BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA. REPORT OF THE ADMINISTRATIVE LAW JTJDGORPORJ\TtON COMMISSION

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1 1 BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA APPLICANT: CITIZEN ENERGY II, LLC ) RELIEF SOUGHT: POOLING ) CAUSE CD NO T LEGAL SECTION 4, TOWNSHIP DESCRIPTION 9 NORTH, RANGE 5 H WEST, GRADY COUNTY, JUN 06 ZDB OKLAHOMA COURT CLERKS OFFICE - TULSA REPORT OF THE ADMINISTRATIVE LAW JTJDGORPORJ\TtON COMMISSION OF OKLAHOMA This cause came on before Curtis M. Johnson, Deputy Administrative Law Judge (AU), in the Oklahoma Corporation Commission's (Commission) courtroom, Kerr Building, Tulsa, Oklahoma, pursuant to notice given as required by law and the rules of the Oklahoma Corporation Commission for the purposes of taking testimony and reporting to the Commissioners. HEARING DATE: March 2, 2016 APPEARANCES: WILLIAM H. HUFFMAN, Attorney, appeared for the Applicant, Citizen Energy II, LLC (Citizen) and ROGER A. GROVE, Attorney, appeared for Mid-Continent II, LLC, Linn Operating, Inc. and Linn Energy Holdings, LLC (Linn). CASE SUMMARY F T Linn. The protest in this Pooling Application is an operator challenge between Citizen and RECOMMENDATIONS After hearing the witnesses, considering documentary evidence, and hearing arguments of counsel, the Administrative Law Judge finds the application should be granted, that Citizen Energy II, LLC should be designated unit operator. EXHIBITS Exhibit #1 Exhibit #2 Exhibit #3 Exhibit #4 Exhibit #5 Exhibit #6 Exhibit #7 Exhibit #8 Exhibit #9 Respondent List Authorization For Expenditure Form 12b-25 - Form 10-K Motion for Production of Documents - CD T Motion for Production of Documents - CD T Motion for Production of Documents - CD T Motion for Determination of Well Costs Under Pooling Order No Application CD Citizen Energy II, LLC Proposal Letter to Chaparral Energy, Inc. dated 7/7/15

2 Page 2 of 8 Exhibit #10 Permit to Drill Sofia 1H-31 well dated 11/13/15 Exhibit #11 Osage Oil & Gas Proposal Letter to Silas Hughes dated 12/18/15 Exhibit #12 Plat Map - Linn Acreage Status SUMMARY OF PROCEEDINGS 1. Citizen is proposing to drill an approximate 14,900 foot measured depth horizontal well to the Woodford common source of supply. 2. Linn is proposing to drill an approximate 14,850 foot measure depth horizontal well to the Woodford common source of supply. 3. There is no dispute as to the terms of the pooling order with the exception of operations. 4. Per Citizen's current AFE (Exhibit 2), the estimated dry hole costs are fixed at $2,604,000, and the estimated completed well costs are fixed at $5,985, Fair market value options are set at: (A) $2,000 per net mineral acre and 3/16 royalty; (B) $750 per net mineral acre and 1/5 royalty; (C) for overburdened interest, $5 compensation and relinquishing the interest at the net revenue at the time of the filing of the pooling application herein. 6. The election period shall be as follows: 20 days from the date of the order for parties to make their written election to Citizen, 25 days from the date of the order to prepay a party's share of the completed well costs or make financial arrangements satisfactory to the operator for the payment of those costs, 35 days from the date of the order or receipt of a W-9, whichever is later, for Citizen to pay bonuses and 1 year in which to commence operations. The order shall contain a standard subsequent well provision, allowing any participant to propose subsequent wells. Such proposals shall be sent out in writing, either certified mail or facsimile, setting forth the approximate location of the well, approximate depth of the well, and shall include an AFE for the well costs. Participating parties will have 20 days from receipt of such proposal to elect in or out of the proposed subsequent well, 25 days from receipt of such proposal to pay well costs, and operator will have 180 days in which to commence operations. If a party does not wish to participate or does not timely elect, or fails to timely pay costs, such party shall be deemed to have elected for its interest the highest cash bonus and lowest royalty for which such party qualifies, exclusive of existing welibores. However, a party may elect any of the above described fair market value options on subsequent wells. If a subsequent well is not timely commenced, the proposal will lapse, all parties will be in the same position as they would have been had no subsequent well been proposed, and if the proposing party still wants to drill the subsequent well, they must repropose the same. Parties electing to participate in the proposed well will have the right to share proportionately in pooled acreage. The election to participate in pooled acreage shall be made with the election to

