file before the corporation commission aug 2 5 2017 of … · rimrock applications. cause cd...

BEFORE THE CORPORATION COMMISSIONOF THE STATE OF OKLAHOMA

APPLICANT: RIMROCK RESOURCEOPERATING, LLC

RELIEF SOUGHT: MULTIUNIT HORIZONTAL WELL

LEGAL DESCRIPTION: SECTIONS 28 AND 33,TOWNSHIP 2 NORTH, RANGE 2WEST, GARVIN COUNTY,OKLAHOMA


RELIEF SOUGHT:

LEGAL DESCRIPTION:

WELL LOCATION EXCEPTION(PART OF A MULTIUNITHORIZONTAL WELL)

SECTIONS 28 AND 33,TOWNSHIP 2 NORTH, RANGE 2WEST, GARVIN COUNTY,OKLAHOMA


RELIEF REQUESTED: PARTIALLY VACATE POOLINGORDER NO. 585786 AS TOCOMON SOURCES OF SUPPLY

LEGAL DESCRIPTION: SECTION 4, T1N, R2W, GARVINCOUNTY, OKLAHOMA

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FILE

AUG 2 5 2017

COURT CLERKS OFFICE - OKCCORPORATION COMMISSION

OF OKLAHOMA

CAUSE CD NO.201506129-T

)) CAUSE CD NO.) 201506133-T

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CAUSE CD NO.201604097-T

REPORT OF THE OIL AND GAS APPELLATE REFEREE

Causes CD 201506129-T and 201506133-T came on for hearing before

Kathleen M. McKeown, Administrative Law Judge ("AW") for the Corporation

CDS 201506129-T, 201506133-T AND 201604097-T-RIMROCK

Commission of the State of Oklahoma, on the lst day of February, 2017, at8:30 a.m. in the Commission's Courtroom, Kerr Building, Tulsa, Oklahoma,pursuant to notice given as required by law and the rules of the Commissionfor the purpose of taking testimony and reporting to the Commission.

Cause CD 201604097-T came on for hearing before Curtis M. Johnson,Deputy ALJ for the Corporation Commission of the State of Oklahoma, on the4th day of January, 2017, at 8:30 a.m. in the Commission's Courtroom, KerrBuilding, Tulsa, Oklahoma, pursuant to notice given as required by law andthe rules of the Commission for the purpose of taking testimony and reportingto the Commission.

APPEARANCES: Ron M. Barnes, attorney, appeared on behalf ofapplicant, Rimrock Resource Operating, LLC ("Rimrock"); and Russell J.Walker, attorney, appeared on behalf of Triad Energy, Inc. ("Triad") in CDs201604097-T.

The ALJ filed the Report of the Administrative Law Judge in CD201506129-T and CD 201506133-T on the 14th day of March, 2017 and theALJ filed the Report of the Administrative Law Judge in CD 201604096-T onthe 28th day of February, 2017, to which Exceptions were timely filed andproper notice given of the setting of the Exceptions.

The Appellate argument concerning the Exceptions was referred toPatricia D. MacGuigan, Oil and Gas Appellate Referee ("Referee"), on the 5thday of June, 2017, with the appeals in the above captioned causes being heardtogether. After considering the arguments of counsel and the record containedwithin these Causes, the Referee finds as follows:

STATEMENT OF THE CASE

I.

CD 201506129-T and CD 201506133-T

TRIAD TAKES EXCEPTION to the recommendation of the ALJ to grant the

Rimrock applications.

Cause CD 201506129-T is the application of Rimrock for a multiunit horizontal

well covering Sections 28 and 33, T2N, R2W, Garvin County, Oklahoma.

Cause CD 201506133-T is the application of Rimrock for a well location

exception (part of a multiunit horizontal well) covering Sections 28 and 33,

T2N, R2W, Garvin County, Oklahoma.

Page No. 2


Rimrock seeks to drill a multiunit horizontal well targeting the Woodfordformation at a location closer to the unit boundaries than that prescribed bythe horizontal spacing unit. Triad operates the Harwell #1-33 well in the NW/4of Section 33 that produces from the Sycamore and Gibson. Triad believes thatonce the Rimrock well is fracture treated the fracture could move into theSycamore resulting in Sycamore production by the Rimrock well and apossibility that the Harwell #1-33 would not only lose production but could beloaded up with fracture water which would result in the well being "killed".

TRIAD TAKES THE POSITION:

1) The ALJ Report is contrary to the evidence, contrary to law and therecommendations, if adopted, will result in injustice.

2) In presenting its case in chief; Rimrock presented NO testimony orevidence regarding future development in Section 33. Such testimony andevidence is required pursuant to Section 4b of 52 O.S. Section 87.8 (notSection 87.9, as stated in the ALJ Report). At the conclusion of Rimrock'spresentation of its case in chief, Triad moved for a directed verdict based onthis evidentiary deficiency. The ALJ took the Motion under advisement and, atthe conclusion of Triad's evidentiary presentation, permitted Rimrock tointroduce totally new evidence (not rebuttal evidence, because Triadassiduously avoided presenting any testimony or evidence regarding futuredevelopment) directed at future development. This procedure is totallyunacceptable and cannot be left to stand.

