F ILE BEFORE THE CORPORATION COMMISSION

OF THE STATE OF OKLAHOMA APR 22 2015

APPLICANT: PETROFLOW ENERGY CORPORATION

RELIEF SOUGHT: DRILLING AND SPACING UNIT (OIL DEWATERING)

LANDS COVERED: N/2 AND SE/4 SECTION 23, TOWNSHIP 5 NORTH, RANGE 7 EAST, SEMINOLE COUNTY, OKLAHOMA

COURT CLERICS OFFICE - OKC CORPORATION COMMISSION

OF OKLAHOMA

CAUSE CD NO. 201304331

REPORT OF THE ADMINISTRATIVE LAW JUDGE

This cause came on for hearing before David D. Leavitt, Administrative Law Judge for the Corporation Commission of the State of Oklahoma, on the 2m1, 3rd and 4th days of October, 2013; the 11th, 12' and 13 th days of December, 2013; and the 28 th day of March, 2014 at 9:00 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. The Administrative Law Judge ("AU") proceeded to hear this cause and reports the following findings.

SUMMARY OF THE CAUSE

On June 22, 2013, the Applicant, Petroflow Energy Corporation ("Petroflow") filed its Application requesting that the Commission establish 160 acre oil dewatering spacing units for the Hunton, Viola, Simpson Dolomite, First Wilcox, Second Wilcox, McLish and Oil Creek common sources of supply in the N12 and SE/4 of Section 23, Township 5 North, Range 7 East in Seminole County Oklahoma. Petroflow alleged that all of the above common sources of supply underlie all or substantially all of Section 23 and that each common source of supply had an initial water saturation of at least 50% and would produce primarily oil if productive of hydrocarbons.

Subsequently, Crown Energy Co. ("Crown"), through its attorney, Richard Grimes; Cantrell Energy Corp. and Cantrell Investments ("Cantrell"), through their attorney, John Reeves; and Oakland Petroleum Operating Co., Inc., Arizona Resources, Ashley Investments, Hope Lynn Heldman, Robert A. and Joyce E. Harbolt, Santo Ranch, Inc., Susan C. Carpenter, William Blake Heidmar and Diana M. Wagoner 2001 Trust (collectively known as "Oakland"), through their attorney, John A. MacKechnie, protested the cause. The Protestants raised issues of notice,

jurisdiction and the proper size of the units to be spaced. Petroflow filed its Amended Application adding more respondents to its cause on September 13, 2013.

On September 25, 2013, Petroflow moved the Commission to prohibit the Protestants from offering into evidence documents including a Dowell Incorporated report, a Geologic Report, Oil and Gas Production by Leases and Division Orders as irrelevant or hearsay and the ALJ denied the motion. The hearing was subsequently heard on the 2w', 3rd and 4th days of October, 2013; the 11th, 12th and 13th days of December, 2013; and the 28 th day of March, 2014. During the pendency of the hearing, Crown and Cantrell withdrew their protest, leaving Oakland as the remaining protestant. The ALJ heard all of the testimony and evidence and took the matter under advisement after receiving all of the transcripts.

RECOMMENDATIONS

After taking into consideration all of the facts, circumstances, evidence and testimony presented in both causes, it is the recommendation of the ALJ that Petroflow's Application to establish a 160 acre oil dewatering spacing unit for the Hunton, Viola, Simpson Dolomite, First Wilcox, Second Wilcox, McLish and Oil Creek common sources of supply in the N/2 of Section 23, Township 5 North, Range 7 East in Seminole County Oklahoma be granted.

APPEARANCES

At the time of the hearing, John E. Lee, attorney, appeared on behalf of Petroflow; Richard A. Grimes, attorney, appeared on behalf of Crown; John R. Reeves, attorney, appeared on behalf of Cantrell; John A. MacKechnie, attorney, appeared on behalf of Oakland; and William L. Harper, Trustee of the William L. Harper Trust, appeared pro Se.

JURISDICTION

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.

EXHIBITS

Exhibit 1- a map of a nine section area centered on Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma showing the location of wells in the area.

Exhibit 2 - an expanded map of a nine section area centered on Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma showing the producing, shut-in and plugged wells in the proposed unit and a description of the casing and weilbores.

Exhibit 3- an expanded map of a nine section area centered on Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma showing the producing, shut-in and plugged

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wells in the proposed unit and a description of common sources of supply related to the wells.

Exhibit 4 - type logs for the Fleet B-I Well, the Matthis B-6 Well, the Texas Reed 4 Well and the Reed A Well.

Exhibit 5 - an expanded map of a nine section area centered on Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma showing the producing, shut-in and plugged wells in the proposed unit; a description of common sources of supply related to the wells; and the location and description of the major and minor faults in the proposed unit.

Exhibit 6- a seismic log of selected common sources of supply showing the principle and some minor faults in the proposed unit.

Exhibit 7 - a chart showing depths and water saturation data for the common sources of supply in the proposed unit.

Exhibit 8 - a Technical Response Form showing that the Commission's Technical Staff had no objection to Petroflow's Application.

Exhibit 9 - a copy of a Division Order dated February 8, 2011 for the Sampson Peter Lease operated by Oakland.

Exhibit 10— a copy of Form 1002A dated July 16, 1930 for the S. Peter No. 5 Well - located in Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

Exhibit 11 - a copy of Form 1002A dated February 26, 1931 for the Sampson No. 5 Well located in the SW/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

Exhibit 12 - a copy of a Lease Assignment dated October 22, 1948 between Gulf Oil Corporation and Sam A. King covering the N/2 NE/4 NE/4 and the SE/4 NE/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

Exhibit 13 - copies of three Partial Release of Oil and Gas Leases recorded on November 28, 1978 in Seminole County, Oklahoma.

Exhibit 14 - as a lease plat showing the property ownership of the two 80-acre leases in the N/2 of the SE/4 of Section 23.

Exhibit 15 - induction log from the Jefferson No. 7 Well located in the NE/4 NW/4 SE/4 of Section 23, T5N, R7E.

Exhibit 16 - copies of 1002A forms for the following: the T. Jefferson D No. 1 Well located in the SE/4 NE/4 SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated July 23, 1933; the T. Jefferson D No. 3 Well located in the N/2 SE/4 of

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Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated January 22, 1930; the T. Jefferson D No. 4 Well located in the N/2 SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated January 23, 1930; the Sampson Peter No. 1 Well located in the SE/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated August 15, 1929; the Sampson Peter No. 2 Well located in the SE/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated October 17, 1929; and the S. Peter No. 7 Well located in the SW/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated October 11, 1930.

Exhibit 17— a copy of a Oklahoma Crude Production Report by Leases dated June 1998.

Exhibit 18 - a copy of a plat of leaseholdings in the First Wilcox in Sections 23 and 24.

Exhibit 19 - a copy of a plat Cantrell Energy's leaseholdings in the First Wilcox in Sections 23 and 24 that depicts subsea spots and fault structures.

Exhibit 20 - a copy of a Dowell Laboratory Report dated December 1, 1948 of Simpson Dolomite cores taken from the Jefferson No.2 Well.

Exhibit 21 - a copy of a plat of Cantrell Energy's leaseholdings in the First Wilcox in Sections 23 and 24 shown in Exhibit 19 that depicts arbitrary well numbers for demonstrative purposes.

Exhibit 22 - copies of the following: a Form 1002A report dated August 20, 1929 for the T. Jefferson D No. 2 Well located in the NE/4 of the NE/4 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; a deepening report dated March 17, 1930 for the T. Jefferson D No. 2 Well located in the NE/4 of the NE/4 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; a plugging back report dated August 18, 1931 for the T. Jefferson D No. 2 Well located in the NE/4 of the NE/4 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; and a deepening report dated November 9, 1950 for the T. Jefferson D No. 2 Well located in the NE/4 of the NE/4 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

Exhibit 23 - copies of the following: a drilling deeper and plugging back report dated April 14, 1930 for the Sampson Peter No. I Well located in the SE/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; and a work over and plugging back deeper report dated June 19, 1951 for the Sampson Peter No. 1 Well located in the SE/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

Exhibit 24— a copy of a Memorandum of Oil and Gas Lease executed July 10, 2013 between Toby Reed, Jr, as Trustee of the Mary E. Reed Trust, and United Land Company, LLC covering 140 acres, more or less, comprising: N/2 NW/4 SW/4 of Section 1, Township 5 North, Range 7 East, Seminole County, Oklahoma; N/2 NE/4 NE/4 and SE/4 NE/4 NE/4 as to all right below the depth of 3,000 feet or the Cromwell Sand and the NW/4 NE/4 and the

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SE/4 SE/4 as to all rights below the depth of 4,250 feet of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; and Lot 3 of Section 26, Township 5 North, Range 7 East Seminole County, Oklahoma.

Exhibit 25 - a copy of a Memorandum of Oil and Gas Lease executed July 10, 2013 between Sam T. Allen, IV, C. Keith Ham, and Leo Kaplan, Trustees of the Margaret R. Kosek Trust; W.S. Voit, Bradley L. Gates, and Gary Haudsdorfer, Trustees of the Edward F. Reed Trust; and United Land Company, LLC covering 140 acres, more or less, comprising: N/2 NW/4 SW/4 of Section 1, Township 5 North, Range 7 East, Seminole County, Oklahoma; N/2 NE/4 NE/4 and SE/4 NE/4 NE/4 as to all right below the depth of 3,000 feet or the Cromwell Sand and the NW/4 NE/4 and the SE/4 SE/4 as to all rights below the depth of 4,250 feet of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; and Lot 3 of Section 26, Township 5 North, Range 7 East Seminole County, Oklahoma.

Exhibit 26 - a copy of a nine-section plat centered on Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma showing the major and minor faults in the area.

Exhibit 27 - a copy of a drilling report dated December 11, 1929 for the Seluma Harjo No. 2 Well located in the N/2 SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

Exhibit 28 - a copy of a drilling report dated April 30, 1936 for the Dinah No. 2 Well located in the SW/4 NW/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

Exhibit 29 - a copy of a type log for the formations that underlay the N/2 and SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

FINDINGS OF FACT

1. On June 22, 2013, the Applicant, Petroflow Energy Corporation ("Petroflow") filed its Application requesting that the Commission establish 160 acre oil dewatering spacing units for the Hunton, Viola, Simpson Dolomite, First Wilcox, Second Wilcox, McLish and Oil Creek common sources of supply in the N/2 and SE/4 of Section 23, Township 5 North, Range 7 East in Seminole County Oklahoma. Petroflow alleged that all of the above common sources of supply underlie all or substantially all of Section 23 and that each common source of supply had an initial water saturation of at least 50 percent and would produce primarily oil if productive of hydrocarbons.

2. Subsequently, Crown Energy Co. ("Crown"), through its attorney, Richard Grimes; Cantrell Energy Corp. and Cantrell Investments ("Cantrell") , through their attorney, John Reeves; and Oakland Petroleum Operating Co., Inc., Arizona Resources, Ashley Investments, Hope Lynn Heldman, Robert A. and Joyce E. Harbolt, Santo Ranch, Inc., Susan C. Carpenter, William Blake Heidmar and Diana M. Wagoner 2001 Trust (collectively known as "Oakland"),

through their attorney, John A. MacKechnie, protested the cause. Crown subsequently dropped its protest to the Application.

3. The remaining protestants raised issues of notice, jurisdiction and the proper size of the units to be spaced. Mr. Reeves raised the issue that notice was improper in that there was no affidavit in the record that notice of the hearing was sent to some of the respondents that had new addresses. Mr. Lee acknowledged that he could not confirm that an affidavit attesting to notice pertaining to these respondents was filed with the Commission. Petroflow filed its Amended Application adding more respondents to its cause on September 13, 2013.

4. On September 25, 2013, Petroflow moved the Commission to prohibit the protestants from offering into evidence documents including a Dowell Incorporated report, a Geologic Report, Oil and Gas Production by Leases and Division Orders as irrelevant or hearsay and the ALJ denied the motion. The hearing was subsequently heard on the 2nd 3rd and 4 th days of October, 2013; the 11 th , 12 th and 13th days of December, 2013; and the 28th day of March, 2014.

5. Direct Examination of Mike Caldwell by John Lee. Mr. Lee called Mr. Caldwell as his first witness. He said that he is a petroleum landman and is familiar with the cause and related facts. He was retained as an expert petroleum landman by the ALJ without objection. He said that Petroflow owns around 170 acres out of the three proposed 160 acre dewatering units comprising a total of 480 acres located in the N/2 and SE/4 of Section 23, Township 5 North, Range 7 East in Seminole County Oklahoma and has the right to drill. He said that Petroflow owns 22.2 acres in the NW/4, 70 acres in the NE/4 and 76.1 acres in the SE/4 of Section 23.

6. He said that he obtained proper addresses for all of the parties having the right to share in any form of production within the boundaries of the proposed units with the exception of Dan Rives, S & G Oil Co. Inc., Carol A. Ross, Charles S. Carl, Connie Ann Bauerdorf, Essie Harris, H.L. Culpepper, Margaret V. Hayes, Nola J. Carl, Norma Johnson, Roseayne C. Krause, Steven P. O'Neill, Thelma Harding, Truman Whitney, Vera Mae Carl and John Johnston. He opined that he made a reasonable and diligent search to find the addresses of these parties. As part of his search, he checked various databases including the Oklahoma Supreme Court Network, OCIS, Pangaea and local telephone directories as well as with Respondents that had the same or similar names. The ALJ then deemed that notice was proper after reviewing the additional evidence and testimony related to the Amended Application.

7. He said that Cantrell and Oakland do not own any interest in the NW/4 of Section 23, and that Oakland owns 70 acres in the NE/4 of Section 23 comprising the common sources of supply that are the subject of this application. He said that Oakland doesn't own any interests in the SE/4 of Section 23 and that Cantrell owns 80 acres.

8. Cross Examination of Mike Caldwell by John Reeves. Upon inquiry, he said that he was a consultant working for Petroflow. He said that Petroflow owns 76.1 acres in the S/2 of the SE/4 and leases in the NW/4 of the NE/4 and the N/2 of the NE/4 of the NE/4 and the SE/4 of the NE/4 of the NE/4 of Section 23. He said that Oakland owns 100% (10 acres) in the SW/4 of the NE/4 of the NE/4 of Section 23 and 100% (20 acres) in the S/2 of the SE/4 of the NE/4 of Section 23.

9. He said that none of the area related to this cause has been spaced by the Commission even though a significant number of wells were drilled within the E/2 of Section 23. He said that wells were drilled in the E/2 of the section for years without spacing and that Petroflow could drill a well on their lease right now for dewatering without having to obtain spacing for the area.

10. Direct Examination of John Hooper by John Lee. Mr. Lee called Mr. Hooper as his next witness. He said that he is a geophysicist and geologist and the AU accepted his qualifications as an expert without objection. He identified Exhibit 5 as an expanded map of a nine section area centered on Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma showing the producing, shut-in and plugged wells in the proposed unit; a description of common sources of supply related to the wells; and the location and description of the major and minor faults in the proposed unit. He said that the faults depicted on the map plat are where they intersect the Viola formation. He noted that a red line bisected the map from the northwest part of the map in Section 15 to the southeast part of the map in Section 25. The AU admitted Exhibit 5 without objection.

