JERRY L. CANFIELD, P.A. THOMAS A. DAILY, P.A. WYMAN R. WADE, JR., P.A. DOUGLAS M. CARSON, P.A. ROBERT R . BRIGGS, P.A. † * C. MICHAEL DAILY † COBY W. LOGAN L. MAT THEW DAV IS * Fayetteville Office † Also Licensed in Oklahoma DAILY & WOODS A PROFESSIONAL LIMITED LIABILITY COMPANY ATTORNEYS AT LAW KMW BUILDING 58 SOUTH SIXTH STREET P.O. BOX 1446 FORT SM ITH, AR 72902 TELEPHON E (479) 782-0361 FAX (479) 782-6160 ______________ 3538 N. HIGHWA Y 112, SUITE 200 FAYETTEV ILLE, AR 72703 TELEPHON E (479) 582-0361 FAX (479) 251-8111 JAMES E. WEST PHILLIP J. NORVELL * DALE CARLTON * OF COUNSEL _______ HARRY P . DAILY (1886-1965) JOHN P. WO ODS (1886-1976) JOHN S. DAILY (1912-1987) April 7, 2009 Arkansas Oil and Gas Commission 301 Natural Resources Drive, Suite 102 Little Rock, Arkansas 72205 Re: ORDER REFERENCE NO. 232-2009-04 Application of SEECO, Inc. for Integration of All Unleased Mineral Interests and Non-consenting Working Interests in a unit described as Section 3, Township 8 North, Range 13 West, Faulkner County, Arkansas. Commissioners: SEECO, Inc., 2350 N. Sam Houston Parkway E, Houston, TX 77032, hereby applies to the Arkansas Oil and Gas Commission for the integration of all unleased mineral interests and non-consenting working interests in its proposed drilling unit which is described above. 1. The proposed drilling unit is an established unit as defined in paragraph (f) of Arkansas Oil and Gas Commission General Rule B-43. Applicant proposes to drill a horizontal well from a non-exceptional surface location in the Southeast Quarter of Section 10 down to a non-exceptional bottom hole location in the Southeast Quarter of Section 3, Township 8 North, Range 13 West. The proposed well will be drilled to a total vertical depth of 5,691 feet to test the Fayetteville Shale Formation. Applicant has obtained one or more oil and gas leases covering its proposed drill site. 2. This application is a companion application to Docket Reference No. 231-2009-4 which seeks the integration of Section 10, Township 8 North, Range 13 West and also seeks approval to drill, produce and share a cross unit well between Sections 3 and 10. This application seeks the integration of Section 3 for purposes, initially, of the same well. As is apparent from Exhibit “E”, both Section 3 and Section 10 are bisected by faults and contain a complex array of smaller splinter faults. This faulting makes it geological impractical for an operator to develop the reserves thought to underlie these units with wells contained entirely within the units. In fact, the applicant has already
Transcript
JERRY L . CANFIELD, P .A .
THOMAS A. DAILY, P .A .
WYMAN R. WADE, JR . , P .A .
DOUGLAS M. CARSON, P .A .
ROBERT R . BRIGGS, P.A. † *
C . MICHAEL DAILY †
COBY W. LOGAN
L. MAT THEW DAV IS
* Fayetteville Office
† Al so L icensed in Oklahoma
DAILY & WOODSA PROFESSIONAL LIMITED LIABILITY COMPANY
ATTORNEYS AT LAW
KMW BUILDING58 SOUTH SIXTH STREET
P.O. BOX 1446FORT SM ITH, AR 72902
TELEPHON E (479) 782-0361FAX (479) 782-6160
______________
3538 N. HIGHWA Y 112, SUITE 200FAYETTEV ILLE, AR 72703TELEPHON E (479) 582-0361
FAX (479) 251-8111
JAMES E. WEST
PHILLIP J . NORVELL *
DALE CARLTON *
OF COUNSEL
_______
HARRY P . DAILY (1886-1965)
JOHN P. WO ODS (1886-1976)
JOHN S. DAILY (1912-1987)
April 7, 2009
Arkansas Oil and Gas Commission301 Natural Resources Drive, Suite 102Little Rock, Arkansas 72205
Re: ORDER REFERENCE NO. 232-2009-04
Application of SEECO, Inc. for Integration of All Unleased Mineral Interests andNon-consenting Working Interests in a unit described as Section 3, Township 8North, Range 13 West, Faulkner County, Arkansas.
