RAILROAD CoMMIssIoN OF TEXAS

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1 HEARINGS DIVISION RAILROAD CoMMIssIoN OF TEXAS RYAN SITTON, COMMISSIONER WAYNE CHRISTIAN, COMMISSIONER APPEARANCES: RECORD CLOSED: CONFERENCE DATE: HEARING DATE: Jennifer Cook HEARD BY: Karl CaIdwell CHRISTI CRADDICK, CHAIRMAN RANDALL 0. COLLINS, DIRECTOR OIL AND GAS DOCKET No THE APPLICATION OF NORTH SOUTH OIL, LLC TO AMEND THE FIELD RULES FOR THE LULING BRANYON FIELD, CALDWELL AND GUADALUPE COUNTIES, TEXAS Technical Administrative 1701 NORTH CONGRESS AVENUE * POST OFFICE BOX * AUSTIN, TEXAS * PHONE: * FAx: 512I TDD OR TOY AN EQUAL OPPORTUNITY EMPLOYER within designated interval for Luling-Branyon Field shall permit wells b. Operators with ownership of deep rights below a horizontal severance interval shall permit wells under Field ID Number shallow rights above a horizontal severance of ownership within that same designated interval for Luling-Branyon Field AND operators of a. Operators of tracts with no horizontal severance of ownership within individual ownership as follows: Branyon Field has been divided horizontally, operators shall have right to develop Where ownership of oil and gas within designated interval for Luling proposes following field rule amendment for Luling-Branyon Field: for Luling-Branyon Field, Caldwell and Guadalupe Counties, Texas. North South North South Oil, LLC (North South or Applicant) requests to amend field rules STATEMENT OF THE CASE EXAMINERS REPORT AND RECOMMENDATION Claude Joseph James Clark, RE. APPLICANT: North South Oil, LLC REPRESENTING: June 13, 2018 June 19, 2018 March 5, 2018 Law Judge Examiner

2 horizontally on tract for which drilling permit is sought. c. Any operator using Field ID Number for deep rights certifies, by use of Luling-Branyon R 40 Exc in Commission s records ). This field numberfor Luling-Branyon Field shall be labeled under a Field ID Number to be assigned in this docket (Field ID No. that number, that ownership of oil and gas rights is divided North South also requests that list of 35 wells included in Attachment A of Field was severed from field rule amendment case and given its own docket number North South. of application to amend field rules for Luling-Branyon Field as requested by Examiner and Administrative Law Judge (collectively, Examiners ) recommend approval (Oil and Gas Docket No ). The Application is unprotested and Technical transfer 35 wells from Luling-Branyon Field to proposed Luling-Branyon R40 Exc Statewide Rule 40.The request for an exception to Statewide Rule 40 and request to Notice of Hearing be transferred from Luling-Branyon Field to Luling-Branyon R 40 Exc Field without need for new drilling permits and granted an exception to adopted by Commission in 2013 for Spraberry (Trend Area) Field ( Spraberry ). characterized by thick, unconventional shale, and that production and drainage could not occur without fracture stimulation. As such, a Statewide Rule 40 exception was field produces from Austin Chalk and Upper Edwards Formations, and that evidence in most recent field rule amendment for Luling-Branyon Field found that that geology of Luling-Branyon Field may be characterized by natural fractures field contains multiple permitted and producing open hole completions, furr indicating necessary to fully develop field s minerals, and waste would not occur because acreage to multiple wells within a common, conventional, pressure/water drive reservoir. of concern in request to amend field rules with a field-wide Statewide Rule 40 field s primary drive mechanism is a strong water drive. Additionally, Staff notes that Commission Oil and Gas staff ( Staff ) filed an amicus curiae identifying an area Staff notes that proposed field rule for Luling-Branyon Field mirrors language production is confined to extent of artificial fractures. Staff notes that in contrast, and that proposed field-wide Statewide Rule 40 exception may result in waste. exception that could potentially result in waste by allowing double assignment of The evidence in Spraberry case included evidence that geology of field was Notice of application was provided to all operators in field. ownership are independent and may overlap. that proration units on a tract above and below horizontal division of for Luling-Branyon Field will apply separately to wells drilled under Field d. Where ownership of oil and gas is horizontally divided, Field Rules OIL AND GAS DOCKET No PAGE 2 OF 12 ID Number and wells drilled under Deep Field Number, such

