corporation commiss 9klah0ma...2011, an amended form 1002-a had been filed by still. the amended...

cILED BEFORE THE CORPORATION COM SSI

OF THE STATE OF OKLAHOMjURT CLERKS OFFICE - OKC CORPORATION COMMISS

APPLICANT: PABLO ENERGY II, LLC OF 9KLAH0MA

RELIEF SOUGHT: SPACING CAUSE CD

LEGAL DESCRIPTION: SECTION 7, TOWNSHIP 21 NORTH, ) 201103992 RANGE 3 EAST, NOBLE COUNTY, OKLAHOMA

ORAL REPORT OF THE ADMINISTRATIVE LAW JUDGE IN RESPONSE TO MOTION TO CHANGE VENUE

The Cause came on for hearing before Michael L. Decker, Administrative Law Judge for the Corporation Commission of the State of Oklahoma, on the 29th day of August, the 19th day of September, and the 7 1h day of November, 2011, at 9:00 a.m. in the Commissions Courtroom, Jim Thorpe Building, Oklahoma City, Oklahoma, pursuant to notice given as required by law and the rules of the Commission for the purpose of taking testimony and reporting to the Commission.

APPEARANCES: William H. Huffman, attorney, appeared on behalf of the Movants, the Estate of A. B. Still (Still), Tom D. Berry, U.S. Petroleum, Inc., Judith M. Kelly and Samuel M. Kelly; Charles L. Helm, attorney, appeared on behalf of Applicant, Pablo Energy II, LLC (Pablo or Applicant or Protestants) and HighMount Exploration & Production LLC (HighMount or Applicant or Protestants), and stated appearances for mineral owners Delles R. Eggers, Audrey J. Eggers, W. D. Eggers, and Betty French in support of the Applicant; and Richard A. Grimes, attorney, appeared on behalf of Chestnut Tree Investments LLC (Chestnut) and Remington Royalty LLC (Remington).

EXHIBITS: Exhibit A. Oklahoma Corporation Commission Form 1002-A, Myers #1 Well, November 14, 1975.

Exhibit B. Spacing Order No. 119392.

Exhibit C. IHS Energy Well Summary Report.

Exhibit D. IHS Energy Production Report, Myers #1 Well

ORAL REPORT OF THE ADMINISTRATIVE LAW JUDGE IN RESPONSE TO MOTION TO CHANGE VENUE CAUSE CD NO. 201103992

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Exhibit E. Amended 0CC Form 1002-A, Myers #1 Well, August 25, 2011.

Exhibit F. Well Log for Tier #1 Well, Sec. 7-21N-3E, Noble Co.

Exhibit G. Oklahoma Tax Commission Form 320-C, Myers #1 Well.

Exhibit H. Title Opinion, April 20, 2011, Sec. 7-21N-3E, Noble County, Oklahoma.

ADMINISTRATIVE LAW JUDGE'S RECOMMENDATION PURSUANT TO THE MOTION

The Motion to Change Venue should be DENIED. The plain meaning of Okla. Stat., tit. 17, Section 40.1(B)(3) must be applied, so that account is taken of the inconvenience of the respondent mineral interest owners within non-producing and producing leaseholds in the area covered by the Amended Application to establish a drilling and spacing unit for the Mississippi Lime in Section 7-21N-3E, Noble County, Oklahoma. Upon further consideration pursuant to the reopened proceedings in the instant cause, the ALJ determines that the inconvenience that would ensue to the majority of the respondent mineral interest owners in the application area by a change of venue to Tulsa must result in the recommendation that the Motion should be denied and venue should remain in the Western Regional Service Office in Oklahoma City.

FINDINGS OF FACT

1. Pablo filed CD 2011033992, which is an Application to delete Order 119392 insofar as it created 40 acre drilling and spacing units for the Mississippi Lime and Mississippi Chat common sources of supply underlying the NE/4 of Section 7-21N-3E, Noble County, Oklahoma, and to respace the Mississippi Lime common source of supply as a 640 acre drilling and spacing unit for all of Section 7-21N-3E, Noble County, Oklahoma. Thereafter, Pablo filed an Amended Spacing Application in CD 201103992, which deleted reference to the Mississippi Chat common source of supply and requested the deletion of Order


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119392 insofar as it created 40 acre drilling and spacing units for the Mississippi Lime common source of supply underlying the NE/4 of Section 7-21N-3E, Noble County, Oklahoma, and to respace the Mississippi Lime commons source of supply as a 640 acre oil (dewatering) drilling and spacing unit for all of Section 7-21N-3E, Noble County, Oklahoma. Also, thereafter, HighMount Exploration & Production LLC (HighMount) filed an Entry of Appearance and Request for Affirmative Relief, which adopted the Pablo application and announced HighMount's intention to proceed as the Applicant in CD 201103992.

2. On August 25, 2011, Still et al. (Movants) filed a Motion to Change the Venue of CD 201103922 from the Western Regional Service Office to the Eastern Regional Service Office, so the cause could be scheduled on the CD protest docket in Tulsa.