3) Triad operates the Harwell #1-33 well, a directional Sycamore well inSection 33. The well proposed by Rimrock is not allowed to produce from theSycamore in Section 33. Nonetheless, the Woodford horizontal well boreproposed by Rimrock is proposed to be only slightly in excess of 600 feet fromthe Harwell well in the Sycamore. The well bore could easily wander to be lessthan 600 feet from the Harwell well and, despite its being limited to producingfrom the Woodford, if it nonetheless inadvertently penetrates the Sycamore or ifhydraulic fracturing in the Woodford also fractures the Sycamore, then theproposed well will inappropriately drain oil and gas from the Sycamore. The

ALJ merely discounts the consequence of such an occurrence.

4) The ALJ's statements about the density, permeability, and hence

susceptibility to fracture treating of the Sycamore and Woodford are completely

erroneous. Detailed evidence was presented on this subject.

5) Rimrock's testimony was that Triad owns a 23.35% interest in Section

33. The correct evidence, presented by Triad but not recited by the ALJ, is that

Triad and its internal partners/participants own in excess of 75% of the right

Page No. 3


to drill and produce in Section 33. Detailed evidence was presented on thissubject.

6) Triad does not oppose and in fact supports development of the Woodfordin Section 33. However, it vehemently opposes the location of the proposedwell because of that well's likelihood to damage the Harwell #1-33 and itsproduction from the Sycamore.

THE ALJ FOUND:

1) After taking into consideration all of the facts, circumstances, evidenceand testimony presented in the causes, it is the recommendation of the ALJthat the Rimrock applications in CD 201506129-T and CD 201506133-T begranted and that the Motion for Directed Verdict be denied.

2) Oklahoma's 2011 Shale Reservoir Development Act does require a Plan ofDevelopment to be included in each application seeking to create multiunittracts for the purpose of drilling horizontal wells covering all or most of theproposed units. However, the language used in the statutes allows theCommission to "determine the necessary term, provisions, conditions andrequirements to be included in the plan of development for the unit." 52 O.S.Section 87.9(E). Rimrock presented expert testimony and evidence as to thenecessity for a multiunit horizontal well to economically and efficiently developthe Woodford underlying the subject lands. This will be the first horizontalmultiunit well and, while there have been several vertical wells drilledunderlying Sections 28 and 33, only one of those vertical wells (in Section 28)has produced from the Woodford and it has been plugged. Before additionalhorizontal wells can be contemplated, the proposed well should be completedand produced to give information on the location of the faulting underlyingSection 33 as well as appropriate fracture treatment so as not to fracture intoassociated zones above and below the Woodford. For these reasons, the ALJbelieves the Motion for Directed Verdict should be denied.

3) Rimrock originally sought multiunit and location exception authority forthe Sycamore but agreed to dismiss the Sycamore from these applications inan effort to reassure Triad that the primary Rimrock target is, indeed, theWoodford. Triad has continued to protest the applications and voiced concernover the possibility that the Woodford fracture treatment in the Rimrock wellwill damage the Sycamore production in the Harwell #1-33. Despite itsconcern for the Section 33 Sycamore production, no exhibits were presented byTriad to contradict the Rimrock isopach and structure exhibits on the

Woodford; nor was any exhibit or engineering testimony presented by Triad to

support its testimony regarding the lack of an adequate barrier ("tightness")

making the Sycamore vulnerable to any Woodford fracture treatment. As a

result, the ALJ finds that the requirements for granting the multiunit and

location exception applications have been met by Rimrock. The basis for

Page No. 4


Triad's objections appears to be the ownership of Triad in Section 33 and thefact that Triad firmly believes it should be the operator of any Woodford well inSection 33.

4) Thus, in light of the aforementioned conclusions, it is therecommendation of the ALJ that the applications in CD 201506129-T and CD201506133-T be granted. Any orders issuing out of these causes shouldcontain the recommendations set forth above.

II.

CD 201604097-T

TRIAD TAKES EXCEPTION to the recommendation of the ALJ to grant theapplication of Rimrock in CD 201604097-T.

Rimrock requests the Sycamore, Woodford, and Hunton be vacated frompooling Order No. 585786 because these formations were not penetrated orproduced under this order. After pooling Order No. 585786 was issued, Triadchanged their plans for developing the unit and did not drill a new well in theunit. In the alternative, Triad reentered an existing well in the unit andrecompleted that well in the Layton formation. Pooling Order No. 585786 wasissued May 26, 2011, and no well has been drilled or completed in theSycamore, Woodford, and Hunton formations since the issuance of this order.Rimrock now requests the Sycamore, Woodford, and Hunton formations bedismissed from this order. Rimrock is seeking to horizontally develop theSycamore, Woodford, and Hunton.

