OF THE STATE OF OKLAHOMA COURT CLERK'S OFFICE CIMAREX ENERGY CO. ALL OF SECTION 14, TOWNSHIP 14 NORTH, RANGE 7 WEST, CANADIAN COUNTY, OKLAHOMA

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1 FILE BEFORE THE CORPORATION COMMISS!N MAR APPLICANT: OF THE STATE OF OKLAHOMA COURT CLERK'S OFFICE - CIMAREX ENERGY CO. OKC CORPORATION COMMISSION OF OKLAHOMA RELIEF SOUGHT: LEGAL DESCRIPTION POOLING ALL OF SECTION 14, TOWNSHIP 14 NORTH, RANGE 7 WEST, CANADIAN COUNTY, OKLAHOMA CAUSE CD NO Report of the Administrative Law Judge EA Case Summary Newfield believes fair market value for this pooling is $1,300 and 1/8, $1,200 and 3/16, or $800 and 115. Mr. Sykora has not leased his interest and believes fair market value for his interest is $1,000 and 1/4. Although this matter has a contentious litigation history with much negotiation for lease acquisition, there is no leasing in the subject section or in the offsets for $1,000 and 1/4. Although Mr. Sykora may have been offered that, there are n& consummated arms-length transactions for that amount. The Newfield recommendations for fair market value are in line with the offsets and should be adopted as a recommendation. Recommendations Newfield requests this pooling and does not wish to offer a 1/4 royalty interest. The other terms are not disputed and appear fair and equitable, excepting bonus values. Mr. Sykora offers as evidence of increased lease values multi-section deals and offers to lease. Consummated leases, which cannot be explained away by common Commission reasoning, are reflected in the Newfield request. Consummated arms-length transactions are the gold standard and the Newfield pooling offer should be recommended. C. Hearing Date February 22, 2013

2 Page 2 of 6 D. Appearances John C. Moricoli, Jr., Attorney at Law, appeared on behalf of Applicant, Cimarex Energy Co.; Richard K. Books, Attorney at Law, appeared on behalf of James J. Sykora; Gregory L. Mahaffey, Attorney at Law, appeared on behalf of Newfield; Richard Grimes, Attorney at Law, appeared on behalf of Kirkpatrick. E. Exhibits One year transaction history as of January 12, 2013, for Section 14, Township 14 North, Range 7 West, Canadian County, Oklahoma. 2. An AFE from Newfield Exploration Mid-Continent Inc. 3. Newfield Exploration Mid-Continent Inc. 9 Spot Ownership map. 4. Completion Report of the Rock Island lh-14 well, Oklahoma Corporation Commission, form 1002a. F. Evidence Summary 1. Mr. Mahaffey presented an opening statement for Newfield. This Wildcat project had been completed in 2011 and was not pooled. Cimarex acquired a small interest and wanted well information. Newfield did not provide the requested information so Cimarex filed this pooling application. Newfield has since come to an agreement with Cimarex and Kirkpatrick, leaving James Sykora as the only protestant. This is a fair market value dispute. He said the Commission should consider present fair market value, not past fair market value, and the leases taken in anticipation of pooling should not be given consideration. He also noted this well would probably never pay out. Mr. Sykora agreed this was a fair market value dispute and he owns about 15 acres. Newfield had filed and dismissed a pooling and had paid $600 and 1/4 on June 8, He also cited a Timberwolf lease on August 17, 2011, that paid $1,000 and 1/4. 2. On November 7, 2011, Cimarex filed for pooling and this cause was ready for trial in January Mr. Sykora could not get information from Newfield so he filed a motion to produce cost and revenue information. This motion was recommended and Newfield appealed. The Commission ordered production, but no information was immediately provided. Finally, on October 4, 2012, the

3 Page 3 of 6 requested information was provided by Newfield. Mr. Sykora said they did request one continuance because his attorney, Mr. Richard Books, was sick. Newfield responded there was no requirement to pool interest and they had exchanged exhibits. Newfield was ready for trial on February 1, 2012, and had not provided well information because no timeframe was mentioned in the motion to produce. Newfield believed no one was rushing to trial, but they had circulated a pre-hearing conference agreement in December Mr. David Korell 3. Newfield presented their land witness, Mr. David Korell, and he said the well had been drilled and completed as shown on Exhibit 4 (form 1002a. They had tested the shallow zones on the way down to the Woodford. Cimarex had filed for pooling and they owned about 1%. Newfield owns about 93%, with Kirkpatrick and Sykora each owning about 14 acres. Well costs are in Exhibit 2 and come to $10,027, The highest and best leases presented by Newfield for fair market value were $1,300 and 1/8, $1,200 and 3/16, and $800 and 115. They did not wish to give 1/4 royalty interest. There was a single multi-section lease that paid $1,100 and 115. Kirkpatrick had given Cimarex a lease at $600 and 1/4, but this was after the pooling was filed. It was for less than an acre and most probably was a premium paid for well information. Timberwolf had also paid $1,000 and 1/4 for a lease, but this drilling project was well known at the time. After another well was drilled, values dropped after that well proved unsuccessful. Newfield requested 20 days to elect, 25 days to pay costs, 35 days to pay bonuses, and 180 days to drill. The same times for subsequent wells. 4. On cross-examination, he said the Cimarex interest is 1/4. He said the Peace family leased to Kirkpatrick for 1/4 interest, about 14 acres, and Kirkpatrick leased a portion of that to Cimarex. He believed Kirkpatrick acquired the leases for well information, but has not confirmed that with Kirkpatrick. He also believed the Timberwolf lease was taken because the well was drilling, but, again, he had not confirmed this belief. He opined the 1/4 royalty was too high, but the two 1/4 royalty leases were arms-length transactions, at least the Kirkpatrick lease. 5. On redirect, he noted that a 15-acre lease is a very small lease in relation to the 3,700 acres Newfield has leased in the area. Mr. Mike Hofstrom 6. Cimarex presented Mike Hofstrom as their land witness and he agreed with Mr. Korell's testimony regarding the Kirkpatrick lease. He said there was no objection to notice and they had good addresses for all respondents. Some of the respondents were dismissed from the amended application. He testified that from the end of 2011 through the date of this hearing, $600-1,000 and 1/4 royalty

