n APPLICANT: BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA RELIEF SOUGHT BILLY JACK SHARBER OPERATING LLC LOCATION EXCEPTION LEGAL DESCRIPTION NW/4 SE/4 OF SECTION 29, TOWNSHIP NORTH, RANGE 4 EAST, POTTAWATOMIE COUNTY, OKLAHOMA Report of the Administrative Law Judge F I L E AUG 2 4 2015 COURT CLERKS OFFICE - OKC CORPORATION COMMISSION OF OKLAHOMA CAUSE CD NO. CD 201502450 A. Case Summary Billy Jack Sharber Operating LLC requests a location exception to move away from a possible fault. A surface ditch is the only evidence the fault may exist. The implication of a fault does not satisfy a preponderance of the evidence burden of proof. I. - Recommendations The application for location exception should be denied because no geologic reasoning showed, by a preponderance of the evidence, why the well should move from a legal location. C. Hearing Date July 23, 2015 D. Appearances Keith Needham, Attorney at Law, appeared on behalf of the Applicant, Billy Jack Sharber Operating LLC.
Page 2 of 12 David Pepper, Attorney at Law, appeared on behalf of Basis Resources Group. E. Exhibits x. Base Chimney Hill Structure Map (Extended fault) z. Survey Plat 3. Base Chimney Hill Structure Map (Unmodified) 4. Base Chimney Hill Structure Map with logs and topography map (Basis Resources Group, LLC) 5. Email, Subject: FW: Commercial Oil & Gas Potential C-SW of the NW of the SE/4 of Sec. 29-7N-4E F. Evidence Summary Ms. Jennifer Bridgeforth, Land Witness i. Billy Jack Sharber Operating presented Ms. Jennifer Bridgeforth as its land witness, and she testified they own about 38% working interest. This is the largest single owner in the 40 acre unit. The only respondent to the location exception is Basis Resources Group (an offset operator) and they are contesting the requested move. The proposed total depth of this well is about 4,400 feet and it will be drilled at a surface location 224 feet from the west line and 173 feet from the south line. z. On cross examination, Ms. Bridgeforth stated she had worked on this project since May of :zoi5 and had no involvement in choosing the well location. Basis owns a 6.250/o working interest and the name of the proposed well is the Bonnie 29-I.
Page 3 of 12. There was a letter agreement to drill a well at a legal location but this was not done. Sharber intends to present a survey to the Commission when its vertical project is completed. Ms. Bridgeforth did not know if the location had been built. 4. On re-direct examination, she stated the intended legal location had been washed out by the spring rains and the surface location was then moved out of a creek bed. Upon re-cross examination she did not know if the location had been built, but she was told it could not be built. A location may have been built in April, before the rain. Mr. Bradley J. Oliver, Geologist 5. The Sharber interest next presented Mr. Bradley J. Oliver as its geologic witness. He noted the initial proposed location was in the trough of a possible fault and a well bore might drift toward that fault. He said the Chimney Hill, the only formation discussed in this proceeding, had low permeability and porosity and recommended no penalty imposed due to limited drainage. He requested an interim order but suggested no date for an interim order re-opening. 6. On cross examination, he admitted using the same map prepared by the geologist for Basis. It was prepared for a prior spacing cause. Mr. Oliver had added a fault extension, but there had been no additional well control
Page 4 of 12 since the map was initially created. Mr. Oliver explained he extended the fault because there was a large ditch on the surface. It is about 30 feet wide and io-i5 feet deep and such a ditch implied there was an underlying fault. He thought the fault was about 4,000 feet deep. He testified there was no geologic reason to move from a legal location unless there was a fault and then there might be a geologic reason. The topographic reason for the move was the flood zone location. 7. He admitted by the time the proposed well reached its bottom hole location it could have drifted into the section that had the Basis well. He thought the location had been cleared but did not know if the location had been built. On re-direct examination, he stated this was a geologically complex area and, since there are dry holes to the north, that could constitute some geologic reason for the location exception. He offered no substantive support and did not pursue this thought. Mr. Ray Roush, Engineer 8. The Sharber interest next presented Mr. Ray Roush as its engineering witness. Mr. Roush has worked heavily in Pottawatomie County. He had studied the Chimney Hill common source of supply and believed there was about 320,000 barrels of original oil in place. Using his volumetrics established recoverable oil as 13,500-15,000 barrels of oil. He said this is a homogeneous formation that had low porosity and low permeability and
