[0:02] Good morning. We're going to call the meeting to order at the Oklahoma

[0:05] Corporation Commission today on May the 11th, 2020. It is 9:35

[0:11] a.m. and would ask that each of the commissioners announce their presence.

[0:18] This is uh Commissioner Anthony present. Commissioner Murphy present.

[0:24] All right. I would note there is a quorum present and notice is proper and

[0:30] uh just a couple of housekeeping items. If the teleconference uh for some reason

[0:35] is or video conference if uh happens to be disconnected we will reconvene in 30

[0:42] minutes from the time of disconnection just to give a point of reference for

[0:46] everyone. Uh so again if we are disconnected uh we will reconvene 30

[0:52] minutes following the disconnection. If for some reason that we are unable to

[0:58] reestablish uh connection in that period of time we will continue the meeting uh

[1:05] until 1:30 p.m. today Monday uh May 11th.

[1:13] Okay. as an overview. Uh before I turn to Judge Presler, uh I want to just make

[1:19] a couple of other announcements that the agenda has uh been sent through gov

[1:23] delivery uh with the instructions for how parties and witnesses and those

[1:28] interested providing public public comment uh if that is allowed by the

[1:32] commissioners would uh participate. So parties uh to the cause have been

[1:38] advised that they have opportunity to participate through our video comp

[1:41] conferencing application. Um all other interested

[1:48] in providing possible public comment were provided information on how to to

[1:54] do so. Uh once again I think as Mr. Skinner has done several times uh we'll

[2:00] remind everyone to please mute your phone. it causes us major problems and

[2:05] delays if uh we have those out there that are not muting their um their

[2:10] phone. So, uh last announcement that I'd like to make is that um we do we do have

[2:17] a court reporter transcribing the meeting. So, please speak slowly, speak

[2:23] clearly, uh speak loudly so that um the court reporter can can hear for uh hear

[2:30] what you're saying.

[2:37] Okay, I think uh we can turn to uh agenda item number two at this point

[2:45] and would ask Judge Presler to announce the cause.

[2:49] That's excuse me, Judge Pressler. That is one announcement that I made is that

[2:54] um um commissioners had agreed previously that uh we would would handle

[3:01] this with an ALJ and uh Judge Presler is the ALJ that has been selected to to

[3:08] handle both of these cases, both items two and items three. Uh however, on item

[3:15] three, the OEPA application, uh we have learned that um it may not uh may not

[3:21] need a full um participation of a judge, but uh she is still going to assist to

[3:28] make sure this process is as streamlined as possible.

[3:32] Judge Presler, you're recognized. Thank you, Chairman Hyatt.

[3:38] This is the cause CD 2020000000986 in the matter of the application of LPD

[3:46] Energy Company LLC seeking an order of the Oklahoma Corporation Commission to

[3:51] prevent waste under 52 Oklahoma statute section 271 ETSSE on the application

[3:58] filed April 10th 2020. And as you recall, an emergency order was entered

[4:06] in this case

[4:09] that was effective April 17th, 2020. So this is the hearing on the merits and

[4:19] would the applicants council please enter your appearance.

[4:23] Yes. Uh Lee, please commission Lee Levenson and Bill Huffman for the

[4:29] applicant LPD Energy.

[4:35] And are there there are a number of others that were uh who entered their

[4:41] appearance at the emergency hearing and we have a list of all those. Um if there

[4:47] is someone that wanted to enter their appearance in this matter today that was

[4:53] not uh listed on the emergency order previously.

[4:58] And would everyone please mute your mute your microphone unless you're called on.

[5:07] If you would like to enter your appearance and it was not previously

[5:10] entered in the emergency order, you can email me that information and I will

[5:17] announce that and make sure it is included on any order. My email address

[5:23] is janj.pressler Presler P R E S L A R at oct.gov.

[5:35] Excuse me, Judge Presler. Please mute your phones, mute your

[5:39] microphones, whatever device you're using, please mute. It's going to be a

[5:44] long day. If you if we continue to have those that are not muting and

[5:49] interrupting, I'm concerned that maybe some were not able to hear Judge Presler

[5:55] announce her email address. So, Judge Presler, would you please restate your

[5:59] email address? Yes, it's Jan Jan. Pressler Preslc.gov

[6:11] gov.

[6:18] Okay. Thank you. Uh

[6:24] one other item is uh that this uh this meeting today's meeting was uh set

[6:29] before the commission in B in and Bon. Uh however there uh no motion to advance

[6:35] uh has been filed and so I would make that motion to uh to advance this cause

[6:41] suante and ask for the other commissioner ask u

[6:46] um Miss Mitchell to call the role for a vote on that a role of the

[6:51] commissioners. Commissioner Hyatt

[6:55] I. Commissioner Anthony

[7:00] I vote I Commissioner Murphy

[7:04] I thank you

[7:08] and the motion passes. Thank you. Um okay. I also want to note that there

[7:14] have been many comments filed uh in the record and ask if the commissioners have

[7:21] any objection to uh accepting admitting all of those documents filed in the

[7:25] court file uh into the record.

[7:30] I'm agreeable. This Commissioner Anthony clarification. Are you talking about

[7:36] both causes? Because the motion to advance was only on the 984 case. So,

[7:41] are you asking for in the 984 and the 986 both?

[7:46] We'll eventually be doing both, but at this point just for the 984 case.

[7:49] All right. Thank you. Yes. All right. Thank you.

[7:55] Okay. We'll turn now to the applicant to proceed. Um, and first would like to ask

[8:01] Mr. Levenson if you would address the notice, please.

[8:05] Yes, sir. Thank you, Commissioner Hyatt. And again, thank you to Judge Preston

[8:09] and the commission. uh notice was properly given. It was published in

[8:14] Oklahoma County. Besides that, published in Tulsa and pursuant to title 52

[8:19] section 97 requires 10 days notice on an application of this type. Also, I would

[8:25] say based on the number of people we have on the telephone, the the interest

[8:29] that I have from basically all over the country, I think we've given adequate

[8:33] notice and uh uh I think that issue has been decided.

[8:40] Okay, thank you. Uh, are there any concerns of other commissioners uh of

[8:45] any of the commissioners on the notice? Seeing no concerns, we will consider

[8:52] notice is uh prep uh as proper and uh

[8:58] commissioner I'm sorry this is Ron Barnes and I do have a comment about the

[9:02] notice.

[9:06] Yes, please state your comment. Uh yes sir. Uh I'm representing that we

[9:12] file our entry of [laughter] appearance for 4point Energy LLC

[9:16] and uh we're of the opinion that the rule 165571F

[9:22] would require service to be to individuals where it's filed by an

[9:26] applicant such as this. uh which would mean that would include mineral owners,

[9:31] that would include working interest owners, that would include uh many many

[9:35] more people than what's required or what's been given. Uh we are not opposed

[9:40] to what's being requested and it's not an interference of of that particular

[9:44] part of it. But this order if it issues uh for or against won't really mean

[9:51] anything if the notice wasn't any good. What our preference was and what we

[9:55] would be suggesting to the commission is the commission file one under their

[9:59] authority to govern uh these types of issues which is a totally different

[10:04] notice that's required for the commissioners over what would be

[10:08] required for an applicant uh which would be an individual company or multiple

[10:12] companies. Uh the service of the application recites and refers to

[10:17] parties of uh that were respondents in it. Well, just because you don't list

[10:21] somebody as a respondent doesn't mean they're not one. And in this particular

[10:25] instance, there are no mineral owners that have been notified. And and I

[10:28] understand there may be a hundred people here, but if you were to add up all of

[10:32] the people that would be affected by this order, it's a far greater number

[10:35] than those that are appearing in this particular cause. All we want is to have

[10:40] an order that issues that has some substance to it and can be effective. Uh

[10:45] not one that could be challenged for uh lack of due process. and and that's the

[10:49] only issue that we really have with it. Uh other than obviously there are other

[10:54] things that might come up during this proceeding. But at the onset, our real

[10:58] concern is that the notice was not sufficient um as filed by an applicant

[11:04] other than the corporation commission themselves on their own merits and on

[11:08] their own request. And if it's on your own request, your notice applications

[11:11] for things that you would do uh in your governing uh role uh is totally

[11:18] different than what is done by a applicant filing it. But there's there

[11:22] are hundreds thousands of people that are affected by this order and

[11:26] appearance of a hundred or so is not much of a representation whether or not

[11:30] we're all industry people or not. So we would simply assert that there's a a

[11:35] significant problem a fatal problem of the notice and uh what we would like to

[11:40] see is that the commission and bank file their own application give their own

[11:44] notice is required by their rules for them versus that that has been filed by

[11:50] individual companies or groups of companies.

[11:53] And this is Grayson Barnes appearing for Stagghorn Petroleum 2 LLC. And uh I I

[12:00] second that position. Stagghorn is is concerned about the the lack of notice

[12:04] in this particular hearing as well.

[12:10] Mr. Levenson, you're recognized to respond.

[12:13] I believe under that statute 5297, that's proper notice. The

[12:19] commissioned actions are noticed to everyone whether it's a spacing a

[12:24] pooling a a utility order and to notify the

[12:30] mineral owners in practical further the way that this the way that my

[12:34] application is garnered. It's uh voluntary by a specific operator and

[12:42] totally unnecessary, totally impractical, especially in times when

[12:48] we're dealing with a a pandemic that none of us on this earth have ever

[12:52] experienced both in business or otherwise. And uh for mobile substance,

[12:59] this is critical that we get this done for the benefit of the operators. And I

[13:04] and by the way, notice was also given on gov delivery. Uh it's no different than

[13:10] a Senate or a cow thing notifying people. That's impractical. You would

[13:15] you couldn't you never give the notice. And basically by the commission making

[13:19] this order uh and making a pronouncement, it'd be the same. They

[13:23] did it themselves because this is an order of the commission.

[13:27] Yeah. We've done all due diligence and we need to proceed. Thank you.

[13:31] Okay. If I may respond briefly, uh due process

[13:36] isn't something that can be waved simply because uh there's a uh some pandemic or

[13:43] any other reason. You can't wave the notice that's required by the rules. And

[13:47] and all I'm suggesting is that the commissioners have a different notice

[13:51] requirement for your proceedings than would an individual filing them on

[13:55] behalf of themselves or for other parties. And so what Mr. Levenson is

[14:00] suggesting is this is so important that we could ignore due process. You can't

[14:04] ignore due process. What you can do is you can file it through the government

[14:08] agency that has the regulatory authority over it. But you don't have the ability

[14:13] as commissioners to wave notice requirements that are provided as what

[14:18] the one would be here. You can file your own at your own discretion which would

[14:23] accomplish the same thing. So yes, I'm not discounting the importance of it.

[14:28] I'm not discounting the number of people that are affected by it and it would be

[14:32] impra impractical to notify all of them. I agree with all of that. The problem is

[14:36] as an individual you can't wave all of that. You can't get the commission to

[14:40] wave all of that because you've skipped due process. The commissioners have a

[14:44] totally different requirement as to what kind of notification they give for

[14:49] proceedings that deal with regulatory authority prevention of waste through

[14:53] the commission's applications.

[14:58] Commissioner Murphy, you're recognized. Um, no, excuse me.

[15:02] You're recognized. Excuse me. This Commissioner Murphy.

[15:05] Thank you, Commissioner Hyatt. Um, [clears throat] Mr. Levenson, I guess I

[15:09] have a question. Could not the commissioners just adopt the application

[15:16] and relief that's been requested and that would satisfy the issue that Mr.

[15:22] Barnes has raised because I noticed that when we do gas allowables and I've

[15:27] actually pulled out the statute, I mean, we have publication notice. So, I

[15:32] [snorts] guess my question would be what's the difference between the

[15:35] commission filing it and the commission adopting the filing that would have been

[15:40] done in accordance with what the commission would have been done?

[15:44] Absolutely nothing. That's exactly correct. Thank you,

[15:50] Mr. Barnes. you care to respond? Oh,

[15:55] yes. Yes, sir. I I would simply respond by saying that that is the commission

[15:59] then waving due process, which they don't have the authority to do. They're

[16:04] then ruling that that due process is met in this fashion. And and I disagree with

[16:09] that. I believe that the application being filed and noticed through the

[16:13] commission is a totally different matter than the circumstances where it is filed

[16:18] through an individual company. Again, this isn't for

[16:23] processing

[16:28] that the court reporter. I've lost all sound.

[16:31] And again, we're not discounting the importance of this particular case and

[16:35] the significance of it. All right.

[16:39] Sorry, guys. court reporter. I missed everything from when uh I got to filed

[16:46] through an individual company and then you started a sentence with the word

[16:49] again and I dropped everything and I'm getting a notice on my computer screen

[16:53] that says severe network issues. So I'm going to mute myself but I couldn't hear

[16:59] from where he said filed through an individual company. Sorry to interrupt

[17:04] Mr. Barnes. Yes, sir. What I believe is occurring in

[17:08] this particular proceeding, the way that it would be had, would simply be that

[17:12] the due process is being waved by the commission, which the commission does

[17:17] not have authority to wave that due process that's required. If they file it

[17:22] on their own merits, if you file it on your own merits, then your notice would

[17:25] apply. But I don't believe that somebody can file one utilizing what you would

[17:30] have for your notice and then claim and I'm assuming that it is what would be

[17:33] required for your notice. Uh and and then have the commission say okay, we're

[17:38] going to accept that when that is not the type of application that was filed

[17:42] and and the service of application says uh respondent shall be served by regular

[17:47] mail each respondent named therein. The therein doesn't mean you don't name

[17:52] somebody and they aren't required to have notice. So it it again we're not

[17:56] opposed to what's being uh presented. Our concern is what we will have when

[18:01] we're finished is not something that can be utilized.

[18:06] Helm, I think you trying Yes, Mr.

[18:10] Helms. I think you were trying to make a comment.

[18:13] Thank you, your honor. I'm representing Crawley Petroleum Corporation who has

[18:16] filed a protest to the merits of this case. We concur with council for

[18:21] fourpoint stagghorn and intended to raise notice as an issue with regard to

[18:25] this cause and think it would be more properly brought by the commission.

[18:32] I'd like to suggest that we take this under adisement and proceed with the uh

[18:38] merits of the matter before us. I would I would agree.

[18:45] I support that as well. Thank you, M. Hey, I bet that'd be

[18:49] great. Thank you. All right. Um, uh, Mr. Levenson, turn

[18:55] back to you now and ask how do you intend to proceed in this matter?

[19:01] [snorts] The court, uh, please commission. I'm

[19:04] going to incorporate the testimony taken at the emergency hearing on April 22nd,

[19:11] 2020, which resulted in order number 710884.

[19:17] and simply just make some arguments, additional arguments in support. I will

[19:22] also uh I want to comment on a disscent filed by Commissioner Anthony on just a

[19:28] few points. And with that, that will that will conclude my presentation.

[19:35] You're recognized to state your arguments.

[19:37] Thank you, sir. I appreciate that. Again, thanks for the commission hearing

[19:42] this matter, even the the comments made by Mr. Barnes and Mr. Helm. This this is

[19:48] a serious matter we're facing and what we have is a situation where we've got a

[19:55] totally unstable market. Uh supply and demand is out of whack. It could be a

[20:01] substantial period of time before it returns to some normaly. In addition,

[20:07] what's important about my application? it it's it was voluntary and it's based

[20:12] on voluntary circumstances uh concerning production costs and

[20:17] expenses. And if I can go back and by the way, I

[20:22] also want to thank a lot of the attorneys that entered an appearance. I

[20:26] had personal conversations with them. Uh I took their views on the subject. I'd

[20:32] also want the commission to note that as far as this application, I have to thank

[20:36] uh Bill Huff and Andy Dun who work with me and the people know without them,

[20:41] they know my limitations. I probably couldn't have done it. So, I just want

[20:44] to thank them and I want to thank all the people that helped.

[20:49] A couple important things. I read uh Commissioner Anthony, I read uh your

[20:55] deliberation statement and descent. I want to comment on a few things. Um, I

[21:01] have practiced law a long time and one thing that needs to be brought out

[21:06] that's really important and even as Mr. Barn just brought out when he was

[21:11] concerned about uh the validity of this order.

[21:16] What again we're asking is voluntary. It's not compulsory and lease

[21:22] cancellations and what what I'm concerned about not only for LPD who's a

[21:27] small producer. I I may feed 20 families out of it and I

[21:32] look at my employees as kind of my family and I'm dedicated to provide them

[21:38] even though I'm losing money now. I want to keep as long as I can on the payroll.

[21:42] I want to protect the company. I have worked for those assets. And one thing

[21:47] about my application, I've been involved in fights before. I

[21:51] say fights that came out wrong. Controversies between big and little

[21:55] producers. In this case, we're all in the same boat. We're floating out there

[22:01] on a dangerous waters and we we're all praying in our business that something

[22:06] good happens quickly because there's no telling how long that we all can stay

[22:11] afloat. Now, with lease cancellations, one thing everybody has to remember, a

[22:17] lease cancellation is an equitable proceeding. It's equitable. And what

[22:22] that means is the facts and circumstances

[22:26] directing why a lease is not producing is determinative whether or not that

[22:31] lease can be cancelled. So you must remember that and in this case we've got

[22:37] a pandemic that has completely taken the foot out of the market. The demand has

[22:43] dropped considerably. uh the supply

[22:48] anything you read and we can take judicial notice that it's it's tens of

[22:52] millions a barrel we're over produced based on our demand

[22:57] and what we have here is and again I'm going to this uh statement you made

[23:03] uh you made a statement that it says the question for oil is whether or not just

[23:10] let supply and demand eventually return to balance or risk loss of revenue

[23:15] revenue, jobs, and market share through curtailment.

[23:19] The answer to that is if we don't shut in that production and curtail it, it'll

[23:24] be worse. Here's my point. Let's say you're a restaurant. It's easier to say

[23:30] it that way. And your cost of the your cost of food is $15 a person and you

[23:35] were selling steaks for $30. That gives you a profit. If the cost of those

[23:40] stakes drop below where you can only sell to your customer for five or 10

[23:44] dollars, you can't serve that meal. Uh it's the same, and you're familiar,

[23:50] Commissioner Anthony, with a clothing business. If you're buying jeans from

[23:54] your wholesaler for $15 a pair, and the most you can sell them for is five or

[23:58] 10, you have to stop selling those and buying them because your losses are

[24:03] greater. uh banker. I know that m that commissioner Hayyatt is involved with a

[24:08] bank. If the cost of funds is 5% and you can only loan it for three, you can't

[24:14] make loans. So, it's just the opposite of what you have in this statement. All

[24:20] we're trying to do is shut in our wells until the price goes up. You also make

[24:27] some statements in here from an economic standpoint

[24:31] that that state say what if the price goes up. Well, if the price goes up and

[24:37] you have incremental profits per barrel, you immediately put your wells back on

[24:43] again. You can't sell things below cost. It makes it worse. And the other thing I

[24:50] thought that was interesting in your analysis when you talked about equal

[24:54] considerations and you talked about Mr. Ranji and you

[24:58] said maintaining an unprofitable lease. Those leases of Mr. Ranji or the other

[25:05] people that represent people on the phone are producers. My lease are not

[25:10] unprofitable. They're unprofitable when the price of oil is five, 10 or $15 or

[25:15] even 20. On a normal market, these are valuable assets. You can't you have to

[25:21] look at what we've developed and what we've done. And I think it's critical to

[25:26] understand that all we're trying to do is protect our assets during this

[25:30] pandemic. The other comment that you made about

[25:34] lease forms, the lease forms in Oklahoma, and nobody

[25:38] would object to this has done this for a period of time. They're for a primary

[25:44] term in so long thereafter is oil and gas is produced and again whether those

[25:51] are equitable considerations and those terms are almost uniformly applied.

[25:56] Ironically, I was the expert witness on the on the class action about the posted

[26:02] price controversy about all the leases and they were all for purpose of class

[26:07] action considered the same. One other thing we have to remember about this

[26:12] pandemic and things it's done. We can also relate this that that could be an

[26:18] ancillary to this or some of the same principles. What about mortgage

[26:22] foreclosures today? Let's say you have a house that has three or $400,000 in

[26:26] equity in it and you lose your job and you can't make payments for two or three

[26:31] months. Just because you can't make payments does not give the bank the

[26:35] right to foreclose. We may actually have cases that now state that you give that

[26:41] borrower time to to make those payments up. In fact, the fed the federal

[26:46] government has already done that in their back loans. So all I'm trying to

[26:51] do in this case and and again I want to get this clear. I'm not asking anything

[26:56] mandatory. All I want this finding by the commission that if you sell which is

[27:01] I guess it's 52273 at all right about that statute that

[27:07] when you sell oil below what it cost to produce it constitutes waste and this

[27:12] could be a defense when people try to take our leases. And again, some of the

[27:18] people I've talked to on the phone, we we've been on the same side. We've been

[27:22] against each other. Uh I consider my friends. One advantage of this case, I

[27:27] got a chance to talk some people I haven't seen for a while. So, I also

[27:31] appreciate that. But that's all I'm trying to accomplish in this case. And

[27:36] there's no detriment to anybody. In fact, this may be the only ca case that

[27:41] I've had in my career that I think we're all in the same boat. And again, uh, I

[27:47] look at it just not for me, the families. I think there's I think I read

[27:52] there's 150,000 people directly that are affected in Oklahoma that that work in

[27:57] the oil industry. I have people in the service industry, one of our major

[28:02] providers, has gone from 90 engineers, field engineers, it's a public company,

[28:07] I want to mention the name, down to four. Um th this is a this is a just a

[28:13] time that nobody could imagine and all I'd like all I'd like to do I think this

[28:19] order is critical you know I'm happy to be a part of it LPD's a little company

[28:24] I'm actually doing this for the benefit of all the companies whether it's a mom

[28:29] and pop with two barrels a day or continental that has tens of thousands

[28:34] of barrels a day and the other thing that I'm proud of since this application

[28:38] was filed I have had calls other states have taken our lead and again I'd like

[28:44] the unanimous support of this from the commission. I appreciate the comm I

[28:48] appreciate the commission taking action this case to help us. And I mean to be

[28:56] honest it is a dire situation. you pick up whether it's the journal record, the

[29:01] daily Oklahoma, the tossa world, you see the quarterly reports, what people are

[29:06] losing and this application hurts no one. It simply helps us protect the

[29:11] assets that I've worked my whole life for in one phase of my business. Uh us

[29:17] as attorneys have worked for and again all I'm trying to do is preserve these

[29:21] assets. And again, I want to thank all the parties that assisted me, including

[29:26] Terry Stouts, who I work with on the royalty side. He had some great

[29:30] suggestions. And again, um, as soon as the markets balance, I hope

[29:37] this is a short interm. I request for the interim order that commission

[29:42] determine the time to review it. But the the thing I'm most proud of that there

[29:46] is no way that this order could detrimentally affect any producer. It's

[29:52] simply a guidance. It'll help establish that the commission has made a finding

[29:57] that selling oil below cost to produce it is waste. And that's all that I

[30:03] really want out of this order. Again, I appreciate everybody's attention.

[30:07] Appreciate all the help and would welcome any comments. Thank you all very

[30:12] much. Questions of the commissioners?

[30:21] The only question uh that I would uh put forward is um I know in at least two uh

[30:29] of the filed comments that we've received and it probably occurred uh in

[30:34] more than two but at least two uh there was a point made uh we're talking about

[30:41] uh trying to protect against litigation on the side of those that are uh

[30:46] shutting in wells. Uh there was a point made in at least two of the comments

[30:52] that this order would increase litigation. On the flip side of that of

[30:58] if the neighboring well uh did not shut in, it could increase

[31:03] the litigation toward the one that did not shut in. How would you respond? I

[31:09] assume you've seen those comments. How would you respond to those comments?

