BEFORE THE CORPORATION COMMISS N MAR OF THE STATE OF OKLAHOMA

Transcription

1 APPLICANT: ILED BEFORE THE CORPORATION COMMISS N MAR OF THE STATE OF OKLAHOMA JOHNSON COUNTY DISPOSAL WELL SERVICES, INC. COURT CLERKS OFFICE - 0KG CORPORATION COMMISSION OF OKLAHOMA RELIEF SOUGHT: LEGAL DESCRIPTION ADMINISTRATIVE APPROVAL AUTHORIZING THE RACE TRACK #1 WELL AS A COMMERCIAL DISPOSAL WELL NW/4 NE/4 SE/4 NE/4 OF SECTION 5, TOWNSHIP 9 NORTH, RANGE 27 EAST, LEFLORE COUNTY, OKLAHOMA APPLICATION NO PD APPLICANT: RELIEF SOUGHT LEGAL DESCRIPTION: JOHNSON COUNTY DISPOSAL WELL SERVICES, INC. EXCEPTION TO OAC 165: (h) - RACE TRACK #1 WELL - COMMERCIAL DISPOSAL WELL NW/4 NE/4 SE/4 NE/4 OF SECTION 5, TOWNSHIP 9 NORTH, RANGE 27 EAST, LEFLORE COUNTY, OKLAHOMA PD REPORT OF THE ADMINISTRATIVE LAW JUDGE This Cause came on for hearing before Michael Porter, Administrative Law Judge for the Oklahoma Corporation Commission for the State of Oklahoma, on the 14th and 15th days of November 2012, in the Oklahoma Corporation Commission's Courtroom, Jim Thorpe Building, Oklahoma City, Oklahoma, pursuant to notice given as required by law and the rules of the Oklahoma Corporation Commission, for the purpose of taking testimony and reporting to the Oklahoma Corporation Commission.

2 CASE SUMMARY: Applicant made a request for administrative approval to use the Race Track #1 well as a disposal well and requested exceptions to certain well construction requirements. Bay Oaks Resources, LLC., and Stephens Production Company protested the applications. The Protestants are concerned that the use of the Race Track #1 well may affect their wells located beyond a half-mile radius from the Race Track #1 well. Protestants question the need to inject water into a zone with producing wells. Applicants maintain they have followed the rules of the Oklahoma Corporation Commission and should be granted an order to convert the Race Track #1 weilbore to a commercial disposal well. RECOMMENDATION: It is the recommendation of the Administrative Law Judge that PD and PD are granted by the Oklahoma Corporation Commission. HEARING DATES: November 14th and 15t1, 2012 APPEARANCES: Robert A. Miller, Attorney at Law, appeared on behalf of the Applicant Johnson County Disposal Well Services, Inc. Gregory L. Mahaffey, Attorney at Law, appeared on behalf of Bay Oaks Resources, LLC, and Stephens Production Company. Keith Thomas, Office of General Counsel, appeared on behalf of the Underground Injection Control Department of the Oklahoma Corporation Commission. FINDINGS: FINDINGS AND SUMMARY OF EVIDENCE 1. PD and PD are applications in the NW/4 NEI4 5E14 NE/4 of Section 5, Township 9 North, Range 27 East, Leflore County, Oklahoma. 2. The Commission has jurisdiction over the subject matter and notice has been given in all respects as required by law and the rules of the Commission. 3. The following numbered exhibits were accepted into evidence on the 14 th and 15th days of November 2012: #1. Electric Log of the Spiro interval in the Race Track #1 well 2

3 #2. Spiro Net Sand Map #3. Spiro Structure Map #4. Structural Cross Section 45. Two well Cross Section 96. Spiro Structure Map prepared by Stephens Production Company in CD #7. Spiro Structure Map prepared by Stephens Production Company in CD , CD , and CD #8. Spiro Structure Map prepared by Hoover/Wilson Exploration and Production, Inc. (Bay Oaks Resources, LLC.) in Docket No Structure map at the base of the Pennsylvanian #10. Volumetric Reservoir Review for Race Track 41 Injection Well #11. Weilbore diagram for Race Track #1 SWD well 412. Calculation of potential for injected water to interfere with area wells #13. Not Admitted #14. Structure Map of Spiro #15. Stratigraphic Cross Section #16. Not Admitted #17. Not Admitted #18. Net Spiro Sand Map #19. Revised Net Spiro Sand 420. Daily Production data for McWaters well 421. Rate Time and BHP analysis #22. Drainage study for McWaters 91

