BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA ) DRILLING AND SPACING UNITS)

Transcription

1 C, APPLICANT: RELIEF SOUGHT: LEGAL DESCRIPTION: BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA BLUE QUAIL, LTD AND JACKSON ELECTRICAL CONSTRUCTION, LLC DRILLING AND SPACING UNITS SOUTHEAST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 5, AND THE EAST HALF OF THE NORTHWEST QUARTER AND THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER OF SECTION 8, ALL IN TOWNSHIP 12 NORTH, RANGE 5 EAST, LINCOLN COUNTY, OKLAHOMA F ILE AN COURT CLERK'S OFF CORPORATION COMMISSIOJ OF OKLAHOMA T APPLICANT: JACKSON ELECTRICAL CONSTRUCTION, LLC RELIEF SOUGHT: POOLING LEGAL NORTHWEST QUARTER OF DESCRIPTION: THE NORTHEAST QUARTER OF SECTION 8, TOWNSHIP 12 NORTH, RANGE 5 EAST, LINCOLN COUNTY, OKLAHOMA T APPLICANT: JACKSON ELECTRICAL CONSTRUCTION, LLC RELIEF SOUGHT: POOLING LEGAL SOUTHEAST QUARTER OF DESCRIPTION: THE NORTHWEST QUARTER OF SECTION 8, TOWNSHIP 12 NORTH, RANGE 5 EAST, LINCOLN COUNTY, OKLAHOMA T

2 Blue Quail. Ltd and Jackson Electrical Construction, LLC CD T, T, T, T APPLICANT: BLUE QUAIL, LTD RELIEF SOUGHT: POOLING LEGAL SOUTHEAST QUARTER OF DESCRIPTION: THE SOUTHWEST QUARTER OF SECTION 5, TOWNSHIP 12 NORTH, RANGE 5 EAST, LINCOLN COUNTY, OKLAHOMA T APPLICANT: RELIEF SOUGHT: LEGAL DESCRIPTION: BLUE QUAIL, LTD POOLING NORTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 8, TOWNSHIP 12 NORTH, RANGE 5 EAST, LINCOLN COUNTY, OKLAHOMA CAUSE CD NO, T 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 Blue Quail, Ltd and Jackson Electrical Construction, LLC (Applicants seek to establish 40-acre drilling and spacing units and to pool each unit in the subject areas. The proposed plan is to recomplete wells in this old waterflood unit with new lateral production techniques. Melba Holik (Ms. Holik protested the spacing and pooling applications affecting the E/2 NW/4 of Section 8 based on past problems in the general area which she believes to be the result of actions taken by the Applicants. RECOMMENDATIONS All of the subject applications should be granted. The Applicants met the requirements of the Commission as to testimony and evidence regarding the zones underlying the captioned lands and the need for establishment of spacing as well as forced pooling to develop the units in a manner that will protect the correlative rights of the owners and

3 Blue Quail, Ltd and Jackson Electrical Construction, LLC CD T, , T T prevent waste. Ms. Holik's concerns regarding problems caused by the Applicants were not substantiated by direct testimony of any infringement of Commission rules or regulations thus placing the resolution of her protests outside of the Commission's jurisdiction. HEARING DATE January 18, 2013 APPEARANCES William Huffman appeared for the Applicants; Melba Holik appeared pro Se; James U. White entered an appearance for Pearl Power, LLC SUMMARY OF EVIDENCE CD T seeks to establish 40-acre oil units for the Belle City, Hogshooter, Checkerboard, Oswego, Prue, Skinner, Red Fork, Brown Lime, Mayes, Woodford, Hunton, Sylvan, Viola, Misener and Wilcox common sources of supply as they underlie the SE/4 SW/4 of Section 5 and the E/2 NW/4 and the NW/4 NE/4 of Section 8, all in Township 12 North, Range 5 East, Lincoln County, Oklahoma. CD T, CD T, CD T and CD T request orders pooling the interests of oil and gas owners on a unit basis for the above-mentioned zones underlying the NW/4 NE/4, the SE/4 NW/4 and the NE/4 NW/4 all in Section 8-12N-5E as well as the SE/4 SW/4 of Section 5-12N-5E all in Lincoln County, Oklahoma. 2. Exhibits were marked and accepted into evidence as follows (exhibit sponsor/cause number in parentheses: 1. Isopach Map of East Payson Field (Applicants/CD T 2. Protest Statement (Ms. HolikICD T, CD T and CD T 3. Authority for Expenditures (AFEs all marked as Exhibit #1 in each pooling cause (Applicants/CD T, CD T, CD T and CD T On behalf of Applicants expert testimony and evidence was presented through Aaron Gregory, petroleum landman; and Ed Kaiser, petroleum geologist. A. Order No spaced the Skinner common source of supply on 20-acre oil units. Applicants are requesting that order be vacated and that 40-acre oil units be established for the Belle City at 1900'; Hogshooter at 2100'; Checkerboard at 2750'; Oswego at 3200'; Prue at 3800'; Skinner at 4100'; Red Fork at 4360'; Brown Lime at 4410'; Mayes at 4670'; Woodford at 4890'; Hunton at 5120'; Sylvan at 5230'; Viola at 5340'; Misener at 5470'; and Wilcox at 5680'; the prescribed well location for each 40-acre unit to be no closer than 330' from the 3