[31:12] I can respond to that. Uh Commissioner Hyde, I'd be happy to. First of all,

[31:16] that's the reason that I did on an operator byoperator basis. One

[31:21] operator's cost may be different than another, but I've also consulted with

[31:25] the royalty owners. And likewise, the royalty owners are concerned selling

[31:32] their oil at five and 10 and $20 a barrel when some of them have paid 20

[31:37] and 30,000 acre for their minerals. And again, this is on a on a operator by

[31:42] operator basis. and one operator's cost of production is different from another

[31:48] and I don't see any litigation risk at all. Sorry, I do not.

[31:54] Okay. Thank you, Commissioner Hyatt.

[31:56] Yes, Commissioner Murphy. Um, Mr. Levenson,

[32:01] you're not asking, as I read the application and I listen to your

[32:06] comments, I guess I'll just ask the question more straightforward. Are you

[32:11] asking the commission to make a statewide determination on all wells

[32:18] that waste is occurring? Are you asking for that?

[32:23] No, ma'am. I am not. It's on an operator by operator basis.

[32:28] Okay. I just I know some of the statements I've seen seem to intimate

[32:34] that the commission is being asked

[32:40] to reduce allowable statewide because of oil price collapse. So,

[32:47] you're telling me you disagree with that statement. Is that right?

[32:52] Can you repeat that, Commissioner? It got cut out there at the end. I'm sorry.

[32:57] Would you agree or disagree with the statement that you're asking the

[33:03] commission to reduce oil allowables statewide because of the oil price

[33:10] collapse? No, I'm not asking to do anything on a

[33:14] statewide basis. Thank you.

[33:20] Okay. Seeing no further questions uh of the commissioners, I do want to make a

[33:24] note that Cwley Petroleum has protested this cause. Mr. Helms, I assume you're

[33:29] on the line and and um could you address uh do you plan to introduce a witness?

[33:37] Your honor, thank you. Charles Helm for Cwley Petroleum Corporation. We've lost

[33:41] our visual and apologies to the court. Uh on behalf of Cwley, we filed a

[33:46] protest to the merits of this application after it was originally

[33:50] filed. We appeared before you on the emergency docket and at that time

[33:56] withdrew our protest of the emergency in favor of allowing the matter to go

[34:00] forward, reserving our right to protest the merits.

[34:04] There was evidence uh and statements made during the course of the emergency

[34:09] proceeding that caused concern for Cwley Petroleum Corporation and we'd like to u

[34:16] provide some comments. Cwley disagrees with the notion

[34:20] presented at the emergency hearing that operators cannot shut in wells without

[34:25] constituting waste. There's no evidence to support that

[34:30] claim, nor is there any legal authority to substantiate the same.

[34:35] Crawley believes the commission should avoid any order that implies or even

[34:40] suggests the same. Crawley firmly believes that the

[34:44] operators in this state and the properties that they operate

[34:49] that the operator should be the proper party to determine what's best for oil

[34:52] and gas development of these leases. and the commission should avoid any order

[34:57] that implies otherwise. Crawley disagrees with regard to the

[35:02] notice that was suggested as being proper for the reasons that we discussed

[35:06] through council for fourpoint and Stagghorn.

[35:10] Cwley disagrees with the applicant statements that royalty owners and other

[35:14] owners cannot possibly be affected by shutting in properties. There's simply

[35:19] no evidence that was presented during the emergency hearing to support that.

[35:24] probably disagrees that it's the commission's obligation or authority or

[35:28] duty to try and provide a complete defense from someone trying to top lease

[35:34] or steal leases. Again, it's not the commission's duty or authority to engage

[35:39] in a private rights issue involving leases.

[35:43] Crawley also disagrees with the applicant's assertion that there is no

[35:47] market or demand for oil. There's simply no evidence to support that comment.

[35:53] Crawley further disagrees with the applicant's assertion that $30 to $40

[35:57] per barrel is the benchmark for declaring a well uneconomical.

[36:02] Simply no evidence to support it. As a comment,

[36:07] Cwley would note that the emergency order has a finding that says it's not

[36:13] intended to relieve any operator of complying

[36:17] with commission rules or other orders. and it does not relieve operators from

[36:22] complying with the contractual terms of their leases.

[36:26] Crowley's question to the commission is what is the order intended to do that?

[36:32] The applicant wants the order to avoid their perceived fear that they will lose

[36:37] their leases if they shut in a well or someone will top lease their interest if

[36:42] they shut wells in. It's simply a matter beyond the jurisdiction of the

[36:47] commission and is a private rights issue. So we ask again, why is the order

[36:53] being entered with regard to unintended consequences

[37:06] without a legal department or land department that shuts in wells

[37:11] because the commission says it's okay. only to be challenged.

[37:15] Yes, Mr. Helms.

[37:17] Yes. Uh can you

[37:20] we lost connection? Uh court reporter, are you current or did you lose

[37:25] connection also? Thank Thank you. I my hand was going for

[37:29] the button when you uh stopped him. I lost him. Uh with regard to unintended

[37:35] consequences was the last thing I heard and then it just went totally silent.

[37:40] Please proceed from there, Mr. H. Thank [snorts] you, Commissioner. Imagine

[37:44] small operators without a legal department or a land department that

[37:48] shut wells in because the commission says it's okay only to be challenged in

[37:51] district court where the commission can't help them. Paulie believes that

[37:56] the commission's intentions are to help the industry and that they're genuine.

[38:02] But we've seen examples where the commission has attempted to uh help the

[38:09] industry in the past and we've had unintended consequences.

[38:14] I've been around the commission long enough to remember May 3rd, 1984 when

[38:19] the commission issued memorandum 45, a statement of policy to help the

[38:24] development of properties in Oklahoma and to help independent operators

[38:31] aggressively develop those properties by saying

[38:35] all poolings are by the wellbor. We've had hundreds or thousands of

[38:41] unnecessary pooling orders issued at the expense to the operators based on the

[38:46] commission's intention to help the industry.

[38:51] That memorandum was overturned by the Supreme Court just like the concerns and

[38:55] arguments that this would be overturned by the Supreme Court with regard to the

[38:59] notice issues that have been raised relative to this proceeding.

[39:04] Mr. Hatfield. Kim Hatfield has been called as a possible witness,

[39:10] but we discovered that on Friday of last week, the Petroleum Alliance filed

[39:16] comments, but those comments don't appear on your

[39:20] docket sheet. We would ask the commission to consider those comments in

[39:24] lie of Mr. Hatfield testifying. Thank you.

[39:33] And of course uh we have re received those comments and and you are correct

[39:38] and it will be added to the list. The Petroleum Alliance comments will be

[39:42] added to the list. Thank you.

[39:45] All right. Thank you, Mr. Helm. Well, along that line, uh you know, at some

[39:52] point we're going to be asked to make a decision and Mr. Levenson, I think,

[39:57] started off by saying he wanted to incorporate the evidentiary record from

[40:04] the emergency hearing into this record. So, there was a witness and he was sworn

[40:09] in and he gave his testimony. Uh, now we did receive a letter from the Petroleum

[40:18] Alliance and uh just to say it's public comment. Um, I'm not real sure has the

[40:28] same stature or standing uh that it would if uh Mr. Hatfield, who I believe

[40:36] signed it, is I can see him on the screen here. If if he um

[40:43] is enough of a witness to say, "Yes, that's my letter. I signed it and it

[40:47] says what it says." I think that would uh be a more important part of the

[40:53] record. But I'm kind of a layman in these regards. And so maybe we could ask

[40:58] our uh administrative law judge uh who's assisting us uh with their and and Mr.

[41:06] Hatfield is speaking for a whole association and a large number of

[41:10] people. So I think this is uh one of the more important uh statements to be made.

[41:15] Do you have any suggestion uh your honor? And before before uh we move to

[41:21] the the judge, I just want to clarify because I think maybe you and I heard

[41:26] Mr. Helm's question in a different way. My understanding of Mr. Helm's question

[41:31] was uh that he was not presenting a witness. And then oh by the way, just as

[41:37] a housekeeping matter, there were public comments that are not listed completely

[41:42] separate even though we were kind of running two conversations together. Is

[41:46] that correct, Mr. Helm? Your honor, we would offer Mr. Hatfield

[41:52] uh to provide his position relative to the petroleum alliance allian.

[42:04] Okay, let's pause just pause.

[42:10] Someone on a wireless phone is not muted.

[42:19] Okay. Uh, now we're set.

[42:23] Anyway, I'd like for Mr. Hatfield to serve as a witness. I think it just take

[42:28] a minute or two. Um, if there's no objection,

[42:31] Judge Presler, would you please swear in the witness? [clears throat]

[42:37] Yes. If Mr. Hatfield will raise his right hand.

[42:41] Do you solemnly swear or affirm under penalty of perjury that the testimony

[42:45] you're about to give is the truth, the whole truth, and nothing but the truth?

[42:49] I do. Thank you, Mr. Helm. You may proceed.

[42:56] Thank you, your honor. Mr. Hatfield, would you give us your name and

[43:00] occupation? My full name is Steven Kim Hatfield.

[43:06] I am petroleum engineer by training and CEO of Cwley Petroleum Corporation.

[43:13] Briefly describe your educational background.

[43:18] I recealed.

[43:22] We'd like for the record to provide that, your honor.

[43:27] I receive my You may proceed with his qualifications.

[43:33] I received my bachelor's petroleum engineering degree in 1974 from the

[43:39] University of Oklahoma. I received a master's degree in trillium finance from

[43:44] the same university and uh subsequently attended the owner

[43:49] president management school at Harvard University.

[43:55] And what is your relationship with Cwley Petroleum Corporation?

[44:01] I'm the chief executive officer and been employed by Cwley since 1980.

[44:08] What would be your association with the petroleum alliance?

[44:14] I [clears throat] am a board member, a member of the executive council, the

[44:17] executive committee of of that organization.

[44:22] Did you attempt last week to put together comments to be filed for the

[44:26] record in this cause on behalf of the Petroleum Alliance?

[44:31] Uh yes, I did. Those comments were signed uh by the chairman, Mr. David

[44:37] Lenorman who intended to uh be present today but unfortunately his mother

[44:43] passed away over the weekend and so he was unable to uh to be here today.

[44:52] Mr. Hatfield, did you ask my office to file a protest in this matter on behalf

[44:56] of Cwley Petroleum Corporation? Yes, I did. On behalf of Cwley, did you

[45:03] in your position with Cwley have concerns over the issues that were being

[45:07] raised uh in the requested relief? I do.

[45:13] Did you sit in and listen to the emergency proceeding?

[45:18] I did listen to the emergency proceeding and subsequently reviewed the transcript

[45:24] to understand it fully. For the purposes of the

[45:30] comments made during the emergency relief, are you concerned that there's

[45:35] some implication that operators may not currently have the ability to shut in

[45:41] leases where they feel it's important to do so to protect the rights of owners?

[45:46] I believe that was the testimony. And would you believe that operators

[45:53] have that ability without the commission's intervention with this

[45:56] proposed order? I believe under prudent operator

[46:02] standard that operators have that uh ability and duty.

[46:09] [clears throat] And on behalf of the association and

[46:11] Cwley both, are you concerned about any order that might issue with regard to

[46:15] the notice that was provided for these proceedings?

[46:19] I am concerned about the notice as well.

[46:24] Did you hear the statement that I read into the record concerning Cwley's

[46:29] concerns about trying to interfere with the contractual rights of of parties

[46:34] associated with development of properties?

[46:37] I did. Is that is the is that the position of

[46:42] Cwley? That is correct.

[46:46] Do you also take issue with attempting to establish a baseline for what is

[46:51] uneconomical as was presented by the applicant in their emergency application

[46:55] at a 30 to $40 benchmark? That is correct. To uh

[47:04] uh take Mr. Levenson's analogy from earlier that if you're buying stakes for

[47:10] $15 and selling them for 30, then uh you suddenly can't sell them

[47:17] for more than5 or $10. Uh you might not buy any more stakes,

[47:23] but if you've got those stakes, you're not going to let them rot, so you're

[47:27] going to sell those.

[47:32] And with regard to the finding that the commission's emergency order indicated

[47:38] it would not relieve operators of complying with commission rules or

[47:42] orders, nor would it relieve operators from complying with contractual terms.

[47:47] Do you have a feel with your experience as to what the order is intending to do?

[47:52] I am completely at a loss as to what this order would accomplish.

[48:00] Other than it opens the floodgates for litigation by people questioning exactly

[48:07] what it does mean. I appreciate Mr. Levenson's assurance

[48:12] that there will be no litigation from this and assume that he's going to

[48:17] represent all of the uh afflicted parties that uh have to deal with this

[48:23] proono

[48:27] absent the issuance of an order by the commission in this cause. Do you believe

[48:30] operators have the responsibility and duty uh to take whatever actions they

[48:35] deem necessary with regard to their contractual rights?

[48:39] I do. And is that the position that Cwley has

[48:44] taken throughout uh the economic times that we have currently?

[48:50] That has been horse we have pursued since I've joined the company 40 years

[48:55] ago. Is it also the directive that you

[48:59] provided to your alliance uh in so far as the well the properties that they

[49:03] operate that they have the need to review their own contractual situations

[49:09] to determine what's best for a particular property as opposed to the

[49:14] commission deciding that question. That is correct.

[49:20] Is there anything you would like for the commissioners to know as a conclusion to

[49:24] our request?

[49:31] While I feel that the intention is good, the execution of this is

[49:40] at best ineffective and at worst opens Pandora's box for litigation. No matter

[49:50] which course we choose, we'll end up defending uh having to defend

[49:56] uh each decision we've made uh endlessly.

[50:04] Your honor, that's all I have of Mr. Hatfield.

[50:08] Mr. Levenson, just a few questions. Uh you're not an

[50:12] attorney, are you Mr. Hatfield? No, sir. I'm petroleum engineer.

[50:18] Okay. And uh how does it how does this order adversely affect you? It sounds

[50:24] like you're not going to shut in any of your wells. Is that correct?

[50:28] No, that's not correct at all. We've shut in a number of wells.

[50:33] Well, how does this order hurt you if you're shutting in your wells? I don't

[50:37] understand. Please explain to me how this order hurt you.

[50:41] The concept that we don't have the right to do that absent this order is a

[50:47] fallacy. And uh

[50:52] so the uncertainty that it

[50:58] [snorts] brings into the course and the question as to what happened

[51:04] uh prior to this order. The actions we took at that time, were they, if we shut

[51:11] in prior to this, were we absent uh the protection that

[51:18] you say you're trying to get us?

[51:24] Well, this this order doesn't affect you at all. You don't have to do anything

[51:29] under this order. You continue to produce, shut them in. And isn't it

[51:33] true? There's just another layer of protection from you. It doesn't cause

[51:36] you any litigation of any type. How does this cause you any litigation? This is

[51:41] voluntary. And one thing, you're a pro engineer, correct?

[51:46] That is correct. All right. And certain leases have

[51:49] different operating expense. Would you agree with that?

[51:53] I would agree. Okay. And there's nothing in that order

[51:57] that set a baseline. In fact, what I was going to suggest, excuse me, suggest to

[52:02] the commission is they review this on a basis. So there' be some leases they can

[52:07] produce at $30 a barrel very profitably. Others might need 50. Is that correct?

[52:15] That is correct. But the problem with that assumption is you're doing it

[52:21] without any framework for deciding what costs are to be included.

[52:27] Okay? And would you agree with me? The way I did this order specifically

[52:32] and the way I framed it, it's done on an indiv individual operator basis. Do you

[52:37] see that? So one operator is not affected by another. And Crawley

[52:41] Petroleia doesn't have to do anything. Would you agree with that? If this order

[52:45] was implemented today, it would not change the way that Crowley did

[52:49] business. Would that be correct? It wouldn't change one iota.

[52:55] I believe that we have the right to operate as we have with this order or

[53:02] without it. So this order has achieved nothing productive.

[53:09] As far as Cwley's petroleum, this order does not affect you if it's entered in

[53:14] one adverse way. Is that correct? Uh don't believe that's correct. I

[53:20] believe that the the resulting uh stream of litigation that I foresee is going to

[53:26] be a huge detriment. Well, why would that be a detriment if

[53:32] you get to choose what you want to if you want to produce your wells or not? I

[53:36] mean, it makes you're it makes no sense, does it, Mr. Hatfield? Because you just

[53:40] said that that will you whether you shutting your wells or not, that's your

[53:45] individual prerogative. Correct. And you've testified that we can't do

[53:52] can't produce below $30 uh dollars a barrel.

[53:55] That is you could you can produce at $5 a barrel if you want to. If you want to

[54:00] lose money, maybe you have a lease that produced at $2 a barrel. I don't. So I'm

[54:06] not asking you if you can produce at $3 a barrel. It makes no difference. I

[54:10] specifically did the order that way, not to do anything compulsory. It's

[54:14] voluntary only. One other question that I have for you, Mr. Hatfield.

[54:19] How many members do you have in your organization?

[54:23] U state your objection, Mr. Hill.

[54:26] Okay, I'll withdraw.

[54:30] Thank you. He withdrew. How many members are in your alliance?

[54:37] uh

[54:42] [clears throat] several thousand uh individual members. I don't know the

[54:46] exact number. And um you're the only one of the

[54:51] alliance that's filed a formal protest. Is that correct?

[54:58] That is correct. I'm here representing on behalf of the executive committee of

[55:03] Terlingim Alliance. Okay. And would it surprise you that

[55:06] many of your members are in support of my application?

[55:15] Uh there may be some

[55:20] in fact again yeah I'm sorry. Go ahead and answer. I'm

[55:23] sorry Mr. Hatfield.

[55:27] The vote of overwhelming majority of the executive comm uh committee

[55:33] was to protest this application. Okay.

[55:39] But again, you're the only Crawley Patrol is the only one that protests.

[55:43] That is correct. Is that not Is that not right?

[55:51] We are the only entity that has filed a protest that I'm aware of.

[55:57] And you're aware of many Mr. Levenson. Mr. Levenson, let me clarify your

[56:04] question only in one regard. Uh, a letter was submitted to the corporation

[56:11] commission on his alliance uh, stationary. It's one page long and I

[56:18] believe his testimony has already clarified that it was signed by Mr.

[56:23] Lenorman. And so um I believe that that would be an additional person u of their

[56:31] group in addition to Mr. Hatfield. The the reason I asked Mr. Hatfield to uh

[56:40] serve as a witness was I was thinking that he could say and maybe he still

[56:45] will that that he adopts that letter

[56:52] as his own.

[56:56] And so Dave Norman may have protested too. I know him personally so I don't

[57:01] want to say too much but I do know Dave. I get along in the fun. So that's two

[57:04] and and and

[57:12] And one other question. One other question, Mr. Hatfield. You

[57:17] made a statement. I made a just kind of an analogy about stakes.

[57:21] And uh you can see this. You You have to continue to serve the steaks you have on

[57:26] hand, but oil doesn't spoil, does it?

[57:32] It is oil in the scratch that. Is oil in the ground worth more at a higher price

[57:37] than it is at current prices? Yes or no? Oil in the ground is worth nothing until

[57:44] it's produced.

[57:47] That's

[57:52] That's Well, let me ask you this. Do do you not

[57:57] value Let me just that I can answer. Sorry. Do you value your reserves on a

[58:05] financial statement based on generally you're an engineer PB9 would that be a

[58:10] proper term to value oil and gas? That would be one measure.

[58:18] And the oil in the ground is a valuable asset and it's used in in everyone's

[58:25] financial statements, is it not? That's generally in the oil and gas business.

[58:30] Yes. Yes, I was simply referring to your analogy.

[58:34] Oil on the ground. But oil on the ground is valuable, is it

[58:37] not? Yes, it is. It is valuable.

[58:40] And in fact, reserves are how you value oil and gas companies. Would you agree

[58:45] with that? Yes.

[58:49] And is it more valuable to produce oil at $50 a barrel than it would be at $20

[58:55] a barrel? That is correct.

[59:00] It would be even more valuable at $100 a barrel

[59:04] that we agree on. Thank you, Judge. I have no further question about

[59:10] Mr. Hatfield. Also in the for courtesy for if they want to introduce as an

[59:15] exhibit, you already have. I have no problem his that statement of the

[59:19] alliance being put evidence. I just wanted to tell you that also. Thank you.

[59:24] Okay. Mr. Helm, do you have redirect

[59:28] examination? And also if you want to address uh the comment about the

[59:34] statement. Uh the only thing that I would ask the

[59:38] witness is uh if he presented the statement because of the inability of

[59:43] Mr. Lenorman who signed it to be present because of a family issue. Would that be

[59:49] true, Mr. Hatfield? That is correct.

[59:52] Otherwise, we could have had Mr. Lenorman present that. But you are an

[59:57] officer with that group and and you're representing that. That's the position

[1:00:00] of the alliance.

[1:00:03] Yes. That's all we have, your honor.

[1:00:08] All right. Commissioners, do you have questions?

[1:00:13] I do. This is uh Commissioner Anthony. Uh thank you. I might make um a couple

[1:00:22] of statements and then either the witness could respond or the attorneys,

[1:00:27] whichever is appropriate, or they may not need to respond at all. Um,

[1:00:33] [clears throat] first of all, I think that on this case

[1:00:37] and the next case, the Oklahoma Supreme Court in its uh KICO decision involving

[1:00:44] the corporation commission, I believe it's from uh 1988,

[1:00:50] uh does have application, especially when it talks about our

[1:00:55] statewide um authority or lack thereof.

[1:01:01] uh and it emphasizes authority more on a common source of supply basis. Um now

[1:01:09] I'm just going to real quickly try and deal with this since somebody brought up

[1:01:14] my background with the retail business. Um I think that blue jeans are probably

[1:01:21] closer to oil. They're a basic uh than steaks which probably don't have as good

[1:01:27] a self shelf life. But uh unfortunately sometimes you get too much inventory.

[1:01:34] [clears throat] Even if it's back to school, you got too

[1:01:36] many jeans and you might have to mark them down uh to adjust your inventory.

[1:01:45] Uh likewise, if they were holiday sweaters and the holiday has come and

[1:01:49] gone, you might have to sell them for half of half and lose money. So,

[1:01:54] everybody's business is usually a little more complicated than you might might

[1:01:58] think. To move on to the oil and gas industry, I could be a company and I

[1:02:05] could have financial obligations. I might have a mortgage. I might have an

[1:02:09] obligation at the bank for a payment on a loan and I might have to sell my

[1:02:15] product uh for less than what I think it's worth or even the cost of getting

[1:02:21] it. But sometimes you need some cash flow uh to uh to just survive and and so

[1:02:30] to talk about one price um and one cost of oil uh I think doesn't really apply.

[1:02:38] You could also because the newspapers in Oklahoma show that one of the major

[1:02:44] companies has used financial hedging and the uh price of oil recently may been 20

[1:02:51] or $25 but they have some hedged um uh pricing at the $40 range. So what is um

[1:03:00] is waste is um is involved to determine now

[1:03:07] my main concern is this uh there is an in addition to the Kico decision there's

[1:03:15] a decision in the Oklahoma Supreme Court court called hair versus Oklahoma

[1:03:20] corporation commission and this Oklahoma supreme court decision

[1:03:28] uh talks about hello

[1:03:30] the commission yes please mute your mic ever saying

[1:03:36] Hello.

