1BEFORE THERAILROAD COMMISSION OF TEXAS

NEWARK, EAST (BARNETT SHALE) FIELDDALLAS COUNTY, TEXAS

FEBRUARY 1, 2011

REPORTED BY: DAVE HOWARD, CSR

DAVE HOWARD, CSR

21 BEFORE THERAILROAD COMMISSION OF TEXAS

234 RE: THE APPLICATION OF CHESAPEAKE ) OIL AND GAS

OPERATING, INC. FOR AN EXCEPTION TO )5 STATEWIDE RULE 37 FOR THE BARNES ) DOCKET NO.

ASSEMBLY "A" LEASE, WELL NO. 3-H, )6 NEWARK, EAST (BARNETT SHALE) FIELD, )

DALLAS COUNTY, TEXAS ) 0267504789

******************************************************10

BEFORE: EXAMINER MARSHALL ENQUIST11 EXAMINER DONNA CHANDLER12 FEBRUARY 1, 201113 ******************************************************14151617 BE IT REMEMBERED THAT THE ABOVE-CAPTIONED matter18 came on for hearing on February 1, 2011, and was19 reported by Dave Howard, Certified Shorthand Reporter20 in and for the State of Texas, reported by computerized21 stenotype machine in the 12th Floor Hearing Room at the22 William B. Travis State Office Building, 1701 N.23 Congress Avenue, Austin, Texas 78701.2425

DAVE HOWARD, CSR

31 A P P E A R A N C E S234 FOR CHESAPEAKE OPERATING, INC.:5

BY: MR. GLENN JOHNSON6 KELLY, HART & HALLMAN P.C.

301 S. Congress Ave, Suite 20007 Austin, Texas 78746

(512) 495-640089 BY: MR. RAY OUJESKY

CHESAPEAKE OPERATING, INC.10 100 Energy Way

Fort Worth, Texas 7610211 (817) 502-50111213 ALSO APPEARING:14 MR. DAVID C. TRIANA15 MR. BILL G. SPENCER16 MR. ISAAC JACOBSON17 MR. ALAN JACKSON18 MR. DAVE HENSON19 MR. BRIAN BOERNER20 MS. ALLYSON VISTICA2122232425

DAVE HOWARD, CSR

41 A P P E A R A N C E S (Continued)234 FOR PROTESTANT AL SHARIF:5

BY: MR. LOUIS MCBEE6 NORTH CENTRAL TEXAS COMMUNITIES ALLIANCE

2320 Oakland Blvd. #117 Fort Worth, Texas 76103

(817) 312-202389

PROTESTANTS REPRESENTING SELF:1011 MR. CASEY HARRIS

4721 Goodnight Ct.12 Grand Prairie, Texas 75052

(214) 697-89611314 MS. BILLIE HARRIS

4718 Goodnight Ct.15 Grand Prairie, Texas 75052

(214) 263-69021617 MR. SCOTT A. COOK

4702 Chalk Ct.18 Grand Prairie, Texas 75052

(972) 522-01091920 MS. NEVA JANE CARTER

2102 Chisholm Trail21 Grand Prairie, Texas 75052

(972) 641-250022232425

DAVE HOWARD, CSR

51 INDEX234 APPEARANCES....................................... 35

OPENING STATEMENT BY MR. JOHNSON.................. 276

OPENING STATEMENT BY MR. MCBEE.................... 3078 CASEY HARRIS

DIRECT NARRATIVE.............................. 129 CROSS-EXAMINATION BY MR. OUJESKY.............. 137

10NEVA JANE CARTER

11 DIRECT NARRATIVE.............................. 13CROSS-EXAMINATION BY MR. OUJESKY.............. 130

1213 BILL G. SPENCER

DIRECT EXAMINATION BY MR. JOHNSON............. 3114 CROSS-EXAMINATION BY MR. MCBEE................ 69

REDIRECT EXAMINATION BY MR. JOHNSON........... 8915 RECROSS-EXAMINATION BY MR. MCBEE.............. 91

FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... 931617 ISAAC JACOBSON

DIRECT EXAMINATION BY MR. JOHNSON............. 381819 ALAN JACKSON

DIRECT EXAMINATION BY MR. JOHNSON............. 5120 CROSS-EXAMINATION BY MR. MCBEE................ 93

REDIRECT EXAMINATION BY MR. JOHNSON........... 9421 RECROSS-EXAMINATION BY MR. MCBEE.............. 95

FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... 9622 FURTHER RECROSS-EXAMINATION BY MR. MCBEE...... 97

FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... 98232425

DAVE HOWARD, CSR

61 INDEX (Continued)234 DAVID HENSON

DIRECT EXAMINATION BY MR. JOHNSON............. 565 CROSS-EXAMINATION BY MR. MCBEE................ 98

REDIRECT EXAMINATION BY MR. JOHNSON........... 1036 FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... 141

FURTHER RECROSS-EXAMINATION BY MR. MCBEE...... 1437 FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... 147

FURTHER RECROSS-EXAMINATION BY MR. MCBEE...... 1488 FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... 1489

LOUIS MCBEE10 VOIR DIRE EXAMINATION......................... 83

DIRECT NARRATIVE.............................. 10611 CROSS-EXAMINATION BY MR. JOHNSON.............. 1161213 CLOSING STATEMENT BY MR. MCBEE.................... 14914

CLOSING STATEMENT BY MR. JOHNSON.................. 1501516

REPORTER'S CERTIFICATE............................ 155171819202122232425

DAVE HOWARD, CSR

71 CHESAPEAKE EXHIBITS234 NO. DESCRIPTION MARKED REC'D5 1 ........................................ 32 33

W-1 Application6

2 ........................................ 34 347 Form P-128 3 ........................................ 35 37

RRC Final Order9

4 ........................................ 39 4010 Plat11 5 ........................................ 40 40

Tract Listing12

6 ........................................ 41 4113 Detail Plat14 7 ........................................ 42 44

Tabulation of Leasehold15

8 ........................................ 52 5316 Structure Contour Map17 9 ........................................ 54 55

One-Well Cross Section18

10 ....................................... 56 5619 Isopach Map20 11 ....................................... 58 60

Gas in Place Estimate21

12 ....................................... 60 6122 Gas Recovered Per Foot Estimate23 13 ....................................... 61 62

Plat24

14 ....................................... 64 6725 Unrecovered Reserve Analysis

DAVE HOWARD, CSR

81 PROTESTANTS EXHIBITS23

NO. DESCRIPTION MARKED REC'D4

Harris 1 ................................. 26 265 Statement of Casey Harris6 Carter 1 ................................. 26 26

Statement of Neva Jane Carter7

Cross 1 .................................. 70 878 Reprint from RRC Website, Well Permit9 Cross 2 .................................. 71 87

Reprint from RRC Website, Amended Permit10

Cross 3 .................................. 72 8711 Permit to Drill and Plat12 Cross 4 .................................. 78 87

Reprint from RRC Website, Well Pad Sites13

1 ........................................ 106 11614 Rule 37 Case, Enron Oil and Gas15 2 ........................................ 106 116

Rule 37 Case 025121616

3 ........................................ 108 11617 Rule 37 Case 02458691819202122232425

DAVE HOWARD, CSR

91 PROCEEDINGS2 FEBRUARY 1, 20113 * * * * *4 EXAMINER ENQUIST: All right. Good5 morning. It is about 10:00 a.m. on February 1st, 2011.6 My name is Marshall Enquist, hearings examiner. I am7 joined by Donna Chandler, technical examiner. Call to8 order Docket No. 0267504, the application of Chesapeake9 Operating, Inc. to consider an exception to Statewide

10 Rule 37 for the Barnes Assembly "A" Lease, Well No. 3-H11 in the Newark, East (Barnett Shale) Field, Dallas12 County, Texas.13 I have appearances on behalf of applicant14 by Glenn Johnson, Ray Oujesky, David Triana, Bill15 Spencer, Isaac Jacobson, Alan Jackson, David Henson,16 Brian Boerner, and Allyson Vistica. I have several17 protestants, Scott A. Cook, Louis McBee, Billie Harris,18 Casey Harris, and Neva Jane Carter. If you are going19 to give testimony, please raise your right hand.20 (WHEREUPON, THE WITNESSES WERE DULY21 SWORN.)22 EXAMINER ENQUIST: As just a preliminary23 matter, I have already called this hearing on tape this24 morning at 9:00 o'clock as scheduled but due to weather25 we had to wait for some parties to make it due to the

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1 traffic. And Mr. Howard also showed up to help us with2 his presence.3 The protestants, how do you plan to4 present your case? I mean, I have five appearance5 slips. Do you have a spokesperson or do you have five6 separate people that want to make statements? Exactly7 what are you planning to do.8 MR. MCBEE: My name is Louis McBee. I9 have some very specific issues that I plan to cover

10 with regard to well location and density and will be11 cross-examining Chesapeake's witnesses, as well, and12 offering some exhibits of my own.13 EXAMINER ENQUIST: Okay. So you plan to14 participate in the case?15 MR. MCBEE: Yes.16 EXAMINER ENQUIST: And are you17 representing the other people here, as well, or do they18 want to make separate statements?19 MR. MCBEE: They will make separate20 statements probably at the end of the hearing.21 EXAMINER ENQUIST: I was preferring to22 take those at the beginning.23 MR. MCBEE: Okay.24 EXAMINER ENQUIST: And you are here as a25 representative of what party?