TRIAD TAKES THE POSITION:

1) The ALJ Report is contrary to the evidence, contrary to law and ifadopted, will result in injustice.

2) The ALJ's recommendation is contrary to established law. When aforced-pooling order treats a number of common sources of supply named inthe application as one common source of supply (in the case above, all namedcommon sources of supply were treated as one, unified common source ofsupply) and when all respondent elections made under the order treat all

named common sources of supply as one common source of supply (as was

done in the cause that entered Order No. 585786), then the named common

sources of supply are treated as a unit - as only one common source of supply.

If a well is completed and produced in that unit, as in the cause resulting in

Order No. 585786, then the forced-pooling order is held in force and effect as to

all of the unified common sources of supply. See C.F. Braun & Co. v.

Page No. 5


Corporation Commission, 739 P.2d 510 (Okl. 1987). The ALJ's recommendationshould be ignored and established law followed.

THE ALJ FOUND:

1) The ALJ recommends the application of Rimrock in CD 201604097-Tseeking to vacate the pooling of Sycamore, Woodford, and Hunton commonsources of supply from pooling Order No. 585786 underlying Section 4, T1N,R2W, Garvin County, Oklahoma, be granted.

2) Did Triad's actions of reentering the S J Brown #1-4 well andrecompleting in the Layton constitute development of the unit as a unit holdingall formations pooled, even if they were not penetrated? Amoco Production v.Corp. Comh of Okl., 751 P.2d 203 (Okl.Civ.App. 1986) addressed whetherCommission's pooling order pooled by the unit or by the wellbore. In Amocothe initial well was drilled to total depth and completed in the Springer, thedeepest formation listed in the pooling order. The initial well was commencedwithin the 180 day term provided in the pooling order. Subsequently Amocowaited 14 months for a pipeline to be completed to the initial well to commencethe second well to the Red Fork. Bartex argued they should be allowed anelection to participate in the second well. The Court held Amoco would bedeprived of vested rights to the pooled formations if Bartex was allowed to electto participate in subsequent wells and held pooling orders pool by the unit andnot by the wellbore. The Court reached this conclusion based upon the factthat Amoco drilled the well to total depth and penetrated all the listedformations. Amoco took the risk and spent the money to penetrate all theformations.

3) Triad did not drill a new well pursuant to pooling Order No. 585786.Instead Triad chose to reenter an existing well, the S J Brown #1-4, andrecomplete in the Layton formation. This well did not penetrate the Sycamore,Woodford, or Hunton formations. Triad did not attempt to commence a well tothe Sycamore, Woodford, or Hunton, for more than five years. In Amoco theCourt concluded that the formations were developed as a unit because Amocopaid to drill the well to total depth and took the risk of penetrating all thepooled formations. In the present case Triad did not drill any well. They just

washed down an existing well and recompleted in the Layton. The Sycamore,

Woodford, and Hunton were never penetrated or tested. Therefore, Triad didnot take any risk or pay any costs to develop these three deeper formations.

For these reasons, the ALJ contends the Sycamore, Woodford, and Hunton

should be vacated from Pooling Order No. 585786.

4) The ALJ contends Triad failed to attempt to drill a well or penetrate all

the formations listed in pooling Order no. 585786, which constitutes a change

in knowledge of conditions sufficient to warrant the amendment of Order No.

Page No. 6


585786. In SKZ, Inc. v Petty, 782 P. 939, (Okl. 1989) the Court held that "...aprior pooling order may be modified by the Commission upon showing ofchange in or knowledge of conditions necessitating the repeal, amendment ormodification of the order." Furthermore, If Triad had advised the Commissionat the initial pooling hearing these formations would not be penetrated in theirplanned development, the Commission would have required these formationsbe dismissed. For these reasons, the ALJ contends the Sycamore, Woodford,and Hunton should be vacated in pooling Order No. 585786

5) If Triad proposes a well pursuant to pooling Order No. 585786 to theSycamore, Woodford, or Hunton common source of supply, which pooling termwould cover this well proposal? It cannot be the initial well to theseformations, because it is outside the 180 day term of the pooling order. Itcannot be a subsequent well because no initial well was ever drilled thatpenetrated or tested these formations. It cannot be a replacement well becausein excess of five years has past since the reentry was completed in the Layton,and Triad gave no reason for their failure to timely pursue a replacement well.Since no provision in the order would provide for the proposal of a well to thesedeeper formations, the ALJ contends these formations should be dismissedfrom pooling Order No. 585786.

6) Thus, the ALJ recommends the application of Rimrock seeking to vacatethe Sycamore, Woodford, and Hunton common sources of supply in poolingOrder No. 585786 underlying Section 4, T1N, R2W, Garvin County, Oklahoma,be recommended.

POSITIONS OF THE PARTIES

I.CD 201506129-T and CD 2015-6133-T

TRIAD

1) Russell J. Walker, attorney, appearing on behalf of Triad, believes that

Rimrock failed to prove their case on direct. Triad's main concern is that the

ALJ allowed rebuttal testimony which should have been presented during

direct testimony. Triad thinks this is contrary to 12 0.S. Section 577.

