LEGAL DESCRIPTION: SECTION 27, TOWNSHIP 4 · LEGAL DESCRIPTION: SECTION 27, TOWNSHIP 4 ... It has...

BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA

APPLICANT: JOHNSTON COUNTY DISPOSAL, LLC

RELIEF SOUGHT: SALT WATER DISPOSAL WELL

LEGAL DESCRIPTION: SECTION 27, TOWNSHIP 4 NORTH, RANGE 4 EAST, JOHNSTON COUNTY, OKLAHOMA

CAUSE PD NO.

F ILE 0 FE8 0 S 2013

C01 IRI CLL.tKS OFPIC - OtcC 1-',PckATI0N COMMIQN

LAhOMA REPORT OF THE ADMINISTRATIVE LAW JUDGE

This Cause came on for hearing before William L. Peterson, Administrative Law Judge for the Corporation Commission of the State of Oklahoma, in the Commission's Courtroom, Jim Thorpe Building, Oklahoma City, Oklahoma, pursuant to notice given as required by law and the rules of the Commission for the purpose of taking testimony and reporting to the Commission.

STATEMENT OF THE CASE

Applicant ("Johnston County") believes that it has found a superior location for the disposal of salt water by injection into the McLish and Oil Creek formations of a horst block located a few hundred feet southwest of the Mannsville Fault System. That system in Johnston County has through the years been the subject of numerous published articles and master's degree theses. The conclusion Johnston County's experts express is that injections into the truncated McLish and Oil Creek at the proposed location at the rate of 20,000 BWPD would fill the pore volume of 640 acres in 24 years. According to its experts' opinions the horst block is fault sealed preventing release. Also they reason that the Woodford formation present in the horst block is absent pressure required to produce. They deduce that the injected fluids would not hinder production of hydrocarbons and would remain contained in the injection formations.

2. Protestant XTO presented geological and engineering witnesses disputing the existence of the horst block. This evidence was generated through drilling experience in surrounding sections where wellbores should have, but did not cross the fault lines relied upon by Johnston County. XTO contends that the

CAUSE PD 201200069 Johnston County Disposal

injected water can find its way to the known or unknown faults in the immediate area and by traveling the faults flood out the natural and/or frac induced collection systems of existing and future horizontal Woodford wells. XTO argues this potential waste should be eliminated by the denial of the application.

HEARING DATE(S): November 7, 2012

APPEARANCES: Cheri Wheeler, attorney, appeared on behalf of applicant, Johnston County Disposal, LLC

Richard K. Books, attorney, appeared on behalf of XTO Energy Inc. ("XTO") and Chesapeake Operating Co. ("Chesapeake")

Keith Thomas, Assistant General Counsel, appeared for the Corporation Commission

LIST OF EXHIBITS

Exhibit 1 is the Form 1016 filed by Johnston County Disposal, LLC on March 16, 2012 for the Johnston SWD #1 well for the center of NW/4 SW/4 SW/4 in Section 2 7-T4 S-R4E, Johnston County, Oklahoma.

Exhibit 2 is a 49 section production map centered on Section 27-T4S-R4E, Johnston County. The map purports to show all producing wells in the sections included. These sections are in T4S-R4E and T4S-R5E. It is color coded showing producing formations. It shows the route of cross section to be submitted by Johnston County in Exhibit 4. It also shows the locations of the vertical wells as well as the surface and terminus locations of horizontal wells. It gives the names of the operators, dates of drilling and the cumulative oil and gas production of each well.


Exhibit 3 is a 49 section Viola Lime Structure map duplicating sections shown in Exhibit 2 sans production data but purporting to show faults in the area and again, it shows the A-A' cross-section to be displayed in Exhibit 4.

Exhibit 4 is the same map as Exhibit 3 for the 15 sections, this time focusing on the A-A' Cross-section identified in Exhibit 3 together with well logs to illustrate the positions (and other log data) of the relevant formations of the A-A' cross-section. The logs are hung on the Viola formation. Tops of relevant formations are identified and lines are drawn to illustrate the relationships of the formations one to another.

Exhibit 5 is a Type log of the Champlin Oil Reuel W. Little #1 well in the SE/4 NE/4 NW/4 Section 34-T4S-R4E.

Exhibit 6 is a different Type log for the Reuel W. Little #1 highlighting a 60' Perm. Interval in the Basal McLish Sandstone.

Exhibit 7 is Gamma Ray/Porosity log highlighting two zones of high porosity in the Basil McLish and Oil Creek formations. The log is for Union Oil Co. of California Chrisman #104-14 in the SE/4 of Section 20-T5S-R7E.

Exhibit 8 is a Type Log for the Coastal O&G Corp. Chapman #1, SE/4 NW/4 SE/4 Section 35-T4S-R4E highlighting zones in the Oil Creek.

Exhibit 9 is the Proposed Wellbore Schematic for the Johnston SWD #1 well.

