State Board of Equalization

August 8, 2017 File No.: 2017-BURK-BURK-005 County Tax Director: Kris Hillaert County or City: Burke County City Assessor: N/A Appellant: Basin Trans Load LLC, represented by Michael T. Andrews of Anderson, Bottrell, Sanden & Thompson and Ray Sheldon, General Manager, Basin Transload, LLC. Issue: Commercial Assessment in Fay Township, Burke County. Summary: Basin TransLoad LLC, represented by Michael T. Andrews of Anderson, Bottrell, Sanden & Thompson and Ray Sheldon, General Manager, Basin Transload, LLC, dispute the assessment of parcels 04710000, 4711000, 04710002 and 4710005 – property address: 10154 93rd Street NW, Columbus, North Dakota. The appeal indicates the county failed to exclude non-taxable property, failed to address an SEC- mandated impairment of assets, duplication of assessments of Soo Line and Basin, failed to document and support valuation and to consider information affecting value, assigned arbitrary functional and economic obsolescence factors and requests that Basin be assessed for the real property at issue.

Notes:

www.nd.gov/tax ▪ 701.328.7088 Office of State Tax Commissioner ▪ Ryan Rauschenberger, Tax Commissioner Submission to ND Board of Equalization Burke County Basin Transload LLC Stampede, ND Facility

Executive Summary Basin Transload, LLC (“Basin”), on its own behalf, and on behalf of its customer Global Companies LLC and its parent Global Partners LP (collectively, “Global”), and its rail provider Soo Line Railroad Company, doing business as Canadian Pacific Rail (“Soo Line”) requests a reduction in taxable value of property in Burke County. The property (“Property”) at issue is referenced on the Notices of Increase in Real Estate Assessment (“Notices”), which are attached as Exhibit A. There are several significant problems with the valuation of the Property. The valuations set forth in the Notices were based on four distinct appraisals performed by Thos. Y. Pickett & Company, Inc. (“Pickett”) and used by Fay Township and Burke County as the basis of the respective property tax assessments. Specifically these errors include:  Failure to properly exclude non‐taxable personal property  Failure to address an SEC‐mandated impairment of assets  Duplication of assessments of Soo Line and Basin  Failure to document and support valuation and to consider information affecting value  Arbitrary assignment of functional and economic obsolescence factors  Basin should be assessed for the real property at issue. These errors violate North Dakota law and longstanding appraisal theory. As a result, the assessed value of the Property is not True and Full Value, as required by N.D.C.C. § 57‐02‐027.1. Basin offers the Appraisal Report (“Valbridge Report”), prepared by North Dakota licensed MAI, Jason Roos of Valbridge Property Advisors, which is attached as Exhibit B. The Valbridge Report provides a True and Full Value for all of the real property at issue. Actions Requested Basin requests the State Board of Equalization (“Board”) take the following action: I. Reject Burke County assessment due to its reliance upon flawed Pickett appraisal. II. Adopt the Valbridge Report as the True and Full Value of the real property, and set the Property value at $2,500,000. III. Assess Basin for the real property at issue, and cancel the Soo Line and Global assessments.

Discussion Background The Board may recall the history with respect to the Fay Township Board and Burke County Board’s attempts to increase the assessment of the subject property. In 2016, both Fay Township and Burke County attempted to increase the assessment of Basin property from its 2015 true and full value of $4,475,300 initially to $65,813,000, or a difference of $61,337,700, which was later reduced by the County to $31,707,920. Basin appealed this attempted increase, arguing 1) the process of increasing Basin Transload’s assessment was initiated via improper and invalid notice in violation of N.D. Cent. Code Section 57‐02‐53(1)(a); and 2) the proposed increased assessment, based upon the purported appraisal of Pickett, was arbitrary and capricious. Of relevance to this appeal, Basin also argued in 2016 that the township and county assessments included substantial non‐taxable categories such as plant machinery and equipment, intangible investments such as donations and testing and other personal property. This Board ultimately recommended 1) that the value of the subject property be reduced to $ 4,918,354, or 9.9% higher than the 2015 true and full value, due to Fay Township’s failure to provide proper notice under N.D.C.C. § 57‐02‐53 (b); and 2) that Burke County perform a site visit and in‐depth appraisal of

Submission to ND Board of Equalization Burke County Basin Transload LLC Stampede, ND Facility the facility to determine the presence of plant machinery and equipment and the classification of real versus personal property in those items. On November 7, 2016, Basin’s general manager Ray Sheldon provided a Stampede facility site tour and review of the physical improvements on both Basin’s real estate and the Soo Line right‐of‐way. Burke County Commissioner Debbie Kuryn, Tax Director Kris Hillaert, Assistant Mike Herman and Pickett appraiser Robert Lehn attended. In February of 2017, Basin (on its own behalf and on behalf of Global, who constructed the storage tanks, truck receipt station, and certain related infrastructure at the Fay township property) provided Burke County and Pickett with a number of informational documents regarding the Property for property tax valuation purposes. These documents included a written explanation of the property, and relevant valuation information, market data, asset information, cost and income information, and maps. Basin included all investment costs to assure that all assets were identified, and costs were then segregated into defined categories to allow separation of non‐taxable property from taxable property. The documents are attached as Exhibit C. On March 21, 2017, Basin received an email from Burke County regarding the Fay Township property tax hearing schedule, which included the attached Notices. Each of these notices included a recapitulation report prepared by Robert Lehn of Pickett (“Recapitulation Reports”), which are attached as Exhibit D. On April 5, 2017, counsel for Basin made an open records request to Burke County, pursuant to N.D.C.C. Chapter 44‐04, et seq., which included request for “all records” relating to the increase in real estate assessment of the Property, including “complete appraisals, working papers, communications, or other documents.” Basin expressly requested the documents in the possession of the County and Pickett. Renewed open records requests were made on May 3, 2017, June 2, 2017 and June 22, 2017. On April 17, 2017, counsel for Basin received documents from Burke County. These documents included the Notices, Recapitulation Reports, and Basin’s informational submission. They did not include analysis by Pickett or Burke County regarding the information provided. There was no obsolescence analysis, analysis of market data, analysis of income information, independent research, or other meaningful information. On June 2, 2017, Pickett confirmed by email there were no other working papers. This email is attached as Exhibit E. On April 20, 2017, Basin appeared at the Fay Township Board of Equalization hearing on behalf of Basin, Global and Soo Line (collectively, the “Basin Parties”) to dispute the appraisals by Pickett and the property tax assessments with respect to each of the Basin Parties. The Fay Township Board of Equalization adopted Pickett’s appraisals and Burke County Tax Director’s assessments. On June 6, 2017, Basin appeared at the Burke County Board of Equalization hearing on behalf of each of the Basin Parties and presented a number of concerns with the Pickett appraisals with respect to each of the Basin Parties. A copy of Basin’s June 6, 2017 presentation is attached as Exhibit F. Despite these efforts, the Burke County Board of Equalization accepted the appraisals and assessments. Appraisal and Assessment Errors The Board should reject Pickett’s appraisals and the resulting property tax assessments because they violate North Dakota law and appraisal theory. These errors include, among others, the following: Issue 1: Failure to properly exclude non‐taxable personal property Under North Dakota statutes, personal property is exempt from property taxation. N.D.C.C. § 57‐02‐ 08(25). By definition, personal property “includes all property that is not included within the definition of real property.” Id. § 57‐02‐05.1. Real property is defined as land, improvements, structures, and buildings. Id. § 57‐02‐04(1)‐(2). However, it makes the express exemption of machinery and equipment:

Submission to ND Board of Equalization Burke County Basin Transload LLC Stampede, ND Facility

. . . but [real property] shall not include items which pertain to the use of such structures and buildings such as machinery or equipment used for trade or manufacture which are not constructed as an integral part of and are not essential for the support of such structure or building and which are removable without materially limiting or restricting the use of such structures or buildings. Id. § 57‐02‐04(2). The North Dakota Supreme Court held “[i]tems which fall into the questionable area between real and personal property, such as industrial machinery and equipment, are not taxable.” Am. Crystal Sugar Co. v. Traill Cnty. Bd. of Comm’rs, 2006 ND 118, ¶ 19, 714 N.W.2d 851 (emphasis added). In direct violation of these statutes and the North Dakota Supreme Court’s decision, Pickett included machinery and equipment, as well as other items that qualify as personal property, in the Recapitulation Reports. Pages 1 and 2 of the Recapitulation Report for Basin plainly state “Plant Machinery and Equipment.” See Ex. D. For this reason alone, the Board must reject Pickett’s Recapitulation Report and the resulting assessed value. When Basin submitted information to Burke County and Pickett, the costs information was purposely segregated into categories to identify investments made on real estate owned by Basin and Soo Line, into improvements owned by Basin and Global and into taxable and non‐taxable categories. See Ex. C. The costs and assets of each category were provided to Burke County and Pickett to provide a clear basis for non‐taxable property. For example, Basin explained the “PME” category included personal property, such as meters, pump skids, instrumentation and controls. See id. It also explained that “Intangible” categories included costs for donations, fees,k tan hydro testing, meter proving, and engineering expenses. Id. Pickett’s Recapitulation Reports ignored these facts, changed the category identifications, and included all costs. For example, Pickett changed the “Intangible” category to "Design, Engineering, Permits, Etc.” and included all costs on the Recapitulation Report for Basin. For Global, “Intangibles” were changed to “Other Site Improvements” with all costs included. In addition, “PME” and other asset categories were changed to include “(Taxable Portion)” and included all costs with an unexplained and insufficient adjustment through the SER factor. There is no basis for this in North Dakota law or appraisal theory. North Dakota law exempts any property that does not meet the definition of real property—i.e. land, improvements, structures, and buildings. Under no circumstances can donations, fees, costs for testing, pump skids, or controls constitute real property. Moreover, the Pickett’s adjustment for “taxable portion” of machinery and equipment does not remedy these issues. There is no taxable portion of machinery and equipment under North Dakota law. The Pickett appraisal failed to exclude personal property as required by North Dakota law and therefore the Board simply cannot adopt Pickett’s Recapitulation Reports or the Burke County tax assessments that rely upon them. Issue 2: Failure to address an SEC‐mandated impairment of assets Basin provided Burke County and Pickett information relating to an impairment (or writedown) of its assets, which was required by the SEC and accounting standards. The impairment occurred in 2016, as a result of an SEC‐required impairment test applied by Global Partners LP, %a 60 owner of Basin. Pickett ignored this impairment. The values Pickett assigned to the Property are improperly high and cannot be adopted as True and Fair Value.

Submission to ND Board of Equalization Burke County Basin Transload LLC Stampede, ND Facility

The impairment is essential to a fair calculation of value as of February 1, 2017. It was required under Financial Accounting Standards Board (“FASB”) standards so that Basin’s consolidated parent financial reporting does not mislead shareholders. The SEC has authorized the FASB to set accounting standards for publicly traded companies. See FASB, WHAT WE DO available at http://www.accountingfoundation. org/jsp/Foundation/Page/FAFSectionPage&cid=1351027541293. The standards FASB issues are recognized as authoritative by the SEC and American Institute of Certified Public Accountants. Id. They are used by investors, lenders, and others. Id. FASB Statement of Financial Accounting Standards No. 144 requires the impairment of a long‐lived asset if the carrying amount is not recoverable from its undiscounted potential future cash flows. FASB 144 at 9. All book value that cannot be expected to be recovered from future cash flow (without discounting or interest charges) must be expensed in the current period and the net book value reduced. In 2016, Basin’s Stampede facility total net book value, including all non‐taxable items, was required to be impaired to a book value of $7,832,951 as of December 31, 2016. It is essential to note that this book value should be considered the ceiling for fair value. Under appraisal theory, cash flows are normally discounted in the valuation process, resulting in a lower value. There is no basis for the values Pickett has placed on Property here. The Board must reject this appraisal and the resulting tax assessments.

Issue 3: Duplication of assessments Soo Line and Basin T.Y. Picket issued Recapitulation Reports and Burke County issued property tax assessments to both Basin and Soo Line for the same property. This is legal error. A review of the Recapitulation Reports reveals that every item assessed to Soo Line was also assessed to Basin. The Burke County Board of Equalization indicated they will retract the Soo Line assessment; however, Basin has not received an official notice confirming this and the county board minutes do not reflect such action. Therefore, the Board should cancel the Soo Line Notice.

Issue 4: Failure to document and support valuation and to consider information affecting value The Board cannot adopt Pickett’s Recapitulation Reports or the tax assessments because Pickett has provided no support for its calculation of value. Documented support for an appraisers work is common practice throughout the industry. The Uniform Standard of Professional Appraisal Practice states “[a]n appraiser must prepare a workfile for each appraisal or appraisal review assignment. A workfile must be in existence prior to the issuance of any report.” USPAP 2016‐17 at 11. A workfile means “documentation necessary to support an appraiser’s analyses, opinions, and conclusions.” Id. at 5.

As explained above, Basin requested these documents through an open records request. It asked for “all records,” including “complete appraisals, working papers, communications, or other documents.” Basin expressly requested these documents from Pickett as well as the County. However, the response to the open records request provided no work papers supportinge th Recapitulation Reports. Pickett did not produce any documents showing analysis of the market, the income of the property, the asset impairment, or any other information Basin submitted. In fact, its work papers lack evidence of any analysis, other than the Recapitulation Reports themselves. If analysis had been done, Pickett should have documented it and provided it in response to the open records requests. As a result, it appears Pickett did not analyze all factors that impact the value of the Property, in violation of by North Dakota law. N.D.C.C. § 57‐02‐01(15) requires assessors to consider “all . . . matters that affect the actual value of the property to be assessed.” Moreover, the North Dakota Tax Commissioner oversees “all assessors of general property or other taxes, over township, county, and city

Submission to ND Board of Equalization Burke County Basin Transload LLC Stampede, ND Facility boards of equalization and over all other assessing officers, in the performance of their duties, to the end that all assessments of property be made relatively just and equal in compliance with the laws of the state.” Id. § 57‐1‐02(2). The Tax Commissioner issued the following guidelines regarding commercial property: True and full value is the value determined by considering all things that could affect the value of property. [N.D.C .C. § 57‐02‐01(15)] True and full value is the value determined by considering the earning or productive capacity of a property, if any, the market value, if any, and any other conditions that affect the value of property. Guideline Property Tax Assessment Terms and Concepts (July 2005). There is simply no documentation that Pickett considered all things that could affect the value and specifically no indication that they considered the earning capacity or the market value information available nor provided any reasoned analysis for adjustments to their cost approach. The Board cannot properly rely on Pickett’s appraisal without supporting documentation and should disregard it and the resulting tax assessments as arbitrary.

Issue 5: Arbitrary assignment of functional and economic obsolescence factors The Board should reject the Recapitulation Reports and property tax assessment because they do not sufficiently account for obsolescence. The North Dakota Tax Commissioner issued guidance stating the replacement cost new approach to valuation “prior to any deduction for accrued depreciation, plus land value, tends to set the upper limits of value. However, cost does not necessarily equal value.” Valuation Concepts – Residential and Commercial Property Guideline at 3 (July 2011). The appraiser must then make adjustments for physical depreciation as well as functional and economic obsolescence, where applicable. The Tax Commissioner defines functional obsolescence as “a loss in value as a result of defects in design or of changes which have taken place over the years which have made some aspects of the structure, materials or design obsolete by current standards.” Id. at 4. Economic obsolescence (“EO”) is the loss in value resulting from adverse influences outside the property itself. These include changing neighborhoods, shifting business districts and adverse economic conditions. Since EO is caused by factors external to the property, its adverse effect upon value may offset the land value, the structure value, or both. EO is sometimes referred to as location or community depreciation. It may be determined by market comparisons of similar properties that have recently sold. Id. Pickett’s Recapitulation Reports use only the replacement cost new methodology but make arbitrary obsolescence adjustments, and in some cases no obsolescence adjustments at all. Basin provided relevant information in its informational response, eand th Reports include the option for Pickett to apply SER and ECO factors (which Burke County has indicated represent functional and economic obsolescence). However, Pickett made no obsolesce adjustments for Global or Soo Lines property, while at the same time applying economic obsolescence to Basin’s property. The assets of the Basin Parties were constructed to form a cohesive, transloading facility at the Property, with Global responsible for the receipt and temporary storage of crude oil, Basin responsible for loading crude oil onto railcars and assembling completed trains and Soo Line responsible for transporting trains to and from the facility. The assets work together. The economic obsolescence impacting any of the assets

Submission to ND Board of Equalization Burke County Basin Transload LLC Stampede, ND Facility equally impacts all of the related assets as well, and each of the Basin Parties’ respective assets are subject to, and in this case adversely impacted by, the same economic factors. In fact, the property assessed to Soo Line is the same property assessed to Basin. There is simply no basis for treating these assets differently, and Pickett has provided no documents to justify its actions.

Moreover, the adjustments Pickett did make are insufficient. They do not even reach the level of the impairment of Basin’s assets required by the SEC. This impairment should act as ceiling to True and Full Value. The actual value should be much lower.

Pickett did not provide any reasoned analysis or supporting documentation for the selection and use of the adjustment factors; therefore, the Board should regard the value found in the Recapitulation Reports as arbitrary and disregard them and the property tax assessments based upon them.

Issue 6: Basin should be assessed for the real property at issue Before 2017, the County assessed Basin for the property at issue here. It did not issue separate assessments to Global and Soo Line. In 2017, the County reversed its position and separated Basin’s single Notice into separate Notices, which included Global and Soo Line. These Notices appear to be actuated to respond to Basin’s position that property on site neither owned nor leased by Basin is personal and not subject to tax. The County’s decision to separate the property into multiple assessments and Notices has created confusion, legal issues, unnecessary process, and wasted time, expense, and resources. To eliminate this confusion and simplify the issues, Basin requests a single assessment, according to the County’s past practice. This will serve to simplify the issues for all parties and eliminate wasted time, expense, and resources of multiple taxpayers, the County, and the Board. As a result, the real property assessed to Global should instead be assessed to Basin, and Global’s assessment should be canceled. The Notice and assessment against Soo Line should be eliminated for the reasons stated above.

Valbridge Appraisal The Board should adopt the Valbridge Appraisal as the True and Full Value of the real property at issue here and assess the full amount to Basin. The Valbridge Appraisal includes all of the real property at issue, including the real property assessed to Basin, Global, and Soo Line. It was performed by a North Dakota licensed MAI. It does not suffer from any of the issues identified above. The Valbridge Appraisal conforms to North Dakota law, provides sufficient reasoned analyses to support its conclusions, does not duplicate assessments, considers all factors affecting value, and makes the appropriate adjustments. It provides for True and Full Value of all of the real property at issue. Accordingly, the Board should set the value for all of the Property to be $2,500,000, pursuant to the Valbridge Appraisal and assess the value of this real property to Basin. Conclusion As explained above, Basin request the Board take the following actions: I. Reject Burke County assessment due to its reliance upon flawed Pickett appraisal. II. Adopt the Valbridge Appraisal as True and Full Value of all real property and set the Property value at $2,500,000. III. Assess Basin for the real property at issue, and cancel the Soo Line and Global assessments.

Submission to ND Board of Equalization Burke County Basin Transload LLC Stampede, ND Facility

Exhibit A Notices of Increase in Real Estate Assessment Exhibit B Valbridge Appraisal Report Exhibit C Basin Information Submitted to Burke County and Pickett Exhibit D Pickett Recapitulation Reports Exhibit E June 2, 2017 Pickett Email Exhibit F Basin June 6, 2017 Presentation to Burke County Equalization Board Exhibit G Presentation Materials for August 8, 2017 North Dakota State Equalization Board Meeting

Exhibit A

Exhibit B

Appraisal Report

Basin Transload Facility 10154 93rd Street NW Columbus, Burke County, North Dakota 58727

Report Date: August 1, 2017

FOR: Basin Transload, LLC Mr. Ray Sheldon General Manager

Valbridge Property Advisors | Shaner Appraisals, Inc.

10990 Quivira Road, Suite 100 Overland Park, Kansas 66210 (913) 451-1451 phone Valbridge File Number: (913) 529-4121 fax KS01-16-0260 valbridge.com

Mr. Ray Sheldon Basin Transload, LLC Page 2

10990 Quivira Road, Suite 100 Overland Park, Kansas 66210 (913) 451-1451 phone (913) 529-4121 fax valbridge.com

August 1, 2017

Mr. Ray Sheldon General Manager Basin Transload, LLC 3529 Gabel Road Billings, Montana 59102

RE: Appraisal Report Basin Transload Facility 10154 93rd Street NW Columbus, Burke County, North Dakota 58727

Dear Mr. Sheldon:

In accordance with your request, we have performed an appraisal of the above referenced property. This appraisal report sets forth the pertinent data gathered, the techniques employed, and the reasoning leading to our value opinions. This letter of transmittal is not valid if separated from the appraisal report.

The subject property, as referenced above, is located in the SEQ of North Dakota State Highway 5 and 93rd Avenue NW and is further identified as tax parcel number 04710000. The subject site contains 363.35 acres, or 15,827,526 square feet.

We developed our analyses, opinions, and conclusions and prepared this report in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; and the requirements of our client as we understand them.

The report that follows is a Summary Appraisal Report which is intended to comply with the reporting requirements set forth under Standards Rule 2-2 (a) of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal Report. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop our opinion of value. Supporting documentation concerning the data, reasoning, and analyses is retained in our file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated in the report. We are not responsible for unauthorized use of this report. The property was inspected by and the report was prepared by Jason Roos, MAI.

Mr. Ray Sheldon Basin Transload, LLC Page 3

According to the publication Fundamentals of Industrial Valuation, which is published by the International Association of Assessing Officers (IAAO), a special use property is a property that has buildings and structures that are constructed specifically to house the production of a certain product. In the case of the subject, the current use as a crude by rail transload terminal fits this definition. It goes on to note that if a special use property were to close, it would not likely be cost effective to utilize the buildings for an alternative use. This publication also notes that “the cost approach often will be the predominant approach to value Special Use buildings.” Additionally, Appraising Industrial Properties, which is published by the Appraisal Institute, states “the cost approach to value is the most applicable to special-purpose properties.” While we did not fully develop valuations based upon sales comparison and income capitalization approaches, we reviewed the available information that would be used in developing valuations from these methods and found that it to be consistent with the valuation we fully developed using the cost approach.

Cost Approach According to The Appraisal of Real Estate 14th Edition, the cost approach is based on market comparisons. In the cost approach, appraisers compare the cost of the subject improvements to the cost to develop similar improvements as evidenced by the cost of construction of substitute properties with the same utility as the subject property. The estimate of development cost is adjusted for market-extracted losses in value caused by the age, condition, and utility of the subject improvements or for locational problems. The land value is then added, usually based on comparison with sales of comparable sites. The sum of the value of the land and the improvements is adjusted for the rights included with the subject property again based on market comparisons.

The cost estimate is then adjusted for the depreciation that is evident within the subject property. This approach is more accurate when valuing a new or proposed construction property as well as a special use property like the subject. When there is an abundance of depreciation and obsolescence, the reliability of the cost approach is reduced. Physical deterioration, as well as functional and external obsolescence, are defined below: Incurable physical deterioration: A form of physical deterioration that cannot be practically or economically corrected as of the effective date of appraisal. (Dictionary of Real Estate Appraisal 6th Edition)

The incurable physical deterioration in a building is what remains after the deduction of deferred maintenance from the total physical deterioration. This can be further split into short-lived items like air conditioning units and parking lots and long-lived items like walls and floors. Because of the age of the subject, there is a both short-lived physical depreciation and long-lived physical depreciation.

Functional obsolescence: The impairment of functional capacity of improvements according to market tastes and standards. (Dictionary of Real Estate Appraisal 6th Edition)

Functional obsolescence is attributable to defects within a property. This is primarily caused by a lack of efficiency when a building is below what the market would expect. It can also be created by an owner that incorporates special features into their property. In the case of the subject property, both of these causes contribute to functional obsolescence. As the subject property was built specifically for the use of Basin Transload, LLC and its predecessors for the function of loading crude oil into railcars, the functional obsolescence would be small, but may be present due to changes in technology in this process.

Mr. Ray Sheldon Basin Transload, LLC Page 4

External obsolescence: A type of depreciation; a diminution in value caused by negative external influences and generally incurable on the part of the owner, landlord, or tenant. The external influence may be either temporary or permanent. (Dictionary of Real Estate Appraisal 5th Edition) External obsolescence is a loss in value caused by factors that are outside of a property and it is often incurable. This obsolescence usually has a market wide effect and influences a whole class of properties, such as transload facilities. In general, facilities like the subject that are located in smaller communities are affected by external obsolescence. The subject property was constructed by the current owner for transporting crude by rail. An investor would not construct a similar building on a speculative basis as the lease rate that would be required to justify construction would be higher than what the market would pay for the facility. Another source of external obsolescence is attributed to cycles in the industry for which the subject produces products. For an industry like the oil transportation industry, that could be evident in overcapacity in the industry. These items cause external obsolescence and will be discussed in detail in the cost approach section of this report.

Fundamentals of Industrial Valuation states that “industries are affected by a variety of economic pressures that are important for the appraiser to understand.” It goes on to state that “as the appraiser seeks to determine the value of the property under appraisal, he or she needs to become familiar with, at least to some extent, the effect of these external factors on the particular industry the property is associated with.” As such, we have provided a brief analysis in the attached report that discusses the recent history, as well as projections, of the crude by rail industry, which has both a United States and global perspective due primarily to the price of oil. There is also a discussion of recent sales comparisons for similar facilities and the historical profit and loss performance and current forecasts which are indicative of the impact of the external factors on the North Dakota crude by rail industry.

The client in this assignment is Basin Transload, LLC and the intended user of this report is Basin Transload, LLC and no others. The intended use is for estimating a market value for tax appeal purposes. The value opinions reported herein are subject to the definitions, assumptions and limiting conditions, and certification contained in this report.

The acceptance of this appraisal assignment and the completion of the appraisal report submitted herewith are subject to the General Assumptions and Limiting Conditions contained in the report. The findings and conclusions are further contingent upon the following extraordinary assumptions and/or hypothetical conditions which might have affected the assignment results:

Mr. Ray Sheldon Basin Transload, LLC Page 5

 The valuation within this report reflects the estimated market value of all items that are permanently attached to the site. It does not include items that are on site for pollution control as they are generally not taxable by the state of North Dakota as real property. This includes the VCU and associated piping for this unit. If any other items are deemed to be pollution control by the state, the taxable value of the subject property may be reduced.  Included in the valuation of this report are items that could potentially be considered non- taxable by the State of North Dakota. These include piping, tanks, pumps, etc. that may be considered machinery and equipment used in trade. They have been included in this valuation, however we reserve the right to amend our valuation for tax purposes if they are determined by the State to be non-taxable items.

Hypothetical Conditions:  None

Based on the analysis contained in the following report, our value conclusions are summarized as follows:

Value Conclusions Component As Is Value Type Market Value Property Rights Appraised Fee simple Effective Date of Value February 1, 2017 Value Conclusion $2,500,000

Respectfully submitted, Valbridge Property Advisors | Shaner Appraisals, Inc.

Jason Roos, MAI Director North Dakota Certified General License # CG-21495

BASIN TRANSLOAD – STAMPEDE, ND TABLE OF CONTENTS

Table of Contents

Cover Page Letter of Transmittal Table of Contents ...... i Summary of Salient Facts ...... ii Aerial and Front Views ...... iv Location Map ...... vi Introduction ...... 1 Scope of Work ...... 6 Regional and Market Area Analysis...... 8 City and Neighborhood Analysis ...... 11 Site Description ...... 13 Improvements Description ...... 16 Subject Photos ...... 19 Crude by Rail Market Analysis ...... 21 Highest and Best Use ...... 41 Appraisal Methodology ...... 43 Cost Approach ...... 45 Sales Comparison Approach ...... 79 The Income Approach ...... 83 Reconciliation ...... 84 General Assumptions and Limiting Conditions ...... 86 Certification – Jason Roos, MAI ...... 93 Addenda ...... 94 Glossary ...... 99

Summary of Salient Facts

Summary of Salient Facts Property Identification Property Name Basin Transload Facility Property Address 10154 93rd Street NW Columbus, ND, Burke County, North Dakota, 58727 Latitude & Longitude 48.888292, -102.740575 Tax Parcel Number 04710000 Property Owner Basin Transload, LLC

Site Zoning Industrial (IN) Flood Zone None Total Land Area 363.350 acres

Existing Improvements Property Use Industrial Other Rail 10,649 feet of usable track (112/115 weight) Roads 1,200 linear feet (asphalt) / 4,700 linear feet (gravel) Gross Building Area (GBA) - Main Building 7,500 sf Parking 7,000 square yards of gravel truck staging Gross Building Area (GBA) - Tesoro 920 sf Tanks Crude Storage 3 Tanks (1-100,000 barrel and 2-176,000 barrel) Overpressure Breakout Tanks 3-400 barrel Pipeline 7,000 linear feet to and at the loading area Truck LACT 60' x 270' canopy covering eight truck bays Valuation Opinions Highest & Best Use - As Vacant Agricultural uses Highest & Best Use - As Improved Continued use as a transload facility Reasonable Exposure Time 12 to 24 months Reasonable Marketing Time 12 to 24 months

Value Indications Approach to Value As Is Cost $2,500,000 Sales Comparison Reviewed But Not Fully Developed Income Capitalization Reviewed But Not Fully Developed Value Conclusions Component As Is Value Type Market Value Property Rights Appraised Fee simple Effective Date of Value February 1, 2017 Value Conclusion $2,500,000

Our findings and conclusions are further contingent upon the following extraordinary assumptions and/or hypothetical conditions which might have affected the assignment results:

Extraordinary Assumptions:  The effective date of this appraisal is February 1, 2017. The property was inspected by Jason Roos, MAI on April 6, 2017. We assume that the property was in a similar condition on February 1, 2017 as it was at the time of our inspection.  The subject property has pipelines, rail track, and storage tanks located on site. Information on how many track feet are included on the site, how much pipeline, and the capacity of each of the tanks has been obtained from the property owner. As it is generally difficult to physically measure these items, the information provided by the developer is believe to be accurate and correct. If found to not be accurate and correct, we reserve the right to reanalyze the property and a change in the estimate of market value may be required.  The valuation within this report reflects the estimated market value of all items that are permanently attached to the site. It does not include items that are on site for pollution control as they are generally not taxable by the state of North Dakota as real property. This includes the VCU and associated piping for this unit. If any other items are deemed to be pollution control by the state, the taxable value of the subject property may be reduced.  Included in the valuation of this report are items that could potentially be considered non- taxable by the State of North Dakota. These include piping, tanks, pumps, etc. that may be considered machinery and equipment used in trade. They have been included in this valuation, however we reserve the right to amend our valuation for tax purposes if they are determined by the State to be non-taxable items.