3 Page 3 of 8 participate in the proposed well. Citizen shall, as soon as possible after all elections are in, send out notice to parties electing to participate in pooled acreage containing the following materials: a summary of pooled acreage, the costs associated with the same and the participant's proportionate share of the same. Any party electing to participate in pooled acreage will have 15 days from receipt of such notice to pay Citizen the costs associated with the same. Failure to timely pay costs associated with pooled acreage will be a deemed election not to participate in pooled acreage. Such parties participating in pooled acreage will also be responsible to timely pay such party's proportionate share of additional completed well costs associated with the pooled acreage. OPERATIONS DISPUTE Most of the testimony and evidence herein concerned an operator's dispute between Citizen and Linn. 1. ROBERT WOODARD, COO and Drilling Engineer for Citizen, whose qualifications were presented and accepted as an expert on engineering matters took the stand. Mr. Woodard introduced Exhibit 2, an APE reflecting the estimated well costs for the proposed well. The completed for production costs are $5,985,000 and dry hole costs are $2,604,000. The witness believes these costs are representative of the cost to drill the proposed well. Mr. Woodard testified Citizen is in the process of drilling its 13th and 14th wells in the prospect area, and has experienced a steep decline in the well costs at this time. Mr. Woodard stated the well will ultimately cost less than the estimate, but due to potential issues in drilling the well it is estimated on the high side. Citizen has drilled one well in the 9 section area, the Governor James B. Edwards 1H-32 well, and has drilled a total of 14 wells in the last 7 months. Linn recently drilled the Barber well in Section 12-10N-7W and is currently completing the well, and has no other activity. The costs on the Barber are at $3,500,000 and it is estimated another $1,800,000 will be spent on the completion for a total cost of $5,300,000. By contrast, Citizen drilled the Boardman one mile away and the total cost is $3,300,000. Citizen is drilling wells from days compared to 35 days for Linn. This results in a significant savings in well costs. Citizen has a relationship with Unit Drilling and Cactus Drilling to work on a continual basis, and has these rigs available to drill the proposed well. Citizen has a good working relationship with these drilling contractors. Citizen operates 6 wells in the immediate vicinity of this unit, and also has the personnel available to operate the well. This is a mixture of company employees and contract pumpers. Consultants are used at the rig level, but those consultants are n communication every 2 hours with company personnel. Citizen has a long term gas commitment with EnLink and will have immediate access to a gas market for this proposed well.

4 Page 4 of 8 Under cross examination, Mr. Woodard testified Citizen has a field office in Blanchard, Oklahoma which is staffed with one employee. Citizen currently has 14 employees and utilizes consultants. The well costs have been declining, but not for everyone. Cimarex drilled a well 6 miles away at the cost of $9,000,000 with no special testing or issues. This well was similar to the Citizen Barber well that drilled for $5,300,000. When asked about the lack of information being produced from Citizen wells and the Motions to Produce (Exhibits 4-6), Mr. Woodard stated all of the information has been provided. These were the first wells drilled by Citizen and the information was manually sent out to participants. Citizen has set up WellEz, and the information is now automatically sent by a program to the participants on a daily basis each morning. The remaining issue is the information redacted is the proprietary chemical mixture used in the frac fluid. This formula was developed over years of experience and research, and is proprietary to the company. Linn received the benefits of the frac job but did not pay the expense of developing the formula. 2. CURTIS JOHNSON, Landman for Citizen, who has previously been qualified to testify as an expert on land matters before the Commission took the stand. Mr. Johnson testified Citizen owns the right to drill in the unit and proposed this well, along with an AFE to owners that had not reached an agreement with Citizen prior to the filing of the application on December 29, This proposal letter was the culmination of efforts to reach an agreement with these owners. Exhibit 1 was introduced, the respondent Exhibit A from the Application. The list was reviewed and respondent status was updated. The notice was published as required by the Commission. Citizen calculates it owns acres in the unit compared to 400 acres for Linn. Citizen has a position in the offsetting units in the Mississippian and Woodford formation of between 1,900 to 2,100 acres. The immediate offset, Section 5, is being prepared to drill. The witness opined the value of the right to drill is $2,000 per net mineral acre and a 3/16 total royalty, requiring an electing party to deliver a 13/16 net revenue interest or $750 per net mineral acre and a 115 total royalty, requiring an electing party to deliver a 4/5 net revenue interest. There were a few leases taken for $0 and 1/4 royalty, but these leases are minimal acres and comprise less than.03% of the surrounding acreage. This acreage was taken after the filing of the Application and believed to able to get well information. It is not fair market value in the opinion of the witness. For a party that cannot deliver a 4/5 net revenue interest, that party would have the option, in lieu of participation, to relinquish their interest for a nominal $5 and deliver the existing net revenue at the time of the filing of the Application.