[1:03:40] Okay. uh the Oklahoma Supreme Court in a decision called hair h a i uh versus

[1:03:49] corporation commission in 1987

[1:03:55] uh talks about that it's unconstitutional

[1:04:00] for the corporation commission to delegate or I might use the word

[1:04:07] relinquish its and I'm quoting from the the second

[1:04:12] page. It's powers, duties, and functions uh to someone else. We have

[1:04:19] constitutional role. And for this uh proposal that Mr.

[1:04:24] Levenson has brought forth. There is a very tempting to people like me u uh

[1:04:32] opportunity to delegate this decision on whether to have curtailment or shuts of

[1:04:41] wells. Uh it sounds like a voluntary basis is very innocent but uh it's it's

[1:04:49] being done in response to waste. And under my reading of the law and I

[1:04:57] think even some of what Mr. Levenson has put forth, you're supposed to determine

[1:05:02] waste by looking at demand and the uh production or the supply.

[1:05:10] And if waste is determined, once again, it's got to be this agency that

[1:05:16] determines this. I don't think that uh every operator and every producer on

[1:05:23] their own with their own analysis and their own random uh study can can make

[1:05:29] that decision. But if there is waste, then the

[1:05:35] commission has a legal responsibility. the way the statute is written that that

[1:05:42] we cannot allow it. So I would put the question to Mr. Levenson or to the

[1:05:47] witness. Um let's say that we've determined there is waste and then we're

[1:05:52] going to have an order that's proposed for us to allow the operator to what?

[1:05:59] Maybe he's only going to curtail half of his production. Well, we if it's waste,

[1:06:04] we can't let him under the statute um produce any of it.

[1:06:10] And so I think the the the mechanism that's being put to us has a problem

[1:06:18] with us delegating our authority. And it also has the problem that under it that

[1:06:27] an operator could say, "Well, I'm going to cut my production in half." If that

[1:06:33] if that is wasteful, the statute doesn't allow us to uh sanction any of it.

[1:06:40] Anyway, I'm just a layman here and trying to um understand the uh proposal

[1:06:48] that's before us.

[1:06:55] Commissioner Anths, uh, I would say you've summarize my concerns very well.

[1:07:02] And, you know, we we've been talking about oil production as if that

[1:07:09] is the only thing that that we produce. If I have uh a well that produces

[1:07:18] 2 million cubic feet of gas a day and 10 barrels of oil,

[1:07:23] uh the it

[1:07:28] I may not like the price of oil, but if it requires that I shut in the well and

[1:07:33] not be able to market my gas, then I may be selling oil at a very low price. Over

[1:07:39] the last few years, we've seen the exact opposite. where natural gas has been

[1:07:44] sold at very low or even negative prices.

[1:07:49] Uh so to allow the production of oil that was an economic decision made by

[1:07:56] the various operators.

[1:08:07] Mr. Levenson, did you want to address Commissioner Anony's comment?

[1:08:12] I can. Uh, first of all, again, that's why I did it on an individual basis,

[1:08:19] individual operator. I also agree with Mr. Hatfield. If you've got a well

[1:08:22] making a few barrels of oil a day and uh substantial gas and it's profitable, I

[1:08:29] wouldn't shut in that well. I'm not asking him to. Makes no sense. It has to

[1:08:34] be done individually. Also, as far as Mr. Norman I know outside the commission

[1:08:39] I can't comment there probably is reasons he doesn't want to shut in his

[1:08:43] wells including hedging and what I'm saying is

[1:08:48] you and that's why I frame the application the way I did I did not want

[1:08:51] it to be mandatory because there's a few reasons one it could be predominantly a

[1:08:58] gas well or and I also agree with Mr. Hatfield when the oil production goes

[1:09:03] down gas prices will probably going to increase because the there'll be more

[1:09:07] the gas will be more valuable because it's taking Casey head gas out of the

[1:09:12] market. Uh [clears throat] but what what what I'm saying

[1:09:15] application it's voluntary. It doesn't affect Mr. Hatfield at all. Zero. And I

[1:09:22] just don't understand how they're taking an application.

[1:09:26] It is not mandatory in any in any way, shape or form. It doesn't do anything to

[1:09:32] him at all. And there is people fortunate enough to have their their oil

[1:09:36] hedged or they have uh uh

[1:09:44] it just I can't I can't fathom it. In addition, what else I'm trying to do, if

[1:09:50] you shut in a well, because let's say it's a it's a marginal well and maybe it

[1:09:55] does take 30 or $40 a barrel. If I shut it in and I get top lease to take and

[1:10:01] then I lose the well, that is waste. So, all I was trying to do is tailor

[1:10:07] this to the operator's discretion and the operator will have what it costs to

[1:10:13] produce it. And trust me, one thing about economic times, I'm not going to

[1:10:18] shut in any well if they have any positive cash flow whatsoever.

[1:10:23] But on the other hand, if you have a well that you're losing money on and

[1:10:26] you're selling oil way below the cost, and by the way, we're not the only ones

[1:10:33] doing this. When you see our uh it's a world market. But when you see Saudi

[1:10:38] Arabia, Russia, uh we got a letter from Canada in there cutting back production.

[1:10:44] Texas is voluntarily cutting back production. And by the way, Texas

[1:10:49] obviously didn't go through the mandatory procedure either. And I think

[1:10:53] other jurisdictions are following us. And I don't want to hurt Crawl patrol.

[1:10:57] That's not the intent to hurt anybody in the alliance. All that I'm trying to do

[1:11:01] is is give operators another ground protection that would show a district

[1:11:06] court that when you sell below cost, it's waste and the commission protects

[1:11:11] you in that regard. And as far as case byase basis, what Mr. Hatfield is

[1:11:17] saying, it's uh whether he shuts or he doesn't, this case will have no effect

[1:11:22] on whether there's lawsuits filed. I I can't understand the reasoning and

[1:11:26] that's why I did it the way I did and it just from an economic standpoint that's

[1:11:32] why it's voluntary. It doesn't affect anybody. It does one operator doesn't

[1:11:37] affect another. So anyway, I'm sorry if I ramble, but I just don't understand

[1:11:42] the protest. I'm sorry. Did you want to address Commissioner

[1:11:46] Anony's concern that this would be a delegation of the commission's authority

[1:11:51] to allow an operator to have the discretion to shut in or curtail?

[1:11:58] I can guess I can because in the statute again it's 52 272 273

[1:12:06] and they talk about waste and when you sell oil below the cost that it does to

[1:12:12] to produce it market it constitute waste. That's what the commission was

[1:12:16] formed. The commission was formed to prevent waste and the only difference is

[1:12:21] there is a little difference because when the commission was formed we had

[1:12:24] what we had we called posted price. It wasn't a world market. In other words,

[1:12:30] the producers got together and set a baseline what you get. It was like $3 a

[1:12:35] barrel for 30 years. At one point it was a dollar at one point I think got down

[1:12:39] to 10 cents in the 30s. But anytime that you sell oil below what it costs to

[1:12:45] produce, it constitutes waste in Oklahoma. And I think the commission has

[1:12:49] a right to make that decision and that operators have the right to rely upon

[1:12:53] that when he shuts in his wells. And I I will agree though, you can't do it on a

[1:12:59] statewide basis because all operators aren't the same and all oil and gas

[1:13:04] produce is not the same. So that's how I would answer. Thank you, Judge Presser.

[1:13:08] I'm sorry. Maybe it got off off track.

[1:13:14] Judge, did you have any Oh, I'm sorry.

[1:13:17] Let me just say one other thing. We don't have to trying to explain this,

[1:13:21] but uh I've mentioned this for the benefit of the other two commissioners.

[1:13:26] Um there's another Oklahoma Supreme Court case called Peppers, just like

[1:13:32] Salt and Peppers. Peppers Refining Company versus Corporation Commission

[1:13:37] from uh 1947. And to me, it's exactly on point and it talks about quote the broad

[1:13:45] authority and power to prevent waste that the commission has. And it tells

[1:13:51] some of the mechanism whereby it should uh be done. And this idea that you could

[1:13:58] have a a large number of people going their own way with the voluntary system

[1:14:04] does not comply with the ruling that this Supreme Court um opinion uh sets

[1:14:12] forth. Um, and I'll let you read it for yourself. And uh, it it'd be nice if

[1:14:18] there was some simple uh, idea to get out from under this, but once again,

[1:14:24] it's the commission's responsibility to determine uh, demand and therefore

[1:14:31] whether waste occurs. And it's not simple and just saying, well, we'll just

[1:14:37] turn it over to everybody and if they do it on a voluntary basis, they'll all be

[1:14:41] happy. Once again, that's kind of tempting, but I don't think it fits.

[1:14:47] Commissioner Hyatt, I I guess I have a few I have a few concerns. Um, with the

[1:14:52] arguments that you've just made, Commissioner Anthony, it seems to me

[1:14:56] like unless you you're almost saying that if the OC doesn't find waste, then

[1:15:02] how can any operator shut in its well? So, I think you can almost go to the

[1:15:07] opposite extreme. So I don't think anyone is trying to say that. But to say

[1:15:12] that the commission has to determine waste and then you can determine to shut

[1:15:16] in their wells. I don't think that's what Mr. Hatfield is saying. So when I

[1:15:20] look at the statute 271

[1:15:24] just says waste is prohibited. It doesn't say the corporation commission

[1:15:28] shall find that waste is prohibited. It just says waste is prohibited. When you

[1:15:33] go to 273

[1:15:37] waste defined, it says the term waste in addition to its ordinary meaning shall

[1:15:43] include economic waste, underground waste, surface waste and it goes on. So

[1:15:48] it tells you economic waste can be considered waste. So when I look at

[1:15:55] the letter that the petroleum Alliance filed, it says absent a definition of

[1:16:00] economic waste, the burden of proof for defending an operator's decision to

[1:16:04] produce or not produce will be more difficult or subject to litigation. The

[1:16:09] term economic waste is defined under the statute to fall in the ordinary meaning

[1:16:15] of waste. So I don't really understand that particular point. So I think for me

[1:16:24] I'm looking at it that the statute says waste is prohibited in 271. You look at

[1:16:30] 272 it only talks about oilbearing sand and sands. It talks about production and

[1:16:37] sale but the fundamental component is waste is prohibited. And then there's in

[1:16:44] 273 it says the commission shall have the

[1:16:48] authority. It doesn't mean you have to do anything, but it says you shall have

[1:16:52] the authority to make rules and regulations for the prevention of waste.

[1:16:58] I think that's what the commission has tried to do throughout its rules is to

[1:17:02] try to prevent waste. So, I don't see how regulation

[1:17:07] such as an order couldn't be designed to prevent waste. So as far as the

[1:17:16] commission delegating its constitutional duty, I don't really understand that

[1:17:22] particular argument when I look at the plain meaning of the statute and that's

[1:17:27] how you interpret statutes. So I've heard what everyone has said and I'm

[1:17:32] very appreciative of it. I think it's good to look at, you know, every single

[1:17:37] angle and I think there is no silver bullet. There is no perfect thing to do.

[1:17:42] It's just a challenge. But I do believe that this commission has the authority

[1:17:48] for the prevention of waste to make rules and regulations. And in fact, this

[1:17:54] commission just made some emergency rules on storage that I had some

[1:17:59] concerns about whether they followed some of the statutory components.

[1:18:03] Anyway, so I think all of our intent is good. And I hear the people that say,

[1:18:08] "Well, it's just not the intent. You have to look at the at the words as

[1:18:12] well. Well, I'm just going to look at the plain meaning of the statute. And I

[1:18:16] think that operators should not be looking to the commission to make a

[1:18:22] determination of waste to decide whether they can shut in their wells or not. And

[1:18:28] I don't think that's what Mr. Hatfield is thinking that we're trying to do. And

[1:18:32] I'm sure he certainly wouldn't want us to do that. I think it's got to be up to

[1:18:36] the individual operators. And I do not believe that's delegating the authority

[1:18:41] of the commission.

[1:18:47] Just just to clarify, I think that under uh free markets and free enterprise

[1:18:55] u and the capitalist system that if an operator has his uh uh well and he wants

[1:19:03] to cut it back uh to c curtail or shut in that's uh his decision and I hope

[1:19:10] there wasn't anything I said to indicate otherwise. But if he wants to go another

[1:19:15] route and say, "Gee, I need to protect my leases. So, I'm going to try and use

[1:19:21] a new order that the corporation commission has put forward, and I'm

[1:19:25] going to say that I voluntarily am doing something and uh and and and going to

[1:19:32] use uh that as my reasoning um to to prevent waste. That's that's a whole

[1:19:40] different scenario. So, I I see those two things uh as separate and and I

[1:19:48] probably am more persuaded by what Mr. Hatfield said. I can just see one big

[1:19:54] word all over the front of this and it's called litigation.

[1:20:00] Commissioner Hyatt, just a general response. I I could say that for the

[1:20:03] emergency storage rules, I could see that has litigation written all over it,

[1:20:07] too. So there are a lot of things this commission does that result in in

[1:20:11] litigation and certainly I don't think that's what is intended here. Again I I

[1:20:17] think there's an intent to try to be assistful as possible. I keep hearing

[1:20:22] the terms complete defense and I think I heard Mr. helm say that and I heard some

[1:20:29] no one is saying this is some slam dunk or whatever the language is to protect

[1:20:35] your oil and gas lease in the emergency application I gave the reference of like

[1:20:41] the commission making a determination of public utility

[1:20:46] status that doesn't automatically mean that utility gets imminent domain that's

[1:20:52] a process that they have to work through another court system. The issue of

[1:20:56] hedging was brought up in the emergency. That's not anything new because some

[1:21:01] producers may be getting a higher price for their oil, but that doesn't

[1:21:06] necessarily mean that the royalty owners are part of that particular hedge. That

[1:21:10] may or may not be the case. I think it just depends. So, I really appreciate

[1:21:15] all the arguments and I I think it's good to hear both sides, but I just feel

[1:21:20] like for myself, I'm I'm looking at the statute. I've I'm uh familiar with some

[1:21:25] of the case law that Commissioner Anthony is referencing, but I think to

[1:21:30] me the statute gives the authority to the commission

[1:21:35] to make rules and regulations prever for the prevention of waste in any well

[1:21:42] drilled for oil. That's what the statute says. So, um, I know we need to proceed,

[1:21:48] uh, Commissioner Hyatt and and Judge, and I just want to say I appreciate all

[1:21:52] the points brought up, but I wanted to mention some of those items.

[1:21:57] And excuse me if I'm [clears throat] still allowed to to comment pursuant to

[1:22:04] Commissioner Anony's request, [clears throat] the

[1:22:09] I Excuse [clears throat] me, the Yeah. I'm

[1:22:15] still left with a question as to exactly what this order does. And in the

[1:22:22] transcript from the earlier hearing, uh, Mr. Levenson said, "If I get an order

[1:22:27] from the commission that says we're in an environment that constitutes waste of

[1:22:31] shedding your leases is prevents waste voluntarily, then I have basically a

[1:22:36] complete defense to somebody trying to top lease or steal the leases."

[1:22:43] uh

[1:22:47] how I I I'm not don't understand the legal theory that that uh

[1:22:55] this comes from. I I really don't think that you need to

[1:23:00] address that, Mr. Levenson, unless the unless the commissioners would like it

[1:23:04] to be addressed. Um no problem. Commissioners,

[1:23:11] nothing further from me. I do I would like to ask a question of

[1:23:16] Mr. Hatfield. Um, and well, Mr. Hatfield and Mr. Levenson and and I know we need

[1:23:22] to proceed. We we have a lot of other parties that uh we need to get to, but

[1:23:27] um I want to go back, Mr. Hatfield, to your comments about u this order does

[1:23:33] nothing then. And I'm I'm this Todd's words, not yours. But um uh this order

[1:23:40] does nothing that a produ producer can't all ready do. And so I want to ask you

[1:23:47] what what is your foundation? Just kind of walk through I think we probably all

[1:23:51] know, but just walk through what what is your foundation for the fact that these

[1:23:56] producers can already do it do that without putting their risk at least u

[1:24:02] lease at risk. And then I'd like to ask Mr. Levenson to respond to Mr.

[1:24:07] Hatfield's comments. Mr. Hatfield, uh, I think there is a long history and

[1:24:16] case law to support it that [clears throat] operators are given a

[1:24:21] wide latitude in the most effective and prudent way to operate their leases.

[1:24:30] and that

[1:24:34] this in some way apparently

[1:24:39] uh goes beyond that.

[1:24:47] Okay, Mr. Levenson. Yes. Thank you, Commissioner Hayatt.

[1:24:54] What this does, and again, I've probably done more lease

[1:25:00] cancellation lawsuits on both sides than anybody on this phone call. What it

[1:25:05] does, it just it again, it goes back to one simple thing. It's what's equal

[1:25:10] under the facts and circumstances. And that order from the commission that

[1:25:15] selling oil below the cost to produce it constitutes waste is a factor that I can

[1:25:22] use as an equitable consideration to prevent loss of oil and gas leases,

[1:25:29] equipment, everything that goes with it. And from my experience in practicing oil

[1:25:34] and gas law and having numerous lease cancellations, that is a strong factor

[1:25:39] that will protect my leases. And I feel very strongly about it and that's why

[1:25:44] this order is so important not only to LPD Energy which may have a couple

[1:25:48] hundred barrels of production today but it's important for everybody across the

[1:25:52] board and it just shows the district court that there's a reason you shut in

[1:25:57] the leases. That's all I'm asking for and it does not affect Cwley Petroleum

[1:26:02] in one bit. It can't affect it. It can't create litigation for Cwley and it's

[1:26:08] pure and simple. And again, if I sound desperate, I love the oil and gas

[1:26:12] business. I'm trying to help this industry. I want to continue to have

[1:26:16] phone calls like this where we fight stuff for 20 years. But our industry is

[1:26:21] on the brink. This the issue of this order only helps this industry. It does

[1:26:26] not hurt it. It's not adverse to anybody. And I just to be honest, I'm

[1:26:31] dumbfounded anybody could agree with could disagree with relief being

[1:26:35] requested. And again, it takes into account hedging or water flood you can't

[1:26:41] shut in. So with that, that's what I want to do, Mr. Height. That's why it's

[1:26:46] so important to me and it's important to me. I did I didn't mention this and I'm

[1:26:50] not here on behalf of OEPA. I was one of the founding members of that

[1:26:54] organization and u I'm involved with a lot of small operators and this is very

[1:26:59] beneficial for them. I did the voluntary approach. The organization did a

[1:27:03] mandatory, but this is very important to the small producers in Oklahoma. Thank

[1:27:08] you. Thank you, Judge Presler. Please

[1:27:11] proceed.

[1:27:14] Yes, commissioners. Uh I don't I would not uh think that we need closing

[1:27:20] argument from Mr. Helm and Mr. um Levenson. But if one of the

[1:27:27] commissioners would like it, then I will proceed and ask for closing argument.

[1:27:33] I think um I think we've circled the wagon plenty of times

[1:27:38] so far. So I do not [clears throat] see a need and I the other commissioners I

[1:27:42] believe are agreeing that we do not need have need for closing arguments.

[1:27:46] Please provide proceed with the other parties. I will defer I will def uh

[1:27:54] are there other parties that need to be heard?

[1:28:03] Your honor, this is Ron Barnes and I would simply state for my client's

[1:28:08] benefit the position that they would be taking. And I think Mr. Levenson finally

[1:28:14] Yes, ma'am. Let me stop you real quick.

[1:28:17] Commissioner, can we take about a five minute break? I think I was sent a list

[1:28:22] while we were Yes. on here. Um,

[1:28:25] yes, that's I I believe you do have that

[1:28:30] list. And so, let's let's let's do that. Let's take a five minute

[1:28:34] break and we'll make sure you have uh the list that you need. I thought you

[1:28:38] already had it in front of you. Uh I I think it's on my printer in

[1:28:43] another room, so I'll have to go get it. Okay. All right.

[1:28:47] Recess. Five minute recess. Go off the record.

[1:28:50] Thank you.

[1:32:49] [clears throat]

[1:34:04] For those on the line, if you just give us a couple more minutes, we need to um

[1:34:09] reestablish quorum here and then we'll start moving.

[1:34:15] Thank you for your patience.

[1:34:56] All

[1:35:11] right. Thank everyone on the line for holding and uh I will need to

[1:35:17] reestablish a quorum at this point and uh Commissioner Hyatt is present.

[1:35:25] Anthony present. Murphy present. Thank you.

[1:35:30] Thank you. We'll note once again that there is a quorum present. And Judge

[1:35:36] Presler, you have the list in front of you to

[1:35:43] I do. I do. Thank you.

[1:35:45] You may proceed. Thank you.

[1:35:49] All right. First on the list is Grayson Barnes for Stagghorn Petroleum 2 LLC.

[1:35:59] Grayson has still stepped out of the room. I can u I'm on the list as well.

[1:36:03] So, do you want me to do mine or do you want me to wait and

[1:36:06] Yes, you're the next one. Made it back.

[1:36:09] All right. You're the second on the list, so you can go ahead. It's uh Ron

[1:36:14] Barnes for FourPoint Energy LLC. Uh yes, ma'am. I believe with the last

[1:36:20] statement that was made uh by Mr. Levenson if I understood it correctly

[1:36:26] that fourpoint is in agreement with the statement that was made and that is that

[1:36:30] the commission has a limited jurisdiction and the jurisdiction they

[1:36:34] have is over their own uh workings and rules and and uh um

[1:36:41] so forth. And so as far as being able to affect that by making the determination

[1:36:46] that waste is uh uh occurring would be a a position that they could do whatever

[1:36:51] they wanted to do with their own rules and regulations. As far as the district

[1:36:55] court is concerned, it's a completely different jurisdiction having

[1:36:59] jurisdiction over the leases themselves and the private rights of the parties

[1:37:03] that are affected. And as such, that order from the commission would not be

[1:37:08] uh definitive as to a decision that would be made in district court, but

[1:37:12] would simply be a good piece of evidence that the authority on regulation and

[1:37:17] whether waste is committed or not committed has ruled in its capacity

[1:37:22] within its jurisdiction. that waste has occurred and is occurring and therefore

[1:37:28] could be utilized in district court as a piece of information from the authority

[1:37:33] uh but not as a definitive determination because that jurisdiction would lie

[1:37:36] within the district court but certainly utilized for that purpose. So I I simply

[1:37:42] wanted to pony on that particular position is true of my client as well

[1:37:46] that they believe it could be used for that. We still stand with our position

[1:37:50] that we're concerned and more than concerned about the notice. We're afraid

[1:37:54] we couldn't use it in district court if due process had not been met simply

[1:37:59] because the response would be they may have an order, but they didn't have

[1:38:03] jurisdiction to issue it because due process was not followed and therefore

[1:38:06] the parties would not be able to have made their statements that needed to be

[1:38:10] stated in this proceeding. Therefore, negating its its uh use or or value in

[1:38:16] district court. And that's uh what FourPoint is my client's position is in

[1:38:21] this particular cause. All right. Thank you. And

[1:38:25] I would This is uh please

[1:38:30] if I could interrupt uh please. I I failed to um determine if the court

[1:38:35] reporter is back on the line. Please.

[1:38:39] Yes, sir. I'm here. Thank you. Okay. I've been here from the beginning.

[1:38:43] And we are we are back on the record. Okay.

[1:38:48] Uh, Commissioner, I was [clears throat] I would it I was going to suggest

[1:38:53] limiting remarks to three minutes each if that's acceptable.

[1:38:57] Yes. All right. And I will keep the time.

[1:39:03] Hopefully I was within the three minutes.

