March 8, 2017 Hand Delivery Arkansas Oil and Gas Commission Mr. Lawrence E. Bengal, Director Mr. Shane Khoury, Deputy Director, General Counsel 301 Natural Resources Drive, Suite 102 Little Rock, AR 72205 Re: DOCKET REFERENCE NO. 024-2017-03 Application of SWN Production (Arkansas), LLC, for Integration of Unleased Mineral interests in a unit described as Section 36, Township 10 North, Range 10 West, Cleburne County, Arkansas, as to those depths below the base of the Fayetteville Shale Formation only; proposed Whitehurst 10-10 #9-36H30 Commissioners: SWN Production (Arkansas), LLC, 10000 Energy Drive, Spring, TX 77389 ( Applicant ), hereby applies to the Arkansas Oil and Gas Commission for integration of unleased mineral interests in the referenced drilling unit, as more particularly described below. I. Unit Background 1. The drilling unit is a governmental section containing 640 acres, more or less. Pursuant to AOGC Rule B-43, the unit is an established unit as defined in paragraph (f), and is located within the section (c) lands. Applicant states that this unit was first integrated by the Commission in Order Reference No. 362-2010-05. 2. Applicant states that existing wells within the unit are producing from the Fayetteville Shale Formation and Applicant is the approved Operator of the unit. However, the unleased mineral owners whose interests are sought to be integrated by this application are subject to oil and gas leases that have expired as to depths below the base of the Fayetteville Shale Formation. Applicant proposes to drill a horizontal well from a surface location in the Northeast Quarter of Section 36, Township 10 North, Range 10 West, down to a bottom-hole location in the Northwest Quarter of Section 30, Township 10 North, Range 9 West. The proposed well will be drilled to test the Moorefield Shale Formation, with a true vertical depth of approximately 4,313 feet, a lateral length of 7,096 feet, and a total measured depth of approximately 11,744 feet.
PPGMR LAW, PLLC SWN Production (Arkansas), LLC Docket # 024-2017-03 3/8/2017 Page 2 3. The proposed well for purposes of this integration is a cross-unit well. Authorization to drill and produce the cross-unit well will be applied for administratively by the Applicant pursuant to Rule B-43(i)(5). 4. Applicant states that it is in the best interest of conservation and the protection of correlative rights of all interested parties that the proposed unit be developed for oil and gas production without undue delay. 5. Applicant has obtained one or more oil and gas leases covering its proposed drill site. II. Integration of Unleased Mineral Owners 6. Applicant owns oil and gas leases covering a substantial part of the proposed unit. Applicant is the current operator of the unit and should be named as operator of the well. The person or persons to be integrated are shown on Exhibit A. 7. Applicant states that it has made repeated efforts to identify and locate the unleased mineral interest owners; that those owners have been offered an opportunity to participate in the proposed well; that they have been offered a fair and reasonable bonus consideration and royalty rate for the execution of an oil and gas lease covering their interests; that Applicant has furnished, or offered to furnish, a proposed oil and gas lease and a copy of the Commission-approved operating agreement in force for this unit in connection with the drilling of said well; but that all of the efforts of the Applicant have produced no agreement between Applicant and the unleased mineral owners listed on Exhibit A. 8. Applicant requests that the Arkansas Oil and Gas Commission set this matter for public hearing, and after same, issue its order, in the alternative, that: a. The owners of the unleased mineral interests identified in this Application shall execute and deliver to Applicant a one-year oil and gas lease, on the Commission-approved lease form, for a bonus consideration of $100.00 per net mineral acre to be paid as fair and reasonable compensation in lieu of the right to participate in the working interest in said unit, and that said oil and gas lease provide for a royalty of 1/8 on oil and gas, and that said lease apply only as to depths not presently covered by the existing oil and gas lease covering the interest of each such owner as to all existing unit production; or b. The owners of the unleased mineral interests identified in this Application shall execute and deliver to Applicant a one-year oil and gas lease, on the Commission-approved lease form, for a bonus consideration of $0 per net mineral acre to be paid as fair and reasonable compensation in lieu of the right to
