption of the Acreage Adjustment Survey as prepared by KLJ, the Department will promptly begin updating records to satisfy the Board’s duty under N.D.C.C. § 61-33.1-04(2)(a). This process will be extensive and will require a review of each parcel within each spacing unit located within the Project Area. Each parcel will be reviewed for changes to the database, Correction of Oil and Gas Leases will be prepared for execution, requests for refunds of bonus and royalties will be prepared, each well will need a new royalty management unit to ensure future royalties will be

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allocated to the correct trust, the Department’s shapefiles will be updated, and the Department will need to track the documentation for each lease correction. Within the 83 miles reviewed by Wenck, the Department has approximately 600 active leases covering 44,700 acres. Prior to any issuance of refunds, appropriate documentation for each parcel requiring adjustment must be reviewed by the Department’s Director of Minerals Management and the Director of Revenue Compliance Division. Following final review by the Commissioner, a refund authorization will be submitted to the Accounting Division. Once refunds are issued, Correction of Oil and Gas Lease documentation will be mailed to the operator and current lessee of record based on the records of the Department. If the lessee fails to return an executed copy or cash the check, the Department will need to take additional steps.

Due to the failure of lessees to submit assignments to the Department for approval as required by Department policies and the Board’s lease, the Department’s records do not always accurately reflect the current lessee of any given lease. This could impact the timeliness of refunds. Refunds of bonus will be issued to the current lessee, based on the records of the Department, and royalty payments will be returned to the current operator of each applicable spacing unit.

Barring delays due to legal challenges or unresponsive lessees, it is anticipated the Department could complete approximately 25 lease corrections each month, resulting in completion of 600 lease corrections within two years of the Board’s adoption of KLJ’s acreage adjustment calculations.

Motion:

(1) The Board adopts the acreage adjustment survey on a quarter-quarter basis orgovernment lot basis above and below the ordinary high water mark as delineated by thefinal review findings of the North Dakota Industrial Commission except T152N R93WSection 10 Lot 6 ,Section 11 Lot 2 and T153N, R102W Sections 19, 20, 21, 22, 23, 25, 26,27, 28, 29, 30, 33, 34, and 36.

(2) The Board formally requests the North Dakota Industrial Commission complete furtherreview of T152N R93W Section 11 Lot 2 and Section 10 Lot 6.

(3) The Board formally requests the North Dakota Industrial Commission complete furtherreview of T153N, R102W Sections 33 and 34 until a zero accretion point can be determined.

Action Record Motion Second Aye Nay Absent Secretary Jaeger X X Superintendent Baesler X X Treasurer Schmidt X Attorney General Stenehjem X Governor Burgum X

KLJ presented maps of T153N R102W Sections 19, 20, 21, 22, 23, 25, 26, 27, 28, 29, 30, 33, 34, 36 and T152N R93W Section 10 and Section 11. All presented materials are available at the Department upon request.

O P E R A T I O N S

Commissioner Annual Review

Motion: (1) The Board approves a salary increase of 2.5% as recommended by the 66th Legislative Assembly. (2) The Board authorizes a subcommittee comprised of State Treasurer

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Kelly Schmidt, Governor’s Office staff, Office of the Attorney General’s staff and Commissioner. The subcommittee is formed with the intent to implement at formal review process for the Commissioner by the December, 2020 regular Land Board Meeting.

Action Record Motion Second

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

The Commissioner’s Phased Strategic Plan for the Department was provided to the Board and is available at the Department upon request. Fee Policy – Second Reading The Board of University and School Land’s (Board) current fee schedule was established on July 25, 1985 and was last reviewed by the Board on June 26, 2014. The recommended action will revise the 2014 fee schedule. “Fees” in the context of the Study are those payments which are not specific to any trust fund or tract of land but are deposited in the maintenance fund, which serves as the Department of Trust Land’s (Department) operating fund. Attached is the proposed Fee Policy. Fees were revised based upon the Department’s expenditures related to the purposes for which the fee is imposed and if the fee is determined by the Board or the Commissioner. The substantive changes include the following:

• A unified fee for certified copies has been established. • Application and certain assignment, extension, and amendment fees have been established

for leasing based upon the internal expenses associated with processing the application. • Fees that are determined by the Commissioner have been removed from the Board’s Fee

Policy and placed in a Department’s Fee Policy. o Coal Amendment, renewal request fee o Coal Extension request fee o Oil and Gas Application and Nomination fee o Oil and Gas Application Shut-In Application Fee per Unit o Subsurface Mineral Lease Assignment Filing Fee o Salt-Water Disposal Site Application, Extension and Renewal Fee

The first reading of the policy was held at the May 28, 2020 meeting. The Commissioner requested the Board provide input on the proposed policy. Additionally, an open comment period was held and no comments were received. Motion: The Board adopt the proposed North Dakota Board of University and School Lands Fee Policy – Chapter 2, General.


Aye Nay Absent Secretary Jaeger X Superintendent Baesler X

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Treasurer Schmidt X X Attorney General Stenehjem X X Governor Burgum X

•

Board of University and School Lands Fee Policy is available at the Department upon request.

Continuing Appropriation Authority Policy – Second Reading

The following North Dakota Century Code pronounces continuing authority:

• N.D.C.C. § 15-03-16• N.D.C.C. § 15-04-23• N.D.C.C. § 15-04-24• N.D.C.C. § 15-05-19• N.D.C.C. § 15-06-22• N.D.C.C. § 15-07-22• N.D.C.C. § 15-08-04• N.D.C.C. § 15-68-06• N.D.C.C. § 47-30.1-23• N.D.C.C. § 57-02.3-07

In 2016, the Board provided clarification on certain expenses allowed through continuing appropriation as outlined below:

Board of University and School Lands Continuing Appropriation Authority Policy

Continuing appropriation authority is provided in state law for certain operating expenditures.

A. Unclaimed Property - Continuing Authority.Unclaimed property expenses as outlined in NDCC Section 47-30.1-23 may be paidunder continuing appropriation authority including, but not limited to: payments ofclaims, service charges for address verification and updates, advertising costs, auditservices, legal costs and outreach efforts.

B. Grant Land, Non-Grant Land and Mineral Leases - Continuing Authority.NDCC Sections 15-04-24, 15-07-22 and 15-05-19 permit expenditures to beconsidered as continuing appropriation expenditures. These sections appropriateannually the expenses determined by the Board as necessary to manage, preserve,and enhance the value of the trust land and mineral assets.Specifically authorized by the Board as continuing appropriation authority:1. Salaries and travel expenses for temporary field men who conduct inspections to

ensure rangeland integrity and surface reclamation.2. Advertising surface and mineral lease auctions. Section 15-04-09 of the NDCC

requires the Board to publish multiple notices of surface and mineral leasesauctions. Advertising of the lease auctions are done to ensure the trusts receivecompetitive bids to enhance the trusts' value.

3. Legal expenditures that are incurred by a specific trust or trusts to maintain theirvalue and integrity.

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4. Costs of hiring independent contract firms to perform accounting, audit,compliance review or collection efforts to ensure the proper payment of oil, gas,coal or other mineral royalty.

The Commissioner has reviewed, in conjunction with the Attorney General’s Office, the Continuing Appropriation Authority Policy and is recommending changes based upon statutory changes and to accommodate the consideration of technology as a continuing appropriation.

The first reading of the policy was held at the May 28, 2020 meeting. The Commissioner requested the Board provide input on the proposed policy. Additionally, an open comment period was held and no comments were received.

Recommendation: The Board adopt the proposed North Dakota Board of University and School Lands Continuing Appropriation Authority Policy – Chapter 2, General.

Action Record Motion Second Aye Nay Absent Secretary Jaeger Superintendent Baesler Treasurer Schmidt Attorney General Stenehjem Governor Burgum

With changes made to the Continuing Appropriation Authority Policy the Board considers June 25, 2020 the first reading and no formal action was taken.

The Continuing Appropriation Authority Policy is available at the Department upon request.

Mineral Valuation Policy – Second Reading

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. MineralTracker, LLC was awarded the project and is working with the Department to complete the Assessment.

As a part of the Assessment, MineralTracker needs three variables to be approved by the Board: (1) the commodity effective date, (2) commodity price schedule, and (3) the discount rate.

The Department consulted with MineralTracker and the US Department of the Interior’s Division of Minerals Evaluation during the process of drafting the proposed policy.

The first reading of the policy was held at the May 28, 2020 meeting. The Commissioner requested the Board provide input on the proposed policy. Additionally, an open comment period was held and no comments were received.

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Motion: The Board adopts the proposed North Dakota Board of University and School Lands Minerals Valuation Policy – Chapter 5 - Minerals.

Action Record Motion Second Aye Nay Absent Secretary Jaeger X Superintendent Baesler X X Treasurer Schmidt X Attorney General Stenehjem X X Governor Burgum X

The Minerals Valuation Policy is available at the Department upon request.

Surface Land Management and Minerals Management Administrative Rules

In House Bill 1300, the Sixty-fifth Legislative Assembly directed the Board of University and School Lands no longer be exempt from the Administrative Agencies Practice Act (“the Act”). In Senate Bill 2264, the Sixty-sixth Legislative Assembly directed the Board of University and School Lands be exempt from the adjudicative proceeding requirements and procedures under North Dakota Century Code §§ 28-32-21 through 28-32-51 of the Act.

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. The Board’s rules are included in Title 85 of the North Dakota Administrative Code. As the Department determines additional rules are needed, those are drafted and presented to the Board for review.

Land Sale and Land Exchange Administrative Rules By the 1970s, approximately 80% of the original 3.2 million acres of the land granted to trusts had been sold, and the Board began an informal policy of not selling surface lands. While often encouraged to sell trust lands to private citizens to put it on the tax rolls, the Board has historically experienced opposition to land sales from the Game and Fish Department, Wildlife Federation, Medora Grazing Association, ND Farmers Union, sportsmen, and other outside entities. The Board formalized its policy of not selling land in 1981 when it limited land sales to smaller and isolated tracts, and to parcels that caused management problems. The Board has had a limited land sale policy ever since. The history of the land sale policy is attached as Attachment 1.

In the 1990s, the Department evaluated the historic return on investment of land in North Dakota and the impact on the value of trust lands to the permanent trust funds. The initial study encompassed land rents and values from 1960 through the 1990s; it was later updated through 2001. The results of this study indicated that land is similar to and should be treated like other asset classes in which the Board invests. In October 1998, the Board formally designated surface lands as an asset class to be managed within the Board’s overall investment portfolio.

Considering land as an investment is central to its management for the long-term best interests of the trusts. Land as an asset class means that it is recognized for its characteristics of value, income, stability and liquidity that are inherent in investments. It also means that investment principles, such as risk versus reward, should be applied to land just as to any other investment asset class.

The study led to a proposal that certain lands with an income return of less than 0% be considered for sale. However, due in large part to public opposition to the sale of trust lands, these tracts were not sold to private owners. Nonetheless, the work done in this area helped demonstrate that the

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consistent cash flows generated by trust land and its inherent nature as a store of value, make it a stabilizer in the Board’s overall asset portfolio.

On March 26, 2015 the Board revised its land sale policy to: 1. Clarify the general policy to sell land only if certain conditions are met;2. Add language requiring that sales of larger tracts be coupled with a “no net loss” of

acres provision;3. Remove language specifically related to rates of return and low potential for

development as reasons for consideration of a sale of trust lands; and4. Add a provision to consider selling land in higher value urban locations.

The provision of no net loss of “leasable trust land” was adopted to provide an option to consider tracts that are larger than 80 grassland acres and 40 crop acres being offered for sale without reducing the trust’s leasable real estate holdings. It allows for a sale of trust land and a donation of land to the trust from which the original land was sold. To date, the no net loss policy has not been used and no procedures have been developed to implement the policy. See Attachment 1.

On September 28, 2017, the Board directed the Commissioner to investigate and explore procedural options to implement the Board’s no net loss of “leasable trust land” policy through land exchanges of like or equal acres and value. Attachment 2 are the proposed Land Exchange and Land Sales (under N.D.C.C. ch. 15-06, 15-07, and 15-09) Administrative Rules, which take into consideration the requirements of the North Dakota Century Code and the North Dakota Constitution. It provides the Board the ability to sell under-utilized or difficult to manage acquired tracts of land.

The following is a brief review of the Land Exchange and Land Sales (under N.D.C.C. ch. 15-06, 15-07, and 15-09) Administrative Rules, compared to the Board’s Land Retention and Sales Policy:

Grant Land Sales (N.D.C.C. ch. 15-06):

• Unchanged from the Board’s Land Retention and Sales Policy with the exception thatany letter of application received will be subject to public comment prior to Boardreview of the application.

• Maintains the provision of no net loss of leasable original grant land through publicsale and subsequent land donation to the trust from which the original grant land wassold.

• Maintains the small acreage requirement (land tracts totaling less than 80 acres insize, more or less, for grassland and less than 40 acres in size, more or less, forcropland) as a sales requirement, with such sales not subject to the no net loss ofleasable grant land provision.

Acquired Land Sales (N.D.C.C. ch. 15-07):

• Requires any letter of application received for the purchase of acquired lands to besubject to public comment prior to Board review.

• Removes the no net loss of leasable land requirement from land acquired prior to1980 (these lands were private lands acquired through foreclosure or deed in-lieu offoreclosure and were at one time on the County tax rolls).

• Acquired land sales would not be subject to any acreage restrictions.

Sales of Lands for Public or Quasi-Public Purpose (N.D.C.C. ch. 15-09):

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• Sales for this chapter were not subject to the Land Retention and Sales Policy. • Requires any application received for a public purpose or quasi-public purpose be

subject to public comment prior to Board review. Land Exchange:

• No previous policy. • Establishes an evaluation process for land exchanges. • Currently the Constitution and Statutes only allow for exchanges of Federal and State

Land and does not allow for exchanges of private and tribal lands. Offset Well Administrative Rule The current Policy of the Board and University and School Lands for the Enforcement of 1979 Oil and Gas Lease Form Provisions Relating to Offset Wells has been administered since 1987. It provides a procedure to administer the provisions in the Board’s oil and gas lease which requires our lessee to exercise an option in order to protect the state-owned interest from drainage due to wells drilled on adjacent acreage. The proposed Administrative Rule moves the policy into the rule format with minimal substantial changes. See Attachment 2. Motion: The Board authorizes the Commissioner to proceed with the next steps in the review of the initial draft of the proposed Administrative Rules for Land Sale, Land Exchange and Offset Wells, including formal review by the Office of Attorney General, preparation for public hearings and collection of comments, and submittal to Legislative Council.


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

The following items were provided to the Board and are available at the Department upon request: The Board of University and School Lands History of Land Sale Policy and Administrative Rules General Administration (red-lined) Surface Land Management, and Minerals Management. Repayment of Unpaid Gas Royalties Update

The North Dakota Board of University and School Lands (Board) manages land, minerals and proceeds as trustee for the exclusive benefit of constitutionally identified beneficiaries, with much of the income funding North Dakota schools and institutions. The Board also manages oil, gas and other hydrocarbons underlying sovereign lands for the State of North Dakota. 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’s lease, rules, and policies. Royalty audits began in the late 1980’s and a Revenue Compliance Division was created in 2011 to ensure that royalty and other collections made on behalf of the trusts and other funds are complete and accurate. The Board recently received comments asserting that the Department’s website provides guidance that deductions can be taken from gas royalties. At the February 27, 2020 Board meeting the Board requested additional information regarding the Department’s website, specifically the instructions provided to payors on how to calculate deductions and payments.

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In 2014, the Department began the process of developing a required royalty reporting form. The Department consulted with other states, industry partners, and software developers when developing its royalty reporting form. During this process several questions were consistently raised. To address these questions, frequently asked questions (FAQ’s) were posted on the Departments website in conjunction with the new royalty reporting form and instructions. Two of the FAQ’s address deductions and what is allowed. On June 25th, 2015 an email and letter were sent to royalty payors notifying them of the new royalty reporting form to be used starting October 2015.

The North Dakota Supreme Court has recently stated, however, that deductions are not allowed to be taken from royalty payments thereby addressing the questions the Department received following publication of its website. The Court stated “[t]he Department of Land Trust’s website contains guidance regarding the payment of royalties from oil and gas leases. The Department’s guidance is consistent with our decision in West and provides as follows: ‘gross proceeds of sale means income before deduction of expenses. Basically, it means the price you sell the oil for, regardless of what expenses go into arriving at that price.’” Newfield Expl. Co. vs. State ex rel. N.D. Bd. of Univ. & Sch. Lands, 2019 ND 193, ¶ 8, 931 N.W.2d 478.

Below are the FAQ’s that related to deductions that are currently on the Departments website. This guidance has been on the Departments website since 2015. Although the format and location of the website have changed, the guidance has remained the same. Consistent with the Supreme Court’s interpretation of the Board’s lease and the website instructions, the guidance contained in the FAQ’s is consistent with the Boards position on deductions.

What deductions are allowed on oil? Royalty on oil is calculated based on the greater of 1) the highest posted price for the field where produced and when run, 2) the highest market price paid for the area where produced and when run, or 3) the gross proceeds of sale.

Gross proceeds of sale means income before deduction of expenses. Basically it means the price you sell the oil for, regardless of what expenses go into arriving at that price. For example, if you transport the oil to an off-lease location for sale and delivery, the royalty is calculated based on the gross price you receive at the ultimate point of sale and delivery. In this example you may NOT deduct or “net out” the expenses incurred in transporting the oil to the ultimate point of sale and delivery.

What deductions are allowed on gas? Royalty on gas is calculated based on the gross proceeds of sale, where the sale constitutes an arm’s length transaction. For a description of what gross proceeds of sale means see “What deductions are allowed on oil.” If a sale of gas does not constitute an arm’s length transaction, Board of University and School Lands Oil & Gas Rule 85-06-06-08 governs calculation of royalties.

L I T I G A T I O N

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:

• United States Department of Interior M - 37056

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https://www.land.nd.gov/revenue-compliance-division#collapse-accordion-676-2

https://www.land.nd.gov/revenue-compliance-division#collapse-accordion-676-3

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Aye Nay Absent

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

At 10:35 PM the Board entered executive session for the purposes outlined in its adopted motion.

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 Kristie McCusker Paralegal Catelin Newell Administrative Staff Officer Guests in Attendance: Charles Carvell Attorney General’s Office Dave Garner Attorney General’s Office Leslie Bakken Oliver Governor’s Legal Counsel – via Microsoft Teams Reice Haase Governor’s Office – via Microsoft Teams ____________________________________________________________________________ During the executive session, the Board was provided information from its attorney. The executive session adjourned at 11:10 AM and the Board reconvened in open session. No formal action was taken.

A D J O U R N

There being no further business, the meeting was adjourned at 11:10 AM.

________________________________ Doug Burgum, Chairman Board of University and School Lands ________________________________ Jodi Smith, Secretary Board of University and School Lands

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ITEM 2A

MEMORANDUM TO THE BOARD OF UNIVERSITY AND SCHOOL LANDS July 29, 2020

RE: June Report of Shut-Ins Approved by Land Commissioner (No Action Requested)

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-12-00133, OG-12-00134, OG-12-00136

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A- School for the DeafLease: OG-12-00137, OG-10-02231

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: G – Common Schools Lease: OG-10-00710, OG-10-00711, OG-10-00712, OG-10-00713

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: G – Common Schools Lease: OG-12-00138, OG-12-00139, OG-12-00140, OG-12-00141,

OG-12-00143

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-12-01073, OG-12-01074


Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-12-00135

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ITEM 2A

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– Common Schools Lease: OG-07-00101, OG-09-00745, OG-78-00043, OG-01-00420, OG-01-00421, OG-01-00422, OG-01-00423, OG-04-01894, OG-04-01895 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A- Common Schools Lease: OG-04-01887, OG-04-01888, OG-09-00750, OG-09-00751 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A- Common Schools Lease: OG-09-00740, OG-09-00744, OG-06-01929, OG-06-01930 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A- Ellendale Lease: 0G-09-00739 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A- Common Schools Lease: OG-06-01850 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-12-00892, OG-12-00893, OG-12-00894 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-12-00172, OG-12-00173, OG-12-00174, OG-12-00175, OG-12-00176, OG-12-00177

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ITEM 2A

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-12-00170, OG-12-00171, OG-12-00891 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– Common Schools Lease: OG-06-01851 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– Common Schools Lease: OG-06-01864, OG-06-01865, OG-06-01870, OG-06-01871, OG-06-01872, OG-06-01873 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-06-01798, OG-12-00130 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-09-00660, OG-09-00661 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-09-00666, OG-09-00667, OG-09-00668 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– Common Schools Lease: OG-08-00724, OG-08-00725, OG-08-00726, OG-08-00727

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ITEM 2A

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: G– Common Schools Lease: OG-06-01884, OG-06-01889, OG-06-01890

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-12-01070, OG-12-01071,OG-12-01072




Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– Common Schools Lease: OG-09-00743


Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– North Dakota State University Lease: OG-06-01867

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ITEM 2A


Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A- Common SchoolsLease: OG-09-00734, OG-09-00735, OG-09-00738

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– ND Industrial School Lease: OG-04-01877, OG-04-01876



Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: G– Common Schools Lease: OG-06-01846, OG-06-01847, OG-06-01848, OG-06-01849

OG-09-00729


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ITEM 2A

Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– Common Schools Lease: OG-09-00659 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– Common Schools Lease: OG-09-01245 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: L– Bank of North Dakota Lease: OG-06-01823, OG-06-01824 Granted to: Resource Energy For the Purpose of: COVID-19 Date Issued: 6/25/2020 Application Fee: $10.00 Trust: A– Common Schools Lease: OG-09-00721, OG-09-00732, OG-09-00733

Page 024

ITEM 2B


RE: June Report of Extensions Approved by Land Commissioner (No Action Requested) Granted to: Ninepoint Energy Date Issued: 6/4/2020 Trust: A– North Dakota State University Lease: OG-15-00684 Granted to: Ninepoint Energy Date Issued: 6/4/2020 Trust: A– North Dakota State University Lease: OG-15-00685

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ITEM 2C


RE: June Report of Encumbrances No Action Requested

Granted to: GOODNIGHT MIDSTREAM BAKKEN LLC, DALLAS-TX For the Purpose of: Easement: Drop Line-Pipeline Right-of-Way Number: RW0008242 Date Issued: 6/4/2020 Application Fee: $100.00 Right-of-way Income: $800.00 Damage Payment to Lessee: N/A Trust: A – Common Schools Length (Rods): 31.95 Area (Acres): 0.30 Legal Description: MCK-153-97-16-NE4