11. He identified Exhibit 6 as a two-dimensional depiction of three-dimensional seismic survey data of selected common sources of supply showing the principle or major fault and some minor faults in the proposed unit comprising selected land in Sections 23, 24, 14, 13 15, 22, 27, 26 and 15. He said that the sources and the receivers for this seismic survey were arrayed in a grid pattern whereby not all of the sources are in line with the receivers. He said that the survey depicts a graphic slice of the 3-D volume such that the large fault at the center of the graphic corresponds to the red line shown on Exhibit 5, and that the red line is essentially a long trace of the fault on the Viola depicted by the graphic. He said that Petro flow completed an integrated.. interpretation of the seismic survey and well log data that penetrated through the Oil Creek formation, and that the interpretation identified the faults shown on the map.

12. Mr. Reeves objected to Exhibit 5 being admitted as evidence without also showing the underlying seismic data that supported the maps. He also said that the red line shown on Exhibit 5 that appears to link Exhibit 5 with the graphic shown on Exhibit 6 didn't intersect any of Cantrell's property and thus was irrelevant to this cause because it doesn't provide a basis for determining faults south of the land depicted on the exhibit, citing Hester v. Sinclair Oil and Gas Company, 351 P. 2d 751. The ALJ then admitted the exhibit over Mr. Reeve's objection for its probative value.

See Hester v. Sinclair Oil and Gas Company, 351 P. 2d 751 where an expert geologist for an applicant depicted a fault as a line drawn upon a geological structure map that he had prepared from well logs and seismic data. When called upon to produce the seismic data, the geologist and the applicant refused to do so on the ground that it was confidential. The Commission's attorney conceded that under strict rules of evidence, the geologist's conclusions and his map's representations as to the location of the fault line based upon the unrevealed seismic information of more or less anonymous origin would not be competent evidence. The Commission considered the evidence anyway and issued spacing orders based in part upon the representations made with respect to the structure map. The Oklahoma Supreme Court held that the Commission should not have considered the representations made from the maps as significant evidence in the absence of the seismic data that formed the basis for the maps, noting that the applicant had the seismic data and that it would have been the best available evidence in support of their application.

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13. Mr. Hooper then referred to his interpretation of the faulting in the NW/4, the NE/4 and the SE/4 of Section 23. He said that there is a major or principle fault in the middle of Section 23 trending north to south with a downthrown side of the fault to the west in the section. He said that the apparent vertical offset across the fault is approximately 200 feet, decreasing to the north-northeast direction.

14. He then described in the detail the seismic information shown on Exhibit 6 and the relationship between the location and amplitudes of the peaks and lines shown on the graphic and the related seismic parameters including reflection coefficients, wave front amplitudes and seismic response. He noted that he was able to interpret the seismic data to identify faults and formation tops and horizons, and he correlated the wave travel on the downthrown side of the major fault into feet from the top of the formation to the basement as being around 5,000 feet and from the top to the basement of the upthrown side of the major fault as being slightly deeper than 4,000 feet. He further noted the fault-line traces shown on the graphic and the roll-over feature depicted on the downthrown side of the fault at the 1-lunton-Viola interval.

15. He indicated that the siesmic line placed on Exhibit 6 was not placed there by him as an interpreter. He noted that the reflection data came back with this appearance as part of the process. He further noted that if the black lines had been taken off the data he could draw the lines very close to where they appear on the Exhibit 6. The witness approached the bench and explained to the ALJ where the three faults were on Exhibit 6. Mr. Lee also approached the witness and took a few minutes to orient himself with the fault lines.

16. Mr. Hooper then noted that the major fault has an apparent vertical displacement across Section. 23, and that there are fault traces that extend into the N/2 of the SE/4 of the section.. He noted that he has not seen any fault cuts in this area in the wells. The witness then examined Exhibit 5 and identified and numbered the four faults from left to right. The faults from east to west were named as Fault 3, Primary Fault (the principle or major fault), Fault 1, and Fault 2. Mr. Lee then re-offered Exhibit 5 and the AU admitted the exhibit as evidence without objection.

17. The witness noted that the fault placement at the Viola horizon on Exhibit 6 was a vertical seismic trace cutting or intersecting Fault 1. He noted that Fault I extends northeast and southwest of the intersection of the line. He further noted that Fault 1 intersects another fault

In this present case, the evidence and testimony was supported by log data and the 3-D seismic study was reduced to a 2-D seismic map for review by the AU and the Commission, and the AU deemed the 2-D map as the best available evidence that could be reviewed by all parties in the hearing, since 3-D seismic data can only be analyzed by special equipment not available to the Commission in a courtroom setting. It was also undisputed by both parties that the faults existed as represented on the maps, and acceptance of the presence of the faulting was a key element of the protestant's case. In the absence of faulting, there would be no controversy related to the existence of the common sources of supply underlying the entire proposed de-watering unit, and Petroflow's application could be approved summarily and any issues related to the review by the Commission of the underlying seismic data would be moot. Because of the above, the AU held that the present case is distinguishable from Hester.

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which is parallel to the principal fault in the NE/4 of Section 23 and that the fault in which it intersects extends parallel to the principal fault into the SEA of Section 23. He further stated that Fault 2 extends from the SE/4 of Section 23 into the NW/4 of Section 24 and on into Section 13. He determined that Fault 2 terminated in the N/2 of the SE/4 of Section 23 by looking at some curvature attributes of the seismic data which are of high resolution, horizon-type attributes and at a disturbance in coherency of the data that ended at the point where he concluded that the fault terminated.

18. He noted that vertical displacement of Fault 2 is approximately 20 feet; Fault 1 displacement is approximately 40 feet; and that the displacement of the fault parallel to the principal fault that has not been numbered is 60 feet. He further determined where a fault "dies" or is terminated by using a process that was invented, characterized and programmed at the University of Oklahoma by Dr. Marfurt. He noted that the Primary Fault, Fault 1, and Fault 2 penetrate through the Hunton and Viola common sources of supply. He also noted that all the faults that are seen on Exhibit 5 penetrate the Oil Creek, and that Oil Creek is the deepest formation that is of interest to the Commission in this particular case.

19. The witness opined that the parallel fault and Fault 2 do not preclude drainage of any of the zones across the 160 acres. He described Fault I and the fault that it intersects as baffles that have a fluid migration pathway. He opined that fluid can move around the NE/4 of Section 2' ) due to a tortuous fluid migration pathway that serves as a baffle but not as a hard barrier.

20. Upon inquiry, the witness stated that his opinions are based upon Conoco's geophysics and drilling experiences and that he is knowledgeable about the impact of faulting on drilling operations. He also stated that it is better to avoid drilling through faults.

21. He stated that in a highly faulted area, a water-removal operation is less likely to cause the fault to move than more likely to do so. When doing a 3-D seismic study, the resolution of the seismic data is defined by the wavelength and even with the best algorithms there will be some level of uncertainty locating the faults.

22. Cross Examination of John Hooper by John Reeves. Upon inquiry, Mr. Hooper stated that he is a consultant working for Petroflow and that he and Luis Castillo, another employee of Pathfinder, analyzed the seismic data. He further stated that Luis Castillo placed the faults on Exhibit 5, and he may have adjusted some of them if he did not agree with the placement. He said that he didn't use Exhibit 6 for the fundament analysis of the seismic and that he made Exhibit 6 just for this proceeding.

23. Based solely upon Exhibit 6, he would not be able to tell if the there were any faults in the SE/4 of Section 23 without drawing an arbitrary line through the SE/4 of the section. He stated that the faults are determined by seismic and well control data; that the well logs in the area show no fault cut; that if the fault is old a person may see missing sections; and that if the fault is a reverse-fault a person may see repeat sections.

24. He testified that he looked at the Texas Reed No. 4 well data to calculate water saturations and also a number of wells in Section 14 where there were no fault cuts. On the

principal fault at the Viola level where the red line on Exhibit 5 crosses the principal fault there is an apparent vertical offset of two-hundred feet which could be a barrier to the flow of any fluids. As you move south along the fault the offset stays approximately the same value until it intersects the other fault, which runs to the northwest, then the vertical offset increases to approximately two-hundred and twenty feet.

25. He stated that any dewatering that may occur on the east of the fault would have no impact at all west of the fault. There are prospective wells west of the fault and he would drill his first well on the upthrown side of the principal fault.

26. He stated that the vertical displacement down through the Oil Creek can change depending on the separation between the Viola and the Oil Creek and that there is a lot more apparent throw based upon what he can see seismically at the Viola and at the basement reflector. The apparent vertical separation for Fault 1, where the red line crossed Fault 1 in the NW/4 of Section 23, and from Hunton down to Oil Creek is forty feet plus or minus ten feet. The apparent vertical separation for the Simpson Dolomite at Fault 1 where it crossed the red line is forty feet. Where Fault 1 intersects the fault parallel to the principal fault, the apparent vertical separation is sixty feet plus or minus ten feet in the southern portion and twenty feet in the northern portion. The vertical separation for Fault 2 from the Hunton through Oil Creek is twenty feet plus or minus ten feet. He stated that he sees no evidence that Fault 2 and the fault parallel to the principal fault intersect each other. With respect to the W/2 of Section 13, he looked at the Fleet B-lwell in detail but couldn't recall how many of the other fourteen wells logs he has looked at.

27. He stated that Petroflow proposes to drill three vertical wells in Section 23. He couldn't give a precise location of where the wells will be drilled. He said that if he had to drill today, the first location would be north of the intersection in the NE/4 of the NE/4 of Section 23; the second would be northeast of the NW/4 of Section 23 and the third would be in the SE/4 of Section 23. He analyzed the radial flow for a reasonable distance from any known potential baffles or barriers.

28. He stated that Petroflow could potentially pull fluid between the parallel fault and the principal fault, allowing them to drain the north half of the fault block. He also opined that it is unlikely that they can draw fluid from the west across the principal fault.

29. Mr. Hooper stated that as Fault 2 moves to the southwest the apparent vertical separation or throw decreases from twenty feet to zero feet. Upon inquiry of the AU, he said that each of the three wells should be able to drain one-hundred and sixty acres.

30. After giving the technical definition of dewatering, he stated that he does not know if any of the seven zones are being dewatered right now. The formations are similar enough to the Hunton where dewatering has been applied to indicate that dewatering should also work in this area. He doesn't know how much water is being produced from the formations, and that the amount of water production is critical to the dewatering operation. He admitted that he really doesn't have any information to look at for the Viola down through Oil Creek to compare to analogous dewatering. He noted that Pathfinder looked at the Chimney Hill, a part of the Hunton

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at the Sneaky Pete area which is north of Section 23, for information analogous to the Hunton in Section 23.

31. He stated that the McLish and Oil Creek have good porosity and permeability and are his primary zones of interest. The water saturation was based on data from the wells that were submitted into evidence, and upon the available logs comprising a gamma ray neutron density for the porosity and three resistivity curves. He opined that the study was a reasonable, relatively modern logging sweep. He noted that the Texas Reed was one of the wells that he examined.

32. He stated independently of any exhibit that he does not know the amount of production from any of the seven formations involved in the E/2 of Section 23. Mr. Lee objected to Mr. Reeves asking questions about the "initial" water saturation as in a classic log-analysis term. The ALJ overruled the objection. The ALJ stated that he will allow the witness to give his opinions and will sort it out after the testimony. Mr. Hooper stated that he has not made any calculations to determine the initial water saturations in any of the seven formations using data outside of the data entered in the exhibits.

33. He said that the water saturation for the Hunton was approximately five feet toward the bottom, with water saturations less than fifty percent at the cut-off for the entire Hunton interval. The depth is just above the bottom of the Hunton interval above the top of the Sylvan shale. The water saturation for the balance of the Hunton drops off very rapidly and a lot of it is one-hundred percent saturated. He sad that over fifty percent of the Hunton interval is one-hundred percent water saturation which means there isn't any oil to be produced. He said the transition from one-hundred percent to fifty percent is less than five feet. The porosities in the five-foot interval peak at sixteen percent, indicating the presence of oil.

34. Upon inquiry by the ALJ, Mr. Hooper stated that there are thirty-five to thirty-six total feet of Hunton in the Texas Reed well. He opined that only five feet of the thirty-five feet is the oil zone, and that the water saturation in the Viola is ninety percent, and the average is around three percent. Approximately twenty feet of the Viola has less than fifty percent saturation, and the average porosity is around three percent.

35. He said that the water saturation of the Simpson Dolomite is between sixty and seventy percent. The bottom of the Dolomite appears to be on a transition, so the saturation is largely increasing towards the base and the bottom third is considerably greater than fifty percent and approximately fifteen feet of the formation is less than fifty percent saturation. The Simpson Dolomite is forty-seven feet thick and there is an interval toward the top that is greater than fifty percent saturation. The porosities in the fifteen feet that is less than fifty percent saturation is between seven and eight percent, and the porosities in the bottom third that is greater than fifty percent saturation is sixteen to eighteen percent. When the saturation of the bottom third is greater than fifty percent, the average water saturation is around eighty to eighty-five percent. The porosity is two percent for the top interval with water saturations greater than fifty percent.

36. He opined that the oil zone would be at fifteen cumulative feet and that the sum of the two intervals was fifteen feet and that one is higher than the other with around three feet of rock

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in the shallower interval. The water saturation in the three feet, shallower interval is twenty-five percent and the water saturation in the twelve foot interval is forty-five percent.

37. He said that for the First Wilcox the water saturation varies from about fifty-five percent to one-hundred percent, with two-thirds of the interval having one-hundred percent, except for one exception having about seventy percent saturation. The top third containing oil has about seventy-percent saturation and eight percent porosity. Between one-third and one-half is one-hundred percent water saturated and has a porosity of approximately five percent.

38. He said that the Second Wilcox is one-hundred feet in thickness and the saturation is pretty laminated through this interval. The depth and water saturation varies rapidly, with one of the laminations approaching fifty percent saturation over a three to five foot thickness. He opined that the average water saturation of the total Second Wilcox is eighty percent and less than fifty percent where the average thickness was three to five feet. The porosity peaks at about fifteen percent in the lowest saturation interval, and the related water saturation is about fifty-five percent. The average porosity of the rest of the intervals is about eight percent.

39. He said that the minimum water saturation value is approximately forty percent in a narrow three foot thickness having six percent porosity. The water saturation for the remaining one-hundred-thirty-four feet of the McLish is between eighty and ninety percent and the porosities range from seven to twelve percent.

40. He stated that he looked at Oil Creek at the Fleet B No. 1 well in Section 13 and found that the Oil Creek is eighty-one feet thick having two feet that has a water saturation of approximately forty percent and a porosity of fifteen percent. The other seventy-nine feet has a water saturation that ranges from fifty-five to one-hundred percent. At approximately twenty to thirty feet the water saturation is one-hundred percent with a porosity of eight to fourteen percent. The balance of Oil Creek has an average water saturation of seventy-five to eighty percent with a porosity often percent.

41. He said that the principal fault would be a barrier in the E/2 of Section 14 and that hydrocarbons would not cross the barrier and any production on the east side of the fault would not affect the west side of the fault. Upon inquiry he said that he moved Fault No. 1 on Exhibit 6.

42. Cross Examination of John Hooper by John MacKechnie. Mr. Hooper identified Petroflow's Exhibit No. 5. He stated that approximately all of the W/2 of the W/2 of the NE/4 of Section 23 is west of the principal fault. He said that this area was approximately twenty-five percent of the whole NE/2. Two of the wells that were drilled west of the principal fault are dry holes, and the well on the east side of the fault is productive. He opined that wells drilled near the NE/2 would not drain anything to the west because they would be separated by the principal fault.