2) Triad notes the cases of Townsend v. Cotten, 68 P.2d 790 (Okl. 1937);

Middlebrook v. Imler, Tenny & Kugler M.D's, Inc., 713 P.2d 572 (0k1.1985); and

Wells v. C.M. Mays Lumber Co., Inc., 754 P.2d 888 (Okl.Civ.App. 1987) apply to

the current causes.

Page No. 7


3) Triad notes 12 O.S. Section 577 prescribes the order in which proofmay be made in the trial of a case. The party on whom rests the burden of theissues may briefly state his case, and the evidence by which he expects tosustain it. The adverse party may then briefly state his defense, and theevidence he expects to offer in support of it. The party on whom rests theburden of the issues must first produce his evidence. After he has closed hisevidence, the adverse party may interpose and file a demurrer, upon theground that no cause of action or defense was proved.

4) Triad notes the definition of rebutting evidence is evidence which hasbecome relevant or important only as an effect of some evidence introduced bythe other side. Poppy v. Duggan, 235 P. 165 (Okl. 1925).

5) Triad notes there are factual problems within these causes. Rimrockproposes to drill a discretional well within 600 feet of the producing TriadHarwell #1-33 well. Triad does not wish Rimrock to fracture into their well.Triad objects to the location exception. Triad believes that Rimrock could drilltheir proposed well at other locations farther away from the Triad well.

6) Triad thinks the ALJ incorrectly wrote in his Report about the nature ofthe rocks from which the oil and gas is proposed to be extracted from. Triadbelieves the ALJ also inaccurately wrote about the size of Triad's Section 33interest. Triad owns in excess of 75%, rather than the 23.35% that Rimrocktestified to.

7) Triad is merely requesting that Rimrock select a different location todevelop the Woodford common source of supply.

RIMROCK

1) Ron M. Barnes, attorney, appearing on behalf of Rimrock, notes the

concern of Triad about the ALJ permitting additional testimony by Rimrock.

Rimrock notes ALJ McKeown addressed Triad's concern on page 4,paragraph 2 when she discussed the Shale Reservoir Development Act.

2) Rimrock put on testimony dealing specifically with the proposed well as

this would be the first area drilled multiunit horizontal well. Rimrock notes it

was then that Triad made its directed verdict request. Rimrock believes that

Triad's concern would be the Sycamore, which was dismissed from the

application. Rimrock notes Triad had no objection to a horizontal Woodford

well.

Page No. 8

CDS 201506129-T, 201506133-T AND 20 I604097-T-RIMROCK

3) Rimrock's evidence showed their proposed well was necessary toadequately and efficiently drain the Woodford in the proposed horizontalspaced multiunit. Rimrock notes Triad presented no countering exhibits tothat of Rimrock.

4) Rimrock was not concerned about fracture stimulation moving up thehole or up into the formation, as Rimrock believed it would be going downward.Rimrock believes it is tight at the base of the Sycamore zone.

5) Rimrock notes there was a question raised by Triad as to Rimrock'sfuture plan of development per the Shale Reservoir Development Act. Triadbelieves that Rimrock failed to put on a larger development plan here coveringthe two sections, and that was reason to deny the multiunit requested relief.

6) Rimrock notes the Oklahoma statute language allows the Commissionto determine the necessary terms, provisions, conditions and requirements tobe included in a unit's development plan. Rimrock notes the ALJ foundRimrock's evidence supported the necessity for the multiunit horizontal well toeconomically develop the Woodford formation.

7) Rimrock merely requested to present evidence presuming a normalhorizontal unit development for the area, which indicated that additional wellswould be drilled provided the first well panned out as a multiunit well.

8) Rimrock notes the case law cited by Triad relates to jury trial casesrather than administrative law cases. Rimrock believes the ALJ can ask anyapplicant about the development plan at any time. Rimrock just requestedthat it be allowed to place into the record some additional testimony. Rimrockpoints out that Triad failed to provide any additional evidence. Rimrockbelieves this was an administrative fact finding determination made by the ALJthat this multiunit well was necessary in order to prevent waste and to protectcorrelative rights here.

9) Rimrock notes it is the ALJ's duty as the trier of fact to observe thedemeanor of the witnesses, assess their credibility and assign the appropriate

weight to their opinions. The ALJ merely determined Rimrock's particular

proposed well was needed based on the record before her.

10) Rimrock is aware that applicants must get a rule exception should awell be closer than 600 feet away from a vertical well. Rimrock notes a

bottomhole survey would be required to make that determination if the

proposed well here was to be a Sycamore well. Rimrock notes their proposed

well is for the Woodford formation.

11) Rimrock asserts the Sycamore zone is above the Woodford zone, with

the base of the Sycamore being tight, which Triad disagrees with. Rimrock had

both a structure and isopach map in which to support its proposed completion

Page No. 9


in the middle of the Woodford formation. Rimrock has no concerns aboutmigration or fracturing up into the Sycamore formation.