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1 MR. MCBEE: Mr. Al, A-l, Sharif,2 S-h-a-r-i-f. Al Sharif.3 EXAMINER ENQUIST: I think I do see4 Mr. Sharif's name on the service list.5 MR. MCBEE: Additionally, Mr. Examiner,6 we had three other parties that were going to be here7 and participate and they were in an automobile accident8 on the way in Waxahachie and they called me by phone9 and asked that I would stand for them, as well. I

10 understand you don't have that paperwork in hand but it11 could, of course, be filed with you at any time.12 EXAMINER ENQUIST: Okay. How you they?13 MR. MCBEE: They are okay. The last we14 heard they had called an ambulance to come and check15 them out because they were having some chest pains and16 so forth.17 EXAMINER ENQUIST: Well, thank you.18 MR. JOHNSON: Mr. Examiner, I would just19 like to note for the record that those three people,20 Susan Reed, Rosemary Reed, and Clayton Newsome, filed a21 notice of intent to appear but are not affected22 parties. They do not own property in the unit.23 EXAMINER ENQUIST: Well, what is relevant24 here today is they are not here. Had they shown up I25 would have given them a chance to show that they are

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1 affected parties.2 MR. JOHNSON: I just make that note for3 the record. And we can -- our landman can testify to4 that fact, but they are not affected parties.5 Mr. McBee is here solely as a representative. He's not6 an affected party.7 EXAMINER ENQUIST: I understand that. We8 do have an appearance slip indicating for Mr. Sharif9 that he will represent him. And I believe there is

10 some other -- let me check the file. I believe Billie11 Harris is here. And Billie Harris sent in a notice of12 intent to appear stating that her representatives were13 Casey Harris and Louis McBee.14 All right. If you just wish to make a15 statement, I would rather hear those now. So who among16 the protestants would like to make a statement? Sir,17 what is your name?18 MR. HARRIS: I'm Casey Harris. I'm19 representing Billie Harris.20 EXAMINER ENQUIST: Okay. Mr. Harris,21 would you like to make your statement now? And the22 court reporter will need to hear you, so speak up.232425

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1 CASEY HARRIS,2 having been first duly sworn, testified as follows:3 DIRECT NARRATIVE4 MR. HARRIS: Okay. I have kind of a5 little thing written down. The first is a quote. "The6 Legislature shall empower and it shall be of its duty7 to protect the law from forced sale of a certain8 portion of the personal property of all heads of9 families and also of unmarried adults, male and

10 female." This is from the Texas State Constitution,11 Article 16, Section 49.12 EXAMINER ENQUIST: Mr. Harris, move up a13 little closer.14 MR. HARRIS: Although the official title15 of this hearing is a hearing about Statewide Rule 37,16 we the people protesting Barnes Assembly "A" 3-H are17 here to not only protest the sanctioned theft of our18 property, we are also here to protect the same rights19 of people that will come to this same board, the same20 office of Texas government, seeking the protection of21 our elected officials -- seeking the protection of our22 elected officials that have sworn to provide us.23 Under Texas law my rights to protect my24 property are no less or no greater than that of my25 neighbor. My desire to hold on to my property in the

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1 form of my mineral rights is protected under our2 state's constitution as well as the Constitution of the3 United States. I have read the Rule 37 documentation4 at least 50 times in the last month. No where in this5 rule is there any mention of protecting a corporation's6 financial interest. Rule 37 is about protecting the7 rights of the people.8 The Texas Railroad Commission has9 actually issued multiple rulings denying requests for

10 exception based on the economic requirements and needs11 of the company, Cases 0251216, 0206334, and 0245869.12 This law does not protect the companies from financial13 risk involved with prospecting for minerals.14 Chesapeake has applied for and been15 granted two permits for Well 3-H already. I'm not a16 public speaker.17 EXAMINER ENQUIST: Take your time.18 MR. HARRIS: This is evidence that there19 are already regular well plans or plats in Barnes20 Assembly "A" for Well 3-H. By Chesapeake's own21 applications, they have demonstrated that they do not22 need an exception to Rule 37 to produce their fair23 share of minerals from this well. The first of the24 these permits dates back to September 24, 2009. This25 permit makes no request for an exception to Rule 37 to

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15

1 be made. This evidently would not have been a regular2 well -- this evidently would have been a regular well3 that would have produced a fair share of gas for4 Chesapeake.5 The second permit was approved on6 September 20, 2010 claiming that Chesapeake, quote,7 unquote, "extended the lateral." Chesapeake had, in8 fact, completely redrawn the lateral. The lateral as9 drawn indicates no need for an exception to Rule 37 as

10 the well spots before encroaching on any land without a11 lease. The total length of this well was to be 4797.2812 feet according to the plat provided by Chesapeake.13 This is the second regular wellbore applied for and14 approved that could be used to produce their fair share15 of minerals from this well.16 A third permit was approved on October17 1st, 2010. This was another extension of the lateral18 to the permit granted on September 20th. This19 extension provided another 612.34 feet of well that now20 came within 330 feet of many unleased tracts of land,21 including my own, Billie Harris. As a result,22 Chesapeake would now have to seek an exception to Rule23 37 to steal my mineral rights.24 Chesapeake had already deemed the Barnes25 Assembly "A" to be viable enough as an economic risk to

DAVE HOWARD, CSR

16

1 start drilling the well as they had already spudded the2 well prior to the third application's approval. There3 is no reason to extend the well further than the state4 had already approved and given them a permit to drill.5 Chesapeake has ample opportunity to recover its fair6 share of the natural gas and the pool area they created7 without stealing the property rights of those who do8 not wish to sell.9 Since the application for an exception to

10 Rule 37, Chesapeake has been granted three more permits11 to drill into the Barnes Assembly "A" with Wells 1-H,12 2-H and 4-H. None of these permits require an13 exception to Rule 37. Chesapeake now has four wells14 with valid permits to drill in the Barnes Assembly "A"15 with no reason to need an exception. These four wells16 all demonstrate a clear, reasonable, and legal17 opportunity for them to recover their fair share of gas18 from Barnes Assembly "A". All they seek to do now is19 to steal the property of those who feel it is their20 right, which it is, to protect their property from21 being stolen.22 If an exception to Rule 37 is granted,23 the state has authorized a private company to take the24 property of property owners with no compensation. This25 is outright theft authorized by the state, state

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17

1 sanctioned theft to benefit nobody except the private2 company acting as the thief. If the state forced that3 company to compensate us, the property owners for that4 theft, the state would be forcing us to sell a portion5 of our property, which they cannot do under the Texas6 constitution.7 This well was started on September 25,8 2010 and completed on October 10, 2010. It is not9 clear to a normal person like me whether or not this

10 well has been drilled to the full length of the11 wellbore as indicated in the permit application12 submitted on October 5th, 2010, the permit we are13 protesting. If this wellbore has been drilled to its14 full length, Chesapeake is already in violation of the15 permit granted to them on October 1st as indicated on16 the permit. This permit becomes invalid automatically17 if the stated location is not in compliance with18 Commission field rules on the spud date.19 This would have made the permit used to20 drill the extended bore invalid as they had not21 properly filed for the exception to Rule 37. By22 drilling an unapproved length of wellbore, Chesapeake23 has already broken the law, as they have done in the24 past at the Ramey Unit Well 1-H, Railroad Commission25 Case No. 0251216.

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1 If this well has already been drilled to2 the length as indicated in this final permit3 application, I request that the Railroad Commission4 order the well to be plugged back to the legal location5 as indicated on the permit approved on September 20,6 2010.7 I also ask that you uphold Article 16 of8 the Texas Constitution and protect my rights by denying9 the application for an exception to Statewide Rule 37.

10 EXAMINER ENQUIST: Thank you. Does11 anybody else wish to make a statement? Ms. Carter.12 NEVA JANE CARTER,13 having been first duly sworn, testified as follows:14 DIRECT NARRATIVE15 MS. CARTER: Neva Jane Carter. I'm at16 2102 Chisholm Trail, and they are asking to come within17 30 feet of my unleased property. Before I came down, I18 had to ask permission to get off work and my boss said,19 what do you hope to even accomplish by going to Austin,20 what do you do against all the attorneys for21 Chesapeake? I said, well, I am hoping that the people22 at the hearing are going to listen to us, as well.23 Owning your own home is supposed to be24 the American dream. And I've worked hard all my life25 to pay for a house out in the suburbs, close to the

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1 lake. We have a few little greenbelts around that were2 supposed to be a park at the end of my cul-de-sac, and3 it's been my home for over 30 years. And before the4 gas companies came to our city, I was naive enough to5 think that, I bought and paid for this, no one can take6 this away from me. But everywhere that we had even a7 tiny little greenbelt they are drilling wells8 everywhere around me.9 The gas companies are operating under

10 just a few historical rules that do not work for11 neighborhood drilling, and they use their team of12 attorneys to bend those rules to take whatever they13 want. The citizens of Texas are left with the unfair14 burden of defending themselves, using our vacation time15 and our money to protect what is already ours.16 When I continually said, no, I would not17 sell, in spite of all the harassing phone calls, the18 constant knocks at my door, the letters, I got a call,19 and I said, stop calling me or I will file harassment.20 I am tired of this. And I was told, we are going to do21 this whether you cooperate or not. And I thought, no,22 you cannot take something that doesn't belong to you.23 There are laws against theft. Am I wrong?24 Then I received a letter in the mail from25 the Railroad Commission stating that just because

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1 Chesapeake asks, you will grant them a waiver to one of2 the few rules that govern their actions, allowing them3 within the 30 feet of my unleased property unless I4 officially protest. And I had never heard of Rule 37,5 never heard of forced pooling before this. So instead6 of spending my time planning for my holiday gatherings7 with my family, I was trying to get out on the Internet8 and figure out what all this meant. And instead of9 mailing out Christmas cards, I was trying to make

10 copies of protests and get it mailed to everybody on11 the list to make sure I didn't miss anybody, to make12 sure I didn't miss some rule, because I wanted to13 protect my property.14 And a written response of no is not15 sufficient under the current rules. So you scheduled a16 hearing for January 7th requiring that we appear in17 person. And I had to go to my boss and ask for time18 off at the beginning of the year in the finance19 department where we are at the end of the month, the20 end of year, end of quarter, and no one asks off. But21 I asked because I wanted to protect my property. And22 then Chesapeake had the hearing postponed with a last23 second notification that I received when I got home on24 the afternoon of New Year's Eve. Supposed they had25 just discovered there were two more people in our area

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1 that didn't have a lease and they didn't have adequate2 time to notify them of the hearing.3 So now I have had to schedule time off4 again to be here today, just one more time to say, no,5 I do not want to sell my rights, and you can't steal6 them from me. And there's only a few of us who are7 officially a part of this particular encroachment in8 our neighborhood but there's hundreds of others in the9 neighborhood who have not signed a lease. There are

10 also other affected parties to this waiver that cannot11 afford the time or money to come or do not want to risk12 driving here in the ice. And as we have all heard,13 some that tried to come are now suffering from an14 accident.15 And I am sure all the requirements set in16 place to protest a Rule 37 were not intended to be a17 preventive measure to keep citizens from protesting,18 but as you can see, that is the effect of it. And I am19 not a geologist, but I do not believe that the industry20 controls the drilling and the frac'ing process so21 perfectly as to do so at exactly 30 feet from my22 property line and not be at 29 feet or 25 feet. And I23 would like to know what type of testing is done to24 ensure they are following your rules. Whether that25 rule is 500 feet or 330 feet or 30 feet from unleased

