DAILY & WOODS A PROFESSIONAL LIMITED LIABILITY COMPANY ATTORNEYS AT LAW

Transcription

1 JERRY L. CANFIELD, P.A. THOMAS A. DAILY, P.A. WYMAN R. WADE, JR., P.A. DOUGLAS M. CARSON, P.A. ROBERT R. BRIGGS, P.A. * C. MICHAEL DAILY COBY W. LOGAN L. MATTHEW DAVIS * Fayetteville Office Also Licensed in Oklahoma DAILY & WOODS A PROFESSIONAL LIMITED LIABILITY COMPANY ATTORNEYS AT LAW KMW BUILDING 58 SOUTH SIXTH STREET P.O. BOX 1446 FORT SM ITH, AR TELEPHONE (479) FAX (479) N. HIGHW AY 112, SUITE 200 FAYETTEVILLE, AR TELEPHONE (479) FAX (479) JAMES E. WEST HOLLY ADEE * DALE CARLTON * OF COUNSEL HARRY P. DAILY ( ) JOHN P. WOODS ( ) JOHN S. DAILY ( ) May 6, 2009 Arkansas Oil and Gas Commission 301 Natural Resources Drive, Suite 102 Little Rock, Arkansas Re: ORDER REFERENCE NO Application of SEECO, Inc. for authority to drill and produce the proposed Whisenhunt #3-10H3 well, pursuant to Arkansas Oil and Gas Commission General Rule B-43 (o), and to share the costs of such well and the natural gas produced therefrom between the working interest owners and royalty owners of the existing units composed of Section 3, Township 10 North, Range 12 West,, and Section 10, Township 10 North, Range 12 West, County, based upon the sharing formula agreed upon by the Applicant, as operator, and the leasehold working interest owners in both such units as set out in detail below: Commissioners: SEECO, Inc., 2350 N. Sam Houston Parkway E, Houston, TX 77032, hereby applies to the Arkansas Oil and Gas Commission as follows: 1. The Applicant is the operator and % leasehold working interest owner in Section 3, Township 10 North, Range 12 West and the operator and 43.75% leasehold working interest owner in Section 10, Township 10 North, Range 12 West. The Applicant proposes the drilling of a cross unit horizontal well bore from a surface location in the Northwest Quarter of Section 10 with a proposed bottom hole location in the Northwest Quarter of Section 3, with a measured depth of approximately 7,841 feet (2,777 feet total vertical depth) in the Fayetteville Shale Formation. The well is projected to have a perforated horizontal section of approximately 4,530 feet. The proposed allocation of cost, expense and production is depicted on Exhibit B. Geological maps depicting the Fayetteville structure and thickness are enclosed with this application as Exhibits D and E, respectively. 2. The Applicant proposes to make an initial allocation of cost for the proposed well between Section 3 and Section 10 based upon an area in acres ( allocation area )

2 defined by an exterior boundary 560 feet perpendicular to both sides of the estimated perforated well bore and a radius extending 560 feet from the estimated first perforation (toe) and last perforation (heel) of the well bore. The Applicant estimates that the total allocation area encompassing the perforated well bore is approximately 140 acres. Approximately acres or 94.09% of the total area is within Section 3 and 8.27 acres or 5.91% of the total area is within Section The Applicant proposes that the above allocation of 94.09% to Section 3 and 8.27% to Section 10 be applicable to all actual costs for the drilling of the well through and including the setting of production casing. A detailed estimate of cost ( AFE ) is enclosed with this application as Exhibit C. Operations will be conducted under the terms of an Arkansas Oil and Gas Commission model form operating agreement. The agreement the will provide for a 400% penalty for a non-consent election for the drilling of the proposed well. The following terms will also govern the drilling and completion of the proposed well: a. After the setting of production casing, but before a completion attempt is made, drilling costs will be reallocated, based upon the actual perforated interval (distance between first and last perforations) available for completion in the as-drilled well bore. This re-allocation may result in a revision to working interest and all costs paid to that point will be adjusted. b. If a well bore is lost during the drilling or completion operation and a new well bore is proposed with an alternate azimuth that will result in a further re-allocation of working interest participation or in the allocation of production, the replacement well will be treated as a new well proposal under the operating agreement with revised interests. All parties that participated in the drilling and completion attempt in the initial well will be liable for their proportionate share of the actual cost of operations to the point of setting a plug for side-track operations, based on their original interest. c. Should any party that elected to participate in the initial well elect to not participate in the replacement well, the penalty for a non-consent election in the replacement well will be imposed on only the replacement well costs. A non-participating party in the initial well will not be afforded an opportunity to participate in the replacement well and the penalty will be imposed on the cumulative cost of the initial well and the replacement well. d. Any re-allocation after the setting of production casing will be final for the completion attempt and for the ultimate allocation of production from the well between the respective units. 4. The Applicant states that the granting of this application will be protective of the correlative right of all interested parties and will prevent waste of the natural gas by permitting the most efficient method of developing the resource within the two governmental section which are the subject of this application.