12) Rimrock notes the ALJ did not abuse her discretion here in herevaluation of the evidence in making her determination. Rimrock believes theALJ's recommendation should be upheld.

RESPONSE OF TRIAD

1) Triad submits that where an applicant cannot prove its case, with theother party making a motion for a directed verdict, which is ultimately denied,this forces Triad here to present its case so Rimrock can later introduceadditional evidence in after the fact to reprove their case.

2) Triad notes that 12 O.S. Section 577 does mention juries specificallyyet an ALJ is an initial trier of fact. An ALJ writes a written report settingdown the facts to support their recommendation.

3) Triad wishes to protect its Sycamore zone. Triad notes the Woodfordzone is 200 feet thick, and Rimrock wants to drilldown 100 feet below theSycamore and frac into the Woodford.

4) Triad believes the Rimrock proposed multiunit horizontal well is tooclose to Triad's well. Triad asserts the ALJ did not follow the law here, andagain notes that a transcript would be helpful in clearing up any testimonydiscrepancies.

FURTHER STATEMENTS FROM THE PARTIES

1) Rimrock pointed out that the appeal was filed in March, 2017, yet notranscript up to now in these two causes has been requested by any party.

Rimrock notes Triad could have requested a transcript prior to today's appeal

hearing yet chose not to.

2) Triad points out that the third cause, CD 201604097-T, had been

continued for a year without a definite hearing date. Triad finds Rimrock's

belief that Triad is in a hurry now is not accurate.

Page No. 10


II.CD 201604097-T

TRIAD

1) Triad would note to the Court a correction concerning the Braun case.It should be C.F. Braun & Co. v. Corporation Commission, 609 P.2d 1268 (Okl.1980).

2) Triad notes Rimrock in this cause is requesting a partial vacation of aTriad pooling Order No. 585786 issued on May 23, 2011. Triad's concern hererelates to the pooling application which lists the named formations and howthose zones will be dealt with--either as one formation or separate formations.

3) Triad cited several cases previously to support its arguments. In theBraun case the court treated that pooling order as dealing with two separategroups of common sources of supply.

4) Triad merely re-entered an existing well in that pooling application.Triad notes no one opted to treat the formations there in any other way that asa group. Triad notes Rimrock alleges Triad did not complete in certain deeperformations; hence, now Rimrock wants to vacate the Sycamore, Woodford andHunton zones from Order No. 585786.

5) Triad asserts Rimrock cannot just come back and vacate pooledformations treated as a group and now treat than as individual zones. Triadnotes the existing Triad well holds all of these formations in force and effectover the entire pooled intervals. Triad notes the zones here were treated as aunit, with parties not making separate elections. Triad disagrees withRimrock's vacation request here.

6) Triad asserts the pooling Order No. 585786 cannot be vacated as to theSycamore, Woodford and Hunton as these were originally pooled by said order.

RIMROCK

1) Rimrock notes the Braun case cited by Triad was where the well was

drilled to 13,000 feet, with the parties fighting over whether it was the Morrow

or Hunton formation. The Court found the Morrow could be an election along

with the Hunton yet the other formations could not be treated as individual

elections.

Page No. 11


2) Rimrock notes the Braun case has nothing to do with the current causeon appeal. Rimrock reviewed the various exhibits in the current cause.

3) Rimrock notes Triad's 2011 pooling application is what Rimrock is nowrequesting certain formations be vacated from. Rimrock notes Order No.585786 lists the formations as Tuley, Layton, Checkerboard, Pharoah, Hart,Caney, Sycamore, Woodford, Hunton, and that the Third Deese or Gibson Sandhave a different sized drilling and spacing unit. Rimrock notes the transcriptfor the 2011 hearing shows the well was to have been drilled to test the Huntonat 9800 feet. Rimrock notes the Exhibit 3 (AFE) shows 9800 feet with a priceof $1,056,00 completion costs with dry hole costs of $638,000 with no mentionthen about the possibility of washing a well down. Rimrock points out therewas no item shown in the AFE for re-entry or wash down.

4) Rimrock notes Exhibit 4 names all the formations, and for eachadditional completion it would be $100,000. Rimrock notes Exhibit 5 is apermit to re-enter the SJ Brown #1-33 well instead of Triad drilling a well. Twomonths later from the 7-14-11 permit, the re-entry was now to 7600 totaldepth. Rimrock had said that the well was a wash down and would not be ableto go to 9800 feet.

5) Rimrock notes Triad had informed the Commission in the past thatelections were to be made on a Hunton test well drilled to 9800 feet yet thecompletion report showed the SJ Brown #1-33 well was at 7650 feet. Rimrocknotes that in Triad's recompletion that it had to go back up hole and completein the Layton formation as it was unable to reach the 9800 depth. Rimrocknotes no well has yet to go to that depth.

