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BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOM A

APPLICANT : SCOTT ENVIRONMENTALSERVICES, INC .

RELIEF REQUESTED : DETERMINATIONTHAT UPON AN OIL AND GAS OPERATOR'SUSE OF THE APPLICANT'S FIRMUSOPROCESS ON OIL- OR WATER-BASED MUDAND CUTTINGS RESULTS IN A BENEFICIALUSE, AND THE ESTABLISHMENT OFCERTAIN TESTING AND REPORTINGREQUIREMENTS IN THE USE OFAPPLICANT'S FIRMUSO PROCES S

LEGAL DESCRIPTION : THE STATE OFOKLAHOMA

CAUSE PD NO . 201000109

ORDER NO.80014

INTERIMORDER OF THE COMMISSION

1 . Hearing Date and Place: 8 :30 a.m., the 6h day of October, 2010, Jim ThorpeBuilding, Oklahoma City, Oklahoma .

2 . Appearances: Eric R. King, Attorney, appeared for the Applicant, ScottEnvironmental Services, Inc . ; Keith Thomas, Assistant General Counsel for Conservation,appeared for the Commission .

3 . Companion Cause : None .

4. Notice and Jurisdiction: Applicant is a proper party and that the Commissionhas jurisdiction over the subject matter herein. Notice of the filing of the application herein andof the time, date and place of the hearing thereon was duly and properly given in all respects asrequired by law and the rules of the Commission . The Administrative Law Judge has examinedthe notices by publication, the publishers' affidavits of publication thereof, and the affidavits ofmailing. The Administrative Law Judge conducted a judicial and adjudicative inquiry into thesufficiency of the applicant's search to determine the names and whereabouts of the respondentswho were served herein by publication, and based on the evidence adduced, the Commissionfinds that Applicant and the Commission officials have exercised due diligence and haveconducted a meaningful search of all reasonably available sources at hand to ascertain thewhereabouts of those entitled to notice but who were served solely by publication . TheCommission approves the publication service given herein as meeting statutory requirements andthe minimum standards of state and federal due process so that notice has been given in allrespects as required by law and the rules of the Commission .

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5. Amendment: Applicant amended its, Application to request the Commissionenter an interim order effective for one year from the date the order is issued in October of 2010 .

6 . Re lief Reauested : Applicant requests :

a. the Oklahoma Corporation Commission grant state-wide approval for useof Applicant's Firmus(& process for treatment of oil-based and water-based mud and cuttings andfor the construction and use of temporary storage cells for storage of intermediates generated inthe course of the process and to establish that structures constructed by this process and meetingthe requirements stated in the Application herein are no longer within the scope of OAC 165 :10-7-27 & 29, since the substances and products no longer meet the definition of waste ordeleterious substances, subject however, to the conditions in Paragraphs ss - qq of theApplication herein ;

b. the Oklahoma Corporation Commission enter an Interim order effectivefor one year from October 6, 2010, which determines that use of Applicant's Firmuss process inre-cycling water-based mud and mud cuttings and/or oil-based mud and mud cuttings for use onlease roads, pipeline service and tank farm roads, well locations and production sites or otherstructures be approved on a statewide basis and that the by-product or material from the water-based mud and mud cuttings and/or oil-based mud and mud cuttings be determined to be abeneficial use; and

c. the Oklahoma Corporation Commission authorize and approve the selfimposed requested testing parameters and reporting requirements as recommended by Applicantset forth in the Application herein, and finally that the Oklahoma Corporation Commissiondetermine that this Application does not impact in any way the current OAC 165 :10-7-28 ruleand the ability of the County Commissioners to approve or disapprove the application of freshwater drill cuttings on county roads .