3 5. The parties listed on Exhibit A are the interested parties in this proceeding and are the parties who should be given notice. Applicant requests that the Arkansas Oil and Gas Commission issue an order to the mineral leasehold working interest owners to (a) join as a working interest owner in the drilling of the proposed well based upon the allocation proposed above or, in the alternative, (b) elect to be a non-consenting working interest owner under the terms of the operating agreement which governs the unit in which their leasehold or mineral interest is located. Any owner of leasehold working interest who fails to timely elect either alternative should be deemed to have elected alternative (b) above. 6. The names and addresses of parties interested in this proceeding are set forth in Exhibit "A" attached hereto and made a part hereof. 7. Please note the appearance of Thomas A. Daily of Daily & Woods, P.L.L.C., P.O. Box 1446, Fort Smith, Arkansas, 72902, on behalf of applicant. Very truly yours, Thomas A. Daily jmt

4 Exhibit A RE: SEECO, Inc. Cross Unit Application Sections 3 & 10, T 10N R 12W Van Buren County, AR All Interested Parties Andrew Palsa Austin Exploration, LLC BP America Production Company Barbara A. Taylor Beatrice Tharp Beaumier William, Jr. Billy W. Phillips Bobby H. Sherrill Charles T. Bukowski, Jr. Carl Melvin Reynolds Catherine Chalk Estate Cecilia Lambert Charles Ray Barden Sr. Chesapeake Exploration Limited Partnership Cordelia D. Stark Sharon A. Cotton Danny Stark Darrell F. Barden Daryl Wulf & Bettie Vincent Wulf Deltic Timber Corp. Dewey F. Markcum Don L. Tackett Dortha A. Tackett Edra N. Davis

5 Exhibit A Fayetteville Royalty, L.L.C. c/o Kent M. Krug Gerald Stark Grayson Oil & Gas Investments LLC Gilley Howland Joseph Greenberg Marty L. Griffith Richard N. Grigsby Guy Walls, Trustee Jason Henson Hubert Tackett Jacqueline Selvidge James R. Goodnight Jessica Tharp, f/n/a Jessica Tharp Gorman McNeil Jimmy D. Stark John B. Tanner John McCarthy & Jennifer McCarthy Joint Living Trust, John McCarthy and Jennifer McCarthy, Trustees John T. Pitman Karen Rice Landers Exploration LLC Larry D. Barden Louis, Barden Jr. Nolan Barden Pamela Perkins Patsy A. Fricke Petrohawk Energy Corporation Roger Kidder Shirley Ann Sayler

