APPLICANT: BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA CHESAPEAKE OPERATING L.L.0 AND CHESAPEAKE EXPLORATION, L.L.C. F MAY 09 2016 COURT CLERK'S OFFICE - 0KG CORPORATION COMMISSION OF OKLAHOMA L E 0 RELIEF SOUGHT HORIZONTAL SPACING CD 201502847 LAND COVERED SECTION 29, TOWNSHIP 18 NORTH, RANGE 6 WEST OF THE IM KINGFISHER COUNTY, OKLAHOMA APPLICANT: RELIEF SOUGHT LAND COVERED CHESAPEAKE OPERATING L.L.0 AND CHESAPEAKE EXPLORATION, L.L.C. WAIVER OF CONSENT ) REQUIREMENTS OF 0CC ) RULE 165:5-7-6 ) SECTION 29, TOWNSHIP 18 NORTH, RANGE 6 WEST OF THE IM KINGFISHER COUNTY, OKLAHOMA CD 201503823 REPORT OF THE ADMINISTRATIVE LAW JUDGE This Cause came on for hearing before Michael Porter, Administrative Law Judge for the Corporation Commission for the State of Oklahoma, on the 24th day of February 2016, at 8:30 a.m. in the Commission's Courtroom, Jim Thorpe Building, Oklahoma City, 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 Commission. CASE SUMMARY: Chesapeake filed an application to create horizontal spacing in Section 28, Township 18 North, Range 6 West of the IM, Kingfisher County, Oklahoma. Essentially, the spacing request was not contested. The parties recognize horizontal development is desirable. There were several wells producing from the requested common sources of supply. Chesapeake began to seek consent from various parties in the unit that had interests in those producing wells. After initially gaining multiple consents from some of the parties, Chesapeake was unable to gain consent from one of
CD 201502847 and CD 2015038232 Page 2 of 11 the parties. Once it became apparent they would not be getting the necessary consent from that interest. Chesapeake filed a waiver request with the Commission. RECOMMENDATIONS: It is the recommendation of the Administrative Law Judge that the requested Horizontal Spacing in CD 201502847 be approved. It is also the recommendation of the Administrative Law Judge that the Waiver of Consent Requirements of OAC 165:5-7-6 be granted by the Commission in CD 201503823. HEARING DATES: February 24, 2016 APPEARANCES: Richard Books. Attorney at Law, for Chesapeake Operating L.L.C. and Chesapeake Exploration L.L.C. Robert Miller, Attorney at Law, for Spring Valley Oil and Gas, Inc. Richard Grimes, Attorney at Law, for Kirkpatrick Oil and Gas Company, Inc. David Pepper, Attorney at Law, for Chaparral Energy L.L.C. FINDINGS Causes CD 201502847 and CD 201503823 are the applications of Chesapeake Operating L.L.C. and Chesapeake Exploration L.L.C. requesting an order for Horizontal Spacing and a Waiver of the Consent requirements of 0CC Rule 165:5-7-6 for Section 28, Township 18 North, Range 6 West of the IM, Kingfisher 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. No Emergency Orders have been issued by the Commission to Chesapeake Operating L.L.C. or Chesapeake Exploration L.L.C. related to these causes. 4. That Oklahoma Corporation Commission Order Number 630826 created a 640-acre spacing unit for the Cleveland common source of supply in adjoining Section 21, Township 18 North, Range 6 West, Kingfisher County, Oklahoma. 5. The following numbered exhibits were accepted into evidence on the 24th of February 2016:
CD 201502847 and CD 2015038233 Page 3 of 11 Exhibit 1. Exhibit 2. Exhibit 3. Exhibit 4. Exhibit 5. Exhibit 6. Exhibit 7. Exhibit 8. Exhibit 9. Exhibit 10. Exhibit 11. Changes to be made to Exhibit A (Respondent List) of the Application Consent to Formation of Horizontal Well Unit from Kirkpatrick Oil and Gas Company and Chaparral Energy, L.L.C. for the Phillips Unit C-I well completed in the Big Lime and Oswego common sources of supply Consent to Formation of Horizontal Well Unit from Chesapeake Operating L.L.C. for the Marion Caldwell No. 1 well completed in the Big Lime and Oswego common sources of supply Consent to Formation of Horizontal Well Unit from CBS Energy and EEC, Inc. for the Ruth Clark I well completed in the Oswego common source of supply Consent to Formation of Horizontal Well Unit from CBS Energy and EEC, Inc. for the Ruth Clark 2 well completed in the Oswego common source of supply Consent to