Академический Документы
Профессиональный Документы
Культура Документы
FEBRUARY 1, 2011
1 2 3 4 5 6 7 8 9
RE: THE APPLICATION OF CHESAPEAKE OPERATING, INC. FOR AN EXCEPTION TO STATEWIDE RULE 37 FOR THE BARNES ASSEMBLY "A" LEASE, WELL NO. 3-H, NEWARK, EAST (BARNETT SHALE) FIELD, DALLAS COUNTY, TEXAS
) ) ) ) ) )
0267504
****************************************************** 10 BEFORE: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BE IT REMEMBERED THAT THE ABOVE-CAPTIONED matter came on for hearing on February 1, 2011, and was reported by Dave Howard, Certified Shorthand Reporter in and for the State of Texas, reported by computerized stenotype machine in the 12th Floor Hearing Room at the William B. Travis State Office Building, 1701 N. Congress Avenue, Austin, Texas 78701. EXAMINER MARSHALL ENQUIST EXAMINER DONNA CHANDLER FEBRUARY 1, 2011 ******************************************************
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ALSO APPEARING:
A P P E A R A N C E S
BY: MR. GLENN JOHNSON KELLY, HART & HALLMAN P.C. 301 S. Congress Ave, Suite 2000 Austin, Texas 78746 (512) 495-6400
BY: MR. RAY OUJESKY CHESAPEAKE OPERATING, INC. 100 Energy Way Fort Worth, Texas 76102 (817) 502-5011
MR. DAVID C. TRIANA MR. BILL G. SPENCER MR. ISAAC JACOBSON MR. ALAN JACKSON MR. DAVE HENSON MR. BRIAN BOERNER MS. ALLYSON VISTICA
1 2 3 4 5 6 7 8 9
A P P E A R A N C E S (Continued)
BY: MR. LOUIS MCBEE NORTH CENTRAL TEXAS COMMUNITIES ALLIANCE 2320 Oakland Blvd. #11 Fort Worth, Texas 76103 (817) 312-2023
PROTESTANTS REPRESENTING SELF: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. NEVA JANE CARTER 2102 Chisholm Trail Grand Prairie, Texas 75052 (972) 641-2500 MR. SCOTT A. COOK 4702 Chalk Ct. Grand Prairie, Texas 75052 (972) 522-0109 MS. BILLIE HARRIS 4718 Goodnight Ct. Grand Prairie, Texas 75052 (214) 263-6902 MR. CASEY HARRIS 4721 Goodnight Ct. Grand Prairie, Texas 75052 (214) 697-8961
1 2 3 4 5
INDEX
APPEARANCES.......................................
OPENING STATEMENT BY MR. JOHNSON.................. 6 OPENING STATEMENT BY MR. MCBEE.................... 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ALAN JACKSON DIRECT EXAMINATION BY MR. JOHNSON............. CROSS-EXAMINATION BY MR. MCBEE................ REDIRECT EXAMINATION BY MR. JOHNSON........... RECROSS-EXAMINATION BY MR. MCBEE.............. FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... FURTHER RECROSS-EXAMINATION BY MR. MCBEE...... FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... ISAAC JACOBSON DIRECT EXAMINATION BY MR. JOHNSON............. BILL G. SPENCER DIRECT EXAMINATION BY MR. JOHNSON............. CROSS-EXAMINATION BY MR. MCBEE................ REDIRECT EXAMINATION BY MR. JOHNSON........... RECROSS-EXAMINATION BY MR. MCBEE.............. FURTHER REDIRECT EXAMINATION BY MR. JOHNSON...
27 30
31 69 89 91 93
38
51 93 94 95 96 97 98
1 2 3 4 5 6 7 8 9 10 11 12 13 14
INDEX (Continued)
DAVID HENSON DIRECT EXAMINATION BY MR. JOHNSON............. CROSS-EXAMINATION BY MR. MCBEE................ REDIRECT EXAMINATION BY MR. JOHNSON........... FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... FURTHER RECROSS-EXAMINATION BY MR. MCBEE...... FURTHER REDIRECT EXAMINATION BY MR. JOHNSON... FURTHER RECROSS-EXAMINATION BY MR. MCBEE...... FURTHER REDIRECT EXAMINATION BY MR. JOHNSON...
LOUIS MCBEE VOIR DIRE EXAMINATION......................... 83 DIRECT NARRATIVE.............................. 106 CROSS-EXAMINATION BY MR. JOHNSON.............. 116
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NO. DESCRIPTION
CHESAPEAKE EXHIBITS
MARKED REC'D 32 33
1 ........................................ W-1 Application 2 ........................................ Form P-12 3 ........................................ RRC Final Order 4 ........................................ Plat 5 ........................................ Tract Listing 6 ........................................ Detail Plat 7 ........................................ Tabulation of Leasehold 8 ........................................ Structure Contour Map 9 ........................................ One-Well Cross Section 10 ....................................... Isopach Map 11 ....................................... Gas in Place Estimate 12 ....................................... Gas Recovered Per Foot Estimate 13 ....................................... Plat 14 ....................................... Unrecovered Reserve Analysis
34
34
35
37
39
40
40
40
41
41
42
44
52
53
54
55
56
56
58
60
60
61
61
62
64
67
1 2 3 NO. DESCRIPTION 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
PROTESTANTS EXHIBITS
MARKED REC'D 26 26
Harris 1 ................................. Statement of Casey Harris Carter 1 ................................. Statement of Neva Jane Carter Cross 1 .................................. Reprint from RRC Website, Well Permit Cross 2 .................................. Reprint from RRC Website, Amended Permit Cross 3 .................................. Permit to Drill and Plat Cross 4 .................................. Reprint from RRC Website, Well Pad Sites 1 ........................................ Rule 37 Case, Enron Oil and Gas 2 ........................................ Rule 37 Case 0251216 3 ........................................ Rule 37 Case 0245869
26
26
70
87
71
87
72
87
78
87
106
116
106
116
108
116
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SWORN.) morning.
My name is Marshall Enquist, hearings examiner. joined by Donna Chandler, technical examiner.
order Docket No. 0267504, the application of Chesapeake Operating, Inc. to consider an exception to Statewide Rule 37 for the Barnes Assembly "A" Lease, Well No. 3-H in the Newark, East (Barnett Shale) Field, Dallas County, Texas. I have appearances on behalf of applicant by Glenn Johnson, Ray Oujesky, David Triana, Bill Spencer, Isaac Jacobson, Alan Jackson, David Henson, Brian Boerner, and Allyson Vistica. I have several
protestants, Scott A. Cook, Louis McBee, Billie Harris, Casey Harris, and Neva Jane Carter. If you are going
to give testimony, please raise your right hand. (WHEREUPON, THE WITNESSES WERE DULY
EXAMINER ENQUIST:
As just a preliminary
matter, I have already called this hearing on tape this morning at 9:00 o'clock as scheduled but due to weather we had to wait for some parties to make it due to the
10
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
traffic.
his presence. The protestants, how do you plan to present your case? slips. I mean, I have five appearance
separate people that want to make statements? what are you planning to do. MR. MCBEE:
have some very specific issues that I plan to cover with regard to well location and density and will be cross-examining Chesapeake's witnesses, as well, and offering some exhibits of my own. EXAMINER ENQUIST: participate in the case? MR. MCBEE: Yes. And are you Okay. So you plan to
EXAMINER ENQUIST:
representing the other people here, as well, or do they want to make separate statements? MR. MCBEE: They will make separate
statements probably at the end of the hearing. EXAMINER ENQUIST: take those at the beginning. MR. MCBEE: Okay. And you are here as a I was preferring to
11
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 S-h-a-r-i-f.
EXAMINER ENQUIST:
I think I do see
Mr. Sharif's name on the service list. MR. MCBEE: Additionally, Mr. Examiner,
we had three other parties that were going to be here and participate and they were in an automobile accident on the way in Waxahachie and they called me by phone and asked that I would stand for them, as well. I
understand you don't have that paperwork in hand but it could, of course, be filed with you at any time. EXAMINER ENQUIST: MR. MCBEE: Okay. How you they? The last we
heard they had called an ambulance to come and check them out because they were having some chest pains and so forth. EXAMINER ENQUIST: MR. JOHNSON: Well, thank you.
like to note for the record that those three people, Susan Reed, Rosemary Reed, and Clayton Newsome, filed a notice of intent to appear but are not affected parties. They do not own property in the unit. EXAMINER ENQUIST: Well, what is relevant here today is they are not here. Had they shown up I
12
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
affected parties. MR. JOHNSON: the record. I just make that note for
that fact, but they are not affected parties. Mr. McBee is here solely as a representative. an affected party. EXAMINER ENQUIST: I understand that. We He's not
do have an appearance slip indicating for Mr. Sharif that he will represent him. And I believe there is I believe Billie
intent to appear stating that her representatives were Casey Harris and Louis McBee. All right. If you just wish to make a So who among Sir,
the protestants would like to make a statement? what is your name? MR. HARRIS: representing Billie Harris. EXAMINER ENQUIST: Okay. I'm Casey Harris.
I'm
13
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 little closer.
CASEY HARRIS, having been first duly sworn, testified as follows: DIRECT NARRATIVE MR. HARRIS: little thing written down. Okay. I have kind of a "The
Legislature shall empower and it shall be of its duty to protect the law from forced sale of a certain portion of the personal property of all heads of families and also of unmarried adults, male and female." This is from the Texas State Constitution,
MR. HARRIS:
of this hearing is a hearing about Statewide Rule 37, we the people protesting Barnes Assembly "A" 3-H are here to not only protest the sanctioned theft of our property, we are also here to protect the same rights of people that will come to this same board, the same office of Texas government, seeking the protection of our elected officials -- seeking the protection of our elected officials that have sworn to provide us. Under Texas law my rights to protect my property are no less or no greater than that of my neighbor. My desire to hold on to my property in the
14
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
form of my mineral rights is protected under our state's constitution as well as the Constitution of the United States. I have read the Rule 37 documentation No where in this
rule is there any mention of protecting a corporation's financial interest. rights of the people. The Texas Railroad Commission has actually issued multiple rulings denying requests for exception based on the economic requirements and needs of the company, Cases 0251216, 0206334, and 0245869. This law does not protect the companies from financial risk involved with prospecting for minerals. Chesapeake has applied for and been granted two permits for Well 3-H already. public speaker. EXAMINER ENQUIST: MR. HARRIS: Take your time. I'm not a Rule 37 is about protecting the
are already regular well plans or plats in Barnes Assembly "A" for Well 3-H. By Chesapeake's own
applications, they have demonstrated that they do not need an exception to Rule 37 to produce their fair share of minerals from this well. The first of the This
15
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
be made.
well -- this evidently would have been a regular well that would have produced a fair share of gas for Chesapeake. The second permit was approved on September 20, 2010 claiming that Chesapeake, quote, unquote, "extended the lateral." Chesapeake had, in The lateral as
drawn indicates no need for an exception to Rule 37 as the well spots before encroaching on any land without a lease. The total length of this well was to be 4797.28
feet according to the plat provided by Chesapeake. This is the second regular wellbore applied for and approved that could be used to produce their fair share of minerals from this well. A third permit was approved on October 1st, 2010. This was another extension of the lateral This
extension provided another 612.34 feet of well that now came within 330 feet of many unleased tracts of land, including my own, Billie Harris. As a result,
Chesapeake would now have to seek an exception to Rule 37 to steal my mineral rights. Chesapeake had already deemed the Barnes Assembly "A" to be viable enough as an economic risk to
16
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
start drilling the well as they had already spudded the well prior to the third application's approval. There
is no reason to extend the well further than the state had already approved and given them a permit to drill. Chesapeake has ample opportunity to recover its fair share of the natural gas and the pool area they created without stealing the property rights of those who do not wish to sell. Since the application for an exception to Rule 37, Chesapeake has been granted three more permits to drill into the Barnes Assembly "A" with Wells 1-H, 2-H and 4-H. None of these permits require an Chesapeake now has four wells
with valid permits to drill in the Barnes Assembly "A" with no reason to need an exception. These four wells
all demonstrate a clear, reasonable, and legal opportunity for them to recover their fair share of gas from Barnes Assembly "A". All they seek to do now is
to steal the property of those who feel it is their right, which it is, to protect their property from being stolen. If an exception to Rule 37 is granted, the state has authorized a private company to take the property of property owners with no compensation. is outright theft authorized by the state, state This
17
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
sanctioned theft to benefit nobody except the private company acting as the thief. If the state forced that
company to compensate us, the property owners for that theft, the state would be forcing us to sell a portion of our property, which they cannot do under the Texas constitution. This well was started on September 25, 2010 and completed on October 10, 2010. It is not
clear to a normal person like me whether or not this well has been drilled to the full length of the wellbore as indicated in the permit application submitted on October 5th, 2010, the permit we are protesting. If this wellbore has been drilled to its
full length, Chesapeake is already in violation of the permit granted to them on October 1st as indicated on the permit. This permit becomes invalid automatically
if the stated location is not in compliance with Commission field rules on the spud date. This would have made the permit used to drill the extended bore invalid as they had not properly filed for the exception to Rule 37. By
drilling an unapproved length of wellbore, Chesapeake has already broken the law, as they have done in the past at the Ramey Unit Well 1-H, Railroad Commission Case No. 0251216.
18
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
If this well has already been drilled to the length as indicated in this final permit application, I request that the Railroad Commission order the well to be plugged back to the legal location as indicated on the permit approved on September 20, 2010. I also ask that you uphold Article 16 of the Texas Constitution and protect my rights by denying the application for an exception to Statewide Rule 37. EXAMINER ENQUIST: Thank you. Does
Ms. Carter.
having been first duly sworn, testified as follows: DIRECT NARRATIVE MS. CARTER: Neva Jane Carter. I'm at
2102 Chisholm Trail, and they are asking to come within 30 feet of my unleased property. Before I came down, I
had to ask permission to get off work and my boss said, what do you hope to even accomplish by going to Austin, what do you do against all the attorneys for Chesapeake? I said, well, I am hoping that the people
at the hearing are going to listen to us, as well. Owning your own home is supposed to be the American dream. And I've worked hard all my life
19
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
lake.
supposed to be a park at the end of my cul-de-sac, and it's been my home for over 30 years. And before the
gas companies came to our city, I was naive enough to think that, I bought and paid for this, no one can take this away from me. But everywhere that we had even a
tiny little greenbelt they are drilling wells everywhere around me. The gas companies are operating under just a few historical rules that do not work for neighborhood drilling, and they use their team of attorneys to bend those rules to take whatever they want. The citizens of Texas are left with the unfair
burden of defending themselves, using our vacation time and our money to protect what is already ours. When I continually said, no, I would not sell, in spite of all the harassing phone calls, the constant knocks at my door, the letters, I got a call, and I said, stop calling me or I will file harassment. I am tired of this. And I was told, we are going to do And I thought, no,
you cannot take something that doesn't belong to you. There are laws against theft. Am I wrong?
