BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA NEWFIELD EXPLORATION ) MID-CONTINENT, INC.

APPLICANT : BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA NEWFIELD EXPLORATION ) MID-CONTINENT, INC. F I L E D S t F 2 2 2010 CO URT CLE R K'S OFFICE -OKC CURPO RATIA N COMMISSION O F OKLAHOMA RELIEF SOUGHT : LEGAL DESCRIPTION UNITIZED MANAGEMENT ) OPERATION AND FURTHER ) DEVELOPMENT OF THE WOODFORD UNIT I, INCLUDING SECONDARY RECOVERY OPERATIONS SECTIONS 1, 2 AND 5 THROUGH 23 AND SECTIONS) 27 THROUGH 32, TOWNSHIP ) 2 NORTH, RANGE 11 EAST, COAL COUNTY, OKLAHOMA CAUSE CD No. 200902066-T/ O REPORT OF THE OIL AND GAS APPELLATE REFEREE This Cause came on for hearing before Michael L. Decker, Administrative Law Judge for the Corporation Commission of the State of Oklahoma, on the 8th day of September, 2009, regarding the Motions to Dismiss, and on the 16th and 17th of December, 2009, 14th and 15th of January, 4th and 5th of February, 31st of March, 1 St of April and 6th of May, 2010, at 8:30 a.m. 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. APPEARANCES : Gregory L. Mahaffey, attorney, appeared for the Applicant, Newfield Exploration Mid-Continent Inc. ("Newfield") ; Richard A. Grimes, attorney, appeared for Apache Corp.. Clark III, L.L.C. and Kirkpatrick Oil & Gas Company (collectively "Apache") ; Richard K. Books, attorney, appeared for Panhandle Oil & Gas Inc. ("Panhandle") and Farmers Royalty ("Farmers") ; Lee I. Levinson, attorney, appeared for Milam Sons Minerals, Steveco Trust, Phillip Viles, Judge Clay Mowdy, Marle Production Co., Michael Levinson, and Kenny Joe Smith (collectively "Milam Sons et al.") ; David Pepper, attorney, appeared for Devon Energy Production Co. LP and

CAUSE CD 200902066 T/ O- NEWFIEL D Continental Resources Inc. ; Michael D. Stack, attorney, appeared for Samson Resources Co, and Canaan Resources, LLC ; Robert A. Miller, attorney, appeared for Sedna Energy Co. ; John R. Reeves, attorney, appeared for BP America Production Co., Antero Resources, Inc. and Red Oak Energy Partners, LLC ; Charles L. Helm, attorney, appeared for JMA Energy Co., LLC ; Benjamin F. Hackett, attorney, appeared pro se ; J. Fred Gist, attorney, appeared for Sinclair Oil 8s Gas Company ; Ronald M. Barnes, attorney, appeared for Cimarex Energy Company ; Valerie Michelle Evans, attorney, appeared for Ronald McDonald ; Lou Ann Moudy, attorney, appeared for the M.A. Viersen Revocable Trust ; Mason Mungle appeared Pro Se ; Keith Thomas, Assistant General Counsel, and Sally Shipley, Deputy General Counsel and Ben Jackson, Commission Counsel, and Jim Hamilton, Assistant General Counsel, appeared for the Oil and Gas Conservation Division of the Oklahoma Corporation Commission. The Administrative Law Judge ("ALJ") filed his Report of the Administrative Law Judge on the 15th day of June, 2010, to which exceptions were timely filed and proper notice given of the setting of the Exceptions. The Appellate argument concerning the exceptions was referred to Patricia D. MacGuigan, Oil and Gas Appellate Referee ("Referee"), on the 13th day of August, 2010. After considering the arguments of counsel and the record contained within this Cause, the Referee finds as follows : STATEMENT OF THE CASE NEWFIELD APPEALS the Report of the Administrative Law Judge ("ALJ") which found that the Commission did not have jurisdiction to unitize an area for the purpose of employing advanced horizontal drilling techniques. Newfield sought a Commission order approving the unitized management of the Woodford, Mississippian, and Hunton common sources of supply underlying Sections 1, 2 and 5 through 23 and Sections 27 through 32, T2N, R 11 E, Coal County, Oklahoma, less and except wells completed in the subject common sources of supply as of the effective date of the field-wide unit designated the Woodford Unit 1. Motions to Dismiss were filed on August 31st Apache and Panhandle. The Oral Report Respondents' Motion to Dismiss was filed on recommended that the applicant be granted determine : and September of the ALJ in September 23, an evidentiary 1st, 2009 by response to 2009 which hearing to Page No. 2