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1 property, who is going to oversee the process to make2 sure they do not come closer than you allow, and if3 someone from the state, some disinterested party is4 going be there for every stage of the process, and with5 what equipment are they going to be able to monitor6 what is occurring beneath the surface of my property?7 I contacted my state and federal senators8 and representatives for help but all I got back was a9 form letter or no response at all. I tried to convince

10 my city government that we need to stop this drilling11 until everyone understands the real consequences of12 drilling in a residential neighborhood. But one of the13 council members owns this particular pad site and he14 got the drilling started before anyone even knew what15 was taking place.16 They did put up the required sign near17 the property before the drilling started but it was not18 turned in a direction that was readable by passing19 traffic. It was not turned like a billboard. It was20 turned the other direction. So I had to stop my car on21 the curve of the road off on the grass to be able to22 read the sign. And when I called the number that was23 on that sign and said, I have a complaint, the sign is24 not readable by passing traffic, I was told that25 Chesapeake had met the requirements. They had to post

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1 a sign but it was not required that it be readable.2 So their attorneys make them follow the3 letter of the law but not the intent of the law. And4 this pad site sits right next to the creek. And this5 is a creek that I have crossed over many, many times in6 the last 30 years, and when the land next to it was7 just pasture and trees and grass, that creek never8 overflowed, but now that the pad site has replaced the9 pasture, the creek has overflowed the bridge at least

10 once that I am aware of that I had to turn around and11 drive out the neighborhood the other direction and has12 come up to within inches of the top of the bridge13 several times.14 And the ordinance that the City of Grand15 Prairie is adopting now is too little and too late for16 us. And it was written with the assistance of the gas17 industry. We asked to meet with the city. They never18 had time to meet with us, wouldn't put us on the agenda19 for the City Council, but we found out eventually after20 the news media was involved that they had been meeting21 with the gas industry for quite some time and getting22 help from the industry to write the ordinance.23 No one seems to want to take24 responsibility for protecting our water supply, our air25 quality, our safety, or even the noise levels. We have

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1 people in the neighborhood who cannot even sleep at2 night because of the noise levels. Some people assume3 that industry will conduct themselves in a manner to4 minimize the harmful effects on the environment is what5 I was told. But what I hear is there will be some6 harmful effects.7 So the bottom line for the decisions that8 have been made so far seems to be the promise of big9 dollars. Where in truth the homeowners won't get

10 enough to even pay for what it cost me for my hotel11 bill last night to come down here. My friends tell me12 to just move out of Grand Prairie, but our property13 levels are way too low for that. Even one of the city14 council members who is a realtor admits publicly that15 it has affected our property values. But he goes, just16 wait, the values will come back up when the gas17 drilling is over. But the pipes and the tanks and the18 dangers aren't going away and neither is the perception19 in the Dallas/Fort Worth area that Grand Prairie is an20 industrial city now. It's not a place you want to21 live.22 In today's economy I can't afford to23 start over. Like most Americans I am trying to rebuild24 my retirement fund so I don't have to depend on those25 same unresponsive government representatives who

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1 wouldn't answer my letters to feed me in the future.2 So please, step up, do the right thing here, and don't3 let the gas companies just steal our rights away when4 we say, no, we won't sell just for the asking.5 There are plans for 196 wells in south6 Grand Prairie so far, and obviously the industry will7 ask you again to waive the rights of some affected8 citizens and force pool them, confiscating their9 property. Please don't allow that. Please put

10 something into place that requires the party requesting11 a waiver to pay all expenses of everyone involved with12 that request. Because money is the only thing the13 industry understands. If it will cost them when they14 don't comply with the few rules that you have, maybe15 you won't have to spend so much of your time on Rule 3716 waivers and you can spend some time writing appropriate17 rules for urban drilling, like setbacks of a minimum of18 1000 feet.19 The industry should not be allowed to20 drill, then ask for a waiver, which is what they have21 done here. So please just say no to this waiver22 because your no is the last hope to stop this and23 future theft by the gas industry. Please be responsive24 to the public and protect future generation's quality25 of life. Thank you.

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1 EXAMINER ENQUIST: Thank you. Do you2 have a copy for the reporter?3 MS. CARTER: Actually I have a lot of4 scribbles and notes and I got off copy a few times, but5 I will e-mail you something that will catch most of it.6 EXAMINER ENQUIST: I would like to take7 paper copies of both Mr. Harris' statement and8 Ms. Carter's statement. I would like to make that9 Harris Exhibit -- I don't need it at this moment. I

10 would like to make it Harris Exhibit 1 and Carter11 Exhibit 1. Does Chesapeake have any objection?12 MR. JOHNSON: Is this considered sworn13 testimony?14 EXAMINER ENQUIST: I believe they raised15 their hands.16 MR. JOHNSON: Okay. I do have some17 objection because a lot of it is irrelevant. But I18 will handle that on cross-examination.19 EXAMINER ENQUIST: Well, then the20 objection is overruled, and Harris Exhibit No. 1 and21 Carter Exhibit No. 1 are admitted into the record. So22 if you would provide paper copies of those I would23 appreciate it, over and above what the reporter has24 taken down.25 MS. CARTER: Okay.

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1 (Whereupon, Harris Exhibit No. 1 was2 admitted.)3 (Whereupon, Carter Exhibit No. 1 was4 admitted.)5 EXAMINER ENQUIST: The gentleman in the6 back, are you protesting?7 MR. GAY: Yes.8 EXAMINER ENQUIST: Did you wish to make a9 statement?

10 MR. GAY: No.11 EXAMINER ENQUIST: All right. Okay.12 Let's do opening statements. Mr. Johnson, do you have13 an opening?14 MR. JOHNSON: Yes, Mr. Examiner. Glenn15 Johnson on behalf of Chesapeake Operating, Inc. The16 opening statements of the protestants, first of all,17 Rule 37 has been a rule in the state of Texas since I18 think 1919; has been declared constitutional in many19 different cases. And if the examiners like, we can20 provide briefing on that basic fundamental law.21 Chesapeake takes exception to the idea22 that somehow they are engaged in any sort of theft or23 that they are violating the rule. There's been no24 evidence. There's been statements to that effect but25 there is -- no evidence was presented in these

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1 statements of any theft or any violation of any law.2 Chesapeake is in complete compliance with the rules of3 the Railroad Commission of Texas, and if there are4 violations of other rules, there is another proper5 forum.6 Some of the statements dealt with issues7 that this agency certainly has no jurisdiction over.8 Whether the City of Grand Prairie has proper ordinances9 or improper ordinances is not something before you.

10 Air quality is also not something that is before you.11 Chesapeake has followed the water regulations of the12 Railroad Commission. There's been no evidence that13 there is any violation of that, although allegations14 were made.15 What we are here before this agency about16 is the conservation of natural resources. Chesapeake17 has a well that if not -- if we are not allowed to get18 a Rule 37 exception there will be unrecovered19 hydrocarbons of about 1.75 Bcf of gas. This is a20 priority under the Texas Constitution and the laws of21 the state of Texas. It is why this agency was22 created -- why this agency was given the authority to23 regulate the oil and gas industry to promote24 conservation, to protect the mineral resources of the25 state of Texas, to make sure that the resources are not

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1 wasted.2 All these statements by Mr. Harris and3 Ms. Carter, certainly they do have rights and they can4 avail themselves of their rights in many different5 manners, but a lot of what has been stated so far this6 morning has nothing to do with the issues we have here7 today. We have four, possibly five witnesses who will8 demonstrate the efforts made to construct this well in9 an appropriate manner. The geology of the area and the

10 engineering aspects of the area will show that without11 the exceptions that we request, in order that the well12 can be properly completed, in order to recover the13 hydrocarbon resources, there will be waste of almost14 1.75 Bcf of gas. That is the issue that is before you15 here today, not claims about lack of response from16 state representatives or City Council people or lack of17 ordinances.18 The Commission has been administering19 Rule 37 for a long time. Nearly 100 years. It has20 been regulating urban drilling for nearly as long. In21 fact, the Rule 37 was created as a response and the22 Railroad Commission was given the authority in response23 to drilling in downtown Kilgore. And we've all seen24 the pictures of those derricks where you could walk25 from derrick to derrick across the entire town in the

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1 East Texas Field. So there is a lot more that I might2 get into in cross-examination of both Mr. Harris and3 Ms. Carter but the issues that they raise seem to be4 frustrations with other agencies.5 This agency has adopted rules. There6 have been public hearings on those rules. What we seek7 is to enforce those rules and to grant us an exception8 in order for both -- the development of the hydrocarbon9 resources of the state of Texas. We are not stealing

10 from anyone. With that I am calling my first witness.11 EXAMINER ENQUIST: Let me ask Mr. McBee.12 Mr. McBee, since you are representing the protestants13 who are participating, you have the option, I guess, of14 making an opening statement.15 MR. MCBEE: Sure. Thank you very much.16 My name is Louis McBee. I am also co-founder and17 director of the North Central Texas Communities18 Alliance, and we have represented or stood in for folks19 during these hearings in the past. I would simply like20 to establish the real reason that we are here.21 From previous rulings from the22 Commission, it says to establish entitlement to an23 exception to Rule 37 to prevent confiscation, an24 applicant must show that absent the applied-for well it25 will be denied a reasonable opportunity to recover its

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1 fair share of the hydrocarbons currently in place under2 the lease or its equivalent in kind. The applicant3 must satisfy a two-prong test. One, the applicant must4 show that it will not be afforded a reasonable5 opportunity to recover its fair share of the6 hydrocarbons currently in place by drilling wells at7 regular locations. And two, the applicant must show8 that the proposed irregular location is reasonable.9 In addition to that, the code further

10 states that each mineral interest owner is entitled to11 a fair and equal opportunity to recover their fair12 share of the hydrocarbons under their tract. By the13 very act of issuing a Rule 37 exception, particularly14 30 feet from a mineral owner's tract, is by in itself15 confiscation and is a denial of their rights to produce16 their fair share of the hydrocarbons under their tract17 because they will not be able to get anyone else to18 produce it. Thank you.19 EXAMINER ENQUIST: Mr. Johnson, I believe20 you were going to present your first witness.21 MR. JOHNSON: Call Mr. Bill Spencer.22232425

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1 BILL G. SPENCER,2 having been first duly sworn, testified as follows:3 DIRECT EXAMINATION4 BY MR. JOHNSON:5 Q. Please state your name and by whom you're6 employed.7 A. Bill Gary Spencer. I own a consulting8 business here in Austin.9 Q. And what is your consulting business? What do

10 you do?11 A. I deal with various state agencies as it12 impacts the oil and gas industry in obtaining permits,13 various information that is required from companies as14 far as what has been filed. And in this particular15 manner I was engaged by Chesapeake in making the16 applications and filing the necessary permits for the17 drilling of the Barnes Assembly "A" No. 3-H.18 Q. How long have you been engaged in this19 consulting business?20 A. I have been involved in the oil and gas21 industry since 1977. I've owned my business since22 1992.23 Q. And were you the person responsible for filing24 forms with the Railroad Commission of Texas for the25 Barnes Assembly "A" 3-H well?

