filed - utah division of oil · axia, newfield, newfield rmi, international petroleum limited...
TRANSCRIPT
FILEDJUN 0 t 20t7
SECRFTARY BOARD OFOIL, GAS & MINING
BEFORE THE BOARD OF OIL, cAS At[D MININGDEPARTMENT OF NATURAL RESOURCES
STATE OF UTAH
IN THE MATTER OF THE REQUEST FORAGENCY ACTION OF AXIA ENERGY II, LLCFOR AN ORDER POOLING ALL INTERESTS,INCLUDING THE COMPULSORY POOLING OFTHE INTERESTS OF CERTAIN NON-CONSENTTNG AND UNLOCATABLE OWNERS,WITHIN TWO 1,280-ACRE DRILLING LINITSESTABLISHED FOR THE PRODUCTION OF OIL,GAS AND ASSOCIATED HYDROCARBONSFROM THE LOWER GREEN RIVER-WASATCH(coLToN) FORMATIONS, COMPRISED OF ALLOF SECTIONS 29 AND 32, AND 28 AND 33 OFTOWNSHIP 2 SOUTH, RANGE 2 WEST, U.S.M.,DUCHESNE COUNTY, UTAH.
IPROPOSEDIFII\DINGS OF FACT,
CONCLUSIONS OF LA\ry ANDORDER
Docket No. 2017-010
Cause No. 139-144
This Cause came for hearing before the Utah Board of Oil, Gas and Mining (the "Board")
on Wednesday, April 26,2017, at approximately 1l:00 a.m., in the Auditorium of the Utah
Department of Natural Resources Building in Salt Lake City, Utah, on Axia Energy II, LLC's
("Axia's") Request for Agency Action filed on March 10,2017 (the "Request") to compulsory
pool certain non-consenting and unlocatable owners in the two wells discussed hereinafter. The
following Board members were present and participated at the hearing: Chairman Ruland J. Gill,
Jr., Carl F. Kendell, Richard K. Borden and Chris D. Hansen. The Board was represented by
Michael S. Johnson, Esq., Assistant Attorney General.
Testifying on behalf of Petitioner Axia Energy II, LLC ("Axia") were Rick Gallegos -Vice President of Land and Business Development and Taryn Frenzel - Vice President of
Completions and Engineering. The Board recognized Mr. Gallegos as an expert in petroleum
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land management and Mr. Frenzel as an expert in petroleum engineering for purposes of this
Cause. David P. Bolda, Esq., of and for Beatty & Wozniak, P.C., appeared as attorney for Axia.
Meg Osswald, Esq. appeared as attorney for the Division of Oil, Gas and Mining (the
“Division”). The Division did not file a staff memorandum but nevertheless participated in the
hearing. John Rogers – Associate Director of Oil and Gas and Dustin Doucet – Petroleum
Engineer, asked questions of Axia’s witnesses on behalf of the Division.
Newfield Production Company (“Newfield”) and Newfield RMI, LLC (“Newfield RMI”)
(sometimes jointly referred to herein as “Newfield”), filed a joint response to the Request (the
“Response”). John A. Davis, Esq. of Holland & Hart LLP, appeared on behalf of Newfield.
Newfield did not present witness testimony at the hearing but instead, Mr. Davis stated his
client’s position relating to the Request and asked questions of Axia’s witnesses.
Newfield’s response to the Request touched on two issues. First, Newfield stated that it
was unclear from the Request whether or not the joint operating agreements (“JOA’s”) sought to
be imposed upon the non-consenting and unlocatable parties was intended to cover all future
wells within the subject drilling units or just the two wells within the respective drilling units that
are the subject of this Cause (defined below as the “Subject Wells”). Second, Newfield RMI
stated its desire to have the “Non-Consenting JOA’s” imposed upon Axia and Newfield RMI to
govern the relationship between said parties for the Subject Wells, rather than the JOA proposed
by Axia prior to and independent of the Request (the “Consenting JOA”). Axia filed a response
to the Response clarifying its intent for the Non-Consenting JOA’s to apply only to the Subject
Wells and advised of its plans to drop Newfield RMI from the Request since Newfield RMI had
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agreed to participate in the Subject Wells allowing the parties to continue negotiations for a JOA
outside of the compulsory pooling process.
At the hearing, the Board asked Newfield RMI and Axia to make their respective
arguments for allowing or disallowing Newfield RMI to participate in the hearing on its desire to
have the Non-Consenting JOA imposed upon Newfield RMI and Axia despite Newfield RMI
voluntarily agreeing to participate in the Subject Wells and having been dropped from the
Request by Axia. The Board decided to bifurcate the two matters between those whom Axia
sought to be compulsory pooled as of the date of the hearing (which no longer included Newfield
RMI), and Newfield RMI’s request to have the Non-Consenting JOA’s imposed upon Newfiled
RMI and Axia to govern operations between the two. The Findings of Fact, Conclusions of Law
and Order herein pertain to the first of the two matters, those whom Axia sought to compulsory
pool as of the date of the hearing which no longer included Newfield RMI.
No other party appeared or participated at the hearing.
The Division did not formally present a case-in-chief at the hearing but instead asked a
number of questions of Axia’s witnesses. At the conclusion of the Division’s questions, the
Division did not have any objections to approval of the Request.
The Board, having considered the testimony presented and exhibits received into
evidence at the hearing, being fully advised, and for good cause, hereby makes the following
findings of fact, conclusions of law and order in the Cause.
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FINDINGS OF FACT
1. Axia is a Delaware corporation with its principal place of business at the time of
the hearing, in Denver, Colorado. Axia is duly qualified to conduct business in the State of Utah,
and is fully and appropriately bonded with all relevant Federal and State of Utah agencies,
including the Division.
2. Under its Order entered on January 23, 2017 in Cause No. 139-140 (the “139-140
Order”), which modified previous orders in Cause No. 131-14, Cause No. 139-42 and Cause No.
