BEFORE THE CORPORATION COMMISSION COURT CLERKS OFFICE - OKC OF THE STATE OF OKLAHOMA COfPORATION COMMISSION BRG PETROLEUM LLC

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1 FILE I JAN BEFORE THE CORPORATION COMMISSION COURT CLERKS OFFICE - OKC OF THE STATE OF OKLAHOMA COfPORATION COMMISSION OF OKLAHOMA APPLICANT: RELIEF REQUESTED BRG PETROLEUM LLC VACATE ORDER NO CAUSE CD NO LEGAL DESCRIPTION: SECTION 29, TOWNSHIP 20 NORTH, RANGE 5 WEST, GARFIELD COUNTY, OKLAHOMA REPORT OF THE ADMINISTRATIVE LAW JUDG This Cause came on for hearing before Michael Norris, Administrative Law Judge for the Corporation Commission for the State of Oklahoma in the Commission's Courtroom, Jim Thorpe Building, Oklahoma City, Oklahoma, pursuant to notice given as required by law and the rules of the Commission, for the purpose of taking testimony and reporting to the Commission. The Administrative Law Judge (AU) proceeded to hear the cause and filed a report herein. CASE SUMMARY: 1. BRG Petroleum, LLC (BRG) is the applicant in this cause and Longfellow Energy, LP (Longfellow) opposes this matter. Prior to the testimony in this cause the lawyers stipulated that the motion to stay the location exception was put over to this hearing date and to consolidate the argument with respect to the location exception with the argument concerning this spacing. The parties agreed that if this spacing application order is vacated then the location exception is not valid. If the spacing order is upheld then the location exception is also upheld. 2. Longfellow filed three applications pertinent to the horizontal well they are seeking to drill. The first was a horizontal spacing application (CD ) which is the focus of this cause. Order number was issued as a result of the hearing of

2 Page 2 this cause. A location exception application (CD ) was also filed which led to the issuance of order number They also filed an application for exception to rule 165:5-7-6(H) in CD This exception was necessitated because of an agreement and request from the other two cases. Longfellow filed the application because of that request. 3. Initially, BRG signed a consent to the Longfellow well in this section. The Longfellow applications were protested by another party, David Morgan. Subsequent to signing the consent BRG "did a 180" and filed an entry of appearance in the rules exception cause. Applicant alleges various facts and circumstances that it believes should allow the relief requested in spite of certain procedural lapses and failures to appear. RECOMMENDATIONS: 1. The application of BRG to vacate order number should be denied. The applicant did not demonstrate any jurisdictional defect, legal inadequacy, failure of notice or absence of authority that would warrant such relief. HEARING DATE(S) : September 19, 2012 APPEARANCES: Stephen R. McNamara, Attorney, appeared for the Applicant, BRG Petroleum, LLC Charles L. Helm, Attorney, appeared for Longfellow Energy, L.P. FINDINGS AND SUMMARY OF EVIDENCE. 1. The following numbered exhibits were accepted into evidence: 1. Application to Drill 2. Application in CD Response to Application to Vacate in CD Amended Response to Motion to Reopen in CD

3 Page 3 5. Order number Interim Order number Consent to the Formation of a 640 Acre Horizontal Drilling and Spacing Unit dated January 5, 2011, in cause CD Prehearing Conference Agreement dated February 13, 2012 for cause Nos and In the oral presentations BRG stated that they operate a well in the Southwest Quarter of section 29 that is producing from the same common sources of supply that Longfellow is targeting in their horizontal well in the same section. BRG was contacted by Longfellow to sign a consent as a result of their horizontal spacing case which they did. Therefore, BRG did not file a protest initially. 3. Subsequent to signing the consent BRG had conversations with the protestant, David Morgan. The applicant then had concerns about the horizontal well coming into or possibly coming into the southwest quarter where its vertical well was producing. That is when BRG filed a protest and entered an appearance late. At that time a prehearing conference agreement had been signed between Longfellow and the protesting party, Mr. Morgan. Hearing dates had been set and the applicant determined that its best option would be to abide by the dates that were set for hearing. BRG agreed that they would live and die with the evidence that the protestant would put on but that BRG would participate in cross-examination. 4. On the hearing date, counsel for the applicant was involved in a 6 week hearing at the professional responsibility tribunal as the presiding mentor. This ongoing matter prohibited his participation in the rule exception cause. He advised counsel for Longfellow of his conflict. The day before the hearing Mr. McNamara instructed his secretary to call Mr. Helm's office and inquire as to the status of the case. It was his understanding that the case would be either dismissed or continued off the docket on the hearing date. He took this to mean the spacing, the location exception and the exception to the rule cases were all to be included. He stated he was mistaken in that assumption. The exception to the rule case was dismissed. The spacing and the location exception were heard on that date as unprotested cases because the parties had reached a settlement. BRG was not aware that the spacing and location exception had gone forward until they received a copy of the spacing order in the mail. Upon receiving the order BRG immediately filed this application to vacate the spacing order and also filed a motion to reopen in the location exception. 5. BRG requests to reopen the record to put on testimony in opposition to the relief requested. They believe that their producing vertical well will be substantially harmed

