BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA AND PRODUCTION, L.L.0 ) POOLING. Report of the Administrative Law Judge

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1 BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA F I L Ev 0 APPLICANT: SANDRIDGE EXPLORATION ) JAN RELIEF SOUGHT: AND PRODUCTION, L.L.0 ) POOLING Cf)UR r CLERK'S *f ION 9MM U UI(1.AHQM& CAUSE CD NO LEGAL DESCRIPTION: SECTION 26, TOWNSHIP 25 ) NORTH, RANGE WEST, ) GRANT COUNTY, ) OKLAHOMA ) ) Report of the Administrative Law Judge A. Case Summary Applicant requests the Commission pool the interests and adjudicate the rights and equities of the oil and gas owners in the land described as Section 26, Township 25 North, Range 7 West in Grant County, Oklahoma. Fair Market Value paid for the interests is the issue. B. Recommendations The pooling application should be granted with the Redgate proposed values and bonuses of $I,5oo and 22% and $1,250 and 22 '/2%. C. Hearing Date December 3, 2014 D. Appearances Roger Grove, Attorney at Law, appeared on behalf of Applicant, Sandridge Exploration and Production, LLC; Gregory Mahaffey, Attorney at Law, appeared on behalf of Protestants Steve and Connie Redgate.

2 Page 2 of 5 William Huffman and Jeff Stephens, Attorneys at Law, appeared on behalf of the City of Haskell. E. Exhibits i. Proposal Letter from Sandridge to Steven and Connie Redgate z. Lease Map including sections and Production Map 4. Permit to Drill with Notification of Well Spud 5. Permit to Drill 6. Oil and Gas Lease between Halcomb Geiser Family Trust and Anadarko Basin, LLC 7. Assignment of Oil and Gas Leases (Multiple) F. Evidence Summa Michael Rei Ile y, Landman i. Sandridge presented Mike Reilley as its land witness, who stated Sandridge owned 420/0 of the Mississippi line and they wanted to drill a horizontal well. 2. The proposal letter went out on July 8, 2014 and included an AFE. There was good notice on all respondents except Respondent All traditional sources were used to try and locate this respondent, including the Accurint internet site. He believed Respondent #15 was deceased. 3. This well has been drilled and completed. The well's actual cost was $2,996,384. Mr. Reilley recommended, as fair market value: - $1,100 bonus and a 1/8' h royalty interest - $1,050 bonus and a 3/16th royalty interest - $I,00o and a 1/5th royalty interest 4. Mr. Reilley did not believe the protesting parties proposed values were fair market value. The Protestants cited Section 25 assignments that were held by production and were signed after production. Those values were: - $1,500 and 22% - $1,250 and 22 1/2% Those lease assignments were made on October 23, Mr. Reilley believed the 'Woodford producer well had all cost paid by the time the interests were assigned.

3 Report of the Administrative Law Judge Page 3 of 5 5. On cross examination, Mr. Reilley admitted the well was spud on July 26, 2014 and the drilling was completed on August 19, This pooling was filed on August 6, The well is producing about 175 barrels of oil and 909 MCF of gas per day. There is some outstanding, unleased ownership in this spaced area, one of the largest being the Protestants 150 acres. Sandridge is paying.55 cents a barrel for salt water disposal. When asked why the Section 25 values were not fair market value, Mr. Reilley noted that the southwest quarter of the section 25 assignment was limited to the Mississippi base but later amended to include the Woodford and deeper zones. The assignments were in October 2014 to cover the Woodford well. Mr. Reilley did not believe these were arms length assignments. 6. In October 2014, there was an assignment from Anadarko to Canyon for $1,500 and 22% involving 30 acres. There was also an assignment from Anadarko to EK Properties and from Anadarko to Bridge Energy Partnership for 30 acres and io acres respectively, also at $1,500 and 22%. Anadarko leased 10 acres to Graycliff Resources for $1,500 and 22 0/o in late Nonetheless, Mr. Reilley did not believe $1,500 and 22% was fair market value for the area. 7. On redirect, Mr. Reilly noted all these assignments were held by production and, of critical import, these assignments did not include well costs and Sandridge fair market values do include well costs. Steven Redgate, Mineral Interest Owner 8. Steven Redgate is a mineral interest owner and rancher and testified he owned io acres in this 640 acre spaced area. He believes fair market value is $1,500 and 22% and there is a producing well in each section. 9. On cross examination, Mr. Redgate admitted he was shopping his interest and had negotiated but had yet to make a final deal. He specifically mentioned Anadarko and Eagle both had expressed some interest. Michael Reilley, Landman 10. Michael Reilley was recalled and testified he had offered mistaken testimony. The assignees of the above assignments will pay the well costs. He still did not believe they represented fair market value because they were held by production. Mr. Reilley believed Mr. Redgate had protested this matter to ride the well down and Mr. Redgate had succeeded if that were his intent. He also stated that Sandridge will not develop at higher values and they never offer any higher royalty than 1/5 pursuant to Sandridge policy. ii. On cross examination, he admitted Mr. Redgate had not forced Sandridge to spud the well and there had been title opinion issues that had slowed the

