AOGC Fayetteville Shale Activity Report To Be Presented to the Arkansas Legislative Council Reporting Period: July 1, 2011 through September 30, 2011

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2 AOGC Fayetteville Shale Activity Report To Be Presented to the Arkansas Legislative Council Reporting Period: July 1, 2011 through September 30, Inspection Staff A. Number of Full Time Inspector Staff (Statewide) B. Number of Part Time Inspector Staff (Statewide)... 2 C. Number of Full Time Inspector Staff (Fayetteville Shale Only)... 5 D. Number of Part Time Inspector Staff (Fayetteville Shale Only) Inspection/Compliance Reviews A. Number at Field Inspection Conducted B. Number of Compliance Reviews Conducted (1) Form 2 Drilling/ Fracture Permit (2) Form 3 Completion Report (3) Form 3A Fracture Stimulation Report (4) Form 4 Authority to Commence Production (5) Form 12 Plugging Report... 3 (6) Form 13 Production Test (7) Form 14 Monthly Disposal Well Report (8) Form 23 Well Transfer Report... 1 (9) Form 25 Cross Unit Well Review (10) Form 33 Temporary Abandonment (11) Casing Setting Notice Complaints Received A. Resolved without Field Investigation... 8 B. Complaints Requiring Field Investigation... 5 C. Investigations Resulting in Enforcement Actions Enforcement A. Number of Notices of Non Compliance (NNC) Issued (1) Operations Related NNCs (2) Administrative Related NNCs... 8 B. Number of Notices of Violation (NOV) Issued (1) Operations Related NOVs (2) Administrative Related NOVs... 0 C. Number of Cessation Orders Issued... 4 D. Number of Violations and/or Commission Orders Resulting in Penalties

3 AOGC Fayetteville Shale Activity Report Page 2 of 2 5. Judicial Actions (See Summary Page for Details) A. Number of Actions Filed... 0 B. Number of Actions Resolved Inspection / Compliance Reviews Anticipated Next Quarter Detail Report / Summary A. Section 3D Civil Penalties No Section 3D Civil Penalties and/or Fines Issued This Reporting Period. B. Section 4 Judicial Action No Cases Filed During This Reporting Period. 3

4 AOGC Fayetteville Shale Activity Report Summary & Report of Notices of Non-Compliance Reporting Period: July 1, 2011 through September 30, 2011 Operators Receiving Notices of Non Compliance (NNC) 1. BHP Billiton Petroleum (Fayetteville) LLC / Chesapeake Operating, Inc Deep Six Water Disposal Services, LLC McCutchin Petroleum Corporation Poseidon Energy Services, LLC SEECO, Inc Storm Cat Energy USA Corporation XTO Energy, Inc

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33 AOGC Fayetteville Shale Activity Report Summary & Report of Notices of Violations Reporting Period: July 1, 2011 through September 30, 2011 Operators Receiving Notices of Violations (NOVs) 1. Poseidon Energy Services, LLC SEECO, Inc Storm Cat Energy USA Corporation

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49 ARKANSAS OIL AND GAS COMMISSION COMMISSION MINUTES BEGINNING JULY 26, 2011 at 9:00 am. EL DORADO, ARKANSAS On or before July 26, 2011, the Arkansas Oil and Gas Commission ordered the Director of the Commission to place the subjects designated Regular Docket Numbers , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , and Commission Docket Numbers 177A , 180A , 203A , 204A , 205A , 207A , 208A , 209A , 210A , 211A , 212A , 213A , 214A , 215A , 216A , 217A on the agenda for a public hearing held in El Dorado, Arkansas. The hearing was called to order at 9:00 am on July 26, 2011, with the following Commissioners in attendance: Chad White Chairman, W. Frank Morledge Vice-Chairman, George Carder, Mike Davis, Jerry Langley, Jim Phillips, Chris Weiser, and Charles Wohlford. Commissioner Lee Dawkins was absent. Chairman Chad White welcomed all parties who were present. Proclamations were presented to past Commissioners Bill Poynter and Ken Williams thanking them for their service to the Commission. NOTE: THE MINUTES CONTAINED HEREIN HAVE BEEN MODIFIED TO ONLY REFLECT THOSE DOCKETS COMING BEFORE THE ARKANSAS OIL & GAS COMMISSION THAT PERTAIN TO OPERATIONS OCURRING IN THE GEOGRAPHICAL AREA REFERRED TO AS THE FAYETTEVILLE SHALE. A COMPLETE RECORD OF MINUTES FROM THE JULY 2011 HEARING CAN BE FOUND ON THE AOGC WEBSITE AT 49

50 1. REGULAR DOCKET Docket #: Attorney: David Butler Applicant: Chesapeake Exploration, LLC Subject: Unleased Mineral Interest Integration; Non-Consenting Working Interest Integration Location: Sec. 26-T11N-R12W County: Cleburne Continued from June Hearing: Applicant requested the integration of the unleased mineral interests and the non-consenting leasehold working interests. Applicant proposed an election to lease at $ per net mineral acre and a 20% royalty. Absent an election, applicant requested the integration of the mineral interests at $ per net mineral acre with a 20% royalty. Applicant requested the Commission assess a 400% risk factor penalty for the initial well, and a 400% risk factor for all subsequent wells. APPLICATION DISMISSED BY APPLICANT UPON HEARING & APPROVAL OF COMPETING APPLICATION,