Page 5 of 12 may drain five acres, although he did not know the shape of the drainage area. He believed the intended well, the Bonnie well, is analogous to the Basis Reta well in the off-setting section. Mr. Roush believes there should be no communication between these two wells as they were about 1,000 feet apart and other wells at that distance were not communicating. 9. On cross examination, Mr. Roush was asked to consider a hypothetical that 30,000 barrels of oil had been recovered by the Reta, would that make his 15,000 barrels of oil estimate incorrect. He admitted it would. Mr. Roush did not think, even at 224 feet from the lease line that it would drain the off-setting section due to low porosity and low permeability. He did not know about any other drillable locations. Reta production to date is actually over 28,000 barrels of oil. Mr. Roush recommended the location exception be granted without penalty. io. On re-direct examination, he admitted using approximately the same base numbers as were used by the Basis engineer. He also admitted seeing the almost z8,000 barrels of oil production from the Reta well was noted in the exhibit exchange. Mr. Roush did not believe this number and preferred looking at monthly production numbers, not sales numbers. When asked why money would be paid to the royalty interest and working interest owners for production that did not happen, Mr. Roush did not have an answer. If the Sharber interest did own a working interest in the Reta well
Page 6 of 12 they would have the production numbers, but these were not given to Mr. Roush. Mr. Carter Hines, Land and Operations ii. Basis presented as its first witness Mr. Carter Hines, a land expert and operations manager for Basis. He stated he was familiar with the area and had drilled and was operating several wells in the area. He has several past business dealings with Mr. Sharber. He said he visited the location and it was built in April of zoi. The surface location could easily move northeast to a legal 330 foot location. He said there had been communication, through fracturing, between wells that were about 1,000 feet apart. 12. As operator of the Reta well, he knew the production numbers and through May of 2015, 27,387 barrels of oil had been produced and that comes off the well gauge that represents the actual production. The Reta well was never fractured and produces 6-ro barrels of oil per day. He said Mr. Sharber is a working interest owner and had sales information. He could have also had the production numbers if he had so requested. Mr. Hines believed that if this application were granted, that Basis would have little choice but to drill a mirror well and that would create waste. The waste would be production from each of the nearby wells drainage areas.
Page 7 of 12 13. On cross examination, he said the 330 by 330 foot location falls in a ravine and was a difficult site. He could present no hard evidence of communication between wells, but he did know that it had actually happened in the area. He said the pumper gauge reports had not been submitted and that Mr. Sharber owns a five percent working interest in the Reta well. Mr. Hines reiterated that he had a duty to protect working interest and mineral owners from off-set drainage and would have no choice but to drill a mirror well, if this location exception were granted, to exercise his duty. Mr. Toe Kersey, Geologist 14. Basis next presented Mr. Joe Kersey, as its geologic witness. Mr. Kersey is the geologist who created the map used by the Sharber interest with the only change being the extended fault line. Mr. Kersey believed the fault should not be extended because there was no geology to support the faults existence. Moving the well northeast to a legal location would also move the well up structure, usually a positive. 15. He is an overriding royalty interest owner in the Reta well, and he knows production numbers. Those numbers are listed at the last page of Exhibit 4. He presented logs, also in Exhibit 4, showing good permeability in the area. Mr. Kersey did not predict the existence of the extended fault as shown on the Sharber map. There is a producing well on the other side of the
Page 8 of 12 purported fault. He noted there had been significant drift in drilling area wells and there could be as much as several hundred feet of drift. 16. On cross examination, Mr. Kersey stated the evidence of the fault was no more than an intermittent creek, although surface features may bear some correlation to subsurface structures. He admitted he had a small personal interest in the Reta and did hope it continued good production performance. He did not believe that small interest affected his objectivity in this hearing. 17. Mr. Kersey admitted that the Chimney Hill formation had zero porosity within 1,000 feet of the proposed well and that porosity and permeability were usually related. In fact, in a May 2014 e-mail to Mr. Sharber, Mr. Kersey noted there was a 50% chance of a good well at the Bonnie location. Drift usually occurs updip which is in the northerly direction from the proposed Bonnie well site. Mr. Kersey believed the Reta well was his key well and most analogous to the proposed Bonnie well and it had four percent porosity. On re-direct, he once again reiterated that he did not believe the extended fault was present. Mr. J. P. Dick, Engineer 18. Basis presented Mr. J.P. Dick as its engineering witness. He had researched the topography on Google maps in a close up vision and it is possible to drill northeast of the proposed site. His volumetric analysis