Hypothetical Conditions:  None

Aerial and Front Views

AERIAL VIEW

FRONT VIEW

Location Map

North

Introduction

Client and Intended Users of the Appraisal The client in this assignment is Basin Transload, LLC and the intended user of this report is Basin Transload, LLC and no others.

Intended Use of the Appraisal The intended use of this report is for estimating a market value for tax appeal purposes.

Real Estate Identification The subject property is located at 10154 93rd Street NW, Columbus, Burke County, North Dakota 58727. The subject property is further identified by tax parcel number 04710000.

Legal Descriptions

Rude Land Lot 3, Lot 4, S1/2 NW1/4 less 9.78 acres deeded to the railroad more fully described in Deed Book 25, page 346. The conveyance herein includes Lot 5, Block 10 of the Townsite of Stampede.

Brusven Land Outlot 103 – A tract of land being part of the East Half of Section 3, Township 162 North, Range 93 West of the 5th Principal Meridian, Burke County, North Dakota, being more particularly described as follows:

Commencing at the northeast corner of the Southeast Quarter of Section 3, thence South 00015’53” East along the east line of Southeast Quarter of Section 3 a distance of 81.62 feet to the POINT OF BEGINNING said point also being on the south right-of-way line of the Burlington Northern-Santa Fe Railroad; thence south 00015’53” East along the east line of Southeast Quarter of Section 3 a distance of 748.43 feet to a point on the west line of said Southeast Quarter of Section 3; thence North 89o21’24” West a distance of 2644.74 feet to a point on the west line of said Southeast Quarter of Section 3; thence North 00004’05”East a distance of 817.03 feet to a point on the west line of said Southeast Quarter of Section 3; thence North 89057’51” East a distance of 1575.17 feet along said south right-of-way line of the Burlington Northern-Santa Fe Railroad; thence South 00015’53” East a distance of 100.00 feet along south right-of-way line of the Burlington Northern-Santa Fe Railroad; thence North 89057’51” East a distance of 1072.04 feet along said south right-of-way line of the Burlington Northern-Santa Fe Railroad to the POINT OF BEGINNING. Said tract contains 48.13 acres, more or less.

TX3 Land A tract of land being part of the Northeast Quarter of Section 3, Township 162 North, Range 93 West of the 5th Principal Meridian, Burke County, North Dakota, being more particularly described as follows:

Commencing at the southeast corner of said Northeast Quarter of Section 3, thence North 00015’53” West along the east line of said Northeast Quarter of Section 3 a distance of 218.38 feet to the POINT OF BEGINNING said point also being on the north right-of-way line of the Burlington

Northern-Santa Fe Railroad; thence South 89057’51” West along said north right-of-way line of the Burlington Northern-Santa Fe Railroad a distance of 1072.04 feet; thence South 00015’53” East along said north right-of-way a distance of 75.00 feet; thence South 89057’51” West along the north line of Outlot 3 a distance of 1574.80 feet to a point on the west line of said Northeast Quarter of Section 3; thence North 00004’05” East along the west line of said Northeast Quarter of Section 3 a distance of 405.00 feet; thence North 89057’51” East a distance of 2644.71 feet to a point on the east line of said Northeast Quarter of Section 3; thence South 00015’53” East a distance of 330.00 feet to the POINT OF BEGINNING. Said tract contains 22.75 acres, more or less.

This tract is also known as Outlot 4, in the S/2 of the NE/4 of Section 3, Township 162 North, Range 93 West, Burke County, North Dakota.

Olson Land Tract 1 – The North Half of the North Half of the Southwest Quarter (N1/2 N1/2 SW1/4), less Outlots 1 and 2 and less railroad right-of-way

Tract 2 – The Southwest Quarter (SW1/4), less the North Half of the North Half of the Southwest Quarter (N1/2 N1/2 SW1/4), less Outlots 1 and 2 and less railroad right-of-way.

DMVW Land Outlot 1 of SE1/4 NW1/4 and NE1/4 SW1/4 – The Southerly148.0 feet of the Burlington Northern and Santa Fe Railway Company’s (formerly Great Northern Railway Company) 300.0 foot wide Station Ground property at Stampede, North Dakota, being 100.0 feet wide on the Northerly side and 200 feet wide on the Southerly side of the said Railway Company’s Main Track centerline, as originally located and constructed upon over and across the E1/2W1/2 of Section 3, Township 162 north, Range 93 West of the 5th P.M., Burke County, North Dakota, lying between two lines drawn parallel with a distant, respectively, 52.0 feet and 200.0 feet Southerly, as measured at right angles from said Main Track centerline, bounded by two lines drawn at right angles to said Main Track centerline distant, respectively 1,540.0 feet and 1,750.0 feet Easterly of the West line of said Section 3, as measured along said Main Track centerline.

Outlot 2 – A tract of land being part of the SW1/4 of Section 3, Township 162 North, Range 93 West of the 5th Principal Meridian, Burke County, North Dakota, being more particularly described as follows:

Commencing at the NW1/4 corner of Section 3 T162N-R93W; thence South 89056’34” East along the north boundary line of the SW1/4 of said Section 3 a distance of 1332.10 feet; thence South 00000’00” West a distance of 139.59 feet to the point of beginning, said point also being on the south Right-of-Way line of Burlington Northern-Santa Fe Railway; thence North 89059’14” East along said south Right-of-Way line a distance of 626.13 feet; thence South 00000’46” West a distance of 208.71 feet; thence South 89056’14” West a distance of 626.13 feet; thence North 00000’46” East a distance of 208.71 feet to the point of beginning. Said tract of land containing 3.00 ACRES, more or less.

Outlot 3 – A tract of land being part of the S1/2 Northeast Quarter of Section 3, Township 162 North, Range 93 West of the 5th Principal Meridian, Burke County, North Dakota, being more particularly described as follows:

Commencing at the southeast corner of said Northeast Quarter of Section 3, thence North 89056’00” West along the south line of said Northeast Quarter of Section 3 a distance of 1072.22 feet to a point; thence North 00004’00” East a distance of 116.46 feet to the POINT OF BEGINNING said point also being on the north right-of-way line of the Burlington Northern-Santa Fe Railroad; thence South 89057’56” West along said north right-of-way line of the Burlington Northern-Santa Fe Railroad a distance of 1574.93 feet to a point on the west line of said Northeast Quarter of Section 3; thence North 00004’05” East along said west line of said Northeast Quarter of Section 3 a distance of 24.96 feet; thence North 89057’50” a distance of 1574.80 feet; thence South 00013’20” East a distance of 25.00 feet to the POINT OF BEGINNING. Said tract contains 0.90 acres more or less.

Use of Real Estate as of the Effective Date of Value As of the effective date of value, the subject was a rail transloading facility.

Use of Real Estate as Reflected in this Appraisal The subject is a special use industrial property based on the definition of special use contained within The Appraisal of Real Estate 14th Edition and The Dictionary of Real Estate Appraisal.

Ownership of the Property According to county records, title to the subject property is vested with Basin Transload, LLC.

History of the Property Ownership of the subject property has not changed within the past three years. Basin Transload, LLC purchased each of the properties noted above from the previous owners between 2011 and 2014. The actual sales prices can be found in the table that follows.

Property Purchase Date Purchase Price Size (Acres) Price per Acre Olson Land September 30, 2011 $148,500 148.5 $1,000.00 TX3 Land August 23, 2011 $22,270 22.75 $978.90 Brusven Land September 30, 2011 $48,130 48.13 $1,000.00 Rude Land September 30, 2011 $210,000 140 $1,500.00 DMVW Land February 2014 $3,000,000 3.97 $755,667.50* ‘* - It should be noted that the purchase of the DMVW Land included “three parcels of real property adjacent to Buyer’s existing rail transload facility…and the improvements located on the real property, including buildings, road improvements and rail improvements.” This is why this price per acre is higher than the others.

Listings/Offers/Contracts The subject is not currently listed for sale or under contract for sale. There have been no offers to purchase the subject property based on comments from the General Manager of the facility, Ray Sheldon.

Type and Definition of Value The appraisal problem (the term “Purpose of Appraisal” has been retired from appraisal terminology) is to develop an opinion of the market value of the subject property. “Market Value,” as used in this appraisal, is defined as “the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.” Implicit in this

definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

 Buyer and seller are typically motivated.  Both parties are well informed or well advised, each acting in what they consider their own best interests;  A reasonable time is allowed for exposure in the open market;  Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and  The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale.”1

The value conclusions apply to the value of the subject property under the market conditions presumed on the effective date of value.

Please refer to the Glossary in the Addenda section for additional definitions of terms used in this report.

Valuation Scenarios, Property Rights Appraised, and Effective Dates of Value Per the scope of our assignment we developed opinions of value for the subject property under the following scenarios of value:

Valuation Scenario Effective Date of Value As Is Fee simple Market Value February 1, 2017

We completed an appraisal inspection of the subject property on April 6, 2017.

Date of Report The date of this report is August 1, 2017, which is the same as the date of the letter of transmittal.

Assumptions and Conditions of the Appraisal The acceptance of this appraisal assignment and the completion of the appraisal report submitted herewith are subject to the General Assumptions and Limiting Conditions contained in the report. The findings and conclusions are further contingent upon the following extraordinary assumptions and/or hypothetical conditions which might have affected the assignment results:

Extraordinary Assumptions  The effective date of this appraisal is February 1, 2017. The property was inspected by Jason Roos, MAI on April 6, 2017. We assume that the property was in a similar condition on February 1, 2017 as it was at the time of our inspection.  The subject property has pipelines, rail track, and storage tanks located on site. Information on how many track feet are included on the site, how much pipeline, and the capacity of each of the tanks has been obtained from the property owner. As it is generally difficult to

1 Source: Code of Federal Regulations, Title 12, Banks and Banking, Part 722.2-Definitions © 2016 VALBRIDGE PROPERTY ADVISORS | Shaner Appraisals, Inc. Page 4 BASIN TRANSLOAD – STAMPEDE, ND INTRODUCTION

physically measure these items, the information provided by the developer is believe to be accurate and correct. If found to not be accurate and correct, we reserve the right to reanalyze the property and a change in the estimate of market value may be required.  The valuation within this report reflects the estimated market value of all items that are permanently attached to the site. It does not include items that are on site for pollution control as they are generally not taxable by the state of North Dakota as real property. This includes the VCU and associated piping for this unit. If any other items are deemed to be pollution control by the state, the taxable value of the subject property may be reduced.

Hypothetical Conditions  None

Scope of Work

The scope of work includes all steps taken in the development of the appraisal. These include 1) the extent to which the subject property is identified, 2) the extent to which the subject property is inspected, 3) the type and extent of data researched, 4) the type and extent of analysis applied, and 5) the type of appraisal report prepared. These items are discussed as follows:

Extent to Which the Property Was Identified

Legal Characteristics The subject was legally identified via legal descriptions as well as parcel aerial maps that were provided by the client.

Economic Characteristics Economic characteristics of the subject property were identified via a review of published articles on the status of the oil market, both nationally and locally, and crude by rail (CBR) facility economics, as well as a comparison to properties with similar locational and physical characteristics.

Physical Characteristics The subject was physically identified via an appraisal inspection that consisted of interior and exterior observations.

Extent to Which the Property Was Inspected We inspected the interior and exterior of the subject on April 6, 2017.

Type and Extent of Data Researched We researched and analyzed: 1) market area data, 2) property-specific market data, 3) zoning and land-use data, and 4) current data on the transload market both nationally and locally. We also interviewed people familiar with the subject market/property type, including people at companies that currently and previously have built crude by rail terminals.

Personal Property/FF&E All furniture, fixtures, and equipment (FF&E) or any other personal property has been excluded from our analysis. The opinion of market value developed herein is reflective of real estate only.

Type and Extent of Analysis Applied The subject site has improvements that contribute to an overall value that exceeds the land value. We observed surrounding land use trends, the condition of the improvements, demand for the subject property, and relevant legal limitations in concluding a highest and best use. We then valued the subject based on the highest and best use conclusion, relying on the Cost Approach.

Appraisal Report Type This is an Appraisal Report as defined by the Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2a.

Appraisal Conformity We developed our analyses, opinions, and conclusions and prepared this report in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; and the requirements of our client as we understand them.

Regional and Market Area Analysis

REGIONAL MAP

Overview The subject is located in Fay township and has a mailing address that puts it in Columbus, Burke County. Columbus is located along North Dakota State Highway 5.

Population Population characteristics relative to the subject property are presented in the following table.

POPULATION Population Annual % Annual % Change Estimated Projected Change Area 2000 2010 2000 - 10 2017 2022 2017 - 22 United States 281,421,906 308,745,538 1.0% 327,514,334 341,323,594 0.8% North Dakota 642,200 672,591 0.5% 793,399 887,507 2.4% Burke County, ND 2,242 1,968 -1.2% 2,447 2,756 2.5% Columbus, ND 153 133 -1.3% 149 169 2.7% Source: Site to Do Business (STDB Online)

Transportation Major transportation routes in the larger area include North Dakota State Highways 5 and 40. Just to the east of the subject facility, ND State Highway 5 is also known as US Highway 52. US Highway 52 connects the subject area with US Highway 2 and Minot, North Dakota approximately 95 miles to the southeast.

Based on driving distance, Minot is about the same distance from the subject site as Williston, North Dakota and both have commercial airports. These airports are both served by Delta and United that have multiple flights each day. Delta provides non-stop service to Minneapolis/St. Paul. United provides non-stop service to Denver. Minot is also served by Allegiant Air, which provides non-stop service to both Las Vegas and the Phoenix/Mesa area. These flights are offered to these destinations only twice a week.

Minot and Williston are also located on the Amtrak Empire Builder line. This line is Amtrak’s busiest long-distance route and runs from Chicago out to the Pacific Northwest

Employment Employment by Industry - Burke County, ND 2017 Percent of Industry Estimate Employment Agriculture/Mining 269 27.70% Construction 51 5.30% Manufacturing 33 3.40% Wholesale trade 32 3.30% Retail trade 127 13.10% Transportation/Utilities 66 6.80% Information 1 0.10% Finance/Insurance/Real Estate Services 41 4.20% Services 286 29.50% Public Administration 65 6.70% Total 971 100.1% Source: Site to Do Business (STDB Online)

Unemployment The following table exhibits current and past unemployment rates as obtained from the Bureau of Labor Statistics. Overall, the state boasts one of the lowest unemployment rates in the country at 2.0%.

Unemployment Rates Area YE 2010 YE 2011 YE 2012 YE 2013 YE 2014 YE 2015 YE 2016 2017 YTD United States 9.3% 8.5% 7.9% 6.7% 5.6% 5.0% 4.7% 4.7% North Dakota 3.7% 3.3% 3.1% 2.8% 2.6% 3.0% 3.1% 2.0% Burke County, ND 2.7% 2.3% 2.1% 2.1% 2.7% 4.3% 4.5% 2.8% Columbus, ND n/a n/a n/a n/a n/a n/a n/a n/a

Source: Bureau of Labor Statistics - Year End - National & State Seasonally Adjusted

Median Household Income Total median household income for the region is presented in the following table. Overall, the subject’s county compares favorably to the state and the country.

Median Household Income Estimated Projected Annual % Change Area 2017 2022 2017 - 22 United States $56,124 $62,316 2.2% North Dakota $58,447 $66,959 2.9% Burke County, ND $63,346 $72,930 3.0% Columbus, ND $75,000 $84,563 2.6% Source: Site to Do Business (STDB Online)

Conclusions The region’s employment is driven primarily by the oil services and agricultural industries. Unemployment has been relatively low for a number of years due to the increase in oil field employment that has helped to boost the overall economy in the region. Total employment has recently dropped due to the decline in oil prices and the reduction in production by the well operators, although a number of the employees were transient and only worked part time in the region.

City and Neighborhood Analysis

NEIGHBORHOOD MAP

Overview The subject is located near the City of Columbus in Burke County. As presented in the table in the previous section, the city’s population as of 2017 was 149.

The subject’s area of Burke County is characterized primarily by agricultural uses. Within the various communities in Burke County there are commercial uses and nearly all are local businesses that support the surrounding areas and the agricultural bases.

Demographics The following table depicts the area demographics in Columbus within a one, three, and five mile radius from the subject.

Neighborhood Demographics Radius 1 mile 3 miles 5 miles Population Summary 2000 Population 0 183 208 2010 Population 0 159 181 2017 Population 0 179 213 2022 Population Estimate 0 203 241 Annual % Change (2017 - 2022) 0.0% 2.5% 2.5%

Household Summary 2000 Households 087176 % Owner Occupied 0.0% 45.0% 46.6% % Renter Occupied 0.0% 9.4% 9.1% 2010 Households 0 149 164 % Owner Occupied 0.0% 41.6% 42.7% % Renter Occupied 0.0% 10.1% 10.4% 2017 Households 0 138 159 % Owner Occupied 0.0% 48.6% 49.7% % Renter Occupied 0.0% 13.8% 14.5% 2022 Households Estimate 0 152 175 % Owner Occupied 0.0% 50.0% 51.4% % Renter Occupied 0.0% 14.5% 14.3% Annual % Change (2017 - 2022) 0.0% 2.0% 1.9% Income Summary 2017 Median Household Income $0 $73,469 $72,434 2022 Median Household Income Estimate $0 $83,698 $84,044 Annual % Change n/a 2.6% 3.0% 2017 Per Capita Income $0 $49,081 $49,081 2022 Per Capita Income Estimate $0 $55,842 $55,971 Annual % Change n/a 2.6% 2.7%

Conclusions The subject’s immediate area has been developed to support the agricultural base of the community. Population is low compared to other areas of the state and country, but has been relatively stable.

Site Description

The subject site is located in the SEQ of North Dakota State Highway 5 and 93rd Avenue NW. The characteristics of the site are summarized as follows:

Site Characteristics Location: Located in the SEQ of North Dakota State Highway 5 and 93rd Avenue NW Gross Land Area: 363.35 Acres or 15,827,526 SF Shape: Irregular Topography: Level Drainage: Adequate Grade: At street grade Utilities: All necessary utilities are in place for the current operation Interior or Corner: Corner Signalized Intersection: No: No traffic signal at, or near, the site

Street Frontage / Access Frontage Road Primary Secondary Street Name: 93rd Street NW (County Road 7) 102nd Street NW (North Dakota Highway 5) Street Type: County road State highway Number of Curb Cuts: 2 0 Traffic Count (Cars/Day): Minimal Moderate

Additional Access Alley Access: No Water or Port Access: No Rail Access: Yes Flood Zone Data Flood Zone: None FEMA has not completed a study to determine flood hazard for the selected location; therefore, a flood map has not been published at this time. Other Site Conditions Soil Type: We were not provided a soil report to review and we assume that the soil's load bearing capacity is sufficient to continue its current use. We did not observe any evidence to the contrary during our physical inspection of the property. Environmental Issues: There were no environmental issues that were known on the site or that were identified by the property contact and general manager. Easements/Encroachments: A current title report was not provided to us. Our inspection of the subject site did not note any easements or encroachments that would adversely affect the site's use.

Adjacent Land Uses North: Agricultural South: Agricultural East: Agricultural West: Agricultural

Site Ratings Access: Adequate Visibility: Average

Zoning Designation Zoning Jurisdiction: Burke County Zoning Classification: IN, Industrial General Plan Designation: Industrial Permitted Uses: Industrial Zoning Comments: This district is intended to provide areas for industrial development and those land uses which are generally not compatible with agricultural, commercial or residential land uses.

TAX/PLAT MAP

North

Improvements Description

The subject property is a special use facility that contains a number of structures, pipeline, and rail tracks. Each of these items will be described in the section that follows.

Improvement Characteristics Property Type: Industrial Property Subtype: Special use industrial facility Occupancy Type: Owner occupied Number of Buildings: 2 Number of Stories 1 Construction Class: Class S per Marshall Valuation Service Construction Quality: Average Gross Building Area (GBA) Main Building: 7,500 SF (based on owner’s records) Pipeline Building: 943 SF (based on owner’s records) Climate Controlled Area: Main Building: 5,700 square feet or 67.7% of GBA Pipeline Building: None

Specific Improvement Descriptions As a special use property, the subject property has a number of specialized improvements to the site that are specific to the use as a crude by rail (CBR) transload terminal. These items will be described below.

Rail One of the main things needed for a CBR transload terminal is rail. The subject property is split by the Canadian Pacific (CP) right-of-way that crosses east to west. Because of this, there is track that is located on the subject property and track that is located on the CP right-of-way. Basin installed 26,350 feet of rail improvements on CP property that is not included in this valuation, although it is a part of the overall operation conducted on the subject site. As this report only addresses the rail that is located on the subject property, the rail that is located on the CP property will not be included in the valuation. The track that is located on Basin Transload property can be seen in the chart below:

Feet of Track Year in Track Number (usable) Service S2 3,748 2012 S3 3,593 2012 S4 3,308 2012 Total Rail 10,649

Roads There is a paved access road from 93rd Avenue (County 7) to the entrance to the truck staging area that is approximately 1,200 linear feet. This is paved with asphalt. There are also a number of gravel

site roads through the facilities. According to the property owner, there is only one of these roads that is located on owned land with the rest of the roads being located on CP right-of-way land. Basin improved approximately 15,000 linear feet of roads on the CP right of way. The gravel road on Basin-owned land is approximately 4,700 linear feet and is located along the southside of track S4.

Linear Feet Type of Road of Roadway Improvement Entrance Road 1,200 Asphalt S4 Road 4,700 Gravel Total Road 5,900

Structures The main building on the site is a 60’ by 90’ structure that is a Class S steel structure according to Marshall Valuation Service (MVS). The lower level of this property contains a 20’ by 60’ office and breakroom area and a 30’ by 60’ shop area. In between these two areas, the subject is a two story space that has four 17.5’ by 30’ employee sleeping rooms on the first floor and four 17.5’ by 30’ employee sleeping rooms on the second floor. The total square footage of this structure is approximately 7,500 square feet.

The only other site built building on the property is attached to the Tesoro pipeline that is coming into the site and is approximately 920 square feet in size. There is no office space in this and it is simply on site to provide cover for the incoming pipeline’s machinery and equipment which includes a proving loop system. Outside of this structure, there is also two 400 bbl overpressure breakout tanks and a proving loop system.

The Summit Pipeline Receiving Facilities include a building similar to the Tesoro structure mentioned above, however that building is skid mounted and can be lifted and removed if necessary. Because it is not permanently affixed to the foundation, it was not given any value for the real estate.

There are other temporary trailers that are located on the site, but as they are movable and not permanently attached to the site, they were not included in the valuation of this property. These include a number of oversees shipping containers to house test equipment and for general storage. As these are not permanently attached to a foundation or the site, they have not been included within this report.

Tanks The subject currently has three above ground storage tanks located on site. These tanks were put into service between 2012 and 2015 and details of them can be seen in the chart that follows.

Shell Year in Tank Capacity Service (Barrels) 1 100,000 2012 2 176,000 2014 3 176,000 2015 Total Capacity 452,000

Pipeline The subject has pipeline that leads from the Truck LACTs to the storage tanks, from the storage tanks to the rail sidings, and pipeline that leads to the tanks from the Tesoro and Summit Midstream Meadowlark pipelines. For the rail loading pipeline and header system, there are two 1,100 linear foot 16” underground low pressure pipes. There are two 2,400 linear foot 16” above ground low pressure crude headers. At the loading stations, there are 81 loading stations for mobile meter and loading trailers. It should be noted that the client has indicated that this portion of the subject property is potentially considered machinery and equipment used in trade and may not be taxable under State statute.

Linear Feet Size of Pipeline of Pipeline Pipe Underground Low Pressure 2,200 16” Above Ground Low Pressure 4,800 16” Total Capacity 7,000

Truck LACT The oil that is not received via pipeline is received through trucks transporting it to the facility. These trucks are emptied at a truck LACT (Lease Automatic Custody Transfer). There are eight truck bays with 400 gallon per minute receiving meter stations. A 60’ by 270’ concrete containment with associated sump, and an approximately 7,800 square yards of paved apron area around the LACT area.

Analysis/Comments on Improvements The subject is a special use property that is designed specifically for the transportation of crude oil by rail. The function and utility of the property is average based upon a comparison of similar properties in the market area.

Subject Photos

Crude Tanks (Photo taken April 2017)

Truck LACT (Photo taken April 2017)

Crude Loading Stations (Photo taken June 2016)

Main Building (Photo taken June 2016)

Additional photos are included in the Addenda

Crude by Rail Market Analysis

Drilling for oil is not new to western North Dakota. It has been through a few cycles in its history. The most recent began in the mid-2000s when fracking and horizontal drilling made its way to the region. This allowed oil producers to economically produce oil that had historically been uneconomic to access. North Dakota is now the nation’s second largest oil-producing state. State wide production has reached 1,033,941 barrels per day in February 2017.

Production grew rapidly in North Dakota during 2011 through 2014, however, the ability to move that oil to the market did not keep pace. The national pipeline network was insufficient to transport the output of the producers. The pipelines from the Bakken area did not have adequate capacity for the increased production and there was no way to get the oil produced to the market. This inability to get the oil to the market due to pipeline bottlenecks has led to crude from the Bakken region to trade at a very large discount to domestic oil from other producing regions, which cut the producers’ profit margins and led to investment in rail transportation as a quicker solution to the constraint which reduced the discounts.

Long distance oil pipelines could no longer handle the region’s output. Oil output was hundreds of thousands of barrels higher than the pipeline capacity in the region. Because of the locations and limits on existing pipeline capacity, producers, refiners, and end-users had to look for other ways to get the product. One of the first places they looked was at the railroads, which would be able to move crude to the East and Gulf Coast refineries which had different economics than the refineries served by the existing pipelines. While most crude oil is still transported by pipelines, crude by rail shipments early on became a viable alternative to the pipeline shipments.

Transporting crude oil by pipeline is generally cheaper than by rail. In 2014, it was reported by the Congressional Research Service that the cost per barrel for pipeline transportation was $5.00 while the crude by rail (CBR) cost was closer to $10.00 to $15.00 per barrel. Although more expensive to ship via rail, it has allowed producers to get around the pipeline bottlenecks but lead to the higher discounts in North Dakota as all the volume tended to trade at the marginal price for the last barrel.

There are advantages of transporting by rail. One of these is the number of buyers that you can reach via rail. The Bakken producers can more easily reach the refineries in Texas, Louisiana, New York, Pennsylvania and other areas not easily reached via pipelines. Refiners like options. There are locations that cannot send or receive by pipeline and rail has given them another option. Another advantage is the speed at which the product reaches the end user. Via pipeline, it can take upwards of 40 days to reach the end user while crude by rail shipments can reach their destinations in as quickly as 8 to 10 days.

North Dakota now has 17 crude by rail facilities that have a listed capacity of 1,520,000 barrels per day, according to the North Dakota Pipeline Authority. All of the rail development has increased crude transportation capacity in the Bakken region. The location of these can be seen in the map that has been obtained from the North Dakota Pipeline Authority. In addition, the North Dakota Pipeline Authority has estimated the total crude oil export options as of June 1, 2017 and their capacity in barrels per day.

Source: North Dakota Pipeline Authority –February 2015

US Williston Basin Crude Oil Export Options ‐ June 1, 2017 Year End System Capacity, Barrels Per Day 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019* 2020* EOG Rail, Stanley, ND (Unit) ‐ ‐ 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 Dakota Plains, New Town, ND (Unit) ‐ ‐ ‐ 20,000 30,000 30,000 30,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 High Sierra, Donnybrook, ND (Manifest) ‐ 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Crestwood COLT Hub, Epping, ND (Unit) ‐ ‐ ‐ ‐ ‐ 120,000 120,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000 Hess Rail, Tioga, ND (Unit) ‐ ‐ ‐ ‐ ‐ 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 Bakken Oil Express, Dickinson, ND (Unit) ‐ ‐ ‐ ‐ 100,000 100,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 Savage Services, Trenton, ND (Unit) ‐ ‐ ‐ ‐ ‐ 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000 Enbridge, Berthold, ND (Unit) ‐ ‐ ‐ ‐ ‐ 10,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 Great Northern Midstream, Fryburg, ND (Unit) ‐ ‐ ‐ ‐ ‐ ‐ 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 Musket, Dore, ND (Unit) ‐ ‐ ‐ ‐ ‐ 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 Plains, Ross, ND (Unit) ‐ ‐ ‐ ‐ 20,000 20,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 Plains ‐ Van Hook, New Town, ND (Unit) ‐ ‐ ‐ ‐ ‐ 35,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 Global/Basin Transload, Stampede, ND (Unit) ‐ ‐ ‐ ‐ ‐ 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 Global/Basin Transload, Zap, ND (Unit: Capacity Estimate Not Confirme ‐ ‐ ‐ ‐ 20,000 40,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 Enserco, Gascoyne, ND (Unit) ‐ ‐ ‐ ‐ ‐ ‐ 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 Palermo Rail Terminal, Palermo, ND (Q1 2016) (Unit) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 100,000 100,000 100,000 100,000 100,000 Northstar Transloading ‐ Fairview, MT (Q3 2014) (Unit) ‐ ‐ ‐ ‐ ‐ ‐ ‐ 20,000 180,000 180,000 180,000 180,000 180,000 180,000 Rail Loading Facility Only Total ‐ 10,000 75,000 95,000 245,000 740,000 1,150,000 1,260,000 1,420,000 1,520,000 1,520,000 1,520,000 1,520,000 1,520,000

Because the costal refineries could afford higher prices and as rail system competition caused efficiency imporvements, it has raised the benchmark price of oil from the region. In February 2016, Bakken crude was trading at a rate of WTI less $0.60 per barrel. Crude oil price differentials are expected to “tighten up” as Bakken crude oil starts moving through the Dakota Access Pipeline, the top executive for Tesoro Petroleum said. Other producers have said the differentials on Dakota Access would be about $3.50 a barrel. “We believe that the differentials will stay relatively tight like that,” said Tesoro president and CEO Greg Goff, “and that we’ll need additional production to move back up to get closer to a discount what’s probably more reflective of the cost of moving Bakken out of there to the Gulf Coast from a discount basis.” Tesoro operates refineries in Mandan and Dickinson, ND. In January 2013, this spread was closer to $5.00 less per barrel than WTI. The graph

on the following page shows that as the Brent-WTI spread declines (dashed blue line) the estimated rail shipments have declined and pipeline shipments have increased.