4 Page 4 by the drilling, fracing and completing of the horizontal well. They also argue that it will violate their correlative rights. They also believe that the pattern of development will cause waste. BRG intended to make these arguments at the hearing and believe that the matter should have been continued off the docket until counsel was available. 6. Counsel for BRG stated he takes responsibility for the confusion in this matter. He believed that all 3 cases would be dismissed or continued off the docket and not just the exception to the rule case. Longfellow acted in a highly ethical manner and did not utilize any misdirection or other acts to mislead BRG. BRG filed a written notice of protest in the exception to the rule cause as they had previously signed a consent. It is their contention that the notice of protest in the spacing cause was verbal. Communications between Mr. McNamara and Mr. Helm were very clear that BRG was protesting the spacing and the location exception according to Mr. McNamara. BRG believes that the rules allow or should allow the Corporation Commission to reopen the record to permit the applicant to put on testimony and evidence in opposition and the order vacated. They believe that this is akin to a default judgment because of counsels involvement in another proceeding. The applicant stated they did not undertake these actions for the purposes of delay or harassment of Longfellow. 7. Counsel for Longfellow requested that the application to vacate order be denied. He submitted a copy of Longfellow's response to the motion to reopen and response to the application to vacate. He stated this all began in November, This is the date Longfellow filed an application to create horizontal spacing for the Cleveland, Oswego, Mississippian and Woodford formations in section 29, township 10 north, range 5 west, Garfield County. 8. At the time Longfellow filed the spacing application they filed a companion location exception which described where the well was to be located. BRG was not a party to the location exception but they were a party to the spacing. They were not a party to the location exception because they owned no interest in the direction that the proposed well was to be drilled. The location exception was being sought because Longfellow wanted to extend the lateral closer than 660 feet from the north line. This well is moving toward the unit to the North where BRG owns no interest. The pleadings indicate that the proposed horizontal well is not to be drilled in the Southwest Quarter of section 29. The application clearly indicates that the well is proposed in the East half of the section. 9. The exhibits that were introduced at the trial indicated that the proposed well would be drilled in the East half of the section. Copies of the exhibits were sent to counsel for BRG as a courtesy because they had filed an interest in the waiver of consent application. As stated, the exhibits indicated that the well was not to be drilled by the BRG well. BRG knew this information when they signed the waiver of

5 Page 5 consent. At that time they inquired where the well was being drilled and that it was not going to be drilled anywhere near their well. 10. The initial hearing in the spacing and location exception came on for hearing in December and BRG did not appear. They got notice and they chose not to appear. Counsel for Longfellow further stated that the spacing case was protested by Dave Morgan represented by Mr. Fred Gist. Mr. Helm became involved in the case because Mr. Robert Gray, who filed the application, had a conflict. Mr. Helm was asked to pursue the protest on behalf of Longfellow. BRG was given notice of the initial spacing application and notice of the amended application and they did not show up at any of the multiple initial hearings. Mr. Helm filed an entry of appearance and a motion to set the case on the protest docket and notified BRG. He gave notice to every one in the spacing and location exception. In the motion to set the protest he stated if anybody wants to participate please come to the hearing on the motion. BRG got notice but they did not come. BRG had opportunity in possibly 9 hearings and did not participate in any of them. 11. BRG did execute a consent to the proposed horizontal spacing to allow the horizontal spacing to run concurrent with the unit they operate in the Southwest quarter. At the request of counsel for Mr. Dave Morgan Longfellow filed a waiver of consent application. A copy of the application was mailed to all parties including BRG. Longfellow filed the waiver of consent because Morgan requested it and not because BRG was objecting. Longfellow already had a consent from BRG and did not need the waiver of consent with regard to BRG. Longfellow provided notice to BRG as a courtesy even though they had already executed a consent. The waiver of consent application was set on the same day as the protest was scheduled. After receiving the application for a waiver of consent, counsel for BRG filed an entry of appearance. They did not file a protest but an entry of appearance indicating BRG had an interest in the waiver of consent application. Because BRG filed an entry of appearance in the waiver of consent cause Longfellow mailed all exhibits to be used in the protest hearing to counsel for BRG as a courtesy. BRG had the exhibits so they knew there was a hearing scheduled for protest. BRG never sent notice of any protest of any of the cases and never stated they had any problems with it. 12. At the time of the scheduled protest hearing on April 18, the case was continued for settlement negotiations by agreement with the protestant. Six days later BRG filed a protest in the waiver of consent application. Because the waiver of consent application was tagging along with the other cases counsel for Longfellow included counsel for BRG in the rescheduling dates. Counsel for BRG and counsel for Morgan agreed to the protested hearing dates. It was scheduled for June 20, through June 22. Counsel for Longfellow stated that BRG continued to indicate they were letting Morgan protest the other cases and BRG had filed a protest in the waiver of consent. Further settlement negotiations occurred and letter agreements were being exchanged before

