FILED SEP 2 1 2017

SECRETARY, BOARD OF OIL, GAS & MINING

BEFORE THE UTAH BOARD OF OIL, GAS AND MINING

IN THE MATTER OF THE NOTICE OF AGENCY ACTION FOR AN ORDER FORFEITING SURETY BOND NO. RLB0012264 PROVIDED BY HEWITT OPERATING INC. AND AUTHORIZING THE DIVISION TO PLUG AND RECLAIM THE LIBERTY #1 WELL API 43-023-30020 LOCATED IN SECTION 34, TOWNSHIP 12 SOUTH, RANGE 1 EAST, JUAB COUNTY, UTAH

RESPONDENT'S REPLY TO DIVISION'S MOTION TO

PRECLUDE CONSIDERATION OF EXHIBITS AS FILED

Docket No. 2017-020

Cause No. 274-02

Pursuant to the Board of Oil, Gas and Mining's ("Board") September 19, 201 7 Order

Granting the Division's Request to Require Hewitt Operating Co. to File a Response,

Respondent, Entrada Energy Corporation ("Entrada") and Hewitt Operating Inc. ("Hewitt")

(together, "Respondent"), by and through its undersigned counsel, hereby submits its response as

follows:

Respondent respectfully requests that the Board deny the Division of Oil, Gas and

Mining's ("Division") Notice of Agency Action dated July 10, 2017 ("NOAA") in its entirety

because as Respondent anticipates it will demonstrate through witness testimony and exhibits,

the NOAA fails to establish the legal or factual basis for (1) requiring forfeiture of the

reclamation surety bond; or (2) authorizing the Division to use the forfeited bonds to plug the

HPI Liberty #1 well ("Subject Well").

NOTICE OF AGENCY ACTION, MOTION TO PRECLUDE EXHIBITS AND ORDER TO RESPOND BACKGROUND

The NOAA seeks forfeiture of Respondent's reclamation bond currently in place in

compliance with all relevant State of Utah agencies. The NOAA also seeks an order from the

Utah Board of Oil, Gas and Mining ("Board") authorizing the Division to use the forfeited bonds

to plug the Subject Well. On September 15, 2017, the Division filed its Motion to Preclude

Respondent's Exhibits ("Motion to Preclude") requesting that the Board require Respondent to

file a Response on or before September 19, 2017; the Board issued an Order on September 19,

2017 ("Order to Respond") ordering Respondent to file a Response as required by Utah

Administrative Code Rule R641-140.141 and the Utah Administrative Procedures Act Section

63G-4-204 on or before twelve o'clock noon on September 21, 2017, providing the factual and

legal objections to the NOAA, and identifying the witnesses Respondent intends to call, their

areas of expertise if they will be offered as expert witnesses, and to the extent possible, the

purposes for which the filed exhibits will be offered. See Order to Respond at Pg. 1.

The Motion to Preclude states, among other things that Respondent failed to provide

technical information or to meet with the Division to work toward a proposed stipulation as

agreed to in the Joint Motion to Continue filed by Respondent on August 18, 2017. See Motion

to Preclude, at Pg. 2.

ANALYSIS AND RESPONSE

Respondents object to the NOAA on two grounds. First, the NOAA fails to establish a

factual basis to support the requisite five-year period of inactivity for imposition of the

requirement to plug the Subject Well pursuant toR. 649-3-36.3. Second, the NOAA would result

in waste and create a circumstance in which maximizing recovery of the state's resources would

be impossible, in contravention of the legislative mandate promulgated by statute in Utah Code

Ann. Section 40-6-1.

