BEFORE THE BOARD OF OIL, GAS AND MINING DEPARTMENT OF NATURAL RESOURCES STATE OF UTAH FILED JUN 0I 2017 SEoRETARY BOARD OF OIL, GAS A MINING FIIIDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER TN THE MATTER OF THE REQUEST FOR AGENCY ACTION OF AXIA ENERGY II, LLC FOR AN ORDER POOLTNG ALL INTERESTS, TNCLUDING THE COMPULSORY POOLTNG OF THE TNTERESTS OF CERTATN NON- CONSENTINC AND IINLOCATABLE OWNERS, WITHIN TWO I,28O.ACRE DRILLING I.INITS ESTABLISHED FOR THE PRODUCTION OF OIL, GAS AND ASSOCIATED HYDROCARBONS FROM THE LOWER GREEN zuVER.WASATCH (coLToN) FORMATIONS, COMpzuSED OF ALL OF SECTIONS 29 AND 32, AND 28 AND 33 OF TOWNSHIP 2 SOUTH, RANGE 2 WEST, U.S.M., Docket No. 2017-010 Cause No. 139-144 DUCHESNE UTAH" This Cause came for hearing before the Utah Board of Oil, Gas and Mining (the "Board") on Wednesday, April 26, 2017, at approximately 11:00 a.m., in the Auditorium of the Utah Department of Natural Resources Building in Salt Lake City, Utah, on Axia Energy II, LLC's (ooAxia's") Request for Agency Action filed on March lA,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 land management 1
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FILED - Utah · 2017. 6. 9. · 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%
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BEFORE THE BOARD OF OIL, GAS AND MININGDEPARTMENT OF NATURAL RESOURCES
STATE OF UTAH
FILEDJUN 0I 2017
SEoRETARY BOARD OFOIL, GAS A MINING
FIIIDINGS OF FACT,CONCLUSIONS OF LAW AND
ORDER
TN THE MATTER OF THE REQUEST FORAGENCY ACTION OF AXIA ENERGY II, LLC FORAN ORDER POOLTNG ALL INTERESTS,TNCLUDING THE COMPULSORY POOLTNG OFTHE TNTERESTS OF CERTATN NON-CONSENTINC AND IINLOCATABLE OWNERS,WITHIN TWO I,28O.ACRE DRILLING I.INITSESTABLISHED FOR THE PRODUCTION OF OIL,GAS AND ASSOCIATED HYDROCARBONSFROM THE LOWER GREEN zuVER.WASATCH(coLToN) FORMATIONS, COMpzuSED OF ALLOF SECTIONS 29 AND 32, AND 28 AND 33 OFTOWNSHIP 2 SOUTH, RANGE 2 WEST, U.S.M.,
Docket No. 2017-010
Cause No. 139-144
DUCHESNE UTAH"
This Cause came for hearing before the Utah Board of Oil, Gas and Mining (the "Board")
on Wednesday, April 26, 2017, at approximately 11:00 a.m., in the Auditorium of the Utah
Department of Natural Resources Building in Salt Lake City, Utah, on Axia Energy II, LLC's
(ooAxia's") Request for Agency Action filed on March lA,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 land management
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and Mr. Frenzel as an expert in petroleum engineering for purposes of this Cause. David P. Bolda,
Esq., of and for Beatty & V/ozniak, 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 f,rle 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"), fîled a joint response to the Request (the
ooResponse"). John A. Davis, Esq. of Holland & Hart LLP, appeared on behalf of Newfield.
Newheld 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 requested that
the Board modify the Request to clarify that the joint operating agreements ("JOA's") sought to
be imposed upon the non-consenting and unlocatable parties apply only to the two wells within
the respective drilling units that are the subject of this Cause (defined below as the "subject
Wells") and not to all future wells within the subject drilling unit. 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 W'ells, 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 V/ells
and advised of its plans to drop Newfield RMI from the Request since Newfield RMI had agreed
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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 New{ield RMI and Axia despite Newfreld RMI
voluntarily agreeing to participate in the Subject Wells and having been dropped from the Request
by Axia. The Board allowed Newfield RMI to participate and, at the end of the hearing, ruled that
Newfreld RMI had standing. However, the Board heard only Axia's request to compulsory pool
certain non-consenting parties as of the date of the hearing (which no longer included Newfield
RMI), and asked the parties to continue to negotiate a JOA to govern operations between the two.
The Findings of Fact, Conclusions of Law and Order herein pertain only to those whom Axia
sought to compulsory pool as of the date of the hearing which no longer included Newfield RML
Should the parties fail to negotiate a JOA, the Board will take further action as follows: if
the only outlying issue is the non-consent penalty (which the Board presently understands to be a
primary issue in dispute), the Board will issue an addendum to this order addressing that point. If
there are additional disputed JOA terms, the Board will ask for supplemental briefîng.
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 as modified to exclude Ner,vfield
RMI from being compulsory pooled.
