Open Letter to OIPA Board

 

Gentlemen:

 

I would like to give you an update on the damage that is being done to small producers in the active horizontal plays in Oklahoma. I am a partner in Cimarron Production Co., Inc., and Brown & Borelli, Inc. The vast majority of our operated production is in Kingfisher County, Oklahoma. We have had, as of this date, 21 wells damaged or destroyed by the impact of horizontal frac jobs. Our wells producing from the Oswego formation are being damaged or destroyed by nearby horizontal frac jobs in the Big Lime/ Oswego formations, whether drilled in the same section, or nearby. The Mississippi formation horizontal frac jobs are hitting our vertical Mississippi production. Our core production area produces from the Hunton Dolomite. Those wells are being damaged or destroyed by nearby fracs in the Mississippi formation. We are not the only producers that are experiencing these damages. Most of the small producers in the Kingfisher area with whom I’ve spoken have been hit even harder than we have. I’ve been told by Legislators and people at the Oklahoma Corporation Commission that the OIPA is still taking the position that this damage is rare or non-existent. That statement is simply not true. Our engineer is of the opinion that, upon completion of infill drilling, we will no longer have any vertical wells producing from the Big Lime/Oswego, Mississippi, or Hunton Dolomite formations. Where we have contacted the horizontal operator concerning our damage, they have declined to even acknowledge it. Where I have spoken to vertical operators who have initiated litigation, the horizontal producers have indicated a willingness to spend whatever is necessary, taking as long as possible, to avoid any liability for the damages done by their fracs.

 

In addition to the damage done to our vertical production, our acreage is being taken in large blocks by the large horizontal operators, working through the Oklahoma Corporation Commission. Historically, the OCC allowed forced pooling only as to an amount of acreage which was expected to be drained by one well. Horizontal developers are now using the OCC to take mile wide swaths of acreage, capable, in the recent report of Devon Energy, of supporting the drilling of as many as 20 or 30 wells. The large drillers have reported acreage trades of $15,000, $30,000, to more than $40,000 per net mineral acre. Meanwhile, they routinely force royatly owners and small producers to sell their acreage at prices which are less than 5 and 10% of those amounts. We have a great number of interests which are burdened to slightly under 80% net revenue interest. The force pooling actions in which we are named routinely declare that those interests  are “over-burdened”, and are of no value.

 

Tim Wigley, OIPA’s incoming President, was recently quoted in the press that horizontal drilling is Oklahoma’s future, implying that the thousands of vertical producers are merely a quaint vestage of the past, and are irrelevant to today’s oil and gas industry. This is an astounding dismissal of the fact that the wealth of thousands of vertical producers, and tens of thousands of Oklahoma royalty owners are being transferred to the pockets of large out of state investors in the large horizontal operating companies. This transfer of wealth amounts not to tens, or hundreds, of millons of dollars, it amounts to billons of dollars of hard earned wealth owned by hard working Oklahomans into the pockets of these large horizontal operators and their investors.

 

OIPA was formed in the 1950’s in order that the small independent producers of Oklahoma could have a collective voice and influence which could be used to protect them from the abuses of the major oil and gas companies and their organization, which was formerly known as Mid-Continent Oil & Gas Association. OIPA should be standing and raising its voice to the rafters in defense of the disaster that is starting to overtake the independent producers and royalty owners in the State of Oklahoma. Instead, it appears that it is interested only in preserving and extending the advantages held by the large companies which have overtaken its governance. The regulatory system in the State of Oklahoma needs to be reformed to make it one that is equitable to all, and that should include a return to a gross production tax at a level that is the same for all producers, and sufficient by historical standards to help support the core services of the state that has provided so generously to so many in our industry over past decades. I urge all of OIPA’s remaining small independent producers to go to www.okenergyproducers.org , and join the Oklahoma Energy Producers Alliance, which is the only Oklahoma industry association which is dedicated to protecting the interests of Oklahoma’s small independent producers.

 

After twenty plus years of service on the Board of Directors of Oklahoma Independent Petroleum Association, I submitted my resignation from the OIPA board on March 29th, and joined the many longtime OIPA Board Members and former Chairmen, who realized there was no point in continuing to fight for an association we had already lost. We welcome the support of those of you that remain.