7. Reasons Relief Should Be Granted: Based on the testimony of the expertwitnesses and Exhibit I(A Pilot Study - Demonstration of a Firmusg Process prepared by SoilAnalytical Services, Inc .), Exhibit 2 (DCP test data from three Pilot Tests), Exhibit 3 (Plat, DCPtest data and photographs of non-treated mud cuttings on county roads showing oil residue),Exhibit 4 (photographs of FirmusO process treated roads showing no oil residue), Exhibit 5(statement from Oklahoma Department of Environmental Quality on uses of CCPs), Exhibit 6(Letter from Railroad Commission of Texas showing statewide permit for Firmus9), Exhibit 7(Report of Results for the Pilot Project), it was shown that :

a. According to Section 1-2 of Title 165, Chapter 10, of the OklahomaAdministrative Code ("OAC 165 :10-1-2"), "'Recycling' is the reuse, processing, reclaiming,treating, neutralizing, or refining of materials and by-products into a product of beneficial usewhich, if discarded, would be deleterious substances . "

b. Spent drilling mud and cuttings material from a drilling pit constitute"deleterious substances" according to the definition in OAC 165 :10-1-2 and in view of theextensive conditions placed in OAC :165:10-7-27, 10-7-28, and 10-7-29 on the disposal of spentdrilling mud and cuttings onto lease roads, drilling pads, firewalls, tank bases, and simila r

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constructed items needed in oil and gas ("O&G") exploration and/or production ("E&P")operations .

c. Through its testing and treatment of such deleterious substances,Applicant has extensive experience in changing them, using its FIRMUSO process, so that theresulting material is no longer "waste" nor a "deleterious substance" but instead one or moreconstructed items of beneficial use, such as lease roads, pipeline service and tank farm roads,well locations, and production sites, and other structures .

d. According to OAC 165 :10-7-24(b), recycling, which is part of option (1)in OAC:165 :10-7-24(c) ; county road applications, which is part of option (4) in OAC 165 :10-7-24(c); and application to lease roads, well locations and production sites, which is part of option(12) in OAC 165 :10-7-24(c), are all available options for disposing of:

i . Water-based mud, OAC 165 :10-7-24(b)(4); and

ii . Water-based mud cuttings, OAC 165 :10-7-24(b)(5); and

iii . Oil-based mud, OAC I65 :10-7-24(b)(6); and

iv. Oil-based mud cuttings, OAC 165 :10-7-24(b)(7); and

v. Crude oil, OAC 165 :10-7-24 (b) (8) ; and

vi. Crude oil contaminated soils, OAC 165 :10-7-24 (b) (28); and

vii. Waste crude oil and light hydrocarbons (gas condensate), OAC165:10-7-24 (b) (37) ; and

viii . Water or soil contaminated by refined product from E & Poperations OAC 165 :10-7-24 (b) (43) .

ix. Furthermore, OAC 165:10-1-2 defines "waste oil" to include "oilretained on cuttings as a result of the use of oil-based drillingmuds." Presumably this definition allows for disposal of thecuttings also, along with the oil, since the oil is described as"retained on cuttings . "

e. Under OAC 165 :10-7-24(c)(1), the only constraint on recycling undercurrent rules appears to be the general prohibition of pollution in OAC 165 :10-7-5.

f. According to OAC 165 :10-1-2, "'Pollution' means the contamination offresh water or soil, either surface or subsurface, by salt water, mineral brines, waste oil, oil, gas,andlor other deleterious substances produced from or obtained or used in connection with thedrilling, development, producing, refining, transporting, or processing of oil or gas within theState of Oklahoma. "

