August 5, 2010 Mr. George Sheffer, Field Manager Southwestern Energy P.O. Box 789 Conway, AR 72033 RE: Lieblong 08-13 #1-13H, State Permit #01462-WG-P Dear Mr. Sheffer: On July 12, 2010, Travis Harmon, Lindsay Stoker, and I performed an inspection of the above referenced drilling site in accordance with the provisions of the Arkansas Water and Air Pollution Control Act and the regulations promulgated thereunder. The inspection revealed the following violation:

The silt fence installed north of the reserve pit has not been maintained. This conflicts your Guidance Document RAPPS of Oil and Gas Construction Sites for the Fayetteville Shale Project, Appendix C. 6) and is a violation of the permit Part I, Section A.5.

Additionally, two holes were observed in the liner of the containment area under the drilling rig. This area needs to be closely inspected after the well is finished to determine if contaminates have leaked through the holes. Soil removal and/or remediation may be necessary. The above item requires your immediate attention. Please submit a written response to these findings to Ms. Cindy Garner, Water Division Enforcement Branch Manager. The response should be mailed to the address below. Your response should contain detailed documentation, including photographs, describing the course of action taken to correct the items noted. This corrective action should be completed as soon as possible, and the written response is due by August15, 2010. For additional information you may contact the Enforcement Branch by telephone at 501-682-0639 or by fax at 501-682-0910. If I can be of any assistance, please contact me at 479-968-7339. Sincerely,

Amy Beck District 5 Field Inspector Water Division cc: Water Division Enforcement Branch

Water Division Permits Branch

ADEQ O&G Pit Inspection Form Date of Inspection : July 12, 2010 Inspector: Amy Beck Operator: Southwestern Energy Drilling Contractor: DeSoto Gathering Co. Coordinates: 35° 20’ 6.828”N, 92° 20’ 9.884”W Drilling Pad Name & No.: Lieblong 08-13 #1-13H State Permit # 01462-WG-P On Site Contact Person: Melvin Lee, SWN Senior Drilling Foreman (501-339-8156) Jackie Holbrook, Rig Manager (501-581-7014) DETAILS: Section 13, Township 8N, Range 13W County: Faulkner AFIN: 23-00000 Stage of Well Development: Construction of Pad Air Drilling Water Base Mud Drilling Oil Base Mud Drilling Well completion Well Finished

SECTION A: Drilling Pad 1. Evidence of sediment runoff from the drilling pad or well site observed in waters of the state? Y N NA NE 2. At the time of inspection, was evidence observed of Reg. 2 turbidity standards being exceeded? Y N NA NE 3. Has the Operator implemented erosion and sediment controls in place to minimize sediment runoff from occurring? Y N NA NE 4. Has Operator prepared a storm water erosion and sediment control plan or guidance document? Y N NA NE 5. Does it appear that the erosion and sediment controls are being maintained in good operating condition? Tears in silt fence north of pit. Y N NA NE 6. At the time of the inspection was there evidence that the site had any oil/fluid spills? Y N NA NE a. If so, were the spills properly contained, cleaned, and disposed of? Y N NA NE b. Has the spill been reported to ADEQ? Y N NA NE 7. Did any rerouting, filling, or channelization of any “water of the state” occur during drilling pad construction? Y N NA NE a. If so, was proper authorization received? Y N NA NE b. Evidence of any Reg. 2 violations due to construction of the drilling pad? Y N NA NE 8. Does it appear that chemicals used in the drilling process are being stored on site properly? Y N NA NE SECTION B: Pits and Drilling Fluids

1. At the time of the inspection was the pit or pits covered under an active permit? Y N NA NE 2. At the time of the inspection did it appear the pit or pits meet the construction requirements as required in the permit Part II, Section A item 1? Y N NA NE 3. If containers are used for circulation pits or mud pit, are they being maintained in a leak –free state? Y N NA NE 4. At the time of inspection, is there any evidence that the pit was not constructed with the appropriate liner? (i.e. 20 mil Synthetic Liner, Compacted Clay Liner, and/or Bentonite Liner) Y N NA NE 5. Is there any evidence at the time of inspection, that the reserve pit is not structurally sound? ( i.e. cracks/holes in levees and/or tears/holes in liners) Y N NA NE