Formation of Horizontal Well Unit from CBS Energy and EEC, Inc. for the Ruth Clark 3 well completed in the Oswego common source of supply Consent to Formation of Horizontal Well Unit from Kaiser-Francis Oil Company for the Gracey #2 well completed in the Big Lime and Oswego common sources of supply Consent to Formation of Horizontal Well Unit from Kaiser-Francis Oil Company for the Gracey #1-28 well completed in the Big Lime, Oswego and Skinner common sources of supply Plat map Stratigraphic Cross Section A-A Technical Response Form-No objection to Application Exhibit 12. Letter sent Certified Mail, with attached consent form, dated July 30, 2015, and addressed to Spring Valley Oil and Gas, Inc. at a P.O. Box in Drummond, Oklahoma from Chesapeake Energy to Spring Valley requesting Spring Valley's Consent to the Formation of a Horizontal Unit showing that Spring Valley is the owner of a 50% working interest with the right to drill in the Gracey #1-28 completed in the Big Lime, Oswego and Skinner common sources of supply and the owner of 0% of the working interest in the producing spaced 80 acre unit Exhibit 13. Letter sent Certified Mail, with attached consent form, dated July 30, 2015, and addressed to Spring Valley Oil and Gas, Inc. at a street address in Drummond, Oklahoma from Chesapeake Energy to Spring Valley
CD 201502847 and CD 2015038234 Page 4 of 11 requesting Spring Valley's Consent to the Formation of a Horizontal Unit showing that Spring Valley is the owner of a 50% working interest with the right to drill in the Gracey #1-28, completed in the Big Lime, Oswego and Skinner common sources of supply and the owner of 0% of the working interest in the producing spaced 80 acre unit Testimony of Michael Lovelace SUMMARIES OF TESTIMONY Mr. Michael Lovelace testified as a contract landman for Chesapeake. He testified that Chesapeake had the right to drill in Section 28. He indicated they had about a 47 percent interest in the proposed spacing unit. He stated in May of 1994, Spring Valley acquired a 50 percent well bore interest in the Gracey 1 well located in the West Half of the Southeast Quarter. He stated both respondent lists had the same persons named that were entitled to notice. He described the sources he used to find parties with bad or unknown addresses. He stated he examined the records found in the Canadian County courthouse and used Chesapeake's in-house records. Mr. Lovelace stated he contacted respondents with similar names, phone directories, and internet sources. He explained the use of internet resources such as Accurint, which searches multiple sources including the Oklahoma Supreme Court Network and the Oklahoma Department of Corrections inmate listing. He prepared Exhibit 1 to show the amendments and changes to be made to the respondent list. He agreed the lists name the mineral owners, overriding-royalty owners, working-interest owners and everybody that could share in production. He prepared Exhibit I to show any changes that needed to be made to the original respondent's lists. He testified notice was proper and that due diligence was used. He also requested the Commission approve service by publication only. He then proceeded to discuss the parties that he was able to get consent from prior to filing this cause. He stated Kirkpatrick operates the Phillips Unit C-i and had a 90 percent working interest in the well. Chaparral gave consent as owner of 90 percent working interest in the 80-acre unit where the Phillips Unit C-i is located. He said Chesapeake operates the Marion Caldwell Number 1 located in the West Half of the Northwest Quarter. Chesapeake, as owner of a 91.66 percent working interest and the owner of a 66.67 percent working interest in the unit, gave its consent to the formation of a 640-acre horizontal well unit. As to the Ruth Clark Numbers i, 2, and 3 the testimony was that they were able to get the consent from CBS Energy, owner of a 75 percent working interest in those wells and 80-acre spacing unit. Chesapeake also secured the consent of EEC Energy, owner of a 25 percent working interest in those wells and the 80-acre spacing unit to the formation of a 640-acre horizontal well unit. In the Gracey #2, he testified that they did not have consent from at least 50 percent of the working interest owners in that well. He said Chesapeake was able to obtain the consent of Kaiser-Francis, who is the owner of 50 percent of the working interest in the 80-acre spacing