[1:39:05] You absolutely were. Um, next is Grayson Barn Stagghorn

[1:39:12] Petroleum 2 LLC. Thank you, Judge. uh stagorn essentially

[1:39:18] has the same position as fourpoint here. Uh our concern is not the form of the

[1:39:23] issue that's that's uh been proposed. I think we're agreeable with that. It's

[1:39:26] just the jurisdiction with which the commission has to to issue this order.

[1:39:31] Uh our concern is a lease cancellation suit occurs. We use this order should

[1:39:36] one issue and the mineral owner didn't know about this hearing today would have

[1:39:40] objected should they have known about it. Uh thus the order doesn't really

[1:39:43] have any bearing in the district court. uh so simply um would would suggest

[1:39:51] same application on their own behalf as opposed to adopting uh a a defective

[1:39:57] application as far as notice is concerned. Thank you.

[1:40:03] Thank you. Next comments from Dale Codingham

[1:40:07] representing Longpoint Minerals LLC. Is Mr. Codingham on the line? I am on

[1:40:15] the line, your honor. Thank you. Uh, for the record, my name is Dale Cuttingham.

[1:40:20] I'm an attorney representing Longpoint Minerals LLC, uh, which also includes an

[1:40:25] affiliate, Cherry Creek Minerals. Uh, those two entities together have 5,89

[1:40:32] oil and gas leases that have been negotiated with third parties. They're

[1:40:37] mineral owners, of course. My clients are. There are 180 operators that are

[1:40:42] operating on the lease hold uh for which uh those leases uh uh lands those leases

[1:40:49] cover. As a mineral owner and [clears throat] a substantial mineral

[1:40:53] owner, Longpoint and Cherry Creek do not oppose the finding by this commission uh

[1:41:00] in regard to specific circumstances uh that waste is occurring and we

[1:41:06] believe the OC has a statutory duty to prevent waste. However, we also believe

[1:41:13] that the present proceeding as has been indicated by Mr. Barnes and Mr. Grayson

[1:41:18] has a fundamental due process law to save that flaw or rather to to be a fix

[1:41:24] for that flaw. It would seem that the OC should institute a proceeding itself as

[1:41:30] opposed to this uh this proceeding uh with proper notice and in regard to

[1:41:35] specific factual findings in regard to specific oil production. uh the OC can

[1:41:42] issue a valid order and we're in favor of the commission issuing a valid order.

[1:41:47] I do want to make a one additional comment in regard to the peppers case

[1:41:52] that uh Commissioner Anthony brought up. Uh I do believe that it is controlling

[1:41:57] authority and that the uh commission cannot um delegate its responsibility in

[1:42:04] regard to finding of waste. Um, and anyway, you know, as I look at the

[1:42:10] emergency order, it appears to me that that is a uh that certainly is a

[1:42:15] possibility. Thank you, your honor.

[1:42:21] Thank you. Uh, let me ask if if Susan Conrad wanted

[1:42:27] to make any statement for the OC for the Oklahoma Corporation Commission.

[1:42:37] All right, seeing no comment, next on the list is Miriam Sweden, Kaiser

[1:42:42] Francis Oil Company. Miss Sweden, are you on the line?

[1:42:52] Okay, seeing none, your honor, this is Michael Stack. I'm

[1:42:58] representing Kaiser Francis, so I'll be making a statement for them.

[1:43:03] All right, you may go ahead. Oh, all right, your honor. Uh, this is

[1:43:08] Michael Stack, attorney representing Kaiser Francis Oil Company in both

[1:43:14] causes. And therefore, I request any statement introduced in this clause just

[1:43:20] be incorporated and adopted in the other clause, the Oklahoma Energy Producer

[1:43:26] Clause. Good idea.

[1:43:28] As stated, Yep. I'm sorry. As stated, I represent Kaiser Francis.

[1:43:36] When Kaiser Francis became aware of the applications filed by the Oklahoma

[1:43:40] Energy Producer Alliance and LPD Energy and knowing of the problems occurring in

[1:43:47] Oklahoma, we put together a team consisting of

[1:43:51] Kaiser Francis in-house regulatory personnel,

[1:43:56] attorneys that represent Kaiser Francis in district court, and myself who

[1:44:01] handles commission cases. Together we reviewed and determined that there was

[1:44:07] oil and gas fluctuation even with OPEC price cuts. Oil demand is continuing to

[1:44:14] decline which has caused large oversized supply demand imbalance in our markets.

[1:44:21] And finally, the unforeseen and unprecedented virus. Our team came to

[1:44:26] the only viable conclusion that economic waste is occurring in the state. With

[1:44:33] our findings, we then looked at what is the duty of the corporation commission

[1:44:39] during these unprecedented times found that the commission has the duty to

[1:44:45] prevent these forms of waste and to ensure protection of corality of rights

[1:44:50] for all owners. And that's pursuant to Oklahoma statute title 52 86.2A

[1:44:57] section 86.3. For these reasons, the Kaiser Francis

[1:45:01] team filed in vote causes and entry of parents and public comment with the

[1:45:06] request for affirmative relief. We also until OEPA group this early morning

[1:45:14] submitted with an entry appearance. We submitted a proposed intimatry

[1:45:23] rights to determine that economic waste is occurring.

[1:45:27] Operators, producers in the state shall take action that are necessary to

[1:45:31] protect these rights and prevent waste. after a review of the OEA proposed

[1:45:38] intram order that was submitted this morning about 2 in the morning and the

[1:45:43] statements by all parties today particular

[1:45:48] commissioner Murphy's comments which I have to agree with the Kaiser Francis

[1:45:54] team then concludes that the OEPA in order does essentially provide the type

[1:46:00] of relief required also note proposed in order or the propos proposed in order by

[1:46:09] OEP8 does not request the commission to demand operators to shut in the well or

[1:46:16] restrictions or curtailment. For these reasons set forth in our entry

[1:46:22] of appearance, public comments, and a review of the proposed interim order

[1:46:26] filed by the Oklahoma Energy Producers Alliance, Kaiser Francis supports the

[1:46:33] proposed intim filed by the Oklahoma Energy Producers to be issued in both

[1:46:40] causes. With that, I want to say thank you to

[1:46:44] everyone. I appreciate everybody's comments. It's been very enlightening.

[1:46:48] Thank you. Thank you, Mr. Stack.

[1:46:57] Next, we have Eric Huddleston for Devon Energy.

[1:47:05] Mr. Judge. Yes, thank you. And thank you,

[1:47:08] commissioners. Uh, I also have an entry of appearance for XTO Energy as well.

[1:47:13] Uh, my clients both submitted written comment in the OEPA case. they stand on

[1:47:19] those comments. Uh we reserve the right to make further comment either of these

[1:47:24] cases based on what's been presented uh thus far in uh this LPD matter. Uh I

[1:47:31] share the same concerns. Don't want to run circles around the same issues, but

[1:47:35] share the same concerns that have been presented by Mr. Barnes and Mr. Helm. um

[1:47:40] don't believe that uh at this point there's been sufficient evidence to make

[1:47:45] any specific findings on a statewide basis uh that waste is occurring or will

[1:47:50] continue to occur. Do agree with Mr. Levenson to the extent that that has to

[1:47:54] be left uh to the discretion of the operator as to how they want to operate

[1:47:58] their lease. if a specific finding that waste is occurring is made, that would

[1:48:02] be tanamount uh to a curtailment order uh because we in fact have statutes that

[1:48:07] prohibit uh committing waste. So don't know that that is something uh that I

[1:48:13] would be prepared to support at this time. Um and would ask for a point of

[1:48:17] clarification from Mr. Levenson. The uh emergency order that was issued in this

[1:48:23] case stated that uh in certain instances waste may be occurring. did not make a

[1:48:28] definitive finding that waste was in fact occurring. Uh, and is that the same

[1:48:33] type of order you're seeking here?

[1:48:42] We can't hear you on mute.

[1:48:53] Got it. I agree with I agree with that and it's it's on basis not on statewise.

[1:49:08] Yes. Is anyone else getting the echo

[1:49:13] overlay? Okay. Yeah. It was making me

[1:49:18] If anyone that is not speaking will mute your microphone.

[1:49:22] Thank you. I could Did you get that, Miss Johnson?

[1:49:26] What Mr. Mr. Levenson had said? Um, he he was

[1:49:31] agreeing. I agree with him and then it all went into echo land. So, my

[1:49:36] apologies. He was agreeing.

[1:49:40] Oh, the last sentence I have is in fact occurring that the same type of is that

[1:49:46] the same type of order here? And then he said I have to agree with him. Excuse

[1:49:52] me. Excuse me.

[1:49:56] I think the court reporter is speaking. Mr. Levenson, we believe we believe it

[1:50:02] has something to do with your Are you on speaker?

[1:50:10] Yeah. Yeah. Okay. I agree with that statement.

[1:50:13] It's maybe it's an operator basis only. You're exactly right. The

[1:50:17] clarification's proper.

[1:50:23] Okay. Well,

[1:50:29] I appreciate that. Uh, with that, we'll reserve any further comment at this

[1:50:33] time.

[1:50:36] Thank you. Thank you.

[1:50:40] Next is Mr. Carl Hirs representing uh

[1:50:46] Continental Resources, Inc. Uh thank you judge. Thank you

[1:50:52] commissioners. Um Continental Resources filed a statement but they filed it this

[1:50:57] morning about the time the proceeding was beginning. So we probably uh most of

[1:51:02] the people that have participated have not had the opportunity to review it.

[1:51:07] The only thing that I would like to point out for the purposes of the

[1:51:10] hearing today and I know is this matter is taken under adisement that all of

[1:51:14] those all of the uh statements including Continentals that was filed this morning

[1:51:20] will be read and taken into consideration.

[1:51:24] Statement does state that is the largest producer in the state of Oklahoma.

[1:51:27] Continental resources does not agree with the statements by the Petroleum

[1:51:31] Alliance of Oklahoma. so that they they are not in agreement with the statements

[1:51:36] that have uh Mr. Hatfield supported. However, Continental Resources takes no

[1:51:41] position in favor or opposed to the application of LPD and uh but believes

[1:51:48] the commission has jurisdiction to prevent waste where where necessary.

[1:51:55] Thank you. Thank you, Mr. Hirs.

[1:52:01] Next, we have Gregory Mafy, attorney for Oventive

[1:52:06] Midcontinent, Inc. Mr. Mafy, are you on?

[1:52:11] Thank you, Judge Presler. Can you hear me? Okay.

[1:52:17] Yes, we can. Go ahead. Okay. Thank you. Uh, Oventive is just

[1:52:21] neutral, interested only in the LPD matter. uh they did file written

[1:52:25] comments in a matter 202984 the OEPA application and I think is

[1:52:33] going they're one of the larger producers in the state of Oklahoma

[1:52:36] they'll stand on those comments and uh Miss Shayop is also on the phone as a

[1:52:42] representative government relations but I think unless there's some other issue

[1:52:46] that comes up we're just going to like Mr. We're reserving our right to I guess

[1:52:50] any comments then what else may be said but otherwise they stand on the comments

[1:52:54] that they filed in this case and I think send a courtesy copy to each of the

[1:52:58] commissioners. Thank you. Thank you.

[1:53:05] All right, Commissioner Hyatt.

[1:53:10] Yes, Judge. Those are all of the attorneys who

[1:53:14] entered their appearances. Uh, and the rest will not um I didn't

[1:53:21] know if you wanted me to The rest will be uh people on the list. Did you want

[1:53:28] them to make public comment or did you want them sworn?

[1:53:35] Are you looking at at the um the parties list?

[1:53:39] Yes,

[1:53:44] there are a number of people who signed up for

[1:53:50] 986. Yes, I'm I believe

[1:53:56] you're looking at um [clears throat] Richard Parish, Zack Taylor.

[1:54:04] Um you know the See, let me look here.

[1:54:20] Uh, Brook Simmons with the Petroleum Alliance of Oklahoma.

[1:54:27] [clears throat] Yes, your honor.

[1:54:37] [snorts] Um, okay. Your honor, I I do believe

[1:54:42] you're correct. We are we are through the parties

[1:54:48] uh that have asked to to make comments. And so, at this point,

[1:54:54] I think I need to turn to my fellow commissioners and ask if we are prepared

[1:55:00] to take public comment. Um, I have a question just before there. I know that

[1:55:07] Terry Stowers is an attorney and is on the list and it says yes for comment

[1:55:16] and it says he's not a party, but he signed up if questions. So, I think he

[1:55:22] was referenced um as entering an appearance. I don't

[1:55:26] have the emergency order right in front of me. So, um,

[1:55:31] could I ask some questions of Mr. Sters because I I he says he's not a party,

[1:55:37] but I think he's been referenced numerous times and since he's an

[1:55:40] attorney, is it appropriate at this point to ask questions?

[1:55:43] Absolutely. He's on he he and well and also Brook Simmons are on the

[1:55:48] line for that purpose only if commissioners have questions of them.

[1:55:51] So, please okay,

[1:55:53] move forward with your questions.

[1:55:57] He Mr. St entered his appearance in the um LPD matter.

[1:56:05] Hello. Yes. And it is it is reflected on the

[1:56:08] emergency order. Mr. Sters, are you on the line?

[1:56:12] I am. Can you hear me? Yes. Okay. It says that you're not a

[1:56:16] party, but you did enter and I know you're an attorney and you entered an

[1:56:20] appearance in the 986 case. Is that right?

[1:56:25] um I did at the uh during the emergency hearing uh on behalf of the coalition of

[1:56:29] Oklahoma Service and Mineral Owners in Oklahoma NRO.

[1:56:33] Okay. Could um if you could just ask if uh just respond to a few general

[1:56:38] questions. Um from the perspective of those that you

[1:56:44] represent, um do you have a comment about the

[1:56:49] authority of the the authority of the commission? That seems to be a question

[1:56:54] that's been addressed quite frequently in this matter. Could you could you

[1:56:59] respond to that? Could you respond to the comments that you've heard or the

[1:57:03] arguments the legal arguments? Sure. With regard to the the notice

[1:57:07] issue, I'm not I don't really want to get into the notice issue, but with

[1:57:10] regard to uh the issues on uh the case law concerning prorationing,

[1:57:19] etc., Uh there is some concern there if this

[1:57:22] commission is is going into the prorationing

[1:57:27] uh arena with regard to the emergency order that uh was issued and and what

[1:57:35] we're talking about as far as this interim order. Uh I I do agree with Mr.

[1:57:40] Levenson that this would be a permissive order. Uh I do think that if this

[1:57:45] commission uh wants to get into determining whether or not waste is

[1:57:49] occurring uh it's going to have to do that on an individual basis as opposed

[1:57:53] to a statewide broad basis. I think there's some real problems with case law

[1:57:58] with regard to trying to make a determination on a broad basis. Uh, one

[1:58:04] comment that that Commissioner Anthony made that I would agree with for sure is

[1:58:08] that if this commission finds there's waste occurring, it's not a matter of

[1:58:13] curtailment. It's it's a matter of shutting in the wells. If waste is

[1:58:18] occurring for uh because of the price, then even if

[1:58:23] you only sell 50% of the production, you're still committing waste on that

[1:58:26] 50%. And so that's a very slippery slope that uh if this commission were were to

[1:58:32] find waste is occurring on a statewide basis, it would be my opinion that the

[1:58:37] result of that would be in order to shut in all production. I don't think that

[1:58:42] that's something that we want to get into and particularly from the mineral

[1:58:45] owner standpoint, that's not something that we want to to encourage. uh we

[1:58:50] don't like the prices but uh that is a a matter I think to be determined on a

[1:58:55] case-byase basis as this emergency or this application for LPD is concerned

[1:59:02] uh I think the commission's interim order and if that was to be perpetuated

[1:59:06] into a I mean excuse me the emergency order perpetuated into an interim order

[1:59:12] if it was the same type of language uh that would be a a possible piece of

[1:59:17] evidence that an operator could look at to indicate that that the current

[1:59:20] pricing uh is not a normal pricing environment if there was some lease

[1:59:24] cancellation cases. Uh but I don't think it would be determined even in any

[1:59:29] respect as to to that issue.

[1:59:35] I I think that covers my questions because I I felt like if you were

[1:59:39] opposed that you would have indicated that to

[1:59:43] us. So, I'm taking away that your appearance

[1:59:48] in the case and in the emergency order was that you were not um thinking that

[1:59:55] the or or the order didn't state that the commission was making a statewide

[1:59:59] finding of waste and that it would go just to the issue of a factor in a

[2:00:06] potential lease cancellation suit, but not determinative. That's the way I'm

[2:00:10] understanding your position from what you've said.

[2:00:13] And that is that is correct. If if the commission were inclined to be making a

[2:00:19] finding that waste was in fact occurring such that it would be required to shut

[2:00:25] in wells uh mandatory shut in of wells because of waste. Uh we would we would

[2:00:31] have an strong objection to that just on the grounds that that is a case by case

[2:00:36] determination just like whether a well is capable of commercial production. You

[2:00:41] can't do that on a global basis. I think the case law also indicates that well

[2:00:48] first you'd have to follow your rule with regard to uh determining the market

[2:00:52] demand to start with and that we have a specific rule that determines that the

[2:00:57] procedure you follow and that's um would have to be followed first which is

[2:01:04] uh 16510-1-37

[2:01:08] and then once you found if if you found what the market demand was then I think

[2:01:12] it would require ire analysis uh on a uh at least a common source of supply by

[2:01:19] common source of supply under the case law if not a determination on a wellby

[2:01:24] well basis to some extent as to whether or not it was waste.

[2:01:31] Okay. But if I could just my you're giving me a lot of information that

[2:01:37] wasn't really to my question I think so I guess my question is

[2:01:41] I'm a lawyer. Sorry. Yeah. My question is, is the emergency

[2:01:46] order or the interim order that's being requested, do you feel like there I mean

[2:01:51] based on the statements, not do you feel like, but do you do you believe that LPD

[2:01:56] is making a request for a statewide finding of waste?

[2:02:00] I do not. And so you're just seeing it again as an

[2:02:05] issue or a factor that could be used in a lease cancellation suit that would be

[2:02:09] in another place than this commission. I think it could be used as a defensive

[2:02:15] uh a possible defense defensive factor. Yes.

[2:02:19] Okay. Thank you.

[2:02:28] Other questions by commissioners of Mr. hours.

[2:02:38] I see none. Judge Presler and back to Brook Simmons. Um,

[2:02:46] are there

[2:02:52] appear, Judge Presler, I I think I was mistaken earlier. It does appear to me

[2:02:56] that maybe Brook Simmons has requested uh to make comments. U Mr. Simmons, are

[2:03:01] you on the line? Would you speak to that?

[2:03:04] Mr. Chairman, I am on the line and uh thank you very much for the opportunity

[2:03:09] to speak. The Petroleum Alliance of Oklahoma's comments have been referenced

[2:03:14] a few times here. The commissioners have had a chance to look them over. Um the

[2:03:19] only thing that I would like to say certainly is that the determin it was

[2:03:23] the determination of our executive committee to oppose the emergency order

[2:03:29] and that decision was overwhelming in its opposition. Now certainly anytime

[2:03:34] that you have an alliance uh as large and as deep as ours with 1,300 members

[2:03:41] representing 84% of the crude oil and 75% of the natural gas produced in

[2:03:46] Oklahoma, you're going to have differences of opinion and we respect

[2:03:51] those who have a fidiciary responsibility to their shareholders to

[2:03:55] take a different view and to express their first amendment rights. So having

[2:04:00] said that um without unpacking it too much I would just like to say that it is

[2:04:05] the alliance's determination that the executive order is u unnecessary and u

[2:04:12] unadministerable in its current form. So what I would suggest is that the

[2:04:18] commissioners just take that as our position and um we thank you very much

[2:04:23] for the opportunity to participate.

[2:04:32] Thank you, Mr. Simmons.

[2:04:36] Judge Presler, I think I do want to clarify. Um, Matt Allen, I

[2:04:45] believe is Matt Allen's not a party to the case.

[2:04:49] So, that I I suppose that's for public comment then. Uh so um

[2:04:57] Commissioner Hyatt, Mr.

[2:05:00] Yes, this is Matt Allen. Uh I have entered an

[2:05:04] appearance for Marathon Oil Company and it's an interest only and they have no

[2:05:08] comment on this particular case, but we'll be making a comment on 2020 984 uh

[2:05:14] when the commission gets to that application. Thank you.

[2:05:17] Okay. Thank you. And then um Mr. Parish, I assume

[2:05:26] you're signed up to make comment in 986, but I I [snorts] guess just help me

[2:05:33] clarify. I'm think I believe probably you're not a party to this case and so I

[2:05:39] assume that's for the other case. Mr. Chairman, OEPA did enter an

[2:05:45] appearance in this case, but we're not taking a position on it one way or the

[2:05:50] other, but obviously we'll have comments in the other case.

[2:05:54] Okay. Thank you.

[2:06:01] I believe that um Judge Presler, I believe that concludes the

[2:06:07] the parties. So, at this point, or let me I've been

[2:06:12] I've been intending to do this all all morning and I so let me just do it right

[2:06:16] now while I'm thinking about it. But earlier in uh as we began this morning,

[2:06:22] I think the question was asked of Commissioner Murphy uh when we when we

[2:06:27] uh moved to advance Suisponte if um we were [clears throat] referring to

[2:06:34] she asked which case we were refer referring to and I said mistakenly I

[2:06:39] think I said 984. I intended to say 986. So, I just wanted to clarify the record

[2:06:46] if uh if I did misspeak earlier, but and I think I did. So, at this point, um

[2:06:54] I'll um seeing no further questions of the um parties, I'll turn to my fellow

[2:06:59] commissioners and ask if we would like to entertain public comment at this

[2:07:03] time.

[2:07:06] Okay. Again, so public comment for the 986.

[2:07:11] Yes. Okay. The LPD application. Yes. Okay. I

[2:07:14] noticed that when Mr. Stack spoke, he wanted his comments

[2:07:20] referenced in both causes. And then I noticed some parties that spoke said

[2:07:25] they don't have any comments. Like Mr. Allen said he didn't have any comments

[2:07:29] for the LPD case, but he had them for the OEPA case. So, um I guess I'm fine

[2:07:34] to take public comments for the the 986. It kind of seems like we've done that a

[2:07:40] little bit because some of those speaking are not lawyers. Mr. Simmons, I

[2:07:44] don't think is a lawyer. So, however the other commissioners want to proceed, but

[2:07:49] it seems like we've covered a lot of ground, but I do see that there are some

[2:07:54] people that only want to make comments, most of the ones I see have comments in

[2:07:59] the 984 case. That's correct. But I think there may be

[2:08:02] a few. I think we should allow the public

[2:08:06] comment uh and the threeminut rule uh would still apply.

[2:08:19] Okay, maybe I was mistaken. It it it may be that we have co covered all of them

[2:08:25] up to this point. Uh are there any that I that uh the judge or I have not

[2:08:31] recognized that had wish to make public comment on

[2:08:36] 986?

[2:08:40] I didn't have any additional on the list I have.

[2:08:44] Okay.

[2:08:54] Okay,

[2:08:59] I think um I see no public comment. No, no one wishing to make public comment.

[2:09:06] So at this time um I would just ask how the commissioners want to proceed uh in

[2:09:12] this matter. I'm assuming we will take it under advisement.

