Li I L E MAR 14 2017

COURT CLERKS OFFICE - TULSA CORPORATION COMMISSION

OF OKLAHOMA

BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA

RIMROCK RESOURCE OPERATING, LLC

MULTIUNIT HORIZONTAL WELL

APPLICANT:

RELIEF SOUGHT: CAUSE CD NO. 201506129-T

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

APPLICANT:

RELIEF SOUGHT:

RTMROCK RESOURCE OPERATING, LLC

WELL LOCATION EXCEPTION (PART OF A MULTIUNIT HORIZONTAL WELL)

CAUSE CD NO. 201506133-T

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

REPORT OF THE ADMINISTRATIVE LAW JUDGE

The causes came on for hearing before Kathleen M. McKeown, Administrative Law Judge (AU), in the Oklahoma Corporation Commission's courtroom, Kerr Building, Tulsa, Oklahoma, pursuant to notice given as required by law and the rules of the Oklahoma Corporation Commission (Commission) for the purpose of taking testimony and reporting to the Commissioners.

CASE SUMMARY Rimrock Resource Operating, LLC (Rimrock) seeks to drill a multiunit horizontal well targeting the Woodford formation at a location closer to the unit boundaries than that prescribed by the horizontal spacing unit. Triad Energy Inc. (Triad) operates a well in the NW/4 of Section 33 (Harwell 1-33) that produces from the Sycamore and Gibson. Triad believes that once the Rimrock well is fracture treated the fracture could move into the Sycamore resulting in Sycamore production by the Rimrock well and a possibility that the Harwell 1-33 would not only lose production but could be loaded up with fracture water which would result in the well being "killed".

Report of the Administrative Law Judge Rimrock Resource Operating, LLC CD 201506129-T and CD 201506133-T

RECOMMENDATION SUMMARY The Rimrock applications should be granted; the motion for directed verdict made by Triad at the close of Rimrock's case is denied. Rimrock met the requirements of the commission by introducing expert testimony and evidence regarding the reasonableness of the proposed location of the multiunit well and the need for multiunit horizontal development in the subject lands. Triad's concerns regarding the adverse effect of the Rimrock well on the Harwell 1-33 well and possible damage to the Sycamore including the potential of subsequent horizontal development in the subject unit were not substantiated by expert testimony or evidence of drainage or other adverse effects.

HEARING DATE February 1, 2017

APPEARANCES Ron M. Barnes appeared for Rimrock; Russell J. Walker appeared for Triad; David E. Pepper appeared for Continental Resources; Charles B. Davis appeared for R.L. Clampitt and Associates, Inc.

SUMMARY OF EVIDENCE

CD 201506129-T seeks approval for a multiunit horizontal well targeting the Woodford shale formation and the associated Sycamore and Hunton common sources of supply as they underlie Section 28; and the Woodford shale and associated Hunton common sources of supply as they underlie Section 33.

CD 201506133-T requests an order permitting a multiunit horizontal well for the Sycamore, Woodford and Hunton underlying Sections 28 and 33 with a surface location (as amended at the hearing) to be no closer than 1850 feet from the south line and 440 feet from the west line of Section 33; the completion interval to be no closer than 0 feet from the north line, no closer than 2400 feet from the south line and no closer than 440 feet from the west line of Section 33; and no closer than 0 feet from the south line, no closer than 165 feet from the north line and no closer than 440 feet from the west line of Section 28. The Sycamore was dismissed at the hearing from both applications as to Section 33.

2. Exhibits were numbered and accepted into evidence as follows (exhibit sponsor in parentheses): 1. Updated Respondent List (Rimrock) 2. Map Packet (Rimrock) 3. Volumetric Recovery Calculations (Rimrock)

3. On behalf of Rimrock expert testimony was presented through Jessica Campbell, petroleum landman; Mike Fouke, petroleum geologist; and Bob McNulty, petroleum engineer. A. According to its title opinion, Rimrock owns a 47.98% interest in Section 28 and a 14.75%

interest in Section 33; an additional interest supports the Rimrock applications in Section 33 with 13 acres; Rimrock plans to drill a multiunit horizontal Woodford well from south to

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Report of the Administrative Law Judge Rimrock Resource Operating, LLC CD 201506129-T and CD 201506133-1

north utilizing 3D proprietary seismic and well control so that there will be no interference from a fault in Section 33. Triad owns no interest in Section 28 and a total 23 .35% interest in Section 33. Triad operates the Harwell 1-33 (Sycamore producer); the Stout 1-33 (Layton and Hoxbar producers); and the Tadlock 1-33 (Deese, Hart, Gibson producer). It is anticipated that the distance between the proposed well and the Harwell 1-33 will be at least 600'. The perforations will be in the middle of the Woodford formation and the Sycamore will not be penetrated. However, if the wellbore enters the Sycamore in Section 33, redirection of the welibore into the Woodford will occur immediately and there should be no detrimental effect by the proposed well on the Harwell 1-33.