Source: North Dakota Pipeline Authority – March 2017 Production and Transportation Monthly Update

After prices collapsed late last year, the spread between WTI, Brent, and Bakken field prices have tightened, challenging the economics of rail. The arbitrage opportunities created by using rail to capture the spread between WTI and Brent are all but eliminated. Producers are trying to minimize

loses, and for many, that means moving as much crude via pipelines as possible. While pipeline capacity has been limited for years now, historically, Enbridge’s pipeline from North Dakota to Clearbrook, MN, has had spare capacity when Brent and WTI spreads were wide and rail to the East Coast was a more profitable option.

However, when spreads collapse, as they did in the summer of 2013 and now, the economics of moving crude by rail becomes unfavorable but many rail movements continued due to outstanding commitments or the delay to shift to alternative supply chains. Pipelines are typically a cheaper mode of transportation and when Brent/WTI differentials are at sub $5/Bbl, rail margins are razor thin. In a review of forecasts from the end of 2016, a common thought from experts was that the spread between WTI and Brent crude could remain under $5.00 per barrel in 2017 and could approach zero. In January 2017, this spread was $2.84 per barrel. In that case, it does not make economic sense for the producers to ship via rail and would shift over to any available pipeline capacity. The chart below shows the five year history of the Brent WTI Spread, which has been near zero recently. As of February 7, 2017, the difference was $1.60 per barrel and was negative as of February 28, 2017 at ($0.64).

Goldman Sachs raised their 2017 oil price forecast after reassessing the likelihood that key global producers will stick to output cut pledges under OPEC’s efforts to clear the oil market glut. The bank raised its Q2 2017 WTI price forecast to $57.5/b from $55/b and said it sees strong compliance with the announced output cuts pushing average WTI prices to $55/b in the second half of the year, $5/b above previous estimates

Year Brent Crude WTI Crude Spread 2017 $57.90 $55.60 $2.30 2018 $56.30 $55.00 $1.30

In addition to Goldman’s analysis, S&P Global Platts stated in December 2016 that:

 Steady US Output should keep WTI at a discount amid OPEC cuts  Wider Spreads have provided incentives for European buyers  US tax proposals change could flip WTI to premium

US crude exports could pick up in 2017 as many analysts have forecast a wider Brent/WTI spread. US crude production is already on the rise, and will likely face fewer hurdles under a Trump administration, especially at a time when much of the rest of the world's producers are planning, in theory at least, to curtail output. Further, a radical shift in US tax policy could be on the horizon, with the potential to roil energy markets, at least according to some analysts.

Francisco Blanch, head of global commodities and derivatives research at Bank of America Merrill Lynch, said he too sees the so-called WTI-Brent spread widening. A lower WTI price should incentivize traders to sell more U.S. crude overseas, which would help draw down inventories

When this spread is reduced or WTI is on par with Brent, the east coast refiners will bring in more international oil by barge, which is cheaper than shipping via rail.

In 2013, a report by the Federal Reserve Bank of Minneapolis stated “most industry sources anticipate pipelines regaining their predominance in oil transport within a few years.” New pipelines that are planned for the area to move the Bakken crude are expected to permanently shrink or eliminate the differential between WTI and Bakken crude that makes crude by rail economical. Without the sizeable Bakken discount, the economic incentive disappears to pay the higher rail costs to the coasts because producers can earn equal or greater profits by piping oil to Midwest refineries at lower rates.

On the following pages are two charts from the North Dakota Pipeline Authority. The first shows that rail export volumes have declined over the past year. After peaking at approximately 850,000 bpd in January 2015, as of the date of valuation, that amount has declined to under 300,000 bpd.

The percentage of capacity for all CBR terminals for January 2015, January 2016, and January 2017 can be seen in the table below. The shipments via rail in barrels per day was obtained from the North Dakota Pipeline Authority.

Shipments via Rail Capacity Percentage Date (Barrels per day) (Barrels per day) of Capacity January 2015 750,000 1,420,000 52.82% January 2016 495,000 1,520,000 32.57% January 2017 280,000 1,520,000 18.42%

Source: North Dakota Pipeline Authority – April 2017 Production and Transportation Monthly Update

The Williston Basin Rail Export Estimates from the North Dakota Pipeline Authority shows the following estimates of barrels of oil shipped via rail. This shows that the oil transported by rail peaked late in 2014 at nearly 850,000 barrels. As of February 2016, the estimates were between 452,606 and 482,606 barrels and the estimate in February 2017 was between 274,271 and 304,271 barrels, which is a decrease of approximately 39% from a year prior.

Jan‐12 145,061 165,061 Jan‐13 561,643 591,643 Jan‐14 744,949 774,949 Feb‐12 170,408 194,408 Feb‐13 617,863 647,863 Feb‐14 698,842 728,842 Mar‐12 216,265 240,265 Mar‐13 625,839 655,839 Mar‐14 697,941 727,941 Apr‐12 260,340 284,340 Apr‐13 664,522 694,522 Apr‐14 697,753 727,753 May‐12 274,844 298,844 May‐13 628,186 658,186 May‐14 670,555 700,555 Jun‐12 316,775 340,775 Jun‐13 628,525 658,525 Jun‐14 699,885 729,885 Jul‐12 351,767 375,767 Jul‐13 620,741 650,741 Jul‐14 732,684 762,684 Aug‐12 359,539 383,539 Aug‐13 613,803 643,803 Aug‐14 752,466 782,466 Sep‐12 412,550 436,550 Sep‐13 641,432 671,432 Sep‐14 801,239 831,239 Oct‐12 426,033 456,033 Oct‐13 718,743 748,743 Oct‐14 784,709 814,709 Nov‐12 471,839 501,839 Nov‐13 768,606 798,606 Nov‐14 765,541 795,541 Dec‐12 541,094 571,094 Dec‐13 750,496 780,496 Dec‐14 817,362 847,362

Jan‐15 733,234 763,234 Jan‐16 479,231 509,231 Feb‐15 666,029 696,029 Feb‐16 452,606 482,606 Mar‐15 680,637 710,637 Mar‐16 404,100 434,100 Apr‐15 673,238 703,238 Apr‐16 380,097 410,097 May‐15 602,393 632,393 May‐16 334,201 364,201 Jun‐15 589,345 619,345 Jun‐16 275,099 305,099 Jul‐15 607,798 637,798 Jul‐16 344,705 374,705 Aug‐15 625,229 655,229 Aug‐16 284,568 314,568 Sep‐15 681,118 711,118 Sep‐16 287,647 317,647 Oct‐15 618,069 648,069 Oct‐16 368,368 398,368 Nov‐15 558,220 588,220 Nov‐16 280,600 310,600 Jan‐17 264,269 294,269 Dec‐15 521,722 551,722 Dec‐16 244,155 274,155 Feb‐17 274,271 304,271

The status of two pipeline projects has changed recently. The Sandpiper Pipeline Project, which was originally proposed in 2013 to construct a 616-mile crude oil pipeline from Tioga, North Dakota to Enbridge’s Superior Terminal in Wisconsin. This project has been deferred and Enbridge will withdraw the project applications in Minnesota as of September 2016. This is due to market changes and their customer’s near-term need to access and transport Bakken crude oil.

The second was the Dakota Access Pipeline (DAPL), which is a 1,172-mile-long underground pipeline. The pipeline was completed in April 2017 and the first oil was delivered on May 14, 2017. The pipeline became commercially operational on June 1, 2017. This pipeline has an initial capacity of 470,000 barrels per day.

The opening of this pipeline increased the takeaway capacity to the Williston Basin and will likely disrupt traditional rail flow patterns. The addition of this pipeline will create an overbuild of infrastructure in the Williston Basin and as rail and pipelines compete for volumes, Williston Basin differentials are likely to remain tight, squeezing the margins of shippers. The story of Bakken infrastructure mirrors that of the Northeast – firm commitments that were once viewed as an asset will soon become a liability.

According to an article in NGI’s Shale Daily from April 2017, the DAPL is being characterized by some analysts as a price dampener because the Bakken crude would be headed to already over-supplied Gulf Coast refineries. There are also assumptions that the ability to displace almost all the rail volumes may further shrink regional price differentials and improve netbacks for Bakken producers.

The chart below shows the Williston Basin oil production and export capacity in barrels per day. This was obtained from the North Dakota Pipeline Authority and shows that the peak estimate of production for the region is expected to peak out at 1,800,000 bpd in one case and 1,490,000 in a second case. Although that represents a large increase from the current amount of production, with the pipelines that recently came online and are scheduled to come online over the next five years, the capacity of the pipelines will be nearly 1,550,000 barrels per day and will leave little remaining capacity for the CBR terminals that are located within the state to economically transport product.

Source: North Dakota Pipeline Authority – January 2017

Decline in Crude by Rail The article below was published in the Minneapolis Star Tribune in February 2016 and highlights some of the issues that are facing the crude by rail industry.

U.S. crude by rail industry slows down after six years of rapid growth

Once a booming business, the loading of crude oil at more than a dozen North Dakota rail terminals now faces a financial squeeze.

Crude oil shipments by rail dropped nearly 17 percent in the United States last year as low oil prices, reduced oil output and new pipelines ended six years of rapid growth by the oil train industry.

The Association of American Railroads on Wednesday said 410,249 tank car loads of crude oil were transported across the nation in 2015, down from a peak of 493,146 tank cars a year earlier. The tally confirms declines reported by individual railroads and North Dakota officials.

Once a booming business, the loading of crude oil at more than a dozen North Dakota rail terminals now faces a financial squeeze. Many operators are surviving only because multiyear shipping contracts haven’t yet expired, according to industry analysts.

“The oil that is moving by rail is being done out of obligation, not opportunity,” said Craig McKenzie, chief executive of Wayzata-based Dakota Plains Holdings, which operates a New Town, N.D., loading terminal. “They are fulfilling contractual obligations rather than chasing profit-making opportunities.”

Dakota Plains, whose terminal lies in the heart of North Dakota’s oil fields, reported a loss in the third quarter and hasn’t yet reported fourth-quarter results. But McKenzie said in an interview that the company has increased its share of the shrinking oil- loading market while expanding into the business of unloading trains hauling fracking sand to Bakken producers.

Three of 12 actively monitored North Dakota oil-loading terminals have periods without any activity, including EOG Resources’ terminal in Stanley, which hasn’t been seen filling a train since July, according to Genscape, a Louisville, Ky.-based energy intelligence firm. Last week, North Dakota terminals loaded 319,000 barrels per day, down 37 percent over the same week a year ago, Genscape said.

Oil trains of 100 or more tank cars still roll across Minnesota, Wisconsin and other states. North Dakota in December shipped about 41 percent of its oil to refineries via oil trains, compared with 72 percent in December 2013, which was the peak share. From 28 to 46 oil trains pass weekly through the Twin Cities, according to the most recent railroad reports.

“Oil trains are still out there, and people are still seeing them,” said Peter Dahlberg, who manages the Minnesota Transportation Department’s rail service improvement program.

Crude-by-rail traffic jumped fifty-fold from 9,500 U.S. carloads in 2008, the beginning of the shale oil boom, to the peak in 2014. On a typical shipment, about 70,000 barrels of oil are loaded on a so-called unit train consisting of nothing but tank cars.

Justin Kringstad, director of the North Dakota Pipeline Authority, said pipeline capacity added in 2015 via Kinder Morgan’s Double H Pipeline in western North Dakota, a decline in oil field production and changed market conditions have reduced that state’s reduced crude-by-rail volume.

Yet even with North Dakota’s production decline to 1.15 million gallons per day, the state still lacks sufficient pipeline takeaway capacity. One anticipated project — Enbridge Energy’s 225,000-barrel-per-day Sandpiper pipeline from North Dakota and across northern Minnesota — has been delayed until 2019 while Minnesota regulators review environmental issues.

Erika Coombs, energy analyst for BTU Analytics in Lakewood, Colo., said the Sandpiper delay and potential delay in another proposed Bakken pipeline though Iowa could help stabilize the crude-by-rail industry.

“If both pipelines are delayed or don’t get built, those are volumes that need to continue to move by rail,” Coombs said.

Pipelines and oil-hauling railroads like BNSF Railway and Canadian Pacific Railway serve different refiners. Midwest pipelines don’t extend to East Coast refineries, which have been buying North Dakota crude and paying the extra cost of rail shipping when the overall price beats ship-delivered oil.

But crude by rail is profitable only when the East Coast crude oil price exceeds the North Dakota price by about $12 or $13 per barrel, leaving room to pay the rail shipping. Lately, the price spread has been narrower.

“For quite a while the spread has not been favorable to railing out to the East Coast or the West Coast,” said David Arno, an analyst for Genscape.

Coombs said many rail terminals have two- or three-year contracts with shippers that are expiring. Under current conditions, some of those contracts might not be renewed, she said.

“That is a difficult spot that many of these terminals are in right now,” Coombs added.

Yet parts of the crude-by-rail industry remain in a growth stage. Phillips 66 Partners and another company recently completed a $300 million feeder pipeline and rail- loading terminal near Palermo, N.D.

“Over the long term, five or 10 years from now, I still see crude-by-rail as part of the equation,” said North Dakota’s Kringstad. “It will not be the same type of volumes we have seen in the past.”

Oil trains remain a concern of transportation safety advocates, even as new state laws, federal regulations or investments by railroads have focused on strengthening tank cars, reducing speeds, improving track, reducing explosive vapors and preparing for emergencies.

“In virtually all of the categories, the improvements are just marginal,” said Fred Millar, a rail safety advocate and consultant in Washington, D.C. “Tank cars will still be releasing their contents … There are going to be continued accidents.”

Another article from S&P Global Platts dated November 11, 2016 can be seen below.

What’s ahead for the energy railway industry after crude by rail went bust? “Maybe we’ll talk about shipping water by rail at the next Railway Age gathering in 2017,” is what several delegates said at the Energy by Rail conference in Arlington, Virginia in October.

The crude by rail landscape must be in a dire state when delegates from the railway industry are toying with the idea of hauling water to draught-prone regions or shale production sites in order to repurpose the currently 113,000 rail tank cars — 28% of

the entire 400,000 strong fleet — sitting idle on offline tracks or in storage amid declining CBR volumes.

Lease rates for the 287,000 tank cars that are still moving have declined to $300- 375/month from a high of over $2,400/month during the CBR boom in 2013-2014 and $700-800/month a year ago.

The one faction that didn’t mind the downturn in the CBR landscape were the rail car service companies that are cleaning the tank cars, in order to prevent corrosion during storage.

BNSF’s executive chairman Matthew Rose opened the conference, held October 27- 28, by pointing to the structural decline in both the oil and coal business and that natural gas liquids could well be the next commodity for the railroads. Shortline companies, such as Omnitrax, were optimistic about railing frack sand to shale producing fields, as the increased use of sand below ground resulted in higher yields above ground. In other words, alternatives to crude by rail was on the forefront of delegates’ minds, in order to circumvent the current bust cycle of the crude by rail landscape.

According to the Energy Information Administration, total CBR shipments, not including Canada, have more than halved in the past two years from a peak of 1 million b/d in late 2014 to 348 MBD in August 2016. 85% of that volume is sourced in PADD 2 railing Bakken crude to those US refinieries where there is no pipeline capacity.

And access to pipelines is what is at the heart of the boom-and-bust cycle of CBR, as rail cars take crude where pipelines do not. The US CBR boom started in 2010 as a means of transporting then stranded shale crude production to refining centers on the US coasts. As soon as pipeline carrying capacity was built and expanded, CBR volumes decreased in favor of cheaper pipeline transport.

Total US CBR receipts declined 13% in 2015 in response to the expansion of pipeline networks and narrower crude spreads. In order for CBR to make economic sense vis a vis West African imports on the US Atlantic Coast, WTI needs to trade at a minimum $3-4/b discount to Brent, according to industry sources. In 2011 and 2012, when shale crude volumes were building and by far exceeding pipeline carrying capacity, the Brent/WTI spread blew out to over $10/b for most of the period and peaked at $24.13/b in September 2011. The chart below shows that CBR volumes were building in tandem with a widening Brent/WTI spread and contracting once that spread started to narrow.

So CBR does not appear to be the Walmart Movement to the World, except for where pipelines cannot go and that is across the Rocky Mountains to the US West Coast. Only environmental concerns are currently delaying and ultimately may halt the expansion of rail receiving terminals in California.

But beyond repurposing tank cars to haul water across the continent to distant sites, some energy railers felt that LNG was ready to go on the rails as an alternative transport mode to pipelines during peak heating demand on the USAC and the Midwest during the winter season.

“There are shippers out there that would like to transport it. Natural gas production is booming in the US. Inquiries have come from Marcellus gas to liquefy and take to New England. [This] would compete with imported LNG from Trinidad. Despite its good and very extensive pipeline network, the US is developed and there are loads of places for the rail roads to move LNG,” Scott Nason, product manager at Chart Inc. said at the conference. “Large LNG satellite stations can be used to provide backup gas supply to gas fired power plants during pipeline shortages or outages.”

Nason further explained that LNG is a safe commodity to transport by rail in pressurized tanks, as LNG by itself does not explode, but instead the vapors will only ignite if mixed with 5-15% of air. LNG vapor has a spark ignition temperature of 1,000 degrees Fahrenheit.

Canada has allowed the transport of LNG by rail since July 2014 and in Europe the transport of LNG is considered safe in ISO containers. In Alaska, the Federal Railroad Administration granted approval to transport LNG in tank cars since October 2015, but the permit is to expire in December 2017. Liquid ethylene, a cryogenic liquid similar to LNG, has been shipped in DOT-113 cars in the US from 1961 to the present. So in the end, next year’s rail gathering may not just be about hauling water.

The following article was written and published by Blake Nicholson with the Associated Press on March 8, 2017.

Dakota Access oil pipeline doesn't faze big rail shippers The two biggest railroads shipping oil from North Dakota don't seem particularly concerned that the Dakota Access pipeline may be about to come online, as oil makes up only a small percentage of their business in the state.

The pipeline could begin operating as soon as next week, despite an unresolved legal dispute involving two Native American tribes seeking to shut it down. At capacity, it will be able to transport half of the oil production of North Dakota, the nation's No. 2-producing state behind Texas.

That isn't likely to be a big concern for the state's dominant rail shippers, BNSF Railway and Canadian Pacific Railway, which ship more coal and commodities such as grain than crude. The pipeline's developer, Texas-based Energy Transfer Partners, said in court documents last year that it has long-term transportation contracts with nine companies that want to ship oil through the pipeline.

"We think it's going to be substantial," said Ron Ness, president of the North Dakota Petroleum Council, a trade group representing nearly 500 energy companies. "It's going to move a lot of barrels from western North Dakota."

The pipeline could move enough oil to fill 500 or more rail cars each day, according to ETP. It is generally cheaper to move oil by pipeline than by rail, though it is still profitable to move it by rail, according to John Duff, operations research analyst with the U.S. Energy Information Administration.

Currently, it costs about $6 per barrel to ship by pipeline and about $10 per barrel to ship by rail, according to Justin Kringstad, director of the North Dakota Pipeline Authority.

BNSF Railway shipped more than 426,000 carloads of products from North Dakota last year — about half of which contained coal or grain — and "overall, crude oil never made up more than 5 percent of the total volume on our railroad," spokeswoman Amy McBeth said.

BNSF has invested more than $1 billion in its network in North Dakota since 2013 and plans to pump another $80 million into it this year, according to McBeth.

"As this pipeline or any other is completed, we believe rail will always provide a valuable transportation option," she said.

Crude shipments made up only 2 percent of total freight revenue last year for Canadian Pacific Railway, the other major rail shipper in North Dakota. Coal and grain totaled 26 percent. The company supplied the data but declined to comment on the pipeline.

ETP is finishing up construction and says oil could be flowing through the pipeline as early as next week. Once that happens, it will take about three weeks for it to reach Illinois, according to company spokeswoman Vicki Granado.

"The line will be considered fully operational once the crude reaches Patoka," she said. New pipelines typically can operate at full capacity immediately, according to Ness. Dakota Access is expected to carry nearly half a million barrels of crude daily. The most recent data available show that in January, North Dakota produced about double that amount.

Reuters has also discussed the Crude-by-rail industry in April 2017 and was written by Jarrett Renshaw.

East Coast refiner shuns Bakken delivery as Dakota Access Pipeline starts Philadelphia Energy Solutions Inc., the largest refiner on the U.S. East Coast, will not be taking any rail deliveries of North Dakota's Bakken crude oil in June, a source familiar with delivery schedules said on Tuesday - a sign that the impending start of the Dakota Access Pipeline is upending trade flows.

At its peak, PES would have routinely taken about 3 miles' worth of trains filled with Bakken oil each day. But after the $3.8 billion Dakota Access Pipeline begins interstate crude oil delivery on May 14, it will be more lucrative for producers to transport oil to refineries in the U.S. Gulf Coast.

The long-delayed pipeline will provide a boost for Bakken prices and unofficially end the crude-by-rail boom that revived U.S. East Coast refining operations several years ago.

"It's the new reality," said Taylor Robinson, president of PLG Consulting. "Unless there's an unforeseen event, like a supply disruption, there will be no economic incentive to rail Bakken to the East Coast."

PES declined to comment for this story.

The 1,172-mile (1,885-km) Dakota Access line runs from western North Dakota to a transfer point in Patoka, Illinois. From there, the 450,000 barrel per day line will connect to large refineries in the Nederland and Port Arthur, Texas, area.

The project became a focus of international attention, drawing protesters from around the world, after a Native American tribe sued to block completion of the final link of the pipeline through a remote part of North Dakota.

The Standing Rock Sioux tribe said the pipeline would desecrate a sacred burial ground and that any oil leak would poison the tribe's water supply.

But after U.S. President Donald Trump took office in January, one of his first acts was to sign an executive order that reversed a decision by the Obama administration to

delay approval of the pipeline. The tribe also lost several lawsuits aimed at stopping the project led by Energy Transfer Partners LP.

PES has scheduled just five rail deliveries of crude for May and none for June at its facility in Philadelphia, according to the source familiar with the plant's operations, who spoke on condition of anonymity because they are not authorized to speak about company operations. Deliveries are often scheduled months in advance to manage logistics like storage and manpower.

In recent months, PES was getting roughly one unit train per day, the equivalent of 75,000 barrels a day. During the boom years between 2013 and 2015, PES would routinely receive three trains a day of Bakken.

PES and other refiners built large rail terminals on the East Coast in recent years to accommodate cheap Bakken flowing from North Dakota. The PES refinery terminal, which opened in 2013, was able to handle roughly 280,000 barrels a day, making it the largest on the U.S. East Coast.

Rail volumes of Bakken crude peaked at 420,000 bpd, resulting in bumper profits for those refiners. But Bakken crude's discount to U.S. crude slowly eroded as pipeline capacity out of North Dakota expanded, increasing competition for the heavy oil.

That forced the East Coast to rely more heavily on foreign, waterborne crude. Currently, Bakken barrels at the delivery point in Nederland, Texas, in June are trading around $1.25 to $1.50 a barrel over U.S. crude futures. Higher rail costs would boost those barrels to $7 to $8 more than U.S. crude.

The East Coast has averaged roughly 100,000 bpd of crude rail deliveries in recent weeks, according to energy industry intelligence service Genscape.

Monroe Energy, a subsidiary of Delta Air Lines, stopped receiving Bakken by rail for its 185,000 bpd refinery outside Philadelphia in January of last year. East Coast refineries operated by Phillips 66 and PBF Energy are still receiving modest volumes of Bakken crude.

"At this point, there are no good reasons to rail crude to the East Coast," said Sarah Emerson, a managing principal at ESAI Energy LLC, a consultancy.

The Association of American Railroads provided a US Rail Crude Oil Traffic report dated May 2017. Excerpts from this can be seen below.

US. Rail Crude Oil Traffic The growth in domestic crude oil production presents a tremendous opportunity for the United States to move closer to energy independence. Railroads have been crucial to this effort:

 Crude oil has little value unless it can be transported to refineries, but most U.S. refineries are located in traditional crude oil production areas (Texas, Oklahoma, Louisiana) or on

the coasts where crude oil transported by tanker is readily accessible (California, Washington, New England, Gulf of Mexico), rather than near new production areas like North Dakota. It’s impossible for refineries to come on line quickly near the new production areas, in part because it takes so long to obtain necessary permits  Historically, pipelines have transported most crude oil. However, in North Dakota, higher crude oil production outpaced growth in crude oil pipeline capacity. Railroads helped fill this gap. In fact, as U.S. crude oil output surged, so too did crude oil carloads on U.S. railroads. Originated carloads of crude oil on U.S. Class I railroads (including the U.S. subsidiaries of Canadian railroads) rose from 9,500 in 2008 to 493,146 in 2014. Terminated carloads of crude oil on U.S. Class I railroads rose from 9,344 in 2008 to 540,383 in 2014.  However, growth in pipeline capacity, a narrowing in the “spread” between domestic and imported oil, and other factors have led to a sharp decline in rail shipments of crude oil. After peaking in 2014, originated carloads of crude oil on U.S. Class I railroads fell to 409,949 in 2015 (down 17 percent from 2014) and 211,986 carloads in 2016 (down 57 percent from 2014). In the first quarter of 2017, U.S. Class I railroads originated 40,235 carloads of crude oil, down 36% from the first quarter of 2016 and the lowest for any quarter since the first quarter of 2012. Terminated Class I carloads of crude oil were 484,525 in 2015 (down 11 percent from 2014’s peak) and 271,154 carloads in 2016 (down 50 percent from 2014 — see the charts below). The decline continued into 2017 — in the first quarter, U.S. Class I railroads terminated 59,643 carloads of crude oil, down 29% from terminations in the first quarter of 2016.

 All told, from the first quarter of 2009 through the first quarter of 2017, U.S. Class I railroads originated 1.9 million carloads of crude oil and terminated 2.1 million carloads. At its peak in 2014, crude oil accounted for 1.6 percent of total originated carloads on Class I railroads. In 2016, it accounted for 0.8 percent.  The amount of crude oil in a rail carload varies depending on (among other things) the source of the oil, the type of tank car used, and the season of the year. In 2016, the average carload of crude oil originated in the United States carried approximately 700 barrels of oil. Using that, the 211,986 carloads of crude oil originated by U.S. Class I railroads in 2016 was equivalent to around 407,000 barrels per day. According to data from the Energy Information Administration (EIA), U.S. crude oil production in 2016 averaged 8.9 million barrels per day, so © 2016 VALBRIDGE PROPERTY ADVISORS | Shaner Appraisals, Inc. Page 36 BASIN TRANSLOAD – STAMPEDE, ND MARKET ANALYSIS

the rail share was approximately 4.6 percent of total production. In 2014, the peak year for rail crude oil shipments, railroads accounted for around 11 percent of U.S. crude oil production.

 The Bakken region has accounted for the vast majority of rail crude oil originations in recent years. According to the North Dakota Pipeline Authority, near the end of 2014 around 800,000 barrels of crude oil per day were moving out of the area by rail. By the end of 2016, though, this was down to well under 300,000 barrels per day (see the bars in the chart on the bottom right of the previous page). The rail share of North Dakota crude oil movements averaged around 62 percent in 2014, but only around 32 percent in 2016. Meanwhile, the pipeline share rose from around 31 percent in 2014 to around 57 percent in 2016. According to the North Dakota Pipeline Authority, pipeline capacity for movement of Williston Basin crude oil rose from 170,000 barrels per day in 2007 to 1.2 million barrels per day in 2017.

Another article from Genscape in May 2017 written by David Arno, an Oil Market Analyst, details the DAPL starting and future expectations of crude-by-rail in North Dakota. North Dakota Crude-by-Rail Loadings Plummet with DAPL Startup Imminent

Crude-by-rail loadings in North Dakota kicked off May with volumes at their lowest point since 2012, as the market prepares for the upcoming startup of Energy Transfer Partners’ 470,000 bpd Dakota Access (DAPL) crude pipeline.

For the week ending May 5, loaded crude volumes at the 13 Genscape-monitored rail terminals in North Dakota plummeted 111,000 bpd to 130,000 bpd, the lowest amount since week ending June 1, 2012. Genscape only monitored five rail terminals at the time, but crude production was 664,000 bpd in June 2012, versus 1.026mn bpd in March 2017, according to the latest data from North Dakota's Department of Mineral Resources.

The startup of ETP’s Bakken Pipeline system (which is the Bakken-to-Patoka, IL, DAPL and 470,000 bpd Patoka-to-Nederland, TX, Energy Transfer Crude Oil pipeline) will result in a fundamental shift in how crude is shipped out of the Bakken shale play.

The Dakota Access pipeline is “mechanically complete and line fill operations are set to conclude mid-May,” a company spokeswoman said May 9. The Bakken Pipeline system is set to begin service on June 1, the spokeswoman added.

A company tariff filing on April 13 with the U.S. Federal Energy Regulatory Commission showed that interstate operations will begin on May 14.

Once the Bakken Pipeline system is operational in June, the local refinery and pipeline takeaway capacity will surpass Bakken production in North Dakota and Montana, thereby eliminating the need for crude shipments by rail from the region, Genscape data shows. Bakken production in May is forecast by Genscape to average 1.039mn bpd, while pipeline and local refinery capacity is 878,000 bpd. In June, once DAPL comes online, pipeline and refinery capacity will jump to 1.348mn bpd, with production expected to average 1.027mn bpd.

Crude-by-rail loadings in North Dakota have been on the decline since they peaked at 585,000 bpd in March 2014, according to Genscape, as new pipeline capacity and lower crude production then began to chip away at the volumes. After loadings declined to an average of 296,000 bpd in 2016, 2017 volumes were relatively stable through end-May 2017 at an average of 255,000 bpd.