3 OIL AND GAS DOCKET No PAGE 3 OF 12 DISCUSSION OF THE EVIDENCE Luling-Branyon Field Background The Luling-Branyon Field was discovered on August 8, 1922 at a depth of 1,900 feet. The field producing for 100 field is currently on 2- density. As of March 2018, for Luling-Branyon Field, of which, 131 were horizontal wells. A correlative interval for Luling-Branyon Field was in Final Order No and Luling-Branyon Field is now defined entire correlative interval from 1,620 feet to 2,164 shown on log of Petroleum Investment Co. - J. E. Allen A Well No. 46 (API No ). This interval is a single reservoir for proration and includes both Austin Chalk and Edwards Formations. acre feet as Lease, has been purposes years and re were 1,536 total wells on proration almost designated as Texas designated as schedule There is a difference in mineral ownership within Luling-Branyon Field. There shallow rights, which is typically Austin Chalk Formation. North South is only in developing Edwards Formation, with horizontal wells. The Edwards Formation is located at very of correlative interval for Luling Branyon Field. Clark, P.E., North South s field of petroleum engineering, testified that if North South is not authorized to develop Edwards Formation in Luling Branyon Field, specifically with horizontal wells, will occur. In Mr. Clark s opinion, is no hydrocarbons within Edwards Formation at this time. are interested base expert witness in or way to produce deeper mineral rights within Luling Branyon Field, namely waste se recoverable James expert re Currently, most of wells in Luling-Branyon Field vertical wells, and many of vertical wells were hole completions that could produce Austin Chalk and Edwards formations through not believe most of vertical wells producing through Edwards and Austin Chalk Formations today water cut from Edwards Formation is going to choke off Austin Chalk Formation oil production. Mr. Clark would most of vertical wells Edwards Formation have plugged back to Austin Chalk Formation. In addition, is a of rights within Luling-Branyon Field interval for North South acquired in field. se se because that penetrated open are re are same wellbore. Mr. Clark leases severance been has does expect development that those North South filed application to Luling-Branyon Field rules to an exception to Statewide Rule 40 for depth of minerals within correlative interval for field. The to amending field rules for Luling Branyon field and creating Luling-Branyon (R 40 Exc.) Field is that have proration units to ir wells in Austin Chalk portion of Luling-Branyon Field, while North South rights in Edwards formation of Luling Branyon Field. The with wells in interval of field generally do not than Austin Chalk, and do not produce Edwards Formation, producing Austin Chalk interval do not have rights to develop Edwards interval. It is this depth of minerals that is request operators assigned request penetrate deeper as operators proposed amend consider has leased operators severance deep severance upper

4 OIL AND GAS DOCKET No PAGE 4 OF 12 causing a Rule 40 The Austin Chalk, being shallower portion of Luling Branyon Field, first. As a result, without kind of relief North South is from developing portion (Edwards Formation) of field. Statewide prevented issue. was developed deeper some Development of Luling Branyon Field In Mt. Clark s opinion, Edwards Formation in Luling-Branyon Field is in late of depletion to of water from a natural water drive and of waterflooding. The Edwards Formation now from residual oil saturation can only be produced by creating a significant drawdown reservoir and wellbore to make a portion of residual oil mobile. The only way to do this economically is to land horizontal laterals in Edwards Formation to this drawdown over much reservoir volume possible. The residual oil production from producing residual oil in pore This residual oil will be if it can t be produced through horizontal welibores at high water cuts. stages some degree between create that due as encroachment comes with very large volumes of water as would be trapped considers space. as produces pressure expected wasted Mr. Clark Luling-Branyon Field to be a very old field. This field was in 1922, both Edwards and Austin Chalk, intervals and producing for almost 100 The field is on density, and field is largely The only way to continue to develop this field is by creating a relatively large draw-down in immediate vicinity of pore By creating extra differential an is able to bring out last few drops