3. On August 29, 2011, the Movants presented the Motion to Change Venue on the Oklahoma City motion docket. Mr. Huffman argued that the Movants were mineral owners in the Mississippi common source of supply underlying the subject area. The Application was filed in Oklahoma City; however, the Movants would find it inconvenient to have the hearing occur in Oklahoma City. The Movants had retained a geologist in Tulsa. Currently, the Movants' interests were found in a tract spaced as a 40 acre drilling and spacing unit for the Mississippi Chat and Mississippi Lime common sources of supply. They owned rights in the Myers #1 well, which was producing from the Mississippi common source of supply. Since 1975, the well had been operated by A. B. Still Wel-Service Inc. and had been recovering oil at a rate of 3-4 BOD. Because of such long-term production history, the Movants desired to protect their interest in the Myers #1 well. As indicated, the Movants had retained a Tulsa-based geologist and planned to present an active protest. The Movants requested a change of venue to Tulsa. The initial scheduling of the hearing would occur in September 2011, but the application would be continued until the venue issue was resolved.

4. In opposition to the motion, Mr. Grimes called Doug Smith, petroleum land manager. Mr. Smith testified regarding the spacing application covering Section 7-21N-3E, Noble County, Oklahoma. The Application sought to vacate 40 acre spacing and establish a 640 acre unit for the Mississippi Lime common source of supply. Mr. Smith recited the mineral interest ownership of his family's companies covering 80 acres in SE/4 in Section 7-21N-3E. One entity was identified as Chestnut Tree LLC, which owned an interest through a mineral deed in the SE/4 of Section 7. Thereafter, Chestnut Tree had transferred 1/2 of its interest in SE/4 of Section 7 to Remington Royalty.

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Remington and Chestnut controlled 80 acres in the application area. Mr. Smith indicated he had only recently learned about the Motion to Change Venue. It was the Chestnut/ Remington position that it would be inconvenient to travel to Tulsa to participate in a protested spacing hearing. Chestnut/ Remington actively opposed the Change of Venue and would support the spacing application once presented.

5. Under cross-examination by Mr. Huffman, Mr. Smith stated the Chestnut/ Remington interests had been acquired in March 2011. Since that time, the companies had been actively involved with development plans for Section 7. The companies fully supported the spacing unit proposed by the Application. He agreed earlier in 2011, a similar Pablo spacing application had been the subject of a Change of Venue Motion, which had been granted. At that time, there had been no objection raised by Chestnut/ Remington. The first spacing application had been dismissed following the venue change.

Mr. Smith agreed that the A. B. Still Estate owned 10 acres in NW/4 Section 7. Accordingly, the Still family owned an interest in the Myers #1 well, which was producing from a portion of the Mississippi. He conceded the SE/4 of Section 7 did not have a well producing any hydrocarbons. If the 640 acre spacing unit were established, circumstances would arise whereby owners outside the original 40 acre spacing unit affecting the A. B. Still Myers #1 well might have grounds to share in production from the Myers #1 well. Mr. Smith indicated consultant Tiffany Stevens, a geologist, might be used as a witness by Chestnut/ Remington. Yet, as of August 29th he was not certain Ms. Stevens would be retained.

6. In opposition to the motion, Mr. Helm stated a 2011 title opinion demonstrated the Kelly interest described by Mr. Huffman was no longer valid. The opinion delineated the A. B. Still Estate, Tom Berry, and US Petroleum were present mineral owners in Section 7. Mr. Helm disputed Mr. Huffman's characterizations regarding the producing formation in the Myers #1 well. The Still Myers well #1 was producing oil from the upper portion of the Mississippi, which was spaced as the Mississippi Chat. The Pablo Application would exclude the Mississippi Chat from the impact of the requested 640 acre unit for the Mississippi Lime. Mr. Helm contended the Still Myers #1 well had produced from the Mississippi Chat throughout its history.

7. In response, Mr. Huffman stated the OCC's completion reports for the Myers #1 well indicated Mississippi Lime and other zones impacted by the spacing application were producing from the well.

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8. At the conclusion of the presentations, the ALl orally recommended the Motion to Change Venue be granted on the ground that the mineral owners requesting the change of venue were owners of a producing well potentially impacted by the spacing application. The Protestants announced they would take exception to the oral recommendation.

9. Thereafter, the Protestants filed a Motion to Reopen the Motion to Change Venue. The Motion to Reopen was heard on September 19, 2011. At that time, Mr. Helm argued that the counsel for the A. B. Still Estate had filed the Motion to Change Venue. The Protestants had not been successful in opposing the Motion. The AU, after considering arguments and witness testimony, had recommended approval of the Motion to Change Venue. However, because of representations made by the Movants' counsel, the Protestants decided to file a Motion to Reopen to address information not available on August 29, 2011.