139-90, the Board established the entirety of Sections 29 and 32, Township 2 South, Range 2
West, U.S.M., as a drilling unit (the “29/32 DU”), and Sections 28 and 33, Township 2 South,
Range 2 West, U.S.M., as a drilling unit (the “28/33 DU”) (collectively the 29/32 DU and the
28/33 DU are the “Subject Drilling Units”), for the purpose of drilling long-lateral horizontal
wells (“LLHWs”), for the production of oil, gas and hydrocarbons from the Lower Green River-
Wasatch (Colton) formations defined as follows:
the interval from the top of the Lower Green River Formation (Mahogany Marker
Bed) to the base of the Green River-Wasatch or top of the North Horn Formation,
the stratigraphic equivalent of which is defined as between 7,212 feet and 13,651
feet as shown in the Borehole Compensated Sonic-Gamma Ray Log of the Flying
J – Dustin #1 Well located in the NE¼SW¼ of Section 22, Township 2 South,
Range 3 West, U.S.M., and as between 6,555 feet and 12,392 feet as shown on the
Digital Sonic Log of the Devon – 1-26B1 Well located in the SW¼SW¼ of
Section 26, Township 2 South, Range 1 West, U.S.M.
(the “Subject Formations”), and authorized up to 32 producing wells, which may be any
combination of vertical, short lateral horizontal (“SLHW”) or LLHW, to be located no closer
than 330 feet to the north and south boundaries, and no closer than 560 feet to the east and west
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boundaries of the drilling units, from the Subject Formations on each such drilling unit so
established. However, vertical wells shall be limited to eight (8) within each drilling unit and
vertical well density shall not exceed four (4) vertical wells per 640-acre governmental section
(or substantial equivalent). The two wells that are the subject of this Cause are the Butcher Butte
#32-144H-22 Well (located in the 29/32 DU), and the Butcher Butte #33-34H-22 Well (located
in the 28/3 DU), (collectively the “Subject Wells”)
3. The 29/32 DU is a stand-up 1,280 acre drilling unit with oil and gas ownership
divided into 10 (ten) mineral tracts, as described on Exhibit “A” attached hereto and by this
reference incorporated herein. Axia, Newfield, Newfield RMI, International Petroleum Limited
Liability Company (“International”), Crescent Point Energy U.S. Corp. (“CPE”) and Dusty
Sanderson all own working interests within the 29/32 DU. All but Newfield (owning a
4.734435% WI), and Dusty Sanderson (owning a 0.039673% WI) (hereinafter the “29/32 DU
Non-participating WI Owners”), have voluntarily agreed to participate and have executed JOA’s
covering the 29/32 DU (excepting therefrom Newfield RMI who agreed to participate but has not
executed a JOA and was dropped from the Request). The majority of the mineral interests are
under lease to Axia or the other working interest owners. As a consequence, 93.333464% of the
interest within the 29/32 DU is voluntarily pooled by contract. (Newfield RMI owns a
0.128348% working interest in the 29/32 DU and negotiations for the voluntary participation of
that interest are ongoing).
4. The following parties remain unleased and all have not otherwise been pooled as
to the Butcher Butte #32-144H-22 Well within the 29/32 DU:
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Unleased & Non-participating Mineral Interest Owner Mineral Interest
(Unit %)
Glade Goodrich aka Evan Glade Goodrich 0.158691%
Vorris Livingston 0.213914%
Jeremy Hunsaker 0.002539%
Chad Cannon 0.000001%
Jeralie Wirthlin 0.006928%
Heirs of Richard B. Wirthlin 0.006928%
Argo Energy Partners, Ltd. 0.039673%
Slover Minerals L.P. 0.079346%
Tracie Brown 0.000311%
Jeff Nicora 0.000311%
Susan Eaves Migliori, a/k/a Susan Eaves Migliore 0.000310%
Diane Sutton 0.000310%
Monette Noble, a/k/a Monette Tapia 0.009945%
Vincent C. Noble 0.009945%
Leland Woodrow Noble, Jr. 0.004972%
Robert D. Noble 0.004972%
Laurence Scott Noble 0.004972%
Weaver Four Investments 0.074648%
Gorda Sound Royalties, L.P. 0.010709%
Adrienne Larson 0.015069%
University of Utah, a Body Politic and Corporate 0.015069%
Bradley C. Goodrich 0.017632%
Heirs of Evan F. Goodrich 0.030227%
Heirs or Devisees of LeRoy Anderson 0.641741%
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Arnold E. Johnson 0.128348%
Shauna Livingston 0.000010%
Glennis Livingston 0.000010%
Misty Livingston 0.000010%
Croff Oil Company 0.286539%
TOTAL: 1.764080%
(hereinafter the “29/32 DU Non-participating Mineral Owners”).
5. Title to some of the underlying oil and gas interests within the 29/32 DU remains
vested in the following parties now determined to be deceased:
Ray E. Dillman Francis Gule Shelton
Mildred Dillman Eva Mecham
Mary Eldredge Afton Fletcher
Naomi Lunt Virginia Livingston Mecham
Barbara H. Merrill Richard Livingston
Richard F. McKean Howard Mecham, a/k/a Earl Howard Mecham
Dixie Cannon Leland Anderson, a/k/a Leland Dan Anderson
Harvey A. Hatch Ralph Davis
Dallas P. Hatch, a/k/a Dallas J. Hatch Richard B. Wirthlin
Mary A. Eaves Ralph A. Sharples
Nancy Eaves Nicora Virginia B. Peterson
Jeffrey J. Noble Merlyn John Peterson
Lloyd John Goodrich Rhea B. Mecham
Gladys Goodrich Loraine B. Nilsen
Brent Goodrich Harold Magnus Nilsen
Thelma M. Goodrich Ruth T. M. Lowery, a/k/a Ruth Taylor
Marchant Lowry
Norman Goodrich Lydia T. M. Sorensen
Evan F. Goodrich Ardon B. Evans
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LeRoy Anderson Bessie Lusty
Mabel Price N. Scott Lusty, a/k/a Neil Scott Lusty
Elaine German, a/k/a Joyce Elaine German Evan R. Lusty
Ardon S. Hawkins
(hereinafter the “29/32 DU Deceased Parties”). Axia has conducted diligent investigation into
who the 29/32 Deceased Parties’ successors may be, including internet searches of genealogic
websites, obtaining affidavits of heirship from known relatives or friends and probate searches.