of oil, along with a lot of water. This can be accomplished in two different ways: 1) drill a whole of vertical wells, which is uneconomic and a very limited or 2) drill a horizontal well. discovered depleted. operator years. has 2-acre space. those drainage area, that series has been pressure Utilizing Horizontal Wells to Recover Residual Oil in Luling Branyon Field The horizontal wells drilled in Edwards Formation not hydraulically fracture stimulated. The horizontal wells completions that produce by creating a new sink in immediate vicinity of pore and produce a lot of water with residual oil. A horizontal well will a lot of reservoir volume, a lot of pore and will a sink in vicinity of pore allowing last remaining residual oil to be liberated. The oil production volumes. In Mr. Clark s opinion, only way this residual oil in Edwards Formation is going to be produced, is through horizontal welibores at high water cuts. space, water pressure create pressure are open-hole contact spaces are those comes with extremely large spaces, Mr. Clark this completion to be to a new technology, it was certainly a novel idea to drill a well into residual oil of an interval this but it works. In Mr. Clark s opinion, that oil is going to be wasted if it can t be produced oil will go if it can t be produced through this particular technology of drilling horizontal wells. as depleted, considers as unrecovered technique analogous zone Based on Mr. Clark s analysis, Edwards Formation and Austin Chalk formation may contain natural within in words, some fractures mselves, or

5 are also separated by two major shale formations: Eagleford, which is at base of Austin Chalk, and Del Rio, which are present regionally. and Edwards might contain some natural fractures that are limited to Edwards. and Edwards are in communication in this field. The Austin Chalk and Edwards Austin Chalk might contain some natural fractures that are limited to Austin Chalk, However, fractures are certainly limited vertically, and re is no way Austin Chalk Edwards Formation in this 425-acre pooled unit. This is an example of where one operator has rights to develop Austin Chalk and OAG Holdings II, LLC and has leased right to develop only that produce from Austin Chalk Formation. North South is successor to 1. The Ellison Unit is a 425-acre pooled unit, that is overlain by multiple leases Luling-Branyon Field. For example: on leases with current Statewide Rule 40-double assignment of acreage violations in North South has leased rights to develop below base of Austin Chalk that have resulted in oil overproduction due to inability to assign an oil allowable to unable to have an allowable assigned due to double assignment of acreage with wells that are completed in Austin Chalk Formation. wells are horizontal wells completed in Edwards Formation. North South has been several of North South s leases. In total, North South is requesting to transfer 35 wells to proposed Statewide Rule 40 exception field (Luling-Branyon R 40 Exc Field). All 35 North South has received Statewide Rule 40 violation letters from Commission North South Statewide Rule 40 Violation Letters Field at request of operators in field. issues with Statewide Rule 40 and double assignment of acreage. In that same se proration unit plats. However, in instances where one operator has Austin Chalk interval. In that scenario, operator can simply just not double assign acreage, by file proration unit plats. Mr. Clark concluded that field rule resolved double assignment amendment proposed and adopted in that hearing was to eliminate requirement to today. At that time, field rules required proration units be filed. The field rule electing not to file proration unit plats. but operator certainly has option of filing Formation rights, and one operator has Edwards Formation rights, re can still be with double assignment of acreage in Luling-Branyon Field with what North South has Co ( TPIC ). According to Mr. Clark, TPIC was having a similar Statewide Rule 40 issue of acreage issue when only one operator has mineral rights within entire field October 9, 2009 (Oil and Gas Docket No ), in which Mr. Clark was engineering witness that testified on behalf of applicant, Texas Petroleum Investment The most recent field rule hearing for Luling-Branyon Field was held on hearing, a correlative interval for field that included Austin Chalk through Upper Edwards formations was designated as correlative interval for Luling-Branyon Previous Field Rule Amendments to Luling Branyon Field OIL AND GAS DOCKET No PAGE 5 OF 12