51 Docket #: Attorney: David Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Amendment to Order; (Order # ); Reinstatement of Permit; Authority to Produce Location: Sec. 16-T9N-R5W County: White Continued from June Hearing: Applicant was granted the authority to drill and produce its cross-unit Hicks, Anna H well through AOGC Order No A Notice of Violation was issued March 2, 2011 for Applicant failing to comply with the provisions of B-43(o) and the requirements of Order No Applicant requested that Order No be amended to not require Applicant to comply with the provisions of B-43(o). Adjudication: Application Approved for Cross-Unit Well Between Sec. 16-T9N-R5W and Sec. 9-T9N-R5W for Term of 1 Year; Operator Must Drill Another Well or Re-Designate Well As In-Unit Well in Sec. 9 Only. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 2nd 5/1/3 Dawkins Langley Morledge Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 51

52 Docket #: Attorney: David Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Non- Consenting Working Interest Integration Location: Sec. 15-T10N-R13W County: Van Buren Continued from June 2011; Unit previously integrated in Order No Applicant requested the integration of the non-consenting leasehold working interests. Applicant requested the Commission assess a reasonable risk factor penalty on all non-consenting interests. Adjudication: Application Approved As Amended to Apply to Mineral Interest Owners and Non-Consenting Leasehold Working Interest Owners with 100% Risk Factor for Existing Wells and 400% Risk Factor for Future Wells; Lease Rates: $1,500 & 20%; Whitney & Associates is to be Provided an AFE; 5 Wells Completed in Section Default Election is Non-Consent. Commissioner Motion/2 nd Yes No A D R Ab White Vote Count Carder Davis Motion 5/0/4 Dawkins Langley Morledge 2nd Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 52

53 Docket #: Attorney: David Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Amendment of Order No Location: Sec. 14-T7N-R12W County: Faulkner Applicant was granted the authority to drill and produce its cross-unit C. Murchison H24 well through AOGC Order No on July 2, Well drilled from SE/4 of Sec. 14 to bottom hole location in SW/4 of Sec. 24. Applicant plans to spud its C Murchison H24 well on August 27, 2011 with surface in Sec. 14 and bottom hole in Sec. 24. The 1-14H24 well has 1,945 feet of lateral in Sec. 24. Applicant requested an extension of time to comply with the 4160 requirement under AOGC Order No until December 1, Adjudication: Application Approved. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 7/0/2 Dawkins Langley Morledge Phillips Weiser Wohlford 2nd A = absent D = disqualified R = recused Ab = abstain 53

54 Docket #: Attorney: Tom Daily Applicant: XTO Energy, Inc. Subject: Unleased Mineral Interest Integration; Non-Consenting Working Interest Integration Location: Sec. 26-T11N-R12W County: Cleburne Continued from June 2011: Applicant requested the integration of the non-consenting leasehold working interests. Applicant requested the Commission assess a reasonable risk factor penalty on all non-consenting interests. Letter Application Amended by Applicant. Adjudication: Application Approved As Amended with Cash Bonus / Royalty of $2,200 & 1/5 & Risk Factor of 400% for All Wells. Commissioner Motion/2 nd Yes No A D R Ab White 2nd Vote Count Carder Davis 7/0/2 Dawkins Langley Morledge Phillips Weiser Wohlford Motion A = absent D = disqualified R = recused Ab = abstain 54

55 Docket #: Attorney: Tom Daily Applicant: XTO Energy, Inc. Subject: Unleased Mineral Interest Integration; Non-Consenting Working Interest Integration Location: Sec. 21-T8N-R10W County: White Applicant requested the integration of the unleased mineral interests and the non-consenting leasehold working interests. Applicant proposed an election to lease at $ per net mineral acre and a 20% royalty. Absent an election, applicant requested the integration of the mineral interests at $ per net mineral acre with a 20% royalty. Applicant requested the Commission assess a 400% risk factor penalty for the initial well, and a 400% risk factor for all subsequent wells. Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 2nd 8/0/1 Dawkins Langley Morledge Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 55

56 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Unleased Mineral Interest Integration; Non- Consenting Working Interest Integration Location: Sec. 31-T8N-R15W County: Conway AMENDED APPLICATION. Applicant requested the integration of the unleased mineral interests and the non-consenting leasehold working interests. Applicant proposed an election to lease at $ per net mineral acre and a 1/6 royalty. Absent an election, applicant requested the integration of the mineral interests at $ per net mineral acre with a 1/6 royalty. Applicant requested the Commission assess a reasonable risk factor for all subsequent wells. APPLICATION CONTINUED UNTIL AUGUST HEARING AT REQUEST OF APPLICANT. 56

57 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Exceptional Location Location: Sec. 28-T9N-R17W Sec. 27-T9N-R17W County: Conway Continued from June 2011: Applicant requested approval of an exceptional well location pursuant to General Rule b-43(i)(5). Applicant proposed drilling its Norwood #5-28H27 well. Rule B-43 requires that all cross-unit wells shall be at least 560 from any other well within a common source of supply, unless all owners agree in writing. The Norwood #5-28H27 well, as proposed, encroaches closer than 560 to the Norwood #1-28H and the Norwood #1-28H wells. Perforations are anticipated to be as close as 350 apart at one depth resulting in necessity for exceptional location due to the encroachment. Application Consolidated with Docket No for purposes of the Administrative Hearing. Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 0/0/4 Dawkins Langley Morledge 2nd Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 57

