BEFORE THE CORPORATION COMMISSIONOF THE STATE OF OKLM1OMA

APPLICANT: YDF, INC.

RELIEF SOUGHT:

LEGAL DESCRIPTION:

APPLICANT:

APPLICATION FORADMINISTRATIVE APPROVALFOR A COMMERCIALSALTWATER DISPOSAL WELLSASSEEN SWD #1(#1609980026)

NE/4 SW/4 OF SECTION 26,TOWNSHIP 12 NORTH, RANGE6 WEST, CANADIAN COUNTY,OKLAHOMA

))) CAUSE PD NO.) 201600095

►)

:F LED

1 JUN 1 3 2017

YDF, INC. ))

COURT CLERK'S OFFICE - OKCCORPORATION COMMISSION

OF OKLAHOMA

RELIEF SOUGHT: APPLICATION FOR ) CAUSE PD NO.ADMINISTRATIVE APPROVAL ) 201600096FOR A COMMERCIAL SALT )WATER DISPOSAL WELL )SASSEEN SWD #2 )(#1609980027) )

)LEGAL DESCRIPTION: SW/4 SW/4 OF SECTION 26, )

TOWNSHIP 12 NORTH, RANGE )6 WEST, CANADIAN COUNTY, )OKLAHOMA )

REPORT OF THE OIL AND GAS APPELLATE REFEREE

These Causes came on for hearing before Andrew T. Dunn,Administrative Law Judge ("ALJ") for the Corporation Commission of the Stateof Oklahoma, on the 26th and 27th day of October, 2016, at 8:30 a.m. in theCommission's Courtroom, Jim Thorpe Building, Oklahoma City, Oklahoma,pursuant to notice given as required by law and the rules of the Commissionfor the purpose of taking testimony and reporting to the Commission.

PDS 201600095 86201600096 - YDF

APPEARANCES: Richard A. Grimes, attorney, appeared on behalf ofapplicant, YDF, Inc. ("YDF"); Richard J. Gore, attorney, appeared on behalf ofmany individuals, including Mike and Tommi Sue Fisher; Jeffery and PeggyKelly; Dr. James M. Brown; Terry and Mollie Miller; James and Susan Gill;Anthony Gatto; Raymond and Brenda Gatto; Warren G. Low; Ryan Bloom; KodiRoberts; Marilyn Sue Boewe; Jana C. Wilson; Ralph Earles; Shirley Shepard;Denise Baker; JoAnn and Earnest Bomhoff; Rob and Karen Ezell; Jack Eperly;Robert and Cyndi Moore; Bill and Pamela Kennedy; Rolla and StephanieBreedlove; Monte and Karen Fairchild; Dr. Curtis Brown; Jack and DonnaHough (collectively "Protestants"); and Susan Conrad, Deputy General Counsel,appeared on behalf of the Conservation Division, Oklahoma CorporationCommission.

The ALJ filed his Report of the Administrative Law Judge on the 7th dayof February, 2017, to which Exceptions were timely filed and proper noticegiven of the setting of the Exceptions.

The Appellate argument concerning the Exceptions was referred toPatricia D. MacGuigan, Oil and Gas Appellate Referee ("Referee"), on the 31stday of March, 2017. After considering the arguments of counsel and the recordcontained within these Causes, the Referee finds as follows:

STATEMENT OF THE CASE

PROTESTANTS TAKE EXCEPTION to the recommendation of the ALJ toapprove the applications of YDF for the two disposal wells, Sasseen SWD #1and Sasseen SWD #2.

Cause PD 201600095 is the application of YDF for administrative approval of acommercial saltwater disposal ("SWD") well, the Sasseen SWD #1 covering theC C NE/4 SW/4 of Section 26, T12N, R6W, Canadian County, Oklahoma.

Cause PD 201600096 is the application of YDF for administrative approval of acommercial SWD well, the Sasseen SWD #2 covering the C C SW/4 SW/4 ofSection 26, T12N, R6W, Canadian County, Oklahoma.

PROTESTANTS TAKE THE POSITION:

1) The ALJ Report is contrary to the law, contrary to the evidence,arbitrary, unreasonable and discriminatory, and fails to effect the ends of theprevention of waste and the protection of correlative rights as is required byapplicable laws of the State of Oklahoma.

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2) The ALJ's recommendation in paragraphs 128 and 136 that the twodisposal wells be authorized will result in waste because the formations intowhich the water will be disposed likely contain recoverable hydrocarbons whichwill be lost and said recommendation should, therefore, be reversed and thedisposal wells denied.

3) The ALJ's recommendation in paragraph 128 will also result in wastebecause it will make the proved undeveloped reserves in the formations belowthe injection interval uneconomic to recover resulting in waste and saidrecommendation should, therefore, be reversed and the disposal wells denied.

4) The ALJ's recommendation in paragraph 136 will result in fracturing ofthe injection formations, in violation of OCC-OAC 165:10-5-5(j), with disposedwater migrating to unknown areas which would result in pollution and saidrecommendation should, therefore, be reversed and the disposal wells denied.

5) The ALJ's recommendation in paragraph 136 should be reversed and thedisposal wells denied because the mineral and/or oil and gas leasehold owners

of the lands involved herein were not given notice.

6) The ALJ's recommendation should be supplemented, if they are not

denied, to provide that an independent third party, to be paid by Protestants,

be authorized to monitor the disposal wells with full access to verify daily

pressures.

7) Protestants request that the report of the ALJ should be reversed and the

two requested injection wells be denied or, if not denied, supplemented to

authorize independent monitoring of the disposal wells.

THE ALJ FOUND:

Preliminary Issues

Collective Summary of Statements by Protestants

1) The ALJ allowed individual protestants, all whom are represented by Mr.

Gore, to make statements. This was in addition to Mr. Gore's opening

statement as well as Mr. Grimes'.

a) The statements of counsel are unsworn, uncrossed testimony. In State v.

Torres, 87 P.3d 572, 585 (Okl. 2004), the Court held that unsworn statements

of counsel in a motion do not constitute evidence. In the present case, the ALJ

as a finder of fact did not consider the statements of counsel or of the

individual Protestants' evidence. Counsel for the Protestants, Mr. Gore, did not

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call any of the individual Protestants to testify, which would have subjectedthem to be sworn and to be cross-examined.

b) The question arises, then, of why the ALJ allowed the statements by theindividual Protestants when counsel could have made a collective summary ofthe group's objections. The answer for the ALJ's decision for allowing non-evidentiary statements was threefold.

c) First, the ALJ wanted the individual Protestants to communicate tocounsel his (or her) position and opinion regarding the proposed commercialSWD wells so as to better allow counsel to manage arguments and trial tacticsin the hearing that had just begun.

d) Second, the ALJ wanted to provide the individual Protestants theopportunity to have some psychological relief (catharsis) through the openexpression of the strong emotions associated with the proposed development ofthe commercial SWD wells. The ALJ noted at the time of the hearingProtestants' stress. The ALJ believes that this stress the Protestants feel is feltby other Oklahomans and it is important for the public to have a voice.

e) Third, the issues and objections by Protestants may be relevant in eventof an appeal. By allowing the statements, the ALJ promoted the making of acomplete record for future judicial contemplation.

"NIMBYS"

0 NIMBY is an acronym for the phrase "Not In My Backyard." NIMBY isalso a word used in the pejorative (a pejorative word or phrase is one that hasnegative connotations or that is intended to disparage or belittle) tocharacterize locals (usually people who live in a neighborhood or town) who donot want some form of proposed development taking place in their communityand/or near their homes. Often, the unwanted land use concerns acontroversial or dangerous activity. Often, the locals are not against thedevelopment or activity occurring in greater society so long as it occurs awayfrom where they live.

g) The term "NIMBY" was used by YDK's counsel and its witness, Mr.Smith, to describe the Protestants' protest. YDK's use of the term, overall, wasmeant to show that Protestants' opposition lacked thoughtful considerationbeyond their own personal interests. Through its use, it was implied that theSWDs should be pawned-off on some other locale rather than developed intheir own neighborhood as the Protestants supported the oil and gas industryand its associated activities so long as the development was outside of their

locale.

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h) The ALJ dismisses the use of this pejorative term to minimize thesignificance of the Protestants and their legal arguments. Who is to say theProtestants are wrong for wanting to protect their neighborhood from thenegative externalities of the SWDs? Who is to say that their view is selfish andnot reflective of the greater concern of the Oklahoma public for earthquakes?

i) There will be addressed in this report the jurisdiction of the Commissionand its authority to regulate YDF's SWDs. The legal arguments raised bycounsel, on both sides, will be addressed. The ALJ notes, though, that he doesnot minimize the legal arguments raised by the local public Protestants basedsolely on a negative characterization made by industry counsel.