5 Pane 5 of 8 All owners would have the option to participate by paying their proportionate share of the completed for production costs, or by making financial arrangements for the payment of those costs satisfactory with the Operator. The order to issue will be a unit pooling; the owner that elects to participate and perfect their election will have the opportunity to propose subsequent operations. The order will contain the standard subsequent proposal requirements and timing. Owners will be afforded the same election in lieu of participation as in the initial well. The timing of elections, payment of well costs, and payment of bonus will be the standard 20 days to elect, 25 days to pay well costs, and 35 days to pay bonuses. If a party fails to make a timely election or timely pay the well costs, or fails to make financial arrangements to pay the same, the party will be deemed to have elected the highest cash bonus option their interest qualifies for under the order. A party electing to participate will have the option to participate in the force pooled interest. Mr. Johnson testified Citizen has 7,190 acres in the prospect area, acquires ownership reports, title opinions, and has spacing, pooling and location exception applications filed. Mr. Johnson also testified Citizen has settled surface damages for multiple wells and is the most active operator in the area. Citizen has drilled, or is drilling, 6 wells in the immediate area, 3 are multi-unit. Citizen has 7 wells scheduled within the next 90 days, and a total of 13 to 16 additional wells to be drilled this year. The only activity by Linn is a responsive well proposal. While Citizen does not own the controlling interest in this unit, it has a controlling interest in the area, and is the only active operator with a significant investment in the development of the area. Citizen filed the spacing, pooling, rule exception for this unit, and has been negotiating surface damages Citizen also has ownership reports, document images, and a rig readily available. The finalization of the surface damages and title opinion are dependent upon the outcome of this operators challenge. Citizen has this prospect ready to drill. Mr. Johnson testified a concern with Linn's continuing operations as a viable business. Linn filed a Form 10-K (Exhibit 3) that stated there is substantial doubt about it's ability to continue as a going concern. Citizen is concerned about being in a well operated by a company that doubts it can continue as a going concern with the possibility of being tied up in potential bankruptcy proceedings. Citizen feels there is a substantial risk and exposure if Linn is the operator. On cross-examination Mr. Johnson testified that Linn has participated in several Citizen wells. The JIBs on those wells have not been sent out and he is waiting until the pay decks are complete so everyone gets an accurate statement.

6 Page 6 of 8 Concerning the filing of Commission Applications in sections that Citizen has a minimal interest, Mr. Johnson stated he could not speak to those other areas. Mr. Johnson could testify regarding his area, wherein Citizen has had a substantial interest with the exception of maybe one section. On re-direct, Mr. Johnson stated Citizen has borne the brunt of the expense to develop this area. Citizen has filed the necessary proceedings and Linn has taken a minimal interest in the drilled wells. Even in unit where Citizen has a minimal interest in the unit, usually negotiations are pending with owners to acquire their interest in the well. These filings are necessary to get the units developed. With regard to well costs, the participants are provided daily drilling reports with a running tab on well costs which are updated on a daily basis. Citizen rested after the closing of Mr. Johnson's testimony. 3. GARY WRIGHT, Landman for Linn Energy Holding, LLC, who has previously been qualified to testify as an expert on land matters before the Commission, took the stand. Mr. Wright testified Linn desires to be named as operator. He stated that Linn has two different entities and collectively they have acres in the unit or a 66.5% working interest. This is based upon a title opinion dated February 18, and based on this title opinion, Citizen has acres or a 30% working interest. The Linn interest is owned by Mid-Continent II, LLC and Linn Energy Holdings, LLC. The wells are operated by Linn Operating, Inc. Linn Operating has a plugging bond on file and agency agreements with Mid-Continent and Linn Energy. Linn operates 13,000 wells company wide, and has interest in about 26,000. The Oklahoma City office operates about 2,700 wells, and this well would be operated by the Oklahoma City office. The office currently operates 268 horizontal wells, and has 120 employees, along with a Kingfisher office with 80 employees. They are capable of handling the requirements of an operator, drilling, completion, operation and billing, and providing timely information to the working interest owners. Linn has experienced billing issues with Citizen. The first well Linn prepaid their costs on, but has not received a billing, and has no way in which to determine if costs are close to the AFE. Additional issues with well information have arisen. Linn has even filed Motions to Produce in several cases (Exhibits 4, 5 & 6) to get well information. Linn was repeatedly told Citizen was understaffed and could not supply the information. Mr. Wright testified he believes they were "stacking the deck" by keeping the information to get a competitive advantage in the offsets. Accordingly, several other companies have also filed motions or applications to determine well costs or remove Citizen as operator. (Exhibit 7 & 8). The Sofia well presented a