Granted to: ONEOK ROCKIES MIDSTREAM LLC, SIDNEY-MT For the Purpose of: Easement: Pipeline-Gas Gathering Pipeline Right-of-Way Number: RW0008617 Date Issued: 6/5/2020 Application Fee: $150.00 Right-of-way Income: $164,490.00 Damage Payment to Lessee: $328.97 Trust: A – Common Schools Length (Rods): 328.97 Area (Acres): 4.11 Legal Description: MCK-153-94-16-W2

Granted to: BRIDGER PIPELINE LLC, CASPER-WY For the Purpose of: Easement: Pipeline-Oil Gathering Pipeline Right-of-Way Number: RW0008624 Date Issued: 6/5/2020 Application Fee: $100.00 Right-of-way Income: $141,850.00 Damage Payment to Lessee: $283.71 Trust: A – Common Schools Length (Rods): 283.71 Area (Acres): 3.54 Legal Description: MCK-153-94-16-W2

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ITEM 2C

Granted to: WHITE ROCK OIL & GAS LLC, PLANO-TX For the Purpose of: Easement: Well-Salt Water Disposal Well Extension Right-of-Way Number: RW0008657 Date Issued: 6/23/2020 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: BIL-141-100-16-NE4 Granted to: COBRA OIL & GAS CORPORATION, WICHITA FALLS-TX For the Purpose of: Easement: Well-Salt Water Disposal Well Extension Right-of-Way Number: RW0008658 Date Issued: 6/23/2020 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: DIV-161-98-36-NE4 Granted to: GOODNIGHT MIDSTREAM BAKKEN LLC, DALLAS-TX For the Purpose of: Easement: Pipeline-Salt Water Pipeline Right-of-Way Number: RW0008662 Date Issued: 6/5/2020 Application Fee: $100.00 Right-of-way Income: $143,695.00 Damage Payment to Lessee: $287.39 Trust: A – Common Schools Length (Rods): 287.39 Area (Acres): 3.59 Legal Description: MCK-153-94-16-W2 Granted to: HESS BAKKEN INVESTMENTS II LLC, HOUSTON-TX For the Purpose of: Easement: Pipeline-Multiple Pipelines & Communication Cable Right-of-Way Number: RW0008672 Date Issued: 6/15/2020 Application Fee: $100.00 Right-of-way Income: $59,022.75 Damage Payment to Lessee: $180.07 Trust: A – Common Schools Length (Rods): 180.07 Area (Acres): 2.25 Legal Description: MOU-154-94-16-SW4

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ITEM 2C

Granted to: RESERVATION TELEPHONE COOPERATIVE, PARSHALL-ND For the Purpose of: Easement: Communication-Buried Cable Right-of-Way Number: RW0008714 Date Issued: 6/23/2020 Application Fee: $100.00 Right-of-way Income: $1,000.00 Damage Payment to Lessee: N/A Trust: A – Common Schools Length (Rods): 163.04 Area (Acres): 2.04 Legal Description: MCK-149-103-36-E2 Granted to: MCKENZIE ELECTRIC COOP INC, WATFORD CITY-ND For the Purpose of: Easement: Electric-Above Ground Distribution Line Right-of-Way Number: RW0008715 Date Issued: 6/23/2020 Application Fee: $100.00 Right-of-way Income: $3,500.00 Damage Payment to Lessee: N/A Trust: A – Common Schools Length (Rods): 206.63 Area (Acres): 2.58 Legal Description: MCK-147-104-36-NW4 Granted to: MCKENZIE ELECTRIC COOP INC, WATFORD CITY-ND For the Purpose of: Easement: Drop Line-Above Ground Electric Distribution Line Right-of-Way Number: RW0008716 Date Issued: 6/23/2020 Application Fee: $150.00 Right-of-way Income: $4,500.00 Damage Payment to Lessee: N/A Trust: A – Common Schools Length (Rods): 461.22 Area (Acres): 5.76 Legal Description: MCK-147-104-36-W2, SE4 Granted to: VAN HOOK GATHERING SERVICES LLC, IRVING-TX For the Purpose of: Easement: Pipeline-Salt Water Pipeline Right-of-Way Number: RW0008728 Date Issued: 6/30/2020 Application Fee: $100.00 Right-of-way Income: $7,040.00 Damage Payment to Lessee: $71.97 Trust: A – Common Schools Length (Rods): 79.97 Area (Acres): 1.0 Legal Description: MOU-150-92-10-S2SW4

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ITEM 2C

Granted to: KEITU ENGINEERS & CONSULTANTS, MANDAN-ND For the Purpose of: Permit: Planning & Preconstruction Survey Right-of-Way Number: RW0008729 Date Issued: 6/4/2020 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: SELECT ENERGY SERVICES LLC, WILLISTON-ND For the Purpose of: Permit: Temporary Water Layflat Line Right-of-Way Number: RW0008734 Date Issued: 6/29/2020 Application Fee: $100.00 Right-of-way Income: $5,666.00 Damage Payment to Lessee: N/A Trust: A – Common Schools Length (Rods): 343.5 Area (Acres): N/A Legal Description: MCK-153-95-16-W2 Granted to: METCALF ARCHAEOLOGICAL CONSULTANTS INC, BISMARCK-ND For the Purpose of: Permit: Planning & Preconstruction Survey Right-of-Way Number: RW0008737 Date Issued: 6/29/2020 Application Fee: $100.00 Right-of-way Income: $500.00 Damage Payment to Lessee: N/A Trust: A Length (Rods): N/A Area (Acres): N/A Legal Description: N/A Granted to: SELECT ENERGY SERVICES LLC, WILLISTON-ND For the Purpose of: Permit: Temporary Water Layflat Line Right-of-Way Number: RW0008740 Date Issued: 6/29/2020 Application Fee: $100.00 Right-of-way Income: $388.00 Damage Payment to Lessee: N/A Trust: A – Common Schools Length (Rods): 23.5 Area (Acres): N/A Legal Description: BRK-159-94-34-NW4

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ITEM 2C

Granted to: QUANTA ENVIRONMENTAL SOLUTIONS, THE WOODLANDS-TX

For the Purpose of: Permit: Planning & Preconstruction Survey Right-of-Way Number: RW0008741 Date Issued: 6/30/2020 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

Page 030

ITEM 2D


RE: June Unclaimed Property 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 June 2020, the Division received 37 holder reports with a property value of $111,185 and paid 530 claims with a total value of $470,049.

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Item 2E

NORTH DAKOTABOARD OF UNIVERSITY AND SCHOOL LANDS

Financial Position Report(Unaudited)

For period ended April 30, 2020

Page 032

Assets by Trust: April 30, 2020 April 30, 2019

Common Schools $4,420,024,465 $4,536,237,888

North Dakota State University 67,273,619 71,837,395

School for the Blind 12,033,981 12,480,135

School for the Deaf 19,716,582 21,327,214

State Hospital 13,330,675 14,699,094

Ellendale * 21,432,216 21,742,656

Valley City State University 12,019,918 12,902,467

Mayville State University 7,725,704 7,908,822

Youth Correctional Center 22,507,563 23,780,749

State College of Science 17,364,612 17,430,786

School of Mines ** 20,628,196 21,547,097

Veterans Home 4,930,593 5,414,483

University of North Dakota 32,596,913 34,116,314

Capitol Building 5,322,946 6,278,328

Strategic Investment and Improvements 758,614,175 1,022,919,953

Coal Development 71,575,145 70,916,703

Indian Cultural Education Trust 1,172,710 1,274,494

Theodore Roosevelt Presidental Library 14,328,824 - Total $5,522,598,837 $5,902,814,578

Assets by Type:Cash $111,669,858 $20,939,430

Receivables 8,179,010 12,500,062

Investments *** 5,335,731,411 5,637,721,129

Office Building (Net of Depreciation) 386,133 441,971

Farm Loans 8,319,593 9,284,162

Energy Construction Loans 923,408 984,956

Energy Development Impact Loans 10,660,833 11,387,312

School Construction Loans (Coal) 41,391,562 44,670,542

Due to/from Other Trusts and Agencies 5,337,029 164,885,014 Total $5,522,598,837 $5,902,814,578

* Ellendale Trust

The following entities are equal beneficiaries of the Ellendale Trust:

Dickinson State University School for the Blind

Minot State University Veterans Home

Dakota 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.

*** Investments

Includes available cash available for loans, investments, abandoned stock and claimant liability.

Board of University and School LandsComparative Financial Position (Unaudited)

Schedule of Net Assets

Page 033

Combined Permanent TrustsApril 30, 2020 April 30, 2019

Balance SheetAssets:

Cash $62,607,652 $14,662,362Interest Receivable 5,849,530 7,969,248 Investments 4,604,803,720 4,766,648,255 Farm Loans 8,319,593 9,284,162 Energy Construction Loans 923,408 984,956 Due from Other Agencies 5,261,611 18,963,217 Office Building (Net of Depreciation) 386,133 441,971

Total Assets $4,688,151,647 $4,818,954,171

Liabilities:Unclaimed Property Claimant Liability $16,551,604 $17,510,901Due to Other Trusts - - Due to Other Funds 15,006 18,169 Accounts Payable - -

Total Liabilities 16,566,610 17,529,070

Equity:Fund Balance 4,919,177,984 4,571,686,280 Net Income/(Loss) (247,592,947) 229,738,821

Total Liabilities and Equity 4,688,151,647 $4,818,954,171

Income StatementIncome:

Investment Income $93,489,749 $108,734,905Realized Gain/(Loss) (66,488,439) (22,509,818) Unrealized Gain/(Loss) (300,716,740) 63,003,901 Royalties - Oil and Gas 123,052,840 132,691,544 Royalties - Coal 393,241 391,752 Royalties - Aggregate 191,184 37,147 Bonuses - Oil and Gas 8,408,332 674,167 Bonuses - Coal 24,000 40,000 Rents - Surface 13,080,371 12,415,812 Rents - Mineral 154,676 31,597 Rents - Coal 42,668 96,436 Rents - Office Building 72,156 49,320 Gain/Loss on Sale of Land - OREO - Sale of Capital Asset 25,000 - Oil Extraction Tax Income 75,075,111 82,199,936 Unclaimed Property Income 9,965,993 10,341,840

Total Income (43,229,858) 388,198,539

Expenses and Transfers:Investment Expense 6,575,563 7,159,114 In-Lieu and 5% County Payments 249,019 244,396 Administrative Expense 2,942,030 2,402,528 Operating Expense - Building 333,477 118,004 Transfers to Beneficiaries 194,263,000 148,535,676

Total Expense and Transfers 204,363,089 158,459,718 Net Income/(Loss) ($247,592,947) $229,738,821


Page 034

Capitol Building Trust

April 30, 2020 April 30, 2019Balance Sheet

Assets:Cash $163,093 $69,150Interest Receivable 26,651 43,823 Investments 5,133,201 6,165,354

Total Assets $5,322,945 $6,278,327

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

Equity:Fund Balance 6,548,608 4,723,483 Net Income (1,225,663) 1,554,844

Total Liabilities and Equity $5,322,945 $6,278,327

Income Statement Income:

Investment Income $124,906 $121,770Realized Gain(Loss) 28,095 10,857 Unrealized Gain/(Loss) (23,911) 44,694 Rents - Surface 158,525 145,432 Rents - Mineral 2,002 640 Royalties - Oil and Gas 835,674 700,015 Bonuses - Oil and Gas 802 - Bonus - Coal - 8,000 Royalties - Aggregate - 1,070,995

Total Income 1,126,093 2,102,403

Expenses and Transfers:Investment Expense 2,801 1,498 In-Lieu and 5% County Payments 3,398 3,383 Administrative Expense 21,197 17,678 Transfers to Facility Management 2,324,360 525,000

Total Expense and Transfers 2,351,756 547,559

Net Income/(Loss) ($1,225,663) $1,554,844


Page 035

Coal Development Trust

April 30, 2020 April 30, 2019Balance Sheet

Assets:Cash $322,879 $108,184Interest Receivable 705,731 722,611 Investments 18,418,405 13,954,765 Coal Impact Loans 10,660,833 11,387,312 School Construction Loans 41,391,562 44,670,542 Due from other Trusts and Agencies 252,445 244,291

Total Assets $71,751,855 $71,087,705

Liabilities:Due to Other Trusts and Agencies $176,711 $171,004

Equity:Fund Balance 70,296,353 69,591,292 Net Income 1,278,791 1,325,409

Total Liabilities and Equity $71,751,855 $71,087,705


Investment Income $347,421 $253,845Interest on School Construction Loans 622,544 590,303 Realized Gain/(Loss) 83,531 25,339 Unrealized Gain/(Loss) (77,656) 106,972 Coal Severance Tax Income 396,808 407,399

Total Income 1,372,648 1,383,858

Expenses and Transfers:Investment 8,653 3,708 Administrative 2,726 2,069 Transfers to General Fund 82,478 52,672

Total Expense and Transfers 93,857 58,449

Net Income/(Loss) $1,278,791 $1,325,409


Page 036

Strategic Investment and Improvements FundApril 30, 2020 April 30, 2019

Balance SheetAssets:

Cash $48,439,417 $6,099,266Interest Receivable 1,607,644 3,763,172 Investments 708,567,114 867,209,007Due from other Trusts or Agencies - 145,848,509

Total Assets $758,614,175 $1,022,919,954

Liabilities:Accounts Payable $0 $0

Equity:Fund Balance 1,134,326,018 354,701,097 Net Income (375,711,843) 668,218,857

Total Liabilities and Equity $758,614,175 $1,022,919,954


Investment Income $13,677,363 $9,420,450Realized Gain/(Loss) 3,145,458 1,070,662 Unrealized Gain/(Loss) (2,906,846) 4,497,099 Interest on Fuel Prod Facility - 100,445 Royalties - Oil and Gas 74,471,094 88,437,860 Bonuses - Oil and Gas 1,166,894 2,247,413 Royalties - Coal 338,529 482,087 Rents - Mineral 55,183 42,485 Tax Income - Oil Extraction & Production Distribution - 691,281,966

Total Income 89,947,675 797,580,467

Expenses and Transfers:Administrative 1,631,971 740,771 Investment Expense 296,624 101,369 Transfers to General Fund 382,200,000 124,000,000 Transfer to State Highway Patrol 358,000 Transfer to Commerce Department 3,000,000 4,000,000 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 25,150,000 - 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 to Office of Management & Budget 100,000 Transfer to Agencies with Litigation Pool 563,275 Transfer from NDSU - Vet Diag Lab (HB 1008) - (214,266) 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) - Transfer from Commerce Department (111,895)

Total Expense and Transfers 465,659,518 129,361,610 Net Income/(Loss) (375,711,843) $668,218,857


Page 037

As of April 30, 2020 the SIIF had a fund balance of $758,614,175. 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 $78,268,741 as of April 30, 2020.

Page 038

Indian Cultural TrustApril 30, 2020 April 30, 2019

Fiduciary Net PositionAssets:

Cash 3,332$ 468$ Interest receivable 660 1,208 Investments 1,168,717 1,272,818

Total Assets 1,172,709 1,274,494

Liabilities:Accounts payable - -

Total Liabilities - -

Net Position:Net position restricted 1,172,709 1,274,494

Total Net Position 1,172,709$ 1,274,494$

Changes in Fiduciary Net PositionAdditions:

Contributions: Donations - -

Total Contributions -$ -$

Investment Income:Net change in fair value of investments (92,580) 10,053 Interest 23,831 29,597 Less investment expense (1,668) (1,938)

Net Investment Income (70,417) 37,712

Miscellaneous Income 3,067 2,955 Total Additions (67,350) 40,667

Deductions:Payments in accordance with Trust agreement - - Administrative expenses 2,167 750

Total Deductions 2,167 750

Change in net position held in Trust for:Private-Purpose (69,517) 39,917

Total Change in Net Position (69,517) 39,917

Net Position - July 1, 2019 1,285,265 1,269,707 Net Position - as of April 30, 2020 1,215,748$ 1,309,624$

Board of University and School LandsComparative Fiduciary Statements (Unaudited)

Page 039

Theodore Roosevelt Presidential LibraryApril 30, 2020

Fiduciary Net PositionAssets:

Cash 133,484$ Interest receivable (11,206) Investments 14,206,861

Total Assets 14,329,139

Liabilities:Accounts payable 315

Total Liabilities 315

Net Position:Net position restricted 14,328,824

Total Net Position 14,329,139$

Changes in Fiduciary Net PositionAdditions:

Contributions: Donations -

Total Contributions -$

Investment Income:Net change in fair value of investments (994,603) Interest 206,806 Less investment expense 16,670

Net Investment Income (804,467)

Miscellaneous Income 82,859 Total Additions (721,608)

Deductions:Payments in accordance with Trust agreement - Administrative expenses 315

Total Deductions 315

Change in net position held in Trust for:Private-Purpose (721,923)

Total Change in Net Position (721,923)

Net Position - July 1, 2019 15,050,748 Net Position - as of April 30, 2020 14,328,825$

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

Page 040

ITEM 2F


RE: Investment Updates (No Action Requested)

Portfolio Rebalancing Updates

On May 8, 2020 the TIPS Fund was fully liquidated and the proceeds were transferred to an actively managed “Transition Account”. This new account is similar to the SIIF-UltraShort Bonds account and is designed to hold all cash proceeds as we continue to do a disciplined liquidation of all the DIS investments.

On June 30, Gresham’s remaining approximately $31M was fully liquidated and have transferred majority of the proceeds to the transition account. A very minimal amount is left and as soon as it settle we will proceed to transfer the remaining cash and close the Gresham account. As of July 21, Van Eck has around $35M remaining while Harvest has approximately $99M. We are closely monitoring the trigger points we have set for us to complete the redemption of both investments.

On July 1, we had wired $10M to Varde Dislocation Fund LP (Varde) in connection with its capital call. Varde was approved by the Board during the May 28 Board meeting and the capital call served as our initial investment into the Fund. This leaves as with $90M left in our commitment to the Fund.

On July 21, Angelo Gordon made a capital distribution of $12M. This brings our capital commitment back down to 92% or $138M. As the economy recovers, they are hoping to call back said capital.

Asset Allocation The table below shows the status of the permanent trusts’ asset allocation as of July 21, 2020. The figures provided are unaudited.

Upcoming Investment Manager Meetings There is no upcoming meeting scheduled.

As ofJuly 21, 2020 ̙ ̘Broad US Equity 971,788,773.43 19.5% 19.0% 14.0% 24.0%

Broad Int'l Equity 981,729,574.52 19.7% 19.0% 14.0% 24.0%Fixed Income 1,104,401,086.43 22.2% 22.0% 17.0% 27.0%

Transition Account 284,532,890.69 5.7% 0.0% -5.0% 5.0%

Absolute Return 745,720,898.06 15.0% 15.0% 10.0% 20.0%

DIS 134,712,518.66 2.7% 0.0% -5.0% 5.0%

Real Estate 744,590,727.00 15.0% 15.0% 10.0% 20.0%

Private Equity - 0.0% 5.0% 0.0% 10.0%

Private Infrastructure - 0.0% 5.0% 0.0% 10.0%

Opportunistic Investments 10,000,000.00 0.2% 0.0% -5.0% 5.0%

Portfolio Total 4,977,476,468.79 100.0%

Market Value $

Actual Target Lower Range

Upper Range

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Actual Target

Page 041

ITEM 3A


RE: Energy Infrastructure and Impact Office (EIIO) Contingency Grant Round Award Recommendations 2019-2021 Biennium Funding The Sixty-Sixth Legislative Assembly appropriated $2 million through House Bill 1013 for grants to political subdivisions impacted by oil and gas development activities. N.D.C.C. § 15-01-02(6) provides the Board of University and School Lands (Board) has:

Authority to award and distribute energy infrastructure and impact grants from moneys deposited in the oil and gas impact grant fund, except that grants awarded annually may not exceed sixty percent of the biennial appropriation for energy infrastructure and impact grants. The board may create an advisory committee to assist the board in making its grant award determinations.

EIIO opened a contingency grant round in December 2019 and applications were accepted through January 31, 2020. EIIO received 60 applications requesting a total of $15,506,192. To assist some applicants with planning and project efforts, during the 2020 fiscal year, the Board provided commitments to future awards on these projects. At the April 8, 2020 meeting, the Land Board made commitments to the following applications for awards in Fiscal Year 2021 as follows:

POLITICAL SUB NAME CITY COUNTY

SHORT DESCRIPTION

PROJECT TOTAL

AMOUNT REQUESTED

PLEDGED GRANT

AMOUNT

CITY OF NEW ENGLAND

NEW ENGLAND HETTINGER

2020 NORTH SIDE GROWTH AREA

STREET & SEWER IMPROVEMENTS $1,442,000.00 $1,000,000.00 $348,650.00

WILLISTON TOWNSHIP WILLISTON WILLIAMS

52ND STREET LANDSLIDE $1,450,000.00 $350,000.00 $350,000.00

MOUNTRAIL COUNTY STANLEY MOUNTRAIL

36TH ST NW- CEMENT

STABILIZATION AND GRAVELING $82,700.00 $82,700.00 $41,350.00

WILLISTON PSD #1 WILLISTON WILLIAMS

ASB INNOVATION ACADEMY $14,092,183.00 $500,000.00 $250,000.00

CITY OF STANLEY STANLEY MOUNTRAIL

WASTEWATER TREATMENT

FACILITY IMPROVEMENTS

AND UPGRADE TO PUMPS AT MAIN

LIFT STATION $1,675,000.00 $837,500.00 $210,000.00 Total: $1,200,000.00

Page 042

ITEM 3A

Recommendation: That the Land Board award a total of five grants totaling $1,200,000 from the Oil and Gas Impact Grant Fund to:

• CITY OF NEW ENGLAND• WILLISTON TOWNSHIP• MOUNTRAIL COUNTY• WILLISTON PSD #1• CITY OF STANLEY


Page 043

ITEM 4A


RE: Opportunistic Investments On April 30, 2020 the Board of University and School Lands’ approved an asset allocation to Opportunistic Investments within the broader Strategic Asset Allocation for the Permanent Trusts. Dislocation and Distressed Fund Strategy: Due to the current COVID-19 pandemic and the related economic crisis there are currently opportunities in the credit (non-Treasury) bond market for liquid asset purchases at favorable market values (i.e., “dislocated” prices). As the economic recession unfolds there will be further opportunities in the “distressed” credit market as well – where managers that focus on credit and asset-based underwriting can find value in rescue lending, corporate restructuring and special situation lending. These strategies have limited terms from 4 to 7 years and may or may not employ leverage (borrowing to invest and thereby increase returns). RVK began the manager search by compiling a list of all managers that are currently raising dislocated credit funds and distressed credit funds or both. After reviewing product details and holding discussions with RVK, the list of managers was reduced down to three based upon strategy, leverage, track record, etc. During early-May, RVK and Department of Trust Lands (Department) staff interviewed the three managers (Apollo, KKR and Varde) with the team recommending Varde to the Board in May, and now recommending Apollo to fill out the Opportunistic Investments allocation. Apollo is an investment manager founded in 1990 and headquartered in New York, with offices throughout the U.S., Europe and Asia. They have over $300 billion in assets under management and over $200 Billion in credit assets, including $9.5 billion in opportunistic credit. Apollo has 235 investment professionals in their global credit division. Apollo has raised four similar funds and has prudently called investor capital. Apollo expects to pursue liquidity-driven opportunities during the current market dislocation. They will look to invest in both primary (new origination) and secondary markets. Apollo focuses on high quality credits at the top of the capital structure. Primarily looking at broadly syndicated primaries, liquid secondaries, revolver refinancing, structured finance, and distressed secondaries. Recommendation: The Board approve a $100 Million investment in the Apollo Accord Fund IV, L.P. as part of the Opportunistic Investment allocation, subject to final review and approval of all legal documents by the Office of the Attorney General.