43. Upon inquiry by the AU, Mr. Hooper stated that he doesn't know if the well in the NE/4 of Section 23 is currently producing oil. He doesn't know if the well toward the SE/4 of the NE/4, that appears to produce from the Simpson Dolomite, the Second Wilcox, and the First Wilcox, is currently producing oil. He doesn't know if hydrocarbons being produced by the

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Texas Reed No. 4 and the well that is immediately adjacent to it. He hasn't seen any records indicating that the well was plugged.

44. Redirect Examination of John Hooper by John Lee. Upon inquiry, Mr. Hooper stated that the vertical displacement of Fault 1, the Parallel Fault, and Fault 2 ranges from zero to sixty feet. The thickness of the Hunton evaluated in the Texas Reed No. 4 well is thirty-five feet. He opined that the Hunton, Viola, Simpson Dolomite, First Wilcox, Second Wilcox, Mclish, and Oil Creek all underlie the NW/4 of Section 23.

45. He opined that if Petroflow drills a well it will encounter all the zones shown in the spacing application. One of his criteria for dewatering is that the rock be permeable or porous. He would not want to dewater "tight rock" that has low permeability. He said that all of the zones he analyzed all look like reasonable candidates for dewatering. He cannot be certain if the well will be a successful dewatering well until the well is dewatered, drilled at the proper depth, successfully completed, and a successful production system is in place. Based on the best evidence that he has today, he opined that the three quarter sections are underlain by reservoir rock that are good candidates for dewatering.

46. He agreed that the interpretation of Exhibit 5 and Exhibit 6 supports all of the data. He stated that the name of his computer analysis software is the Terra station called T-Log for Petrophysics. He stated that there can be accuracy problems when trying to digitize analog data. He stated that he would see the wells completed, in a realistic fashion, starting from the bottom and working the way up. If the bottom gets a good result the they may decide upon dual-completion where one would be able to isolate zones or where one may at some point comingle some zones that are subsets of the total. He discussed the process of cable drilling for dewatering and noted that he has not seen records of whether the wells were drilled using cable or rotary tools.

47. Recross-Examination of John Hooper by John Reeves. Upon inquiry, the witness said that no consideration was given to the impact the spacing would have on existing wells with respect to the E/2 of Section 23. He then discussed the detailed requirements of dewatering. Based on the porosity and saturation, he said that Section 23 looks like a good fit for dewatering. He further stated from a technical standpoint that it would make sense to try the dewatering immediately to the north in the SE/4 of Section 14 to see if it works. As the porosity increases the permeability tends to increase in the seven formations in Section 23.

48. Direct Examination of John Stromberg by John Lee. Mr. Lee called Mr. Stromberg as his next witness. He stated that he is a petroleum engineer and a petroleum geologist and the AU accepted his qualifications as an expert without objection. He looked at the N/2 and SE/4 of Section 23 but didn't complete a geologic study of the lands. He stated that Petroflow has a very good team that is doing the geological study and he primarily did the reservoir engineering on this project. He reviewed the reports and logs and visited with the geologist that did the work. He performed a "log analysis" on two of the logs.

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49. Over objections from Mr. Reeves and Mr. MacKechnie, the ALJ admitted Exhibit No. 8 into evidence. Exhibit 8 is a Technical Response Form showing that the Commission's Technical Staff had no objection to Petroflow's Application.

50. Mr. Stromberg described Exhibit No. I as a map of a nine section area centered on Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma showing the location of wells in the area. The AU admitted Exhibit No. 1. He stated that the green stripe on the left and right side of the exhibit is the Canadian River. He opined that the Sampson Peter No. 4 is an active well and that the wells shown on Exhibit No. I are not active wells.

51. He described Exhibit No. 2 as an expanded map of a nine section area centered on Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma showing the producing, shut-in and plugged wells in the proposed unit and a description of common sources of supply related to the wells. The ALJ admitted Exhibit No. 3 without objection. He prepared Exhibit No. 3 to show the Commission what zones have produced according to the data from 1002A forms and scout tickets. He said that Exhibit No. 2 depicted all the wells that had been drilled in the area, and that lines were struck through the plugged wells. The first map showed the wells that were deeper than the Hunton formation. He cannot know for sure which of the zones actually produced.

52. He stated that the gas well in the NE/4 of the SE/4 of the NE/4 of Section 23 appears to be producing from the First Wilcox, the Viola, and the Simpson Dolomite but he cannot tell with certainty that the well is actually still producing. He can't say for sure if the well is active or plugged or inactive and not plugged. The AU admitted Exhibit No. 4 which was described as type logs for the Fleet B-lWell, the .Matthis B-6 Well, the Texas Reed 4 Well and the Reed A Well without objection. The witness said ithat the Fleet B-I well is the deepest well and that the log for Reed-A is some type of old electric log that he does not recognize and the other logs measure resistivity or conductivity as opposed to radioactive-type logs that measure porosity or a sonic log that measures porosity.

53. He stated that the Hunton is generally a Dolomitic limestone, has generally fairly low porosity, fairly low permeability, and in this particular area it is generally high in water saturation, and ranges in thickness from thirty to fifty-five feet. He stated that the Hunton is usually a pretty easy call because it is a carbonate that sits between two shales. In most instances he believes that the interval within the Hunton is the Chimney Hill and that it lies at the bottom. He further stated that the Sylvan was his first call and is a good marker and gives you a good spot to pick the locations of the other formations. He stated that the next call is on the top of the Viola and that the reason he hung the call at the top of the Viola is because it is usually a very clean and solid top. The Viola is limestone and it appears to range in thickness from one-hundred and thirty to one-hundred and fifty feet.

54. He said that the next call is the Dolomite, which is the same as the Simpson Dolomite. Mr. Lee asked the ALJ permission to have the witness change the court's exhibits to show Simpson Dolomite, and the ALJ allowed the change and re-admitted Exhibit No. 4 into evidence. He stated that the lithology is dolomite and has a thickness range of probably fifty-five to seventy feet. He stated that the next call below the Simpson Dolomite is the First Wilcox which

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is primarily sandstone and has an average thickness of seventy feet. There is a permeability barrier composed of mostly of very thin shale between the First and Second Wilcox and that the average thickness of the Second Wilcox is about ninety feet. The McLish has a lithology of sandstone and appears to be several hundred feet thick. The McLish in the N/2 of Section 23 is going to be at least a couple hundred feet thick. He stated that the next call is Oil Creek and the lithology is sandstone having a thickness of approximately sixty feet.

55. He opined believes that each and every one of the common sources of supply listed above underlie all or substantially all of the NW/4, NE/4, and SE/4 of Section 23. He expects that each of the common sources will produce oil.

56. He identified Exhibit No. 7 as a table of the zones, depths and water saturations and the well from which he ran the calculation to obtain calculations. The ALJ admitted the exhibit over the objection of Mr. Reeves. The witness said that he is confident that all the data is correct and the data was entered properly. He stated that all the formations except the Viola have pretty constant water resistivity.

57. He stated that with the possible exception of the NE/4, a well in each of the sections could drain almost one-hundred and sixty acres. He stated that one-hundred and sixty acre spacing is the optimum size because the wells can drain pretty close to that exact amount and not much more. He recommended that the well tolerance for the one-hundred and sixty acre dewatering drilling and spacing units be no closer than six-hundred and sixty feet to any unit boundary. He believes that the granting of the application would be in the best interest of prevention of waste, protection of correlative rights, and would promote additional development.

58. Upon Inquiry from the ALJ, Mr. Stromberg stated that he doesn't want to drill on an individual lease basis because doing so would entail very small tracts that would have to be developed with twenty or thirty wells and that doing so would be impractical. He said that each potential tract would need a water injection well where each would cost a million dollars or more.

59. Cross-examination of John Stromberg by John Reeves. Mr. Stromberg stated that dewatering should occur using the most economic process. He prefers to take the water out as fast as he can but he does not want to drill unnecessary wells costing a million to two million dollars apiece to do so. He stated that some of the zones will not be able to be fully dewatered due to the active water drive but they will be reduced in water volume. He stated that a true dewatering would occur in the Hunton and Viola formations and noted that he doesn't have any experience dewatering the First or Second Wilcox, McLish, or Oil Creek.

60. He opined that one-hundred and sixty acre dewatering is the optimum size unit because the faults in the area would interfere with a larger unit. He can't make a drainage calculation, but he has calculations that lead him to believe that one-hundred and sixty acres can be drained.

61. He then talked about various wells in the vicinity that produced around eighty barrels of oil per day. He said that the total production of the Peter Sampson lease in the NE/4 of Section 23 is 427,000 barrels. The Jefferson lease in the SE/4 of Section 23 produced 815,500 barrels.

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He stated that he has no idea of how Petroflow is going to approach dewatering the NE/4 or the SE/4 in the Hunton. He stated that the First Wilcox should only be perforated at the top. He further stated that he does not know what Petroflow's plan is on how to dewater all the zones. He stated that in his opinion the Hunton and Viola should be completed by going down and completing all the higher porosity intervals.

62. He discussed the preparation of the exhibits using the program "Petra" and stated that he had someone else run it for him. Once the exhibits were made, he reviewed the exhibits and revised them with additional information. He stated Petroflow dewatered some Redfork reservoirs and he doesn't know what the two service wells in Section 23 are used for.

63. Cross Examination of John Stromberg by John MacKechnie. Mr. MacKechnie stated that he wants to use Exhibit No. 5 as a format for some of his questions. Mr. Lee objected, stating that Exhibit No. 5 was certainly not brought up in his direct examination of the witness. The ALJ allowed Mr. MacKechnie to use the exhibit to format questions. Mr. Stromberg stated that it is probably true that due to the vertical fault running through Section 23, if a well were drilled to the east of the fault it would not drain hydrocarbons to the west of the fault.

64. Redirect Examination of John Stromberg by John Lee. Mr. Stromberg stated that he is not able to tell by completion reports exactly what interval any of the wells are completed in. He stated that he cannot tell exactly where the wells in Section 23 are producing from. Mr. Lee asked Mr. Stromberg about the calculation of the pore volume and he stated that he could do it on the stand. Mr. Reeves objected stating that it is inappropriate and out of the scope of any cross-examination, since the witness has not done it. Upon Inquiry from Mr. Lee, Mr. Stromberg stated that if he knows the given volume and given withdraw rate, he can.-compute a lime to withdraw. The ALJ noted that Mr. Stromberg had already stated that he has not done. adráinage study and sustained Mr. Reeve's objection.

65. He opined the depth of the Oil Creek needs to be amended. He further stated that the estimated depth should be 4,800 feet. Without any objection, the ALJ allowed Mr. Lee to amend his application. He also opined that the average water saturation for the Hunton is seventy-seven percent, and the Viola is ninety percent. He then changed the Dolomite to the Simpson Dolomite in Exhibit No.7. The ALJ allowed the change and admitted it into evidence. He went on to state that the average water saturation of the Simpson Dolomite is fifty-nine percent, the First Wilcox is ninety-five percent, the Second Wilcox is eighty-three percent, the McLish is eighty-eight percent, and the Oil Creek is eighty-one percent. He confirmed that the average water saturation for the entire zone is over the fifty percent as required by Title 52, Oklahoma Statutes, Section 87.1.

66. The ALJ noted that he would take judicial notice of rule O.A.C. 165: 10-15-18 (b) which describes the qualifications for a reservoir dewatering unit. 2 Mr. Lee then began to ask Mr.

2 See 165: 10-15-18 (b) which states "Qualification for reservoir dewatering unit. Proof of fifty percent (50%) water saturation presented at the time of a hearing to establish dewatering oil spacing may entail calculations from logs or core data from wells within the common source of supply covered by the application or an analogous common source of supply, or an actual production test from a well in the common source of supply covered by the application. To qualify for the reservoir dewatering spacing unit allowable provided on Appendix J, the Form 1013

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Stromberg about uncertainty in the data. Mr. Reeves objected to the questions. The AU overruled the objection and allowed Mr. Lee to continue his questions. Mr. Stromberg stated that there is roughly forty acres lying on the downthrown side of the fault in the E/2 of Section 23. He stated that he will not know for sure until a well is drilled. He stated that the uncertainty leads him to say it could be less than forty acres, or it could be more.

67. Upon in inquiry by the AU, Mr. Stromberg stated that when studying existing wells he downloads the well's one-line summary, which gives you all the well data on the scout tickets in columns. He further stated that he prints out the location, the depth, the initial producing zone, the completion date, and spud date in order to make a quick map. He stated he does the same thing for production in order to find out which wells are producing. After doing the one-line summaries he examines the Form 1 OO2As from the Commission records. He stated that in this particular case, since Pathfinder has all of the scout tickets scanned into their system, he also reviewed the scout tickets, which are generally more complete than the 1 OO2As, because the 1 OO2As only ask for certain information. He also looked at many logs of the area and then after analyzing all of the data he had a geologist prepare a geological map and a 3-D seismic run.

68. Mr. Stromberg stated that generally either the scout tickets or the 1002As describe how much water was being produced. He stated that most of the wells initially came in at fairly low water cuts but most of the wells produced around twenty-eight barrels of oil to two-hundred and fifty barrels of water before the wells were worked over. Most commonly the 1002As would supply this type of information.

69. He opined that the dewatering and spacing process would not hurt any existing wells in the area and that it would actually help them by removing water and allowing, oil to flow. In the wells that do not have a water drive, he opined that the production levels wOuld not be affected and that the wells will drain 160 acres.

70. Recross Examination of Mr. Stromberg by Mr. Reeves. Mr. Stromberg stated again that if a well was drilled in the NE/4 or SE/4 of Section 23, the existing wells will not be affected. He stated that some of the formations do not fit the classic example of dewatering, due to their being water drive reservoirs.

71. Motion to Dismiss by John MacKechnie. Mr. MacKechnie then asked the court to dismiss Petroflow's Application for lack of jurisdiction of the Commission and failure of the applicant to prove necessary jurisdictional facts in order for the Commission to consider the order sought by the applicant.

72. Mr. MacKechnie stated that he is only concerned with the NE/4 of Section 23. He opined that as much as one quarter of the whole proposed drilling and spacing unit is not going to be productive. That being the case, the Commission does not have jurisdiction to grant this application for the reason that one-quarter of the proposed drilling and spacing unit is not underlain by a common source of supply. Mr. MacKechnie recited Title 52, Oklahoma Statutes,

must provide data that verifies that the water-oil ratio is greater than 1:1. If the water-oil ratio is less than 1:1, then the oil allowable shall be the appropriate allowable for the depth of the top of the formation and the maximum acreage provided in Appendix A."

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Section 86.1 as forming the foundation of his argument and referred the Commission to a series of cases to support his osition, namely Cameron v. Corporation Commission, 418 P.2d 932 (1966), 1966 OK 193; Caudillo v. Commission, 551 P.2d 1110 (1976), 1976 OK 198; Panhandle Eastern Pipeline v. The Commission, 285 P.2d 847 (1955), 1955 OK 161; Calvert Drilling v. Corporation Commission, 589 P.2d 1064 (1979), 1979 OK 7;6 and Hiadik v. Lee, 541 P.2d 196 (1975),1975 OK 997

73. MacKechnie argued that there is no evidence that the formations in question on the east side of the fault and on the west side of the fault are connected sufficiently to cause any drainage, any waste or any problem with any party's correlative rights due to the fault which separates the formations. He further stated that the Commission could only consider applications for smaller or different units on each side of the fault. Upon inquiry by the AU, Mr. MacKechnie stated that he contends that the formations on either side of the principal fault are not common sources of supply. He further stated that the W/2 common sources of supply are not interconnected with the E12 common sources of supply.