6) Rimrock is aware as long as a party has an interest and a right to drillthat such party can drill a well to test any named formations in a poolingorder. Rimrock's position here is Triad cannot bootstrap now or breathe lifeinto an already addressed item(s) from Rimrock's filings at the Commission.

7) Rimrock notes the Braun case (609 P.2d 1268) involved wells thatpenetrated all of the named formations. Rimrock observes the current case

relates to shallow depth drilled wells due to the inability to reach the targeted

deeper zones.

8) Rimrock notes the Braun case (609 P.2d 1268) says a pooling order

should be responsive to both the application and the evidence, and agrees that

the pooling Order No. 585896 did just that. Rimrock differs in that the current

cause circumstances are not the same as in the cited Braun case.

9) Rimrock agrees with the ALJ's statement that a prior pooling order may

be modified by the Commission upon a showing of a change of knowledge of

condition. See Braun, 782 P.2d 939. Rimrock notes Triad never did exactly

Page No. 12


what it told the Commission it was going to do, hence, there has been a changeof condition.

10) Rimrock filed their application here to partially vacate some of theformations from Triad's pooling order. Rimrock disagrees the cases cited byTriad support the current circumstances herein.

RESPONSE OF TRIAD

1) Triad disputes Rimrock's belief that Triad made a misrepresentation ofthe facts to the Commission. Triad believes the Rimrock arguments arefactually deficient. Triad merely filed the pooling action and then laterdiscovered a well that could be re-entered to test the formations. Trial notes areading of the record would show clearly that what Triad has done here isnothing unusual in the industry.

2) Per the pooling formations listed, Triad submits it is how the formationsare treated that matter. Triad notes the case law does not require that all ofthe named formations be drilled to.

3) Triad notes that Rimrock has taken some top leases from some of thepooled parties. Triad realizes the case cites may have different facts yet thelegal conclusions about how the formations are treated is what matters. Triaddoesn't believe the Rimrock arguments apply to the current issues herein.

CONCLUSIONS

I.

CD 201506129-T and CD 201506133-T

The Referee finds the Report of the Administrative Law Judge

should be affirmed.

1) The Referee finds the ALJ's recommendations to grant the Rimrock

applications in CD 201506129-T and CD 201506133-T should be affirmed as

they are supported by the weight of the evidence and free of reversible error.

The ALJ is the trier of fact and it is the ALJ's duty to observe the demeanor of

the witnesses, assess their credibility and assign the appropriate weight to

their opinions. Grison Oil Corporation. v. Corporation Commission, 99 P.2d 134

Page No. 13


(Okl. 1940); Palmer Oil Corporation v. Phillips Petroleum Company, 231 P.2d 997(Okl. 1951); El Paso Natural Gas Company v. Corporation Commission of theState of Oklahoma, 640 P.2d 1336 (Okl. 1981).

2) The ALJ in her Report of the ALJ in her Recommendations paragraphtwo states:

2. Oklahoma's 2011 Shale Reservoir DevelopmentAct does require a Plan of Development be included ineach application seeking to create multiunit tracts forthe purpose of drilling horizontal wells covering all ormost of the proposed units. However, the languageused in the statutes allows the Commission to"determine the necessary term, provisions, conditionsand requirements to be included in the plan ofdevelopment for the unit." 52 Okl.St.Ann. Section87.9 E. Rimrock presented expert testimony andevidence as to the necessity for a multiunit horizontalwell to economically and efficiently develop theWoodford underlying the subject lands. This will bethe first horizontal multiunit well and, while therehave been several vertical wells drilled underlyingSections 28 and 33, only one of those vertical wells (inSection 28) has produced from the Woodford and ithas been plugged. Before additional horizontal wellscan be contemplated, the proposed well should becompleted and produced to give information on thelocation of the faulting underlying Section 33 as wellas appropriate fracture treatment so as not to fractureinto associated zones above and below the Woodford.For these reasons, the ALJ believes the Motion forDirected Verdict should be denied.

3) 52 0.S. Section 87.9(E) provides:

E. The Plan of Development.

The application shall include a proposed plan ofdevelopment. Based upon the facts and conditionsfound to exist with respect to a proposed unit, theCommission shall determine the necessary terms,provisions, conditions and requirements to be included

in the plan of development for the unit. If a well or

wells already exist within the area of the proposed unit

which are producing or have produced or appear to be

Page No. 14


productive from the shale reservoir being unitized, theplan of development shall also include:

1. Any adjustments to the sharing of futurecosts incurred in connection with future developmentand production, and the sharing of proceeds, from anyexisting well or any subsequent well which theCommission determines to be necessary in order to befair, reasonable and equitable, and to protect thecorrelative rights of the owners, considering theexisting development in and the prior and anticipatedfuture production from the shale reservoir within theproposed unit; and

2. The procedure and basis upon whichexisting wells, equipment and other properties of theseveral lessees within the unit area are to be takenover and used for unit operations, including themethod of arriving at the compensation therefor, or ofotherwise proportionately equalizing or adjusting theinvestment of the several lessees in the project as ofthe effective date of unit operation.