B. Rimrock is requesting a multiunit horizontal wellbore to allow more efficient and economic development of the Woodford as well as a smaller carbon footprint; the multiunit drilling also allows recovery of reserves in and around the unit boundary that would otherwise go unrecovered. Engineering testimony was presented to explain that the 15-20 fracture stages anticipated should remain in the Woodford formation and not move upward into the Sycamore; this is due to the low porosity and low permeability in the base of the Sycamore making it very "tight". If Rimrock were to determine that the planned fracture treatment of the Woodford in the proposed well would likely result in penetrating the Sycamore, the fracture plan would be reformed to avoid the Sycamore; the Sycamore is not as viable a reservoir as the Woodford.

C. At this point Triad moved for a Directed Verdict based on the lack of presentation by Rimrock of the plans it has for future development of the unit which, Triad argued, is required under the Shale Act; the motion was taken under advisement by the AU.

4. On behalf of Triad expert testimony was presented through Mike McDonald, an attorney and co- owner of McDonald Energy; and Joe Campbell, a petroleum geologist for Triad. A. McDonald Energy is one of several assignees of interest from Triad in Section 33; the

parties assigned an interest by Triad in the area are oil operators and/or passive investors with varied interests. The Harwell 1-33 is a mid-2011 directionally drilled well producing from the Sycamore and Gibson. The Sycamore has a lower fracture gradient than the Woodford therefore if a Woodford fracture treatment moves upward into the Sycamore, there would be a serious effect on the Sycamore which is not "tight" in the formation bottom; in fact, Triad believes that there is very little, if any, barrier between the Sycamore and Woodford and a heavy fracture can result in "killing" a vertical well by loading the vertical well with fracture fluid. Therefore, the proposed Rimrock well, with its fracture program will not adequately protect the Sycamore reserves underlying Section 33. While Triad agrees that the Woodford should be developed in Section 33, because Triad has been in the area operating and producing wells since the 1980s, Triad should be the operator of any Woodford well in Section 33.

RECOMMENDATIONS

After taking into consideration all of the facts, circumstances, evidence and testimony presented in the causes, it is the recommendation of the ALJ that the Rimrock applications in CD

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Report of the Administrative Law Judge Rimrock Resource Operating, LLC CD 201506129-T and CD 201506133-T

01506129-T and CD 201506133-T be granted and that the Motion for Directed Verdict be denied.

2. Oklahoma's 2011 Shale Reservoir Development Act does require a Plan of Development be included in each application seeking to create multiunit tracts for the purpose of drilling horizontal wells covering all or most of the proposed units. However, the language used in the statutes allows the Commission to "determine the necessary term, provisions, conditions and requirements to be included in the plan of development for the unit." 52 Okl.St.Ann. Section 87.9 E. Rimrock presented expert testimony and evidence as to the necessity for a multiunit horizontal well to economically and efficiently develop the Woodford underlying the subject lands. This will be the first horizontal multiunit well and, while there have been several vertical wells drilled underlying Sections 28 and 33, only one of those vertical wells (in Section 28) has produced from the Woodford and it has been plugged. Before additional horizontal wells can be contemplated, the proposed well should be completed and produced to give information on the location of the faulting underlying Section 33 as well as appropriate fracture treatment so as not to fracture into associated zones above and below the Woodford. For these reasons, the AU believes the Motion for Directed Verdict should be denied.

3. Rimrock originally sought multiunit and location exception authority for the Sycamore but agreed to dismiss the Sycamore from these applications in an effort to reassure Triad that the primary Rimrock target is, indeed, the Woodford. Triad has continued to protest the applications and voiced concern over the possibility that the Woodford fracture treatment in the Rimrock well will damage the Sycamore production in the Harwell 1-33. Despite its concern for the Section 33 Sycamore production, no exhibits were presented by Triad 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 Triad's objections appears to be the ownership of Triad in Section 33 and the fact that Triad firmly believes it should be the operator of any Woodford well in Section 33.

Thus, in light of the aforementioned conclusions, it is the recommendation of the ALJ that the applications in CD 201506129-T and CD 201506133-T be granted. Any orders issuing out of these causes should contain the recommendations set forth above.

Respectfully submitted this 14th day of March 2017, *THL ~MCKEOWN EN M. -

Administrative Law Judge