Exhibit 10 is entitled Pore Volume Available For Water showing factors used by Mr. Campbell to conclude that at injection rate of 20,000 BWPD it would take 24 years to fill up the pore volume of the McLish and Oil Creek underlying 640 acres.

Exhibit 11 is an approximate 26 section Viola Structure map centered on Section 35. It spots wells and gives the location of cross-sections A-A' and B-B' for XTO's presentation.


Exhibit 12 is a duplicate of Exhibit 11. It has drawn on it the interpretation of Mr. Boyd concerning the placement of the two faults comprising the Mannsville fault system as it traverses Section 27-T4S-R4E Johnston County.

Exhibit 13 is Bulletin #142 of the Oklahoma Geological Survey entitled Geology and Mineral Resources of Marshall County, Oklahoma (1987). The second page shows Figure 44, Structure-contour map of the top of the Viola Group, Southeast Mannsville Field.

Exhibit 14 is the Structural Cross Section of B-B' as introduced in Exhibits 12 and 13.

SUMMARY OF TESTIMONY

1. JOHN LAWS, a consulting petroleum geologist was sworn and had his qualifications as a geologist recognized without objection. He was engaged by Johnston County to prepare the 1015 application identified as Exhibit 1. He announced modification of the application to dismiss the Hunton and Viola formations making the new top of the injection interval to be -4831'. He inquired of the Commission and determined that the base of the treatable water was 200' making the intervening thickness 4631'. He explained how he determined the average porosity and permeability in support of his conclusion that the average weighted porosity was 18%. He also agrees that the applicant will submit a Form 1002A, an electric log and a bond log demonstrating cement integrity over the required area.

Applicant has provided the water sampling results from Environmental Testing, Inc. taken from wells within one mile of the proposed site and qualified the exercise as conforming to Commission rules. These are what the Commission calls "produced water samples." He further testified as to the samples from two water wells within area of concern listed as "inactive, on city water" which will establish a base line in case the owner noticed a change. The application was approved by Underground Injection Control and would have been granted but for the protest of the parties herein.


On cross-examination Mr. Laws was queried concerning selection of the location as a prospective site for a commercial salt water disposal ("SWD") facility. He stated that he selected the site through general economic and geologic requirements. For instance he wanted to select a site in the near the base of his client's operation and near the customer base with good roads to carry the truck traffic. He also wanted to select a site with the geologic conditions that allowed for the disposal of millions of gallons of fluids. In arriving at this site he used the information of the Oklahoma Geologic Survey and he examined electric logs of certain wells. He did not purport to cover the exact or specific geological conditions of this particular proposed operation, all to be discussed by Mr. William Boyd, a subsequent witness.

2. WILLIAM BOYD, a consulting petroleum geologist was sworn and qualified to render geologic opinions. He sponsored Exhibit 2, a 49 section production map centered on Section 27. While Section 27 is in Johnston County its south offset is in Marshall County. The exhibit shows the structure of the Viola at 1000' contour intervals. In addition to marking all wells drilled in the area the IHS production totals are given from the color coded formations, the original operator is stated and the name of the well supplied. Beneath the well he gives the total depth, the completion date and the (reporting service's) listed producing formation. The red triangle in Section 27 marks the location of the proposed SWD well. Most of the wells in the area are horizontal. These are shown with a box as the surface location and the coded circle at the bottom hole location, joined by a thin black line. At the surface location the name of the operator and well are given and at the bottom hole location the total depth, date of completion, producing formation and production figures (oil in green, gas in red) are given. For vertical wells similar information is given, but in different order Section 27 is shown in a distinguishing yellowish color just as a reference not denoting ownership.

Exhibit 2 also spots the locations of his cross-section wells connected by a heavy red line. He states that the well pattern shows horizontal Woodford wells to the north and northeast and to the southwest of the proposed SWD location and promises to show that this Woodford activity is separated by northwest to southeast trending faults from the geologic structure targeted to host the injection. He notes that within this host structure the Texas Company used the Chapman #1 in Section 36 and the Downey #1 in Section 35 as SWD


sites. He also opines that the injection area is not suitable for Woodford horizontal drilling because the pressure is low.

Next Mr. Boyd identified Exhibit 3 as the same 49 section plat as Exhibit 2 but with a structure map on the Viola formation. He stated that southern Oklahoma is a complex geologic area ringed with faults. Indeed his Exhibit 3 places five faults running from northwest to southeast. In making his study Mr. Boyd used the treatise published by the Oklahoma Geological Survey entitled Geology and Mineral Resources of Marshall County (1987) by George Huffman, a professor of petroleum geology at the University of Oklahoma. He states that he started with two plates (one being a structure map on the Viola) used by Professor Huffman who visited the area, located the faults on the surface and then projected them to depth. Mr. Boyd states that he had no seismic with which to work so he took the Professor's results and examined every electric log available to him for subsequent information and then posted his findings. Using new control he tweaked the map accordingly and took a look at the postings that had already been made to the treatise and he put them on his map and agreed with them. He recommends Professor Huffman's treatise because many candidates for master's degree have studied the area and written concerning these faults, the Bryan fault and two normal and one thrust fault comprising the Mannsville Fault System. (The witness then corrected Exhibit 3 to show the "normal" fault closest to the southwest corner of Section 27 is "U" on the southwest side and "D" on its northeast side. The same relationship persists along the course of the fault. He also amended Exhibit 3 to add the depth of the dry Hackler #1 well in the N/2 N/2 NW/4 of Section 35 at subsea -2651'.)