[2:09:21] I would agree with that. The only order that we have before us

[2:09:25] right now is is the one uh proposed by uh Kaiser Francis. It's my

[2:09:30] understanding. So there's a chance as we hear the next

[2:09:34] case which to me is related that we might have some uh great insight. So I

[2:09:40] would support moving on to that case. All right. I I support uh taking it

[2:09:47] under advisement and I think the parties that brought the application probably

[2:09:51] have a proposed order. Just because it's not submitted doesn't mean the only one

[2:09:54] that we have is is is the one from Kaiser Francis.

[2:09:58] Right. Thank you for that clarification. I I u Yes, I'm sure they do have an

[2:10:02] order. I'm just was suggesting we do not have one before us here uh today. So

[2:10:09] um okay

[2:10:13] we'll take that matter under advisement and let's take just a brief re let's

[2:10:18] take another 5m minute recess while we regeear to um

[2:10:25] to begin the other case. All right we'll go off the record be in

[2:10:30] recess for 5 minutes.

[2:19:00] All right. Thank everyone for staying with us today.

[2:19:06] I um we will move into the other uh item. I first need to uh reestablish a

[2:19:14] quorum. Commissioner Hyatt is present. Commissioner Anthony present.

[2:19:19] Murphy present. Thank you. And I need to establish is

[2:19:24] the uh court reporter on the line. And we're back on the record.

[2:19:28] Yes, [snorts] sir. Thank you.

[2:19:33] All right. Just a couple of the housekeeping um items for any of those

[2:19:38] that may not have been on the line first time, but if this teleconference or

[2:19:41] video conference is for some reason disconnected, we will reconvene in 30

[2:19:47] minutes from the time of the disconnection. Uh again, we'll reconvene

[2:19:51] in 30 minutes of the time of the disconnection. If for some reason we are

[2:19:55] unable to establish connection during that 30 minutes, we will reconvene at

[2:20:01] 1:30.

[2:20:07] All right, Judge Presler, I will excuse me just a second.

[2:20:15] Make sure I covered all my housekeeping duties.

[2:20:21] Okay, Judge Presler, I uh turn to you to announce the cause, please.

[2:20:26] All right. Yes, this is cause number CD 2020 000000984,

[2:20:33] the application of Oklahoma Energy Producers Alliance at all as reflected

[2:20:40] on the agenda for determination that the waste of Oklahoma crude oil is

[2:20:45] occurring. a determination that there is not market demand at a price equivalent

[2:20:50] to the actual value of Oklahoma crude oil being taken and by adjusting,

[2:20:55] modifying, amending, setting or establishing allowables for production

[2:20:59] of Oklahoma crude oil or providing for the prorate proation of the production

[2:21:04] of Oklahoma crude oil or the granting of such other relief as may be appropriate

[2:21:09] and necessary for the prevention of the waste of Oklahoma crude oil and the

[2:21:13] taking of Oklahoma crude oil at less than its actual value on the application

[2:21:19] and motion to retain and set for hearing before the corporation commission unbond

[2:21:28] on that motion. Are there any Oh, go ahead.

[2:21:32] Oh, please go. No, I was just going to ask for uh we

[2:21:37] have all the entries of appearance that have been filed and if there is anyone

[2:21:41] that uh would like their entry of appearance entered in this cause if you

[2:21:47] will email me it's jan j anressler

[2:21:53] pslc.gov

[2:21:58] a.gov gov and also uh we will go ahead and

[2:22:04] announce have the applicant announce their appearance

[2:22:10] applicants council. [clears throat]

[2:22:13] Richard E. Parish appearing for the Oklahoma Energy Producers Alliance

[2:22:22] and for Kener Oil and Gas Company, Columbus Oil Company, Brown and Inc.

[2:22:27] Simmeron Production Company, Inc., Canrol Investments LLC, Postwood Energy

[2:22:33] LLC, GLM Energy Inc., Toklin Oil and Gas Corporation, Gas Petroleum Inc., Singer

[2:22:41] Oil Company, and RKR Exploration Inc.

[2:22:50] Thank you.

[2:22:54] So, am I correct, Judge Kler? The first motion that we

[2:22:58] need to take up is the uh the granting u of the motion to retain and and set

[2:23:06] for hearing before the corporation commission in Bon.

[2:23:09] That's correct. Thank you.

[2:23:14] Miss Mitchell, are you on the line? Would you call the role on that motion?

[2:23:19] Commissioner Hyatt I.

[2:23:22] Commissioner Anthony I

[2:23:26] Commissioner Murphy I

[2:23:30] thank you. All right, the motion is granted. And

[2:23:36] again on this case, um, and due to our circumstances of the way we're having

[2:23:42] together, uh, if I would just ask the commissioners on in terms of

[2:23:46] appearances, I would ask, uh, the commissioners to take notice of the list

[2:23:50] that you have of all of those, um, uh, that have entered appearance.

[2:23:59] Judge Presler, do I have any are they all on the list at this time?

[2:24:06] That is my understanding. And although I have

[2:24:10] I have not gotten any emails that were not on the list,

[2:24:14] but but if we do get some, we'll make sure they're reflected in the in the uh

[2:24:19] order. Okay. Seeing uh no objections, we will

[2:24:25] admit uh that list of the um entries of appearance.

[2:24:34] And so now we will turn to the applicant and um Mr. Parish, I would ask you first

[2:24:40] uh to address notice.

[2:24:46] [clears throat] Thank you, Mr. Chairman, uh, Vice

[2:24:49] Chairman Anthony, and Commissioner Murphy for the opportunity for us to

[2:24:54] present this application to the commission today. Um, with regards to

[2:24:59] notice, we believe notice is proper. Uh, it has been presented published in the

[2:25:06] Tulsa world and the Daily Oklahoma. Uh, further, it's been given on gov

[2:25:11] delivery of this notice of this hearing today.

[2:25:14] Um we believe that is all that is required and is adequate pursuant to

[2:25:21] 520s section 276. Uh in particular because this

[2:25:26] application is legislative in nature. It does not require

[2:25:31] specific notice to any anyone and everyone that potentially might be

[2:25:36] impacted. uh it is in nature a legislative proceeding uh just like

[2:25:43] rulemaking like PUB applications and the like.

[2:25:50] Thank you Mr. Parish. Are there concerns of the commissioners about notice?

[2:25:57] Seeing no concerns, we will um note that notice is proper. Uh Mr. Parish, I uh

[2:26:06] you've notified us that you'll be presenting the case through statements

[2:26:09] and arguments. Um and so I would turn to you to present your case.

[2:26:18] Thank you, Mr. Chairman. Um we have provided the commission with a list of

[2:26:22] the persons who are going to give comment statements today. Um and I was

[2:26:29] asked and if it's agreeable to the commissioners, I will call on those. uh

[2:26:34] individually and let them speak. I'm going and now we'll bring up the end

[2:26:39] after all of those persons have uh had the opportunity to speak.

[2:26:44] Yes, that would be appropriate. The first speaker is Dewey Bartlett who

[2:26:50] is the chairman of the board of the OEPA and also represents Kener Oil and Gas

[2:26:56] Company. Dewey, if you could unmute your mic and

[2:27:01] provide your comments, please. Very good. Uh,

[2:27:06] can you hear me? Yes, we can.

[2:27:09] Can you hear me? Okay, good. Uh, Chairman Hyatt, Vice Chairman Anthony,

[2:27:14] and Commissioner Murphy, and uh, Judge Pressler, I welcome the opportunity to

[2:27:19] speak. I am, as uh, Richard, uh, stated, speaking to you as chairman of the OEA,

[2:27:25] as well as the, uh, president and, uh, owner of Kenir Oil and Gas Company. I

[2:27:32] also uh might give a few comments as my experience as former mayor of the great

[2:27:37] city of Tulsa uh regarding [clears throat]

[2:27:40] uh uh the economic decline that we had when I uh during my first term as mayor.

[2:27:45] I do believe that uh a uh majority of my my hour support uh is the

[2:27:56] [clears throat] duty of the Oklahoma uh uh corporation

[2:27:59] commission as stated in the statutes of the uh state of Oklahoma to determine

[2:28:04] economic waste. also that if a determination is made uh

[2:28:10] to uh uh consider uh means of alleviating that waste uh in manners

[2:28:16] that they see that that they see fit. Um I do believe that the Oklahoma

[2:28:22] Corporation was created uh to protect the economic value of the crude oil uh

[2:28:28] that is being uh produced uh within the state of Oklahoma. that protection has a

[2:28:33] direct impact upon a variety of entities and people. First of all, the uh in in

[2:28:39] no order of preference, but first of all, the the royalty owners of which

[2:28:42] there are hundreds of thousands uh both within and without uh the state of

[2:28:47] Oklahoma. Certainly, the working interest owners of the uh tens of

[2:28:53] thousands of producing oil wells as well as those wells that are shut in at this

[2:28:58] point, uh they are directly impacted. most importantly,

[2:29:03] uh, the employees and, uh, through the employees, the families of all of the

[2:29:09] oil and gas companies that do business in the state of Oklahoma, uh, the

[2:29:14] employees and families of the service companies that support uh, and maintain

[2:29:19] the operations and the exploration efforts of those oil and gas companies

[2:29:23] have a uh, a tremendous uh, uh, case in this as far as they're being impacted.

[2:29:31] Ed, uh certainly the citizens of Oklahoma

[2:29:35] uh have a direct impact uh by virtue of the ownership of uh well over a million

[2:29:43] uh net acres of minerals uh that are now held under the responsibility of the

[2:29:50] commissioners of land office owned by the state of Oklahoma. Uh it's in fact

[2:29:55] around a,100,000 net acres of minerals. The uh commissioners of land office also

[2:30:01] had the responsibility of managing over a 100,000 uh net acres of minerals for

[2:30:07] the Oklahoma Wildlife Commission as well as uh the University of Oklahoma,

[2:30:11] Oklahoma State University and and and other similar groups.

[2:30:16] the uh low prices that are now being experienced is due to the nonfree market

[2:30:22] actions of Russia, Saudi Arabia and other producing or OPEC uh countries. uh

[2:30:29] the values of those minerals have sharply diminished as well as the

[2:30:34] revenue uh from uh the uh productive minerals uh that are owned by the state

[2:30:41] of Oklahoma that is obviously uh diminished quite sharply as well. Uh the

[2:30:46] economic waste is also impacting the national security of our country. uh the

[2:30:52] decades of time and the billions of dollars that have been invested uh by

[2:30:58] Oklahoma operated companies uh in order to become less dependent upon those

[2:31:03] foreign producing countries for uh for energy needs. Uh that goal of uh uh has

[2:31:11] been had been uh and and still is uh at least at this point uh achieved.

[2:31:17] Unfortunately, uh the the countries that I just mentioned have ex have expressed

[2:31:22] very directly the goal of driving us out of business. Simply driving us out of

[2:31:28] business so they can uh obtain significant uh increase in our market

[2:31:33] share. if they are successful for all that time and energy and money uh will

[2:31:38] have been lost. And we'd certainly obviously don't want to be in that

[2:31:42] position to where we once again become subject to having our own federal

[2:31:48] government policies influenced by those countries by simply them being able to

[2:31:53] uh uh have a negative impact upon the price of energy. Now, I'd like to talk a

[2:31:58] little bit about uh uh my our company, Kener Oil and Gas Company. We've been in

[2:32:03] business uh in Oklahoma since 1910 and we're proudly uh to be part of the uh of

[2:32:10] the oil and gas industry and and helping uh uh uh impact its uh its success, the

[2:32:17] industry success. We presently operate wells in Creek County, Seol County,

[2:32:23] Payne County, Logan County, and Noble County. We have a grand total of six

[2:32:29] employees including myself. We operate approximately 100 uh oil wells in

[2:32:34] Oklahoma. Of that number, uh more than 20 are presently shut in as a result of

[2:32:40] the uh uh economic waste that we're experiencing.

[2:32:44] We have no plans to do any drilling. We have no plans for any workovers. Uh at

[2:32:49] this point, uh when the uh PPP money uh does run out, uh Kener will be

[2:32:56] re-evaluating our financial position. that will certainly be uh dictated

[2:33:00] primarily uh by that uh by the price of crude oil at that point in time and what

[2:33:06] uh what we believe the future price is going to be. Uh lastly, there's a

[2:33:11] there's a big impact upon the governments uh within our boundaries of

[2:33:15] Oklahoma, city, uh county and state governments. Uh we're also very aware of

[2:33:21] the uh tax revenues that the state legislature is uh and and the governor

[2:33:26] is now having to deal with. Uh if I read correctly, the uh current hole that

[2:33:31] needs to be filled uh with revenue is uh approximately 1.3 billion with a B

[2:33:38] billion dollars. We understand very well the negative

[2:33:43] impact that that is uh going to have on on all of our future plans to uh improve

[2:33:49] greatly our educational systems and uh finally get to a point to where we can

[2:33:54] uh we as a state can uh can pay public education uh teachers uh wages uh even

[2:34:01] uh above what the competition uh is is weighing now. Um, when I was uh mayor of

[2:34:09] the city of Tulsa, we uh unfortunately had to uh recognize the the reality that

[2:34:16] sales taxes are directly impacted by uh by soft economies that Oklahoma was

[2:34:23] experiencing at that time. That was in 2009, 10, 11. Uh, as you know, uh, the,

[2:34:31] uh, constitution and and and state law requires that municipalities throughout

[2:34:35] Oklahoma can only, uh, receive tax revenues of uh, uh, from sales tax

[2:34:43] receipts, period. And that has uh, when I was uh, the mayor had a very negative

[2:34:49] impact on our ability uh, to provide one of our basic requirements, which was to

[2:34:54] protect the public. In other words, policing.

[2:34:57] uh we did see situations where other municipalities especially in the rural

[2:35:01] areas had to let go of their uh police force. They then became more dependent

[2:35:05] upon the county sheriffs to provide public safety. County sheriffs were uh

[2:35:11] were having problems as well financially. So they relied upon the

[2:35:15] state of Oklahoma to come up with money and it didn't come. So it this has a

[2:35:20] very very wide ranging effect upon the entirety uh of our state. Commissioners,

[2:35:26] I really do. I know this is a difficult uh uh decision that that that we are

[2:35:31] asking you to make, but we I believe very very strongly that this is one of

[2:35:36] those decisions that even though uh a positive decision in this regard uh

[2:35:42] might not u uh have a tremendous immediate effect upon the price of crude

[2:35:47] oil. I do believe that we need to show the courage and the integrity to stand

[2:35:52] up and begin a process to where we can say that this is our position. Uh and I

[2:35:58] I strongly believe that that will eventually have a positive impact upon

[2:36:01] the other producing states to have to to have a a similar similar decision. Even

[2:36:08] though Texas might have made a decision uh uh negative to that statement, uh

[2:36:12] they always have the opportunity to to uh have a further discussion and and and

[2:36:17] further dis uh uh further consideration. the uh statutes of the state of Oklahoma

[2:36:25] uh do require you to make a decision on economic waste and they do require I

[2:36:31] think that that if that decision is made that you'd have a discussion uh about

[2:36:36] remedies. Uh and I I believe you have a variety of them at uh at your disposal.

[2:36:42] If you have any questions, I'd be more than happy to answer them. And I

[2:36:44] appreciate your uh both your attention but also the opportunity to speak.

[2:36:53] I'm having fun. I really

[2:37:02] Please mute your phones. I think I just finished in the nick of

[2:37:07] time.

[2:37:14] Mr. Chairman, that that completes my statement.

[2:37:19] Thank you, Mr. Bartlett. Mr. Parish or me first ask are there questions of Mr.

[2:37:24] Bartlett the commissioners. Mr. Parish. Uh thank you Mr. Chairman. Uh OEPA would

[2:37:32] like to um call Joe Warren next. Mr. Warren is a

[2:37:39] board member of OEPA and is a representative of Brown and Brellley

[2:37:44] Inc. and Simron Production Company Inc. and a number of other related entities.

[2:37:50] Mr. Warren, if you would unmute your phone and please provide your comments.

[2:37:56] Yes, if the commissioners please. My name's Joe Warren and as Mr. Perry

[2:38:01] stated, I'm a principal in among other entities Simon Production Company and

[2:38:07] Brown Inc. which are applicants in this matter. Um I I would just like to state

[2:38:14] you you the commissioners have heard a lot of testimony this morning uh

[2:38:18] regarding economic waste and as that of course applies to individual wells. Um

[2:38:26] it's been pointed out you know that each well is unique in terms of its cost of

[2:38:31] production and um relative to the uh revenues it produces. Um and there's

[2:38:39] been discussion that the volatility in the um published price for West Texas

[2:38:46] Intermediate is um evidence of the uh um turmoil in our markets. Um I would like

[2:38:54] to point out however that uh for the vast majority of Oklahoma producers uh

[2:39:01] West Texas Intermediate is not the price that we actually receive.

[2:39:06] uh in the case of our companies and um I think probably a majority of producers

[2:39:12] in the state, they are paid based on the weighted average uh monthly price of

[2:39:19] West Texas Intermediate. And in our case, it is that price less $12.50

[2:39:26] under our current contracts. uh you know taking today's price and

[2:39:33] netting down what we would receive after taxes and royalties which uh generally

[2:39:39] amount to approximately 25% of our revenues uh we would be receiving uh

[2:39:45] single digits as a net net price for our oil and uh

[2:39:51] you know Brown Belli and Simron we operate uh stripper wells

[2:39:57] uh which are have been around a long time. We

[2:40:02] they've been we've had those wells further damaged and destroyed by over uh

[2:40:08] 70 frack hits from horizontal wells which has further uh reduced our

[2:40:14] production and uh increased our costs. Uh many of our wells uh cannot produce

[2:40:22] economically um if we sell at singledigit prices.

[2:40:28] uh you know the commission also I believe um in addition to preventing

[2:40:34] economic waste if I'm not mistaken the statutes

[2:40:38] um require that oil not be sold um at a price that is less than its true value.

[2:40:44] Um I have heard that a true value um is uh would be determined by an analysis of

[2:40:53] uh the value of its uh individual constituents

[2:40:58] uh which is an analysis that's beyond my expertise. However, I would point out

[2:41:04] that the

[2:41:07] price the West Texas Intermediate price actually went negative last month. Um I

[2:41:14] think that in itself is primmaaccia evidence that uh oil is being sold in in

[2:41:23] many instances at less than the its value. Um I think that's further uh uh

[2:41:30] supported by the fact that a number of large companies up around Cushing

[2:41:35] Cushing are currently uh setting hundreds of frack tanks for the storage

[2:41:41] of hundreds of thousands of barrels of crude oil um in order to take settlement

[2:41:47] of uh contracts that those parties uh purchased at a negative price. And um

[2:41:54] you know, like I say, I I think that is just um about as evidence good and

[2:42:00] evidence as you would ever want to get that um Oklahoma oil production

[2:42:08] um is exceeding the demand for Oklahoma oil. Um

[2:42:13] the you know, oil is a global market and a national market, but it is also a

[2:42:19] local market. And in Oklahoma, we have more oil than we have demand. And I and

[2:42:27] it is being sold in many many instances um at less than its true value. And I

[2:42:33] would simply ask that the commission um consider exercising their um statutory

[2:42:41] duty and power to uh you know prevent waste and to prevent this uh dumping of

[2:42:49] uh Oklahoma oil production and uh consider prorating and taking a stance

[2:42:56] on proration of oil in this state. Thank you, commissioners. I'd be happy to

[2:43:01] answer any questions.

[2:43:05] I see no questions. Mr. Parish.

[2:43:11] Thank you, Mr. Chairman. Um, OEPA would now like to call upon Maryanne McGee.

[2:43:16] Maryanne is a board member of OEPA, a representative of GLM Energy.

[2:43:22] Maryanne, if you'll unmute your phone and provide your comments, please.

[2:43:26] Uh, yes. Can you hear me? We can.

[2:43:30] Hello. Okay. Thank you, commissioners. My name is Maryanne McGee and I am the

[2:43:36] president of GLM Energy, Inc. GLM is your typical small uh independent

[2:43:43] exploration and production company. We operate about

[2:43:48] 150 wells in the state of Oklahoma. We are both an operator, a nonoperating

[2:43:56] working interest owner, a mineral owner, and an overriding royalty owner. We also

[2:44:02] own surface in various places. So, we're pretty much on every side of the

[2:44:06] problem. Starting in uh 2014, we were impacted by the loss of 17 of our wells

[2:44:13] through horizontal fracking operations. And continuing on just as we begin to

[2:44:19] recover, of course, we're hit by this unprecedented situation.

[2:44:23] Uh we started shutting wells in primarily in Kay and Noble counties uh

[2:44:28] last month uh in the hope that things would would

[2:44:32] improve, but it appears we're going to have to shut quite a few more of them

[2:44:36] in. We calculated that in order to break even, we had to receive a price of $28 a

[2:44:44] barrel net. Uh in our type of production, which is vertical, a lot of

[2:44:50] it stripper. Uh that just is uneconomic for us. uh a big impact is I think in a

[2:44:59] lot of cases the cost of electricity which as far as I can tell hasn't uh

[2:45:04] really gone down but it's by far the largest cost we have in some of our

[2:45:09] production that can't be operated on for example gas engines uh although we've

[2:45:14] contacted our electrical suppliers we have gotten absolutely no relief at all

[2:45:19] there or any proposal for any kind of a relief um and you know if you can't pay

[2:45:24] your electric bill well That's pretty much the end of the story. We also have

[2:45:30] obviously most of us very limited storage capacity on our leases. Uh it

[2:45:36] would be unusual that anyone had a a facility for that. Um so that's another

[2:45:41] problem. Uh we've laid off I think three of our pumpers recently. The

[2:45:48] people in our area of the state are really really suffering. I don't think

[2:45:53] there's any doubt that oil is being sold below its value. I don't think there's

[2:45:59] any doubt that that's an economic waste. Even if you are, let's say, for example,

[2:46:04] uh a mineral owner, I'm not sure you want your production to be sold for

[2:46:09] these prices. Of course, it all depends on your financial situation.

[2:46:14] And if we were able to, for example, truck oil to our limited storage

[2:46:20] capacity, the cost of that is also prohibitive. I think we calculated

[2:46:25] something about $300, you know, a tank just to move it somewhere else. Uh,

[2:46:33] and I I it it just makes no sense. And there doesn't seem to be any end in

[2:46:39] sight if we continue with the intentional

[2:46:43] actions of uh the Russians and the Saudis to basically crater Oklahoma and

[2:46:50] all other oil producing states production. Uh I I don't exactly know

[2:46:56] where we're going, but uh that is the bottom line is this is waste. Uh oil's

[2:47:05] being sold. I haven't seen this. I've been in the oil business since I got out

[2:47:08] of law school and I have not seen anything like this. Uh, and I believe

[2:47:14] that the corporation commission has the responsibility and the obligation to

[2:47:22] determine if waste is occurring and to prevent that economic waste from

[2:47:26] happening because we're we're in it for the long term. Most of us that are

[2:47:30] smaller producers, we don't come in from the outside, just drill and then leave.

[2:47:36] uh but at this rate I think there's no way that it's possible for

[2:47:42] the smaller vertical producer to to continue in operation. So we would like

[2:47:47] your consideration of helping somehow to uh eliminate the economic waste. Thank

[2:47:54] you very much.

[2:48:00] Thank you. That's a conclusion. Unless you have any

[2:48:02] questions, let me know. I see no questions of the commissioners. Mr.

[2:48:07] Parish. Uh, thank you, Maryanne. Uh, the OEPA

[2:48:11] would like to next call Bob Nickel. Bob is a board member of OEPA and a

[2:48:17] representative of Tolken Oil and Gas Corp. Bob, if you'd unmute your phone

[2:48:21] and uh provide your comments, please.