4 #23. Pressure History for McWaters #1 and Hickman #1 #24. Completion Schematic for McWaters #1 #25. Enlargement of Exhibit 2 SUMMARY OF EVIDENCE Testimony of Kevin Vaught: Kevin Vaught was called as a witness for the Applicant. He testified he became involved in the application after it was filed. He testified he had reviewed the files concerning the filing of the application in accordance with 0CC rules and in accordance with guidance from the UIC staff. Although no wells fell within a half-mile radius from the Race Track #1 well, notice was given to parties outside the half-mile radius. He added there were three offsetting units that have productive or unplugged wells in them. He indicated Applicant gave notice to the operators of all those unplugged wells and in addition gave notice to the surface owner T.D. Bell Company and Lonnie Lemmon where the Race Track well is located. He testified notice was given to Foundation Energy Management who at the time was selling the Race Track well. He indicated his relationship to Johnson County Disposal was as a consultant and that he had no ownership or interest in the outcome of this case. He said Foundation Energy intended to plug the well at the time. Johnson County Disposal Services purchased the well in May Testimony of Charles Samson: Charles Samson was called as a witness for the Applicant as a geologist. He testified his primary area of responsibility was in the Arkoma Basin. He testified he was looking at the Race Track #1 well to determine the viability of the well for injecting fluids and the amount of fluids it could hold. He testified he reviewed the well log on the Race Track well to make sure that it had sufficient thickness and porosity to accept the injected water. He said the well was drilled and was open-hole completed in the Spiro with the casing set just below 6200'. He testified the Wapanucka was open so a cement plug was set to close it off. In describing the Spiro, he said it was good sandstone with decent porosity in it and should take the water. He testified he used the logs for the well to make his interpretation. Mr. Samson described the methods he used to create Exhibits 1, 2, 3, 4, and 5. He also gave some production statistics for several wells that were beyond the half-mile radius of the proposed disposal well. For the four closest wells, to the proposed disposal well, he testified the Bay Oaks Hickman in the SE/4 of Section 32 was completed in He testified it has produced approximately 2.69 Bcf. He indicated the last current rate was 7 Mcf a day. The Sonat Lear Vliet well in the NW/4 of Section 5 was completed in It produced Bcf and was plugged. In the south part of Section 5, he testified the Sonat Carl A-i well was completed in 1985 and produced 0.01 Bcf before it was plugged. In Section 4, the nearest well is the Stephens McWaters 1 well. He said it was completed in 1961 and has produced a little over 8.0 ru