58 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Exceptional Location Location: Sec. 28-T9N-R17W Sec. 33-T9N-R17W County: Conway Continued from June 2011: Applicant requested approval of an exceptional well location pursuant to General Rule b-43(i)(5). Applicant proposed drilling its Norwood #6-28H27 well. Rule B-43 requires that all cross-unit wells shall be at least 560 from any other well within a common source of supply, unless all owners agree in writing. The Norwood #6-28H27 well, as proposed, encroaches closer than 560 to the Norwood #2-28H and the Norwood #4-28H wells. Perforations are anticipated to be as close as 300 apart at one depth resulting in necessity for exceptional location due to the encroachment. Application Consolidated with Docket No for purposes of the Administrative Hearing. Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 5/0/4 Dawkins Langley Morledge 2nd Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 58

59 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Unleased Mineral Interest Integration Location: Sec. 26-T8N-R14W County: Faulkner Unit previously integrated in Order No Applicant requested the integration of the unleased mineral interests. Applicant requested the Commission assess a 100% risk factor penalty for any wells capable of production, and a 400% risk factor for all future wells, and offer a voluntary lease option of $1000 per net mineral acre and a 1/5 royalty. Adjudication: Application Approved As Applied For with 100% Risk Factor on 2 wells and 400% on all other wells; Default Election: Non-Consent. Commissioner Motion/2 nd Yes No A D R Ab White Vote Count Carder Davis 7/0/2 Dawkins Langley Morledge Phillips Weiser 2nd Wohlford Motion A = absent D = disqualified R = recused Ab = abstain 59

60 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Unleased Mineral Interest Integration Location: Sec. 27-T8N-R13W County: Faulkner Unit previously integrated in Order No Applicant requested the integration of the unleased mineral interests. Applicant requested the Commission assess a 100% risk factor penalty for any wells capable of production, and a 400% risk factor for all future wells, and offer a voluntary lease option of $2000 per net mineral acre and a 1/5 royalty. Adjudication: Application Approved As Applied For with default option nonconsent, 100% Risk Factor on First Well and 400% on All Future Wells. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 2nd 7/0/2 Dawkins Langley Morledge Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 60

61 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Exceptional Location Location: Sec. 3-T10N-R14W Sec. 10-T10N-R14W County: Van Buren Applicant requested approval of an exceptional well location pursuant to General Rule B- 43(i)(5). Applicant proposed to drill the Flatrock Farms #5-03H10 well as a cross-unit well with all its perforated lateral length located in Sec. 3. The proposed well will be drilled between the Flatrock Farms 10-14#1-03H and #2-03H wells, both in Sec. 3. Rule B-43 requires that all cross-unit wells shall be at least 560 from any other well within a common source of supply, unless all owners agree in writing. The Flatrock Farms #5-03H10 well encroaches closer than 560 to the Flatrock Farms #2-03H well. Perforations are 518 from the perforated wellbore of the #2-03H well resulting in necessity for location exception due to the encroachment. APPLICATION DISMISSED AT REQUEST OF APPLICANT. Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Exceptional Location Location: Sec. 28-T10N-R14W Sec. 33-T10N-R14W County: Van Buren Applicant requested approval of an exceptional well location pursuant to General Rule B- 43(i)(5). Applicant has drilled but not completed the Monroe #4-28H33 well as a crossunit well with the majority of its lateral length located in Sec. 28. Rule B-43 requires that all cross-unit wells shall be at least 560 from any other well within a common source of supply, unless all owners agree in writing. The Monroe #4-28H33 well encroaches closer than 560 to the Monroe #1-28H well. Perforations are 446 from the perforated wellbore of the Monroe #1-28H well resulting in necessity for location exception due to the encroachment. APPLICATION DISMISSED AT REQUEST OF APPLICANT. 61

62 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Exceptional Location Location: Sec. 28-T10N-R14W Sec. 33-T10N-R14W County: Van Buren Applicant requested approval of an exceptional well location pursuant to General Rule B- 43(i)(5). Applicant has drilled but not completed the Monroe #5-28H33 well as a crossunit well with the majority of its lateral length located in Sec. 28. Rule B-43 requires that all cross-unit wells shall be at least 560 from any other well within a common source of supply, unless all owners agree in writing. The Monroe #5-28H33 well encroaches closer than 560 to the Monroe #4-28H33 well. Perforations are 400 from the perforated wellbore of the Monroe #4-28H33 well resulting in necessity for location exception due to the encroachment. APPLICATION DISMISSED AT REQUEST OF APPLICANT. Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Exceptional Location Location: Sec. 28-T10N-R14W Sec. 33-T10N-R14W County: Van Buren Applicant requested approval of an exceptional well location pursuant to General Rule B- 43(i)(5). Applicant has drilled but not completed the Monroe #6-28H33 well as a crossunit well with the majority of its lateral length located in Sec. 28. Rule B-43 requires that all cross-unit wells shall be at least 560 from any other well within a common source of supply, unless all owners agree in writing. The Monroe #5-28H33 well encroaches closer than 560 to the Monroe #5-28H33 well. Perforations are 420 from the perforated wellbore of the Monroe #6-28H33 well resulting in necessity for location exception due to the encroachment. APPLICATION DISMISSED AT REQUEST OF APPLICANT. 62