U.S. East Coast refiners spurn rail volumes for waterborne imports

Refineries on the U.S. East Coast were the first ones to shy away from rail volumes and instead opt for waterborne crude deliveries, Genscape data shows. © 2016 VALBRIDGE PROPERTY ADVISORS | Shaner Appraisals, Inc. Page 39 BASIN TRANSLOAD – STAMPEDE, ND MARKET ANALYSIS

Crude-by-rail shipments to the five monitored terminals on the East Coast tumbled 58,000 bpd to 20,000 bpd for the week ending May 5, with only PBF’s 182,200 bpd refinery in Delaware City, DE, posting receipts. The three-week decline for the region was 121,000 bpd. The region averaged 117,000 bpd in 2017 through the end of April.

Some refiners began the move away from railed-in barrels early in the year. After receiving 59,000 bpd by rail in January, Phillip 66’s 238,000 bpd Bayway refinery in Linden, NJ, averaged 15,000 bpd in February and 14,000 bpd in March. There have been no unloaded volumes at the refinery in the past three weeks.

There were no unloadings at the 335,000 bpd Philadelphia Energy Solutions refinery in Pennsylvania last week for the first time since early March 2016. Unloadings at the refinery had a week-on-week drop of 43,000 bpd, and brought the three-week decline to 75,000 bpd.

However, waterborne crude imports to the East Coast have increased in recent weeks, replacing the displaced rail barrels. For the week ending May 4, waterborne imports into PADD 1 averaged 877,000 bpd, putting the three-week average at 873,000 bpd, Genscape data shows. March and February waterborne imports averaged 436,000 bpd and 428,000 bpd, respectively.

Domestic waterborne crude deliveries to the Bayway refinery have stepped up in recent weeks as the rail volumes have dropped off, Genscape data shows. Domestic deliveries to the refinery are averaging 148,000 bpd over the last four weeks, compared to 85,000 bpd over the preceding four weeks. Waterborne imports have increased, as well, to the refinery. Imports received at Bayway have averaged 290,000 bpd the last two weeks, up from the April average of 231,000 bpd.

Conclusion The crude by rail industry has helped the region’s oil producers ship their products to other areas of the country that are not serviced by pipelines when the spread between the Bakken crude price is at a sufficient discount to the WTI and Brent crude price. When the North Dakota crude by rail industry began in the mid-2000s, there was much more supply than transportation for that supply, which caused a large discount for the Bakken crude. Economically, crude by rail made sense and provided additional transportation for the Bakken crude. As crude terminals were developed and new pipelines came online to pick up the slack in transportation, the discount that Bakken crude received to WTI was reduced. Without this discount, the economics of crude by rail become less desirable to the point that now it is not economically feasible to ship crude via rail. There have been terminals that are no longer in operation because of these economics. As many of the experts in the articles that were reviewed noted crude by rail will likely continue to have a spot in the market again in the future if prices support production increases that fill the pipeline capacity, although the number of facilities that will be in operation will likely be reduced going forward.

Highest and Best Use

The Highest and Best Use of a property is the use that is legally permissible, physically possible, and financially feasible which results in the highest value. An opinion of the highest and best use results from consideration of the criteria noted above under the market conditions or likely conditions as of the effective date of value. Determination of highest and best use results from the judgment and analytical skills of the appraiser. It represents an opinion, not a fact. In appraisal practice, the concept of highest and best use represents the premise upon which value is based.

Analysis of Highest and Best Use As If Vacant In determining the highest and best use of the property as if vacant, we examine the potential for: 1) near term development, 2) a subdivision of the site, 3) an assemblage of the site with other land, or 4) holding the land as an investment.

Legally Permissible The subject site is zoned IN, Industrial which controls the general nature of permissible uses but is appropriate for the location and physical elements of the subject property, providing for a consistency of use with the general neighborhood. The location of the subject property is appropriate for the uses allowed, as noted previously, and a change in zoning is unlikely. There are no known easements, encroachments, covenants or other use restrictions that would unduly limit or impede development.

Physically Possible The physical attributes allow for a number of potential uses. Elements such as size, shape, availability of utilities, known hazards (flood, environmental, etc.), and other potential influences are described in the Site Description and have been considered. There are no items of a physical nature that would materially limit appropriate and likely development.

Financially Feasible The probable use of the site for industrial development conforms to the pattern of land use in the market area. The location along the Canadian Pacific mainline is a benefit to the site and assists with the industrial use potential of the property. Based on what is noted in the Crude by Rail Market Overview previously in this report, there is an oversupply of this type of property and demand is insufficient to support construction costs. Therefore, near-term speculative development of the subject site is not financially feasible.

Maximally Productive Among the financially feasible uses, the use that results in the highest value (the maximally productive use) is the highest and best use. Considering these factors, the maximally productive use as though vacant is for agricultural uses until such time that market dynamics improve.

Conclusion of Highest and Best Use As If Vacant The conclusion of the highest and best use as if vacant is for agricultural uses until such time that market dynamics improve.

Analysis of Highest and Best Use as Improved In determining the highest and best use of the property as improved, the focus is on three possibilities for the property: 1) continuation of the existing use, 2) modification of the existing use, or 3) demolition and redevelopment of the land.

Retaining the improvements as they exist meets the tests for physical possibility, legal permissibility and financial feasibility. The improvements are in average condition and any alternative use of the existing improvements is unlikely to be economically feasible. The market value of the property as improved exceeds the combination of vacant site value plus cost of demolition of the improvements. Therefore demolition and redevelopment of the site is not maximally productive.

Conclusion of Highest and Best Use As Improved The highest and best use of the subject property, as improved, is continued use as a transload facility.

Most Probable Buyer As of the date of value, the most probable buyer of the subject property is an operator of crude by rail terminals.

Appraisal Methodology

Three Approaches to Value There are three traditional approaches typically available to develop indications of real property value: the cost, sales comparison, and income capitalization approaches.

Cost Approach The cost approach is based upon the principle that a prudent purchaser would pay no more for a property than the cost to purchase a similar site and construct similar improvements without undue delay, producing a property of equal desirability and utility. This approach is particularly applicable when the improvements being appraised are relatively new or proposed, or when the improvements are so specialized that there are too few comparable sales to develop a credible Sales Comparison Approach analysis.

Sales Comparison Approach In the sales comparison approach, the appraiser analyzes sales and listings of similar properties, adjusting for differences between the subject property and the comparable properties. This method can be useful for valuing general purpose properties or vacant land. For improved properties, it is particularly applicable when there is an active sales market for the property type being appraised – either by owner-users or investors.

Income Capitalization Approach The income capitalization approach is based on the principle that a prudent investor will pay no more for the property than he or she would for another investment of similar risk and cash flow characteristics. The income capitalization approach is widely used and relied upon in appraising income-producing properties, especially those for which there is an active investment sales market.

Special Use Property The Dictionary of Real Estate Appraisal, 5th Edition, defines special-purpose property as follows:

A property with a unique physical design, special construction materials, or a layout that particularly adapts its utility to the use for which it was built; also called a special design property.

The International Valuation Standards (IVS), eight edition (2007), defined specialized property as:

A property that is rarely if ever sold in the market, except by way of a sale of the business or entity of which it is a part, due to uniqueness arising from its specialized nature and design, its configuration, size, location, or otherwise. Examples of specialized properties include refineries, power stations, docks, specialized manufacturing facilities, public facilities, churches, museums, and properties located in particular geographic locations for operational or business reasons.

The subject property was specifically built for the purpose of shipping crude oil by rail, which can be seen with the amount of storage tank capacity on site, the truck LACT that allows the collection of oil from the trucks that service the wellheads, the amount of rail at the facility, and the pipeline

necessary to transfer that oil from the tanks to the railcars. Based on this, the subject property is a special use property.

According to “Appraising Special-Purpose Industrial Facilities for Ad Valorem Purposes” which was written by Rudy R. Robinson III, MAI and Scott R. Lucas and published in The Appraisal Journal in October 2003, “most special purpose industrial properties are not suited to mass appraisal techniques.” It goes on to note that “the cost approach, usually the least applicable method when evaluating older properties of any type, gains much more importance when appraising viable special-purpose industrial properties.”

Subject Valuation As stated within the Scope of Work with additional support provided above, we have relied primarily upon the Cost Approach. A couple of sales of similar CBR special-purpose industrial properties were reviewed but not fully developed as a Sales Comparison Approach. Also Basin’s profit and loss history and forecasts were reviewed but not fully developed as an Income Capitalization Approach. While these alternative approaches were not fully developed for the reasons discussed later in this report, the information reviewed is consistent and supportive of the Cost Approach fully developed in this valuation.

Cost Approach

GENERAL INFORMATION The cost approach is a theoretical breakdown of the property into land and building components and is based on market comparisons. In the cost approach, the appraiser analyzes the cost of the subject improvements by comparison to the cost to develop similar improvements as evidenced by the cost of construction of substitute properties with the same utility as the subject. This estimate if development cost is adjusted for market-extracted losses in value caused by the age, condition, and utility of the subject improvements or for locational problems.

There are two types of cost estimates that can be estimated, reproduction cost and replacement cost. Reproduction cost is the estimated cost to construct, as of the effective appraisal date, an exact duplicate or replica of the building being appraised, insofar as possible, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject improvements. Replacement cost is the estimated cost to construct, as of the effective appraisal date, a substitute for the building being appraised using contemporary materials, standards, design, and layout. When this cost basis is used, some existing obsolescence in the property may be cured. Replacement cost may be the only alternative if reproduction cost cannot be estimated. In the case of the subject complex, we have utilized replacement cost.

The cost approach reflects market thinking because market participants relate value to cost. The Appraisal of Real Estate, 13th Edition notes that the cost approach is particularly important when a lack of market activity limits the usefulness of the sales comparison approach and when the property to be appraised is not amenable to valuation by the income capitalization approach. Generally, this approach is strongest with improvements that are new or relatively new construction. The subject property was developed between 2010 and 2015 according to the property owner.

Although this is the case, the 13th Edition goes on to note that the cost approach is frequently applied to special purpose properties. The subject property is considered to be a special purpose property. This is defined in Fundamentals of Industrial Valuation published by the IAAO as properties that are not easily adaptable or modified for alternative uses. Some of the items that contribute to the special purpose nature of the improvements are that the removal of the equipment would be a major obstacle.

Fundamentals of Industrial Valuation also states that the value of a special use property lies in the continued use of the property for the special purpose for which it was constructed. The article “Appraising Industrial Special-Purpose Properties” states that “the cost approach is often the best and frequently the only feasible approach for valuing special-purpose properties.”

According to The Appraisal of Real Estate,13th Edition, the allocation of external obsolescence is an issue for the cost approach. Fundamentals of Industrial Valuation published by the IAAO, states that economic obsolescence is a depreciation that impairs a property because of detrimental influences outside of a property. This type of obsolescence can occur when the market for a structure decreases because the product that it has been specifically constructed to manufacture has declined or collapsed. The publication also notes that specialized buildings like the subject property may have been expensive to build, but the use is limited, and the demand for such a building has resulted © 2016 VALBRIDGE PROPERTY ADVISORS | Shaner Appraisals, Inc. Page 45 BASIN TRANSLOAD – STAMPEDE, ND COST APPROACH

in a diminution in value for the structure because there is no market for it. All of these items will be discussed within this section.

SITE VALUATION The site valuation has been completed by comparing the subject land to sales of other land parcels, interviews with knowledgeable market participants, and published survey results.

Published Surveys The state has completed a study that was dated April 2017 that summarized a survey of farmers and ranchers. Approximately 4,600 North Dakota producers were sampled. The map of the state showing these results can be seen below. For Burke County, the result ranged between $833 and $1,199 per acre for crop land and was withheld for pastureland as disclosing data would indicate specific data for individual operations.

Market Participants We also discussed the subject land with market participants that have worked in the Burke County area in the past. One of these participants stated that land typically sells in the range of $900 to $1,250 per tillable acre in the county. Another indicated that the highest land price he had seen up in the subject’s county was $1,400 per acre and discussed some locations that were inferior to the subject that sold for $800 per acre.

Sales There were also sales that were identified that help to value the subject land. These are summarized in the chart that follows.

Size (Acres) Sale Date Price per Acre 960 Fall 2015 $900 to $1,250 120 Fall 2014 $1,000 167 Fall 2014 $550

Listings There was one property that was identified for sale in Burke County. Details from this can be seen below.

Size (Acres) Asking Price Price per Acre 900 $1,250,000 $1,389

VALUE CONCLUSION – LAND Based on the preceding analysis, we have estimated the value for the subject site to be $1,250 per acre. The estimated value for the subject land is calculated as follows:

363.35 acres x $1,250 per acre = $454,188 or $450,000 (Rounded)

Replacement Cost New of the Improvements Marshall Valuation Service The cost approach develops an indication of market value by estimating replacement or reproduction cost of the improvements, deducting all appropriate forms of depreciation and adding land value. This approach is based on the premise that an investor or buyer of real estate would pay no more for a specific property than the cost to replace or reproduce the improvements less any accrued depreciation plus payment of entrepreneurial incentive and land value.

The cost approach incorporates five components: direct costs, indirect costs, entrepreneurial incentive, depreciation, and land value. Each component consists of the following elements:

Direct Construction Costs Direct building costs include the basic labor and materials, equipment costs (not including special purpose equipment) and site improvements such as clearing and grading, landscaping, parking lot paving and marking, sidewalks and curbs, exterior lighting, public works agreements, area connections, and similar items. Direct construction costs are based on actual contracts and/or budgets, costs of comparable projects, or through cost estimating services.

Indirect Costs Indirect costs include items such as professional fees (accounting, appraisal, architect, legal, engineering), interim financing (construction loan costs including points), points for placing permanent financing, settlement fees including title insurance and stamps, promotion and merchandising, and miscellaneous items including signs, contingencies, out-of-pocket expenses, and overhead.

Entrepreneurial Incentive Entrepreneurial incentive reflects the amount an entrepreneur expects to receive for their contribution to a project. Entrepreneurial incentive is distinguished from entrepreneurial profit (often called developer’s profit) in that it is the expectation of future profit as opposed to the profit actually earned on a development or improvement.

Depreciation Forms of depreciation include: physical deterioration, which occurs due to normal wear and tear experienced during a property’s life; functional obsolescence, which occurs due to changing market standards such as building materials, design, ceiling height, layout and similar factors; and external obsolescence, which occurs due to forces external to the property.

Land – Market Value Indication The estimated market value of land, as developed within the land valuation section, is added to the depreciated replacement cost of the improvements to arrive at a value indication.

Direct Costs To estimate direct costs of the building, we used replacement cost. Replacement cost is the estimated cost to construct, at current prices as of the effective date, a building of equal utility to the subject using modern materials and current standards, design, and layout. Replacement cost differs from reproduction cost in that it reflects the costs based on current market standards as opposed to costs to construct an exact duplicate using the same materials, construction standards, design, layout and quality. It also includes all deficiencies, super-adequacies and obsolescence.

A variety of sources are available to estimate replacement cost. Marshall Valuation Service is a national cost estimating service with years of evaluation experience and continued analysis of the cost of new construction. The calculator method was used to determine the replacement cost of the improvements.

Direct Building Cost For the subject property, there are a number of items of improvements that need to be valued. These are detailed as follows. Structures Marshall Valuation Service cost figures indicated total direct building construction costs of $575,074 or $68.11 per square foot of gross building area. A calculation of total direct building costs for the subject property follows:

Direct Cost - Building Building Identification/Name Main Building Tesoro Receiving Facility All Gross Building Area 7,500 sf 943 sf 8,443 Story Height (average in feet) 20' 10' 18.9' Number of Floors 1 1 1.0 Year Built 2012 2012 2012 Effective Age 5 years 5 years 5 years Marshall Valuation Service Date Feb-16 Feb-16 Section 14 14 Page 14 35 Type Light Manufacturing Light Industrial Shell Class S S Quality Good Cheap Base Cost/SF of GBA $62.40 $16.52 $57.28 Multipliers Current 0.980(x) 0.980(x) Local 1.070(x) 1.070(x) Perimeter 0.996(x) 1.414(x) Story Height 1.133(x) 0.921(x) Number of Floors 1.000(x) 1.000(x) Net Multiplier 1.183(x) 1.366(x) 1.189(x) Adj. Direct Building Cost/SF of GBA $73.84 $22.56 $68.11 Adj. Total Direct Building Cost $553,800 $21,274 $575,074

Rail The subject operation utilizes a number of rail lines to store and fill railcars. Although this is the case, only three lines are located on the subject property. The remaining lines are located on the Canadian Pacific right-of-way land and are not considered to be a part of the subject’s real estate for this reason. The details on the rail costs can be seen in the table that follows.

Rail Costs Track Line Track Feet Usable Date Placed in Service MVS Cost per Foot of Track Total Installed Cost S2 3,748 2012 115# $150.00 $562,200 S3 3,593 2012 115# $150.00 $538,950 S4 3,308 2012 115# $150.00 $496,200 $1,597,350

Number of Switches MVS Cost per Switch 10 $49,000 $490,000 Total Rail Cost $2,087,350

Tanks Once the subject property receives the oil that is offloaded at the LACT or through the pipeline receiving stations, it is stored in large storage tanks. The estimated value of the tanks from Marshall Valuation Service can be seen below.

Tanks Floating Roof Tank Capacity (barrels) Tank Cost Feet Diameter Cost per foot 1 100,000 $1,601,000 120 x $2,000 = $240,000 2 176,000 $2,530,500 145 x $2,000 = $290,000 3 176,000 $2,530,500 145 x $2,000 = $290,000 452,000 $6,662,000 $820,000 $7,482,000 Current Costs 0.99 Local Multiplier 1.03 $7,600,000

Tesoro Overpressure Capacity (barrels) Tank Cost 1 400 $45,100 2 400 $45,100 $90,200

Summit Overpressure Capacity (barrels) Tank Cost 1 400 $45,100 $45,100

Based on these estimates, the total cost of the tanks can be seen in the table that follows:

Total Estimated Tank Costs Crude Storage Tanks $7,600,000 Tesoro Overpressure $90,200 Summit Overpressure $45,100 Total Tank Costs $7,735,300

Piping The subject property has a number of pipes that go throughout the subject site. These include pipes that are from 10-inches to 16-inches. Based on our estimate from our inspection, aerial photos, and information from the property owner, the piping on the site is as follows. It should be noted that the client has indicated that this portion of the subject property is potentially considered machinery and equipment used in trade and may not be taxable under State statute.

Pipe Cost Estimates Size Length Cost per Lin. Foot 16" 2,200 x $200.00 = $440,000.00 16" 4,800 x $250.00 = $1,200,000.00 16" 2,100 x $250.00 = $525,000.00 12" 600 x $150.00 = $90,000.00 10" 300 x $150.00 = $45,000.00 $2,300,000.00

Pumps The subject property also has two 300hp industrial pumps for pumping the oil to the tanks and to the loading stations. It should be noted that the client has indicated that this portion of the subject property is potentially considered machinery and equipment used in trade and may not be taxable under State statute.

Pump Cost Estimates Pumps HP 1 300 $32,200 2 300 $32,200 $64,400 Truck LACT When the subject receives oil, a large part of it is via truck and those trucks use the truck LACT to transfer to the product to the subject’s tanks. The truck LACT looks like a typical gas station and operates in a similar manner, but in reverse taking the oil from the trucks rather than dispensing gasoline. In general, when appraising a gas station, the pumps, dispensers, etc. are not considered a part of the real estate, but are part of the personal property and equipment. For this reason, we have not included the actual LACT units, but have assigned value to the portions of this overall operation that would be generally attributable to the real estate. This includes the paving around the LACT and the canopy that covers the individual units.

Cost Estimates MVS Costs Square Feet Paving 70,200 * $6.50 = $456,300 Canopy 16,200 * $20.40 = $330,480 $786,780 Paving The site has one main area of asphalt paving and it is the road that runs south of the tanks and connects to NW 93rd Avenue to the west. This road is approximately 1,200 linear feet in length. There is also an estimated 3,100 linear feet of gravel roads on the site and approximately 2,300,000 square feet of gravel paving on the subject property. The estimated costs for this can be seen below.

Roads and Gravel Cost Estimates Asphalt Road Linear Feet Cost per Lin Ft. Cost of Paving 1,300 * $118.40 = $153,920

Gravel Roads Linear Feet Cost per Lin Ft. Cost of Paving 3,100 * $38.80 = $120,280

Gravel Site Square Feet Cost per Sq. Ft. Cost of Paving 2,300,000 * $1.00 = $2,300,000

Lighting The subject has lights around the site that are used for lighting the loading area as well as the areas around the tanks. The costs per light below include the cost of each light, the poles, and the arm brackets that are necessary for the lights around the loading area.

Lighting Cost Estimates Location No. Lights Cost per Light Total Lighting Cost Shipping Area 27 $3,150 $85,050 Tanks / LACT 10 $5,000 $50,000 Total $135,050

Total Direct Costs Based on the cost estimates noted above, the total estimated direct construction costs to replace the subject property can be seen in the table that follows

Total Costs Structures $575,074 Rail $2,087,350 Tanks Oil Storage $7,600,000 Tesoro Overpressure $90,200 Summit Overpressure $45,100

LACT $786,780 Pipeline $2,300,000 Pumps $64,400 Roads and Grading $2,574,200 Lighting $135,050 Land $450,000 Total Cost Estimate $16,708,154

Indirect Costs The developer is also responsible for indirect costs, which include architectural, engineering, legal and accounting fees, permits, taxes and insurance during construction, construction interest and financing, and similar items. Comparable properties indicated indirect costs of 1 to 5 percent of direct costs, most of which is included in the Marshall Valuation Service figures above. We estimated an additional expense of 5.0% of direct costs for items not included, or $835,407.

Total Direct and Indirect Cost

Marshall Valuation Service The Marshall Valuation Service cost figures indicated a total direct and indirect cost of $17,543,561, as presented in the following table:

Entrepreneurial Incentive Entrepreneurial incentive reflects payment for the risk the involved to construct a project similar to the subject. Developer’s profit or entrepreneurial incentive is difficult to measure if initial costs are not available for similar properties that have sold. If a recently constructed building similar to the subject were sold, the difference between the sale price and the depreciated cost of improvements would provide some measure of profit incentive.

Although similar sales were available, the actual costs of these projects were not. Typical developers require profit of 10% to 30% on all direct and indirect costs associated with the development of a property. For this analysis, entrepreneurial incentive was estimated at 10% percent of constructon cost and land value, or $1,754,356, which is appropriate for industrial oriented development. The calculation is presented in the following table:

Total Direct and Indirect Costs 17,543,561 Entrepreneurial Profit Percentage 10% Entrepreneurial Profit $1,754,356

Replacement Cost New The paragraphs and section that preceded include the costing of the subject property based upon information contained within the Marshall Valuation Service cost manual. The costs include only those items that would be considered attributable to the real estate. In addition to the Marshall Valuation Service estimate, we will also discuss the following estimates of Replacement Cost New:

 Actual Construction Costs  Estimate from Experienced Construction Expert  Publically Available Construction Cost Estimates

Marshall Valuation Service Adding entrepreneurial incentive to the reconciled total direct and indirect cost resulted in a replacement cost new of the real estate attributed to the subject property of $19,300,000.

Actual Construction Costs The subject facility was constructed in a number of stages between 2010 and 2015, however the owner of the facility was able to provide an estimate of the actual construction costs that were spent in developing the facility. In total, the cost for the subject facility was $45,379,262. These costs include the portions of the facility that are located on the Canadian Pacific right-of-way land as well as equipment, vehicles, and other personal property that would not be considered a part of the real estate. A breakdown of the overall construction costs for the entire operation can be seen in the table that follows.

Original Cost Basin Investments 28,529,103.71 Customer Investments 16,850,158.93 Total Stampede Investment 45,379,262.64

Land 3,797,623.95 Buildings 852,974.56 Site Improvements 11,404,472.21 Real Property ‐ Fixtures 4,327,152.30 Pollution Abatement Improvements 2,637,753.81 Personal Property Vehicles 231,979.56 Tanks 8,799,634.03 Process Equipment 692,369.17 Track Materials 4,181,735.56 Mobile Equipment 2,432,503.69 Other 249,675.66 Engineering, Permits, PM etc. 1,902,764.32 Donations 377,500.00 Needing further breakdown of costs 3,376,788.81 Co Road Maintenance 39,335.00 Demolition of old elevator 75,000.00 Total 45,379,262.64

As can be seen above, there are items that are considered personal property or equipment that would not be considered a part of the real estate (Vehicles, Mobile Equipment, etc.). Because these are not a part of the real estate, we have removed these estimated costs in the chart below. In addition, since the track at the subject only has 4,300 track feet on the subject parcel, which is 10.69% of the total track feet, we have attributed 10.69% of the total track material expenses to the subject parcel, which amounts to $447,027.53 rather than the $4,181,735.56 in costs that were incurred.

Based on this information, the total costs for the items that are attributable to the real estate is estimated to be $29,500,000. Since these costs have occurred over the past five years and costs have been increasing over this time period, we must update these costs to provide a current replacement cost new estimate. For the subject, each year of costs was increased based on the cost increase multipliers that were obtained from Marshall Valuation Service. After they were applied to each year, the total updated current Replacement Cost New is estimated to be $30,000,000.

According to a construction expert that is experienced with the development of crude by rail terminals like the subject, obtaining the historic costs and trending them to current costs with a multiplier that is found in a Marshall Valuation Service or RSMeans, which is what has been completed in this section. As such, it is believed that this would provide the most accurate measurement of the cost to reconstruct the subject property as of the date of valuation.

Estimate from Experienced Construction Experts In addition to the actual construction costs for the subject facility and the estimate of the costs from Marshall Valuation Service, we were also able to reach out to three engineers that have experience in constructing facilities like the subject. We provided them general information on the subject property, however because of the uniqueness of each transload facility, they were not able to provide estimates without significant information about the subject site and an extensive bidding process. Comments from each of these experts contacted is as follows:

 Cost depends on the quality of the improvements.  None are cookie-cutter so really need to see the property  It is a large effort to cost out a project like this and would take upwards of 3 weeks to get bids from contractors. They could cost between $40 million and $110 million depending on what goes into the facility.

Because of this difficulty, we were not able to get a replacement cost new estimate for the subject from a qualified contractor.

Publically Available Construction Cost Estimate The last, and probably least accurate, estimate for construction costs comes from published cost estimates that were reported in both locally and industry-specific publications. There were six facilities that were constructed and the total reported cost of each project is listed below. It should be noted that this is the entire project cost and likely includes items that would be considered exempt from North Dakota taxation because of their pollution control exemptions. In addition, the numbers may contain personal property and equipment that would not be considered real estate. The numbers that are provided here would give an indication of the top end of a cost for a facility like the subject for these reasons.

Shipping Storage Completion Reported Cost per Facility Location Capacity Capacity Date Costs Barrel (BPD) (Barrels) Hess Corporation Tioga, ND 2011 70,000 n/a $50,000,000 $714.29 EOG Resources Stanley, ND n/a 70,000 240,000 $50,000,000 $714.29 Edmonton Rail Terminal Edmonton, AB 2015 250,000 n/a $232,000,000 $928.00 TORQ Transloading Kerrobert, SK 2014 168,000 500,000 $100,000,000 $595.24 Rangeland Energy Transloading Epping, ND 2012 80,000 600,000 $70,000,000 $875.00 Pioneer Project New Town, ND 2013 80,000 180,000 $50,000,000 $625.00 Average $741.97

When applied to the subject property capacity, the resulting estimate of a replacement cost new based on cost per barrel of shipping capacity would be as follows:

Subject Capacity (Barrels) 80,000 Average Cost per Barrel $741.97 Estimated Subject Replacement Cost $59,357,600 Rounded $59,400,000

Again, this estimate would include all necessary real property and equipment to operate a similar facility and would be higher than the subject’s actual replacement costs because of these reasons. The actual construction costs for the subject were reported to be $45,379,262, which reflects a cost per barrel of loading capacity of $567.24, which is at the low end of the costs reported for the other facilities, but the subject does not have items such as a loading barn, fixed loading, or a loop track, which all would add additional costs to the comparables above.

Replacement Cost New Reconciliation There were four estimates of replacement cost new that were attempted. The first is from an estimate of replacement cost from Marshall Valuation Service. This is based on the items that are considered real estate and are located on the subject property rather than the Canadian Pacific right- of-way. The second is from updating the historic construction costs through the use of cost estimating multipliers. According to the construction experts, this is likely the most accurate way to estimate the replacement cost new short of having the entire facility bid out to contractors to reconstruct. The third was attempted from experts in the construction field that have previously had experience in building and designing facilities like the subject. Of the three professionals that were contacted, none were able to provide an estimate as each of the properties is unique and they done

have standardized costs. The fourth is through the use of publically available construction costs and shipping capacity. This estimate of replacement cost new will be higher than for the subject property’s real estate because it will include all costs associated with the development of a site, including personal property and machinery and equipment. These facilities also do not have any of their rail, piping, etc. that are located on a railroad right-of-way. Because of this, the estimate from this will be higher than the estimate for the real estate of the subject property.

Method Replacement Cost New Other Information Marshall Valuation Service $19,300,000 Includes only what is considered real estate and is located on the subject parcel. Due to the uniqueness of these properties, this approach will generally underestimate the replacement cost new of a facility. Updated Historic Costs $30,000,000 Based on the comments from construction experts, because of the uniqueness of each facility, this is the best indication of replacement cost new for a property similar to the subject. Experienced Construction Experts n/a Could not estimate due to special use and uniqueness of each property. Publically Available Cost Estimates $59,400,000 Amount includes all costs (real estate, personal property, and machinery) so is at the high end of the replacement cost for a facility.

The most accurate representation of replacement cost new is from trending current the historic construction costs for the subject. This is supported by the experienced construction experts who said that one of the most accurate estimates would be to update the historic costs with a multiplier. This is also supported by the replacement cost new estimate from Marshall Valuation Service. As noted earlier, the publically available cost estimates would reflect the entire operation, which includes personal property and machinery and equipment and would be higher than the replacement cost for the subject portion that is attributed to the real estate. Our estimate of Replacement Cost New for the subject property’s real estate components is $30,000,000.