While Axia believes that a majority of such successors are now under lease, there are no final
Utah court orders confirming the succession through these Estates.
6. The 28/33 DU is a stand-up 1,280 acre drilling unit with oil and gas ownership
divided into 20 (twenty) mineral tracts, as described on Exhibit “B” attached hereto and by this
reference incorporated herein. Axia, Newfield, Newfield RMI, and CPE all own working
interests within the 28/33 DU. All but Newfield (owning a 7.447597% WI) (hereinafter the
“28/33 DU Non-participating WI Owners”; the 29/32 DU Non-participating WI Owners and the
28/33 DU Non-participating WI Owners are collectively referred to hereinafter as the “Non-
participating WI Owners”), have agreed to participate and executed JOA’s covering the 28/33
DU (excepting therefrom Newfield RMI who agreed to participate but has not executed a JOA
and was dropped from the Request). The majority of the mineral interests are under lease to
Axia or the other working interest owners. As a consequence, 91.268190% of the interest within
the 28/33 DU is voluntarily pooled by contract. (Newfield RMI owns a 1.217909% working
interest in the 28/33 DU and negotiations for the voluntary participation of that interest are
ongoing).
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7. The following parties remain unleased and all have not otherwise been pooled as
to the Butcher Butte #33-34H-22 Well within the 28/33 DU:
Unleased & Non-participating Mineral Interest Owner Mineral Interest
(Unit %)
The University of Utah c/o Williams S. Nicholson 0.027466%
Brigham Young University 0.027466%
David Rhodes 0.001099%
Peggy Rhodes 0.001099%
Daniel Rhodes 0.001099%
Doug Rhodes 0.001099%
Nancy Rhodes 0.001099%
Craig Miller Macfarlane 0.000366%
Laura Twiss 0.000366%
Janiel Smith Hicks, a/k/a Geneil Hicks 0.000439%
Dawn Smith Soger 0.000146%
Shirley Smith Rasmussen 0.000146%
Mary Ann Smith Armington 0.000146%
Steven Smith 0.000110%
Donald Smith 0.000110%
Leland Smith 0.000055%
Wesley Smith 0.000055%
Thaniel Smith 0.000055%
Ethan Ben Smith 0.000055%
Denise Lane 0.003828%
TOTAL: 0.066304%
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(hereinafter the “28/33 DU Non-participating Mineral Owners”; the 29/32 DU Non-participating
Mineral Owners and the 28/33 DU Non-participating Mineral Owners are collectively referred to
hereinafter as the “Non-participating Mineral Owners”).
8. Title to some of the underlying oil and gas interests within the 28/33 DU remains
vested in the following parties now determined to be deceased:
G.L. Higley, a/k/a Glen L. Higley Sara I. Tanner
Iola A. Tanner Ruth T. Doxey, a/k/a Ruth T. Walker
Zoland Tanner Zola T. Rhodes
Keith Albert Higley Agnes S. Knapp
Steven Richens Della S. Miller
Jack Richens Norene Macfarlane
Ruby J. Higley Henry A. Smith
Frank P. Higley Eileen Smith
Lee George Higley Terry Creager Smith
John R. Moritz Guy Palmer Smith
Jeanne R. Moritz LaRae Smith
Edmund D. Moritz Ernan H. Smith
Mary H. Goates Verleen Smith
Frederick H. Blechmann Marion Kay Smith
Clarice E. Blechmann Henry Ray Smith
John R. Zackrison L.G. Benson
(hereinafter the “28/33 DU Deceased Parties”; the 29/32 DU Deceased Parties and the 28/33 DU
Deceased Parties are hereinafter collectively referred to as the “Deceased Parties”). Axia has
conducted diligent investigation into who the 28/33 DU Deceased Parties’ successors may be,
including internet searches of genealogic websites, obtaining affidavits of heirship from known
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relatives or friends and probate searches. While Axia believes that a majority of such successors
are now under lease, there are no final Utah court orders confirming the succession through these
Estates. (The Non-participating WI Owners, the Non-participating Mineral Owners and the
Deceased Parties and their Estates are collectively referred to hereinafter as the “Non-Consenting
FP Parties”).
9. As evidenced by Exhibits “L” – “QQQ” admitted into evidence and testimony
received at the hearing, Axia attempted in good faith for the voluntary leasing or participation of
the interests of the Non-participating WI Owners and Non-participating Mineral Owners (those
that were locatable). Although sent to their last addresses of record and as disclosed by other
data, not all of the Non-Participating Mineral Owners could be located. Those for whom no
valid or current address could be located are as follows:
Tracie Brown Nancy Rhodes
Susan Eaves Migliori, a/k/a Susan
Eaves Migliore
Laura Twiss
Vincent C. Noble Shirley Smith Rasmussen
Bradley C. Goodrich
Steven Smith
Arnold E. Johnson
Ethan Ben Smith
Jeff Nicora Peggy Rhodes
Monette Noble, a/k/a Monette Tapia Doug Rhodes
Laurence Scott Noble Craig Miller Macfarlane
Glennis Livingston Dawn Smith Soger
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Misty Livingston
Mary Ann Smith Armington
David Rhodes Thaniel Smith
Daniel Rhodes
10. Pursuant to the Board’s Order entered March 13, 2017, a notice of opportunity to
lease or participate in the Subject Wells was published in the Uintah Basin Standard on April 4
and April 11, 2017. Evidence of publication of the same was admitted into evidence as Exhibit
“YYY.” In addition to the publication being expressly directed to and naming the parties listed
in Findings of Fact No. 9 above, the publication was also expressly directed to any party
claiming oil and gas ownership through the Estates of the Deceased Parties, described in
Findings of Fact Nos. 5 and 8, as well as any and all parties not already leased or participating in
the Subject Wells. No responses to said published offer or any tender of the respective share of
costs were ever received.
11. Given the Findings of Fact Nos. 3 and 6 above, and based on other evidence
presented at the hearing, the risk assumed by Axia and the other participating working interest
owners in the drilling of the Subject Wells, a 300% risk compensation award (non-consent
penalty) is justified.