PPGMR LAW, PLLC SWN Production (Arkansas), LLC Docket # 024-2017-03 3/8/2017 Page 3 participate in the working interest in said unit, and that said oil and gas lease provide for a royalty of 1/7 on oil and gas, and that said lease apply only as to depths not presently covered by the existing oil and gas lease covering the interest of each such owner as to all existing unit production; or c. The owners of the unleased mineral interests identified in this Application shall be force-pooled and integrated into the captioned unit as to depths not presently covered by the existing oil and gas lease covering the interest of each such owner as to all existing unit production, with assessment of a reasonable risk factor penalty against their interest (non-consent option); or d. The owners of the unleased mineral interests identified in this Application shall participate in the cost of drilling, testing and completion of the well to be drilled by Applicant on the captioned unit, subject to the terms of the uniform modified AAPL Operating Agreement and attachments adopted by the Commission, and authorization for expenditures proposed by Applicant. 9. The unleased mineral owners identified in this Application should be required to elect within fifteen (15) days after issuance of the Commission's order which method will be pursued in the development of the unit, with respect to their interest, and, in the event no election is made, those unleased mineral owners shall be deemed to have elected the non-consent option at 400% for all wells that may be completed at depths not presently covered by the existing oil and gas lease covering the interest of each such owner. 10. Due to the risks and costs inherent in the drilling of the proposed well, the Commission should fix a reasonable risk factor to be assessed as a penalty against the integrated interests within the unit. Applicant proposes a risk factor of 400% for the proposed well and 400% for all subsequent wells. The risk factor should be applied to the proportionate cost and expense of drilling, completing and equipping the well, which would have been borne by the interest of said parties had they participated. 11. Applicant further requests that this Commission's order specifically provide that any party electing either to participate or be force pooled subject to recoupment of a risk factor penalty be bound by the terms of the Commission-approved Joint Operating Agreement already in force covering the unit (pursuant to Order No. 362-2010-05), for the life of commercial production within the unit so that all future unit operations might be proposed pursuant to the provisions of such agreement without the necessity of further action by this Commission. 12. Applicant further requests that the Commission consider testimony and documentary evidence, and make a determination of a reasonable royalty rate consistent with the royalty negotiated for leases made at arm s length in the general area during the relevant period for limited oil and gas leases restricted to depths below the Fayetteville Shale. Applicant further
PPGMR LAW, PLLC SWN Production (Arkansas), LLC Docket # 024-2017-03 3/8/2017 Page 4 requests that leasehold royalty to be paid directly to integrated mineral owners be limited to the fair and reasonable rate determined by the Commission under the following circumstances: a) an uncommitted working interest owner is or becomes subject to this integration (either directly or as successor to an unleased mineral owner being integrated); and b) the applicable oil and gas lease represents a non-arm s-length transaction involving affiliated parties; and c) the uncommitted working interest owner elects, or is deemed to have elected, to go non-consent. Applicant requests that during the recoupment period, under the circumstances described in this paragraph, leasehold royalty payments due from the operator be limited to the fair and reasonable rate determined by the Commission, and that any excess royalty be the responsibility of the applicable lessee. 13. Applicant requests that the resulting Order of the Commission be made applicable to any unknown spouse, heir, devisee, personal representative, successor or assign of all parties subject to the Order. 14. Notice has been or will be given to the interested parties identified in this Application in accordance with the rules of the Arkansas Oil & Gas Commission. Proof of publication of the Notice will be submitted at the hearing. 15. Below is a list of Exhibits attached to this Application, which Applicant requests be made a part of the record of this proceeding: A. List of Interested Parties B. Resume of Efforts C. Authorization for Expenditure D. Geologist Affidavit E. Structure Map F. Isopach Map G. Topographic Map H. Affidavit of Notice to Interested Parties (executed copy to be submitted at hearing) I. Proof of Publication (to be submitted at hearing; notice copy attached)
PPGMR LAW, PLLC SWN Production (Arkansas), LLC Docket # 024-2017-03 3/8/2017 Page 5 Please note the appearance of G. Alan Perkins, PPGMR Law, PLLC, P.O. Box 251618, Little Rock Arkansas 72225-1618, on behalf of Applicant. Respectfully Submitted, PPGMR LAW, PLLC G. Alan Perkins Attorneys for SWN Production (Arkansas), LLC GAP/nf Encl.