4 Blue Quail. Ltd and Jackson Electrical Construction, LLC CD T, T T, T unit boundaries. There is currently one well drilled and producing in the NW/4 NE/4 of Section 8; the only oil production from this well occurred in the last quarter of 2012 and all proceeds are in suspense pending the decision in the subject causes. This is an old watertlood that has been out of production for the past 15 to 20 years. Applicants plan to re-enter wells within the proposed units and use new recompletion techniques with lateral production as a way to make economic the recovery of the remaining oil reserves underlying each unit. B. In the NW/4 NE/4 of Section 8 Applicants own 10 acres; in the SE/4 NW/4 of Section 8 Applicants own acres; in the SE/4 SW/4 of Section 5 Applicants own 12.5 acres; and in the NE/4 NW/4 of Section 8 Applicants own acres. Applicants are requesting that Jackson Electrical Construction, LLC be named operator of the proposed units; it has a plugging bond on file with the Commission; both Applicants own the right to drill in the units. AFEs for each of the proposed recompletions show the Skinner to be the targeted zone with recompletion costs of $193, per well. Based on a review of leasing activity in the area, Applicants requested that the following options and various response times be made available to respondents under any orders issuing out of the pooling causes: 1 participation; 2 receive a cash bonus of $225 per acre with a 118 th royalty; 3 receive a cash bonus of $200 per acre with a 116m royalty; or 4 receive a cash bonus of $175 per acre with a 3/1 6ths royalty. Twenty (20 days from the date of the order were requested for respondents to elect between the options; twenty-five (25 days from the date of the order for parties electing to participate to pay their proportionate share of well costs; thirty-five (35 days from the date of the order were requested for payment of any cash bonuses due parties who affirmatively elected or are deemed to have elected (due to failure to timely elect or pay well Costs following an election to participate to receive cash bonuses and associated royalty; 365 days (1 year from the date of the order were requested for the commencement of the unit wells unless the well has already been drilled. Any unit well not timely commenced within the 1 year time period will result in the provisions of the order issuing out of the specific pooling cause to become void with the exception of the requirement for the payment of bonuses. An escrow account will be established to hold funds for entitled parties who Cannot be paid within ninety (90 days from the date of the order. These are unit poolings. Under subsequent operations provisions, the same times and procedures will be followed as outlined above for the initial well and the date of the proposal will trigger the time period calculations; additionally, the commencement of the subsequent wells will be within one hundred eighty (180 days of the date of the proposal instead of one (1 year. Either of the Applicants will be the only parties allowed to propose a subsequent well and Jackson Electrical Construction, LLC will remain the operator of subsequent wells. 4. Ms. Holik stated her concerns about the proposed spacing in CD T and the proposed poolings in CD T. in

5 Blue Quail, Ltd and Jackson Electrical Construction, LLC CD T, T, T, T On November 26, 2012 Ms. Holik filed a written protest in the referenced causes setting forth her concerns over the granting of the applications. These written concerns were reiterated in her statement and she added that, while she is interested in seeing the leases developed, she believes the paperwork delays, pending district court lawsuits, etc. are the fault of the Applicants. She would prefer to lease to a more experienced company that has not had any of the problems that the Applicants have had. She does not believe the state should authorize the Applicants to perform any further work in the units until the other issues and lawsuits are resolved. RECOMMENDATIONS 1. After taking into consideration the facts, circumstances, evidence and testimony presented in the causes, it is the recommendation of the ALJ the Applicants applications in CD T, CD T, CD T, CD T and CD T be granted. Jackson Electrical Construction. LLC should be named operator of the unit wells involved in each pooling. 2. Applicants presented unrefuted expert testimony and evidence as to the necessity for the establishment of 40-acre spacing for the named formations. The vacation of the 20-acre Skinner unit is based on the use of new lateral recompletion technology not available at the time of the 20-acre spacing. Applicants presented further expert testimony and evidence regarding proposed recompletion costs and cash bonuses being paid within the last year in the nine-unit area for rights comparable to those being pooled here. The proposed cash bonuses and associated royalties as well as the response times set forth in the above summary of evidence (for the initial wells and any subsequent wells should be incorporated into the pooling orders issuing from these causes. 3. The concerns raised by Ms. Holik appear to be reasonable and the Commission can appreciate her frustrations with the various delays and lawsuits. It was made clear at the hearing that Ms. Holik believes the Applicants to be at fault for the delay in production from the existing well and for the district court lawsuits that Applicants have filed or had filed against them. Her request is that the Commission name a 'more experienced oil company" to develop the units because she does not want to work with the individuals that own the Applicants in these causes. While the Commission is within its jurisdiction to name operators under pooling orders, as it stands, the Applicants here have met the requirements to be named operator under Commission rules and regulations; both entities own the right to drill, reasonable AFEs have been presented, notice has been given to all parties through mailings and publications and Jackson Electrical Construction, LLC has a proper plugging bond on file. There was no evidence of drilling or production infractions of the Commission rules; if any problems occur in the future regarding Commission rules, Ms. Holik should refer those issues to the Commission field office in Bristow and the appropriate field inspector will assist in resolving problems within Commission authority.

6 Blue Quail, Ltd and Jackson Electrical Construction, LLC CD T, T T, i 4. On behalf of the Commission the ALJ would like to thank Ms. Holik for presenting her protest of these matters at the hearing in a timely, professional and courteous manner. It is the Commission's hope that the result in these causes will not discourage future participation in other hearings in which Ms. Holik may find herself involved. Her telephonic statement made during the hearing emphasizes the interest owners' perspective with which the Commission is always concerned. Thus, in light of the aforementioned conclusions, it is the recommendation of the ALJ that the subject applications be granted. Any orders issuing out of these causes should contain the recommendations set forth above. Respectfully submitted this 28th day of January 2013, THLEEN M. MCKEOWN Administrative Law Judge