CD 201502847 and CD 2015038235 Page 5 of 11 unit. He said the principal working-interest owner in the well was Energy Production. He agreed that if the wavier of consent is granted that Chesapeake would be getting a waiver for that interest in the Gracey #2. He said that waiver would be in addition to the requested waiver of the interests of Spring Valley in the Gracey #1-28 well. In the Gracey #1-28 Chesapeake was able to obtain the consent of Kaiser-Francis. owner of 75 percent of the working interest in the 80-acre spacing unit. He said MPMC, Inc. Willis Drilling Company, and Shiloh Oil Corporation own the other 25 percent of the working interest in the unit and that Chesapeake did not have their consent for that 25 percent. Chesapeake was also unable to get the consent of the working interests of Spring Valley in the Gracey #1-28. Mr. Lovelace agreed he attempted to get the parties consent by sending a request by certified mail. He indicated he had been unable to gain consent from Spring Valley et al. He further agreed that at least one of the concerns of Spring Valley is the location of the initial well that might be drilled in the unit by Chesapeake. He testified that Chesapeake had not determined a location for the well and agreed it was normal that a location would be unknown at this time in a spacing case. He testified that Chesapeake filed several spacings in this area without having a known location for a well. He agreed, at some point, Chesapeake would have to get a location exception when a location is determined. He further agreed that Chesapeake, if the applications are granted, would be willing to have a requirement in the order that any location exception [notice] would be required to be sent to Spring Valley so they know where that location is and could protest the location exception, if necessary. Upon cross-examination, Mr. Lovelace testified that Kirkpatrick, who gave consent, only owned in the well bore of the Phillips Unit C well and did not own unit rights where the well was located. He said that Chesapeake had Kirkpatrick's consent in an 80-acre unit in the West half of the Northeast quarter. He agreed that Chesapeake has the Mary Caldwell and has the right to participate in a proposed well. He testified EEC, Inc. operated the Ruth Clark Numbers 1, 2, and 3 and they had well bore rights. The operator of the Gracey Number 2 is Energy Production Company and they have well bore rights. Mr. Lovelace agreed that Chesapeake obtained their interest from Kaiser-Francis for well bore only. He further agreed that the Gracey #1-28 is operated by Spring Valley. He admitted that Kaiser-Francis gave Chesapeake a waiver, but that Chesapeake does not operate the wells. Mr. Lovelace stated Kaiser-Francis gave the wells to other operators and own only well bore rights. He also admitted that Kaiser-Francis has the right to participate in Chesapeake's horizontal well. He agreed with Mr. Books that Chesapeake got all of the consents that were required, except for two parties, Spring Valley and one other. He stated he did not get consent from three or four small working-interest owners in that well bore. He also agreed that Chesapeake got many more parties who consented as opposed to those who refused to consent. He further agreed that in an effort to try to get consent from Spring Valley, that Chesapeake sent a letter which resulted in a negative response, made the first phone call, with a negative response, and a second phone call with a negative result. He testified he thought they talked more than twice. He said he called many times and left messages. He said the second call was after Spring Valley had filed their protest. He agreed that he thought Chesapeake had made a good faith effort to try to get Spring Valley's consent.