12. The terms and conditions of the JOA’s, admitted into evidence at the hearing and
attached hereto and by this reference incorporated herein as Exhibits “C” and “D,” are justified,
fair and reasonable, and are appropriate to govern the relationship between Axia as Operator of
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the Subject Wells, and the Non-Consenting FP Parties as non-operators, as to the Subject Wells
within the Subject Drilling Units, to the extent not otherwise inconsistent with this Order.
13. The average weighted fee royalty for the Butcher Butte #32-144H-22 Well
(located in the 29/32 DU), is 17.915367%. The average weighted fee royalty for the Butcher
Butte #33-34H-22 Well (located in the 28/3 DU), is 17.283924%.
14. An interest rate charge of prime rate in effect at the Wall Street Journal plus 3% is
justified, fair and reasonable.
15. Estimated plugging and abandonment costs of $197,945 for the Butcher Butte
#32-144H-22 Well and $192,888 for the Butcher Butte #33-34H-22 Well, based on 100%
working interest ownership and as detailed on Exhibits “H” and “I” admitted into evidence, are
justified, fair and reasonable.
16. Estimated drilling costs of $9,694,100 for the Butcher Butte #32-144H-22 Well
and $9,542,709 for the Butcher Butte #33-34H-22 Well, based on 100% working interest
ownership and as detailed on Exhibits “H” and “I” admitted into evidence, are justified, fair and
reasonable.
17. A copy of the Request was mailed, by U.S. Mail, postage pre-paid, certified with
return receipts requested, and properly addressed to the Non-Consenting FP Parties with known
or previously validated addresses. In addition, a copy of the Request was mailed, postage pre-
paid, certified with return receipts requested, to all other working interest owners with interests
in the Subject Drilling Units, and to any and all governmental agencies having regulatory
authority over the lands at interest.
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18. Notice of the filing of the Request and of the hearing thereon was duly published
in the Salt Lake Tribune and Deseret Morning News on April 2, 2017, and in the Uintah Basin
Standard on April 4, 2017.
19. The vote of the Board members present at the hearing and participating in this
Cause was unanimous (4-0) in favor of granting the Request.
CONCLUSIONS OF LAW
1. Due and regular notice of the time, place and purpose of the hearing was properly
given to all parties whose legally protected interests are affected by the Request in the form and
manner as required by law and the rules and regulations of the Board and Division.
2. The Board has jurisdiction over all matters covered by the Request and all
interested parties therein, and has the power and authority to render the order herein set forth
pursuant to Utah Code Ann. §40-6-6.5.
3. Axia has sustained its burden of proof, demonstrated good cause, and satisfied all
legal requirements for granting of the Request.
4. Pursuant to the holding in Cowling v. Board of Oil, Gas and Mining, 830 P.2d
220, 226 (Utah 1991), the Applicable Orders established, upon their respective entry, the parties’
correlative rights to production from any well located on the Subject Drilling Units.
5. Axia exercised good faith in attempting to solicit from all of the Non-Consenting
FP Parties the leasing or participation of their interests in the Subject Drilling Units and the
Subject Wells.
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6. The Non-Consenting FP Parties are deemed “non-consenting owners,” as that
term is defined in Utah Code Ann. §40-6-2(11), as relating to the Subject Wells, and are properly
deemed to have refused to agree to bear their respective proportionate share of the costs of the
drilling and operation of the respective Subject Wells as provided in Utah Admin Code Rule
R649-2-9(1).
7. Axia, as Operator and on behalf of itself, CPE and International as to the Butcher
Butte #32-144H-22 Well (29/32 DU) and on behalf of itself and CPE as to the Butcher Butte
#33-34H-22 Well (28/33 DU), is deemed a “consenting owner” as the term is defined in Utah
Code Ann. §40-6-2(4), but with the provisions of their respective JOA’s governing the
consequences of their respective participation elections with respect thereto.
8. Under the terms and conditions set forth in this Order, the compulsory pooling of
the Non-Consenting FP Parties, made effective on the earlier of the date of issuance or as of the
date of first production from the respective Subject Wells is just and reasonable, and insures all
interest owners will receive their fair and equitable share of production from the Subject Wells.
ORDER
Based upon the Request, testimony, and evidence submitted, and the Findings of Fact and
Conclusions of Law stated above, the Board hereby orders:
1. The Request in this Cause is granted.
2. The interests of all parties subject to the jurisdiction of the Board, specifically
including the Non-Consenting FP Parties, in the 29/32 DU as to the Butcher Butte #32-144H-22
Well, and the 28/33 DU as to the Butcher Butte #33-34H-22 Well, are pooled, with this Order
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being effective on the earlier of the date of issuance or the date of first production from the
respective Subject Wells.
3. Operations upon any portion of the 29/32 DU or the 28/33 DU shall be deemed
for all purposes to be the conduct of operations upon each separately owned tract in the
respective Subject Drilling Unit by the several owners.
4. Production allocated or applicable to a separately owned tract included in either
the 29/32 DU or 28/33 DU shall, when produced, be deemed for all purposes to have been
produced from that tract by a well drilled on that respective Subject Drilling Unit.
5. Each owner shall pay his allocated share of the costs incurred in drilling and
operation of the respective Subject Well in which that owner owns an interest, including, but not
limited to, the costs of drilling, completing, equipping, producing, gathering, transporting,
processing, marketing, and storage facilities, reasonable charges for administration and
supervision of operations and other costs customarily incurred in the industry, all to be governed
in accordance with the terms and conditions of the JOA’s executed with Axia or, only in the case
of the Non-Consenting FP Parties, the JOA’s attached hereto (as Exhibit “C” for the Butcher
Butte #32-144H-22 Well in the 29/32 DU, and as Exhibit “D” for the Butte #33-34H-22 Well in
the 28/33 DU), to the extent not otherwise inconsistent with this Order.
6. The Non-Consenting FP Parties are “non-consenting owners,” and Axia, as
Operator of the Subject Wells, on behalf of itself and all other current and future participating
working interest owners, are “consenting owners” as these terms are utilized in Utah Code Ann.