Commissioners:
SEECO, Inc., 2350 N. Sam Houston Parkway E, Houston, TX 77032, hereby applies tothe Arkansas Oil and Gas Commission for the integration of all unleased mineralinterests and non-consenting working interests in its proposed drilling unit which isdescribed above.
1. The proposed drilling unit is an established unit as defined in paragraph (f) ofArkansas Oil and Gas Commission General Rule B-43. Applicant proposes to drill ahorizontal well from a non-exceptional surface location in the Southeast Quarter ofSection 10 down to a non-exceptional bottom hole location in the Southeast Quarter ofSection 3, Township 8 North, Range 13 West. The proposed well will be drilled to atotal vertical depth of 5,691 feet to test the Fayetteville Shale Formation. Applicant hasobtained one or more oil and gas leases covering its proposed drill site.
2. This application is a companion application to Docket Reference No. 231-2009-4which seeks the integration of Section 10, Township 8 North, Range 13 West and alsoseeks approval to drill, produce and share a cross unit well between Sections 3 and 10. This application seeks the integration of Section 3 for purposes, initially, of the samewell. As is apparent from Exhibit “E”, both Section 3 and Section 10 are bisected byfaults and contain a complex array of smaller splinter faults. This faulting makes itgeological impractical for an operator to develop the reserves thought to underlie theseunits with wells contained entirely within the units. In fact, the applicant has already
invested approximately $2,750,000, attempting to drill a well (the Hughes No. 8-13-2-10H Well) within Section 10 which, because of the faulting, was unsuccessful. Thisproposed well, if it is successful, will therefore be the first producing well in eithersection. However, if this well is successful, the Applicant intends to drill additional crossunit wells, paralleling this well, to more completely develop both units. Additionally, theCommission should note that this proposed well will have a completed lateral section ofalmost 4,500 feet, distributed approximately equally between Sections 3 and 10 and,thus, will initially supply each such unit with a completed productive well lateral withlength exceeding many other directional wells within the B-43 area.
3. Applicant owns oil and gas leases covering a substantial part of the proposedunit. Applicant should be named as operator of the well. The person or persons to beintegrated are shown in Exhibit "A" attached hereto and made a part hereof.
4. Applicant has made diligent efforts to negotiate with the non-participatingleasehold working interest owners, each of said parties owning an oil and gas leaseholdinterest in the proposed unit, but applicant has been unable to secure an assignment ofthe leasehold interest on an equitable basis or to secure participation by said parties inthe drilling of the proposed well.
5. Applicant states that it has made repeated efforts to negotiate with the owners ofthe unleased mineral interests in order to agree on a plan of development of said drillingunit; that those owners have been offered an opportunity to participate in the proposedwell; that they have been offered a fair and reasonable bonus consideration for theexecution of an oil and gas lease covering their interests; that they have been furnishedwith a proposed oil and gas lease and a copy of the AAPL operating agreement formwhich applicant proposes to use in connection with the drilling of said well; but that all ofthe efforts of the applicant have produced no agreement by said parties.
6. Applicant states that it is in the best interest of conservation and the protection ofcorrelative rights of all interested parties that the proposed unit be developed for oil andgas production without undue delay.
7. In order that applicant may proceed with the orderly development of said unit,applicant hereby requests that the Arkansas Oil and Gas Commission issue its order, inthe alternative, that:
(a) The owners of non-consenting oil and gas leasehold workinginterests indicated above shall participate in the cost of drilling,testing and completion of the test well to be drilled by applicant onthe captioned unit, subject to the terms of an Operating Agreementwhich substantially employs the terms of the AAPL Operatingagreement, with a COPAS attached.