Then I received a letter in the mail from the Railroad Commission stating that just because
20
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Chesapeake asks, you will grant them a waiver to one of the few rules that govern their actions, allowing them within the 30 feet of my unleased property unless I officially protest. And I had never heard of Rule 37, So instead
of spending my time planning for my holiday gatherings with my family, I was trying to get out on the Internet and figure out what all this meant. And instead of
mailing out Christmas cards, I was trying to make copies of protests and get it mailed to everybody on the list to make sure I didn't miss anybody, to make sure I didn't miss some rule, because I wanted to protect my property. And a written response of no is not sufficient under the current rules. So you scheduled a
hearing for January 7th requiring that we appear in person. And I had to go to my boss and ask for time
off at the beginning of the year in the finance department where we are at the end of the month, the end of year, end of quarter, and no one asks off. I asked because I wanted to protect my property. But And
then Chesapeake had the hearing postponed with a last second notification that I received when I got home on the afternoon of New Year's Eve. Supposed they had
21
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
that didn't have a lease and they didn't have adequate time to notify them of the hearing. So now I have had to schedule time off again to be here today, just one more time to say, no, I do not want to sell my rights, and you can't steal them from me. And there's only a few of us who are
officially a part of this particular encroachment in our neighborhood but there's hundreds of others in the neighborhood who have not signed a lease. There are
also other affected parties to this waiver that cannot afford the time or money to come or do not want to risk driving here in the ice. And as we have all heard,
some that tried to come are now suffering from an accident. And I am sure all the requirements set in place to protest a Rule 37 were not intended to be a preventive measure to keep citizens from protesting, but as you can see, that is the effect of it. And I am
not a geologist, but I do not believe that the industry controls the drilling and the frac'ing process so perfectly as to do so at exactly 30 feet from my property line and not be at 29 feet or 25 feet. And I
would like to know what type of testing is done to ensure they are following your rules. Whether that
22
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
property, who is going to oversee the process to make sure they do not come closer than you allow, and if someone from the state, some disinterested party is going be there for every stage of the process, and with what equipment are they going to be able to monitor what is occurring beneath the surface of my property? I contacted my state and federal senators and representatives for help but all I got back was a form letter or no response at all. I tried to convince
my city government that we need to stop this drilling until everyone understands the real consequences of drilling in a residential neighborhood. But one of the
council members owns this particular pad site and he got the drilling started before anyone even knew what was taking place. They did put up the required sign near the property before the drilling started but it was not turned in a direction that was readable by passing traffic. It was not turned like a billboard. It was
the curve of the road off on the grass to be able to read the sign. And when I called the number that was
on that sign and said, I have a complaint, the sign is not readable by passing traffic, I was told that Chesapeake had met the requirements. They had to post
23
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
a sign but it was not required that it be readable. So their attorneys make them follow the letter of the law but not the intent of the law. this pad site sits right next to the creek. And
And this
is a creek that I have crossed over many, many times in the last 30 years, and when the land next to it was just pasture and trees and grass, that creek never overflowed, but now that the pad site has replaced the pasture, the creek has overflowed the bridge at least once that I am aware of that I had to turn around and drive out the neighborhood the other direction and has come up to within inches of the top of the bridge several times. And the ordinance that the City of Grand Prairie is adopting now is too little and too late for us. And it was written with the assistance of the gas We asked to meet with the city. They never
industry.
had time to meet with us, wouldn't put us on the agenda for the City Council, but we found out eventually after the news media was involved that they had been meeting with the gas industry for quite some time and getting help from the industry to write the ordinance. No one seems to want to take responsibility for protecting our water supply, our air quality, our safety, or even the noise levels. We have
24
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
people in the neighborhood who cannot even sleep at night because of the noise levels. Some people assume
that industry will conduct themselves in a manner to minimize the harmful effects on the environment is what I was told. But what I hear is there will be some
harmful effects. So the bottom line for the decisions that have been made so far seems to be the promise of big dollars. Where in truth the homeowners won't get
enough to even pay for what it cost me for my hotel bill last night to come down here. My friends tell me
to just move out of Grand Prairie, but our property levels are way too low for that. Even one of the city
council members who is a realtor admits publicly that it has affected our property values. But he goes, just
wait, the values will come back up when the gas drilling is over. But the pipes and the tanks and the
dangers aren't going away and neither is the perception in the Dallas/Fort Worth area that Grand Prairie is an industrial city now. live. In today's economy I can't afford to start over. Like most Americans I am trying to rebuild It's not a place you want to
my retirement fund so I don't have to depend on those same unresponsive government representatives who
25
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
wouldn't answer my letters to feed me in the future. So please, step up, do the right thing here, and don't let the gas companies just steal our rights away when we say, no, we won't sell just for the asking. There are plans for 196 wells in south Grand Prairie so far, and obviously the industry will ask you again to waive the rights of some affected citizens and force pool them, confiscating their property. Please don't allow that. Please put
something into place that requires the party requesting a waiver to pay all expenses of everyone involved with that request. Because money is the only thing the If it will cost them when they
industry understands.
don't comply with the few rules that you have, maybe you won't have to spend so much of your time on Rule 37 waivers and you can spend some time writing appropriate rules for urban drilling, like setbacks of a minimum of 1000 feet. The industry should not be allowed to drill, then ask for a waiver, which is what they have done here. So please just say no to this waiver
because your no is the last hope to stop this and future theft by the gas industry. Please be responsive
to the public and protect future generation's quality of life. Thank you.
26
Thank you.
Do you
scribbles and notes and I got off copy a few times, but I will e-mail you something that will catch most of it. EXAMINER ENQUIST: I would like to take
paper copies of both Mr. Harris' statement and Ms. Carter's statement. I would like to make that I
Harris Exhibit -- I don't need it at this moment. would like to make it Harris Exhibit 1 and Carter Exhibit 1. Does Chesapeake have any objection? MR. JOHNSON:
EXAMINER ENQUIST:
MR. JOHNSON:
Okay.
objection because a lot of it is irrelevant. will handle that on cross-examination. EXAMINER ENQUIST:
objection is overruled, and Harris Exhibit No. 1 and Carter Exhibit No. 1 are admitted into the record. if you would provide paper copies of those I would appreciate it, over and above what the reporter has taken down. MS. CARTER: Okay. So
27
EXAMINER ENQUIST:
MR. GAY:
Glenn The
opening statements of the protestants, first of all, Rule 37 has been a rule in the state of Texas since I think 1919; has been declared constitutional in many different cases. And if the examiners like, we can
provide briefing on that basic fundamental law. Chesapeake takes exception to the idea that somehow they are engaged in any sort of theft or that they are violating the rule. evidence. There's been no
28
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
statements of any theft or any violation of any law. Chesapeake is in complete compliance with the rules of the Railroad Commission of Texas, and if there are violations of other rules, there is another proper forum. Some of the statements dealt with issues that this agency certainly has no jurisdiction over. Whether the City of Grand Prairie has proper ordinances or improper ordinances is not something before you. Air quality is also not something that is before you. Chesapeake has followed the water regulations of the Railroad Commission. There's been no evidence that
there is any violation of that, although allegations were made. What we are here before this agency about is the conservation of natural resources. Chesapeake
has a well that if not -- if we are not allowed to get a Rule 37 exception there will be unrecovered hydrocarbons of about 1.75 Bcf of gas. This is a
priority under the Texas Constitution and the laws of the state of Texas. It is why this agency was
created -- why this agency was given the authority to regulate the oil and gas industry to promote conservation, to protect the mineral resources of the state of Texas, to make sure that the resources are not
29
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
wasted. All these statements by Mr. Harris and Ms. Carter, certainly they do have rights and they can avail themselves of their rights in many different manners, but a lot of what has been stated so far this morning has nothing to do with the issues we have here today. We have four, possibly five witnesses who will
demonstrate the efforts made to construct this well in an appropriate manner. The geology of the area and the
engineering aspects of the area will show that without the exceptions that we request, in order that the well can be properly completed, in order to recover the hydrocarbon resources, there will be waste of almost 1.75 Bcf of gas. That is the issue that is before you
here today, not claims about lack of response from state representatives or City Council people or lack of ordinances. The Commission has been administering Rule 37 for a long time. Nearly 100 years. It has In
been regulating urban drilling for nearly as long. fact, the Rule 37 was created as a response and the
Railroad Commission was given the authority in response to drilling in downtown Kilgore. And we've all seen
the pictures of those derricks where you could walk from derrick to derrick across the entire town in the
30
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
get into in cross-examination of both Mr. Harris and Ms. Carter but the issues that they raise seem to be frustrations with other agencies. This agency has adopted rules. have been public hearings on those rules. There
What we seek
is to enforce those rules and to grant us an exception in order for both -- the development of the hydrocarbon resources of the state of Texas. from anyone. We are not stealing
With that I am calling my first witness. EXAMINER ENQUIST: Let me ask Mr. McBee.
Mr. McBee, since you are representing the protestants who are participating, you have the option, I guess, of making an opening statement. MR. MCBEE: My name is Louis McBee. Sure. Thank you very much.
director of the North Central Texas Communities Alliance, and we have represented or stood in for folks during these hearings in the past. I would simply like
to establish the real reason that we are here. From previous rulings from the Commission, it says to establish entitlement to an exception to Rule 37 to prevent confiscation, an applicant must show that absent the applied-for well it will be denied a reasonable opportunity to recover its
31
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
fair share of the hydrocarbons currently in place under the lease or its equivalent in kind. must satisfy a two-prong test. The applicant
show that it will not be afforded a reasonable opportunity to recover its fair share of the hydrocarbons currently in place by drilling wells at regular locations. And two, the applicant must show
that the proposed irregular location is reasonable. In addition to that, the code further states that each mineral interest owner is entitled to a fair and equal opportunity to recover their fair share of the hydrocarbons under their tract. By the
very act of issuing a Rule 37 exception, particularly 30 feet from a mineral owner's tract, is by in itself confiscation and is a denial of their rights to produce their fair share of the hydrocarbons under their tract because they will not be able to get anyone else to produce it. Thank you. EXAMINER ENQUIST: Mr. Johnson, I believe
you were going to present your first witness. MR. JOHNSON: Call Mr. Bill Spencer.
32
BILL G. SPENCER, having been first duly sworn, testified as follows: DIRECT EXAMINATION
I own a consulting
business here in Austin. Q. you do? A. I deal with various state agencies as it And what is your consulting business? What do
impacts the oil and gas industry in obtaining permits, various information that is required from companies as far as what has been filed. And in this particular
manner I was engaged by Chesapeake in making the applications and filing the necessary permits for the drilling of the Barnes Assembly "A" No. 3-H. Q. How long have you been engaged in this
consulting business? A. I have been involved in the oil and gas I've owned my business since
forms with the Railroad Commission of Texas for the Barnes Assembly "A" 3-H well?
33
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A.
marked as Exhibit 1 a set of documents. Q. (By Mr. Johnson) Mr. Spencer, could you
explain to the examiners what Exhibit 1 is? A. Exhibit No. 1 is a copy of the W-1 application
which I filed online with the Railroad Commission on October the 5th, 2010 for the Barnes Assembly "A" 3-H. Associated with that you will find the Form P-12 and the plat that went along with that filing. Q. And just for the record, the plat you show
shows in darkened colors the unleased tracts? A. That is correct. The dark shaded areas within
the unit boundaries are the unleased tracts within the Barnes Assembly "A" lease. Q. What is the Form P-12 for the Railroad
authority which you file indicating to the state that you have the authority to pool the indicated tracts on the form. Q. And that lists by tract the name of the tract
owner and the acreage of the tract? A. Correct, and the tract identifier so that you
34
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2?
Q.
change in the tract ownership since this filing? A. Yes, there has been. MR. JOHNSON: We would offer Exhibit 1. No. 1 is admitted.
EXAMINER ENQUIST:
(Whereupon, Chesapeake Exhibit No. 1 was admitted.) MR. JOHNSON: We would like to have
marked as Exhibit 2 a second Form P-12. Q. (By Mr. Johnson) Mr. Spencer, what is Exhibit
A.
Just because a So in
this particular instance, from the time that they made the application for the Barnes Assembly "A" 3-H on October 5th, 2010 until January 21st they obtained approximately 17 additional leases which amounted to about 22-and-a-half acres. And so I updated the P-12
filing to show the status of the unit as we sit here today. MR. JOHNSON: We would offer Exhibit 2. No. 2 is admitted.
EXAMINER ENQUIST:
35
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Exhibit 2 is an updated plat that shows just a comparison of the former P-12 in Exhibit 1 and this P-12. You can see that there are a lot less colored-in
tracts. A. Q. That is correct. And then you have also included a listing of
the tracts that are included with this filing of the unleased -A. Yes. The first 65 pages of the exhibit are
the P-12 itself, and after that there will be a three-page exhibit of the unleased tracts within the unit. I believe they total 122 out of 770. And then
the drilling permit plat is the third part of the exhibit, and then what I call the P-12 plat, which has the tract identifiers, is the last page of the exhibit. Q. Okay. MR. JOHNSON: We would like to have
marked as Exhibit No. 3 a Railroad Commission order. Q. 3? A. Exhibit No. 3 is the final order issued by the (By Mr. Johnson) Mr. Spencer, what is Exhibit
Railroad Commission of Texas in Oil and Gas Docket No. 09-0253880. It was amending the field rules for
36
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
the Newark, East (Barnett Shale). Q. Is this the -- does this order set forth the
current rules applicable to the Barnett Shale? A. Q. Yes, it does. And what are the important parts of this rule
insofar as this proceeding is concerned? A. The field rules require wells to be drilled
330 feet from the nearest boundary line or unleased tract. There are no between-well spacing for wells And the
Newark, East (Barnett Shale) allows for take points language in which the take points on the lateral must be legal or you have to seek an exception. Q. So does this rule allow a well to be drilled
and cased closer than 330 feet to a lease line? A. Q. Yes, it does. And so you heard the opening statements made
by some of the parties today? A. Q. Yes. So there is a possibility that a well could be
drilled within 330 feet of a tract and still be legal? A. Q. That is correct. Because of the provisions of this rule that's
37
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
the wellbore may be within 330 feet of an unleased tract, but as long as you're not perforating within 330 feet of an unleased tract, you do not need to seek an exception to the rule. Q. You're in charge of filing all these forms Are you aware of any violation of
Commission rules in the filing of any forms? A. Q. No. And the Exhibit 3 order allows for an
exception to the 330-foot setback rule? A. Well, Statewide Rule 37 allows the exception
and the rule allows it from the standpoint of the no-perf zones. Q. Okay. MR. JOHNSON: Offer Exhibit 3. No. 3 is admitted.
EXAMINER ENQUIST:
(Whereupon, Chesapeake Exhibit No. 3 was admitted.) Q. (By Mr. Johnson) Were you responsible for
filing the notice of application for Chesapeake in this matter? A. Q. A. Yes. And was it filed properly? Yes. MR. JOHNSON: Pass the witness.
38
Mr. Spencer or you can wait until Chesapeake has presented all of its witnesses and then go back and cross them in whatever order you wish. MR. MCBEE: I think we will do that and
we will bring him back up when they are finished. EXAMINER ENQUIST: Okay. Thank you,
Yes.
