BEFORE THE CORPORATION COMMISSION OF OKLAHOMA

BEFORE THE CORPORATION COMMISSION OF OKLAHOMA APPLICANT: CITIZENS ENERGY II, L.LC. RELIEF SOUGHT: FORCED POOLING CAUSE CD NO. 201506 166-T/O LEGAL DESCRIPTION: SECTION 13, TOWNSHIP 9 NORTH, RANGE 6 WEST, GRADY COUNTY, OKLAHOMA APPLICANT: CITIZENS ENERGY II, L.LC. RELIEF SOUGHT: FORCED POOLING FILED JUN 272016 COURT CLERKS OFFICE - OKC CORPORATION COMMISSION OF OKLAHOMA CAUSE CD NO. 201506 167-Tb LEGAL DESCRIPTION: SECTION 24, TOWNSHIP 9 NORTH, RANGE 6 WEST, GRADY COUNTY, OKLAHOMA VACATE ORDERS AND TO REOPEN The Motions to Vacate Orders 652804 and 653111 and to Reopen Causes came on for hearing before Michael L. Decker, Administrative Law Judge, Monday, June 20, 2016, and Monday, June 27, 2016, on the Oil and Gas Conservation Motion Docket in Courtroom C, Jim Thorpe Building, Western Regional Service Office, Oklahoma Corporation Commission, Oklahoma City, Oklahoma. At the time of the hearing, Gregory L. Mahaffey, attorney, appeared for Gaedeke Holding IV, LTD, and Gaedeke Oil & Gas Operating, L.L.C. (Gaedeke or Movant); Richard A. Grimes, attorney, appeared for Mid-Continent II, LLC, Linn Energy Holdings, LLC and Linn Operating, Inc. (Linn or Protestant); William H. Huffman, attorney, appeared for Citizens Energy II, L.L.C. (Citizens); Robert A. Miller, attorney, appeared for Marathon Oil Company (Marathon); and David E. Pepper, attorney, appeared for EOG Resources.

CAUSE CD NO. 201506166 -Tb SUMMARY OF THE MOTION PROCEEDINGS 1. On Monday, June 20, 2016, and Monday, June 27, 2016, the Motions to Vacate Orders and to Reopen Causes were presented as protested motions on the Oklahoma City Oil and Gas Conservation Motion Docket. The Motions were filed in CD 201506166-T/O and CD 201506167-T/O pursuant to OAC 165:5-17-1.' At the conclusion of the hearing on June 20, 2016, the Movant's counsel requested the orders pursuant the Motions be made effective as of June 20, 2016. 2. The Movant presented Al Swanson, petroleum land manager, who testified the Movant retained him to check title and develop the prospects for the 640 acre spacing units comprised of Sections 13 and 24, 9N-6W, Grady County, Oklahoma. The Forced Pooling Orders 652804 and 653111 pertain to the Woodford common source of supply in each unit. The Movant is interested in drilling multiunit horizontal Woodford wells in the sections. The two (2) pooling applications were heard together in April and May, 2016 by ALJ David Leavitt as unprotested causes, presented last on May 10, 2016. Marathon was dismissed from both applications because of the existence of Joint Operating Agreements (JOAs) pertaining to each section. Each order provides for a change of operator designation after 305 days, shifting the unit operatorship from Linn to Citizens for the balance of the 365 day term of the orders. "165:5-17-1. Within 10 days; motion (a) Within ten (10) days after an order of the Commission is entered, any person may file a motion for rehearing, or a motion to set aside or to modify the order, or for any other form of relief from the order. However, a motion to reopen the record after an order has been entered shall not be considered a proper motion to seek relief from the order. The motion shall specifically state: (1) The parts or provisions of the order sought to be set aside or modified or from which relief is sought. (2) The specific modifications or other relief sought by the motion. (3) The specific grounds relied upon for relief. (b) Such motion shall be set for hearing before the Commission, unless referred. A copy of the motion, including notice of the date set for hearing, shall be served by the movant on each party of record by regular mail, facsimile, electronic mail or in person. If any motion filed pursuant to this Section is placed on the emergency or regular docket for hearing, the movant shall give at least five (5) days written notice to all respondents listed on the affidavit of mailing and all parties of record." 2