63 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Exceptional Location Location: Sec. 28-T10N-R14W Sec. 33-T10N-R14W County: Van Buren Applicant requested approval of an exceptional well location pursuant to General Rule B- 43(i)(5). Applicant has drilled but not completed the Monroe #7-28H33 well as a crossunit well with the majority of its lateral length located in Sec. 28. Rule B-43 requires that all cross-unit wells shall be at least 560 from any other well within a common source of supply, unless all owners agree in writing. The Monroe #7-28H33 well encroaches closer than 560 to the Monroe #6-28H33 well. Perforations are 427 from the perforated wellbore of the Monroe #6-28H33 well resulting in necessity for location exception due to the encroachment. APPLICATION DISMISSED AT REQUEST OF APPLICANT. 63

64 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Exceptional Location Location: Sec. 17-T9N-R15W County: Conway Applicant requested approval of an exceptional well location pursuant to General Rule B- 43(i)(5). Applicant has drilled and completed (as of August 3, 2007) the Salinas #2-17H in-unit well with last perforation, according to recently-obtained surveys, 555 from the West unit line. Rule B-43 requires that all cross-unit wells shall be at least 560 from any other well within a common source of supply, unless all owners agree in writing. The 5 encroachment results in necessity for location exception and Applicant requested such treatment as opposed to requiring the applicant to retroactively apply to treat the Salinas #2 well as a shared cross-unit well. Adjudication: Application Approved as Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Vote Count Carder Davis 7/0/2 Dawkins Langley Morledge Motion Phillips Weiser Wohlford 2nd A = absent D = disqualified R = recused Ab = abstain 64

65 Docket #: Attorney: Tom Daily Applicant: SEECO, Inc. Subject: Determination and Order; Exceptional Location Location: Sec. 9-T8N-R14W Field: Fayetteville / B-43 County: Conway Continued from June 2011: Applicant submitted Form 36 for administrative approval for a permit pursuant to Rule H-1 for its proposed Class II-UIC disposal well. The application was denied because the proposed well location does not comply with Rule B-3(g). Rule B-3(g) provides for well location of a disposal well completed pursuant to Rule C-7. However Rule C-7 is was repealed when Rules H-1, H-2 and H-3 were adopted, which govern the permitting and drilling of disposal wells and do not refer to Rule B-3(g). Applicant s proposed well is not a unit well so the reference in Rule C-7(g) appears to be inapplicable. The proposed well is on one tract and more that 280 from any property line of that tract. Applicant s Form 36 requested authority to drill for disposal into the Hunton, Viols, St. Peter and Everton Formations. Applicant wishes to amend that application to propose disposal, at this time in the Orr Formation only. Applicant requested a determination that its proposed well is not in violation of C-7(g) or in the alternative, that it be granted a location exception for its proposed well. Applicant further requested approval for its amended application for a Class II-UIC disposal well. APPLICATION CONTINUED UNTIL AUGUST HEARING AT REQUEST OF APPLICANT. Docket #: Attorney: Chuck Morgan Applicant: Poseidon Energy Services, LLC Subject: Issuance of a Class II Commercial Injection Well Permit; Authority to Hydraulically Fracture Stimulate the Injection Formation Location: Sec. 15-T9N-R13W Field: Fayetteville / B-43 County: Van Buren Applicant previously filed a Form 36, Application for a Class II UIC Disposal/Commercial Disposal Well Permit. The Commission received several objections to the Form 36, and in accordance with H-1, the application was administratively denied. Applicant now requested this matter be considered by the Commission. APPLICATION DISMISSED AT REQUEST OF APPLCIANT. 65

66 2. COMMISSION DOCKET Docket #: Attorney: Subject: Location: County: Faulkner 180A Staff Amended Application - Immediate Cessation of Operations & Order to Plug & Abandon a Class II Disposal Well. Sec. 22-T7N-R12W Staff of the Arkansas Oil and Gas Commission ( Applicant ) requests an order requiring the immediate cessation of disposal operations in the Moore, W.E. Estate No. 1 Class II Commercial Disposal well (Permit No ), operated by Deep-Six Water Disposal Services, LLC ( Deep Six ), and the plugging of said well by September 30, Adjudication: Disposal operations in the Deep Six E.W. Moore Estate No. 1 Disposal well (Permit No ), shall be immediately ceased; that the Disposal well shall be properly plugged by September 30, 2011.; that Deep Six is to continue to report the hourly / bi-hourly pressures in the same manner and on the same form previously prescribed by the Director for a period of two weeks following the effective date of this Order, and thereafter Deep Six shall report the daily pressure data to be submitted on a bi-weekly basis until the well is properly plugged; and If Deep Six seeks judicial review of this decision, then the order to properly plug the well by September 30, 2011 shall be stayed until the review process is complete. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 2nd 6/0/3 Dawkins Langley Morledge Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 66

67 Docket #: 180A Attorney: Staff Subject: Establishment of Moratorium Area; Location: Multiple Sections See Order County: Cleburne, Conway, Faulkner, Van Buren, White Staff of the Arkansas Oil and Gas Commission ( Applicant ) filed an application requesting an immediate moratorium on any new or additional Class II Commercial Disposal Well or Class II Disposal Well permits in any of the Sections identified in Exhibit 1A or 1B of the Application, that is to remain in effect until the Commission adopts a General Rule establishing a permanent moratorium area Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Vote Count Carder Davis 2nd 7/0/2 Dawkins Langley Morledge Phillips Weiser Wohlford Motion A = absent D = disqualified R = recused Ab = abstain 67