6 Page 6 the protested hearing dates. Counsel for Longfellow received a call from counsel for BRG's office and he advised BRG that the cases were being settled except for the one that BRG had filed a protest in and it would be dismissed. The waiver of consent was dismissed because BRG had already signed a waiver and Morgan had agreed to execute a waiver as well as Three Sands, the other operator. The operators in this section had consented in writing. Therefore, Longfellow did not need the application for the waiver of consent and it was dismissed. The spacing case was settled and counsel for Dave Morgan appeared at the uncontested cause. There were no other appearances for the spacing or location exception on June 20. The causes were recommended and the orders issued. Longfellow was not aware of any objection to these actions until BRG filed the motion to reopen the location exception and corresponding application to vacate the spacing. 13. Longfellow asserted that the responsibility to make a protest known is borne by the parties. BRG should have appeared or let somebody know they are protesting and they had a conflict. Longfellow asserts that you cannot wait eight months with all the pleadings, hearings, motions and notice and never take a position until after the order issues. They argue that they have done everything required procedurally under the Commission rules to perfect their application and have an order issue. If a party cannot rely on notice, hearings and final orders then the cases would have no finality 14. Counsel for BRG noted that sometime around April 25, BRG switched its position. It became opposed to both the exception to the rule and opposed to the establishment of a 640 acre horizontal spacing in the same common source of supply as its vertical well. He explained that BRG did not conceive that this was possible. They were not aware that there was a new rule, that the Legislature passed a law and it was possible. 15. BRG believes the only issue is the scheduling form filed in all 3 cases on May 7, 2012, that continued all the cases to June 20, BRG filed a protest in the waiver of consent cause. They assert that they orally notified both counsel for Longfellow and Dave Morgan that they were also protesting the spacing and location exception. BRG was under the mistaken impression that these matters were either going to be dismissed or continued off the docket. It turns out that they were not. BRG stated that they filed a written protest in the waiver of consent cause but not in the spacing or location exception. Longfellow believes that it is unrealistic to argue that a written protest in one cause puts parties on notice of intent with regard to other causes that were already filed. BRG did not take any action to negate the consent to the horizontal spacing that they had signed. They believe that the written notice of protest in the waiver of consent case should serve to negate the consent they previously signed. 16. Counsel for Longfellow stated that he did contact Mr. McNamara's office and advise them that the case that BRG had protested was being dismissed. Mr. Helm did not get any indication that BRG had an interest in protesting the location exception or

7 Page 7 spacing. Longfellow did believe that BRG might have an interest in what Morgan was doing because they knew Morgan was negotiating settlement agreements and BRG might want similar agreements. 17. Finally, BRG reiterated that they were not fully aware of the horizontal spacing rule's ramifications at the time they executed the consent. They now object to 640 acre spacing because of the possibility of increased density applications and the possibility of a location exception application to drill a well in the West half of this unit. Longfellow argues that the spacing order has issued and is effective. Longfellow filed a valid consent properly executed by BRG as required. Therefore, the spacing order is valid. The validity of the consent is a separate issue according to Longfellow and BRG has recourse to pursue an action at the Commission for affirmative relief to have the waiver of consent withdrawn. RECOMMENDATIONS AND CONCLUSIONS 1. After taking into consideration all the facts, circumstances, testimony and evidence presented in this cause, it is my recommendation that the application of BRG Petroleum, LLC filed in be denied. 2. BRG agreed to sign the Consent to the Formation of a 640 Acre Horizontal Drilling and Spacing Unit in the horizontal spacing cause CD NO They voluntarily consented to the creation of the requested 640 acre horizontal well spacing unit. Subsequent to executing the consent they filed a protest in the waiver of consent cause. The notice of protest filed by BRG did not indicate any opposition or repudiation of their previously executed consent. BRG admitted that no action has been taken to demonstrate any reason to invalidate said consent. Therefore, at the time of the spacing hearing and order Longfellow was justified in filing the BRG consent. Lack of knowledge or misunderstanding of the statute or rules is not a valid reason. 3. The applicant further admitted that the misunderstanding involving whether the cases would be dismissed or continued off the docket was entirely their mistake. At the scheduled date of the hearings a settlement was negotiated resolving the protest and Longfellow legitimately proceeded to hear the uncontested causes. The orders in these causes were properly obtained and validly entered. 4. BRG admitted that a notice of protest was not filed in the spacing or location exception. It was also established that BRG did not appear at any of the motions or hearings in these matters. If a party does not timely file pleadings or make an appearance to preserve their reasons for opposing a cause, they cannot validly object if

8 Page 8 it goes forward and is finalized. BRG did not present evidence of any procedural error or violation that would allow the relief they requested. RESPECTFULLY SUBMITTED THIS 23rd day of January, MN:ac xc: Stephen R. McNamara Charles L. Helm Oil-Law Records Commission File Acl'ministrative Law Judge