CAUSE CD NO. 201506166 Tb The Motions were filed on May 31, 2016 and June 11, 2016, for the respective orders, and notice of the Motions was provided to all owners impacted by the orders. The Motions seek to reopen the applications for presentation of evidence not available at the time of hearing, that being facts concerning the May 11, 2016 filing of Chapter 11 Bankruptcy by the Protestants in Federal Bankruptcy Court in Texas. A transcript of the May 10, 2016, hearing before AU Leavitt was reviewed by the witness. It indicated there was no testimony provided to AW Leavitt regarding the Protestant's plan to file Chapter 11 bankruptcy on May 11, 2016. The facts surrounding the Protestant's bankruptcy should be considered a change of condition since the dates of Orders 652804 and 653111 justifying the vacation and modification of the orders. The Movant presented Exhibits A through E in each application, identified as the applications and pooling orders, and exhibits pertaining to the JOAs affecting the units and steps taken by working interest owners under the JOAs (including Marathon and Gaedeke) to achieve removal of the Protestant as operator of the units. Mr. Grimes objected to the exhibits concerning the JOAs and JOA operator removal dispute. Mr. Mahaffey questioned the witness to establish a foundation for the offer of the JOA-related documents by Mr. Swanson. Mr. Swanson had obtained the JOA-related documents from the business records of Marathon, which had provided the materials for his review. Exhibit C in each cause consisted of excerpts from the JOA for the respective units. Exhibits D and E in each cause consisted of correspondence relating to the demand by Marathon and the Movant that the Protestant be removed as unit operator under the terms of the JOAs. Mr. Grimes contended the witness was not qualified to offer opinions about the terms of the JOAs and elections for removal of operator under the JOAs. Mr. Mahaffey countered that the 0CC could inquire into its jurisdiction to weigh the impact of a JOA upon operator designations pursuant to spacing and pooling orders. The AU overruled the objections and accepted the Exhibits C though E. Mr. Grimes 9

CAUSE CD NO. 201506166 Tb requested a continuing objection be recorded concerning all the JOArelated exhibits and any questions about the JOAs and JOA-related matters involving unit operator designation. Under further direct examination, Mr. Swanson pointed attention to the language in each JOA (Exhibit C in each cause) found in Paragraph B.1 regarding the effect of bankruptcy upon the operator designation for the impacted units. Mr. Grimes' renewed objections regarding the Paragraph B. 1 language were overruled by the AU. Next, the witness discussed the working interest ownership under each JOA and the changes which had occurred since 1997-98 regarding ownership in the units. With respect to Section 13 ownership, Marathon controls 52% of the working interest, of which it had assigned 30% to the Movant. Concerning the leasehold ownership, Gaedeke owns 15.84%, Marathon owns 36.96%, Linn owns 41.71%, Citizens owns 2.34%, and miscellaneous entities own 3%. With respect to Section 24 ownership, Gaedeke owns 14.95%, Marathon owns 34.89%, Linn owns 32.03%, Citizens owns 6.25%, and 12% is owned by miscellaneous entities. With respect to the working interest calculation for the proposed multiunit horizontal Woodford well planned for Sections 13 and 24, 9N-6W, Grady County, Oklahoma, Gaedeke/Marathon control 51.3281% compared to Linn's 36.875% and 11.79% held by Citizens and other owners. Mr. Swanson was asked to identify the Exhibits D and E offered in each application, which consisted of the correspondence between Marathon, the Movant, and the Protestant concerning election of new operators for Sections 13 and 24 pursuant to the terms of the JOAs. Mr. Grimes' renewed objections to the admission of the exhibits were overruled. Mr. Swanson explained, that consistent with the JOA demands, Marathon and the Movant want to see the designation of the Movant as operator of Sections 13 and 24, 9N-6W, Grady Count, Oklahoma under the pooling orders. Excluding the Protestant's ownership of 41% in 13 and 36% in 24, approximately 90% of the working interest in 13 and 70% of the working interest in 24 support the designation of the Movant as operator in the subject spacing units.