We would call
ISAAC JACOBSON, having been first duly sworn, testified as follows: DIRECT EXAMINATION BY MR. JOHNSON: Q. Please state your name, by whom you are
Chesapeake Energy as the operational landman for this area. Q. Could you briefly state your education and
39
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
And I have
been employed full time by Chesapeake for the past two years and approximately eight months and prior to that had worked for Chesapeake as well as another oil service company through summer internships. Q. Are you the land person responsible for the
subject application? A. Q. Yes, sir. Did Chesapeake prepare a plat indicating the
well location of the unleased tracts and the outline of the proposed unit? A. We did. MR. JOHNSON: We would like to have
marked as Exhibit 4 a copy of that plat. Q. (By Mr. Johnson) Mr. Jacobson, could you
briefly describe what this plat shows? A. Yes, sir. This plat shows the Barnes Assembly
"A" Unit with a surface hole location located in a -outside of the unit boundaries to the north with the unit generally in a rectangular form, north-south orientation. It also includes, I believe as previously
mentioned, the location of the wellbore, surfacehole location, the bottomhole location, leased and unleased tracts. Q. The unleased tracts are the ones that are
40
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
colored in? A. Q. Yes, sir. And does this exhibit contain the list of
tracts or is that our next exhibit? A. Q. It's on a separate exhibit. Okay. And this is a certified plat certified
to by a licensed surveyor in the state of Texas? A. Yes, sir. MR. JOHNSON: We would offer Exhibit 4. No. 4 is admitted.
EXAMINER ENQUIST:
(Whereupon, Chesapeake Exhibit No. 4 was admitted.) MR. JOHNSON: We would like to have
marked as Exhibit 5 a tract listing. Q. (By Mr. Johnson) Mr. Jacobson, could you
the tract number according to the associated plat, the name of the owner, the acreage contained within that tract, and the leased acreage for every tract within the Barnes Assembly "A" Unit. Q. And are the highlighted tracts the ones that
41
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 admitted.) Q. admitted.)
EXAMINER ENQUIST:
No. 5 is admitted.
EXAMINER ENQUIST:
Exhibit 5 numbers the tract but the prior exhibit does not have numbers on the different lots. Are we going
to receive any sort of plat that allows us to make a one-to-one correlation? MR. JOHNSON: The P-12, I think, and that
plat, Mr. Spencer's Exhibit 2, correlates the -- okay. I am sorry. We do have an exhibit that does cross
reference it we would like to have marked as Exhibit 6. EXAMINER ENQUIST: referring to but it's very small. I found what you are You will have a
further exhibit that will make that more clear? MR. JOHNSON: (By Mr. Johnson) We have an Exhibit 6. Mr. Jacobson, what is
tract numbers associated with the numbers on Exhibit 5. MR. JOHNSON: We would offer Exhibit 6. 6 is admitted.
EXAMINER ENQUIST:
EXAMINER ENQUIST:
42
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
with a larger copy of this so we can read it? you make that late-filed let's say 6A? MR. JOHNSON: that. MS. CARTER: also. MR. JOHNSON: copy to the intervenors. Q. (By Mr. Johnson) Yes.
Would
We will provide a
prepared a tabulation of -- do we have a larger -MR. SPENCER: MR. JOHNSON: It's written on. We will provide as a
late-filed exhibit a larger version of Exhibit 6. EXAMINER ENQUIST: Q. (By Mr. Johnson) Okay. Thank you.
of the tracts? A. Q. 7. Yes, sir. We would like to have that marked as Exhibit
the Barnes Assembly "A" Unit that shows the total number of leased tracts being 648 tracts within that unit, unleased tracts totaling 122. As you can see
from the previous Exhibit No. 5, the tract -- the unit contains a total of 770 tracts, again with 648 being
43
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
the unit is leased, 15.12 percent of the tracts are unleased. That is the percentage of leased tracts. Additionally it shows the total leased acreage as 277.78 acres and 50.11 acres total unleased. It also shows the percentage of acreage which is leased as 84.1 percent, percentage of unleased acreage 15.9 percent. MR. JOHNSON: MR. MCBEE: We would offer Exhibit 7. Object. Mr. Examiner, I am
wondering why we are even discussing all of the leased and unleased tracts within this particular plat when this hearing is only about the affected unleased property owners that are within the 330 feet of either the fracture area or the wellbore. So I am not sure
what the relevance of the discussion is about all the leased and unleased tracts. EXAMINER ENQUIST: like to respond to that? MR. JOHNSON: this unit. Well, this is a permit for Mr. Johnson, would you
information of the examiners and the parties as to this unit what number of people have leased tracts and what
44
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
number have not leased tracts. EXAMINER ENQUIST: did you have something further? MR. MCBEE: Well, yes. Once again I am Thank you. Mr. McBee,
wondering if they are doing this on this particular plat, are they going to supply the same leased and unleased leaseholds for every single permit that was issued for the Barnes Assembly "A". EXAMINER ENQUIST: that. MR. MCBEE: There has been more than one I didn't understand
permit approved by the Railroad Commission and yet all we are getting is the data from this particular plat when there were actually three others that were approved by the Commission but we don't seem to be discussing the leasehold in those. MR. JOHNSON: It's the same leasehold. All we have before us
deal with today is what is before us today. MR. MCBEE: Well, it is going to be Thank
relevant because those were regular well sites. you, sir. EXAMINER ENQUIST:
45
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
to overrule your objection and No. 7 is admitted. (Whereupon, Chesapeake Exhibit No. 7 was admitted.) MS. CARTER: that out of order? EXAMINER ENQUIST: I was trying to Can I ask a question or is
establish at the beginning if Mr. McBee was going to represent everybody and the rest make statements, but go ahead and ask the question. MS. CARTER: Maybe it's my financial
background but this is just a lot of names and numbers and everything that I don't have any track behind this. I don't have any audit trail that tells me that Nancy Bitner actually has a current lease on file. Do you
guys have those copies of all those current leases on this. EXAMINER ENQUIST: MS. CARTER: No, we do not --
that they've written something up a spreadsheet that says these people are leased. And if the other 122 are
relevant, then why -- the other 122 people at this hearing, why weren't they given an opportunity to say why they didn't sign? EXAMINER ENQUIST: The other people were
46
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
presumes that the affected parties are those within 330 feet of the wellbore. As to your question about the --
I think it was the -- do we keep the leases, no, we never see the leases. As to the P-12, that is the
document that is filed with the Commission and the operator is making an assertion on here that these are the parties that are leased and they do have leases. The possible penalty for that is I think under Section 91.143, false filings. So there would be a -- if this
turned out to be false, they would be subject to penalties through the Commission for false filings. MS. CARTER: I was just wondering because
they found those other two people that they didn't know if they had a lease or not and so that's the reason we cancelled the January meeting. And I am like, well,
how do we know this is accurate, if it is going to be relevant. I appreciate your answer. I will let
Mr. McBee go from here. EXAMINER ENQUIST: Mr. Johnson. MR. JOHNSON: Q. (By Mr. Johnson) Thank you, Mr. Examiner. Mr. Jacobson, is it fair to Thank you.
say that this is an urban area? A. Q. Yes, sir. Are there limited locations that can be
47
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
utilized for the drilling of wells? A. Q. Absolutely. And this plat, does that show the location
that is used to drill all the wells in the Barnes Assembly "A" Unit? A. Q. Yes. And is that the -- one of the very few
locations in the area that can be used to drill wells? A. Q. It is. Can you explain the process that you went
through in preparation for the hearing that was scheduled for January 7th and the realization that you made while you were preparing for that hearing? A. Yes, sir. In preparation for the original
scheduled date of January 7th, I was reviewing our -reviewing our current leasehold within that unit to insure its accuracy. And it was brought to my
attention that there were a couple tracts which had been shown as leased and they had been leased but prior to the initiation of our operations those leases had termed out and the leases had expired. What I discovered in reviewing my notes was that the filing -- the initial filing that showed them as leased after they had, in fact, expired had showed that the -- that I was sent notification of this
48
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
through a spreadsheet format to have the surveyor update. I returned that spreadsheet to the contractor
who was working for me in this unit, asked him to verify the expirations because they had updated new leases that had been taken but they did not update the expirations. I asked him to verify this. They updated
the information.
forwarded it on to the surveyor, inadvertently the spreadsheet had the same name. I inadvertently copied
the wrong spreadsheet, sent it to the surveyor, and that showed the parties which had expired leases as still being leased. So it was a mistake on my part and I do apologize for the inconvenience which it caused, and it was certainly an oversight that I hope will never happen again. EXAMINER ENQUIST: So your bottom line is
that the two unnoticed parties, it was because their leases had lapsed and they needed notice as unleased mineral interest owners. Did you subsequently release
them or are they still unleased? THE WITNESS: We have pursued leases with
both parties, one of which has declined at this time, the other we are currently working with. EXAMINER ENQUIST: All right. Thank you.
49
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
THE WITNESS:
there was a third party who when we discovered their lease had lapsed they did immediately agree to sign the lease. Q. (By Mr. Johnson) And they were all given
subsequent notice by the Railroad Commission of this hearing? A. Q. Yes, sir. Going back to the surface location, can you
point out to the examiner -- and I understand that it -- I am having trouble reading it myself, Mr. Enquist. Do you know which tract is Ms. Carter's tract? A. Q. Yes, sir. Can you describe that to the examiner and for
the record using whichever plat is most appropriate? A. Yes, sir. Ms. Carter's tract as represented
on this plat is labeled as Tract No. 65 on the detail plat. I realize it's small and difficult to see. So
if you are following the path of the wellbore, the previous plat, which does not show the tract numbers, this plat is actually showing Ms. Carter's tract as being 153.4 feet from our wellbore. It is -- as the
residential homes begin, it is the third row down. Q. So as you come into the residential home
50
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. Q. A. Q.
On the west side. On the west side? Yes, sir. And approximately how far is Ms. Carter's
tract from the surface location? A. It is approximately 2000 feet from the surface
locations or the lack of drill site locations? A. Yes, sir. The nearest drill site location
that Chesapeake has to this is for the Campbell pad. It is approximately a mile-and-a-half to the northeast of this location. In this area we are restricted by
the City of Grand Prairie ordinance which previously required us to be 500 feet from any protected use structure. Additionally we have issues with a flood
plain and a floodway in this area which have restricted our potential locations. This was the only viable
location to develop this acreage from that was accessible to Chesapeake. Q. And surface location on your Exhibit 4, that
plat shows it's 540 feet from the west line of the tract on which it's located and 545.4 feet from the southern line of the survey it's located on? A. Yes, sir.
51
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
the City of Grand Prairie ordinance on drill site tracts? A. Yes, sir. The surface hole location is in
compliance with the City of Grand Prairie gas drilling ordinance. MR. JOHNSON: Pass the witness. I believe Mr. McBee
EXAMINER ENQUIST:
has opted to wait until you present all the witnesses. MR. JOHNSON: Call Mr. Alan Jackson.
ALAN JACKSON, having been first duly sworn, testified as follows: DIRECT EXAMINATION BY MR. JOHNSON: Q. Mr. Jackson, could you please state your name
and by whom you are employed? A. My name is Alan Jackson. I'm employed by
Chesapeake Energy. Q. history? A. I received a bachelor of science degree in Would you briefly state your educational work
geology from the University of Texas at the Permian Basin in 1980. Q. A. How long have you been with Chesapeake? I've been with Chesapeake for three years and
52
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
part of the area that is under your supervision as a geologist? A. Q. the area? A. Q. Yes, I have. Have you prepared exhibits for the Railroad Yes, it is. And have you performed a geological study of
marked as Exhibit 8 a structure contour map. EXAMINER ENQUIST: Mr. Johnson, you're
presenting Mr. Jackson as an expert in geology? MR. JOHNSON: in geology. EXAMINER ENQUIST: expert in geology. MR. JOHNSON: Q. (By Mr. Johnson) Okay. Mr. Jackson, could you He's recognized as an We offer him as an expert
explain what you did to prepare Exhibit 8 and what it shows? A. Yes. Exhibit 8 is a structural contour map of I used actual
53
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
penetration points from the Barnes Assembly "A" 3-H and offset wells and normalized those penetration points, their subsurface elevations normalized for surface changes. And then the contours are on 100-foot contour
intervals and it is an interpretation of the structural configuration of the Barnett. Q. The red -- Mr. Jackson, the red squares, are
those the penetrations points for the wells you described? A. Q. Yes, they are. So they provide the subsurface basis for the
contouring of the structure of the Barnett Shale? A. That is correct. MR. JOHNSON: We would offer Exhibit 8. 8 is admitted.
EXAMINER ENQUIST:
(Whereupon, Chesapeake Exhibit No. 8 was admitted.) Q. (By Mr. Johnson) I notice that there is an
Barnes Assembly "A" Unit? A. Q. That is correct. And the line from the red square to the circle
with the gas symbol circle, that is the wellbore trace of the Barnes Assembly 3-H well? A. That is correct.
54
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
there is a shaded portion with a -- what is that? A. That is a normal fault that we crossed while
drilling the Crystal Paradise 1-H, the wellbore that has a northeast-southwest orientation. Q. Is that well -- are any of the wells that are
shown on this map producing? A. No. The only one that is producing is just on It is the Campbell 1-H
faulted into the Atoka section when we cut the fault. So it's a non-commercial well. Q. Have you prepared a map showing the formation
marked as Exhibit 9 -- mark the next exhibit Exhibit 9. Q. (By Mr. Johnson) And I'll let you describe
what it is, Mr. Jackson. A. Exhibit 9, that is the one that has the log -EXAMINER ENQUIST: That is not the one we
55
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
have got.
parties.) Q. 9? A. section. Exhibit 9 is actually a one-well cross Typically we try to show two wells within a (By Mr. Johnson) Mr. Jackson, what is Exhibit
cross section in a Railroad Commission hearing. Unfortunately this is the only well within several miles that penetrated the Ellenburger and Viola, the Ordovician section, so I put this together to show where that well is in relationship to the subject unit, and it just shows the overall thickness of the Barnett section. Q. And the Barnett is -- at the base, the
squiggly line, that's the technical term to be used, that shows what? A. That squiggly line is the Ordovician I apologize. I am missing some labels The
unconformity. here.
dark, bold line above that is the top of the Upper Barnett or the top of the Barnett formation. Q. And the top of the Barnett, that is what was
shown on Exhibit 8, the top of the structure? A. Yes. That is the mapped interval.
56
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 admitted.) admitted.)
MR. JOHNSON:
EXAMINER ENQUIST:
MR. JOHNSON:
marked as Exhibit 10 an isopach map. already been passed out. Q. (By Mr. Johnson)
explain how you prepared Exhibit 10 and what it shows? A. Yes. Exhibit 10 is an isopach thickness map We have one control point
within the area of this map, 385 feet of thickness, and that is the total Barnett thickness, and the contours are generated from the larger database. But it shows
that we should average somewhere between 375 to 400 foot thickness of Barnett in the subject area. Q. And this exhibit has the same outline of the
Barnes Assembly "A" Unit and shows the 3-H well? A. That is correct. MR. JOHNSON: We would offer Exhibit 10. No. 10 is admitted.