The facts needing reconsideration were limited. The original Form 1002-A completion report for the Meyers #1 well, operated by A. B. Still Wel-Service, Inc. was a 1975 document, which showed the Myers well had been completed in the Wilcox formation. In April 2011, it was revealed by Mr. Huffman in an e-mail received by Mr. Helm, that the 1975 Form 1002-A had erroneously reported the Myers well had been completed in the Wilcox. On August 25, 2011, an amended Form 1002-A had been filed by Still. The amended Form 1002-A had been discussed during the August 29th motion hearing. Upon further review, however, the Protestants determined the amended Form 1002-A indicated the Myers #1 well had been completed in the Mississippi Chat.

The Protestants requested the opportunity to reopen the motion hearing to show Mr. Huffman's prior statements about the Mississippian formation were not accurate. Any misstatements indicating the Myers #1 well was producing from the Mississippi Lime should be clarified in the record, because the most current information showed the well was producing from Mississippi Chat. Mr. Helm stated the Myers well was not producing from the Mississippi Lime. He contended, in August, Mr. Huffman stated several times the Myers well was producing from the Mississippi Lime, but now admitted the amended Form 1002-A might demonstrate the well was producing from the Mississippi Chat. Mr. Helm reiterated the Myers ft 1 well was a Mississippi Chat producer; not a Mississippi Lime producer. The Pablo Application did not seek to space the Mississippi Chat; therefore, exclusion of Mississippi Chat from the application for a 640 acre spacing unit should thwart the standing of mineral owners in the Myers #1 well to object to the Application.

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The Protestants were compelled to seek the reopening of the venue hearing because it appeared the AL's recommendation had relied on a misunderstanding that the Myers #1 well was producing from a zone impacted by the spacing application. Mr. Grimes argued the original Form 1002-A indicated references to the Mississippi Lime at a depth of 4040-4060 feet. The 2011 amended Form 1002-A showed the Mississippi Chat was encountered at 4040-4060 feet.

10. In response, Mr. Huffman stated the Protestants' arguments failed to reach the fact the mineral owners in the Still Myers #1 well would be inconvenienced by a protest hearing in Oklahoma City. The mineral owners desired to present evidence and witnesses in the protest, so scheduling the hearing in Oklahoma City would be a burden for them. Mr. Huffman stated the Movants planned to demonstrate the top four (4) feet of the Mississippian zone was denoted as Mississippi Chat and the remainder of the formation was Mississippi Lime. Both formations were substantially fractured. A Mississippi Lime completion in any well might impact the Mississippi Chat. It was expected there would be a heavy fracture treatment on the Mississippi Lime in any new well in Section 7, which might impact the Mississippi Chat.

11. In response, Mr. Helm reiterated in the prior hearing it was explained the spacing application would be amended to omit reference to the Mississippi Chat. The Mississippi Lime and Mississippi Chat were spaced by the same order in the area inclusive of the NE/4 of Section 7, so the initial application had listed the Chat. The amended Application would eliminate reference to the Mississippi Chat. Allegations about the impact on the Myers #1 well were based on misstatements that the well was producing from the Mississippi Lime, when it was unquestionably producing from Mississippi Chat. Mr. Helm stated the inconvenience argument cuts both ways; it would be inconvenient for the Applicant and mineral owners supporting the Application to experience the change of venue to Tulsa. The inconvenience factors should weigh in favor of the Applicant and the majority of mineral owners in Section 7 who would support the 640 acre spacing unit.

12. Mr. Huffman responded that the close connection of the Mississippi Chat and Mississippi Lime should allow for reasonable concern about the impact on the Myers #1 well caused by a fracture treatment of the Mississippi Lime in any new well proposed for Section 7.

13. In further argument, Mr. Helm stated the location exception planned for the 640 acre unit proposed for Section 7 would keep the lateral portion of the well 990 feet away from the existing vertical well. The Applicant's engineering


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testimony would show the Mississippi Chat would not be impacted by the Mississippi Lime well planned for the 640 acre spacing unit in Section 7. The Applicant's objective was to reopen the Motion proceeding to clarify the record about the zone of completion in the Myers #1 well.

14. At the conclusion of the arguments, the AIJ recommended that Motion to Reopen the Motion to Change Venue should be granted. The Still Estate, et al., decided to not take exception to the AL's recommendation. Thereafter, the reopened hearing on the Motion to Change Venue was scheduled for November 7, 2011 on the Oklahoma City motion docket.

15. On November 7, 2011, prior to presenting a witness in the reopened hearing, Charles Helm stated the original applicant, Pablo, had assigned its interest to HighMount, which had filed an Entry of Appearance and Request for Affirmative Relief. HighMount would be taking over the application for Pablo. Also, Mr. Helm indicated several mineral interest owners in Section 7 had agreed for him to express their support of the spacing application and opposition to a change of venue to Tulsa. These owners were identified as Delles R. Eggers, Audrey J. Eggers, W. D. Eggers, and Betty French. In Section 7, Delles and Audrey Eggers owned 159 acres, W.D. Eggers owned 80 acres, and Betty French owned 3.25 acres.