5 Bcf. He testified it was his understanding it was producing 100 Mcf a day. He also testified about other wells more than a mile away from the proposed disposal well. He then discussed the faulting systems in the nine-section area. He agreed there was no dispute with the fault system shown in a brown color on the various exhibits. He said the disputes were with the faults shown in light blue. He testified the downside of the fault was to the north of the blue lines on the maps. He said this is confirmed by the cross section (Exhibit 4) that shows the displacement across several formations. He added the structure of the Spiro is generally down dip to the south and west. There were several other exhibits, which were maps of the area offered as evidence, with objections, to show there was a fault in Section 5. He testified the McWaters well is nearly 300' higher than the Race Track well. He agreed the Race Track well would be at the base of the hill and the Stephen McWaters 1 well would be at the top. During cross-examination, he agreed that on the well log the total interval between the top of the Spiro and the top of the Wapanucka was about 117' on Exhibit 1. He added there was about 30' or 40' of shale between the two tops. He further agreed on a gross interval map or a gross clean sand map there would be between 60' and 70' of Spiro. He admitted he did not prepare a gross sand isopach in connection with his study of the area. As to the fault, on his maps, he said it was based solely on well control. He admitted he was using data from another section and extrapolating that data to show a fault in Section 5. He also admitted the throw shown on Exhibit 6 in Section 5 is about 100', which is less than the overall thickness of the Spiro interval in the Race Track well, including the shale portion. There was considerable discussion regarding the fault to the south of the Race Track well. The discussion involved whether or not a fault existed. The discussion also dealt with whether or not it was a sealing fault or a leaking fault. He admitted he would not like to have a well he owned watered out. During further cross-examination, he testified the objections by the UIC department centered on the Wapanucka. He said there was no objection by UIC to the open hole disposal into the Spiro. He said a cement plug was to be placed down the hole to prevent injection into the Wapanucka. He said that was why there was a request for an exception to the rules. Testimony of Mark Layne: Mr. Layne was called as an engineering consultant for the applicant. Mr. Layne was qualified as a petroleum engineer for this cause. He is also registered by the State of Oklahoma as a petroleum engineer. He testified he was contacted by Johnson County Disposal Well Service to perform an analysis of the area. He requested and was furnished reservoir information to be used for a volumetric assessment. He said there was not enough time to do numerical modeling. He added he was not told what result he should get from his study. The parameters/assumptions he used were a thickness of 17', porosity at 13.25%, and water saturation of 20%. He said he also assumed the disposal well was down dip. He said it was assumed the liquid would push the gas to the front because the injected well was down dip. He said it was also assumed the thickness of the formation was equal across the injected area and 5

6 would radiate evenly from the weilbore. He assumed radial distribution because there was not enough time to do a full model study. He said another assumption was that the reservoir space between the Race Track well and the McWaters well was not separated by a sealing fault and was available for being filled with water. He agreed he was not a geologist and did not make any study on whether or not there was a fault present. He said with these assumptions it was his opinion, based on the structure presented, that the water would have to overcome the localized structure and any gravity effects before it could affect the McWaters well. He said he was also of the opinion that before injection fluids could reach the McWaters well; all of the intervening depleted gas zone would need to be liquid filled by the injectate. Finally, it was his opinion, based on a conservative approach; it would require about four years before injection water would reach the McWaters well. He indicated he did a volumetric analysis, using a standard oil and gas reservoir equation for calculating the volume of void space within the reservoir rock with the radial distance to the McWaters well. He said he calculated the amount of volume that would be present that was available for liquid injection and liquid fill up. He said it amounted to million barrels of injectate before the reservoir would be filled up. He testified that when the water is first injected into the Race Track well the area immediately surrounding the injection well would show an increase in pressure from the injection of that water into that area. He added the water would begin to fill the void space that surrounds that injection well and push the gas that is in that zone away from the Race Track well. He said as it pushes it away from the Race Track well and pressure increases, it will push the gas towards lower pressure areas, typically producing wells. He agreed this could mean an increase in production from those wells. He gave a personal opinion that gas would not be lost by this process because he believes a sealing fault exists and no production would be lost across that fault. During cross-examination, he admitted he did not have time to do a detailed study of the area. He testified thee study was limited primarily to how much water it would take to fill up before the McWaters well was affected. He said the study had no limitation on the parameters on what he could do. He said his instructions were to look at this well relative to reservoirs and give an opinion on it. He said he received the sand map, Exhibit 2 the structure map, and a log section of the Race Track 1 well. He admitted he did not make a detailed look at the Race Track #1 well log. He said he looked at the wellbore diagram developed by Mr. Stovall. He also looked at the first two pages of the UIC permit application for the well for the proposed pressure and rate. He said he also went out to the Oklahoma Corporation Commission online and viewed the original completion report. He said with this data he created Exhibit 10. He said he was not asked to make an independent study on whether a fault (indicated by a blue line on Exhibit 2) exists or not. He admitted he was asked to make an engineering study to determine if it was a sealing fault. He did not examine the pressures in the wells on either side to see if there is any reservoir indication of communication across the fault. He admitted he did not look at pressure data on the Hickman, the McWaters, or other wells on the south side of the fault. He also did not look at the decline curve on the Mc Waters well. He admitted he would expect to find the better quality reservoir in the thicker axis of a channel versus along the edges of a channel. He also admitted if it is channel deposit water