Aye Nay Absent Secretary Jaeger Superintendent Baesler

Treasurer Schmidt Attorney General Stenehjem Governor Burgum

Attachment 1: RVK Recommendation Memo Attachment 2: Apollo Accord Fund IV Presentation

Page 044

RVKInc.com

Portland · Chicago · New York · Boise

Executive Summary

The Apollo Accord Fund IV (“the Fund” or “Accord IV”) is a credit dislocation fund designed to

pursue technically-driven opportunities that surface across credit markets in the wake of the

COVID-19 pandemic. The strategy will primarily target the heavily discounted but performing debt

of stable corporate borrowers, and in most cases will target tradeable credit securities that have

been subject to heavy levels of technically driven selling. The strategy is expected to follow a

relatively narrow mandate tailored to the team’s core expertise, with the majority of capital

invested in tradeable corporate loans and bonds, and relatively little exposure to deeply distressed

securities and borrowers. However, it is also likely that the strategy’s core portfolio will be

supplemented by a limited number of opportunities across areas such as structured credit, private

lending, or distressed opportunities with high levels of asset coverage, depending on the relative

value presented by these opportunities during the fund’s investment period. As with Accord IV’s

predecessor funds, the strategy will attempt to focus on investments representing the best

available risk-adjusted relative value in any given market environment, and will base its

underwriting on deep levels of fundamental research.

As with prior Accord offerings, the strategy will benefit from Apollo’s extensive research database

and the superior technical market visibility and strong trading network made possible by their $200

billion global credit platform, which is one of the largest of its kind currently in operation. The core

research team behind the Accord fund series has remained stable, and collectively represents an

exceptional level of experience and skill, with lead portfolio manager John Zito benefitting from

18 years of relevant investment experience, and his 15 senior team members possessing an

average of 18 years’ relevant experience as well.

Within a portfolio context, this strategy is expected to deliver strong risk-adjusted relative value

through its deep underwriting and event-driven focus, which is likely to augment the risk-adjusted

returns achieved by the majority of credit portfolios across most market environments. In the

context of the current market environment, the team’s exceptional ability to identify and exploit

technical market distortions, made possible by the scale and breadth of the Apollo platform’s

trading activity, is likely to further augment returns if US credit markets fail to stabilize.

Accord IV is targeting a net internal rate of return (“IRR”) of between 12% and 15%, and a net

multiple on invested capital (“MOIC”) of between 1.25X and 1.4X, representing the higher end of

what can typically be achieved through investments in senior secured credit during most market

Memorandum

To North Dakota Board of University and School Lands

From RVK Private Credit Manager Research Team

Subject Apollo Accord Fund IV Investment Due Diligence

Date July 2020

Page 045

RVK · 2

environments.

Strengths/Merits

Strong Alpha Generation: Apollo’s deep underwriting and event-driven focus have historically

acted as a second and significant source of added value for the Accord fund series across all

market environments. We believe this exceptionally deep and active underwriting is likely to

augment the strategy’s returns relative to those of its peers in favorable environments, and, in

many cases, may limit the strategy’s potential losses in unfavorable environments. A similar trend

of added value through security and borrower selection is similarly evident across the Accord

team’s other, longer-running investment mandates, indicating a consistent and significant level of

alpha generation in corporate credit across a wide range of markets.

Improved Visibility: Apollo’s size and the breadth and volume of its trading activity have

historically allowed the Accord team to identify market anomalies and credit price dislocations

more quickly than most of their peers, and to gauge the scale of each dislocation with a higher

degree of accuracy. Given the orientation of most credit dislocation funds around technically

driven opportunities, we view this to be a key and necessary strength for this type of offering.

Further, we believe this advantage will be especially important in periods of high price dispersion

between industries, individual securities, and security types. This advantage fits well with the high

levels of dispersion that have been evident across many subsets of the credit market during recent

periods. Specifically, Apollo’s credit platform traded approximately $75 billion in corporate bonds

and loans at the firm level in 2019.

Institutional Knowledge: Accord IV will benefit from the Apollo credit platform’s substantial

database of underwriting information on previous and potential borrowers and securities. Like the

credit platform itself, this database is one of the largest of its kind in the world, with coverage of

hundreds of credits. The ability to immediately access a deep level of underwriting information on

such a broad spectrum of borrowers and securities is expected to significantly augment Accord

IV’s ability to move quickly in exploiting credit market dislocations without sacrificing the quality of

its due diligence on potential opportunities. Given the speed at which recent credit market

dislocations have evolved, we believe this advantage to be especially crucial in the context of the

current credit market structure.

Page 046

RVK · 3

Issues to Consider

Young Fund Series: Although Accord’s investment team has invested in corporate credit at Apollo under a range of different mandates since 2011, the Accord fund series is relatively new, with Accord I incepting in 2017. As such, though the Accord series’ holdings have demonstrated strong added value during the periods in which they have existed, the fund series has not yet been active over the course of a full market cycle. This drawback is mitigated somewhat by the fact that most available credit dislocation funds currently raising capital share a similar status, with experienced investment teams running dislocation funds with limited or no past history. (The relative newness and less tested nature of the credit dislocation space is, in fact, one of the major driving forces strengthening RVK’s extreme preference toward stable firms and experienced, top tier investment teams). Accord I, II, and III’s stable performance compared to their peers during the brief but sharp market disruption beginning in March of 2020 also helps to mitigate concerns about the newness of the fund series. For example, Accord III’s performance remained positive as of March 31, 2020 in spite of its 2019 vintage – a relatively rare achievement for its 2019 vintage year peer group, though a larger number of its peers had moved back into positive territory by June 30, 2020.

Large Fund: Accord IV’s target size is significantly larger than both its predecessor funds and many of its peers in the credit dislocation fund space, though a number of other large firms are currently targeting credit dislocation funds of $5 billion or more (larger than Accord IV’s target). Added to this large targeted size is the fact that the Fund’s predecessor, Accord IIIB, has only called approximately 20% of its $1.8 billion in committed capital as of this writing. Given the largely uncalled status of Accord IIIB and the aggressive sizing of Accord IV, it is possible that the Fund may be unable to identify a sufficient number of heavily dislocated credit opportunities in the event of rapid, near-term and long lasting credit market stabilization. Specifically, Accord IV is unlikely to deploy capital at an aggressive pace in market environments where the credit spreads of below investment grade securities continually remain under 600 basis points. In this scenario, Accord IV would be unlikely to call down 100% of committed capital, potentially leaving investors under-allocated. However, it should be noted that under-allocation due to a rapid and sustained credit market recovery is a risk shared by most credit dislocation offerings, given the tactical nature and high targeted returns of these strategies.

Tradeable Corporate Credit Focus: The narrower focus of this strategy will likely prevent it from fully exploiting any market opportunities that are limited to spaces like private lending, private real estate debt, asset-backed securities, or other areas outside the traditional mandate of the Accord fund series. However, it should be noted that Accord IV is expected to operate under a slightly broader mandate than its predecessors, allowing it to make moderate allocations to areas such as structured credit and private lending if the risk-adjusted relative value of these opportunity sets should prove to be meaningfully better than that of the senior secured corporate bonds and loans on which it typically focuses.

Page 047

RVK · 4

Lower Expected Returns vs. Distressed Credit: As an offering with a primary focus on performing credit and corporate borrowers that generally benefit from strong fundamentals, the strategy is expected to have a lower absolute return profile than that of a classic distressed debt offering. Specifically, at this time Accord IV is targeting a net IRR of 12-15% from Accord IV, compared to expected returns of closer to 20% for true distressed debt strategies. However, we likewise expect the risk to which Accord’s investors are exposed to be commensurately lower, given its focus on high quality, senior secured credit. In spite of its lower levels of absolute return, we believe the strategy represents one of the best expected risk-adjusted returns available to institutional credit investors at this time.

Page 048

RVK · 5

Summary of Key Terms

Fund Apollo Accord Fund IV

Minimum Investment $5 million

Targeted Return 12 - 15% net IRR

General Partner

Commitment 2.5%, at minimum

Investment Period 18 months following the initial closing (one optional 6-month

extension at the general partner’s discretion)

Harvest Period 3 years following the investment period (two optional 1-year

extensions at the general partner’s discretion)

Management Fee 1.00% per annum on invested capital, subject to discounts for the

Fund’s initial closing and investors of large size

Incentive Fee 15%

Preferred Return 5% per annum

Distribution Policy

Waterfall:

1. 100% to limited partners, until limited partners receive an

amount equal to their total invested capital;

2. 100% to limited partners, until limited partners receive a 5%

preferred return;

3. 100% to the general partner, until the general partner

receives 15% of cumulative distributions;

4. Thereafter, 85% to limited partners and 15% to the general

partner.

Leverage No expected fund-level leverage

Page 049

RVK · 6

Firm Background and Ownership

Apollo Global Management is one of the largest and longest tenured alternative investment firms

currently in operation. Founded in 1990 and with a total of $316 billion in assets under

management as of March 31, 2020, the firm has historically commanded a significant presence

across a wide range of asset classes. Apollo benefits from significant resources due to its scale,

with 1,460 employees, 493 of whom were dedicated investment professionals as of March 31.

The firm is headquartered in New York but has 15 offices located across the globe, with a strong

presence in Europe and Asia relative to most of its US-based peers.

As shown in Exhibit 1 on the following page, Apollo is divided into three business segments –

Private Equity, Real Assets, and Credit. Though the firm’s activity originated in the private equity

space, its credit business line represents the largest and fastest-growing component of Apollo at

this time, and its continued growth and success is a firm-wide priority. As of March 31, Apollo’s

credit business encompassed $210 billion in total assets under management, and was staffed by

235 investment professionals. The breadth, large scale and high trading volume of Apollo’s credit

platform has historically provided Apollo’s suite of credit strategies with an above-average visibility

of technical market forces, as well as a competitive advantage compared to smaller peers in

executing discounted block trades of significant size with large counterparties, such as the major

participants in the global banking system.

Page 050

RVK · 7

Exhibit 1: Apollo Global Investing Platform

Source: Apollo. As of 3/31/2020.

Apollo Global Management is a publicly traded entity (ticker “APO”), with a market capitalization

of $11.4 billion. According to the firm’s most recent 10-Q filing with the United States Securities

and Exchange Commission, a substantial portion of APO shares are held by 11 of Apollo’s senior

executives, representing a significant vested interest in the firm across its top decision-makers.

Its global credit platform is led by a team of 20 senior professionals encompassing a diverse range

of specializations, and includes six major divisions.

Much of Apollo’s credit platform was built out in response to the exceptional opportunity set that

surfaced during the financial crisis of 2008-2010, resulting in an overall profile tailored around

rapid, outsized credit market dislocations such as those seen during the 2008 financial crisis, the

2016 correction in energy, and the pandemic-driven volatility that emerged in March of 2020.

However, Apollo has participated in some level of credit market activity since the firm’s founding,

and has successfully operated at significant scale across a wide range of credit market

environments – again, the firm traded a total of over $75 billion of loans and bonds in 2019 alone.

Page 051

RVK · 8

From its founding, Apollo’s credit platform has operated with a focus on risk-adjusted relative

value and the deep underwriting of borrower fundamentals. As of March 31, 2020, Apollo’s credit

platform included 235 investment professionals, with specializations broken down as shown in

Exhibit 2. As can be seen from the exhibit, in spite of the Accord series’ historical focus on

corporate credit opportunities, Apollo’s credit platform commands robust resources across not

only tradeable corporate credit, but also subsets of the credit landscape such as structured credit,

asset-backed securities and direct origination, which could provide supplemental pockets of

opportunity for Accord IV, depending on where price dislocation and liquidity constraints prove to

be most severe.

Exhibit 2: Apollo Global Credit Platform


Like its predecessors, Accord IV will be managed within Apollo’s $47 billion Global Corporate

Credit business segment, as part of the firm’s Global Opportunistic Credit franchise. As shown in

Exhibit 3, the Global Opportunistic Credit business manages slightly over $9 billion, representing

Page 052

RVK · 9

a niche but steadily growing subset of Corporate Credit within the firm. Opportunistic Credit

pursues two primary strategies – the drawdown structured Accord fund series and the Apollo

Credit Strategies Fund, a higher liquidity and more market neutral hedge fund product. Both

strategies are heavily focused on mispriced corporate credit securities offering strong

fundamental value, and both strategies frequently pursue credit investments through an event-

driven lens, but the Accord series’ drawdown structure and lower constraints on long market

exposure enable it to pursue a wider range of dislocated credit opportunities, including primary

market purchases and even direct loan origination, in some situations. The Accord series also

incurs significantly higher directional market exposure than the Credit Strategies Fund, making it

a more suitable vehicle for pursuing tactical market opportunities such as broad spectrum credit

dislocations. However, because the Accord series permits the hedging of broad market risk in

exceptional circumstances, the opportunistic credit team’s strong hedging skill set could

potentially become relevant for the Accord series as well.

Exhibit 3: Apollo’s Opportunistic Credit Business


Investment professionals involved with the Accord funds are primarily compensated in two ways. First, in addition to their base salary, investment professionals are eligible to receive an annual bonus that includes both cash and equity awards, which vests over time. Secondly, investment professionals generally receive carried interest. The allocations of carry vary based on level of

Page 053

RVK · 10

27%

18%

17%

9%

8%

7%

2%

11% Public Pension

Sovereign Wealth

Finance/Insurance

High Net Worth/Retail

Corporate Pension

FoF/Consultant

Endowment/Foundation

Other

seniority and involvement with the day-to-day operations of the Partnership, among other factors. Active investment professionals receive distributions on their full carry award, and upon departure investment professionals generally vest in the majority of 75% of their carry award. Apollo believes that the vesting provisions have proven to be successful tools in retaining the Firm’s investment professionals. The equity award and carry combination is designed to create an alignment of interests with investors in the funds while maximizing the benefits of the integrated platform, and broadly fits RVK’s estimation of alignment of interest best practices for this type of product. Importantly, a significant portion of the compensation of senior professionals is tied to the performance of the fund.

Apollo’s investor base is diverse, encompassing hundreds of underlying investors, and skews

toward larger institutions such as public pension and sovereign wealth investors, as seen in

Exhibit 4. The firm’s large and growing segment of insurance capital has also been an impactful

source of growth for the firm over recent years.

Exhibit 4: Apollo Global Management Investor Base


Page 054

RVK · 11

Investment Team The investment team for Apollo’s Accord fund series, as seen in Exhibit 5, is led by portfolio manager John Zito, a Senior Partner at Apollo who also serves as a Co-Head of Apollo’s Global Corporate Credit business. Although Accord IV’s sourcing and research are expected to heavily leverage the firm’s broader credit platform, within the opportunistic credit group John is supported by eight senior analysts, specialized by sector, as well as over 30 junior investment personnel, a dedicated two-person risk management team, and a four person trading desk. The group’s two dedicated Co-Heads of US Opportunistic Credit, Rob Bittencourt and Rob Givone, provide additional senior sourcing and underwriting firepower for US-focused opportunities, and have historically played important roles as John’s trusted lieutenants for especially complex or time-intensive US credit investments. The core Opportunistic Credit team is both experienced and stable, and has steadily added to their support staff over the past nine years.

Exhibit 5: Apollo Global Opportunistic Credit Team


Page 055

RVK · 12

Market Update

In March of 2020, a combination of investor liquidity needs and concerns over the potential income

and cash flow impact of the COVID-19 pandemic on a series of public companies, assets, and

related credit securities caused significant outflows from a wide range of investment vehicles, as

well as the forced deleveraging of a series of highly levered investment products facing significant

margin calls in a liquidity constrained environment. The suddenness and scale of outflows and

deleveraging, in combination with a lack of potential market buyers, created an unprecedentedly

sharp distortion across much of the US public credit market. In many cases, bond spreads

doubled in less than one month, compared to a more typical doubling of spreads over periods of

three to six months during the course of the 2008-2010 financial crisis. Exhibit 6 shows changes

in high yield spreads and leveraged loan discount margins through July 10, 2020 – the Accord

fund series’ two major areas of focus – as examples of the scale and speed of the current credit

market distortion.

Exhibit 6: High Yield Bond and Leveraged Loan Index Margin

Source: Ice Data Indices, Credit Suisse Group. High Yield Index Spread is represented by the option-adjusted spread

of the ICE BofA US High Yield Index. Leveraged Loan Index Discount Margin is represented by the 3-year discount

margin of the Credit Suisse Leveraged Loan Index. Data as of 7/10/2020.

Although the initial March 2020 dislocation in credit markets has corrected to a certain extent,

ongoing pockets of volatility and price distortion have remained prominent features in both credit

and equity markets, likely tied to ongoing economic uncertainty, the inefficiencies caused by a

0%

5%

10%

15%

20%

25%

High Yield Index Spread Leveraged Loan Index Discount Margin

Recent High (3/23): 10.9%Most Recent (7/10): 6.1%

Recent High (3/23): 12.7%Most Recent (7/10): 6.7%

Page 056

RVK · 13

large percentage of passive and systematic investor capital, and waves of forced trading at

quarter- and month-ends resulting from the risk and credit quality limits of many large market

participants. Overall, the current credit market structure appears to have led to shorter, sharper

and more frequent spikes in volatility than its predecessors, with the resulting, repeated pricing

inefficiencies opening up an attractive opportunity set for faster-moving credit dislocation

strategies such as Accord IV. For ease of reference, Exhibit 7 visually pictures the recent shift in

market structure.

Exhibit 7: Market Structure Shift


While the sharp, recent declines in price are justified in the case of some credit securities, the

recent dislocations across US credit have been largely indiscriminate. In many cases, the prices

of senior debt, securities issued by stable companies, and structured credit instruments secured

by robust underlying cash flows or assets have dropped nearly as sharply as the prices of junior

debt, securities issued by unstable borrowers, or instruments unsecured by collateral. Similarly,

Page 057

RVK · 14

the prices of more stable securities have, in many cases, dropped more sharply than would be

expected even in the event of a material, multi-year negative impact on company earnings or, in

extreme cases, the bankruptcy of their issuers. In many cases, high quality securities with low or

negligible associated risk of delinquency or default, even when the likely effects of an ongoing

pandemic are accounted for, have traded at discounts that indicate the potential for a realization

of equity-like returns in a relatively short period of time. Beyond the simple “beta trade”

represented by outsized credit price dislocations, the indiscriminate nature of recent sell-offs

indicate a particularly promising opportunity set for managers with deep fundamental underwriting

skills.

Although many dislocations can be identified in the current market landscape of global asset

prices, we believe the opportunity to potentially earn equity-like returns through the correctly timed

investment in the senior debt of stable borrowers or in structured credit securities backed by stable

cash flows or high quality assets represent some of the best risk-adjusted relative value currently

available to diversified institutional investors. From the perspective of historical valuation, this

environment likely represents the most compelling broad-based opportunity that has been

available in US credit markets for many years.

However, it is important to note that given the speed and comprehensiveness of unprecedented

policy initiatives by the Federal Reserve, which have involved not only the lowering of interest

rates but also an aggressive renewal of the Federal Reserve’s quantitative easing practices with

a stated focus on the price stabilization of both corporate bonds and mortgage backed securities,

it is unknown how persistent the current credit dislocation will be, or how long its associated

investment opportunities will last. As such, both Accord IV and its peers within the credit

dislocation space run the risk of under-investment if the opportunity set fails to present a sufficient

number of distortions, or if distortions fail to appear at the large scale expected by most of the

investment management community.

Investment Strategy

As noted previously, Accord IV is expected to invest primarily in liquid, senior credit securities that

experience deeply discounted pricing due to technical market forces. The strategy will operate

with the primary goal of capturing outsized return by acting as a stable provider of liquidity during

volatile, liquidity constrained periods in credit markets. The strategy will draw heavily on Apollo’s

deep underwriting process and significant database of past borrower analysis in selecting specific

dislocated credit instruments for investment. The strategy is expected to focus on high quality

assets with significant debt coverage through either borrower cash flows or borrower assets.

Page 058

RVK · 15

As noted, the ability to underwrite dislocated credit opportunities more quickly by using the

considerable bank of borrower-specific underwriting data available through Apollo’s archives is

likely to be especially important in the current market environment, where the large and increasing

scale of capital invested through passive or systematic credit strategies has slowly but steadily

changed the structure of credit markets, resulting in a series of rapidly developing mini-cycles

where credit dislocations are becoming shorter in duration, but more extreme in scale. Given this

trend, it is likely that the most successful credit dislocation investors that operate within this

evolving market structure must be prepared to move quickly – an impossible task for a

fundamental value firm that does not benefit from a deep and broad collection of underwriting

data on their targeted potential borrowers. This, in turn, lends a natural advantage to fundamental

value investors that have been operating for long periods, at a large scale, or (as in Apollo’s case)

both.