16. Michael Davis, petroleum engineer, was called to testify for HighMount. Mr. Helm questioned the witness regarding his experience with geological evaluations required in the course of work as a petroleum engineer. As part of such work, Mr. Davis consistently functioned as both an engineer and geologist. Based on experience, Mr. Davis had been qualified as an expert witness at the 0CC in the field of geology, and had testified numerous times about geological opinions in 0CC proceedings. Mr. Davis qualifications to testify regarding geological opinions were accepted.

With regard to the instant Application, Mr. Davis had been retained by HighMount to conduct a geological and engineering study of the area. He had reviewed publicly available production information and the well logs from the area. He reiterated HighMount had taken over Pablo's interest and would be prosecuting the Application. HighMount maintained an Oklahoma City office and had retained an Oklahoma City land manager to testify about title and notice issues. Also, they had retained Davis and Kenney to prepare the technical case. As a result, there would be at least three (3) witnesses from Oklahoma City participating in a protested hearing.

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Mr. Davis had reviewed various documents pertaining to the Myers No. 1 well in Section 7. Particularly, he had reviewed the Form 1002-A for the well (marked Exhibit A). The 1975 completion report showed the Myers #1 well had been perforated and completed as an oil well in the Wilcox formation. A. B. Still Wel-Service Inc. was listed as the operator. Exhibit B was identified as 0CC spacing order No. 119392 which covered the NE/4 7-21N-3E, Noble County, Oklahoma. The order had been issued on February 10, 1976 in the Application, of A. B. Still and established 40 acre spacing for the Mississippi Lime and Mississippi Chat as separate common sources of supply. The Mississippi Chat was identified at 4030 feet and the Mississippi Lime was identified at 4060 feet.

The witness stated HighMount sought new spacing in the form of a 640 acre unit for the Mississippi Lime. The existing 40 acre units for the Mississippi Lime would be deleted and the formation would be respaced as 640 acre units. Mr. Davis explained the Mississippi Chat was a separate common source of supply from the Mississippi Lime and would not be impacted by the change of spacing.

The witness identified Exhibit D as an IHS Energy "Dwight's" Report dated April 2010 for the Myers #1 well listing Wilcox production. A. B. Still was listed as well operator. The Dwight's Report was consistent with the original Form 1002-A, showing production from the Wilcox formation. Exhibit C was identified as an IHS Energy Well Summary/ Database Report, which also showed Wilcox oil production from the Myers #1 well. Mr. Davis compared Exhibits A and C. Exhibit C listed more formations, consistent with common nomenclature for the area. He emphasized the IHS well summary did not show any Mississippi Lime production from the Myers #1 well.

Next, Mr. Davis identified Exhibit E as the Amended Form 1002-A of August 25, 2011, which had been filed by the representative of A. B. Still after Pablo instituted the instant Application. He reiterated the instant Application proposed establishing a 640 acre horizontal spacing unit comprised of Section 7 for the Mississippi Lime, but there was no proposed spacing for the Mississippi Chat. The A. B. Still representative had submitted the Amended Form 1002-A showing a Mississippi completion in the Myers #1 well. The completion interval was listed as 4040-4060 feet. It was observed by Mr. Davis that the Mississippi Chat had been perforated at 4040-4060 feet in the Myers #1 well.

It was Mr. Davis' opinion the Myers ft 1 well was not producing oil from the Mississippi Lime. The Mississippi Lime was shown to exist at 4066 feet,

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which was six (6) feet below the Mississippi Chat. The witness explained the Myers #1 well had never been reported to be a well producing oil from the Mississippi Lime. The well had been listed as an oil well producing from the Wilcox formation until the filing of the 2011 Amended Form 1002-A. Therefore, the Myers #1 well was producing from a common source of supply not covered by the Pablo/HighMount Application. With respect to production data, Mr. Davis stated in August 2011 there was no report of a well in Section 7 recovering oil from the Mississippi Lime.

17. Under cross-examination by Mr. Grimes, the witness stated there had been no submission of a Form 1000 Intent to Drill prior to the filing of Exhibit E; thus, there was no indication that the Myers #1 well had been reworked. The original Form 1002-A was not attached to the Amended Form 1002-A.

Mr. Huffman stated an objection to Mr. Davis' testimony on the ground that it failed to deal with the inconvenience issue, which would be the pertinent question in a venue determination. Mr. Helm said in response that A. B. Still Wel-Service Inc. had been the operator from 1975 to present; therefore, across the subsequent 36 years, the Myers #1 well had been erroneously reported to the 0CC as producing from the Wilcox formation. The Protestants desired to correct the record regarding the producing formation the Myers #1 well. The ALJ overruled the objection. Order 590084 reopened the motion hearing to explore the basis for statements made in the prior proceeding that the Myers #1 well might be completed in the Mississippi Lime.