74. Mr. MacKechnie interprets the rules such that common does not mean common in kind, meaning that the rocks are common in kind, but as meaning they are interconnected. He argued there will be no waste created by the proposed spacing on the west side of the fault, but on the east side, the spacing will cause waste and damage to the correlative rights of those people on the east side of the fault that would have to share costs and production with people on the west side of the fault.

3 See Cameron v. Corporation Commission, 418 P.2d 932 (1966), 1966 OK 193 where the Court stated "The inequitable and unfair taking and the waste sought to be prevented by the part of this state's oil and gas conservation statutes commonly referred to as the Well Spacing Act, Title 52, 1961, Section 86.1 and 87.1 refers to such evils in connection with a common source of supply; And where it is not established by substantial evidence that an area sought to be spaced is underlain by a common source of supply or prospective common source of supply and that waste will result if it is not spaced, that state's Corporation Commission has no authority under said act to create oil and/or gas well spacing units in the area."

4 See Caudillo v. Commission, 551 P.2d 1110 (1976), 1976 OK 198 where the Court stated "Oil and gas conservation statutes require that evidence show that the area for which drilling and spacing units are established must be underlain by a common source of supply. The Commission has no authority to include known non-productive areas in a drilling and spacing unit."

See Panhandle Eastern Pipeline v. The Commission, 285 P.2d 847 (1955), 1955 OK 161 where the Court wrote that the Commission has no power to include within spaced area tracts that do not overlay the common source of gas supply.

6 See Calvert Drilling v. Corporation Commission, 589 P.2d 1064 (1979), 1979 OK 7 where the Court wrote that the Commission has no authority to space areas proven not to be overlying the common source only where there is not substantial evidence which would justify a finding that land contains common source or prospective common source.

See Hiadik v. Lee, 541 P.2d 196 (1975),1975 OK 99 where the Court wrote that the Commission may exclude lands from spacing unit on grounds that a common source of supply is not underlying such lands and it may limit the size of spacing unit on grounds that one well will not effectively drain the larger area and that a larger drilling and spacing unit might not assure maximum ultimate recovery of minerals.

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75. Motion to Dismiss by Mr. Reeves. Mr. Reeves adopted Mr. MacKechnie's Motion to Dismiss and stated that the same analysis is applicable to the SE/4 given in Exhibit No. 5, referring to O.A.C. 165: 10-1-2. He argued that the dewatering concept is an exception under Title 51, Oklahoma Statutes, Section 87.1 to a limitation on the size of a unit that can be formed by a spacing order to improve productivity in reservoirs that no longer operate under an active water drive mechanism. In the absence of this exception, oil formations found less than 4,000 feet in depth are limited in size to 40 acres, oil formations greater than 4,000 feet and less than 9,990 feet in depth are limited to 80 acres and oil formations greater than 9,990 are subject to 160 acre spacing. Dewatering units, however, can be as much as 640 acres.

76. He said that the Simpson Dolomite, First Wilcox and Second Wilcox are active water drive mechanism reservoirs that do not qualify for the exception and are not able to be spaced as dewatering units. With respect to the Hunton and Viola formations, he agreed that they are candidates for dewatering spacing but alleged that Petroflow failed to present any initial water saturation data about these formations, so the application must be denied. 9

77. Rebuttal of the Motion to Dismiss by Mr. Lee. Mr. Lee argued that the Commission has subject mater and in personam jurisdiction over the matter of Petroflow's application and that the Motion to Dismiss should be denied. He also argued that the Commission has specific authority to order the remedy requested by Petroflow under Title 52 Oklahoma Statutes, Section 87.1 to create spacing units that prevent waste and protect correlative rights, and that the Commission can create any size spacing unit it believes necessary for these purposes.

78. He said that the NE/4 of Section 23 is bisected by a fault that separates the northern part of the quarter-section from the southern part of the quarter-section, and the land testimony indicates that the mineral ownership is separated into two laydown 80 acre units whereby the mineral owners and lessees either own in the N/2 of the quarter or in the S12 of the quarter. All of the owners would share in production from a well whether it was drilled in the N/2 or the S/2 of

8 See O.A.C. 165: 10-1-2 which states "Common source of supply" or "pool" means "that area which is underlaid or which, from geological or other scientific data, or from drilling operations, or other evidence, appears to be underlaid by a common accumulation of oil and/or gas; provided that, if any such area is underlaid, or appears from geological or other scientific data or from drilling operations, or other evidence, to be underlaid by more than one common accumulation of oil or gas or both, separated from each other by strata of earth and not connected with each other, then such area shall, as to each said common accumulation of oil or gas or both, shall be deemed a separate common source of supply."

See O.A.0 165: 10-21-91 which states: "Reservoir dewatering project" means an oil or gas production project covering a specified area and reservoir(s), which utilizes water recovery and disposal technology to increase water production in the initial phase of reservoir development, with the primary purpose of increasing oil or gas production from the reservoir(s) as a result of the dewatering process. For the purpose of qualification for the sales tax exemption pursuant to this Part, the definition of reservoir dewatering project shall require the proof that the reservoir's initial water-to-oil ratio is greater than or equal to five-to-one (5-to-1), or is greater than or equal to the appropriate gas-to-water ratio calculated using the gas conversion factor outlined in OAC 165:10-21-90(d). This definition shall not include enhanced recovery projects or secondary recovery properties, which are subject to gross production tax exemptions pursuant to 68 O.S. Section 1001 and Part 13 of this Subchapter, OAC 165:10-21-75 through 10-21-80. "Reservoir dewatering unit" means an area and reservoir(s) designated a "reservoir dewatering project" where a reservoir dewatering process is conducted as defined in this Part.

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the quarter section, or in the N/2 or the S/2 of the fault line. No one will be deprived of revenue or be allocated additional revenue if the acreage in the downthrown side of the fault is included with the acreage in the upthrown side of the fault, and no correlative rights will be offended by this application.

79. With respect to the controversy over the initial water saturation data for the Viola and the Hunton formation, Mr. Lee alleged that initial meant when Mother Nature laid down the formation and there is no way to make this kind of determination. He argued further that the dewatering statute doesn't differentiate between solution gas drive reservoirs, gravity reservoirs, water drive reservoirs or any other kind of reservoir mechanics. The criteria under the statute is the 50 percent water cut requirement or the water to oil content of the fluid being greater than 1 part water to I part oil.

80. He opined that the intent of the water saturation statute is to promote development of the resources and protect correlative rights. Where wells become economical and the price of oil rises, the intent of the legislature in passing the statute was to afford operators the opportunity to have larger drilling and spacing units that support dewatering operations. He further stated that he has proven a prima facie case whereby the evidence presented shows that the water saturation in each of the seven common sources of supply is at least 50 percent and that a single well will drain as much as 160 acres.

81. Support of the Motion to Dismiss by Mr. MacKechnie. Mr. MacKechnie argued that the applicant's evidence showed that the north-south fault running up and down the W/2 of the NEI4 completely. separates the common sources of supply on the W/2 from those on the E/2 such that drainage from wells in the W/2 would be confined to the W12. Each side of the fault.00ntains the same named common sources of supply but such formations are not in communication with each. other because of the primary fault. For this reason, the Commission doesn't have jurisdiction over the subject matter in this cause because the application doesn't deal with a single source of supply. He referred the Commission to the Cameron case (See 418 P.2d 938 (1966) in which it was argued that a spacing order that purports to space lands must be based upon evidence that shows the existence of a source of supply common to lands covered by the order. Here he opined that the three common sources of supply that are the subject of Petroflow's application are separated by the primary fault such that the formations in the W/2 of the fault are no longer in common with the formations on the E/2 of the fault even though they have the same geological nomenclature.

82. Response in the Motion to Dismiss by Mr. Reeves. Mr. Reeves argued that the Commission could not create spacing greater than 80 acres for oil reservoirs at the depths presented in this application where the evidence showed that the reservoirs were not dewatering formations. He opined that the evidence presented by Petroflow indicated that the Simpson Dolomite, First Wilcox, Second Wilcox, McLish and Oil Creek were not dewatering formations because it is not possible to dewater them. He contended that just because a formation produces water doesn't mean that the formation is a dewatering reservoir because almost all oil reservoirs produce both oil and saltwater. He said that theses formations contained so much water that they cannot be effectively dewatered, so re-spacing these formations for dewatering doesn't make any sense.

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83. Response in the Motion to Dismiss by Mr. Lee. Mr. Lee argued that the statute is clear with respect to the criteria for establishing a dewatering unit, and that the criteria is whether or not the formation has a 50 percent or greater water cut at the time of the application, not at some unknown earlier time such as the time the reservoir was formed. It is not possible to know the water cut at the beginning of time. If a formation has a greater than 50 percent water cut that can be presently measured, then the Commission has the authority to establish a 160 acre dewatering unit.

84. Response in the Motion to Dismiss by Mr. Reeves. Mr. Reeves responded that the Commission must consider both the 50 percent water saturation requirement and the physical evidence that the establishment of a dewatering unit would actually bring about the dewatering of the reservoir. He said that a dewatering plan for these formations based upon using one well to pump fluid out of the various formations would not effectively dewater the formations and thus could not accomplish the purposes anticipated by the dewatering statute.

85. Response in the Motion to Dismiss by Mr. MacKechnie. Mr. MacKechnie responded that the Commission has subject matter jurisdiction to create separate drilling and spacing units for the formations that are separated by the principle fault but lacks jurisdiction to create common drilling and spacing units for the common sources of supply across the entire unit.

86. Recommendation of the ALJ with Respect to the Motion to Dismiss. The AU recommended that the Motion to Dismiss be denied because the Commission has subject matter and personal jurisdiction over the issues raised by this cause and also has the authority to set any

- size drilling and spacing unit it deems necessary to prevent waste and protect correlative rights. The ALJ then directed the merit cause to proceed. I

87. Direct Examination of William Heldmar by John MacKechnie. Mr. MacKechnie called Mr. Heldmar as his first witness. He stated that he operates and owns Oakland Petroleum Operating Company and has been active in the oil and gas industry in the Seminole area since around 1976. He stated that his company currently operates oil and gas wells in Oklahoma and Texas. He has operated wells producing from the First and Second Wilcox, the Hunton, Gilcrease, Cromwell, Booch and Arbuckle but not from the Oil Creek or McLish.

88. He said that the Wilcox was a classic water drive reservoir that cannot be dewatered and is subject to coning where the water will be drawn up the well faster than the oil during pumping and the oil will subsequently be lost. He said that any attempt to dewater the Wilcox would be like trying to dewater the ocean and that any Wilcox operation would have to be carefully managed to produce economic quantities of oil. He said that the Wilcox produces a lot of water along with a proportionately low amount of oil and that the water from Oakland's wells in the Seminole area is sent to disposal wells.

89. He said that Oakland owned leases in the E12 of the NE/4 and the SW/4 of the NE/4 in Section 23. Oakland also owned several producing wells in Section 23, including the Peter King Well in the N/2 of the NE/4 of the NE/4, the Sampson Peter Well located in the S/2 of the NE/4, the Sampson Peter No. 1 Well (currently shut down) located in the SE/4 of the NE/4 and the

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Sampson Peter No. 5 Well located in the NE/4 of the SW/4 of the NE/4, and that the Sampson Peter No. 5 Well was the only well currently producing from the Wilcox in the section. He said all revenue and related payments to working interest and royalty interest owners came from oil produced from this well.

90. He said that the Sampson Peter No. 5 Well has been in production since the late 1920's and currently holds the lease by production from the First and Second Wilcox formations. Oakland acquired that lease from Gulf Oil company around 1991. He then identified Exhibit 9 as a division order prepared by Sun Oil Company and the admission of the document into evidence was protested by Mr. Lee and the ALJ admitted the document into the record. The document showed the legal description of the lease and the working interest owners and the royalty interest owners. The document disclosed that some of the owners were named Reed or Reed Trust and that the well has produced around 300,000 barrels of oil since 1979 and produces around 17 to 20 barrels of oil per day.

91. He said that he knew about the principle fault separating parts of the NW/4 from the NE/4 in Section 23 and noted that Oakland's lease doesn't cover the 40 acres comprising the NW/4 of the NE/4 but does cover the other three quarter-acre tracts of the NE/4 of Section 23. He said that Petroflow never contacted them about wanting to do an operation in the NE/4 but Crown had done so and that their proposal had been turned down because Oakland didn't want to jeopardize production from the Sampson Peter No. 5 Well. He then said that Petroflow had sent them a farmout agreement that they rejected.

92. He said that he opposed Petroflow's application because he opined that their pumping operation will pull too much water out of the reservoir too quickly and cause coning to occur around the wellbore of the Sampson Peter No. 5 Well and any other wells that Oakland puts back into production in the same area, and that the coning will reduce production from the wells. He noted that he had seen such a reduction in production from other Wilcox wells in the area such as the Bowlegs Well after operators started pumping 5,000 to 6,000 barrels of water per day from the formation. He admitted that he hadn't completed any drainage studies for wells in Section 23.

93. Cross Examination of William Heldmar by John Reeves. Upon inquiry, Mr. Heldmar said that coning occurs when the well is produced too hard and too fast and there occurs a preferential flow of water as opposed to oil. He said that Oakland acquired an interest in the Peter King Well by a farmout agreement from Cook Oil Company who acquired the rights from Gulf Oil that covered formations extending from the surface to the Cromwell. Although this acquisition didn't cover any of the formations that are subject to this present cause, he stated that Oakland's base lease covers the rights to these deeper formations. He said that Petroflow doesn't own a working interest in the N12 of the NE/4 of the NE/4 in Section 23. He said that Petroflow only owned interests in the NW/4 of the NE! 4 of Section 23 from below 4,250 feet, and that the tract is west of the principle fault in the NE/4 of Section 23. Mr. Lee objected to this testimony of the witness as based upon hearsay and the ALJ allowed the testimony.

94. The witness then noted that Petroflow reported the top of the First Wilcox formation as 4,190 feet, the top of the Second Wilcox as 4,260 feet and the McLish and Oil Creek to be deeper than these formations. Upon further objection by Mr. Lee, Mr. Reeves argued that the

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matter related to jurisdiction because the Viola, Simpson Dolomite and First Wilcox cannot be spaced by Petroflow unless they owned an interest in these formations. The witness testified that if Petroflow's lease was limited by a depth clause to those formations below 4,250 feet then they have no right to space the Hunton, Viola, Simpson Dolomite and First Wilcox formations.

95. He noted that the First and Second Wilcox formations are not spaced in the NE/4 of Section 23 and that normal spacing for the Wilcox in the area was 40 acres per unit. He said that the wells located in the NE/4 have been in production since the 1920's and are still producing today. He opposes Petroflow's application to re-space because he believes that doing so will damage his producing wells. He doesn't want any new partners in his well and wants to be left alone to operate his well as he has been doing in the past. He doesn't want to have to pay royalties to owners outside of the existing unit.

96. He opposed Petroflow's plan to enhance production in the First and Second Wilcox, the Simpson Dolomite, the McLish and the Oil Creek formations by drilling a new well in the NE/4 or the SE/4 that would produce 5 to 7 thousand barrels of water per day. He said that other wells that have attempted such a plan have not been successful in the long run. He noted that he is the record operator of a well in the unit but Petroflow never came to him to discuss their plan for the operation of the proposed dewatering unit.

