DANA MURPHY

COMMISSIONER OKLAHOMA CORPORATION COMMISSION

OK-NARO 2014 CONVENTION

April 17, 2014

www.occeweb.com

Changing Dynamics of Oklahoma Oil & Gas

Development

OKLAHOMA CORPORATION COMMISSION

• The Agency was established by the Oklahoma Constitution at statehood (1907)

• 3 Commissioners, elected statewide, head the agency

• About 400 employees, 2 main offices, 4 field offices

• The Oklahoma Corporation Commission (OCC) has regulatory powers over:

– Transportation

– Oil and gas

– Petroleum storage tanks

– Public utilities

4/17/2014 2

OKLAHOMA CORPORATION COMMISSION Jurisdiction

• 8 Electric utility companies

• 8 Gas utility companies

• 367 Telephone companies

• 10 Water companies

• 25 Cotton gins

• 3,000 Oil and gas well operators

• 231 Natural gas pipeline operators and 21 hazardous liquid

pipeline operators operating over 40,000 miles of pipeline

• 24 Railroads with over 4,100 public at-grade crossings

• 7,473 For-hire and private motor carriers authorized to

operate in intrastate commerce

• 12,150 Petroleum storage tanks currently in use

• 1,743 Owners of 2,925 active retail fueling stations

3 4/17/2014

OIL AND GAS CONSERVATION DIVISION

Ron Dunkin, Interim Director

POLLUTION ABATEMENT

DEPARTMENT Tim Baker

Underground Injection Control

Hydrology

Brownfields

TECHNICAL DEPARTMENT

Ron Dunkin

Engineering/

Geology

Compliance/ Proration/

Production

Document Handling

FIELD OPERATIONS DEPARTMENT

Tim Baker

District 1

District 2

District 3

District 4

4 4/17/2014

Oil and Gas Division

District Offices

5 4/17/2014

OKLAHOMA OIL AND GAS INDUSTRY

• Active wells (2013):

65,500 Natural gas

117,000 Oil

11,200 Injection/disposal

193,700 Total active wells

• ~350,000 plugged and abandoned wells

• ~500,000 wells drilled in Oklahoma history

• ~3,064 active operators of oil and gas wells (1/2014)

• ~41,000 miles of gathering/transmission pipelines

• ~257 pipeline operators

6 4/17/2014

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Calendar Year

OIL PRODUCTION (BBLS)

GAS PRODUCTION (BOE)*

Oklahoma Oil and Gas Production (1900 - 2011)

*BOE = BBLS OF OIL EQUIVALENT

Cumulative Production

(1900 – 2011)

Oil (BBLS): 14,982,947,921

Gas (BOE): 18,525,957,200

Total: 33,508,905,121

Barrels

7 2/12/2014

* Data for 1961-1966 is Estimated

8 4/17/2014

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

20,000

22,500

25,000

Inte

nts

Year

Oklahoma Intent to Drill (1945 - 2013)

Intents to Drill: 2008 – 2014 Comparison

9 4/17/2014

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

2008 442 496 521 496 579 521 693 598 572 599 378 325 6,220

2009 265 244 220 228 176 260 217 148 152 213 188 189 2,500

2010 187 245 324 230 255 298 275 320 301 274 288 268 3,265

2011 290 259 312 311 346 354 302 310 306 320 310 312 3,732

2012 373 351 412 339 349 316 329 320 326 386 363 302 4,166

2013 332 301 320 365 371 332 382 353 328 385 367 275 4,111

2014 331 335 278 944

0

100

200

300

400

500

600

700

800

Inte

nts

10 4/17/2014

130 146 183 179

161 156 155 176 173 174

6 3

9 6 4 7 9

11 6 8 36

54

59 62

52 61 40

46 45 46

0

50

100

150

200

250

300

Jan Feb Mar Apr May June July Aug Sept Oct

2013

Co

mp

leti

on

s

Completions by Drill Type

Vertical

Directional

Horizontal

11 4/17/2014

130 151

183 202

180 190 159

187 169 181

39

51

61 42

33 24

42

43 39

42 3

1

7 3

4 9 3

3

3

0

50

100

150

200

250

300

Jan Feb Mar Apr May June July Aug Sept Oct

2013

Co

mp

leti

on

s

Completions by Well Type

Dry

Gas

Oil

4/17/2014 12

$0

$2

$4

$6

$8

$10

$12

$14

$0

$20

$40

$60

$80

$100

$120

$140 Ja

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Oct

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2008 2009 2010 2011 2012 2013

Pe

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Average Oil and Gas Price Jan 2008- Mar 2014

Oil Gas Source: Oil - Average bulletin price posted by Conoco Phillips, Sunoco, Valero, and Plains All American Pipeline. Gas - Henry Hub Natural Gas Spot.