Mr. Grimes continued with cross-examination. Mr. Davis stated A. B. Still had been in violation of the OCC's rules since 1975 because the operator had misreported the producing zone for the Myers #1 well on the original Form 1002-A.

18. Prior to commencing the Movants' cross-examination, Mr. Huffman stated A. B. Still had died in 2010. His son, Sam Still, had taken over the company and would be present at any protested hearing. With regard to the issue of how Mr. Davis' testimony related to the inconvenience of the Movants if the protest hearing were scheduled in Oklahoma City, the witness explained the Still Co. had been the operator of the Myers #1 well since 1975. Mr. Still would have been required to travel to Oklahoma City to conduct business. Mr. Davis agreed the Still Estate owned ten (10) mineral acres in Section 7. In addition, there were several more mineral owners in Section 7 who objected to an Oklahoma City hearing, because it would be inconvenient.


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Next, Mr. Huffman inquired if the witness had reviewed the Form 320-C filed with Oklahoma Tax Commission filed in 1975. Mr. Davis had not seen a copy of the OTC form; although he agreed an OTC printout for gross production taxes paid from the Myers #1 well indicated production from the Mississippi Chat. The AUJ requested that Mr. Huffman provide a copy of the OTC Form 320-C to the witness. After a brief recess, a copy of the OTC form was transmitted to the OCC's Oklahoma City office and marked as Exhibit G. Mr. Davis indentified the exhibit as a form requesting assignment of an OTC production number and was marked as filed on October 14, 1975. The form showed that the original OTC report listed the Mississippi Chat as the producing formation from the Myers #1 well. OTC had assigned a production number. The same OTC production number was listed on Exhibit E. Mr. Huffman contended A. B. Still had correctly reported the Myers #1 well to the OTC in 1975 as a Mississippi Chat oil producer. The witness agreed the IHS reports failed to observe from the OTC's records that the Mississippi Chat was the producing formation in the Myers #1 well.

Mr. Huffman questioned the witness regarding knowledge of HighMount's completion plans for the horizontal well proposed for Section 7. Mr. Davis explained that HighMount planned to case and fracture treat the new horizontal well. The witness agreed the Mississippi Lime and Mississippi Chat formations were close together. The witness agreed the log for the Myers #1 indicated natural fractures in the Mississippi Lime, but Mr. Davis stated the opinion that the fractures did not appear at the top of the zone, but at point eighty (80) feet into the Mississippi Lime. Mr. Davis was asked to review and identify Exhibit F, which was described as a log from the Tier #1, the immediate offset to the Myers #1 well. Mr. Davis agreed Exhibit F contained notations about a twenty (20) foot section of the Mississippi Lime which was indicated to be a "fractured" zone. Also, the Mississippi Chat was noted on the log as existing above the Mississippi Lime, with the Mississippi Lime indicated below the Mississippi Chat to a depth of 4200 feet.

Mr. Huffman inquired if a fracture treatment of the Mississippi Lime might cause an impact on the Mississippi Chat, to which Mr. Davis responded that it would be impossible to postulate about the situation without knowing the porosity of the two zones. Mr. Davis agreed the impact of a fracture treatment of the Mississippi Lime on the Mississippi Chat could create concerns for the operator of the Myers #1 well. In his opinion, the operator would need to take steps to ensure the fracture treatment of the Mississippi Lime would not impact the Mississippi Chat. Mr. Davis agreed the instant Application might prove to be a complex case. Horizontal development of the Mississippi Lime in the proposed 640 acre spacing unit might impact the

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owners of the Mississippi Chat well. Mr. Davis was aware Still had filed an Application in Tulsa to space the Mississippi Lime and Mississippi Chat as a single Mississippian common source of supply.

Mr. Davis agreed it was possible to determine from review of production information if communication existed between the Mississippi Lime and Mississippi Chat. However, well production tests from the area observed by Mr. Davis indicated the Chat and Lime were separate common sources of supply. The GORs from wells reviewed by the witness showed differences between the zones, which would not support the concept of communication. The wells reviewed by Mr. Davis were explained to be four (4) miles away from Section 7. The witness agreed differences in geological factors might exist because the Mississippi Lime could have different geological characteristics in one acre as compared to another. Mr. Davis concurred with Mr. Huffman's assertion that it would be necessary to fracture stimulate the Mississippi Lime to produce hydrocarbons. Although, because HighMount had just taken over the prospect, Mr. Davis was uncertain about the how the company planned complete the new well.

19. Under redirect questioning by Mr. Helm, Mr. Davis stated the OTC Form 320-C would have been prepared by the operator of the Myers #1 well. This was similar to 0CC requirements for the Form 1002-A, which the operator must prepare. Mr. Davis explained there was a notation on Exhibit G indicating an amendment to the form had occurred on "11-18-1975." It was apparent that in 1975, the operator had filed different information about the completion zone for the Myers #1 well on the OCC's form compared to the OTC form. Mr. Davis explained that the IHS reports showed production from the Wilcox as late as 2010.