Page 9 of 12 showed the Reta well should drain a 30-40 acre area. If the drainage area is equally distributed, then when the Bonnie produces about I,25o barrels of oil it will begin draining the Reta across the lease line. He also was unconcerned about the possibility of any fault and stated the Bonnie could definitely be drilled at a legal location to the northeast with absolutely no loss in productivity. If Basis were forced to drill mirror wells, this would create waste as they would drain each other. He also noted that out of a 4,000 foot vertical well, a three degree drift would amount to 209 feet and a five degree drift would amount to 349 feet, both significant footages. 19. The Sharber interest again presented Mr. Ray Roush as it's engineering witness, and he had recalculated his volumetrics using the Basis provided numbers and he still arrived at a maximum production of 35,000 barrels of oil and a drainage area of 4.5 acres (he later changed that to 5-10 acre drainage area). Mr. Roush requested granting the requested location exception and stated they would not oppose as much as a 25% penalty. 20. Basis recalled Mr. J.P. Dick as its engineering witness and he noted the flaw in Mr. Roush's analysis was that he considered no recovery factor. The Basis interest ended its case by noting that all testimony concerned the Chimney Hill and the only zone of consideration in this matter is the Chimney Hill. Mr. Needham noted that the Sharber interest intends to test all listed zones down to total depth.
Page 10 of 12 G. Findings of Fact i. Sharber owns a 38% working interest in the 40 acre Unit and Basis owns a 6.25% working interest. a. There was a letter agreement to drill this well at a legal location, but the location was washed out by spring rains.. Sharber used the map prepared by the Basis geologist. The only addition was the extension of a fault, but there had been no additional well control. 4. There is a large surface ditch about 30 feet wide and io-i5 feet deep. This ditch could imply there was an underlying fault. The only geologic reason given for this location exception was that fault. 5. No reason was given why the surface location could not move to the northeast to a legal location. 6. There had been communication in the area through fracturing, with wells being about i,000 feet apart. 7. Basis states it will have no choice but to drill a mirror well if this location exception is granted. 8. The Basis geologist stated no geology supported the faults existence and moving the well northeast to a legal location would move the well updip. The evidence of the fault was no more than an intermittent creek.
Cause Cd No. 201501450 Page 11 of 12. The Basis engineer also believe it possible to drill northeast of the proposed site at a legal location. He was unconcerned about the possibility of any fault and was certain the proposed well could be drilled at a legal location with absolutely no loss in productivity. io. Notice of this proceeding is governed by OAC 165:5-7-9(a) ii. Proper Notice of this proceeding was given pursuant to law and rules of the Commission. H. Conclusions of Law i. There is a large surface ditch and the Sharber geologist stated this ditch could imply there is an underlying fault. Excepting this fault, he stated there was no geologic reason for the move from a legal location. 2. Mr. Joe Kersey, the Basis geologist, prepared the map used by Sharber in its presentation. He believed there was no fault. There was a surface trough. He found no geology to support the existence of the fault. The implication that the trough may show a fault was no more than an intermittent creek that did not imply a fault, according to Mr. Kersey.. The Basis engineer was also unconcerned about the possibility of any fault and stated the proposed well could definitely be drilled at a legal location
Page 12 of 12 with absolutely no loss in productivity. There is available surface to drill at a legal location.. The reason for this move is the existence of an underlying fault and that fault is only implied by the existence of a surface ditch. This reasoning fails to meet the preponderance of the evidence standard required for granting the location exception. The application should be denied because no geologic reasoning showed, by preponderance of the evidence, that the well's excepted move was needed. Respectfully submitted this day of August, 2015. QIL 'Paul E. Porter Administrative Law Judge PEP: tt Cc: Keith Needham David Pepper Michael Decker Oil-Law Records Commission File Office of General Counsel