RANKEN ENERGY CORPORATION LOCATION EXCEPTION. SE/4 SW/4 OF SECTIO N 8, TOWNSHIP 3 NORTH, RANGE i WEST, GARVIN COUNTY, OKLAHOMA

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1 U BEFORE THE CORPORATION COM, I0jF ay; OF TH E STATE OF OKLAHOM ; ~4 APPLICANT : RELIEF SOUGHT : LEGAL DESCRIPTION : RANKEN ENERGY CORPORATION LOCATION EXCEPTION SE/4 SW/4 OF SECTIO N 8, TOWNSHIP 3 NORTH, RANGE i WEST, GARVIN COUNTY, OKLAHOMA ~ 2~11 ~ COURT CLERK'S OFFICE - OKC CORPORATION COMMISSION OF OKLAHOMA CAUSE CD NO Report of the Administrative Law _Tudge A. Case Summary Ranken drilled the Miss Jenny i-8 well under Emergency Order No and wishes to produce. Lario opposes the well until, at least, they evaluate the well logs. Ranken showed by expert testimony and exhibits the well is up structure, will not adversely impact the offsets and may prove existing hydrocarbons. Lario presented no witnesses or exhibits. B. Recommendations Ranken drilled a well at an off pattern up structure location to find a hydrocarbon trap. This is a legally competent reason to grant a location exception. Expert geologic and engineering testimony showed the well will not adversely affect the offsets. Ranken showed, by a preponderance of the evidence, the need for the location exception. Ranken showed, by a preponderance of the evidence, the well will not affect offset rights. The Ranken location exception is recommended. C. Hearing Date s September io, zoio

2 Report of Administrative Law Judge Cause C D No. 20 I , R anken Energy Company Page 2 of 6 D. Appearance s Charles Helm, attorney-at-law, appeared for Ranken Energy Corporation ; John Moricoli, attorney-at-law, appeared for Lario Oil & Gas. E. Exhibits I. Technical Response form dated June zi, Well location and depth map 3. Well production ma p q.. Basal Oil Creek Structure map 5. Miss Jenny i-8 proposed well bore plan 6. Miss Jenny i-8 final well bore plat F. Evidence Summary Motion to Continue i. Prior to commencement of this cause Lario's Motion to Continue was heard. Lario argued they had filed the Motion to Continue and Motion fo r Production of Documents only a couple of days before this hearing date. Th e well has been drilled pursuant to an Emergency Order but is not ye t completed. The dispute appeared settled (the Motion to Continue had bee n set for September 13, zoio) but that negotiation failed the evening before this hearing. Lario said Ranken relied on well log information for exhibits an d Lario needed these logs to prepare a proper case. Lario alleges it needs additional information and time to properly defend their interests. 2. Ranken argued the Application was filed on June 15, 2010 and there was an emergency hearing on June 21, 2010 (emergent financial commitments). There was no objection and the offset had been held by production since the 1940 s (Lario owns a leasehold interest in the offset). Ranken alleges the real dispute is Lario's objection to Ranken drilling the well because Ranken prevailed over Lario in a prior pooling proceeding. Ranken believes Lario is protesting for delay, making it a frivolous contest. 3. Judge Osburn previously heard argument and ordered the trial to begin this date, September 8, zoio (the only time Lario was available from July to September). Ranken needs the project to proceed because it is a $3,000,000 investment. Ranken did not provide well log information because it was proprietary information and they did not know of the request until this week.

3 Report of Administrative Law Judg e Cause CD No , Ranken Energy Company Page 3 of 6 4. Lario responded that proprietary information is discoverable. Lario did not oppose the emergency because they had no knowledge of it. They only discovered the emergency when an order was filed. Lario opposes the Ranken request for a location exception because wells should be drilled on pattern. When Lario finally had knowledge of the case and reviewed the exhibits the y requested the logs. S. Ranken said Lario wants the well information to help decide participation i n another area well. Lario said they have already elected to participate. Because the parties had trouble finding an agreeable date, another date would probabl y be considerable delay, the Ranken investment and project progress require s resolution of this cause and both parties are present and have sufficien t knowledge of the issues involved, this ALJ denied the motion and allowed th e cause to proceed to trial on the merits. Hearing on the Merit s Mr. Rick Gibbon Land testimony for Ranken was provided by Mr. Rick Gibbon and he said they owned iooo/o of the working interest in this project. Ranken requests to drill a well closer to the north and west lines. They have good addresses on all parties entitled to notice and have noticed those parties of the project. He said there was no offset production to the north, Ranken has noticed its working interest owners in a well in the northwest offset, RKK was given notice in the west offset and courtesy notice was given to Arrow Energy. 2. On cross-examination Mr. Gibbon admitted Lario owned a 37.50/0 leasehold interest in the north 4o acre offset. He also said Ranken owned rooo/o of the subject section working interest not alone but with partners. On redirect he clarified that, of record through leasing and pooling, Ranken does own iooo/o of the working interest in the subject section. Mr. Clark Turney 3. Mr. Clark Turney was presented as Ranken's geologic witness and he said the area had forty acre units and they wanted to drill at a surface location of 334 feet from the north line and iz8 feet from the west line. He said he used log s to prepare Exhibit 4 subsea depths for mapping. He did not use wel l information to prepare other maps. He testified Ranken wants to drill to a n Oil Creek target in an updip position away from a fault. The Jenny i-8 wel l was drilled (under emergency order number dated June 30, zoio) afte r reviewing information from older wells. Casing has been set in the Jenny i- 8 well.