With respect to Exhibit F, Mr. Davis stated the log from the Tier #1 well had been run in December 1964, and the Myers #1 well had been drilled in 1975. The Mississippi Chat and Mississippi Lime were demonstrated by the log of the Tier #1 well to be separate common sources of supply according to the 1964 test. In 1975, the A. B. Still Company had spaced the area on 40 acre drilling and spacing units, listing the Mississippi Chat and Mississippi Lime as separate common sources of supply.

Mr. Davis opined the operator of the Myers #1 well should desire to see the Mississippi Lime developed since the Mississippi Chat was producing oil. The potential for horizontal development of the Mississippi Lime on 640 acre spacing for recovery of oil would be beneficial to the mineral owners. In several areas across northern Oklahoma and southern Kansas, the use of 640 acre

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spacing to develop the Mississippi Lime with horizontal wells had proven to be a very prolific method of oil recovery. Insofar as HighMount was an Oklahoma City company and had retained Oklahoma City witnesses, it would be inconvenient for most of the mineral owners in the section to have a protested hearing in Tulsa.

20. Under cross-examination by Mr. Grimes, Mr. Davis agreed with the assertion that the motion proceeding had been reopened to correct the record regarding Mr. Huffman's prior statements about the producing zone in the Myers #1 well. Mr. Davis had reviewed the prior testimony in the motion proceeding. In Mr. Davis' opinion, Mr. Helm had pointed out that the Myers #1 well was producing from the Mississippi Chat, but Mr. Huffman had implied the well was producing from Mississippi Lime. It was apparent, however, that the producing interval in the Myers #1 well was actually the Mississippi Chat. Mr. Davis agreed there was no evidence that any potential impact on ownership rights in the Mississippi Chat spacing unit would be created by a separate spacing application for the Mississippi Lime formation. Under further questioning by Mr. Huffman, Mr. Davis stated the Mississippi Lime had been listed as an oil and gas zone on the Form 1002-A filed in 1975. Under final questioning by Mr. Helm, Mr. Davis reiterated the Amended Form 1002-A had not been filed until August 2011.

21. The Movants called Gary Pilgrim, geologist, who stated he was familiar with Myers #1 well and had reviewed all geological data from oil and gas wells in the area. In 2011, Mr. Pilgrim determined the Myers #1 well had been perforated and fracture treated in Mississippi Chat. In 1975, the OTC Form 320-C had been correctly filed indicating the Mississippi Chat to be the producing zone. Mr. Pilgrim was not aware of reasons why the OCC's Form 1002-A had been erroneously prepared in 1975.

With respect to the review of the logs for the Myers #1 well and other wells in the surrounding area, it was Mr. Pilgrim's opinion the top of the Mississippi Lime was a highly fractured formation. Further, Mr. Pilgrim opined that the Mississippi Chat and Mississippi Lime were in communication. Therefore, any fracture treatment of the Mississippi Lime would likely impact Mississippi Chat production from the Myers #1. If the proposed horizontal well was drilled too close to the Myers #1, there could be a detrimental impact on the mineral interest owners in the Myers #1 well.

Mr. Pilgrim responded to inquiry about Exhibit F, the log for the offset Tier #1 well. In his opinion, the notations on the log were likely the notes of the log analyst in 1964. Such notes indicated the top of the Mississippi Lime

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was found to be a fractured formation. In Mr. Pilgrim's opinion, the log for the Myers #1 well showed the top of the Mississippi Lime to have 9% porosity. He reiterated the Mississippi Lime and Mississippi Chat might be in communication below Section 7.

Mr. Pilgrim reiterated prior statements of counsel that the A. B. Still Estate had instituted an Application on the Tulsa docket, which proposed amendment of the spacing nomenclature for the Mississippi Lime and Mississippi Chat, so that a single common source of supply would be spaced as the Mississippian. It was Mr. Pilgrim's opinion that a change of venue to Tulsa was justified to provide a convenient location for the protest hearing by the A. B. Still Estate and other owners in the Myers #1 well.

22. Under cross-examination by Mr. Helm, the witness explained he had obtained professional education as both an attorney and geologist and maintained business offices in the Levinson Building in Tulsa. As a geologist, Mr. Pilgrim had reviewed well information provided by the Still Estate and determined the Myer #1 well was producing from the Mississippi Chat. From past conversations with A. B. Still, Mr. Pilgrim was aware the operator believed the wells in Section 7 were producing from the Mississippi Chat. Mr. Pilgrim's inquiry regarding the well records for the Myers #1 well had been conducted in 2011 once Pablo had filed its spacing application. At that time, Mr. Pilgrim had observed no information about Wilcox perforations was present in the OCC's records. Also, he realized the IHS reports showed the completion in the Wilcox. Once Mr. Pilgrim reviewed the records following the filing of Pablo's application, he advised the Still Estate to correct the OCC's records for the Myers #1 well. He agreed there had been no recommendation to change the OCC's records until the Pablo application had been set for the protest. Mr. Pilgrim described his educational background, stating that he had obtained an associate degree in petroleum engineering and BS degree in geology. The Still Estate was not concerned about the lack of a fair hearing, but simply did not desire to travel to the protest hearing in Oklahoma City. The Still family members who would participate in the hearing would find Tulsa more convenient because they resided closer to Tulsa.

