Advanced Stacked Laterals: PSA, Allocation, Permitting, and Compliance

1. PSA Wells, Allocation Wells and Stacked LateralsPermitting and CompletionLorenzo Garza & Joe Stasulli

2. Presentation Overview • How to qualify for Stacked Lateral status • Requirements for PSA and Allocation wells • Filing completions for these types of applications

3. Drilling Permits and Well Compliance– Advanced

4. Drilling Permits and Well Compliance– Advanced Stacked Laterals- how to qualify • 2 or more horizontal drainhole wells within lease/pooled unit in the correlative interval. • Horizontal drainholes are drilled from different surface locations. • The first well drilled establishes the parameters that the subsequent wells will be tested against. Make sure your field rules allow for Stacked Laterals and if so what well spacing is required.

5. Drilling Permits and Well Compliance– Advanced Stacked Laterals- how to qualify cont. • Each surface location must be permitted separately and assigned its own API number. • Plat must clearly show all wellbores attempting to qualify for Stacked Lateral status. • To be considered a “regular location” each well must comply to any minimum lease or between well spacing rules

6. Drilling Permits and Well Compliance– Advanced Stacked Laterals why all the fuss? • For each well that qualifies as a Stacked Lateral well your overall well count will not increase when the RRC tests your lease for density exceptions. • Remember that the wells must be completed in the same regulatory field to qualify as a stacked lateral.

7. Drilling Permits and Well Compliance– Advanced Stacked Laterals potential problem? • If your well, when completed, does not remain within the established parameters of the “record well” then you will be required to amend the permit to reflect its new status and count this well against your total well count. If you exceed density then an exception to SWR 38 will be needed.

8. Drilling Permits and Well Compliance– Advanced

9. Drilling Permits and Well Compliance– Advanced

10. Drilling Permits and Well Compliance– Advanced PRODUCTION SHARING AGREEMENTS Supporting Documentation: • Authorization letter to include % of participation • PSA-12 form showing acreage to be assigned to proposed well • Plat showing the external boundary of all tracts contributing acreage to the proposed well • Well allocation worksheet

11. Drilling Permits and Well Compliance– Advanced PRODUCTION SHARING AGREEMENTS Supporting Documentation: Authorization letter • Contractual right to develop all proposed tracts • To be approved administratively minimum of 65% of mineral and working interest owners must be signed to agreement • If less than 65% sign-up then request to set up application for hearing

12. PSA/ALLOCATION AUTHORITY LETTER

13. Drilling Permits and Well Compliance– Advanced PRODUCTION SHARING AGREEMENTS Supporting Documentation: PSA-12 and Plat • PSA-12 form filled out showing all tracts and acreage involved • Plat that shows the entire boundary of all contributing tracts • All supporting lease/unit line calls should be to exterior boundary of the contributing tracts • Any un-leased tracts within contributing tracts should be identified

15. Drilling Permits and Online Filing - Advanced

16. Drilling Permits and Well Compliance– Advanced PRODUCTION SHARING AGREEMENTS Supporting Documentation: Acreage allocation work sheet • Breakdown of activity for each contributing lease/pooled unit • If any contributing lease/pooled unit is over assigned then a statement as to how the deficiency will be resolved • If SWR 38 density exception is required then application must follow procedures set forth in the rule

17. W-1 ACREAGE ALLOCATION WORK SHEET

18. Drilling Permits and Well Compliance– Advanced

19. Drilling Permits and Well Compliance– Advanced

20. Drilling Permits and Well Compliance– Advanced What is the difference between a “PSA” well and an “Allocation” well? On tracts that you have a valid lease in place an “Allocation” well permit will allow you to get a drilling permit application without the qualifier that you have to provide for a “PSA” well that 65% of both mineral and working interest owners have signed an agreement as to how production proceeds will be divided. 2. What it doesn’t allow you to do is incorporate tracts into your “Allocation” unit that the wellbore does not traverse.

21. Drilling Permits and Well Compliance– Advanced PSA or ALLOCATION WELLS SWR Exceptions: Lease line • Allocation well application will always require an exception • PSA application will require an exception if there is less than 100% participation Between Well • Normal notification procedures will be followed Density Exception • Unless specified in the field rules normal notification and data requirements will be followed

22. Drilling Permits and Well Compliance– Advanced PSA or ALLOCATION WELLS -Example TRACT A TRACT B

23. Drilling Permits and Well Compliance– Advanced PSA or ALLOCATION WELLS -Example

24. Drilling Permits and Well Compliance– Advanced PSA or ALLOCATION WELLS -Example

25. Drilling Permits and Well Compliance– Advanced PSA or ALLOCATION WELLS -Example

26. Drilling Permits and Well Compliance– Advanced PSA or ALLOCATION WELLS -Example

27. Drilling Permits and Well Compliance– Advanced PSA or ALLOCATION WELLS -Example

28. Drilling Permits and Well Compliance– Advanced PSA or ALLOCATION WELLS -Example

29. Drilling Permits and Well Compliance– Advanced Would you like to make your life a little easier and help decrease the processing time of both your drilling permits and completions?

30. Drilling Permits and Well Compliance– Advanced

31. Contact Information For further questions concerning Drilling Permits please contact: Lorenzo Garza Phone: 512-463-2184 Email: Lorenzo.Garza@rrc.state.tx.us Valerie Atkins Phone: 512-463-6979 Email: Valerie.Atkins@rrc.state.tx.us

32. Drilling Permits and Well Compliance– Advanced Now Presenting Mr. Joe Stasulli

33. Railroad Commission of TexasOperator Procedures for PSA and Allocation Wells

34. Drilling Permits and Well Compliance– Advanced Completion Report (G1/W2) must include: • (SA) does not need to be included in the lease name. • Sharing Agreement information must be referenced in the G1/W2 remarks. • Detailed Sharing Agreement information must be attached to the completion packet.

35. Drilling Permits and Well Compliance– Advanced

36. Drilling Permits and Well Compliance– Advanced

37. Drilling Permits and Well Compliance– Advanced

38. Drilling Permits and Well Compliance– Advanced

39. Railroad Commission of TexasOperator Procedures for Stacked Laterals

40. Drilling Permits and Well Compliance– Advanced • The first well of a stacked lateral is set up and processed in the same manner as any regular producing well. • All the standard information should be filed for this well, drilling permit, completion, and associated forms.

41. Drilling Permits and Well Compliance– Advanced

42. Drilling Permits and Well Compliance– Advanced • Any additional lateral wells (2nd, 3rd, 4th) must have an approved drilling permit and completions filed. • The letters SL (Stacked Lateral) should NOT be included in the well number if feasible. • The drilling permit (W-1) and completion (G-1/W-2) remarks should reference that this is a stacked lateraland report all Railroad Commission identification numbers associated with all wells that are part of the stacked lateral. Use the drilling permit numbers if an RRC ID has not been assigned.

43. Drilling Permits and Well Compliance– Advanced

44. Drilling Permits and Well Compliance– Advanced

45. Drilling Permits and Well Compliance– Advanced