BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA. Contempt, Fines and Compliance with Commission Rules

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1 BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA I L E APPLICANT: RESPONDENT: RELIEF SOUGHT: Lori Wrotenbery, Director, ) FJWN Oil and Gas Conservation Division Oklahoma Corporation Commission COURT CLERK'S FPI TULSA CORPORATION d OF OkHM & Travelers Casualty and Surety Company of America Contempt, Fines and Compliance with Commission Rules CAUSE NO. ITN: REPORT OF THE ADMINISTRATIVE LAW JUDGE This cause came on for hearing before Kathleen M. McKeown, Administrative Law Judge (AU), in the Oklahoma Corporation Commission's (Commission) courtroom, Kerr Building, Tulsa. Oklahoma, pursuant to notice given as required by law and the rules of the Commission for the purpose of taking testimony and reporting to the Commissioners. LEGAL DESCRIPTION 6 wells located in the E12 Section 27, T2IN, R08E, Pawnee County, Oklahoma CASE SUMMARY (NGCC) leased and operated the subject wells in the 1990s but once the lease was terminated by the mineral owner (Ms. Copple) in May NGCC was denied access to the lease lands to recover its equipment on the wells. HKH took a lease from the mineral owner in September 2009, pumped 2 of the wells and disposed into the disposal well on the lease. When Ms. Copple filed a complaint with the Commission field office in September 2011 regarding trash, debris and unplugged wells on the lease, the subject enforcement action was filed against NGCC, the last operator of record; HKH was later added as a Third Party Respondent pursuant to the Commission's motion. NGCC has taken responsibility for plugging 3 of the 6 wells on the lease but believes that HKH is the party responsible for cleanup and plugging of the remaining 3 wells.

2 RECOMMENDATION NGCC should be held responsible for plugging and cleanup of the Jobe #1A, Jobe #113 and Jobe #2A wells. HKI-I should be held responsible for plugging and cleanup of the Jobe #3A and Copple #1 wells. The parties should be held jointly liable for plugging and cleanup of the disposal well and tank battery area which were utilized when production and pumping occurred. HEARING DATE June 7, 2012 APPEARANCES Commission, represented by Connie Moore; HKH, represented by William Huffman; NGCC, represented by Stuart Campbell SUMMARY OF EVIDENCE EN T seeks compliance with Commission rules as to the plugging of the wells and cleanup/restoration of the leases on the subject lands. It also reserves the right to request the maximum amount of five thousand dollars ($ ) per violation per day as authorized by law for failure to timely plug the wells and file plugging records with the Commission. At the hearing the allegation against NGCC of failure to maintain proper surety was dismissed from the complaint. 2. Exhibits were marked and accepted into evidence as follows (sponsor name in parentheses): 1. Multi-Page Packet of Field Inspector investigative work (Commission) 2. Multi-Page Soil Analysis (Commission) 3. Arc View Map (NGCC) 4. Gate photograph (NGCC) 5. 9/1/09 Oil and Gas Lease (NGCC) 6. 7/30/10 Letter to Ms. Copple from NGCC (NGCC) 7. 12/9/10 Letter to Ms. Copple from Mr. Campbell (NGCC) 8. Purchaser Sign photograph (NOCC) 9. Jobe #3A Pumping Unit photograph (NGCC) 10. Jobe 41 Pump and Pit photograph (NGCC) 11. 1/3/11 Letter from NGCC to HKH with attached Return Receipt (NGCC) 12. Multi-Page Lease Production Data from Copple #1 Lease (HKH) 13. Multi-Page Lease Production Data from Jobe 1A, IB, 2 and 3 Leases (HKH) 2