6 Exhibit A Timothy C. Kantz Toads Mean Green R.V. Park, Inc Tommy Tackett Typhoon Energy, LLC Vickie Verser & Sherry Majors Verser XTO Energy Inc. Adexco Production Company Atlantic Trust, Nominee FBO James C. Donaldson IRA Rollover, Charles Schwab and Co., Custodian Craig G. Tirey Family Limited Partnership FFF, Inc. Fairway, LLC Fall River Resources, Inc. Gentry Brothers Land and Timber, LLC, an Arkansas Limited Liability Company Glen A. Turney Gray Turney Joe D. Whisenhunt KCS Resources, Inc. subsidiary of Petrohawk Energy Corporation Petrohawk Properties, L.P. Petroquest Energy LLC Philpott Oil & Gas Company, Inc. Robert Eckels Family Trust Christopher R. F. Eckels, Trustee Robert H. Hannifin, Trustee of the Robert and Maxine Hannifin Trust Shawn P. Hannifin The New Mexico Co. Venable Royalty, LTD Western Interior Energy, Inc., Nominee FBO WJT III SEP-IRA Whisenhunt Investments, LLC

7 Exhibit A

8 WHISENHUNT #3-10H3 Section 3, Township 10N, Range 12W, Van Buren County Section 10, Township 10N, Range 12W, Van Buren County ( 7 560' 3-10N-12W Acres 94.09% of Total Acres Total Perf 4566' 140 Total Acres 560' N-12W 8.27 Acres 5.91% of Total Acres LEGEND 7 Perf Locations Section Line Participation Area 3-10N-12W Path Perf 560' Set Back 10-10N-12W 0 1,000 2,000 FEET Scale: 1" = 1,000' 1:12,000 SEECO, INC N. Sam Houston Pkwy E. Suite 125 Houston, Texas Printed: 1:52 PM on 04/23/2009 by Larry Saranthus, GIS Technician File: F:\COMMON\Geo_Temp\GIS\Arkansas\Cross_Unit_Plats\Whisenhunt #3-10H3.mxd

9 SEECO 2350 N. Sam Houston Pkwy. E Houston, TX AUTHORIZATION FOR EXPENDITURE Well Name: WHISENHUNT #3-10H3 ( A) AFE Number : Operator: SEECO AFE Date : 2/4/2009 AFE Group : DNW2009CAP_DRL AFE Type : Development D Job Start Date : Prospect : YELLOWSTONE County, State : VAN BUREN, AR Q/Q/Q-S/T/R: / / - 10 / 10N / 12W Field : B-43 Location : Well Type : GAS Depth : 7841 Prep. By : RC/BC/BH Surface 480 ft. from N line 2337 ft. from W line Located : Long : Lat : Xloc : Yloc : Bott. Hole 4821 ft. from S line 2275 ft. from W line Located : Long : Lat : Xloc : Yloc : Working Interest : Before Casing : After Casing : Lease Name (ID): WHISENHUNT #3-10H3 ( A) NRI : Current BOPD: 0 Current MCFPD: 0 Current BWPD: 0 Expected BOPD: 0 Expected MCFPD: 0 Expected BWPD: 0 Remarks : Total D&E = 10 Days; RR for Reentry Rig = 10 Days (1 Mob, 7 D&E, 2 C&S); 2777' TVD, 4530' Lateral; Mud Type = WBM. Cased Cmt Completion w/multi-stage Frac (13.2 Stages). #3 of 3 Pad Wells. Intangible Notes Drilling Dry Hole Completion CONTRACT FOOTAGE $43,700 $43,700 $0 $43, DAYWORK $144,200 $144,200 $0 $144, RIG MOBILIZATION / DEMOBILIZ $54,100 $54,100 $0 $54, CONDUCTOR HOLE $7,100 $7,100 $0 $7, LOCATION $55,000 $55,000 $0 $55, FUEL AND WATER $30,100 $30,100 $0 $30, MUD, COMPLETION FLUID & CHE $161,600 $161,600 $0 $161, DRILL BITS $51,800 $51,800 $0 $51, DIRECTIONAL DRILLING $115,100 $115,100 $0 $115, CEMENT AND CEMENTING SERVI $7,000 $7,000 $0 $7, SURFACE RENTALS $49,800 $49,800 $0 $49, SUBSURFACE / RELATED RENTA $4,900 $4,900 $0 $4, SPECIALIZED SERVICES $3,000 $3,000 $0 $3, TRANSPORTATION $7,700 $7,700 $0 $7, SUPERVISION $60,600 $60,600 $0 $60, CONTRACT LABOR $2,500 $2,500 $0 $2, INSPECT CSG.,TBG.,DRILL PIPE $4,500 $4,500 $0 $4, DRILL SITE:PERMIT,CURATIVE,TI $3,000 $3,000 $0 $3, DRILL SITE SURVEY $5,000 $5,000 $0 $5, ENVIRONMENTAL & POLLUTION $67,700 $67,700 $0 $67, PITS / PIT LINERS $6,500 $6,500 $0 $6, OVERHEAD / INSURANCE $4,900 $4,900 $0 $4, MISC. EXPENSES/CONTINGENCY $5,100 $5,100 $0 $5, DAYWORK $0 $0 $41,200 $41, COMPLETION & SWAB RIG $0 $0 $12,000 $12, COILED TUBING UNIT $0 $0 $63,300 $63, LOCATION $0 $0 $6,000 $6, SNUBBING UNIT $0 $0 $4,500 $4, TRAILER/FACILITIES RENTAL $0 $0 $4,000 $4, MUD, COMPLETION FLUID & CHE $0 $0 $78,300 $78, CASED HOLE WIRELINE LOGGIN $0 $0 $155,400 $155, CEMENT AND CEMENT SERVICE $0 $0 $21,000 $21, STIMULATION:ACIDIZE - FRAC - S $0 $0 $768,400 $768, SURFACE RENTALS $0 $0 $44,000 $44, TANK TRUCKS/MISC. PUMPING S $0 $0 $99,200 $99,200 Total Powered by Production Access 4/19/ :06 PM