EXAMINER ENQUIST:
MR. JOHNSON:
EXAMINER ENQUIST:
57
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
witness? MR. JOHNSON: Mr. Dave Henson. DAVID HENSON, having been first duly sworn, testified as follows: DIRECT EXAMINATION BY MR. JOHNSON: Q. Please state your name, by whom you are Yes. We would call
reservoir engineer for Chesapeake Energy. Q. A. How long have you been with Chesapeake? I have been with Chesapeake about just past
four years. Q. And could you briefly state your education and
Wyoming in 1980 with a bachelor of science degree in petroleum engineering. I have been employed by three I have
been employed full-time for the last 30 years doing reservoir engineering. Q. And is this the area of the state that is
58
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
expert reservoir engineering witness. EXAMINER ENQUIST: as an expert petroleum engineer. Q. (By Mr. Johnson) Okay. Mr. Henson, have you Mr. Henson is accepted
prepared an exhibit to estimate the gas in place for this unit? A. Yes, sir, I have. MR. JOHNSON: marked as Exhibit 11. Q. (By Mr. Johnson) Mr. Henson, using Exhibit We would like to have that
11, could you explain the calculations and the sources of the data that you used to calculate the gas in place for the Barnes Assembly "A" Unit? A. Yes, sir. One of my jobs is to try to predict
the amount of gas that will be recovered from not only a well but for a unit. This is a fairly new area We have been very
fortunate here that we have a pilot hole which is called the Campbell 1-P. If you look at the geological
exhibit, it's just to the very north of that exhibit. It's a little over a mile away. And by drilling pilot
59
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
holes what we can do is we can go in and we can core those wells. We can log those wells and extract a lot
of information that helps us determine what kind of shale is in that area and what kind of recovery we might expect from wells were they to be drilled in that area. Based on the pilot hole, the Campbell 1-P, we were able to extract all of the information that is tabulated there at the top, thickness, porosity, the gas content of the shales, all of those things, and then we go in and we use that information to calculate using industry standard volumetric equations how much gas might be recovered from a well in the particular area. Shales have two components to the volumetrics. One is a free gas calculation, one is an And you need to calculate
both of those, add them together to come up with the gas in place, and then you apply a recovery factor to come up with the recoverable. Very quickly, the free gas calculations for this unit show that we would potentially have gas in place of 53.7 Bcf. 24.5 Bcf. The absorbed gas in this unit is
60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
the recoveries we have seen in the Barnett and some of our other operations, I have applied a 30 percent recovery factor to that total gas in place. And so
that nets down to what we call recoverable gas in place, which would be the bottom line there, which is 23-and-a-half Bcf. MR. JOHNSON: We would offer Exhibit 11. 11 is admitted.
EXAMINER ENQUIST:
(Whereupon, Chesapeake Exhibit No. 11 was admitted.) Q. (By Mr. Johnson) Mr. Henson, have you
prepared an exhibit to estimate the amount of gas that is recovered per foot of lateral in this area? A. Yes, sir. MR. JOHNSON: marked as Exhibit 12. Q. (By Mr. Johnson) Could you describe Exhibit We would like to have that
12 and what you show on it? A. Okay. This is another predictive tool that we
use to help look at the reserve potential for an area. It's a plot of -- on the Y axis we are plotting gross expected ultimate recovery in millions of cubic feet. And on the X axis or along the bottom we are plotting effective lateral length in feet.
61
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 admitted.) Q.
And what I have done, I have gone in and I had to go out about five miles to find enough wells that are actually producing to make this a representative and a realistic sample set. But by
going out a five-mile radius from the Barnes Assembly "A" Unit, I was able to find 55 wells that are producing. I took the expected ultimate recovery from
those wells, plotted it against the lateral length of those wells and was able to come up with a trend line which I am going to then use to predict based on the lateral length of subsequent wells what type of recovery we might expect. MR. JOHNSON: We would offer Exhibit 12. No. 12 is admitted.
EXAMINER ENQUIST:
prepared a plat showing the wellbore and the portion of which is not regular to offsetting tracts? A. Yes, sir. MR. JOHNSON: marked as Exhibit 13. Q. (By Mr. Johnson) And Mr. Henson, did you use We would like to have that
the plat that Mr. Jacobson used to show the unit and the location of the well?
62
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. Q. on it? A. Q. A.
Correct. Could you explain what Exhibit 13 shows? This shows the path of the lateral. And the
highlighted red area is the amount of the lateral that we will not be able to complete without a Rule 37 exception. There is a little arrow from the northeast And my point of this is
that I am making sure that I am 330 feet away from any unleased tracts. So the red portion of that lateral is
what a subsequent exhibit is going to show you would be the portion of the lateral that we could not perforate without a Rule 37 exception. MR. JOHNSON: We would offer Exhibit 13. No. 13 is admitted.
EXAMINER ENQUIST:
(Whereupon, Chesapeake Exhibit No. 13 was admitted.) EXAMINER ENQUIST: a question. to ask. Let me ask Mr. Henson
granted, and I was unclear on whether or not the permit was granted for the entire length of the present wellbore. It was certainly noticed up to the beginning
63
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
And that
prior granted permit, was the entire length of the wellbore we are looking at here today permitted? THE WITNESS: question, sir. EXAMINER ENQUIST: I believe the well was I am not sure I follow the
spudded, according to Commission records, September 25th. So we have a well that has been drilled. THE WITNESS: Correct. And I wasn't sure if
EXAMINER ENQUIST:
the prior application, using your Exhibit 13, if the well had only been drilled down to the beginning of this neighborhood or if it had been drilled to the ultimate bottomhole location. THE WITNESS: The well has been drilled
to the plugback or proposed bottomhole location as shown on the exhibit. So the whole lateral length has
permitted as such in the prior application? THE WITNESS: Yes, sir. All right. Thank you.
completed; it has not been perforated? A. No. No, it has not been completed.
64
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
regularly permitted to drill that length, lateral length? A. Q. Yes, sir. And the purpose of this hearing is to obtain a
permit to perforate the colored, shaded red portion of the drainhole? A. Q. Correct. Okay. EXAMINER ENQUIST: admitted 13, it is admitted. Q. (By Mr. Johnson) Have you prepared a If I have not already
calculation of the amount of unrecovered reserves based on whether or not this Rule 37 application is granted? A. Yes, sir, I have. MR. JOHNSON: We would like to have
marked as Exhibit 14 what is denominated as an unrecovered reserves analysis. Q. (By Mr. Johnson) Mr. Henson, could you
explain the numbers that you put on Exhibit 14 and what they show? A. Yes, sir. Hopefully this is a little easier Very simply, I am
taking the slope of the graph that I introduced as Exhibit 12, I am plugging in the different lateral
65
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
lengths versus -- and then using the graph or the equation to calculate at any given lateral length what would the potential reserves be for a well of that length. So the first calculation would be assuming we were able to complete and perforate the entire lateral from the proposed upper perf point to somewhere near the bottomhole location. I might They are
mention that these numbers were not surveyed. very good estimates. this.
perforated lateral should we be granted the exception. And based on the graph and the equation that came out of that graph, that says that the total lateral should recover about 4.6 Bcf. I then did the same mathematics by excluding the red area on the previous exhibit, and without the red area we would have an effective lateral length of 2181 feet. And again using -- plugging that
into the same equation up above, it says that our recovery for that length of lateral would be 2.86 Bcf. And just by subtracting those two numbers, it shows that without the Rule 37 we would not be able to recover 1.74 Bcf. Q. If this well is not allowed to be perforated
66
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
in the red zone, will there be -- that is the amount of avoidable physical waste that will occur? A. Q. Yes, sir. And is there any other way through any other
well to recover this 1.74 Bcf of gas? A. Q. A. No, sir. Could you explain that? Well, just by looking at the plat, you can see
that it's almost impossible to get a well of this length into that neighborhood without requiring some type of a Rule 37 hearing. We also, as was previously
mentioned, have hopes to fully develop this unit with somewhere between five and six wells ultimately. just in terms of, you know, the spacing and the location and the viability of where we could drill this first well, I don't believe that we had any -- really any other alternative than to spot it where we did. Q. Okay. And all the other wells that you So
permitted are also going to be necessary to recover hydrocarbons from this unit? A. Q. Right. It requires more than one well on most units
67
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
estimating well recoveries between four to five Bcf. So that tells you that you will probably need five to six wells of that caliber to recover all of the reserves under this unit. Q. So is the full length of the Barnes Assembly
"A" 3-H well necessary to prevent confiscation of resources leased by Chesapeake? A. I believe so, yes. MR. JOHNSON: I offer Exhibit 14. No. 14 is admitted.
EXAMINER ENQUIST:
(Whereupon, Chesapeake Exhibit No. 14 was admitted.) EXAMINER ENQUIST: Let me ask Mr. Henson,
on your Exhibit 13 you show some short laterals for the 1-H, 2-H and 4-H. Are those permitted? Those are short permits, I
Short lateral permits, I believe, to get the I don't believe that is where the
process started.
actual location of the wells will ultimately be. EXAMINER ENQUIST: permits for those? THE WITNESS: Yes, sir. Thank you. Okay. So you do have
EXAMINER ENQUIST:
68
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
depending on if there is testimony from the protestants. EXAMINER ENQUIST: at this time you could cross. All right. Mr. McBee,
Bill Spencer, Isaac Jacobson, Alan Jackson, and David Henson. We have been here almost an hour-and-a-half.
Would this be a good time to take a break for lunch? Is that acceptable to you? MR. MCBEE: That is fine with me. All right. Let's take
EXAMINER ENQUIST:
a break and come back -- we have a short day here, so do the parties prefer to take a one-hour break or an hour-and-a-half? MS. CARTER: back. EXAMINER ENQUIST: back at 12:30. (BREAK.) EXAMINER ENQUIST: record. We are back on the All right. Let's come One. I have a long drive
69
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
something.
we had started at 10:00 instead of 9:00 o'clock so we had fewer hours. We are ready to go forward. before you start, are you returning? MR. MCBEE: No. I get to cut you a Mr. McBee,
want to cross-examine at this point. MR. MCBEE: Mr. Bill Spencer, please. Mr. Spencer.
I will letter mine if that is all right. EXAMINER ENQUIST: fine. Numbering will be
This is your cross-examination exhibit. MR. MCBEE: Okay. This will be your
THE REPORTER: Cross-Examination Exhibit 1. MR. MCBEE: 1. MR. JOHNSON: tied to?
70
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
BILL G. SPENCER, having been first duly sworn, testified as follows: CROSS-EXAMINATION BY MR. MCBEE: Q. Mr. Spencer, what you have in front of you is
a reprint from yesterday's Railroad Commission website on a permit that was issued September 24, 2009 for the Assembly Barnes "A" 3-H Unit. What we are trying to
establish here is I would like to get it clear in my mind, clear in the unleased mineral owners' mind as to what a regular location would be as opposed to an irregular location. And you are a local expert on Can you explain what a
regular location would be and an irregular location? A. Well, in my experience when somebody refers to
a regular location, it is a well that is drilled in compliance with the field rules for the field in which it's being permitted or is permitted within the confines of the field rules. An irregular permit would
be one that would either be a Rule 37 or a Rule 38 exception or could possibly be a Rule 39 exception. Q. In the case of the special Barnett Shale field
71
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
owner as far as from the wellbore would be an irregular well if you had unleased mineral owners within that 330 feet; is that correct? A. Q. That is correct. A regular wellbore would be one that didn't
affect an unleased mineral owner? A. It would be perforated at least 330 feet from
any unleased mineral owner or a unit line. Q. The purpose of this particular exhibit from
September 24, 2009 is that Chesapeake applied for and received a permit for the Barnes Assembly "A" 3-H, and was it or was it not a regular permit to produce the Barnes Assembly "A"? A. Q. A. Q. Yes, it is. Okay. For the Barnes Assembly "A" Well No. 3-H. Okay. What you have in front of you now,
Mr. Spencer, is also a reprint from the website and it shows an amended permit that was issued to Chesapeake on September the 20th, 2010, a good deal of time after the first permit was issued. And this one, can you
tell me was it a regular or irregular well permit? A. Q. A. It was a Rule 37 exception. In what regard? It was a Rule 37(h)(2)(B).
72
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. A. Q. A.
And what does that cover? It says that in the permit. What does the (h)(2)(B) cover? That we were too close to a lease line and
independent mineral owner down at the bottom of that well. A. Q. A. Q. Within the Barnes Assembly "A" 3-H Unit? Yes. No. Okay. And also noted on this particular plat
you completely changed the Barnes Assembly "A" Unit to include a very large residentially platted area. that true? A. Q. Correct. So this was a Rule 37 application but it did Is
not involve any of the residential lot owners down on the southern end of the wellbore. A. Q. That is correct. Thank you. MR. MCBEE: MR. JOHNSON: protestants cross? EXAMINER ENQUIST: We are labeling it This is Exhibit No. 3. We are calling these Is that true?
73
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Protestants Cross-Examination Exhibits 1, 2 and 3 so far. MR. JOHNSON: Q. (By Mr. McBee) Okay.
you, and I will admit that the map on the back may be incorrect, but it is the third permit issued to Chesapeake on the Barnes Assembly 3-H Unit, Barnes Assembly "A" 3-H Unit, wherein the wellbore length was increased to include the residential area to the south. And then also when you applied for this permit you agreed not to perforate, based on the previous permit. And so the lower perforation point, the PLP point, was exactly the same as it was on the second permit but on this one you increased the wellbore to include the residentially platted property to the south; is that correct? A. Q. A. Well -I have a copy of the correct plat. Yes, that is what is confusing me. The plat
that is attached isn't the right one. MR. JOHNSON: Could we get the correct
exhibit so we don't confuse the record? MR. MCBEE: important is the permit. Well, the exhibit that is It's the third approved
74
EXAMINER ENQUIST:
MR. MCBEE:
Yes.
If you want a copy of this one we will make a I am going to show it to Mr. Spencer. EXAMINER ENQUIST: Let me -- just to
clarify the record, Protestants Cross Exhibit No. 3 has the permit to drill and attached to it was a plat. Now, this morning I did go look at that filing and there were two plats for this permit, and one plat showed a short wellbore distance and the second plat showed a longer wellbore distance. Mr. Spencer has
just indicated that this plat that we had attached to No. 3 is not the correct plat. THE WITNESS: for this permit. EXAMINER ENQUIST: MR. MCBEE: Okay. Is that correct?
Railroad Commission website, as you pointed out, and there are -EXAMINER ENQUIST: There are two plats on
the Commission website and this is one of them. THE WITNESS: I believe this plat was
used for the tract identification for the P-12, not for the permitting of the well. Because you can tell the
75
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
difference in them.
the well does not have tract identifiers on it. EXAMINER ENQUIST: And is that the plat
you are going to give us next, Mr. McBee? MR. MCBEE: No. I just gave it to him to
identify in that all they really changed from the approved Permit No. 2 to the approved Permit No. 3 was they lengthened the wellbore. They left the lower
perforation area and the upper perforation area identically the same. And I don't think they were
being truthful with the Railroad Commission in that they said that they could drill this well, they could produce the gas for this unit and not perforate close to the mineral interest property. They never did that.