6 OIL AND GAS DOCKET No PAGE 6 OF 12 shallower portions of Luling-Branyon Field, and North South currently has leased rights to develop Edwards Formation of Luling Branyon Field. 2. North South has acquired leases form Castillo Oil Company LLC, which include Caldwell County Lease (03560), Frank Koehler Lease A Lease (00996), Frank Koehler Lease B Lease (02519), Frank Koehler Lease C Lease (03531), Frank Koehler Lease (02685), and Salt Water Disposal Well Koehler (12744) The term assignment of oil and gas leases is limited to only cover from base of Austin Chalk formation and down, and that this term assignment of oil and gas leases does not cover from surface down to base of Austin Chalk Formation. Previous Applications to Address Statewide Rule 40 Issue in Luling Branyon Field In Final Order for Oil and Gas Docket No where a field interval was adopted for Luling-Branyon Field, Field Rule No. 3 was amended such that operators shall be required to file, along with Form P-iS, a plat of lease, unit, or property; provided that such plat shall not be required to show individual proration units, which allowed TPIC to continue to develop Edwards Formation. In Oil and Gas Docket No , North South filed an application to separate Edwards Formation out of Luling-Branyon Field. After a pro-hearing conference was held on October 11, 2017 North South decided to withdraw application. According to Mr. Clark, TPIC, which appeared at pro-hearing conference, was opposed to unconsolidating Luling Branyon Field. In Mr. Clark s opinion it doesn t make sense to separate Luling Branyon Field interval into two separate fields, Austin Chalk and Edwards, when field has been producing for almost 100 years, which would cause a multitude of Statewide Rule 10 problems. Since TPIC was opposed to unconsolidating Luling-Branyon Field, Mr. Clark suggested that North South create a field rule with an exception to Statewide Rule 40 and a companion R-40 exception field. The only field where this rule has been adopted todate has been in Spraberry (Trend Area) Field. Mr. Clark acknowledges that Luling-Branyon Field and Spraberry (Trend Area) Field are very different fields, one conventional, one unconventional. However, re is a common similarity that lends to proposed Statewide Rule 40 exception field concept. The Spraberry (Trend Area) Field interval extends from top of Clearfork Formation to base of Wolfcamp Formation. In Spraberry (Trend Area) Field, re were operators that had developed shallow portion of field interval, such as Spraberry Formation, located near top of field interval, with vertical wells. Later, an operator wanted to drill horizontal wells in a lower portion of Spraberry (Trend Area) Field interval, and this same SWR 40 violation arose. There were instances where acreage was already assigned to a well in field, but in specific cases is a depth severance of minerals, and an operator has mineral rights to develop Wolfcamp Formation, which is same situation in this case. There are operators that have rights to develop Austin Chalk Formation in

7 An alternative solution that Mr. Clark considered proposing, but did not put forward Statewide Rule 40 exception field solution. only interested in developing Edwards Formation, which is deeper part of field interval. Since TPIC was opposed to unconsolidating field, Clark proposed Luling Branyon Field, and re are or operators such as North South, that are conventional reservoirs, Austin Chalk interval and Edwards interval. In and Austin Chalk Formation may contain natural fractures, fractures are limited major shale formations (Eagle Ford and Del Rio), which are present throughout through any natural means. There may be natural fractures within individual confined to extent of artificial fractures within Spraberry (Trend Area) Field. Staff s Eagleford and Del Rio shales are present regionally. Although Edwards Formation productive zones, for example, re could be natural fractures within Austin Chalk Formation, and re could be natural fractures within Edwards Formation, but se natural fractures do not extend to cause communication between se two formations. vertically, and Edwards and Austin Chalk Formations are not in communication not in communication. The Edwards and Austin Chalk Formations are separated by two Luling-Branyon Field area. Well logs and a cross-section across field shows where requested Statewide Rule 40 exception and Statewide Rule 40 Exc field has been adopted and Luling-Branyon Field