Mr. Boyd described his cross-section marked on Exhibit 3 as showing a horst block known as the "Bryan Uplift" between the most southerly of the three marked faults comprising the Mannsville Fault System and the Bryan fault. He claims the absence of Woodford wells in the Bryan Uplift and the presence of horizontal Woodford wells north and south of the Bryan Uplift demonstrate that disposal in the Bryan Uplift would not affect Woodford development. Using the log of the Reuel W. Little #1 SE/4 NE/4 NW/4, Section 34-T4S-R4E the formations present and the depths of the target zones: the Bromide at 2560', lower McLish at 4057' and the Oil Creek at 5490'. A conflict between the views of Mr. Boyd and the XTO geologist existed as to the top of


the Viola reported on the exhibits. XTO's Exhibit 11 shows the Reuel W. Little #1 with Viola at -198' and Mr. Boyd's Exhibit Nos. 3 and 4 show the Viola to be -969'. The XTO witnesses later agreed with Mr. Boyd. The targeted for injection zone of the Basil McLish Sandstone has a permeable interval of 60' according to the micro log admitted as Exhibit 6.

Mr. Boyd states that the third well on his cross-section, the Chapman #1 as shown by Exhibit 8 has porosity of roughly 15% through 190' of the Oil Creek. His opinion of this zone is that it will take "anything you want to put in it all day long" and "I personally believe we will drill to the Oil Creek, perforate the Oil Creek and nothing else will ever be done." (Tr. 10/10/12, Page 64, see lines 12 through 17.) He states that the same qualities in the Oil Creek would be found at the proposed saltwater disposal site.

Mr. Boyd identified Exhibit 11 as an XTO map and notes that the Bryan fault is not on the map. The two normal faults of the Mannsville Fault System are shown but the thrust fault (most northerly fault shown as a thrust fault) as shown on Exhibit 4 is not shown. He points out that the erroneous use of - 198' for the top of the Viola in the Reuel W. Little #1 well in the N/2 of Section 34 causes XTO to veer the fault location too far to the south. Mr. Boyd's pick for the top of the Viola in the Reuel W. Little #1 as derived from the Exhibit 5 Type log is -969'. Because he deemed the correct top to be vital, he went to the Oklahoma Geological Society library and found the "old driller's log". He called the top of the Viola at a drill depth of 1765, a subsea of -992'). (Tr. 10/10/12, Pg. 70, lines. 19, 20) He states that the operator, the geologist who watched the well, the Treatise and he made the same pick; only XTO picked -198' and used that pick to pull the fault line down to put the proposed Johnston County SWD well to straddle the two normal faults of the Mannsville fault system as shown on Exhibit 11, prepared by XTO. He states that correction of this erroneous pick places the proposed SWD well to the southwest of either fault. Exhibit 12 was then marked and Mr. Boyd by green marker made his version of the location of the two faults. These green lines clearly placed the proposed Johnston SWD well to the southwest of the Mannsville Fault System.

He continued that placement of the SWD well within the railroad track of Exhibit 11 would not cause a contamination because the fresh water zones were eroded off of the railroad track area and the area to the south all as


shown by the plugging reports of wells in the area, particularly the plugging report of the Texaco Downey #1 in Section 35 used as a disposal well. That plugging report stated that there were no fresh water zones. Furthermore, he states that crossing the Mannsville Fault Zone or the Bryan fault means nothing because on both sides of these faults the injection zones would be up against the Springer Shale, a shale well known in the area to swell when any fluid gets into it. Some drillers set pipe through the Springer Shale in drilling to the Woodford so that they will not be affected by it. He believes injecting into formations within the Bryan horst block, specifically the McLish and the Oil Creek, will not affect Woodford development and will provide sufficient porosity and permeability to dispose of the water.

On cross-examination by Mr. Books, Mr. Boyd stated that the porosity of the Bromide in the area was somewhat inconsistent. He does not know whether there will be porosity at this location because the Bromide tends to come and go. He asked for the zone to be included with decision to be made after open hole logging.