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g. The recommended approach to determining the likelihood of chemicalpollution from a low-permeability solid involves a leach test on a crushed sample of the low-permeability solid graded to a specified maximum particle size . As elaborated in EPA Bulletin625/6-89/022, p . 5-4, "Because of the crushed nature of the waste and the larger amount ofsurface area available for leaching, extraction tests, (although short-term) are used to simulate`worst case' leaching conditions . "

h. The maximum concentrations currently accepted by the EPA forevaluating most potentially hazardous constituents in leachates from remediated hazardous wasteare part of the "toxicity characteristic leaching procedure" or TCLP (EPA Method 1311 .) TCLPutilizes a buffered acetic acid solution to produce the leachate . A second method, called"synthetic precipitation leaching procedure" or "SPLP" (EPA Method 1312) utilizes a bufferednitric/sulfuric acid solution to produce the leachate . The SPLP extractant was designed to mimicacid rain and therefore is believed to be more relevant to the reuse of E&P waste forconstructions subject to weathering . The use of the SPLP procedure is not restricted to anyparticular set of standards for compliance . Therefore, a hybrid test as used in Texas, applying theleaching conditions and leachate composition from SPLP and using the compliance standardsfrom TCLP to evaluate whether concentrations of potentially damaging metal ions and benzeneare sufficiently low, is proposed . This hybrid has been accepted for this purpose by the RailroadCommission of Texas (RRC) in its permit to the applicant in this cause .

i . Another leaching test, the 7-day Leachate with neutral water described inLouisiana Statewide Order 29-B, has been used by regulatory agencies in Texas and Louisiana tocontrol for three constituents that are normally of interest in E&P closure and for which there areno established standards in the TCLP, specifically pH, chloride, and Total PetroleumHydrocarbons content . This also has been accepted by the RRC in its permit to the applicant inthis cause .

j. Applicant recommends the following limits, all measured in the leachatesas specified in Paragraphs h and i herein :

i. arsenic < 5.0 mg/liter;

ii . barium < 100 mg/liter ;

iii. cadmium < 1 .0 mg/liter ;

iv. chromium < 5 .0 mg/liter ;

v. lead < 5.0 mg/liter;

vi. mercury < 0 .2 mg/liter ;

vii. selenium < 1 .0 mg/liter ;

viii . silver < 5.0 mg/liter;

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ix. zinc < 5 .0 mg/liter;

X . benzene < 0 .5 mg/liter ;

xi. total petroleum hydrocarbons (C6 to C36) < 100 mg/liter TPH;

xii . chloride < 1750 mg/liter ; and

xiii. pH: 6-12.49 standard pH units.

k. Applicant recommends that in addition to these chemical characteristics ofthe leachate, a minimum unconfined compressive strength of at least 35 pounds per square inchand a maximum permeability of 10 -6 cm/sec for the representative solidified/stabilized sample berequired.

1. An Oklahoma E & P company provided oil-based mud and cuttings aswell as test sites which were used in a pilot study conducted by Applicant herein. Drilling wastesolids were chemically treated prior to solidification using the Applicant's Firmus(& process .

M . After treatment using the FirmusV process, test specimens were preparedin accordance with standard practice, mechanically tested and then fractured further to pass a9.5-mm mesh sieve . A portion of the material passing the sieve was used in generating the SPLPand seven day (7-day) leachate extracts .

n. The data clearly demonstrate the efficacy of the FirmusS process forsequestering metals and rendering them insoluble in simulated acid rain . TPH and chlorideswere also sequestered by the process . Chlorides in the leachate were dramatically lowered by theprocess, considering that water was used as the extract in determining total chloride .

o. All SPLP extracted metals and benzene passed the TCLP performancecriteria listed as standards imposed on the Firmus(V process . All specimens passed the 7-dayleachate test criteria for TPH, and the specimens properly tested according to protocol passed the7-day leachate test imposed for chloride .

p. When the Firmus0 process is used at the generation site, the resultingproduct is stabilized, is no longer a deleterious substance, and may be safely transported . Theresulting product will pass the criteria in numbered Paragraph j herein .

q. When the Firmus@ process is used at a receiving site, the transportation ofthe deleterious substance must be hauled by a licensed trucker who possesses a valid"Deleterious Transportation Permit . "

r. Accordingly, Applicant requests the Oklahoma Corporation Commissiongrant state-wide approval for use of Applicant's FirtnusS process for treatment of oil-based andwater-based mud and cuttings and for the construction and use of temporary storage cells forstorage of intermediates generated in the course of the process and to establish that structuresconstructed by this process and meeting the requirements stated above are no longer within th e