4) Based upon the expert testimony presented by Rimrock and the law, theReferee would uphold the AI,J's conclusions reached above. As stated inWinter v. Corporation Commission of State of Oklahoma, 660 P.2d 145(Okl.Civ.App. 1983):

Having been given a choice of remedies, it isincumbent upon the Commission to use the remedywhich will best prevent waste and protect correlativerights.

In Denver Producing & Ref. Co. v. State, 184 P.2d 961 (Okl. 1947), the SupremeCourt stated however:

In most instances it is impossible to use a formulawhich will apply equally to all persons producing froma common source. In striking a balance betweenconservation of natural resources and the protection ofcorrelative rights, the latter is secondary and must

yield to a reasonable exercise of the former.

5) The ALJ in her Report on page 4 under her RECOMMENDATIONS and in

paragraph three states:

Page No. 15


3. Rimrock originally sought multiunit and locationexception authority for the Sycamore but agreed todismiss the Sycamore from these applications in aneffort to reassure Triad that the primary Rimrocktarget is, indeed, the Woodford. Triad has continued toprotest the applications and voiced concern over thepossibility that the Woodford fracture treatment in theRimrock well will damage the Sycamore production inthe Harwell 1-33. Despite its concern for the Section33 Sycamore production, no exhibits were presentedby Triad to contradict the Rimrock isopach andstructure exhibits on the Woodford; nor was anyexhibit or engineering testimony presented by Triad tosupport its testimony regarding the lack of anadequate barrier ("tightness") making the Sycamorevulnerable to any Woodford fracture treatment. As aresult, the ALJ finds that the requirements forgranting the multiunit and location exceptionapplications have been met by Rimrock. The basis forTriad's objections appears to be the ownership of Triadin Section 33 and the fact that Triad firmly believes itshould be the operator of any Woodford well in Section33.

6) The evidence reflected by the ALJ in her Report on page 3 states underparagraph 3. B.:

B. Rimrock is requesting a multiunit horizontalwellbore to allow more efficient and economicdevelopment of the Woodford as well as a smallercarbon footprint; the multiunit drilling also allowsrecovery of reserves in and around the unit boundarythat would otherwise go unrecovered. Engineeringtestimony was presented to explain that the 15-20fracture stages anticipated should remain in theWoodford formation and not move upward into theSycamore; this is due to the low porosity and lowpermeability in the base of the Sycamore making itvery "tight". If Rimrock were to determine that theplanned fracture treatment of the Woodford in theproposed well would likely result in penetrating theSycamore, the fracture plan would be reformed toavoid the Sycamore; the Sycamore is not as viable areservoir as the Woodford.

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Because of the above stated law concerning waste and the evidence presentedby Rimrock, the Referee would recommend that the recommendations by theALJ be affirmed and the applications by Rimrock in CD 201506129-T and201506133-T should be affirmed, with any orders issuing out of those causescontaining the recommendations set forth in the ALJ's Report of the ALJ issuedon March 14, 2017.

II.

CD 201604097-T

The Referee finds the Report of the Administrative Law Judgeshould be affirmed.

1) The Referee finds the ALJ's determination to grant the Rimrockapplication to partially vacate pooling Order No. 585786 in the Sycamore,Woodford and Hunton formations should be dismissed from pooling Order No.585786. The Referee believes that the decision of the ALJ is supported by theweight of the evidence, and by the law. As stated above by the Referee in Iconcerning CD 201506129-T and CD 201506133-T, the ALJ is the trier of factand it is the ALJ's duty as the trier of fact to observe the demeanor of thewitnesses, assess their credibility, and assign the appropriate weight to theiropinions. Pooling application in CD 201101416 which resulted in the issuanceof Order No. 585786 sought to pool the interest of owners in the Tuley, Layton,Checkerboard, Pharoah, Hart, Caney, Sycamore, Woodford, and Hunton.During the hearing Triad proposed to drill a well down to the Hunton formationand Order No. 585786 states that all listed formations are to be developed as aunit. Triad then filed a request to re-enter the S.J. Brown #1-4 well which wasapproved July 14, 2011. Triad's completion report for the re-entry of the S.J.Brown #1-4 well received July 23, 2012, provides the wellbore was washeddown to 7,650 feet. There were seven feet of perforations in the Layton at1,400 feet from total depth. The Sycamore, Woodford and Hunton were alldeeper than 7,650 feet. Order No. 585786 provided for the drilling of a new

well to 9800 feet to test the Hunton and that well was never drilled.

2) Rimrock requested the Sycamore, Woodford and Hunton be vacated frompooling Order No. 585786 as these formations were not penetrated or produced

under Order No. 585786. After pooling Order No. 585786 was issued, Triad

did not drill a new well in the unit, but re-entered an existing well in the unit in

2012 and recompleted that well in the Layton formation. Pooling Order No.