1) If the Commission has statutory jurisdiction to establish the field-wide unitization requested by the application, to wit : A). Pursuant to 52 O.S. Section 287.3(a) whether advanced horizontal drilling technology constitutes a "form of joint effort calculated to substantially increase the ultimate recovery of oil and gas from the common source of supply" ; and B) Pursuant to 52 O.S. Section 287.4, whether the Plan fairly allocates production from primary and secondary phases of recovery among the separately owned tracts covered by the unitized area ; 2) Pursuant to 52 O.S. Section 287. 4, whether the Plan collaterally attacks the provisions of existing spacing and pooling orders as a result of its proposed method of allocating production between the separately owned tracts ; 3) Pursuant to 52 O.S. Section 287.1, et seq., whether the Applicant meets the statutory burden of proof required by the Unitization Act? During the pendency of this proceeding the Applicant has filed subsequent amendments to the Plan of Unitization. On November 19, 2009 the Report of the Appellate Referee on Oral Report of the ALJ in response to Respondent's Motion to Dismiss was filed in which the Referee recommended that the ALJ's recommendation be upheld "to conduct an evidentiary hearing to determine if the Commission has jurisdiction under the Unitization Act to institute Newfield's Plan, as amended, and if Newfield at the hearing meets the burden of proof required under the Unitization Act." On November 25, 2009 Apache filed a motion for oral argument before the Commission en banc which was granted by Order No. 572034 (dated 9-7-09) and such arguments were heard on December 10, 2009. Following the arguments, the Commission took the Motions to Dismiss under advisement and indicated "the Motions to Dismiss would remain under advisement pending a final report and recommendation by the ALJ. " Page No. 3

NEWFIELD TAKES THE POSITION : (1) The ALJ erred in finding that the Commission did not have jurisdiction to unitize an area for the purpose of employing advanced horizontal drilling techniques. The ALJ erred in granting the Motions to Dismiss of protestants Apache and Panhandle and finding that the Commission did not have jurisdiction to unitize the given area for the Woodford (including a portion of the Mayes) common source of supply because advanced horizontal drilling technology does not constitute "a joint effort calculated to substantially increase the ultimate recovery of oil and gas from the common source of supply," as required by 52 O. S. Section 287. 3(a). Newfield asks the Commission to recognize that the Commission has broad jurisdiction to unitize an area if the facts given in the particular case support unitization, including areas where advanced horizontal drilling technology has the potential to greatly increase the recovery of hydrocarbons from the area. (2) The Legislature has stated that the intent of the unitization statute is as follows : The Legislature finds and determines that it is desirable and necessary, under the circumstances and for the purposes hereinafter set out, to authorize and provide for unitized management, operation and further development of the oil and gas properties to which this act is applicable, to the end that a greater ultimate recovery of oil and gas may be had therefrom, waste prevented, and the correlative rights of the owners in a fuller and more beneficial enjoyment of the oil and gas rights, protected. See 52 O.S. Section 287.1. (3) While the ALJ found in this case that the facts did not support unitization, the Commission does have jurisdiction to unitize a given area, assuming the facts support unitization, for the purpose of increasing the recovery of hydrocarbons. Such a purpose may be accomplished with the use of advanced horizontal drilling, including laterals in excess of 10,000 feet, which laterals may cross multiple boundaries of existing, 640-acre spacing units. (4) According to the Supreme Court, the purpose of the Unitization Act was to maximize the efficiency of oil and gas recovery operations from a unit. Spiers v. Magnolia Petroleum Co., 244 P.2d 852 (Okl. 1951). Page No. 4

CAUSE CD 200902066 T f O- NEWFIELD (5) 52 O.S. Section 287.3(a) specifically enumerates several secondary recovery techniques, then provides at the end that "any other form of joint effort calculated to substantially increase the ultimate recovery of oil and gas from the common source of supply" may be a reason for unitization. One must keep in mind that 52 O.S. Section 287.3 dates from 1951. The advanced horizontal drilling techniques available to today's oil and gas operators were not even dreamt of at that time. The catchall phrase "any other form of joint effort..." was clearly designed to provide the Commission with the power to recognize future technological advances in recovery techniques. As the purpose of the Unitization Act was to maximize efficiency in the recovery of hydrocarbons, thereby preventing waste and maximizing correlative rights, the fact that the Legislature specifically enumerated a few secondary recovery techniques cannot override the intent of the Legislature. See Spiers v. Magnolia Petroleum Co., supra, 244 P.2d at 856. As the Oklahoma Supreme Court has also stated, "The purpose of the Act is to so adapt the exercise of [the plural rights of production from the common pool] that the value of the reservoir may be realized to the fullest degree possible by those entitled thereto..." Palmer Oil Corp. v. Phillips Petroleum Co., 231 P.2d 997 (Okl. 1951). (6) The Supreme Court has found that the Commission possesses great leeway when it is acting within its jurisdiction. See Kuykendall v. Corporation Commission, 634 P.2d 711 (Okl. 1981). In a case dealing with the Unitization Act, the Supreme Court has stated that "the formulation and execution of the legislative policy has been entrusted to the Commission because it is thought to be peculiarly experienced and fitted for the purpose." Supra, Palmer Oil Corporation v. Phillips Petroleum Co., 231 P.2d at 1007-1008. The Kuykendall case also recognized that changes in economic conditions that impact the "practicable recoverability of minerals" could be considered in determining whether "waste" is occurring. Supra, Kuykendall U. Corporation Commission, 634 P.2d at 716-717. Unitization of certain common sources of supply can provide economic efficiency that is impossible to match with the standard spacing and pooling regulations, which do not sufficiently account for the irregular shapes of reservoirs. (7) Newfield does not ask that the merits of this particular case be reconsidered, rather it asks that the Commission recognize that unitization for the purposes of employing advanced horizontal drilling technology is within its jurisdiction, provided that the particular facts of a case support the unitization. Prior to the denial of this application, Newfield was prepared to spend approximately $1 billion dollars on drilling of extended laterals on the proposed, unitized area. Newfield submits that there may be other areas where the geological, geophysical and engineering data comply with the statutory requirements for unitization. Newfield essentially requests that the Commission recognize that advanced horizontal drilling can constitute a joint Page No. 5