Jurisdictional Charges and Decision of the ALJ Concerning Earthquakes

2) The Commission has the authority to restrain UIC activities (SWD wells)as a preventative measure to protect the public health and environment as wellas to abate nuisance.

Oklahoma Primary Enforcement Authority

3) The EPA delegated primary enforcement authority for the Federal UICprogram through Part C of the Safe Drinking Water Act ("SDWA") to the State ofOklahoma. The State of Oklahoma under 52 O.S. Section 139 granted theCommission exclusive jurisdiction over the Federal UIC program related toClass II wells. 52 O.S. Section 139 states that "The Corporation Commission isvested with exclusive jurisdiction, power and authority, and it shall be its duty,to make and enforce such rules and orders governing and regulating thehandling, storage and disposition of saltwater, mineral brines, waste oil andother deleterious substances produced from or obtained or used in connectionwith the drilling, development, producing, and operating of oil and gas wellsand brine wells within this state as are reasonable and necessary for thepurpose of preventing the pollution of the surface and subsurface waters in thestate, and to otherwise carry out the purpose of this act." 17 O.S. Section52(A)(i) states that the Commission shall have jurisdiction over: "the handling,transportation, storage and disposition of saltwater, mineral brines, waste oiland other deleterious substances produced from or obtained or used inconnection with the drilling, development, producing and operating of oil andgas wells." OCC-OAC 165:10-7-2(c)(8)(9) and (10) state that the Commissionhas jurisdiction over "(8) The handling, transportation, storage and dispositionof saltwater, drilling fluids, mineral brines, waste oil and other deleterioussubstances produced from or obtained or used in connection with the drilling,development, production, and operation of oil and gas wells at any facility oractivity specifically subject to Commission jurisdiction or other oil and gasextraction facilities and activities. (9) Spills of deleterious substancesassociated with facilities and activities specified in O.A.C. 165: 10-7-4(c)(8) or

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otherwise associated with oil and gas extraction and transportation activities.(10) Groundwater protection for activities subject to the jurisdictional areas ofenvironmental responsibility of the Commission." The Commission is therebycharged to "carry out the purpose" of the Federal UIC program by enforcing itsrequirements (as provided under 40 C.F.R. Section 145.1(f)). 40 C.F.R. Section145.1(f) states that: "Any State program approved by the Administrator shall atall times be conducted in accordance with the requirements of this part." Note:The Commission is also not precluded from adopting or enforcing requirementsthat are more stringent than the federal regulations (under 40 C.F.R. Section145.1(g)(1)) See 40 C.F.R. Section 145. 1 (g)(1) which states that: "Nothing inthis part precludes a State from adopting or enforcing requirements which aremore stringent or more extensive than those required under this part." Theimportance of the Commission's authority to restrain individuals engaged insuch endangering or damaging activities is implicit in the state's delegation ofjurisdiction to the Commission authority over the Federal UIC program as sucha delegation creates the exclusive obligation of the Commission to ensure UICoperations are being conducted properly statewide. See 52 O.S. Section 139;17 O.S. Section 52(A)(i) and OCC-OAC 165:10-7-2(c)(8)(9) and (10). It is theduty of the Commission to "carry out the purpose" of the federal law byrestraining, when necessary, individual activities that pose an imminent risk to

the public health, safety, and welfare. See 42 0.S. Section 139.

4) The Commission's authority to restrain any person from engaging in any

activity which endangers or causes damage to public health or the environment

derives from these delegations of primary enforcement authority. 40 C.F.R.

Section 145.13(a) states that "Any State agency administering a program shall

have available the following remedies for violations of State program

requirements: (1) To restrain immediately and effectively any person by order or

by suit in State court from engaging in any unauthorized activity which is

endangering or causing damage to public health or environment." This power

to restrain extends over any individual who is engaged in the potentially

endangering or damaging activities involving "the handling, transportation,

storage and disposition of saltwater, mineral brines, waste oil and other

deleterious substances produced from or obtained or used in connection with

the drilling, development, producing and operating of oil and gas wells." See 17

O.S. Section 52(A)(i).

5) Commission rules have been promulgated under these federal and state

delegations of exclusive authority which govern the location, installation and

operation of Class II wells in a manner that protects against harm to the public

health or environment. See 52 O.S. Section 139; 17 0.S. Section 52(A)(i) and

OCC-OAC 165:10-7-2(c)(8)(9) and (10). OCC-OAC 165:10-5-9, titled "Duration

of underground injection well orders or permits" provides under subsection (a)

the Commission power over disposal well permit revocations for "just cause."

OCC-OAC 165:10-5-9 states that "(a) Subject to 165: 10-5-10, authorization of

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injection into enhanced recovery injection wells and disposal wells shall remainvalid for the life of the well, unless revoked by the Commission for just cause orlapses and becomes null and void under the provisions of 165:10-5-5(g). (b) Anorder granting underground injection may be modified, vacated, amended, orterminated during its term for cause. This may be at the Commission'sinitiative or at the request of any interested person through the prescribedcomplaint procedure of the Conservation Division. All requests shall be inwriting and shall contain facts or reasons supporting the request. (c) An ordermay be modified, vacated, amended, or terminated after notice and hearing if(1) There is a substantial change of conditions in the enhanced recoveryinjection well or the disposal well operation, or there are substantial changes inthe information originally furnished. (2) Information as to the permittedoperation indicates that the cumulative effects on the environment areunacceptable. (d) If an operator fails to complete or convert a well as approvedby the Conservation Division within eighteen (18) months after the effectivedate of the order or permit authorizing injection into the well, then the order orpermit authorizing injection into the well shall expire." Continuing, subsection(c) of OCC-OAC 165:10-5-9 stipulates that Commission orders may be"modified, vacated, amended, or terminated after notice and hearing if': (1)There is a substantial change in conditions in the enhanced recovery injectionwell or the disposal well operation, or there are substantial changes in theinformation originally furnished. (2) Information as to the permitted operationindicates that the cumulative effects on the environment are unacceptable. SeeOCC-OAC 165:10-5-9.

6) To summarize, OCC-OAC 165:10-5-9(a) provides that disposal wellpermits may be revoked for "just cause" and OCC-OAC 165:10-5-9(c)authorizes, after notice and hearing, that the Commission may modify, vacate,amend or terminate any order granting underground injection upon its owninitiative if information related to the operation of a well indicates evidence ofsubstantial change or unacceptable environmental effects. See O.A.C. 165: 10-5-9. Therefore, the Commission has explicit authority to revoke disposal wellpermits under OCC-OAC 165:10-5-9.

7) It stands to be noted that the Commission also has authority to denydisposal well permits under OCC-OAC 165:10-5-9. Legal reasoning leads tothe aforementioned conclusion: If the Commission has the authority to modify,vacate, amend or terminate any order that has been granted (permittingunderground injection) based on new information of substantial change orunacceptable environmental effects, it also has the authority to modify, vacate,amend, or deny an application (seeking underground injection) for the samereasons. See OCC-OAC 165:10-5-9. Therefore, in addition to its explicitauthority to revoke a permit, the Commission also has the implied authority to

deny a permit.

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8) Commission rules have been promulgated under the federal and statedelegations of exclusive authority to govern the location, installation, andoperation of Class II wells in a manner that protects against harm to the publichealth and the environment. See 52 0.S. Section 139; 17 0.S. Section 52(A)(i)and OCC-OAC 165:10-7-2(c)(8)(9) and (10). OCC-OAC 165:10-5-9 provides, insummary, that underground injection is to be regulated based on theenvironmental impacts of its associated activities. Therefore, the Commission,through its promulgation and enforcement of rules regulating undergroundinjection carries out the purpose of the federal law by restraining, whennecessary, individual activities that pose an imminent risk to the public health,safety, and welfare. See 52 O.S. Section 139.

9) The primary context for enforcing these rules has been regulation of UICactivities which may endanger the public health or environment in regards tothe groundwater and surface water of the state. Initially, Commission rulespromulgated to govern the location, installation and operation of Class II wellsin accordance with the Federal UIC program (including OCC-OAC 165:10-5-9)were applied with a focus on protecting groundwater and surface water frompollution as harm to the ground and surface waters represents anendangerment to the public health and environment.