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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.
FINDINGS OF F'ACT
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 23,2An 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 and32, Township 2 South, Range 2 West,
U.S.M., as a drilling unit (the"29132 DU"), and Sections 28 and 33, Township 2 South, Range 2
West, U.S.M., as a driliing unit (the "28133 DU") (collectively the 29132 DU and rhe 28133 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 MarkerBed) to the base of the Green River-Wasatch or top of the North Horn Formation,the stratigraphic equivalent of which is defined as between 7,2I2 feet and 13,651feet as shown in the Borehole Compensated Sonic-Gamma Ray Log of the FlyingJ - Dustin #1 Well located in the NE%SW% of Section 22, Township 2 South,
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Range 3 Vy'est, U.S.M., and as between 6,555 feet and 12,392 feet as shown on theDigital Sonic Log of the Devon - l-26lc-1rwell located in the SV/%SW% of Section26, Township 2 South, Range i West, U.S.M.
(the "Subject Formations"), and authorized up to 32 producing wells, which may be any
combination of vertical, short lateral horizontai ("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
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-
l44H-22 Well (located in the 29132 DU), and the Butcher Butte #33-34H-22 Well (located in the
2813 DU), (collectively the "Subject Wells")
3. The 29132 DU is a stand-up 1,280-acre drilting unit with oil and gas ownership
divided into 10 (ten) mineral tracts, as described on Exhibit "4" attached hereto and by this
(lXa) Within 20 days after the date that an order is issued for which reviewby the agency or by a superior agency under Section 63G-4-301 isunavailable, and if the order would otherwise constitute final agencyaction, any party may file a written request for reconsideration with theagency, stating the specific grounds upon which relief is requested.
(b) Unless otherwise provided by statute, the filing of the request is not aprerequisite for seeking judicial review of the order.
(2) The request for reconsideration shall be fîled with the agency and one copyshall be sent by mail to each party by the person making the request.
(3Xa) The agency head, or a person designated for that purpose, shall issue awritten order granting the request or denying the request.
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(b) Ifthe agency head or the person designated for that purpose does not issuean order within 20 days after the flrling of the request, the request forreconsideration shall be considered to be denied.
Id. The Board also hereby notifies the parties that Utah Admin. Code Rule R64l-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 ofthe Board may fîle a petitionfor rehearing. Unless otherwise provided, a petition for rehearing must be filedno later than the 10th day of the month following the date of signing of the hnalorder or decision for which the rehearing is sought. A copy of such petitionwill be served on each other party to the proceeding no later than the 15th dayof the month.
Id. See Utah Admin. Code Rule R641-110-200 for the required contents of apetition 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 R64l-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.
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For all pu{poses, the Chairman's signattne on a fa"xed copy of this Order shall be
deemed the equivalent of a signed original.
DATED AND EFFECTIVE this 9th day of June, 2017.
STATE OF'UTAHOIL, GAS AND MIIYING
J. Gill,
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CERTIFICATE OF SERVICE
I hereby certify that on this 12th day of June,2017,I caused a true and correct copy of
the foregoing ORDER for Docket No. 2017-010 Cause No. 139-144, to be mailed by Email or
via First Class Mail with postage prepaid, to the following:
BEATTY & WOZNIAK, P.C.DAVID P. BOLDA, ESQ.5406W. 11000 N., STE. 103-221HIGHLAND, UT 84003
PETITIONER'S ADDRESS:
EMAI L: dbolda@bwenerqylaw. com
AXIA ENERGY II, LLCATTENTION: RICK GALLEGOSVICE PRESIDENT - LAND1430 LARIMER STREET, SUITE 4OO
DENVER, CO 80202ATTORNEY FOR PETITIONER AXIAENERGY II, LLC EMAI L: [email protected]
HOLLAND & HARTA. JOHN DAVISMARK L. BURGHARDT222 SOUTH MAIN STREET, SUITE 22OOSALT LAKE CITY, UT 84101
EMAI L: mlburqhardt(Ahollandhart.com
A TTORNEYS FOR RESPONDENTS NEWF I ELDPRODUCTION COMPANY, AND NEWFIELDRMI, LLC
STEVEN F. ALDERMEG OSSWALDUTAH ATTORNEY GENERAL'S OFFICENATURAL RESOURCES DIVISIONI594 W. NORTH TEMPLE, SUITE 3OO
BIA UINTAH AND OURAYAGENCYP.O. BOX r30FORT DUCHESNE, UT 84026
UNITED STATES BUREAU OF LANDMANAGEMENTVERNAL FIELD OFFICEATTN: JERRY KENCZKA170 SOUTH 5OO EASTVERNAL, UT 84078
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EXHIBIT 664''
The Butcher Butte 32-144H-22 V/ell located in the 29132 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 Lesal GrossAcres
7" of Unit Ownership
I 29 NE %, E % S E 74lIW %, EVISEY4 260.00 20.3t250% Fee
il 29 NTrNW%, N%SW74NW%,N%S%SV/Y4NWY4,w%sE7À{w%
130.00 10.15625% Fee
m 29 S%S%SW74INW%; Alsobeginning at the V/est quartercorner, thence East 1732.5feet, thence South 1194.3 feet,thence West 1732.5 feet,thence North 1194.3 feet toplace of beginning.