7 would not flow in a radial manner. He said he could say it would accelerate the water flow. He agreed based on his assumptions the injected water would reach the McWaters well in slightly over four years, assuming injection at maximum rates, no sealing fault, and that the water is not going to bypass the gas. He admitted water would reach the Hickman well in less than three years. He further admitted water will find the path of least resistance and follow the path of the higher porosity and better permeability, and that path is along the axis of the better porosity and permeability and not the edge of the reservoir. Testimony of Darrell Stovall: Mr. Stovall testified on behalf of the Applicant as a petroleum engineer. He indicated he was familiar with the Race Track well as its production engineer when it was a producing well. He said he knew it was a low-pressure reservoir, but it had suitable porosity and permeability for injection of water. He said it had been a producing well in the Spiro for Providence, Sedna, and finally Foundation Energy. He testified he made a recommendation to stop producing the well. He was not sure what year, but it had not produced in several years and it probably produced for several years prior to that at an uneconomic setting. However, he recommended that they should stop producing it probably two or three years ago because it was uneconomic. It was making 10 to 15 Mcf a day with compression and just having many problems with production trying to keep it commercially viable. He said part of the reason was wellhead compression costs of $1,200 to $2,000 a month. There was also a need for a dehydrator and a pumper at $500 a month each. He said adding in some administrative overhead, the total costs were about $3,000 a month. He testified that with three-dollar gas and net revenue and royalties, the economic limit was about 30 Mcf a day. He said it was produced several years below an economic limit. He indicated he recommended the well be sold rather that spend the money to plug it. He then discussed the Race Track well schematic. The surface casing was set at 806' and cemented to the surface. This will protect the fresh water zones. The well was drilled to 6,378', into the Wapanucka Limestone where it reached total depth. The well was completed using an open hole completion and casing was run down to the top of the Spiro. There is a formation packer shoe set at 6,204'. There is casing cemented to the top of the Spiro with fifty sacks. The bond log shows there is 400' of cement on top of the formation packer shoe up the annulus, which should prevent water from going up the hole. He said to close off one of the two open zones, they dumped cement from the bottom of the hole at 6,378' up to the top above the Wapanucka and tagged it at 6,298'. This would mean when water is injected in the well that it could not go into the Wapanucka Formation, that it will just go into the Spiro. He agreed in his opinion you cannot pump 8,000 barrels a day in the Race Track well. He said you might be able to get 4,000 barrels a day into it and agreed the application should be amended to 4,000 barrels of water per day. He later testified at 4,000 barrels a day, the time it takes the injected water to reach the Hickman and McWaters wells would almost double. He also thought the formation would not take more than 10,000,000 barrels of water. He said it was fine with him if the Commission put a limit on how much water could be disposed of in the Race Track well. He said he felt the Race Track would be a safe commercial disposal well. He also did not think the fault is leaking nor would it would damage any well in their fault block. He indicated he thought there was a sealing fault between the Race Track well and 7