7 Page 7 of 8 problem in that the proposal stated one location and the well was ultimately drilled at another location as shown in the Intent to Drill and Notice of Spud. (Exhibit 9 &10). Linn proposed a well in the section on December 18 (Exhibit 11) through its broker Osage Oil & Gas. Linn has reviewed the AFE of Citizen and will adopt the costs. Linn is ready to drill this well on the 15th of May and has a rig available. Linn has filed a location exception with a mirror on the other side of the unit and will use the Citizen location for a future well. Linn currently operates three existing vertical wells in the unit on 160 acre spacing. As to financial stability, Linn has drawn down its credit facility to continue drilling wells. This Tuttle area is a hot area and with a billion dollars in the bank, a 3 million dollar well would not be a problem. Linn has invested in a seismic shoot over 160 sections and has about 40,000 acres. A plat summarizing Linn's acreage position (Exhibit 12) shows about 2,200 acres in the immediate area. The witness Linn is named as operator, and all funds be placed in an escrow account for protection against bankruptcy. The participants will be able to share in the force pooled acreage. Linn agrees with the Citizen acreage values. Under cross-examination Mr. Wright testified he is not aware of any specific data Linn has not received from Citizen. As to the Application of Echo, he is aware that the parties have worked something out but is unaware of the agreement. He understands the Echo election was late and caused a controversy that resulted in the applications. Mr. Wright understood the automatic well information system and has no issues in regards thereto. The daily drilling reports have running well costs, and there have not been a lot of problems on recent wells. Addressing the Sofia well location, the well appears to be a good well, and this location is one that would be drilled when spacing out multiple wells in the section. In the 9 section area, Linn has 2,200 acres, some recent acres, and some legacy acreage that has been owned for 5-20 years. No horizontal wells have been drilled on this legacy acreage. Linn has traded acreage with Citizen and reduced its interest in wells. The pooling, spacing and location exception filings are a way to get the ball rolling; Linn understands this is part of the procedure to get the prospect developed. Linn has received several title opinions on the wells. However, Linn has not received title opinions on some of the wells. In discussions with Citizen, the witness states he has been told Linn was not billed for the opinion on those wells, and Citizen is not providing the opinion. Linn is proposing a Woodford well and has not drilled any Woodford wells in the 9 section area. The seismic was shot about 18 months ago, and Linn was working methodically to

8 Page 8 of 8 develop this acreage before Citizen jumped in and began drilling. Linn rested after the closing of Mr. Wright's testimony. 4. CURTIS JOHNSON, Landman for Citizen was recalled for a rebuttal. Mr. Johnson testified he has an from Mallory Flanigan, landman for Echo. Their interest is 1 acre, and Ms. Flanigan apologized for jumping the gun on the application. Ms. Flanigan had instructed her attorney to dismiss the case. Both Echo and AEP were issues concerning timely elections to participate. Those issues have been resolved. The current wells in the unit are Mississippian and Springer. No wells produce from the Woodford. Under re-cross, Mr. Johnson testified that Echo was apparently attempting to protect their interest. However, the section in which Echo filed their application shows Echo own no interest. In the nine section area, Citizen has drilled one Mississippian well. CONCLUSIONS OF LAW After taking into consideration all of the facts, circumstances, evidence and testimony presented at the hearing, the ALJ finds as follows: The ALJ finds that Citizen Energy II, LLC should be named as operator. In ruling, the ALJ relies heavily upon Mr. Charles Nesbitt's article on pooling orders and operations. Mr. Nesbitt emphasizes that with all things being equal, a party owning the majority interest in the unit and incurring the most financial risk should generally be named as operator. (See The Oklahoma Bar Journal Vol. 50 No. 13 Page 648 through 656) However, in this case, things are not equal. Even though Linn has the largest interest in the unit, both parties have similar interest in the area. Citizen is the moving party to develop this unit. They filed a spacing, pooling, rules exception and location exception. Citizen proposed the well first (See Exhibit #9, Citizen Energy II, LLC Proposal Letter to Chaparral Energy, Inc. dated 7/7/15) Linn's response was a reproposal (See Exhibit #11 Osage Oil & Gas Proposal Letter to Silas Hughes dated 12/18/15). This is a Woodford play and Citizen has drilled 13 or 14 wells to develop the Woodford in the area, and there was no testimony Linn has drilled any horizontal Woodford wells in the area. Citizen is the moving party, they proposed the well, they have been developing the Woodford, and they have the experience to drill this well. These factors override Linn's interest in the unit being superior.

9 CD IT Page 9 of 8 The pooling order should provide that as to a participating party, well information will be provided to the participants within 48 hours of receipt of the information by the operator. Respectfully submitted this 6 th day of June, 2016 CURTIS M. J Deputy Administrative Law Judge