And yet the wellbore is still within 330 feet of unleased mineral owners. MR. JOHNSON: Mr. Examiner, is Mr. McBee
best job he can without being an attorney, so let's just let it go right now. redirect. Mr. McBee, your Exhibit No. 3 I am going to detach this plat because apparently it is not the correct plat that is on the website. And you don't You can pick it up on
76
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
have the second one? MR. MCBEE: I don't but I will be happy
to get it to you and refile it with a letter. EXAMINER ENQUIST: Commission document. Okay. It's a I will take
official notice of the second plat under this permit. MR. MCBEE: Thank you very much. And Mr. Spencer, the
EXAMINER ENQUIST:
second plat under this permit is the correct plat for this permit? THE WITNESS: probably both are. permit. EXAMINER ENQUIST: Right. So the plat This plat is. They
that you are holding up is for the amended permit issued October 1st, 2010? THE WITNESS: That is correct. All right. I will
EXAMINER ENQUIST:
take official notice of the plat and we can print out copies of it. Q. (By Mr. McBee) And one final question.
Permit No. 1, Permit No. 2, and Permit No. 3, any one of those could have been drilled and producing but Chesapeake chose not to do that until the Rule 37 case come up, and now you're contending that without a Rule
77
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
37 exception you can't produce the Barnes Assembly "A" 3-H well; is that correct? A. There was a lot in there. First I need to
correct something else you said. Q. A. Okay. You said the perf points were the same. Your
words were they are identical on 2 and 3. not. They did move.
They are
I am not agreeing that they are the same. Q. I stand corrected. They moved about three or
four feet, yes. A. Well, they moved more than that. In any
I just wanted to
clear the record, they are not identical. The third -- if I recall right, the third permit was filed for because we obtained a lease that allowed to us lengthen the lateral. Instead of
stopping it short where we had under Permit 2, a lease was acquired that allowed the lateral to be drilled further to obtain additional reserves. purpose for the extended lateral. EXAMINER ENQUIST: 2 is which one? THE WITNESS: The first amended permit. The first amended For my benefit, Permit That was the
EXAMINER ENQUIST:
78
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
That is the first amended permit. EXAMINER ENQUIST: THE WITNESS: Okay.
October 1st is the second amended permit. EXAMINER ENQUIST: Q. (By Mr. McBee) All right. Thank you.
Permit 1, you had a well that you could produce, you just chose not to? A. It is not like -- I don't make those
decisions -Q. It was a regular well? THE REPORTER: time for me. Q. It will help. Let me rephrase that. Was it Hang on. Please, one at a
or was it not a regular well in the definition of the Railroad Commission on Permit No. 1? A. Q. Yes. Thank you. MR. MCBEE: Q. (By Mr. McBee) I'm passing out Exhibit 4. Okay. What I am handling you
now is as a reprint from the Railroad Commission website. The front page shows the well pad sites in And it
79
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
shows some completed wells, it shows some that were permitted, not completed, according to the Railroad Commission website. And it also shows the detail of
the Barnes Assembly West Carpo pad site that would indicate six, seven, eight, nine, 10, 11 wells; is that correct? A. Q. Is that a correct detail? I believe so. Okay. The first page in that packet behind
the graphic is a permit that was issued January 31, 2011 for the Barnes Assembly "A" 1-H. regular well? A. Q. Yes. The third page back is a permit that was Was that a
issued January 31, 2011 for the Barnes Assembly "A" 2-H. A. Q. Is that a regular well? Yes. It did not require an exception.
January 31, 2011 for the Barnes Assembly "A" 4-H. that a regular well? A. Q. Yes.
because it's sort of -- this particular wellbore is on the Barnes Assembly "A" pad site but it is called the West Carpo. I don't pretend to know why you named them But this is the West
80
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Carpo 3-H well that was drilled from the same pad site as the Barnes Assembly "A" wells. regular well? A. Was Carpo 3-H? Yes. It did not require an And was this one a
exception. MR. MCBEE: Pass the witness. EXAMINER ENQUIST: Cross-Examination Exhibit No. 4? MR. MCBEE: MR. JOHNSON: 4. Yes, sir. Your last exhibit was I have no further questions.
I am going to object to
the -- he said it was from the Commission's website. It appears to have additions to what is on the Commission's website. notations. EXAMINER ENQUIST: talking about? MR. JOHNSON: Well, there are arrows What notations are you We would object to those
drawn that looks like a portion of a map from the -- I don't know what -- Mr. McBee hasn't explained what it is. He says it is from the Commission's web page, and It says area gas wells,
source Railroad Commission website, but, for example, there is something called East Carpo regular wells and there is an arrow drawn to a symbol. There is some
81
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
labeled Barnes Assembly "A" and "B" West Carpo and an arrow. I do not believe -- I think Mr. McBee has
misspoken if he says that is from the Commission's website. MR. MCBEE: The map is from the
that is on this that is not from the Commission's website. EXAMINER ENQUIST: did you put those -MR. MCBEE: I did. You did? So the annotations,
have is that he's acting as a representative, not as a witness. So am I going to have a chance to I object to it unless this is --
cross-examine him?
there is evidence to support this, what he stated on the record is false. This is not something from the It is something that he
has taken from the Commission's website and, as he just stated, has amended. supported that. And there is no witness that has
MR. MCBEE:
82
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
map from the Railroad Commission's website and added the annotations on there because there is no function on the website to be able to do that. However, the
permits behind that map indicating regular well sites from the Barnes Assembly "A" Unit are reprints, exact reprints from the Railroad Commission's website, and that is easy enough to verify. MR. JOHNSON: Mr. Examiner, there is an Mr. McBee can testify.
But he can't claim to put something into the record that is on the Commission's website when he just testified it is not on the website. would object to it. EXAMINER ENQUIST: Do you have any And therefore we
information that these annotations, East Carpo, Barnes Assembly "A" and "B" and Crystal Paradise Units 1 and 2 are incorrect? MR. JOHNSON: the first I have seen this. I have no idea. This is
testified that what he stated on this exhibit is wrong. It is not from the Commission's website. MR. MCBEE: I did not say it was wrong. I will let -If he
Could I finish?
83
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
as a representative and try to get Mr. Spencer to say that, yes, this is from the Commission website. not from the Commission's website. This is an It is
incompetent -- it's not supported by any evidence. EXAMINER ENQUIST: Why don't you take
Mr. McBee on voir dire and ask him as to how he did this and whether or not he has personal knowledge. MR. MCBEE: MR. JOHNSON: Absolutely. Be happy to. He hasn't
He can testify.
cross-examine Mr. McBee while he's cross-examining Mr. Spencer? EXAMINER ENQUIST: voir dire. You can take him on
84
LOUIS MCBEE, having been first duly sworn, testified as follows: VOIR DIRE EXAMINATION
Mr. McBee, are you a cartographer? A what? A cartographer, a map maker? An amateur one, yes. Do you have any training or skill in making
Well -The Railroad Commission did. You annotated this -Yes. Where did you obtain that information? From the Railroad Commission website. When
you go on each one of those and it says identify the wells, that is what I put on there. Q. A. And do you have that information here? If you want to hook up my laptop, I will take Happy to.
85
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. this map? A. Q.
Yes.
make this map? A. I used the computer site, the information on I gained
the data from the Railroad Commission's website and I put it on that. That is the work sheet, simply to
identify the pad sites that are in the vicinity of the Barnes Assembly "A". Q. on here? A. Q. A. Q. A. Q. A. Q. The what? The Barnes Assembly Unit "A"? The pad site? Is that unit on this map? The graphic is. And do you have a scale on this map? No. So we don't know how -MS. HARRIS: A. Q. Yes, here it is. Do you have the Barnes Assembly "A" Unit shown
It is down at the bottom. (By Mr. Johnson) What is the scale? How
86
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A.
It is
supposed to be for informational purposes to identify the pad sites. Q. Do you have any -- is there any way to tell
from this map how far the pad sites are apart? A. Q. No. It is not to scale. So -- and the purpose of
this is to show the proximity, the closeness of the pad sites? A. It's to show the number of pad sites and the
proximity of the Barnes Assembly "A" Unit. Q. they are? EXAMINER ENQUIST: Mr. Johnson, look at On the A But we can't tell from the map how far away
competent individual could use that scale to determine how far apart -MR. JOHNSON: I'm asking the witness who
but as the examiner points out, there is a scale there if you want to measure it. I didn't testify and I
87
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. A.
One to two whatever. MS. CARTER: THE REPORTER: 2.9. Ma'am, can I get your name
I'm
We are going to strike the annotations that Mr. McBee has put on as to East Carpo regular well, the Barnes Assembly "A" and "B" West Carpo, and the Crystal Paradise Units 1 and 2 regular wells, and the associated arrows and circles. Otherwise Protestants
Cross Exhibit No. 4 is admitted as well as Cross Exhibits Nos. 1, 2 and 3. (Whereupon, Protestants Cross Exhibit Nos. 1-4 were admitted.) Q. (By Mr. Johnson) Mr. McBee, let me ask Mr. McBee, is the detail
88
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. Q. A.
No. I mean, the east of the plat, map east. No. MR. JOHNSON: Mr. Examiner, we would also
like to have stricken that portion which is not part of the Commission's website, this box. MR. MCBEE: I would also note that that
is on the Commission's website, as well. MR. JOHNSON: this map, though. Q. (By Mr. Johnson) Mr. McBee, have you taken It is not associated with
this from another document and placed it on this document? A. sheet. Let me make this real simple. Pull the front
I withdraw it and submit everything behind it. EXAMINER ENQUIST: All right, Mr. McBee.
Cross-Examination 4 is the -EXAMINER ENQUIST: front page of it off. map with annotations. exhibit. MR. JOHNSON: We have no objection. Mr. McBee, were you We are taking the
That is the Commission generated We are left with the rest of the
EXAMINER ENQUIST:
89
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
through with Mr. Spencer? MR. MCBEE: Yes, I am. Do you have another
EXAMINER ENQUIST: witness you want to cross? MR. MCBEE: please. MR. JOHNSON: him at this time? Yes.
BILL G. SPENCER, having been first duly sworn, testified as follows: REDIRECT EXAMINATION BY MR. JOHNSON: Q. Mr. Spencer, could you explain the purpose for
Protestants Cross-Examination -- Cross Exhibits 1, 2 and 3 and 4 -- 1, 2 and 3 about the permitting of the Barnes Assembly "A" Unit Well 3-H? A. Yes. Cross-Examination Exhibit No. 1 was what You will notice
I refer to as a short lateral permit. the acreage was only 82.3 acres.
in order to get the surface location permitted with the state in order that we could start the city permit with the City of Grand Prairie. Q. Could you explain why that is done?
90
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of.
A.
permit before they will even consider an application for a permit site. Cross-Examination Exhibit No. 2 was once the unit was formed and the direction of the well decided how it was going to actually be drilled. Permit Exhibit No. -- or Cross-Examination Exhibit No. 2 was filed for to get that permit filed. As I
stated before on cross-examination, Exhibit No. 3, we obtained additional leases that allowed us to extend the lateral on the -- from the previous permit, so that's the purpose of Cross-Examination Exhibit No. 3. And the amended permit that is on file right now is the one that's the subject of this hearing. Q. Okay. Now, were there any misrepresentations
that Mr. McBee -- I don't know if it was a question and I am not sure if that is even in testimony or statements, but there was a statement that there was misrepresentations made by Chesapeake in these filings. Do you have any comment on that statement by Mr. McBee? A. There is no misrepresentations that I'm aware
Q.
91
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. MCBEE: Q.
MR. JOHNSON:
RECROSS-EXAMINATION
could have been drilled by Chesapeake and was not and they did not affect the affected property owners that are protestants here today? A. Q. correct? A. Q. Correct. Could they have been drilled without affecting Can you break that up? Sure. 1, 2 and 3 were approved permits,
the protestants that are here today or represented here today? A. Q. The third one has been drilled. Yes. So yes.
feet of the unleased mineral owners? A. Q. Correct. You are back here today trying to undo that. Short lateral or
92
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
So I am just
trying to clarify that you could have drilled either 1, 2 or 3 without affecting these mineral owners. true? A. I am not sure what you mean by affecting them, Is that
but all three permits could have been drilled had Chesapeake chose to drill them in the fashion in which they were permitted. Q. Well, affecting, I mean producing the minerals That is what a Rule 37 is.
Excuse me.
One final
Absent -- you've heard testified here today and I don't remember whether it was you or who, but it says absent the applied-for Rule 37, the gas well will not be produced in the Barnes Assembly "A" 3-H Unit. Has anyone at Chesapeake, to your knowledge,
looked into an MIPA forced pooling as opposed to a Rule 37 exception where under an MIPA forced pooling the mineral owners would actually be paid? into that? A. Q. I am not aware of it. Okay. Thank you. EXAMINER ENQUIST: Mr. Johnson. Did anyone look
93
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
FURTHER REDIRECT EXAMINATION BY MR. JOHNSON: Q. Mr. Spencer, whether or not the well could
have been drilled, your charge and your expertise, you're not opining whether or not they could have been drilled or if they would have been drilled so as to prevent avoidable physical waste, right? A. No. MR. JOHNSON: MR. MCBEE: Pass the witness. No further questions. Are you ready to take
ALAN JACKSON, having been first duly sworn, testified as follows: CROSS-EXAMINATION BY MR. MCBEE: Q. A. Q. Thank you for coming back up, Mr. Jackson. Sure. I just have one question and maybe a And I read previous opinions out of the
follow-up.
Railroad Commission that in order to get a Rule 37 exception that some geological anomaly must exist within the unit that would preclude the production of the gas for the Barnes Assembly "A" 3-H from any other
94
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
the law.
geologist. MR. MCBEE: question. Q. (By Mr. McBee) What geological anomaly would Then let me rephrase the
exist to keep you from producing the gas in the Barnes Assembly "A" 3-H from any other regular location? A. Q. Well, it would have to be probably a fault. Well, you noted one but that is over on the Is there anything within the Barnes That is the
other side.
well -- the Barnes Assembly "A" Unit that would preclude producing the gas from any other regular location? A. I have no evidence of that. MR. MCBEE: I have no further questions.
REDIRECT EXAMINATION BY MR. JOHNSON: Q. Mr. Jackson, are there any other regular
95
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
that could drill the portion of the wellbore that Mr. Henson pointed out is irregular within 330 feet of -- if perforated within 330 feet of unleased tracts? A. Q. No. So there are no -- there are no regular
Yes, there are no? Yes, there are not. Okay. MR. JOHNSON: Pass the witness.
that the Barnes Assembly "A" Unit contains 1-H that's a regular well, 2-H that is a regular well, 3-H and 4-H that are regular wells. And you're saying the Barnes
Assembly "A" Unit cannot be drilled from those regular locations? A. was -Q. A. That was the question I heard. The question was could we have drilled the And the answer was no. That was not the question. The question
96
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. A. Q. A.
Could you have drilled it on the third permit? On the third permit? That was approved. I am not -- I am not familiar -THE REPORTER: Let me get your answer,
Mr. Jackson. A. I'm not familiar with the permits. I just do geology. Okay. Well, in previous It is not
testimony you heard that the regular well locations for the Barnes Assembly "A" Unit exist that could produce the gas. And is it your testimony that no geological
anomaly exists to keep these regular wells from producing gas? A. From the information we have today, you are
correct, there is no geologic reason. Q. All right. FURTHER REDIRECT EXAMINATION BY MR. JOHNSON: Q. Mr. Jackson, you're not familiar with where
those wells are located, the other wells, other regular wells? A. here. Q. Exhibit 4 which Mr. Jacobson shows those They are not on the exhibits that I have in
97
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
wells, does it not? A. Q. Yes. Would those wells -- and I believe Mr. Henson
testified to this, but as a geologist, can you testify as to whether or not those regular wells would produce the gas that would be produced from the Well 3-H if perforated as we are requesting? A. Q. They will not. So your testimony is still that there are no
regular wells that could recover the gas from Well 3-H as we seek to have -A. That is correct. MR. JOHNSON: Pass the witness.