Depreciation The next step is to estimate depreciation applicable to the subject improvements. The various forms of depreciation are discussed as follows:

Physical Deterioration Physical deterioration is a reduction in utility resulting from an impairment of physical condition and is delineated into curable and incurable components. Curable Physical Curable physical deterioration, or deferred maintenance, considers items that a prudent purchaser would anticipate correcting immediately upon acquisition. Based on our property visit and discussions with the property owners, the subject property does not have any deferred maintenance. Incurable Physical Total incurable short-lived deterioration is presented in the following table:

Functional Obsolescence Functional obsolescence is an impairment of functional capacity or efficiency and reflects the loss in value due to inadequacies, super-adequacies or changes in construction methods that hamper the ability of the structure to adequately fulfill its current function. Functional obsolescence can be divided into curable and incurable components. When the cost to correct an item would be equal to or less than the increase in value that would result, the functional obsolescence is considered curable. If the increase in value gained from correction of a functional obsolescence is less than the cost required to correct, the item is considered to be incurable.

For the subject property, there was no functional obsolescence present at the subject property.

External Obsolescence (Economic Obsolescence) Fundamentals of Industrial Valuation published by the IAAO, states that external obsolescence is a depreciation that impairs a property because of detrimental influences outside of a property. To put it simply, no investor would be willing to buy the property unless the price was lowered to a level that would support a reasonable ROI as currently required by investors. The article “Appraising Industrial Special-Purpose Properties” notes that “within the cost approach, the problem of determining economic obsolescence is often the critical problem that must be solved.”

“Categorizing External Obsolescence” written by Thomas P. Williams, MAI and published in The Appraisal Journal stated that “the loss itself results from tangible influences such as traffic, odor, view and neighborhood, as well as intangible influences such as economy and effective demand influences. According to this article, whether there is economic obsolescence “ultimately the measurement is whether there is sufficient net income or demand to satisfy all the property’s

components, most importantly, the land and the improvements. When there is insufficient income or demand to satisfy a proper return to the land and return on and recapture of the improvements, a diseconomy is present, and external obsolescence exists.”

There are two types of external obsolescence, locational and economic. Locational relates to the location of a property in relation to the detrimental influences, such as proximity to a landfill, etc. Economic relates to the inability of the subject property operations to generate a fair rate of return on investments.

Economic obsolescence can occur when the market for a structure decreases because the product that it has been specifically constructed to manufacture has declined or collapsed. One example that is provided in Fundamentals of Industrial Valuation is cheaper production overseas, which has been seen with the increase of steel mills in China and India over the past decade. The publication also notes that specialized buildings, like the subject property, may have been expensive to build, but the use is limited, and the demand for such a building has resulted in a diminution in value for the structure because there is a very limited market for it.

The loss from Economic Obsolescence can result from one of the following reasons. I have highlighted three of the items that would impact the subject property in the current market.

a. Weakness in economics of the industry b. Loss of material and/or labor sources c. Passage of new legislation d. Changes in ordinances e. Increased cost of raw materials, labor, or utilities f. Reduced demand for the products g. Increased Competition h. High interest rates i. Unavailability of financing

Economic obsolescence may exist in any industry or property with the following attributes. I have also highlighted three of the items below that would impact the subject property in the current environment.

a. Downturns in sales or earnings relative to prior periods b. Inability to control product pricing c. Margin compression due to a contractual agreement or unfavorable economic conditions d. Increased competition from lower-cost or foreign competitors

One could argue that all four of these items could impact the subject if pipelines are considered increased competition from lower-cost competitors.

Some examples of economic obsolescence that have been given in an article that was published in National Real Estate Investor can be seen below.

 The Oregon Department of Revenue has reduced the value of sawmills by 40% based on economic obsolescence caused by regulations to protect the spotted owl, which have resulted in prohibitions on logging the federal forests.  An oversupply of semiconductor computer ships beginning in 1998 severely reduced or eliminated profit margins for industrial plants producing chips.  High energy prices have closed aluminum smelters  The flood of fresh vegetables and fruit from Mexico, Central America and South America following the enactment of NAFTA caused the prices of canned and frozen vegetables and fruit to plummet, leading to the closure of Northwest US food processing plants.

Another example is a 1,373,842 square foot industrial building that was constructed in Pryor, Oklahoma in 2008. The facility was originally built for a reported $80 million in 2008 for PepsiCo, which manufactured Gatorade and other sports drinks at the facility. The plant closed in 2010. This facility was a LEED certified green building and was on the market for 1,200 days prior to selling in September 2013. The sale price was approximately 70% below the construction costs for the building. Because of the age of the facility, there would be little physical depreciation that would be attributed to the property. In addition, there would be limited functional obsolescence as it was a modern manufacturing and distribution property. The majority of this depreciation is considered economic obsolescence.

A more local example of this concept can be seen with a crew camp in the Bakken area. Capital Lodge, which was one of the Bakken’s largest crew camps with a peak of 1,100 beds and 80 acres of land, cost $40,000,000 to build. Currently, the facility sits vacant due to what the owner states is a lack of need “for worker housing now or for any foreseeable future.” The property is currently on the market for sale for land value only at $2,999,000. Because the property was not generating a sufficient net income or demand to satisfy a property return to the land and recapture of the improvements, economic obsolescence exists. Based on the costs, the total obsolescence would be approximately 92.5%

Oil Transload Examples In addition to the facility in Oklahoma and the crew camp in North Dakota that were provided earlier, there were two crude by rail terminals that have sold recently and can help to provide an estimate as to the amount of obsolescence that is attributable to crude by rail terminals. The buyers of these facilities would have purchased knowing the current economics of the facility as well as the future prospects. These are detailed on the following pages.

BERTHOLD RAIL TERMINAL The Berthold Rail Terminal is a 342 acre rail development and potential crude storage facility that is currently on the market for sale. The facility has direct access to US Highway 2 and is connected to BNSF Crosby Sub rail line. The east loop includes 11,400 feet of installed track, is unit train expansion capable and includes 1,400 feet of new 115 lb. track as well as new joint bars, comp bars, anchors, ties and crossings. There has been zoning and permits for the west loop expansion that have been secured. Enbridge built this facility in 2012 to help ease a bottleneck on its nearby pipeline. Because they could only pump a limited amount in their pipeline, they identified the crude by rail operation as an opportunity for them to be able to ship more when the pipeline is full. According to an article that was published in 2013, the project was to cost Enbridge $145,000,000 on the entire facility according to articles published at the time of construction, however only Phase 1 was fully developed. As such the total cost attributable to the site is likely less than the planned costs. Although no estimates exist for what percentage of the total facility they completed, based on aerials I estimate that 60% of the facility was developed, or approximately $87,000,000. The facility is currently on the market for sale. According to the listing broker, the property is on the market for $6,000,000 and the owner is not motivated to sell the property. It also has the ability to unload and store frac sand, which is superior to the subject property that just has crude shipping abilities currently. This is likely because there is not an economic use for the property by the current owner anymore. This difference represents the total obsolescence to the subject, which equates to 93.10% based on the estimate of cost of development. This includes both physical, functional, and economic obsolescence.

PIONEER TERMINAL – DAKOTA PLAINS In 2009, Dakota Plains completed its initial acquisition and build out of its New Town, North Dakota transloading facility. The transloading facility is connected to the Canadian Pacific Railway. In 2011, they doubled the size of our facility and brought the on-site tank car capacity to 160. They continued adding land, taking their terminal to approximately 200 acres today. In 2013, the terminal had nearly $70M in CAPEX projects, building state of the art crude oil and frac sand operations. Dakota Plains manages all aspects of the operations at the Pioneer Terminal.

Dakota Plains crude oil operations are based around two 8,500 foot loop tracks each capable of 120 car unit trains, 270,000 barrels of crude oil storage, a high speed loading facility that can accommodate 10 rail cars simultaneously, two active gathering system pipelines and transfer stations to receive crude oil from 10 trucks simultaneously. They implemented leading edge fire suppression, spill remediation and backup power generation solutions. Their terminal has also deployed industry leading automated terminal metering and accounting systems. The terminal has a nameplate capacity of 80,000 barrels per day.

Dakota Plains executed an agreement with UNIMIN Corporation to construct a 750,000 ton per year frac sand automated terminal in Q3 2013. UNIMIN is one of the world’s leading producer of quartz proppants, and this terminal connects its largest frac sand mine, Tunnel City, Wisconsin. UNIMIN funded the project building 8,000 tons of sand storage, four new ladder tracks with the capacity to land 70 loaded railcars and one track dedicated to empty cars. Frac sand operations commenced in Q1 2014.

The Pioneer Terminal has over 70 acres of industrial-zoned space within the double loop track and would be ideal for a laydown yard or bulk storage. Access is via a secured entry/exit point and the land has been brought to grade. The land is raw, ideal for building to suit. The space is available for long-term leasing, and ideal for shippers wanting access to rail. The Pioneer Terminal’s four ladder tracks, representing 10,000 feet of useable capacity, had previously been used for crude oil. With the Pioneer Terminal expansion (double loop track) now complete, Dakota Plains is ready to utilize of these ladder tracks and build out the industrial yard.

This property was purchased from Dakota Plains through an auction process by BioUrja Trading when Dakota Plains was in bankruptcy. The final purchase price was reported to be $10,850,000 and closed in January 2017. Although we do not have a total cost for the subject facility, since the original construction, Dakota Plains had spent at least $70,000,000 with the addition of a frac sand facility, $5,000,000 for the addition of a third 90,000 barrel tank, and $50,000,000 in 2013 to expand capacity from 30,000 to 80,000 barrels per day. When just looking at the additions since construction versus the sales price, the depreciation amount is 84.5% below those costs. This indicates that the total depreciation will be higher as the initial construction costs must be included to the additions.

Crude By Rail Article It does not appear that the crude by rail industry will improve anytime in the near future. The following article was published in the Wall Street Journal on July 25, 2016:

The oil-train boom is waning almost as quickly as it began.

Rail became a major way to move crude after companies began unlocking new bounties of oil from shale formations, with volumes rising from almost nothing in 2009 to more than one million barrels a day by 2014, according to the U.S. Energy Information Administration.

But those numbers began falling after oil prices started tumbling two years ago, and aren’t projected to recover anytime soon. In April, just 430,000 barrels of oil rode the rails each day, according to the latest federal figures.

Some of the decline came from a drop in U.S. oil production, but oil and rail executives say the drop-off may be permanent. “At least some portion, and it could be a pretty large portion,” of the rail business won’t return, said Union Pacific Corp. Chief Executive Lance Fritz.

More pipelines have begun reaching North Dakota and other shale regions, giving producers a cheaper way to move their oil to market.

Also, a string of fiery crude-freight-train derailments—including one in Lac Mégantic, Quebec, that killed 47 people in 2013—have prompted a host of new and expensive regulations, and fueled opposition that has helped delay major rail projects on the West Coast, where a dearth of pipelines makes rail useful. Regulators have mandated

new safer tank cars, and older tank cars are being phased out—adding to future costs for transporting oil.

The changes are evident in North Dakota, once the epicenter of the crude-by-rail trend. Oil output from the state’s Bakken Shale formation has fallen by 180,000 barrels a day from its 2014 peak. Meanwhile, pipeline takeaway capacity has more than doubled since 2010.

EOG Resources Inc., one of the first oil companies to see the potential for trains to relieve pipelines, opened its first rail loading terminal in Stanley, N.D., in 2009. But that terminal hasn’t loaded a train in more than a year, according to Genscape, a data provider that tracks activity at U.S. rail terminals.

“New pipeline infrastructure has been put in place to move significant volumes of oil to market,” an EOG spokeswoman said.

Enough pipeline capacity is coming online to replace all of the current volume BNSF Railway Co. is shipping out of North Dakota, said David Garin, the railroad’s group vice president of industrial products.

BNSF used to transport as many as 12 trains daily filled with crude primarily from North Dakota’s Bakken Shale, carrying about 70% of all rail traffic out of the area. Now it is down to about five a day.

“Will this business be back to 12 trains a day? Probably not,” said Mr. Garin. “Will it be zero? Probably not.”

Even at its height in 2014, crude-by-rail accounted for less than 2% of total rail volumes, according to Association of American Railroads data. But its decline

threatens what was once viewed as a sizable driver of growth for the railroad industry, one that many rail companies, along with oil and gas producers, made investments to support.

Between 2010 and 2015, 89 terminals were built or expanded in the U.S. and Canada to load crude on trains, and nearly as many to offload it, according to consulting firm RBN Energy LLC.

The oil pouring out of U.S. fields was so much cheaper—more than $20 a barrel below international benchmark prices at times—that refineries were eager to pay higher rail shipping costs in exchange for some of it.

New pipelines have helped shrink that price difference by allowing the landlocked oil to reach market. And the U.S. has lifted a ban on crude exports, which allows American crude to be sent abroad freely and is expected to help keep U.S. and international crude prices more closely aligned.

Now oil trains are competing against tanker ships carrying foreign crude. Analysts say rail deliveries are likely to fall even further once shipping contracts signed during the boom expire in the coming months.

There could soon be more than enough space to carry away all Bakken oil through pipelines now in the works. Phillips 66 is partnering with pipeline company Energy Transfer Partners LP to develop a pair of pipelines that will bring North Dakota crude to Illinois and then down to Texas.

The endeavor, which will cost close to $5 billion, is expected to take a major bite out of oil train traffic, even though the pipelines will ultimately bring oil to the Midwest and the Gulf of Mexico, rather than to the East and West coasts, where trains have primarily taken it.

Phillips 66 said earlier this year it may still be cheaper to take that oil and put it on a barge for delivery by sea to the coasts than to send it directly there by train.

This article helps to show that the economic obsolescence in the subject is real and the volumes that were experienced in the past may never be achieved again. When considering the principle of anticipation, given the amount of pipeline transportation and the information on the decline of the crude by rail volumes that have been reported in sources consulted, no buyer of the subject property could reasonably forecast that future shipment levels of 2014 and 2015 would be achievable and as such, they would not pay for such volumes. Instead, they would be looking for the future prospects of the industry.

Historical and Projected Production External obsolescence is generally considered to be incurable by the property owner because the factors that impact the property are outside of the property itself and it cannot be reduced by capital investments. Although locational obsolescence is considered to be more of a permanent detriment to the property, economic obsolescence is not permanent and will change as the economics of the

subject under evaluation change. Therefore, when one year there is economic obsolescence present, the next may not reflect any obsolescence if the factors that caused this loss in value are remedied within the market.

One of the main starting points for estimating this obsolescence is calculating the utilization rate for the subject property. The subject property has been rated for shipments of 80,000 barrels per day, however, in the five year history of the subject, shipments have never approached this amount. According to the General Manager at the facility, the most they have done is 60,000 barrels per day, but the average had been 45,000 to 50,000 barrels per day before 2017 when they only shipped 2,643,135 barrels, or 7,241 barrels per day. A large portion of this reasoning is that the subject property is at the mercy of the railroad schedule and they may not be able to receive or ship trains to their rating capacity. Additionally, the increase in pipeline expansion has increased the throughput of product in the region and has negatively influenced the subject property’s business. At rate of 50,000 barrels per day, that would reflect shipments of 18,250,000 barrels over the course of a 365 day year. According to production numbers that have been provided by the plant operator, the production amounts for the subject facility have been as follows.

Production in Capacity Year Barrels Shipped Underutilized 2016 2,643,134 85.52% 2015 11,438,319 37.32% 2014 15,617,761 14.42% 2013 10,287,527 43.63% 2012 5,311,076 70.90%

This decline in utilization has apparently been occurring across the industry in the region as noted in an article mentioned in our prior appraisal report.

In 2014, shipping reached its peak with 14.42% of the facility being underutilized. In 2015, the underutilization increased to 37.32%, which has to do with the reduction in the spread between North Dakota crude prices and WTI crude prices as well as a number of other crude by rail facilities coming on line, which has increased the options for the producers. In 2016, the facility saw their lowest production at 85.52% underutilization. Given the further expansion of pipeline facilities that is planned for the region, the addition of more crude by rail facilities, and the continued narrowing of the difference between the North Dakota crude price, the WTI price, and the Brent crude price, it is expected that the facility will continue to operate at a level that is significantly less than capacity. The production at the subject actually saw a 26.76% decline from 2014 to 2015 and again declined through 2016. In fact, the shipments have been trended downward for seven of the past eight quarters and as of the 4th Quarter of 2016, there was no production. Additionally, although it is after the date of value, there was no production in the first four months of the year according to details from the property owner.

Production in Percentage Year Barrels Shipped Change 4Q2017 660,784 0.00% 3Q2017 660,784 0.00% 2Q2017 660,784 0.00% 1Q2017 660,784 N/A 4Q2016 0 ‐100.00% 3Q2016 241,889 ‐15.59% 2Q2016 286,581 ‐86.45% 1Q2016 2,114,665 ‐7.94% 4Q2015 2,297,090 ‐17.99% 3Q2015 2,800,977 ‐12.15% 2Q2015 3,188,412 1.16% 1Q2015 3,151,840 ‐27.23% 4Q2014 4,330,940 3.53% 3Q2014 4,183,080 6.60% 2Q2014 3,924,092 23.41% 1Q2014 3,179,649 ‐18.74% 4Q2013 3,913,066 103.77% 3Q2013 1,920,367 ‐16.95% 2Q2013 2,312,338 7.96% 1Q2013 2,141,756 ‐

For the subject’s date of valuation, it would have been expected that this decline and low production will continue through the entire year of 2017 and beyond given the state of the industry. As such, it would be reasonable to estimate that the 2017 production will be below the production of 2016. We have forecast that production will be approximately 500,000 barrels per quarter, or a reduction throughout the entire year of approximately 25% from the 2016 final production numbers.

It should be noted that in our prior report, we forecast that production would decrease 7% each quarter of 2016 from the 4Q 2015 production amount of 2,297,090. Overall, we forecast that the decline would yield 7,690,000 barrels for 2016, however due to further declines in economics of the industry, they were only able to produce 2,643,135 barrels. Our anticipation of a decline was correct, however the severity of the decline was underestimated as it ended up being much further below the 2015 production amounts.

Given our 2017 estimate of shipments, this would reflect a percentage underutilized estimate for the subject in 2017 of roughly 89.04%.

2017 Est. Shipments Percentage Underutilized 2,000,000 89.04%

Principal of Anticipation The forecasting of a decline in shipments from prior years is consistent with one of the pillars of real estate appraisal: The Principle of Anticipation. According to The Appraisal of Real Estate, 14th Edition that was published by the Appraisal Institute, the definition of anticipation follows:

The perception that value is created by the expectation of benefits to be derived in the future.

In addition, Former Associate Justice of the Supreme Court Oliver Wendell Holmes, Jr. stated “all values are anticipations of the future.” This shows that value is the willingness to pay for the next unit, which requires forward-looking forecasts rather than backward looking analysis of historical information.

The Appraisal of Real Estate goes on to state that value is created by the anticipation of benefits to be derived in the future. In real estate markets, the current value of a property is usually not based on its historical prices or the cost of its creation. Rather, value is based on the market participants’ perceptions of the future benefits of acquisition.

It also notes that the value of owner-occupied residential property is based primarily on expected future advantages, amenities, and the opportunity cost of ownership and occupancy. Prior to the property’s sale, the primary investment return is measured in these amenities and the economic benefit of owning rather than renting property, not in the receipt of income. The value of income- producing real estate is based on the economic benefits (income and appreciation) it is expected to produce in the future. Therefore, real property appraisers must be aware of local, regional, and national real estate trends that affect the perceptions of buyers and sellers and their anticipations of the future. Historical data on a property or a market is relevant only insofar as it helps interpret current market anticipations.

Based on the nature of the subject operation and the operating history of the facility, an economic obsolescence adjustment would be considered fair, reasonable and consistent with the expectations of a reasonable buyer who is forward looking at the potential of the property to generate income going forward. This buyer of the subject would discount a cost indicator to determine a purchase price by taking the economics of the facility into account.

Quantifying Economic Obsolescence Within this section of the report, we will estimate four variations to attempt to quantify the possibility of economic obsolescence. These variations will look at the production and the financial history at the subject property as well as our forecast of what the thought on the industry was as of the date of valuation.

Economic Obsolescence Estimate #1 The subject property has an operational capacity of approximately 18,250,000 barrels per year. The chart below shows the number of barrels that have been transferred each year since the property was constructed.

Production in Year Barrels Shipped 2016 2,643,134 2015 11,438,319 2014 15,617,761 2013 10,287,527 2012 5,311,076

Although it has an operational capacity of 18,250,000 barrels per year, the highest production that they have seen in a given year was in 2014 when it shipped 15,617,761 barrels. On average, the property’s general manager stated that the average number of barrels shipped was around 45,000 to 50,000 with the highest shipment numbers being approximately 60,000 barrels per day.

The principle of substitution would lead a valuation expert to the conclusion that a potential buyer of the subject facility would not pay for a shipping capacity of 18,250,000 barrels if the actual production and shipments were less than that. Given the trend in shipments heading downward in the chart above, I forecast that the shipments that could be expected as of the date of value for the following year would be 2,000,000 barrels. This takes into account the current shipping numbers for the subject facility as well as the forecasts and expectations for crude by rail facilities that was presented earlier in this report. As noted previously, anticipation is a principle of real estate valuation and to provide a proper valuation, a forward looking estimate is required. Based on these amounts, one estimate of the economic obsolescence of the facility would be as follows:

Estimated Shipments Facility Capacity % Economic Obsolescence (barrels shipped per year) (barrels shipped per year) 2,000,000 / 18,250,000 = 89.04%

Economic Obsolescence Estimate #2 The inutility formula is another method that can be used to calculate economic obsolescence. It is one of the most common methods for the determination of economic obsolescence and is generally considered acceptable because of its mathematical base. The percentage result of this formula is typically called the Inutility Penalty.

The formula has the following inputs: Capacity A = The rated or standard production capacity Capacity B = The actual production achieved n = The exponent or scale factor, which is based on the concept that the cost of property at different capacities may vary in nonlinear fashion because of economies of scale.

And the formula is as follows: Inutility % = (1-(Capacity B/Capacity A)n)x100

For the subject, this formula would look as follows: Inutility % = (1-(2,000,000/18,250,000)0.6)x100 Inutility % = 73.46%

Based on this inutility formula, another estimate of economic obsolescence of the facility would be 73.46%.

Economic Obsolescence Estimate #3 According to the article “Economic Obsolescence of Manufacturing Facilities” by Joseph J. Calvanico that was published by the Appraisal Institute, the outside factors that diminish the utility of a structure produce certain internal excess costs, which result in a corresponding loss of property value. The article identifies four main factors to consider. They are: 1. Local economy 2. Industry economics 3. Incompatible neighborhood 4. Lack of raw materials For the subject property specifically, the industry economics have the greatest impact on the subject property due to reduced utilization rates and reduced demand for crude by rail transportation, which has lead to an underutilization of the subject facility. As noted previously, the subject property has a utilization rate of approximately 89.04%. The year 2014 was the peak in shipments and the subject property completed the shipment of 15,617,761 barrels of crude oil. This has been trending downward in 2015 when they completed shipments of 11,438,319 barrels and even further in 2016 when they completed shipments of 2,643,135 barrels. The majority of these shipments (80%) were completed in the 1Q 2016 with a sharp decline in the second quarter and no shipments completed in the 4Q 2017. In 2017, the operator of the subject expects shipments to remain depressed with the facility forecast to see a negative EBITDA in 2017 after having a negative EBITDA in 2016.

Given the dynamics in the market, the operator of the subject does not forecast the market to improve and expects there to be a negative EBITDA for 2017. Because of these reasons, it was reasonable to expect the utilization rate for the subject to be approximately 10.96% in 2017.

The article states “whether or not an industrial plant is operating at full capacity, certain costs are inherent to production. These costs, called fixed costs, are a percentage of profits. As a plant reaches full capacity, other costs increase with production. These are called variable costs. Total cost is the sum of the fixed costs and variable costs. The total cost tends to be a larger percentage of profit when a plant is not operating at full capacity. The loss in profit due to underutilization is an indicator of economic obsolescence.”

In this case, the percentage loss due to economic obsolescence can be quantified as follows: (Gross Profit Margin) x (Percentage of Underutilization) In this equation, gross profit margin is equal to: 1-(Cost of Goods/Gross Sales) and the percentage of underutilization is equal to: 1-(Present Output/Output Capacity)

The result of this calculation is a percentage equal to what is to be charged as economic obsolescence against the subject property. As stated previously, the underutilization of the subject has ranged from 14.42% to 85.52% with an average of 50.36% and a median of 43.63%. Although that is the case, the underutilization has increased over the past three years and given the projections that were in the market as of the date of valuation, it would have been reasonable to

assume that this increase in underutilization would continue. Because of this, a percentage of underutilization of 85.52% is considered to be a reasonable estimate of what would have been as of the date of valuation.

In addition to the percentage of underutilization, we must also identify the gross profit margin of the subject facility. The gross profit margin is a measurement of a company's manufacturing and distribution efficiency during the production process. The gross profit tells an investor the percentage of revenue / sales left after subtracting the cost of goods sold. A company that boasts a higher gross profit margin than its competitors and industry is more efficient. Investors tend to pay more for businesses that have higher efficiency ratings than their competitors, as these businesses should be able to make a decent profit as long as overhead costs are controlled (overhead refers to rent, utilities, etc.) With both of these items, we can apply the calculations to the subject property as follows:

Gross Profit Margin – 2016 Cost of Goods Sold – 2016 $2,592,502 Gross Sales – 2016 $2,938,136 Gross Profit Margin 11.76%

In addition, the gross profit margin historically has been as follows based on financials from the property owner. Year Gross Profit Margin 2016 11.76% 2015 63.75% 2014 72.51% 2013 76.69% 2012 68.62% 2011 45.26% Average 56.43%

With the gross profit margin and the percentage of underutilization, we are able to estimate the percentage of economic obsolescence for the facility. For the subject, this is estimated at 89.94%

Percentage Economic Obsolescence Gross Profit Margin Estimate 11.76% Percentage of Underutilization x 85.52% Economic Obsolescence 89.94%

Based on this calculation, the economic obsolescence that is attributable to the subject would be 89.94% of the replacement cost new.

Economic Obsolescence Estimate #4 In addition to the calculation that was identified above by Joseph J. Calvanico in “Economic Obsolescence of Manufacturing Facilities,” an article titled “Appraising Industrial Special-Purpose Properties” by Robert G. Crawford, PhD and Barrett A. Slade, MAI, PhD provides a second utilization based measure for estimating economic obsolescence. In this article, it states “in instances where capacity and utilization data exist, they can be used directly to determine obsolescence because of a high degree of correlation between income and asset utilization. The correlation between asset underutilization and net income shortfall is not a linear relationship because some costs are unavoidable (fixed costs) and do not decrease proportionally with the decrease in asset utilization.” To effectively estimate the obsolescence in this case, Crawford and Slade state that the appraiser must know the following information on the subject property:  Percentage of obsolescence due to underutilization  Percentage of underutilization  Degree of operating leverage  Adjustment factor

Implementing the utilization-based method requires that the appraiser first estimate the amount of straight-line depreciation that has occurred and deduct this from the replacement cost new to derive the RCNSLD, or replacement cost new less straight-line depreciation.

Second, we must determine the degree of operating leverage (DOL) and the percentage of underutilization (U) affecting the subject as of the date of the appraisal. As noted previously, the percentage of underutilization was estimated for the subject based on the historical production of the subject property was estimated to be 85.52%. The DOL is calculated by dividing the percentage change in operating income by the percentage change in sales. Because of the volatility of the oil market over the past five years, we have considered the DOL for each of the past several years. The operating income, sales and DOL for the past several years can be seen in the table below.

Degree of Operating Leverage 2010 2011 % Change DOL 2012 2013 % Change DOL Operating Income 137,466 723,681 81.00% 723,681 9,603,862 92.46% 0.92 1.14 Sales 191,244 1,621,485 88.21% 1,621,485 8,467,390 80.85%

2013 2014 % Change DOL 2014 2015 % Change DOL Opearting Income 9,603,862 15,422,910 37.73% 15,422,910 7,443,634 ‐107.20% 0.58 1.70 Sales 8,467,390 24,223,726 65.05% 24,223,726 14,839,896 ‐63.23%

2015 2016 % Change DOL Opearting Income 7,443,634 ‐168,273 ‐100.00% Average 1.12 1.25 Sales 14,839,896 2,938,135 ‐80.20%

The product of the DOL and the percentage of underutilization is the percent obsolescence suffered by the subject. For the subject property, this can be seen below.

Degree of Operating Leverage 1.12 Percentage of Underutilization x 85.52% Percentage Total Obsolescence 95.78%

According to Crawford and Slade, this percentage of obsolescence understates the true obsolescence by an amount proportional to the age of the asset. The article states that the true or economic value of the subject via the present value of its decreasing utility has a path of value that is a nonlinear function of time. This is because the correlation between asset underutilization and net income shortfall is not a linear relationship because some costs are unavoidable (fixed costs) and do not decrease proportionally with the decrease in asset utilization. To apply this to the approach, the article indicates that an adjustment factor must be applied to account for the nonlinear function of depreciation and is called “adjusted levered obsolescence.” This is defined in the article as:

The levered obsolescence measure adjusted for the error that arises because insufficient information forces the appraiser to use linear (straight line) depreciation instead of nonlinear depreciation.

The adjustment factors were reported in the article “Appraising Industrial Special-Purpose Properties.” To determine the appropriate adjustment factor from the chart, one must know the actual age of the property, the life of the asset, and a discount rate, which can be the average cost of capital for the subject property or the average cost of capital for an industry. For the subject, we have estimated that the subject is a 30-year asset, which is based on the economic life that has been reported by the Marshall Valuation Service publication. The cost of capital for oilfield service businesses has been reported by a study completed NYU to average 9.91%. We have estimated the cost of capital for the industry of 10.00%, the 30-year asset life, and the actual age of the facility having a weighted average age of approximately four years, the adjustment factor for the subject would be approximately 1.12. The calculation for the subject property can be seen below.

Percentage Obsolescence 95.78% Adjustment Factor x 1.12 Percentage of Adjusted Total Obsolescence 107.27%

Because the operating income is negative, this calculation does not accurately represent the economic obsolescence for the subject property.