§§40-6-6.5 and 40-6-2(4) and (11), with respect to the Subject Wells. If, subsequent to the
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Hearing, any of the Non-Consenting FP Parties (non-consenting owners) elect to participate and
sign the respective JOA, Axia shall have the sole discretion whether to consider that party a
consenting owner or a non-consenting owner relating to that respective well. Leases executed
after the Hearing, regardless of the lease’s “effective date,” by any of the Non-Consenting FP
Parties, and any and all other parties claiming any right, title, or interest in the oil and gas within
the Subject Drilling Units by, through, or under any of the Deceased Parties Estates shall be
ineffective as to the Subject Wells, unless otherwise agreed to in writing and signed by Axia and
such other party, and the calculation of the Average Weighted Landowner Royalty; however,
such Leases may be applicable to any well drilled in the Subject Drilling Units subsequent to the
Subject Wells.
7. The interests of the non-consenting owners in their respective Subject Well shall
be deemed relinquished to the applicable consenting owner(s) in such well during the period of
payout for the well as provided in Utah Code Ann. §§ 40-6-6.5(4)(b) and 40-6-6.5(8). The
relinquishment does not constitute a defeasance of title to the interests in the mineral estate, but
rather the relinquishment of the revenue stream attributable to the non-consenting owners’
allocated share during the respective period of payout, after payment of any royalty required to
be paid by statute or this Order.
8. Each non-consenting owner shall be entitled to receive, subject to the royalty
specified herein, the share of the production of the Subject Well applicable to such owner’s
interest in the respective Subject Drilling Unit after the consenting owner(s) has/have recovered
the following from such non-consenting owner’s share of production: (1) 100% of the non-
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consenting owner’s share of the costs of surface equipment beyond the wellhead connections,
including stock tanks, separators, treaters, pumping equipment, and piping; (2) 100% of the non-
consenting owner’s share of the estimated costs of plugging and abandoning the respective
Subject Well, which costs are estimated to be $197,945 for the Butcher Butte #32-144H-22 Well
and $192,888 for the Butcher Butte #33-34H-22 Well (based on a 100% working interest); (3)
100% of the non-consenting owner’s share of the costs of operation of the respective Subject
Well, commencing with first production and continuing until the consenting owner(s) has
recovered all costs, including those allowed by Paragraph 5 of this Order; and (4) a risk
compensation award of 300% of the non-consenting owner’s share of the costs of staking the
location, wellsite preparation, rights-of-way, rigging up, drilling, reworking, recompleting,
deepening or plugging back, testing, and completing, and the costs of equipment in the
respective Subject Well, to and including the wellhead connection, as such costs are delineated in
Utah Code Ann. § 40-6-6.5(4)(d). The non-consenting owner’s share of costs is that interest that
would have been chargeable to the non-consenting owner if such owner had initially agreed to
participate in the respective Subject Well and pay such owner’s share of the costs of the
respective Subject Well, from the commencement of operations.
9. The interest rate, as permitted by Utah Code Ann. § 40-6-6.5(4)(d)(iii), is set to
the prime rate, as published by the Wall Street Journal, plus 3%, or if the Wall Street Journal
ceases to exist or to report a prime rate, then the prime rate shall be the prime rate reported by a
reputable bank lawfully operating in the State of Utah selected by the Operator.
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10. For those non-consenting owners whose tract in a Subject Drilling Unit is subject
to a lease or other contract for the development of oil and gas, the consenting owners in such
drilling unit shall pay any royalty interest not subject to the deduction of the costs of production
from the production attributable to that tract between the date of first production from the
respective Subject Well to Payout, as defined in Paragraph 12 of this Order.
11. For those non-consenting owners whose tract in a Subject Drilling Unit is not
subject to a lease or other contract for the development of oil and gas, the consenting owners in
that Subject Drilling Unit shall pay the Non-participating Mineral Owners an average weighted
landowner royalty equal to 17.915367% for the Butcher Butte #32-144H-22 Well in the 29/32
DU, and 17.283924% for Butcher Butte #33-34H-22 Well in the 28/3 DU, from the date of first
production from the respective Subject Well until Payout, as defined in Paragraph 12 of this
Order. Upon Payout, the average weighted landowner royalty shall be merged back into the
Non-participating Mineral Owner’s working interest and shall be terminated. In calculating the
division of interest for each Non-participating Mineral Owner, the average weighted landowner
royalties shall be proportionately reduced in the ratio that the owner’s interest bears to (a) the
total interest in the tract and (b) further reduced in the ratio that the tract acres bear to the total
acres in the respective Subject Drilling Unit.
12. “Payout” occurs when the consenting owner(s) who participate in the costs of
drilling and completing the respective Subject Well recoup from the non-consenting owners the
costs and expenses authorized by Paragraphs 8 and 9 of this Order.
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13. The consenting owner shall furnish each non-consenting owner with a monthly
statement regarding the respective Subject Well specifying: (i) the costs incurred; (ii) the
quantity of oil or gas produced; and (iii) the amount of oil and gas proceeds realized from the
sale of the production during the preceding month.
14. Upon Payout of a Subject Well, the non-consenting owner’s relinquished interests
in that well shall automatically revert to them, and they shall from that time forward own the
same interest in the respective Subject Well and the production from it, and shall be liable for the
further costs of operation, as if such owners had participated in the initial drilling and completion
operations. These costs are payable out of production unless otherwise agreed between the non-
consenting owner and the operator.
15. In any circumstance when any non-consenting owner has relinquished such
owner’s share of production to the consenting owner(s) or at any time fails to take such owner’s
share of production in-kind, when such owner is entitled to do so, such non-consenting owner is
entitled to an accounting of the oil and gas proceeds applicable to such owner’s relinquished
share of production and payment of the oil and gas proceeds applicable to that share of
production not taken in-kind, net of costs.
16. Pursuant to Utah Admin. Code Rules R641 and Utah Code Ann. §63G-4-204 to
208, the Board has considered and decided this matter as a formal adjudication.