[2:48:27] Thank you, commissioners, for hearing our comments. Uh, my name is Bob Nickel.

[2:48:32] I'm president of Tokan Oil and Gas Corporation,

[2:48:36] a company that was founded in 1981 that's been under the current ownership

[2:48:42] and management since uh 2012. And u my comments uh would be similar to

[2:48:51] uh my fellow board members at OEPA. I feel like uh the current market

[2:48:57] conditions are certainly don't reflect the value of oil. Uh the full cost of

[2:49:04] replacing uh these reserves and producing them

[2:49:07] from the ground are are far higher than what we can sell for at these times.

[2:49:15] We recently received a notice from one of our purchasers that they were

[2:49:20] increasing their transportation fees by $7 per barrel. And I think that reflects

[2:49:28] uh the capacity of the refiners and the storage uh uh to which they deliver. So,

[2:49:36] uh, you know, we're we're getting the double whammy here of lower, uh,

[2:49:42] commodity prices and much higher transportation.

[2:49:46] Uh, that's a reflection of those storage restrictions.

[2:49:50] Um, you know, we've seen uh a huge wave of offerings from people who are

[2:49:58] developing storage and um, you know, we're we're skeptical of of of uh of of

[2:50:08] we want to make sure that we have solid counterparties to deal with and that

[2:50:11] those storage facilities are are managed responsibly and and uh uh and safely. Um

[2:50:21] like Maryanne mentioned uh we also are having to reduce staff

[2:50:26] extended and um uh we're facing that uh in the

[2:50:32] future and the uh the the biggest thing that we're dealing with here is

[2:50:37] uncertainty u you know should I reduce my production

[2:50:43] save it for higher uh for a more reasonable price how long will our cash

[2:50:49] reserves last should I retain my personnel and uh the build of supply

[2:50:56] that's resulted from US production international

[2:51:02] imports and then the and then the uh destruction of demand from co 19 uh has

[2:51:10] has just come at us from all directions. You know, the federal government's

[2:51:16] gone to great lengths to try to reassure financial markets in this environment

[2:51:21] and uh uh you know, we had asked for the commission to provide some reassurance

[2:51:27] that it's going to intervene when market forces are no longer prevalent. So, um

[2:51:35] those are my comments. Thank you.

[2:51:42] Thank you, Mr. Nickel. I see no questions of the commissioners. Mr.

[2:51:46] Parish. Thank you, Bob. Um, OEPA next calls upon

[2:51:52] Darlene Wallace. Darlene is a board member of OEPA and the owner manager of

[2:51:58] Columbus Oil Company. Darlene, if you'd unmute your phone and provide your

[2:52:02] comments, please.

[2:52:07] First, I'd like to thank the commissioners to give us the opportunity

[2:52:10] to talk and speak about our issues. Uh, this is Darlene Wallace. I uh am I

[2:52:18] actually own three companies. I'm I'm the owner manager of all of them. One is

[2:52:23] Columbus Oil Company, which is a operations company. I operate 28 whales

[2:52:30] with 13 partners. I also operate Wallace Holdings which has all of our

[2:52:37] nonoperated wells in that is a familyowned with myself, my daughter and

[2:52:42] my grandchildren. And then we have Saunders Wallace which is um a nice

[2:52:49] royalty company. It is also family operated and owned by uh myself, my

[2:52:56] daughter and it is a mineral company. It has um royalties and overriding

[2:53:03] royalties and um

[2:53:08] during this time of downturn of oil prices and and COVID 19 which has helped

[2:53:14] make it even worse. Uh I have shut in most of my whales which are um all but

[2:53:21] two are stripper whales. They have um they have made me a living and and my

[2:53:29] family a living for a number of years and I hope for them to continue to do

[2:53:33] so. I could cover a lot of the information that has already been

[2:53:37] covered but I I don't really see the need of doing that. What I just like to

[2:53:41] say is that the pricing of our oil in the future is uncertain. I have been

[2:53:48] informed by my my purchaser that storage is uncertain and they may not take my

[2:53:53] oil. Um when CO 19 is over hopefully

[2:54:00] people will start traveling and driving remote but that is unsure with all in

[2:54:06] with all these issues. We don't even know when they're going to be over. So

[2:54:10] the unsurity is there. What we need is to have economic waste established

[2:54:19] so that we are protected if we have our leases closed down. Now I have closed a

[2:54:26] lot of you know most my wells down and I four pumpers have lost their jobs.

[2:54:34] Um my my biggest issue is if we don't establish economic waste,

[2:54:42] I I can't if I close my wells down until this issue all these issues are over

[2:54:49] with. There is a possibility of me getting overlaid, not overlaid, I

[2:54:53] apologize, top leased or losing my leases and my wells. if economic waste

[2:55:00] is established that gives me protection to a great degree that that that can't

[2:55:07] happen. So I think that that that the commission

[2:55:13] has the ability to to do it in how they see

[2:55:18] it necessary and doing it on a a operator byoperator basis would work for

[2:55:26] me. I think that there are people out there who need the cash flow. Um, I have

[2:55:34] cut back and cut back over the last three years that I'm I'm I'm just barely

[2:55:39] eating by, but I cannot stay in business if I continue to lose money. And I I

[2:55:45] thank you very much for your time and thank you for taking this issue in

[2:55:49] consideration.

[2:55:55] Thank you, Miss Wallace. I see no questions of commissioners. Mr.

[2:56:00] Parish. Um, thank you, Darlene. Um, we would

[2:56:05] OEPA would like to next call upon David Guest. David is again a board member of

[2:56:10] OEPA and a representative of Guest Petroleum, Inc. David, if you would

[2:56:16] unmute your phone and provide your comments, please.

[2:56:21] Yes. Commissioners and judge, thank you for your time and the opportunity to

[2:56:25] speak to you today. My name is David Guest of Edmund. I'm a small oil

[2:56:30] producer of marginal wells owned by my siblings under the name Guest Petroleum.

[2:56:35] I am also the manager of familyowned minerals throughout many counties in

[2:56:39] Oklahoma and other states. I'm proud to be a founding member of the Oklahoma

[2:56:43] Energy Producers Alliance and serve on its board.

[2:56:47] My comments today are to ask you as the elected leaders of our state's governing

[2:56:52] authority over oil and natural gas to provide for pro-rationing of production

[2:56:57] of Oklahoma's crude oil. My request for your action has not been pondered

[2:57:01] without many hours of thought and discussion. However, the need for

[2:57:05] pro-ration and reduced oil production is an economic emergency.

[2:57:10] The cost for my family's company to produce our marginal wells in Oklahoma

[2:57:14] is an average of $32 per barrel. This morning's posted price for central

[2:57:20] Oklahoma sweet crude is $24.16.

[2:57:24] My crude oil purchaser has informed me of a price deduction effective May 1st

[2:57:28] of a minus $13.60 per barrel.

[2:57:33] Therefore, if I sell a tank of oil today, my received price is only $7.56

[2:57:38] per barrel. I cannot and will not sell my oil at a

[2:57:42] loss of $25 a barrel. No one can stay in business by selling their product for

[2:57:47] less than the cost of production. Now, as a mineral owner, I realize that

[2:57:52] oil is a finite and depleting asset. Therefore, I always want the highest and

[2:57:57] best price available for the sale of my oil. However, mill owners have little if

[2:58:03] any control over the sale of their produced oil. Therefore, as a mineral

[2:58:08] owner, I support this request for pro-rationing of oil to prevent economic

[2:58:12] waste. Finally, this request for pro-rationing

[2:58:16] and reduced oil production is not a new concept for Oklahoma state government.

[2:58:21] As we all know, Governor Murray acted to stop large amounts of oil production,

[2:58:25] not once, but twice, 1931 and 1933. The governor's actions back then did

[2:58:32] help increase the price of crude oil. I ask that you as commissioners act

[2:58:38] today to reduce the amount of produced crude oil in Oklahoma. It is common

[2:58:42] knowledge that oil and gas laws and rules passed in Oklahoma quickly spread

[2:58:47] to other energy producing states for adoption and implementation.

[2:58:52] Please help preserve our state's resources for production and sales at

[2:58:56] proper economic value. This is essential not only to private owners but also to

[2:59:01] all Oklahomaans as gross production tax receipts would be at higher levels.

[2:59:06] Again, I ask you to act to protect our economic resources in Oklahoma by

[2:59:11] enacting effective prorationing and oil allowables.

[2:59:15] I thank you for your time and attention today.

[2:59:20] Thank you, Mr. Guest. I see no questions of commissioners. Mr. Parish.

[2:59:26] Uh, thank you for your comments, David. Uh,

[2:59:30] the next speaker was to be Representative Zack Taylor, who is a

[2:59:34] board member of OEPA and a representative RKR Exploration, Inc., as

[2:59:40] Chairman Hyatt can appreciate. He has been called into a Republican caucus

[2:59:44] across the street from the commission. So, he is not available at this time to

[2:59:49] speak, and I don't know if and when he will be. So, I'd like to move down our

[2:59:54] list of speakers to uh another board member, founding member

[2:59:58] of OEPA, uh Mike Canrell, um and who's represents Canal

[3:00:05] Investments and Postwood Energy. Mike, if you would unmute your phone and

[3:00:09] provide your comments, it would be appreciated.

[3:00:13] Yes. Um, thank you Commissioner Height and Chairman Height, Vice Chairman

[3:00:16] Anthony, and Commissioner Murphy, and Judge Presler for the opportunity to uh

[3:00:21] make our comments here today and concerning the application file. I've

[3:00:25] been in the oil and gas business since 1971. I've been through at least six

[3:00:29] downturns. Um, all of these downturns were

[3:00:34] devastating to the economy of Oklahoma and to us as individual producers. Uh

[3:00:39] but none of us alive today have witnessed the market destruction we've

[3:00:43] seen in the last month. When the CO 19 virus hit, we already had an overs

[3:00:48] supplied market with the price of oil bouncing between $50 and $60 a barrel.

[3:00:52] The demand destruction since the worldwide spread of the virus has been

[3:00:55] estimated at between 30 and 50 million barrels a day. So with world consumption

[3:01:00] of around 100 million barrels a day before the CO 19 virus, we're now

[3:01:04] consuming 30 to 50% less than we were before. We have seen oil price

[3:01:09] destruction as much as a negative $38 a barrel.

[3:01:14] I'm here today representing Canal Investments and Postwood Energy LLC. I

[3:01:19] also am a a partner in Canal Energy Partners, a company that my son

[3:01:24] operates. Um we take pride in our operations that um our average um cost

[3:01:31] lift cost is around I mean our lowest Yeah, average lift cost is around $17 a

[3:01:36] barrel. So we like to think of ourselves as a very uh lowcost producer and u we

[3:01:44] take it very seriously when we have to shut wells down and we try not to do

[3:01:47] that. But I would tell you that um between all the wells that that we

[3:01:52] operate and the nonoperating working interest that Investments has and

[3:01:56] Postwood Energy has, I'd say 70% of those wells are shut down now. And u

[3:02:03] they're probably going to be shut down for a while. Um,

[3:02:08] we've yet to lay anybody off. Uh, mainly that's due to the federal government's

[3:02:12] PPP program that covers payroll until about the middle of June. Um, I won't

[3:02:18] I've submitted written comments, so I wouldn't take a lot of time here. So, I

[3:02:21] want to be kind of brief, so I won't go through how we got to this point. I

[3:02:25] think most of us probably recognize that anyway. But the most pertinent points I

[3:02:29] think to this discussion is that Oklahoma has in has about 5% of the

[3:02:34] nation's proved crude crude oil reserves in 2019. We were the fourth largest oil

[3:02:40] producer among the states. We accounted for nearly 5% of the the production in

[3:02:44] 2019. Uh we also exceeded 212 million barrels a day in 2019 which is more than

[3:02:51] three times greater than we produced in 2005.

[3:02:54] Uh between 2007 2018, Oklahoma's proved crude oil reserves experienced a

[3:03:00] four-fold increase. During that same time, OPEC has cut production 11 times

[3:03:07] to maintain balance in the market and to prevent demand destruction, which would

[3:03:11] have led to lower prices. So, anybody should be able to see why the Saudis and

[3:03:16] the Russians are sore. They've repeatedly called for for the United

[3:03:20] States to join them in cutting production and basically refused to

[3:03:24] continue to cut while losing market share to the US. That's basically how we

[3:03:28] got here today. Russia refused to join Saudi in the last attempt at cutting

[3:03:34] production as they have done since 2016. Um they refused to join in the last cuts

[3:03:41] and and stated their anger at the United States taking their market share as the

[3:03:45] reason. So Saudi doubled down and just flooded the market with oil. And that's

[3:03:50] why we've had the the the low prices that we environment that we've got

[3:03:53] today. And you know, President Trump has pledged that the oil industry on the

[3:03:59] states will cut in discussions with the Saudis and the Russians. He's pledged

[3:04:03] that we'll do our part. Well, we don't have any way to do that uh as producers

[3:04:08] in the United States without violating um antitrust laws. We have no way to cut

[3:04:13] production in any collaborative or ongoing way. Uh the only mechanism

[3:04:18] available for the United States to do our part in balancing the supply of

[3:04:22] crude oil is through the regulatory process that our state agencies.

[3:04:27] We all recognize I think that you you're well aware of the fact that you have

[3:04:31] tremendous um uh power through through title 52 of

[3:04:36] the Oklahoma statute sections 271 272 273 that basically require you to

[3:04:43] prevent waste including economic waste and gives you tremendous powers in doing

[3:04:46] that. I think in conclusion, what I would like to suggest is that you you

[3:04:52] you look to find creative solutions instead of looking at it as a yes or no.

[3:04:58] We won't or we will. You know, the law requires you to do it. And you know,

[3:05:04] quite honestly, the statutes are pretty clear that you need to do it. Um there's

[3:05:10] nowhere in the statutes that I can find that it says we need to follow free

[3:05:14] market principles. I don't think that's in the statutes. Um, so I'd respectfully

[3:05:20] submit if you if we don't like the law, we should go across the street and

[3:05:23] change it. But until then, maybe we ought to follow it. I think that you

[3:05:27] have several um mechanisms under at your disposal if you want to be creative. I

[3:05:34] think Mr. Levenson has found has found one such way of being creative and I

[3:05:39] don't think that OEPA took a formal position on his uh action but but the

[3:05:46] action of LPD energy but but I personally support what he's doing. I

[3:05:50] just don't think it goes far enough but you know it is something that you can do

[3:05:55] and it's a creative way of of solving the problem that really doesn't

[3:05:59] negatively affect anyone. And so we would think that there would be other

[3:06:03] creative ways that you could find under your considerable powers of

[3:06:06] proressioning and um your your power of of setting allowables. You could set

[3:06:12] economic waste at a certain production level that that would be reasonable.

[3:06:17] Then you could review it similar times. There are a lot of creative steps you

[3:06:21] could take to to u address this action. Um,

[3:06:26] so I really appreciate your time here today and would appreciate you giving

[3:06:30] some significant thought to what you could do at this time in our u not only

[3:06:35] the the worst calamity this oil and gas industry in Oklahoma has faced in our

[3:06:39] lifetimes, but um probably the worst calamity our state is going to face

[3:06:45] financially and economically in our lifetimes. Thank you very much.

[3:06:52] Thank you, Mr. Cantrail. I see no questions of the commissioners.

[3:06:57] Mr. Parish. Uh, thank you, Mike. OPA would now like

[3:07:02] to call upon David Little. David is the president of OEPA and um represents

[3:07:10] Kenry Oil. David, if you'd unmute your phone and

[3:07:14] give your comments, it would be appreciated.

[3:07:17] All right. Thank you, Richard. Thank you, commissioners. I appreciate the uh

[3:07:21] time that you're uh giving us today. Uh, as Richard said, I'm the president of

[3:07:25] OEPA, a founding board member, the president of Kry Energy. It's u third

[3:07:32] generation or three, we're on our third generation of this company. Um, OEPA

[3:07:38] represents uh over 525 members across the state. And as you've heard, and I

[3:07:45] don't need to be a dead horse, but you've heard a lot

[3:07:50] of comments about the struggles, and that's something that's very apparent. I

[3:07:55] think one of the things that uh is important in this time when you hear

[3:08:00] that all the production that's been cut, you know, why do anything? Well, I think

[3:08:07] uh Mr. Cantrail um alluded to it and uh I really appreciated his comments.

[3:08:14] that when things do get a little better, there's going to be a lot of oil to, you

[3:08:20] know, flood back into the market. And one of the the tools that you have that

[3:08:27] [snorts and clears throat] um Mr. Cant trail referred to allowables of pro

[3:08:31] rationing and that does give Oklahoma

[3:08:37] the country a opportunity to control you know that flood of oil back into the

[3:08:44] market so that the price doesn't plummet again. Um

[3:08:51] so I I don't want to take a lot of time. There's been a lot of comments and I I

[3:08:56] do appreciate that. We just want to uh represent our members well and we thank

[3:09:01] you for your time today.

[3:09:06] Thank you, Mr. Little. I'll ask question.

[3:09:08] A question of Commissioner Anthony. Say Mr. Little, we hadn't asked too many

[3:09:13] questions. I want you to know we're still here. This is Commissioner

[3:09:17] Anthony. I have the application uh before me that uh we're dealing with at

[3:09:24] this time and uh at at the commission sometimes the bottom line is to turn to

[3:09:30] the relief sought. In other words, I want to ask you to see just in your own

[3:09:35] opinion, not necessarily for the whole group. Um the relief sought says that um

[3:09:43] uh that they want the commission to determine that um there's waste

[3:09:50] occurring and other things. And then it goes on to

[3:09:56] what I'm going to call what what to do about it. And it says by establishing

[3:10:01] allowables for production. And then it goes on to say providing for

[3:10:06] prorationing of the production. Now my question is this. Texas uh had a a

[3:10:13] proposal before it. I think there was a 20% reduction pretty much statewide. Um,

[3:10:21] if you had to just give an example, I'm not trying to tie you to anything

[3:10:25] specific, but what what type of thing uh is OEA that you're the president of um

[3:10:35] hoping for or looking for or recommending? U maybe use the 20%

[3:10:41] reduction statewide as a benchmark or something else.

[3:10:47] Okay. Yeah. I think some of the discussions we have had is somewhere

[3:10:52] there in that neighborhood. I wouldn't know the exact number that that would be

[3:10:56] appropriate, but you know, our state, I think I've heard in uh was producing

[3:11:03] over 500,000 barrels um at the end of 2019. And if you cut that by 80% you'd

[3:11:09] be, you know, or excuse me, cut that by 20% you'd be in the uh, you know, 400

[3:11:16] 425,000 barrels a day. Uh, could be helpful. I

[3:11:20] mean, I really think it's hard to determine exactly what the right number

[3:11:24] is because

[3:11:27] I bet I bet we agree on that. Well, there's it's there's no I think we

[3:11:35] can all agree too. It's not an easy answer. Um, you know, as as uh Mr.

[3:11:40] Cantrell said in his u statement that you know,

[3:11:46] OPEC, they can all get together and kind of talk about this is kind of a number

[3:11:50] we'd like to produce to control [clears throat] supply and demand and we

[3:11:56] can't do that in our country. So, we have to look to our governmental

[3:12:02] authority to help help with that solution. so that we don't break the law

[3:12:06] and end up in jail. Um, and I think that's what we're asking for

[3:12:11] is help in that that area. Yeah. I kind of wish you hadn't

[3:12:16] mentioned that last part cuz I've had other people tell me that uh if company

[3:12:24] come together a combination and restrain a trade uh violate the antitrust laws,

[3:12:30] what would happen if they just talked the

[3:12:36] forum and then somebody said, "Bob, you might get named in the this the suit as

[3:12:42] well, but I don't want to get off the point. You are very helpful in

[3:12:46] discussing the uh specific and thank you for participating.

[3:12:55] Thank you, Mr. Little, Mr. Parish. Thank you, Chairman. Uh it now falls to

[3:13:02] me to uh tie all this together. I guess uh you've heard from a lot of people,

[3:13:08] several people who are much smarter than I am regarding the industry. Um but I I

[3:13:14] would like to note there are a few things we can all agree upon and I don't

[3:13:17] think you can question that have happened. There's been a precipitous

[3:13:19] drop in worldwide demand for oil uh resulting from of course the Corona

[3:13:24] virus and the uh market manipulation by the Russian Federation and the Kingdom

[3:13:29] of Saudi Arabia. Uh the commission has already taken

[3:13:34] judicial notice uh of these items um and note they [snorts] noted that there is

[3:13:40] an over supply as a result of this and that there's been a collapse in the

[3:13:44] crude oil prices and further that the storage capacity

[3:13:49] for crude oil is limited which is going to further exacerbate this situation.

[3:13:54] The commission did that in the order entered in the LPD case order number

[3:13:58] 710844 paragraph 5.

[3:14:03] The um current conditions the market results in

[3:14:08] waste. I don't think there's any question about that. It adversely

[3:14:12] affects royalty owners, working interest owners, operators, service companies,

[3:14:17] cities, towns, state, all of the above. Um the Oklahoma governor, Governor Stit

[3:14:25] has per also recognized the lack of available crude oil storage and that the

[3:14:31] destruction of the demand for crude oil has been destroyed and there's a gross

[3:14:36] silver supply of crude oil which results in the depression of the price of crude

[3:14:41] oil. Uh he noted these things in his letter to uh President Donald J. Trump

[3:14:46] dated April 24th of this year.

[3:14:52] If we look beyond those circumstances which I think are self-evident

[3:14:57] and no one questions then we have to look at the statutory framework and

[3:15:02] regulatory framework in Oklahoma. Since 1915 the production of crude oil or

[3:15:07] petroleum in the state of Oklahoma uh under such conditions in such manner as

[3:15:13] to constitute waste has been prohibited. uh that is found in section 271 of title

[3:15:19] 52. This was first enacted in 1915 as I

[3:15:23] noted and um that was an effort on the behalf of the legislature to provide

[3:15:28] protections, preservation and conservation of the crude oil resources

[3:15:33] of Oklahoma and not allow them to be sold in a manner that constitutes waste

[3:15:38] or produced in a manner that constitutes waste. that's been supplemented numerous

[3:15:43] times by uh sub uh fall amending legislation or new legislation.

[3:15:50] Um and the legislature has charged the duty

[3:15:54] with enforcing these things upon the corporation commission.

[3:16:01] As we stated, the legislature clearly prohibits the waste of crude oil.

[3:16:07] If we look at the definition of crude oil, I'm sorry, the definition of waste,

[3:16:12] it includes the taking of oil or petroleum for at a time when there is

[3:16:17] not a market demand. Therefore, at a well price equivalent to the actual

[3:16:20] value of such crude oil or petroleum is prohibited. I will come back to that

[3:16:24] here a little later. Uh it also provides and defines waste as being or including

[3:16:30] economic waste which you've heard discussions to that and there is case

[3:16:34] law that basically economic waste is any circumstance in which you are being

[3:16:39] required or producing oil uh when the costs exceed the price.

[3:16:45] And further waste includes the actions that are incidental to the

[3:16:51] production of crude oil petroleum in excess of transportation or marketing

[3:16:54] facilities. I think it's important to note that we

[3:16:58] believe that not only does the commission have the authority but it has

[3:17:01] the duty and obligation to prevent the waste of crude oil. Uh this is noted in

[3:17:06] in several court cases but in more particularly

[3:17:10] u the statutes clearly set forth at 86.2 two that the corporation commission

[3:17:16] shall have authority and is charged with the duty to make such rules, regulations

[3:17:21] in order. So, not only does the commission have the authority to do it,

[3:17:24] it's charged with the duty of taking action when waste is occurring.