FURTHER RECROSS-EXAMINATION BY MR. MCBEE: Q. Well, it goes back to the original question. Thank you. But in
order to qualify for a Rule 37 exception, some geological anomaly must exist to keep you from producing gas on the Barnes Assembly "A" Unit. And
your original testimony was that none existed; is that correct? A. From the information that I have, I see no
98
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A.
have repetition with the question. FURTHER REDIRECT EXAMINATION BY MR. JOHNSON: Q. There are no regular wells that can produce
the gas that is being sought to be produced by this well? A. Q. I am sorry, Glenn. Would you repeat that?
produce the gas? A. You are correct. There are no regular well
locations that could produce the gas that will be produced by this well. MR. JOHNSON: MR. MCBEE: you. EXAMINER ENQUIST: another witness? MR. MCBEE: Yes. Who would that be? Are you ready for Pass the witness. Asked and answered. Thank
99
DAVID HENSON, having been first duly sworn, testified as follows: CROSS-EXAMINATION
from a reservoir through faulting or hydraulic fracturing. Q. It's non-matrix recovery of hydrocarbons.
between absorbed gas in place and free gas in place. A. Okay. Shale is a source rock. In most
traditional oil and gas reservoirs it is what generates the gas that goes into the sandstone or limestone that is ultimately produced from a well. With a shale
you're not only producing gas that can be produced through fracturing in the rock or hydraulic fracturing in the rock but the rock itself actually generates hydrocarbons. gas. So it's a two-part process with shale I
might point out that no gas or very minimal gas would be producible from a shale unless it was fracture stimulated to create those spaces for the gas to produce.
100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
cubic feet are available to be produced? I am just trying to understand the math. A. Yeah.
free gas and the absorbed gas are gas that will be produced ultimately out of that wellbore. Q. Okay. So this industry has only -- is leaving
70 percent of the gas in the ground? A. Q. Yes. And of the free gas in place, you're still
leaving -- I haven't done the math, but just looking at 23.5 billion and 53.7 billion, basically over 50 percent is left in the ground even of the free gas in place? A. Yes. Shale is somewhere around 400 It's just literally
statements of as little as 20 percent of the recoverable gas -- or of the gas in place would actually be recovered from the wellbores. a -- that is a correct statement, yes. Q. Okay. Would it also be a correct statement to So yes, it's
say the process in and by itself is very wasteful because you are not getting what is there? And my
101
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
thought would be, if you just actually did a better job of getting what was there, maybe you wouldn't have to Rule 37 all these people. I just wanted to make the
math absolutely clear from this sheet. Also on -MR. JOHNSON: want to ask Mr. Henson? A. It's a -- you're right, it's a very Was that a question you
complicated and difficult process and we don't come even close to recovering anywhere near the amount of gas that God put there. Q. (By Mr. McBee) What are you aware of as far
as technology changes that would improve that in the foreseeable future, a year, two years, five years? if I was producer A -- let me rephrase that. So
If I was
producer A and I had drilled a well today, what is the likelihood that the technology would increase in the next five years to be able to go back and get this other 50 percent? A. I don't know if I can answer the technology I am not a drilling engineer or a
part of that.
completions engineer, but I know that some operators are trying to drill denser spacing. In other words,
instead of, say, a Chesapeake going in and wanting to put five wells in this unit, another operator may come
102
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
in and say we need 10 more wells or we need 15 wells. So as far as the technology goes right now, I think it is just a matter of economics and how many wells a particular operator feels like he might need to drain that size of a unit. Q. And this plat was one that you turned in
showed the red extension on the wellbore? A. Q. Yes, sir. That is true? Where the red line ends at the
top, that is -- is that where the lower perforation point ended in Permit No. 3 for the Barnes Assembly "A"? A. Yes. It's a little bit of a coincidence, but
if you measure 330 feet from the unit as I have shown, it coincides pretty close to where the neighborhood starts. Q. Okay. In your experience, instead of Rule
37'ing these people, and assuming that the testimony here is that if you don't get a Rule 37 you're not going to be able to produce the gas in this residential area, has anyone with Chesapeake mentioned to you about doing an MIPA forced pooling as opposed to a Rule 37 taking? A. I have not been involved in any discussions
103
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 37?
Q. A. Q.
Do you know what they are? I do know what they are, yes. Would you say that that is an option to a Rule
A.
You
have got a lateral that was drilled and just a small portion of it is underlying the reservoir -- or excuse me, the neighborhood, so I don't know that a MIPA would be applicable to this particular well. Q. Would a MIPA enable you to drill a -- excuse
me, to produce that well, to frac it all the way down to the bottomhole location without a Rule 37? A. Getting just a little bit out of my area of I am not sure I can answer that.
expertise. Q.
on the cutting edge of technology in producing shale formations? A. I like to think we are, sir. We have our own
laboratory and put a lot of thought into these laterals. Q. Would you say with all due modesty that
104
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
technology to produce gas from very, very, as you say, tombstone quality rock? A. I believe Chesapeake has taken it to a new
level and expanded this to multiple plays throughout the world, yes. Q. Is the 30 percent recovery factor something
that would be a good standard for rock of this quality? A. I think it is -- from what I have seen in
published information, it's probably as high as I have seen, so I believe that we are doing the best we can with the rock as it lays. Q. Now, isn't it true that all wells don't
produce 100 percent of the gas that is in place in any type of formation? A. Q. That is correct. Yes.
technologies to get higher percentages out from secondary or tertiary recovery projects, right? A. Q. That is correct. But on a primary recovery, then, you would say
that 30 percent is a very good standard of recovery for gas from a shale formation? A. Yes, sir. MR. JOHNSON: MR. MCBEE: Pass the witness. No further questions.
105
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Carter 1.
EXAMINER ENQUIST:
All right.
Mr. McBee,
do you have any questions for I believe it is Mr. Jacobson, the landman? MR. MCBEE: Is that correct? I do not. I will have at
closing three additional exhibits to give to the Commission and I will have comments on those exhibits. EXAMINER ENQUIST: We don't usually take I was going to ask
you if you are through with Mr. Johnson's witnesses, and I believe Mr. Johnson is done, to put on your direct case. Do you have a direct case? MR. MCBEE: Sure. This may be confusing to
THE REPORTER:
you, Mr. McBee, but you will start with Exhibit No. 1 now, Protestants Exhibit No. 1. cross-examination exhibits. MR. MCBEE: MR. JOHNSON: Okay. This is Exhibit 1. The others were
have been calling these protestants cross-examination exhibits and I prefer to call this Protestants 1 for the direct. MR. MCBEE: Protestants 1.
106
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
MR. JOHNSON:
Okay.
LOUIS MCBEE, having been first duly sworn, testified as follows: DIRECT NARRATIVE MR. MCBEE: What I am handing to you now The key
issues in this particular case were economic confiscation, economic waste, and reasonable location. The case was Enron Oil & Gas versus the protestants of the case. And there are a number of key issues that -And
incidentally, this proposal for decision was ratified by the Commissioners in the final opinion. It says, the gist of Enron's case is that if they are denied the opportunity to drill an economic well, both confiscation and waste will result. This is
not and never has been the test for an exception to Statewide Rule 37. Paragraph 4 and 3 we have discussed
before about the requirement that some unusual condition on the subject lease that makes an exception necessary, which is the geological evidence. Paragraph
5, regular or irregular, states, and I quote, "If a regular or less irregular location will give an applicant a reasonable opportunity to recover the hydrocarbons under a tract, denial of an applied for
107
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
irregular location is not confiscation simply because the applicant finds the available locations economically unattractive." EXAMINER ENQUIST: Your Paragraphs 3, 4
and 5, where are they in this PFD? MR. MCBEE: It would be page 5, Paragraph
3, if a regular or irregular -EXAMINER ENQUIST: paragraph down? MR. MCBEE: Yes. Economic requirements Okay. The second full
vary from company to company, applicant to applicant, cannot be evenly applied, are not specific to the property rights of a given tract, and cannot be the basis for granting an exception to Statewide Rule 37. MR. JOHNSON: Mr. Examiner, we would
object to this exhibit as being not pertinent to any issue in this proceeding. The Chesapeake application This is a
proposal for decision 1994 in a different field in a different part of the state involving vertical wells, and he is citing to portions that talk about economic requirements of a company, which there has been no testimony in this proceeding about that. basing our case on that issue. EXAMINER ENQUIST: Your case is based on We are not
108
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
confiscation? MR. JOHNSON: physical waste. EXAMINER ENQUIST: your objection. I am going to overrule Confiscation and avoidable
have to let Mr. Johnson cross when the time comes around. MR. MCBEE: That's fine. The second
document you have in front of you is Rule 37 Case 0251216, proposal for decision from February 11, 2009, and it is Chesapeake Operating versus the protestants. The recommendation was a motion for -- a rehearing was denied, recommendation for denial, and the Commission agreed with the proposal for decision and issued final order. The implications of this particular decision was Chesapeake testified it is difficult to identify surface locations in the City of Fort Worth. The subdivision is located within the boundaries of the City of Fort Worth. City approval is required for all
proposed surface locations and cannot be obtained until the Commission issues a drilling permit. This leads to
109
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
some operators permit short laterals in order to start the permit process with the city. EXAMINER ENQUIST: reading from? MR. MCBEE: Page 4, Paragraph 3 and 4. It started with what Okay. Where are you
EXAMINER ENQUIST: now? MR. MCBEE: is difficult. EXAMINER ENQUIST: MR. MCBEE:
Okay.
claimed that it would not be economic to drill wells with shorter laterals. Chesapeake claimed that a well
must have a lateral between 1500 and 1600 feet in length before it is economic to drill, assuming natural gas prices of $8 per thousand cubic feet. Chesapeake
asserts that the wells will not be drilled to recover the natural gas unless they are economic. Page 5, Paragraph 3, examiners opinion, the examiners recommend Chesapeake's application be denied. Chesapeake failed to establish that a well at
the exception location was necessary to provide it with a reasonable opportunity to recover its fair share of the reserves. Regular locations exist on the unit
110
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Additionally,
Chesapeake's voluntary creation of a pooled unit in the residential subdivision cannot be used for -- as for obtaining an exception to Statewide Rule 37 on the basis of confiscation. Page 7, Paragraph 3, Chesapeake's economic assessment that regular wells would not be commercial is not reliable evidence for ruling out the other regular locations on the Green Gas Unit. The
claim that it would not be economic for Chesapeake to drill a regular well is not sufficient to establish that an exception at the proposed location is necessary to afford it a reasonable opportunity to recover the reserves in the Green Gas Unit. Therefore the
examiners do not believe that this argument supports Chesapeake's request for a well at the proposed location. EXAMINER ENQUIST: from on that? You said page 7. MR. MCBEE: MS. HARRIS: Sorry. Billie Harris. Page 7, Paragraph 3. No. 3, not Paragraph 3. Where were you reading
EXAMINER ENQUIST:
out No. 3 at the top of the page, (3)? MR. MCBEE: No. Under the conclusion.
111
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 7. conclusion.
EXAMINER ENQUIST:
EXAMINER ENQUIST:
would be Chesapeake failed to establish the necessity for an exception. EXAMINER ENQUIST: MR. MCBEE: not sure where I got that. EXAMINER ENQUIST: 6, the second full paragraph. THE REPORTER: MR. MCBEE: Is this going to be 3? The Okay. So that is page Oh, that's the -I am
I am sorry, examiner.
document that you have in front of you now is Rule 37 Case No. 0245869, proposal for decision on November the 7, 2008, Chesapeake Operating versus the protestants. And it was recommendation for denial and ratified by the Commission by final order, Page 5, Paragraph 4. Examiners opinion, to establish entitlement to an exception to Rule 37 to prevent confiscation, an applicant must show that absent the applied-for well it
112
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
will be denied a reasonable opportunity to recover its fair share of hydrocarbons currently in place under the lease or its equivalent in kind. The application must satisfy a two-prong test. The applicant must show that it will not be
afforded a reasonable opportunity to recover its fair share of hydrocarbons currently in place by drilling wells at regular locations, and, two, the applicant must show that the proposed irregular location is reasonable. Page 6, Paragraph 6, Chesapeake's witnesses claim they need the applied-for irregular location to allow them to have a commercial well. However, neither Chesapeake nor any other operator is guaranteed a well that meets its self-imposed criteria for economic viability. Each mineral interest owner is
entitled to a fair and equal opportunity to recover its fair share of the hydrocarbons under its tract. Economic requirements, one, vary from company to company, applicant to applicant; two, are not evenly applied; and three, are not specific to the property rights on a given tract. An operator's economic
requirements therefore cannot be the basis for granting an exception to Statewide Rule 37 to protect correlative rights.
113
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that.
non-discriminatory application of the Commission's spacing rules may result in some economic loss by an operator, this does not amount to legal confiscation. Page 6, entitled Chesapeake failed to establish the necessity for an exception, Paragraph 2, exceptions to Rule 37 are not granted to eliminate risk for an operator or to provide it with the best possible well. EXAMINER ENQUIST: What page? MR. MCBEE: Paragraph 2, page 6. Page 6, Paragraph 2. I am not with you on
EXAMINER ENQUIST: MR. MCBEE: mixed up, Mr. Examiner. proposal for decision. 0251216, page 6. MR. JOHNSON:
I may have gotten my notes That may have been on the Yes, it's proposal for decision
because he's reading from -- apparently he has got different pages from different -- I am not following what his testimony is about. EXAMINER ENQUIST: MR. MCBEE: I believe he's --
114
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Rule 37 are not granted to eliminate risk for an operator or to provide it with the best possible well is on 0267504, page 6, the exceptions to Rule 37. EXAMINER ENQUIST: Okay. Paragraph --
the third full paragraph down on page 6 beginning, exceptions to Rule 37? MR. MCBEE: Right. And the final
sentence in that paragraph is Chesapeake was required to produce evidence to rule out any regular locations in order to justify its application for a Rule 37 exception. EXAMINER ENQUIST: Just for the record,
you're reading from Protestants No. 2, which is Rule 37 Case 0251216. MR. MCBEE: Yes. Also on Case
No. 0245869, final paragraph, Chesapeake's witnesses claim they need the applied-for irregular location to allow them a commercial well. However, neither
Chesapeake nor any other operator is guaranteed a well that meets its self-imposed criteria for economic viability. Each mineral interest owner is entitled to
fair and equal opportunity to recover its fair share of the hydrocarbons under its tract. And the rest of it
115
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
The reason I bring all this up is to argue that a well needs to be longer or shorter is nothing but economic. I believe that in order to
establish the need for a Rule 37, the applicant must prove that gas cannot be produced from the Barnes Assembly "A" Unit from a regular location. And we've
already established there are a number of regular locations on the unit. And the current Barnes Assembly
"A" Unit was a voluntarily established pool in a subdivision, which we are told because of the subdivision rules are not grounds for confiscation. Thank you. I will be happy to answer any questions. EXAMINER ENQUIST: EXAMINER CHANDLER: EXAMINER ENQUIST: have cross for -MR. JOHNSON: Yes. He's not offered the Donna. No. Mr. Johnson, do you
exhibits, so I assume that -- Mr. McBee, do you want to take a seat so we can ask the questions. EXAMINER ENQUIST: offering 1, 2 and 3, correct? MR. MCBEE: MR. JOHNSON: Yes. We object. Those proposals Mr. McBee, you are
for decision, based on what he said, have nothing to do with this case. Those were economic viability
116
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
would -- they are irrelevant to the issues in this proceeding. EXAMINER ENQUIST: It may be Chesapeake's Apparently it's I am not going to Your objection
opinion that these are not on point. Mr. McBee's opinion it is on point.
throw them out based on that objection. is overruled. They are admitted.