4/17/2014 13

Statewide OCC Well Completions

All OCC/IHS Wells 01/01/11-10/31/13

Updated to include May 2013

14 4/17/2014

Oklahoma Corporation Commission

Horizontal Wells 01/01/11-10/31/13

15 4/17/2014

16 4/17/2014

644

929

588 770

1,266

1,648 1,632

3,654

3,938

2,046 2,237

1,901

1,515

558

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2007 2008 2009 2010 2011 2012 2013

Jan-Oct

Well Completions

Horizontal

Non-Horizontal

4/17/2014 17

0

20

40

60

80

100

120

140

160

Ja

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F

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May

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May

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2011 2012 2013

Oil

Gas

Horizontal Completions

Oklahoma Corporation Commission

Gas Volumes Per County 2012

18 4/17/2014

Oklahoma Corporation Commission

Oil Volumes Per County 2012

4/17/2014 19

Fracturing fluids can be up to 99% water. The volume of water

needed for hydraulic fracturing varies by site and type of formation.

Fifty thousand to 350,000 gallons of water may be required to

fracture one well in a coalbed formation while two to five million

gallons of water may be necessary to fracture one horizontal well in

a shale formation. http://www.epa.gov/safewater/uic/pdfs/hfresearchstudyfs.pdf

How Much Is 4.5 Million Gallons?

• The 4.5 million gallons of water needed to drill and fracture a

typical deep shale gas or oil well is equivalent to the amount of

water consumed by:

– New York City in approximately 6.3 minutes

– A 1,000 megawatt coal-fired power plant in 10.8 hours

– A golf course in 22.5 days

– 6.75 acres of corn in a season

http://www.hydraulicfracturing.com/Water-Usage

WATER USE FOR HYDRAULIC FRACTURING

4/17/2014 20

21

Hydraulic Fracturing • An accurate picture courtesy of Pinnacle

4/17/2014 22

STATES REPORTING THROUGH

FRACFOCUS

As of February 2014, fifteen states are using

FracFocus for regulatory reporting:

Alabama Oklahoma

Colorado Pennsylvania

Kansas South Dakota

Louisiana Tennessee

Mississippi Texas

Montana Utah

North Dakota West Virginia

Ohio

23 4/17/2014

STATE DISCLOSURE SUMMARY AR CO KS LA MS MT ND OH OK PA TX WY

PRE-FRAC

REPORT NO NO NO

NO

Permit YES YES

POST FRAC

REPORT YES YES YES YES YES YES YES YES YES YES YES

DISCLOSURE

ALL

CHEMICALS

YES YES

YES*

YES YES YES YES YES YES YES YES YES

TRADE

SECRET YES YES

YES

YES YES

YES

YES YES

FRACFOCUS

REPORTING NO YES NO YES YES YES YES YES YES YES YES NO

HF RULES

YES

New

Rules

2012

YES

New

Rules

2012

YES

2013

YES

2011 YES

YES

2011

Rev

2012

YES

New

Rules

2012

YES

2012

YES

New

Rules

2012

YES

2012

YES

Rev

YES

2010

STRONGER

REVIEW

YES

2012

HF YES

YES

2011

HF YES

YES

1993

YES

2011

HF YES

NO YES

1997

YES

2007

YES

2011

HF YES

YES

2012

HF YES

YES

2010

HF YES

YES

2003

YES

1994

25

4/17/2014 26

OKLAHOMA

• Regulated by Oklahoma Corporation Commission

• Approximately 500,000 wells drilled

• More than 25 years ago, the Commission established ability

to request/require reports and records on hydraulic

fracturing/chemical treatment on any well

• Cross references to rules regarding hydraulic fracturing

(2010)

• 48 hours advance notice of hydraulic fracturing required to

the Conservation Division District Office or field inspector

(2013)

• Horizontal wells hydraulically fractured on or after January 1,

2013 and other wells hydraulically fractured on or after

January, 2014 required to be filed with FracFocus Registry

(2012)

4/17/2014 27

All Active Injection Wells Permitted at

Greater Than 30,000 Bbls/day

4/17/2014 28

4/17/2014 29

7,600

8,120

8,631

9,155 9,581

10,107 10,371

10,838

0

2,000

4,000

6,000

8,000

10,000

12,000

2006 2007 2008 2009 2010 2011 2012 2013

Non-Commercial Disposal Wells

30

Approximately 5 acres in surface area

Water treatment of flow back water prior to input into pit

60 Mil liner

Devon Cana Project Canadian County, OK 500,000 bbls 5 years/ $1M surety 24/7 security