68 Docket #: 205A Docket #: Attorney: Applicant: Subject: Location: County: Van Buren 208A Staff SH Exploration, LLC Request to Compel Compliance General Rule B-5; Assessment of Civil Penalties Sec. 8-T11N-R16W SH Exploration, LLC is the permit holder and operator of record for its SH Chavez #3-8H well. Surface casing was set on the above-referenced well on September 4, Upon review of Commission records, it has been determined that the documents required under General Rule B-5 have not been filed. SH Exploration, LLC has failed to respond to the Notices of Violation(s) issued by the Assistant Director for failure to comply with General Rule B-5 h) for the well. Therefore, Commission Staff requested an Order to compel SH Exploration, LLC to submit all required completion documents in accordance with General Rule B-5 h). Furthermore, in accordance with General Rule A-5, Commission Staff requested an Order assessing civil penalties in the amount of $ to SH Exploration, LLC for violations of General Rule B-5 h) for the above referenced well. The Commission has authority to compel compliance and assess civil penalties pursuant to Ark. Code Ann , , , and/or other applicable statutes. Application Consolidated with 209A, 210A & 211A for Purposes of Administrative Hearing. Adjudication: Application Continued for U.S. Bankruptcy Court Determination. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 8/0/1 Dawkins Langley Morledge Phillips Weiser Wohlford 2nd A = absent D = disqualified R = recused Ab = abstain 68

69 Docket #: Attorney: Applicant: Subject: Location: County: Van Buren 209A Staff SH Exploration, LLC Request to Compel Compliance General Rule B-5; Assessment of Civil Penalties Sec. 8-T11N-R16W SH Exploration, LLC is the permit holder and operator of record for its SH Chavez #4-8H well. Surface casing was set on the above-referenced well on September 6, Upon review of Commission records, it has been determined that the documents required under General Rule B-5 have not been filed. SH Exploration, LLC has failed to respond to the Notices of Violation(s) issued by the Assistant Director for failure to comply with General Rule B-5 h) for the well. Therefore, Commission Staff requested an Order to compel SH Exploration, LLC to submit all required completion documents in accordance with General Rule B-5 h). Furthermore, in accordance with General Rule A-5, Commission Staff requested an Order assessing civil penalties in the amount of $ to SH Exploration, LLC for violations of General Rule B-5 h) for the above referenced well. The Commission has authority to compel compliance and assess civil penalties pursuant to Ark. Code Ann , , , and/or other applicable statutes. Application Consolidated with 209A, 210A & 211A for Purposes of Administrative Hearing. Adjudication: Application Continued for U.S. Bankruptcy Court Determination. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 8/0/1 Dawkins Langley Morledge Phillips Weiser Wohlford 2nd A = absent D = disqualified R = recused Ab = abstain 69

70 Docket #: Attorney: Applicant: Subject: Location: County: Van Buren 210A Staff SH Exploration, LLC Request to Compel Compliance General Rule B-5; Assessment of Civil Penalties Sec. 8-T11N-R16W SH Exploration, LLC is the permit holder and operator of record for its SH Imboden #1-8H well. Surface casing was set on the above-referenced well on September 8, Upon review of Commission records, it has been determined that the documents required under General Rule B-5 have not been filed. SH Exploration, LLC has failed to respond to the Notices of Violation(s) issued by the Assistant Director for failure to comply with General Rule B-5 h) for the well. Therefore, Commission Staff requested an Order to compel SH Exploration, LLC to submit all required completion documents in accordance with General Rule B-5 h). Furthermore, in accordance with General Rule A-5, Commission Staff requested an Order assessing civil penalties in the amount of $ to SH Exploration, LLC for violations of General Rule B-5 h) for the above referenced well. The Commission has authority to compel compliance and assess civil penalties pursuant to Ark. Code Ann , , , and/or other applicable statutes. Application Consolidated with 209A, 210A & 211A for Purposes of Administrative Hearing. Adjudication: Application Continued for U.S. Bankruptcy Court Determination. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 8/0/1 Dawkins Langley Morledge Phillips Weiser Wohlford 2nd A = absent D = disqualified R = recused Ab = abstain 70

71 Docket #: Attorney: Applicant: Subject: Location: County: Van Buren 211A Staff SH Exploration, LLC Request to Compel Compliance General Rule B-5; Assessment of Civil Penalties Sec. 8-T11N-R16W SH Exploration, LLC is the permit holder and operator of record for its SH Imboden #2-8H well. Surface casing was set on the above-referenced well on September 9, Upon review of Commission records, it has been determined that the documents required under General Rule B-5 have not been filed. SH Exploration, LLC has failed to respond to the Notices of Violation(s) issued by the Assistant Director for failure to comply with General Rule B-5 h) for the well. Therefore, Commission Staff requested an Order to compel SH Exploration, LLC to submit all required completion documents in accordance with General Rule B-5 h). Furthermore, in accordance with General Rule A-5, Commission Staff requested an Order assessing civil penalties in the amount of $ to SH Exploration, LLC for violations of General Rule B-5 h) for the above referenced well. The Commission has authority to compel compliance and assess civil penalties pursuant to Ark. Code Ann , , , and/or other applicable statutes. Application Consolidated with 209A, 210A & 211A for Purposes of Administrative Hearing. Adjudication: Application Continued for U.S. Bankruptcy Court Determination. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 8/0/1 Dawkins Langley Morledge Phillips Weiser Wohlford 2nd A = absent D = disqualified R = recused Ab = abstain 71