Accord IV will pursue a dual thematic mandate over the course of its life, with the majority of

capital invested around either dislocated liquid credit or idiosyncratic opportunities. These

categories are defined as follows:

Dislocated Liquid Credit – Investments where heightened market volatility has made it

difficult for large groups of loan or bondholders to continue owning specific types of credit

assets for periods of longer than one month, leading to forced and largely indiscriminate

selling of credit securities at heavily discounted prices. These investments are expected

to make up over 50% of the total portfolio, but could represent a higher percentage if

sustained periods of extreme volatility surface during the Accord IV’s investment period.

Idiosyncratic Opportunities – Investments in the senior debt of specific borrowers

expected to experience a near-term catalyst that will improve the future cash flows

attached to these debt instruments, and typically improve their value. Exposure to these

investments is expected to be limited. These investments are less dependent on stressed

market conditions, given that the majority of price correction is expected to result from an

upcoming borrower-specific event.

This dual focus is designed with the current market structure in mind, with expectations that the

team will primarily target dislocated credit investments during periods of heightened volatility, and

focus more on idiosyncratic events during calmer market interludes. As a result, Accord IV has

the capability to invest across a wider range of market environments than many of its peers in the

credit dislocation space, some of which will require sustained credit market volatility over the

course of their investment periods in order to deliver their targeted levels of return.

As with many of its peers, Accord IV plans to gradually adjust the profile of its targeted investments

as the downturn evolves, with an initial focus on high quality, senior secured liquid credit across

Page 059

RVK · 16

all sectors during the earliest and likely sharpest stages of a given market disruption, followed by

a gradual narrowing of focus into specific, highly distorted industries and assets as industry

dispersion rises. Although the majority of Accord IV’s portfolio is expected to consist of tradeable

credit securities, the team will also likely consider the addition of true private credit opportunities

during the downturn’s middle and later stages as the need for liquidity becomes more widespread

and severe across the private lending landscape.

Like its predecessor funds, the majority of Accord IV’s capital is expected to be deployed in North

America and, depending on the available opportunity set, developed Europe. Regardless of the

market environment encountered during its investment period, it is not expected that over 10% of

the Fund’s total net asset value will be invested outside these two geographies. Historically, past

Accord funds have invested the majority of their capital in North America, as seen with Accord III

in Exhibit 8. Given the considerable degree of recent volatility across US credit markets and the

prevalence of dislocated US credit pricing, Accord IV is expected to be primarily US focused

unless a significant change in the relative value presented by global credit markets takes place.

Exhibit 8: Accord III Geographic Diversification

Source: Apollo, RVK.

Like its predecessor funds, Accord IV is expected to be relatively diversified by sector. As a credit

dislocation fund, the strategy is expected to gravitate toward sectors experiencing especially

strong price dislocations, where a high dispersion of outcomes is expected across different

borrowers within the same industry. However, exposure to sectors where outcomes are heavily

82%

18%

North America Europe

Page 060

RVK · 17

subject to changes in commodity prices, such as energy, will be limited by portfolio-level risk

controls. Although sector exposure is expected to be largely dictated by the credit market

environment, the Accord fund series has also tended to generally gravitate toward areas in which

Apollo has the strongest and longest-standing industry expertise, such as communications and

finance. For ease of reference, the industry level investment breakdown of Accord III is shown in

Exhibit 9.

Exhibit 9: Accord III Industry Diversification


Although Accord IV is expected to follow the general parameters of other funds in the Accord

series, one notable change to Fund IV’s investment mandate is the inclusion of an investment of

up to 25% in structured credit, while predecessor funds were invested exclusively in corporate

credit across a combination of bonds and loans. This adjustment to Accord IV’s mandate is a

direct result of the scale of the distortion experienced across the US structured credit market in

March of 2020, and the likelihood that distortions of this severity will continue during Accord IV’s

investment period given the widespread breach of risk and investment constraints across many

structured credit funds, and the interaction of the large and ongoing volume of credit downgrades

with many structured credit strategies’ credit quality restrictions.

24.30%

15.70%10.50%

9.40%

7.20%

4.60%

3.40%2.30%

Communication Services

Consumer Discretionary

Industrials

Financials and RE

Consumer Staples

Information Technology

Energy

Other

Page 061

RVK · 18

Although we believe this adjustment in mandate is reasonable given the current opportunity set

and will likely serve to augment Accord IV’s risk-adjusted returns, we believe it is only a feasible

step because of Apollo’s comprehensive resources and experience in structured credit

investments at the firm level. If the Accord team were operating in isolation, or if Apollo’s past

structured credit investments had not shown evidence of prudent risk control and investment skill,

we would have reservations about this type of mandate expansion. Even given the large scale

and relative success of Apollo’s firm-level activity in structured credit, we believe the majority of

Accord IV should remain dedicated to corporate credit, as this subset of the credit market

represents the Accord team’s core competency and their past demonstration of added value

through credit selection.

In terms of capital structure distribution, Accord IV is expected to continue the focus on senior

secured debt common across its predecessor funds. Even in relatively calm markets, the Accord

fund series has generally distinguished itself by calling capital only during periods where strong

yields could be achieved through senior debt, as opposed to reaching for yield through a style

drift toward more junior or unsecured parts of its borrowers’ capital structures. Although this has

resulted in a balance of uncalled commitments for some of the Accord funds, it has also

safeguarded the risk controls of offerings like Accord III. Importantly, even the new potential

allocation to structured credit is expected to continue Accord’s traditional focus on the senior

tranches of each borrower’s capital structure. For the sake of comparison, Accord III’s capital

structure breakdown is shown in Exhibit 10.

Exhibit 10: Accord III Capital Structure Seniority


84%

2%

14%

First Lien

Second Lien

Unsecured

Page 062

RVK · 19

The Accord investment team strongly believe that the selectivity which has allowed them to

maintain their senior debt focus without sacrificing yield in prior periods will continue to play a

major role in augmenting Accord IV’s risk adjusted returns. Consequently, although the sourcing

and underwriting of investments will be ongoing throughout the fund’s investment period,

investors should expect for capital to be deployed only during periods when the yields available

to credit investors are especially strong. This is likely to result in a more sporadic deployment of

capital for Fund IV than for many of its peers even in the credit dislocation space, with periods of

rapid capital deployment during spikes in credit market volatility alternating with potentially long

lulls during calm credit markets. This pattern is similar to what Accord III investors experienced,

and the Accord team believes it is robustly justified by the historical performance of tradeable

credit deployed during stressed and volatile credit markets as measured by credit spreads. One

of the most widely recognized examples of this historical trend, the performance of capital

deployed during periods where high yield credit spreads are at or above 8%, is shown in Exhibit

11. Given that the primary purpose of most credit dislocation strategies is to achieve targeted

exposure to outsized credit price distortions, we believe this emphasis makes Accord IV

particularly appropriate as a credit dislocation offering, and a potentially strong complement to

strategies with a broader, less market sensitive, “all weather” focus.

Exhibit 11: High Yield Spreads and Subsequent Returns

Source: Apollo, JP Morgan, Bloomberg. Data from 12/31/1996 to 5/31/2020.

Page 063

RVK · 20

From a portfolio construction standpoint, Accord IV is expected to be more concentrated than

many peer offerings, with typical core positions running at sizes of up to 5% of the total portfolio.

It is, as previously noted, also expected to skew more toward the following dimensions than many

of its peers:

Senior Debt

Tradeable Credit

Credit Secured by Corporate Cash Flows (vs. Asset Backed Debt)

In most other respects, we expect Accord IV’s targeted portfolio to be fairly similar to the rest of

its peer group, with a targeted duration, yield, recycle rate, holding period and IRR target roughly

in line with the majority of other institutional quality credit dislocation funds raising capital at this

time.

Investment Process

Apollo’s investment process follows a fairly classic footprint within alternative credit, distinguishing

itself primarily through especially broad sourcing networks, a higher level of detail in its

underwriting (particularly in the process’ earlier stages), and a generally conservative approach

to cash flow projections. Importantly, the high level of pre-existing, borrower-specific information

and underwriting resources available to the firm and team also allow the process to take place

more rapidly than those of many peers without sacrificing its thoroughness or level of detail. As

previously noted, we regard this as one of the Accord series’ key competitive advantages.

Sourcing and Origination: Investments can be sourced from a wide range of avenues within the

firm, including the many divisions of the large and broad-spectrum Apollo credit platform, which

encompass specialists focused on both individual sectors (such as telecom opportunities) and

individual asset types (such as asset-backed securities or private lending), the Apollo private

equity and real assets platforms, and the Accord investment team itself. In many cases, potential

investments even in tradeable credit opportunities represent proposed primary market purchases

that are sometimes exclusively shared with Apollo by either potential borrowers or members of

the global banking system, resulting in a materially different opportunity set compared to many

peers even within the context of liquid credit.

Given the breadth of Apollo’s platform and market activity, a key distinction of the Accord series’

sourcing process is the amount of sourcing conducted “in house”, as opposed to through long-

Page 064

RVK · 21

term sourcing partners outside the firm.

Screening: Newly proposed investments are formally screened at the firm’s regular Global

Corporate Credit Pipeline meetings, where they are presented in detail by their respective

analysts. However, in RVK’s experience, given the high degree of ongoing interaction across

Accord’s investment team, it is also common for senior investment professionals to comb through

proposed investments in detail at a much earlier stage. Pipeline meetings typically focus on a

summary of the borrower business in question, the highlighting of key merits and risks, and a

review of Apollo’s preliminary valuation work, with detailed valuation work typically taking place

at an earlier stage than it does across many of Accord’s peers. Key areas for follow-up are then

assigned to any potential investments that are deemed appropriate for further underwriting.

Underwriting: As with most peer strategies, underwriting centers on the expected future cash

flows associated with any given investment, as well as the value of any associated rights to either

specific assets or borrower companies. In many cases, potential borrowers and even specific

credit instruments have been underwritten by Apollo in great detail in the recent past, allowing the

team to build on pre-existing information and modelling as opposed to generating their

underwriting framework from scratch. In RVK’s experience, this has resulted in a significantly

shorter underwriting runway for many of the team’s past investments.

In general, in addition to sufficient future expected cash flows, proposed investments must

demonstrate some level of borrower pricing power, a workable borrower business plan, solid

levels of equity sponsorship (in the case of any private loans), and the existence of a capable

management team. In the case of idiosyncratic opportunities, expected future cash flows are

weighted according to the expected probability of the investment’s specific underlying catalysts -

in RVK’s experience, the expected outcomes and probability weightings assigned to these

catalysts tend to be more conservative than those of many peer strategies, often leading to

correspondingly lower loss rates across these investment types. In many cases, due diligence will

be supplemented by dialogue with Apollo personnel from various divisions who have either

underwritten or invested with some subset of the targeted borrower’s capital structure in past

periods. When due diligence has been completed, proposed investments are presented at

Apollo’s Global Corporate Credit Approval Meeting for final review and approval.

Portfolio Construction: Mr. Zito is responsible for Accord’s portfolio construction, and performs

most of Accord’s day to day portfolio management functions, with support from senior investment

staff. As noted previously, due to the depth of its underlying research, the Accord fund series

tends to skew more highly concentrated across its top positions compared to many peer

strategies, but maintains the expected balance across sectors, investment types and geographies

needed for adequate diversification. Given a higher level of past outperformance across the

Page 065

RVK · 22

investment team’s highest conviction investments than is typical for the tradeable credit space,

we believe a slightly higher-than-average level of single-name concentration is an appropriate

method by which to lever the team’s demonstrated skill.

The senior management of Apollo’s credit division meet on a weekly basis to review sourced

investments, in process due diligence efforts, and approved investments. Senior portfolio

managers from across the firm have regular dialogue regarding macro concerns such as industry-

specific developments, trends across ratings agencies and technical market forces, and hold

regular, detailed discussions on the implications of these developments on the optimal

construction of their various portfolios. This enables strategies such as the Accord fund series to

take advantage of the firm’s exceptional market visibility from a portfolio construction standpoint

as well as a sourcing standpoint.

Asset Management: Asset management is the responsibility of the investment personnel behind

each specific investment’s underwriting, but in the case of a complex “workout” will be

supplemented by efforts from other divisions, such as Apollo’s private lending and legal teams.

The ongoing monitoring of all positions is managed in concert with Apollo’s comprehensive risk

management systems, which tracks a large range of credit metrics associated with each

underlying investment, and continually alerts the investment team to any outliers or the triggering

of any portfolio-level risk limits. As noted previously, Apollo distinguishes itself from some of its

peers in its ability to hedge against certain market risks where necessary, though hedging has

not been employed in past Accord funds and would only be expected as a response to an

extreme, unusual and unexpected market development.

As noted earlier, though Apollo commands the resources necessary to handle a large number of

concurrent restructurings due to its staffing and size, Accord IV expects the majority of its

investments to represent stressed but performing credit instruments, where the team’s core

investment thesis does not require the default of the underlying security or the bankruptcy of the

underlying borrower in order to realize the investment’s expected return. As such, the number of

defaults and bankruptcies associated with Accord IV’s portfolio are expected to be relatively

limited compared to higher-risk offerings or offerings incorporating an explicit distressed debt

component.

Page 066

RVK · 23

Performance and Track Record Analysis The historical performance of the Accord fund series is shown in Exhibit 12. As noted earlier, the

Accord series is relatively new, but has demonstrated strong performance for the period in which

it has operated, with even the newly invested Fund III achieving positive performance following

the March 2020 disruption in credit market prices.

Exhibit 12: Accord Fund Series – Performance as of 6/30/2020

Fund Vintage

Year No. of

Investments Committed Capital ($M)

Gross IRR (%)

Net IRR (%)

Accord I 2017 8 $308 9.6% 5.4%

Accord II 2018 19 $781 16.6% 11.9%

Accord III 2019 53 $886 17.0% 13.6%

Accord III B 2020 14 $1,761 2.6% 2.0%

Accord Fund Series 94 $3,736 18.9% 14.2%

Source: Apollo, RVK. As of 6/30/2020.

A slightly longer performance record can be achieved by viewing Apollo’s “Hedged Opportunistic

Composite”, which includes both the Accord funds and a series of separate account mandates

following the same general credit dislocation strategy, and run by the same team. The

performance of the Hedged Opportunistic Composite since its 2015 inception is shown in Exhibit

13, alongside the performance of US corporate credit bond and loan indexes during the same

time period.

Exhibit 13: Apollo Hedged Opportunistic Composite – Net Performance as of 6/30/2020

Annualized Since Inception

Net Return

Apollo Hedged Opportunistic Composite 8.61%

Credit Suisse Leveraged Loan Index 3.36%

Difference 5.25%

Merrill Lynch High Yield II Index 5.94%

Difference 2.67%

Source: Apollo, RVK. Reflects estimated returns of the Hedged Opportunistic Credit Composite from 10/1/2015 through

6/30/2020. The Composite consists of portfolios that focus primarily in event-driven and value-oriented investments in

corporate and structured credit and also include exposure to less liquid opportunities. Net returns are calculated using

actual fees of each portfolio in the Composite. Net returns include all fees, including management fees, incentive fees,

trading fees and administrative fees. Performance results are calculated utilizing a time-weighted methodology. Past

performance is not indicative, nor a guarantee, of future results.

Page 067

RVK · 24

In order to provide a longer and more robust representation of past value added by the Accord

investment team’s credit underwriting and selection, Exhibit 14 shows the performance of the

team’s Credit Strategies Fund, incepting in 2011. This strategy, though it is configured as a hedge

fund and so targets a significantly lower-yielding an more market neutral profile than the Accord

fund series, provides a longer-term example of the consistent value added by the investment team

vs. passive corporate credit market exposure as represented by the ICE Bank of America Merrill

Lynch Global High Yield Index and the Credit Suisse Leveraged Loan indexes over a longer time

horizon.

Exhibit 14: Apollo Credit Strategies Fund – Net Performance as of 6/30/2020

QTD CYTD

1 Year

3 Years

5 Years

2019 2018 Since Incep.

Apollo Credit Strategies Fund

7.8% 10.9% 16.4% 10.1% 8.3% 9.6% 4.8% 7.6%

ICE BofAML Global High Yield Index

11.5% -4.2% -0.6% 3.0% 4.6% 13.7% -3.3% 5.4%

Difference -3.7% 15.1% 17.0% 7.1% 3.7% -4.1% 8.1% 2.2%

Credit Suisse Leveraged Loan Index

9.7% -4.8% -2.3% 2.1% 2.9% 8.2% 1.1% 3.7%

Difference -1.9% 15.7% 18.7% 8.0% 5.4% 1.4% 3.7% 3.9%

Source: Apollo, RVK. Data as of 6/30/2020 and is preliminary. Apollo Credit Strategies Fund inception date is 2/2011.

Page 068

Unless otherwise noted, information as of March 31, 2020.

Confidential and Proprietary – Not for distribution, in whole or in part, without the express written consent of Apollo Global Management, Inc.

To the extent distributed in the U.S., this presentation is distributed by Apollo Global Securities, LLC (“AGS”), a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of FINRA.

A P O L L O G L O B A L M A N A G E M E N T

Apollo Accord Fund IVPresentation to North Dakota Board of University and School Lands

July 29, 2020

Page 069

DisclaimerThe information set forth herein is preliminary and subject to change at any time. It should not be assumed that investments made in the future will be profitable or will equal the performance of the investments shown inthis document.

This presentation is confidential and may not be distributed, transmitted or otherwise communicated to others, in whole or in part, without the express written consent of Apollo Global Management, Inc. (together withits subsidiaries, “Apollo”). Recipients of this presentation (and their representatives) may disclose to any and all persons, without limitation of any kind, (i) the tax treatment and tax structure of the private investmentfunds or private prospective discussed herein (the “Fund” or “Funds”) and (ii) any of their transactions, and all materials of any kind (including opinions and other tax analyses) relating to such tax treatment and taxstructure.

This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interests in the Funds. Offers for interests in the Funds can be made only by eachFund’s Confidential Private Placement Memorandum (the “PPM”), which will contain additional information about the applicable Fund, and in compliance with the applicable law. Unless otherwise noted, informationincluded herein is presented as of the dates indicated. This presentation is not complete and the information contained herein may change at any time without notice. Apollo does not have any responsibility to update thepresentation to account for such changes. Apollo Accord Fund IV has not yet launched and there can be no guarantee that it will launch in the future.

Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the information contained herein, including, but not limited to, informationobtained from third parties.

Apollo does not act for you and is not responsible for providing you with protections afforded its clients. The information contained herein is not intended to provide, and should not be relied upon for, accounting, legalor tax advice or investment recommendations. Investors should make an independent investigation of the investment described herein, including consulting their tax, legal, accounting or other advisors, about the mattersdiscussed herein.

Information contained herein may include information respecting prior investment performance of one or more Funds or investments including gross and/or net internal rates of return (“IRRs”). Information respectingprior performance, while a useful tool in evaluating each Fund’s investment activities, is not necessarily indicative of actual results that may be achieved for unrealized investments. The realization of such performance isdependent upon many factors, many of which are beyond the control of Apollo. Further, there can be no assurance that the indicated valuations for unrealized investments accurately reflect the amounts for which thesubject investments could be sold. Unless otherwise noted, all IRR amounts described herein are calculated as of the dates indicated. “Gross IRR” of each Fund represents the cumulative investment-related cash flows forall of the investors in the applicable Fund on the basis of the actual timing of investment inflows and outflows (for unrealized investment assuming disposition of the respective “as of” dates referenced) aggregated on agross basis quarterly, and the return is annualized and compounded before management fees, carried interest and certain other Fund expenses (including interest incurred by the Fund itself) and measures the returns oneach fund’s investments as a whole without regard to whether all of the returns would, if distributed, be payable to each Fund’s investors. “Net IRR” of the Fund means the Gross IRR applicable to all investors, includingrelated parties which may not pay fees, net of management fees, organizational expenses, transaction costs, and certain other Fund expenses (including interest incurred by the Fund itself) and realized carried interest alloffset to the extent of interest income, and measures returns based on amounts that, if distributed, would be paid to investors of the Fund; to the extent that an Apollo private equity Fund exceeds all requirements detailedwithin the applicable Fund agreement, the estimated unrealized value is adjusted such that a portion of the unrealized gain is allocated to the general partner, thereby reducing the balance attributable to Fund investors.Gross and net Fund level returns, both year to date (“YTD”) and quarter to date (“QTD”), are calculated on a geometrically linked basis using month-to-month changes in partners’ capital adjusted for capital calls anddistributions using a modified dietz method. YTD and QTD returns are inclusive of all non-fee paying and fee-paying limited partners. Annualized basis calculations are computed on a gross basis (before all fees andexpenses) and net basis (net of all fees and expenses); fees and expenses include, but are not limited to, incentive allocations, management fees, organizational fees and operating expenses.

Since the date as of which the investment performance herein reflects, there has been an outbreak of COVID-19 in the United States, and many other countries across Asia and Europe, which presents materialuncertainty and risk with respect to the future performance and financial results of the investments discussed herein. As a result, Apollo anticipates meaningful impact to the investment performance discussed herein.

The multiple of investment cost (“MOIC”) is derived from dividing the sum of the estimated remaining value and realized proceeds by the amount invested, except where otherwise specified. MOIC is presented gross anddoes not reflect the effect of management fees, incentive compensations, certain expenses or taxes, which will reduce return.

Past performance is not indicative nor a guarantee of future returns.

Certain information contained herein may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results or the actual performance of a Fund may differ materially from those reflected orcontemplated in such forward-looking information. As such, undue reliance should not be placed on such information. Forward-looking statements may be identified by the use of terminology including, but not limitedto, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.

Target IRR is presented gross and does not reflect the effect of management fees, incentive compensation, certain expenses or taxes. Any target IRR presented is not a prediction, projection or guarantee of futureperformance. Target IRR is calculated based on certain assumptions, which include recent performance data and current market conditions. Apollo gives no assurance that targeted returns will be achieved or that themethodology and assumptions used to estimate such returns are reasonable.

Additional information may be available upon request, subject to applicable law and regulation.

2Page 070

• Apollo Overview

• Strategy Overview

• Investment Process

• Market Opportunity

• Case Studies

• Appendix

Agenda

Page 071

Apollo Overview

Page 072

All figures as of March 31, 2020 unless otherwise noted. Please refer to the end of this presentation for the definition of AUM.