are different. The Spraberry (Trend Area) Spraberry (Trend Area) Field a Statewide Rule 40 exception was deemed necessary to concern is that geology of Luling-Branyon Field may be characterized by natural fractures and that proposed field-wide Statewide Rule 40 exception may result in waste. However, Austin Chalk and Edwards intervals are not connected and are fully develop field s minerals, and waste would not occur because production is Field is an unconventional reservoir. The Luling-Branyon Field produces from Discussion of Commission Staff s Area of Concern North South s R-40 Exc field application since re is a depth severance of minerals within field. assign same acreage to vertical and horizontal wells would also solve Statewide fracture-treated field tuft), concept of allowing an operator within field interval to knowledge, re are no horizontal wells drilled in Austin Chalk interval of in Luling Branyon Field to-date. Even though Luling -Branyon Field is not an unconventional 40 exception field are horizontal wells in Edwards Formation. To Mr. Clark s Rule 40 issue. However, in Mr. Clark s opinion, it makes more sense to proceed with Edwards Formation. However, Luling-Branyon Field is not a tight, unconventional certain instances. This would remedy North s South s Statewide Rule 40 issue in reservoir, and it does not require hydraulic fracture stimulation. allows duplicate assignment of acreage to both a horizontal well and a vertical well in Luling-Branyon Field as North South is only interested in drilling horizontal wells in OIL AND GAS DOCKET No PAGE 7 OF 12 in Notice of Application is based on concept of a UFT field. Statewide Rule 40 All of North South wells requested to be transferred to Luling-Branyon R Mr. Clark agrees with Staffs assessment that Spraberry (Trend Area) Field

8 OIL AND GAS DOCKET No PAGE 8 OF 12 Within Edwards itself different zones that be on well logs from by impermeable upper Edwards broken down into A, B, C, D, E, F intervals. According to Mr. Clark, an previous A-Zone lateral and get completely different that different laterals not by natural fractures. The different not in vertical communication by porous limestones. that are separated re are each or cannot discerned strata. Some operators have operator may drill an A-Zone lateral, and later drill a C Zone lateral directly upper Edwards are are disagrees connected underneath target zones within reserves, evidence because y are separated Mr. Clark with Staff s conclusion, on Oil and Docket No finding of fact No. 5 that that Luling Branyon Field, from Austin Chalk and Edwards Formations, and primary drive is a strong drive. According to Mr. Clark, Bureau of Economic Development (BEG) from Edwards portion of Luling Branyon Field. BEG Atlas of Major Reservoirs, Austin Chalk Formation portion of Luling-Branyon Field is a solution drive reservoir. The Edwards Formation portion of Luling-Branyon field is a drive reservoir. Mr. Clark believes Oil and Docket No finding of fact No. 5 should that Edwards Formation primary drive mechanism is a strong water drive and Austin Chalk Formation is a solution drive. water states based address Austin Chalk portion of Luling Branyon Field state 1. Notice of this hearing ( Field ) in Caldwell and received. was Per Gas gas FINDINGS OF FACTS Gas produces mechanism separately Texas gas water non 01 provided to all in Luling-Branyon Field Counties, Texas, and no were Guadalupe operators protests 2. North South Oil, LLC follows: as requests to amend field rules for Luling-Branyon Field a. Where ownership of oil and within Luling-Branyon Field divided horizontally, right to develop individual ownership follows: has been gas as designated operators interval for shall have b. c. of with no horizontal of ownership within interval for Luling-Branyon Field AND of shallow rights a horizontal of ownership within that interval shall permit wells Field ID Number Operators designated Operators tracts above under severance severance operators same with ownership of rights below a horizontal within interval for Luling-Branyon Field shall permit wells a Field ID Number to be in this docket (Field ID No ). This field Luling-Branyon Field shall be labeled Luling-Branyon R 40 Exc in Commission s records. under designated numberfor deep assigned severance