72 Docket #: Attorney: Applicant: Subject: Location: County: Van Buren 212A Staff SH Exploration, LLC Request to Compel Compliance General Rule B-7; Assessment of Civil Penalties Sec. 13-T12N-R17W SH Exploration, LLC is the permit holder and operator of record for its SH Garner #1-13H well. SH Exploration, LLC did not request temporary abandonment status, and has failed to respond to the Notices of Violation(s) issued by the Assistant Director for failure to comply with General Rule B-7 d) for the above-referenced well. Therefore, Commission Staff requested an Order to compel SH Exploration, LLC to properly plug and abandon the above referenced well in accordance with General Rule B-7 d). Furthermore, in accordance with General Rule A-5, Commission Staff requested an Order assessing civil penalties in the amount of $ to SH Exploration, LLC for violations of General Rule B-7 d) for the above referenced well. The Commission has authority to compel compliance and assess civil penalties pursuant to Ark. Code Ann , , , and/or other applicable statutes. APPLICATION CONTINUED UNTIL AUGUST HEARING AT REQUEST OF STAFF. Docket #: Attorney: Applicant: Subject: Location: County: Van Buren 213A Staff SH Exploration, LLC Request to Compel Compliance General Rule B-7; Assessment of Civil Penalties Sec. 8-T11N-R16W SH Exploration, LLC is the permit holder and operator of record for its SH Chavez #3-8H well. SH Exploration, LLC did not request temporary abandonment status. SH Exploration, LLC has made no further attempt to satisfy this matter. Therefore, Commission Staff requested an Order to compel SH Exploration, LLC to properly plug and abandon the above referenced well in accordance with General Rule B-7 d). Furthermore, in accordance with General Rule A-5, Commission Staff requested an Order assessing civil penalties in the amount of $ to SH Exploration, LLC for violations of General Rule B-7 d) for the above referenced well. The Commission has authority to compel compliance and assess civil penalties pursuant to Ark. Code Ann , , , and/or other applicable statutes. APPLICATION CONTINUED UNTIL AUGUST HEARING AT REQUEST OF STAFF. 72

73 Docket #: Attorney: Applicant: Subject: Location: County: Van Buren 214A Staff SH Exploration, LLC Request to Compel Compliance General Rule B-7; Assessment of Civil Penalties Sec. 8-T11N-R16W SH Exploration, LLC is the permit holder and operator of record for its SH Chavez #4-8H well. SH Exploration, LLC has failed to respond to Notices of Violation(s) issued by the Assistant Director for failure to comply with General Rule B-7 c) for the above-referenced well. Therefore, Commission Staff requested an Order to compel SH Exploration, LLC to properly plug and abandon the above referenced well in accordance with General Rule B-7 c). Furthermore, in accordance with General Rule A-5, Commission Staff requested an Order assessing civil penalties in the amount of $ to SH Exploration, LLC for violations of General Rule B-7 d) for the above referenced well. The Commission has authority to compel compliance and assess civil penalties pursuant to Ark. Code Ann , , , and/or other applicable statutes. APPLICATION CONTINUED UNTIL AUGUST HEARING AT REQUEST OF STAFF. Docket #: Attorney: Applicant: Subject: Location: County: Van Buren 215A Staff SH Exploration, LLC Request to Compel Compliance General Rule B-7; Assessment of Civil Penalties Sec. 8-T11N-R16W SH Exploration, LLC is the permit holder and operator of record for its SH Imboden #1-8H well. SH Exploration, LLC has failed to respond to Notices of Violation(s) issued by the Assistant Director for failure to comply with General Rule B-7 c) for the above-referenced well. Therefore, Commission Staff requested an Order to compel SH Exploration, LLC to properly plug and abandon the above referenced well in accordance with General Rule B-7 c). Furthermore, in accordance with General Rule A-5, Commission Staff requested an Order assessing civil penalties in the amount of $ to SH Exploration, LLC for violations of General Rule B-7 d) for the above referenced well. The Commission has authority to compel compliance and assess civil penalties pursuant to Ark. Code Ann , , , and/or other applicable statutes. APPLICATION CONTINUED UNTIL AUGUST HEARING AT REQUEST OF STAFF. 73