4 Page 4 of 6 interest were fair market value. On Newfield cross-examination, he admitted Cimarex took a lease for well information. He also said Mr. Peace was a saavy royalty owner and he had probably shopped the lease for the best terms. He did not know much about Timberwoif or their leasing activity. Mr. Jamie Fitzpatrick 7. Mr. Sykora presented Jamie Fitzpatrick, a landman for Kirkpatrick, as witness and he said they had leased the Peace interest for more than fair market value because it was a business decision to pay more and it remained an arms-length transaction. 8. On cross-examination he said Mr. John Gelders had negotiated the lease. He knew the well was coming and had negotiated with Mr. Sykora. They bought the Peace interest because Mr. Peace did not wish to lease to Newfield. Kirkpatrick bought no other leases. Mr. James Svkora 9. Mr. James Sykora took the stand and testified he owned about 15 acres and was undecided about whether to participate. He usually did not participate and usually took the highest royalty interest. He has been in the oil and gas business for several years. He said he had an oil contract with Newfield for $1,000 and 1/4 in Section 14 and understood that an oral agreement was unenforceable. Newfield wanted to change to a multi-section lease and Mr. Sykora agreed. Newfield next changed the leasing deal and demanded that Mr. Peace's interest had to be included in the transaction. He requested $1,000 and 1/4 interest as fair market value, and noted the Corporation Commission had ordered well information provided in July That information was not provided by Newfield until the end of October Mr. Sykora noted he had received disparate costs from Newfield which, over a seven-month period at the end of 2012 and the beginning of 2013, varied from a high of $12,600,000 to a low of $10,027,000, the lowest is reflected in Exhibit 2 and is the most recent cost estimate. 10. On cross-examination, Mr. Sykora admitted participating in only one $10 million or more expensive horizontal well. He admitted Newfield had sent him $1,000 and 1/4 interest lease deal, but the Newfield offer was contingent on a multisection lease, to include the Peace leases. Mr. Sykora could not put this deal together because Mr. Peace had already leased his interest to Kirkpatrick. He also wanted exact well costs. 1. Findings of Fact 1. In this Newfield pooling they are offering $1,300 and 1/8, $1,200 and 3/16, or $800 and 1/5. Mr. Sykora does not wish to lease his 15 acres for this amount, and believes his interest is valued at $1,000 and 1/4.

5 Page 5 of 6 2. There was a multi-section lease that paid $1,100 and 115. This was a single lease and was distinguished by the multi-section negotiation. 3. There was also a $600 and 1/4 lease paid after the pooling was filed. Again, this is a common Commission exception. 4. There was another lease by an entity called Timberwolf, and this lease for $1,000 and 1/4. At the time of this lease the project was well-known. 5. Newfield had offered Mr. Sykora a 1/4 lease, but that transaction was never consummated and was merely an oral understanding. 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. 2. Conclusions of Law The gold standard for establishing bonuses is an arms-length consummated lease in the same section as the requested pooling. In this, Newfield is offering fair market value as $1,300 and 1/8, $1,200 and 1/16, or $800 and 1/5. There are no other disputed matters in this pooling. It is strictly a bonus and royalty interest dispute. 2. Mr. Sykora, requesting $1,000 and 1/4, cites area leasing that precedes the drilling of a well that may not pay out. He also cites leases that were clearly taken to obtain well information. Very small interest with over-market-value bonuses. 3. Purchasing a lease because one desires well information or purchasing a lease because it is a multi-section deal do not establish fair market value. A multisection deal allows the recipient of the lease to negotiate better terms, since it is more than one section. 4. In this matter it is not disputed that Newfield took months to provide information which was ordered by the Commission, nor is it disputed that the AFE changed several times with a difference of about $2.5 million. These actions are not the issue before the Commission and need not be further addressed. 5. Newfield is offering lease values that are reflected by consummated arms-length transactions in the section and offsets, and these are sufficient evidence to support the lease values. The Newfield pooling should be recommended.

6 Page 6 of 6 Respectfully submitted this 25th day of March PEP:js PAUL PORTER Administrative Law Judge Cc: John C. Moricoli, Jr. Richard K. Books Gregory L. Mahaffey Richard Grimes Michael Decker, Director of OAP Oil Law Records Commission Files