4 Report of Administrative Law Judg e Cause CD No , Ranken Energy Company Page 4 of 6 4. Exhibit 6 is the down hole survey for the Jenny i-8 well. Mr. Turney admitted using this survey information for the subsea depths shown on exhibit 4. He did not use the survey to prepare any other exhibits. 5. On cross-examination Mr. Turney said he had reviewed the customar y sources for geologic information, had multi-year experience in the area an d had constructed a regional study. He thought an isopach map unnecessary fo r this proceeding because the Oil Creek is ioo-iio feet thick blanket formation i n the area. Ranken drilled into a structural high point to find a hydrocarbon trap. Mr. Turney said he did not believe Oil Creek thickness was an issue i n this matter. He thought the issue involved the higher structure and it s trapping mechanism (faulting is in the area). Either the Oil Creek thicknes s was about the same in area wells or he did not know the thickness in som e wells. Mr. Tames Hulin g 6. Mr. James Huling testified as Ranken's engineering witness and he said there would be no offset impact and no penalty should be given for the oil well. On cross-examination he testified Ranken requested a location exception becaus e they wanted the well located at a structural high point with a trappin g mechanism. He stated the Jenny i-8 well would not be detrimental to the north offset and added that the north offset could drill a mirror well on the same structure after Ranken had proved success. On re-direct he said the wel l would have a compact horizontal drainage area and a more expansive vertica l drainage area. Ranken added, in closing, that the well was moving only 83 fee t closer to the offset and expert engineering testimony showed there would b e no offset impact. Lario presented no witnesses. G. Findings of Fact i. Ranken owns tooofo of the working interest. They have drilled the well pursuant to an Emergency Order and await completion. Z. Ranken drilled the well at a structural high point to find a hydrocarbon trap. 3. All of the Ranken witnesses were qualified in their respective areas as expert witnesses. 4. Lario presented no witnesses and presented no exhibits. 5. Notice of this proceeding is governed by OAC 165:5"7-9(a) 6. Proper notice of this proceeding was given pursuant to law and rules of the Commission.

5 Report of Administrative Law Judg e Cause CD No. 20I , Ranken Energy Company Page 5 of 6 H. Conclusions of La w I. Because Ranken owns iooo/o of the working interest they have a clear right to drill. They have drilled pursuant to an emergency order and need to complete the well so they may recoup a substantial financial commitment. Ranken's Geologist analyzed area data and has considerable experience in the area. He said the Oil Creek target formation was a thick blanket formation with little variation in the area. The reason for the location exception was structure. 2. Ranken's Engineer testified there would be no adverse impact to offset areas and they had only moved the well 83 feet closer to the offset. He said Ranken, if successful, would prove reserves in the higher structure. Reserves in this hydrocarbon trap would allow the offset to drill a well in the same up structure position. 3. Ranken's structural idea, exhibits and expert testimony provide persuasive evidence to support the location exception. Ranken's Geologist admitted using survey and log information to prepare subsea depths for Exhibit 4. He stated he did not use the survey or logs to prepare any other exhibits. 4. Lario presented no exhibits or witnesses. Lario was unavailable for this hearing on the merits at any other time from July to September. This date was set only after Commission order. Lario said they needed logs to present their side of the case and, according to Ranken, these were requested only last week. Ranken used the logs to prepare subsea depths on one exhibit. 5. The entire reason for the location exception was to move up structure to find a structural trap. Lario does not make a compelling case for continuing the matter and their motion was denied. Also, since Lario presented no exhibits or witnesses their entire case was apparently based on the Ranken logs. When asked why Lario opposed this cause, they responded that wells should be drilled on pattern. As noted by the Ranken Engineer, this well may prove reserves for a north offset mirror well, hardly an endorsement for drilling on pattern. 6. Ranken has the right to drill (ioaoio working interest), has a legally and factually sufficient reason for a location exception (move up structure), has shown through competent engineering there will be no adverse impact to the north offset and they may prove existing hydrocarbons for a mirror project in the north offset, preventing waste. The Ranken application is recommended granted. Respectfully submitted this day of October, zoio. - /j~ 2. PA L PORTER Administrative Law Judge

6 Report of Administrative Law Judge Cause CD No. 20I002425, Ranken Energy Company Page 6 of 6 PEP/sh cc Charles Helm John Moricoli Office of General Counsel Oil Law Records Commission Files F:/U ser-ap/d ata/ P aul Porte r/r epoxis/to-z4z5 Ranken v Lario