74 Docket #: Attorney: Applicant: Subject: Location: County: Van Buren 216A Staff SH Exploration, LLC Request to Compel Compliance General Rule B-7; Assessment of Civil Penalties Sec. 8-T11N-R16W SH Exploration, LLC is the permit holder and operator of record for its SH Imboden #2-8H well. SH Exploration, LLC has failed to respond to Notices of Violation(s) issued by the Assistant Director for failure to comply with General Rule B-7 c) for the above-referenced well. Therefore, Commission Staff requested an Order to compel SH Exploration, LLC to properly plug and abandon the above referenced well in accordance with General Rule B-7 c). Furthermore, in accordance with General Rule A-5, Commission Staff requested an Order assessing civil penalties in the amount of $ to SH Exploration, LLC for violations of General Rule B-7 d) for the above referenced well. The Commission has authority to compel compliance and assess civil penalties pursuant to Ark. Code Ann , , , and/or other applicable statutes. APPLICATION CONTINUED UNTIL AUGUST HEARING AT REQUEST OF STAFF. Docket #: 217A Attorney: Staff Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Request for Determination of Compliance with Order No Location: Sec. 13-T8N-R6W County: White Continued until August Upon review of a recent workover by BHP on the subject well where allocation between units that share in the revenue of the subject well bore has been adjusted, Commission Staff requested a Commission determination of compliance with the 4,160 provision of General Rule B-43 o) as required in Commission Order No In compliance with the Commission Order, a single perforation was placed approximately 466 beyond the last perforation in the well, which resulted in increasing the total perforated interval from 3696 to The revised perforated interval resulted in a revision of the allocation of revenue in Section 12 from % to %. Although the letter of the 4,160 provision of General Rule B-43 o) was met with the single perforation, Staff requested a determination as to compliance with the 4,160 provision given the potential impact to correlative rights. APPLICATION CONTINUED UNTIL AUGUST HEARING AT REQUEST OF STAFF. 74

75 3. OPEN DOCKET The Commission directed Staff to send a letter requesting the appearance of a representative of EnerQuest Oil and Gas, LLC to be present and available to answer questions regarding its Chalybeat Springs Field-Wide Unit at the August AOGC Hearing. 4. DIRECTORS REPORT A) The Commissioners reviewed and approved the June 2011 Minutes. B) The Director reviewed the June budget report. C) The Commission approved additional language, for use in integration orders, requiring a copy of the Commission lease form be included in company communication with unleased mineral owners following issuance of the Commission Order. D) The Director reviewed the status of General Rule B-3 and discussed comments received during the public comment period. Based on comments received the Director recommended the rule be removed from consideration and not forwarded to, or withdrawn from, the Legislative Rules Committee. The Commission approved the Directors recommendation. The Hearing adjourned at 2:30 PM on July 27, By: Lawrence Bengal Director 75

76 ARKANSAS OIL AND GAS COMMISSION COMMISSION MINUTES BEGINNING AUGUST 23, 2011 at 9:00 am. FORT SMITH, ARKANSAS On or before August 23, 2011, the Arkansas Oil and Gas Commission ordered the Director of the Commission to place the subjects designated Regular Docket Numbers , , , , , , , , , , , , , , , , , and ; and Commission Docket Numbers 177A , 207A , 208A , 209A , 210A , 211A , 212A , 213A , 214A , 215A , 216A , 217A , and 233A on the agenda for a public hearing held in Fort Smith, Arkansas. The hearing was called to order at 9:00 am on August 23, 2011, with the following Commissioners in attendance: Chad White Chairman, W. Frank Morledge Vice-Chairman, George Carder, Mike Davis, Lee Dawkins, Jerry Langley, Chris Weiser, and Charles Wohlford. Commissioner Jim Phillips was absent. Chairman Chad White welcomed all parties who were present. 1. REGULAR DOCKET NOTE: THE MINUTES CONTAINED HEREIN HAVE BEEN MODIFIED TO ONLY REFLECT THOSE DOCKETS COMING BEFORE THE ARKANSAS OIL & GAS COMMISSION THAT PERTAIN TO OPERATIONS OCURRING IN THE GEOGRAPHICAL AREA REFERRED TO AS THE FAYETTEVILLE SHALE. A COMPLETE RECORD OF MINUTES FROM THE AUGUST 2011 HEARING CAN BE FOUND ON THE AOGC WEBSITE AT 76

77 Docket #: Attorney: Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Extension of time for Order to comply with B-43(o) Location: Sec. 24-T7N-R9W Sec. 25-T7N-R9W County: White Applicant was granted the administrative authority to drill and produce its cross-unit Langley Trust H24 well through filing an AOGC Form 25 approval. In Docket No Applicant was granted an extension until 9/1/11 to meet the 4,160 requirement of B-43(o). Applicant subsequently encountered problems which delayed operations and now requests a further extension until 11/1/11 Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 5/2/2 Dawkins Langley Morledge Phillips Weiser Wohlford 2nd A = absent D = disqualified R = recused Ab = abstain 77

78 Docket #: Attorney: Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Integration; Authority to Drill and Produce Location: Sec. 27-8N-11W Sec. 34-8N-11W County: Faulkner Applicant requests the integration of the non-consenting leasehold working interests. Applicant requests the Commission assess a reasonable risk factor penalty on all non-consenting interests. Applicant requests authority to drill and produce a proposed well, K McNinch H27 and to share the costs of such well and the natural gas produced there from between the working interest owners and the royalty owners of the existing units. The applicant states it is the operator and that the applicant and its participating partners are the majority leasehold working interest owners in Sec. 27 and Sec. 34. Applicant proposes the allocation of 81.63% to Sec. 27 and 18.37% to Sec. 34 based upon a radius of 560' around the proposed wellbore be applicable to all actual costs for drilling the well through and including the setting of production casing. Applicant requests authority to drill and produce a proposed well, K McNinch H27 and to share the costs of such well and the natural gas produced there from between the working interest owners and the royalty owners of the existing units. The applicant states it is the operator and that the applicant and its participating partners are the majority leasehold working interest owners in Sec. 27 and Sec. 34. Applicant proposes the allocation of 81.86% to Sec. 27 and 18.14% to Sec. 34 based upon a radius of 560' around the proposed wellbore be applicable to all actual costs for drilling the well through and including the setting of production casing. Commission Discussion Applicant dismisses part of application pertaining to request for authority to drill and produce the K McNinch H27. Applicant testifies that AFE submitted on August 2, 2011 and further testifies as to intent to supply AOGC with Resume of Efforts as to Working Interest owners. Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White 2nd Vote Count Carder Davis Motion 6/0/3 Dawkins Langley Morledge Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 78