10) The contemporary context for enforcing these rules is to regulate UICactivities which endanger the public health or environment in regards toseismicity. Presently, the recent phenomena of frequent seismic eventsrequires refocusing the application of the Commission's rules as earthquakesendanger the public health and environment of the state. It is commonknowledge that earthquakes are capable of causing catastrophic damage to anysociety. So far, we Oklahomans have been relatively fortunate that themajority of the recent earthquakes have not resulted in tragedy, but innuisance.

11) The authority of the Commission to address the risks and dangers ofharm to property, human health safety, and the environment arising frominduced seismicity derives from the same delegation to the Commission ofjurisdiction over UIC operations cited to protect against pollution. The samerestraining powers of the Commission extend to preventing the same subjectsfrom risks of harm-only now those risks come from earthquakes rather thansurface and groundwater pollution. The increasing frequency and magnitudeof earthquakes requires a new analysis of the harm UIC wells present to thestate's public health and/or environment. Furthermore, it is not beyond theCommission's authority to take preventative, restraining measures based on

the information available. Such restraints, when used to protect property,human health and safety, and the environment, "carry out the purpose" of

these federal and state acts. See 52 O.S. Section 139. Note: While the science

linking oil and gas activity to induced seismicity has not been settled

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conclusively, the Commission has authority to restrain UIC activities as apreventative measure to protect the public health and environment.

12) The caveat to this authority is that the science linking oil and gas activityto induced seismicity has not been settled conclusively. Fortunately, theCommission does not need to wait for science to catch-up and demonstratedefinite causation. Rather, correlation is enough for the Commission to act ingood faith to prevent earthquakes that may be caused by UIC Class II wells,otherwise known as SWD wells. The Commission has broad authority toregulate UIC Class II wells to protect the state from activities that mayendanger or cause damage to the public health and that authority is notlimited by the type of cause of harm, whether it be pollutants, earthquakes, orsome other harm inducer.

13) It stands to be noted, that induced seismicity is not "pollution" per se."Pollution" is defined under OCC-OAC 165:10-1-2 as the contamination offresh water or soil, either surface or subsurface, by salt water, mineral brines,waste oil, oil, gas, and/or other deleterious substances produced from orobtained or used in connection with the drilling, development, producing,refining, transporting, or processing of oil or gas within the State of Oklahoma."See OCC-OAC 165:10-1-2 .

14) While induced seismicity does not fit into the definition of pollution,earthquakes are known to cause the release of energy vibrations and shockswhich can damage the facilities and equipment used in oil and gas activities.Such destruction could very likely lead to pollutant releases into thegroundwater and surface water of the state, the exact type of releases which

the SDWA seeks to prevent. Therefore, the Commission has the power torestrain underground injection for its potential to cause earthquakes which

would, in turn, cause harm to the public health and environment through

injury to the ground and surface waters of the State of Oklahoma.

15) Additional sources exist that provide the Commission the power to

protect property, human health and safety, and the environment. These

sources derive from interpretations of the Commission's rules. The

Commission is thereby empowered to regulate UIC activities accordingly under

these sources of authority.

In pari materia

16) The legal doctrine of in pari materia provides that statutes and rules with

a common purpose and comparable subject matter "should be construed

together as one system of regulations." See Fiske v. Framingham Manufacturing

Co., 29 Mass. (12 Pick.) 68 (1831). Under this accepted legal principle, this

public policy set forth for the regulation of storage tanks should extend to the

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regulation of Class II UIC wells and systems since both sets of statutes andrules have the common purpose and comparable subject matter of oil and gasconservation. The Commission is authorized to issue orders necessary toprotect property, human health and safety, and the environment with respectto the risks and hazards associated with above ground storage tanks. OCC-OAC 165:26-1-26(a) states that "The Commission will issue orders asnecessary to enforce the provisions of this Chapter to protect property, humanhealth and safety, and the environment." It stands to logic that theCommission has authority to protect property, human health and safety, andthe environment in Oil and Gas Conservation matters other than storagetanks.

Public Nuisance

17) The Commission has the power to stop public nuisances that arise fromoil and gas activities. In Union Texas Petroleum Corp. v. Jackson, 909 P.2d 131(Ok.Civ.App. 1995) the Court defined a nuisance as "unlawfully doing an act oromitting to perform a duty, which act or omission either annoys, injures orendangers the comfort, repose, health or safety of others or in any way rendersother persons insecure in life or in the use of property." Union states that "Anuisance consists in unlawfully doing an act or omitting to perform a duty,which act or omission either annoys, injures or endangers the comfort, repose,health or safety of others or in any way renders other persons insecure in lifeor in the use of property. 50 O.S. 1991 §1; Cities Service Oil Company v. Merritt,332 P.2d 677, 684 (Okla. 1958). In Cities Service, the Supreme Courtdetermined the basis of liability for injury or damage to property by pollution ofsubterraneous waters, from oil, gas or saltwater from oil wells, must be eithernegligence or nuisance. Cities Service, at 684. Cities or towns may seekabatement of a public nuisance, including protection of public water supplies,within their respective corporate limits in district court. 50 0.S. 1991 Sections16, 17. A public nuisance is one which affects at the same time an entirecommunity or neighborhood, or any considerable number of persons, althoughthe extent of the annoyance or damage inflicted upon the individuals may beunequal. 50 0.S. 1991 §2; Miller v. State, 74 Okla. Crim. 104, 123 P .2d 699(Okla. Crim. App. 1942). The remedies for public nuisance are throughindictment or information, civil action, or abatement. 50 O.S. 1991 §8. Apublic nuisance may be abated by any public body or officer authorized theretoby law. 50 O.S. 1991 §11." The Court held that "although the proper forum fora landowner to recover damages for nuisance caused by encroaching saltwateris in district court, the Commission may proceed to abate such nuisance.Including assessment of liability therefore, in accordance with State statutesand court decisions, including the law of nuisance in order to enforcecompliance with its rules and regulations." See Union Texas, supra. Inducedseismicity, through releases of energy vibrations and shocks, fits the definition

of a public nuisance as it can injure or endanger the comfort, repose, health, or

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safety of others or render people insecure in life and use of property.Therefore, the Commission has authority to assess and to abate a publicnuisance related to induced seismicity.

18) In conclusion, the Commission has exclusive jurisdiction to govern thelocation, installation and operation of Class II wells in a manner that protectsagainst harm to the public health or environment for all of the legal reasonsaforementioned in the ALJ's Report.

19) Decision of the ALJ: Witnesses for Commission staff testified that thesewells do not pose, based on current scientific knowledge and understanding, aseismic threat or threat to the base of treatable water. Mr. Lord testified thathe discussed with Oklahoma Geological Survey ("OGS") these seismic eventsthat occurred in August and October 2016 within six miles of the subject wells.Mr. Lord testified that these seismic events, according to OGS staff, were strayevents not caused by oil field activity. There is no seismic activity occurringrecently in this area except these events. Mr. Lord testified that he agreed thatthere are two YDF SWD wells, mapped in blue triangles, in the eastern part ofthe map on Exhibit 16 and that no seismic events are in the immediate area ofthose wells. Mr. Lord testified that Canadian County is an area not generallyknown for its seismicity other than a 5.5 magnitude earthquake that occurredin 1952. Furthermore, Mr. Lord testified that both wells will protect the basetreatable water and that the UIC department supports the applications fromthat aspect as the wells will have sufficient surface casing cement. The witnessfor YDF, Mr. Smith, testified that UIC has not had any objection based onseismic concerns as to the proposed operations and that seismic concerns andconcerns regarding the treatable water are issues with which he is familiar.Mr. Smith met with Commission UIC staff regarding this case. The purpose inthis meeting, and prior meetings, was to see if any additional informationshould be submitted outside of the Form 1015 and all attachments. Requests

for additional data were not made by Commission staff. Mr. Smith testifiedthat Commission concerns are with Arbuckle disposal wells and basement

faults near those wells. As well, Mr. Smith testified regarding intervening

thickness, which is the distance between the upper most zone of disposal and

the base of treatable water near the surface. This is roughly one-half mile at

2,630 feet. This amount of intervening rock is sufficient to protect the

treatable water, according to Mr. Smith. Therefore, the ALJ decided that there

is no risk for the Commission to abate in this case because, absent a seismic

threat and/or absent a threat to the treatable water, there is no public

nuisance or some other risk to human health, safety, and welfare. Witnesses

for Commission staff and for YDF testified that these wells do not pose, based

on current scientific knowledge and understanding, a seismic threat or threat

to the treatable water. This is because the wells are disposing into formations

shallower than the Arbuckle formation, which is the specific zone of interest

wherein seismic events may be correlated with disposal activities. And, this is

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because the wells, as they will be constructed, will have sufficient surfacecasing and intervening rock to protect the treatable water. Therefore, for theforegoing reasons, the ALJ decided that seismicity and the base of treatablewater arguments raised by Protestants fail at this time.