(b) All of the non-consenting oil and gas leasehold working interestswithin the proposed unit shall be force pooled and integrated into
said unit, and a reasonable risk factor shall be established andassessed as a penalty against said integrated interest.
8. Applicant further states that due to the risks and costs inherent in the drilling ofthe proposed well, the Commission should fix a reasonable risk factor to be assessedas a penalty against the integrated interests within the unit. The risk factor should beapplied to the proportionate cost and expense of drilling, completing and equipping thewell, which would have been borne by the interest of said parties had they participated. Applicant requests that if the integrated parties do not elect within 15 days afterissuance of the Commission's order as between alternatives (a) and (b), it shall beassumed that the integrated parties elected alternative (b) in lieu of the right toparticipate in the working interest in said unit.
9. Applicant requests that the Arkansas Oil and Gas Commission set this matter forpublic hearing, and after same, issue its order, in the alternative, that:
(a) Each of the owners of the unleased mineral interests indicatedabove execute and deliver to applicant a one year oil and gaslease, on an AAPL lease form, for a bonus consideration of$1,000.00 per net mineral acre to be paid as fair and reasonablecompensation in lieu of the right to participate in the workinginterest in said unit, and that said oil and gas lease provide for a 1/6royalty on oil and gas.
(b) Each of the owners of the unleased mineral interests indicatedabove execute and deliver to applicant a one year oil and gaslease, on an AAPL lease form, for a bonus consideration of$450.00 per net mineral acre to be paid as fair and reasonablecompensation in lieu of the right to participate in the workinginterest in said unit, and that said oil and gas lease provide for a 1/5 royalty on oil and gas.
(c) Each of the owners of unleased mineral interests indicated abovebe force pooled and integrated into the captioned unit withassessment of a reasonable risk factor penalty against theirinterest.
(d) The owners of unleased mineral interests shall participate in thecost of drilling, testing and completion of the test well to be drilledby applicant on the captioned unit, subject to the terms of anoperating agreement which substantially employs the terms of theAAPL Operating Agreement.
Applicant further requests that said mineral owners be required to elect within fifteen(15) days after issuance of the Commission's order which method will be pursued in thedevelopment of the above described unit, and, in the event no election is made, that it
shall be assumed that the owner of said unleased mineral interest has elected to accepta bonus of $1,000.00 per net mineral acre as compensation in lieu of the right toparticipate in the working interest in said unit, and with the royalty to be 1/6.
9. Applicant further states that due to the risks and costs inherent in the drilling ofthe proposed well, the Commission should fix a reasonable risk factor to be assessedas a penalty against the integrated interests within the unit. The risk factor should beapplied to the proportionate cost and expenses of drilling, completing and equipping thewell, which would have been borne by the interest of said parties had they participated.
10. Applicant further requests that this Commission's order specifically provide thatany party electing either to participate or be force pooled subject to recoupment of a riskfactor penalty be bound by the terms of the attached AAPL Operating Agreement for thelife of commercial production within the unit so that all future unit operations might beproposed pursuant to the provisions of such agreement without the necessity of futureaction by this Commission.
11. Applicant also requests that said order be made applicable to any unknownspouse, heir, devisee, personal representative, successor or assign of said parties.
12. The names and addresses of parties interested in this proceeding are set forth inExhibit "A" attached hereto and made a part hereof.
13. Please note the appearance of Thomas A. Daily of Daily & Woods, P.L.L.C., P.O.Box 1446, Fort Smith, Arkansas, 72902, on behalf of applicant.