79 Docket #: Attorney: Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Integration Location: Sec. 11-7N-15W County: Conway Unit previously integrated in Order No Applicant requests the integration of the unleased mineral interests. Applicant is proposing an election to lease at $ per net mineral acre and a 1/5 royalty. Absent an election, applicant requests the integration of the mineral interests to be deemed to elect non-consent. Applicant requests the Commission assess a reasonable risk factor penalty on all non-consenting interests. Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 7/0/2 Dawkins 2nd Langley Morledge Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 79

80 Docket #: Attorney: Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Integration Location: Sec. 13-7N-14W County: Faulkner Applicant requests the integration of the unleased mineral interests and the non-consenting leasehold working interests. Applicant is proposing an election to lease at $ per net mineral acre and a 1/5 royalty. Absent an election, applicant requests the integration of the mineral interests at $ per net mineral acre with a 1/5 royalty. Applicant requests the Commission assess a 400% risk factor penalty for the initial well, and a 400% risk factor for all subsequent wells. At the request of Applicant, the Application as to Jim and Jaymie Lawrence is dismissed. As to property owned by now deceased Armon Moix which is presently under foreclosure by First State Bank of Arkansas. Applicant requests that Commission integrate interest. Application amended to show depth of 13,000 feet. Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Motion Vote Count Carder Davis 2nd 7/0/2 Dawkins Langley Morledge Phillips Weiser Wohlford A = absent D = disqualified R = recused Ab = abstain 80

81 Docket #: Attorney: Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Authority to Drill & Produce Location: Sec. 24-8N-14W Sec. 25-8N-14W Sec. 36-8N-14W County: Faulkner Applicant requests authority to drill and produce a proposed well and to share the costs of such well and the natural gas produced there from between the working interest owners and the royalty owners of the existing units. The applicant states it is the operator and that the applicant and its participating partners are the majority leasehold working interest owners in Sec. 24 and Sec. 25. Applicant proposes the allocation of 16.83% to Sec. 24 and 79.51% to Sec. 25 based upon a radius of 560' around the proposed wellbore be applicable to all actual costs for drilling the well through and including the setting of production casing. Commission Discussion Dockets No , , and are consolidated for purposes of this administrative hearing. Per applicant and upon request of Staff, testimony reflects total measured depth to be 5,800 feet. Applicant also requests expedited permit to drill. Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Vote Count Carder Davis 7/0/2 Dawkins 2nd Langley Morledge Phillips Weiser Wohlford Motion A = absent D = disqualified R = recused Ab = abstain 81

82 Docket #: Attorney: Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Authority to Drill & Produce Location: Sec. 24-8N-14W Sec. 25-8N-14W Sec. 36-8N-14W County: Faulkner Applicant requests authority to drill and produce a proposed well and to share the costs of such well and the natural gas produced there from between the working interest owners and the royalty owners of the existing units. The applicant states it is the operator and that the applicant and its participating partners are the majority leasehold working interest owners in Sec. 24 and Sec. 25 and Sec. 36. Applicant proposes the allocation of 14.06% to Sec. 24 and 82% to Sec. 25 and 3.94% to Sec. 36 based upon a radius of 560' around the proposed wellbore be applicable to all actual costs for drilling the well through and including the setting of production casing. Commission Discussion Dockets No , , and are consolidated for purposes of this administrative hearing. Per applicant and upon request of Staff, testimony reflects total measured depth to be 5,800 feet. Applicant also requests expedited permit to drill. Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Vote Count Carder Davis 7/0/2 Dawkins 2nd Langley Morledge Phillips Weiser Wohlford Motion A = absent D = disqualified R = recused Ab = abstain 82

83 Docket #: Attorney: Butler Applicant: BHP Billiton Petroleum (Fayetteville) LLC Subject: Authority to Drill & Produce Location: Sec. 24-8N-14W Sec. 25-8N-14W Sec. 36-8N-14W County: Faulkner Applicant requests authority to drill and produce a proposed well and to share the costs of such well and the natural gas produced there from between the working interest owners and the royalty owners of the existing units. The applicant states it is the operator and that the applicant and its participating partners are the majority leasehold working interest owners in Sec. 24, Sec. 25 and Sec. 36. Applicant proposes the allocation of 9.67% to Sec. 24, 85.96% to Sec. 25 and 4.37% to Sec. 36 based upon a radius of 560' around the proposed wellbore be applicable to all actual costs for drilling the well through and including the setting of production casing. Commission Discussion Dockets No , , and are consolidated for purposes of this administrative hearing. Per applicant and upon request of Staff, testimony reflects total measured depth to be 5,800 feet. Applicant also requests expedited permit to drill. Adjudication: Application Approved As Applied For. Commissioner Motion/2 nd Yes No A D R Ab White Vote Count Carder Davis 7/0/2 Dawkins 2nd Langley Morledge Phillips Weiser Wohlford Motion A = absent D = disqualified R = recused Ab = abstain 83