8 the McWaters well. He said this was based on the pressure differences between the Hickman well and the McWaters well. He said the McWaters well was drilled before the Hickman well. He noted the pressure in the Hickman well was within 15 pounds of the McWaters well, which had already produced a couple of Bcf. He admitted there was no other well between the Hickman and the McWaters well that could have caused the pressure difference. He testified the Hickman was the first well drilled in the fault block that contains the Race Track well. He indicated the lack of pressure differential convinced him there is no communication between those two fault blocks. He also looked at the production for the wells north and south of the fault. He said the wells to the south of the fault, where the McWaters well is located, were much better than the wells to the north, where the Race Track is located. He testified the Race Track produced 0.19 Bcf before production stopped. He agreed the Hickman had been a better well, but was on compression and producing 5 mcf a day, which is less than the Race Track was producing when it was taken out of production. He then discussed Exhibit 24 submitted by the Protestants. He said it shows the current well completion was done August 7, He added it shows 8 5/8ths inch casing at 470 and a hole in casing at unknown depth in the 4 1/2 inch casing with 8 5/8ths inch surface casing found to be in communication on October 6, He said, as an engineer, he would not like to have casing leaks. He also said you would not want to have unrepaired casing leaks. He testified it tells you the well is not going to last that long before you have major problems with the well. He explained it is just a matter of time before the hole in the casing gets worse. He said there was some kind of corrosion on the annulus. He added it was just a matter of time before there are holes in the tubing. He said to fix holes in the tubing, you have to go in here and replace it before the low pressure Spiro takes in a load of mud. He testified you want to fix a casing leak by pulling out the tubing and determining where the casing leak is located and then start doing cement work until the casing leak is sealed off. He said this operation was not inexpensive and it was risky for a 50 year old welibore. He said he thought the likelihood of this well lasting more twenty years was not likely. He added it would be uneconomic towards the end of its life with a casing leak. He said in his experience this would be a $100,000 plus work-over, which would be hard to justify at current production rates. He admitted they could inject roughly 3,500 barrels a day, which would get them close to the maximum injection pressure. He said he did not advise the Applicant to ask for 8,000 barrels a day. He said you could pump 14,000 barrels of water down the hole daily with the 2 3/8ths tubing at 10 barrels a minute times 60 times 24. He testified there would be a lot of friction, but if that much water was injected you would exceed the maximum pressures allowed. He testified he just did not feel like it was one big reservoir when the Hickman had the same pressure of the McWaters, even though the McWaters had been on five years and made 2.5 Bcf. He agreed the Hickman well sat idle after being drilled with casing run and perforated. He agreed the Hickman was completed in August of 1966 and did not produce until January of He did not agree the initial pressure taken in January of 1968 was 809 pounds according to the scout card. He said he did not agree because of his 30 years of experience in working with these kinds of wells. He testified he thought the pressure information came from the companies, but a field hand could have done it. He agreed he did not know if it was dead weight pressure or

9 not. He also agreed he did not know the sources of any of these pressures. He said there was no pressure shown on the completion report. He agreed there was no other well drilled north of the fault until Race Track well was drilled twenty-four years later. He did not agree that the 885 PSI was accurate in July or August of '66. He thought the reading of 809 PSI was representative of reservoir pressure in He testified he thought there was a sealing fault, but made calculations as if the fault did not exist. He said he did that to see how many barrels it would take to reach the two closest wells, using a radial pattern. He agreed that fluids follow the path of least resistance. He said it was only an estimate assuming the same amount of pay everywhere around that weilbore. He used 17' of pay and 13.6% porosity. He would not agree the porosity and permeability would be less along the edges of the reservoir than in the center of the channel. He said the water would go where the best permeability was located. He did agree the best permeability usually is where there is thicker rock. He also agreed along the axis the wells are very productive, but on the edges of the axis, the wells are not as productive. He agreed he could not guarantee the injected water would not get to the McWaters well. Testimony of Robert Liner: Mr. Liner testified as a petroleum geologist for Stephens Production. He explained Exhibit 14. He said it was a structure map of the top of the Spiro. He said for the contour lines he used one hundred-foot contours. He said the map also showed the State of Arkansas was approximately a mile and a half to the east of Section 4. He testified the heavy bold orange/brown lines running east to west across the southeast corner of Section 9 and Section 10 were down to the south faults that were mapped through that area. He said there were quite a few along the state line. He agreed it was a well-recognized fault in the area. He said the fault in Section 8 dies out in Section 8 and does not extend into Section 5. He said it was a down to the north fault. It was his opinion there was no sealing fault between the McWaters well and the Race Track well. He testified this was because he made a shallow structure map due to the number of fault cuts around those wells. He said he was trying to figure out how those faults were connected. He prepared an Alma Sand structure map. He explained the Alma was a shallower formation. He admitted the Alma structure faults were down to the southeast and not connected to the Spiro formation in Section 5. He admitted the faults shown in Exhibit 16 (not admitted) were shallow faults not connected to the Spiro formation. He thought faults were present in the Spiro formation, but were connected to the big fault system located to the southeast of, but not directly in, Section 5. He discussed a cross section, Exhibit 17 (not admitted) in Section 5 that showed a fault in the Alma and showed the fault was down to the south and east. He then testified about the nature of the Spiro reservoir. He agreed with Mr. Samson that the Spiro sands were deposited at the same time and were the same reservoirs, except to the fault Mr. Samson thought was present. He testified in Arkansas to the east, the sand is divided into two sands. He agreed there are distinct upper and lower lobes. He said as you go to the west into Oklahoma, the sand becomes one instead of two. He agreed the McWaters well has a big block of Spiro sand, but in some areas there are two different intervals of Spiro sands. He repeated as Vt