CD 201502847 and CD 2015038236 Page 6 of 11 He agreed that Chesapeake was asking for concurrent spacing with the 80-acre units. He testified that the waiver was sent via certified mail or registered mail to each of the parties requesting a waiver. He was unsure of what date he sent out the waivers. He did have a copy of the receipt showing Spring Valley received the letter on August 10, 2015. He said the letter stated that Chesapeake was going to form a horizontal 640-acre unit and noted that Chesapeake needed 50 percent of the unit and well bore owners' consent to form the unit. The letter also asked them to sign to show that they consented to the formation of the 640-acre horizontal unit. He agreed that the letter had limited information, stating that Chesapeake wanted to form a 640-acre horizontal unit so sign the waiver. He added that he did call the operators and spoke with Spring Valley twice. He testified the content of the calls was similar. He indicated that the first call was to see if they were going to sign the consent, or if they planned to protest it. The second call was to see if they could come up with some solution to get it settled. He testified Spring Valley's concern was the proposed location of the well, which he added he did not know. Mr. Lovelace said he explained that Chesapeake was trying to form a 640-acre horizontal unit and that they would need Spring Valley's consent to form the unit on a 640-acre basis and that Chesapeake planned to drill a horizontal well. He agreed the phone calls were similar to the letter giving the same limited information and asking for their consent to form the horizontal spacing unit. Mr. Lovelace agreed that he did not know where the well is going to be drilled or how this requested spacing would protect his correlative rights. He testified that he told Spring Valley that Chesapeake would use best practices to avoid harm to their well. He said the best practices meant Chesapeake would operate and drill the well with best intentions, that Chesapeake would not do anything to harm the well by doing everything possible to stay away from their well and to drill it legally by staying over 600 feet away from their well. He agreed this was the information he gave the operators as protection of their correlative rights. He testified that once the spacing is in place that the picking a location would be bumped up in the priority. He again agreed that Chesapeake filed the case, asking for consent without any knowledge of what half section they would be drilling in. He agreed he told Spring Valley they should not object to this spacing, because they could object to the location exception when it was filed and that they should go ahead and sign the waiver. Mr. Lovelace added that he told Spring Valley that he could protest the location exception and hold Chesapeake up at that point. He said that he did not say that to Spring Valley to show them how they were protected, but rather to give them an option to get Chesapeake to settle a protest. Testimony of Walter Kennedy: Walter Kennedy testified as a geologist at Chesapeake. Without objection, his qualifications were accepted. He agreed that he had prepared Exhibit 9. He testified that Exhibit 9 showed an area greater that the usual nine section area. He said he did that to show reservoir similarity between the very economic well located about three miles to the east relative to the reservoir in Section 28. He discussed the Ooid 1 OH-24 well. He described that well as an extremely economic and successful well. He said he was trying to draw a comparison between the reservoir in both localities. His conclusion was that Section 28 is a great candidate for horizontal wells. He stated that the unit was a better candidate for horizontal wells in light of fact that the last well in Section 28 was drilled in the 1970s and the last vertical well in the nine-unit area was five years
CD 201502847 and CD 2015038237 Page 7 of 11 ago, subsequent to which that very operator drilled 11 horizontal wells. He agreed that he did not prepare an isopach or structure map. He stated he could show the Big Lime and Oswego are onmipresent in the unit by showing a map with Oswego wells on it. He further agreed that the Big Lime and the Oswego are invariably shown on well logs throughout this entire area of Oklahoma. He testified those logs show that the Big Lime and Oswego underlie the area that Chesapeake is trying to space. He testified that those formations will produce predominantly oil. Mr. Books asked to amend the spacing application to show the predominant hydrocarbon would be oil, a request that was granted. Mr. Kennedy stated the approximate top of the Big Lime would be 6300 feet and the top of the Oswego would be about 6330 feet. He testified that he would expect future development to be through horizontal wells. He agreed that if someone wanted to develop on a vertical basis, they would be able to continue to do so. Mr. Kennedy also agreed that since Spring Valley acquired their well, they have not drilled a well in this unit and that Chesapeake was willing to drill a horizontal well if they can get the horizontal spacing. He did not believe anybody would drill a horizontal