585786 was issued May 26, 2011, and no well has been drilled or completed by

Triad in the Sycamore, Woodford and Hunton formations since the issuance of

this order. Rimrock requests the Sycamore, Woodford, and Hunton formations

be dismissed from Order No. 585786 as Rimrock is seeking to horizontally

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develop the Sycamore, Woodford, and Hunton. The ALJ found the Rimrockapplication should be granted and the Sycamore, Woodford, and Huntonformations should be dismissed from pooling Order No. 585786. The ALJfound that Triad failed to take the risk, pay the money and penetrate theSycamore, Woodford, and Hunton formations and thus they should bedismissed from pooling Order No. 585786.

3) The question becomes whether or not Triad's re-entering the S.J. Brown#1-4 well and recompleting in the Layton, an uphill zone, constituteddevelopment of the unit in holding all formations pooled even if they were notpenetrated. In Amoco Production Co. v. Corporation Com'n of State of Okl., 751P.2d 203 (Okl.Civ.App. 1986) the Court stated:

First, the statute mandates developing the spacingunit as a unit. [52 O.S. § 87.1(e)] Operator Amoco isdeveloping the spacing unit as a unit. A 640 acredrilling and spacing order was issued on all 13common sources of supply. After the spacing orderwas entered, the unit could be force pooled. GulfstreamPetroleum Corp. v. Layden, 632 P.2d 376 (Okl. 1981).Helmerich v. Corporation Commission, 532 P.2d 419(Okl. 1975). This pooling was for unit development. Aforce pooling order unitizes the working interest in theentire unit as to the named formations.

In Amoco the initial well was drilled to a total depth and completed in theSpringer, the deepest formation listed in the pooling order. Within 180 days,the term provided for in the pooling order, the initial well was drilled to totaldepth. Amoco however waited 14 months for a pipeline to be completed to theinitial well to commence the second well to the Red Fork. Bartex Exploration,Inc. and Berexco, Inc. ("Bartex") argued that they should be allowed an electionto participate in the second well. The Court of Appeals held that Amoco would

be deprived of vested rights to the pooled formations if Bartex was allowed to

elect to participate in subsequent wells. The Court of Appeals also held that

pooling orders pool by the unit and not by the wellbore. This conclusion was

reached by the Court of Appeals because Amoco had drilled the well to total

depth and penetrated all the listed formations, taking the risk and spending

the money to penetrate all the formations.

4) Triad did not drill a new well pursuant to pooling Order No. 585786 but

re-entered an existing well the S.J. Brown #1-4 to recomplete in the Layton

formation. This recompletion did not penetrate the Sycamore, Woodford, or

Hunton formations nor did Triad attempt to commence another well to the

Sycamore, Woodford, or Hunton formations for more than five years. In the

present case Triad did not drill a well to penetrate the Sycamore, Woodford, or

Page No. 18


Hunton formations and Triad therefore did not take any risk or pay any coststo develop these three deeper formations.

5) In Mustang Production Co. v. Corporation Com'n of the State of Oklahoma,771 P.2d 201, 203 (Okl. 1989), the Oklahoma Supreme Court held:

The standard to be applied by the CorporationCommission when hearing an application to modify orvacate a prior, valid order is well known in Oklahoma.A prior, valid order may only be modified or vacatedupon a showing by an applicant that there has been achange in conditions or change in knowledge ofconditions. Phillips Petroleum Company v. CorporationCommission, Okl., 461 P.2d 597, 599 (1969). Theapplicant must make this showing by substantialevidence. Phillips, supra; Anderson-Prichard OilCorporation v. Corporation Commission, 205 Okl. 672,241 P.2d 363 (1951); Okla. Const. Art. IX § 20.Without this showing, any attempt to vacate or modifya prior, valid order constitutes a prohibited collateralattack on that earlier order. Application of Bennett,Okl., 353 P.2d 114, 120 (1960).

See also SKZ, Inc. v. Petty, 782 P.2d 939 (Okl. 1989).

6) The Referee agrees with the ALJ that Triad's failure to drill a well orpenetrate all the formations listed in pooling Order No. 585786 constitutes a

change in knowledge of conditions sufficient to warrant the amendment of

pooling Order No. 585786. For the above stated reasons and law, the Referee

would recommend the Rimrock application seeking to vacate the Sycamore,

Woodford, and Hunton common sources of supply from pooling Order No.

585786 underlying Section 4, T1N, R2W, Garvin County, Oklahoma be

affirmed.

PM:ac

RESPECTFULLY SUBMITT D THIS 25th day of August, 2017.

\x,wc OkklAjpe\.

Patricia D. MacGuigan \IOIL & GAS APPELLATE REFEREE

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xc: Commissioner MurphyCommissioner HiettCommissioner AnthonyALJ Kathleen M. McKeownALJ Curtis M. JohnsonRon M. BarnesRussell J. WalkerMaribeth Snapp, J&LS DirectorOil Law RecordsCourt ClerksCommission Files

Page No. 20

file before the corporation commission aug 2 5 2017 of … · rimrock applications. cause cd...

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