Exhibit A Docket # 024-2017-03 RE: SWN Production (Arkansas) LLC Integration Application Section 36, T 10 N, R 10W Cleburne County, AR UNLEASED/NON OPTIONED MINERAL INTEREST OWNERS James K Brown and Judith A Brown
DATE: January 26, 2017 Exhibit B Docket # 024-2017-03 NAME OF OWNER: James K Brown and Judith A Brown DESCRIPTION: SECTION 36: TOWNSHIP 10 NORTH, RANGE 10 WEST DESCRIPTION OF EFFORTS 1/27/2017 Confirmed contact information and attempted to call. There was no voicemail set up and could leave no message. 1/30/2017 Attempted to call and again. No answer and no voicemail. 2/10/2017 Searched various subscription sited and located a possible number of 501-362-2837. This number was disconnected. 2/15/2017 Hand delivered a lease offer letter to the residence that included a request for contact. 2/27/2017 Performed a Lexis/Nexis search and found no new information. 3/2/2017 Prepared a lease packet with the terms of $100/NMA and 1/8 th Royalty. Mailed lease packet with a letter requesting to sign and return the lease or call with questions. 3/7/2017 Mailed well proposals for the Whitehurst 10-10 9-36H30 and Whitehurst 10-10 10-36H25.
Exhibit C
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STATE OF ARKANSAS ) ) COUNTY OF PULASKI ) EXHIBIT H BEFORE THE ARKANSAS OIL & GAS COMMISSION KNOW ALL MEN BY THESE PRESENTS: AFFIDAVIT OF NOTICE TO INTERESTED PARTIES COMES NOW NICOLE FRAZIER, Affiant herein, who after being by me duly sworn, states on oath as follows, to-wit: 1. I, NICOLE FRAZIER, am the assistant to G. Alan Perkins, who has been retained to represent SWN Production (Arkansas), LLC (Applicant) before the Arkansas Oil & Gas Commission at the March 28, 2017 hearing in Little Rock, Arkansas, to be heard in connection with the following matter: Re: DOCKET REFERENCE NO. 024-2017-03 Application of SWN Production (Arkansas), LLC, for Integration of Unleased Mineral interests in a unit described as Section 36, Township 10 North, Range 10 West, Cleburne County, Arkansas, as to those depths below the base of the Fayetteville Shale Formation only; proposed Whitehurst 10-10 #9-36H30 2. I hereby certify that a true and correct copy of the Notice attached hereto has been placed in the United States Mail, postage prepaid, on or before the day of March, 2017, addressed to each of the parties named in the Application as Interested Parties, Exhibit A. 3. This Affidavit is made and executed based upon my own personal knowledge. FURTHER Affiant sayeth not. NICOLE FRAZIER SUBSCRIBED AND SWORN to before me, a Notary Public, on this day of March, 2017. Notary Public My Commission Expires:
EXHIBIT I NOTICE NOTICE IS HEREBY GIVEN that SWN Production (Arkansas), LLC (Applicant), has filed an Application for Integration of Unleased Mineral interests in a unit described as Section 36, Township 10 North, Range 10 West, Cleburne County, Arkansas, as to those depths below the base of the Fayetteville Shale Formation only; proposed Whitehurst 10-10 #9-36H30. The Commission-assigned Docket Number for the Application is: Docket Number: 024-2017-03 Applicant requests that said Order be made applicable to the following parties, successor or assigns of the following parties: UNLEASED/NON OPTIONED MINERAL INTEREST OWNERS James K Brown and Judith A Brown NOTICE IS FURTHER GIVEN that said application will be heard by the Arkansas Oil and Gas Commission at a public hearing commencing at 9:00 am on March 28, 2017, or as soon thereafter as possible, to be held at the Arkansas Game and Fish Commission, #2 Natural Resources Drive., Little Rock, Arkansas 72205. Due to the length of some docket items, the hearing may continue into the following day. Contact information for Oil & Gas Commission offices is as follows: El Dorado ofc: 2215 West Hillsboro, El Dorado, AR 71731-1472; ph. 870-862-4965. Fort Smith ofc: 3309 Phoenix Avenue, Ft. Smith, AR 72093; ph. 479-646-6611. Little Rock ofc: 301 Natural Resources Dr., Ste 102, Little Rock, AR 72205; ph. 501-683-5814. Please use the appropriate docket number in any inquiries to the Commission concerning this matter. Inquiries should be directed to Alan York, Commission Attorney, at the Little Rock address, or by e-mail at objections@aogc.state.ar.us. Any parties who propose to oppose a filed application, shall notify, in writing, or via e-mail at objections@aogc.state.ar.us, the Hearing Officer or Director of the Arkansas Oil and Gas Commission no later than the close of business on the Friday before the scheduled public hearing date indicated on the Hearing Agenda.