well with the existing 80-acre spacing. He agreed that the creation of a horizontal drilling and spacing unit would be in the interest of preventing waste. He discussed the porosity of the formations, stating they were about a medium with 18 percent. He likened the porosity to Swiss cheese saying the porosity was present but the pore spaces were not connected, thus the formations had no permeability and were considered tight. He said that made the formations tight and good candidates for horizontal development. He said the same porosity was present in the vertical wells that have been drilled and they are not as successful as the Ooid 1OH-24. He said the horizontal Oswego wells should yield large quantities of oil in the range of EURs in the 500,000-600,000 barrels. He said even accounting for the oil that has already been taken, there is still more than enough in the Oswego to warrant a horizontal well. Mr. Kennedy testified that, according to the data he got from IHS data sources, he was not able to find any production data post 2013 from the well owned by Spring Valley. He admitted he did not check the records of the Oklahoma Tax Commission or Commission records. For the well bore that Spring Valley is in, Mr. Kennedy agreed that he was aware that Spring Valley only has a well bore-only farmout. He agreed that Spring Valley only has rights in a section of the well bore and could not drill another well. Mr. Kennedy then discussed Exhibit 10. He said it was a cross section that runs from west to east, from the George L. Yeoman to the Ruth Clark 2 in Section 28. It shows that the Oswego, which Chesapeake is going to target, is present and the reservoir is well developed. He said the exhibit tells him that the Oswego is appropriate for horizontal drilling because the formation is tight. He stated that Horizontal wells are more suitable in this case because, relative to a vertical well, a horizontal well will expose that long well bore to more surface area of the reservoir. He also stated the last vertical well that was drilled in the unit was in 1977. In the nine-unit area, the last vertical well was drilled by Chaparral in 2011. Since then Chaparral has drilled over 12 horizontal wells and have not drilled any additional vertical wells. Mr. Kennedy said this indicated to him, as a geologist, that the vertical well was a reservoir test and they thought this is a perfect reservoir for horizontal drilling. He said all of their subsequent activity has been through horizontal drilling. He testified that he thought future development in Section 28 would be horizontal. He testified in order to drill a horizontal well they needed the correct spacing. He agreed that granting the horizontal spacing would prevent waste. During re-direct examination, he testified that he used a vertical well with 17 feet of perforations because it was so close to the
CD 201502847 and CD 2015038238 Page 8 of 11 successful Ooid 10H-24. He admitted he did not make an economic study. His purpose in showing information about the successful well was to show the expected results to be equal or better than the Ooid I OH-24 well. He estimated a horizontal well cost in Section 28 would be about $3,500,000 on the high side and that Chesapeake was willing to drill a horizontal well in this section. Testimony of Kathy Romanesko: Kathy Romanesko testified as a senior staff reservoir engineer at Chesapeake. Her qualifications were accepted without objection. She characterized the 18 percent porosity as being typical in this area. This was based on her reading of a sonic log. She agreed that the 18 percent was typical of the vertical wells and that no one was willing to drill a vertical well. She believed a horizontal well here would be successful, agreeing that Chesapeake was willing to drill such a horizontal well. She testified a horizontal well would cost between 2.3 and 2.5 million dollars and with completion the cost would be 3.2 to 3.5 million dollars. She agreed that the last vertical Oswego well in this section was drilled in the 1970s and the last vertical well in the nine-section area was drilled in 2011. She stated that with Chaparral drilling only horizontal wells after that vertical well in 2011, horizontal development is much more appropriate. She indicated that she looked through various publicly available production data from the State of Oklahoma, the IHS site and the Pangaea site. She stated the last overall production she found was gas production in 2013, reported in March of 2013. She testified the gas production as of March was 1190 Mcf since the start of the year. She said that would equate to about 405 Mcf per month or 13.3 Mcf a day with no oil production reported at that time. She testified the last oil production was in December of 1998. She stated that given the fact that the Spring Valley well at its last production was producing 13 Mcf a day some three years ago, and that Spring Valley has never spent any money to actually drill a well here, it was her conclusion that the spacing should be granted. This would allow horizontal development to take place through horizontal drilling. She agreed that no well has been drilled in the Oswego for over 40 years. Ms. Romanesko