Take Point

Dual Lease Line Spacing (467’/100’)

467’

TP 100’

330’/100’ • Spraberry • Most Shale Fields

467’/200’ • Phantom (Wolfcamp)

Off Lease Penetration Point

See- Lighting Oil Company v. Anadarko E&P Onshore, LLC October 29, 2014 – 4th COA, San Antonio

Lighting – Minerals Briscoe Ranch - Surface

Anadarko – Lessee Chaparral Wildlife Management Area

No Perf Zone

5

5% Non-Joining

A B

C D E

Title on Each Tract

D E

467’

NON-PERFORATION ZONE

Box Rule

Spraberry (Trend Area) If as drilled take points are inside box (solid blue rectangle), as drilled location complies with drilling permit even if take points are less than 467’ from nearest lease line. Assume 467’ lease line spacing rule and 50’ box rule FTP = first take point LTP = last take point

SL PP FTP

467’

50’

50’

LTP T

Jones SL #3 Jones SL #2 Jones SL #1*

*Record Well

Determines Rule 86

Acreage Add-On

Upper Wolfcamp

Middle Wolfcamp

Lower Wolfcamp

No limit as long as within

correlative interval

• All drainholes must lie within Spraberry (Trend Area) Field correlative interval

• Different surface locations

• No limit on vertical distance between horizontal drainholes of a Stacked Lateral well

• First drainhole for which completion papers filed is Record Well

• Record Well’s length determines Rule 86 acreage add-on

• Record Well designation may change

• 660’ Stacked Lateral Paths

Spraberry 80+80+240 = 400 ac.

4200’ Lateral

Barnett Shale

320+32+240 = 592ac. Sugarkane (4200 x 0.2) + 320 = 1160

Or - Special Field Rules

Sugarkane (Eagleford) Field

A= (L x 0.2) + 320 * UFT Proposal – 100 BOPD per acre assigned

Pooling and Retained Acreage Provisions

Why does it matter?

• Oil well allowable vs. Gas well allowable • Your well produces 7mmcfd, 700b”o”pd of 46˚API liquid at 10,000’.

• Allowable production as a “Gas” Well • 700 bcpd & 7 mmcfd

• Allowable production as an “Oil” Well • 34 bopd & 344 mcfd

What if my well produces less than 12,500:1 or it failed the ASTM Distillation Test?

FREE GAS

FORMATION WATER Pore Space

If mole percent of C7+ in Full Well Stream is less than 11% - then the well is a gas well.

• August 6, 2006 – Railroad Commission Memo

Barnett Shale - 1998

Barnett Shale - 2007

100% PSA Sign-Up 98.5% PSA Sign-Up

- Legal Staff denied (7-12-2007) - Commission Approved (10-24-2007) - Legal Staff 95% - Permitting Staff 90%

< 90% PSA Sign-Up < 90% PSA Sign-Up

- Legal Staff denied - Commission Approved at 65% (9-9-08)

Cotton Valley/Haynesville – 2008-2009

A

B

C

Existing Cotton Valley Units

Proposed Horizontal Well

In the Carthage (Haynesville Shale) Field, a case that lead up to the Klotzman decision, the Examiners incorrectly state, “Devon is not the owner of the mineral under the various tracts it operates in the …..Field.” (Docket No. 06-0262000) The facts are that Devon had existing oil and gas leases covering all of the tracts mentioned above. Devon had a fee simple ownership of its leases and thus, did own the minerals.

EOG 100% Leased EOG 100% Leased

EOG Allocation Well

Klotzman Lease – No Oil Pooling Clause

Less than 100% Leased 100% Leased

Allocation Well

• Issue Rule 37 Notice of Application • No Protest in 21 days – Permit Issues

Less than 100% Leased 100% Leased

Allocation Well

• Commission Issues with a regular drilling permit

NPZ

Tract 1 640 Ac.; 80 Ac. Field Rules: 8 Wells Existing-Developed to density Will Shut-In Well No. 1

1 2 3

4 5

6 7 8

9H

Allocation Well Permit #2 Code 25 – Non-Concurrent Production Well Permit

Allocation Well

Tract 2 Not Developed to density

• File Permit with Code 25 as to Well No. 1 in Tract 1 • Commission issues a regular permit to Allocation Well

S.I.

Operator Permits

Anadarko 54

Apache 13

BHP 19

Bold Op 4

BP America Prod 7

Burlington 2

Callon 11

Chesapeake 34

Chevron USA 15

Classic 6

CML 1

COG 1

Devon 629

El Paso E&P 1

Elk Meadows 2

Encana 2

Energen 83

Enervest 52

EOG 29

Escondido 1

Fidelity 2

Foreland Op 2

Forest 1

Goodrich 2

Hat Creek 1

High Sky Prtns 7

Highmount Expl 2

Hunt Oil 13

Jilpetco 1

Operator Permits

Laredo Petro 1

Linn 4

Marathon Oil 7

Matador Production 5

MDC Texas Energy 1

Memorial Prod Op 37

Mewbourne 1

Navidad 1

Newfield 3

NFR 4

Oxy USA 29

Parsley Energy 22

Patriot 7

Penn Virginia 6

Pioneer 26

QEP 1

Quicksilver 2

Resolute 16

Sabalo Expl 1

Sabine O&G 7

Samson 4

SM Energy 41

Statoil 12

Talisman 5

Texakoma 1

Texas American Res 4

Titan 1

Unit Petro 6

Vantage 88

WBH 19

XTO 8

Grand Total 1367

As of 06/18/15

As of 06/18/15

Operator Permits

American Energy PB 6

Apache 5

Approach Op 6

Athlon 73

BHP BILLITON 14

Blackbrush 2

Bold Op LLC 6

BP America Prod 8

Breittburn Op LP 25

Burlington 2

Cabot 16

Callon Petro 10

Chesapeake 4

Cimarex 5

Classic 5

COG 11

Crimson 4

Crownquest 6

Devon 126

Diamondback 22

Discovery 6

Eagle Ridge 1

El Paso E&P 1

Encana 33

Energen 43

Energy & Expl. Ptnrs 2

Enervest 19

EOG 19

EP Energy 1

Escondido 8

Exco 15

Forest 31

Forge 19

GMX 11

Goodrich 1

Halcon 41

Operator Permits

Henry Resources 1

Hughes, Dan A. 2

Laredo Petro 149

Laredo Petro - Dallas 18

Le Norman 1

Lewis Petro 21

Marathon 4

Matador 10

McCutchin Petro 1

MD America 72

Mewborne 1

Murphy 6

New Gulf 1

Newark E&P 4

Oxy USA 1

Paloma 2

Parsley 7

Patriot 1

Pcore 1

Pioneer 129

PMO 3

QEP Energy 16

RSP 54

Sabalo Expl 4

Sabine O&G 3

Samson 12

Shell Western 1

SM Energy 9

Statoil Texas 1

Summit 3

Swift Energy 24

Tanos 5

Texas Petro Inv 2

Three Rivers Op 6

Trail Ridge 2

Valence Operating 2

W & T Offshore 1

Wildhorse 1

XTO 52

Grand Total 1240