[3:17:30] Um, I think the threshold question or one of the threshold questions that has

[3:17:35] to be answered is market demand imbalances. There's clear and strong

[3:17:39] evidence that market imbalances are currently occurring. Uh and that

[3:17:45] includes the economic waste or results in the economic waste uh of oil having

[3:17:50] to be sold at prices below the costs of producing that oil.

[3:17:57] You've heard from a number of representatives about the economic

[3:17:59] losses that they are currently suffering uh not only as working interest owners,

[3:18:05] operators, but as royalty owners. Uh Mr. Barllet further addressed the

[3:18:10] impacts of the current C mark crude oil market crisis

[3:18:16] on the state. It's loss of revenues, its loss of royalties to the commissioners

[3:18:20] of the land office and other leases that they manage for Oklahoma State

[3:18:24] University wildlife department and and others. Um, one of the correlary

[3:18:31] questions I think we need to answer or at least address is when crude oil is

[3:18:37] being taken below its actual value. 272, which there appear to be no court cases

[3:18:43] interpreting, provides that the actual value of such crude oil petroleum at any

[3:18:48] time shall be the average as near as may be ascertained in the United States at

[3:18:53] retail of the byproducts of such crude oil or petroleum when refined, lest the

[3:18:58] cost and reasonable profit in the business of transporting, refining and

[3:19:02] marketing same. uh and this why this sale in this manner

[3:19:07] is prohibited again by section 272. Um there are ways of getting at this

[3:19:12] number. One can look to information provided by the US energy information

[3:19:17] administration in a document entitled gasoline and diesel fuel updates.

[3:19:22] And if you look at that um you will see that in 2019 the average

[3:19:30] cost of distribution and marketing for a gallon of gasoline at an average retail

[3:19:35] price of 260 was 15% of that price. The cost of refining

[3:19:44] costs, the cost of refining and profits from refining on average were 13%.

[3:19:51] Uh, nationwide, federal and state taxes were 18%.

[3:19:56] This translates into 33.8 cents in refining costs and

[3:20:02] profits, 39 cents in distribution and marketing costs for each gallon of

[3:20:08] gasoline. Uh, Energy Information Administration's

[3:20:13] average tax number shows taxes of 46.8 cents per gallon of gasoline. Now in

[3:20:20] Oklahoma, the federal and state taxes and fees

[3:20:23] total 38.4. So we have a lower tax rate than many

[3:20:28] other states in the average across the country. If you were to take a a price

[3:20:34] of a $139 per gallon, this happens to be the price that has been prevalent

[3:20:39] uh two miles from my house where I typically buy gasoline either to

[3:20:42] 7-Eleven or nonQ. The price has been a $139

[3:20:47] for the majority of the last month. taking that price and deducting the

[3:20:52] proportionate share of costs related to um the refining, the marketing, and

[3:21:00] taxes. Um using the Oklahoma taxes instead of the federal average uh only

[3:21:06] leaves $27, I'm sorry, 27.8 cents to go to buy crude

[3:21:11] oil for each gallon of gasoline. Um, if you use the federal that's 20% of

[3:21:17] the price, which is much lower than typical. The EIA shows that typically

[3:21:22] the percentage of cost of crude oil is

[3:21:26] around 50% of the retail price of gasoline.

[3:21:31] Um, if you use the federal tax and state number of 46.8, 8 and the amount of the

[3:21:40] purchase of available for purchase of crude oil is a dollar is 19.4

[3:21:46] or 14% of the retail price such as gasoline.

[3:21:50] Uh assuming for now that the cost of p and pricing for other products will be

[3:21:56] similar. That equates to somewhere between $611 and $8.76

[3:22:03] available um to purchase crude oil for a gallon of

[3:22:10] gasoline on a barrel crude oil barrel basis after

[3:22:15] deducting roughly 75% for royalty taxes and other required fees. uh we had

[3:22:21] expected the prices and costs of diesel would be similar in nature but the

[3:22:26] calculations can be made there's information available to do that. So as

[3:22:30] you can see if you use the definition of actual value and begin those

[3:22:34] calculations the money available to purchase crude

[3:22:39] oil is very very low. Um I think we next need to look at the

[3:22:44] tools that are available to the commission to deal with the issues that

[3:22:48] have been raised. Um

[3:22:52] these tools include as is noted in our application

[3:22:57] allowables for rationing um or as we indicated other appropriate

[3:23:02] relief. I think it's important to consider the other appropriate relief.

[3:23:06] Um if we look at the things that can be

[3:23:12] done there is a significant number of things as Mr. Canel explain that the

[3:23:18] commission could consider. Um but just by way of explanation, if we do look at

[3:23:24] the allowables, the commission already has in place a very robust

[3:23:30] set of rules related to market demand and allowables. Um there is a part of

[3:23:40] sub chapter one of the oil and gas rules that deals with market demand. Um

[3:23:47] subchapter 13 of these rules pertains to the determination of allowables of oil

[3:23:52] and gas wells. Um and sub chapter 15 relates to oil well production and

[3:23:59] allowables. Um

[3:24:03] such rules are quite comprehensive in how they regulate allowables. Um these

[3:24:07] rules provide for the classification of pools into various categories. Pools is

[3:24:12] the same as a common source of supply. Uh and the commission has has basically

[3:24:18] placed the pools and the common source of supplies into various categories and

[3:24:23] classifications. So they do not do this on a statewide

[3:24:27] basis per se or a basis in which pools are all

[3:24:32] treated the same or at least they have the ability to do that. Um

[3:24:38] and the commission has named [clears throat] all the pools in the

[3:24:41] state of Oklahoma so they have information regarding those pools in

[3:24:44] their records. Uh economic waste has long been

[3:24:49] recognized as the basis for poor rationing production in Oklahoma. uh

[3:24:54] that question went to the US Supreme Court in 1932 which upheld the

[3:24:58] constitutionality of Oklahoma's authority by and through the commission

[3:25:02] to address economic waste using rationing.

[3:25:07] Um United States has also recognized the importance of the mark impacts on a

[3:25:12] state's economy when determining the structure and intent of rationing. Uh so

[3:25:16] economic considerations generally are clearly within the purview of the

[3:25:20] commission evaluating how to alleviate economic waste and whether to consider

[3:25:25] uh doing that through allowables. Uh there has been some suggestion around

[3:25:30] that the commission lacks the authority to establish statewide allowables. Uh

[3:25:35] there are there are cases out there that address this issue to some extent.

[3:25:39] However, since the commission's current allowable situation is not set up for

[3:25:44] that that does it on a category and classification basis, I think there are

[3:25:49] ways to address the issues raised in those cases if the commission were to

[3:25:53] choose uh to go down that road. Uh, an additional item that's been brought up

[3:26:00] repeatedly is that a number of people think that the free market

[3:26:05] um should be allowed to control crude oil prices.

[3:26:09] Um, I would note at the outset that you know

[3:26:14] these same people are more than willing to take advantage of the oil and gas

[3:26:19] conservation laws in Oklahoma which are a modification of the free market

[3:26:23] system. Nowhere in the statutes does it say crude oil prices and markets and

[3:26:30] production is to be driven by the free market. I don't want to discount the

[3:26:36] free market but it is not the determinative factor in this case. In

[3:26:41] fact, in the oil and gas industry, the crude oil markets, other related

[3:26:46] markets, you know, it's a pipe dream to think that there is free market and the

[3:26:52] prices have been manipulated or set or established for years by various forces,

[3:26:57] whether it was state regulation, uh whether it is foreign countries and

[3:27:02] their actions to dump oil and the like. So the fruit market is not a legitimate

[3:27:08] argument against the commission attempting to take some action.

[3:27:13] Again, we believe that it's self-evident that the crude oil markets are in

[3:27:16] crisis. Uh I think we need to look at uh how the commission should proceed from

[3:27:22] the perspective of the OEPA and it is our recommendation

[3:27:26] that the commission enter an order that at this point declares that waste

[3:27:32] is occurring. just flat declares that it's occurring. Beyond that, uh we think

[3:27:37] that the order should at this time just direct operators to not commit waste. Um

[3:27:46] you know that basically that they follow the statutes that are in place.

[3:27:52] We've attached a proposed order to a memorandum of the case that we filed uh

[3:27:56] in this cause. uh if you haven't seen it yet, it is available to you that

[3:28:01] basically addresses these issues. That order was prepared not only by

[3:28:08] uh OEPA, but the other applicants in this case, other oil companies um have

[3:28:16] reviewed it and uh a number have agreed to that including I believe Kaiser

[3:28:20] Francis oil companies. They indicated beliefs before.

[3:28:24] Um, I think we need to be careful that we don't allow the markets to continue

[3:28:30] on in such a case that uh that the oil in Oklahoma is sold at a loss

[3:28:39] and that it ultimately gets stored so that in the event that the demand comes

[3:28:45] back that the profits from the value of that oil get shifted off to others. But

[3:28:51] others that have more capabilities are in a position to do profit taking.

[3:28:56] Um anyway, the that is the recommendation

[3:29:01] of the OEPA. We are not recommending an adjustment of allowables or proation at

[3:29:07] this time. We would ask that the order be made an interim order and that it be

[3:29:12] re-reed uh in periodically uh about a 30-day

[3:29:18] period so that the commission and the industry can continue to work in

[3:29:22] addressing this crisis and also to give the commission time to to monitor and

[3:29:29] evaluate the conditions in the market as they evolve. This is an unprecedented

[3:29:34] situation. Um so you I don't think any of us can

[3:29:39] predict what'll happen in the next 30 days. So we don't want to do something

[3:29:42] that we can't undo so to speak and I think we should pro proceed

[3:29:48] uh in a clear manner but in a cautious manner so that we can address the

[3:29:53] evolving situation in the crude oil markets as they evolve. Uh so we would

[3:29:58] provide for the commission to evaluate those things and uh take the opportunity

[3:30:04] to implement or revoke further actions or remedies as the situation requires as

[3:30:11] the crisis either abates or gets worse. And that concludes my remarks and I'm

[3:30:18] sure you'll only have one question to me just like Mr. Little. So

[3:30:26] thank you Mr. Parish. Commissioner questions of Mr. Parish.

[3:30:33] Mr. Parish, I just want to make sure I know that Commissioner Anthony asked you

[3:30:36] at the outset about the relief that was requested in

[3:30:42] your application. Are you now asking for something

[3:30:46] different than you actually filed in your application?

[3:30:51] No. We set forth a series of of reliefs that the commission could consider. The

[3:30:57] most obvious of which is the mechanisms they currently have in place which is

[3:31:01] prrationing or or setting of allowables because they have extensive rules on

[3:31:07] that. But we were careful not to only ask for that and uh as you was noted I

[3:31:14] can't remember who read the comments. Maybe it was Mr. Little made the comment

[3:31:18] that u you know we're willing to accept and and think

[3:31:23] the commission should consider what might be other appropriate relief and we

[3:31:27] think at this point the other appropriate relief to be considered is

[3:31:31] one a very important thing to happen which is the the declaration that waste

[3:31:35] is occurring that there's waste in the economy at these prices

[3:31:40] or the markets in Oklahoma in the industry in Oklahoma in the fields in

[3:31:44] Oklahoma. Um and secondly that the parties are directed that they shall not

[3:31:52] commit waste and then leaving the door open for the

[3:31:57] commission to continue to evaluate and monitor this with those in the industry

[3:32:02] um in case there is a different relief that needs to be order entered you know

[3:32:07] in 30 days 60 days. Uh clearly at this point we do not want an absolute remedy

[3:32:15] slashed across the industry that may do more harm than good without a careful

[3:32:20] evaluation of that. [snorts and clears throat]

[3:32:24] So are you asking us I I think I'm clear. The other application did not ask

[3:32:29] us to make a statewide finding of waste. I understand that you're asking us to

[3:32:36] make a statewide finding of waste. So my question would be [snorts] what is the

[3:32:42] evidence put in the record that establishes that? Are you just asking us

[3:32:47] to take judicial notice of a of a wide assortment of things or take the public

[3:32:53] comment which typically in legislative matters is not considered evidence. So

[3:33:00] what what is the evidence to support the finding of statewide waste?

[3:33:07] Well, I think the testimony provided as in

[3:33:12] many legislative type proceedings is considered a determinative of what needs

[3:33:18] to be done. Being a non-adjudicatory proceeding, we felt it was unnecessary

[3:33:24] to put testimonial type testimony in the record. Now,

[3:33:32] we believe that the record is clear. The commission already took judicial notice

[3:33:37] of many of the factors that are resulting in this waste in the

[3:33:43] um LPD application or order and uh the governor has also weighed in and

[3:33:48] basically recognized the factors that are leading to this waste. The

[3:33:53] statements of the various um proponents of the OEPA and its

[3:33:58] position in its application stated clearly the circumstances in which they

[3:34:04] have waste occurring. Um I don't think it's necessary that there be actual

[3:34:09] testimony of that in legislative thought proceeding. Uh to me is

[3:34:14] okay Mr. Parish I I think you've answered my

[3:34:18] question. I guess you keep comparing it to a public utility application, but

[3:34:22] those are legislative, too. And there is testimony and people are afforded the

[3:34:27] opportunity to do cross-examination. So, you keep referring to legislative,

[3:34:33] but I'm I'm just I'm just not understanding the testimony, and I I

[3:34:38] won't belabor it anymore. I think what you're asking is for us to take in the

[3:34:42] public comments as testimony, which would really be unsworn public comment.

[3:34:50] And it seems to be that you're incorporating by reference some of the

[3:34:55] other case into your case. I I'm just trying to make sure that it's clear on

[3:35:00] what you're asking us to base this on. Well, the other case, you know, I think

[3:35:07] the commission, it's similar in nature, can incorporate the testimony from that

[3:35:12] case into this case, incorporate the order in that case into this case. Um

[3:35:19] and as I noted, you know, legislative rulem is also legislative and and it it

[3:35:23] is very unusual that testimony be entered in a rule making proceeding and

[3:35:30] this is in the nature of that also. Okay. I I appreciate your um opinions on

[3:35:37] that. Just two other questions. Under title 52 sections 272,

[3:35:44] it talks about oilbearing sand or sands and [snorts] it relates it to um

[3:35:52] dealing with market demand and it goes it's in part of uh it goes along in 271

[3:35:59] 273 but it seems like the legislature

[3:36:03] specifically singled out sand or sands and not really

[3:36:09] All common source apply. So are you saying that you're not incorporating 272

[3:36:15] or how do you reconcile 272 with what you're asking?

[3:36:19] Uh the portion that talks about any oilbearing sand or sand in the state of

[3:36:23] Oklahoma. Um we think a historical review reveals

[3:36:28] that everybody believed and that sands were

[3:36:34] basically the zones producing at that time. and over time that has further

[3:36:39] developed into limestone shells and others. Um we think that the judicial

[3:36:45] construction of that will allow if it were to get to that and we think the

[3:36:50] commission has the power to basically uh address that if it were to move move

[3:36:56] forward under section 272. 273 of course also addresses the issues

[3:37:04] of transportation, marketing facilities and market demands uh which are not

[3:37:12] limited in nature to SANS. And so we think that effectively you can combine

[3:37:18] or read all these together and come up with a conclusion that the commission

[3:37:22] has the power and authority if not duty and obligation to to address these

[3:37:27] issues broadly. Okay. I I take it that you're that's your opinion and I

[3:37:33] understand that it's an older statute, but it's never been changed. And then my

[3:37:39] last question goes to do you think that the commission needs to follow 16510-1-

[3:37:48] 37 for dealing with market demand?

[3:37:53] Um yes commission needs to follow its

[3:37:59] current statutes on market demand allowables etc. I mean not statutes but

[3:38:05] rules. Okay. You're not asking us you're not

[3:38:08] asking us to do anything with that at this at in your application. Is that

[3:38:13] what you're saying? We are it's up to the commission what

[3:38:17] they do but it would be basically a rule that has been promulgated pursuant to

[3:38:23] these statutory sections and to the extent that the commission wishes to

[3:38:27] consider that and proceed on that basis we support that and think that they have

[3:38:31] the ability to do so. Okay. Thank you.

[3:38:40] I see no further questions.

[3:38:44] I think at this time we will need to um uh I think we'll take a break if there

[3:38:52] are no objections here in just a moment. Um

[3:38:55] but uh when we come back then we'll move to the attorneys of record. Uh if that's

[3:39:01] okay with you, Judge Presler. And but before we before we take the break, I

[3:39:06] want to note that um or I want to ask my fellow commissioners if if um the uh

[3:39:14] documents that have been filed, the comments that have been filed before us

[3:39:18] and we have the list, although the list I know is missing one that will be added

[3:39:23] that was the Petroleum Alliance comments. Uh but ask that that be

[3:39:27] admitted into the record. Uh I might ask a question. I I heard

[3:39:33] reference made to the letter that the governor sent to the White House and

[3:39:37] then I quickly tried to look over what was on the website and didn't find it.

[3:39:42] Could I just add that if that isn't a part of what has been put into the

[3:39:48] public record that it be included also? I have no objection reference.

[3:39:53] And if I might address that, it was filed so it should be there. So, I think

[3:39:58] there are maybe several comments that have been filed with the court clerk

[3:40:02] that didn't make it onto the list and I would suggest that all those be

[3:40:06] incorporated. Yes. Okay.

[3:40:09] Anything that has anything that has been filed um that

[3:40:13] Thank you. will be at. It's just at this time I

[3:40:16] only know of one that's missing, but I suspect there are more than one.

[3:40:20] All right. Saying no objection, uh those documents will be admitted. Let's take

[3:40:25] um a 15minut break. 20

[3:40:29] a 20 minute break. Does anyone anyone say 25?

[3:40:33] No. All right, let's take a 20 minute break.

[3:40:36] That'll give everyone a chance to stretch their legs and get a Dr. Pepper

[3:40:41] and some cheese crackers and we'll go off the record. Okay.

[3:47:32] Yeah.

[3:54:47] Yeah, there's like if you open the garage door, there's like a big box in

[3:54:50] it from Costco. I know that's saying, but

[3:54:59] she just [clears throat] like that one.

[3:55:04] Somebody is not on mute.

[3:56:52] Yeah, I figured

[3:57:18] All participants are now muted.

[3:58:12] [clears throat]

[4:02:03] All participants are now unmuted.

[4:02:26] York.

[4:02:32] All right, we'll call the meeting back to order and um ask that the

[4:02:37] commissioners announce their presence. Commissioner Hayyatt is present.

[4:02:42] Anthony present. Murphy present.

[4:02:47] And please remember everyone to mute your phones.

[4:02:52] Causes us a lot of difficulty in hearing if you do not. And I need to establish

[4:02:57] that we do have court reporter Susie. Are you back on the line?

[4:03:01] Susan's here. All right.

[4:03:06] So we are back on the record and I will once again announce that if for some

[4:03:10] reason we are disconnected uh we will reestablish uh or we will

[4:03:15] continue uh 30 minutes from the time of disconnection.

[4:03:20] If we were are unable to uh reestablish connection in that amount of time we

[4:03:26] will we will move to one hour following disconnection.

[4:03:33] [clears throat] So with that, Judge Presler, I think um

[4:03:38] turn to you

[4:03:41] so we can hear from the attorney attorneys of record.

[4:03:45] All right, I have the list and the first person uh to speak is Grayson Barnes on

[4:03:52] behalf of Stagghorn Petroleum 2 LLC.

[4:04:00] Are we able to switch our order between Grayson and myself? Am I second?

[4:04:05] Yeah, you're second.

[4:04:07] Okay. Can may I go first and then Grace can follow me?

[4:04:12] Yes. So, Mr. Ron Barnes on behalf of FourPoint Energy LLC.

[4:04:19] That's correct. And I'll try and be brief and not state again what I said

[4:04:23] the last time exactly, but I would request that the comments that I made

[4:04:28] earlier uh in the previous uh proceeding could be incorporated uh in this one as

[4:04:33] well along with the few statements that I have to make here and points that I

[4:04:37] would like to make. Um, as Commissioner Murphy had pointed out, uh, even after

[4:04:43] the answer was given, I don't really know what the, uh, request of the party

[4:04:50] in this particular proceeding, what relief they're asking for. It's as

[4:04:54] though we open up the door, pick whatever you want to do, and uh, that

[4:04:59] would be sufficient. You could do anything or do nothing. Uh the notice

[4:05:04] was certainly not sufficient again as uh it was uh not sufficient in the previous

[4:05:10] hearing. There are hundreds of parties that would be affected by this order

[4:05:15] that would issue that don't have any idea that this is going on and no notice

[4:05:19] was given to them. Uh my client again is one that agrees this is a very difficult

[4:05:24] time in the industry. But to effectively address the current problems uh it must

[4:05:30] be done with the proper notice first or we don't have anything and it needs to

[4:05:35] address a subject within the jurisdiction of the corporation

[4:05:38] commission not stepping onto the toes of the district courts without knowing what

[4:05:43] this particular request actually is. It's very difficult to ascertain whether

[4:05:47] or not the second part of that is met. Although I would state for the record

[4:05:51] that in my opinion the first part which is uh due process notice was not uh met

[4:05:58] in this particular cause. I also would acknowledge that in the previous

[4:06:02] proceeding that that u u commissioner Murphy had also indicated the

[4:06:06] possibility of adopting uh the application that was filed by the

[4:06:11] commission and utilizing that portion as an adoption rather than filing the

[4:06:15] commission's own proceeding. I would think that if the commission filed their

[4:06:19] own proceeding, it would be more specific as to what their requests were

[4:06:22] so that they could be addressed uh uh directly. But uh in light of that, even

[4:06:27] to adopt this particular proceeding, uh the commission would need to give notice

[4:06:32] before the evidence and testimony and statements are made, not after they're

[4:06:36] made that they are adopting this particular uh proceeding as their own,

[4:06:41] and would need to move forward with the notice that would be required of them

[4:06:45] notifying the public uh through uh its normal methods that this was occurring.

[4:06:51] This is neither a rules hearing nor a proration hearing. it wasn't requested

[4:06:56] as such and the notice that would be given would be required again to be

[4:07:00] personal to those parties affected which I would agree uh is not uh possible uh

[4:07:06] to do but just because it's not possible to do no effort to do it whatsoever is

[4:07:12] insufficient and we can't throw away due process simply because it's convenient

[4:07:18] to do so and so I would again for my client 4point Energy LLC assert that if

[4:07:24] we knew what the application was really about uh then we we might be supportive

[4:07:29] of it. But the current status of it is without the proper notice without spec

[4:07:34] specificity that's sufficient for us to understand exactly what has been

[4:07:39] requested. And for those reasons uh we believe that uh for the commission to

[4:07:44] move forward the application of their own should be filed in the form of a

[4:07:48] rules hearing or proration hearing or something of that nature not uh based on

[4:07:53] a a group of people filing something on their own behalf

[4:08:00] and that's all I have. Thank you very much.

[4:08:03] Thank you Mr. Grayson Barnes for Stagghorn

[4:08:07] Petroleum 2 LLC. Yes, ma'am. Thank you. And again, I

[4:08:12] would request the comments that were made in the previous hearing be

[4:08:15] incorporated by reference here. Um, the two forms of relief I think that were

[4:08:20] stated at least today during the hearing uh was one that a determination of waste

[4:08:25] occurring statewide based on evidence that was incorporated uh from an

[4:08:31] emergency hearing that happened a couple weeks ago. Uh I don't believe the

[4:08:35] testimony at that time was sufficient or even um established that there was

[4:08:41] statewide waste occurring. That particular engineer testified that his

[4:08:45] wells um weren't capable of producing and paying quantities at this time, but

[4:08:49] he wasn't speaking on behalf of all operators and all wells uh within the

[4:08:54] state. So to the extent that this is an adjudicatory hearing and that was the

[4:08:58] testimony, it's insufficient and I would assert this is an adjudicatory hearing.