further agreed that her company was not willing to drill a vertical Oswego well and that she knew of no one who was willing to drill a vertical Oswego well in the section. She admitted she heard that Spring Valley could not drill a well since they did not own anything outside the well bore and that they had never spent any drilling money in this unit. She stated she believed the application should be granted. She agreed with a series of statements made by Mr. Books indicating that Spring Valley was concerned about their well, that Chesapeake had not selected a location for their well and that Chesapeake would give notice to Spring Valley of any location exception for the first well, so that Protestants could appear at that time and protest. She also agreed that Chesapeake understands any well they drill here would have to be 600 feet from wells in the unit to include the Spring Valley well or have an exception granted to be closer than 600 feet from another well. She indicated that Chesapeake is going to do everything a prudent operator would do not to affect all of the wells where consent has been given, as well as the Spring Valley well. She agreed that Chesapeake does not want their well to affect other wells. She indicated further, there was no incentive for Chesapeake to affect other wells and, as an engineer, she would not want the frac to go towards one of the existing wells. She agreed that it could have a negative impact on their well, but it could also negatively impact Chesapeake's well. This would be because the frac goes to the other well and not the Chesapeake well, thus impairing the results for Chesapeake's well. She indicated she had some data from an offset section about the impact
CD 201502847 and CD 2015038239 Page 9 of 11 frac'ing had on existing wells. She testified in Section 21 of Township 18 North, Range 6 West, Kingfisher County, the Anderson 21-18-6 3H was drilled. There was also an existing vertical well named the William Lee 1-21 well. It was owned by Chesapeake. The Anderson 21-18-6 3H well was 150 feet from the existing vertical well. She testified that the Anderson was the first horizontal well that Chesapeake was drilling, and they wanted to know exactly how these fracs were propagating. They thought that if there were an impact it would be best to impact their own well. She continued saying that pressure gauges were dropped into the William Lee well and the well was shut in during the frac'ing procedure. The pressure was allowed to begin to build and things settled out in the gauges. She said when the frac was performed in the Anderson offset horizontal well, there was no spike or significant huge drop to indicate there was communication between the two well bores. She said the horizontal well had no effect upon the vertical well located 150 feet from the horizontal well. She added that after the Lee well was put back on production, it continued to follow the same relative trend that it had been before the horizontal well was frac'd. The oil production did not have any kind of negative drop and the water production did drop off slightly. She also described the effect of another horizontal well located in Section 30 of Township 18 North, Range 6 West, Kingfisher County, named the Emmerich 30-18-6 li-i. She testified there was a vertical well named the Emmerich 1 that was approximately 510 feet away. She said they did not use a pressure gauge in that well because there had not been any negative impact shown with the pressure gauge in the William Lee well. She said the well was shut in. She continued that when the well was turned back on, oil production actually increased slightly in the three months following. She said she checked production three months before and three months after the horizontal well was drilled and frac'd. She testified that in the three months after frac'ing, cumulative oil production actually went up a slight amount. She indicated it was a 17 percent increase in oil, a 25 percent drop in water, and about a 3 percent increase in gas production after the frac job on the horizontal well. She said the Emmerich vertical well was not affected by the Emmerich horizontal well. Ms. Romanesko agreed that there was no guarantee that horizontal wells won't affect vertical wells. She indicated that she was not aware of any instance in which a horizontal well negatively impacted a vertical well in the immediate nine-unit vicinity. She agreed that Chesapeake was not going to try to impact Spring Valley either negatively or positively. She testified that Chesapeake does not want to impact them at all, if possible. Upon cross-examination, Ms. Romanesko indicated that she was not aware of numerous lawsuits filed in Kingfisher County from horizontal wells frac'ing out vertical wells. She agreed that she was not aware of Chesapeake being involved in any of those lawsuits. She indicated she had not asked the Chesapeake legal department. CONCLUSIONS AND RECOMMENDATIONS After consideration of all the evidence presented, it is the recommendation of the ALJ that the requested Horizontal Spacing in CD 201502847 be approved by the Commission. Further it is the recommendation of the ALJ that the Waiver of Consent Requirements of OAC 165:5-7-6 be granted by the Commission in CD 201503823. CD 201502847 Chesapeake presented uncontroverted evidence to show that the Big Lime and Oswego formations are present throughout Section 28. Although no isopach or structure maps were