1, 2 and 3,
Protestants 1, 2 and 3 are admitted. (Whereupon, Protestants Exhibit Nos. 1-3 were admitted.) MR. JOHNSON: stand, please? CROSS-EXAMINATION BY MR. JOHNSON: Q. Mr. McBee, what is your educational Could he take the witness
years in the military, came out and went to college in Dallas, El Centro Junior College, and other than that different courses throughout the years. Q. A. Q. Do you have a college degree? No. You're not an engineer?
117
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. Q. A. Q. A. Q.
No. You're not a geologist? No. And you're not a lawyer? No. Were these the only cases you have read
dealing with Rule 37? A. Q. There are a number of them. I was noticing that you didn't bring up Rule
37 Case No. 0265651, a PFD issued on November 19th, 2010 and approved by the Railroad Commission of Texas. Are you familiar with that case? A. Q. No. Well, it was the case of XTO for Rule 37 for Do you recall
the TWU "B" Unit Lease, Well No. 1-H. that? A. Q. A. Q. Yes. You were at that hearing? Yes.
proposal for decision and order forward? A. Q. A. I didn't look it up. You were involved in that proceeding? Yes. And the reason it is not applicable here
118
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
well, which is what you brought out during that hearing. Q. I wasn't at that hearing, but -MR. JOHNSON: Mr. Examiner, we would like
you to take official notice of Rule 37 Case No. 0265651, the PFD issued on November 19th, 2010, and the final order issued by the Railroad Commission of Texas in that docket, and we will provide copies and submit them to everybody. EXAMINER ENQUIST: is taken. MR. JOHNSON: Q. (By Mr. Johnson) Okay. Mr. McBee, that case is a Okay. Official notice
little bit different in that the Railroad Commission did grant XTO a Rule 37? A. Q. Because they had no alternative drill sites. Okay. And did you not hear Mr. Henson say
there was no alternative well that could drain the gas that was to be drained by this well under the plat he produced? A. Q. true? A. Because you have a permit, the third one I heard him say that but it is not true. Did you cross him on that? Why is it not
119
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. A. decision.
The -To lengthen that wellbore was Chesapeake's And I think we've already explained here
that XTO did not have an alternative location because of restrictions in the leases that they signed for that area. So there were no regular locations that they
could drill from because they couldn't drill from any other location. That location was specified in the
Greater Meadowbrook mineral lease, period. Q. And you heard the testimony by a trained
geologist, an expert witness, and a trained engineer that there are no other regular locations that can produce the gas that will be unrecovered if this well is not drilled as we request? A. Apparently we heard two different things
because I heard that there were at least four other regular locations that were permitted that didn't require a Rule 37 that could produce the gas in the Barnes Assembly "A" Unit. Q. You believe that the other wells could produce
the gas that this well would produce, contrary to the testimony of Mr. Jackson and Mr. Henson? A. produce. It may not produce the gas that those would I would be happy to concede that if you're
120
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
That is not
Barnes Assembly "A" Unit without a Rule 37 exception. And I think unequivocally the answer to that is yes. And you don't have to be an engineer to figure that out. Q. Well, you don't have to -- you can look at the How does one drill a regular well on Is there a
the southern two-thirds of that unit? regular location? A. I don't know. I have no idea.
I am not an engineer and I am not a geologist, but you haven't submitted any evidence that there is no regular location. And it has been my experience that
Chesapeake finds another location when they want one. MR. JOHNSON: Move to strike. Overruled.
talking about? A. Q. Any location Chesapeake wants. You can see that the southern portion of the
Well 3-H is irregular, right? A. Q. Yes. And which well do you believe would produce
121
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
is not perforated in that southern portion? A. produced. Q. that gas. A. The permit that was issued prior to the one It will produce the gas in the Whether it would produce all No. I am asking you which well would produce Are you asking me if I think the gas should be
support your disagreement with the testimony of Mr. Jackson and Mr. Henson? A. Q. I don't agree with that statement. Now, you believe that no gas should be
on drilling? A. Q. A. area. Q. A. And -Well -I think I support responsible drilling. No. You support drilling? I support drilling but not in the residential
122
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
residential area without drilling underneath the residential area? A. The way Chesapeake promised us. They will be
two miles over there and they will drill under our residential areas and we will never know they are there. Q. That is what we were promised by Chesapeake. Do you have a promise that they would be two
other than, you know, 20 feet away from a residential area. Q. away? A. If you drill a mile away it will. 5000 feet So you're saying that a well will drain a mile
As a matter of fact,
technology I am told, according to Ed Ireland in the Barnett Shale Energy Education Counsel, new technology has come along and you will be able to drill a lot further than that. MR. JOHNSON: Move to strike. Hearsay.
I know he is not an
123
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
you believe that a well drilled one mile away would drain a mile from beneath this subdivision? A. Q. Yes. Do you have any idea why Chesapeake would
drill their wells less than 1000 feet apart? A. Q. A. apart. You mean the wellbores? Yes. You're asking about distance, not distance Can you drill a well and produce gas a mile The answer is yes.
You don't have any engineering or geological reason to dispute the testimony of Mr. Henson or Mr. Jackson, do you? A. Q. No. Has your organization advocated a moratorium
Rule 37 Case 026561 -- 0265651, the XTO Rule 37 exception for the TWU "B" Unit Lease, Well No. 1-H is in error?
124
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A.
No, I don't, which is why we didn't offer an They were restricted to the
that was irregular, closer than 330 feet to a tract, in order to recover hydrocarbons that would otherwise not be recovered; is that correct? A. That is right. And they submitted evidence
that no other well could be drilled from any other location because of the restrictions in the Greater Meadowbrook gas lease. Q. You also didn't -- have you read the case of
XTO Energy for a Rule 37 exception for the Eden Southeast Unit Well No. 1-H? A. Q. No. That was Rule 37 Case No. 0264838. You have
not read that one? A. Not familiar with it at all. MR. JOHNSON: Mr. Examiner, we would like
to take -- for you to take official notice of that and we will provide copies to you and to the -- we can mark it as our exhibit. EXAMINER ENQUIST: document. It's a Commission
125
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
permit based on an irregular location in order to drain gas that would not otherwise be produced? A. Q. I wouldn't know. You haven't read that case. Okay.
Does your client want to force pool? A. him. it? Q. clients? A. Q. No. You represented a client in a forced pooling Have you protested forced pooling on behalf of I don't know. You will have to apply and ask
application for the University West well? A. Q. No. You were present and listened as a
representative in the University West 1-H well MIPA case? A. I represented no one on the University West,
now or ever. Q. A. You were present at that hearing? I don't recall. MR. JOHNSON: Mr. Examiner, we would like
you to take official notice of the University West 1-H hearing. We will submit transcripts. I believe
126
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Mr. McBee was present and representing someone in opposition to the permit. EXAMINER ENQUIST: case number? MR. JOHNSON: Mr. Examiner, I don't have I will -- it's the What was the Rule 37
University West 1-H well, Chesapeake 1-H well, heard on September 10th, I believe, and November 1st of this year. We will submit the appearance sheets and the
designation for that and ask you take official notice of it. It is a Commission record. Mr. McBee appeared
at that hearing, was listed on the record of that hearing and represented a client that was opposed to forced pooling. EXAMINER ENQUIST: official notice of the file? MR. JOHNSON: Not the file. We will So you want me to take
submit pages from the transcript indicating that. EXAMINER ENQUIST: is taken. MR. JOHNSON: Q. (By Mr. Johnson) Okay. So Mr. McBee, you would Okay. Official notice
agree at least in the case that you participated in that you recall participating in, the XTO TWU "B" unit well, that there are bases for the Commission granting
127
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Rule 37 spacing exceptions in the Barnett Shale? A. Q. A. Q. Yes. They are in the code.
In the code? They are in the 3.37. And you would find that that bases -- or those
bases that the Commission acted on are legitimate bases under Rule 37 to grant exceptions? A. Q. Yes. And isn't it true that in those cases that the
gas will be produced from the people that have chosen not to lease? A. Yes. MR. JOHNSON: Pass the witness. Mr. McBee, unless you
EXAMINER ENQUIST:
have anything further, you can take your seat. MR. MCBEE: Thank you. Mr. Johnson, do you
my co-counsel, is going to cross-examine Ms. Carter. MS. HARRIS: MR. JOHNSON: Ms. Carter returns? EXAMINER ENQUIST: something. Let me clarify She is in the bathroom. Can we take a break until
128
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
EXAMINER ENQUIST: MR. OUJESKY: MR. JOHNSON: were -EXAMINER ENQUIST: statement. MR. JOHNSON: evidence. Yes.
they had sworn -- were sworn and therefore that was testimony and therefore you indicated we could cross-examination them. MR. OUJESKY: them as testimony -EXAMINER ENQUIST: cross. MR. JOHNSON: Ms. Carter returns? EXAMINER ENQUIST: Casey Harris? Who is the other, Can we take a break until Okay. We will let you If you don't want to accept
Do you want to cross Mr. Harris. MR. OUJESKY: We will cross Mr. Harris Sure.
now.
129
EXAMINER ENQUIST:
MR. JOHNSON:
like official notice be taken of the other XTO matter we were talking about. Well No. 1-H. That's XTO Eden Southeast Unit
That is Rule 37 Case No. 0264838. EXAMINER ENQUIST: Okay. Official notice
MR. JOHNSON:
Yes.
MR. JOHNSON:
proceeding I think was docketed as 05-0265656. then the Rule 37 was 0263689. EXAMINER ENQUIST: notice is taken of those dockets. Mr. Oujesky? All right.
Official
130
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
MR. OUJESKY:
NEVA JANE CARTER, having been first duly sworn, testified as follows: CROSS-EXAMINATION BY MR. OUJESKY: Q. Ms. Carter, my name is Ray Oujesky. I am a
How large a tract of land do you own? I have a regular house, regular lot. Quarter of an acre, third of an acre? I don't think it would be measured in acres. Okay. About -- would you have any idea if we
converted square feet to acres how big it would be? A. Q. A. No. Okay. That is fair. That is fair.
It's a city lot. Q. Okay. Are you familiar with the deed
restrictions for your neighborhood? A. You mean like city ordinances against dogs
131
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 me.
Q.
against the subdivision by the developer when it was developed back whenever it was developed that tell you what you can and can't do with your property. A. Q. I don't know restrictions. Okay. So you wouldn't know whether or not the
deed restrictions in your subdivision would prohibit somebody from drilling an oil or gas well on their property? A. I would assume they could not. I assume no
one would want to put that in their front yard. Q. You would not be interested in doing that,
subdivision from which you could drill a well that would reach the minerals underneath your property? A. Q. I don't own any other property. Okay. Have you spoken to anyone other than
Chesapeake about producing the minerals underneath your property? A. I don't know who all has called and harassed
different people saying, sell your rights, sell your rights, sell your rights.
132
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
been other than Chesapeake? A. If there was someone before you, for the last
three years we have been harassed out there by people calling, coming to the door, I am out mowing my yard and they would come up to me and try to talk to me about it. Q. And you're not interested in producing the
minerals underneath your property based upon these conversations you have had with all these different folks who have approached you? A. I am not interested in selling to any of these
people who have been harassing me, no. Q. All right. So if someone was to approach you
in an unharassing way, you would talk with them about producing the minerals under your property? A. I think it's a little -- too little, too late.
The way I have been treated so far, you can't come back and try to be nice to me now. Q. You heard Mr. McBee mention the concept of a
person having the right to produce their fair share of gas underneath their property? A. I think I should have the right to do whatever
133
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
share of gas underneath your property? A. I don't think I am going to get out with my
shovel and drill, no. Q. Do you understand that other property owners
in your subdivision have leased their mineral interest and would like their minerals produced? A. I know some people in my neighborhood have
been convinced that they're going to get rich and move away. Q. So that would be a yes, then, people have
leased their rights? A. I have talked to one neighbor that got $300.
And that was supposedly a lot because it was definitely double what I was ever offered. Q. This individual that you have discussed that
has leased their mineral interest, you understand that if this application is not approved, that they would not have the opportunity to produce their fair share of gas? A. Actually they said they have been asked to
sign again and they didn't know if they were going to bother or not. Q. Okay. But with regard to the lease they did
134
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
somebody said, you might as well sign because they are going to keep bothering until you do. And he goes, it
wasn't any money to be worth signing for, I just said, fine, leave me alone. Q. So he signed.
ability to produce that person's fair share of gas as a result of that lease is being proposed by Chesapeake here today. A. Do you understand that?
earn a dollar or two somewhere at my expense? Q. A. Q. I am saying -I wouldn't do that to them. I am saying that they have an opportunity to
produce their fair share of gas. A. Q. A. am. Q. Yes. But they will receive the benefit of the They don't. But they -They are not going to drill any more than I You do.
production of that gas? A. It is not enough benefit to be worth the loss As I said
135
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
have paid my hotel bill last night that I was forced to spend to come down here. Q. A. too. But that is speculation on your part. Well, everything else, that is speculation You are speculating how much are going to get,
you're speculating will we use this tool to try to predict what we might have, we have used these algorithms to try to come up with what might be there. So it's all hearsay. As you continually said about
what I feel in my neighborhood of what is going, you said it is just hearsay. But you may have geologists
testifying but it is still what they think might be. You can't tell any of the neighbors out there that we guarantee if you sign here we are going to give you $80 million. But that is what you tell the news media,
Grand Prairie is going to lose $240 million, Grand Prairie is going to lose $9 million, Grand Prairie is going to lose this, Grand Prairie is going to lose that, but no one has seen it. promises. Q. But that individual that leased has the right It is all just empty
to make that decision, right, Ms. Carter? A. And he did make that decision because he said,
you know, $300 but he doesn't expect to ever get anything else beyond that.
136
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q. A. Q. A.
But he signed a lease, didn't he? He did at one point. Thank you. And if I probably went over and talked to him
and told him what's been going on, he would probably never sign again because he would see what it's done to me. MR. OUJESKY: Objection; side bar. Sustained.
testimony today that the well has been drilled? A. Yes. Which I think is wrong that you could
drill before you even get approval. Q. And again, you've also heard testimony it has
not been perforated so it's not been produced, it's not producing any gas at this time? A. Q. That is what we are told. So sitting here today knowing it's been
drilled, you don't want the opportunity to produce your fair share of gas? A. I don't think there is going to be any fair
share of gas, and I don't think the loss of my suburban area that I have where I expected to be able to retire and sit in my back yard and hear the birds is not going to be that way. You know, you just don't give up some
137
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
things.