10 you move to the east it changes into two sands. He said as you move to the west in Oklahoma you find only the upper sand. He agreed the Race Track well was in the upper sand. He testified the McWaters well was not in a different lobe than the Race Track well. He did say the sand in the Race Track well is thinner and lower. He said he thought the two lobes came together at the McWaters well and then as you go west it becomes one sand. He admitted he thought it was channel sand. He added it was blocky-looking sand that is mapped as a channel. Testimony of Sam Hall: Mr. Hall testified as a production and completions engineer with Stephens Production. He gave his opinion the Race Track well and Hickman well were in the same common reservoir as the McWaters well. He also said he saw no support for a sealing fault existing between the Race Track well and the McWaters well in the Spiro. He said he had concerns about the water injection effect on Stephens' remaining reservoirs in its wells to the southeast. He agreed it would have an adverse effect and cause a loss of hydrocarbons. He also agreed the hydrocarbons that were watered out would be permanently lost. He agreed the McWaters well would produce between Bcf and Bcf for around 8.7 Bcf. He also agreed the well would continue to produce for about more years. He further agreed the abandonment rate would be just less than 450 Mcf a month or 15 Mef a day. He testified the drainage radius for the McWaters well was 3,579' based on the ultimate recovery. He also testified the drainage area for the Mc Waters well was 924 acres. He agreed the drainage effect of the McWaters well extended to the Race Track well. He testified adverse effects from the injection of water in the Race Track well would happen quickly. He said the injected water would prematurely water out the portion of the reservoir that is helping assist the McWaters well produce gas. He agreed the effective drainage area of the McWaters well was approximately 924 acres. He also testified he planimetered the area as if it was a separate fault block. He said it should have produced Bcf. Instead it has produced 2.78 Bcf, leaving 1.8 Bcf unaccounted for in a high porosity, high permeability reservoir. He said it was consistent with having been produced by wells to the southeast. He testified it appears that the wells in the southeast side have produced more gas than is actually available if you put the fault in place and it appears it is one large reservoir connected without fault separation. He then testified about the pressure data. He said when the Hickman well was initially produced the shut- in pressure was around 810 PSI which was close to where the McWaters shutin pressure was at that point. He continued by saying the two wells shut-in pressures, throughout the life of the wells, have tracked each other closely. He agreed when there was this type of pressure match it led him to believe, as an engineer, the wells were in the same reservoir. He also agreed if the Hickman well had been in a separate reservoir, the initial pressure would be virgin pressure. He said the virgin pressure in the McWaters well was 917 PSI. He agreed the difference between the Hickman well and the McWaters well was less than 108 PSI, or about 12% less pressure. He further agreed it was a significant pressure drop for seeing no production in reservoir. He testified with the apparent porosity and permeability in the reservoir, the pressure would have been representative of the reservoir pressures. He explained some of the wild pressure variations were taken off the casing and not he tubing. He agreed the pressures tracking each other in the three wells supported his opinion that the Race Track, the Hickman, 10