97. Cross Examination of William Heidmar by John Lee. Upon inquiry, Mr. Heldmar said he was contacted by Mike Caldwell who works for United Land Company, but Mr. Caldwell never represented that he worked as a consultant for Petroflow. He said that Caldwell proposed a farmout agreement that he didn't. agree .to, but couldn't recall whether the farmout agreement excluded all current production and hiswe11bores and all of the other existing welibores in the NE/4 of Section 23. .

98. Referring to Exhibit 9, a copy of a Division Order dated February 8, 2011 for the Sampson Peter Lease operated by Oakland, he noted that the only royalty owners under his lease were the Edward F. Reed Trust, the Margaret R. Kosek Trust and the Mary Elizabeth Reed Trust. He said that these entities owned the minerals in the 120 acre leasehold operated by Oakland and that part of the leasehold included a 20 acre tract located in the N/2 of the NE/4 of the NE/4 of the section. He said that he was not aware of lease release from this leasehold and that Oakland received their lease from Gypsy which retain ownership of another, separate 40 acres of minerals in the NW/4 of the NE/4 of the section. He clarified that Oakland owned 120 acres of minerals located in the E/2 of the NE/4 and 40 acres of minerals located in SE/4 of the NE/4 of the section. The ALJ admitted the exhibit without objection.

99. He admitted that he wasn't a landman and he wasn't aware of the release of oil and gas lease dated November 3, 1978 for all formations below 3,000 feet (or the base of the Cromwell, whichever is deeper) recorded at Book 1293, pages 247, 249 and 251in the County Records of Seminole County, Oklahoma, which released the base lease underlying the N/2 of the NE/4 of the NE/4 comprising a 20 acre tract and a 10 acre tract located in the SE/4 of the NE/4 of the NE/4 of the section. Upon inquiry, the witness testified that he earned a degree in economics and petroleum management from the University of Tulsa and had worked for several oil companies

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before he acquired by assignment in 1990 and 1991 the 120 acre oil and gas lease in the NE/4 of Section 23.

100. He said that he hasn't drilled any wells in Section 23 since he acquired the lease and that only one well, the Number 5 Well, is currently producing from the First and Second Wilcox based upon the records from Gypsy and the Commission that he had examined. He then identified Exhibit 10 as a copy of Form 1002A dated July 16, 1930 for the S. Peter No. 5 Well located in Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma and Exhibit 11 as a copy of Form 1002A dated February 26, 1931 for the Sampson No. 5 Well located in the SW/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma. The ALJ admitted the exhibits without objection. Upon inquiry he noted from the exhibits that the Sampson Peter No. 5 Well initially produced 240 barrels of oil and 1,225 barrels of water from the First Wilcox formation at a depth between 4,130 to 4,140 feet.

101. He testified that he hasn't worked the well over since 1991 or drilled it deeper or completed the well in any other formations. He said that there were two wells on the lease, the Sampson Peter Number 5 Well that produces around 17 barrels of oil and about 700 barrels of water per day from the First Wilcox formation and the Peter King Well that produces around 3 barrels of oil per day from the Cromwell and Gilcrease formations. He said that the produced water was disposed of into the Cromwell formation using the Texas Reed No. 4 SWD Well located south of the lease, the Thomas Jefferson No. 3 Well and the Peter King No. 2 Well. He said the Peter King No. 2 SWD Well is on their lease and that all the wells on the lease were wells Oakland bought and that Oakland hasn't drilled any wells on their lease.

102. He said that Oakland owned a 4.7 percent working interest in the- Sampson Peter No. 5 Well and that the Reed Trust owns minerals in the NE/4 of the section and receive royalty from Oakland wells in the section. He admitted that if there were additional reserves over and above what Oakland currently produces then it would be in the best interest of the royalty owners to produce the petroleum. He also admitted that Oakland would have the right to participate in any wells that Petroflow drilled in the section if the application is approved or share in the proceeds in some manner such as an overriding royalty.

103. Re-cross Examination of William Heidmar by John Reeves. Upon inquiry, Mr. Heldmar said that the Texas Reed No. 4 Well had never been a commercial producer.

104. Re-direct Examination of William Heldmar by John MacKechnie. Upon inquiry, Mr. Heldmar identified Exhibit 12 as a copy of a Lease Assignment dated October 22, 1948 between Gulf Oil Corporation and Sam A. King covering the N/2 of the NE/4 of the NE/4 and the SE/4of the NE/4 of the NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma. He read from the document that the purpose of the Farmout agreement was to drill a well to adequately test all formations from the surface to the top of the Caney Shale at a depth of around 2,900 feet. He said that Gulf Oil gave a release for a tract consisting of around 30 acres in the NE/4 of the NE/4 of Section 23 and that Petroflow acquired the release tract under new oil and gas leases and now want to space into a producing oil and gas lease owned by someone else. He alleged that Petroflow is interested about spacing into someone else's lease and not dewatering because the Wilcox can't be dewatered. He noted that Petroflow may have

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leased 30 acres in the NE/4 of the NE/4 but Oakland owns the other 10 acres in the same area of land. He said that Seminole formation wells that are close together communicate with each other. The ALJ then admitted Exhibit 12 over the objection of Mr. Lee.

105. Re-cross Examination of William Heldmar by John Reeves. Upon inquiry, Mr. Heldmar said that the Petroflow's proposed 160 acre spacing would allow Petroflow to space into Oakland's Sampson Peter No. 5 Well, forcing Oakland to accept new partners in its well. He said that even though Petroflow may own the old Gulf 30-acre lease in the NE/4 of the NE/4, Oakland has been paying the royalty owners since 1990 or so as if they still owned the lease taken by Petroflow. He noted that Exhibit 12 was the Farmout agreement from 1948 and the release he referred to was a release from the Farmout.

106. Re-cross Examination of William Heldmar by John Lee. Upon inquiry, Mr. Heldmar noted that the Farmout shown in Exhibit 12 was never recorded. He noted from the document that Gulf assigned some acreage to King subject to the condition that King drill a well. He said that King drilled the Peter King No. 1 and Peter King No. 2 Wells, and that Oakland produced from the Peter King No. 1, the Peter King No. 2 and the Sampson Peter No. 5 Wells. He noted that the Sampson Peter No. 5 Well was the only producing well from the Wilcox formation on the lease. He identified Exhibit 13 as copies of three Partial Release of Oil and Gas Leases recorded on November 28, 1978 in Seminole County, Oklahoma. The ALJ admitted the exhibit without objection.

107. He said that the exhibit noted that the lands released from the lease consisted of 20 acres comprising all formations below 3,000 feet or the Cromwell Sand located in the N/2 of the NE/4 of the NE/4 of the section and 10 acres located in the. SE/4 of the NE/4 of the NE/4 of the section. He conceded that the release appeared to be valid on its face but, contended that Oakland's lease still was in effect because Oakland had made royalty payments to the mineral owners since 1978. He said that the base lease was a lease of 200 acres and that Oakland has been paying royalty on this acreage even though he admitted the possibility that 30 acres of the leasehold is open an not under his lease. Counsel proposed to the witness that if 30 acres of the 200 acre lease were released from the lease, then the royalty owners of the 30 acres would be entitled to 8/8ths interest in the production since 1978 when the release was filed. He responded that this was possible but contended that he still held all of the 200 acres under his lease and that the release shown in Exhibit 13 isn't effective.

108. Referring to Exhibits 10 and 11, he said that according to the 1002A, the Viola, the Simpson Dense, the Simpson Dolomite, the Upper Wilcox Sand, the Dolomite, the Green Shale, and the Lower Wilcox are all open. He noted that he hasn't done anything to the well since Oakland acquired it. He opined that the Sampson Peter No. 5 Well produces around 17 barrels of oil and 700 barrels of water with a water cut greater than 50% per day from the Wilcox and doesn't know if it also produces from the Simpson Dolomite or Viola.

109. He opined that Petroflow's spacing of 30 acres of Oakland's 200 acres would give Petroflow thirty-two hundredths of ownership in Sampson Peter No. 5 Well. Mr. Lee responded and the witness concurred that what Petroflow is asking for is a 160-acre drilling and spacing under which Petroflow would have 30/160ths of the Sampson Peter No. 5 Well.

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110. Mr. Lee then moved to amend Petroflow's application to exclude any producing well in the N/2 and the SE/4 of Section 23 from the spacing application such that the application would have no effect on the ownership of the welibores and the welibores would be excluded from the new spacing order. The amendment applied only to producing wellbores, not all wellbores. Mr. Lee also proposed to limit these same producing welibores from any subsequent pooling and increased density action related to this present spacing that might come before the Commission at a later date.

111. The witness objected to the motion as being to narrow and not applying to two old non-producing wellbores on his lease. He said that Oakland planned to develop these wells, the Sampson Peter No. 1 Well and the Sampson Peter No. 2 Well, in the Wilcox and the Cromwell and had acquired the Texas Reed No. 4 Well and converted it into a disposal well for this purpose. He admitted that Oakland hadn't done anything to produce from these two wells in the last 10 years but contended that Oakland had planned for some time to develop the wells and didn't do so earlier because the price of oil was too low. The ALJ allowed Petroflow's amendment.

112. Upon inquiry of counsel, he agreed that the Petroflow application didn't affect Oakland's ability to produce from the Cromwell in these two wells. He noted that Oakland could produce around 2 to 3 barrels of oil per day right now from the Cromwell but hadn't done so because the Cromwell produced water promotes the formation of iron sulfite precipitate in the disposal wellbore that plugs up flow lines. He noted that when produced water from the Cromwell and produced water from the Wilcox are mixed together, the formation of the iron sulfide precipitate and related plugging is worse. He wanted to wait until he had a second disposal well in place so that he could somehow produce from both formations without producing iron sulfide. He also noted that the two wells would produce around 17 barrels of oil and around 700 barrels of water per day from the Wilcox.

113. He also acknowledged that if Oakland didn't have the water problem with the produced water from the Cromwell, they would immediately produce from both the Wilcox and Cromwell and co-mingle the production because the Wilcox makes more oil than the Cromwell. When asked by counsel whether his operation is in fact a dewatering operation because the wells produced 700 barrels per day water at a saturation greater than 50 percent he said that he has a problem with the concept of dewatering and the Commission's apparent position that production of oil from formation containing more than 50 percent water is dewatering.

114. He said that the economic limit for production of oil from the Wilcox is limited to around a one percent oil-water cut if one has enough disposal capacity, and noted that he might be able to increase production to around 1,700 barrels of fluid and 17 barrels of oil per day because he knew of other such Wilcox wells around 10 miles away from Section 23 that produced around 2,500 barrels of fluid per day yielding around 20 barrels of oil. Upon inquiry he said there were no wells presently interfering with production from the Sampson Peter No. 5 Well and he opined that the optimum production for this well should be around 700 barrels of fluid and around 7 barrels of oil per day. Any measures to increase production would entail the

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installation of new equipment which would probably not be economically justified at the current price of oil.

115. Direct Examination of Tyco Holloway by John Reeves. Mr. Reeves called Mr. Holloway as his next witness. He stated that he is an independent petroleum engineer and qualified by more that 44 years of training and experience to give his expert opinion in the realm of geology. Mr. Lee objected to the witness being allowed to testify as a geologist and the AU accepted his qualifications as an expert in both petroleum geology and geology. He said that he did a lot of work for Americana Energy and Pontotoc Production in the township and range encompassing Section 23 and related area and also drilled several Wilcox wells in the area. He designed completion programs for clients to optimize production in the Cromwell formation. He is familiar with Cantrell Energy's ownership in the N/2 of the SE/4 of Section 23 and assisted them in evaluating their interest. He identified Exhibit 14 as a lease plat showing the property ownership of the two 80-acre leases whereby Cantrell Energy Corporation lease holdings in the N/2 of the SE/4 of Section 23 are shown in yellow and Petroflow Energy Corporation's drilling rights are shown in red. The ALJ admitted the exhibit over the objection of Mr. Lee.

116. He understood that the Commission established spacing units based primarily upon depth unless you get some kind of an exception and noted that there are no established units in the N/2 of the SE/4 of Section 23 even though wells have produced there since 1929. Since 1929, wells have been drilled on what would now be called 10-acre spacing units producing a total of 803,493 barrels from the N/2 of the SE/4 of Section 23. He referred to Exhibit 17 which he identified as a copy of an Oklahoma Crude Production Report by Leases dated June 1998 for production information. He said that this production came primarily: from four Wilcox wells. He said that one must be careful with these production reports because the records often list production from the most recent formations but not from older formations where production may have ceased. The witness said that Cantrell Energy planned to develop the area by drilling a new well and reworking several other wells.

117. He identified Exhibit 15 as an induction log from the Jefferson No. 7 Well located in the NE/4 of the NW/4 of the SE/4 of Section 23, T5N, R7E. He identified Exhibit 16 as copies of 1002A forms for the other wells that he reviewed, including the following: the T. Jefferson D No. 1 Well located in the SE/4 of the NE/4 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated July 23, 1933; the T. Jefferson D No. 3 Well located in the N/2 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated January 22, 1930; the T. Jefferson D No. 4 Well located in the N/2 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated January 23, 1930; the Sampson Peter No. 1 Well located in the SE/4 of the NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated August 15, 1929; the Sampson Peter No. 2 Well located in the SE/4 of the NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated October 17, 1929;and the S. Peter No. 7 Well located in the SW/4 of the NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma dated October 11, 1930. The exhibits were admitted by the ALJ without objection.

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118. He said he looked at the data from these wells in the area as part of his evaluation and determined that none of the formations that are the subject of this hearing can be successfully dewatered and that the water saturations for oil and gas production have to be less than 48 percent. He said that the units in the area should be 40 acres, not 160 acres as recommended by Petroflow. He based his opinions upon the records that he evaluated, including those described in Exhibit 16. He said that the Thomas Jefferson No. 1 Well had an initial production of 985 barrels of oil per day and no water from the First Wilcox at a depth between 4,175 to 4,187 feet; the Thomas Jefferson No. 3 Well had an initial production of 502 barrels of oil per day and no water from the First Wilcox at a depth between 4,155 to 4,165 feet; the Thomas Jefferson No. 4 Well had an initial production of 502 barrels of oil per day and no water from the First Wilcox at a depth between 4,155 to 4,165 feet and showed the top of the Simpson formation at 4,170 to 4,130 feet; the Hunton formation at 3828 to 3862 feet; and the Second Wilcox at 4,234 to 4,240 feet. He said that none of the wells produced water initially.

119. He then described production from the other wells listed on the Form 1015 sheets that comprised Exhibit 16, including the Sampson Peter No. I Well, the Sampson Peter No. 2 Well and the Sampson Peter No. 7 Well. The First Wilcox was encountered between 4,084 to 4,092 feet in the Sampson Peter No. 1 Well located in the S/2 of the S/2 of the NE/4 of the section. The Sampson Peter No. 2 Well encountered the Gilcrease Sand at around 2,400 to 2,460 feet and the First Wilcox between 4,104 and 4,114 feet. The Sampson Peter No. 7 Well encountered the Mayes Lime at 4,155 to 4,264 feet. Some of the wells were productive in the Wilcox and no water was initially produced. The witness noted that these wells were drilled on the principle fault that runs north to south in the area and that when they started drilling the wells were on the high side of the fault and they ended up drilling into the low side of the fault in the Mayes Lime formation. He noted from the data that the throw of the fault was around 550 feet of vertical displacement.