3. ROBERT CAMPBELL, a consulting petroleum engineer, was sworn and had his credentials as an engineer accepted by the ALL He was retained by the applicant to review the geology, the application, welibore schematics, and construction, and; to determine whether the reservoirs are capable of taking water, and if so, how much and within the rates and pressures requested in the application. He identified Exhibit 9 as a schematic of the proposed wellbore construction consistent with the application and consistent with the rules of the Commission. The only deviation planned by the applicant is to increase the diameter of the tubing to "four and a half' from 3.5. He states this would give more volume with less pressure. He confirmed that the schematic with the amended tubing dimension qualified under the rules and was a sound disposal schematic He opined that the dismissal of the Hunton and Viola from the application would not change the planning except the placement of the packer might change, but; it will always be set above the top perforation.

He has an opinion on the efficacy of the McLish and Oil Creek formations as possible disposal zones in this area. He states that the McLish and Oil Creek zones are always permeable and porous with rare exceptions (although


he knows of no exceptions.) The Bromide on the other hand does come and go so that only after drilling can its viability be determined. His opinion if based on 40 years experience drilling in southern Oklahoma.

His Exhibit 10 is the calculation of "Pore Volume Available for Water" based on 640 acres of 240' thick reservoir with .15 porosity and Formation Volume Factor of 1.03. According to such factors the calculation shows 173 million barrels of pore space. At the highest rate of injection of 20,000 BWPD it would take 24 years to fill the space. The "640 acres" is not Section 27, it is the 640 acres that will radiate out from the weilbore primarily in a down-dip direction. The down dip to the south and west is steep at 45 degrees. (This according to Mr. Boyd's mapping.) He states that going east or southeast along the faults is going up-dip. The Reuel Little #1 is 2500' vertically above the applied injection zone. He does not see the Reuel Little #1 as being significant because injected water will not go up-dip, it will go down-dip. For the same reason he sees no problem should the disposal well be between XTO's mapped faults (between the tracks). He states that it is not likely that disposal in to the site would have any effect on the Reuel W. Little #1 or the Little #1 well because both are up- dip of the injection site and the pressure would not be sufficient to lift the water into those shallow zones. He says if the injected fluids are constrained between the two faults as XTO maps the well, there could not be 20,000 BWPD injected with the pressures discussed.

On cross-examination he agrees that it is unknown whether the Bromide would be a viable injection formation, but says it would just be extra volume if it qualifies. On redirect examination he stated on offer of proof that he did not know from an engineering viewpoint whether the faults in question were sealing. (The question and answer will be allowed in the record.)

4. GARY BURCH, geologist with XTO, was sworn. His qualifications including an MS in geology from Texas A&M were stated and he was accepted as an expert in the field of geology. His work history was given; he is now the manager of development in geology for the Arkoma Basin district. Exhibit 11 was jointly prepared by him and another geologist. Its preparation was not occasioned by this application but rather it is a part of a larger regional map which XTO uses to drill its horizontal Woodford wells. XTO has drilled Woodford wells (starting in the upper right--hand corner of the map in T4N-


R4E, Section 2, N/2; Section 22, N/2, Section 23, S/2, Section 25, W/2, Section 26, S/2 N/2, Section 29, W/2, Section 32, W/2, Section 36, east side, with more planned. The costs for these wells is in the range of $6 to $8 million dollars.

Mr. Burch takes issue with the position of Mr. Boyd and Mr. Campbell concerning the consequences of placement of the disposal well between the tracks of the faults on Exhibit 11. He states that the map is on the viola formation and the injection zones are well below the Viola. The fault to the north is the fault of concern and it has a throw of 7,000' . This fault moves to the north as it goes down from the Viola. He states that the Little No. # 1A in the NW/4 NW/4 NE/4 of Section 34 had a fault in the welibore. He has examined the logs and has seen the fault in the welibore and thinks the well has two faults. The log shows that it goes straight from the Springer into the Woodford. It is unknown how much of the Springer has been faulted out, but the Caney and Woodford have been faulted out, proving the fault is large. The fault occurs about 500' above the Viola. Assuming the fault is about 45 degrees the fault runs 500' north of the Little # 1A. He therefore reasons:

• . In my opinion that corresponds to the northernmost fault on my map. Therefore, in order to put that fault north of the well that has minus twenty-six fifty-one on it and to put it within 500 feet of the Little No. 1A, I have to bend that fault practically east/west in order to make that happen. (Tr. 10/10/12, Pg. 128, lines 11- 15)

He states that the fault goes north of the well with -2651' in Section 35 and then goes north of the Little #1A by about 500'. This causes him to read the fault as turning more in an east/west direction. He states that the "Little" (there are two "Little: wells in the same area, the Reuel W. Little 1 and the Little 1A) well is faulted as shown on the second page of Exhibit 13. To him the fault runs to the south of the Little # 1A by 500' cutting the wellbore as the fault slants to the northeast.. He sees no reason for Mr. Boyd to "tweak" results to get the proposed location south of the fault.