17. This Order is based exclusively on evidence of record in the adjudicative
proceeding or on facts officially noted, and constitutes the signed written order stating the
21
Board’s decision and the reasons for the decision, all as required by the Administrative
Procedures Act, Utah Code Ann. §63G-4-208 and Utah Administrative Code Rule R641-109.
18. Notice re: Right to Seek Judicial Review by the Utah Supreme Court or to
Request Board Reconsideration: As required by Utah Code Ann. §63G-4-208(e) - (g), the Board
hereby notifies all parties in interest that they have the right to seek judicial review of this final
Board Order in this formal adjudication by filing a timely appeal with the Utah Supreme Court
within 30 days after the date that this Order issued. Utah Code Ann. §§63G-4-401(3)(a) and 403.
As an alternative to seeking immediate judicial review, and not as a prerequisite to seeking
judicial review, the Board also hereby notifies parties that they may elect to request that the
Board reconsider this Order, which constitutes a final agency action of the Board. Utah Code
Ann. §63G-4-302, entitled, “Agency Review – Reconsideration,” states:
(1)(a) Within 20 days after the date that an order is issued for which review
by the agency or by a superior agency under Section 63G-4-301 is
unavailable, and if the order would otherwise constitute final agency
action, any party may file a written request for reconsideration with the
agency, stating the specific grounds upon which relief is requested.
(b) Unless otherwise provided by statute, the filing of the request is not a
prerequisite for seeking judicial review of the order.
(2) The request for reconsideration shall be filed with the agency and one
copy shall be sent by mail to each party by the person making the request.
(3)(a) The agency head, or a person designated for that purpose, shall issue a
written order granting the request or denying the request.
(b) If the agency head or the person designated for that purpose does not
issue an order within 20 days after the filing of the request, the request for
reconsideration shall be considered to be denied.
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Id. The Board also hereby notifies the parties that Utah Admin. Code Rule R641-110-100,
which is part of a group of Board rules entitled, “Rehearing and Modification of Existing
Orders,” states:
Any person affected by a final order or decision of the Board may file a
petition for rehearing. Unless otherwise provided, a petition for rehearing
must be filed no later than the 10th
day of the month following the date of
signing of the final order or decision for which the rehearing is sought. A
copy of such petition will be served on each other party to the proceeding no
later than the 15th
day of the month.
Id. See Utah Admin. Code Rule R641-110-200 for the required contents of a petition for
Rehearing. If there is any conflict between the deadline in Utah Code Ann. §63G-4-302 and
the deadline in Utah Admin. Code Rule R641-110-100 for moving to rehear this matter, the
Board hereby rules that the later of the two deadlines shall be available to any party moving
to rehear this matter. If the Board later denies a timely petition for rehearing, the party may
still seek judicial review of the Order by perfecting a timely appeal with the Utah Supreme
Court within 30 days thereafter.
The Board retains continuing jurisdiction over all the parties and over the subject
matter of this cause, except to the extent said jurisdiction may be divested by the filing of a
timely appeal to seek judicial review of this order by the Utah Supreme Court.
23
For all purposes, the Chairman’s signature on a faxed copy of this Order shall be
deemed the equivalent of a signed original.
DATED AND EFFECTIVE this ____ day of ________, 2017.
STATE OF UTAH
BOARD OF OIL, GAS AND MINING
By:
Ruland J. Gill, Jr., Chairman
CERTIFICATE OF SERVICE
The undersigned hereby certifies that, on this 1
st day of June, 2017, in addition to the
original and seven copies hand delivered to the Board’s Secretary, I caused a true and correct
copy of the foregoing PROPOSED FINDINGS OF FACT, CONCLUSIONS OF LAW AND
ORDER to be sent electronically, via e-mail to:
Michael S. Johnson, Esq.
Asst. Attorney General
Utah Board of Oil, Gas and Mining
1594 W. North Temple, Suite 300
Salt Lake City, UT 84116
Mark L. Burghardt, Esq.
John A. Davis, Esq
Holland & Hart, LLP
222 South Main Street, Ste. 2200
Salt Lake City, UT 84101
E-mail: [email protected]
Attorneys for Newfield Production Company &
Newfield RMI, LLC
Steven F. Alder
Utah Attorney General’s Office
Utah Division of Oil, Gas and Mining
1594 W. North Temple, Suite 300
Salt Lake City, UT 84116
By: _________________________________
David P. Bolda, Esq.
EXHIBIT “A”
The Butcher Butte 32-144H-22 Well located in the 29/32 DU is a stand-up, 1,280-acre
drilling unit comprised of Sections 29 and 32 of Township 2 South, Range 2 West, U.S.M.,
Duchesne County, Utah, with oil and gas ownership divided into the following 10 (ten) mineral
tracts:
Tract Section Legal Gross
Acres
% of Unit Ownership
I 29 NE¼, E½SE¼NW¼, E½SE¼ 260.00 20.31250% Fee
II 29 N½NW¼, N½SW¼NW¼,
N½S½SW¼NW¼,
W½SE¼NW¼
130.00 10.15625% Fee
III 29 S½S½SW¼NW¼; Also
beginning at the West quarter
corner, thence East 1732.5
feet, thence South 1194.3 feet,
thence West 1732.5 feet,
thence North 1194.3 feet to
place of beginning.
57.50 4.49219% Fee
IV 29 Beginning at the Southwest
Corner of Section 29, thence
North 1445.7 feet, thence East
1732.5 feet, thence South
1445.7 feet, thence West
1732.5 feet to the place of
beginning.