57.50 4.492t9% Fee
IV 29 Beginning at the SouthwestCorner of Section 29,thenceNorth 1445.7 feet, thence East1732.5 feet, thence South1445.7 feet, thence West1732.5 feet to the place ofbeginning.
The Butcher Butte 33-34H-22 Well located in the 28133 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 (wenty) mineral
tracts:
Tract Section Lesal GrossAcres
7o of Unit Ownership
I 28 NTrN%, SE74NE% 200.00 15.62500% TribalII 28 SW7ÀIE%, S72NW%,
N%SV/%, SE%SW% and thefollowing metes and boundstract: Beginning at theSouthwest corner of the SW%;thence North 80 rods; thenceEast 80 rods; thence South1020 feet; thence V/est 740
[sic, 790] feet; thenceSouthwest to a point 180 feetEast of said Southwest corner,thence West 180 feet to pointof beginning.
273.35 2r.35547% Fee
m 28 WYzSEt/+, NE%SE% 120.00 9.37500% Fee
IV 28 SEY4SEY4 40.00 3.12500% Fee
V 28 Beginning 180 feet East of theSW corner of Sec. 28; thenceEast I140 feet; thence North300 feet; thence West 790 feet;thence Southwesterly to thepoint of beginning.
6.6s 05r9s3% Fee
1 29 NW74NE%,EY2Ì\EY4 120.00 9.37s00% Fee
2 29 SW74NE% 40.00 3.t2500% Fee
3-A 29 Beginning at a point theNorthwest corner of theNW7ÀIW% and runningthence East 165 feet; thenceSouth 165 feet; thence West165 feet; thence North 165 feetto the point of beginning.
0.63 0.04922% Fee
3-B 29 Beginning at a point 165 feetEast of the Northwest corner ofthe NV/7¿NW%; thence East300 feet; thence South 465feet; thence V/est 465 feet;thence North 300 feet; thenceEast 165 fet; thence North 165feet to the point of beginning;ALSO Beginning at a point465 feet South of theNorthwest corner of theNW7ò{W%; thence South 100feet; thence East 213 feet;thence North 100 feet; thenceWest 213 feet tot he point ofbeginning.
4.82 0.37656% Fee
3-C 29 Beginning at a point 465 feetSouth arñ213 feet East of theNorthwest corner of theNW74NW%; thence South 300feet; thence West 213 feet;thence South 555 feet; thenceEast2640 feet; thance North1320 feet; thence West 2175feet; thence South 465 feet;thence West 252 feet to thepoint of beginning.
73.57 s.74766% Fee
3-D 29 Beginning at a point 565 feetSouth of the NW7+NW%;thence South 200 feet; thenceEast2l3 feet; thence North200 feet; thence 213 feetto thepoint of beginning.
0.98 0.07656% Fee
4 29 S%NV/% 80.00 6.25000% Fee
5 29 N%SW% 80.00 6.25000% Fee
6 29 sw%sw% 40.00 3.12s00% Fee
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7 29 Beginning at the South quartercorner of Section 33, thenceSouth 89o36'38" V/est 290.00feet along the South line ofsaid section to a nail andwasher set in the pavement ofState Highway 87; thenceNorth 00o00'00" East 826.14feet to a 5/8" rebar with analuminum cap; thence North89o36'38" East 290.00 feet to a5/8" rebar with an aluminumcap situated on the East line ofthe Southeast quarter of theSouthwest quarter of saidsection 33; thence South00o00'00" East 826.14 feetalong said East line to thepoint of Beginning. Basis ofBearings being along the Eastline of said Southeast quarterof the Southwest quarter ofsaid section, that bearing isassumed to be "North", lessthe portion of Tract 8 lyingtherein.
3.04 0.23750% Fee
8 29 Beginning at the Southeastcorner of the Southwestquarter thence running North342feet, thence West 313 feet,thence South 342 feet, thenceEast 313 feet to the place ofbeginning.
2.49 0.19453% Fee
9 29 SE%SW% less Tracts 7 and 8 34.47 2.69297% Fee
10 29 NE%SE% 40.00 3.t2500% Fee
11 29 NW%SE% and S%SE% lessTruct 12
116.80 9.t2500% Fee
3
t2 29 Commencing at the SouthwestCorner of the Southeast
Quarter of the Southeast
Quarter, running thence North32 rods; thence East l6 rods;thence South 32 rods; thenceWest 16 rods to the point ofbeginning.
3.20 0.25000% Fee
Total: 1280.00 100.00000%
4
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