CAUSE CD NO. 201506166 Tb CAUSE CD NO. 201506167-T/O 3. Under cross-examination by Mr. Grimes, the witness indicated the Movant entered into an agreement with Marathon to assume working interest ownership in the sections on June 1, 2016. Mr. Swanson agreed Marathon is not subject to Orders 652804 and 653111, because it was dismissed from both forced pooling applications. The Movant's interest in each section is limited to the interest it obtained from Marathon; therefore, the Movant is not subject to Orders 652804 and 653111. The Movant had not filed any applications for 0CC relief. At this point, Mr. Grimes questioned the standing of the Movant to pursue the motions in the instant applications. Mr. Mahaffey argued that the Movant has standing to seek an 0CC remedy under OKLA. STAT., tit. 52, Section 87.1 and other provisions in Title 52 as an owner in the Woodford common source supply. Mr. Grimes challenged the assertion of the Movant's standing, because it does not own an interest affected by the forced pooling orders. The Movant could not enter into the forced pooling order proceedings without ownership of an interest affected by Orders 652804 and 653111. Mr. Swanson stated the Movant should have been named as a respondent to the pooling applications even though Marathon's interest is subject to the JOAs and not the forced pooling orders. Mr. Grimes contended the exhibits admitted into evidence pertain to elections under the JOAs to designate unit operator and have no relevance to Orders 652804 and 653111. The Motions were filed based on an interest not subject to the forced pooling orders. Mr. Swanson testified the Movant acquired 30% of Marathon's Woodford interest in Sections 13 and 24, 9N-6W, and would control 100% of the Woodford rights in the any new wells drilled in the sections. Mr. Swanson agreed Marathon had not objected to its dismissal from the forced pooling proceedings. Also, the witness was not aware that on May 17, 2016, Marathon had elected to the Protestant to participate under the terms of the JOAs. Thus, Marathon had not objected to designation of the Protestant as operator alter the bankruptcy, when it elected to participate pursuant to the JOAs. Mr. Swanson was not aware the Protestant considers the Marathon assignment the Movant to be a violation of the uniformity of ownership provision in each JOA. 5

CAUSE CD NO. 201506166 Tb 4. Under redirect-examination by Mr. Mahaffey, Mr. Swanson stated that both the Protestant and Marathon are subject to the JOAs. The original pooling orders in Sections 13 and 24, 9N-6W, Grady County, Oklahoma, had not covered the Woodford. Recent mineral leases had been taken in the units covering Woodford rights only. The original forced pooling orders for Sections 13 and 24 had issued in 1997-98 and had not covered Woodford rights. The witness disputed the idea that EOG owns any Woodford rights in the units. Western Oil and Gas Co. had acquired rights from any non-pooled Woodford interest owners in the sections, and these interests were assigned to Marathon. The witness contended the Movant should not be required to file its own pooling applications when it could reopen the instant causes and seek unit operations. Mr. Mahaffey offered Exhibit F, identified as the transcript from the May 10, 2016, hearing before ALJ David Leavitt. Exhibit F was accepted. 5. In conclusion, Mr. Mahaffey stated the Movant had complied with the provisions of OAC 165:5-17-1. The Movant requested that the original ALJ be allowed to consider evidence about the changed conditions created by the Protestant's bankruptcy and the demand of working interest owners in Sections 13 and 14, 9N-6W that the Protestant be removed as unit operator pursuant to the JOAs. AU Leavitt was not told about the Protestant's plan to file bankruptcy. The majority of working interest owners in the sections requests a change in unit operator. 6. In response, Mr. Grimes argued the Movant has no standing to bring the Motions. The forced pooling orders establish the relationships of parties that can assert standing to challenge the orders. The Movant is bound by the JOAs; therefore the Marathon/Gaedeke interests are subject to private contracts and are not interests covered by the forced pooling orders. No parties covered by Orders 652804 and 653111 have moved to vacate them. The evidence the Movant and Marathon seek to submit concerns JOA disputes over which the 0CC has no jurisdiction to consider in a forced pooling proceeding. The operatorship issue is not a matter the 0CC can determine. 7. Mr. Mahaffey stated the standing of the Movant is derived from ownership of a mineral interest in the Woodford common source of