CAUSE CD 200902066 T/ O- NEWFIEL D effort calculated to substantially increase the ultimate recovery of oil and gas from a common source of supply. The plain language of 52 O. S. Section 287.3(a), in conjunction with the stated intent of the Legislature and past Supreme Court decisions, allows unitization in order to use advanced horizontal drilling techniques. Without knowing all fact situations which may arise in the future, this Commission should not close the door on the oil and gas industry and further applications seeking to unitize the Woodford common source of supply. THE ALJ FOUND : (1) After review of the pleadings, exhibits, and testimony presented in the evidentiary hearing regarding the application, the ALJ recommended that Respondents' Motions to Dismiss be granted. (2) Alternatively, if the Commission declines to grant the Motions to Dismiss, the application should be denied because : (1) the amended Plan will be a collateral attack on existing spacing and pooling orders in the unitized area pursuant to 52 O.S. Section 111 ; and (2) Newfield failed to meet the statutory burden of proof pursuant to 52 O.S. Section 287.1 et seq. (3) In the instant cause, the applicant failed to establish that the use of horizontal drilling efforts in the Woodford Shale below the unitized area would constitute a "joint effort calculated to substantially increase the ultimate recovery of oil and gas from the common source of supply." Newfield's witnesses use of generalizations, hypothetical examples, statistical projections, and averaging significant reservoir parameters combined to undermine the probative weight of the expert testimony presented to support findings about crucial jurisdictional factors required by the Unitization Act. (4) The Unitization Act does not permit : (1) the establishment of a field-wide unitization that proposes extraction methods, which are not part of the statutory list (pressure maintenance or repressuring operations, cycling operations, water flooding operations, or any combination thereof, or any other form of joint effort calculated to substantially increase the ultimate recovery of oil and gas); (2) any activities that diverge from the statutory list should be correctly classified as primary recovery ; and (3) the Applicant's proposed use of advanced horizontal drilling techniques in the unitized area cannot be classified as secondary recovery methods; therefore such measures cannot be determined to meet the statutory pre-requisites for unitization. (5) Newfield's geological analysis was based on the assumption that the Woodford shale possesses homogeneity across the application area. However, evidence adduced during the hearing, and information gleaned from academi c Page No. 6

sources, indicates that there is significant geological complexity in the formation. (6) It must be observed that the primary recovery of natural gas through the drilling of extended horizontal well laterals, even in excess of 5,000 feet can be achieved with irregular 640-acre drilling and spacing units. Such results are being achieved at present by Newfield and other operators in Oklahoma, through the drilling of extended horizontal well laterals on irregular 640-acre spacing units. (7) Newfield's engineering evidence failed to meet the statutory burden that the proposed "enhanced recovery" phase formula will allocate a fair, equitable, reasonable share to the undeveloped tracts. (8) In the instant cause Newfield's engineering study disclosed no information about the magnitude of stimulation either performed on existing wells or planned for future wells in the unitized area. The circumstances raised a rhetorical question regarding which element of petroleum engineering practice is more significant to the successful production of gas from horizontal Woodford Shale wells: extended laterals or high magnitude fracture stimulations? (9) The amended plan's characterization of existing wells essentially excludes them from major provisions of field-wide unitization ; therefore, Newfield's application remains a collateral attack on the existing spacing and forced pooling orders, which violates the Conservation Act's provision barring collateral attacks on such orders. (10) Based on the foregoing discussion, if the Commission determines the Motion to dismiss cannot be sustained, it is recommended that the application should be denied because of Newfield's failure to provide substantial evidence to meet the statutory burden of proof under the Unitization Act. (11) The foregoing discussion of evidence and findings about the lack of probative weight to be afforded Newfield's geological and engineering studies, supports the recommendation that the application should be denied. POSITIONS OF THE PARTIES Page No. 7