A. The NOAA Fails to Establish a Basis for Imposition of Bond Forfeiture and Plugging ofthe Subject Well.

The NOAA is based upon characterization of the history of the Subject Well, and of

Respondent's actions related thereto that is not supported by the documentation provided by the

Division. The NOAA cites R. 649-3-36.3 as authority for requiring forfeiture of Respondent's

bond; however, the NOAA does not establish that the requisite five-year period of non-activity

or non-productivity has occurred. See NOAA at Pg. 7. In fact, the materials contained in the

well file for the Subject Well maintained by the Division on its online database ("Well File")

reflect that Respondents have been diligently engaged in pursuing continuous operations. By

way of example, but not the exclusive evidence available, the Sundry Reports and supporting

documentation submitted to the Division as recently as May 15, 2017 and included in the Well

File, provide evidence of Respondent's prudent operations and efforts to establish continuous

production from the Subject Well. As indicated in the NOAA, Respondent has been engaged in

drilling and completing additional sidetracks in its ongoing effort to develop the significant

resources underlying the Subject Well in a prudent workmanlike manner. The Division

approved Sundry Notices submitted by Respondent for sidetracks completed in 2011, 2014 and

2015.

Despite the foregoing, the Division claims in the NOAA that the Subject Well has been

shut-in or temporarily abandoned in excess of the five-year period of time permitted by Rule

R649-3-36.1 for shut-in wells. To the contrary, the Respondent has expended considerable

financial and other resources in pursuing ongoing development of the Subject Well and in

conducting diligent operations intended to determine the reservoir characteristics and

mechanisms involved in producing from a complex retrograde condensate system. The

Respondent has consistently undertaken critical analysis of its drilling operations to engage the

best drilling practices to economically establish production in a manner that will prevent waste,

preserve the reservoir integrity and promote maximum recovery of the resources.

B. Granting the Relief Requested in the NOAA Would Violate State Law Requiring the Division to Regulate in a Manner that Prevents Waste and Maximizes Recovery.

Imposition of the severe measures suggested in the NOAA will result in waste and cause

the Division to fail in meeting its legislative mandate to regulate development of oil and gas in a

manner that will result in the greatest recovery of oil and gas due to the unnecessary and

improper plugging and abandonment of the Subject Well. See Utah Code Ann. Section 40-6-1.

Plugging the Subject Well will render Respondent's further study of the target formation and

development of reservoir data impossible, leaving an absence of data that Respondent intends to

rely on for further development of the wildcat area. This in tum will result in Respondent's

inability to develop the target reservoir as intended, causing it to abandon production from the

Subject Well despite the evidence of significant resources underlying the Subject Well and

surrounding leasehold. Premature plugging and abandonment of the Subject Well will likely

result in abandonment of the larger wildcat area currently targeted by Respondent and failure to

maximize recovery from the area with proven reserves, immediately surrounding the Subject

Well.

C. Respondent's Exhibits and Witnesses Will Provide Evidence of and Support for Respondent's Factual and Legal Objections.

Respondent intends to provide witness testimony from Mr. Larry A. Chambers ("Mr.

Chambers") to refute the NOAA's inaccurate summary of the Subject Well's history and to

provide testimony and evidence supporting Respondent's statements concerning development

efforts on the Subject Well. Respondent's proposed Exhibit A is Mr. Chambers' Resume and

qualifications for testifying as a fact witness regarding Respondent's operations on the Subject

Well, and for his potential testimony as an expert witness regarding the nature of the reservoir

and related technical matters. Respondent's Exhibits B and C are anticipated to provide evidence

of the nature of the reservoir system and prior efforts undertaken by Respondent to establish the

same. Exhibits J and K are anticipated to be used in conjunction with Mr. Chambers' testimony

concerning the wellbore architecture and the quality of work performed in furtherance of

establishing and maintaining the integrity of the Subject Well. Mr. Chambers also will provide

testimony regarding production tests he performed, as contained in Exhibits M and N.

Respondent also intends to provide witness testimony from Mr. David Wavrek ("Mr.

Wavrek") who will rely on Exhibits C, D and E that were prepared by him and that describe the

nature of the reservoir at issue in the Subject Well. Mr. Wavrek also may testify regarding the

extent of production likely underlying the Subject Well and surrounding area of development

and his assessment of potential recovery therefrom.