CD 201502847 and CD 20150382310 Page loofil presented, the maps in evidence show that Big Lime and Oswego wells are located through the unit. In addition, well logs were examined and a cross section was prepared to indicate further that the formations are omnipresent in this area of Oklahoma. The porosity was shown to be 18 percent but with low permeability. The uncontroverted evidence was that the formations were tight and thus good candidates for horizontal well development. Evidence also showed that the same porosity and permeability were present in the drilled vertical wells, but they were not as successful as horizontal wells that have been drilled in those same formations with the same parameters. The evidence further indicated that horizontal development would not take place on 80-acre units. Evidence also showed the last vertical well drilled to the formations in the unit was in 1977 with the exception of a test well in 2011. Since that time, no vertical wells have been drilled in the area. The requested horizontal spacing will prevent waste by allowing further development of the unit via the drilling of horizontal wells that cannot be done on the current 80- acre spacing. CD 201503823 Chesapeake exercised due diligence to locate each and every owner having the right to drill in any existing well and/or any drilling and spacing unit producing from the same common source of supply and/or any party entitled to production from the requested common source of supply as the proposed horizontal unit. This was evidenced by the multiple amended respondent lists filed in the cause as well as an exhibit admitted during the hearing. There was no dispute regarding the due diligence used to locate respondents for the horizontal spacing request. As to the bona fide effort to obtain consent from affected parties, Chesapeake presented uncontroverted evidence of their attempts to get waivers from other parties in the unit. Chesapeake received waivers from all other parties in the unit except Spring Valley. Evidence was presented that showed letters were sent to Spring Valley and that telephone conversations took place between the parties. It is apparent that Chesapeake attempted to get the consent of Spring Valley but was unsuccessful. Spring Valley countered that Chesapeake did not furnish enough information to Spring Valley. Specifically, Spring Valley wanted to know at what location Chesapeake intended to drill a horizontal well and how many wells Chesapeake intended to drill in the unit. Spring Valley indicated they would not sign a consent without knowing this information. Chesapeake indicates at the time of the spacing and this hearing, they did not know how many wells they might need or where the location of a well or wells would be in the unit. It is clear that a bona fide effort was made to get Spring Valley's consent, but it was not given leading to this hearing. Chesapeake did agree to give notice to Spring Valley of any location exception they apply for in the future in this unit, to allow Spring Valley to protest the requested location if they desire. The current method of development, based on 80-acre spacing, is to drill vertical wells. The evidence showed no vertical development has occurred since 1997. There was a vertical well drilled in 2011, but it appears be have been drilled for scientific purposes. By the evidence, the vertical wells that have been drilled were shown to be less successful than the horizontal wells in recovering hydrocarbons. To leave those hydrocarbons in place would be waste. It is apparent, based on the lack of vertical activity, that to drill vertical wells would be wasteful. This leaves horizontal development as the only viable way to produce the hydrocarbons present in the Big Lime and Oswego.
CD 201502847 and CD 20150382311 Page 11 of 11 As to correlative rights, Spring Valley recognizes that horizontal development is necessary, but objects to the manner in which Chesapeake proceeded. Spring Valley does have some concerns about any effect the horizontal well may have on their interests. The evidence showed that it was possible the vested interests of the Spring Valley could be affected by a horizontal well drilled nearby. However, uncontroverted evidence showed if there is an effect, it would be either minimal to no effect, a positive effect on production, or a reduction of produced water. Based on the evidence submitted, the correlative rights are protected as the testimony supports the position that the wells in the unit will not be harmed by the horizontal development in the common sources of supply requested. Thus for reasons stated above, it is the recommendation of the ALJ that both applications be recommend for approval by the Commission. RESPECTFULLY SUBMITTED THIS 91 day of May, 2016. 12j.porte Administrative L dge cc: Richard Books Robert Miller Richard Grimes David Pepper Michael Decker Oil-Law Records Commission File Office of General Counsel