CAUSE CD NO. 201506166 -Tb supply. The decision of Spaeth v. Corporation Commission 2 supported the Movant's claim to standing to bring its request for relief. The Movant could not bring its own forced pooling application, since there could be only one forced pooling order covering Woodford rights in each of the spacing units. The JOA operator disputes demonstrate that a majority of the working interest owners want a change in operator for the two (2) units. Mr. Mahaffey requested the effective date of the orders vacating Orders 652804 and 653111 and reopening the causes be established as June 20, 2016. Mr. Grimes indicated on June 20, 2016, he would not offer any comment regarding the legality of the request for a June 20, 2016, effective date, if the Motions are recommended, but would reserve argument pending the AL's decision. 8. The AU raised concerns about the impact of the automatic stay provision in the Federal Bankruptcy Code 3 on the instant proceedings. Mr. Mahaffey indicated knowledge of a past unpublished decision of the Oklahoma Court of Civil Appeals 4 dealing with the application of the Bankruptcy Code's automatic stay provision in oil and gas conservation matters adjudicated at the 0CC. He requested time to seek out a copy of the document to provide to the Protestant and the AU. The AU continued the hearing to June 27, 2016. Later on June 20, 2016, Mr. Mahaffey provided a copy of the OCCA's unpublished decision to the Protestant's counsel and the AU. Additionally, the ALJ provided the parties with copies of the United States 5th Circuit Court of Appeals' decision in In re Halo Wireless, Inc.-5 The Halo decision concerns the applicability of the regulatory agency proceeding police power exception, provided in the Bankruptcy Code, 6 to 2 1979 OK 65, 597 P.2d 320. 11 U.S.C. 362(a). "TGX Corp. v. Corporation Commission, Ok. Sup. ct. No. 77,880 (unpublished decision, July 28, 1992). Halo Wireless, Inc. u. Alenco Communications, Inc. (In re Halo Wireless, Inc.) 684 F.3d 581 (5 1h Cir., 2012). 611 U.S.C. 362(b)(4). 7

CAUSE CD NO. 201506166 Tb adjudications involving public utility companies in several state public service commissions. 9. On June 27, 2016, the parties announced no need for further argument. Mr. Mahaffey filed a legal memorandum regarding the bankruptcy automatic stay issue, to which Mr. Grimes indicated no desire to respond. The AW opened the record to announce the oral recommendation as summarized below. The written summary of the oral recommendation to grant the Motions in part and to deny the Motions in part would be filed on June 27, 2016. FINDINGS AND RECOMMENDATIONS After consideration of the Motions, testimony, exhibits, and arguments of counsel, the AW recommends as follows: 1. The AW recommends that the Motions filed by the Movant, should be GRANTED IN PART AND DENIED IN PART. The Motions should granted to permit the rehearing of the two (2) pooling applications for the limited purpose of informing the initial AW about the Chapter 11 bankruptcy filing made by the Protestant on May 11, 2016. The Motions should be granted for consideration of any modification of Orders 652804 and 653111 to ensure the operator will take proper steps to safeguard the funds of working interest owners that elect to participate and tender drilling costs for the well(s) proposed under the terms of the orders. Also, inquiry should be made regarding the operator's efforts to secure the proper payment of bonus and royalty to owners that elect to not participate in the well(s) proposed under the terms of the orders. The Motions should be denied regarding the request that Orders 652804 and 653111 be vacated, and regarding any effort to gain the present change of operator pursuant to the orders. The change of operator issue is the subject of JOAs disputes, over which the 0CC has no jurisdiction to adjudicate at the present time. 2. Based upon the evidence and the arguments of the parties presented on June 20, 2016, the AU recommends the finding that the Motions were filed timely within ten (10) days of the issuance of Orders 652804 and 653111. The Movant should be deemed to have standing the file the Motions pursuant to 0CC Rules of Practice, OAC 165:5-17-1.