Economic Obsolescence Reconciliation Based on the information that has been obtained from the property owner regarding shipments from the subject property as well as the identification of the industry standards for both production and the costs of capital, we were able to provide four estimates for economic obsolescence. Economic Obsolescence - Estimate 1 89.04% Economic Obsolescence - Estimate 2 73.46% Economic Obsolescence - Estimate 3 89.94% Economic Obsolescence - Estimate 4 N/A Average 84.15%

Three of the four calculations utilize different aspects of the utilization and profitability of the subject transload CBR facility and provide estimates of potential economic obsolescence. Estimate 1 is the most simple but does not fully take into account financial aspects of the subject, so it is believed to be the least reliable. Estimate 2 and Estimate 3 are more reliable as they take into the underutilization as well as the financial performance of the subject similar to the subject. Estimate 4 cannot accurately reflect the subject property’s economic obsolescence as the subject has a negative operating income which causes the obsolescence to be negative. It also has the most calculations and required the most adjustments to each of the factors used. For these reasons, Estimates 2 and 3 would be given the most weight in an analysis and an economic obsolescence percentage of 80% would be expected based on the current and projected production at the subject property as well as the overall state of the crude by rail industry. This equates to $24,000,000.

Replacement Cost New $30,000,000 Estimate of Economic Obsolescence x 80% Economic Obsolescence Estimate $24,000,000

Total Depreciation Adding all forms of depreciation indicated total accrued depreciation of $28,000,000.

As Is Fee Simple Market Value Indication The preceding cost analysis indicated an as is fee simple market value indication for the subject property of $2,500,000 (rounded). The cost schedule is presented as follows:

Based on this analysis, the cost approach “as is” is summarized as follows:

Cost Approach Value Indication As Is Fee simple Market Value Indication $2,500,000

Sales Comparison Approach

GENERAL INFORMATION In the article “Appraising Special-Purpose Industrial Facilities for Ad Valorem Purposes” by Rudy R. Robinson III, MAI and Scott R. Lucas that was published in an Appraisal Institute publication, problem areas that arise when valuing special purpose properties via the sales comparison approach include:

 The lack of transactions  The lack of transactional details  What is actually purchased (if machinery is involved)  The goals of the buyer  Market conditions among regions

These factors and others severely restrict the applicability of the sales comparison approach in evaluating special purpose industrial properties.

The article “Non-Comparable Industrial Sales” by Max J. Derbes, Jr., MAI, SREA that was published in an Appraisal Institute publication states that sales of nonviable plants relate to facilities only available for alternative use, but such sales are not comparable to the viable, operating plant value. The specialty plants that are viable, operational, and profitable differ substantially from old, defunct, or functionally obsolete industrial plants. The highest and best use of a viable plant is continued use, while those defunct plants must look to an alternate function. Based on this, the use of closed crude by rail terminal facilities to compare to the subject is not a proper method for the sales comparison approach.

One of the complicating issues pointed out in the “Non-Comparable Industrial Sales” article is the fact that viable, profitable manufacturing plants seldom sell, since owners usually retain them until they become unprofitable. When they do sell, the sale is usually a total enterprise that includes machinery, equipment, patents, and other intangibles. The allocation of assets in such cases becomes extremely difficult. The lack of viable plant sales frequently negates the potential use of this approach for viable, special- and single-purpose industrial properties.

The use of the sales comparison approach has a broad applicability and is persuasive when sufficient data is available. With few comparable sales of viable crude by rail terminals in the market, “Non- Comparable Industrial Sales” notes that there is no possible rational use of the sales comparison approach.

There was one sale that was identified, but full information was not available on it. In addition, there is a property currently on the market in Berthold that is on the market for sale. The details of each of these properties can be seen in the following pages.

A summary of these can be seen in the table below.

Terminal Price Berthold $6,000,000 (listing price) Pioneer Terminal $10,850,000

The Pioneer Terminal has a larger site and has a 750,000 ton per year frac sand automated terminal, which is superior to the subject. Because of this, the subject is not really comparable to this property because of the loop track and the ability to diversify into frac sand operations. The Berthold Terminal also has the ability to handle frac sand, which is superior to the subject again due to its diversification.

Additionally, the majority of the subject track is located on land that is not the subject of this valuation. This is another reason that these two have asking and sales prices that are higher than the valuation within the cost approach.

The article “Appraising Industrial Special-Purpose Properties” by Robert G. Crawford, PhD and Barrett A. Slade, MAI, PhD states that “special purpose properties, particularly unique processing facilities, generally cannot be appraised using the sales comparison approach. Either no sales of comparable properties exist or only a few sales exist in circumstances where appraisers are unable to verify sufficient facts about the sold properties to determine their comparability to the subject property.”

Based on this information and the lack of truly comparable sales, we have excluded the sales comparison approach from this analysis. Although the sales comparison approach was excluded, several sources state that the Cost Approach is the best indication of value for a special use property like the subject and the exclusion of the sales comparison approach does not diminish the reliability of this report. Additionally, the sales and asking prices for the two facilities that are provided show a price that is lower than construction costs by a significant amount and they help to support the value via the cost approach.

The Income Approach

The article “Appraising Special-Purpose Industrial Facilities for Ad Valorem Purposes” by Rudy R. Robinson III, MAI and Scott R. Lucas that was published in an Appraisal Institute publication notes that the income approach often does not work in the valuation of special purpose industrial facilities as there are specific problems related to the estimating of rental revenue, industry volatility, state laws, and environmental costs. The Appraisal of Real Estate 13th Edition notes that “to apply any capitalization procedure, a reliable estimate of income expectancy must be developed.” To estimate rental revenue for an industrial facility that is owner occupied like the subject presents an extremely difficult challenge as the gross revenue attributed to the complex is generally based on the facility’s output and thus would entail a business value rather than a property value.

The article “Appraising Industrial Special-Purpose Properties” by Robert G. Crawford, PhD and Barrett A. Slade, MAI, PhD states “the lack of critical data often makes the income approach to valuation unreliable. Special-purpose properties often are one of a number of fixed-assets in the firm; therefore, the income stream to the larger business enterprise cannot be separated into the constituent part directly attributable to the plant or the specialized asset being appraised. The income stream is earned by the business enterprise as a whole and cannot be unambiguously attributed to the real estate, the machinery and equipment, and the intangible property.

In Fundamentals of Industrial Valuation published by the International Association of Assessing Officers (IAAO), it states “…the use of the term income approach needs to be clarified. The income approach for a building is typically a direct capitalization method that values the building and land only. It should not be confused with an income approach methodology for the whole plant, which is a business valuation. The latter would take into consideration not only the building and land but also the machinery and equipment and intangible values…”

Based on the information in the paragraphs above, we have excluded the income approach from this report. The exclusion of the income approach does not diminish the reliability of this appraisal, as the cost approach produces credible results for a special use property like the subject.

Reconciliation

Summary of Value Indications The indicated values from the approaches used and our concluded market values for the subject property are summarized in the following table.

To reach a final opinion of value, we considered the reliability and relevance of each value indication based upon the quality of the data and applicability of the assumptions underlying each approach. Given the availability and reliability of data within the Cost Approach, we gave this approach primary weight in arriving at our final value conclusions. Furthermore, industrial properties such as the subject property are typically purchased by operators of transload facilities, who would primarily rely upon the methods employed by the Cost Approach.

The valuation within this appraisal report has an effective date that is exactly one year after the prior report that we completed on the subject for the property owner. This prior report valued the subject property at $18,000,000. An addendum letter that was drafted in July 2016 had a value of $16,500,000 after we were provided a further breakdown of the construction costs by the property owner. A comparison of the differences between this addendum letter and our current report can be seen below.

February 1, 2016 February 1, 2017 Replacement Cost New $29,500,000 $30,000,000 Depreciation Effective Age 3 4 Incurable Deterioration $2,950,000 $4,000,000 Economic Obsolescence $12,000,000 $24,000,000

Estimated 2016 Production 7,690,000 n/a Actual 2016 Production 2,643,135 n/a Estimated 2017 Production n/a 2,000,000 Valuation $16,500,000 $2,500,000

The difference between these values, as can be seen in the prior table, relates to the difference in production estimates versus actuals. In the valuation for February 2016, we estimated that production would decrease 7.00% per quarter through 2016, which would equate to a total production of 7,690,000 for all of 2016. This is a decline from the 11,438,319 barrels shipped in 2015 of 32.76%. Based on the information that we were provided for this 2017 valuation, our inclination that the total shipments would reduce was correct, however the severity was underestimated. The shipments declined from 11,438,319 in 2015 to 2,643,135 in 2016, a decline of 76.89%. Because of this, the economic obsolescence in the 2016 valuation was understated in that valuation.

Based on the production in 2016, we have estimated that a similar amount of shipments would be completed in 2017 as in 2016 with a slight decline to 2,000,000 barrels. The reduction is, in part, due to the fact that there have been no shipments of crude at the subject property in the first four months of 2017. Those first three months were the highest shipping months in 2016 with approximately 80% of all shipments that occurred in 2016 occurring in the first quarter of the year. There were no shipments in the fourth quarter of 2016.

The valuation of the subject (along with the valuation of any piece of real estate) is based on the principal of anticipation, which states that people buy real estate for the future benefits that they can get from a given property. Historic performance is a part of this, but it is a necessity to look forward to the potential for the subject to generate income going forward. Given the articles that have been reviewed and provided in this report, there is a large chance that the economics of the crude-by-rail industry will be depressed for an extended period of time. This is primarily due to the increase in other methods to transport crude by rail coming on line that are cheaper and more economical than crude-by-rail. Based on this, the valuation in the report represents what a buyer would pay for this property given these future challenges in the industry.

Exposure Time and Marketing Periods Based on statistical information about days on market, escrow length, and marketing times gathered through national investor surveys, sales verification, and interviews of market participants, marketing and exposure time estimates of at least 24 months are considered reasonable and appropriate for the subject property.

General Assumptions and Limiting Conditions

This appraisal is subject to the following limiting conditions:

1. The legal description – if furnished to us – is assumed to be correct.

2. No responsibility is assumed for legal matters, questions of survey or title, soil or subsoil conditions, engineering, availability or capacity of utilities, or other similar technical matters. The appraisal does not constitute a survey of the property appraised. All existing liens and encumbrances have been disregarded and the property is appraised as though free and clear, under responsible ownership and competent management unless otherwise noted.

3. Unless otherwise noted, the appraisal will value the property as though free of contamination. Valbridge Property Advisors | Shaner Appraisals, Inc. will conduct no hazardous materials or contamination inspection of any kind. It is recommended that the client hire an expert if the presence of hazardous materials or contamination poses any concern.

4. The stamps and/or consideration placed on deeds used to indicate sales are in correct relationship to the actual dollar amount of the transaction.

5. Unless otherwise noted, it is assumed there are no encroachments, zoning violations or restrictions existing in the subject property.

6. The appraiser is not required to give testimony or attendance in court by reason of this appraisal, unless previous arrangements have been made.

7. Unless expressly specified in the engagement letter, the fee for this appraisal does not include the attendance or giving of testimony by Appraiser at any court, regulatory, or other proceedings, or any conferences or other work in preparation for such proceeding. If any partner or employee of Valbridge Property Advisors | Shaner Appraisals, Inc. is asked or required to appear and/or testify at any deposition, trial, or other proceeding about the preparation, conclusions or any other aspect of this assignment, client shall compensate Appraiser for the time spent by the partner or employee in appearing and/or testifying and in preparing to testify according to the Appraiser’s then current hourly rate plus reimbursement of expenses.

8. The values for land and/or improvements, as contained in this report, are constituent parts of the total value reported and neither is (or are) to be used in making a summation appraisal of a combination of values created by another appraiser. Either is invalidated if so used.

9. The dates of value to which the opinions expressed in this report apply are set forth in this report. We assume no responsibility for economic or physical factors occurring at some point at a later date, which may affect the opinions stated herein. The forecasts, projections, or operating estimates contained herein are based on current market conditions and anticipated short-term supply and demand factors and are subject to change with future conditions.

10. The sketches, maps, plats and exhibits in this report are included to assist the reader in visualizing the property. The appraiser has made no survey of the property and assumed no responsibility in connection with such matters.

11. The information, estimates and opinions, which were obtained from sources outside of this office, are considered reliable. However, no liability for them can be assumed by the appraiser.

12. Possession of this report, or a copy thereof, does not carry with it the right of publication. Neither all, nor any part of the content of the report, or copy thereof (including conclusions as to property value, the identity of the appraisers, professional designations, reference to any professional appraisal organization or the firm with which the appraisers are connected), shall be disseminated to the public through advertising, public relations, news, sales, or other media without prior written consent and approval.

13. No claim is intended to be expressed for matters of expertise that would require specialized investigation or knowledge beyond that ordinarily employed by real estate appraisers. We claim no expertise in areas such as, but not limited to, legal, survey, structural, environmental, pest control, mechanical, etc.

14. This appraisal was prepared for the sole and exclusive use of the client for the function outlined herein. Any party who is not the client or intended user identified in the appraisal or engagement letter is not entitled to rely upon the contents of the appraisal without express written consent of Valbridge Property Advisors | Shaner Appraisals, Inc. and Client. The Client shall not include partners, affiliates, or relatives of the party addressed herein. The appraiser assumes no obligation, liability or accountability to any third party.

15. Distribution of this report is at the sole discretion of the client, but third-parties not listed as an intended user on the face of the appraisal or the engagement letter may not rely upon the contents of the appraisal. In no event shall client give a third-party a partial copy of the appraisal report. We will make no distribution of the report without the specific direction of the client.

16. This appraisal shall be used only for the function outlined herein, unless expressly authorized by Valbridge Property Advisors | Shaner Appraisals, Inc.

17. This appraisal shall be considered in its entirety. No part thereof shall be used separately or out of context.

18. Unless otherwise noted in the body of this report, this appraisal assumes that the subject property does not fall within the areas where mandatory flood insurance is effective. Unless otherwise noted, we have not completed nor have we contracted to have completed an investigation to identify and/or quantify the presence of non-tidal wetland conditions on the subject property. Because the appraiser is not a surveyor, he or she makes no guarantees, express or implied, regarding this determination.

19. The flood maps are not site specific. We are not qualified to confirm the location of the subject property in relation to flood hazard areas based on the FEMA Flood Insurance Rate Maps or other surveying techniques. It is recommended that the client obtain a confirmation of the subject property’s flood zone classification from a licensed surveyor.

20. If the appraisal is for mortgage loan purposes 1) we assume satisfactory completion of improvements if construction is not complete, 2) no consideration has been given for rent loss during rent-up unless noted in the body of this report, and 3) occupancy at levels consistent with our “Income and Expense Projection” are anticipated.

21. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures which would render it more or less valuable. No responsibility is assumed for such conditions or for engineering which may be required to discover them.

22. Our inspection included an observation of the land and improvements thereon only. It was not possible to observe conditions beneath the soil or hidden structural components within the improvements. We inspected the buildings involved, and reported damage (if any) by termites, dry rot, wet rot, or other infestations as a matter of information, and no guarantee of the amount or degree of damage (if any) is implied. Condition of heating, cooling, ventilation, electrical and plumbing equipment is considered to be commensurate with the condition of the balance of the improvements unless otherwise stated. Should the client have concerns in these areas, it is the client’s responsibility to order the appropriate inspections. The appraiser does not have the skill or expertise to make such inspections and assumes no responsibility for these items.

23. This appraisal does not guarantee compliance with building code and life safety code requirements of the local jurisdiction. It is assumed that all required licenses, consents, certificates of occupancy or other legislative or administrative authority from any local, state or national governmental or private entity or organization have been or can be obtained or renewed for any use on which the value conclusion contained in this report is based unless specifically stated to the contrary.

24. When possible, we have relied upon building measurements provided by the client, owner, or associated agents of these parties. In the absence of a detailed rent roll, reliable public records, or “as-built” plans provided to us, we have relied upon our own measurements of the subject improvements. We follow typical appraisal industry methods; however, we recognize that some factors may limit our ability to obtain accurate measurements including, but not limited to, property access on the day of inspection, basements, fenced/gated areas, grade elevations, greenery/shrubbery, uneven surfaces, multiple story structures, obtuse or acute wall angles, immobile obstructions, etc. Professional building area measurements of the quality, level of detail, or accuracy of professional measurement services are beyond the scope of this appraisal assignment.

25. We have attempted to reconcile sources of data discovered or provided during the appraisal process, including assessment department data. Ultimately, the measurements that are deemed by us to be the most accurate and/or reliable are used within this report. While the measurements and any accompanying sketches are considered to be reasonably accurate and reliable, we cannot guarantee their accuracy. Should the client desire a greater level of measuring detail, they are urged to retain the measurement services of a qualified professional (space planner, architect or building engineer). We reserve the right to use an alternative source of building size and amend the analysis, narrative and concluded values (at additional cost) should this alternative measurement source reflect or reveal substantial differences with the measurements used within the report.

26. In the absence of being provided with a detailed land survey, we have used assessment department data to ascertain the physical dimensions and acreage of the property. Should a survey prove this information to be inaccurate, we reserve the right to amend this appraisal (at additional cost) if substantial differences are discovered.

27. If only preliminary plans and specifications were available for use in the preparation of this appraisal, then this appraisal is subject to a review of the final plans and specifications when available (at additional cost) and we reserve the right to amend this appraisal if substantial differences are discovered.

28. Unless otherwise stated in this report, the value conclusion is predicated on the assumption that the property is free of contamination, environmental impairment or hazardous materials. Unless otherwise stated, the existence of hazardous material was not observed by the appraiser and the appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required for discovery. The client is urged to retain an expert in this field, if desired.

29. The Americans with Disabilities Act (“ADA”) became effective January 26, 1992. We have not made a specific compliance survey of the property to determine if it is in conformity with the various requirements of the ADA. It is possible that a compliance survey of the property, together with an analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible noncompliance with the requirements of ADA in developing an opinion of value.

30. This appraisal applies to the land and building improvements only. The value of trade fixtures, furnishings, and other equipment, or subsurface rights (minerals, gas, and oil) were not considered in this appraisal unless specifically stated to the contrary.

31. No changes in any federal, state or local laws, regulations or codes (including, without limitation, the Internal Revenue Code) are anticipated, unless specifically stated to the contrary.

32. Any income and expense estimates contained in the appraisal report are used only for the purpose of estimating value and do not constitute prediction of future operating results. Furthermore, it is inevitable that some assumptions will not materialize and that unanticipated events may occur that will likely affect actual performance.

33. Any estimate of insurable value, if included within the scope of work and presented herein, is based upon figures developed consistent with industry practices. However, actual local and regional construction costs may vary significantly from our estimate and individual insurance policies and underwriters have varied specifications, exclusions, and non-insurable items. As such, we strongly recommend that the Client obtain estimates from professionals experienced in establishing insurance coverage. This analysis should not be relied upon to determine insurance coverage and we make no warranties regarding the accuracy of this estimate.

34. The data gathered in the course of this assignment (except data furnished by the Client) shall remain the property of the Appraiser. The appraiser will not violate the confidential nature of the appraiser-client relationship by improperly disclosing any confidential information furnished to the appraiser. Notwithstanding the foregoing, the Appraiser is authorized by the client to disclose all or any portion of the appraisal and related appraisal data to appropriate representatives of the Appraisal Institute if such disclosure is required to enable the appraiser to comply with the Bylaws and Regulations of such Institute now or hereafter in effect.

35. You and Valbridge Property Advisors | Shaner Appraisals, Inc. both agree that any dispute over matters in excess of $5,000 will be submitted for resolution by arbitration. This includes fee disputes and any claim of malpractice. The arbitrator shall be mutually selected. If Valbridge Property Advisors | Shaner Appraisals, Inc. and the client cannot agree on the arbitrator, the presiding head of the Local County Mediation & Arbitration panel shall select the arbitrator. Such arbitration shall be binding and final. In agreeing to arbitration, we both acknowledge that, by agreeing to binding arbitration, each of us is giving up the right to have the dispute decided in a court of law before a judge or jury. In the event that the client, or any other party, makes a claim against Shaner Appraisals, Inc. or any of its employees in connections with or in any way relating to this assignment, the maximum damages recoverable by such claimant shall be the amount actually received by Valbridge Property Advisors | Shaner Appraisals, Inc. for this assignment, and under no circumstances shall any claim for consequential damages be made.

36. Valbridge Property Advisors | Shaner Appraisals, Inc. shall have no obligation, liability, or accountability to any third party. Any party who is not the “client” or intended user identified on the face of the appraisal or in the engagement letter is not entitled to rely upon the contents of the appraisal without the express written consent of Valbridge Property Advisors | Shaner Appraisals, Inc. “Client” shall not include partners, affiliates, or relatives of the party named in the engagement letter. Client shall hold Valbridge Property Advisors | Shaner Appraisals, Inc. and its employees harmless in the event of any lawsuit brought by any third party, lender, partner, or part-owner in any form of ownership or any other party as a result of this assignment. The client also agrees that in case of lawsuit arising from or in any way involving these appraisal services, client will hold Valbridge Property Advisors | Shaner Appraisals, Inc. harmless from and against any liability, loss, cost, or expense incurred or suffered by Valbridge Property Advisors | Shaner Appraisals, Inc. in such action, regardless of its outcome.

37. The Valbridge Property Advisors office responsible for the preparation of this report is independently owned and operated by Shaner Appraisals, Inc.. Neither Valbridge Property Advisors, Inc., nor any of its affiliates has been engaged to provide this report. Valbridge Property Advisors, Inc. does not provide valuation services, and has taken no part in the preparation of this report.

38. If any claim is filed against any of Valbridge Property Advisors, Inc., a Florida Corporation, its affiliates, officers or employees, or the firm providing this report, in connection with, or in any way arising out of, or relating to, this report, or the engagement of the firm providing this report, then (1) under no circumstances shall such claimant be entitled to consequential, special or other damages, except only for direct compensatory damages, and (2) the maximum amount of such compensatory damages recoverable by such claimant shall be the amount actually received by the firm engaged to provide this report.

39. This report and any associated work files may be subject to evaluation by Valbridge Property Advisors, Inc., or its affiliates, for quality control purposes.

40. Acceptance and/or use of this appraisal report constitutes acceptance of the foregoing general assumptions and limiting conditions.

Certification – Jason Roos, MAI

I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report and no personal interest with respect to the parties involved. 4. The undersigned has not performed services regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. 5. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. 6. My engagement in this assignment was not contingent upon developing or reporting predetermined results. 7. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 8. My analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. 9. Jason Roos, MAI has personally inspected the subject property. 10. No one provided significant real property appraisal assistance to the person signing this certification, unless otherwise noted. 11. The reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. 12. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 13. As of the date of this report, the undersigned has completed the continuing education program for Designated Members of the Appraisal Institute.

Jason Roos, MAI Director North Dakota License - CG-21495

Addenda

Subject Photos Glossary Qualifications  Jason Roos, MAI - Director Information on Valbridge Property Advisors Office Locations

Subject Photographs (The photos below were taken at our initial inspection of the subject on June 6, 2016)

Interior of Main Building Interior of Main Building

Interior of Main Building Interior of Sleeping Room

Interior of Sleeping Room Interior of Sleeping Room

Truck LACT Truck LACT

Truck LACT View of three overpressure breakout tanks

View of tank and pipeline View of tank and pipeline

View of tank and pipeline View of Tesoro receiving building

View of pipeline receiving line View of overpressure breakout tanks

View of tanks View of rail lines

View of rail lines View of rail lines

Glossary Definitions are taken from The Dictionary of Real Estate Appraisal, 6th Edition (Dictionary), the Uniform Standards of Professional Appraisal Practice (USPAP), and Building Owners and Managers Association International (BOMA).

Absolute Net Lease Certificate of Occupancy (COO) A lease in which the tenant pays all expenses including A formal written acknowledgment by an appropriate structural maintenance, building reserves, and unit of local government that a new construction or management; often a long-term lease to a credit tenant. renovation project is at the stage where it meets (Dictionary) applicable health and safety codes and is ready for commercial or residential occupancy. (Dictionary) Amortization The process of retiring a debt or recovering a capital Common Area Maintenance (CAM) investment, typically through scheduled, systematic The expense of operating and maintaining common repayment of the principal; a program of periodic areas; may or may not include management charges and contributions to a sinking fund or debt retirement fund. usually does not include capital expenditures on tenant (Dictionary) improvements or other improvements to the property. (Dictionary) As Is Market Value The estimate of the market value of real property in its The amount of money charged to tenants for their current physical condition, use, and zoning as of the shares of maintaining a [shopping] center’s common appraisal date. (Dictionary) area. The charge that a tenant pays for shared services and facilities such as electricity, security, and Base Rent maintenance of parking lots. Items charged to common The minimum rent stipulated in a lease. (Dictionary) area maintenance may include cleaning services, parking Base Year lot sweeping and maintenance, snow removal, security The year on which escalation clauses in a lease are and upkeep. (ICSC – International Council of Shopping based. (Dictionary) Centers, 4th Ed.) Building Common Area Condominium In office buildings, the areas of the building that provide A multiunit structure, or a unit within such a structure, services to building tenants but which are not included with a condominium form of ownership. (Dictionary) in the office area or store area of any specific tenant. Conservation Easement These areas may include, but shall not be limited to, An interest in real estate restricting future land use to main and auxiliary lobbies, atrium spaces at the level of preservation, conservation, wildlife habitat, or some the finished floor, concierge areas or security desks, combination of those uses. A conservation easement conference rooms, lounges or vending areas, food may permit farming, timber harvesting, or other uses of service facilities, health or fitness centers, daycare a rural nature as well as some types of conservation- facilities, locker or shower facilities, mail rooms, fire oriented development to continue, subject to the control rooms, fully enclosed courtyards outside the easement. (Dictionary) exterior walls, and building core and service areas such as fully enclosed mechanical or equipment rooms. Contributory Value Specifically excluded from building common area are A type of value that reflects the amount a property or floor common areas, parking space, portions of loading component of a property contributes to the value of docks outside the building line, and major vertical another asset or to the property as a whole. penetrations. (BOMA) The change in the value of a property as a whole, Building Rentable Area whether positive or negative, resulting from the addition The sum of all floor rentable areas. Floor rentable area is or deletion of a property component. Also called the result of subtracting from the gross measured area deprival value in some countries. (Dictionary) of a floor the major vertical penetrations on that same floor. It is generally fixed for the life of the building and is rarely affected by changes in corridor size or configuration. (BOMA)

Debt Coverage Ratio (DCR) Effective Date The ratio of net operating income to annual debt service 1) The date on which the appraisal or review opinion (DCR = NOI/Im), which measures the relative ability of a applies. (SVP) property to meet its debt service out of net operating 2) In a lease document, the date upon which the lease income; also called debt service coverage ratio (DSCR). A goes into effect. (Dictionary) larger DCR typically indicates a greater ability for a property to withstand a reduction of income, providing Effective Gross Income (EGI) an improved safety margin for a lender. (Dictionary) The anticipated income from all operations of the real estate after an allowance is made for vacancy and Deed Restriction collection losses and an addition is made for any other A provision written into a deed that limits the use of income. (Dictionary) land. Deed restrictions usually remain in effect when title passes to subsequent owners. (Dictionary) Effective Rent Total base rent, or minimum rent stipulated in a lease, Depreciation over the specified lease term minus rent concessions; 1) In appraisal, a loss in property value from any cause; the rent that is effectively paid by a tenant net of the difference between the cost of an improvement financial concessions provided by a landlord. (TIs). on the effective date of the appraisal and the (Dictionary) market value of the improvement on the same date. 2) In accounting, an allocation of the original cost of EPDM an asset, amortizing the cost over the asset’s life; Ethylene Propylene Diene Monomer Rubber. A type of calculated using a variety of standard techniques. synthetic rubber typically used for roof coverings. (Dictionary) (Dictionary)

Disposition Value Escalation Clause The most probable price that a specified interest in A clause in an agreement that provides for the property should bring under the following conditions: adjustment of a price or rent based on some event or  Consummation of a sale within a specified time, index. e.g., a provision to increase rent if operating which is shorter than the typical exposure time for expenses increase; also called escalator clause, expense such a property in that market. recovery clause or stop clause. (Dictionary)  The property is subjected to market conditions Estoppel Certificate prevailing as of the date of valuation; A signed statement by a party (such as a tenant or a  Both the buyer and seller are acting prudently and mortgagee) certifying, for another’s benefit, that certain knowledgeably; facts are correct, such as that a lease exists, that there  The seller is under compulsion to sell; are no defaults, and that rent is paid to a certain date.  The buyer is typically motivated; (Black’s) In real estate, a buyer of rental property  Both parties are acting in what they consider to be typically requests estoppel certificates from existing their best interests; tenants. Sometimes referred to as an estoppel letter.  An adequate marketing effort will be made during (Dictionary) the exposure time;  Payment will be made in cash in U.S. dollars (or the Excess Land local currency) or in terms of financial arrangements Land that is not needed to serve or support the existing comparable thereto; and use. The highest and best use of the excess land may or  The price represents the normal consideration for may not be the same as the highest and best use of the the property sold, unaffected by special or creative improved parcel. Excess land has the potential to be financing or sales concessions granted by anyone sold separately and is valued separately. (Dictionary) associated with the sale. (Dictionary) Excess Rent Easement The amount by which contract rent exceeds market rent The right to use another’s land for a stated purpose. at the time of the appraisal; created by a lease favorable (Dictionary) to the landlord (lessor) and may reflect unusual management, unknowledgeable or unusually motivated EIFS parties, a lease execution in an earlier, stronger rental Exterior Insulation Finishing System. This is a type of market, or an agreement of the parties. (Dictionary) exterior wall cladding system. Sometimes referred to as dry-vit.