6. Is there any indication that seepage is coming from pad or pit Y N NA NE 7. At the time of the inspection was there any evidence that any pit fluids has been discharged onto the ground or into waters of the state from the pit or from drilling pad? Y N NA NE

a. If so, has the discharge been reported Y N NA NE b. Has the fluid been properly contained, cleaned up, sampled, and disposed of? Y N NA NE 8. Is a 2 ft. minimum freeboard being maintained in the pit? Y N NA NE 9. Any evidence noted at the time of inspection, that the pit contained unapproved fluids or materials? (i.e. waste oil, hydraulic or completion fluids, trash, or any Nonhazardous Oilfield Waste) Y N NA NE

10. According to on site contact person how and where are fluids disposed? NA at this time.

a. Carrier :

b. Destination:

c. Type of Disposal:

SECTION C : Closed out Water Based Drilling Fluids Pit

Date well was finished: 1. Have all drilling fluids and/or solids been removed from the reserve pit? Y N NA NE

2. Does it appear that the pit has been properly closed and seeded? Y N NA NE

3. Has the Operator submitted a completed Statement of Disposition and NOT within 90 days of closure of pit? Y N NA NE Comments: Small holes in the silt fence on the site’s north side have allowed sediment to leave the site. Two holes were observed in the liner of the containment area under the drilling rig. This area needs to be closely inspected after the well is finished to determine if contaminates have leaked through the holes. Soil removal and/or remediation may be necessary. A section of silt fence on the site’s west side has been removed to allow a crew access to build a transmission pipeline fro m the well. Any sediment eroded in this area would deposit on the pipeline ROW and has little potential to enter Waters of the State. The reserve pit construction, level and liner are all satisfactory. Areas of erosion have begun on the pit’s north levy; however, the top width of the levy meets the 2 ft minimum width required by Part II Section A.1. of the permit.

Inspector: Amy Beck Arkansas Department of Environmental Quality Date Report: July 16, 2010

© DW 72008 Arkansas Dept. Environmental Quality

Arkansas Department of Environmental Quality (ADEQ) Official Photograph Sheet

Location: Lieblong 08-13, #1-13H well in Faulkner Co,

Photographer: Amy Beck Witness: Travis Harmon, Lindsay Stoker

Photo # 1 Of 4 Date: Time: 1159 7-12-10

Description: Four holes, similar to the one pictured, were observed in the silt fence on the north perimeter of the site.

Photographer: Amy Beck Witness: Travis Harmon, Lindsay Stoker

Photo # 2 Of 4 Date: Time: 1200 7-12-10

Description: Sediment observed on the down slope side of the silt fence near the holes.

Arkansas Department of Environmental Quality (ADEQ) Official Photograph Sheet

Location: Lieblong 08-13, #1-13H well in Faulkner Co,

Photographer: Amy Beck Witness: Travis Harmon, Lindsay Stoker

Photo # 3 Of 4 Date: Time: 1156 7-12-10

Description: Rill starting to erode on the north side of the reserve pit levy.

Photographer: Amy Beck Witness: Travis Harmon, Lindsay Stoker

Photo # 4 Of 4 Date: Time: 1211 7-12-10

Description: One of the holes observed in the liner of the containment area.

August 27, 2010 Sonny Bryan, Vice President Southwestern Energy PO Box 789 Conway, AR 72032 RE: Lieblong 08-13 #1-13H State Permit No.: 01462-WG-P Response to Inspection Dear Mr. Bryan: The Department has received your response to the July 12, 2010 inspection of the above referenced drilling site by our District Field Inspectors, Amy Beck, Travis Harmon and Lindsay Stoker. Although your response does not address the erosion or the hole in the liner that were noted in the inspection it does appear to adequately address all other discrepancies. The Department assumes the corrective actions taken will be maintained to ensure consistent compliance with the requirements of the permit. Acceptance of this response by the Department does not preclude any future enforcement action deemed necessary at this site or any other site. The Department will keep the inspection and response on file. If future violations occur that require enforcement action, the Department will consider the inspection and response as required by the Pollution Control and Ecology Commission Regulation No. 7, Civil Penalties. This regulation requires the Department to consider the past history of your site and how expeditiously the violations were addressed in determining any civil penalty that may be necessary for any future violations. If we need further information concerning this matter, we will contact you. Thank you for your attention to this matter. Should you have any questions, feel free to contact me at 501-682-0649 or you may e-mail me at sawyer@adeq.state.ar.us. Sincerely,

Sam Sawyer Enforcement Coordinator Water Division Enforcement Branch