CAUSE CD NO. 201506166 -Tb CAUSE CD NO. 201506 167-Tb The testimony shows the Movant is an owner of a mineral interest in the Woodford common source of supply, and thus has standing to file applications and motions requesting relief with the 0CC pursuant to OKLA. STAT., tit. 52, Section 87.1. 7 Moreover, pursuant to statute, the Movant is a "person affected by a legislative or administrative order. of the 0CC, which "... shall have the right at any time to apply to the Commission to repeal, amend, modify, or supplement the same." 8 3. The effective date of June 20, 2016, for the orders granting rehearing and consideration of modification should be granted as requested by the Movant. Regardless of the request for a June 20, 2016, effective date, the determination is recommended that the 0CC does not lose jurisdiction to over pertinent issues concerning a forced pooling order through the passage of the thirty (30) day appeal time. OKLA. STAT., tit. 52, Section 87.1 and the 0CC Rules of Practice provide for the OCC's continuing jurisdiction to review forced pooling orders concerning several issues, i.e., redetermination of well costs or the extension of time of the primary term of the order. Forced pooling orders remain in effect for the term established in each order, or when extended after proper notice and hearing; therefore, the 0CC maintains continuing jurisdiction to consider amendment or modification of an order pursuant to OKLA. STAT., tit. 52, Section 112, and 0CC Rules of Practice, OAC 165:5-17-1 and 165:5-17-2. It is customary that the order provides the initial payment of bonuses is not required until thirty-five (35) days following the issuance of the order, which is requirement of the instant orders. Thereafter, the operator remains liable for the payment of bonuses beyond the term of the order. Also, in the case of Orders 652804 and 653111, the payment of well costs is tied to notice of spud provisions, 9 which perhaps will not become effective until well beyond the appeal time. Such factors are indications that the 0CC retains continuing authority over certain aspects of an operator's performance under a forced pooling order beyond the thirty (30) day appeal period. ' See Spaeth v. Corporation Commission, 1979 OK 65, 597 P.2d 320, at 112-3. ' OKLA. STAT., tit. 52, Section 112. See Orders 652804 and 653111, Paragraphs 6.1 at Page 2 of each order.