Jurisdictional Charges and Decision of the ALJ Concerning the Preventionof Waste and Commission Preemption of 52 O.S. § 137.1.

Prevention of Waste

20) The Commission shall have the power to establish well spacing anddrilling units, upon proper Application and notice, in order to "prevent or toassist in preventing the various types of waste of oil or gas, or any wastes." See52 O.S. Section 87.1(a). Waste includes "economic waste" and "the use ofreservoir energy for oil producing purposes by means or methods thatunreasonably interfere with obtaining from the common source of supply thelargest ultimate recovery of oil." See 52 O.S. Section 86.2. With respect to theCommission's authority under the police power of the State of Oklahoma to

prevent waste, it is noted that Grison Oil v. Corporation Comm'n, 99 P.2d 134,443 (Okl. 1940), ruled that: "The prevention of waste by Application ofgovernmental power and supervision recognized the interest of the state in thepreservation and proper usage of an exhaustible natural resource of

inestimable value to the general welfare of the people as a whole. It is therefore

justified upon invocation of the police power of the state."

21) Decision of the ALJ: The ALJ disagrees with Protestants' assertion that

waste will occur if YDF's SWD wells are approved. Rather, it is the ALJ's

opinion that that YDF's SWD wells will prevent waste from occurring as

underground injection is a complimentary operation to oil and gas extraction.

YDF's SWD wells will provide operators another option for disposing produced

water, expanding the accessibility of disposal opportunities in the area and

thereby encouraging oil and gas development. The AI.J's opinion is further

bolstered by the lack of competing applications requesting relief related to

developing the formations sought for injection in the subject lands. No such

applications were presented to the ALJ at the time of hearing. Additionally,

this issue itself concerning waste prevention is improperly raised as none of the

Protestants own an interest in the common sources of supply sought for

disposal in the subject lands. Therefore, for the foregoing reasons, the ALJ

decided that the argument that waste will occur if YDF's applications are

approved fails and, alternatively, decides that, in this instance, waste will be

prevented by YDF's Sasseen #1 and #2.

17 O. S. Section 52 - Corporation Commission - Jurisdiction; 52 O. S. Section 137.1

Authority of Localities to Regulate Oil and Gas Operations -Fracking- Preemption

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22) The Commission is vested with exclusive jurisdiction, power, andauthority over "the exploration, drilling, development, production and operationof wells used in connection with the recovery, injection or disposal of mineralbrines." See 17 O.S. Section 52(a). This includes "the handling,transportation, storage and disposition of saltwater, mineral brines, waste oiland other deleterious substances produced from or obtained or used inconnection with the drilling, development, producing and operating of oil andgas wells at any facility or activity specifically subject to jurisdiction of theCommission and oil and gas extraction facilities and activities. See 17 O.S.Section 52(a).

23) In 2015, Senate Bill No. 809 was passed and codified in 52 O.S. Section137.1. The statute outlines the authority of "a municipality, county or otherpolitical subdivision" (hereinafter "municipality") to regulate oil and gas activitywithin its boundaries concerning road use, traffic, noise and odors incidental tooil and gas operations. The municipality may "establish reasonable setbacksand fencing requirements for oil and gas well site locations as are reasonablynecessary to protect the health, safety and welfare of its citizens. See 52 O.S.§ 137.1. This authority is limited, though. The body of the statute states thatthe municipality may not mandate any regulation inconsistent with 52 0.S. orestablished by the Corporation Commission nor may the municipality"effectively prohibit or ban any oil and gas operations," including thespecifically cited produced water disposal. See 52 O.S. Section 137.1.Furthermore, "[ a]ll other regulations of oil and gas operations shall be subjectto the exclusive jurisdiction of the Corporation Commission." See 52 O.S.Section 137.1. The text of 52 O.S. Section 137.1 - Authority of Localities toRegulate Oil and Gas Operations - Fracking - Preemption states: Amunicipality, county or other political subdivision may enact reasonableordinances, rules and regulations concerning road use, traffic, noise and odorsincidental to oil and gas operations within its boundaries, provided suchordinances, rules and regulations are not inconsistent with any regulationestablished by Title 52 of the Oklahoma Statutes or the CorporationCommission. A municipality, county or other political subdivision may alsoestablish reasonable setbacks and fencing requirements for oil and gas well sitelocations as are reasonably necessary to protect the health, safety and welfareof its citizens but may not effectively prohibit or ban any oil and gas operations,including oil and gas exploration, drilling, fracture stimulation, completion,production, maintenance, plugging and abandonment, produced waterdisposal, secondary recovery operations, flow and gathering lines or pipelineinfrastructure. All other regulations of oil and gas operations shall be subjectto the exclusive jurisdiction of the Corporation Commission. Provided,notwithstanding any provision of law to the contrary, a municipality, county orother political subdivision may enact reasonable ordinances, rules andregulations concerning development of areas within its boundaries which havebeen or may be delineated as a one-hundred-year floodplain but only to the

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minimum extent necessary to maintain National Flood Insurance Programeligibility."

24) The Oklahoma Attorney General (AG") issued an opinion (2015 OK AG12) addressing "the proper balance of regulatory power between the State andits localities" as it concerns the application of 52 O.S. Section 137.1. The AGnoted that this balancing act is a "common theme" in its quote from Edwardsv. City of Sallisaw, 2014 OK 86, stating that; "The line between a chieflymunicipal affair and a sovereign state interest is not well illuminated."

25) In the interest in "illuminating" the line between permitted municipalregulation of oil and gas operations and preemption of such regulation bysovereign state interest exercised by the Commission, the AG clarified thefollowing guidance in its official opinion, stating: (1) The provisions of 520.S.Supp.2015, § 137.1, which limit municipal regulation of oil and gasoperations, apply equally to charter municipalities organized under Okla.Const. art. XVIII, § 3 and non-charter municipalities. (2) The power of politicalsubdivisions to regulate oil and gas activity is limited to those areasenumerated in 52 0.S.Supp.2015, § 137.1, specifically (a) enacting reasonableordinances, rules, or regulations concerning road use, traffic, noise, and odorsincidental to oil and gas operations, (b) establishing setbacks and fencingrequirements for oil and gas well site locations as are reasonably necessary toprotect the health, safety, and welfare of their citizens, but that do noteffectively prohibit or ban any oil and gas operations, and (c) enactingordinances, rules, and regulations regarding development of areas that havebeen or may be delineated as a one-hundred-year floodplain but only to theminimum extent necessary to maintain National Flood Insurance Programeligibility. (3) Setbacks or fencing requirements for oil and gas well sitelocations adopted by a political subdivision that effectively prohibit certain

types of oil and gas drilling within the subdivision's boundaries conflict with 520.S.Supp.2015, § 137.1, and are therefore invalid. (4) A municipal ordinance

that conflicts with 52 O.S.Supp.2015, § 137.1 is invalid and unenforceable

regardless of when the ordinance was adopted or whether it provides for an

appeal process. (5) In addition to the aforementioned limitations, 52

O.S.Supp.2015, 137.1 requires regulations of oil and gas activity by political

subdivisions to be reasonable. To meet this standard, the local regulation

must bear a substantial relation to public health, safety, morals or general

welfare of the community, a determination that can only be reached by

examining the specific language of the regulation and the application to a

particular set of facts. In cases of uncertainty or reasonable debate, doubt will

be resolved in favor of finding the local regulation to be reasonable.

26) What is said in the statute and by the Oklahoma AG appears to be clear.

A municipality is authorized to establish such rules and regulations concerning

road use, traffic, noise and odors incidental to oil and gas operations only.