57.50 4.49219% Fee
V 29 The East 55 rods of the SW¼,
W½SE¼
135.00 10.54688% Fee
1 32 NE¼ 160.00 12.50000% Fee
2 32 NW¼ 160.00 12.50000% Fee
3 32 E½SW¼ 80.00 6.25000% Fee
4 32 W½SW¼ 80.00 6.25000% Fee
5 32 SE¼ 160.00 12.50000% Fee
Total: 1280.00 100.00000%
EXHIBIT “B”
The Butcher Butte 33-34H-22 Well located in the 28/33 DU is a stand-up, 1,280-acre
drilling unit comprised of Sections 28 and 33 of Township 2 South, Range 2 West, U.S.M.,
Duchesne County, Utah, with oil and gas ownership divided into the following 20 (twenty)
mineral tracts:
Tract Section Legal Gross
Acres
% of Unit Ownership
I 28 N½N½, SE¼NE¼ 200.00 15.62500% Tribal
II 28 SW¼NE¼, S½NW¼,
N½SW¼, SE¼SW¼ and the
following metes and bounds
tract: Beginning at the
Southwest corner of the SW¼;
thence North 80 rods; thence
East 80 rods; thence South
1020 feet; thence West 740
[sic, 790] feet; thence
Southwest to a point 180 feet
East of said Southwest corner,
thence West 180 feet to point
of beginning.
273.35 21.35547% Fee
III 28 W½SE¼, NE¼SE¼ 120.00 9.37500% Fee
IV 28 SE¼SE¼ 40.00 3.12500% Fee
V 28 Beginning 180 feet East of the
SW corner of Sec. 28; thence
East 1140 feet; thence North
300 feet; thence West 790 feet;
thence Southwesterly to the
point of beginning.
6.65 0.51953% Fee
1 29 NW¼NE¼, E½NE¼ 120.00 9.37500% Fee
2 29 SW¼NE¼ 40.00 3.12500% Fee
2
3-A 29 Beginning at a point the
Northwest corner of the
NW¼NW¼ and running
thence East 165 feet; thence
South 165 feet; thence West
165 feet; thence North 165 feet
to the point of beginning.
0.63 0.04922% Fee
3-B 29 Beginning at a point 165 feet
East of the Northwest corner of
the NW¼NW¼; thence East
300 feet; thence South 465
feet; thence West 465 feet;
thence North 300 feet; thence
East 165 fet; thence North 165
feet to the point of beginning;
ALSO Beginning at a point
465 feet South of the
Northwest corner of the
NW¼NW¼; thence South 100
feet; thence East 213 feet;
thence North 100 feet; thence
West 213 feet tot he point of
beginning.
4.82 0.37656% Fee
3-C 29 Beginning at a point 465 feet
South and 213 feet East of the
Northwest corner of the
NW¼NW¼; thence South 300
feet; thence West 213 feet;
thence South 555 feet; thence
East 2640 feet; thance North
1320 feet; thence West 2175
feet; thence South 465 feet;
thence West 252 feet to the
point of beginning.
73.57 5.74766% Fee
3-D 29 Beginning at a point 565 feet
South of the NW¼NW¼;
thence South 200 feet; thence
East 213 feet; thence North
200 feet; thence 213 feet to the
point of beginning.
0.98 0.07656% Fee
4 29 S½NW¼ 80.00 6.25000% Fee
5 29 N½SW¼ 80.00 6.25000% Fee
6 29 SW¼SW¼ 40.00 3.12500% Fee
3
7 29 Beginning at the South quarter
corner of Section 33, thence
South 89°36'38" West 290.00
feet along the South line of
said section to a nail and
washer set in the pavement of
State Highway 87; thence
North 00°00'00" East 826.14
feet to a 5/8" rebar with an
aluminum cap; thence North
89°36'38" East 290.00 feet to a
5/8" rebar with an aluminum
cap situated on the East line of
the Southeast quarter of the
Southwest quarter of said
section 33; thence South
00°00'00" East 826.14 feet
along said East line to the
point of Beginning. Basis of
Bearings being along the East
line of said Southeast quarter
of the Southwest quarter of
said section, that bearing is
assumed to be “North”, less
the portion of Tract 8 lying
therein.
3.04 0.23750% Fee
8 29 Beginning at the Southeast
corner of the Southwest
quarter thence running North
342 feet, thence West 313 feet,
thence South 342 feet, thence
East 313 feet to the place of
beginning.
2.49 0.19453% Fee
9 29 SE¼SW¼ less Tracts 7 and 8 34.47 2.69297% Fee
10 29 NE¼SE¼ 40.00 3.12500% Fee
11 29 NW¼SE¼ and S½SE¼ less
Tract 12
116.80 9.12500% Fee
4
12 29 Commencing at the Southwest
Corner of the Southeast
Quarter of the Southeast
Quarter, running thence North
32 rods; thence East 16 rods;
thence South 32 rods; thence
West 16 rods to the point of
beginning.
3.20 0.25000% Fee
Total: 1280.00 100.00000%
4185373.3
A.A.P.L. FORM 610 - 1989
MODEL FORM OPERATING AGREEMENT
OPERATING AGREEMENT
DATED
February 1 , 2017 , year
OPERATOR Axia Energy II, LLC
CONTRACT AREA Butcher Butte 32-144H-22 Well
Township 2 South, Range 2 West, USM
Sections 29 & 32:
COUNTY OR PARISH OF Duchesne County , STATE OF Utah
COPYRIGHT 1989 – ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEUM
LANDMEN, 4100 FOSSIL CREEK BLVD.
FORT WORTH, TEXAS, 76137, APPROVED FORM.