Finally, Mr. Chris Cannon ("Mr. Cannon") may testify regarding Respondent's efforts in

negotiating for a stipulation with the Division as described in the Motion to Preclude. See

Motion to Preclude at Pgs. 2-3. Mr. Cannon participated in the efforts to reach a negotiated

settlement prior to the hearing, and would provide testimony that supports Respondent's position

that the Motion to Exclude does not completely or accurately reflect Respondent's actions as

reflected therein. Respondent did engage in discussions with the Division regarding a negotiated

settlement, and remains willing to enter into a stipulation that includes an automatic provision for

forfeiture of the bond; however, the Division is unwilling to allow Respondent a reasonable

amount of time to establish production or obtain the necessary data from the Subject Well prior

to plugging. As such, Respondent would be almost certain to violate the terms of any stipulation

and rather than enter into an agreement designed to ensure such a circumstance, Respondent

requested additional time to reach a stipulation. The Division was unwilling to engage in further

discussions with the Respondent unless Respondent agreed to automatic forfeiture of the bond in

a time frame of 30-60 days. Consequently, Respondent was left to file Exhibits and respond to

the NOAA when the Division informed them that the September 271h hearing would be

necessary. See Motion to Exclude at Pgs. 2-3.

The conclusions stated in Respondent's Reply will be further borne out by the exhibits

and testimony at the hearing. At this juncture in assessing Respondent's wildcat well

development, the Division is prematurely imposing severe punitive measures typically reserved

for wells where no activity has taken place on the well site for a minimum of five or more years.

Furthermore, the Division relies upon information and conclusions not supported by the

materials submitted with its NOAA, and fails to take into account the legislative mandate to

prevent waste, protect correlative rights and otherwise regulate development of oil and gas in a

manner that will result in the greatest recovery of oil and gas.

CONCLUSION

Based on the foregoing, the Respondent's Exhibits and its witness testimony to be

adduced at the hearing on September 27, 2017, Respondent maintains that granting the relief

sought by the NOAA is not permitted due to the Division's failure to establish a basis for

forfeiture of the Respondent's bond; and the relief sought will create impermissible waste and

make it impossible to maximize recovery. Consequently, the NOAA should be denied.

RELIEF REQUESTED

Respondent respectfully requests that the Board deny the relief sought in the NOAA and

the Motion to Exclude.

RIGHTS RESERVED

Respondent reserves all rights to amend and/or supplement this Response with additional

factual information, exhibits, legal arguments and to request additional relief. Respondent also

reserves the right to file supplemental motions or other pleadings with the Division and the

Board in connection with the NOAA, Motion to Exclude and this Response.

Respectfully submitted this 2Pt day of September, 2017.

Is/ Kelly Williams Kelly Williams Attorney for Respondent

CERTIFICATE OF SERVICE

I hereby certify that on September 21, 2017, I caused a true and correct copy of the

foregoing RESPONDENT'S REPLY TO DIVISION'S MOTION TO PRECLUDE

CONSIDERATION OF EXHIBITS AS FILED to be served via United States First-Class

Mail, properly addressed and postage pre-paid, to the following:

MichaelS. Johnson Assistant Attorney General Utah Board of Oil, Gas and Mining 1594 West North Temple, Suite 300 Salt Lake City, Utah 84116

Mitchell Maio Attorney for David Gowdy 80 East South Temple Salt Lake City, Utah 84102 mitch.maio@learlaw.com

RLI Insurance Company c/o Jason Kilpatrick 2925 Richmond A venue, Suite 1600 Houston, Texas 77098 Jason.Kilpatrick@rlicorp.com

Meg Osswald Steven F. Alder Assistant Attorneys General Utah Division of Oil, Gas and Mining 1594 West North Temple, Suite 300 Salt Lake City, Utah 84116

Beatrice Winn, Trustee, Samuel G. Winn and Stephen R. Winn c/o Jared Winn P.O. Box 304 Nephi, Utah 84648 jwdirt@centurylink.net

VIA EMAIL:

David Gowdy jdgowdy@gmail.com