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1 A. Yes, I was.2 MR. JOHNSON: We would like to have3 marked as Exhibit 1 a set of documents.4 Q. (By Mr. Johnson) Mr. Spencer, could you5 explain to the examiners what Exhibit 1 is?6 A. Exhibit No. 1 is a copy of the W-1 application7 which I filed online with the Railroad Commission on8 October the 5th, 2010 for the Barnes Assembly "A" 3-H.9 Associated with that you will find the Form P-12 and

10 the plat that went along with that filing.11 Q. And just for the record, the plat you show12 shows in darkened colors the unleased tracts?13 A. That is correct. The dark shaded areas within14 the unit boundaries are the unleased tracts within the15 Barnes Assembly "A" lease.16 Q. What is the Form P-12 for the Railroad17 Commission?18 A. Form P-12 is a certificate of pooling19 authority which you file indicating to the state that20 you have the authority to pool the indicated tracts on21 the form.22 Q. And that lists by tract the name of the tract23 owner and the acreage of the tract?24 A. Correct, and the tract identifier so that you25 can go back and determine where those tracts are.

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1 Q. In looking at the plat, has there been a2 change in the tract ownership since this filing?3 A. Yes, there has been.4 MR. JOHNSON: We would offer Exhibit 1.5 EXAMINER ENQUIST: No. 1 is admitted.6 (Whereupon, Chesapeake Exhibit No. 1 was7 admitted.)8 MR. JOHNSON: We would like to have9 marked as Exhibit 2 a second Form P-12.

10 Q. (By Mr. Johnson) Mr. Spencer, what is Exhibit11 2?12 A. Exhibit No. 2 is an updated Form P-12.13 Chesapeake has ongoing leasing activities. They14 continuously try to lease properties. Just because a15 permit is filed doesn't mean they stop leasing. So in16 this particular instance, from the time that they made17 the application for the Barnes Assembly "A" 3-H on18 October 5th, 2010 until January 21st they obtained19 approximately 17 additional leases which amounted to20 about 22-and-a-half acres. And so I updated the P-1221 filing to show the status of the unit as we sit here22 today.23 MR. JOHNSON: We would offer Exhibit 2.24 EXAMINER ENQUIST: No. 2 is admitted.25 (Whereupon, Chesapeake Exhibit No. 2 was

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1 admitted.)2 Q. (By Mr. Johnson) Now, in included with3 Exhibit 2 is an updated plat that shows just a4 comparison of the former P-12 in Exhibit 1 and this5 P-12. You can see that there are a lot less colored-in6 tracts.7 A. That is correct.8 Q. And then you have also included a listing of9 the tracts that are included with this filing of the

10 unleased --11 A. Yes. The first 65 pages of the exhibit are12 the P-12 itself, and after that there will be a13 three-page exhibit of the unleased tracts within the14 unit. I believe they total 122 out of 770. And then15 the drilling permit plat is the third part of the16 exhibit, and then what I call the P-12 plat, which has17 the tract identifiers, is the last page of the exhibit.18 Q. Okay.19 MR. JOHNSON: We would like to have20 marked as Exhibit No. 3 a Railroad Commission order.21 Q. (By Mr. Johnson) Mr. Spencer, what is Exhibit22 3?23 A. Exhibit No. 3 is the final order issued by the24 Railroad Commission of Texas in Oil and Gas Docket25 No. 09-0253880. It was amending the field rules for

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1 the Newark, East (Barnett Shale).2 Q. Is this the -- does this order set forth the3 current rules applicable to the Barnett Shale?4 A. Yes, it does.5 Q. And what are the important parts of this rule6 insofar as this proceeding is concerned?7 A. The field rules require wells to be drilled8 330 feet from the nearest boundary line or unleased9 tract. There are no between-well spacing for wells

10 drilled in the Newark, East (Barnett Shale). And the11 Newark, East (Barnett Shale) allows for take points12 language in which the take points on the lateral must13 be legal or you have to seek an exception.14 Q. So does this rule allow a well to be drilled15 and cased closer than 330 feet to a lease line?16 A. Yes, it does.17 Q. And so you heard the opening statements made18 by some of the parties today?19 A. Yes.20 Q. So there is a possibility that a well could be21 drilled within 330 feet of a tract and still be legal?22 A. That is correct.23 Q. Because of the provisions of this rule that's24 set forth in Exhibit 3?25 A. Correct. It allows for no-perf zones, which

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1 the wellbore may be within 330 feet of an unleased2 tract, but as long as you're not perforating within 3303 feet of an unleased tract, you do not need to seek an4 exception to the rule.5 Q. You're in charge of filing all these forms6 with the Commission. Are you aware of any violation of7 Commission rules in the filing of any forms?8 A. No.9 Q. And the Exhibit 3 order allows for an

10 exception to the 330-foot setback rule?11 A. Well, Statewide Rule 37 allows the exception12 and the rule allows it from the standpoint of the13 no-perf zones.14 Q. Okay.15 MR. JOHNSON: Offer Exhibit 3.16 EXAMINER ENQUIST: No. 3 is admitted.17 (Whereupon, Chesapeake Exhibit No. 3 was18 admitted.)19 Q. (By Mr. Johnson) Were you responsible for20 filing the notice of application for Chesapeake in this21 matter?22 A. Yes.23 Q. And was it filed properly?24 A. Yes.25 MR. JOHNSON: Pass the witness.

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1 EXAMINER ENQUIST: Mr. McBee, you have a2 choice at this point. You can either cross-examine3 Mr. Spencer or you can wait until Chesapeake has4 presented all of its witnesses and then go back and5 cross them in whatever order you wish.6 MR. MCBEE: I think we will do that and7 we will bring him back up when they are finished.8 EXAMINER ENQUIST: Okay. Thank you,9 Mr. Spencer.

10 Mr. Johnson, do you have a second11 witness?12 MR. JOHNSON: Yes. We would call13 Mr. Isaac Jacobson.14 ISAAC JACOBSON,15 having been first duly sworn, testified as follows:16 DIRECT EXAMINATION17 BY MR. JOHNSON:18 Q. Please state your name, by whom you are19 employed and in what capacity.20 A. My name is Isaac Jacobson. I am employed by21 Chesapeake Energy as the operational landman for this22 area.23 Q. Could you briefly state your education and24 work history?25 A. I have a double major in finance and

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1 accounting from Oklahoma State University. And I have2 been employed full time by Chesapeake for the past two3 years and approximately eight months and prior to that4 had worked for Chesapeake as well as another oil5 service company through summer internships.6 Q. Are you the land person responsible for the7 subject application?8 A. Yes, sir.9 Q. Did Chesapeake prepare a plat indicating the

10 well location of the unleased tracts and the outline of11 the proposed unit?12 A. We did.13 MR. JOHNSON: We would like to have14 marked as Exhibit 4 a copy of that plat.15 Q. (By Mr. Johnson) Mr. Jacobson, could you16 briefly describe what this plat shows?17 A. Yes, sir. This plat shows the Barnes Assembly18 "A" Unit with a surface hole location located in a --19 outside of the unit boundaries to the north with the20 unit generally in a rectangular form, north-south21 orientation. It also includes, I believe as previously22 mentioned, the location of the wellbore, surfacehole23 location, the bottomhole location, leased and unleased24 tracts.25 Q. The unleased tracts are the ones that are

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1 colored in?2 A. Yes, sir.3 Q. And does this exhibit contain the list of4 tracts or is that our next exhibit?5 A. It's on a separate exhibit.6 Q. Okay. And this is a certified plat certified7 to by a licensed surveyor in the state of Texas?8 A. Yes, sir.9 MR. JOHNSON: We would offer Exhibit 4.

10 EXAMINER ENQUIST: No. 4 is admitted.11 (Whereupon, Chesapeake Exhibit No. 4 was12 admitted.)13 MR. JOHNSON: We would like to have14 marked as Exhibit 5 a tract listing.15 Q. (By Mr. Johnson) Mr. Jacobson, could you16 explain what Exhibit 5 is?17 A. Exhibit 5 is a tract listing which contains18 the tract number according to the associated plat, the19 name of the owner, the acreage contained within that20 tract, and the leased acreage for every tract within21 the Barnes Assembly "A" Unit.22 Q. And are the highlighted tracts the ones that23 are unleased?24 A. That is correct.25 MR. JOHNSON: We would offer Exhibit 5.