(1) AUM figures include funds that are denominated in Euros and translated into US dollars at an exchange rate of €1.00 to $1.10 as of March 31, 2020. Business segment AUM may not sum to total firm AUM due to rounding.

(2) Headcount includes 3 Executive Officers as Private Equity Investment Professionals

(3) Number may not be fully reflective of all Apollo affiliated office space worldwide

Apollo Overview

5

Key Attributes Global Footprint

Value-oriented, contrarian

approach

Opportunistic across market

cycles

Integrated platform across asset

classes and geographies

Deep industry knowledge

Private Equity

154 Investment

Professionals2

$68 bn in AUM1

Credit Real Assets

235 Investment

Professionals

$210 bn in AUM1

104 Investment

Professionals

$38 bn in AUM1

New York

Bethesda

Houston

Los Angeles

London

Madrid

Frankfurt

Luxembourg

Delhi

Mumbai

Shanghai

Hong Kong

Singapore

Firm Profile

Founded: 1990

AUM: ~$316 bn1

Employees: 1,460

Offices Worldwide: 153

Tokyo

San Diego

Page 073

Apollo’s Distressed Landscape

6

Based on the views and opinions of Apollo Analysts. Subject to change at any time without notice.

Opportunistic

Accord Series Origination Strategy

Dislocation Driven

Non-Control Stressed /

Distressed and Bespoke

Rescue Finance

• Capital Solutions: senior

or subordinated credit

and structured

instruments with equity-

linked upside

• Structured Equity: non-

control or control equity

to fund initiatives,

acquisitions, deleveraging

or build-ups

• Small & medium

corporate distressed

Hybrid Value Private Equity

Flexible, Contrarian

Investment Approach in

All Market Environments

• Value-oriented

opportunistic buyouts

and build-ups

• Trading complexity for

value in complex

corporate carve-outs

• Large Corporate

“Distressed for Control”

Breadth of Capabilities Enables Nimble Deployment

Broad Dislocated Stress and

Distressed Cross-Asset Credit Strategy

• Invests across all credit asset classes

• Focuses on dislocations and spread

widening across $200bn+

multi-asset credit platform

• Corporate Credit

(loans, bonds)

• Structured Product

(RMBS, CMBS, CLOs)

Dislocated Origination

Corporate Credit

Strategy

• Focuses on creating

bespoke originated risk

during periods of

dislocation

• Benefits from

incumbent lender status

afforded by large CLO

and corporate credit

business

• Corporate Credit

Credit

Focus

Page 074

Strategy Overview

Page 075

Apollo Global Opportunistic Credit Team

8

Portfolio Manager

John Zito

Deputy CIO of Credit & Co-Head of Global Corporate Credit

18 Years Relevant Experience

Risk & Portfolio Analytics Team

Research Team

Energy

Mid-Stream

14 Years

Dan

Vogel

Cable

TV & Radio

Software

Advertising

Content

23 Years

Jeff

Rosen

Power

Gaming

21 Years

Matt

Sparacino

Aerospace

& Defense

Business

Services

Education

Jeff

Brown

16 Years

Home

Builders /

Products

General

Industrials

Christine

Bave

19 Years

Healthcare

Adam

Hinman

15 Years

Consumer

(non-retail)

Restaurants

Supermarkets

Food & Bev

13 Years

Bill

Ross

Portfolio

Analytics

15 Years

Henry

Kim

Chief Credit

Officer

35 Years

Patrick

Ryan

Credit Trading U.S. Opportunistic European Opportunistic

Liquid

Distressed &

Work-Outs

14 Years

Chris Lahoud

3 Supporting Professionals 1 Supporting Professional

30 Supporting Professionals

Zach Barratt

Head

15 Years

Rob Bittencourt

Co-Head

18 Years

Rob Givone

Co-Head

16 Years

Tristram Leach

Head

15 Years

Note: Information as of March 31, 2020.

The team leverages the broader resources of Apollo’s Credit, Private Equity

and Real Assets investment professionals

Portfolio Team

Desk Analyst

Metals &

Mining

Transport &

Logistics

20 Years

Mike

Tu

Page 076

For discussion purposes only. Subject to change at any time without notice.

Apollo Accord Fund IV: Core Fund Characteristics

Idiosyncratic credit selection

Liquidity-driven,

non-economic catalysts

High conviction names

Top of the capital structure

dislocated credit

9

Apollo

Accord

Fund IV

Opportunistic Mandate Which Expects to Pursue Liquidity-Driven Opportunities During

Market Dislocations, in a Cross-Asset Format in Both Primary and Secondary Markets

Page 077

The White Space: Dislocated Credit

AccordPassive Investors Distressed For Control Investors

Note: For discussion purposes only. Reflects the view and opinion of Apollo. Subject to change without notice at any time. Sources: Bloomberg, Morningstar and Preqin. Please refer to the end of this presentation for a slide entitled“Risk Factors & Definitions” for important information concerning target returns. (1) Pension & Investments Annual Survey. As of June 30, 2019. (2) Target returns are net of performance allocation, management fees and expenses.There can be no guarantee or assurance that target returns will be achieved. Apollo Accord Fund IV has yet to launch, and there is no guarantee it will launch.

Alternative Approach to Capturing Credit Dislocation

IRR-Focused Credit Opportunities

Capitalize on the Space Between Passive and Traditional Distressed Buyers

Focus on Top of the Capital Structure

Intense Active Management: Ability to Opportunistically Deploy Capital

Generally Target 5-6% Returns

$15 Trillion in Assets Managed Passively

Paired with Significant Outflows from Active

Management1

Unprecedented Flows Squeeze

High Liquidity Opportunity Set

Generally Target 1.5-2.0x MOIC and

15-25% Returns

Equity-Like Risk

Billions Raised in Distressed and

Direct Lending Funds

Unprecedented Flows Squeeze

Illiquid Opportunity Set

Target 12-15% Net Returns2

High Quality Credits

Significant Enterprise-Coverage

Provides Liquidity

Pursues IRR Focused Opportunities

Typically Not Part of Distressed

Mandates →

10Page 078

We Believe Market Structure and Funding Gap Dynamics Underscorethe Need for Agile and Flexible Contingent Capital

11

Source: Bloomberg, ICE BofA, Apollo Analysts as of June 2020. (1) $300 million in face value shown/purchased in connection with one portfolio trade of multiple line items.

Late ’15 / Early ‘16 Late ’18 March 2020

VIX: +30 pts

HY OAS: +550 bps

VIX: +30 pts

HY OAS: +220 bps

VIX: +70 pts

HY OAS: +750 bps

Over Past 5+ Years, the Average Volatility Cycle Has Lasted 36 Days

Block Trades

Shown

Block Trades

Purchased

Point Average

Discount

From Mutual Funds,

ETFs or CLOs

80

68

12

7~

Peak HY OAS: 800 bps Peak HY OAS: 550 bps Peak HY OAS: 1200 bps

Block Trades

Shown1

Block Trades

Purchased1

Point Average

Discount

Billion in

Face Value Shown

30

$1

15

3-5

Block Trades

Shown

Block Trades

Purchased

Point Average

Discount

Billion in

Face Value Shown

262

$7

32

3-5

Page 079

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

300

400

500

600

700

800

900

1000

1100

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20

Cap

ital C

alled

(%

)

OA

S (

bp

s)

Capital Called in Accord Funds (%) (RHS)

ICE BofAML US High Yield Master II OAS (bps) (LHS)

Trailing 3-Yr Average HY OAS (bps) (LHS)

30%

Pace and Magnitude of Capital Deployment Depends on Market Conditions

Source: Federal Reserve Economic Data (FRED), Apollo Analysts; subject to change at any time without notice. Graph reflects daily (OAS) in basis points (bps) for the ICE BofAML US High Yield Master II Index, from January 16,2017 through July 2, 2020. (1) Capital called reflects percentage of total capital commitments. (2) Refers to average daily / peak option adjusted spread (OAS) for the ICE BofAML US High Yield Master II Index. (3) From the Fund’sfirst close on February 10, 2017 through the end of the Investment Period on April 7, 2018. (4) From the Fund’s first close on April 24, 2018 through the end of the Investment Period on July 2, 2019. (5) From the Fund’s first closeon June 28, 2019 through July 2, 2020 time period. (6) From the Fund’s first close on April 24, 2020 through July 2, 2020 time period. (7) Reflects estimated composite returns of Accord Fund I, Accord Fund II and Accord Fund IIIfrom the date of the funding of Accord Fund I’s first call, February 27, 2017 through May 31, 2020. (8) Reflects cumulative return on equity for Accord Fund I, Accord Fund II and Accord Fund III for the period February 27, 2017through May 31, 2020.

History of Sourcing Opportunities in Benign & Stressed Environments

12

Capital deployment tends to increase as spreads widen

Accord

Fund I

Accord

Fund II

5%

Accord I Accord II Accord III Accord III B

Vintage 2017 2018 2019 2020

Total Commitments $308 mm $781 mm $886 mm $1,761 mm

Capital Called (%) 1 25% 35% 100% 20%

Average / Peak HY OAS

During Investment Period 2369 bps / 416 bps 3 385 bps / 544bps 4 508 bps / 1087bps 5 680 bps / 803 bps 6

Accord

Fund II

Accord

Fund III

10%

20%

5%2.5% 2.5%

10%

12.5%

5% 5%

20%

25%

20%

Accord

Fund III B

Apollo Accord Series

Gross Net

IRR7 18.9% 14.1%

Multiple8 1.47x 1.28x

Page 080

Investment Process

Page 081

Investment Process

14

Note: Investment process is subject to change at any time for any reason without notice. For discussion purposes only.

Strategic Investment Process Focused on Identifying and Capturing Dislocations

• Research team organized to integrate with the platform’s

sector-specific experts

• Collaborative screening and vetting process conducted within the

opportunistic business and Apollo platform when synergies are apparent

• Leverage Apollo’s global platform breadth and open structure to

enhance deal-flow

‒ Over 900 Credits and 700 Loans Covered

‒ Private Equity has owned & operated over

300 Companies

• Quantitative analysis of performance

drivers and detractors

• Iterative process: Re-evaluate both

successes and failures

• Adapt and evolve investment process

• Active participation in the investment process

• Ongoing dialogue with investment team

• Oversight of portfolio, identify key

risk exposures

• Quantify upside/downside targets

• Rigorous quantitative risk management framework

• Deep fundamental research

complemented with quantitative analysis

• Identify and evaluate potential catalysts

• Confirmatory due diligence with Apollo’s

open platform

• Company level deep-dives

• On-going maintenance on position-level

research for current and prospective

investments

• Construction of portfolio and tactical

allocation across core strategies

• Focus on capital markets, position sizing

and scenario analysis

• Employ efficient and cost-effective

hedging strategy

Idea

Generation

Portfolio

Management

Risk

Management

Attribution Research Process

Daily monitoring and constant dialogue ensures persistent re-evaluation and critical review

Page 082

Screening: Memo and Diligence Expectations

15

Summary: Structure: Components of Analysis:

▪ Cash flow sensitivity

▪ How cash flows through the business

and its impact on each part of the

financial statements

Cash Flow /

Segment and Unit

Economics

Event and Timeline

▪ Highlights investment

opportunity and highlights

volatility/risk of cash flow

movement in and out of

companies

▪ Summary of recent events,

near term opportunity

catalysts and broad near-

and long-term investor

expectations

Walkthrough of business

segments, key risks and

components of cash flow

Answers the following key

questions:

▪ Historical timeline (how we got here)

▪ Themes the Street expects to become catalysts

▪ Recent materials events

− Soft Events (e.g., earnings, rating upgrade expectations)

− Hard Events (e.g., litigation resolution, macro shift)

EBITDA

CapEx

Working

Capital &

Add-backs

Interest

Coverage

Free Cash Flow

Segment

Quality

Revenue

Volatility/

Drivers

Cost

Structure

Industry

ImpactMarco

Influence

Cash

Collection

Cycle

Tax and

Add-

backs

Historical

Understa-

nding

Seasonal

/ Cyclical

impact

Mainte-

nance

CapEx

Growth

CapEx

Interest

Coverage

Documentation

Assessment

• Assessment of flexibility to

the detriment of existing

creditors

▪ Layering considerations, stripping of assets (unrestricted), covenant

dynamic, etc.

Asset Quality

▪ Quantitative summary of

Asset Values and Balance

Sheet Quality

▪ Transaction comps

▪ Trading Comps

▪ Sum-of-parts (where appropriate)

Page 083

Illustrative Accord IV Portfolio Objectives

Apollo Accord Series

For discussion purposes only. Note: There can be no assurance that the identified strategy targets will be available for the Fund in connection with selecting investment opportunities. The identified strategy targets are provided asindicators as to how Apollo intends to manage the Fund, subject to change, and should not be viewed as any form of binding investment limitation or portfolio concentration or diversification measure. There is no guarantee theillustrative portfolio objectives will be achieved. (1) The target returns presented are not a prediction, projection or guarantee of future performance. The target returns were calculated based on certain assumptions, which include recentperformance data and current market conditions. Target returns are net of all fees and expenses. Apollo gives no assurance that targeted returns will be achieved. Please refer to the beginning of the presentations for an important noteregarding target returns. Apollo Accord Fund IV has yet to launch, and there is no guarantee it will launch.

Illustrative Accord IV Portfolio Construction

Dynamic Allocations Based on Market Opportunity Illustrative Strategy Characteristcs

DIP Loans / Term Loans / Bridge Financings

Origination

Liquid Secondary (Idiosyncratic)

Broadly Syndicated Primary

Specialty and Structured Finance

Revolver Refinancings

Liquid Secondary (Liquidity-driven)

Secondary Stressed/Distressed

• Stressed Performing Credit and Credit-like Securities

• High Quality Assets with Significant Collateral Coverage

• Isolated and Hedged Factor Risk

• Core Investment Themes: 30-40

• Typical Position Size: 3-5%

• Average Holding Period: 12-24 Months

• Target Fund Net Return1: 12-15%

• Carry: 5-10%

• Duration: 2-5 years

• Recycled Commitments: 10-50%

• Secured Risk: 50%+

16

Stable Markets

Dislocated Markets

Page 084

Market Opportunity

Page 085

Today’s Uncertainties May Have Significant Implications on Markets

18

Source: Apollo Analysts as of June 2020. Based on the views and opinions of Apollo Analysts. Subject to change at any time without notice.

2020 Presidential Election: Progressive Fiscal Agenda, Civil Unrest and Inflamed International Relations

Geopolitical Tensions:Policy Escalations and Resurgence of Populist / Nationalist Sentiment

Unprecedented Central Bank Intervention:When the Tide Goes Out, Who Will be Left High and Dry?

Longer-than-Expected Recovery:Long-Term Balance Sheet Impacts Amidst Waning Government Support

Secular Changes in Consumer Behavior:Companies and Industries to Confront Existential Issues

Page 086

3

Volatility relatively abated but

present in select sectors as

prices normalize

Continued pressure on

certain asset classes and industries

creates dispersion

Market Opportunities are Shifting…

19


We anticipate the market vacillating between three phases over the next 12-24 months

In a constantly shifting environment, security selection is paramount

Episodic market volatility

2

Improved visibility into

longer-term market impact

but uncertainty reigns

Muted primary capital

market activity despite

market stabilization

1High degree of uncertainty breeds

volatility, correlation across

asset classes

Broad-based market selling in

part due to indiscriminate

forced selling from liquidity

constrained vehicles

Page 087

… And Driving An Evolving Credit Opportunity Set

20


PHASE 1 2

Broad-based market selling in part

due to indiscriminate forced selling

from liquidity constrained vehicles

MARKET

REACTION

High degree of

uncertainty breeds

volatility, correlation

across asset classes

Improved visibility into

longer-term market impact

but uncertainty reigns

APOLLO

INVESTMENT

FOCUS

PRIMARY

ORIGIN-

ATION

PUBLIC

PRIVATESECON-

DARY

• Secured, top of the capital structure

high-quality risk

• IG, HY, loans, high quality CLO debt

APOLLO

CAPABILITIES PUBLIC SECON-

DARY

CURRENT

ACTIONABILITY

3

PRIVATE

Muted primary capital market

activity despite improving

economic backdrop

• Private credit solutions for hung

syndications or borrowers sensitive to

taking market risk

• Broadly syndicated primary,

directly originated solutions

Volatility relatively abated

but present in select sectors

as prices normalize

• Select stressed and distressed

opportunities emphasizing

defensive issuers

• HY, loans, structured and

specialty finance

Continued pressure on certain

asset classes and industries

creates dispersion

We expect meaningful actionability over the next 6-12 months

across credit asset classes as market phases evolve

Page 088

Apollo’s Concerns Surrounding Market Structure Were Borne Out During the Recent Episode of Volatility

21

Source: Goldman Sachs as of May 2020. Based on the views and opinions of Apollo Analysts, subject to change at any time without notice.

Liquidity Plummets When Volatility Spikes,

Even in Liquid Instruments

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2019

% T

ota

l C

orp

ora

te B

on

d M

ark

et

(IG

an

d H

Y)

Foreign Mutual Funds and ETFs

Foreign and Daily Liquidity Fund Ownership for

Corporate Credit Has Increased

Prepare don’t predict: Market structure vulnerability to bouts of volatility underscores need for flexible, scalable dry powder

0

10

20

30

40

50

60

70

80

90

$0

$10

$20

$30

$40

$50

$60

$70

Sep

-17

Dec-1

7

Mar-

18

Jun

-18

Sep

-18

Dec-1

8

Mar-

19

Jun

-19

Sep

-19

Dec-1

9

Mar-

20

SP

X E

-Min

i Fu

ture

s To

p-o

f-B

oo

k D

ep

th, $m

m N

oti

on

al

SPX Futures Depth (LHS) VIX Index (RHS)

Page 089

Distressed Debt Volume in March Exceeded ’08 Levels

Elevated Default Volume Expected to

Overwhelm Demand for Distressed Debt

U.S. Companies Have Raised More Capital

in Q2 2020 than in Any Previous Quarter

Higher Default Volume Amidst Unprecedented Capital Need

22

Source: ICE BofAML, Preqin, Dealogic and Apollo Analysts as of June 2020. Distressed debt defined as debt trading at spread/discount margin of 1,000 or more. Default volume includes non-IG and middle market/direct lending

debt outstanding.

0

500

1,000

1,500

2,000

2,500

0 500 1,000 1,500 2,000

(LL Discount Margin, bps)

(HY STW, bps)

Feb-20

Feb-16

Mar-20

Dec-08

$18

$216

$329

$500+

$0$9

$33

$62

10.3%

12.8%

10.7%

10.0%

0%

5%

10%

15%

20%

$0

$100

$200

$300

$400

$500

1991 2002 2009 2020

Default Volume

Distressed Debt Dry Powder

Default Rate

($bn)

$0

$20

$40

$60

$80

$100

$120

$140

$160

2005 2010 2015 2020

($bn)

Page 090

High Revolver Utilization Driving a Flurry of Refinancing Activity

Record Downgrades

Putting Pressure on Market

481

414

494

170

355

501

0

50

100

150

200

250

300

350

400

450

500

550

2009 2019 YTD 2020

HY Issuers Downgraded

Loan Issuers Downgraded

Defaults on the Rise and

Expected to Accelerate

Significant Credit Market Opportunity Driven by Challenging Technicals

23

Source: Credit Suisse, J.P. Morgan as of June 2020.

Average HY Revolver Draw Rate

Fragility of credit markets could generate $1 trillion+ of opportunities across both public and private credit

17%

45%

0%

10%

20%

30%

40%

50%

Dec-19 Today

$95

$32$45

$90

$19

$26

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

2009 2019 YTD 2020

Loan Default Volume ($bn)

HY Default Volume ($bn)

Page 091

Concentrated Leveraged Loan Buyer Base2019: CLOs Close to Breaching CCC Limits,

While B/B- Loans at All-time Highs

2020: Following Record Downgrades in April,

65% of CLOs are Breaching CCC Limits

Source: Citi Research as of December 2019 and May 2020. Reflects the views and opinions of Apollo Analysts. Subject to change at any time without notice.

CLO Market Technicals Require a Watchful Eye

24

50%

72%

0%

100%

2009 2019

Loan Mutual Funds CLO Other

37%

9%

47%

5%

0%

50%

B2 & B3 Caa or lower

2008 2019

Potential Downgrades?

7.5%

Limit

4%

65%

0%

10%

20%

30%

40%

50%

60%

70%

Dec-19 Today

Share of CLOs Breaching CCC Limits

Page 092

Case Studies

Page 093

Accord Fund III – Liquidity-Driven Opportunity

26

Company Overview

• PetSmart, Inc. (“PetSmart” or the “Company”) is the largest pet specialty

retailer in North America with over 1,500 stores nationally serving the

~$80bn U.S. pet supplies & services market

• In March 2017, PetSmart announced plans to acquire Chewy.com

(“Chewy”), a leading online pet supplies retailer for $3.03bn (2.7x LTM

sales), financing the deal with $2bn of debt and $1bn of new equity

• PetSmart took Chewy public through an IPO in May 2019 at an $8.6bn

valuation (2.9x purchase price) and paid down $830mm of 1st Lien Debt

(15% of outstanding) with proceeds from the IPO

• Subsequent Performance:

- PetSmart’s brick & mortar business has now posted eight consecutive

quarters of sequential improvement in same store sales growth and has

stabilized EBITDA

- Chewy continues to grow rapidly with improving margins and its

market capitalization has risen to ~$14.9bn

• PetSmart continues to own a 65% stake in Chewy, worth 1.9x the

outstanding amount of 1st Lien Debt

Opportunity Overview

• Apollo is very familiar with PetSmart having previously been the

largest 1st Lien Term Loan lender; Apollo largely exited this position in

early 2020 at prices at or near par

• In March 2020, PetSmart’s 1st Lien Term Loan traded down into the mid

$80s, due in part to market volatility and forced selling, at which point we

started buying back into the position at an average price in the low

$90s

• Apollo purchased the 1st Lien Term Loan in March:

- Coupon: L+400

- Maturity: March 2022

• In our view, the 1st Lien Term Loan represents a compelling, downside

protected opportunity due to:

i. PetSmart’s recession and COVID-19-resistant business model

ii. Strong asset coverage through its stake in Chewy and brick & mortar

business

iii. Tight covenant package and near-term maturity

• We believe the Company will ultimately opportunistically refinance the

Term Loan given that it is the first maturity and most restrictive document

in the structure

Investment Date Industry Security Type

Mar-2020 Retail 1st Lien Term Loan

Investment examples have been provided for discussion purposes only. This example has been selected using an objective, non-performance based criteria, as a recent liquidity-driven investment in Accord Fund III, L.P. Information contained in these case studies has been gathered and provided by Apollo Analysts. There is no guarantee that such an investment will become available in the future, or that its objectives will be achieved.