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A municipality is authorized to establish reasonable setbacks and fencingrequirements to protect the health, safety and welfare of its citizens for oil andgas well site locations. The regulations must be reasonable and the standardfor determining reasonableness is "the local regulation must bear a substantialrelation to public health, safety, morals or general welfare of the community."Outside of this, and any relevant 'regulations relating to maintaining NationalFlood Insurance Program eligibility, the Commission governs and its statutesand rules preempt any inconsistencies that may arise. The legislature did notgrant to the Commission the same enumerated powers it did to municipalitiesin 52 O.S. Section 137.1. This is because the community comprising themunicipality has the best knowledge as to what reasonable requirements itneeds for its populous. Thus, a local body is much better able to manage itsaffairs concerning those specific areas the legislature specifically set aside formunicipalities to have a sphere of influence (road use, traffic, noise, odors, andfencing) than the Commission.

27) In the present case, many of the issues raised concern subject matter

related to those enumerated powers granted to municipalities under 52 O.S.Section 137.1. The ALJ is wary of intruding into the municipal sphere of

hometown governance by imposing on YDF, regulation in addition to that

already required by the Commission. Especially in this instant case where

there is no issue of conflicting municipal regulations and Commission statutes

and rules. No municipal regulation was provided to the ALJ, which makes the

issue of a conflict between the two non-existent. Finally, it is also important to

note that many of the issues (and many of the fears) raised by Protestants are

not ripe for review as no injury has yet occurred by YDF's proposed operation.

28) Decision of the ALJ: Therefore, for the foregoing reasons, the ALJ does

not see it proper to impose on YDF any additional regulation than that the

Commission already requires. The legislature did not grant to the Commission

the same enumerated powers it did to municipalities in 52 O.S. Section 137.1.

A municipality is in a better position to regulate itself regarding the needs of its

citizens and community and the Commission is in the better position to

promote the development of oil and gas so as to prevent waste based on its

charges given by the Oklahoma Constitution and by the legislature. The

Commission is the proper body to determine whether or not its own rules are

pre-empted when a conflict between the Commission and a municipality exists,

but, absent that circumstance, the Commission will not step in to 'fill the

shoes' of a municipality by mandating requirements on oil and gas operations

outside of Commission statutes and rules and within the sphere of enumerated

authority given to municipalities.

29) Recommendation of the ALI: The Commission has exclusive jurisdiction

to govern the location, installation and operation of Class II wells in a manner

that protects against harm to the public health or environment for all of the

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legal reasons aforementioned in the ALJ report. The Commission also has theauthority to modify, vacate, amend, terminate, or deny any order permittingunderground injection for just cause based on new information of substantialchange or unacceptable environmental effect under OCC-OAC 165:10-5-9.Witnesses for Commission staff and YDF testified that these wells meet therequisite Commission standards. The main issue of difference between YDFand Protestant's engineering witnesses concerned whether the formationssought for injection approval would be fractured. OCC-OAC 165:10-5-5(j)provides that: "No Commercial disposal well will be permitted whose injectionpressure approaches or exceeds the demonstrated frac gradient of the injectionzones(s)." Therefore, for all of the foregoing reasons and decisions, the ALJdetermines that YDF's applications are recommended and that the propercourse is to have the causes issue as Interim Orders to re-open one year fromthe date each order issues from the Commission for YDF to submit evidencethat its Sasseen #1 and #2 operations are not exceeding the demonstrated fracgradient of the injection zones (i.e., are in compliance with OCC-OAC 165:10-5-5(j)). YDF will be allowed to operate at the present time as it gathers HallIntegral and derivative data for submission to the Commission. This data mustbe submitted with a calculated coefficient of determination (which is to providea 'goodness-of-fit' measure for the UIC department to interpret).

POSITIONS OF THE PARTIES

PROTESTANTS

1) Richard J. Gore, attorney, appearing on behalf of Protestants, believesthere is a clear violation of OAC-OCC Rule 10:5-5(j) which says no commercialdisposal well will be permitted whose injection pressure approaches or exceedsthe demonstrated frac gradient of the injection zone. Since the Protestants hadno contest with YDF's data, they used YDF's data in its calculations.

2) The Protestants believe the wells will exceed the frac gradient of theinjection zones if YDF injects as their applications requests. They note YDF didnot present any rebuttal testimony to the Protestants' witness. The Protestantsnote the frac gradient for the first year would be .97. Over time, they believethis will go past 100% and violate the Commission rules.

3) The Protestants disagree with the ALJ's Report in paragraph 136 thatthe main issue of difference between the engineering witnesses concerned"whether the formations sought for injection approval would be fractured."

They note only the Protestants discussed the frac gradient on the recordthough YDF did discuss the radius of endangerment. Further in same

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paragraph 136 the ALJ states "...YDF will be allowed to operate at the presenttime as it gathers Hall Integral and derivative data for submission to theCommission. This data must be submitted with a calculated co-efficient ofdetermination (which is to provide a 'goodness-of-fit' measure for the UICdepartment to interpret)." The Protestants dispute this statement as it was notentered in the record. The Protestants also believe the ALJ's requirement foran interim order will do nothing to keep YDF from fracking the formations.

4) The Protestants are aware of the recent preemptive rule adopted by theCommission to ensure that disposed water remains within the proper injectionzone; however, the Protestants believe the ALJ's ruling is inconsistent with theCommission rules. The Protestants note that once a rock is fractured there is aloss of water control, resulting in the injected water going elsewhere, possiblyinto nearby fresh water. The Protestants note if a frac gradient will beexceeded that a SWD well must automatically be denied. The Protestantsbelieve the ALJ's ruling is an attempt to side-step around the Commissionrules.

5) The Protestants live east and south of the two proposed SWD wells.They are concerned about the health, safety and welfare aspects of theirhomes. We note that 52 O.S. Section 137.1 discusses the above.

6) The Protestants note that formerly the OKC Board of Adjustments dealtwith oil and gas permits prior to the Commission taking this responsibility on.We note in these hearings the Board members considered unsworn, uncross-examined statements from citizens prior to deciding the case.

7) The Protestants know the ALJ allowed the Protestants to make theirobjections, yet on page 27, paragraph 100 the ALJ says "The statements of

counsel are unsworn, uncrossed testimony", citing the case of State v. Torres,

87 P.3d 527, 585 (Okl. 2004). The State case held that unsworn statements of

counsel do not constitute evidence. The Protestants assert the Commission,

now acting in the role of the former Board of Adjustment/City Counsel, should

consider the use of unsworn, uncross-examined statements of citizens before

deciding such cases.

8) The Protestants note in the ALJ Report, pages 27-28 he implies the

surface owners have no standing in the YDF applications to complain about

waste. The Protestants acknowledge the mineral owners did not protest the

YDF applications.

9) The Protestants note that YDF gave proper notice pursuant to

Commission rules yet not the notice required in Harry R. Carlile Trust v. Cotton

Petroleum Corp., 732 P.2d 438 (Okl. 1986). In Carlile it provides "When a

proceeding is likely to affect constitutionally protected property interests, notice

to interested parties must be "reasonably calculated, under all circumstances"

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to apprise them of the pendency of the action and afford them an opportunitytimely to interpose their objections." The Protestants believe under thecircumstances where there may be unrecovered oil and gas reserves in aninjection interval, such would be a constitutional violation to not allowinterested parties the opportunity to come and protest. The Protestants submitthe publication notice violated the constitutional rights of the mineral owners.

10) The Protestants note YDF is requesting to dispose of 20,000 barrels ofwater/day. We calculate this would be about 140 to 167 trucks daily, and/orevery 8 minutes. These wells are located about 1.5 miles south of 1-40 onCimarron Road, a narrow two-lane asphalt road. We believe this traffic willhave a significant impact on the residents.

11) Under 17 0.S. Section 52 (B)(1)(a) it states the CorporationCommission is hereby vested with exclusive jurisdiction, power and authorityand shall be its duty to promulgate and enforce orders governing andregulating oil and gas.

12) Under 52 O.S. Section 86.2 it discusses economic waste and waterencroachment in oil and gas bearing strata and under such conditions as toconstitute waste is "hereby prohibited and the Commission shall haveauthority...to make orders for the prevention of that waste."

13) In Appeal of Cummings and Mclntyre, 319 P.2d 602 (Okl. 1957) theAssistant Director of the Oil and Gas Department testified they had noobjection to the application....that there was no danger of any damage to anyoil-and gas producing strata. The Protestants note even then, the Staffrecognized there was a danger and a problem.

14) The Protestants note the Staff witness testified these wells wouldprotect the base of the treatable waters. We agree with the UIC departmentthat these wells have sufficient surface casing cement. The Protestants notehowever the Staff did not linger to listen to the evidence put in the record aboutthe frac gradient.