10 SEECO 2350 N. Sam Houston Pkwy. E Houston, TX Intangible AUTHORIZATION FOR EXPENDITURE Well Name: WHISENHUNT #3-10H3 ( A) AFE Number : Operator: SEECO AFE Date : 2/4/2009 AFE Group : DNW2009CAP_DRL AFE Type : Development D Job Start Date : Prospect : YELLOWSTONE County, State : VAN BUREN, AR Q/Q/Q-S/T/R: / / - 10 / 10N / 12W Field : B-43 Location : Well Type : GAS Depth : 7841 Prep. By : RC/BC/BH Surface 480 ft. from N line 2337 ft. from W line Located : Long : Lat : Xloc : Yloc : Bott. Hole 4821 ft. from S line 2275 ft. from W line Located : Long : Lat : Xloc : Yloc : Working Interest : Before Casing : After Casing : Lease Name (ID): WHISENHUNT #3-10H3 ( A) NRI : Current BOPD: 0 Current MCFPD: 0 Current BWPD: 0 Expected BOPD: 0 Expected MCFPD: 0 Expected BWPD: 0 Notes Drilling Dry Hole Completion Total SUBSURFACE / RELATED RENTA $0 $0 $65,700 $65, SPECIALIZED SERVICES $0 $0 $46,000 $46, TRANSPORTATION $0 $0 $2,100 $2, SUPERVISION $0 $0 $24,600 $24, CONTRACT LABOR $0 $0 $6,600 $6, FLOW TESTING/WELL TESTS $0 $0 $17,400 $17, OFFSITE DISPOSAL SERVICES $0 $0 $69,300 $69, OVERHEAD / INSURANCE $0 $0 $5,300 $5, MISC. EXPENSES / CONTINGENC $0 $0 ($30,300) ($30,300) AREA WATER FACILITY $0 $0 $79,700 $79,700 Tangible Total Intangible Cost : Notes $894,900 $894,900 $1,583,700 $2,478,600 Drilling Dry Hole Completion Total CONDUCTOR PIPE 16" Conductor 40' $1,000 $1,000 $0 $1, SURFACE CASING 9 5/8" 36# 560' $17,000 $17,000 $0 $17, SUBSURFACE EQUIPMENT $2,000 $2,000 $0 $2, WELLHEAD EQUIPMENT $2,400 $2,400 $0 $2, PRODUCTION CASING 5 1/2" 17# P ' $0 $0 $167,800 $167, TUBING 2 3/8" 4.7# 3189' $0 $0 $11,400 $11, SUBSURFACE EQUIPMENT $0 $0 $10,300 $10, TANK BATTERY & ASSOCIATED $0 $0 $8,000 $8, WELLHEAD EQUIPMENT $0 $0 $17,500 $17, SEPARATORS $0 $0 $9,000 $9, SURFACE PRODUCTION EQUIPM $0 $0 $13,100 $13, MISC. EXPENSES / CONTINGENC $0 $0 ($4,700) ($4,700) Total Tangible Cost : $22,400 $22,400 $232,400 $254,800 Total AFE Costs : $917,300 $917,300 $1,816,100 $2,733,400 Powered by Production Access 4/19/ :06 PM