3 EN I 3. On behalf of the Commission testimony was presented through Mike Brown, Oil and Gas Field Inspector. The subject action was initiated by a complaint from Ms. Copple regarding the trash and debris as well as the lack of production on the lease. Despite the assurances of NGCC that they are in the process of plugging 3 of the wells, as of a month before the hearing only some of the trash and debris had been picked up but no plugging or remediation of the lease had occurred. Soil samples taken from a tank battery leak show the soil salinity to be 7 times higher than normal at the beginning of the flow; at the end of the flow the salinity measured 2 times higher than normal. 4. On behalf of NGCC testimony was presented through Jeff Phillips, president of NGCC; and James Humble, oil and gas well driller and pumper. A. NGCC is a licensed and bonded operator that began operations on the Copple and Jobe leases in 1991; in May 2010 Ms. Copple informed NGCC that she had terminated this lease; negotiations to renew the lease with Ms. Copple failed. NGCC then stopped pumping the wells and began removing its equipment from the Jobe #la, Jobe 41B and Jobe 92A until a locked gate prevented access by NGCC to the lease; letters were sent on behalf of NGCC to Ms. Copple requesting access to the lease without success. A new lease dated September 2009 was taken by HKH from Ms. Copple; subsequently, signage on the gate, signage near the wells and changes to the records of electric service show that HKH was working on the lease from late 2009 through the summer of In January 2011 NGCC sent a letter with Commission forms for change of operator (Form 1073) to HKH requesting execution by HKI-1 so that NGCC would be removed as operator from the Jobe 41 (disposal well), Jobe #3A and the Copple #1; no response was received from HKH. NGCC also made a phone call to HKH in the beginning of 2011 asking for permission to strip its equipment from the wells; HKH responded by asking what it would take for NGCC to leave the wells as they were and let HK}1 take them over; NGCC did not specify any amount it would take for the lease operations. B. HKH hired a pumper to begin pumping the Copple #1 and Jobe #3A wells in July 2010; the Copple #1 never produced anything but saltwater; the Jobe #3A produced about '/2 barrel of oil per day the last 2 weeks before the pumping was discontinued on December 11, During the time that HKH was pumping the wells a small leak developed by the tank battery which was repaired by the pumper. 5. On behalf of HKH testimony was presented through Earl Hunt, Sr., owner of HKH. HKH took its September 2009 lease from Ms. Copple and changed out the gas motors on the wells replacing them with electric motors; a pumper was hired to pump the Copple #1 and Jobe #3A but no product was ever sold; HKH used the Jobe #1 (disposal well) while the producing wells were being pumped from July 2010 until mid-december The

4 & Iravelers Casualty and Surety Company of America, Respondent Form 1073s that were sent by NGCC to HKH were never received by HKH because Mr. Hunt was living and working in Pennsylvania by January NGCC had demanded that HKI-I pay $50, to NGCC before it would sign any change of operator forms; HKH would not pay that much for the well operations and, shortly after the money demand, HKH stopped pumping the wells, removed the electric equipment it had installed and sold one of three gas engines on the lease it mistakenly believed it owned. HKH then executed a release of its oil and gas lease in July 2011 and currently has no interest in the leases. RECOMMENDATIONS AND CONCLUSIONS After taking into consideration all of the facts, circumstances, evidence and testimony presented in the cause, it is the recommendation of the ALJ that the application in EN T be granted. NGCC should be held liable for the plugging of the Jobe #1A, Jobe #1B and Jobe #2A as well as restorationlremedjatjon of the associated welisites to include removal of all oil and gas equipment remaining at the weilsites. HKH should be held liable for the plugging of the Copple #1 and Jobe #3A as well as restorationlremediation of the associated weilsites to include removal of all oil and gas equipment remaining at the weilsites. Both NGCC and HKH should be held jointly liable for the plugging of the Jobe #1 saltwater disposal well including the restorationlremediation of the associated weilsite including removal of all oil and gas equipment remaining at the weilsite. 2. NGCC pumped all of the wells until it was informed that its lease was terminated in May 2010 at which point it began removing rods, tubing and other equipment from the lease until the gate prevented access. HKH received a lease in September 2009 and proceeded to convert 2 of the wells from gas to electric and began pumping those wells in July While operations were never formally transferred from NGCC to HKH on the Jobe #3A and the Copple #1, HKH does not deny that it pumped the wells and used the Jobe #1 as a disposal well. 3 The ALJ finds that both entities acted as owners and operators of the wells given that both had leases and as defined by 0CC OGR 165: which states: and "'Operator' means the person who is duly authorized and in charge of the development of a lease or the operation of a producing property." "Owner' means the person or persons who have the right to drill into and to produce from any common source of supply, and to appropriate the production either for himself, or for himself and others." Therefore, as owners and operators of the wells both parties have a duty to plug the wells in a timely manner. (DCC OUR 165: ) NGCC has already assumed responsibility for the Jobe #1A, Jobe #1B and Jobe #2A as it is the last party to operate those wells. 2

5 EN T HKH is the last party to operate the Copple #1 and the Jobe #3A despite never officially changing operations by filing the applicable Commission forms. As admitted on the record by I-IKH and not disputed by NGCC, the Jobe #1 is the saltwater disposal well for the producing wells and was used by both parties at different points in time, therefore the parties are jointly and severally liable for plugging and remediation of this well. (0CC OGR 165: b) Thus, in light of the aforementioned conclusions, it is the recommendation of the ALJ that the application in be granted. Any order issuing out of the cause should contain the recommendations set forth above. Respectfully submitted this 15 th day of June 2012, THLEEN ~MMCKEOWN Administrative Law Judge

BEFORE THE CORPORATION COMMISSION OF THE STATE OF FULCRUM EXPLORATION, L.L.C. POOLING REPORT OF THE ADMINISTRATIVE LAW JUDGE

BEFORE THE CORPORATION COMMISSION OF THE STATE OF O1 L E NOV 2 1 2013 APPLICANT: RELIEF SOUGHT: FULCRUM EXPLORATION, L.L.C. POOLING OURi LLLI(% ) Utt CORPORATION COw.41s OF OKLAHOMA CAUSE CD NO. CKC LEGAL