NEWFIELD 1) Gregory L. Mahaffey, attorney, appearing on behalf of Newfield, stated that in the appeal that Newfield filed to the ALJ's Report that Newfield is not requesting reversal of the ALJ's decision on the merit ruling. Newfield accepts the ALJ's decision in that the evidence presented by Newfield did not rise to the level to justify granting their unitization application. 2) Newfield believes that the ALJ implied in his reasoning that the Commission did not have broad jurisdiction to hear an unitization application that is beyond a secondary recovery. In that aspect of the ALJ's Report, Newfield would request that the ALJ be modified on that point, with the Commission supplementing the reasons given by the ALJ therein. 3) While the ALJ found that Newfield did not meet the minimum standards required under the Unitization Act, 52 O.S. Section 287.3(a), Newfield does object to the ALJ's ruling that indicates in any fashion that this Commission does not have the broad jurisdiction to consider an unitization request that is not a secondary recovery phrase. Newfield believes that the ALJ was confused about the broad statutory power that the Commission has over unitization applications. There is nothing in the Unitization Statute that references the words secondary recovery. Section 287.1 shows that the Legislature gave the Commission broad powers to provide for the unitized management, operation, further development of oil and gas properties to derive the greater recovery of hydrocarbons so as to prevent waste and protect correlative rights of all interested owners in the State of Oklahoma. The Commission can fashion orders as necessary to carry out and effectuate the purposes of the 1951 Unitization Act. Newfield points out that technological advances in well drilling such as horizontal drilling was unheard of in the 1950s. Then later the Unitization Act was amended with language that Newfield interprets that gave the Commission the broad power to oversee the current application that desired to use advanced horizontal drilling to prevent waste and protect correlative rights of the Woodford shale formation. This newer language was placed into the Act as a catch-all to enable other joint drilling efforts used to substantially increase the ultimate oil and gas recovery from a common source of supply. 4) Newfield would request that the Commission supplement the ALJ Report to show that the Commission does have the right to determine that any joint efforts in drilling techniques in a common source of supply could be allowed by the Commission to grant future unitization requests. Newfield simply believes that the ALJ got off course--see Footnote 10 on page 135 for reference. Newfield notes the ALJ's emphasis here is how and what the expert s Page No. 8

CAUSE CD 200902066 T/O - NEWFIELD determine as to whether the Commission has jurisdiction to grant the application using horizontal drilling techniques to expand the recovery of hydrocarbons. While Newfield does agree that the Unitization Act may inherently require the Commission to weight the expert witnesses' opinions as to the evidence that Newfield presented herein, Newfield believes the ALJ misapplied that in his decision. 5) The case of Spiers v. Magnolia, 244 P.2d 843 (Okl. 1952), involved a dispute among the experts over how much land should be included in the unit and whether it covers one common source of supply. The Court said the Legislature intended for the Commission to conserve the natural resources to provide for unitization of a common source of supply to protect the owners' rights therein. It entrusted the Commission through its police powers with the responsibility for the creation, supervision and control of unitization requests when perfected. Lastly, the Court concluded that the Unitization Act must be construed in its entirety. Parties in the case were trying to limit the rights of the owners. The Court discussed the Commission's jurisdiction and statutory construction. The Court deemed that the Legislature gave the Commission very broad powers in oil and gas matters for the protection of correlative rights and or the prevention of waste through lost hydrocarbons. 6) Newfield wonders if the ALJ was indicating that this Commission does not have jurisdiction to preside over an unitization application involving advanced horizontal drilling techniques for a common source of supply. This is Newfield's concern and the reason for the wording of their filed appeal. Newfield is concerned about this becoming a bar to future refiling of similar circumstances for another unitization application. 7) Newfield believes the ALJ was saying that Newfield's evidence failed to meet the requirements for the Unitization Act. The ALJ did not believe the Woodford shale common source of supply covered all 27 sections. The ALJ implied that more traditional volumetric analysis was needed as to the intricacies of the reservoir's energy. Newfield did not get into fracture stimulation. Newfield's engineering witness did not delve into the intricacies of horizontal drilling technology, which apparently the ALJ felt was needed before such application could be granted here. Newfield is greatly concerned that the Commission may be closing the door on any unitization requests involving complex advanced horizontal drilling techniques, regardless of the size of the respective unit. There may be smaller units in the future that may meet the criteria of the Unitization Act that would allow use of advanced horizontal drilling techniques. Newfield believes that the Commission is wanting to limit such granting of complex applications unless the applicant puts on an extreme amount of core data relating to porosity, permeability, water saturation, volumetric studies for gas in place, comparison of tract recoveries to othe r Page No. 9