It's about
a quality of life. MR. OUJESKY: nobody to pass to. EXAMINER ENQUIST: you want to speak to Mr. Harris? MR. OUJESKY: Mr. Harris just briefly. Okay, Ms. Carter. Did Pass the witness. There's
CASEY HARRIS, having been first duly sworn, testified as follows: CROSS-EXAMINATION BY MR. OUJESKY: Q. Oujesky. All right, Mr. Harris. My name is Ray
We have not met before, have we? A. Q. No, we have not. All right. Very good. Mr. Harris, how large
is the tract of land that you own, if you know? A. I represent a similar lot in a neighborhood.
restrictions there, whether or not they permit oil and gas drilling there? A. I would not.
138
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q.
underneath your property, are you interested in doing that? A. Q. today? A. I figure the taxable value on the house is If the price was right, yes, sir. Okay. What would that price be sitting here
approximately $115,000 and if you are to compensate me for my land, my house, so I could leave, the price would be right. Q. Okay. So you're saying that a signing bonus
of $115,000 you believe is appropriate? A. Q. More or less, approximately. Okay. Do you own any property outside the
subdivision from which you could produce the minerals -A. I do not. THE REPORTER: I'm going to ask you to
wait until the question is finished so I can write that down. Thanks. THE WITNESS: Q. (By Mr. Oujesky) I'm sorry. Other than Chesapeake,
Mr. Harris, did you speak with anyone about producing your minerals? A. As with her, I am not aware who I spoke with.
139
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
They did not identify what company they represented. Q. You did not offer to lease your minerals to
anyone else, though? A. I do not know who I spoke to. They do not
disclose what company they represent. Q. Okay. You are not leased, though, to anybody
at this point? A. Q. Not currently. All right. Very good. As far as anyone
producing your mineral estate, other than the way that you discussed, buying your house, essentially buying you out, is there any other interest that you would have in somebody coming along and -A. I feel as if I have the right to pick the time Market high and market low
just like you would drive across the street to save 10 cents on a gallon of gas, you choose to save that money. So I should be able to choose when and to who
and for how much I sell my mineral rights to. Q. Are you familiar with others in the
subdivision that have leased their rights? A. Q. A few. Okay. And you understand that this
application today, if approved, would allow them to produce their fair share of gas underneath their
140
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
will receive compensation based off whatever gas is produce from the regular well. Q. All right. But let's say -- have you seen the
plat for the well that is proposed to be drilled into the subdivision, Mr. Harris? A. Q. Yes, I have. And you see where that red line is extending
into the subdivision? A. Q. Yes, I do. Okay. So it would be your testimony that one
of the wells that actually ended outside the subdivision has a better propensity to produce the minerals of the people that have leased within the subdivision than the wellbore that is proposed to be drilled into the subdivision? A. I believe at that point you're starting to
discuss economics, which you-all have testified that you are not discussing in this hearing. Q. Well, I am just looking at where the wellbore I mean, you're saying that
a wellbore that extends down into the neighborhood doesn't have a better chance of producing the gas than
141
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
one that ends outside the neighborhood? A. Again, you are discussing economics. You have
testified, your geology person and I believe your well engineer testified that the regular wells, the short bore -- I don't remember the exact term for it -- would still produce gas. So the question of whether or not And as
discussed before, economics is not a ground to grant exception to Rule 37. Q. A. Q. A. Are you a geologist? No, I am not. Okay. Are you an engineer? I have a bachelor of science in So some of these
No, I am not.
maps and stuff are not completely foreign. Q. That's it. Thank you. Thank you, Mr. Harris.
Mr. Henson back to the stand. DAVID HENSON, having been first duly sworn, testified as follows: FURTHER REDIRECT EXAMINATION BY MR. JOHNSON: Q. Mr. Henson, have you been here during the
142
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
testimony of Mr. McBee, Ms. Carter and Mr. Harris? A. Q. you this. Yes, sir. Did anything that they say -- well, let me ask My understanding of your testimony is that
there is no other well, no other conceivable well that can recover the gas that would be recovered from the 3-H if perforated as Chesapeake proposes? A. Q. That is correct. So the fact that there's other wells that are
drilled in -- permitted in the subdivision, they will not produce the gas that would otherwise -- that we -that Chesapeake proposes to produce from the Well 3-H from the perforations that we are seeking to add to the well? A. Q. Yes, sir. If this well is not allowed to produce as
Chesapeake proposes, therefore is it your testimony that the gas will remain unrecovered? A. Q. drill? A. No, sir. MR. JOHNSON: Pass the witness. Mr. McBee. That is correct. And in other words waste -- no one else will
EXAMINER ENQUIST:
143
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. MCBEE: Q.
FURTHER RECROSS-EXAMINATION
nobody in the next 25 or 50 years will ever be able to produce that gas from anywhere else? Does some
geological condition exist so that gas won't be produced? A. I am not the geologist, but to produce
additional gas would require additional wells to produce gas that would not be recovered from this well. Q. I understand that. But gas would be recovered
and you have heard evidence here today that suggests that the Railroad Commission or any mineral owners owes Chesapeake or any producer the best possible producing well that they can drill or the most economic well. it is your testimony that there are regular wells on the Barnes Assembly "A" Unit that can produce gas for that unit; is that correct? A. It is our experience that laterals need to be So
spaced -- for us an optimum spacing is about 500 feet apart, so future drilling in that unit would be necessary to drain the entire unit. This well is
already drilled and is ready to be perforated and it wouldn't make sense to drill additional wells in the same area where you already have a producer, potential
144
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Chesapeake's to do that?
Railroad Commission's decision and the unleased mineral owners didn't make that decision. Wasn't that a
business decision of Chesapeake's to drill that? A. There is a process we go through and very
rarely will we drill a well without getting the Rule 37s in advance. It requires Vice President approval. We don't do it very often. It
We don't do it lightly.
was necessary in this case to hold our leases. not something we do on a regular basis, no. Q. A. Q.
So it's
But it was Chesapeake's decision to do that? Yes. Nobody else's? You have also testified
that -- just to predicate that, you just now testified that without the long laterals and without the Rule 37 you wouldn't produce all of the gas that was available, but you've also testified that you're not getting 50 percent of the free gas that is there now. So do you
feel like that 84 percent of the leased tracts and total acreage lease, 84 percent compared to 15 percent of the unleased mineral owners is your fair share? MR. JOHNSON: question. I am going to object to the And I don't
145
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
think it makes sense -- it's about three different concepts that are -EXAMINER ENQUIST: break that apart? MR. MCBEE: Q. (By Mr. McBee) Sure. You've testified that 50 Mr. McBee, can you
percent of the free gas is left in the ground anyway. So I understand -MR. JOHNSON: testimony. MR. MCBEE: I am sorry. He agreed in Objection. That is not the
excess of 50 percent, which is 23.5 Bcf is left in the ground out of the 53.7. Over 50 percent is left in the
ground and unrecoverable. Q. (By Mr. McBee) If you look at the overall
total gas in place, it's over 70 percent that is left in the ground? A. Q. That is correct. And the second question was, do you think that
over 84 percent of the total acreage leased and the tracts leased with Chesapeake constitutes their fair share? A. I am really not -MR. JOHNSON: I object to the question.
146
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
of an engineer, and again it's confusing the two different concepts. EXAMINER ENQUIST: understand that question myself. MR. MCBEE: expert. Well, he's a reservoir Mr. McBee, I could not
that the leased acreage and the leased tracts constituted a fair share of the hydrocarbons that Chesapeake could extract. Because as we've discussed
before, nobody owes Chesapeake the best well it can possibly produce. That was Exhibit 7. You're talking
EXAMINER ENQUIST:
about -- what was it, 84 percent of the tracts that were leased? MR. MCBEE: 7 from Mr. Henson. Your Honor, that was Exhibit
the total acreage leased for Chesapeake was 84.1 percent, compared to a little over 15 percent for the unleased. I am simply trying to find out if that is
there fair share. EXAMINER ENQUIST: you presented your figures. Mr. Henson, I think
place is how much according to your Exhibit 11? THE WITNESS: Recoverable gas in place
147
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. MCBEE: Q.
EXAMINER ENQUIST: answer you were trying to get to? MR. MCBEE: Yes.
constitutes half of the gas that is there. the Commission to take note of that. EXAMINER ENQUIST: MR. MCBEE: No.
Thank you.
FURTHER REDIRECT EXAMINATION BY MR. JOHNSON: Q. Mr. Henson, is there any other regular
location well that can recover the gas that will be recovered from Well 3-H from the red zone on your Exhibit 13 if it's perforated? alternative? A. Q. I don't believe we have one, sir, no. Regular or irregular. I mean, there is no Is there any other
other -- no way to get that gas from any regular location? A. No, sir. MR. JOHNSON: Pass the witness.
FURTHER RECROSS-EXAMINATION
148
EXAMINER ENQUIST:
MR. JOHNSON:
Yes, one.
FURTHER REDIRECT EXAMINATION BY MR. JOHNSON: Q. And if you produced it without the red zone,
you would leave 1.75 Bcf in the ground? A. Correct. EXAMINER ENQUIST: Mr. McBee, anything
MR. MCBEE:
EXAMINER ENQUIST:
the option to close now or wait until Mr. McBee closes. MR. JOHNSON: I will wait until Mr. McBee
EXAMINER ENQUIST:
MR. MCBEE:
Sure.
it's very clear from some of the data that has been presented here today and by Chesapeake's own testimony, that testimony illustrates that wells exist on the Barnes Assembly "A" Unit that will allow Chesapeake to
149
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
produce their fair share of the hydrocarbons in the Barnes Assembly "A" Unit. Whether or not that is
economic or whether or not they get all of the gas today is immaterial in my view. There has absolutely been no evidence here submitted that -- by fact or by geologic evidence that says it can't be produced next month or even next year, and it may not even be produced by Chesapeake. It could be Exxon. constantly. We also know from the previous rulings from the Railroad Commission's voluntary creation of a pooled unit in a residential subdivision cannot be used as a basis for confiscation or a denial of correlative rights. Chesapeake presented no evidence whatsoever that an unusual geologic condition exists which requires the exception location in order to prevent waste. There are -- in addition, there are We know that this industry changes
other methods to produce oil and gas from recalcitrant mineral owners, namely forced pooling and wherein the mineral owners would not be left in the dark without compensation for their minerals. As I stated before, even the best possible estimates are they are only getting 30 percent
150
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
So I would suggest
that perhaps not only Chesapeake but this industry do a better job of increasing technology to produce more of the gas that is there and therefore it will not be wasted. It looks to me like from these very numbers
the industry itself is wasting far more gas than it would be unleased mineral owners in the residential subdivision. And finally in my view, for the Barnes Assembly "A" Unit I do believe that 84.18 percent of the tracts leased and 84.1 percent of the total acreage leased is, in fact, their fair share. The remaining
balance is the fair share of the unleased mineral owners. Where, when and how they lease and for how Otherwise it is
this hearing with Mr. Harris saying that this is unconstitutional. His representative, the
representative -- I am not sure who Mr. McBee really represents -- pointed out that Rule 37 is a legitimate regulation of the state of Texas and that, indeed, in cases that he has participated in the Commission has saw fit to grant Rule 37 spacing exceptions to allow the production of gas to avoid the confiscation of gas
151
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
and the avoidable physical waste of gas that would otherwise not be recovered. The evidence in this record is clear that in order to recover the gas that -- recover 1.75 Bcf of gas, the portion outlined in red on Chesapeake Exhibit 13 must be perforated. There has been no evidence The protestants have
brought no technical expertise, no alternative solution to producing this gas. The suggestion that it could be
produced through an MIPA is -- denies the fact that in order to produce the gas you would have to extend the well to perforate the entire lateral of the well. that is what we seek. You heard the testimony of Ms. Carter. She doesn't really want to produce her minerals, and that is the law of the state of Texas. have to produce the minerals. produce them. She doesn't And
action, we would force her to produce the minerals. That is what she's against. that. We are not seeking to do
Forced pooling would pool her interest and they We are not seeking She can
I have to disagree.
152
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the minerals.
-- the production.
the right to produce her minerals, but you heard the testimony on cross-examination. want to produce the minerals. MS. CARTER: MR. JOHNSON: Not today. She doesn't want to produce We have the law in the She doesn't really
state of Texas, the rule of capture, and she can agree to sit on her assets or to produce her assets. that is her choice. And that is a free choice. And But
that free choice does not allow her to stop or to stop others from producing their fair share. All the others
that have leased their tracts are not going to recover the value of the gas beneath those tracts. freely leased and want the well drilled. They have She may
disagree with their decision and they may disagree with her decision, but the reason the Commission was created is to prevent confiscation, that if this well is not perforated as Chesapeake seeks to perforate, there will be 1.74 Bcf of gas not produced ever. produced from any other regular well. We have met the standards that the Commission has adopted in the two cases we have taken official notice of, the XTO Eden Southeast unit and the Cannot be
153
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
That is the theory under which Chesapeake is Mr. McBee brought up other cases that dealt The well has been drilled. There
is just simply no other well of any location that can produce the hydrocarbons we seek to recover for the benefit of the state of Texas and its taxes, for the benefit of the landowners that want to receive the royalties on that gas and for the benefit of Chesapeake that spends the money to drill the wells. We have got two landowners here that are against that, Ms. Harris and Ms. Carter. don't have to agree to produce. And they
agree to sign a lease, and that is fine. right to develop the hydrocarbons.
created to prevent avoidable physical waste, and that is what will happen if this well is not perforated as is the uncontroverted testimony of Mr. Henson and of Mr. Jackson. Chesapeake stands ready to sign a lease with anybody in the unit that wants to sign a lease. We have offered everyone leases. Some choose to lease
and some have chosen not to lease, and that is perfectly fine. But the law in the state of Texas is
154
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
if you don't produce your asset, then you may be subject to -- you accept those consequences. Rule 37, the only way to get this gas is through this well, and it is -- there is no other regular well that can produce the gas. And based on
the Commission's recent cases that we cited, this permit should be promptly granted so that Chesapeake can fulfill its development duties to its lessors and develop this lease and recover the gas that will not be recovered through any other well, any other well, as Mr. Henson said, or any other well that could be proposed. Thank you. EXAMINER ENQUIST: All right. The cost
of the transcript will be carried by Chesapeake and we are adjourned. Thank you. (HEARING ADJOURNED.)
155
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
) )
I, Dave Howard, Certified Court Reporter in and for the State of Texas, do hereby certify that the above and foregoing contains a true and correct transcription of all portions of evidence and other proceedings requested in writing by counsel for the parties to be included in this volume of the Reporter's Record, in the above-styled and numbered cause, all of which occurred in open hearing and were reported by me. I further certify that this Reporter's Record of the proceedings truly and correctly reflects the exhibits, if any, offered by the respective parties. WITNESS MY OFFICIAL HAND this the 14th day of February, 2011.
____________________________ DAVE HOWARD, Texas CSR 544 Expiration Date: 12/31/12 Certified Court Reporter Travis County, Texas 10917 Shady Hollow Dr. Austin, Texas 78748 (512) 282-0313