11 and the McWaters are all in the same common connected reservoir, not separated by a sealing fault. He then discussed the hole in the casing. He said it was first reported in He also said he did not think the McWaters well was in danger of losing production because of the hole in the casing. He said he found Stephens had run a packer and tubing to isolate the casing leak and the well has had that configuration since that time. He agreed there was no danger to the treatable water because there was proper cement surface casing. He also agreed the pressure on the backside of the casing was monitored. Mr. Hall agreed that at 4,000 barrels a day, the injected water would cause watering out in the southern part of the reservoir. He agreed with the barriers in place, it would cause the flow of that water, to be skewed more northwest/southeast along the axis of the reservoir. He also agreed that even if one assumed radial distribution, the injected water would effect the Mc Waters well in 1.7 years at 4,000 barrels a day. He said it would be 6.8 years for the actual injected water to hit the McWaters well even if only 10,000,000 barrels are injected. He said that would cause the loss of 0.15 Bcf of gas permanently. PD CONCLUSIONS AND RECOMMENDATIONS After taking into consideration all the facts, circumstances, testimony, and evidence presented in this cause the AU recommends the applications in PD and PD be granted with a 4,000 barrel a day limit and a maximum lifetime injection of 10,000,000 barrels into the Spiro common source of supply. The evidence is undisputed the Spiro common source of supply drained by the Hickman well and Race Track well are the same common source of supply as the Mc Waters well. However, the AU believes the common source of supply is faulted. The cumulative production figures for wells to the north and west of the fault and to the south and east are significantly different. This implies the quality of the reservoir is different as one moves to the west and north. Evidence introduced indicates the Spiro has two lobes until it approaches or reaches the McWaters well, where it becomes one sand. This can explain the difference in quality of the Spiro reservoir. Spiro wells to the north (of the theorized fault) have, across the board, produced less than Spiro wells to the south with one exception, the Sonat Carl Al well. North of the fault wells average 1.10 Bcf. Wells to the south average 2.71 Bcf. Further the evidence also shows a consistent pressure difference exists between the Hickman well and the McWaters well. The curve of the declining pressures is a near perfect match. However, there has been a consistent pressure difference since the Hickman came on line seven years after the Mc Waters well. If they were the same reservoir without a fault, then one could reasonably expect to find the pressures to be the same from the initial date of production until the date of the exhibit. Clearly, they are not. It is reasonable to conclude that having the same rate of decline in the pressures over time shows the reservoirs have similar characteristics. This lends credence that 11

12 it is the same common source of supply, but in two different reservoirs. The ALJ is not persuaded that the McWaters well reached out to drain in the area of the Hickman well. The two wells are over a mile and a quarter apart. In between the two wells is a third well that did produce 0.19 Bcf of gas before it became inactive. The ALJ does not believe the McWaters well encroaches on the drainage area of the Hickman and the ALJ believes the Hickman well was responsible for the depletion of the Race Track well. The ALJ also believes the Hickman well is at the end of its economic life. In addition, it is uncontroverted; the structure map of the Spiro clearly shows an offset in the contours. The witness said the map was constructed using well control. He also used well data from other sections to extrapolate the fault in Section 5. Further, there was testimony the McWaters well is about 300' higher structurally than the Race Track well. This would give the injected water a place to collect before it would reach a level to begin to affect the McWaters well, assuming an absence of a sealing fault. The ALJ found the testimony more persuasive in support of a sealing fault. The Applicants are in compliance with Commission rules and the ALJ recommends granting the requested relief for the reasons stated above. PD As to the request for an exception to 0CC rule 165:10-5-5(h), the ALJ recommends PD be granted. Applicant presented uncontroverted evidence regarding the protection of the Wapanucka formation and treatable water. No party raised any objection to the well schematic proposed by Applicant. Protestant did not raise a specific objection to the well schematic except to say they were against injecting water into the Spiro. There were no objections by the staff to the exception to the rules being granted during the hearing. The AU recommends the requested variance to the rules be granted. RESPECTFULLY SUBMITTED THIS 25th day of March MP :j s 4Mchjael?J. Porte% Administrative Law Judge cc: Robert Miller Gregory L. Mahaffey Keith Thomas Michael Decker, Director of OAP Oil-Law Records Commission File 12