Expense Stop the above-grade area. This includes mezzanines A clause in a lease that limits the landlord’s expense and basements if and when typically included in the obligation, which results in the lessee paying operating market area of the type of property involved. expenses above a stated level or amount. (Dictionary) 2) Gross leasable area plus all common areas. 3) For residential space, the total area of all floor levels Exposure Time measured from the exterior of the walls and 1) The time a property remains on the market. including the superstructure and substructure 2) The estimated length of time that the property basement; typically does not include garage space. interest being appraised would have been offered (Dictionary) on the market prior to the hypothetical consummation of a sale at market value on the Gross Measured Area effective date of the appraisal; Comment: Exposure The total area of a building enclosed by the dominant time is a retrospective opinion based on an analysis portion (the portion of the inside finished surface of the of past events assuming a competitive and open permanent outer building wall which is 50 percent or market. (Dictionary) more of the vertical floor-to-ceiling dimension, at the given point being measured as one moves horizontally Extraordinary Assumption along the wall), excluding parking areas and loading An assumption, directly related to a specific assignment, docks (or portions of same) outside the building line. It as of the effective date of the assignment results, which, is generally not used for leasing purposes and is if found to be false, could alter the appraiser’s opinions calculated on a floor by floor basis. (BOMA) or conclusions. Comment: Extraordinary assumptions presume as fact otherwise uncertain information about Gross Up Method physical, legal, or economic characteristics of the subject A method of calculating variable operating expenses in property; or about conditions external to the property income-producing properties when less than 100% such as market conditions or trends; or about the occupancy is assumed. Expenses reimbursed based on integrity of data used in an analysis. (USPAP, 2016-2017 the amount of occupied space, rather than on the total ed.) building area, are described as “grossed up.” (Dictionary)

Fee Simple Estate Gross Retail Sellout Absolute ownership unencumbered by any other The sum of the separate and distinct market value interest or estate, subject only to the limitations opinions for each of the units in a condominium, imposed by the governmental powers of taxation, subdivision development, or portfolio of properties, as eminent domain, police power, and escheat. (Dictionary) of the date of valuation. The aggregate of retail values does not represent the value of all the units as though Floor Common Area sold together in a single transaction; it is simply the total In an office building, the areas on a floor such as of the individual market value conclusions. Also called washrooms, janitorial closets, electrical rooms, the aggregate of the retail values, aggregate retail selling telephone rooms, mechanical rooms, elevator lobbies, price or sum of the retail values.. (Dictionary) and public corridors which are available primarily for the use of tenants on that floor. (BOMA) Ground Lease A lease that grants the right to use and occupy land. Full Service (Gross) Lease Improvements made by the ground lessee typically A lease in which the landlord receives stipulated rent revert to the ground lessor at the end of the lease term. and is obligated to pay all of the property’s operating (Dictionary) and fixed expenses; also called a full service lease. (Dictionary) Ground Rent The rent paid for the right to use and occupy land Going-Concern Value according to the terms of a ground lease; the portion of An outdated label for the market value of all the the total rent allocated to the underlying land. tangible and intangible assets of an established and (Dictionary) operating business with an indefinite life, as if sold in aggregate; more accurately termed the market value of HVAC the going concern or market value of the total assets of Heating, ventilation, air conditioning (HVAC) system. A the business. (Dictionary) unit that regulates the temperature and distribution of heat and fresh air throughout a building. (Dictionary) Gross Building Area (GBA) 1) Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls of © 2016 VALBRIDGE PROPERTY ADVISORS | Shaner Appraisals, Inc. Page 101 BASIN TRANSLOAD – STAMPEDE, ND ADDENDA

Highest and Best Use criteria that are not necessarily typical of the market. 1) The reasonably probable use of property that (Dictionary) results in the highest value. The four criteria that the Just Compensation highest and best use must meet are legal In condemnation, the amount of loss for which a permissibility, physical possibility, financial property owner is compensated when his or her feasibility, and maximum productivity. property is taken. Just compensation should put the 2) The use of an asset that maximizes its potential and owner in as good a position pecuniarily as he or she that is possible, legally permissible, and financially would have been if the property had not been taken. feasible. The highest and best use may be for (Dictionary) continuation of an asset’s existing use of for some alternative use. This is determined by the use that a Leased Fee Interest market participant would have in mind for the asset The ownership interest held by the lessor, which when formulating the price that it would be willing includes the right to receive the contract rent specified to bid. (IVS) in the lease plus the reversionary right when the lease 3) [The] highest and most profitable use for which the expires. (Dictionary) property is adaptable and needed or likely to be needed in the reasonably near future. (Uniform Leasehold Interest Appraisal Standards for Federal Land Acquisitions) The right held by the lessee to use and occupy real (Dictionary) estate for a stated term and under the conditions specified in the lease. (Dictionary) Hypothetical Condition 1) A condition that is presumed to be true when it is Lessee (Tenant) known to be false. (SVP – Standards of Valuation One who has the right to occupancy and use of the Practice, effective January 1, 2015) property of another for a period of time according to a 2) A condition, directly related to a specific lease agreement. (Dictionary) assignment, which is contrary to what is known by Lessor (Landlord) the appraiser to exist on the effective date of the One who conveys the rights of occupancy and use to assignment results, but is used for the purpose of others under a lease agreement. (Dictionary) analysis. Comment: Hypothetical conditions are contrary to known facts about physical, legal, or Liquidation Value economic characteristics of the subject property; or The most probable price that a specified interest in about conditions external to the property, such as property should bring under the following conditions: market conditions or trends; or about the integrity  Consummation of a sale within a short time period. of data used in an analysis. (USPAP, 2016-2017 ed.)  The property is subjected to market conditions (Dictionary) prevailing as of the date of valuation. Industrial Gross Lease  Both the buyer and seller are acting prudently and A type of modified gross lease of an industrial property knowledgeably. in which the landlord and tenant share expenses. The  The seller is under extreme compulsion to sell. landlord receives stipulated rent and is obligated to pay  The buyer is typically motivated. certain operating expenses, often structural  Both parties are acting in what they consider to be maintenance, insurance and real property taxes, as their best interests. specified in the lease. There are significant regional and  A normal marketing effort is not possible due to the local differences in the use of this term. (Dictionary) brief exposure time.  Payment will be made in cash in U.S. dollars (or the Insurable Value local currency) or in terms of financial arrangements A type of value for insurance purposes. (Typically this comparable thereto. includes replacement cost less basement excavation,  The price represents the normal consideration for foundation, underground piping and architect’s fees). the property sold, unaffected by special or creative (Dictionary) financing or sales concessions granted by anyone Investment Value associated with the sale. (Dictionary) The value of a property to a particular investor or class Loan to Value Ratio (LTV) of investors based on the investor’s specific The ratio between a mortgage loan and the value of the requirements. Investment value may be different from property pledged as security, usually expressed as a market value because it depends on a set of investment percentage. (Dictionary)

Major Vertical Penetrations address the determination of reasonable exposure and Stairs, elevator shafts, flues, pipe shafts, vertical ducts, marketing time.) (Dictionary) and the like, and their enclosing walls. Atria, lightwells Master Lease and similar penetrations above the finished floor are A lease in which the fee owner leases a part or the entire included in this definition. Not included, however, are property to a single entity (the master lease) in return vertical penetrations built for the private use of a tenant for a stipulated rent. The master lessee then leases the occupying office areas on more than one floor. property to multiple tenants. (Dictionary) Structural columns, openings for vertical electric cable or telephone distribution, and openings for plumbing lines Modified Gross Lease are not considered to be major vertical penetrations. A lease in which the landlord receives stipulated rent (BOMA) and is obligated to pay some, but not all, of the property’s operating and fixed expenses. Since Market Rent assignment of expenses varies among modified gross The most probable rent that a property should bring in a leases, expense responsibility must always be specified. competitive and open market reflecting the conditions In some markets, a modified gross lease may be called a and restrictions of a specified lease agreement, double net lease, net net lease, partial net lease, or semi- including the rental adjustment and revaluation, gross lease. (Dictionary) permitted uses, use restrictions, expense obligations; term, concessions, renewal and purchase options and Operating Expense Ratio tenant improvements (TIs). (Dictionary) The ratio of total operating expenses to effective gross income (TOE/EGI); the complement of the net income Market Value ratio, i.e., OER = 1 – NIR (Dictionary) The most probable price that a property should bring in a competitive and open market under all conditions Option requisite to a fair sale, the buyer and seller each acting A legal contract, typically purchased for a stated prudently and knowledgeably, and assuming the price is consideration, that permits but does not require the not affected by undue stimulus. Implicit in this definition holder of the option (known as the optionee) to buy, sell, is the consummation of a sale as of a specified date and or lease real estate for a stipulated period of time in the passing of title from seller to buyer under conditions accordance with specified terms; a unilateral right to whereby: exercise a privilege. (Dictionary)  Buyer and seller are typically motivated;  Both parties are well informed or well advised, and Partial Interest acting in what they consider their own best Divided or undivided rights in real estate that represent interests; less than the whole, i.e., a fractional interest such as a  A reasonable time is allowed for exposure in the tenancy in common, easement, or life interest. open market; (Dictionary)  Payment is made in terms of cash in United States Pass Through dollars or in terms of financial arrangements A tenant’s portion of operating expenses that may be comparable thereto; and composed of common area maintenance (CAM), real  The price represents the normal consideration for property taxes, property insurance, and any other the property sold unaffected by special or creative expenses determined in the lease agreement to be paid financing or sales concessions granted by anyone by the tenant. (Dictionary) associated with the sale. (Dictionary) Potential Gross Income (PGI) The total income attributable to property at full Marketing Time occupancy before vacancy and operating expenses are An opinion of the amount of time it might take to sell a deducted. (Dictionary) real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal. (Advisory Opinion 7 of the Appraisal Standards Board of the Appraisal Foundation and Statement on Appraisal Standards No. 6, “Reasonable Exposure Time in Real Property and Personal Property Market Value Opinions”

Prospective Future Value Upon Completion the type of value with this term is appropriate, e.g., A prospective market value may be appropriate for the “retrospective market value opinion.” (Dictionary) valuation of a property interest related to a credit Sandwich Leasehold Estate decision for a proposed development or renovation The interest held by the sandwich leaseholder when the project. According to USPAP, an appraisal with a property is subleased to another party; a type of prospective market value reflects an effective date that leasehold estate. (Dictionary) is subsequent to the date of the appraisal report. … The prospective market value –as completed- reflects the Sublease property’s market value as of the time that development An agreement in which the lessee in a prior lease is expected to be complete. (Dictionary) conveys the right of use and occupancy of a property to Prospective Future Value Upon Stabilization another, the sublessee, for a specific period of time, which may or may not be coterminous with the A prospective market value may be appropriate for the underlying lease term. (Dictionary) valuation of a property interest related to a credit decision for a proposed development or renovation Subordination project. According to USPAP, an appraisal with a A contractual arrangement in which a party with a claim prospective market value reflects an effective date that to certain assets agrees to make his or her claim junior, is subsequent to the date of the appraisal report …The or subordinate, to the claims of another party. prospective market value – as stabilized – reflects the (Dictionary) property’s market value as of the time the property is projected to achieve stabilized occupancy. For an Surplus Land income-producing property, stabilized occupancy is the Land that is not currently needed to support the existing occupancy level that a property is expected to achieve use but cannot be separated from the property and sold after the property is exposed to the market for lease off for another use. Surplus land does not have an over a reasonable period of time and at comparable independent highest and best use and may or may not terms and conditions to other similar properties. contribute value to the improved parcel. (Dictionary) (Dictionary) Triple Net (Net Net Net) Lease Replacement Cost An alternative term for a type of net lease. In some The estimated cost to construct, at current prices as of a markets, a net net net lease is defined as a lease in specific date, a substitute for a building or other which the tenant assumes all expenses (fixed and improvements, using modern materials and current variable) of operating a property except that the standards, design, and layout. (Dictionary) landlord is responsible for structural maintenance, building reserves, and management; also called NNN Reproduction Cost lease, net net net lease, or fully net lease. (Dictionary) The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or (The market definition of a triple net lease varies; in replica of the building being appraised, using the same some cases tenants pay for items such as roof repairs, materials, construction standards, design, layout, and parking lot repairs, and other similar items.) quality of workmanship and embodying all of the deficiencies, superadequacies, and obsolescence of the Usable Area subject building. (Dictionary) The measured area of an office area, store area, or building common area on a floor. The total of all the Retrospective Value Opinion usable areas for a floor shall equal floor usable area of A value opinion effective as of a specified historical date. that same floor. (BOMA) The term retrospective does not define a type of value. Instead, it identifies a value opinion as being effective at Value-in-Use some specific prior date. Value as of a historical date is The value of a property assuming a specific use, which frequently sought in connection with property tax may or may not be the property’s highest and best use appeals, damage models, lease renegotiation, deficiency on the effective date of the appraisal. Value in use may judgments, estate tax, and condemnation. Inclusion of or may not be equal to market value but is different conceptually. (Dictionary)

Qualifications of Jason Roos, MAI Director Valbridge Property Advisors | Kansas City

Independent Valuations for a Variable World

State Certifications Membership/Affiliations: Member: Appraisal Institute - MAI Designation State of Kansas 2014 President: Appraisal Institute – Kansas City Chapter State of Missouri Appraisal Institute and Related Courses: State of Iowa Business Practices and Ethics State of Nebraska Uniform Standards of Appraisal Practice State of North Dakota Advanced Income Capitalization State of Illinois Advanced Sales Comparison and Cost Approaches State of Indiana Report Writing and Valuation Analysis State of Arkansas Advanced Applications A Debate on the Allocation of Hotel Total Assets Education Fundamentals of Separating Real Property, Personal Property, and

Intangible Business Assets BBA University of Appraising the Appraisal: Appraisal Review – General North Dakota Analyzing Tenant Credit Risk and Commercial Lease Analysis Contact Details Condemnation Appraising: Principles and Applications Experience: 913-451-1451 (o) Director

913-647-4095 (d) Valbridge Property Advisors | Shaner Appraisals, Inc. (2007-Present)

Valbridge Property Advisors Appraisal/valuation and consulting assignments include: industrial | Shaner Appraisals, Inc. buildings, office buildings, retail buildings, and hotels and motels. 10990 Quivira Road Industrial properties appraised include a wide variety of warehouse Suite 100 and manufacturing facilities located across the Midwest. Overland Park, KS 66210 Assignments have been concentrated in the Kansas City Metropolitan area, but assignments have been completed across www.valbridge.com the country on specialized manufacturing and warehouse [email protected] properties.

Exhibit C Basin Transload LLC ‐ Stampede Facility Property Tax Valuation Discussion February 15, 2017

Stampede Facility Overview

The Stampede Crude‐By‐Rail (CBR) facility is a unit train transloading facility located in Burke County, ND. The facility currently comprises seven ladder tracks with a total of about 42,900 track feet and a railcar loading system permitted to load up to 79,200 barrels per day using mobile meter trailers. Basin’s primary customer, Global Companies LLC (Global), owns an 8 bay truck receipt station and three crude oil storage tanks located on Basin’s property. Basin has not granted Global an easement or lease in the property. The only other major structure on Basin’s property is a 60 x 90 office, shop and apartment building owned by Basin.

Several items impact the value that is taxable to Basin Transload. The facility includes personal property and portions of the facility are located on parcels owned by third parties. The property is subject to substantial obsolescence beyond standard book depreciation. The investments related to the Stampede facility have also been subject to a substantial impairment writedown required by accounting rules, due to declining cashflows.

A portion of the Stampede facility is located on property owned by Canadian Pacific Railway. About 30,600 track feet of the approximate 42,900 track feet total associated with the facility are located on approximately 40 acres owned by Canadian Pacific Railway. Basin is permitted to use the track under a license agreement but does not have an easement or lease agreement for the property. Property on Canadian Pacific’s property should not be assessed against Basin Transload.

Additionally a number of improvements have been removed from the facility or replaced through subsequent development including about 6,700 track feet of track, approximately 12,000 square yards of truck access and staging area, about 285 linear feet of containment berm, over 2,400 feet of underground piping and about 2,150 feet of buried electrical distribution service.

Cost Basis Valuation

Basin Transload’s original investment cost basis was determined by the following steps:  Basin’s t net book asset report as of December 31, 2016 was reviewed  All items from other sites were removed  All items incorrectly coded to other company sites were corrected to Stampede  All items were sorted into the appropriate category: o land acquisition o building – i.e. buildings, well, building heating system, etc. o site improvements – i.e. roads, ug piping, utility services, etc. o track – i.e. track materials, track construction, railbed construction o machinery and equipment used in trade – i.e. pumps, piping, I&C equipment, etc. o mobile equipment – i.e. mobile transloaders, bobcats, FEL, etc. o electronic equipment – i.e. radios, computers, etc. o furniture – i.e. tables, desks, chairs, beds, TVs, etc.

Basin Transload LLC ‐ Stampede Facility Property Tax Valuation Discussion February 15, 2017

o trucks – all vehicles o removed items – items that have since been removed, abandoned or replaced by subsequent development of the facility – i.e. removal of elevator, abandonment of nonfunctional well, vapor piping and electrical distribution, construction costs for track removed for later track expansions, containment berm relocated to expand capacity and access roadway that was replaced (the aggregate materials removed were donated for the county road improvement) o intangible items – hydro testing, license fees, engineering fees, donations, etc.  The costs for items located on Canadian Pacific property were broken out.  The cost basis of Global’s investments located on Basin’s property were also categorized in a similar fashion.

These original costs must be reduced by depreciation and the impairments that were required after an accounting review in 2016. The impairment is essential to a fair calculation of value as of February 1, 2017. The accounting impairment was required under FASB standards so that Basin’s consolidated parent financial reporting doesn’t mislead public shareholders in accordance with the SEC. FASB 121 requires the impairment of a long‐lived asset if the carrying amount is not recoverable from its undiscounted cash flows. The impairment loss is measured as the difference between the carrying amount and the estimate of probability‐weighted undiscounted cash flows over the remaining life of the long‐lived asset. The resulting net book value after taking the required impairment loss should be reflectiver of fai value. The assets that are not taxable to Basin, as personal property or as property located on parcels owned by third parties, are indicated on the attached investment cost summary.

Also shown on the investment cost summary is a present worth calculation that replicates the TY Pickett cost methodology used in the county’s previous year assessment for those categories that are taxable to Basin under ND statutes. This methodology includes a single declining balance depreciation calculation (assuming 25 year life for long term assets) and a 70% economic obsolescence. The resulting present worth still exceeds the net book value of the taxable assets after the recognized impairment by 45%. The lower valuation is more appropriate for these assets.

Sales Comparison Method

The Dakota Plains CBR unit train facility at New Town, ND sold for $10.85 million on January 23, 2017 at auction as part of a bankruptcy proceeding. The sale process initially identified 66 potential bidders in June 2016, 12 of which acquired sufficient access to confidential Dakota Plains information to conduct substantial due diligence, two offers were received but did not proceed to sale. In October 2016, a larger outreach contacted 109 parties with a revised release price range, 31 of which received revised Confidential Information Memorandum and access to the virtual data room. In November 2016, five signed letters ofe intent wer received. In December 2016, 4 bids including marked purchase agreements were received. Resulting from these bids, terms and conditions were negotiated with Bio Urja as a stalking horse bidder. The negotiated terms were offered to all the qualified potential bidders at the stalking horse price of $8.55 million. Interested bidders were invited to engage in a live auction. Two

Basin Transload LLC ‐ Stampede Facility Property Tax Valuation Discussion February 15, 2017 independent bidders participated in the live auction with Bio Urja winning over Twin Eagle after numerous rounds of bidding at a final price of $10.85 million.

The Dakota Plains facility has an 80,000 barrel per daye crud by rail and a 750,000 ton per year frac sand throughput capacity served by the Canadian Pacific Railway near the geographic center of the Bakken oil field. The high speed unit train loop and loadout facility was built in 2013 with a 270,000 barrel crude tank farm and has two pipeline connections that combined could deliver at the full throughput rate and 10 truck offload stations. The frac sand facility can unload two railcars at a time and has 8,000 tons of storage over truck loading scales. New Town is advantageously located near the middle of the Bakken region near the only bridge crossing the Missouri river for approximately 80 miles in either direction providing access to areas both north and south of the river. Additionally New Town is a moderate sized community providing access to housing, community and retail services with a local labor pool.

On January 8, 2016, Tesoro acquired Great Northern Midstream, which owns and operates the 97 mile Bakken Link crude oil pipeline, a 28 mile gathering system, 657,000 barrels of crude storage and a 154,000 bpd crude by rail terminal located at Fryburg, ND. Tesoro’s 10Q for the first quarter of 2016 indicates that the acquisition was immaterial to its consolidated financial statements. Note 4 of Tesoro’s 10Q does report a $9 million investment in Vancouver Energy terminal among the $159 million equity method investments and a total of $2 million equity in earnings on investments and $11 million in distributions. While not a direct valuation this suggests that the value of the Great Northern acquisition was less than $9 million.

The Fryburg unit train CBR facility is served by the Bakken Link pipeline that has a listed capacity of 60,000 bpd and the facility has 6 truck receiving stations to supply crude to the 154,000 bpd transloading capability. The unit train and pipeline were completed in 2013. Fryburg is located on the southern flank of the Bakken region about 120 miles from New Town. Dickinson, ND is the closest community with year‐round retail services about 30 miles away.

Both Dakota Plains and Fryburg required substantial rail grade work on over 200 acres to build to a standard unit train loop model and installed new 136 pound rail and concrete ties. Both have elevated fixed loading platforms and enclosed tank car loading structures supported by the pumping, header and vapor control systems used in the CBR trade.

The Stampede facility ladder track arrangement on the other hand required less than 100 acres with minimal rail grade work and was built using largely used 115 pound relay rail and ties. The low volume (1 train per day) and speed (~5 mph) activity of a transload facility doesn’t require the heavy rail and tie construction of mainlines that handle 50 or more trains per day at speeds in excess of 50 mph. About 70% of the Stampede track system is actually located on Canadian Pacific right of way subject to a license agreement that allows Basin to remove any tracks it constructed upon termination. Additionally the Stampede facility utilizes a loading header with mobile metered loading carts along a ladder track system that uses less than half the land area to support a 79,200 bpd throughput rating. The 8 bay truck receipt LACT and the 3 crude storage tanks at the Stampede facility are actually owned by Global under an agreement that predates Global’s equity investment in Basin Transload and provides Global the

Basin Transload LLC ‐ Stampede Facility Property Tax Valuation Discussion February 15, 2017 unilateral option to remove them. The Stampede facility is located in the northern portion of the Bakken region about 90 miles from New Town. Stampede is about 100 miles from either Williston, ND or Minot, ND.

The sand portion of the Dakota Plains facility and the pipeline and gathering component of the Great Northern acquisition clearly comprise a substantial portion of the value paid for these facilities. The current CBR transportation demand is far less than the capacity of the 5‐6 still active facilities (let alone the total capacity of the 16 CBR unit train terminals built since 2009) in North Dakota restricting the value of the rail throughput and proportionally increasing the value of the other assets. Even if one assumes the CBR terminal portion of these facilities is between 40% and 65% of the total, the value of an 80,000 bpd class CBR facility appears to be between $3.6 and $7.0 million before reduction for machinery and equipment used in trade and other personal property. This range is consistent with the net book value provided in the investment cost summary for the Stampede facility.

Income Method

As of February 15, 2017, it is expected that the Dakota Access pipeline will be completed by Q2‐2017 in light the U.S. Corp of Engineers granting the necessary easement on February 8, 2017. Additionally the Keystone pipeline has announced the restart of the permitting process with President Trump’s support. The Dakota Access pipeline reportedly has over 400,000 bpd of commitments (and a 550,000 bpd capacity) which combined with the current 851,000 bpd non‐rail crude takeaway capacity of the region will create a surplus of non‐rail takeaway capacity until at least Q4, 2021 and probably much closer to 2026, based upon the North Dakota Pipeline Authority’s most recent production forecasts.

Even without this additional takeaway capacity, the CBR transportation demand has reduced to about 2‐ 4 trains per day currently. North Dakota’s crude production dropped substantially in the latest production report (December 2016) to less than 943,000 barrels per day. Any crude that needs to be transported by rail appears to be split between 5 to 6 active CBR facilities each capable of at least a train a day creating intense competition and driving margins down to breakeven cashflow levels. As crude prices rebound, production should start to pick tup bu that is already factored into the ND Pipeline Authority forecasts as shown by the approximate 1 mmbpd by the end of 2017 growing to 1.3 mmbpd by the end of 2021. Additionally once Dakota Access (and again Keystone) is completed, the competition from the pipelines to fill their underutilized capacity will tend to drive the local crude price up compared to the WTI and Brent benchmarks which will further disadvantage CBR which depends upon a wider spread to offset the transportation costs to move to the coastal markets.

Basin has seen not only declining throughputs over the past couple year (Basin is not forecasting any throughput volume for 2017) but the market rate for transloading services has reduced to about a third of what it was in 2013‐2014, due to the competition from the other facilities in the region. Some of the competitive facilities are actually owned by end customers (P66 – Palermo, Tesoro‐Fryburg, and Hess‐ Tioga) and others apparently have longer term take‐or‐‐pay commitments (Crestwood – Epping and Savage‐Trenton). These are the only facilities reportedly shipping trains on a regular basis at this time.

Basin Transload LLC ‐ Stampede Facility Property Tax Valuation Discussion February 15, 2017

Excerpt from Kringstad presentation to ND House Energy and Natural Resources on January 6, 2017

After suffering through negative cashflow performance in 2016, Basin has renegotiated its arrangement with Global to provide site security and market based storage services which provides for a breakeven cashflow budget forecast in 2017 and Basin continues to aggressively seek additional business.

Given the crude oil supply and demand expectations in the region for the next few years and breakeven cashflow forecasts, it is very unlikely a willing buyer would pay the Stampede site at even the comparable sales values seen above for the Stampede facility. A confidential schedule of Basin’s P&L information is attached for review.

Burke County GIS Parcel Map – Fay Twp – Sec 3

Basin Property

Basin Property Basin Land Used in Facility

Office, Shop & Apartment Building

Global Truck LACT and tank farm

Tracks N1 and access road on CP property

Tracks S1 and access road on CP property Tracks S5 & S6 and access road on CP property

Tracks S2, S3 & S4 and access roads

VCU System Office, Shop, Apartment Building

GT1 GT2 GT3 TRUCK LACT

Track N1 Track S1 CP Property

Track S2 Track S3 Track S4

UG Pipeline

Rail Loading Headers UG Vapor Pipeline Burke County GIS Parcel Map – Fay Twp – Sec 1

Basin Property

4 Cast-in place culvert on CP property

Tracks S5 & S6 and access road on CP property Stampede Facility Site Investment Cost Summary unaudited Completed Draft 2/15/2017 CONFIDENTIAL. In accordance with non‐disclosure agreement executed with Basin Transload, LLC. Comp. Indices Pickett Cost Methodology BASIN PROPERTY STAMPEDE 0.3000 Eco State Company City CatReCat Asset # Description Cost Reserve Impairment NBV w Impairment RCN Life Ser Present Worth Land Total 1,067,232.41 ‐ ‐ 1,067,232.41 Taxable 1,067,232.41 1.0000 1,067,232.41 Building Total 849,700.00 664,878.11 3,267.19 181,554.70 Taxable 865,929.21 25 0.3000 211,816.51 Site Improvements 2,617,140.40 1,676,749.80 607,260.44 333,130.16 Taxable 2,679,003.26 25 0.3000 661,593.68 Track Total 4,932,996.28 3,502,337.25 932,073.74 498,585.29 Taxable 5,064,225.37 25 0.3000 1,232,411.66 PME Total Mach & Equip Used In Trade 2,680,656.43 1,634,264.46 673,857.75 372,534.22 Not ‐ NT M Equip Total Mobile Equipment 2,498,242.19 1,276,152.99 786,526.87 435,562.33 Not ‐ NT E Equip Total Electronic Equipment 102,543.72 58,705.17 33,770.84 10,067.71 Not ‐ NT Furn Total Furniture 51,065.20 31,525.02 18,841.84 698.34 Not ‐ NT Trucks Total Trucks / Vehicle 131,121.00 64,182.57 49,640.18 17,298.25 Not ‐ NT Removed Total Removed Items 569,645.68 345,668.91 144,037.66 79,939.11 Not ‐ NT Intangible Total Not Tangible Property 1,342,573.91 428,131.99 579,526.30 334,915.62 Not ‐ NT Basin Investment on Parcels 16,842,917.23 9,682,596.28 3,828,802.82 3,331,518.13 9,676,390.25 3,173,054.26

CP PROPERTY STAMPEDE State Company City CatReCat Asset # Description Cost Reserve Impairment NBV w Impairment RCN Life Ser Present Worth Site Improvements 4,374,848.73 1,530,608.35 1,804,594.16 1,039,646.22 Taxable 4,380,008.31 25 0.3000 1,177,405.97 Track Construction Total 1,370,538.20 852,813.59 333,324.27 184,400.34 Taxable 1,419,115.36 25 0.3000 339,242.02 Track Materials Total Basin Personal Property 4,421,014.82 2,409,159.11 1,287,559.65 724,296.05 Not ‐ NT Removed Total Removed Items 477,339.12 356,465.43 79,164.85 41,708.83 Not ‐ NT Investment on CP Property 10,643,740.87 5,149,046.49 3,504,642.94 1,990,051.44 5,799,123.67 1,516,647.99 TOTAL BASIN STAMPEDE INVESTMENT 27,486,658.09 14,831,642.77 7,333,445.76 5,321,569.57 15,475,513.92 4,689,702.25

GLOBAL STAMPEDE State Company City CatReCat Asset # Description Cost Reserve Impairment NBV w Impairment RCN Life Ser Present Worth Building Total 362,685.00 300,541.26 45,586.35 16,557.39 Taxable 369,612.26 25 0.3000 90,411.52 Site Improvements 3,871,208.52 2,138,116.46 1,059,846.08 673,245.98 Taxable 3,901,587.16 25 0.3000 1,006,225.19 AST Total GLP Personal Property 6,484,811.41 3,272,063.24 2,250,854.04 961,894.13 Not ‐ NT PME Total Mach & Equip Used In Trade 5,979,972.72 3,549,812.59 1,635,797.16 794,362.97 Not ‐ NT M Equip Total GLP Personal Property 75,230.05 57,487.47 12,772.26 4,970.32 Not ‐ NT Intangible Total Not Tangible Property 765,322.43 606,247.57 98,724.24 60,350.63 Not ‐ NT GLOBAL STAMPEDE INVESTMENT 17,539,230.13 9,924,268.59 5,103,580.13 2,511,381.41 4,271,199.42 1,096,636.72