120. He identified Exhibit 19 as a copy of a plat of Cantrell Energy's leaseholdings in the First Wilcox in Sections 23 and 24 that depicts subsea spots and fault structures. He then prepared a revision of the exhibit that showed wells in the SE/4 of the section numbered I through 12. He said that some of the wells were initially productive of oil and no water from the First Wilcox but the Texas Reed No. 1 Well was completed in the Wilcox for 13 barrels of oil and 113 barrels of water and the Jefferson Thomas Number 2 Well was completed in the First Wilcox for 15 barrels of oil and 450 barrels of water. Well No. 13, the Texas Reed Number 4 Well, had 13 barrels of oil and 30 barrels of water out of the Hunton formation and was completed in the Viola formation for 10 barrels of oil and 60 barrels of water and in the First Wilcox for 24 barrels of oil and 18 barrels of water. The ALJ admitted Exhibit 19 and also admitted Exhibit 21, described for the record as a copy of a plat of Cantrell Energy's leaseholdings in the First Wilcox in Sections 23 and 24 shown in Exhibit 19 that depicts arbitrary well numbers for demonstrative purposes.

121. He identified Exhibit 17 as a copy of a Oklahoma Crude Production Report by Leases dated June 1998. He looked an the wells and production data and opined that 90 percent of the oil that was produced from the SE/4 of Section 23 came from the First Wilcox formation and the other 10 percent came from the Cromwell, Gilcrease and Hunton. He said that as of June 1998 the cumulative production on Cantrell Energy Corporation's Jefferson 80 acre lease

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in the N/2 of the SE/4 was 803,493 barrels of which 90 percent came from the First Wilcox. He said that the Texas Reed lease located in the Sf2 of the SE/4 made a total of 146,618 barrels of oil as of June 1998 of which 90 percent came from the First Wilcox. He noted that the total production from the Sf2 of the SEA was around 435,776 barrels as of June 1998, and he opined that around two times as much oil was produced out of the N/2 of the SE/4 as from the Sf2 of the SE/4. The ALJ admitted Exhibit 17.

122. He agreed with Mr. Stromberg that there is an active water drive in the First and Second Wilcox formations. He opined that the Simpson Dolomite lacks sufficient porosity and permeability for a water drive. He identified Exhibit 18 as a copy of a plat of leaseholdings in the First Wilcox in Sections 23 and 24. He prepared the exhibit based upon his analysis of the thickness of the zones and the production of the wells and listing on the drilling reports and associated well files where they listed the sand that they were completing in. He said that the Ef2 of the structure was the most thick and most productive. He said that the Nf2 of the sections were separated from the Sf2 of the sections by a fault line, and that most of the productive wells were located on the north side of the fault. Exhibit 18 was admitted by the AU.

123. He said that he was familiar with dewatering, in particular with respect to fractured lime formations. He agreed with Mr. Stromberg that the Simpson Dolomite, First Wilcox and Second Wilcox cannot be effectively dewatered but disagreed with Stromberg that the Viola and Hunton can be dewatered because the formations lack sufficient porosity. He opined that the McLish and Oil Creek could not be dewatered. He also opined that formations that have an active water drive cannot be effectively dewatered because once you deplete the hydrocarbons at the top of the reservoir, continued pumping lowers the pressure in the wellbore, resulting in a coning effect that preferentially draws water from the formation rather than hydrocarbons. He said that once you draw fluid from beyond the oil/water contact line, you will preferentially draw water into the wellbore instead of oil. The amount of oil that you produce compared to the amount of produced water would be then be too small to justify the cost to pump fluid from the formation.

124. He said that he was familiar with Exhibit 20, the copy of a Dowell Laboratory Report dated December 1, 1948 of Simpson Dolomite cores taken from the Jefferson No.2 Well. He said that the cores were taken from about 4,055 to 4,081 feet and were really taken from the First Wilcox formations. He said that the cores showed around a 30 percent water saturation in the First Wilcox. Mr. Lee then stated after his inquiry of the witness that the exhibit noted that the core sample was from the Simpson Dolomite, not First Wilcox, and that the information on the report in the exhibit was correct because the report also indicated that the rock wasn't soluble in acid. He further noted that Dolomite, being a carbonate, is soluble in acid while sandstone typical of the First Wilcox isn't soluble. The witness then changed his testimony and agreed with Mr. Lee that the core sample was correctly represented as Dolomite in the report. Exhibit 20 was admitted by the AU.

125. He directed his attention to the Texas Reed No. 4 Well, also known as Well No. 13. He said that data from this well could not be representative of the initial water saturations in the formation because a lot of water has been injected into the formation since the well was drilled in 1988. He said that the formation could be contaminated from water injected into it

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over the years from other formations, and that this process would cause the current water saturation to differ from the initial water saturation. He said that the water saturation data from wells drilled in the S/2 of the SE/4 are not representative of the water saturation of the formations in the N/2 of the SE/4 because the formations are off-structure, have differing physical properties and are separated by a principle fault.

126. He disagree with Petroflow's position that they could produce a lot of oil from the First Wilcox by producing 7,000 barrels of water per day because he doesn't believe that any of the six formations in this area of South Seminole County will produce that much water. He said that the matrix porosity of 1 to 2 percent was too low for these formations to produce the amount of water claimed by Petroflow.

127. Cross Examination of Tyco Holloway by John Lee. Upon inquiry, the witness testified that Cantrell operated two producing wells in the N/2 of the SE/4, the Thomas Jefferson No. 2 Well in the NE/4 of the NE/4 of the SE/4 and the Thomas Jefferson No. 4 Well in the SE/4 of the NW/4 of the SE/4, and no wells in the Sf2 of the SE/4 of the section. He said that he didn't review any of the logs from these producing wells and only looked at the log from the Jefferson No. 7 Well. He said that the Form 1002A shown on page 3 of Exhibit 16 was applicable to this hearing, showing that Cantrell acquired the lease for the Jefferson No.4 Well in 2007 apparently from Americana. He said that he only made water saturation calculations on the Texas Reed No. 4 Well, a well not operated by Cantrell and located in the Sf2 of the SE/4 of the section.

128. He noted that Oakland claimed to operate a Wilcox well that produced 17 barrels of oil and over 700 barrels of water per day but opined that the well was a high-volume water production well, not a dewatering or oil skimming well. He held this opinion while acknowledging that all such wells contemplated water cuts greater than 50 percent. He said that the Thomas Jefferson No. I Well probably produced from the Viola, Simpson Dolomite and the First Wilcox formations. He said that the Thomas Jefferson No. 3 Well probably produced from the Viola Lime, the Simpson Dolomite, the First Wilcox and possibly the Sylvan but not from the Hunton. He said that the Thomas Jefferson No. 4 Well probably produced from the Viola Lime, the Simpson Dolomite, the First Wilcox and possibly the Sylvan but not from the Hunton. He opined that the Sampson Peter No. I Well produced from the First Wilcox but could not verify his opinion.

129. Referring the Exhibit 17, a copy of a Oklahoma Crude Production Report by Leases dated June 1998, he said that the 289,058 barrels of oil were produced from two wells located in the SW/4 of the SW/4 of the section operated by Oakland but he didn't really know from what formations the oil was produced. With respect to the two wells producing in the NE/4 of the SE/4 of Section 23, he earlier stated that 90 percent of the 803,493 barrels of oil produced came from the Wilcox but now admitted that the oil produced from one of the wells may have come from the Cromwell formation and that production from the other well may have come from the Wilcox, Viola and Simpson formations. He noted that six wells produced around 451,008 barrels of oil from the Gilcrease formation on the Peter King Lease in the NE/4 of the section according to the records of Petroleum Information even though he attributed production to the First Wilcox. He noted that Petroleum Information reported that the four wells located on the

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Peter Sampson Lease in the NE/4 produced 319,762 barrels of oil from the Simpson Series and the Wilcox even though he previously testified that 90 percent of the production was from the Wilcox. He also said that the Texas Reed Well produced 146,000 barrels of oil from the Cromwell even though he had previously stated that the only the Wilcox produced significant quantities of oil in this area.

130. He identified Exhibit 22 as copies of the following: a Form 1002A report dated August 20, 1929 for the T. Jefferson D No. 2 Well located in the NE/4 of the NE/4 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; a deepening report dated March 17, 1930 for the T. Jefferson D No. 2 Well located in the NE/4 of the NE/4 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; a plugging back report dated August 18, 1931 for the T. Jefferson D No. 2 Well located in the NE/4 of the NE/4 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; and a deepening report dated November 9, 1950 for the T. Jefferson D No. 2 Well located in the NE/4 of the NE/4 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma. He said that Oakland was primarily concerned with the Wilcox formations with respect to Petroflow's application to establish 160 acre spacing with respect to the N/2 of Section 23 and the SE/4 of Section 23. The ALJ admitted Exhibit 22.

131. He identified Exhibit 23 as copies of the following: a drilling deeper and plugging back report dated April 14, 1930 for the Sampson Peter No. I Well located in the SE/4 of the NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; and a work over and plugging back deeper report dated June 19, 1951 for the Sampson Peter No. 1 Well located in the SE/4 of the NE/4 of Section 23, Township 5 North, Range 7, East, Seminole County, Oklahoma He noted that this well initially produced 1,076 barrels of oil per day frorñ. the First Wilcox in 1929and was later drilled deeper and after 5 months production was down to around 340 barrels per day. The ALJ admitted Exhibit 23 without objection.

132. Referring to Exhibit 19, he said that the well in the center of the SW/4 of the NE/4 of Section 23 cut through the principle fault at around the Mayes formation from the up dip side of the fault and found itself on the down dip side of the fault. Here they quit drilling because they were now below the productive intervals of the First or Second Wilcox because of the fault. He opined that this occurred even though the fault was a normal fault because the wellbore deviated form the vertical. He opined that his occurred even though he hadn't reviewed any single shot drilling records or records showing that the Mayes formation was over 400 feet thick in the area.

133. He opined that a fault existed on the east side of Section 23 that runs north to south based upon wellbore information showing a significant displacement in the depths of the formations between different wellbores. He didn't prepare or review any structure maps or contour maps for this particular area to support or confirm his opinion. He said that he placed the fault on the map partially based upon two wells that were wet such that these wells were so far down dip that they had to be in a separate fault block. Referring again to Exhibit 19 showing a series of arbitrary well numbers, he said that the oil-water contact line in these wells was around 20 to 22 feet below the top of the First Wilcox formation, and that the top of the first Wilcox was around 3,182 feet in Well No. 1 and around 3,212 feet in Well No. 2. He opined that the wells drilled in Section 23 would all have oil-water contact lines at differing depths.

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134. He opined that the faults shown on Exhibit 19 exist because of the different subsea elevations of the First Wilcox formation shown in the various wells in Section 23. He opined that the regional dip in this area is up-dip from southwest to northeast. He found a south dip between the well having a Wilcox top of 3,457 in the SW/4 of Section 24 to a well having a Wilcox top of 3,477 in the SW/4 of the SW/4 of Section 24. He opined that a fault existed between Well No. 7 and Well No. 12 because of a 38 foot dip between the wells even though he didn't find a fault where the dip between other wells in the same area was over 200 feet.

135. He agreed with counsel that the initial water saturation for the First and Second Wilcox, McLish and Oil Creek formations was around 100 percent and that the initial water saturation for the Hunton, Viola and Simpson Dolomite is uncertain. He said that the initial water saturation of a well drilled in 1939 would not be representative of the water saturation when the formations were formed. He agreed with counsel that the initial water saturation of the Ordivician sandstones such as the First Wilcox, Second Wilcox, McLish and Oil Creek was above 50 percent. He noted that the data shown on the Form 1002A for the wells that were first drilled into the First Wilcox underlying the SE/4 of Section 23 didn't show any water, only oil. Referring to Exhibits 19 and 21, he said that the dashed lines shown on the maps towards the south direction are faults that he opines exist but is not entirely certain of their existence whereas the solid lines to the north depict faults of which he is certain.

136. He said that 160 acre spacing is inappropriate for this area because of the changing formation reservoir characteristic lithology and facies changes, and also because of the possibility of cross-faulting and because the different faults in the area would interfere with communication within all of the proposed 160 acres. Referring to Exhibits 19 and 21, he said that the dashed lines shown on the maps towards the south direction are faults that he opined exist but is not entirely certain of their existence whereas the solid lines to the north depict faults of which he is certain. He opined that 40 acre spacing would be appropriate for all of the formations found in Section 23 because the wells drilled in the area didn't interfere with each other, but he admitted that he hadn't done any drainage studies on the first Wilcox wells to confirm his opinions. He noted that it is possible that one well could drain more than 40 acres in the absence of faulting because the Wilcox and Ordivician sands have such high porosities and high permeability. He said that in the absence of faulting a single well could drain 640 acres.

137. He said that he completed drainage studies on some wells on the Jefferson D lease and the Cantrell lease in the N/2 and SE/4 of Section 23. He used some rule-of-thumb calculations based upon his estimate that Wilcox wells produce around 600 stock tank barrels per acre-foot and that there would be around 400 acre-feet (10 foot thick oil zone times 40 acre unit) of productive reservoir in a 40 acre unit. He said that he took the 600 barrels per acre foot recovery factor from information found in the Oil and Gas Journal and opined that this recovery factor is applied by the API for all Ordivician sandstones.

138. He said that he also completed some volumetric calculations for the First Wilcox formation. He estimated a reservoir thickness of eight feet based upon the completion techniques of the original operators and the other parameters such as porosity and water

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saturation upon rule-of-thumb estimates. he said that if he had actual data instead of rule-of-thumb guesses then his reservoir volume calculations could change significantly.

139. Mr. Lee then reminded that Commission that the ALJ had granted his motion to amend Petroflow's application to exclude all producing wells and wellbores within a subject lands that were open in any of the subject common source of supply, namely the Hunton, the Viola, Simpson Dolomite, First Wilcox, Second Wilcox, McLish and Oil Creek. In light of the above Mr. Lee said that Petroflow reached a settlement in regard to the Cantrell interests, and now requests that Petroflow's spacing application be amended to withdraw or dismiss therefrom the SE/4 of Section 23. Mr. Reeves then asked to be excused since the settlement has occurred between Cantrell and Petroflow.

140. Rebuttal Case by John Lee. Mr. Lee then proposed to call Mr. Caldwell to rebutt testimony about Petroflow's standing to bring this action, the release and status of oil and gas leases and drainage. Mr. MacKeclmie then moved the Commission to limit Mr. Lee's rebuttal evidence to that which would directly rebut Cantrell's witnesses, and Mr. Heldmar for Oakland, neither of which is the basis of Oakland's Motion to Dismiss. He also renewed his Motion to Dismiss. The ALJ then allowed the rebuttal case to go forward without ruling on the Motion to Dismiss.