4/17/2014

31

Devon Cana Project Disposal Well facility Flow back water that Cannot Recycle

4/17/2014

32

Devon Cana Project

Collapsible, steel reinforced pipe to pump water in and out of pit

33

Pipe can be easily moved to well site locations

34 4/17/2014

35

Newfield flow back pit Beckham County, OK 500,000 bbls

36

Water Usage in Perspective

* Agricultural Issues & Recommendations, OWRB, June 2011, p. 6 ** www.okc.gov/utilities *** http://www.okgazette.com/oklahoma/article-13296-water-hogs.html

Growth by Water Use Sector (2010-2060)

M&I = 28%

Irrigation = 25%

Thermoelectric = 31%

Oil/Gas = 12%

37 Source: 2012 Update of the Oklahoma Comprehensive Water Plan

38

Source: 2012 Update of the Oklahoma Comprehensive Water Plan

2013 RULES (Brief Summary) Chapter 10 – Oil and Gas Conservation

• Flow back water pits > 50,000 Bbls and new Form 1014F

OAC 165:10-7-16 et seq. (Also allows temporary use by

another operator)

• Disposal wells and Form 1015 OAC 165:10-5-5

Notice

Non-commercial – <5,000 Bbls/day to each operator of

producing unit or well within ½ mile radius; ≥5,000 Bbls 1

mile radius

Commercial – to each operator of a producing unit or well

within 1 mile radius and to each surface owner or surface

lessee adjacent and contiguous to the site. Additional surety

requirements based upon proposed or existing facilities.

• Land application (soil farming) OAC 165:10-7-10, et seq.

$50,000 surety

4/17/2014 39

2014 PENDING RULE CHANGES • Venting and Flaring OAC 165:10-3-15

– Flaring only >50 mcf/d

• Administrative permits have been required

• New exemption for newly completed well

– 48 hour notice

– Unlimited for 14 days

– Daily log preserved for 3 years

• Well site and surface facilities OAC 165:10-3-17

– Lease signs to include API number

• Well logs OAC 165:10-3-26

– Wireline to well logs; wireline surveys to formation evaluation,

digital or paper

• Daily volume and pressure recording for Arbuckle injection wells

provided to OCC upon request OAC165:10-5-7

• Concurrent development OAC 165:5-7-6

• Annual pressure tests for injection wells ≥20,000 bbls/d OAC 165:10-5-6

4/17/2014 40

O&G Basic Applications

SPACING

41 4/17/2014

OAC 165:10-3-28 (b)

“(5) Completion interval shall mean, for open hole completions, the interval from the point of entry to the terminus

and, for cased and cemented completions, the interval from the first perforations to the last perforations.”

O&G Basic Applications

SPACING

42 4/17/2014

House Bill 1909

Shale Reservoir Development Act

HB 1909 provides two new tools for development of shale reservoirs:

1) Tool 1 - Allows drilling of horizontal wells in shale reservoirs across existing unit boundaries,

with the costs, production and proceeds allocated to each of the affected units

2) Tool 2 - Creates a new type of unit for horizontal shale development (a hybrid which

incorporates portions of existing legal authority for drilling and spacing units and enhanced

recovery units)

– The new unit hybrid would be comprised of 2 governmental sections (i.e., 1,280 acres), but

could be expanded up to 4 governmental sections under certain circumstances.

– Creation of the new hybrid unit requires approval by 63% of working interest owners and

63% of the royalty owners in the proposed unit. (Analogous to the required approval for

existing enhanced recovery units.)

3) To utilize either of these new tools, the applicant is required to submit a proposed plan of

development for approval by the OCC and provide notice to all affected owners.

• Modifies Section 87.1 of Title 52 to clarify the ability to utilize irregular shaped units (e.g., 640-

acre unit that is 1/2 mile wide by 2 miles long).

• Modifies Section 287.1 of Title 52 to clarify that enhanced recovery units are not available for

primary production (confirming a recent ruling by the OCC).

• HB 1909 passed the House on March 17, 2011, by an 87-0 vote and the Senate by a 45-0 vote

on April 6, 2011. It was signed by the Governor on April 13, 2011.