TOTAL STAMPEDE 45,025,888.23 24,755,911.36 12,437,025.89 7,832,950.98 19,746,713.34 5,786,338.97 Taxable Categories 19,446,349.55 10,666,044.83 4,785,952.24 3,994,352.48 Taxable Non‐Taxable Categories 25,579,538.67 14,089,866.53 7,651,073.64 3,838,598.51 Not Stampede Facility - Investment Account Descriptions

Basin Transload investment items on Basin Transload property:

Land: 10 taxable parcels listed by Burke County. Building: • 60’ x 90’ office, shop and apartment building and • Associated boiler system Site Improvements: • Burke Divide connections and on-site electrical utility distribution, • Water well, • Site access roads • VCU foundation ~ 12’ x 35’ • Pump foundation ~16’ x 16’ • Pipe supports (steel embed & stations) & foundations (generally 2’ diameter piers) , and • Underground piping ~ 1,430 lf Track: • Tracks located on Basin Property: o S2 ~ 4,021 track feet o S3 ~ 3,555 track feet o S4 ~ 4,641 track feet

PME: personal property - machinery and equipment used in trade, i.e. • Crude pumps and piping from tanks • Rail loading header system • Vapor collection header system • VCU system • System instrumentation and controls M Equip: personal property - mobile equipment, i.e. • Mobile rail car meter and loading trailers • Trackmobile • Office trailer and storage containers • Heavy equipment – FEL, blade, bobcats, tractor, roller, tamper, telehandler, etc. • Portable pressure washer • Trailer mounted and portable generators • Trailer mounted air compressor E Equip: personal property - electronic equipment, i.e. • Computers • Camera system • Radios • RVP analyzer Furn: personal property – furniture, i.e. • Apartment furniture • Office furniture • Televisions

Stampede Facility - Investment Account Descriptions

Trucks: personal property – vehicles, i.e. • Pickups • Water truck Removed: non-tangible / retired investment i.e. • Old grain elevator • Construction costs of track removed ~ 1,764 track feet • Underground vapor piping abandoned • Road removed – material donated to county • Electrical distribution abandoned Intangible: non-tangible expenses i.e. • Engineering expenses • Canadian Pacific fees • Cash donation to county

Basin Transload investment items on CP property:

Site Improvements: • Rail grade development • Access road development • Cast in place concrete culvert • Underground piping crossing CP property ~ 995 lf Track Construction: • Construction costs for building tracks S1, S2, S4, S5 and S6 on CP property

Track Materials: Basin personal property • Cost of rail building materials for tracks S1, S2, S4, S5 and S6 on CP property • S1 ~ 5,897 track feet • S2 ~ 315 track feet • S4 ~ 1,091 track feet • S5 ~ 10,332 track feet • S6 ~ 10,615 track feet Removed: non-tangible / retired investment, i.e. • Construction cost of track removed from CP property ~ 4,915 track feet

Stampede Facility - Investment Account Descriptions

Global investment on Basin Transload property:

Building: • Truck LACT Canopy – 60’ x 270’ Site Improvements: • Burke Divide connections and on-site electrical utility distribution, • Tank area containment ~43,000 cy • Tank foundations for GT1, GT2 and GT3 • Truck LACT area containment foundation and sump • Pipe supports (steel embed & stations) & foundations (generally 2’ diameter piers) , and • Roads and paving

AST: Global personal property - above ground crude storage tanks located on Basin property • GT1 – 120’ diameter ~100,000 bbl shell capacity • GT2 – 145’ diameter ~176,000 bbl shell capacity • GT3 – 145’ diameter ~176,000 bbl shell capacity PME: Global personal property - machinery and equipment used in trade, i.e. • 8 - Truck receiving meter and pump skids • Piping from truck LACTs and pipeline receiving stations to tanks • Foam fire protection system & piping to tanks • System instrumentation and controls M Equip: Global personal property - mobile equipment, i.e. • Emergency response trailer • Office trailer and storage containers • Portable pressure washer Intangible: Global non-tangible expenses i.e.: • Tank 1 hydro testing • Engineering support • Meter proving • Donation to Columbus VFD

Basin Transload LLC Segmented PnL Report - unaudited CONFIDENTIAL Stampede Transload Facility

Period 2010 2011 2012 Jan‐13 Calendar Year Calendar Year Calendar Year Month only

Loaded barrels 5,311,076 608,036

Total Income 191,244.06 1,621,485.03 8,467,390.34 965,753.23

Stampede Expenses Labor Related $ 35,572 $ 840,202 $ 2,504,284 $ 273,675 Operating Costs $ 17,710 $ 47,148 $ 152,559 $ 202,364 Fixed Costs $ 496 $ 10,454 $ 87,306 $ 7,317 $ 53,778 $ 897,804 $ 2,744,149 $ 483,356

EBITDA $ 137,466 $ 723,681 $ 5,723,242 $ 482,397

Depreciation & Impairment Losses $ ‐ $ ‐ $ ‐ $ ‐

Earnings Before Income Taxes $ 137,466 $ 723,681 $ 5,723,242 $ 482,397

Page 1 of 6 Basin Transload LLC Segmented PnL Report - unaudited CONFIDENTIAL Stampede Transload Facility

GL Pivot BU 2401 Stampede Terminal JAN‐13 FEB‐13 MAR‐13 APR‐13 MAY‐13 JUN‐13 JUL‐13 AUG‐13 SEP‐13 OCT‐13 NOV‐13 DEC‐13 CY 2013 Loaded barrels 608,036 698,619 835,101 942,618 622,806 746,914 493,892 583,941 842,534 1,105,118 1,401,401 1,406,547 10,287,527

Sum of Accounted Net Account Description JAN‐13 FEB‐13 MAR‐13 APR‐13 MAY‐13 JUN‐13 JUL‐13 AUG‐13 SEP‐13 OCT‐13 NOV‐13 DEC‐13 CY 2013 Total Site Revenue 912,054$ $ 1,047,929 $ 1,252,652 $ 1,413,927 $ 934,209 $ 1,090,371 $ 740,838 $ 875,912 $ 1,263,801 $ 1,657,677 $ 2,102,102 $ 2,109,821 $ 15,401,291

Stampede Expenses Labor Related $ ‐ $ 227,060 $ 298,765 $ 338,047 $ 398,379 $ 395,623 $ 494,912 $ 993,399 $ 287,055 $ 575,945 $ 561,590 $ 1,949,535 $ 6,520,310 Operating Costs $ ‐ $ 35,607 $ 146,282 $ 106,132 $ 213,802 $ 112,901 $ 41,334 $ (94,158) $ 135,169 $ 187,139 $ 491,525 $ 146,832 $ 1,522,567 Fixed Costs $ ‐ $ 20,143 $ 18,567 $ 36,850 $ 28,041 $ 19,843 $ 34,311 $ 8,491 $ 92,862 $ 39,812 $ 28,264 $ 55,594 $ 382,778 $ ‐ $ 282,811 $ 463,615 $ 481,029 $ 640,221 $ 528,367 $ 570,557 $ 907,732 $ 515,087 $ 802,895 $ 1,081,379 $ 2,151,960 $ 8,425,654

EBITDA 912,054$ $ 765,118 $ 789,037 $ 932,898 $ 293,988 $ 562,004 $ 170,281 $ (31,820) $ 748,714 $ 854,782 $ 1,020,722 $ (42,140) $ 6,975,636

Depreciation & Impairment Losses $ ‐ $ 692,018 $ 372,522 $ 692,919 $ 692,994 $ 213,427 $ 693,495 $ 693,853 $ 213,402 $ 761,741 $ 3,710,583 $ 983,744 $ 9,720,698

Earnings Before Income Taxes 912,054$ $ 73,100 $ 416,515 $ 239,979 $ (399,007) $ 348,576 $ (523,214) $ (725,673) $ 535,312 $ 93,040 $ (2,689,861) $ (1,025,884) $ (2,745,062)

Page 2 of 6 Basin Transload LLC Segmented PnL Report - unaudited CONFIDENTIAL Stampede Transload Facility

GL Pivot BU 2401 Stampede Terminal JAN‐14 FEB‐14 MAR‐14 APR‐14 MAY‐14 JUN‐14 JUL‐14 AUG‐14 SEP‐14 OCT‐14 NOV‐14 DEC‐14 CY 2014 Loaded barrels 1,296,020 963,640 919,989 1,184,392 1,172,628 1,567,072 1,216,977 1,579,427 1,386,676 1,517,792 1,381,053 1,432,095 15,617,761

Sum of Accounted Net Account Description JAN‐14 FEB‐14 MAR‐14 APR‐14 MAY‐14 JUN‐14 JUL‐14 AUG‐14 SEP‐14 OCT‐14 NOV‐14 DEC‐14 CY 2014 Total Site Revenue $ 1,958,696 $ 1,502,048 $ 1,368,465 $ 1,751,523 $ 1,856,504 $ 2,459,815 $ 2,821,882 $ 2,486,383 $ 2,109,149 $ 2,161,869 $ 2,193,931 $ 1,934,461 $ 24,604,726

Stampede Expenses Labor Related $ 728,856 $ 431,457 $ 575,426 $ 621,732 $ 551,234 $ 708,631 $ 587,695 $ 526,902 $ 607,188 $ 646,922 $ 628,327 $ 760,996 $ 7,375,366 Operating Costs $ 79,838 $ 151,286 $ 96,572 $ 120,514 $ 75,880 $ 77,817 $ 133,887 $ 156,904 $ 107,828 $ 82,607 $ 150,077 $ 73,514 $ 1,306,723 Fixed Costs $ 29,072 $ 31,637 $ 23,199 $ 120,371 $ 56,086 $ (24,452) $ 55,348 $ 58,298 $ 15,719 $ 49,114 $ 45,718 $ 39,618 $ 499,727 $ 837,766 $ 614,380 $ 695,197 $ 862,618 $ 683,200 $ 761,996 $ 776,930 $ 742,104 $ 730,734 $ 778,642 $ 824,121 $ 874,128 $ 9,181,816

EBITDA $ 1,120,930 $ 887,668 $ 673,269 $ 888,905 $ 1,173,304 $ 1,697,819 $ 2,044,953 $ 1,744,279 $ 1,378,414 $ 1,383,227 $ 1,369,809 $ 1,060,333 $ 15,422,910

Depreciation & Impairment Losses$ 873,207 $ 872,684 $ 872,684 $ 884,051 $ 884,711 $ 884,881 $ 886,572 $ 872,319 $ 886,702 $ 888,132 $ 899,696 $ 942,481 $ 10,648,119

Earnings Before Income Taxes $ 247,723 $ 14,984 $ (199,415) $ 4,854 $ 288,592 $ 812,938 $ 1,158,381 $ 871,960 $ 491,713 $ 495,095 $ 470,113 $ 117,852 $ 4,774,791

Page 3 of 6 Basin Transload LLC Segmented PnL Report - unaudited CONFIDENTIAL Stampede Transload Facility

GL Pivot BU 2401 Stampede Terminal JAN‐15 FEB‐15 MAR‐15 APR‐15 MAY‐15 JUN‐15 JUL‐15 AUG‐15 SEP‐15 OCT‐15 NOV‐15 DEC‐15 CY 2015 Loaded barrels 1,022,645 821,720 1,307,475 1,173,142 1,167,756 847,514 885,975 986,407 928,595 830,069 820,716 646,305 11,438,319

Sum of Accounted Net Account Description JAN‐15 FEB‐15 MAR‐15 APR‐15 MAY‐15 JUN‐15 JUL‐15 AUG‐15 SEP‐15 OCT‐15 NOV‐15 DEC‐15 CY 2015 Total Site Revenue 1,539,023.19 876,374.78 1,446,976.93 1,717,511.12 1,447,898.42 1,170,009.44 1,174,646.24 1,259,904.51 1,185,329.19 1,119,743.38 1,110,202.77 792,275.88 14,839,895.85

Stampede Expenses Labor Related $ 541,894 $ 485,470 $ 612,924 $ 627,077 $ 557,583 $ 446,079 $ 443,092 $ 496,592 $ 286,890 $ 479,904 $ 389,386 $ 386,061 $ 5,752,951 Operating Costs $ 101,971 $ 86,042 $ (1,236) $ 118,259 $ 64,099 $ 116,555 $ 138,809 $ 44,348 $ 53,835 $ 52,851 $ 66,912 $ 245,322 $ 1,087,767 Fixed Costs $ 54,713 $ 28,703 $ 39,875 $ 29,674 $ 37,490 $ 42,855 $ 45,287 $ 43,688 $ 39,135 $ 64,649 $ 45,059 $ 84,417 $ 555,544 $ 698,578 $ 600,216 $ 651,562 $ 775,009 $ 659,172 $ 605,489 $ 627,188 $ 584,628 $ 379,859 $ 597,403 $ 501,357 $ 715,801 $ 7,396,262

EBITDA $ 840,445 $ 276,159 $ 795,415 $ 942,502 $ 788,727 $ 564,521 $ 547,459 $ 675,276 $ 805,470 $ 522,340 $ 608,846 $ 76,475 $ 7,443,634

Depreciation & Impairment Loss $ 914,079 $ 927,330 $ 933,204 $ 427,730 $ 355,208 $ 458,883 $ 355,986 $ 482,814 $ 483,815 $ 484,730 $ 485,707 $ 485,403 $ 6,794,889

Earnings Before Income Taxes $ (73,634) $ (651,171) $ (137,790) $ 514,772 $ 433,519 $ 105,637 $ 191,472 $ 192,462 $ 321,655 $ 37,610 $ 123,140 $ (408,927) $ 648,745

Page 4 of 6 Basin Transload LLC Segmented PnL Report - unaudited CONFIDENTIAL Stampede Transload Facility

GL Pivot BU 2401 Stampede Terminal Jan‐16 Feb‐16 Mar‐16 Apr‐16 May‐16 Jun‐16 Jul‐16 Aug‐16 Sep‐16 Oct‐16 Nov‐16 Dec‐16 CY 2016 Loaded barrels 670,326 809,971 634,368 285,861 0 720 115,143 0 126,746 0 0 0 2,643,134

Sum of Accounted Net Account Description Jan‐16 Feb‐16 Mar‐16 Apr‐16 May‐16 Jun‐16 Jul‐16 Aug‐16 Sep‐16 Oct‐16 Nov‐16 Dec‐16 CY 2016 Total Site Revenue 797,340.85 594,781.09 438,023.05 237,790.19 121,984.03 31,819.57 59,555.93 24,397.70 304,764.49 213,933.15 26,421.50 87,323.95 2,938,135.50

Stampede Expenses Labor Related $ 295,044 $ 273,041 $ 329,311 $ 257,465 $ 197,601 $ 191,892 $ 196,862 $ 74,288 $ 111,466 $ 87,004 $ 84,100 $ 82,837 $ 2,180,909 Operating Costs $ 75,304 $ 40,238 $ 52,799 $ 8,875 $ 26,133 $ 30,091 $ 18,336 $ 53,315 $ 20,783 $ 47,908 $ 38,558 $ (749) $ 411,592 Fixed Costs $ 76,883 $ 35,437 $ 7,387 $ 37,598 $ 33,664 $ 33,082 $ 37,450 $ 30,053 $ 30,928 $ 59,618 $ 36,801 $ 95,007 $ 513,907 $ 447,231 $ 348,716 $ 389,496 $ 303,938 $ 257,398 $ 255,065 $ 252,648 $ 157,656 $ 163,178 $ 194,530 $ 159,459 $ 177,095 $ 3,106,409

EBITDA $ 350,110 $ 246,066 $ 48,527 $ (66,148) $ (135,414) $ (223,245) $ (193,092) $ (133,258) $ 141,587 $ 19,403 $ (133,037) $ (89,771) $ (168,273)

Depreciation & Impairment Losses $ 480,945 $ 483,481 $ 483,481 $ 483,065 $ 483,065 $ 482,315 $ 482,315 $ 482,315 $ 10,939,290 $ 11,681 $ 198,160 $ 198,160 $ 15,208,272

Earnings Before Income Taxes $ (130,835) $ (237,416) $ (434,954) $ (549,213) $ (618,479) $ (705,560) $ (675,407) $ (615,573) $ (10,797,703) $ 7,722 $ (331,198) $ (287,931) $ (15,376,546)

Page 5 of 6 Stampede 2017 Operational Budget DRAFT Currency: USD 1/27/2017 CO=78 (BASIN TRANSLOAD, LLC) PERIOD Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 TOTAL ACCOUNT ‐ DETAILS Actual Actual Actual Actual Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast 2017 Budget BASIN‐STAMPEDE Crude Oil Shipped ------‐

REVENUE 121,533 106,372 110,450 109,091 110,450 109,091 110,450 110,450 109,091 110,450 109,091 110,450 1,326,971

Stampede Expenses Labor Related $ 90,046 $ 79,724 $ 79,724 $ 78,813 $ 66,566 $ 66,549 $ 79,026 $ 66,530 $ 66,530 $ 81,104 $ 68,375 $ 70,514 $ 893,501 Operating Costs $ 23,533 $ 20,831 $ 20,831 $ 25,033 $ 20,831 $ 21,331 $ 23,533 $ 20,831 $ 22,331 $ 23,533 $ 20,831 $ 21,331 $ 264,777 Fixed Costs $ 30,542 $ 31,642 $ 32,742 $ 35,142 $ 31,392 $ 33,692 $ 31,392 $ 30,542 $ 30,542 $ 30,542 $ 30,542 $ 30,542 $ 379,255 $ 144,121 $ 132,197 $ 133,297 $ 138,988 $ 118,789 $ 121,572 $ 133,951 $ 117,903 $ 119,403 $ 135,179 $ 119,748 $ 122,387 $ 1,537,533

EBITDA $ (22,588) $ (25,825) $ (22,847) $ (29,897) $ (8,338) $ (12,481) $ (23,501) $ (7,453) $ (10,312) $ (24,728) $ (10,657) $ (11,936) $ (210,562)

Depreciation & Impairment Losses$ 198,400 $ 198,400 $ 198,400 $ 198,400 $ 198,400 $ 198,400 $ 198,400 $ 198,400 $ 198,400 $ 198,400 $ 198,400 $ 198,400 $ 2,380,803

Earnings Before Income Taxes $ (220,988) $ (224,226) $ (221,247) $ (228,297) $ (206,738) $ (210,881) $ (221,901) $ (205,853) $ (208,712) $ (223,128) $ (209,057) $ (210,337) $ (2,591,365)

Page 6 of 6

Exhibit D Ray Sheldon

From: Kris Hillaert Sent: Tuesday, March 21, 2017 3:47 PM To: Ray Sheldon Subject: RE: Fay township property tax meeting Attachments: img584.pdf

Hello Ray,

Attached is the appraisals for Basin Transload. I have also included the notices of increase. They will be put into the mail tomorrow.

Please let me know if you have any questions.

Thank you,

Kris Hillaert Burke County Tax Director P.O. Box 174 Bowbells, ND 58721 (701) 377-2661 Fax: (701) 377-2020

From: Ray Sheldon [mailto:[email protected]] Sent: Tuesday, March 21, 2017 4:04 PM To: Kris Hillaert ([email protected]) Subject: Fay township property tax meeting

CAUTION: This email originated from an outside source. Do not click links or open attachments unless you know they are safe.

Kris, Do you have a schedule for Fay Township property tax meeting yet? Thanks,

Ray W. Sheldon, PE General Manager Basin Transload, LLC 3529 Gabel Road Billings, MT 59102 [email protected] 406/855‐5008

Exhibit E

Exhibit F Basin Transload LLC

Property Tax Appeal Burke County Equalization June 6, 2017 Basin’s Issues With Pickett Appraisal

• Failed to properly exclude non‐taxable property • Assessed same property to both Basin Transload and Soo Line (CP) • Failed to acknowledge significant impairment incurred in 2016 • Did not acknowledge 2 of the 3 methods of valuation –only manipulated the cost information provided by the company. • Why different asset life period for assets all related to the same business? • Why different Eco factors by party for related business activity? • Why different Ser factors by party for selected property categories?

2 Basin’s Requested Actions

• Properly exclude personal property categories • Eliminate Soo Line assessment duplicated from Basin Transload • Reduce values for required impairment incurred in 2016 • Include all 3 appraisal methods in the valuation process • Use economic obsolescence factors appropriate for historical & anticipated business margins • Use asset life periods appropriate for Basin’s business assets

3 4 Track Locations ~30,650 TF on CP property ~12,217 TF on Basin property

5 Cost Information Provided To Pickett

6 Property Descriptions Provided To Pickett

7 Under North Dakota property tax law:

• Real Property is taxable and personal property is not taxable • Real property generally includes land, improvements, structures and buildings. See NDCC 57‐02‐04 • Personal property is all other property. See NDCC 57‐02‐05.1 • “Items which fall into the questionable area between real and personal property, such as industrial machinery and equipment are not taxable.” Am. Crystal Sugar Co., 2006 ND 118, ¶ 19, 714 N.W.2d 851

8 Pickett Cost Based Appraisal – Basin Transload

Building Total √

Site Improvements √ Track Total √ Intangible X

On CP Property Site Improvements √ Track Construction √ Track Materials X

PME Total –Not X

Why Engineering expenses Crude pumps & piping different CP fees Rail loading equipment asset County donations Vapor control equipment lifes? Instrumentation & controls

9 Pickett Cost Based Appraisal –Soo Line (CP)

Why different Eco factors?

10 Pickett Cost Based Appraisal ‐ Global

Building Total √

Site Improvements √ AST Total –Not X PME Total –Not X Intangible X

Why different factors?

11 CBR & Basin Transload Trends 2010 ‐ 2017 ND Production, Regional Takeaway and CBR Spread 1,400,000 $30.00

1,200,000 Excess $25.00 Capacity

1,000,000 $20.00

800,000 $15.00

Basin margin collapse 600,000 Capacity $10.00 shortfall

400,000 Basin volume $5.00 reduction

200,000 $‐

‐ $(5.00) ‐17 ‐17 ‐17 ‐17 ‐16 ‐16 ‐16 ‐16 ‐15 ‐15 ‐15 ‐15 ‐14 ‐14 ‐14 ‐14 ‐13 ‐13 ‐13 ‐13 ‐12 ‐12 ‐12 ‐12 ‐11 ‐11 ‐11 ‐11 ‐10 ‐10 ‐10 ‐10 Jul Jul Jul Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan Jan Jan Oct Oct Oct Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Apr Apr Apr

ND Production ‐ BPD Regional Takeaway ‐ BPD Basin's Volume BPD x10 CBR Spread ‐ $/bbl Forecast Spread ‐ $/bbl Basin's CF margin 12 Basin 2016 Impairment • FASB requires the recognition of the impairment of long‐lived assets whenever events or changes in circumstances indicate that the net book value may not be recoverable. • This determination is made by comparing the undiscounted expected future cashflows to the net book value. • All book value that can not be expected to be recovered from future cashflow (without discounting or interest charges) must be expensed in the current period and the net book value reduced. • In 2016, the Stampede facility total net book value was required to be impaired to $7,832,951 including all non‐taxable items as of 1/1/17.

13 Market Comparisons • Jan ‘16 ‐ Tesoro Acquisition of 154,000 bpd Fryburg terminal • Included 97 mile pipeline, 28 mile gathering system, 657,000 bbl storage • Less than $9 million total inferred from Tesoro financial reports • Jan ‘17 ‐ BioUrja Acquisition of 80,000 bpd New Town terminal • Included 750,000 ton per year frac sand facility and 270,000 bbl storage • $10.85 million public auction sale price • Current Listing for Berthold Sand Terminal • Includes rail to truck loading system with 24 sand silos totaling 6,000 tons • Asking price of $6 million • These comparisons adjusted to track and storage only show a market value range for an 80,000 bpd CBR facility from $3.6 to $7.0 million

14 Economic Obsolescence (EO) EO is inherent in the income and sales comparison approaches but must be considered, analyzed, and deducted in the cost approach.

Replacement Cost New Less Physical Deterioration

Less Functional Obsolescence Inutility Gross Margin Analysis (GMA) Less Economic Obsolescence Other Forms of Asset Specific EO Equals Fair Market Value Business Earnings EO

Sytsma, C.M. & Baumann, C.T., “Economic Obsolescence” American Society of Appraisers, Savannah, GA, Sep. 14‐17, 2014 15 Possible Reasons for Economic Obsolescence

• Weakness in economics of the industry • Loss of material and/or labor sources • Passage of new legislation • Changes in ordinances • Increased cost of raw materials, labor or utilities • Reduced demand for the products / services • Increased competition • High interest rates • Unavailability of financing

16 Estimates of Economic Obsolescence

1 – Underutilized Capacity 1 ‐ (2.0 / 18.25) = 89.04% 2 – Inutility 1 –(2.0 /18.25)^0.6 = 73.46%* 3 –Gross Margin 1 – {[(2.94‐2.59)/2.94] * [1 – (2.64/18.25)]} = 89.94%* 4 – Operating Leverage 1.12 x 85.52% x 1.12 = 107.27% 84.15% “Estimates 2 & 3 would be given the most weight in an analysis and an economic obsolescence percentage of 80% would be expected based on the current and projected production at the subject property as well as the overall state of the crude by rail industry.”

Update of the economic obsolescence attributed to the Basin Transload Facility in Stampede, North Dakota for February 1, 17 2017, Valbridge letter dated June 2, 2017. Basin’s Requested Actions

• Properly exclude personal property categories • Eliminate Soo Line assessment (duplicated from Basin Transload) • Reduce values for required impairment incurred in 2016 • Include all 3 appraisal methods in the valuation process • Use economic obsolescence factors appropriate for historical & anticipated business margins • Use asset life periods appropriate for Basin’s business assets

18 Estimated Valuation Provided Feb ‘17

Exhibit G Investment Information Provided To Burke County and T.Y. Pickett –Feb ‘17

Stampede Facility Site Investment Cost Summary Completed Draft unaudited 2/15/2017 BASIN PROPERTY STAMPEDE Investment Category Description Cost Reserve Impairment NBV w Impairment Land Total 1,067,232.41 ‐ ‐ 1,067,232.41 Taxable Building Total 849,700.00 664,878.11 3,267.19 181,554.70 Taxable Site Improvements 2,617,140.40 1,676,749.80 607,260.44 333,130.16 Taxable Track Total 4,932,996.28 3,502,337.25 932,073.74 498,585.29 Taxable PME Total Mach & Equip Used In Trade 2,680,656.43 1,634,264.46 673,857.75 372,534.22 Not M Equip Total Mobi le Equipment 2,498,242.19 1,276,152.99 786,526.87 435,562.33 Not E Equip Total Electronic Equipment 102,543.72 58,705.17 33,770.84 10,067.71 Not Furn Total Furniture 51,065.20 31,525.02 18,841.84 698.34 Not Trucks Total Trucks / Vehicle 131,121.00 64,182.57 49,640.18 17,298.25 Not Removed Total Removed Items 569,645.68 345,668.91 144,037.66 79,939.11 Not Intangible Total Not Tangible Property 1,342,573.91 428,131.99 579,526.30 334,915.62 Not Basin Investment on Parcels 16,842,917.23 9,682,596.28 3,828,802.82 3,331,518.13

CP PROPERTY STAMPEDE ReCat Description Cost Reserve Impairment NBV w Impairment Site Improvements 4,374,848.73 1,530,608.35 1,804,594.16 1,039,646.22 Taxable Track Construction Total 1,370,538.20 852,813.59 333,324.27 184,400.34 Taxable Track Materials Total Basin Personal Property 4,421,014.82 2,409,159.11 1,287,559.65 724,296.05 Not Removed Total Removed Items 477,339.12 356,465.43 79,164.85 41,708.83 Not Investment on CP Property 10,643,740.87 5,149,046.49 3,504,642.94 1,990,051.44 TOTAL BASIN STAMPEDE INVESTMENT 27,486,658.09 14,831,642.77 7,333,445.76 5,321,569.57

GLOBAL STAMPEDE ReCat Description Cost Reserve Impairment NBV w Impairment Building Total 362,685.00 300,541.26 45,586.35 16,557.39 Taxable Site Improvements 3,871,208.52 2,138,116.46 1,059,846.08 673,245.98 Taxable AST Total GLP Personal Property 6,484,811.41 3,272,063.24 2,250,854.04 961,894.13 Not PME Total Mach & Equip Used In Trade 5,979,972.72 3,549,812.59 1,635,797.16 794,362.97 Not M Equip Total GLP Personal Property 75,230.05 57,487.47 12,772.26 4,970.32 Not Intangible Total Not Tangible Property 765,322.43 606,247.57 98,724.24 60,350.63 Not GLOBAL STAMPEDE INVESTMENT 17,539,230.13 9,924,268.59 5,103,580.13 2,511,381.41

TOTAL STAMPEDE INVESTMENT 45,025,888.23 24,755,911.36 12,437,025.89 7,832,950.98 Taxable Categories 19,446,349.55 10,666,044.83 4,785,952.24 3,994,352.48 Taxable Non‐Taxable Categories 25,579,538.67 14,089,866.53 7,651,073.64 3,838,598.51 Not

1 Pickett Cost Based Appraisal – Basin Transload

Building Total Exact costs √ provided by Basin Site Improvements √ Track Total √ Intangible X

On CP Property Site Improvements √ Track Construction √ Track Materials X

PME Total –Not X

Why different Donations Crude pumps & piping Engineering studies Rail loading equipment factors? CP fees Vapor control equipment Integrity Testing Instrumentation & controls

1 Pickett Appraisal – Global & Soo Line

Building Total Exact costs √ provided Why by Basin different Site Improvements √ factors? AST Total X PME Total X Intangible X

Why different factors?

2 CBR & Basin Transload Trends 2010 ‐ 2017 ND Production, Regional Takeaway and CBR Spread 1,400,000 $30.00

1,200,000 Excess $25.00 Capacity

1,000,000 $20.00

800,000 $15.00

Basin margin collapse 600,000 Capacity $10.00 shortfall

400,000 Basin volume $5.00 reduction

200,000 $‐

ND Production ‐ BPD Regional Takeaway ‐ BPD Basin's Volume BPD x10 CBR Spread ‐ $/bbl Forecast Spread ‐ $/bbl Basin's CF margin 3