15) The Protestants note the two well study performed by Protestantsindicated there were proved undeveloped reserves of approximately 67,000 BO,4.1 BCFG covering the Skinner, Oswego, Mississippi and Hunton commonsources of supply. We note in the ALJ Report, paragraph 91, that to drill awell to recover these reserves over the pressurized formations would costapproximately $500,000 per well.

16) The Protestants note that YDF performed no study on the oil and gasreserves in the proposed injection interval nor a study for the formerlyproduced deeper zones. We believe that injecting water into an area that hasyet to be tested for oil and gas reserves is premature and will result in waste.

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17) The Protestants' witness testified YDF's surface pressure calculationneeded to inject were faulty, i.e. it would take 1500/2228 pounds to inject10,000 barrels of water. We note YDF has the burden of proof. We believe YDFfailed to put on any rebuttal evidence about the Protestant's figures for fracgradient as to whether it would exceed or approach per the Commission rules.We note where an application exceeds 50% of the frac gradient that often thesecauses are denied.

18) The Protestants request, should the YDF applications be approved,that the final order provide the Protestants with the right to have arepresentative go to the YDF well site and take pressure readings as deemednecessary in order to monitor the rates. We also request the YDF applicationsbe denied.

YDF

1) Richard A. Grimes, attorney, appearing on behalf of YDF, stated there

was nothing in the record advocated by Protestants in their statements or their

expert concerning an independent party being allowed at any point in time at

their discretion to monitor the pressure of these SWD wells, the Sasseen #1

and #2. YDF objects to that. These are facilities that YDF will pay for and

operate. Under no circumstances would YDF believe it was appropriate for the

Commission to allow someone, unrelated to YDF, should they grant the

applications by YDF, to, at their discretion and pleasure, go on the site of the

disposal wells and be able to work on or around them, so YDF disagrees with

that for a number of reasons.

2) YDF stated it is aware of OAC-OCC 165:10-5-5-(j). YDF notes an

application filed for administrative approval goes through a standard Staff

review, which includes the use of frac gradient calculations.

3) YDF notes Staff acknowledged there was potential for danger in the

seismic circumstances if one disposed into the Arbuckle zone that could allow

intrusion into the granite, and as such, could induce seismic activity yet the

Staff concluded "that doesn't apply here." The Staff brought up the fact there

were only limited seismic events here, all of which were concluded by both the

Oklahoma Geological Survey and by Commission Staff, to have nothing to do

with the disposal of water. The Staff said this was due to naturally-occurring

events. YDF notes since 1952 Canadian County has had naturally-occurring

seismic events where oil and gas activity has been ongoing. YDF notes the Staff

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approved YDF's injection request into the shallow zones, which is not theArbuckle zone.

4) YDF notes the Staff has concluded to restrict the Arbuckle zone fromSWD wells in order to balance the statute duties to which the OklahomaCorporation Commission must comply with; hence, Staff encourages thedisposal of water into shallower formations. YDF notes it is a fact oil and gaswells produce water when drilled. YDF agrees with the Staff in Oklahoma thatan operator must be able to dispose of a well's produced water

5) YDF notes the Protestants are claiming, by direct admission, the 1500pounds injection limit will not result in the ability to successfully inject anddispose of water into these formations. YDF placed into the record testimonyabout two other operated YDF SWD wells that are disposing into the sarneformations and with the same restrictions, successfully without issues, whichYDF now seeks in the current applications„

6) YDF notes one cannot cherry pick out of the transcript and determine awitness' testimony was this only. YDF believes a thorough review of thetranscript will support the true content of YDF's testimony.

7) YDF notes in the ALJ Report, paragraph 136 it says "...Witnesses forCommission staff and YDF testified that these wells meet the requisiteCommission standards..." YDF notes this referenced standard includes thefrac gradient requirement mentioned by the Protestants. YDF notes the Staff

did consider this frac gradient requirement in the Staff s review of the YDFapplications and ultimately decided to approve YDF's relief.

8) YDF notes it is obviously that both YDF and the Staff disagrees withthe Protestants' calculations. YDF notes the Protestants indicated that based

on their calculations that YDF would have to violate the Commission rules in

order to get the water into the ground. YDF notes the Protestants just didn't

think the Staff expert's calculations were correct and that the Protestants'

calculations were more correct that that of the Commission Staff.

9) YDF notes the Protestants appear to be implying, I just don't think

your (Staff) calculations are right and that my (the Protestants) calculations are

right and I (the Protestants) think you (YDF) are going to have to violate

Commission rules in order to get the water into the ground.

10) YDF does understand the Commission rules. YDF has not violated

the Commission rules on its two current SWD wells in the area. YDF notes

these two successful SWD wells demonstrate that water disposal can be had in

this area.

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11) YDF notes the shallow intervals mentioned by the Protestants havenot been selected by any operator to develop over the past several years. YDFnotes these same intervals were penetrated by the two past Chesapeake wells--the Sasseen wells--which were logged and produced in the deeper zones. Oncethe deeper zones were depleted, Chesapeake chose to walk away and notdevelop the shallower zones. YDF notes the Protestants believe Chesapeakehas not drained all of the unit and therefore there is an indication waste hasoccurred. YDF does note these shallow intervals on the logs show up as wet.

12) YDF notes the Protestants believe the above supports their claim ofsubstantial evidence that waste will occur if YDF applications are approved.YDF acknowledges the Protestants' witness was an expert, yet his statementswere unsupported by substantial evidence, as there was no presentation of theoil and reserves available.

13) YDF notes the various case law and rules raised by the Protestants.The Harry R. Carlile Trust v. Cotton Petroleum Corp., 732 P.2d 438 (Okl. 1986)case held the Commission needed to begin giving notice in spacings andpoolings to parties.

14) YDF notes that increased density applications require notifying allunit owners and the offset operator of wells adjacent thereto, but not themineral owners.

15) YDF notes that location exception applications require notifying theoffset well operators toward which the well is moving closer to, but not themineral owners.

16) YDF notes the Commission rules today do not require the owners ofmineral interests and/or working interest owners, beyond the operator, benotified of the YDF's current applications. YDF followed the Commission ruleshere, which apparently upsets the Protestants who believe otherwise.

17) YDF believes the Protestants are wanting to expand the noticedecision from the Carlile case. The Protestants wish to revolutionize theCommission rules so as to give notice to all offset mineral owners for SWDapplications. YDF notes that the Supreme Court has not suggested that theCommission must expand the notice principle to that effect. YDF woulddisagree with the Protestants that the notice rules for a commercial SWD wellbe extended to incorporate all of the offset mineral owners.

18) YDF notes the court cases above found the spacing and poolingapplication to be state-enforced takings. YDF asserts the current YDFapplications are not considered a state-enforced taking.

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19) YDF notes the Protestants' waste arguments. YDF agrees the statutescited by the Protestant invest the Commission's authority. YDF acknowledgesthe prevention of waste is a part of the Commission's mandate.

20) YDF notes where a party claims there is potential for waste as themain reason for denial, that there should be substantial evidence to supportthat claim/belief.

21) YDF notes the intervals the Protestants want to put water in the SWDwells here have not had any completed wells in said intervals all these manyyears. YDF thinks the failure of operators to develop these shallow zones maybe the basis for the Protestants' definition of waste.

22) YDF observes the Protestant took a below ground section ofapproximately 3,000 foot interval, called it the Pennsylvanian, yet made no

effort to identify any of the producing formations, and arrived at a magicnumber that millions of unrecovered reserves will be lost if the YDF

applications are approved. YDF notes the Pennsylvanian porosity value isunknown due to there having been no log for these shallow zones.

23) YDF questioned the Protestants "Can you identify for me any specific

interval that could be produced?" to which they replied "No, I didn't do it that

way. I just grouped it all together." YDF believes that an experienced engineer

would not recommend to perforate a 3000 foot interval/area of unconnected

rock without proof of existing porosity streaks being shown in the rock strata.

YDF notes the Protestants' engineer did not point out any common sources of

supply due to there not being any calculations done.

24) YDF notes the Protestants own only the surface of the lands here.

YDF acknowledges these residents are very emotional and strident about their

contentions that these SWD wells would cause harm to their homes/lives. YDF

notes none of these surface home owners own the mineral rights underlying

their properties. YDF found neither mineral owners or working interests

owners filed objections to the YDF's applications.