Very truly yours,
Thomas A. Dailyjmt
HUGHES 08-13 #3-10H03 DOCKET # SECTION 03-08N-13W 000-0000-00 FAULKNER COUNTY, AR
EXHIBIT A
INTERESTED PARTIES J. R. Hurd, Individually and as Attorney-in-Fact for Sara Smith Hurd, Patricia Hurd McGregor and Victoria Hurd Goebel AND David Killam, Individually and as Attorney-in-Fact for Adrian Kathleen Killam and Tracy Leigh Killam-Dileo (see page 1 of Exhibit B)
Smith, Peter Anthony (see page 2 of Exhibit B)
Pirani, Nancy (see page 3 of Exhibit B)
Pruden, Cherri D. (see page 4 of Exhibit B)
Ashberry, Michael T. and Havanna Faye Ashberry, h/w (see page 5 of Exhibit B)
Staggs, Steve and Kristin Staggs, h/w (see page 6 of Exhibit B)
UNCOMMITTED WORKING INTEREST OWNERS
Chesapeake Exploration, LLC (see page 7 of Exhibit B)
BP America Production Company, Inc. (see page 8 of Exhibit B)
Page 1 of 1
HUGHES 08-13 #3-10H03 000-0000-00 SECTION 03-08N-13W FAULKNER COUNTY, AR
EXHIBIT B
RESUME OF EFFORTS Township 08 North, 13 Range West Section 03: Tracts 006, 021, 021A (SLI#) J. R. Hurd, Individually and as Attorney-in-Fact for Sara Smith Hurd, Patricia Hurd McGregor and Victoria Hurd Goebel AND David Killam, Individually and as Attorney-in-Fact for Adrian Kathleen Killam and Tracy Leigh Killam-Dileo March 10, 2009 SEECO spoke with John Hagy, who represents both Hurd and Killam’s interest,
and let him know that SEECO would be interested in leasing their interest and would get back with him with a formal offer.
March 13, 2009 SEECO spoke with John Hagy and tendered an offer to lease.
March 17, 2009 John Hagy replied to SEECO’s offer made on 3/13/2009 and did not want to lease at those terms.
March 24, 2009 SEECO made final offer to Hurd/Killam to lease their interest which was not accepted.
April 7, 2009 Well proposal letter and AFE mailed.
Page 1 of 8
HUGHES 08-13 #3-10H03 000-0000-00 SECTION 03-08N-13W FAULKNER COUNTY, AR
EXHIBIT B
RESUME OF EFFORTS Township 08 North, 13 Range West Section 03: Tract 009-001 (SLI#) Peter Anthony Smith March 23, 2009 Landman called numerous numbers in Texas that were disconnected, but found
one and left a message. Sent offer letter to last known address.
March 30, 2009 Landman drove out to the property but was unable to find the Clearwater Subdivision, which is unplatted. Access may be through a locked gate that noted “no trespassing” and followed with a gravel road.
March 31, 2009 Landman returned to location and spoke to a Mr. Gibbs who has previously leased. He said he could contact Peter Smith, Nancy Pirani and Cherri Pruden and have them contact landman. He did not know anything regarding the Ashberry’s or Staggs’.
April 7, 2009 Well Proposal Letter and AFE mailed.
Page 2 of 8
HUGHES 08-13 #3-10H03 000-0000-00 SECTION 03-08N-13W FAULKNER COUNTY, AR
EXHIBIT B
RESUME OF EFFORTS Township 08 North, 13 Range West Section 03: Tract 009-003 (SLI#) Nancy Pirani March 23, 2009 No listing in Memphis, TN via internet directories for interest owner. Unable to
locate phone number. Landman mailed offer letter to last known address.
March 30, 2009 Landman drove out to the property but was unable to find the Clearwater Subdivision, which is unplatted. Access may be through a locked gate that noted “no trespassing” and followed with a gravel road.
March 31, 2009 Landman returned to location and spoke to a Mr. Gibbs who has previously leased. He said he could contact Peter Smith, Nancy Pirani and Cherri Pruden and have them contact landman. He did not know anything regarding the Ashberry’s or Staggs’.
April 7, 2009 Well Proposal Letter and AFE mailed.