23. Under cross-examination by Mr. Grimes, Mr. Pilgrim considered whether the pending Mississippi Lime spacing application would have an impact on ownership rights in the Myers #1 well. In Mr. Pilgrim's opinion, a potential impact existed affecting the Mississippi Chat as a result of the horizontal development of the Mississippi Lime in Section 7. Mr. Pilgrim explained he was not suggesting the Mississippi Lime was producing in the Myers #1 well. The OCC's records demonstrated the producing zone had been originally reported

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as the Wilcox; however, the 2011 Amended Form 1002-A listed the Mississippi Chat as the producing zone. With regard to the impact on the ownership rights caused by a change of spacing of Mississippi Lime, Mr. Pilgrim agreed if the zones were spaced separately as Mississippi Chat and Mississippi Lime, there would be no impact on ownership rights in the Chat unit. If there was no change of ownership rights caused by the change in Mississippi Lime spacing, it was possible there would be no impact on correlative rights.

24. Under redirect examination by Mr. Huffman, Mr. Pilgrim reiterated the opinion, that if communication existed between the Mississippi Chat and Mississippi Lime, there would be an adverse impact on correlative rights in the Myers #1 well.

25. At the conclusion of the Movants' presentation, Mr. Helm stated the Eggers family members were opposed the change of venue. He recited the acreage position of the Eggers family in Section 7. The Eggers considered a change of venue to be inconvenient. Considering the acreage positions of previously described Section 7 mineral owners opposed to the Motion, it was apparent at least 320 acres supported the venue of the Application in Oklahoma City. The ALA requested a statement be obtained demonstrating the Eggers family's ownership in Section 7. The motion proceeding was continued to November 8, 2011 for the filing of the letter regarding the Eggers' family interest in Section 7. On November 8, 2011, the reopened hearing on the Motion to Change Venue was reconvened for the purpose of acceptance of Exhibit H, which was identified as a copy of a title opinion showing mineral ownership in Section 7. The exhibit was accepted.

CONCLUSIONS OF LAW AND RECOMMENDATIONS

1. Okla. Stat., tit. 17, Section 40.1(B)(3) provides, in part:

3. All hearings on any application including but not limited to appellate hearings shall be held in the regional service office where the application is filed unless:

a. in the case of an application protested by a respondent mineral owner, or surface owner having standing to protest by statute or by Rule of the Corporation Commission, holding the hearing in the regional service office would not be at the convenience of such respondent mineral owner, or surface owner, or

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b. the applicant and all protestants agree to have the Commission proceed to hear any case, or any portion thereof, during any stage of the proceedings, at any regional service office, or by telecommunication hearings, .

2. The instant Motion to Change Venue involves an Amended Application adopted by HighMount, which requests the vacation of the 40 acre drilling and spacing units and establishment of a 640 acre drilling and spacing unit for the Mississippi Lime common source of supply comprised of Section 7-21N-3E, Noble County, Oklahoma. The 640 acre spacing will be for the purpose of dewatering oil production of the Mississippi Lime formation through the drilling of a horizontal well.

3. The Movants seeking to change venue in the instant proceeding from the Western Regional Service Office to the Eastern Regional Service Office are owners of mineral interests in the Mississippi Lime common source of supply currently spaced on a 40 acre basis in the SE/4 NW/4 of Section 7-21N-3E. The Mississippi Lime is an uncompleted formation in a producing well known as the Myers #1 well, which is an oil well completed in the Mississippi Chat common source of supply. The Myers #1 recovers 3 to 4 barrels of oil per day from the Mississippi Chat formation. The Movants are Respondents to the Amended Application.

4. The Applicant and Protestants to the motion are mineral interest owners in the balance of Section 7 and support the establishment of a 640 acre drilling and spacing unit for the Mississippi Lime common source of supply. These interests are undeveloped in the subject formation, but represent in excess of 320 acres of mineral interest in Section 7, which is opposed a change of venue. The Protestants and the mineral interest owners supporting their opposition to the change of venue are Respondents to the Amended Application.

5. From the perspective of the legal effect of the pending spacing application, there may be no alteration of ownership rights in the Mississippi Chat common source producing from Myers #1 well in the 40 acre spacing unit comprised of the SE/4 NE/4 of Section 7. The rub arises from the fact the pending spacing application, however, will establish a 640 acre drilling and spacing unit for the recovery of oil through the dewatering of the Mississippi Lime common source of supply by the means of a horizontal well, which may cause physical effects on the Mississippi Chat.