9 e. Where ownership of oil and gas is horizontally divided, Field Rules horizontally on tract for which drilling permit is sought. that number, that ownership of oil and gas rights is divided d. Any operator using Field ID Number for deep rights certifies, by use of portion of Luling-Branyon Field separately from Edwards portion of b. The Bureau of Economic Development (BEG) addresses Austin Chalk se natural fractures do not extend to cause communication between se two formations. Austin Chalk, and re could be natural fractures within Edwards, but a. The Edwards and Austin Chalk Formations are separated by two major individual productive zones, as re could be natural fractures within Luling-Branyon Field area. There may be natural fractures within shale formations (Eagle Ford and Del Rio), which are present throughout intervals are not connected and are not in communication. interval and Edwards interval. However, Austin Chalk and Edwards 6. The Luling-Branyon Field produces from conventional reservoirs, Austin Chalk assignment of acreage to multiple wells within a common, conventional, pressure/water drive reservoir. 40 exception that could potentially result in waste by allowing double of concern in request to amend field rules with a field-wide Statewide Rule 5. Commission Oil and Gas staff ( Staff ) filed an amicus curiae identifying an area number, Oil and Gas Docket No severed from field rule amendment application and given its own docket of its wells and to create proposed Luling-Branyon R40 Exc Field. The Field and transferring wells to proposed Luling-Branyon R 40 Exc Field was field rules for Luling-Branyon Field, for Statewide Rule 40 exception for 35 Statewide Rule 40 exceptions, creating proposed Luling-Branyon R 40 Exc 4. A hearing was held on March 5, 2018 regarding North South s requests to amend Field s field rules to allow operators in Field with ownership of deeper rights request for Rule 40 exceptions, North South filed an application to amend Branyon R 40 Exc Field for operators with ownership of deep rights below a horizontal severance and to permit those deeper interval wells. In conjunction to below a horizontal severance to permit those deeper interval wells in Luling Branyon R 40 Exc Field. 3. To accomplish Rule 40 exceptions, North South requests creation of Luling horizontal division of ownership are independent and may overlap. for Luling-Branyon Field will apply separately to wells drilled under Field OIL AND GAS DOCKET No PAGE 9 OF 12 ID Number and wells drilled under Deep Field Number (Field ID No ), such that proration units on a tract above and below

10 c. The Edwards Formation in Luling-Branyon Field now produces from field is a water drive reservoir. gas drive reservoir. The Edwards Formation portion of Luling-Branyon Luling-Branyon Field. Per BEG Atlas of Major Texas Reservoirs, Austin Chalk Formation portion of Luling-Branyon Field is a solution Edwards Formation at this time. re is no or way to produce se recoverable hydrocarbons within Luling Branyon Field, specifically with horizontal wells, waste will occur as b. If North South is not authorized to develop Edwards Formation in a. The Edwards Formation is located at very base of correlative interval for Luling-Branyon Field. namely Edwards Formation. only interested in developing deeper mineral rights within Luling-Branyon Field, are shallow rights, which is typically Austin Chalk Formation. North South is 8. There is a difference in mineral ownership within Luling-Branyon Field. There both Austin Chalk and Edwards Formations. interval from 1,620 feet to 2,164 feet as shown on log of Texas Petroleum E. Allen A Lease, Well No. 46 (API No ). This interval is designated as a single reservoir for proration purposes and includes Investment Co. - No and Luling-Branyon Field is defined as entire correlative 7. A correlative interval for Luling-Branyon Field was designated in Final Order Edwards Formation in Luling Branyon Field, specifically with Formation at this time if operators are not authorized to develop produce se recoverable hydrocarbons within Edwards horizontal wells in Edwards Formation. There is no or way to horizontal wells. space. as expected from producing residual oil trapped in pore Edwards Formation to create this drawdown over as much reservoir volume as possible. of residual oil mobile. pressure drawdown between reservoir and wellbore to make a portion residual oil saturation that can only be produced by creating a significant OIL AND GAS DOCKET No PAGE 10 OF 12 I. The only way to do this economically is to land horizontal laterals in ii. The residual oil production comes with very large volumes of water, iii. The residual oil will go unrecovered if it cannot be produced with J.