4 Page 4 of 5 project. When asked if this situation was the same as a held by production well, he did not believe that it was a comparable situation because Mr. Redgate's protest had slowed the project. G. Findings of Fact i. Sandridge is offering $i,ioo bonus and a 1/8th royalty interest, sx,00 bonus and a 3/16th royalty interest, and si,000 and a 1/5th royalty interest as fair market value. 2. In an adjoining section, the Protestants have shown values paid were $x,00 and 22% and si,zo and 22 '/2%. These assignments were held by production.. The relevant well has been drilled and completed.. The alleged distinction between these two fair market values is the assignment values did not include well costs whereas the Sandridge fair market values did include well costs. However, upon verification, Mr. Reilley changed his testimony and said the assignees will pay well costs. Mr. Redgate he has not yet leased and is shopping his lease to receive, what he believes, is fair market value. 6. Notice of this proceeding is governed by OAC 165:5-7-9(a). 7. Proper Notice of this proceeding was given pursuant to law and rules of the Commission. H. Conclusions of Law i. Comparable assignments in an adjoining section have paid the $1,500 an acre and 22% and $1,250 and 22 '/2%. Sandridge alleged this was because the Sandridge leases included well costs and the offset assignments did not include well costs. This testimony was later corrected to properly show that the assignments also included well costs. Since the assignees will pay well costs, this eliminates the major distinction in this well comparison of fair market values. 2. Sandridge also alleged the Redgates had protested this matter so they could ride the well down and see how productive this well proved. No evidence was offered showing this protest was filed with such intent and Mr. Redgate did not force Sandridge to spud the well.

5 Page 5 of 5 3. In addition, there were title opinion issues that may have slowed the project. Sandridge next stated it has an internal policy of giving no more than 20% royalty interest, and they stated they would not develop this project at higher values. 4. Mr. Redgate is certainly entitled to negotiate for the highest lease value he is able to obtain. There was an analogous lease value paid of $1,500 and 22% and $1,250 and 22 1/2% paid in an offsetting section within the last year. These should be established as fair market value.. The fact Sandridge chose to go ahead and drill the well without having leases in place, and mistakenly thought the assignments in the neighboring section did not include well costs, in no way impairs Mr. Redgate's ability to try and negotiate the highest and best values for his leases. He did this by properly citing offset leasing at higher values than Sandridge is willing to pay. Also, of no consequence for this determination, is whether Sandridge will develop the project at a 22% royalty rather than a 20% royalty. Internal corporate policy is not a relevant consideration for the Commission in determining fair market value. 6. The pooling application should be granted with the Redgate proposed values and bonuses of $1,500 and 22% and $1,250 and 22 /2%. Respectfully submitted this of January, PEP: tt Cc: Roger Grove Gregory Mahaffey William Huffman Michael Decker Oil-Law Records Commission File Office of General Counsel 4 'S aul E. Porter Administrative Law Judge