43 4/17/2014

Multiunit Horizontal Well

4,500 feet 4,000 feet

8,500 feet Total Completion Interval

Section 6 Section 7

Sh

ale

Re

se

rvoir

100,000 mcf produced from Example 6-1H 52,941 mcf from Example 6-1H(7) – 100,000 mcf X 4,500/8,500 = 52,941 mcf 47,059 mcf from Example 6-1H(6) – 100,000 mcf X 4,000/8,500 = 47,059 mcf

The Act treats the lateral in each section as a separate well.

Example 6-1H(6) Well Example 6-1H(7) Well

44 4/17/2014

CROSS UNIT APPLICATIONS (CUA) (Through April 7, 2014)

• SRDA (HB1909) April 13, 2011

• First CUA filed May 31, 2011

• Total CUA 286

• Operators with filed CUA 21

• Counties with CUA

45

Grady 53 Logan 15 Noble 5

Stephens 52 Love 9 Hughes 3

Canadian 28 Pittsburg 9 Marshall 3

Payne 20 Carter 8 Grant 2

Garvin 22 Johnston 7 McClain 1

Kingfisher 18 Blaine 6 Multi-county 4

Garfield 15 Coal 6

4/17/2014

Multiunit Horizontal Well

Associated Common Source of Supply

Mississippi

Woodford

Hunton

18 19

4/17/2014 46

4/17/2014 47

SEISMICITY ISSUES OCC regulates Class 2 injection wells (including disposal wells) in Oklahoma

oFirst state granted primacy by federal government for regulation of such

wells

oPrimary mission is to protect water

Broad agreement on possibility of man-made seismicity

oOklahoma is a seismically active state

oRecent earthquake swarms are unusual

o Issue for OCC: What, if any, connection exists between any of the

seismic events and the oil and gas industry, and if there is a

connection, what to do

Proactive response to seismic events in Oklahoma by OCC

oWorking with OGS on seismicity issue prior to the 2011 “Prague” earthquake

oHelping fund further equipment deployment by researchers investigating

Oklahoma’s seismic events (OCGS REPSEA Grant $1.8M)

oSharing data with researchers on oil and gas activity in area of seismic

events

oSharing data and approaches with other states

oWorking on developing best practices w/all stakeholders in relation to

seismicity

Rules have been sent to the legislature, but need more data

Currently operating under National Academy “stoplight” approach

48

Executive Order 2013-19 Pipeline Safety Task Force—Appointments

• Chair—Dana L. Murphy, Oklahoma Corporation Commissioner

• Members • Raymond L. Vaughn, Oklahoma County Commissioner

• Homer L. Nicholson, Ponca City Mayor

• Joseph F. Berry, CenterPoint Energy

• Edwin B. Brewster, Oklahoma Natural Gas

• Jason E. Constable, AT&T

• Kurt A. Harms, Oklahoma Department of Transportation

• Bruce W. Heine, Magellan Midstream Partners

• Toby M. McKinstry, Tomlinson Rust McKinstry Grable, P.C.

• Marty L. Summers, Devon Energy

• Robert L. Williamson, OG&E

• Ex-Officio Members • Senator Cliff Branan

• Representative Weldon Watson

4/17/2014

4/17/2014 49

Pipeline Safety Task Force • Three (3) open meetings: September, October, November 2013

• Six (6) open working group meetings: October, November 2013

(Enforcement and Exemptions)

• Executive Order 2013-19—specific assessment of six (6) areas:

1. Whether existing OK statutes are consistent with final rules

proposed by PHMSA?

2. Need to implement a complaint process under OCC

authority

3. Adequacy of current OCC enforcement power

4. Need to authorize OCC to take enforcement action with

respect to various prohibited practices:

— failure in notification, procedures, damage reporting,

contacting 911; frivolous and malicious notifications,

repeated violations

5. Clarification of private rights-of-action

6. Other issues

Summary of Preliminary Findings Legislation recommended:

1. OCC given enforcement and rulemaking authority

2. Rules promulgated at OCC to address prohibited practices and

sliding scale or other means to enforce and assess penalties.

Legislature to establish maximum penalties.

3. Any legislation that allows exemptions should establish exemptions

as “activity” based not “entity” based and must be justified in writing.

4. Data collection must be addressed in any proposed legislation.

5. Other issues raised:

— from no exemptions allowed — specifically detailed exemptions

— governmental entities not subject to penalties other than

compensatory damage

— training

— emergency provisions

— change in response time

4/17/2014 50

DANA MURPHY

COMMISSIONER OKLAHOMA CORPORATION COMMISSION

OK-NARO 2014 CONVENTION

April 17, 2014

www.occeweb.com

Changing Dynamics of Oklahoma Oil & Gas

Development