141. Rebuttal Examination of Mike Caldwell by John Lee. Mr. Lee then presented Mike Caldwell as his first rebuttal witness. He identified Exhibit 24 as a copy of a Memorandum of Oil and Gas Lease executed July 10, 2013 between Toby Reed, Jr, as Trustee of the Mary E. Reed Trust, and United Land Company, LLC covering 140 acres, more or less, comprising: the N/2 of the NW/4 of the SW/4 of Section 1, Township 5 North, Range 7 East, Seminole County, Oklahoma; the N/2 of the NE/4 of the NE/4 and SE/4 of the NE/4 of the NE/4 as to all rights below the depth of 3,000 feet or the Cromwell Sand and the NW/4 of the NE/4 and the SE/4 of the SE/4 as to all rights below the depth of 4,250 feet of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; and Lot 3 of Section 26, Township 5 North, Range 7 East Seminole County, Oklahoma. He noted that Cantrell and the SE/4 of Section 23 were dismissed from Petroflow's application, leaving only the N/2 of Section 23. He noted that he prepared the Lease shown in Exhibit 24 and that the Lease was recorded in the records of the Seminole County Clerk on July 16, 2013. The Lease identified the lessors as the Mary E. Reed Trust. The ALJ admitted Exhibit 24.

142. Referring to Exhibit 13, a copy of the Release of Oil and Gas Lease covering 30 acres in the NE/4 of the NE/4 of Section 23, he said that the Release was a record taken from the Seminole County Clerk's Office that was recorded on November 1978 and executed on October 18, 1978. The lease covers 20 acres in the N/2 of the NE/4 of the NE/4 of the section below the depth of 3,000 feet. He said that as of May 2013 the mineral were open below 3,000 feet. He said that he was instrumental in acquiring oil and gas leases covering these minerals.

143. He identified Exhibit 25 as a copy of a Memorandum of Oil and Gas Lease executed July 10, 2013 between Sam T. Allen, IV, C. Keith Ham, and Leo Kaplan, Trustees of the Margaret R. Kosek Trust; W.S. Voit, Bradley L. Gates, and Gary Handsdorfer, Trustees of the Edward F. Reed Trust; and United Land Company, LLC covering 140 acres, more or less,

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comprising: N/2 of the NW/4 of the SW/4 of Section 1, Township 5 North, Range 7 East, Seminole County, Oklahoma; N/2 of the NE/4 of the NE/4 and SE/4 of the NE/4 of the NE/4 as to all right below the depth of 3,000 feet or the Cromwell Sand and the NW/4 of the NE/4 and the SE/4 of the SE/4 as to all rights below the depth of 4,250 feet of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma; and Lot 3 of Section 26, Township 5 North, Range 7 East Seminole County, Oklahoma. He said that these Memorandums of Oil and Gas Leases and the oil and gas leases underlying these memos cover the acreage that was released by the 1978 Release of Oil and Gas Leases shown in Exhibit 13. The ALJ admitted Exhibit 25.

144. Rebuttal Examination of John Stromberg by John Lee. Mr. Lee then presented John Stromberg as his next witness. He said that Petroflow didn't contact Mr. Heldmar about well records because they were protesting Petroflow and thus assumed that they wouldn't share any information. He said that the records show that Oakland operates one well, the Sampson Peter No. 5 Wilcox well, in the NE/4 of Section 23 as shown on Exhibits 10 and 11. He said that only the bottom half of the Viola, the First Wilcox and the Simpson Dolomite remain productive in this well. The Second Wilcox is plugged off.

145. Referring to the Bowlegs Well in Section 22, Township 8 North, Range 6 East, he said that the well never produced 5,000 barrels per day as alleged by Mr. Helmar and noted that no evidence was shown that the well's production was knocked down from 23 to 17 barrels per day by the use of a big submersible pump in a nearby Wilcox well. He said that the well's peak production was only 21 barrels of oil per day.

146. He noted that Mr. Holloway said that the average porosity was 14 percent and the water saturation was 25 percëntin the Wilcox formation. He noted that this well has produced

around 428,000 barrels of oil and should produce another 100,000 barrels of oil. Based upon Mr. I Holloway's physical parameters, he calculated that this well would drain around 211 acres.

147. He agreed with Mr. Heldmar that wells in this area produced water and have water saturation of at least 50 percent. He said that this doesn't mean that the wells are coning water. He said that coning occurs when water is pulled into a well and it cones along the formation into the wellbore from the perforations. He said that three requirements are necessary for coning: 1) a bottom water-drive, because you've got to have the water with a strong aquifer; 2) some type of vertical communication within the reservoir, such as vertical permeability, fractures, or a poor cement job; and 3) a high rate of production at the top of the formation. When you pull in large volumes this pulls the water into the weilbore, and it also pulls it along the weilbore in a cone shape. These large volumes of water can pull water away from the offset wells. This is why Petroflow can't cone water into Mr. Heldmar's production from their well because they are pulling water away from his wells.

148. He said that there is a difference between coning and water break-through. One can have either a bottom water-drive or edge water-drive. The presumption is that one will have water break-through if oil is initially produced and this is very prevalent in the Second Wilcox because the Second Wilcox has thin sliver of oil sitting on top of an ocean of water. When oil is produced, the water rises just because of pressure and it doesn't cone. If you produce the oil slowly the water will very slowly rise until reaching the perforations. When it reaches the

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perforations, it will break through, and then water will be produced. Eventually you will preferentially get water because the oil that is produced is replaced by water, and as you replace the oil with water the relative permeability to water increases while the relative permeability to oil decreases. So consequently, your water cut will increase with water break-through.

149. He said that an edge water or bottom water-drive is very efficient. A solution gas- drive is about 15 to 20 percent efficient and the water-drive is from 35 to 60 percent efficient, and the water-drive is the energy mechanism driving the hydrocarbons out through the wellbore. He said that Petroflow will use 3-D seismic data to find the hydrocarbon-rich areas and use an oil-skimming technique to recover the hydrocarbons from the Wilcox, Simpson Dolomite and other related water-drive reservoirs. He said that the McLish and Oil Creek might not be water-drive reservoirs but opined that the same technique could be used to recover hydrocarbons from the water produced from these reservoirs since they appear to be over 50 percent water saturated in the area.

150. He said that these techniques cannot recover all of the oil in a formation. More expensive techniques including carbon dioxide injection and tertiary recovery technologies can be used to obtain hydrocarbons that cannot be produced by primary production and waterflooding. He said that it may be possible to recover a few more percent and maybe get up to between 60 and 70 or 75 percent with miscible flood using carbon dioxide.

151. Referring to Mr. Heldmar's statement that he didn't know of any production from the downthrown side of the principle fault, the witness said that the Seluma Harjo No. 2 Well in the NE/4 of Section 14 on the downthrown side of the fault tested at over 900 barrels of oil. He identified Exhibit 26 as a copy of a nine-section plat centered on Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma showing the major and minor faults in the area. He also identified Exhibit 27 as a copy of a drilling report dated December 11, 1929 for the Seluma Harjo No. 2 Well located in the N/2 of the SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

152. With respect to Exhibit 26, he said that it shows the principle fault, and that it is consistent with the other plats we've entered in evidence, he said that the principle fault for the area's nomenclature is the one that basically extends through the east through, more or less, the center of and the east part of Section 23 and then extends up north through Section 14 and then comes back out on the south side of 23 and then goes diagonally across the northwest corner of Section 26 into Section 27. Referring to Harjo Seluma No. 2 Well located in the NE/4 of the NE/4 of the SE/4 of the NE/4 of Section 14, he said that the well was on the downthrown side of the principle fault because the cross-section between this well and the Fleet "B" No. 1 towards the east showed that the formations encountered in the wells are displaced about 150 feet.

153. He said that the well was completed in the Simpson Dolomite and Wilcox formations and initially produced 935 barrels of oil. He said that the well may have also produced water but water wasn't typically recorded in the records in old wells. He said that the downthrown side of the principle fault was productive from the Wilcox and Simpson Dolomite and that the well produced from the downthrown side of the fault. He said that the fault extended through all the other formations that are the subject of Petroflow's application and he opined that all of these formations were productive from the downthrown side of the fault. He

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opined that production from the Harjo Seluma No. 2 Well is fairly similar to production from the upthrown side of the fault.

154. Referring to Title 52, Oklahoma Statutes, Section 86.1, he noted that a common source of supply "comprises and includes that area which is underlaid, or which from geological or other scientific data, or from drilling operations, or other evidence, appears to be underlaid by a common accumulation of oil or gas or both. If any such area is underlaid, or appears from geological or other scientific data, or from drilling operations or other evidence, to be underlaid by more than one common accumulation of oil or gas, or both, separated from each other by a strata of earth, and not connected with each other, then such area as to each said common accumulation of oil or gas, or both, shall be deemed a separate common source of supply." He noted that the statute does not say any formation names.

155. He said that a common accumulation exists in the area called the Hunton on one side of the Principle Fault that has a correlative zone on the other side which can be called the Hunton but is juxtaposed against the Viola across that fault. He said the Hunton contains oil in both sides of the fault and fits the definition of a common source of supply even though the Hunton is separated by the fault. Here the porous zone on one side of the fault is placed against a nonporous, non-permeable interval on the other side of the fault that forms a boundary of that common source of supply because it impinges on a barrier, not unlike the boundary of a common source of supply that pinches out or where there is a lithology change from sand to shale that acts as a barrier to fluid flow and to pressure.

156. Rebuttal Cross-examination of John Stromberg by John MacKechnie. Upon • . inquiry, Mr. Stromberg said that his testimony now concerns the spacing for the N/2 of the

Section since the SE/4 has been dismissed. He agree that Oakland's leasehold interest is in the • NE/4 of the section and that the protest hearing here is now about the NE/4. He opined that after

re-evaluating the definition of a common source of supply and re-evaluating the fault cut, that the fault is not a sealing fault at least with regard to some of the zones. He admitted that because of the fault a well drilled in approximately the center of the northeast quarter of Section 23 that is completed in any or all of the seven common sources of supply about which this application is concerned will probably not produce hydrocarbons from those seven common sources of supply from the area on the west side of the principle fault. He said that dry holes were drilled on the west side of the fault and productive wells ere drilled on the east side of the fault.

157. He identified Exhibit 28 as a copy of a drilling report dated April 30, 1936 for the Dinah No. 2 Well located in the SW/4 of the NW/4 of the NE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma. Referring to the exhibit, he said that the well was a dry hole drilled to a total depth of 4,423 feet and opined that this well penetrated the Mayes formation more that 200 feet above the formations that are part of Petroflow's application. He said that the Mayes is a part of the Mississippian which is above the Woodford and the Hunton and that the Dinah Well terminated above the Woodford. The ALJ admitted the exhibit.

158. He identified Exhibit 29 as a copy of a type log for the formations that underlay the N/2 and SE/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma.

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He said that the Samson Peter No. 7 Well was completely plugged at a depth of 4,264 in the Mayes Lime formation, and never penetrated any of the formations except perhaps the Hunton that are the subject of Petroflow's application. The ALJ admitted the exhibit.

159. He changed his opinion expressed earlier that there would be no communication of hydrocarbons from one side of the fault to the other in Section 23 because he now has different understanding of the rule defining a common source of supply. The rule doesn't say that the common source of supply has to have the same nomenclature on both sides of a fault. It simply says that the accumulation of hydrocarbons on both sides of the fault has to be in common. So if you have a porous Dolomite zone up against a porous Wilcox zone, and those two zones are in communication, then that, by this definition, is a common source of supply. As an example in this area, the Wilcox and the Dolomite on one side of the principle fault may not be in common communication with the Wilcox and the Dolomite on the other side of the fault, but the Dolomite in one side of the fault may be in common communication with the Wilcox on the other side of the fault. By his new interpretation of what comprises a common source of supply, what is labeled the Wilcox and what is labeled the Dolomite can be a common source of supply across a fault if the formations are in communication with each other, in spite of their different nomenclature. By this interpretation of the definition, if the Wilcox flows into the Dolomite it forms a common source of supply. He admitted that he doesn't really know if the Wilcox will flow into the Dolomite in this area but alleges that it can if there exists a pressure differential across the fault.

160. Rebuttal Examination of John Hooper by John Lee. Mr. Lee presented Mr. Hooper as his next witness. Referring to the principle fault, he said that a common source of supply means a permeable rock through which fluidcan go through that's located in the earth. He said that a formation named Wilcox on one side of the fault and Hunton on another side of a fault is a common source of supply if there's flow through the rock. He said that the principle fault is a strike-slip fault, not a sealing fault, having a vertical component of displacement that varies considerably along the fault plane from around 200 feet in the northern part of Section 23 to around 150 feet near the Harjo Seluma Fleet Well in Section 14. The seismic data, however, shows that the eastern block has a lot of flexure and dips down toward the west and that the western side of the fault has a lot of flexure and dips up towards the east to minimize the total offset to around 20 feet at the fault at the Seluma Harjo No. 2 Well. So even though there's a large difference in the formation top at the Seluma Well there's significantly less actual vertical separation at the fault.

161. He also looked at the vertical separation just west of the Reed Well, which he said was 660 feet, out of the southeast corner of Section 14, with a possible range of throw between zero feet and 50 feet. He said the vertical separation in the center of Section 23 just north of the Thomas Jefferson Well is between 475 and 500 feet, with an approximate average of 450 feet. The maximum of vertical displacement in the area is in the southern part of the N/2 of the section.

162. He said that the Fleet Well is located in Section 13 just west of the Harjo Seluma No. 1. Well and has a modern suite of logs and penetrates through the Oil Creek into the Arbuckle and is a model of porosity for the entire interval. Referring to Exhibit 29 and John

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Stromberg's testimony, the witness said that a common source of supply extends across a fault where there is a potential for fluid flux and pressure flux. As an example, if there was a formation on one side of a fault that all the geologists identify as the Hunton formation and across the fault it was in contact with another formation that all geologists call the Wilcox, then the formations would both comprise a common source of supply.

163. Referring to Exhibit 29, he said that in order to understand whether or not there's any fault sealing capacity, the first order of analysis is to see whether or not there is porosity on porosity communication across the fault. He said that the Fleet Well the best model for porosity from top to bottom because it's a full section of the log data through all the formations down through the Oil Creek. He said that there was no porosity on porosity found at a depth between 4,700 and 4,800 feet, indicating that the fault was a sealing fault at that point. He said that here the interval, which is essentially Lower McLish, would not be in porosity communication across the fault. The Lower McLish would potentially be sealing at exactly 150 feet of separation as demonstrated by the exhibit and that presumes there's no fluid migration up and down the fault zone. Referring to the Second Wilcox moving from Initial Porosity over to Porosity 450, that porosity is in juxtaposition to at least the upper half of the porosity in the McLish. Geologists would call the formation the Second Wilcox on one side and the the McLish on the other, but the combination of the two would be one reservoir showing good porosity against good porosity.

164. He said that he also looked at the condition of a vertical separation of 450 feet where at 4,650 feet the Second Wilcox at the top of that porosity would be in juxtaposition across the fault to the Lower McLish, and at the lower end of that porosity the Second Wilcox would be in juxtaposition to the Oil Creek and Arbuckle. He said that there is communication across the fault through these reservoirs in the zone of interest based on this analysis. He said that all of these reservoirs were deposited prior to the faulting and it's likely that the hydrocarbons were in place before this fault separated the reservoir and that the hydrocarbons as generated could still migrate through the porosity whether the fault was there or not. He said that if there's porosity on porosity communication, then hydrocarbons will move through the fault from one horizon to the other when they are generated or when they migrate into the reservoir. He noted that the only way to determine that for sure would be by drilling usually two wells and getting pressure measurements on both sides of the fault. He said that if one drilled the well on the downthrown side of the fault in an area where there's 150 feet of vertical separation and found porosity on porosity contact, then the formation bisected by the fault would be a common source of supply.