11 be produced through this particular technology of drilling horizontal wells lateral, horizontal wells in same field. cuts. and producing horizontal; wells in Edwards Formation at high water c. This residual oil in Luling-Branyon Field will go unrecovered if it cannot 9. Statewide Rule 40 prohibits double assignment of acreage to non-stacked severance of minerals within correlative interval for field. an allowable to produce its wells in Luling-Branyon Field where re is a depth 17. A Statewide Rule 40 exception is necessary in order to allow North South to obtain No The Commission granted an exception to Statewide Rule 40 in Oil and Gas Docket approved Spraberrry (Trend Area) R40 Exc Field in Oil and Gas Docket No. 7C to prevent waste. 15. In past, Commission has granted exceptions to Statewide Rule 40 and produce its fair share of hydrocarbons and prevent waste. minerals within correlative interval for field is necessary for North South to wells in Luling-Branyon R40 Exc Field where re is a depth severance of 14. In this case, amending field rules for Luling-Branyon Field and permitting of water. a new pressure sink in immediate vicinity of pore spaces and produce a lot stimulated. The wells are open-hole completions that produce simply by creating 13. Horizontal wells drilled in Edwards Formation are not hydraulically fracture wel Is. schedule for Luling-Branyon Field. Of se 1,536 wells, 131 were horizontal on 2-acre density. As of March 2018, re were 1,536 total wells on proration feet. The field has been producing for almost 100 years and field is currently 12. The Luling-Branyon Field was discovered on August 8, 1922 at a depth of 1,900 acreage with wells that are completed in Austin Chalk Formation. violations in Luling-Branyon Field. In total, North South is requesting to transfer on leases with current Statewide Rule 40 double assignment of acreage 35 wells to proposed Luling-Branyon Statewide Rule 40 exception field. The 35 wells are unable to be assigned an allowable due to double assignment of 11. North South has leased rights to develop below base of Austin Chalk to several of North South s leases. that have resulted in oil overproduction due to inability to assign an oil allowable 10. North South has received Statewide Rule 40 violation letters from Commission OIL AND GAS DOCKET No PAGE 11 OF 12

12 CONCLUSIONS OF LAW Master Order relating to this Final Order is signed (a)(4)(A), this Final Order shall be final and effective on date a 78. North South agreed, that, pursuant to provisions of Texas Government Code Technical Examiner Administrati e Law Judge Karl Caldwell J her Coo Respectfully submitted, Caidwell and Guadalupe Counties, Texas. recommend that Commission amend field rules for Luling-Branyon Field in Based on above findings of fact and conclusions of law, Examiners EXAMINERS RECOMMENDATION to this Final Order is signed. of applicants, this Final Order is final and effective when a Master Order relating 4. Pursuant to (a)(4)(A), of Texas Government Code, and consent field to recover additional reserves and prevent waste. 3. Amending field rules for Luling-Branyon Field will allow operators in jurisdiction in this matter. 2. All things have occurred and been accomplished to give Commission codes. OIL AND GAS DOCKET No PAGE 12 OF Proper notice was issued as required by all applicable statutes and regulatory