tracts and other tests that might be warranted to demonstrate a joint effort to increase reservoir recovery of hydrocarbons. 8) Newfield reiterates it is not appealing the ALJs denial here. Newfield was concerned about the length of the laterals used in drilling horizontal wells here. At some point an operator reaches a limit in a unit where they are unable to drill to the optimum length for maximum recovery of a common source of supply. Newfield opines that there was evidence in the record to show that there was a basis for a joint effort here and that additional oil or gas would have been recovered had the application been granted. 9) Newfield's engineering witness stated that potential recovery of the wells would be an increase of 600 to 800 BCF, and the wells would be cheaper to drill. Longer laterals could be drilled, multiple wells from the same surface locations would save the surface environment use and save money. Under the current situation here the mineral owners and the working interest owners could not agree as to Newfield's development request. Newfield is merely reminding the Court of what occurred in the merit hearing. 10) Newfield points out Newfield's landman testimony had indicated that in a traditional 640-acre spacing unit a party cannot obtain an off-lease surface permit to allow maximum lateral length unless the operator has an agreement with the surface owner. The Surface Damage Act does not apply to off-lease drilling activities. Newfield believed that their unitization application would resolve such issues. Newfield thinks the ALJ felt the joint effort presented by Newfield's evidence did not rise to the level to justify the granting of the 27 section unitization request. The ALJ obviously felt that the engineering and geological data was insufficient to grant the application. Newfield would submit to the Commission that the limitation that the ALJ wants to place on the Commission, that when considering unitization, the Commission is required to look only at traditional secondary or tertiary recovery, is not supported by either statute or case law. 11) Newfield requests that the Commission keep an open mind for future applications of unitizations involving advanced horizontal drilling techniques. Newfield points out that some of the parties here claimed that more vertical wells were needed to recover the hydrocarbons. That might be a valid need here. Newfield's engineer believed that to be irrelevant as to his opinion about the Woodford shale reservoir in general. 12) Newfield does not want this current ruling here to foreclose any party, including Newfield, from filing future complex unitization requests. Newfield thinks that the Commission should determine that on a future application that an order for a unitization can be granted and allowed other than for just the traditional secondary type methods, i.e. the Commission has jurisdiction to Page No. 10

entertain an unitization application that involves any type of advanced drilling technique, via it be horizontal or some new technique yet to be invented. Newfield believes the Commission does have the authority to grant unitizations using advanced drilling techniques not mentioned specifically in the Unitization Act and request that this be placed in the order to issue. APACHE 1) Richard A. Grimes, attorney, appearing on behalf of Apache, stated that since Newfield did not appeal the ALJ's recommendations and findings properly and there is nothing here to be ruled on by the Commission. Newfield is not requesting the Commission review or reverse the ALJ's merit ruling. Simply put, Newfield is requesting that despite denial of their unitization application here, the Commission should make a special finding in the order to issue that the Commission recognizes that unitization for the purpose of employing "advanced horizontal drilling technologies" is within the Commission's jurisdiction, provided the facts support the same. Apache submits that this refers to a future unfiled application. Newfield is wanting the Commission to supplement the reasons for the denial of Newfield's request when the ALJ implied that future cases involving unitization with regard to horizontal wells might not be allowed under Section 287.1. 2) Apache asserts there is no controversy before the Commission. The ALJ ruled that Newfield failed to provide adequate evidence to support its unitization request covering the 27 sections. Newfield wished to avoid the restrictions that are imposed by Section 87.1 for primary recovery. Apache believes that Newfield tried to misuse Section 287.1 limitations. 3) Newfield is not requesting the Commission to reverse the ruling on the merits here. Newfield wants the Commission to specifically state that it will not close the door on future Woodford unitization applications. Apache submits that without a properly filed appeal, the case for Newfield is over. Jurisdiction here is unrefuted. See Puckett v. Cook, 586 P.2d 721 (Okl. 1978); Longadin v. McDuff, 251 P.2d 496 (Okl. 1951) ; Sanders v. Oklahoma Employment Securities Commission, 195 P.2d 272 (Okl. 1948) ; and Dank v. Benson, 5 P.3d 1088 (Okl. 2000). 4) Apache does not believe the Commission can issue advisory opinions. Newfield initially asked for this unitization application as to certain parties within 27 sections. Today, Newfield is asking permission for any party to be able to file future horizontal well unitization applications that relate to Sectio n Page No. 11

287.1. For the Commission to entertain a request to generally comment on its jurisdiction, Apache believes that notice to proper parties would be required. See Stewart v. Rood, 796 P.2d 321 (Okl. 1990). Apache argues that all Oklahomans would be affected if the Commission were to issue such an advisory opinion. Newfield failed to prove their case, that's all. Newfield's failure does not bar another company from filing a similar application and proving their request with better evidence. 5) Section 87.1 coexists with Section 287.1. Apache points out that Section 87.1 is not just for primary production purposes but has a specific set of legal ramifications. While the parties' competition rights in a common source of supply can be limited, these rights remain intact. Parties have property rights in the minerals, with a right to develop oil and gas. Here, under Section 87.1, these rights were restricted by following the requirements set out by the Legislature, i.e. the previous spacings and poolings created. Newfield wants more primary development here. The previous spacings and poolings created through Section 87.1 are the very restrictions and limitations that concern Section 87.1. Where a common source of supply is tied up in spacing units and/or pooling orders and evidence points that such is no longer needed due to waste of hydrocarbons, if an applicant can demonstrate proof, then the Commission can act to unitize a larger area of the common source of supply. 6) Apaches believes this is not the case here. Newfield is not saying the intricacies that the statute requires demonstrates that primary recovery of oil and gas is no longer needed to prevent waste. Newfield was not able to prove that. Newfield focused mainly on increasing the recovery of reserves, not that competition was no longer necessary. Section 287.1 says one single common source of supply shall be unitized where there is one massive supply in communication and with resulting competition causing waste to occur that a unitization application may be allowed if evidence supports it. 7) Apache filed their Motion to Dismiss the date this application was filed. Apache believes this matter is no longer about an appeal. Newfield wants to wipe the slate clean, as if the application had never proceeded to trial and no ALJ decision was ever reached. The question is what does the losing party (Newfield) appeal? The Oklahoma Supreme Court will dismiss such appeal as it will not determine abstract, hypothetical or moot questions. See Epple v. Taylor, 223 P.2d 352 (Okl. 1950). Why would the Commission even entertain an order that cannot be appealed? Newfield simply didn't have sufficient proof to satisfy the requirements of Sections 87.1 and 287.1. Newfield wants to avoid a final order confirming the ALJ's findings. Apache notes there was a major difference between primary and secondary recovery here, which did not escape the ALJ's observations. Page No. 12