25) YDF is aware that the Protestants opposed its SWD wells. YDF

acknowledges that an operator could drill a well here in the undeveloped

shallow zones mentioned by the Protestants and then develop a dewatering

system. YDF notes in dewatering process, huge quantities of water are

produced, then at the surface level this oil is separated from the water, with the

oil being sold and the water being disposed of accordingly. YDF notes for a

dewatering project to succeed this requires an infrastructure be in place to

accommodate the produced well water.

26) YDF notes a SWD well is needed when drilling a dewatering well. YDF

realizes that the Protestants are adamantly opposed to any SWD wells here.

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YDF notes the Protestants stated "Oh, no, no, no, no. We're not opposed todisposal wells in general, just this one." YDF thinks what the Protestants arereally saying is don't put this well in my backyard, put it in somebody's elsebackyard. YDF notes the Protestants later said "Well, that's the gist of it. Yes,if somebody comes in and drills these wells, put it in somebody else'sbackyard."

27) YDF notes where oil and gas wells are drilled the issue becomes wheredoes the operator locate the needed SWD well. YDF notes any applicant thatdrills a well here will produce a lot of well water. For economics alone, YDFbelieves a SWD well is a requirement. Simply put, the Protestants do not wantthis SWD well. YDF believes the Protestants would protest any SWD well here,regardless of applicant.

28) YDF asserts there was no substantial evidence to prove there areproducible, recoverable shallow reserves here in the these common sources ofsupply. YDF observes that the Protestants, regardless of what zone was to bedisposed in or what the evidence showed, the Protestants do not want a SWDwell anywhere near the vicinity of their homes.

29) YDF notes the Protestants consider there would be waste of lostformations if the YDF applications are upheld. YDF however asserts if theProtestants' position is upheld, there would truly be waste created by thefuture restriction of oil and gas production.

30) YDF is not seeking to dispose into the deeper produced depletedChesapeake wells, but in the nonproduced shallow zones.

31) YDF disagrees with the Protestants that the ALJ ignored the surfaceowners' statements. YDF notes, over objections at times, the surface ownerswere allowed to offer lots of information, well beyond the normal scope of whatis considered a definition of the word "statement".

32) YDF listened to the surface owners' statements, objecting only whereattempts were made to offer unsubstantiated expert testimony. YDF notesnone of the surface owners had any supporting documentation. YDF notes theALJ allowed the surface owners to make their unsworn statements for 3.5hours, the longest opening statement ever in the Commission's litigationhistory. YDF notes the ALJ chose not to take into consideration the nonexpertcomments of the surface owners when his recommendation was made.

33) YDF notes it did not request an interim order. YDF believes this was

the ALJ's call for an interim order so that the Commission could basically verifythat YDF was safely operating the SWD wells with regard to the frac gradient

issue generated by the Protestants and complying with Commission rules.

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34) YDF opted not to appeal the ALJ's requesting YDF to gather HallIntegral and derivative data, as such are normal requirements for most SWDapplications.

35) YDF notes it is the ALJ's duty to examine the record at his discretionand determine a recommendation from the evidence before him. YDF notes theALJ found YDF's relief was the best alternative method to aide in the disposalof the well water. YDF submits the ALJ's decision should be affirmed.

RESPONSE OF PROTESTANTS

1) The Protestants believe YDF did not calculate the frac gradientproperly. We also disagree that the Commission Staff calculated the fracgradient, as there was insufficient data in which to perform such. TheProtestants note at the time when Staff did their review of the YDF applicationsthe Staff did not have possession of Exhibits 16, 17, 18, 19 and 20, the radiusof endangerment (which was only available at the date of the exhibit exchangeper the Prehearing Conference Agreement.)

2) The Protestants believe a transcript review will show support for theProtestants' position.

3) The Protestants note Chesapeake has recently plugged wells in the areawithout testing up hole zones. We note that Chesapeake does not "look forrabbits" but "for elephants". Chesapeake is not interested in 20 barrels perday wells. The Protestants, however, believe these formations could be testedup hole.

4) The Protestants believe that YDF will exceed the frac gradient at 1500pounds. The Protestants note that YDF failed to inform the Commission thatthere were some oil and gas wells shut-in in the area, waiting for injection.

5) The Protestants believe that YDF failed to place into the record whythese SWD wells are needed right now. The Protestants request the reversal ofthe YDF's applications due to YDF's noncompliance with the Commission rules.

CONCLUSIONS

The Referee finds the Report of the Administrative Law Judgeshould be affirmed.

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1) After review of the October 26, 2016 transcript and the October 27,2016 transcript of the proceedings and the exhibits presented by the parties,the Referee finds the Report of the ALJ should be affirmed as to hisrecommendation that YDF's applications should be granted and that interimorders should be issued, to reopen one year from the date each order issuesfrom the Commission, for YDF to submit evidence that the Sasseen #1 and #2SWD wells' operations are not exceeding the demonstrated frac gradient of theinjection zones and are therefore in compliance with OCC-OAC 165:10-5-5(j).

2) The issue presented before the Commission is whether the commercialdisposal of salt water underground through the Sasseen #1 and #2 wells wouldbe reasonably likely to cause any pollution of surface or subsurface waters orany damage to any oil or gas bearing stratum. The weight of the evidenceestablished that the manner and method proposed by YDF in the Sasseen #1and #2 commercial SWD wells is such that the wells will comply with theCommission rules for disposal of salt water, and the wells are not likely tocause pollution of surface or subsurface waters or any damage to anyproductive formations that may exist in the area. Appeal of Cummings andMclntyre, 319 P.2d 602 (Okl. 1957).

3) The ALJ has written an excellent well-reasoned report supported by thefacts and the law. The Referee agrees with the ALJ's Conclusions of Law in hisReport, see pages 27 through 39. The Referee would adopt and incorporate theALJ's Conclusions of Law. The Referee agrees that the weight of the evidenceestablished that the manner and method proposed by the ALJ complies with

the Commission's rules to protect human health and the environment. The

ALJ is the finder of fact and it is the AI.J's duty to observe the demeanor of thewitnesses, assess their credibility and assign the appropriate weight to their

opinions. Application of Choctaw Express Co., 253 P.2d 822 (Okl. 1953);

Palmer Oil Corp. v. Phillips Petroleum Co., 231 P.2d 997 (Okl. 1951); Haymaker

v. Oklahoma Corp. Com'n, 731 P.2d 1008 (Okl.Civ.App. 1986).

4) 17 O.S. Section 52(A)(1)(i) provides:

A.1. Except as otherwise provided by this section, theCorporation Commission is hereby vested withexclusive jurisdiction, power and authority withreference to:

* * *

i. the handling, transportation, storage anddisposition of saltwater, mineral brines, waste oil and

other deleterious substances produced from or

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obtained or used in connection with the drilling,development, producing and operating of oil and gaswells,...

5) 52 O.S. Section 139.A provides:

A. The Corporation Commission is vested withexclusive jurisdiction, power and authority, and itshall be its duty, to make and enforce such rules andorders governing and regulating the handling, storageand disposition of saltwater, mineral brines, waste oiland other deleterious substances produced from orobtained or used in connection with the drilling,development, producing, and operating of oil and gaswells and brine wells within this state as arereasonable and necessary for the purpose ofpreventing the pollution of the surface and subsurfacewaters in the state, and to otherwise carry out thepurpose of this act.

6) OCC-OAC 165:10-5-9(a)(b)(c)(d) provides as follows:

(a) Subject to 165:10-5-10, 52 O.S. § 139(D)(1) andother applicable authority, authorization of injectioninto enhanced recovery injection wells and disposalwells shall remain valid for the life of the well, unlessrevoked by the Commission for just cause or lapsesand becomes null and void under the provisions of165:10-5-5(h).

(b) An order or permit granting undergroundinjection may be suspended, modified, vacated,amended, or terminated during its term for cause.This may be at the Commission's initiative or at therequest of any interested person through theprescribed complaint procedure of the ConservationDivision. All requests shall be in writing and shallcontain facts or reasons supporting the request.

(c) An order or permit may be suspended ortemporarily modified by the Commission pursuant to52 0.S. § 139(D)(1), 165:10-5-7(g) and other applicableauthority.

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(d) An order or permit may be permanentlymodified, vacated, amended, or terminated after noticeand hearing if:

(1) There is a substantial change ofconditions in the enhanced recovery injection well orthe disposal well operation, or there are substantialchanges in the information originally furnished.

(2) Information as to the permitted operationindicates that the cumulative effects on theenvironment are unacceptable.