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1 EXAMINER ENQUIST: No. 5 is admitted.2 (Whereupon, Chesapeake Exhibit No. 5 was3 admitted.)4 EXAMINER ENQUIST: Mr. Johnson, this5 Exhibit 5 numbers the tract but the prior exhibit does6 not have numbers on the different lots. Are we going7 to receive any sort of plat that allows us to make a8 one-to-one correlation?9 MR. JOHNSON: The P-12, I think, and that

10 plat, Mr. Spencer's Exhibit 2, correlates the -- okay.11 I am sorry. We do have an exhibit that does cross12 reference it we would like to have marked as Exhibit 6.13 EXAMINER ENQUIST: I found what you are14 referring to but it's very small. You will have a15 further exhibit that will make that more clear?16 MR. JOHNSON: We have an Exhibit 6.17 Q. (By Mr. Johnson) Mr. Jacobson, what is18 Exhibit 6?19 A. Exhibit 6 is the detail plat which lists the20 tract numbers associated with the numbers on Exhibit 5.21 MR. JOHNSON: We would offer Exhibit 6.22 EXAMINER ENQUIST: 6 is admitted.23 (Whereupon, Chesapeake Exhibit No. 6 was24 admitted.)25 EXAMINER ENQUIST: And can you provide us

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1 with a larger copy of this so we can read it? Would2 you make that late-filed let's say 6A?3 MR. JOHNSON: Yes, sir, we will provide4 that.5 MS. CARTER: Could we get a copy of that6 also.7 MR. JOHNSON: Yes. We will provide a8 copy to the intervenors.9 Q. (By Mr. Johnson) Mr. Jacobson, have you

10 prepared a tabulation of -- do we have a larger --11 MR. SPENCER: It's written on.12 MR. JOHNSON: We will provide as a13 late-filed exhibit a larger version of Exhibit 6.14 EXAMINER ENQUIST: Okay. Thank you.15 Q. (By Mr. Johnson) Have you prepared tabulation16 of the tracts?17 A. Yes, sir.18 Q. We would like to have that marked as Exhibit19 7. What does Exhibit 7 show?20 A. This Exhibit 7 is a tabulation of leasehold in21 the Barnes Assembly "A" Unit that shows the total22 number of leased tracts being 648 tracts within that23 unit, unleased tracts totaling 122. As you can see24 from the previous Exhibit No. 5, the tract -- the unit25 contains a total of 770 tracts, again with 648 being

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1 leased, 122 being unleased. That is 84.18 percent of2 the unit is leased, 15.12 percent of the tracts are3 unleased. That is the percentage of leased tracts.4 Additionally it shows the total leased5 acreage as 277.78 acres and 50.11 acres total unleased.6 It also shows the percentage of acreage which is leased7 as 84.1 percent, percentage of unleased acreage 15.98 percent.9 MR. JOHNSON: We would offer Exhibit 7.

10 MR. MCBEE: Object. Mr. Examiner, I am11 wondering why we are even discussing all of the leased12 and unleased tracts within this particular plat when13 this hearing is only about the affected unleased14 property owners that are within the 330 feet of either15 the fracture area or the wellbore. So I am not sure16 what the relevance of the discussion is about all the17 leased and unleased tracts.18 EXAMINER ENQUIST: Mr. Johnson, would you19 like to respond to that?20 MR. JOHNSON: Well, this is a permit for21 this unit. The information is just a tabulation of the22 information that is in all the other exhibits. It has23 already been admitted. We just tabulated it for the24 information of the examiners and the parties as to this25 unit what number of people have leased tracts and what

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1 number have not leased tracts.2 EXAMINER ENQUIST: Thank you. Mr. McBee,3 did you have something further?4 MR. MCBEE: Well, yes. Once again I am5 wondering if they are doing this on this particular6 plat, are they going to supply the same leased and7 unleased leaseholds for every single permit that was8 issued for the Barnes Assembly "A".9 EXAMINER ENQUIST: I didn't understand

10 that.11 MR. MCBEE: There has been more than one12 permit approved by the Railroad Commission and yet all13 we are getting is the data from this particular plat14 when there were actually three others that were15 approved by the Commission but we don't seem to be16 discussing the leasehold in those.17 MR. JOHNSON: It's the same leasehold.18 EXAMINER ENQUIST: All we have before us19 today is this application. The prior two are not20 before us. Those were already approved. All I can21 deal with today is what is before us today.22 MR. MCBEE: Well, it is going to be23 relevant because those were regular well sites. Thank24 you, sir.25 EXAMINER ENQUIST: Mr. McBee, I am going

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1 to overrule your objection and No. 7 is admitted.2 (Whereupon, Chesapeake Exhibit No. 7 was3 admitted.)4 MS. CARTER: Can I ask a question or is5 that out of order?6 EXAMINER ENQUIST: I was trying to7 establish at the beginning if Mr. McBee was going to8 represent everybody and the rest make statements, but9 go ahead and ask the question.

10 MS. CARTER: Maybe it's my financial11 background but this is just a lot of names and numbers12 and everything that I don't have any track behind this.13 I don't have any audit trail that tells me that Nancy14 Bitner actually has a current lease on file. Do you15 guys have those copies of all those current leases on16 this.17 EXAMINER ENQUIST: No, we do not --18 MS. CARTER: Or should we just accept19 that they've written something up a spreadsheet that20 says these people are leased. And if the other 122 are21 relevant, then why -- the other 122 people at this22 hearing, why weren't they given an opportunity to say23 why they didn't sign?24 EXAMINER ENQUIST: The other people were25 not given an opportunity to come because the Commission

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1 presumes that the affected parties are those within 3302 feet of the wellbore. As to your question about the --3 I think it was the -- do we keep the leases, no, we4 never see the leases. As to the P-12, that is the5 document that is filed with the Commission and the6 operator is making an assertion on here that these are7 the parties that are leased and they do have leases.8 The possible penalty for that is I think under Section9 91.143, false filings. So there would be a -- if this

10 turned out to be false, they would be subject to11 penalties through the Commission for false filings.12 MS. CARTER: I was just wondering because13 they found those other two people that they didn't know14 if they had a lease or not and so that's the reason we15 cancelled the January meeting. And I am like, well,16 how do we know this is accurate, if it is going to be17 relevant. I appreciate your answer. I will let18 Mr. McBee go from here.19 EXAMINER ENQUIST: Thank you.20 Mr. Johnson.21 MR. JOHNSON: Thank you, Mr. Examiner.22 Q. (By Mr. Johnson) Mr. Jacobson, is it fair to23 say that this is an urban area?24 A. Yes, sir.25 Q. Are there limited locations that can be

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1 utilized for the drilling of wells?2 A. Absolutely.3 Q. And this plat, does that show the location4 that is used to drill all the wells in the Barnes5 Assembly "A" Unit?6 A. Yes.7 Q. And is that the -- one of the very few8 locations in the area that can be used to drill wells?9 A. It is.

10 Q. Can you explain the process that you went11 through in preparation for the hearing that was12 scheduled for January 7th and the realization that you13 made while you were preparing for that hearing?14 A. Yes, sir. In preparation for the original15 scheduled date of January 7th, I was reviewing our --16 reviewing our current leasehold within that unit to17 insure its accuracy. And it was brought to my18 attention that there were a couple tracts which had19 been shown as leased and they had been leased but prior20 to the initiation of our operations those leases had21 termed out and the leases had expired.22 What I discovered in reviewing my notes23 was that the filing -- the initial filing that showed24 them as leased after they had, in fact, expired had25 showed that the -- that I was sent notification of this

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1 through a spreadsheet format to have the surveyor2 update. I returned that spreadsheet to the contractor3 who was working for me in this unit, asked him to4 verify the expirations because they had updated new5 leases that had been taken but they did not update the6 expirations. I asked him to verify this. They updated7 the information. And when they sent it back and I8 forwarded it on to the surveyor, inadvertently the9 spreadsheet had the same name. I inadvertently copied

10 the wrong spreadsheet, sent it to the surveyor, and11 that showed the parties which had expired leases as12 still being leased.13 So it was a mistake on my part and I do14 apologize for the inconvenience which it caused, and it15 was certainly an oversight that I hope will never16 happen again.17 EXAMINER ENQUIST: So your bottom line is18 that the two unnoticed parties, it was because their19 leases had lapsed and they needed notice as unleased20 mineral interest owners. Did you subsequently release21 them or are they still unleased?22 THE WITNESS: We have pursued leases with23 both parties, one of which has declined at this time,24 the other we are currently working with.25 EXAMINER ENQUIST: All right. Thank you.

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1 THE WITNESS: Actually let me also add,2 there was a third party who when we discovered their3 lease had lapsed they did immediately agree to sign the4 lease.5 Q. (By Mr. Johnson) And they were all given6 subsequent notice by the Railroad Commission of this7 hearing?8 A. Yes, sir.9 Q. Going back to the surface location, can you

10 point out to the examiner -- and I understand that it11 -- I am having trouble reading it myself, Mr. Enquist.12 Do you know which tract is Ms. Carter's tract?13 A. Yes, sir.14 Q. Can you describe that to the examiner and for15 the record using whichever plat is most appropriate?16 A. Yes, sir. Ms. Carter's tract as represented17 on this plat is labeled as Tract No. 65 on the detail18 plat. I realize it's small and difficult to see. So19 if you are following the path of the wellbore, the20 previous plat, which does not show the tract numbers,21 this plat is actually showing Ms. Carter's tract as22 being 153.4 feet from our wellbore. It is -- as the23 residential homes begin, it is the third row down.24 Q. So as you come into the residential home25 tracts, it's the third row of residential tracts?

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1 A. On the west side.2 Q. On the west side?3 A. Yes, sir.4 Q. And approximately how far is Ms. Carter's5 tract from the surface location?6 A. It is approximately 2000 feet from the surface7 well location.8 Q. What are the constraints on other drill site9 locations or the lack of drill site locations?

10 A. Yes, sir. The nearest drill site location11 that Chesapeake has to this is for the Campbell pad.12 It is approximately a mile-and-a-half to the northeast13 of this location. In this area we are restricted by14 the City of Grand Prairie ordinance which previously15 required us to be 500 feet from any protected use16 structure. Additionally we have issues with a flood17 plain and a floodway in this area which have restricted18 our potential locations. This was the only viable19 location to develop this acreage from that was20 accessible to Chesapeake.21 Q. And surface location on your Exhibit 4, that22 plat shows it's 540 feet from the west line of the23 tract on which it's located and 545.4 feet from the24 southern line of the survey it's located on?25 A. Yes, sir.

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1 Q. And so your understanding is it complies with2 the City of Grand Prairie ordinance on drill site3 tracts?4 A. Yes, sir. The surface hole location is in5 compliance with the City of Grand Prairie gas drilling6 ordinance.7 MR. JOHNSON: Pass the witness.8 EXAMINER ENQUIST: I believe Mr. McBee9 has opted to wait until you present all the witnesses.