8) Apache submits this appeal filed by Newfield was improper and requests it be dismissed with an order to issue in accordance with the ALJ's ruling on the merits. PANHANDL E 1) Richard K. Books, attorney, appearing on behalf of Panhandle, stated their Motion to Dismiss filed also agreed that the Commission lacked jurisdiction here. Panhandle agrees that Newfield is not appealing the ALJ's denial of their unitization application. Panhandle submits that Newfield is asking the Commission to recognize that unitization employing advanced horizontal drilling technology is within the Commission's jurisdiction, provided that the case's facts support their relief request. Panhandle notes that Newfield is not appealing the denial of the unitization request or the lack of jurisdiction by the Commission to hear the matter. Panhandle asserts that Newfield is asking for an advisory opinion or declaratory judgment that in future Commission unitization filings, the Commission has jurisdiction to grant future unitizations that plan to utilize advanced horizontal drilling technology or newer drilling technology yet realized. 2) Panhandle proposes a hypothetical situation to the Commission relevant to Newfield's alleged position here. A certain party owns minerals in Oklahoma, but not a party to the case at bar. Newfield wants the Commission to make a special finding that if the Commission unitizes this certain party in another unitization application, then Newfield can protest that the Commission has already found they have jurisdiction if the facts warrant it. Since this certain party has had the chance to litigate this issue, Newfield wishes you to predecide the issue in advance. If the evidence was proper, then the applicant will have jurisdiction on the next filing of any unitization. Panhandle submits that this would be deciding that the Commission has jurisdiction in a case that has yet to be filed, which is a advisory opinion and not allowed. 3) Panhandle believes the Court of Appeals would dismiss this. The Commission should strike this down today. Panhandle asserts there is no judiciable controversy here. In essence, Newfield is attempting to get an advance ruling to cover future unitization filings. 4) Panhandle notes that their Motion to Dismiss has been argued repeatedly over the last year several times. Panhandle adopts all those arguments made in those proceedings by all parties involved, and would incorporate such into the record for the Court to consider in its review. Page No. 13

Panhandle notes that the Commission determined that Newfield had the opportunity to have a long drawn out hearing and it resulted in their requested unitization relief being denied. Newfield acknowledges they did not appeal the ALJ's decision. Panhandle adopts those arguments as relating to the merits decision by the ALJ. 5) Panhandle submits that Newfield is asking the Commission to furnish them an advisory opinion for binding the parties in a future action. Panhandle believes this is contrary to law. It would also be a very poor choice for the Commission to adopt. Newfield has stated that if the facts of the requested relief are shown to be sufficient per the ALJ, then the unitization request here that would have utilized advanced horizontal drilling technology would have been granted. Panhandle would ask the Commission what the definition is of advanced horizontal drilling technology. The Commission has never been told exactly what advanced horizontal drilling technology refers to. 6) Newfield only mentioned that Newfield was going to have longer than normal laterals than seen in some other wells. Panhandle wonders how much longer in length Newfield was referring to. The language is not clear as to the actual number of inches or feet that the laterals would be. All the Court was told was that Newfield was going to drill "long" laterals. Panhandle wonders if a person does not understand the true meaning of advanced horizontal drilling technology then can that party request that the Commission give a blanket statement that the Commission is going to have jurisdiction to unitize formations for advanced horizontal drilling technology? If you don't know today what advanced horizontal drilling technology means, how can you say the Commission's going to have jurisdiction to unitize for advanced horizontal drilling technology? 7) Panhandle notes that Newfield discussed off-lease drilling, which is routinely done at the Commission. Panhandle asks if this type of Commission filings considered to meet the definition of enhanced horizontal drilling technology? If the answer is yes, does the Commission allow unitization every time somebody wishes to drill off-lease where the surface owner won't allow it? Newfield seems to believe that there is no need for drilling and spacing units anymore because Newfield can just unitize anytime they want to drill off lease since that appears to be what Newfield calls advanced horizontal drilling technology. 8) Newfield discussed fracture stimulation. Should Newfield get unitization every time if it is a horizontal well which gets frac'd? Does such meet the definition of enhanced horizontal drilling techniques? Will the Commission automatically say that the Commission has jurisdiction because a party wants to frac a horizontal well? Panhandle's submits that Newfield is asking the Commission to predetermine that the Commission has future jurisdiction t o Page No. 14