11 SEECO 2350 N. Sam Houston Pkwy. E Houston, TX AUTHORIZATION FOR EXPENDITURE Well Name: WHISENHUNT #3-10H3 ( A) AFE Number : Operator: SEECO AFE Date : 2/4/2009 AFE Group : DNW2009CAP_DRL AFE Type : Development D Job Start Date : Prospect : YELLOWSTONE County, State : VAN BUREN, AR Q/Q/Q-S/T/R: / / - 10 / 10N / 12W Field : B-43 Location : Well Type : GAS Depth : 7841 Prep. By : RC/BC/BH Surface 480 ft. from N line 2337 ft. from W line Located : Long : Lat : Xloc : Yloc : Bott. Hole 4821 ft. from S line 2275 ft. from W line Located : Long : Lat : Xloc : Yloc : Working Interest : Before Casing : After Casing : Lease Name (ID): WHISENHUNT #3-10H3 ( A) NRI : Current BOPD: 0 Current MCFPD: 0 Current BWPD: 0 Expected BOPD: 0 Expected MCFPD: 0 Expected BWPD: 0 Approved by: Southwestern Energy Approval: Date: Partner Approval: Date: THE UNDERSIGNED RECOGNIZES THAT, IN ADDITION TO OTHER THIRD PARTY DRILLING COMPANIES, OPERATOR FROM TIME TO TIME EMPLOYS ITS AFFILIATE, DESOTO DRILLING, INC., ( DDI ), TO DRILL WELLS OPERATED BY OPERATOR. IN THE EVENT OPERATOR UTILIZES DDI TO PERFORM ANY OF THE OPERATIONS DESCRIBED HEREIN, YOUR EXECUTION OF THIS AFE SHALL CONSTITUTE YOUR AGREEMENT TO THE RATE OF CHARGES ESTIMATED HEREIN FOR ALL SUCH SERVICES PROVIDED BY DDI, AS SUCH RATES MAY BE MODIFIED FROM TIME TO TIME TO REFLECT THE PREVAILING RATES IN THE AREA FOR COMPARABLE SERVICES. THE UNDERSIGNED RECOGNIZES THAT OPERATOR MAY FROM TIME TO TIME EMPLOY ITS OWN TOOLS AND EQUIPMENT IN CONDUCTING THE OPERATIONS DESCRIBED HEREIN, SO LONG AS OPERATOR S CHARGES THEREFOR DO NOT EXCEED THE PREVAILING RATES IN THE AREA. IN THE EVENT OPERATOR SO UTILIZES ITS OWN TOOLS AND EQUIPMENT TO PERFORM ANY OF THE OPERATIONS DESCRIBED HEREIN, YOUR EXECUTION OF THIS AFE SHALL CONSTITUTE YOUR AGREEMENT TO THE RATE OF CHARGES ESTIMATED HEREIN FOR THE USE OF ALL SUCH TOOLS AND EQUIPMENT, AS SUCH RATES MAY BE MODIFIED FROM TIME TO TIME TO REFLECT THE PREVAILING RATES IN THE AREA FOR THE USE OF COMPARABLE TOOLS AND EQUIPMENT. Powered by Production Access 4/19/ :06 PM

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