Page 094


• Apollo Funds provided a $800mm secured financing that refinances the

Company’s existing $500mm of credit facilities while also providing future

development capital

• The term loan is designed to be a bridge to a more permanent financing

for the Company once its current projects are online and generating

positive EBITDA in 2020

• The credit agreement is written with tight provisions that will limit the

Company’s ability to incur debt and make restricted payments except for

specific purposes

• Apollo Funds’ development capital is designed to fund late stage projects

within NFE’s core market

• New Fortress Energy (or the “Company”) is a liquefied natural gas

(“LNG”) regasification (“regas”) company with a ~$2.5bn market cap

whose business model is to bring significantly lower cost and more

environmentally friendly natural gas to regions that do not have domestic

oil & gas resources

• The Company is capitalizing on the rise of global LNG supply in recent

years and bringing this fuel to isolated markets which historically were

limited to burning higher cost and less environmentally-friendly diesel fuel

for power generation

• The Company finds anchor customers by converting existing diesel-fired

power plants to natural gas and then building an LNG regas terminal

nearby to supply the utility

Company Overview

Investment examples have been provided for discussion purposes only. This example has been selected using an objective, non-performance based criteria, as a recent idiosyncratic investment in Accord Fund III, L.P. Information contained in these case studies has been gathered and provided by Apollo Analysts. There is no guarantee that such an investment will become available in the future, or that its objectives will be achieved.

Accord Fund III – Idiosyncratic Opportunity

27

Investment Date Industry Security Type

1/10/2020 Energy 1st Lien Term Loan

Page 095

Accord Fund III – Declined Opportunity

28

Company Overview

• Carnival Cruise Line (NYSE:CCL) (“Carnival” or the “Company”) is the largest

cruise-line operator globally

• Following the outbreak of COVID-19 and headlines of large-scale outbreaks

on cruise ships worldwide, the cruise industry was faced with significant

challenges. Between late February and mid-March 2020, Carnival

implemented drastic price cuts in an effort to attract passengers and by

mid-March 2020 ceased cruise operations and drew its entire $3 billion

credit line from bank lenders

• Relatedly, from late February into mid-March, Carnival experienced

significant pain:

- The Company's stock price declined precipitously by ~60%, marking an

~$14.5bn decline in market cap

- Bonds which previously traded at par fell to $70

- The Company was also downgraded from its previous single-A credit

rating

• Looking forward, even with most ships docked, Carnival estimated

significant capital requirements on a go-forward basis to cover

customer refunds, debt repayments and operational costs


• Apollo has a deep understanding of the cruise industry given historical

investments in the space, both in credit as well as private equity’s prior

ownership of Norwegian Cruise Line, which enabled us to move quickly to

evaluate Carnival's financing needs

• Against a volatile market backdrop, the Apollo Funds, iterated with the

Company, offering a highly structured, senior secured solution, providing

certainty of execution to Carnival and an attractive risk-adjusted

opportunity to Apollo Funds

• Across these proposals, we remained focused on robust downside,

contractual protections

• We ultimately passed on the opportunity given an unbending focus on

documentation, claim on collateral and general sector uncertainty

Industry Security Type

Consumer Discretionary Senior Secured Financing

Investment examples have been provided for discussion purposes only. This example has been selected using an objective, non-performance based criteria, as a recently declined opportunity for Accord Fund III, L.P. Information contained in these case studies has been gathered and provided by Apollo Analysts.

Page 096

Appendix

Page 097

Biographies

John Zito – Deputy CIO of Credit & Co-Head of Global Corporate Credit

Mr. Zito is the Deputy Chief Investment Officer of Credit and Co-Head of the firm’s Global Corporate Credit business. He is the Senior

Portfolio Manager of multiple fund products, including the Credit Strategies Fund, the Apollo Accord Fund Series and certain

Opportunistic Credit Managed Accounts. He joined Apollo in 2012 after five years as a Managing Director and Portfolio Manager at

Brencourt Advisors, a multi-strategy hedge fund, where he oversaw all of the firm’s credit investments including the Brencourt Credit

Opportunities Fund. Prior to that, he was at Veritas Fund Group for five years where he co-managed the flagship capital structure

focused high yield fund and the short only credit vehicle. He is a CFA charterholder and he graduated cum laude from Amherst College

with an A.B. in Economics.

Akila Grewal – Senior Product Specialist for Opportunistic Credit

Ms. Grewal joined Apollo in 2016 and is currently a Principal and Product Specialist for Opportunistic Credit and a member of the Firm’s

Credit Allocations Sub-Committee. Prior to that time, Ms. Grewal was on the Proprietary Trading and Risk Management team at

Mariner Investment Group. Prior to that, Ms. Grewal was in the Business Development Group at MKP Capital. Ms. Grewal started her

career at Credit Suisse on the Portfolio Management and Product Delivery Team within the firm’s fund of hedge funds. Ms. Grewal

previously served on the Principle of Responsible Investment's Hedge Fund Steering Committee and their Fixed Income Outreach

Committee. Ms. Grewal graduated from New York University’s Stern School of Business with a B.S. in Finance and is a CFA

charterholder.

30Page 098

Risk Factors & DefinitionsRisk Factors

An investment in a Fund entails substantial risks, including, but not limited to, those listed below. Prospective investors should carefully consider the following summary of risk factors and carefully read the applicable Fund's PPM for additional

risk factors in determining whether an investment in a Fund is suitable:

• Potential loss of investment – No guarantee or representation is made that a Fund’s investment program will be successful. An investment in a Fund is speculative and involves a high degree of risk. Investors must have the financial ability,

sophistication/experience and willingness to bear the risks of an investment in a Fund. An investment in a Fund is not suitable for all investors. Investors could lose part or all of an investment and a Fund may incur losses in markets where

major indices are rising and falling. Only qualified eligible investors may invest in a Fund. Results may be volatile. Accordingly, investors should understand that past performance is not indicative nor a guarantee of future results

• Use of leverage – A Fund may utilize leverage and may also invest in forward contracts, options, swaps and over-the-counter derivative instruments, among others. Like other leveraged investments, trading in these securities may result in

losses in excess of the amount invested

• Regulatory risk – The Fund is not registered under the Investment Company Act of 1940. As a result, investors will not receive the protections of the Investment Company Act afforded to investors in registered investment companies (e.g.,

“mutual funds”). The Fund’s offering documents are not reviewed or approved by federal or state regulators and the Fund’s privately placed interests are not federally or state registered. In addition, the Funds may engage in trading on non-US

exchanges and markets. These markets and exchanges may exercise less regulatory oversight and supervision over transactions and participants in transactions

• Valuations – The net asset value of a Fund may be determined by its manager, adviser or general partner, as applicable or based on information reported from underlying portfolio companies. Certain portfolio assets may be illiquid and without

a readily ascertainable market value. Valuations of portfolio companies may be difficult to verify

• Fees and expenses – The Fund is subject to substantial charges for management, performance and other fees regardless of whether a Fund has a positive return. Please refer to the applicable Fund’s PPM for a more complete description of

risks and a comprehensive description of expenses to be charged to that Fund

• Lack of operating history – The Fund has little or no operating history

• Reliance on key persons – Apollo and/or its affiliates have total trading authority over the Fund and may be subject to various conflicts of interest. The death, disability or departure of certain individuals affiliated with Apollo may have a

material effect on the Fund

• Concentration – The Fund may hold only a limited number of investments, which could mean a lack of diversification and higher risk

• Counterparty and bankruptcy risk – Although Apollo will attempt to limit its transactions to counterparties which are established, well-capitalized and creditworthy, the Fund may be subject to the risk of the inability of counterparties to

perform with respect to transactions, whether due to insolvency, bankruptcy or other causes, which could subject the Fund to substantial losses

• Limited liquidity – Investments in the Fund are illiquid and there are significant restrictions on transferring interests in the Fund. No secondary public market for the sale of the Fund’s interests exists, nor is one likely or expected to develop.

In addition, interests will not be freely transferable

• Tax risks – Investors in the Fund are subject to pass-through tax treatment of their investment. Since profits generally will be reinvested in the Fund rather than distributed to investors, investors may incur tax liabilities during a year in which

they have not received a distribution of any cash from the Fund

• Possible Delays in Reporting Tax Information – Each Fund’s investment strategy may cause delays in important tax information being sent to investors.

• Volatile markets – Market prices are difficult to predict and are influenced by many factors, including: changes in interest rates, weather conditions, government intervention and changes in national and international political and economic

events

Definitions

• Beta – An accelerated decline in S&P of 2% and HYG of 1%. Beta calculated using historical data. Adjusted Beta modifies the beta based on securities correlation. The beta and adjusted beta may be overridden based on proxy securities and can

further be adjusted based on relative value or understanding of the securities

• Potential IRR Information – Potential IRR information is hypothetical in nature and is shown for illustrative, informational purposes only. This material is not intended to forecast or predict future events, but rather to demonstrate Apollo’s

investment and decision-making process. It does not reflect the actual returns of any portfolio strategy or holding and does not guarantee future results. Unless otherwise indicated, the potential IRRs are the good faith views of Apollo as of the

date indicated based on a number of assumptions/factors, including but not limited to, current monetary policy, inflation expectations and other fundamental and technical factors that determine interest rate levels in applicable markets and

likelihood of default. Apollo makes no representation as to the reasonableness of the assumptions or that all assumptions have been stated or fully considered. Actual returns may vary significantly from those stated herein. Changes in the

assumptions may have a material impact on the potential IRRs presented. All data is shown before fees, transaction costs and taxes

• “Assets Under Management,” or “AUM,” refers to the investments we manage or with respect to which we have control, including capital we have the right to call from our investors pursuant to their capital commitments to various funds.

Our AUM equals the sum of: (i) the fair value of our private equity investments plus the capital that we are entitled to call from our investors pursuant to the terms of their capital commitments to the extent a fund is within the commitment

period in which management fees are calculated based on total commitments to the fund; (ii) the net asset value of our Credit funds, other than certain senior credit funds, which are structured as collateralized loan obligations or certain

collateralized loan obligation and collateralized debt obligation credit funds that have a fee generating basis other than mark-to-market asset values, plus used or available leverage and/or capital commitments; (iii) the gross asset value or net

asset value of our real estate entities and the structured portfolio company investments included within the funds we manage, which includes the leverage used by such structured portfolio companies; (iv) the incremental value associated with

the reinsurance investments of the portfolio company assets that we manage; and (v) the fair value of any other investments that we manage plus unused credit facilities, including capital commitments for investments that may require pre-

qualification before investment plus any other capital commitments available for investment that are not otherwise included in the clauses above. Our AUM measure includes AUM for which we charge either no or nominal fees and may include

certain assets for which Apollo only earns investment-related service fees, rather than management or advisory fees. Our definition of AUM is not based on any definition of Assets Under Management contained in our operating agreement or

in any of our Apollo fund management agreements. We consider multiple factors for determining what should be included in our definition of AUM. Such factors include but are not limited to 1 our ability to influence the investment decisions

for existing and available assets; 2 our ability to generate income from the underlying assets in our funds; and 3 the AUM measures that we use internally or believe are used by other investment managers. Given the differences in the investment

strategies and structures among other alternative investment managers, our calculation of AUM may differ from the calculations employed by other investment managers and, as a result, this measure may not be directly comparable to similar

measures presented by other investment managers.

Important Notes Regarding the Use of Index Comparisons: There are significant differences between the Funds and the indices described above. For instance, the Funds may use leverage and invest in securities or financial

instruments that have a greater degree of risk and volatility, as well as less liquidity than those securities or financial instruments contained in the indices. It should not be assumed the Funds will invest in any specific

securities that comprise an index nor should it be understood to mean there is a correlation between the Funds’ returns and any indices’ performance. Index Definitions: The Credit Suisse Leveraged Loan Index is an index

designed to mirror the investable universe of the $US-denominated leveraged loan market. The Dow Jones Credit Suisse Event Driven Hedge Fund Index measures the aggregate performance of dedicated short bias funds. Event driven funds

typically invest in various asset classes and seek to profit from potential mispricing of securities related to a specific corporate or market event. The Merrill Lynch High-Yield Master II Index is a market value-weighted index of all domestic and

Yankee high-yield bonds (dollar-denominated bonds issued in the US by foreign banks and corporations). S&P 500 Index is based on the market capitalizations of 500 leading companies publicly traded in the US stock market, as determined by

Standard & Poor’s.

31Page 099

ITEM 5A


RE: Continuing Appropriation Authority Policy – Second Reading The following North Dakota Century Code pronounces continuing authority:

• N.D.C.C. § 15-03-16

• N.D.C.C. § 15-04-23

• N.D.C.C. § 15-04-24

• N.D.C.C. § 15-05-19

• N.D.C.C. § 15-06-22

• N.D.C.C. § 15-07-22

• N.D.C.C. § 15-08-04

• N.D.C.C. § 15-68-06

• N.D.C.C. § 47-30.1-23

• N.D.C.C. § 57-02.3-07 In 2016, the Board provided clarification on certain expenses allowed through continuing appropriation as outlined below:

Board of University and School Lands Continuing Appropriation Authority Policy

Continuing appropriation authority is provided in state law for certain operating expenditures.

A. Unclaimed Property - Continuing Authority. Unclaimed property expenses as outlined in NDCC Section 47-30.1-23 may be paid under continuing appropriation authority including, but not limited to: payments of claims, service charges for address verification and updates, advertising costs, audit services, legal costs and outreach efforts.

B. Grant Land, Non-Grant Land and Mineral Leases - Continuing Authority.

NDCC Sections 15-04-24, 15-07-22 and 15-05-19 permit expenditures to be considered as continuing appropriation expenditures. These sections appropriate annually the expenses determined by the Board as necessary to manage, preserve, and enhance the value of the trust land and mineral assets.

Specifically authorized by the Board as continuing appropriation authority:

1. Salaries and travel expenses for temporary field men who conduct inspections to ensure rangeland integrity and surface reclamation.

2. Advertising surface and mineral lease auctions. Section 15-04-09 of the NDCC requires the Board to publish multiple notices of surface and mineral leases auctions. Advertising of the lease auctions are done to ensure the trusts receive competitive bids to enhance the trusts' value.

3. Legal expenditures that are incurred by a specific trust or trusts to maintain their value and integrity.

4. Costs of hiring independent contract firms to perform accounting, audit, compliance review or collection efforts to ensure the proper payment of oil, gas, coal or other mineral royalty.

ITEM 5A

The Commissioner has reviewed, in conjunction with the Attorney General’s Office, the Continuing Appropriation Authority Policy and is recommending changes based upon statutory changes and to accommodate the consideration of technology as a continuing appropriation. The first reading of the policy was held at the May 28, 2020 meeting. At the June 25, 2020 meeting the Board was presented with a revised Continuing Appropriation Authority Policy requiring an additional review and comment period. No comments were received. Recommendation: The Board adopt the proposed North Dakota Board of University and School Lands Continuing Appropriation Authority Policy – Chapter 2, General.


Aye Nay Absent

Secretary Jaeger

Superintendent Baesler

Treasurer Schmidt

Attorney General Stenehjem

Governor Burgum

Attachment – Continuing Appropriation Authority Policy

ITEM 5A 1

North Dakota Board of University and School Lands: General

CONTINUING APPROPRIATION AUTHORITY POLICY

Continuing appropriation authority is provided in state law for certain operating expenditures. In addition to that specific statutory authority, the Board provides guidance as to approved expenditures outlined below.

Unclaimed Property.

Unclaimed property expenses as outlined in N.D.C.C. § 47-30.1-23 may be paid under continuing appropriation authority. Those expenses include payment of claims, service charges for address verification and updates, advertising costs, audit services, legal costs, computer software, and outreach efforts.

Grant Land, Non-Grant Land, Mineral Leases, and Investments. N.D.C.C. §§ 15-03-16, 15-04-24, 15-05-19, 15-06-22, 15-07-22, and 15-08-04 permit certainexpenditures under continuing appropriation and appropriate annually the expenses determined bythe Board as necessary to manage, preserve, and enhance the value of the trust land and mineral assets.Those expenditures specifically authorized by the Board under continuing appropriation authority include:

1. Equipment and travel expenses for Surface Division staff and temporary field inspectors, andtemporary field inspectors’ salaries.

2. Advertising surface and mineral lease auctions. N.D.C.C. § 15-04-09 requires the Board topublish multiple notices of surface and mineral leases auctions. Advertising of the leaseauctions are done to ensure the trusts receive competitive bids to enhance the trusts’ value.

3. Legal expenditures that are incurred by a specific trust or trusts to maintain their value andintegrity.

4. Costs of hiring independent contract firms to perform accounting, audit, compliance review,or collection efforts to ensure the proper payment of oil, gas, coal or other mineral royalty.

5. Equipment and travel expenses for Minerals Division staff.6. Software acquisition, development, maintenance costs, service fees, and licenses fees

necessary to effectively manage, protect, and secure the assets managed by the Board.

Effective date: May 26, 2011 (effective July 1, 2011) Revised: February 25, 2016; July 29, 2020 (effective July 1, 2020)

ITEM 5B

MEMORANDUM TO THE BOARD OF UNIVERSITY AND SCHOOL LANDS September 26, 2019

RE: Repeal of Board Payment Schedule – Surface Management Division – First Reading (No Action Requested) The Board of University and School Lands currently has a Policy Manual (Board Policy Manual) which includes the following sections:

1. Governance • Policy Introduction/Amendment/Passage

2. General

• Definitions • Code of Ethics • Fees • Payment Schedule – Surface Management Division

3. Surface Land Management

• Fair Market Value Minimum Rent Policy • Chapter 15-09 Sales Policy • Sale of State Land for Landfills • Land Retention and Sales Policy • Criteria for Retaining Foreclosed Property • Acquired Properties Management

4. Investments

• Farm Loan Policy • Investment Policy Statement

5. Minerals

• Coal • Oil and Gas • Minerals Valuation • Potash

Over the course of the last two years, many Board policies were revised and included in Administrative Rules. Other policies were reviewed, and it was determined were better suited to become Department of Trust Lands (Department) policies. Upon further review, it was determined that as the Surface Management Division’s Payment Schedule Board Policy addresses negotiation of compensation for surface management issues, it would be better tailored to be a Department policy rather than a Board policy. The Commissioner is recommending repeal of the current Payment Schedule – Surface Management Division policy. The Department will adopt a policy addressing these issues at the Department level.

ITEM 5C


RE: Strategic Investment and Improvements Fund - Assigned Fund Balance Mineral revenues from sovereign lands are deposited into the Strategic Investment and Improvements Fund (SIIF). In July, 2016 the Board of University and School Lands (Board) classified $142,325,049 of this fund as an “Assigned Fund Balance,” a potential liability that should not be transferred out of the fund until title claims to riverbed leases are resolved. The amount was derived from the amount of bonus and royalties collected from the leasing and production of sovereign lands’ oil and gas interests and in consideration of associated litigation in these areas. The adoption of Senate Bill 2134 (SB 2134) in 2017 by the Sixty-fifth Legislative Assembly, codified as N.D.C.C. ch. 61-33.1, provided for a determination of the Ordinary High Water Mark (OHWM) for certain stretches of the Missouri River. The bill directed the North Dakota Industrial Commission (NDIC) to review a stretch of river to determine the location of the OHWM pursuant to specific criteria established by the Legislature. On August 30, 2018 the Board affirmed the existing Assigned Fund Balance of $229,325,049. It was anticipated that after the NDIC adopted the final review findings, the Department of Trust Lands (Department) would be able to calculate with more certainty the amounts necessary for mineral title disputes. The survey NDIC was directed to conduct under SB 2134, and completed by Wenck Associates, Inc., did not provide the level of detail needed by the Department or oil and gas operators to make the necessary adjustments required to refund royalties and lease bonuses. In recognition of this, the Sixty-sixth Legislative Assembly amended N.D.C.C. ch. 61-33.1 by adopting Senate Bill 2211 (SB 2211). SB 2211 authorized the Board to “contract with a qualified engineering and surveying firm to analyze the final review findings and determine the acreage on a quarter-quarter basis or government lot basis above and below the [OHWM] as delineated by the final review findings of the [NDIC].” The SB 2134 further directed the adjustment of State leased mineral interests and authorized refunds of mineral proceeds accordingly. SB 2134, Section 3, states:

1. There is appropriated out of any moneys held in reserve in the [SIIF] for mineral title disputes, not otherwise appropriated, the sum of $100,000,000, or so much of the sum as may be necessary, to the commissioner of university and school lands for the purpose of mineral revenue repayments, for the biennium beginning July 1, 2017, and ending June 30, 2019. The funding provided in this section is considered a one-time funding item.

2. The funding provided in this section is available for the following: a. Repayment of any lease, bonus, rents, and royalty collections attributable to

oil and gas mineral tracts lying entirely above the ordinary high water mark of the historical Missouri riverbed channel on both the corps survey and the state phase two survey, as required in subsection 1 of section 61-33.1-04.

b. Repayment of any lease, bonus, rents, and royalty collections attributable to the remaining oil and gas mineral tracts, as required in subsection 2 of section 61-33.1-04.

ITEM 5C

c. Other mineral revenue repayments or other reimbursements that areattributable to oil and gas mineral tracts requiring repayments under this Act.

3. Upon adoption of the final review findings by the industrial commission, thecommissioner of university and school lands shall calculate the amount necessaryfor mineral revenue repayments based on the final review findings.

4. As soon as a repayment amount for a known recipient is calculated but after theexpenditure of the $100,000,000 in subsection 1:

a. The commissioner of university and school lands shall request from thesixty-sixth legislative assembly additional funding sufficient for anyremaining mineral revenue or other repayments.

b. If the $100,000,000 is expended before the repayment of all amountscalculated for known recipients and before additional funds are madeavailable by the sixty-sixth legislative assembly, the Bank of North Dakotashall extend a line of credit, not to exceed $87,000,000, to thecommissioner of university and school lands. The commissioner ofuniversity and school lands shall access the line of credit, to the extentnecessary, the sum of which is appropriated, for the purpose of mineralrevenue and other repayments under this Act for the biennium beginningJuly 1, 2017, and ending June 30, 2019. The commissioner of universityand school lands shall repay the line of credit from funds available in thestrategic investment and improvements fund as appropriated by thelegislative assembly.