allow an operator to use advanced horizontal drilling techniques. Panhandle believes that should the Commission not understand what is included in the definition of advanced horizontal drilling techniques, then the Commission should not be recommending a ruling in advance that says the Commission will have jurisdiction under certain circumstances where a party requests use of that technology. Panhandle strongly believes this to be an advisory opinion and/or a declaratory judgment and is an improper route to take. 9) Panhandle observes that the parties involved in these issues had their opportunities to argue against the Motions to Dismiss on jurisdictional grounds. One of the purposes of the trial was to allow Newfield to establish jurisdiction for their requested relief. Newfield lost their case. Newfield declined to appeal the end result. Panhandle asserts that the time to decide future cases as to whether the Commission has jurisdiction over the requested relief is at the time of the hearing on that matter, not the way that Newfield is attempting to sneak in preapproval in the back door. Panhandle respectfully requests that an order be issued with Panhandle's above arguments. RESPONSE OF NEWFIELD 1) Newfield disagrees with Panhandle's and Apache's belief that Newfield is requesting an advisory opinion from the Commission. All Newfield is requesting is the Commission issue a ruling here. The ALJ did not say specifically whether or not the Commission had the jurisdiction to entertain an unitization application employing advanced horizontal drilling technology. Rather Newfield believes the ALJ erred in granting the Motions to Dismiss due to finding that the Commission had no jurisdiction to hear this case. Newfield is not appealing another unitization case, but the one at bar. 2) Newfield points out that initially Apache and Panhandle lost on their Motions to Dismiss. Well, why didn't these parties go across and file at the Supreme Court for a Writ of Prohibition. Newfield does disagree with the above parties. The evidence is otherwise. Newfield's personnel spent months looking this over prior to filing this unitization application. It was not done at the last minute. Newfield admits it lost. The evidence that Newfield opted to present was deemed inadequate by the ALJ at this point in time. Newfield submits that the data is not available at this point in time. 3) Newfield believes the Commission by granting the Motions to Dismiss has improperly interpreted both the statute and case law. Newfield submits it is not seeking an advisory opinion. There is no nonjudicial controversy here. Page No. 15

CAUSE CD 200902066 T/O - NEWFIELD This controversy already exists in this case. Newfield had to wait until the ALJ made his final ruling before filing any kind of appeal here. Accordingly when the ALJ's Report issued Newfield timely filed their appeal on the portion of the ALJ Report it disagreed with. Newfield points to no Commission rule that requires a party to appeal every aspect of an adverse ruling where the applicant loses the case. 4) Newfield has no problem with the ALJ's ruling that Newfield failed to provide substantial evidence to meet the statutory burden under the Unitization Act. Newfield did not opt to appeal those portions of the ALYs ruling. Newfield appealed the Motion to Dismiss. The Motion to Dismiss was improperly granted, as this Commission did have subject matter jurisdiction. Newfield requests the Motion to Dismiss be denied and that portion of the ALJ's ruling be reversed. 5) Newfield points out that there have been many disparaging remarks made about their application. Newfield is not a clandestine operator. Newfield fully desires to develop their acreage. The best method in Newfield's professional opinion is through their proposed unitization plan. However, that has been denied. Newfield appreciates the Commission granting them the right to put on evidence in an attempt to justify their request. While it took months to bring to trial, the actual trial time was only 8 days. Newfield's appeal only concerns this case at bar, not any future cases. Newfield asserts the Commission had subject matter jurisdiction yet was wrong to have granted the Motions to Dismiss. As far as the Motions to Dismiss ruling, part of the ALJ's basis was the Commission had no jurisdiction which Newfield believes to be an erroneous ruling. Such is not supported by either statute or case law. Due to it being fait accompli with the Commission already having heard the case, Newfield submits that part of the ALJ's ruling should be reversed. CONCLUSIONS The Referee finds the Report of the Administrative Law Judge should be affirmed. 1) 52 O.S. Section 287.3 is entitled "Matters to be Found by Commission- Requisites of Petition". The statute provides that under the Unitization Act the Commission after an application is filed has jurisdiction and must find and determine : (a) that the unitized management, operation and further development of a common source of supply o f Page No. 16