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scope of OAC 165 :10-7-27 & 29, since the substances and products no longer meet the definitionof waste or deleterious substances, subject however, to the following conditions in Paragraphs ss- qq herein.

s. An independent laboratory neither owned nor operated by the Applicant orthe generator of the waste shall conduct and report any analysis required by this requestedauthorization ;

t . The relief requested in this Application does not authorize the dischargefrom the treatment sites of any oil and gas waste, including contaminated storm-water ;

U. Material Safety Data Sheets for any chemical proposed to be used in thetreatment of waste must be submitted to the Oklahoma Corporation Commission PollutionAbatement Department ;

v. Any soil, media, or other debris contaminated by a spill of waste or anyother materials at the treatment sites shall be promptly cleaned up and processed through thetreatment cycle or disposed of in an authorized manner ;

w. Applicant shall make all records required by this permit available forreview and/or copying during normal business hours upon request of Oklahoma CorporationCommission personnel ;

X . Any storage cells at the drill sites and the location at the receiving sitesmay not be located :

i .

ii .

iv .

v .

vi .

vii .

Within a 100 year flood-plain .

In a streambed .

In a sensitive area.

Any storage cells at the drill sites and the location at the receivingsites must be located :

Above the top of the seasonal high water table .

At least 100 feet from surface water .

At least 150 feet from water wells .

Y . Any storage cells located at the drill sites shall be designed to preventstorm-water runoff from entering the area .

Z. The appropriate District Office must be notified in writing at least 48hours prior to treatment at any site outside of a tank or reserve pit . Notification must include thelocation of the site including when assigned at least one of : (i) the Lease Number, (ii) both Ga s

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I.D. Number and Well Number, (iii) API Number, (iv) county road number, and (vi) geodeticcoordinates (latitude and longitude) .

aa. Applicant shall notify the surface owner prior to placing the water-basedand/or oil-based mud and cuttings treated with the Firmuse process on the surface well site oringress and egress roads for treatment andlor re-use .

bb. Applicant shall obtain written permission from the respective CountyCommissioners prior to re-using the FirmusV process treated waste on county roads .

cc. Free standing wastewater from pits containing water-based mud andcuttings may be stored in separate storage cells without stabilization at the drill site . Suchwastewater should be disposed of in an authorized manner .

dd. Any waste (other than free-standing water) in all storage cells shall betested for salinity, metals, and hydrocarbons .

ee. Excess rainwater collected within a bermed area shall be removed anddisposed of in an authorized manner .

ff. Appropriate measures shall be taken to control dust at all times .

gg. A sample of the mixture of preliminarily treated or untreated mud andlorcuttings and final treatment material used to produce every 1,000 cubic yards of treated materialproduced at each re-use site shall be tested or analyzed as specified in Paragraphs h & i hereinabove:

hh. Any material not meeting the limitations in Paragraphs j and k herein shallbe returned to the mixing cycle and reprocessed if feasible, or otherwise disposed of in anapproved manner .

ii . Processed material meeting or exceeding process control parameters listedin Paragraphs j & k herein is suitable for use on lease roads, drilling pads, tank batteries,compressor station pads, county roads, and any other structure that satisfies the requirements ofan independent purchaser for such a structure .

J . Records shall be kept of all waste treated for a period of three (3) yearsfrom the date of treatment . These records should include the following :

Name of the generator .

ii . Source of the waste (Well name, Operator name and ID #, APInumber, and/or legal description) .

iii. Date the waste is treated.

iv. The volume of waste treated .