10 MR. JOHNSON: Call Mr. Alan Jackson.11 ALAN JACKSON,12 having been first duly sworn, testified as follows:13 DIRECT EXAMINATION14 BY MR. JOHNSON:15 Q. Mr. Jackson, could you please state your name16 and by whom you are employed?17 A. My name is Alan Jackson. I'm employed by18 Chesapeake Energy.19 Q. Would you briefly state your educational work20 history?21 A. I received a bachelor of science degree in22 geology from the University of Texas at the Permian23 Basin in 1980.24 Q. How long have you been with Chesapeake?25 A. I've been with Chesapeake for three years and

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1 nine months.2 Q. Is this area of the Barnes Assembly "A" Unit3 part of the area that is under your supervision as a4 geologist?5 A. Yes, it is.6 Q. And have you performed a geological study of7 the area?8 A. Yes, I have.9 Q. Have you prepared exhibits for the Railroad

10 Commission?11 A. Yes, I have.12 MR. JOHNSON: We would like to have13 marked as Exhibit 8 a structure contour map.14 EXAMINER ENQUIST: Mr. Johnson, you're15 presenting Mr. Jackson as an expert in geology?16 MR. JOHNSON: We offer him as an expert17 in geology.18 EXAMINER ENQUIST: He's recognized as an19 expert in geology.20 MR. JOHNSON: Okay.21 Q. (By Mr. Johnson) Mr. Jackson, could you22 explain what you did to prepare Exhibit 8 and what it23 shows?24 A. Yes. Exhibit 8 is a structural contour map of25 the top of the Barnett formation. I used actual

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1 penetration points from the Barnes Assembly "A" 3-H and2 offset wells and normalized those penetration points,3 their subsurface elevations normalized for surface4 changes. And then the contours are on 100-foot contour5 intervals and it is an interpretation of the structural6 configuration of the Barnett.7 Q. The red -- Mr. Jackson, the red squares, are8 those the penetrations points for the wells you9 described?

10 A. Yes, they are.11 Q. So they provide the subsurface basis for the12 contouring of the structure of the Barnett Shale?13 A. That is correct.14 MR. JOHNSON: We would offer Exhibit 8.15 EXAMINER ENQUIST: 8 is admitted.16 (Whereupon, Chesapeake Exhibit No. 8 was17 admitted.)18 Q. (By Mr. Johnson) I notice that there is an19 indication to the west. The blue outline, that is the20 Barnes Assembly "A" Unit?21 A. That is correct.22 Q. And the line from the red square to the circle23 with the gas symbol circle, that is the wellbore trace24 of the Barnes Assembly 3-H well?25 A. That is correct.

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1 Q. And to the west of the Barnes Assembly Unit2 there is a shaded portion with a -- what is that?3 A. That is a normal fault that we crossed while4 drilling the Crystal Paradise 1-H, the wellbore that5 has a northeast-southwest orientation.6 Q. Is that well -- are any of the wells that are7 shown on this map producing?8 A. No. The only one that is producing is just on9 the northern edge of the map. It is the Campbell 1-H

10 and it's producing. The rest of them are waiting on11 completion.12 Q. And the well that crossed the fault, that well13 is not productive?14 A. It's nonproductive because of the fault. It15 faulted into the Atoka section when we cut the fault.16 So it's a non-commercial well.17 Q. Have you prepared a map showing the formation18 on that exhibit?19 A. Yes.20 MR. JOHNSON: We would like to have21 marked as Exhibit 9 -- mark the next exhibit Exhibit 9.22 Q. (By Mr. Johnson) And I'll let you describe23 what it is, Mr. Jackson.24 A. Exhibit 9, that is the one that has the log --25 EXAMINER ENQUIST: That is not the one we

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1 have got. We have --2 (Exhibit passed out to examiners and3 parties.)4 Q. (By Mr. Johnson) Mr. Jackson, what is Exhibit5 9?6 A. Exhibit 9 is actually a one-well cross7 section. Typically we try to show two wells within a8 cross section in a Railroad Commission hearing.9 Unfortunately this is the only well within several

10 miles that penetrated the Ellenburger and Viola, the11 Ordovician section, so I put this together to show12 where that well is in relationship to the subject unit,13 and it just shows the overall thickness of the Barnett14 section.15 Q. And the Barnett is -- at the base, the16 squiggly line, that's the technical term to be used,17 that shows what?18 A. That squiggly line is the Ordovician19 unconformity. I apologize. I am missing some labels20 here. That is the top of the Viola formation. The21 dark, bold line above that is the top of the Upper22 Barnett or the top of the Barnett formation.23 Q. And the top of the Barnett, that is what was24 shown on Exhibit 8, the top of the structure?25 A. Yes. That is the mapped interval.

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1 MR. JOHNSON: We would offer Exhibit 9.2 EXAMINER ENQUIST: 9 is admitted.3 (Whereupon, Chesapeake Exhibit No. 9 was4 admitted.)5 MR. JOHNSON: Now we would like to have6 marked as Exhibit 10 an isopach map. I think that has7 already been passed out.8 Q. (By Mr. Johnson) Mr. Jackson, could you9 explain how you prepared Exhibit 10 and what it shows?

10 A. Yes. Exhibit 10 is an isopach thickness map11 of the Barnett formation. We have one control point12 within the area of this map, 385 feet of thickness, and13 that is the total Barnett thickness, and the contours14 are generated from the larger database. But it shows15 that we should average somewhere between 375 to 40016 foot thickness of Barnett in the subject area.17 Q. And this exhibit has the same outline of the18 Barnes Assembly "A" Unit and shows the 3-H well?19 A. That is correct.20 MR. JOHNSON: We would offer Exhibit 10.21 EXAMINER ENQUIST: No. 10 is admitted.22 (Whereupon, Chesapeake Exhibit No. 10 was23 admitted.)24 MR. JOHNSON: Pass the witness.25 EXAMINER ENQUIST: Do you have a further

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1 witness?2 MR. JOHNSON: Yes. We would call3 Mr. Dave Henson.4 DAVID HENSON,5 having been first duly sworn, testified as follows:6 DIRECT EXAMINATION7 BY MR. JOHNSON:8 Q. Please state your name, by whom you are9 employed and in what capacity.

10 A. My name is David Henson. I am a senior11 reservoir engineer for Chesapeake Energy.12 Q. How long have you been with Chesapeake?13 A. I have been with Chesapeake about just past14 four years.15 Q. And could you briefly state your education and16 relevant work history?17 A. Sure. I graduated from the University of18 Wyoming in 1980 with a bachelor of science degree in19 petroleum engineering. I have been employed by three20 companies, Tenneco, UNOCAL, and now Chesapeake. I have21 been employed full-time for the last 30 years doing22 reservoir engineering.23 Q. And is this the area of the state that is24 under your supervision as a reservoir engineer?25 A. Yes, sir.

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1 Q. Have you prepared a study to present to the2 Railroad Commission today?3 A. I have.4 MR. JOHNSON: We offer Mr. Henson as an5 expert reservoir engineering witness.6 EXAMINER ENQUIST: Mr. Henson is accepted7 as an expert petroleum engineer.8 Q. (By Mr. Johnson) Okay. Mr. Henson, have you9 prepared an exhibit to estimate the gas in place for

10 this unit?11 A. Yes, sir, I have.12 MR. JOHNSON: We would like to have that13 marked as Exhibit 11.14 Q. (By Mr. Johnson) Mr. Henson, using Exhibit15 11, could you explain the calculations and the sources16 of the data that you used to calculate the gas in place17 for the Barnes Assembly "A" Unit?18 A. Yes, sir. One of my jobs is to try to predict19 the amount of gas that will be recovered from not only20 a well but for a unit. This is a fairly new area21 without a lot of production in it. We have been very22 fortunate here that we have a pilot hole which is23 called the Campbell 1-P. If you look at the geological24 exhibit, it's just to the very north of that exhibit.25 It's a little over a mile away. And by drilling pilot

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1 holes what we can do is we can go in and we can core2 those wells. We can log those wells and extract a lot3 of information that helps us determine what kind of4 shale is in that area and what kind of recovery we5 might expect from wells were they to be drilled in that6 area.7 Based on the pilot hole, the Campbell8 1-P, we were able to extract all of the information9 that is tabulated there at the top, thickness,

10 porosity, the gas content of the shales, all of those11 things, and then we go in and we use that information12 to calculate using industry standard volumetric13 equations how much gas might be recovered from a well14 in the particular area.15 Shales have two components to the16 volumetrics. One is a free gas calculation, one is an17 absorbed gas calculation. And you need to calculate18 both of those, add them together to come up with the19 gas in place, and then you apply a recovery factor to20 come up with the recoverable.21 Very quickly, the free gas calculations22 for this unit show that we would potentially have gas23 in place of 53.7 Bcf. The absorbed gas in this unit is24 24.5 Bcf. Adding those two numbers together, it says25 that the total gas in place for the whole Barnes

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1 Assembly unit is just over 78 Bcf. And then based on2 the recoveries we have seen in the Barnett and some of3 our other operations, I have applied a 30 percent4 recovery factor to that total gas in place. And so5 that nets down to what we call recoverable gas in6 place, which would be the bottom line there, which is7 23-and-a-half Bcf.8 MR. JOHNSON: We would offer Exhibit 11.9 EXAMINER ENQUIST: 11 is admitted.

10 (Whereupon, Chesapeake Exhibit No. 11 was11 admitted.)12 Q. (By Mr. Johnson) Mr. Henson, have you13 prepared an exhibit to estimate the amount of gas that14 is recovered per foot of lateral in this area?15 A. Yes, sir.16 MR. JOHNSON: We would like to have that17 marked as Exhibit 12.18 Q. (By Mr. Johnson) Could you describe Exhibit19 12 and what you show on it?20 A. Okay. This is another predictive tool that we21 use to help look at the reserve potential for an area.22 It's a plot of -- on the Y axis we are plotting gross23 expected ultimate recovery in millions of cubic feet.24 And on the X axis or along the bottom we are plotting25 effective lateral length in feet.

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1 And what I have done, I have gone in and2 I had to go out about five miles to find enough wells3 that are actually producing to make this a4 representative and a realistic sample set. But by5 going out a five-mile radius from the Barnes Assembly6 "A" Unit, I was able to find 55 wells that are7 producing. I took the expected ultimate recovery from8 those wells, plotted it against the lateral length of9 those wells and was able to come up with a trend line

10 which I am going to then use to predict based on the11 lateral length of subsequent wells what type of12 recovery we might expect.13 MR. JOHNSON: We would offer Exhibit 12.14 EXAMINER ENQUIST: No. 12 is admitted.15 (Whereupon, Chesapeake Exhibit No. 12 was16 admitted.)17 Q. (By Mr. Johnson) Mr. Henson, have you18 prepared a plat showing the wellbore and the portion of19 which is not regular to offsetting tracts?20 A. Yes, sir.21 MR. JOHNSON: We would like to have that22 marked as Exhibit 13.23 Q. (By Mr. Johnson) And Mr. Henson, did you use24 the plat that Mr. Jacobson used to show the unit and25 the location of the well?