165. Rebuttal Cross-examination of John Hooper by John MacKechnie. Upon inquiry, Mr. Hooper noted that there were productive wells on the east side and dry holes on the west side of the principle fault within Section 23 but said that the wells on the west were not deep enough to penetrate Petroflow's primary zones of interest. He also noted that he testified earlier in this hearing that wells drilled near the center of the NE/4 would not drain the west quarter separated by the principle fault in any of the seven formations related to this cause. He said that his earlier testimony was based on a different understanding of what common source of supply is where he focused upon being able to drain formation fluids from what would be considered a common correlative formation, not a common source of supply.

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166. Mr. Mac Kechnie then motioned that the rebuttal testimony of Mr. Stromberg and Mr. Hooper about the principle fault issue be stricken from the record as improper. Upon review, the ALJ denied the motion and allowed the rebuttal testimony into the record. The ALJ deems the testimony to be proper as it was made in an attempt to clarify the record in response to a new interpretation and understanding of the questions of law and of the definitions shown in the statutes posed to the witnesses by counsel, and because the testimony has probative value for the Commission.

167. The ALJ then took up the issue of the Motion to Dismiss made by Mr. MacKeclmie. Mr. MacKechnie restated his position that the Motion should be granted because the witnesses said that there would be no cross-the-fault movement of hydrocarbons in any of these seven common sources of supply related to the application. As shown in Cameron v. Corporation Commission, 418 P.2d 932, 1966:

The inequitable and unfair taking and waste sought to be prevented by that part of this state's Oil and Gas Conservation Statutes commonly referred to as the Well Spacing Act, Title 52, 87.1, refers to such evils in connection with a common source of supply, and where it is not established by substantial evidence that an area sought to be spaced is underlain by a common source of supply, or prospective common source of supply, and that waste will result if it is not spaced, the state's Corporation Commission has no authority under said act to create oil and or gas well spacing units in the area.

168. In light of the above, Mr. MacKechnie argued that if there isn't any over-the- fault movement of hydrocarbons, then the formations on the east side of the fault and the, west side of the fault are not in common. He said that they were in communication, before. Mother Nature created the fault, but they are not now in communication and cannot move, across the. fault. According to Caudillo v. Corporation Commission, 551 P.2d 1110, an order of the state Corporation Commission establishing a 10-acre drilling and spacing unit for production of oil and gas, which unit was not wholly underlain by common source of supply, and which unit did not embrace all of the area which was underlain by common source of supply, was erroneous and would be reversed. The Court went on to state that:

"Oil and Gas Conservation Statutes require that evidence show that area for which drilling and spacing units are established must be underlain by common source of supply. State Corporation Commission has no authority to include known unproductive areas in drilling and spacing unit."

He contended that the west one-fourth of the NE/4 is a known nonproductive area that Petroflow wants to include in the 160-acre drilling and spacing unit.

169. Mr. Lee then argued in response that the Mr. Caldwell testified that there is only one owner of all of the minerals in the NE/4 and the minerals are undivided. If a well was drilled on the downthrown side of the fault and it was productive, the revenues would be shared with all the owners on the upthrown side of the fault and the correlative rights of the owners would not be affected by the creation of a 160-acre drilling and spacing unit. In reference to the Cameron case, he noted that in this case the Hunton formation was a single zone separated by a

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fault that was proven to be unproductive on one side of the fault because there were no productive zones of any formation on that side of the fault. He said that in this present case, there are productive zones on either side of the fault such that the Hunton on the upthrown side of the fault could drain another zone on the downthrown side of the fault, thus comprising a common source of supply.

170. He said that the testimony in this case has established that each and every one of these formations underlie all of the NE/4 of Section 23 and that all of the formations have water saturations greater than 50 percent, and that the NE/4 of the section is clearly on the downtbrown side of the fault. The testimony has established that the proposed spacing unit is underlain by all of the formations referred to in the application and that all of the formations have water saturations greater than 50 percent, and will be primarily productive of oil. He said that in Oklahoma spacing is prospective and the unit should be allowed and drilling be allowed to occur and the Motion to Dismiss should be overruled.

171. He said that even if the Commission believes that for some reason the fault is sealing and is a barrier in the earth across which nothing will flow, the Commission has great latitude in establishing drilling and spacing units. They can establish whatever it deems proper. He argued that there will be no correlative rights offended by establishing 160-acre oil dewatering drilling and spacing units for all these formations in the NW/4 of the NW/4 and every royalty owner's interest will be protected.

172. Mr. MacKechnie then argued that ownership in the unit is not relevant. The issue is about the requirement that an area to be spaced needs to be underlain by a common source of supply regardless of ownership.

CONCLUSIONS OF LAW

173. Petroflow's application as filed requested that the Commission establish three 160 acre dewatering spacing units in the N/2 and the SW/4 of Section 23, Township 5 North, Range 7 East, Seminole County, Oklahoma. The application was opposed by Crown, Cantrell and Oakland but Crown dropped its protest before the hearing and Cantrell settled the dispute with Petroflow during the pendancy of the hearing, leaving unresolved only the status of the N/2 of Section 23. The remaining protestant, Oakland, owns and has the right to drill a well in the NE/4 of the section, and their attorney, Mr. MacKechnie, stated that Oakland is only concerned with this quarter-section and, in particular, how Petroflow's application affects their interest in the Peter Sampson No. 5 Well and the future development of the proposed 160 acre unit. Petroflow amended their application during the hearing to exclude all existing productive wells in the N/2 of Section 23, including the Peter Sampson Well No. 5, from the proposed spacing, thus resolving any correlative rights issues that might be related to current production.

174. Petroflow established that they own the right to drill in the N/2 of Section 23 in the common sources of supply of the application. Their ownership interest was disputed by Oakland, but Petroflow provided significant evidence set forth in a copy of a Lease Assignment dated October 22, 1948 between Gulf Oil Corporation and Sam A. King covering the N/2 NE/4 NE/4 and the SE/4 NE/4 NE/4 of Section 23, Township 5 North, Range 7 East, Seminole

County, Oklahoma and copies of three Partial Release of Oil and Gas Leases recorded on November 28, 1978 in Seminole County, Oklahoma and other testimony that established their interests in the section.

175. Petroflow proposed that the common sources of supply named in the Application produce a large amount of water and are prospective of oil and can be most effectively developed by a dewatering or oil skimming process. This process involves producing between 5,000 and 7,000 barrels of fluid per day from the formation, initially targeting the First and Second Wilcox, from one to three dewatering wells. Petroflow's engineer argued that the optimum spacing for such an operation that moves a large amount of water was 160 acres, contending that 40 acre or 80 acre units would be too small to allow the dewatering operation to occur without interference between wells and would entail economic waste in that smaller units would require the drilling of unnecessary wells costing around $1.0 million apiece. The entire N12 of Section 23 is currently unspaced. Petroflow's expert presented persuasive evidence that all of the common sources of supply named in the Application and found in the N/2 of Section 23 contained more than 50% water saturation.

176. The protestants raised the issue that Petroflow' s water saturation evidence didn't represent the initial water saturation requirement found in Title 52, Oklahoma Statutes, Section 87.1 and O.A.C. 165: 10-15-18 (b) because the data was obtained after the wells had been productive for some period of time. Petroflow's attorney argued that here would be no way to determine a water saturation of any formation if the Commission agreed with the protestant's interpretation that the initial water saturation was when Mother Nature laid down the formation, presumably millions of years before the date of this hearing. The protestants also argued that the dewatering process proposed by Petroflow wasn't feasible or allowable because the formations listed in the Application are water drive reservoirs, and dewatering is only allowed in reservoirs that no longer produce by a water drive mechanism. Petroflow's attorney noted that the dewatering statute doesn't differentiate between solution gas drive reservoirs, gravity reservoirs, water drive reservoirs or any other kind of reservoir mechanics. Petroflow's engineer opined that dewatering would be an effective way of developing the N/2 of Section 23 and noted that the Commission's technical staff found no objection to the Application. The AU agrees with Petroflow on both issues and finds that Petroflow's water saturation data complies with the requirements of the dewatering statute.

177. The protestant's were also concerned that Petroflow's dewatering plan would damage their producing well in the Sf2 of the NE/4 of Section 23. Their expert opined that Petroflow's proposed water pumping rates would draw water towards their wellbore and cause coning in their well that would interfere with production. Petroflow's engineer argued that the dewatering plan would have the opposite effect upon the well and could enhance productivity. Petroflow's expert also contended that the dewatering unit should be 160 acres instead of the 80 acres or 40 acres recommended by the protestant's expert presumably in order to prevent the kind of interference with existing wellbores suggested by the protestants. Petroflow's expert presented the more persuasive testimony.

178. Petroflow's expert also provided significant evidence in the form of maps based upon well log data that all of the common sources of supply named in the Application underlie

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the N/2 of Section 23 and are separate and distinct formations. Their absolute degree of separation rose to the level of a controversy, however, because of evidence presented and agreed to by all parties that the NE/4 of Section 23 was bisected by a major fault.

179. Oakland's attorney contended that the proposed spacing could not comply with the requirements of the spacing laws and rules because much of the proposed spacing units are unproductive and not underlain by the common sources of supply named in the Application, citing Title 52, Oklahoma Statutes, Section 86.1 in support of their argument and referring the Commission to a series of cases, namely Cameron v. Corporation Commission, 418 P.2d 932 (1966), 1966 OK 193; Caudillo v. Commission, 551 P.2d 1110 (1976), 1976 OK 198; Panhandle Eastern Pipeline v. The Commission, 285 P.2d 847 (1955), 1955 OK 161; Calvert Drilling v. Corporation Commission, 589 P.2d 1064 (1979), 1979 OK 7; and Hiadik v. Lee, 541 P.2d 196 (1975),1975 OK 99, all of which were summarized earlier in the footnotes of this report.

180. The crux of Oakland's argument is that a significant series of faults including a major fault bisected the NE/4 of Section 23 from the northeast part to around the southwest part of the section, effectively separating the formations from the east side of the fault from those found in the west side of the fault. Oakland's expert opined that the fault system was a sealing fault and that there were no fluidic connections across the fault to allow the flow of hydrocarbons between the two areas. Oakland alleged that Petroflow provided no evidence that the formations in question on the east side of the fault and on the west side of the fault are connected sufficiently to cause any drainage, and that a single unit well in a 160 acre dewatering spacing unit could not drain hydrocarbons from both sides of the fault. Oakland's expert didn't provide a drainage study to support his position.

181. Petroflow's expert appeared to agree with Oakland initially but later in, the hearing held a different opinion, contending that the faults are not sealing faults but can be described as strike-slip faults that do not preclude drainage of any of the zones across the NE/4. He described the faults as baffles, not barriers, allowing fluid migration pathways from the formations on either side of the faults. He opined that fluid can move around the NE/4 of Section 23 due to a tortuous fluid migration pathway that serves as a baffle but not as a hard barrier. He said that his opinions are based upon Conoco's geophysics and drilling experiences and upon his analysis of seismic data and well logs from area wells.

182. Petroflow's expert, however, admitted that he didn't complete a drainage study to support his opinions about the faults. He also said that any dewatering that may occur on the east of the fault would have no impact at all west of the fault, and that there are prospective wells west of the fault and that he would drill his first well on the upthrown side of the major fault. He stated that Petroflow could potentially pull fluid between the parallel fault and the major fault, allowing them to drain the north half of the fault block. He also opined that it is unlikely that fluid can be drawn from the west across the major fault.

183. The protestant's attorney referred to the definition of a common source of supply found in O.A.C. 165: 10-1-2 and interpreted the rule such that common does not mean common in kind, meaning that the rocks are common in kind, but as meaning they are interconnected. He argued there will be no waste created by the proposed spacing on the west side of the fault, but

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on the east side, the spacing will cause waste and damage to the correlative rights of those people on the east side of the fault that would have to share costs and production with people on the west side of the fault.

184. Petroflow's expert opined that the rule referred to by the protestants doesn't say that the common source of supply has to have the same nomenclature on both sides of a fault. It simply says that the accumulation of hydrocarbons on both sides of the fault has to be in common. He said that if there is a porous Dolomite zone up against a porous Wilcox zone, and those two zones are in communication, then that comprises a common source of supply. He proposed an example whereby the Wilcox and the Dolomite on one side of the principle fault may not be in common communication with the Wilcox and the Dolomite on the other side of the fault, but the Dolomite in one side of the fault may be in common communication with the Wilcox on the other side of the fault. He said that in this example what is labeled the Wilcox and what is labeled the Dolomite can be a common source of supply across a fault if the formations are in communication with each other, in spite of their different nomenclature. By this interpretation of the definition, he said that where the Wilcox flows into the Dolomite it forms a common source of supply. After reviewing the definition of a common source of supply found in O.A.C. 165: 10-1-2 and the related evidence, the AU finds that the same common sources of supply underlie all of the N/2 of Section 23.

185. Petroflow's attorney argued that all of the owners would share in production from a well whether it was drilled in the N/2 or the S/2 of the quarter section, or in the N/2 or the S/2 of the fault line. No one will be deprived of revenue or be allocated additional revenue if the acreage in the downthrown side of the fault is included with the acreage in the upthrown side of the fault, and no correlative rights will be offended by this application.

186. After hearing all of the evidence and testimony, the AU finds that Petroflow has presented sufficient substantial evidence in support of their Application. The water despacing statute in conjunction with the more general spacing statutes and rules require that an area to be spaced be underlain by the formations to be spaced and that these formations be separate and distinct from one another; the formations have greater than 50 percent water saturation; and that dewatering will promote development of the resources and protect correlative rights. Here the proposed spacing will protect correlative rights in the NE/4 of Section 23 because the Application has been amended to exclude all currently producing wells and Oakland has the right to participate in any wells that Petroflow drills in the section or share in the proceeds in some manner such as by means of an overriding royalty. Petroflow's attorney also proposed to limit these same producing weilbores from any subsequent pooling and increased density actions related to this spacing that might come before the Commission at a later date. Petroflow also has complied with the requirements of the dewatering statute, providing evidence that all the formations were present, separate and distinct on both sides of the major and minor faults of the proposed units and that all formations had water saturations exceeding 50 percent.

187. Although neither party could show conclusively whether or not the major fault in the NE/4 of Section 23 was a sealing fault because no drainage studies were completed, the Commission can establish a 160 acre dewatering unit to prevent waste and promote development of a resource without knowing conclusively if a proposed unit can be drained by a single unit

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well or more than one well. The Commission routinely establishes spacing units without certain knowledge of the drainage pattern and range of proposed unit wells because how much area a well will drain cannot be known for certain until after the well is drilled and producing oil and gas. Such is the reason for and basis of the statutes and rules that amend spacing orders for increased density wells.

188. After taking into consideration all of the facts, circumstances, evidence and testimony presented in both causes, it is the recommendation of the ALJ that Oakland's Motion to Dismiss be denied and that Petroflow's Application to establish 160 acre oil dewatering spacing units for the Hunton, Viola, Simpson Dolomite, First Wilcox, Second Wilcox, McLish and Oil Creek common sources of supply in the N/2 of Section 23, Township 5 North, Range 7 East in Seminole County Oklahoma be granted.

RESPECTFULLY SUBMITTED the 22Rnd day of

i2AC,~q~~

DAVID LEAWTV

ADMINISTRATIVE LAW JUDGE

DL

xc: Richard A. Grimes John E. Lee John R. Reeves John A. MacKetchnie William L. Harper Michael Decker Oil Law Records Commission Files

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