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v. The date if any that the waste is transferred to storage cell at thedrill site.

vi . Salinity and TPH of the treated waste and free standing wastewaterin any storage cells .

vii. Date if any that the treated waste is removed to a distinct re-usesite and the volume so moved .

viii . Date any freestanding wastewater is removed to the receiving siteand volume of such water .

ix. The name(s) of any carrier(s) that transport waste over public roadsfrom a preliminary treatment site to a re-use site .

X . Identification of the re-use site, including at least one of. the legaldescription of the well site, well name, API #, and Operator ; legaldescription of the county road and Road identification, if any ; leaseroad location; and geodetic location information (latitude andlongitude) .

xi . Documentation that the surface owner of the receiving location(whether well site or lease road(s)) has been notified of the use ofthe processed material on the surface owner's property if used onprivate land .

xii. Documentation that the County Commissioners have approved theuse of the processed material on the County roads if used on theCounty roads.

xiii . Copies of analyses demonstrating that the final processed materialhas met the limitations imposed in Paragraphs j & k herein.

xiv. Documentation indicating the approximate location whereprocessed material is used including a topographic map showingthe location of the area of re-use .

kk. A copy of the records required in Paragraph jj herein shall be submitted tothe Pollution Abatement Department of the Oklahoma Corporation Commission in OklahomaCity as part of the Semi-Annual Report required in Paragraph 11 herein . If no waste was treatedwithin a Reporting Period, a written statement indicating that no waste was treated must besubmitted to the Pollution Abatement Department of the Oklahoma Corporation Commission inlieu of the Semi-Annual Report otherwise required .

11 . Beginning three (3) months from the date of the Order entered in thiscause and every six (6) months thereafter, the Applicant shall submit a Semi-Annual Report

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Scott Environmental Services , Inc .Cause PD No . 201000109

containing applicable information as required in Paragraph jj for the initial three (3) monthperiod and then each six (6) month period thereafter .

mm. All reserve pits must be closed.

nn. All processed material must be applied if feasible or otherwise disposed ofin an approved manner.

00 . All unused free standing wastewater remaining in any storage cell at a drillsite shall be disposed of in an authorized manner .

removed .pp. All equipment must be removed from each site and any dikes leveled o r

qq. The contents of any vessels or other containers shall be disposed of in anauthorized manner .

rr. That Applicant's failure to comply with any provision of its requestedauthorization shall be cause for modification, suspension, or termination of this authorization ; theauthorization requested herein shall be subject to cancellation if the Pollution AbatementDepartment of the Oklahoma Corporation Commission determines that Applicant is in violationof the conditions of this authorization or if Applicant's operations pursuant to the authorizationare causing or allowing pollution of surface or subsurface water .

ss. As a comparison with currently used treatment for solidification, the"solidification" treatment of mud and mud cuttings is a process of mixing with lime kiln dust orfly ash. There are no performance standards . The Applicant's FirmusS process usescementitious solidification to treat mud and cuttings for beneficial reuse to construct countyroads, lease roads, pads, and other oil field structures . The appropriate mix of hardeningingredients is determined by bench scale studies and confirmed by performance testing on arepresentative sample .

tt . The main difference between Applicant's FirmusS process and the otherprocesses is that the former utilizes engineered cementitious solidification . There is strengthassociated with a FirmusS process that increases over time and restricts the structure'spermeability to water. Chlorides, metals, and hydrocarbons are sequestered in the matrix . Otherprocesses not using engineered cementitious solidification produce solids that are morepermeable to water and can much more easily add chlorides, metals, and hydrocarbons to groundwater.

uu. Petroleum hydrocarbons in contact with permeating water can degradeover time and under restricted aeration create a reducing environment. Some metals such asarsenic are basically insoluble and innocuous regardless of concentration under oxidizingconditions, but can change to labile and potentially toxic forms under reducing conditions .Applicant's Firmusg process reduces the potential for this type of reaction to occur by restrictingthe permeability to water and the availability of substrate petroleum hydrocarbon .

