BEFORE THE CORPORATION COMMISSION OF THE STATE OF FA O A REPORT OF THE ADMINISTRATIVE LAW JUDGE

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1 10 BEFORE THE CORPORATION COMMISSION OF THE STATE OF FA O A APPLICANT: DRAKE EXPLORATION, ) MAR 1 7 INCORPORATE D RELIEF SOUGHT : AMEND AND MODIFY ORDER NO AS AMENDED BY ORDER NO LEGAL SECTIONS 14,22 AND 23, ALL IN DESCRIPTION: TOWNSHIP 15 NORTH, RANGE 15 EAST, MUSKOGEE COUNTY, OKLAHOMA E COURT Ct,ERK'S C1FFfCE - "rui. SA CORPORATION COMMISSIO N OF OKLAHOMA CD NO T ~-~ APPLICANT : ONEOK GAS STORAGE, L.L.C. RELIEF REQUESTED : GAS STORAGE INTEGRITY LEGAL SECTIONS 14,22 AND 23, ALL IN DESCRIPTION : TOWNSHIP 15 NORTH, RANGE 15 EAST, MUSKOGEE COUNTY, OKLAHOMA CD NO "r REPORT OF THE ADMINISTRATIVE LAW JUDGE The causes came on for hearing before Kathleen M. McKeawn, Administrative Law Judge (ALJ), in the Oklahoma Corporation Commission's (Commission) courtroom, Kerr Building, Tulsa, 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 Commissioners. CASE SUMMARY Under previously issued Commission orders Drake Exploration, Incorporated (Drake) was required to perform annual MIT testing on the Odom 2-14 (Odom well) to ensure that casing repairs on the well were still holding ; the Odom well is located within a gas storage field operated by ONEOK Gas Storage, L.L.C. (OGS). Drake now seeks to exclude the Odom well from MIT testing during any period of temporary abandonment ; Drake also requested that it be allowed to either 1) place cement bridge plugs (Drake orally amended its application from using cast iron to using cement bridge plugs based on cost and ease of drilling out) above and below the gas storage interval in the Odom in lieu

2 Report of the Admini strative Law Judge Drake Exploration, Inc orporated--cd "l' O NEOK G as Storage, L. L. C.-- CD T of conducting the required tests ; or 2) install a wiper plug at 900' and fill the casing with cement to 700' (isolating the gas storage interval) in lieu of conducting the required tests. OGS objects to Drake's requests because without MIT testing there would be no way to monitor the integrity of the casing and the existing cement squeeze job located in the vicinity of the gas storage formation (the Booch) in the Odom well. OGS requests 1) that, at most, a single cast iron bridge plug be set below the Booch and thereafter an MIT be performed every 3 years so long as the bridge plug is in place ; 2) placement of the bridge plug(s) be found to be "major remedial operations" under applicable Commission rules and that provisions of the rules apply to said operations ; and 3) OGS have access to the Odom well to take pressure readings on the well for the purpose of monitoring the integrity of the cement squeeze interval. RECOMMENDATIONS 1) The Drake application should be denied. Drake did not show a compelling reaso n to abandon the MIT testing requirements other than the cost to Drake of the testing. The alternatives of cement bridge plug installation or a 200' cementing of the Booch in the Odom well to relieve the testing requirement does not provide a fail-safe alternative to the information received from the MIT testing. The temporaray abandonment of the Odom well by Drake should not be considered sufficient reason to stop the required MIT testing ; the cement squeeze must be monitored on a regular basis to assure that leaks from the gas storage interval are not taking place whether the Odom well is producing or not. 2) The OGS application should be granted. Drake should be directed to place a cas t iron bridge plug at the bottom of the Booch which Drake will then test fo r mechanical integrity with additional MIT testing to occur thereafter every 3 years ; the installation of the cast iron bridge plug is to be considered a major remedia l operation to which the Commission rules will apply and must be adhered to b y Drake; OGS shall have access to the Odom well for the purpose of monitoring th e cement squeeze interval integrity. HEARING DATE(S) March 2, APPEARANCES William Huffman appeared for Drake ; Dale Cottingham appeared for OGS. SUMMARY OF EVIDENC E CD T seeks the modification and amendment of Commission Order No (issued 1/12/09) as amended by Commission Order No (issued 2/11/09) to exclude the Odom well from MIT testing during any period of temporary abandonment; that MIT testing of the Odom well be suspended ; and that Drake b e 2