CAUSE CD NO. 201506166 -Tb 4. The Motions should be granted for rehearing of the applications for the limited purpose of informing the initial AU about the Chapter 11 bankruptcy filing made by the Protestant on May 11, 2016. The Motions should be granted for consideration of any modification of Orders 652804 and 653111 to ensure the operator will take proper steps to safeguard the funds of working interest owners that elect to participate and tender drilling costs for the well(s) proposed under the terms of the orders. Also, inquiry should be made regarding operator's efforts to secure the proper payment of bonus and royalty to owners that elect to not participate in the well(s) proposed under the terms of the orders. The Oklahoma Supreme Court has long held that the 0CC is empowered to take steps in a forced pooling proceeding to ensure the financial security of the operator with relation to working interest owners that elect to participate in proposed wells and tender well costs to an operator under the terms of an order.' In the instant applications, the facts regarding the Protestant's bankruptcy should be provided to the initial AU, so consideration can be given to whether the working interest and royalty interest owners are protected pursuant to Orders 652804 and 653111. The Motions should be denied regarding the request that Orders 652804 and 653111 be vacated, and regarding any effort to gain the present change of operator pursuant to the orders. The change of operator issue is the subject of JOA disputes, which the 0CC has no jurisdiction to adjudicate at the present time. It is apparent from the transcript of the May 10, 2016, hearing before AUJ Leavitt that Marathon was dismissed from the application because the drilling of the wells in question for Sections 13 and 24, 9N-6W, Grady County, Oklahoma, would be"... under the terms of the JOA that's in place." The facts regarding the Protestant's bankruptcy can be provided without any need to review the JOAs and the status of the dispute regarding the operator of the units under the terms of the JOAs. The JOA disputes regarding election of a replacement operator are private disputes beyond ' Superior Oil Co. v. Corporation Commission, 1952 OK 123, 242 P.2d 454, 206 Okla 213, at 1J 20-21. See Exhibit F, Transcript of Proceedings, (May 10, 2016) Lines 1 and 2, page 25. 10

CAUSE CD NO. 201506166 -T/O CAUSE CD NO. 201506167-T/O the jurisdiction of the OCC.12 Once the JOA operator disputes are resolved, the Movant can file the appropriate 0CC applications to change the operator designation under Orders 652804 and 653111, if such actions are necessary. 5. The impact of the automatic stay provided in the Federal Bankruptcy Code 13 should be determined by the 0CC to fall within the regulatory agency proceeding exception of the same provision of the Code. 14 The forced pooling process provided in OKLA. STAT., tit. 52, Section 87.1 is an exercise of the OCC's statutory police power. 15 The determination of "just and reasonable" terms for participation by working interest owners pursuant to a forced pooling order, the designation of unit operator, and the arrangements for ensuring the financial security of the operator to working interest and royalty interest owners under the terms of a forced pooling order, are fully within the public policy test supporting the applicability of the regulatory agency proceeding exception to the Bankruptcy Code's automatic stay provision. 16 If an order of the appropriate bankruptcy court is needed to finally determine the applicability of the regulatory agency proceeding exception to the instant forced pooling matters, the 0CC should request that the parties to take steps to obtain such an order. 12 See Leede Oil & Gas, Inc. v. Corporation Commission, 1987 OK 117, 747 P.2d 294; Samson Resources Co. v. Corporation Commission, 1988 OK 31, 702 P.2d 19; and Hadson Petroleum Corp. v. Jack Grynberg & Associates, 1988 OK 100, 763 P.2d 87. Dii U.S.C. 362(a). ' d ii U.S.C. 362(b)(4). ' 5Patterson v. Stanolind Oil & Gas Co., 1938 OK 138, 77 P.2d 83, 182 Okla. 155; amd Anderson v. Corporation Commission, 1957 OK 39, 327 P.2d 699. 16 Halo Wireless, Inc. v. Alenco Communications, Inc. (In re Halo Wireless, Inc.), 684 F. 3d 581 (5 th Cir., 2012). The Movant filed a legal memorandum on June 27, 2016, which supported the interpretation that the regulatory agency proceeding exception to the Bankruptcy Code's automatic stay should apply to the instant applications and motions. 11

CAUSE CD NO. 201506166 Tb CAUSE CD NO. 201506167-T/O RESPECTFULLY SUBMITTED TI 1SZ7'DAY OF JUW. 2016. / Michael L. Decker Administrative Law Judge MLD:sm xc: Commissioner Anthony Commissioner Murphy Commissioner Hiett ALJ Patricia MacGuigam ALT Michael Decker Gregory L. Mahaffey Richard A. Grimes Robert A. Miller David E. Pepper William H. Huffman Office of General Counsel James Myles Oil Law Records Court Clerks - 1 Commission Files 12