XTO contends through the testimony of Mr. Burch that it has superior information by reason of the drilling of horizontal wells in the area and the possession of 3-D Seismic. Seismic information was alluded not produced. There was a well then drilling from south to north along the west aide of Section 29; if Exhibit 3 were correct the well should have crossed the Bryan fault, but it has not. He states that he has seen no evidence that the Bryan horst block exists. The Bice well is on the east side of Section 36-T4S-R4E. The Bice well should have but did not cross the northern most fault shown on Exhibit 3. He is a 100% sure that the fault does not exist. The Chapman well is in Section 21-T4S-R4E (north side of Section 21). He states that if Exhibit 3 were correct, then XTO should have faulted into the Oil Creek. In that well too they did not encounter a fault. (The witness then testified to seismic results based on unshared information.) The witness then conceded that Mr. Boyd might be correct on the top of the Viola in the Reuel Little #1 but failed to confirm that case. He states that the fault is small and not picked up by his seismic. He has general agreement with Mr. Boyd on tops but thinks the Little #1A has a Viola top of -804' while Mr. Boyd has a top of -476'. (not discernable on exhibits.) He then made reference to a well in Section 3 and contended the tops were wrong no matter which side of the Bryan fault they were on. To him this is evidence that the Bryan fault does not exist.

The witness concludes with stating that the number of faults in the area is unknown because it is a fault complex XTO is already drilling in the area comprising the "Bryan Horst Block" as if it were not there. He explains the area south of the two fault complex as a "panel of steep dip." (10/10/12, Pg. 156, line 5) He is confident of his information and plans on drilling more wells in the area south of the two-fault zone. He does not believe the two faults north of where the SWD well is to be drilled are sealing at all levels. There is a structural closure up against the southern most fault. If the fault was sealing he states there would be a significant amount of hydrocarbons trapped against the fault that would seal migration. The Oil Creek does not produce on this structure leading him to conclude that the hydrocarbons from the Oil Creek Sand escaped, probably migrating up through the fault. In his opinion at the Oil Creek level these faults are not sealing.

He complains that in dealing with the Fayetteville Shale in Arkansas XTO encountered a similar fault situation where injected water watered out three


wells by migrating up the fault line some 500' into the producing zone. These wells were aligned NE-SW in the same alignment with the fault.

On redirect examination he states that the proposed SWD well would be located slightly south of the two faults shown on Exhibit 11. The side south of the fault is the high and the side north of the faults is the deeper. He states that 'if' water gets to the fault it would follow gravity and go down the fault. If the water goes down the fault there is a "possibility" that XTO reserves would be compromised. As to whether this would cause waste, he states "potentially."

5. Greg Roberts was sworn and testified that he is a petroleum engineer for XTO. He has a Bachelor of Science from Texas Tech University in Lubbock. He worked 20 years as a petroleum engineer for Chevron and Gulf, then six years with Hunt Oil overseas. He has been with XTO since 2008. His qualifications as a petroleum engineer were accepted without objection. He states that these horizontal wells cost multiple millions of dollars each and that XTO plans on drilling multiple wells per section. He states his concern as:

.The concern with that proximity, if the water is able to access that fault, it can travel the fault. And at Woodford depth, if it gets into --- whether it be the natural or our massive hydraulic fractures, that water is going to penetrate our flow regime, flow system, and we will have to dewater it. And, unless we are able to dewater it, the well won't produce. (Tr. 10/11/12, Pg 39, line 21 to Pg. 40, line 2)

He follows this by stating that if this happens it will be more expensive to produce the well and result in reduction of the life of the well thereby shortening the life of the well and wastefully reducing recovery. He then made certain pronouncements as to company actions in the event these contingencies occurred.

He states that XTO's nearest disposal well is west of Ardmore at T5S-R1W, a good distance away. He then supports his credibility of position by stating that it would be less expensive to use a nearby disposal well. He is concerned because the area is highly faulted. The water need only go down to


reach the wells north of the faults. He states that they are drilling the Camp Creek well in Section 29-T4S-R34E. He is disturbed because he calculates the pressure gradient of .79 psi per foot at the injection pressure requested at the location of the wellbore. The Woodford wells XTO has frac'd run from .6 to .81 frac gradient. He also extends this theory by representing that Mr. Campbell said the water saturation in the disposal zones was 100%. (If true) This has relevance to parting pressure in all injection zones providing access to the fault. The witness then gave an illustration that if the SWD well was 700' from the fault and the injection zone were 240' tall, at the maximum injection rate at 0% saturation, it would fill and reach the fault in 475 days and in 40 years 272 million barrels would have been injected. The witness also states that water can be lifted 2000 ft. with "800 something" psi. He contends that if the water goes down it can reach the Woodford on the north side of the fault and if it goes up it can reach the Woodford on the south side of the fault. He also contends that if the Springer is impermeable it means that it will not accept the injected fluids and such fluids will go down the fault. Finally, the witness states that he does not know for sure whether the water would go down the fault and he does not think another engineer would know.