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1 A. Yes, sir.2 Q. Now, the change in this, there is a red line3 on it?4 A. Correct.5 Q. Could you explain what Exhibit 13 shows?6 A. This shows the path of the lateral. And the7 highlighted red area is the amount of the lateral that8 we will not be able to complete without a Rule 379 exception. There is a little arrow from the northeast

10 corner of the closest tract. And my point of this is11 that I am making sure that I am 330 feet away from any12 unleased tracts. So the red portion of that lateral is13 what a subsequent exhibit is going to show you would be14 the portion of the lateral that we could not perforate15 without a Rule 37 exception.16 MR. JOHNSON: We would offer Exhibit 13.17 EXAMINER ENQUIST: No. 13 is admitted.18 (Whereupon, Chesapeake Exhibit No. 13 was19 admitted.)20 EXAMINER ENQUIST: Let me ask Mr. Henson21 a question. I don't know if you are the right fellow22 to ask. The prior application there was a permit23 granted, and I was unclear on whether or not the permit24 was granted for the entire length of the present25 wellbore. It was certainly noticed up to the beginning

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1 of the subdivision at a regular location. And that2 prior granted permit, was the entire length of the3 wellbore we are looking at here today permitted?4 THE WITNESS: I am not sure I follow the5 question, sir.6 EXAMINER ENQUIST: I believe the well was7 spudded, according to Commission records, September8 25th. So we have a well that has been drilled.9 THE WITNESS: Correct.

10 EXAMINER ENQUIST: And I wasn't sure if11 the prior application, using your Exhibit 13, if the12 well had only been drilled down to the beginning of13 this neighborhood or if it had been drilled to the14 ultimate bottomhole location.15 THE WITNESS: The well has been drilled16 to the plugback or proposed bottomhole location as17 shown on the exhibit. So the whole lateral length has18 been drilled at this time.19 EXAMINER ENQUIST: Okay. And it was20 permitted as such in the prior application?21 THE WITNESS: Yes, sir.22 EXAMINER ENQUIST: All right. Thank you.23 Q. (By Mr. Johnson) And this well has not been24 completed; it has not been perforated?25 A. No. No, it has not been completed.

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1 Q. As Mr. Spencer testified, this well is2 regularly permitted to drill that length, lateral3 length?4 A. Yes, sir.5 Q. And the purpose of this hearing is to obtain a6 permit to perforate the colored, shaded red portion of7 the drainhole?8 A. Correct.9 Q. Okay.

10 EXAMINER ENQUIST: If I have not already11 admitted 13, it is admitted.12 Q. (By Mr. Johnson) Have you prepared a13 calculation of the amount of unrecovered reserves based14 on whether or not this Rule 37 application is granted?15 A. Yes, sir, I have.16 MR. JOHNSON: We would like to have17 marked as Exhibit 14 what is denominated as an18 unrecovered reserves analysis.19 Q. (By Mr. Johnson) Mr. Henson, could you20 explain the numbers that you put on Exhibit 14 and what21 they show?22 A. Yes, sir. Hopefully this is a little easier23 to follow than my previous exhibit. Very simply, I am24 taking the slope of the graph that I introduced as25 Exhibit 12, I am plugging in the different lateral

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1 lengths versus -- and then using the graph or the2 equation to calculate at any given lateral length what3 would the potential reserves be for a well of that4 length.5 So the first calculation would be6 assuming we were able to complete and perforate the7 entire lateral from the proposed upper perf point to8 somewhere near the bottomhole location. I might9 mention that these numbers were not surveyed. They are

10 very good estimates. We didn't have a survey done for11 this. So I am estimating about 3600 feet of potential12 perforated lateral should we be granted the exception.13 And based on the graph and the equation that came out14 of that graph, that says that the total lateral should15 recover about 4.6 Bcf.16 I then did the same mathematics by17 excluding the red area on the previous exhibit, and18 without the red area we would have an effective lateral19 length of 2181 feet. And again using -- plugging that20 into the same equation up above, it says that our21 recovery for that length of lateral would be 2.86 Bcf.22 And just by subtracting those two numbers, it shows23 that without the Rule 37 we would not be able to24 recover 1.74 Bcf.25 Q. If this well is not allowed to be perforated

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1 in the red zone, will there be -- that is the amount of2 avoidable physical waste that will occur?3 A. Yes, sir.4 Q. And is there any other way through any other5 well to recover this 1.74 Bcf of gas?6 A. No, sir.7 Q. Could you explain that?8 A. Well, just by looking at the plat, you can see9 that it's almost impossible to get a well of this

10 length into that neighborhood without requiring some11 type of a Rule 37 hearing. We also, as was previously12 mentioned, have hopes to fully develop this unit with13 somewhere between five and six wells ultimately. So14 just in terms of, you know, the spacing and the15 location and the viability of where we could drill this16 first well, I don't believe that we had any -- really17 any other alternative than to spot it where we did.18 Q. Okay. And all the other wells that you19 permitted are also going to be necessary to recover20 hydrocarbons from this unit?21 A. Right.22 Q. It requires more than one well on most units23 to recover all the hydrocarbons?24 A. It does. In this case we estimated25 recoverable gas in place of around 24 Bcf and I'm

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1 estimating well recoveries between four to five Bcf.2 So that tells you that you will probably need five to3 six wells of that caliber to recover all of the4 reserves under this unit.5 Q. So is the full length of the Barnes Assembly6 "A" 3-H well necessary to prevent confiscation of7 resources leased by Chesapeake?8 A. I believe so, yes.9 MR. JOHNSON: I offer Exhibit 14.

10 EXAMINER ENQUIST: No. 14 is admitted.11 (Whereupon, Chesapeake Exhibit No. 14 was12 admitted.)13 EXAMINER ENQUIST: Let me ask Mr. Henson,14 on your Exhibit 13 you show some short laterals for the15 1-H, 2-H and 4-H. Are those permitted?16 THE WITNESS: Those are short permits, I17 believe. Short lateral permits, I believe, to get the18 process started. I don't believe that is where the19 actual location of the wells will ultimately be.20 EXAMINER ENQUIST: Okay. So you do have21 permits for those?22 THE WITNESS: Yes, sir.23 EXAMINER ENQUIST: Thank you.24 MR. JOHNSON: Pass the witness.25 EXAMINER ENQUIST: Do you have another

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1 witness?2 MR. JOHNSON: We have a rebuttal witness3 depending on if there is testimony from the4 protestants.5 EXAMINER ENQUIST: All right. Mr. McBee,6 at this time you could cross. We have had witnesses7 Bill Spencer, Isaac Jacobson, Alan Jackson, and David8 Henson. We have been here almost an hour-and-a-half.9 Would this be a good time to take a break for lunch?

10 Is that acceptable to you?11 MR. MCBEE: That is fine with me.12 EXAMINER ENQUIST: All right. Let's take13 a break and come back -- we have a short day here, so14 do the parties prefer to take a one-hour break or an15 hour-and-a-half?16 MS. CARTER: One. I have a long drive17 back.18 EXAMINER ENQUIST: All right. Let's come19 back at 12:30.20 (BREAK.)21 EXAMINER ENQUIST: We are back on the22 record. I think there was a misconception I probably23 left when we broke for lunch. I said we had a short24 day. Some people may have taken that as meaning we are25 going to close early today or quit at 3:30 or

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1 something. That's not what I meant. I just meant that2 we had started at 10:00 instead of 9:00 o'clock so we3 had fewer hours.4 We are ready to go forward. Mr. McBee,5 before you start, are you returning?6 MR. MCBEE: No.7 EXAMINER ENQUIST: I get to cut you a8 little slack, then. We will take the first witness you9 want to cross-examine at this point.

10 MR. MCBEE: Mr. Bill Spencer, please.11 EXAMINER ENQUIST: Mr. Spencer.12 MR. MCBEE: Since there is a number here,13 I will letter mine if that is all right.14 EXAMINER ENQUIST: Numbering will be15 fine. This is your cross-examination exhibit.16 MR. MCBEE: Okay.17 THE REPORTER: This will be your18 Cross-Examination Exhibit 1.19 MR. MCBEE: Exhibit 1, Cross-Exam Exhibit20 1.21 MR. JOHNSON: Is there a party that it is22 tied to? Is it Ms. Harris, Ms. Carter?23 MR. MCBEE: I guess it is tied to the24 entire group.25 MR. JOHNSON: Yes. Okay. So could we

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1 put Protestants Cross 1?2 MR. MCBEE: Yes.3 BILL G. SPENCER,4 having been first duly sworn, testified as follows:5 CROSS-EXAMINATION6 BY MR. MCBEE:7 Q. Mr. Spencer, what you have in front of you is8 a reprint from yesterday's Railroad Commission website9 on a permit that was issued September 24, 2009 for the

10 Assembly Barnes "A" 3-H Unit. What we are trying to11 establish here is I would like to get it clear in my12 mind, clear in the unleased mineral owners' mind as to13 what a regular location would be as opposed to an14 irregular location. And you are a local expert on15 plats and applying for permits. Can you explain what a16 regular location would be and an irregular location?17 A. Well, in my experience when somebody refers to18 a regular location, it is a well that is drilled in19 compliance with the field rules for the field in which20 it's being permitted or is permitted within the21 confines of the field rules. An irregular permit would22 be one that would either be a Rule 37 or a Rule 3823 exception or could possibly be a Rule 39 exception.24 Q. In the case of the special Barnett Shale field25 rules, that would be 330 feet to an unleased mineral

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1 owner as far as from the wellbore would be an irregular2 well if you had unleased mineral owners within that 3303 feet; is that correct?4 A. That is correct.5 Q. A regular wellbore would be one that didn't6 affect an unleased mineral owner?7 A. It would be perforated at least 330 feet from8 any unleased mineral owner or a unit line.9 Q. The purpose of this particular exhibit from

10 September 24, 2009 is that Chesapeake applied for and11 received a permit for the Barnes Assembly "A" 3-H, and12 was it or was it not a regular permit to produce the13 Barnes Assembly "A"?14 A. Yes, it is.15 Q. Okay.16 A. For the Barnes Assembly "A" Well No. 3-H.17 Q. Okay. What you have in front of you now,18 Mr. Spencer, is also a reprint from the website and it19 shows an amended permit that was issued to Chesapeake20 on September the 20th, 2010, a good deal of time after21 the first permit was issued. And this one, can you22 tell me was it a regular or irregular well permit?23 A. It was a Rule 37 exception.24 Q. In what regard?25 A. It was a Rule 37(h)(2)(B).