(e) If an operator fails to complete or convert a wellas approved by the Conservation Division withineighteen (18) months after the effective date of theorder or permit authorizing injection into the well,then the order or permit authorizing injection into thewell shall expire.

7) Thus, the Commission has the authority to deny a disposal well permitand in addition has the authority to revoke a disposal well permit. The rulesand regulations enacted by the Commission pursuant to the powers delegatedto it have the force and effect of law and are presumed to be reasonable andvalid. Brumark Corp. v. Corporation Com'n, 864 P.2d 1287 (Okl.Civ.App. 1993);Ashland Oil Inc. v. Corporation CommIn, 595 P.2d 423 (Okl. 1979); and ToxicWaste Impact Group Inc. v. Leavitt, 755 P.2d 626 (Okl. 1988).

8) The Referee has also reviewed the submitted briefs by the Protestantsand YDF's submitted brief. The Referee agrees with YDF's assertion thatProtestants' proposition that the injection pressure and volume requested byYDF exceeds the demonstrated frac gradient in violation of OCC-OAC 165:10-5-5(j) is not a sufficient reason to deny these commercial SWD well applicationsby YDF. As noted by YDF even if the calculations made by the Protestants arecorrect YDF is required to monitor the disposal volumes and pressures to avoidreaching the frac gradient and as the OCC-OAC 165:10-5-9(a) provides, thedisposal well permits may be revoked for "just cause" or may be modified,vacated, amended or terminated if information related to the operation of thesetwo wells would indicate that a substantial change or unacceptableenvironmental affects would occur.

9) With regard to Protestants' contention that there are commerciallyrecoverable hydrocarbons in the area surrounding the requested SWD wells

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which will result in waste if the present YDF's applications are granted, theReferee agrees with YDF's position stated in its brief and the ALJ's positionstated in his Report. YDF in its brief filed May 24, 2017 on page 5 states:

Absolutely nothing contained within the recordof this cause shows any scientific support for anopinion that there are commercially productive oil andgas resources in or around the proposed facilitieswhich would be adversely affected by operationthereof. In Downs v. Longfellow Corporation, 351 P.2d999 (Okl. 1960), the Oklahoma Supreme Court ruledthat the weight of an expert opinion is of no greatervalue than the reasons given in its support; and if norational basis for the opinion appears or if the factsfrom which the opinion were derived do not justify it,the opinion is of no probative force.

Finally, Mr. Stromburg, admitted that if youtried to produce oil and gas from the formations heidentified as possessed of oil and gas, salt water wouldbe produced. That water would have to go to adisposal facility. He then admitted that theProtestants were not opposed to disposal wells exceptfor these wells. (Tr. 76). He agreed that their desirewould be that "the water [be] thrusted on somebodyelse." (Tr. at 97)

The Referee agrees with YDF and the ALJ that the weight of the evidencesupports the AI.J's ruling concerning this matter. The ALJ is the finder of fact,observes the demeanor of the witnesses and assesses their credibility andassigns appropriate weight to their opinions. Deference is given to a judge'sopportunity to view the witnesses first hand. Every order of the Commissionmust be sustained by competent and material evidence and must be justifiedwith a basis in evidence having rational probative force. Grison Oil v.Corporation Comm'n, 99 P.2d 134 (Okl. 1940); Palmer Oil Corp. v. PhillipsPetroleum Co., 231 P.2d 997 (Okl. 1951); Williams v. VolkswagenwerkAktiengesellschaft, et al., 226 Cal.Rpter. 306 (Cal. 1986); Application of ChoctawExpress Company, 253 P.2d 822 (Okl. 1953); Application of Continental OilCompany, 376 P.2d 330 (Okl. 1962); and Chenoweth v. Pan American PetroleumCorporation, 382 P.2d 743 (Okl. 1963).

The Referee would therefore agree that there is no competent evidence in therecord concerning Protestants' suggestion that recoverable hydrocarbons willbe left in the ground in lands involved in these applications constituting waste.Thus, there is no basis to argue waste of oil and gas resulting from the grantingof the YDF requested reliefs.

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10) The Protestants also argue that the notice requirements for acommercial disposal application filed with the Commission are insufficient tosatisfy the fundamental concept of due process. Protestants' assertion is basedon the fact that an applicant for such a facility is not required to notify mineralowners of the requested relief. The Protestants cite Marshall Oil Corp. v.Adams, 688 P.2d 37 (Okl. 1983). However the Referee agrees with YDF thatthe Oklahoma Supreme Court in the Marshall case did not find that theCommission's rule concerning the notice to be given in connection with adisposal well application was deficient. It ruled that the adjacent surfaceowner did not lack standing to file an application to vacate a disposal permitpreviously issued. The Referee agrees with YDF when it states in its ResponseBrief at page 6, paragraph 5 that:

...The Court took great pains to cite 12 O.S. 1981, §112 which controls the question of what parties have"standing" to seek repeal, amendment orsupplementation of an existing administrative order.That statute provides any person "affected" by suchorder [has] the right to file applications to properlyattack such order. The District Court was directed todetermine if the notice given for the purposes of thedisposal well request was sufficient. The facts of thisprotest do not show any attempt to deny a party theright to protest. No attempt was made to dismiss theprotest for lack of standing.

The Referee agrees with this conclusion.

11) The protestants also cite the case of Harry R. Carlile Trust v. CottonPetroleum Corp., 732 P.2d 438 (Okl. 1986). The Referee agrees with YDF'sResponse Brief on page 7, first and second full paragraphs:

The Carlile case involved the question of whetherproceedings before the Commission seeking toestablish drilling and spacing units must be basedupon actual notice to the owners of oil and gasinterests within the geographic confines of therequested unit. The Court in Carlile ruled thatbecause the owners of such oil and gas interests are"affected" by the formation of a drilling and spacingunit, such owners are constitutionally entitled tonotice which is personably calculated to apprise themof proceedings to be conducted. This ruling was thedirect result of the minimum due process standardsimposed by Mullane v. Central Hanover Bank & TrustCo., 339 U.S. 306, 70 S.Ct 652, 94 L.Ed. 865 (1950).

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The US Supreme Court found in Mullane that if aproceeding is "likely" to affect constitutionallyprotected interests, actual notice to that category ofparties is required.

The applicability of the Mullane standard todrilling and spacing unit application is obvious. Therewill be immediate and known consequences to amineral owner (leased or unleased) by virtue of thecreation of such a unit. The rights of those owners areimmediately unitized; and, their right to drill morethan one well is foreclosed. On the other hand, thereis no immediate affect upon an owner of non-producing mineral rights by a disposal well.Conversely, there is such immediate and known affectupon the surface owner of the land upon which thewell is to be situated. Thus, there is support for thenecessity of notification to such an owner.

12) The Protestants allege that the Oklahoma Corporation Commissionfailed to consider the Protestants' health, safety, and welfare. The ALJ in hisReport addresses said Protestants' allegation on page 38, paragraph 135. TheReferee agrees with the decision of the ALJ which states in paragraph 135 ofhis Report:

135. Decision of the ALJ: Therefore, for the foregoingreasons, the ALJ does not see it proper to impose onthe Applicant any additional regulation than that theCommission already requires. The legislature did notgrant to the Commission the same enumerated powersit did to municipalities in 52 O.S. § 137.1. Amunicipality is in a better position to regulate itselfregarding the needs of its citizens and community andthe Commission is in the better position to promotethe development of oil and gas so as to prevent wastebased on its charges given by the OklahomaConstitution and by the legislature. The Commissionis the proper body to determine whether or not its ownrules are pre.-empted when a conflict between theCommission and a municipality exists, but, absentthat circumstance, the Commission will not step in to'fill the shoes' of a municipality by mandatingrequirements on oil and gas operations outside ofCommission statutes and rules and within the sphereof enumerated authority given to municipalities.

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13) Therefore, considering the facts and circumstances in the recordbefore the Commission and the applicable law concerning the requests by YDFfor these disposal facilities, the Referee recommends that the Commissionaffirm the ALJ's Report.

RESPECTFULLY SUBMITTED THIS 13th day of June, 2017.

g.) , OW /6+1Patricia D. MacGuiganOIL 86 GAS APPELLATE REFEREE

PM:ac

xc: Commissioner MurphyCommissioner HiettCommissioner AnthonyALJ Andrew T. DunnRichard A. GrimesRichard J. GoreSusan Conrad,Michael L. Decker, OAP DirectorOil Law RecordsCourt Clerks - 1Commission Files

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