The witness stated that XTO had tested and found that it could drill eight wells per section in the Woodford and were investigating denser patterns Disposal costs in the area are $3 per barrel. The position of XTO is that if the proposed SWD well was feasible XTO would use it, but; XTO is concerned that the salt water will access the Woodford formation via the faults and will not ever use a well in that location for disposal purposes. The basic concern of the witness is the proximity of the proposed SWD well in relation to the faults.

REBUTTAL/ SURREBU1TAL

6. On rebuttal Mr. Boyd stated that it made no difference whether the north fault on Exhibit 3 existed or whether the Bryan fault existed because XTO's Exhibit 11 showed the position of the proposed SWD well to be between two faults and his evidence showed the SWD well to be south of the faulting system. He again asserts that the proposed injection zones are sealed by shale zones. He states that the faults are rock against rock and there is no way water can go up and down the faults. He also states that there a communication condition in the Fayetteville Shale situation presented by XTO


that allowing the water to enter the zone of production. He believes that full explanation has not been supplied by XTO. He states that XTO showed in its B-B' exhibit that all three injection zones, the Oil Creek, the McLish and the Bromide are juxtaposed the Springer Shale. The Springer Shale is impermeable and no water can get into that shale. He states (at Tr. 10/11/12, Pg. 101, lines 14 through 17) "What I'm saying is water can't travel up and down a fault. I have testified out here for numerous years. I have never seen one example in Oklahoma where water has traveled up and down a fault."

7. On cross-examination Mr. Books challenged Mr. Boyd that the XTO engineer and geologist testified that water could travel in a fault and he says that cannot happen. He responded:

No. What I said was that water was probably being injected into a porous interval which was then juxtaposed across the fault into another porous interval which probably bled its way through the porosity of the juxtaposed zone into their Fayetteville Shale. (Tr.10/11/12, Pg. 102, lines 12 to 16)

He was then asked as an expert whether water can travel along a fault. He answered that there is an instance where that could happen if it was a strike-slip displacement. (Mr. Books then instructed the witness to limit answers to "yes" or "no" and elicited a "yes" to the question that there are some circumstances where water can travel along a fault. The witness then qualified by saying in the case of a strike-slip fault. Mr. Books then pointed out that Mr. Boyd did not hear the XTO witnesses limit their response to strike-slip faults. The witness then stated that he did not feel qualified to answer whether the only fault that can transmit fluid is a strike slip fault.) Mr. Boyd did state there is no way water is going to travel through this scenario right here. Mr. Boyd stated that he was unaware of the problems of XTO in the Barnett Shale until he just heard about same.

8. On rebuttal Mr. Robert Campbell used Exhibit 14 which was prepared by XTO but introduced by Johnston County to demonstrate the likelihood that injected fluids would reach the Woodford formation on either side of the Mannsville Fault System. He takes the position that a "fault" is not


a "crack" and faults are either sealing or non-sealing. In the unlikely event the Mannsville fault system is non-sealing, water injected south of the fault into the McLish and Oil Creek must rise up dip to reach the fault and continue rising through the fault where the McLish and Oil Creek are opposed by the Springer shales. He thinks the Springer shale would swell against the accepting formation (because water causes the Springer shale to swell) thereby blocking further upward migration. However, if the injected fluid continued to rise it would reach elevations where the fault would be bounded by first, the Bromide, then Viola, then Sylvan, then Hunton. These latter formations would be opposed in the fault by the Springer shale. These four formations are porous and would accept the injected fluids prior to reaching the Woodford. On the other hand, if the water entered the fault system and by gravity traveled down the fault, it would pass the same porous formations on a greater than 6000' fall to reach the Woodford on the north side of the Mannsville Fault System. Mr. Campbell believes these scenarios are remote to the point of being impossible. (See Tr. 10/11/12, Pg 114, lines 2 through 7)

Mr. Campbell also points out XTO sponsored testimony that it drilled up to 10 horizontal wells per section.' He uses this for calculating that even after fracing with propant the drainage area on either side of a well is 250'. He uses the calculation to conclude that even if the fluids reached the Woodford, to argue that such would water out the formation is a misrepresentation. He states that the XTO argument is that waste might occur if a long list of unlikely events precede the occurrences. He argues that on the other hand, economic waste will occur without the SWD well because trucking to a remote site costs $3 per barrel. However, on cross he stated that he had done no study of the actual conditions such as actual costs vs. Johnston County costs.

9. On surrebuttal Mr. Burch reasserted his expert geological statement that water can go up and down and otherwise travel through a fault. He also disputed Mr. Boyd's speculation that the probable circumstances of Fayetteville was a porous zone transposed against a porous zone in the fault. He also stated that the Fayetteville situation had nothing to do with a strike-slip fault but rather with normal faults as in the case of the Mannsville fault system. He also stated that the Fayetteville shale and the Springer shale, while

The ALJ recalls the number to be "8."


different substances, have the same characteristics. Testimony thus completed, the record was closed.