3 Report of the Admini strative Law Judge Drake Fxploration, Incorporated--CD T ONEOK Gas Storage, L. L. C.-- CD T allowed to isolate the gas storage zone in the Odom well by placing cast iron bridge plugs above and below the gas storage interval in lieu of conducting the required MIT test. 2. CD T seeks the 1) denial of the setting of a bridge plug above the Booch ga s storage interval in the Odom well ; 2) requirement for Drake to conduct an initial MIT o n any bridge plug allowed by the Commission to be set below the Booch interval and, thereafter, 3) requirement for Drake to conduct an MIT on the bridge plug every 3 year s so long as the bridge plug remains in place ; 4) finding that any bridge plugs installed b y Drake on the Odom well are "major remedial operations" under Commission rules and al l provisions of the rules apply to such installation; and 5) finding that OGS be allowe d access to the Odom well to take periodic pressure readings. 3. Exhibits were marked and accepted into evidence as follows (exhibit sponsor i n parentheses) : 1. 5-page packet consisting of partial cement bondlog and proposed wellbore schematic with bridge plug placement for Odom well (Drake ) 2. 11/12/1 0 letter from Mr. Wm. Clark Southmayd Jr. to Mr. Michael Flick (OGS) 3. 8/4/08 letter from Mr, Michael Flick to Mr. Tom Barron (OGS ) 4. 8/27/08 letter from Mr. Michael Flick to Mr. Lee Levinson and Mr. Bill Huffman (OGS) 5. 8/27/081etter from Mr. Michael Flick to Mr. Richard McCauley (OGS ) 6. Copy of Commission Order No (OGS) 7. Odom well current completion schematic (OGS ) 8. Odom well proposed completion schematic (OGS ) 4. On behalf of Drake expert testimony was presented through Michael Flick, President of Drake; and William Alexander, Jr., petroleum engineer. A. Drake filed the subject application for the purpose of avoiding the burden of paying for the annual MIT testing ordered by Commission Order # whic h currently costs approximately $5000 per test. Because the Odom well is on a producing lease, Drake is not required to plug the well; consideration is being given to the possibility of producing zones above the Booch at some point in the future. In proposing to place cement bridge plugs at 900' and 700' or, alternatively, to cement between the two depths, Drake would adequately protect the Booch formation as Drake believes the formation top to be located at 800'. While performing an MIT would not be possible, either of these methods woul d effectively isolate the Booch, prevent any uphole gas storage zone migration an d secure the storage facility until the well is re-entered and the cement is drilled out. There has never been any evidence that the Odom well has produced anythin g from the gas storage unit. Currently, while a disabled pumping unit is on the well, there is no tubing, rods or pump and the well is disconnected from the flow line. Drake has no objection to OGS taking pressure readings on the well so long a s Drake is notified as to when such readings are to take place. B. Using cement bridge plugs instead of cast iron would be sufficient to protect the Booch formation without putting undue stress on the existing casing in the Odo m 3

4 9', Repo rt of the Administrative Law Judge Drake Exploration, Incorporated--CD T ONEOK Gas Storage, L. L.C. -- CD T well. While the Odom well had holes in the casing, the cement squeeze job successfully performed on the well in 2008 should not break down although the cement bond log run before the squeeze job was performed indicated that there is no cement above 758'. Therefore, placement of the cement bridge plugs above and below the Booch, or covering the zone with a 200' cement column, are both reasonable alternatives to requiring the annual testing of the well as a way to insure the integrity of the gas storage unit. Any leakage that might occur in the annulus would be reflected in the pressure meters at the surface of the well. 5. On behalf of OGS expert testimony was presented through Thomas Barron, petroleum engineer and President of Essex Storage Services. A. OGS has always taken the position that cement squeeze jobs can break down an d are not infallible, In the prior hearing, OGS recommended a casing sleeve be put in place as a permanent solution for fixing the casing holes in the Odom wel l rather than performing the cement squeeze because of the possibility of deterioration of the cement. No cement bond log has been run since the squeez e job to determine if the lack of cement above 758' was enhanced/affected by th e squeeze job; OGS believes the top of the Booch in the Odom well to be 771' and is particularly concerned that there is only 13' of cement above the top of th e formation and the lack of information regarding the integrity of that 13'. At no point before the subject hearing did OGS receive any indication from Drake of plans to install downhole bridge plugs or cement off the Booch in the Odom well. An from Drake's attorney regarding plugging off the Odom well below the Booch was timely responded to by OGS listing the OGS concerns about Drake' s plans. Upon review of the proposed completion schematic submitted by Drake at the hearing, OGS maintains that while the cement bridge plugs or column add value to the integrity of the well, without regular MIT testing there is no way t o know if the squeeze job is holding and protecting the gas storage unit. OGS is also concerned about the condition of the well casing and the effect of pressure put on the casing by installing bridge plugs. It was noted that if one bridge plug is installed at 900', an MIT could still be run but another plug at 700' would prevent the MIT from being performed. B. At the very least, OGS would request that, if Drake is allowed to place any bridg e plugs in the Odom well, only cast iron bridge plugs be used ; further, installation of bridge plugs or a 200' cement plug be considered "major remedial work" unde r OCC 165 : and all requirements of such be met by Drake. OGS is also requesting that access to the well location be allowed for OGS to properly monitor pressure readings inside the casing and in the annular space. RECOMMENDATIONS AND CONCLUSION S After taking into consideration all of the facts, circumstances, evidence and testimony presented in the causes, it is the recommendation of the ALJ that the application of Drak e 4