 

Sincerely,

 

Joe Warren,

Partner:

Cimarron Production Co., Inc.

&

Brown & Borelli Inc.

Letter from Oklahoman – difficulty getting justice when wells are destroyed by a horizontal frac job.

Here is a letter from an Oklahoman that demonstrates the difficulty getting justice when their wells are destroyed by a horizontal frac job.( the picture is a purging well during a horizontal frac job)
Almost everyone is either afraid for their names to be used or are in litigation .
The level of intimidation here reminds me of Karen Silkwood.

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Dear Mr. Cantrell:

I am certainly glad that someone is taking this on at long last. As I am sure has told you we are not opposed to horizontal drilling, except for the earthquake problem, which the Oklahoma Corporation Commission allowed to happen. We are opposed to third parties taking the property of existing vertical producers without compensation.

Regarding our situation we had 16 vertical wells which have consistently produced for the last 30 years. Our schedule is attached. All were gas wells on plunger lift so LOEs were very low and we had few if any mechanical problems. Water production was minimal, so we had no need for a salt water disposal well. A few years ago we received an out of the blue offer to buy us out. We weren’t interested in selling and declined. At that point I received several calls from their land VP. He informed me that if we did not sell to them, they would simply acquire toeholds and go to the OCC and get the prospect anyway.

When we declined to sell, they proceeded with their campaign . They were requesting 640 acre spacing. I conferred with our OCC attorney expressing my concern about the almost certain destruction of our existing production. To my dismay, he confirmed that the OCC would let them drill regardless and that we had no recourse at the OCC. When I inquired about the 50% consent requirement, he replied that it didn’t matter because they would apply for an exception to that rule and it would be granted. When I inquired about location exceptions and exceptions to 165: 10-3-28 I was also told it didn’t matter because they would get an exception to those rules also. When I asked if there was any recourse at the OCC when They ruined our existing verticals, I was told that there was not and that Our recourse would be private nuisance action as stated in the Greyhound Leasing 10th Circuit case. When we arrived at the OCC for the hearing the ALJ went “off the record” to state that he didn’t know why people kept protesting these cases because his docket was all crowded and basically, surely everybody knew that protests would not work out and the OCC would allow horizontal drilling even where verticals existed in the same formation. At that point, I realized that no matter how much we spent at the OCC, we had no alternative but to try to make a deal.

We farmed out our acreage. Our FOA provided that They would indemnify us from any liability or damage to our existing wells. They repeatedly insisted, and this appears in a few of the OCC orders, that there would be no damage to our existing wells. You will see from the second attachment that They drilled 14 wells and sent over 4 million pounds of frac sand and over 3 million barrels of slickwater our way. All pumped at 4-7 thousand psi,. Every one of our 16 wells is either watered out or full of frac sand. Because of the low volumes we could produce from some of the wells due to shut ins at their direction and after swabbing, DCP pulled our meters and cancelled our contract. There was a $350 per well penalty for volumes under 20 mcf per day. DCP’s suggestion was that we lay a gathering line, install our own meters at each well, and deliver to DCP at one central delivery point. We now have 15 plugging liabilities. While We were paid for its acreage and have an override on the horizontals, They haverefused to pay for the verticals .

I have tried to condense this, but I wanted you to get the full picture. The present proponents of some of these bills obviously don’t know what they are talking about when they claim existing verticals are protected by the OCC or the District Courts of Oklahoma. The OCC could care less. If you need any further information, just let us know. This family has joined OEPA.
If you want to help us get fairness and justice for the small producers in Oklahoma go to okenergyproducers.org and join this fight.

Tulsa Public Schools board urges Legislature to increase gross production tax

Saw a very nice article in today’s Tulsa World where the Tulsa Public Schools are requesting production taxes go back to the original 7%, which is still less than companies pay in any other state, on all wells in the state.

We want to ask all school districts around Oklahoma to have their patrons contact their legislators with the same message – restore the gross production tax to 7% for everybody and pay our teachers.

http://bit.ly/2qFhPGn