Mineral revenues from sovereign lands are deposited into the SIIF. Current revenue projections indicate there will be sufficient funds within the SIIF to meet obligations and transfers implemented by the 2017 Legislative Assembly, including the total amount estimated for refunds under SB 2134.

On July 17, 2019 the Board approved the existing Assigned Fund Balance of $229,325,049. The amount was based upon the bonus and royalties anticipated to be collected through the end of Fiscal Year 2019.

ITEM 5C

Basis for Assigned Fund Balance

Total Bonuses & Rents Collected

% Impact Bill 2134 Total

Phase I* $ 26,083,522 77.53% $ 20,223,613 Phase II** 119,993,395 56.20% 67,439,601 Phase IV 41,826,605 41,826,605

$ 187,903,522 $ 129,489,819 Royalties Collected

Revenues % Impact Bill 2134 Total

Phase I* $ 9,290,365 77.53% $ 7,203,197 Phase II** 110,515,856 56.20% 62,112,963 Phase IV*** 852,316 852,316

$ 120,658,537 $ 70,168,476

Projected 17-19 Biennium

Total Estimated

Revenue % Impact Bill 2134 Total

Phase I* $ 3,066,652 77.53% $ 2,377,700 Phase II** 48,090,711 56.20% 27,028,308 Phase IV*** 260,747 260,747

$ 51,418,110 $ 29,666,754

Assigned Fund

Balance Bonus $ 129,489,819 Royalties 29,666,754 Projected 17-19 Biennium 70,168,476 $ 229,325,049

* Phase I leased (between township 153-102 and Hwy 85) ** Phase II leased (between Hwy 85 and Hwy 23) *** Majority of Phase 4 royalties are either held in escrow or suspense by operators.

On June 25, 2020 the results of the acreage adjustment survey as prepared by Kadrmas, Lee & Jackson, Inc. (KLJ) were presented and approved by the Board, with the exception of certain sections and lots that required further review. The Department has started the process of updating records to satisfy the Board’s duty under N.D.C.C. § 61-33.1-04(2)(a). This process will be extensive and will require a review of each parcel within each spacing unit located within the Project Area. Each parcel will be reviewed for changes to the database, Correction of Oil and Gas Leases will be prepared for execution, requests for refunds of bonus and royalties will be prepared, each well will need a new royalty management unit to ensure future royalties will be allocated to the correct trust, the Department’s shapefiles will be updated, and the Department will need to track the documentation for each lease correction. Within the 83 miles reviewed by

ITEM 5C

Wenck Associates, Inc., the Department has approximately 600 active leases covering 44,700 acres.

Based upon the Board approved acreage adjustment survey, the Department has completed a high-level review of the changes in acreage. As a result of this review, it is anticipated that potential refunds of bonus payments will be less than previously estimated. This reduction in estimated bonus repayments will offset the increase in royalties received since the Board approved the Assigned Fund Balance in 2019. The Department is unable to fully determine the impact the acreage adjustment survey will have on the Assigned Fund Balance until the Board is able to adopt the pending sections and lots as some of the highest bonus per acre tracts within the surveyed area are still under review. Until the Department receives acreage allocations within the full acreage adjustment survey area and can analyze each tract and well impacted by these adjustments, no changes will be recommended to the current Assigned Fund Balance.

Recommendation: For purposes of its financial reporting, the Board affirms the “Assigned Fund Balance” of the Strategic Investment and Improvements Fund and recommend it remain at $229,325,049. These funds are reserved to make adjustments related sovereign lands mineral ownership.


United States Department of the InteriorOFFICE OF THE SOLICITOR

Washington, D.C. 20240

May 26, 2020

M-37056

Memorandum

To: Secretary Assistant Secretary – Indian Affairs Assistant Secretary – Land and Minerals Management

From: Solicitor

Subject: Status of Mineral Ownership Underlying the Missouri River within the Boundaries of the Fort Berthold Indian Reservation (North Dakota)

On January 18, 2017, the Solicitor issued M-37044, addressing ownership of minerals located beneath the original bed of the Missouri River where it flows through the Fort Berthold Indian Reservation (“Reservation”) within the State of North Dakota (“State”), as well as ownership of minerals beneath uplands flooded by the construction of Garrison Dam and the subsequent formation of Lake Sakakawea. On June 8, 2018, the Solicitor issued M-37052, a partial suspension and temporary withdrawal of M-37044, in order to ensure a thorough legal and factual basis for M-37044 through review of the underlying historical record by a professional historian, a task not performed prior to completion of M-37044.

Since the issuance of M-37052, professional historians employed by Historical Research Associates, Inc. produced a comprehensive report on this matter titled “Historical Examination of the Missouri River within the Fort Berthold Indian Reservation, Precontact-1902” (“HRA Report”). After reviewing the HRA Report and reconsidering relevant judicial precedent and statutes in light of the historical context, I am permanently withdrawing those portions of M-37044 that address ownership of minerals located beneath the original bed of the Missouri River and replacing that analysis with this opinion. For the reasons set forth below, I have concluded that the State of North Dakota is the legal owner of submerged lands beneath the Missouri River where it flows through the Reservation.1

This opinion alters previous Departmental decisions related to this issue and supersedes guidance provided in Solicitor’s Opinion M-28120 in 1936, and by the Interior Board of Land Appeals

1 Those portions of M-37044 that address the ownership of minerals beneath the flooded uplands remain affirmed, as stated in M-37052.

ITEM 6A

2

(“IBLA”) in 1979.2 These decisions were not informed by the facts provided in the HRA Report, and did not account for subsequent United States Supreme Court (“Supreme Court”) jurisprudence in Montana v. United States,3 United States v. Alaska,4 and Idaho v. United States.5 In these cases, the Supreme Court perfected its reasoning with regard to federal reservations of submerged lands. As such, the Department’s earlier administrative decisions must be reexamined.6

I. The Equal Footing Doctrine establishes a strong presumption in favor of Stateownership of submerged lands, as reflected in Supreme Court decisionsconsidering the issue.

The Equal Footing Doctrine, also referred to as “equality of the states,” is the constitutional principle that each state admitted to the Union enters on an equal footing with the original thirteen states. As early as 1845, the Supreme Court interpreted this principle to establish a default rule that the “shores of navigable waters, and the soils under them, were not granted by the Constitution to the United States, but were reserved to the states respectively.”7 The original thirteen states maintained possession of submerged lands upon entrance to the Union, and all “new states have the same rights, sovereignty, and jurisdiction over this subject as the original states.”8 The Equal Footing Doctrine thus creates a constitutional presumption in favor of state ownership that sets the stage for the submerged lands analysis we undertake here.

Notwithstanding this presumption, Congress does possess authority to “convey land beneath navigable waters, and to reserve such land (…) for a particular national purpose such as a[n] (…) Indian reservation.”9 If Congress does so prior to statehood, the Equal Footing Doctrine’s presumption of state title to submerged lands may be defeated.10 However, due to the public importance of navigable waterways, ownership of the land underlying such waters is “strongly identified with the sovereign power of government,”11 and the Supreme Court instructs us that the presumption in favor of state ownership is a weighty one. Generally speaking, “lands

2 See Solicitor Margold, U.S. Dep’t of the Interior, M-28120, Title to island in the Missouri River within the Fort Berthold Indian Reservation, reprinted in 1 DEP’T OF THE INTERIOR, OPINIONS OF THE SOLICITOR OF THEDEPARTMENT OF THE INTERIOR RELATING TO INDIAN AFFAIRS 616 (Mar. 31, 1936); Impel Energy Corp., 42 IBLA 105 (Aug. 16, 1979). 3 450 U.S. 544 (1981). 4 521 U.S. 1 (1997). 5 533 U.S. 262 (2001). 6 Note, for instance, that the IBLA relied in part on United States v. Finch, 548 F.2d 822 (1976), as support for its ruling in favor of tribal ownership of submerged lands. See Impel Energy Corp., 42 IBLA 105, 113. Finch was a Ninth Circuit case proceeding nearly parallel with Montana v. United States and was ultimately reversed. This administrative proceeding was precipitated by the Bureau of Land Management analysis applying fundamental judicial precedent regarding states’ rights to submerged land in Lessee of Pollard v. Hagan, 44 U.S. 212 (1845) and Shively v. Bowlby, 152 U.S. 1 (1894) to reject applications for oil and gas leasing beneath the Missouri River on the ground that the lands sought for leasing were owned by the State, not by the federal government. We again endorse that initial position of the Department through this opinion, and we note that the IBLA did not have the benefit of reference to later Supreme Court cases on the issue, including Montana, Alaska, and Idaho. 7 Lessee of Pollard v. Hagan, 44 U.S. at 212, 230 (1845). 8 Ibid. 9 See Idaho v. United States, 533 U.S. 262, 272 (2001). 10 Id. at 272-73. 11 Montana v. United States, 450 U.S. 544, 552 (1981).

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underlying navigable waters within territory acquired by the [federal] Government are held in trust for future States and [] title to such lands is automatically vested in the States upon admission to the Union.”12 As the Supreme Court explained in United States v. Holt State Bank,

the United States early adopted and constantly has adhered to the policy of regarding lands under navigable waters in acquired territory, while under its sole dominion, as held for the ultimate benefit of future states, and so has refrained from making any disposal thereof, save in exceptional instances when impelled to particular disposals by some international duty or public exigency. It follows from this that disposals by the United States during the territorial period are not lightly to be inferred, and should not be regarded as intended unless the intention was definitely declared or otherwise made very plain.13,14

The Supreme Court has considered several times whether an intent to reserve submerged lands has been so “definitely declared or otherwise made very plain” when the government makes an initial reservation of land prior to statehood, such as in the form of a wilderness reserve or an Indian reservation. Because the act of reserving submerged lands by the United States does not necessarily imply an intent “to defeat a future State’s title to the land,”15 the Supreme Court undertakes a two-step inquiry in such cases. That test, as expressed in the Supreme Court’s analysis in Idaho v. United States, asks “[1] whether Congress intended to include land under navigable waters within the federal reservation and, if so, [2] whether Congress intended to defeat the future State’s title to the submerged lands.”16

In the case of land initially reserved by the Executive Branch, the Idaho court explained that the “two-step test of congressional intent is satisfied when an Executive reservation clearly includes submerged lands, and Congress recognizes the reservation in a way that demonstrates an intent to defeat state title.”17 The Idaho court then inquired as to “whether Congress was on notice that the Executive reservation included submerged lands and whether the purpose of the reservation would have been compromised if the submerged lands had passed to the State.”18 Where this purpose would have been compromised, the Supreme Court has ruled that “[i]t is simply not plausible that the United States sought to reserve only the upland portions of the area.”19

12 Arizona v. California, 373 U.S. 546, 597 (1963). 13 270 U.S. 49, 55 (1926) (emphasis added), citing Shively v. Bowlby, 152 U.S. 1 (1894). 14 We note that the Supreme Court has not invoked the Indian canon of construction since development of its two-part test to defeat Equal Footing on Executive Order reservations. Consistent with the constitutionally-based presumption that submerged lands are conveyed to the State at the moment of statehood, the Supreme Court has instead relied exclusively on federal intent at the time of reservation establishment, Congressional notice of this intent, and whether the purpose of the reservation would have been compromised if submerged lands had passed to the State at the time of reservation establishment. 15 Utah Div. of State Lands v. United States, 482 U.S. 193, 202 (1987). 16 533 U.S. 262, 273 (2001). 17 Id. (emphasis added). 18 Id. at 273-74 (internal citations omitted). 19 United States v. Alaska, 521 U.S. 1, 39-40 (1997).

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II. The history of executive actions establishing and modifying the Reservation doesnot demonstrate a clear intent to include submerged lands under Step One of theIdaho test.

a. The record is silent regarding the riverbed itself.

The description and modification of the Reservation through an 1870 Executive Order,20 an 1880 Executive Order,21 and through an 1886 Agreement (ratified by Congress in 1891, subsequent to statehood)22 is well-documented. The Executive Orders and the 1886 Agreement included language that defined the boundaries of the Reservation to include the Missouri River, and used the river as the boundary line between the Reservation and the State in certain places. For example, the boundary description in the 1870 Executive Order reads:

From a point on the Missouri River 4 miles below the Indian village (Berthold), in a northeast direction 3 miles (so as to include the wood and grazing around the village); from this point a line running so as to strike the Missouri River at the junction of Little Knife River with it; thence along the left bank of the Missouri River to the mouth of the Yellowstone River, along the south bank of the Yellowstone River to the Powder River, up the Powder River to where the Little Powder River unites with it; thence in a direct line across to the starting point 4 miles below Berthold.23

The use of the term “left bank” meant the north and east sides of the Missouri River,24 and thus this description includes the span of the river within the Reservation’s boundaries. However, the inclusion of a river within the geographic boundaries of a reservation does not of necessity mean that submerged lands underlying the river are also included. The Supreme Court made this point abundantly clear in Montana:

The mere fact that the bed of a navigable water lies within the boundaries described in the treaty does not make the riverbed part of the conveyed land, especially when there is no express reference to the riverbed that might overcome the presumption against its conveyance.25

20 Exec. Order (Apr. 12, 1870), reprinted in 1 CHARLES J. KAPPLER, INDIAN AFFAIRS: LAWS AND TREATIES 881 (2d ed. 1904) (hereinafter “1870 Executive Order”). 21 Exec. Order (July 13, 1880), reprinted in 1 CHARLES J. KAPPLER, INDIAN AFFAIRS: LAWS AND TREATIES 881 (2d ed. 1904) (hereinafter “1880 Executive Order” and together with the 1870 Executive Order, “Executive Orders”). 22 Act of March 3, 1891, 26 Stat. 989 at 1032 (hereinafter “1886 Agreement”). 23 1870 Executive Order. 24 The “left” or “right” banks of a river have, since at least 1851, been determined by public lands surveyors by looking downstream from the center of the river and then indicating the left or right side from that viewpoint. E.g., U.S. DEP’T OF THE INTERIOR, GENERAL LAND OFFICE, INSTRUCTIONS TO THE SURVEYORS GENERAL OF PUBLICLANDS OF THE UNITED STATES FOR THOSE SURVEYING DISTRICTS ESTABLISHED IN AND SINCE THE YEAR 1850, at viii, 12, https://glorecords.blm.gov/reference/manuals/1855_Manual.pdf (Regarding meandering navigable streams, “Standing with the face looking down stream, the bank on the left hand is termed the ‘left bank’ and that on the right hand the ‘right bank.’ These terms are to be universally used to distinguish the two banks of [a] river or stream.”). 25 450 U.S. 544, 554 (1981).

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After reviewing the HRA Report and its exhaustive analysis of the records created in conjunction with the Executive Orders and the 1886 Agreement, it is plain that the Executive never made any express reference to the riverbed itself. While the Missouri River is obviously included within the geographic boundaries of the Reservation, the record is silent regarding whether the Reservation was intended to include the riverbed. These are entirely different legal questions.

Without any express reference to the riverbed, and without any other contemporaneous evidence suggesting that the Executive intended to include the riverbed within the Reservation, we cannot find that the Reservation “clearly includes submerged lands” as required by the Supreme Court in Idaho.26 Here, the Executive’s intent to include submerged lands is far from clear, falling well below the threshold necessary to overcome the strong presumption of State ownership.

b. The record does not show an intent to protect uses of the riverbed,including fishing.

1. Farming, Grazing, Hunting, and Timber

In contrast to the historical record’s silence with regard to the riverbed, there is substantial evidence that the Executive did have in mind a clear purpose in setting aside lands for the Mandan, Hidatsa, and Arikara Nation (“Nation”). The Executive was actively considering the amount of land sufficient to support the Nation with farming, livestock, and, to a lesser extent, hunting and forestry. This was the core of executive intent here, not the river and its fishing resources.

Long before the federal government’s relationship with the Nation, tribal members practiced extensive subsistence farming. “Being skilled agriculturists, the Upper Missouri tribes might grow hundreds of bushels of corn, beans, and squash in productive years.”27 Bureau of Indian Affairs (“BIA”) agents sought to encourage more farming, actively urging tribal members to move away from the centralized village on the river (“Like-a-Fishhook” village) to take up individual farms.28 BIA agents assisted tribal members in breaking farming ground, and in 1885, they relocated nearly a third of tribal members to farming allotments.29

26 533 U.S. 262, 273 (2001). 27 HRA Report at 27. 28 “Bureau of Indian Affairs (BIA) agents were also encouraging the Indians to move out of Like-a-Fishhook village, which they deemed crowded and unsanitary, to take up individual farms. In 1882, Agent Jacob Kauffman persuaded some families to relocate upriver of Like-a-Fishhook, where agency officials had broken farm land for them. . . . In 1885, Agent Abram Gifford relocated about 100 Indians to allotments. This coincides with the recollection of Edward Goodbird (Hidatsa) that ‘[i]n the summer of my sixteenth year nearly a third of my tribe left to take up allotments.’” HRA Report at 19-20, citing Letter from Courtenay to Comm’r of Indian Affairs, August 19, 1879, ARCIA 1879, 30; Letter from Jacob Kauffman, Indian Agent, Fort Berthold Agency, to Comm’r of Indian Affairs, August 9, 1883, ARCIA 1883, 32–33; Letter from Abram J. Gifford, Indian Agent, Fort Berthold Agency, to Comm’r of Indian Affairs, August 18, 1885, ARCIA 1885, 30. 29 See ibid. Note that these allotments were different from those made pursuant to the 1886 Agreement, which was ratified by the Act of March 3, 1891, 26 Stat. 989 at 1032. Allotment under the 1886 Agreement occurred between 1894 and 1895. See Roy W. Meyer, THE VILLAGE INDIANS OF THE UPPER MISSOURI: THE MANDANS, HIDATSAS,AND ARIKARAS, (University of Nebraska Press, 1977), 137–38.

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These actions on the part of the BIA are consistent with statements made by the architects of the Reservation. In 1869, Major General Winfield Scott Hancock “instructed the Commanding Officer at [Fort] Stevenson to examine the country about Berthold and to recommend what portion should be set off for [the Nation] (…). I think they should have a reservation sufficiently large for them to cultivate, to procure fuel, and hunt on, if possible, without encroaching too much on the public lands.”30

The required surveying work was accomplished by Captain S. A. Wainwright, who proposed the boundaries adopted by President Grant in the 1870 Executive Order defining the Reservation.31 A letter in the record from Captain Wainwright to his commanding officer, forwarded to the Commissioner of Indian Affairs, then to the Secretary of the Interior, and then to the President, described the Captain’s work and intentions in defining the boundaries of the Reservation as agreed to in the 1870 Executive Order. This letter does not list the riverbed, or fishing, as a consideration for the Reservation. Rather, Captain Wainwright writes that he has “endeavored in this proposed reservation to give [the Nation] land enough to cultivate and for hunting and grazing purposes.”32

The military and Department staff also showed an intent to protect the Nation’s timber resources. For instance, in 1872, BIA Agent John E. Tappan wrote a letter to a “saw log and cordwood contractor,” informing the contractor that “[i]n pursuance of instructions received from Dept. of Interior I hereby furnish you with the boundaries of the reservation laid off for the Indians of this Agency, and would inform you that all persons are strictly forbidden by the War Dept. and Dept. of Interior to cut wood upon any of the land set apart for reservations for Indians unless the consent of the Indian is obtained, and they paid for their wood.”33

The Executive’s focus on agriculture, husbandry, hunting, and forestry was again reflected in the record supporting the 1880 Executive Order. In considering a diminishment to the Reservation, Commissioner of Indian Affairs Rowland E. Trowbridge wrote to BIA Agent Alexander Gardner in April 1880, requesting information and asking Agent Gardner to “designate clearly upon the enclosed maps, what part [tribal members] occupy, and also what part they principally use for hunting purposes[.]”34 In Agent Gardner’s reply, he concluded with a description of the government’s general purposes for the Reservation:

It is the policy of the Government to encourage Indians in agricultural pursuits, and assist them in becoming self supporting, and for this purpose, it is absolutely necessary that their reservation should contain good [arable?] and grazing lands. To diminish the reservation of these Indians west of the Missouri River, would deprive them of nearly all their good farming lands and timber. No compensation for this loss could be given by increasing the reservation east of the Missouri

30 HRA Report at 53, quoting Letter from General Hancock to General Hartsuff, July 21, 1869, 5. 31 HRA Report at 53. 32 Letter from S. A. Wainwright to Bvt. Brig. Gen. O. D. Greene (Sept. 25, 1869). 33 HRA Report at 58-59, quoting Letter from Tappan to Saw-Log and Cordwood Contractor, January 11, 1872. 34 HRA Report at 66, quoting Letter from Trowbridge to Gardner, April 5, 1880.

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River, as the land is poor and barren, and without water or timber—especially the latter.35

Finally, the United States’ focus on agriculture and husbandry was expressed in the preamble to the Congressional bill ratifying the 1886 Agreement, which largely maintained the lands set aside through the Executive Orders. The preamble explained Congress’s purposes for the Reservation:

[I]t is the policy of the Government to reduce to proper size existing reservationswhen entirely out of proportion to the number of Indians existing thereon, withthe consent of the Indians, and upon just and fair terms; and whereas the Indiansof the several tribes, parties hereto, have vastly more land in their presentreservation than they need or will ever make use of, and are desirous of disposingof a portion thereof in order to obtain the means necessary to enable them tobecome wholly self-supporting by the cultivation of the soil and other pursuits ofhusbandry[.]36

Thus, repeatedly and consistently, the record demonstrates a consonant Executive and Congressional purpose for the Reservation to support the Nation’s agricultural and grazing activities, and to a lesser extent its hunting and timber resources.

The Supreme Court has instructed that “the purpose of a conveyance or reservation is a critical factor in determining federal intent.”37 Here, the primary purpose of the Reservation was to support tribal farming and the raising of livestock. Neither activity requires the use of the riverbed, and the record supplies no evidence of federal intent to reserve the riverbed for the Nation.