DISCUSSION AND CONCLUSIONS

Position of Johnston County

Johnston County seeks authority for a commercial saltwater disposal well to be located on a ten acre tract, to be specific the center of the NW/4 of the SW/4 of the SW/4 of a 640 acre section. That section is located well into the interior of a Woodford shale play being developed by XTO and the site is just a few hundred feet south of the Mannsville Fault System. Based on Viola mapping the proposed location is on the side of a geologic dome. The dome is truncated by at least two faults running in a NW to SE direction. On the northeast side of the fault system the Viola plunges some 8000' and on the southwest side of the fault system the Viola slants downward at 45 degrees some 10.000 or more feet. The dip of the Woodford formation as well as the dip of the proposed injection formations, the Bromide, McLish and Oil Creek, follow the Viola. The proposed injection site is then high on the Southwest and separated by the (very close) fault system to the northeast. Thus the Applicant sees the location as near perfect with sealing faults to the northeast and dipping McLish and Oil Creeks (and maybe the Bromide) formations with voracious appetites for salt water retreating toward the northwest and southeast until encountering the Bryan Fault, the southern edge the injected horst block. Applicant sees the concerns of XTO as sated because the Woodford is either non-existent or pressure deficient in the Bryan horst block and the Woodford is sealed off from the injection formations by the Mannsville Fault System.

Position of XTO

XTO disagrees arguing the Mannsville faults are probably not sealing and its drilling in the Bryan uplift reveals that the Bryan Fault does not exist. It states that it had a similar situation of invading water in Arkansas with the Fayetteville Shale and found that water from an injection well rose 500' and watered out three of its horizontal wells. The injected water (in this case) will travel up and down the faults and probably enter the natural fractures or


completion induced fractures and thereby water out XTO's gas gathering systems making its existing wells unproductive or increasing expenses of operation and reducing longevity of the wells. Each well represents an expenditure of 6 to 8 millions of dollars in drilling and completion costs and the risks are unsatisfactory. If this injection well is authorized XTO will never use it. Furthermore, XTO geology is superior because it has been working the area and is 'lessons learned." It also states that it has 3-D seismic. XTO is the dominate developer of the Woodford in the entire area and plan to drill many more wells unless the investment is compromised by problems induced by injection.

DISCUSSION

There is no question but that XTO has superior geologic knowledge in the areas were wells have been drilled. Area mapping based on an article published in 1987 must give way to knowledge obtained by subsequent drilling. The inclusion in Exhibit 3 of the Bryan fault and the northern most thrust fault calls into question the opinions of the applicant's witnesses concerning area mapping. However, the opinions of Mr. Boyd and Mr. Campbell seem to the ALJ to be sound and reasonable to the effect that the proposed site is to the south of the Mannsville Fault System and the injection of fluids in the McLish and Oil Creek formations would flow down dip to the northeast and southwest and below the Woodford formation. The pore space as testified to by Mr. Campbell is certainly sufficient to support disposal of 20,000 BWPD as requested in the application. 2 Furthermore, the graphic illustration of the positions of the formations as shown by XTO's Exhibit 14 (and the testimony of Mr. Campbell) reveal the tortuous pathway water would be required to travel to reach the Woodford formation in the areas to the northeast of the Mannsville fault system.

2 At pg. 101 of Tr. 10/10/12 Mr. Campbell, in describing the volumetrics of Exhibit 10 stated, "" assuming we had a 100% water, which we do*** Mr. Books later led Mr. Roberts through an examination were in Mr. Roberts assumed that Mr. Campbell was testifying in refutation of. "0 Water Saturation" shown on Exhibit 10. The AU understands the testimony of Mr. Campbell to refer to the proposed fluid injected to be 100% water and not the receiving formation to be 100% saturated prior to any injection.


Added to this mixture is the consideration of whether the Mannsville Fault System is a sealing fault at the material formations. Mr. Boyd states that it is and he has never seen water go up and down faults in Oklahoma. In contrast, Mr. Burch cites a situation in Arkansas in the Fayetteville Shale play. There XTO had three wells watered out by a saltwater injection operation where the injected water traveled up a fault approximately 500 to reach the producing formation. He even states that the Fayetteville Shale and the Woodford Shale are similar, the orientation of the faults are similar, and the formations of offset are similar. Mr. Boyd was surprised by this illustration first expressed in the hearing and pointed out that the mechanics of that instance were not explained, just certain similarities. He speculated that the route of the offending water was through juxtaposed porous formations hence into the Fayetteville Shale. Mr. Burch denied that was the case. The problem the ALJ has in accepting the Fayetteville Shale as an example is that it is antidotal. One might find thousands of illustrations where the phenomena did not occur.