5 Report of the Admini strative Law Judge Drake Explorati on, incorpar ated--cd T ONEOK Gas Storage, L. L.C.-- CD T Exploration, Incorporated in CD T be denied and the application of ONEOK Gas Storage, L.L.C. in CD T be granted. 2. Order No specifically ordered as follows : "D. Beginning in January 2010 annual MIT tests shall be performed on the Odom, Walker and Baker wells at the expense of Drake Exploration, Inc. to assure that the repairs performed by Drake Exploration,.Inc. are still holding. Such tests shall be witnessed by a Commission field representative and a representative of ONEOK Gas Storage, L.L.C."(emphasis added ) Drake has not shown or submitted to the Commission any proof that testing has taken place to indicate specifically the current status of the cement squeeze job performed on the Odom well. While there was a reference to a 2009 MIT test, neither OGS or Drake's petroleum engineering witness had seen any paperwork/results on the test, they had only been informed by Mr. Flick that it took place and was successful. Yet, Drake now requests that the MIT testing of the Odom well be indefinitely suspended and that 2 cement bridge plugs or, alternatively, a 200' cement plug be used to isolate the gas storage formation effectively negating the possibility of running any further MIT procedures on the Odom well. Drake's request to suspend the testing is based on the cost of complying with the Commission order; the amendment of the Drake application to substitute cement bridge plugs for cast iron bridge plugs is also based on cost. However, this well is one located in a gas storage unit that has been in place since the 1940s. When Drake assumed operations of the subject well in the 1980s, it was no secret that special rules were in place affecting the Odom well because of its location in a gas storage unit. Historically, the operation of such wells has always been under a higher level of scrutiny than that of conventional well operations. This is due to the state's concern for the protection of the storage unit which is paramount when considering changes in procedures or amendments to Commission orders affecting the gas storage units. While the Odom well is not currently producing, has been disconnected from the flow line and has a disabled pumping unit in place, the ALJ finds that the risk of leakage from the gas storage unit outweighs the economic burden placed on Drake by the Commission order. The ALJ is, however, not completely disregarding Drake's economic concerns and would recommend the following compromise as suggested by OGS. A. Drake should install one cast iron bridge plug at a depth of 9 00' so that MIT testing can still be performed although not on an annual basis. B. An initial MIT should be run immediately after the bridge plug is in place wit h additional MIT testing then occurring every 3 years with said tests witnessed by a Commission field representative and an OGS representative. C. The placement of the cast iron bridge plug should be considered major remedia l work as defined by OCC 1 65:10-3-5(b)(7) and the procedures set forth under OCC 165 :10-3-5(c)(10) be followed. 5

6 Report o f the Administrative Law Judge Drake Exploration, Incorporated-CD T ONEOK Gas Storage, L. L.C. -- CD T D. OGS should be allowed access to the Odom well location on an as-needed basis (after reasonable notice is given to Drake) to monitor pressure readings. Thus, in light of the aforementioned conclusions, it is the recommendation of the ALJ that the application of Drake Exploration, Incorporated in CD T be denied and the application of ONEOK Gas Storage, L.L.C. in CD T be granted. Any orders issuing out of these causes should contain the recommendations set forth above. Respectfully submitted this 17th day of March 2011, KATHLEEN M. MCKEOWN Administrative Law Judge 6