Page 3 of 8
HUGHES 08-13 #3-10H03 000-0000-00 SECTION 03-08N-13W FAULKNER COUNTY, AR
EXHIBIT B
RESUME OF EFFORTS Township 08 North, 13 Range West Section 03: Tract 009-004 (SLI#) Cherri D. Pruden March 24, 2009 Multiple listings in AR, but none for interest owner via internet directories.
Possible number in Alexander, AR. Landman called but no answer and no voice mail or answering machine.
March 25, 2009 Landman mailed offer letter to last known address.
March 30, 2009 Landman drove out to the property but was unable to find the Clearwater Subdivision, which is unplatted. Access may be through a locked gate that noted “no trespassing” and followed with a gravel road.
March 31, 2009 Landman returned to location and spoke to a Mr. Gibbs who has previously leased. He said he could contact Peter Smith, Nancy Pirani and Cherri Pruden and have them contact landman. He did not know anything regarding the Ashberry’s or Staggs’.
April 7, 2009 Well Proposal Letter and AFE mailed.
Page 4 of 8
HUGHES 08-13 #3-10H03 000-0000-00 SECTION 03-08N-13W FAULKNER COUNTY, AR
EXHIBIT B
RESUME OF EFFORTS Township 08 North, 13 Range West Section 03: Tract 009-008 (SLI#) Michael T. Ashberry and Havanna Faye Ashberry, h/w March 24, 2009 Landman called number, no answer, left message.
March 25, 2009 Landman sent offer letter to last known address.
March 30, 2009 Landman drove out to the property but was unable to find the Clearwater Subdivision, which is unplatted. Access may be through a locked gate that noted “no trespassing” and followed with a gravel road.
March 31, 2009 Landman returned to location and was unable to locate anyone who knew anything regarding the Ashberry’s or Staggs’.
April 7, 2009 Well Proposal Letter and AFE mailed.
Page 5 of 8
HUGHES 08-13 #3-10H03 000-0000-00 SECTION 03-08N-13W FAULKNER COUNTY, AR
EXHIBIT B
RESUME OF EFFORTS Township 08 North, 13 Range West Section 03: Tract 009-009 (SLI#) Steve Staggs and Kristin Staggs, h/w March 24, 2009 No listing found for Steve Staggs, but was a listing for Kristin in a different town
than Steve. Landman called, no answer, left message. Sent offer letter to address found for Kristen. P.O. box for Steve has been closed.
March 30, 2009 Landman drove out to the property but was unable to find the Clearwater Subdivision, which is unplatted. Access may be through a locked gate that noted “no trespassing” and followed with a gravel road.
March 31, 2009 Landman returned to location and was unable to locate anyone who knew anything regarding the Ashberry’s or Staggs’.
April 7, 2009 Well Proposal Letter and AFE mailed.
Page 6 of 8
HUGHES 08-13 #3-10H03 000-0000-00 SECTION 03-08N-13W FAULKNER COUNTY, AR
EXHIBIT B
RESUME OF EFFORTS Township 08 North, 13 Range West Section 03: Tracts 001, 002, 003, 004, 005B, 006, 009-001, 009-002, 009-003, 009-004, 009-005, 009-006, 009-007, 009-008, 009-009, 009-010, 009-011, 009-012, 14 and 21(SLI#) Chesapeake Exploration, LLC March 27, 2009 SEECO sent out a well proposal letter including AFE and JOA via Fed-Ex.
Page 7 of 8
HUGHES 08-13 #3-10H03 000-0000-00 SECTION 03-08N-13W FAULKNER COUNTY, AR
EXHIBIT B
RESUME OF EFFORTS
Page 8 of 8
Township 08 North, 13 Range West Section 03: Tracts 001, 002, 003, 004, 005B, 006, 009-001, 009-002, 009-003, 009-004, 009-005, 009-006, 009-007, 009-008, 009-009, 009-010, 009-011, 009-012, 14 and 21(SLI#) BP America Production Company, Inc. March 27, 2009 SEECO sent out a well proposal letter including AFE and JOA via Fed-Ex.
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