A.A.P.L. NO. 610 – 1989
EXHIBIT "C"
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
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expense and for the account of the Consenting Parties. Upon commencement of operations for the drilling, Reworking, Sidetracking, Recompleting, Deepening or Plugging Back of any such well by Consenting Parties in accordance with the provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non- Consenting Party's interest in the well and share of production therefrom or, in the case of a Reworking, Sidetracking, Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.1. Option No. 2, all of such Non- Consenting Party's interest in the production obtained from the operation in which the Non-Consenting Party did not elect to participate. Such relinquishment shall be effective until the proceeds of the sale of such share, calculated at the well, or market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes, royalty, overriding royalty and other interests not excepted by Article III.C. payable out of or measured by the production from such well accruing with respect to such interest until it reverts), shall equal the total of the following: (i) 100 % of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and piping), plus 100% of each such Non-Consenting Party's share of the cost of operation of the well commencing with first production and continuing until each such Non-Consenting Party's relinquished interest shall revert to it under other provisions of this Article, it being agreed that each Non-Consenting Party's share of such costs and equipment will be that interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning of the operations; and (ii) 300 % of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening, Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VIII.C., and of (b) that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections), which would have been chargeable to such Non-Consenting Party if it had participated therein. Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each Non-Consenting Party who submitted or voted for an alternative proposal under Article VI.B.6. to drill the well to a shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Non- Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4. (a). If any such Non- Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions of this Article VI.B.2. (b) shall apply to such party's interest. (c) Reworking, Recompleting or Plugging Back. An election not to participate in the drilling, Sidetracking or Deepening of a well shall be deemed an election not to participate in any Reworking or Plugging Back operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Similarly, an election not to participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Any such Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part of the cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties 400_% of that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to such Non-Consenting Party had it participated therein. If such a Reworking, Recompleting or Plugging Back operation is proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting Parties in said well. (d) Recoupment Matters. During the period of time Consenting Parties are entitled to receive Non-Consenting Party's share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all ad valorem, production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to Non-Consenting Party's share of production not excepted by Article III.C. In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all such equipment shall remain unchanged; and upon abandonment of a well after such Reworking, Sidetracking, Plugging Back, Recompleting or Deepening, the Consenting Parties shall account for all such equipment to the owners thereof, with each party receiving its proportionate part in kind or in value, less cost of salvage. Within ninety (90) days after the completion of any operation under this Article, the party conducting the operations for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to the well, and an itemized statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing, Recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement of such costs of operation, may submit a detailed statement of monthly billings. Each quarter month thereafter, during the time the Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred in the operation of the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds realized from the sale of the well's working interest production during the preceding quarter month. In determining the quantity of Oil and Gas produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering or periodic well tests. Any amount realized from the sale or other disposition of equipment newly acquired in connection with any such operation which would have been owned by a Non-Consenting Party had it participated therein shall be credited against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such Non-Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non- Consenting Party. If and when the Consenting Parties recover from a Non-Consenting Party's relinquished interest the amounts provided for above, the relinquished interests of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on the day following the day on which such recoupment occurs, and, from and after such reversion, such Non-Consenting Party shall own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as such Non-Consenting Party would have been entitled to had it participated in the drilling, Sidetracking, Reworking, Deepening, Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be charged with and
4185373.3
A.A.P.L. FORM 610 - 1989
MODEL FORM OPERATING AGREEMENT
OPERATING AGREEMENT
DATED
February 8 , 2017 , year
OPERATOR Axia Energy II, LLC
CONTRACT AREA Butcher Butte 33-34H-22 Well
Township 2 South, Range 2 West, USM
Sections 28 & 33: ALL
COUNTY OR PARISH OF Duchesne County , STATE OF Utah
COPYRIGHT 1989 – ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEUM
LANDMEN, 4100 FOSSIL CREEK BLVD.
FORT WORTH, TEXAS, 76137, APPROVED FORM.
A.A.P.L. NO. 610 – 1989
EXHIBIT "D"
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
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expense and for the account of the Consenting Parties. Upon commencement of operations for the drilling, Reworking, Sidetracking, Recompleting, Deepening or Plugging Back of any such well by Consenting Parties in accordance with the provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non- Consenting Party's interest in the well and share of production therefrom or, in the case of a Reworking, Sidetracking, Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.1. Option No. 2, all of such Non- Consenting Party's interest in the production obtained from the operation in which the Non-Consenting Party did not elect to participate. Such relinquishment shall be effective until the proceeds of the sale of such share, calculated at the well, or market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes, royalty, overriding royalty and other interests not excepted by Article III.C. payable out of or measured by the production from such well accruing with respect to such interest until it reverts), shall equal the total of the following: (i) 100 % of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and piping), plus 100% of each such Non-Consenting Party's share of the cost of operation of the well commencing with first production and continuing until each such Non-Consenting Party's relinquished interest shall revert to it under other provisions of this Article, it being agreed that each Non-Consenting Party's share of such costs and equipment will be that interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning of the operations; and (ii) 300 % of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening, Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VIII.C., and of (b) that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections), which would have been chargeable to such Non-Consenting Party if it had participated therein. Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each Non-Consenting Party who submitted or voted for an alternative proposal under Article VI.B.6. to drill the well to a shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Non- Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4. (a). If any such Non- Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions of this Article VI.B.2. (b) shall apply to such party's interest. (c) Reworking, Recompleting or Plugging Back. An election not to participate in the drilling, Sidetracking or Deepening of a well shall be deemed an election not to participate in any Reworking or Plugging Back operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Similarly, an election not to participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Any such Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part of the cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties 400_% of that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to such Non-Consenting Party had it participated therein. If such a Reworking, Recompleting or Plugging Back operation is proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting Parties in said well. (d) Recoupment Matters. During the period of time Consenting Parties are entitled to receive Non-Consenting Party's share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all ad valorem, production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to Non-Consenting Party's share of production not excepted by Article III.C. In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all such equipment shall remain unchanged; and upon abandonment of a well after such Reworking, Sidetracking, Plugging Back, Recompleting or Deepening, the Consenting Parties shall account for all such equipment to the owners thereof, with each party receiving its proportionate part in kind or in value, less cost of salvage. Within ninety (90) days after the completion of any operation under this Article, the party conducting the operations for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to the well, and an itemized statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing, Recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement of such costs of operation, may submit a detailed statement of monthly billings. Each quarter month thereafter, during the time the Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred in the operation of the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds realized from the sale of the well's working interest production during the preceding quarter month. In determining the quantity of Oil and Gas produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering or periodic well tests. Any amount realized from the sale or other disposition of equipment newly acquired in connection with any such operation which would have been owned by a Non-Consenting Party had it participated therein shall be credited against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such Non-Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non- Consenting Party. If and when the Consenting Parties recover from a Non-Consenting Party's relinquished interest the amounts provided for above, the relinquished interests of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on the day following the day on which such recoupment occurs, and, from and after such reversion, such Non-Consenting Party shall own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as such Non-Consenting Party would have been entitled to had it participated in the drilling, Sidetracking, Reworking, Deepening, Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be charged with and