2. Fishing and Other Uses of the Riverbed

While the HRA Report includes substantial historical evidence of the Nation’s use of the Missouri River for fishing, for capturing “float bison,” and for trade and security, there is little evidence that these uses were prominent in the Executive’s consideration of the Reservation, and no evidence that Congress was on notice or aware of these uses at all. In 1880, Agent Gardner wrote that the “character of the reservation outside of the grant to the Railroad Co. is not so well adapted to farming, grazing, fishing and hunting and other necessities of the Indians.”38 This ancillary reference to fishing appears to be the only written consideration of fishing made by the Executive in connection with designing the Reservation.

Other contemporaneous evidence indicates that fishing was not the primary source of subsistence for the Nation. The HRA Report indicates that by 1890—one year after statehood—seventy

35 Ibid., quoting Letter from Gardner to Trowbridge, April 13, 1880 (emphasis added). Gardner included a map with his letter marked with handwritten notations indicating which parts of the reservation tribal members used for hunting. 36 1886 Agreement (emphasis added). 37 United States v. Alaska, 521 U.S. 1, 39 (1997) (emphasis in original). 38 HRA Report at 66, quoting Letter from Gardner to Trowbridge, April 13, 1880.

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percent (70%) of tribal subsistence came from farming, stock raising, or wage labor; fifteen percent (15%) from government rations; and fifteen percent (15%) from the combined activities of “[h]unting, fishing, root-gathering, etc.”39 Considering the evidence in the record showing the importance of hunting to the Nation, it is likely that food derived from hunting bison and other game comprised the majority of this combined subsistence category.

Ultimately, the Supreme Court, in determining whether submerged lands were reserved in such a way as to defeat the Equal Footing Doctrine, requires an inquiry as to “whether the purpose of the reservation would have been compromised if the submerged lands had passed to the State.”40 The historical record indicates that both the Executive and Congress intended the Nation to develop further agriculture and livestock raising practices, pursuits unaffected by ownership of submerged lands in the Missouri River. As such, I conclude that the Reservation’s purpose would not have been compromised if submerged lands passed to the State.

Finally, while acknowledging that fishing—to include the use of traps and weirs affixed to the riverbed—was a traditional source of subsistence for the Nation, these uses do not require that the riverbed and all submerged lands be included in the federal reservation. Open-water fishing does not require ownership of submerged lands. The existence of fish traps located in shallow water near the banks of the river does not necessitate a finding that the riverbed was held for the Nation. This is especially so where the record does not indicate Executive and Congressional knowledge of such activities.

A reservation of submerged lands must not be lightly inferred. Here, the federal government never definitely declared its intentions regarding the submerged lands beneath the Missouri River; it is uncontested that the record is silent regarding the riverbed itself. Executive intent to deprive the State of the submerged lands has not been “made very plain” as required by Holt State Bank. Thus, without any statement or reference regarding the riverbed, Congress could not conceivably have been placed on notice, as the Idaho court instructed,41 of an Executive intent to reserve submerged lands for the beneficial use of the Nation.

III. The balance of judicial precedent favors State ownership of submerged landsbeneath the Missouri River.

After considering the historical record in light of Supreme Court precedent as it relates to the Equal Footing Doctrine, I conclude that the circumstances here are most similar to those cases where the Supreme Court has held that submerged lands were not reserved by the federal government.

The Nation’s claim to the submerged lands beneath the Missouri River is not dissimilar to that of the Red Lake Band of Chippewa Indians’ (“Red Lake”) failed claim on Mud Lake in Holt State Bank. The record in Holt State Bank similarly reveals no express reference to the lakebed or submerged lands by the United States when establishing the reservation. The Supreme Court

39 HRA Report at 21, citing “Table relating to population, dress, intelligence, dwellings, and subsistence of Indians, together with religious, vital, and criminal statistics,” ARCIA 1890, 450–51. 40 Idaho v. United States, 533 U.S. 262, 274 (2001). 41 533 U.S. 262, 273-74 (2001).

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explained there “was no formal setting apart of what was not ceded, nor any affirmative declaration of the rights of the Indians therein, nor any attempted exclusion of others from the use of navigable waters.”42 Here, the Executive Orders and 1886 Agreement that established the Reservation contain language similar to that found in the treaty reserving land in Minnesota for Red Lake, in that it was “reserve[d] in a general way for the continued occupation of the Indians what remained of their aboriginal territory.”43 The Executive Orders and the 1886 Agreement are principally boundary-setting documents, composed mostly of technical language setting the metes and bounds of the Reservation. In line with the facts at issue in Holt State Bank, the Executive Orders and 1886 Agreement lack any specific set aside of the riverbed or exclusion from the use of the river as a navigable water.

The conclusion that the submerged lands passed to the State is further supported by the reasoning in Utah Division of State Lands v. United States.44 There, the United States Geological Survey had reserved Utah Lake and lands circling the lake in order to prevent homesteading that might interfere with future water resource projects. Because the purpose of that reservation did not require use of the lakebed (i.e., the lakebed was not available for settlement), the Supreme Court concluded that “little purpose would have been served by the reservation of the bed of Utah Lake.”45 Here, too, the purpose of the Reservation did not of necessity require the use of the riverbed. And while I recognize the historic importance of fishing to the Nation, such facts are insufficient to show a federal purpose to reserve the riverbed in the absence of support for this understanding in the Executive or Congressional record. This is particularly so considering the strong presumption in favor of State ownership.

This matter is perhaps most closely analogous to the facts in Montana v. United States.46 There, the Supreme Court considered the Crow Tribe of Montana’s (“Crow Tribe”) claim to the bed and banks of the Bighorn River. While the river was clearly contained within the geographic boundaries of the Crow Indian Reservation, the “mere fact that the bed of a navigable water lies within the boundaries described in the treaty does not make the riverbed part of the conveyed land, especially when there is no express reference to the riverbed that might overcome the presumption against its conveyance.”47 As here, the treaty conveying the land to the Crow Tribe was bare of language setting apart, referencing, or even impliedly invoking the riverbed. The Montana court found the riverbed passed to the State of Montana, relying on the analysis of Holt State Bank and characterizing that opinion as finding “nothing in the treaties ‘which even approaches a grant of rights in lands underlying navigable waters; nor anything evincing a purpose to depart from the established policy (…) of treating such lands as held for the benefit of the future State.’”48 As in Montana, it is uncontested that there is no “express reference” to the Missouri riverbed in any part of the Executive or Congressional record.

The Montana court concluded that the lack of reference to the riverbed was sufficient to find State ownership, and then noted that “[m]oreover, even though the establishment of an Indian

42 United States v. Holt State Bank, 270 U.S. 49, 58 (1926). 43 Ibid. 44 482 U.S. 193 (1987). 45 Id. at 203. 46 450 U.S. 544 (1981). 47 Id. at 554. 48 Id. at 552.

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reservation can be an ‘appropriate public purpose’ (…) justifying a congressional conveyance of a riverbed (…)[,] at the time of the treaty the Crows were a nomadic tribe dependent chiefly on buffalo, and fishing was not important to their diet or way of life.”49 While unlike the Crow Tribe, there is evidence that the Nation relied in some part on fishing, it is also true that the vast majority of the Nation’s subsistence stemmed from farming, livestock, government assistance, and hunting, dwarfing the importance of fishing to tribal members.50 Thus, the Montana court’s “moreover” rationale does not change the outcome vis-à-vis the Nation.

In contrast to the Crow Tribe and the Nation, the Coeur d’Alene Tribe’s (“Coeur d’Alene”) reliance on fishing and its persistent negotiation for rights over Lake Coeur d’Alene featured prominently in Idaho v. United States.51 In Idaho, Coeur d’Alene petitioned the United States to set aside its reservation, arguing that its previous boundaries were unsatisfactory, “due in part to their failure to make adequate provision for fishing and other uses of important waterways.”52 In a second petition to the Commissioner of Indian Affairs, Coeur d’Alene requested a reservation that included certain river valleys because “we are not as yet quite up to living on farming” and “for a while yet we need have some hunting and fishing.”53 The Idaho court found that Coeur D’Alene relied “on submerged lands for everything from water potatoes harvested from the lake to fish weirs and traps anchored in riverbeds and banks.”54

Notably, the United States Senate directly queried the Secretary regarding the Coeur d’Alene’s claims to the waterways, adopting a resolution that directed the Secretary to “inform the Senate as to the extent of the present area and boundaries of the Coeur d’Alene Indian Reservation in the Territory of Idaho,” including “whether such area includes any portion, and if so, about how much of the navigable waters of Lake Coeur d’Alene, and of Coeur d’Alene and St. Joseph Rivers.”55 The Secretary replied, placing Congress on notice of the importance of the waterways to the Coeur d’Alene.

These clear references to fishing and the river valleys in Idaho indicate the importance of the question to the Executive and Congress. Indeed, it was a vital issue for federal consideration and addressed the fundamental purpose of the reservation. Last, and potentially dispositive to the Supreme Court’s analysis, in Idaho the State of Idaho conceded that the 1873 Executive Order describing the reservation did, in fact, include submerged lands in the reservation. No such concession and no such plain evidence of tribal petition and negotiation for waterways and fishing resources is present at the Fort Berthold Indian Reservation. The matter here considered is thus distinguishably weaker for the Nation than it was for the Coeur d’Alene in Idaho.

Other cases where tribal reliance on fishing was critical to judicial decision making on ownership of submerged lands demonstrate an even stronger necessity and reliance on fishing. In Alaska Pacific Fisheries Co. v. United States, a tribal reservation was established on the Annette Islands,

49 Id. at 556. 50 See supra note 39. 51 533 U.S. 262 (2001). 52 Id. at 266. 53 Ibid. 54 Id. at 265. 55 Id. at 268, citing Senate Misc. Doc. No. 36, 50th Cong., 1st Sess., 1 (1888).

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an Alaskan island chain that offered few other means of subsistence besides fishing.56 The islands bore timber but “only a small portion of the upland is arable,” and the tribal members “were largely fishermen and hunters” who had “looked upon the islands as a suitable location for their colony, because the fishery adjacent to the shore would afford a primary means of subsistence[.]”57 In Alaska Pacific Fisheries, the Supreme Court held that the “Indians could not sustain themselves from the use of the upland alone. The use of the adjacent fishing grounds was equally essential.”58 This reliance on fishing as a primary and essential source of subsistence eclipses the ancillary nature of fishing for the Nation and draws a necessary contrast to the “purpose of the reservation” inquiry articulated in Idaho.

This contrast is also on display in Donnelly v. United States.59 There, the Supreme Court inquired as to the Klamath Indians’ reliance on fishing. The Donnelly majority explained that the Klamath Indians “established themselves along the river in order to gain a subsistence by fishing. The reports of the local Indian agents and superintendents to the Commissioners of Indian Affairs abound in references to fishing as their principal subsistence[.]”60 Again, this tribe’s reliance on fishing was amply documented and demonstrably far greater than that of the Nation.

The tribes in Alaska Pacific Fisheries and Donnelly sustained themselves on the abundant anadromous and marine fisheries present in the Pacific Northwest. Neither this level of fishery biomass nor the routine annual harvest of migrating salmonids is present here. Even in the unlikely case that previously-acknowledged State ownership of submerged lands would have affected the Nation’s fishery, the federal purpose for the Reservation would not have been compromised.

Finally, in United States v. Alaska, the Supreme Court ruled that the federal government reserved submerged lands in both the National Petroleum Reserve and the Arctic National Wildlife Range. The Supreme Court reached this conclusion after a review of the Executive and Congressional records, which indicate clear and specific purposes for each reserve that necessarily required federal ownership of the submerged lands.61 First, the National Petroleum Reserve was set aside by Executive Order in 1923 with the goal of securing a supply of oil for the Navy as “at all times a matter of national concern.”62 The Executive Order “sought to retain federal ownership of land containing oil deposits,”63 reciting that “there are large seepages of petroleum along the Arctic Coast of Alaska and conditions favorable to the occurrence of valuable petroleum fields on the Arctic Coast.”64 This language plainly implied a federal purpose that demanded ownership of submerged lands, necessary to obtain the oil and gas present in subsurface deposits. “The purpose of reserving in federal ownership all oil and gas deposits within the Reserve’s boundaries would have been undermined if those deposits

56 248 U.S. 78 (1918). 57 Id. at 88 (emphasis added). 58 Id. at 89. 59 228 U.S. 243 (1913). 60 Id. at 259. 61 United States v. Alaska, 521 U.S. 1 (1997). 62 Id. at 39, citing Exec. Order 3797-A (Feb. 27, 1923). 63 Ibid. 64 Ibid.

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underlying lagoons and other tidally influenced waters had been excluded.”65 Thus, the Alaska court concluded that “[i]t is simply not plausible that the United States sought to reserve only the upland portions of the area.”66

This fundamental federal purpose, complemented by multiple direct statements regarding the need for subsurface mineral deposits in the National Petroleum Reserve, is supported by an entirely different and greater order of evidence in favor of federal ownership than at the Missouri River. The bare statement of boundaries expressed in the Executive Orders and 1886 Agreement fail to demonstrate the clear federal purpose necessary to overcome the State’s presumptive ownership.

Similarly, the United States’ statement of justification in Alaska for the Arctic National Wildlife Range expressly references “countless lakes, ponds, and marshes” as nesting grounds for migratory birds and “river bottoms with their willow thickets” furnishing habitat for moose.67 The Supreme Court explained that this statement of justification “illustrates that the Range was intended to include submerged lands beneath bodies of water (…)[;] the drafters of the application would not have thought that the habitats mentioned were only upland.”68 Finding that the “express reference to bars and reefs and the purpose of the proposed Range” distinguished the Arctic National Wildlife Range from the circumstances in Montana and Utah Division of State Lands, the Supreme Court ruled the United States had reserved submerged lands within the Range.69

As discussed above, the historical record at Fort Berthold is much more analogous to Montana and Utah Division of State Lands than to Alaska Pacific Fisheries, Donnelly, or Idaho. The express language and clear federal purpose in Alaska regarding the Range is strongly supportive of federal ownership of submerged lands, whereas here, the Executive Orders merely describe the boundaries of the Reservation with no stated purpose. Similarly, the ratified 1886 Agreement includes a Congressional preamble pointing only to agriculture and livestock—not fishing or riverbed use—as the key federal purpose. As the federal government desired the Nation to sustain itself on agriculture and livestock alone, I can find no express language or fundamental federal purpose in favor of tribal ownership of the submerged lands beneath the Missouri River.

IV. The United States’ taking of tribal lands for the Garrison Dam project has nobearing on State ownership of submerged lands beneath the Missouri River.

Through the Flood Control Act of 1944, Congress authorized the Pick-Sloan Missouri Basin Program (“Program”), seeking to conserve and control water resources through a series of reservoirs and dams along the Missouri River. Downstream of the Reservation, the Army Corps of Engineers built Garrison Dam to further the Program, which created the impoundment now known as Lake Sakakawea and flooded a portion of the Reservation. To effect this taking of the

65 Ibid. 66 Id. at 40. 67 Id. at 51. 68 Ibid. 69 Ibid.

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Nation’s land, Congress enacted a statute in 1949 that included the uplands surrounding the future lake.70

Importantly, the Takings Act applies only to the Nation, without specific reference to the State. The Takings Act’s first section states that if the Nation votes in favor of the Program, “all right, title and interest of said tribes, allottees and heirs of allottees in and to the lands constituting the Taking Area described in section 15 (including all elements of value above or below the surface) shall vest in the United States of America,” and in return the United States would monetarily compensate the Nation. The Takings Act is thus in the nature of a bargain with the Nation alone, not a general purpose civil condemnation proceeding applying to all property rights within the Taking Area. By express statutory language, Congress was entering into a bargain solely with the Nation to acquire its lands, including its subsurface rights, and not any other entity. If the United States had brought a civil condemnation action in the courts and acquired title to everything within the bounds of the Taking Area, then it might have been possible to take lands even where the United States and the courts misidentified the owner.71 However, that was not the case here. The United States received only what she bargained and paid for—tribal interests in the Taking Area, not State interests.

The Department supported the Takings Act through discussions with the Nation on appropriate compensation and through survey and appraisal of the proposed flooded lands.72 While the Department’s appraisal meticulously catalogued the loss of each parcel of dry lands surrounding the Missouri River, there was no consideration or suggested compensation for loss of submerged lands, likely because there was no commercial value to the submerged lands at the time.73 Because of this, there was no spotlight shone on ownership of the riverbed, perhaps contributing to the overall failure to consider whether the State held property interests within the Taking Area. Discussion of State property was not considered in the appraisal, the Congressional record, or the text of the Takings Act.

Because the Takings Act expressly applies only to the “right, title, and interest” of the Nation and its members, and not to any other party, I conclude that any property interests belonging to the State at the time of the taking – including its interests in submerged lands – were left undisturbed. I find it implausible that the United States would engage in a lengthy public process and technical appraisal for tribal land, yet intend to silently take State property without compensation in the same action.

70 A Joint Resolution to vest title to certain lands of the Three Affiliated Tribes of the Fort Berthold Reservation, North Dakota, in the United States, and to provide compensation therefor, Pub. L. No. 81-437, ch. 790, 63 Stat. 1026 (1949) (“Takings Act”). 71 See, e.g., Houser v. United States, 9 Cl. Ct. 35, 39 (1985) (quoting United States v. 416.81 Acres of Land, 525 F.2d 450, 452 (7th Cir. 1975)) (where the United States condemned land for a dam project and paid the State ofIdaho, but certain individuals later asserted that they were the true owners, the United States’ title could not bealtered because “there are no indispensable parties” to an eminent domain action and “[t]he failure to join a partywill not defeat the condemnor’s title to the land”).72 Bureau of Indian Affairs, MISSOURI RIVER BASIN INVESTIGATIONS, APPRAISAL: LAND, IMPROVEMENTS,SEVERANCE DAMAGES, AND TIMBER TAKING AREA OF GARRISON RESERVOIR, FORT BERTHOLD INDIAN RESERVATION, NORTH DAKOTA, Report No. 96 (June 30, 1949).73 See id.

ITEM 6A

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This conclusion is consistent with the 1984 Fort Berthold Reservation Mineral Restoration Act (“1984 Act”), which returned to the Tribe the subsurface tribal property interests taken in 1949.74 That Act provided:

[A]ll mineral interests in the lands located within the exterior boundaries of theFort Berthold Indian Reservation which—

(1) were acquired by the United States for the construction, operation, ormaintenance of the Garrison Dam and Reservoir Project, and

(2) are not described in subsection (b), are hereby declared to be held intrust by the United States for the benefit and use of the ThreeAffiliated Tribes of the Fort Berthold Reservation.75

By its terms, the 1984 Act dealt only with those mineral interests acquired in 1949. Such interests included, by the express language of the 1949 Takings Act, only tribal mineral interests. Thus, the 1984 Act does not disrupt the conclusion that the Takings Act considered only tribal interests in the Taking Area. This view is supported by section 204(a) of the 1984 Act, which provides that “[n]othing in this title shall deprive any person (other than the United States) of any right, interest, or claim which such person may have in any minerals prior to the enactment of this Act.” Further, any argument that the United States silently took State land without compensation in 1949, then granted to the Nation mineral rights to such land in 1984, is inconsistent with the Executive’s contemporaneous actions and the Congressional record.

V. Conclusion.

In reaching the conclusion that submerged lands were not reserved for the Nation and thus passed to the State at the moment of statehood, I remain cognizant of the strong presumption in favor of this outcome, stemming from constitutional principles of the equality of the states as the Supreme Court has repeatedly instructed. The Supreme Court has explained that submerged lands are held for the benefit of the future states, and are not disposed of “save in exceptional instances” when the United States is impelled to do so by an “international duty” or “public exigency.”76 Federal reservations of submerged lands “are not lightly to be inferred, and should not be regarded as intended unless the intention was definitely declared or otherwise made very plain.”77

Here, unarguably, the United States never “definitely declared” an intention to reserve submerged lands, and our extensive review of the historical record shows that such an intent was not “otherwise made very plain.” To the contrary, the record shows a consistent federal intent to encourage agriculture and husbandry, not fishing or any other use of the riverbed. In such circumstances and in the face of the strong presumption in favor of the State, I find that under the first step of Idaho’s two-step inquiry, Congress did not intend to include land under navigable waters within the Reservation.

74 Pub. L. No. 98-602, tit. 2, 98 Stat. 3149, 3152 (1984). 75 Id. at § 202. 76 United States v. Holt State Bank, 270 U.S. 49, 55 (1926). 77 Ibid.

ITEM 6A

This conclusion is bolstered by our examination of the relevant judicial precedent. This is not a case where fish ing was the primary and essential source of tribal subsistence, as in Alaska Pacific Fisheries or Donnelly, or a case where tribal fishing rights and interest in the waterways was repeatedly and consistently communicated to the Executi ve and Congress, as in Idaho . Nor is this a matter in which a fundamental federal purpose would be compromised by granting the riverbed to the State, as in Alaska's National Petroleum Reserve and Arctic National Wildlife Range.

I advise the Bureau of Indian Affairs and the Bureau of Land Management to take any actions deemed necessari ly to comply with this opinion, to include the withdrawal of any existing oil and gas permits for extraction in submerged lands beneath the Missouri River.

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ITEM 6A

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 topicsto be discussed in executive session and the legal authority to hold it.

3) If the executive session’s purpose is attorney consultation, the governing bodymust pass a motion to hold an executive session. If executive session’s purposeis to review confidential records a motion is not needed, though one could beentertained and acted on. The difference is that attorney consultation is notnecessarily confidential but rather has “exempt” status, giving the governing bodythe option to consult with its attorney either in open session or in executivesession. Confidential records, on the other hand, cannot be opened to the publicand so the governing body is obligated to review them in executive session.

4) The executive session must be recorded (electronically, audio, or video) and therecording 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 discussor even summarize what occurred in executive session. But if “final action” is tobe taken, the motion on the decision must be made and voted on in opensession. If, however, the motion would reveal “too much,” then the motion canbe abbreviated. A motion can be made and voted on in executive session solong as it is repeated and voted on in open session. “Final actions” DO NOTinclude guidance given by the governing body to its attorney or other negotiatorregarding strategy, litigation, negotiation, etc. (See NDCC §44-04-19.2(2)(e) forfurther details.)

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:

• United States Department of Interior M - 37056• Mandan, Hidatsa, and Arikara Nation vs. United States of America, 1:20-

cv-00859-MCW• Mandan, Hidatsa, and Arikara Nation vs. United States Department of

Interior, et al., 1:20-cv-01918


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.”

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.

board of university and school lands · 2020. 7. 24. · 88 (06/25/2020) minutes of the meeting of...

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