Next, there is the testimony of Mr. Burch that the Oil Creek formation in his opinion is non sealing at the fault. He reasons that if it were sealing there should have been hydrocarbons trapped by the fault. Since none have been produced the absence requires explanation. His explanation is that the hydrocarbons escaped probably through the fault system. (Tr. 10/10/12, Pg. 157, line 18 to Pg. 158, line 2) This reasoning to the AU assumes a priori the existence of hydrocarbons.

The evidence seems to be that if water gets into the fault and travels the fault and if it gets into the Woodford's natural fractures or XTO's massive hydraulic fractures it will penetrate the flow regime causing XTO to dewater, if possible. If dewatering is necessary it will be expensive and a continuing operating expense together with reduction in the well's longevity. XTO has spent millions of dollars per well times a great number of wells to develop the area and has an ongoing development plan involving millions of dollars. The prospect of errant water injection has caused XTO to state that it will never use the proposed SWD well. It does not want importation of salt water from other plays threatening its operations.


In the matter of waste Johnston County argues that reducing costs of disposal will prevent waste thus allowing more money to be spent on development. Mr. Campbell presented this theory but it was a little short on study and data. The best that XTO can present is to argue that the allowance of the application would potentially result in waste. Of course, XTO can assert the risk of loss of millions and millions of dollars to established and producing wells and gas gathering systems if the venture is allowed and fails.

The ALJ believes that applicant established the necessary facts to support the application as to the McLish and Oil Creek formations. The Bromide is intermittent. If it turns out the Bromide is available the Applicant can make a new application for that formation. There appears to be greater than 2000' of separation between the bottom of the Woodford and the top of the McLish. The argument that the injection pressure at bottom hole of .79 psi per foot exceeding the frac gradient of the Bromide and McLish does not take into account that the Bromide will not be perforated and the McLish will be joined by the Oil Creek in hosting the injected salt water. The Oil Creek is very porous. The frac gradient of the Oil Creek and its ability to accept salt water was left out of the illustration. The argument that the injected water can enter the fault and fall to the Woodford formation is blunted by the fact that the fault is against the Springer shale. The Springer shale swells when in contact by water. The pathway of a great quantity of water down the most southern fault would take the water next to the Bromide, Viola, Sylvan and Hunton formations, each porous and capable of receiving the escaping water. The same formations must be encountered by water going up the fault on the south side of the fault zone.

The area is highly faulted according to the statements of the geologists. However, the ALl takes it that most faults are sealing, a principle basic to discovery and production of hydrocarbons all over Oklahoma. In this case it looks like two faults cut an anticline. The soft Springer Shale would have two opportunities to seal the faults. Certainly no direct evidence was presented in this case showing the location and rational to support a finding of non sealing. That there is a fault in Arkansas leaking through a different but similar fault into a different but similar gas bearing shale is a remote circumstance. A geologic opinion in this case of same cause and effect based upon the Fayetteville shale situation in Arkansas would not pass the Daubert Test


In weighing the probable benefits of the salt water disposal well against the potential for harm in the event the expensive and valuable Woodford wells are flooded XTO is justified in its position. It has an enormous potential for loss against a negligible, if any, potential gain. However, Johnston County complies with OCC-OAC 165:10-5-5, particularly' (4)(B). When that provision and evidence of overlying strata sufficient to protect potential hydrocarbon producing zones is established, the Commission must determine that the injection well "has caused, will cause, or is reasonably likely to cause any pollution of surface or sub surface waters or any damage to any of the oil or gas bearing strata," to deny the application. Appeal of Cummings and McIntyre, 1957 OK 321, 319 P.2d 602. Mr. Burch through questioning by his counsel stated that there is a "possibility" of reserves being compromised and that waste occurring would be "Potentially." (TRiO! 11/12, Pg 35, lines 9 to 24) Mr. Roberts, XTO's engineering expert stated in response to his counsel's question:

Q.: All right. What in general terms is your concern about having a saltwater well so close to the faults? A.: The concern with that proximity, if the water is able to access that fault, it can travel the fault. And at Woodford depth, if it gets into - whether it be and natural or our massive hydraulic fractures, that water is going to penetrate our flow regime, flow system, and we will have to dewater it. And, unless we are able to dewater it, the well won't produce. (Tr. 10/11/12, Pg. 40, line 9 to Pg. 41, line 2)

In short, XTO has not shown that the well will cause, or is reasonably likely to cause any pollution of surface or sub surface waters or any damage to any of the oil or gas bearing strata. An "if' with grave consequences does not fall within the proscriptions of Appeal of Cummings and McIntire, supra.


RECOMMENDATIONS

It is recommended that the application be granted as to the McLish and Oil Creek formations and declined without prejudice, as to the Bromide.

RESPECTFULLY submitted this 8th day of February, 2013.

4ia~m~ILWterson Administrative Law Judge

WP:ac

xc: Cheri Wheeler Richard K. Books Keith Thomas Michael L. Decker, OAP Director Oil Law Records Court Clerk - 1 Commission Files

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