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vv. Under current rules, oil and gas operators and pipeline companies mayapply non-hazardous waste oil, waste oil residue or crude oil contaminated soil to lease roads,pipeline service roads and tank farm roads, well locations and production sites according to OAC165 :10-7-27 . There is no required treatment other than mixing solids into the road and workingliquids in, with no visible free-standing oil . There are no standards other than preventing runoffof oil into borrow ditches or adjacent areas . Also, County Commissioners may apply such wastematerials to streets or roads within the county under 165 :10-7-22 with similar lack ofrequirements for chemical analysis .

ww. In strong contrast to this, oil and gas operators, pipeline companies(according to OAC 165 :10-7-29), and County Commissioners (according to OAC 165 :10-7-28)that apply water-based drilling cuttings to soil must, according to part (e) of both rule sections,perform analyses of both the cuttings and the soil to which the cuttings are applied and controlthe rate of application per unit area of the cuttings so as to guard against the introduction ofpotentially hazardous constituents in excessive amounts .

xx. The only rational justification for having fewer requirements for disposalof oil-based cuttings than for water-based cuttings would be evidence or a belief that theconstituents in oil-based cuttings are less likely to contaminate the soil than the same constituentsin water-based cuttings. Applicant knows of no evidence to support such a conclusion and doesnot believe it.

yy. Applicant therefore requests new criteria for the application of waste oiland oil-contaminated soil .

zz. Accordingly, it is respectfully requested that suitable regulations for theuse of oil-based cuttings, as least as protective of the environment as the precautions nowrequired for use of water-based cuttings, be established by the Oklahoma CorporationCommission, to prevent pollution by disposal of oil-based cuttings .

8 . Relief Granted :

a. The Oklahoma Corporation Commission grants state-wide approval foruse of Applicant's FirmusV process for treatment of oil-based and water-based mud and cuttingsand for the construction and use of temporary storage cells for storage of intermediates generatedin the course of the process and to establish that structures constructed by this process andmeeting the requirements stated above are no longer within the scope of OAC 165 :10-7-27 & 29,since the substances and products no longer meet the definition of waste or deleterioussubstances, subject however, to the conditions in Paragraphs ss-qq herein .

b . The Oklahoma Corporation Commission approves on a statewide basis theuse of Applicant's Firmus(& process in re-cycling water-based mud and mud cuttings andlor oil-based mud and mud cuttings for use on lease roads, pipeline service and tank farm roads, welllocations and production sites or other structures .

c. The by-product or material from the water-based mud and mud cuttingsand/or oil-based mud and mud cuttings is determined to be a beneficial use .

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d. The Oklahoma Corporation Commission authorizes and approves the selfimposed requested testing parameters and reporting requirements as recommended by Applicant,all as set out in "Reasons Relief Should be Granted" herein .

e. The Oklahoma Corporation Commission determines this Application doesnot impact in any way the current OAC 165 :10-7-28 rule and the ability of the CountyCommissioners to approve or disapprove the application of fresh water drill cuttings on countyroads .

f. The Oklahoma Corporation Commission approves the above on an interimbasis for one year from the date of this Order, and IT IS SO ORDERED .

9 . Re-opening Date : This cause shall be re-opened on October 5 , 2011 .

a. Effective Date : This Order shall be effective as of the date of the issuance of theOrder in this Cause, or until further order of the Commission .

CO O T ON ~SION OF OKLAHOMA

Wwla-

DONE AND PERFORMED this v~- day of November, 2010 .

B ER OF T CON ISSION:

/s/ EL ecr

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Scott Environmental Services, Inc .Cause PD No. 201000109

REPORT OF THE ADMINISTRATIVE LAW JUDG E

The foregoing findings and order are the report and recommendations of theAdmin' ative Law Judge.0

Paul Porter

Administrative Law Judg e

~.. ._..... ..._ .

Reviewer

Approved as to form and content :~.-- -

Eric R. King

maistant General Counsel for Conservation

oc- r. 2. G 20~ oDate

/'v/a~aDat~

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