CAUSE CD 200902066 T/O - NEWFIELD oil and gas or portion thereof is reasonably necessary in order to effectively carry on pressure maintenance or repressuring operations, cycling operations, water flooding operations, or any combination thereof, or any other form of joint effort calculated to substantially increase the ultimate recovery of oil and gas from the common source of supply ;... 2) The ALJ Report of June 15, 2010 in the present cause stated in his Conclusions of Law and Recommendations : 6. In the instant cause, the Applicant failed to establish that the use of horizontal drilling methods in the Woodford Shale below the unitized area would constitute a"joint effort calculated to substantially increase the ultimate recovery of oil and gas from the common source of supply." Okl. Stat. Tit. 52 Section 287.3(a)(2009). Rather than explain the geological and engineering intricacies of the use of horizontal drilling technology in a non-conventional natural gas reservoir such as the Woodford Shale, the Newfield witnesses provided broad-brush treatment of the factual issues. The witnesses' use of generalizations, hypothetical examples, statistical projections, and averaging of significant reservoir parameters combined to undermine the probative weight of the expert testimony presented to support findings about crucial jurisdictional factors required by the Unitization Act. 3) Newfield in its appeal to the Report of the Administrative Law Judge stated that the ALJ erred in finding that the Commission did not have jurisdiction to unitize an area for the purpose of employing advanced horizontal drilling techniques. Newfield stated that it did not appeal nor is it requesting reversal of the ALJ's decision on the merit ruling. Newfield accepted the ALJ's decision in that the engineering and geological evidence presented by Newfield did not rise to the level to justify granting their unitization application. Thus, Newfield did not ask that the merits of this particular case be reconsidered but requested that the Commission recognize that unitization for the purposes of employing advanced horizontal drilling technology is within the Commission's jurisdiction, provided that the particular facts of a case support the unitization. Newfield believes that the ALJ placed a limitation on the Commission that when considering unitization, the Commission is required to look only a t Page No. 17

traditional secondary or tertiary recovery which Newfield believes is not supported by either statute or case law. 4) The Referee agrees with the ALJ that the joint effort presented by Newfield's evidence did not rise to the level to justify the granting of the 27 section unitization request pursuant to 52 U.S. Section 287.1 et seq. The Referee agrees that the engineering and geological data was insufficient to grant the application. Apache and Panhandle believe Newfield is wanting the Commission to supplement the reasons for the denial of Newfield's request when the ALJ implied that future cases involving unitization with regard to horizontal wells might not be allowed under Section 287.1 et seq. Newfield wants the Commission to specifically state that it will not close the door on future Woodford unitization applications. Panhandle and Apache assert that Newfield is asking for an advisory opinion or declaratory judgment that in future unitization filings, the Commission has jurisdiction to grant future unitizations that plan to utilize advanced horizontal drilling technology or newer drilling technology not yet realized. Panhandle and Apache submit that this would be deciding that the Commission has jurisdiction in a case that has yet to be filed, which is an advisory opinion and not allowed. Apache and Panhandle assert that Newfield has not filed a proper appeal that is justiciable. In the Supreme Court case of Dank v. Benson, 5 P.3d 1088 (Okl. 2000) the Court stated : To be justiciable Dank's claim must be suitable for judicial inquiry. This requires determining whether the controversy (a) is definite and concrete, (b) concerns legal relations among parties with adverse interests and (c) is real and substantial so as to be capable of a decision granting or denying specific relief of a conclusive nature. Petitioner's claim fails to satisfy the enunciated test in two regards. First, the petitioner's claim fails to satisfy the test's initial criterium, i.e. is the claim fixed and substantive and not of a hypothetical character. For the Court to assume original jurisdiction and to grant the requested form of relief the cause must be of sufficient immediacy and reality as to warrant the pronouncement of judgment...because no such immediacy or reality exists in the present cause, the test for justiciability remains unmet and original jurisdiction cannot be assumed. Page No. 18

5) Newfield is seeking declaratory relief and asks that such declaratory relief be given "prospective" application. Newfield's request necessarily implicates the immediacy criterium enunciated in Keating v. Johnson, 918 P.2d 51, 55 (Okl. 1996). There the Court held : [T]he present posture of the case as delivered to us by petitioners, particularly in light of their own request that we make any decision prospective to a future date to afford the Governor and Legislature time to enact curative legislation should we decide one or more of the challenged provisions are unconstitutional...appears to counsel against a determination there is any need for our immediate attention. In our view, although the question(s) presented are important, petitioners have failed to show there is some immediacy involved in this controversy that would call for this court to exercise its discretion to hear the matter at the present time. See also Puckett v. Cook, 586 P.2d 721 (Okl. 1978). 6) The Oklahoma Supreme Court has held that abstract, hypothetical, or moot questions cannot be determined. See Epple v. Taylor, 223 P.2d 352 (Okl. 1950). The Referee finds that Newfield's request for an advisory opinion or declaratory judgment in order to bind parties in a future action is contrary to law. The Referee believes that the time to decide future cases as to whether the Commission has jurisdiction over unitization for purposes of employing advanced horizontal drilling technology is at the time of the hearing on that matter, sometime in the future. RESPECTFULLY SUBMITTED THIS 22 nd day of September, 2010. PM:ac xc: Commissioner Anthony Commissioner Clou d Commissioner Murphy Patricia D. MacGuigan OIL & GAS APPELLATE REFEREE Page No. 19

CAUSE CD 200902066 T j O- NEWFIELD Jim Hamilton Keith Thomas Sally Shipley Ben Jackson Gregory L. Mahaffey Richard A. Grimes Richard K. Books Lee I. Levinson David Pepper Michael D. Stack Robert A. Miller John R. Reeves Charles L. Helm J. Fred Gist Ronald M. Barnes Valerie Michelle Evans Lou Ann Moudy Mason Mungle Benjamin F. Hackett Michael L. Decker, ALJ/OAP Director Oil Law Record s Court Clerks - 1 Commission Files ~ -..... ~ _...... Page No. 20