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1 Q. And what does that cover?2 A. It says that in the permit.3 Q. What does the (h)(2)(B) cover?4 A. That we were too close to a lease line and5 waived ourselves.6 Q. Okay. Were you within 330 feet of any7 independent mineral owner down at the bottom of that8 well.9 A. Within the Barnes Assembly "A" 3-H Unit?

10 Q. Yes.11 A. No.12 Q. Okay. And also noted on this particular plat13 you completely changed the Barnes Assembly "A" Unit to14 include a very large residentially platted area. Is15 that true?16 A. Correct.17 Q. So this was a Rule 37 application but it did18 not involve any of the residential lot owners down on19 the southern end of the wellbore. Is that true?20 A. That is correct.21 Q. Thank you.22 MR. MCBEE: This is Exhibit No. 3.23 MR. JOHNSON: We are calling these24 protestants cross?25 EXAMINER ENQUIST: We are labeling it

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1 Protestants Cross-Examination Exhibits 1, 2 and 3 so2 far.3 MR. JOHNSON: Okay.4 Q. (By Mr. McBee) Now what you have front of5 you, and I will admit that the map on the back may be6 incorrect, but it is the third permit issued to7 Chesapeake on the Barnes Assembly 3-H Unit, Barnes8 Assembly "A" 3-H Unit, wherein the wellbore length was9 increased to include the residential area to the south.

10 And then also when you applied for this permit you11 agreed not to perforate, based on the previous permit.12 And so the lower perforation point, the PLP point, was13 exactly the same as it was on the second permit but on14 this one you increased the wellbore to include the15 residentially platted property to the south; is that16 correct?17 A. Well --18 Q. I have a copy of the correct plat.19 A. Yes, that is what is confusing me. The plat20 that is attached isn't the right one.21 MR. JOHNSON: Could we get the correct22 exhibit so we don't confuse the record?23 MR. MCBEE: Well, the exhibit that is24 important is the permit. It's the third approved25 permit for the Barnes Assembly "A" 3-H well.

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1 EXAMINER ENQUIST: So can we remove the2 plat?3 MR. MCBEE: Yes. I am going to show this4 plat. If you want a copy of this one we will make a5 copy. I am going to show it to Mr. Spencer.6 EXAMINER ENQUIST: Let me -- just to7 clarify the record, Protestants Cross Exhibit No. 3 has8 the permit to drill and attached to it was a plat.9 Now, this morning I did go look at that filing and

10 there were two plats for this permit, and one plat11 showed a short wellbore distance and the second plat12 showed a longer wellbore distance. Mr. Spencer has13 just indicated that this plat that we had attached to14 No. 3 is not the correct plat. Is that correct?15 THE WITNESS: It's not the correct plat16 for this permit.17 EXAMINER ENQUIST: Okay.18 MR. MCBEE: It is the plat that is on the19 Railroad Commission website, as you pointed out, and20 there are --21 EXAMINER ENQUIST: There are two plats on22 the Commission website and this is one of them.23 THE WITNESS: I believe this plat was24 used for the tract identification for the P-12, not for25 the permitting of the well. Because you can tell the

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1 difference in them. The one that's used for permitting2 the well does not have tract identifiers on it.3 EXAMINER ENQUIST: And is that the plat4 you are going to give us next, Mr. McBee?5 MR. MCBEE: No. I just gave it to him to6 identify in that all they really changed from the7 approved Permit No. 2 to the approved Permit No. 3 was8 they lengthened the wellbore. They left the lower9 perforation area and the upper perforation area

10 identically the same. And I don't think they were11 being truthful with the Railroad Commission in that12 they said that they could drill this well, they could13 produce the gas for this unit and not perforate close14 to the mineral interest property. They never did that.15 And yet the wellbore is still within 330 feet of16 unleased mineral owners.17 MR. JOHNSON: Mr. Examiner, is Mr. McBee18 testifying or is he cross-examining?19 EXAMINER ENQUIST: Mr. McBee is doing the20 best job he can without being an attorney, so let's21 just let it go right now. You can pick it up on22 redirect.23 Mr. McBee, your Exhibit No. 3 I am going24 to detach this plat because apparently it is not the25 correct plat that is on the website. And you don't

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1 have the second one?2 MR. MCBEE: I don't but I will be happy3 to get it to you and refile it with a letter.4 EXAMINER ENQUIST: Okay. It's a5 Commission document. It's on the website. I will take6 official notice of the second plat under this permit.7 MR. MCBEE: Thank you very much.8 EXAMINER ENQUIST: And Mr. Spencer, the9 second plat under this permit is the correct plat for

10 this permit?11 THE WITNESS: This plat is. They12 probably both are. This for the P-12 and this for the13 permit.14 EXAMINER ENQUIST: Right. So the plat15 that you are holding up is for the amended permit16 issued October 1st, 2010?17 THE WITNESS: That is correct.18 EXAMINER ENQUIST: All right. I will19 take official notice of the plat and we can print out20 copies of it.21 Q. (By Mr. McBee) And one final question.22 Permit No. 1, Permit No. 2, and Permit No. 3, any one23 of those could have been drilled and producing but24 Chesapeake chose not to do that until the Rule 37 case25 come up, and now you're contending that without a Rule

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1 37 exception you can't produce the Barnes Assembly "A"2 3-H well; is that correct?3 A. There was a lot in there. First I need to4 correct something else you said.5 Q. Okay.6 A. You said the perf points were the same. Your7 words were they are identical on 2 and 3. They are8 not. They did move. So I want to make that clear that9 I am not agreeing that they are the same.

10 Q. I stand corrected. They moved about three or11 four feet, yes.12 A. Well, they moved more than that. In any13 event, you said they were identical. I just wanted to14 clear the record, they are not identical.15 The third -- if I recall right, the third16 permit was filed for because we obtained a lease that17 allowed to us lengthen the lateral. Instead of18 stopping it short where we had under Permit 2, a lease19 was acquired that allowed the lateral to be drilled20 further to obtain additional reserves. That was the21 purpose for the extended lateral.22 EXAMINER ENQUIST: For my benefit, Permit23 2 is which one?24 THE WITNESS: The first amended permit.25 EXAMINER ENQUIST: The first amended

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1 permit granted October 1st?2 THE WITNESS: Granted September 20th.3 That is the first amended permit.4 EXAMINER ENQUIST: Okay.5 THE WITNESS: The one that was issued6 October 1st is the second amended permit.7 EXAMINER ENQUIST: All right. Thank you.8 Q. (By Mr. McBee) From the very beginning, even9 Permit 1, you had a well that you could produce, you

10 just chose not to?11 A. It is not like -- I don't make those12 decisions --13 Q. It was a regular well?14 THE REPORTER: Hang on. Please, one at a15 time for me. It will help.16 Q. (By Mr. McBee) Let me rephrase that. Was it17 or was it not a regular well in the definition of the18 Railroad Commission on Permit No. 1?19 A. Yes.20 Q. Thank you.21 MR. MCBEE: I'm passing out Exhibit 4.22 Q. (By Mr. McBee) Okay. What I am handling you23 now is as a reprint from the Railroad Commission24 website. The front page shows the well pad sites in25 the immediate area of the Barnes Assembly. And it

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1 shows some completed wells, it shows some that were2 permitted, not completed, according to the Railroad3 Commission website. And it also shows the detail of4 the Barnes Assembly West Carpo pad site that would5 indicate six, seven, eight, nine, 10, 11 wells; is that6 correct? Is that a correct detail?7 A. I believe so.8 Q. Okay. The first page in that packet behind9 the graphic is a permit that was issued January 31,

10 2011 for the Barnes Assembly "A" 1-H. Was that a11 regular well?12 A. Yes.13 Q. The third page back is a permit that was14 issued January 31, 2011 for the Barnes Assembly "A"15 2-H. Is that a regular well?16 A. Yes. It did not require an exception.17 Q. The next page is also another permit issued on18 January 31, 2011 for the Barnes Assembly "A" 4-H. Is19 that a regular well?20 A. Yes. Again, it did not require an exception.21 Q. And the last one I threw in for reference,22 because it's sort of -- this particular wellbore is on23 the Barnes Assembly "A" pad site but it is called the24 West Carpo. I don't pretend to know why you named them25 different from the same pad site. But this is the West

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1 Carpo 3-H well that was drilled from the same pad site2 as the Barnes Assembly "A" wells. And was this one a3 regular well?4 A. Was Carpo 3-H? Yes. It did not require an5 exception.6 MR. MCBEE: I have no further questions.7 Pass the witness.8 EXAMINER ENQUIST: Your last exhibit was9 Cross-Examination Exhibit No. 4?

10 MR. MCBEE: 4. Yes, sir.11 MR. JOHNSON: I am going to object to12 the -- he said it was from the Commission's website.13 It appears to have additions to what is on the14 Commission's website. We would object to those15 notations.16 EXAMINER ENQUIST: What notations are you17 talking about?18 MR. JOHNSON: Well, there are arrows19 drawn that looks like a portion of a map from the -- I20 don't know what -- Mr. McBee hasn't explained what it21 is. He says it is from the Commission's web page, and22 I don't think that's true. It says area gas wells,23 source Railroad Commission website, but, for example,24 there is something called East Carpo regular wells and25 there is an arrow drawn to a symbol. There is some

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1 labeled Barnes Assembly "A" and "B" West Carpo and an2 arrow. I do not believe -- I think Mr. McBee has3 misspoken if he says that is from the Commission's4 website.5 MR. MCBEE: The map is from the6 Commission's GIS map website.7 MR. JOHNSON: I would object to anything8 that is on this that is not from the Commission's9 website.

10 EXAMINER ENQUIST: So the annotations,11 did you put those --12 MR. MCBEE: I did.13 EXAMINER ENQUIST: You did?14 MR. MCBEE: Yes.15 MR. JOHNSON: Mr. Examiner, the problem I16 have is that he's acting as a representative, not as a17 witness. So am I going to have a chance to18 cross-examine him? I object to it unless this is --19 t