6. The Movants assert that even though the producing formation in the Myers #1 well, the Mississippi Chat common source of supply, is not impacted by the

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proposed respacing of the Mississippi Lime common source of supply, the zones are closely aligned in the stratigraphic column underlying Section 7. The opinions espoused by the Movants' geologist and the Applicant's engineer indicate the potential exists that a heavy fracture treatment of the Mississippi Lime formation in a horizontal well drilled too close to the Myers #1 well could impact production from the Mississippi Chat in the producing well. According to these expert opinions, an adverse impact on the Myers #1 would most likely occur if two conditions arise: (1) The horizontal well in the Mississippi Lime formation is drilled too close to the pre-existing well; and (2) A fracture treatment of the Mississippi Lime formation creates communication with the Mississippi Chat formation significant enough to impact the production of the Myers #1 well.

7. When considering the language of a statute, the 0CC must apply the plain meaning of the words used by the Legislature. Pioneer Telephone Co-op. Inc. v. Oklahoma Tax Commission, 1992 OK 77, 832 P.2d 848, ¶17. "Where a statute's language is plain and unambiguous, no room exists for construction of its language." Blythe v. University of Oklahoma, 2003 OK 115, 82 P.3d 1021, ¶8, Footnote 9, citing Oldham v. Drummond Bd. of Ed., 1975 OK 147, ¶9, 542 P.2d 1309, 1311. Thus, "the plain meaning of a statute's language is conclusive except in the rare case when literal construction produces a result demonstrably at odds with legislative intent." Blythe, supra, ¶8, Footnote 10, citing Samman v. Multiple Injury Trust Fund, 2001 OK 71, ¶ 13, 33 P.3d 302, 307.

8. From these core principles, it is first apparent that the inconvenience of attorneys and expert witnesses is not relevant to the issue of the change of venue pursuant to Okla. Stat., tit. 17, Section 40.1(B)(3), unless such parties are respondent mineral owners or surface owners with standing to protest by statute or 0CC rule. The plain meaning of the statute demonstrates that the inconvenience of the Movants, Protestants, and mineral owners supporting the Protestants is the only factor to be weighed. Also, according to the plain meaning of the statute, the simple calculus to be applied shows that the greatest acreage position of the respondent mineral interest owners affected by the Amended Application supports the denial of the Motion to Change Venue. The Exhibit H title opinion provides ample proof that at least 320 mineral acres in the proposed drilling and spacing unit controlled by the Protestants and supporting mineral interest owners contend that a change of venue to Tulsa would create an inconvenient forum for the protested hearing.

9. Initially, prior to the reopened proceeding, the ALJ entered an oral recommendation to approve the Motion based on consideration of the

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inconvenience for the respondent mineral interest owners in the producing Myers #1 well in the SE/4 NE/4 of Section 7. In the past, the court has construed the OCC's authority over oil and gas conservation issues pursuant to Okla. Stat., tit. 52, Section 87.1 to place great weight on the protection of the correlative rights of mineral interest owners in producing leaseholds. See Cravens v. Corporation Commission, 1980 OK 73, 613 P.2d 442. Later, however, further construing Okla. Stat., tit. 52, Section 87. 1, the court expanded the OCC's authority to ensure the protection of correlative rights of owners of non-producing and producing leaseholds in an area incorporated in an application to establish a drilling and spacing unit. See Carlile Trust v. Cotton Petroleum Corp., 1986 OK 16, 732 P.2d 438.

10. The Carlile Trust ruling was incorporated into the OCC's notice rule for drilling and spacing unit applications by requiring that "the application and notice shall be served by the applicant no less than fifteen (15) days prior to the date of the hearing, by regular mail, each person or governmental entity having the right to participate in production from the proposed drilling and spacing unit or the existing drilling and spacing unit." See OAC 165:5-7-6(b). The changes wrought by Carlile Trust were certainly within the contemplation of the Legislature in 1990 when it enacted Okla. Stat., tit. 17, Section 40.1(B)(3).

11. The plain meaning of Okla. Stat., tit. 17, Section 40.1(B)(3), therefore, must be applied, so that account is taken of the inconvenience of the respondent mineral interest owners within non-producing and producing leaseholds in the area covered by the Amended Application to establish a drilling and spacing unit for the Mississippi Lime in Section 7-21N-3E, Noble County, Oklahoma. Upon further consideration pursuant to the reopened proceedings in the instant cause, the AW determines that the inconvenience that would ensue to the majority of the respondent mineral interest owners in the application area by a change of venue to Tulsa must result in the recommendation that the Motion should be DENIED.

RESPECTFULLY SUB MITT7' THIS 77f

MICHAEL L. DECKER ADMINISTRATIVE LAW JUDGE

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MLD:sc xc: Commissioner Murphy

Commissioner Anthony Commissioner Douglas Jim Hamilton Sally Shipley ALJ Michael Decker William H. Huffman Charles L. Helm Richard A. Grimes Office of General Counsel Oil Law Records Court Clerks - 1 Commission Files

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corporation commiss 9klah0ma...2011, an amended form 1002-a had been filed by still. the amended...

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