[4:09:02] that's why you're hearing the case right now as an administrative law judge. Uh

[4:09:06] if this is a rulemaking hearing uh we're not following the rulemaking process uh

[4:09:12] with which uh that were to occur and I understand from time to time there are

[4:09:16] emergency rulemaking hearings uh this is not one of them and the commission does

[4:09:21] have substantial uh rules as to allowables proration and so forth uh

[4:09:26] which are not being addressed right now. they need to be followed, not changed uh

[4:09:30] with an adjudicator hearing. And so for those reasons, um obviously the notice

[4:09:36] being the first, I have issue with uh the the two forms of relief that have

[4:09:41] clearly been requested. The third, you know, I don't know if there is one or

[4:09:45] not. Um but certainly u parties that are privy to the application, if they happen

[4:09:51] to learn about it, uh certainly need to know what kind of relief is being

[4:09:54] requested. And of the two that have been identified, I don't think that they've

[4:09:58] been satisfied.

[4:10:02] All right. Thank you, Mr. Barnes. I did want to clarify that the commission at

[4:10:07] the outset of this hearing voted to hear this matter on bonk and I am assisting

[4:10:16] them in conducting that proceeding.

[4:10:24] Correct.

[4:10:27] All right. Um Susan Conrad, if you're on the line, if

[4:10:33] you have comment for the commission.

[4:10:39] If not, we will go to

[4:10:46] Mr. Michael Stack for Kaiser Francis Oil Company.

[4:10:52] Uh can you hear me? Yes sir. Go ahead.

[4:10:57] Please leave. Again I'd like to incorporate by reference of course the

[4:11:01] statements made in the previous case. Uh it is important though that it is

[4:11:07] acknowledged that Kaiser Francis does not adopt now all the comments or

[4:11:12] statements made by the OEPA in this hearing. We are adopting their interim

[4:11:20] order that uh they've recommended. That interim order again does not request the

[4:11:28] commission to demand operators to shut in a well or to restrict or curtail any

[4:11:36] type of production. I looked at both applications and that's

[4:11:41] why Kaiser Francis did submit a prior intram order which we felt was

[4:11:49] proper for both cases and when I looked at the applications relief sought both

[4:11:56] of them talked about determining waste and that's what these intro

[4:12:02] mortars are referencing now I do note that the OEA a application does go

[4:12:09] farther requesting to modify a man setting allowable

[4:12:15] and I don't want to speak for Mr. parish. But it sounds like under their

[4:12:20] interim order that we are recommending that they have agreed at least for this

[4:12:27] first interim order to withdraw to withdraw that type of relief at this

[4:12:35] time that they're only wanting to put into this order that waste is occurring.

[4:12:42] Uh, with that said, again, Kaiser Francis does support the entrance to

[4:12:48] orders uh that have been submitted. Thank you.

[4:12:54] Thank you, Mr. Stack. Mr. Eric Huddleston for Devon Energy and XTO

[4:13:01] Energy. Thank you, Judge, and thank the

[4:13:04] commissioners once again uh for offering us this time today. I would once again

[4:13:09] point out that both of my clients have filed comment uh in this case signed by

[4:13:15] their CEOs opposing uh proration uh and in favor of a free market approach in

[4:13:23] these matters. I would also like to point out that the chief economist of uh

[4:13:30] the American Petroleum Institute, Dean Foreman, has also filed comment uh in

[4:13:36] this case addressing market demand issues and potential impact

[4:13:42] [clears throat] of a prorationing order. Um and so those two clients are

[4:13:46] certainly opposed. I echo the same notice uh arguments and evidentiary

[4:13:52] arguments that have already been stated by the Barnes's and I don't want to

[4:13:56] again circle the same issue. Uh but just to point out uh that my clients are

[4:14:01] standing on their previous comment and uh reserve any further comment at this

[4:14:05] time. Thank you. [clears throat]

[4:14:09] Thank you. Thank you. Judge Presler, did you um did you intend

[4:14:13] to miss uh Mr. Cam?

[4:14:19] I am so sorry I did not

[4:14:25] Mr. Dale Codingham on behalf of Longpoint Minerals LLC.

[4:14:31] My apologies Mr. Thank you and thank you commissioners.

[4:14:36] Uh we adopt the prior statements that we made in regard to the other application.

[4:14:41] Additionally we adopt the statements by Ron Barnes on behalf of Fourpoint. I

[4:14:46] would just add that um in my judgment there's not and I think this dovetales

[4:14:53] in with what commissioner Murphy was asking her questions about at least at

[4:14:57] one point uh during this proceeding is whether or not we have an evidentiary

[4:15:01] basis uh to find uh to make a statewide finding of waste. Uh but with that I'll

[4:15:07] I'll uh close my remarks.

[4:15:13] Thank you Mr. Car,

[4:15:22] pardon me, Mr. Carl Hirs for Continental Resources, Inc. Thank you, Judge, and

[4:15:28] and thank you, commissioners. Um, at 2:00 this morning, I believe I was

[4:15:34] asleep, although I'm not certain. Um, [clears throat] an email was sent with

[4:15:40] applicant's memorandum of the case and recommendation in a proposed order. I

[4:15:45] obviously did not get an opportunity to uh review that in detail or to have full

[4:15:53] consultation with my client about that memorandum and proposed order prior to

[4:15:57] the hearings. I've been involved in these hearings uh logging in before 9:30

[4:16:03] and and although I have uh at times taken my face off of the board, I have

[4:16:08] been here the entire time since. have not had a chance to counsel with my

[4:16:13] clients about this. It is a substantial document uh with case law quoted.

[4:16:22] Not that we go through all this all over again, but we respectfully request that

[4:16:27] the commission grant to us some short period of time in order to review this

[4:16:32] with our clients and make a uh written uh response if we feel it is necessary.

[4:16:40] So, we respectfully request, even if it's only just a few days, the

[4:16:44] opportunity to review this with our clients, consult with our clients, and

[4:16:47] make a presentation in writing if we feel that it's necessary.

[4:16:54] Thank you. Chairman Hyatt, would the commissioners like to entertain

[4:17:01] a time certain that

[4:17:07] entities or persons could submit statements, comments, letters or legal

[4:17:14] memoranda?

[4:17:18] Do you have a recommendation for a date? I was thinking honor before

[4:17:25] Monday uh May 18th if that

[4:17:30] I do not I do not object. I think all or I know all three

[4:17:36] commissioners are in agreement. All right. So uh for those on the line

[4:17:42] um you will have until

[4:17:47] or anyone else who's not on the line until Monday

[4:17:51] May honor the close of business Monday May 18th 2020 to submit statements,

[4:17:59] comments, letters or legal memoranda for the commission to consider and

[4:18:06] as the other statements that the commission chairman Hyatt said that he

[4:18:12] would take the commission would take judicial notice of and incorporate them

[4:18:17] by reference. We will do the same with the statements and comments and letters

[4:18:22] that are submitted. Thank you, commissioners, and thank you,

[4:18:25] judge.

[4:18:34] All right, I believe next is Gregory El Mafy, attorney for Oventive

[4:18:40] Midcontinent, Inc. Judge Presler, commissioners. Thank you.

[4:18:46] uh oventive after hearing I think the comments today and considering the

[4:18:50] comments has filed is willing just to rely upon the comments that it

[4:18:54] [clears throat] has filed in the case and sent to the commissioners and does

[4:18:58] affirm its position that believe that the free market is already taking care

[4:19:02] of the supply and demand issue without the need of any any further action.

[4:19:06] Thank you.

[4:19:09] Thank you Mr. happy and I uh let's see finally

[4:19:17] Mr. Lee Levenson

[4:19:21] did you want to make any comments?

[4:19:28] Uh the only thing I can say about this application uh I was one of the founding

[4:19:32] members of this group with miss with Mike Cantrell and uh I think I I did in

[4:19:39] uh I did intake the and I got a strong thing how desperate

[4:19:45] people are in our industry and um they're asking the same as us except

[4:19:51] mine is voluntary and I think the only way it could work is to make it a

[4:19:56] voluntary and I would hope the OEPA would adopt the relief that I want at

[4:20:01] least right now for an interim order to do it on a a operator byoperator basis.

[4:20:07] I think as we've all said under the facts and circumstance may make the most

[4:20:13] sense but uh again one thing about both applications

[4:20:18] people are hurting and and it you can tell just by my presentation that I that

[4:20:25] I that I'd be choppy in some of the presentation but really it's emotionally

[4:20:29] draining what we're going through and I thank the commission and I appreciate

[4:20:34] the comments the OEA board members I know most of them personally and it's

[4:20:39] hard when you may lose everything you worked your whole life for. So again,

[4:20:44] taking those things into consideration, uh I just feel like that

[4:20:50] I want to say a compromise, but for the best interest of the oil companies, the

[4:20:56] mineral owners, the employees, the workforce for the state of Oklahoma that

[4:21:01] at least on this interim basis making it voluntary

[4:21:06] makes it work for everybody and without hurting anybody and hopefully will allow

[4:21:12] us to get back on our feet in the market to go back to some equilibrium. Uh in

[4:21:18] addition, um by doing it this way, again, you're not

[4:21:23] putting anybody in harm's way. Um and again, I just think we've got a

[4:21:29] situation nobody, as Mr. Canrell stated, uh really in an eloquent manner, we've

[4:21:35] never seen anything like this. I I do believe we'll have new case law come out

[4:21:40] of this. what what equal considerations are with oil and gas leases, mortgage

[4:21:44] foreclosures, and again, I just want on behalf and why I file the application.

[4:21:50] It's really for the benefit of everybody and I just don't see how anybody could

[4:21:56] be against something that I think's a benefit to everybody. And again, um

[4:22:02] that's all I would request. And hopefully some compromise between the

[4:22:06] two will work. We can get it in our mortar. And [clears throat] God willing,

[4:22:10] I hope maybe in 90 days I come back and the price comes up and everything's

[4:22:14] great and I'll be the first one to say hallelujah. So I appreciate your time.

[4:22:19] By the way, the commission, Judge Presler, the commissioners taking all

[4:22:23] this time. I appreciate the comments of everybody. One thing I did get out of

[4:22:27] this whether you're for or against and the main thing was the only thing really

[4:22:32] was against other than Crawley Petroleum was where the notice was good enough and

[4:22:36] other than Cwley that's the only person basically that was against the relief at

[4:22:41] least I requested and the other good thing nobody in this whole hearing in

[4:22:46] either application not one person say we that we're not in a dire situation here

[4:22:51] that needs some relief. So again, I greatly appreciate everybody taking the

[4:22:55] time and listening. And uh I'm happy to answer any additional questions in any

[4:23:00] manner. And uh again, I want to thank uh Bill Huffman and Andy. Without them, I

[4:23:05] couldn't have done it. And I am technologically inferior. I want the

[4:23:10] court to take judicial notice. So thank you very much.

[4:23:16] Thank you, Judge Kler. And yes,

[4:23:21] we u once again on this case um Mr. Allen should be recognized. He was

[4:23:29] highlighted in the wrong color on our list. So I think that's the reason we've

[4:23:32] overlooked him a couple of times, but Mr. Allen needs to be

[4:23:36] rec I knew that he was uh asked in the last proceeding. So yes, Mr. Allen,

[4:23:43] you're recognized. and if you'll announce who you're um representing.

[4:23:50] Yes. Thank you, judge. Thank you, Chairman Hyatt. Thank you, Commission.

[4:23:53] Matthew J. Allen for Marathon Oil Company. We have entered an interest in

[4:23:58] this cause. Uh given the format, we'd like to read a comment into the record

[4:24:03] and then I'd make a legal note for the commission's consideration.

[4:24:07] Marathon Oil Company is firmly opposed to the proration of domestic oil

[4:24:11] production in Oklahoma. Marathon does not believe that pro proration would

[4:24:16] have any of the desired effect or any meaningful effect on global over supply

[4:24:20] and Marathon believes that that action would only serve to disadvantage

[4:24:24] Oklahomaans and create regulatory uncertainty for future investment.

[4:24:29] Now, your honor and commissioners, I understand that the applicant may have

[4:24:34] more or less withdrawn a formal request for proration, favoring instead that the

[4:24:39] commission enter an order making a finding that there is statewide waste

[4:24:44] occurring with the production of oil in the state of Oklahoma. Uh, Commissioner

[4:24:48] Anthony uh, noted earlier that if the commission enters an order finding that

[4:24:53] all oil production in the state of Oklahoma constitutes waste, that under

[4:24:57] 52OS section 271, all operators may be forced to shut in

[4:25:03] all their oil production statewide by statutory mandate and that would be

[4:25:08] devastating uh, obviously. And so uh, I would request the commission consider

[4:25:13] that potential unintended consequence. And with that, uh, I appreciate the

[4:25:17] commission's time. Thank you.

[4:25:22] Thank you, Chairman Hyatt. I believe that's all the

[4:25:27] attorneys who had requested to speak. Uh, we had a few

[4:25:34] people asked to make public comment. If you would like to entertain those at

[4:25:38] this time. Let me clarify one attorney first. Mr.

[4:25:42] Helm, did you wish to make comment on this case on behalf of Cwley?

[4:25:52] Okay, I think that answers my question. So,

[4:25:59] you may proceed, judge. Uh, yes. Next person

[4:26:07] asking to make public comment is Brook Simmons with the Petroleum

[4:26:14] Alliance of Oklahoma. Thank you, Judge. Uh, Chairman Hyatt,

[4:26:20] Commissioner Anthony, Commissioner Murphy, thank you very much for this

[4:26:23] opportunity. Uh, has as has been stated, I'm president of the Petetroleum

[4:26:27] Alliance of Oklahoma, which represents roughly 1,300 companies of every size

[4:26:33] and literally hundreds of thousands of employees. Uh, our members include oil

[4:26:38] and natural gas producers, operators, purchasers, pipelines, transporters,

[4:26:45] processors, refiners, and service [clears throat] companies. Our members

[4:26:50] are responsible for 84% of all crude oil and 75% of all natural gas produced in

[4:26:56] Oklahoma. As was referenced earlier, our chairman,

[4:26:59] Mr. David Lenorman, regrets that he cannot participate today, but his family

[4:27:04] suffered a loss this weekend and he must attend to those matters. I want to point

[4:27:08] out that the decision of our executive committee was overwhelming in opposition

[4:27:13] to this application. If there were differences of opinion, the differences

[4:27:18] were limited to uh whether the alliance's response would be narrowly

[4:27:23] focused on the weaknesses of the application itself or touch on broader

[4:27:28] market conditions. My comments will necessarily touch on both because I

[4:27:34] believe it would be a mistake for the commission to make decisions in a vacuum

[4:27:39] here. The scope of the application exceeds the mission of the commission as

[4:27:44] well as its capabilities. It makes the unprecedented request that the

[4:27:49] commission retroactively prohibit new wells and permits based upon their

[4:27:53] subsequent actual result. It's a blatant attempt to force the commission to pick

[4:27:57] winners and losers and penalize those using modern technology to develop

[4:28:01] mineral resources. It interfere with private contracts and circumvent the

[4:28:06] pre-existing prudent operator standard. Furthermore, economic realities already

[4:28:12] are addressing US crude supply more quickly and more efficiently than can

[4:28:17] any government entity through mandate. Oklahoma's crude oil production already

[4:28:22] has been effectively shut in. There are 13 rigs running in Oklahoma today.

[4:28:28] Drilling activity has been cut from recent highs by more than 90%.

[4:28:34] Meanwhile, energy consumers are beginning to emerge slowly from what we

[4:28:39] all pray is the worst of the CO 19 pandemic and demand gradually is

[4:28:45] increasing. The commission can do nothing to affect

[4:28:50] the armada of floating tankers waiting to unload foreign oil at our refineries

[4:28:56] in the US. but it can avoid taking actions that further harm Oklahoma as a

[4:29:02] destination for future capital investment.

[4:29:06] Now this crisis has affected companies of every size. It doesn't matter if the

[4:29:12] company has 11 employees or,00 forced families and companies big and

[4:29:20] small to make gutwrenching decisions. This crisis is going to force change.

[4:29:27] And the alliance urges the commission not to add to these burdens and

[4:29:34] respectfully request that it reject the application for determination of waste.

[4:29:39] [clears throat] Thank you.

[4:29:41] Thank you. And with that, Chairman Hyatt, I believe

[4:29:47] there is not anyone else that wishes to speak. There are a couple of people such

[4:29:52] as Mr. Sters and Mr. Isaac Stroop that are available if the commissioners have

[4:29:59] questions. I I've got a question that's a followup

[4:30:03] on Mr. Simmons. He mentioned the word retroactive. By the way, for the benefit

[4:30:08] of my other two commissioners, I have all kinds of things I was prepared to

[4:30:12] say today and you're lucky that I had even [clears throat] got to half of them

[4:30:17] and I'm going to try and leave it that way. But this word retroactive set me

[4:30:22] off on another one. The order, the emergency order that was issued the

[4:30:27] other day was retroactive. It did not go from the date of the order

[4:30:33] forward. It went backwards. Now, there's something we run into around here a

[4:30:38] whole lot. Uh we talked about retroactive rate making. We talked the

[4:30:43] other day uh about retroactive things. There's something in the United States

[4:30:49] Supreme Court called the apprentice decision.

[4:30:52] It's legislative if it's prospective like utility rates going forward. But

[4:30:57] when you take that emergency order that was issued that is before us today and

[4:31:04] made it effective retroactively then in my opinion you have put an

[4:31:10] element in that is not legislative and the standard for its u legitimacy has

[4:31:18] changed and that's another reason I put out a dissenting opinion because I think

[4:31:23] it's got numerous flaws and that's just one Um, nothing further right now.

[4:31:37] Judge, uh, you mentioned, uh, Mr. Sters is available for questions if

[4:31:42] commissioners have questions of Mr. Sters.

[4:31:45] Um, also

[4:31:48] Tyler Batty, but I believe that is an extension of Mr. Stack. Um, if Mr. Batty

[4:31:55] is on the line and would like to speak, you are recognized to do so.

[4:32:04] All right. I see no questions of um Mr. Sters, Judge.

[4:32:14] So, would you like to have uh any closing

[4:32:19] argument or I would think you heard plenty of

[4:32:24] argument, but if you would like to hear it,

[4:32:26] we can ask for closing argument. I I think we should turn back to Mr.

[4:32:30] Parish to address.

[4:32:33] All right. Any of the

[4:32:34] Mr. Sure. Mr. Parish. Thank you. Um Mr. Chairman, I'm willing

[4:32:42] to address any issue you want me to address. There are some that came up

[4:32:47] that uh I might make notice of uh or talk about. One of which is the notice

[4:32:54] argument um the section 276 specifically sets out the notice statutoily sets out

[4:33:01] the notice required uh for cases brought under these

[4:33:05] statutes, section 271 seek in particular. Um, and it basically is

[4:33:11] publication unless we are targeting a specific

[4:33:15] company or individual, which we are not doing. So, we still believe the notice

[4:33:19] is appropriate. Um,

[4:33:23] with regards to Commissioner Murphy's comments earlier,

[4:33:29] um, I would note that

[4:33:33] 86, I'm sorry, 273

[4:33:38] uh, is not limited to SANS. She raised the issue about 272 being

[4:33:44] limited to sands and that 86.2 two again which defines waste and prohibits it is

[4:33:51] not limited to sands but to basically anywhere that oil is produced. Um so I

[4:33:57] think there is a a basis for proceeding under if not all the statutes the uh all

[4:34:04] but the one statute in that basis um you know with regards to issue of waste

[4:34:11] occurring statewide or a statewide order that is statewide we're not asking for a

[4:34:16] declaration with regards to any specific well but in the market today that waste

[4:34:22] is occurring that it it exists and that it is occurring and then if you

[4:34:28] have that situation or believe you do that you are directed to prohibit it um

[4:34:35] broadly just like a general restriction on anybody when they have to comply with

[4:34:40] a rule or rules to be enforced um

[4:34:45] concerns about retroactivity that Mr. Anthony raised, you know, I I echo those

[4:34:51] to some extent that generally legislative type items are not

[4:34:54] retroactive unless they specifically provide for it. I do believe that Mr. Le

[4:34:59] did ask for some retroactivity up to the commission whether they grant that. You

[4:35:03] know, retroactivity of orders is often granted in conservation cases. Um, so

[4:35:08] I'm not sure that it would be unavailable here, but uh but those are

[4:35:12] usually adjudicatory in nature and not uh administrative or legislative in

[4:35:18] nature. Um, you know, with concerns about the

[4:35:22] rig count, you know, impacting contracts.

[4:35:26] We believe that none of that occurs just as a result of a declaration that waste

[4:35:32] is occurring across the state in Oklahoma.

[4:35:36] Um the contracts are what they are. Um

[4:35:43] and either in place or not in place and they almost all contain either impliedly

[4:35:48] or specifically provisions that if you know they're required to do something as

[4:35:52] a result of a law or a regulatory agency that they

[4:35:57] can suspend the contracts or get relief from the contracts or not comply with

[4:36:02] portions of the contracts. So, we are unconcerned about the impact on uh

[4:36:08] directly on contracts. Um

[4:36:13] I was looking down through my notes. Um those are the bigger items that I noted

[4:36:18] were pic brought up or that Commissioner Murphy had raised. I'm sure I've missed

[4:36:23] something. So, if you've got specific other questions, I would answer those

[4:36:29] or attempt to answer them. I Mr. uh Commissioner Anthony

[4:36:36] the chairman saw me filling with my paper and thought I had a question but

[4:36:42] uh Mr. Parish, let me um comment on something once again in your relief

[4:36:49] sought which is the bottom of page three of your application and I want to uh

[4:36:57] compliment you uh based on my understanding of these terms. In the

[4:37:03] middle or the third line uh it talks about um determining that there is not

[4:37:12] market demand at a price. Then it goes on equivalent to the value

[4:37:18] actual value. You use the term demand

[4:37:25] and you use the word price um just following it. And a person that

[4:37:33] studies the first course in economics is taught that demand is a function of

[4:37:40] price and you are consistent in my reading of that with the basic approach

[4:37:47] to determining demand. Would you want to comment on that any further? I want

[4:37:52] modesty to overwhelm you, but you're welcome to.

[4:37:57] Uh, I I think you covered it very well. Uh,

[4:38:01] well, let me go further then here. Here's a

[4:38:06] question for you. waste is central to what is before us

[4:38:13] today as um a topic and in the uh request for relief sought.

[4:38:22] Here's my question. before the commission could determine

[4:38:28] what waste there is or if in fact there is any

[4:38:35] uh economic waste or physical waste.

[4:38:41] Do we first need to know what the demand is?

[4:38:52] I think the answer is yes. is yes. I mean there is an important

[4:38:56] factor to know and there are there are documents that have been filed in the

[4:39:00] record that uh that address in not as of today but recent past as it's so

[4:39:07] volatile as to what demands [clears throat]

[4:39:11] well EIA documents and other here's what I'm trying to get to. We're

[4:39:19] being asked to determine, as the statute mentions, whether or not there is waste.

[4:39:25] And to do so, you need to compare um I'm reluctant to use the word supply, but

[4:39:32] I'll use the word production. Um what is the production relative to the demand?

[4:39:40] Like those are those two things. Is one higher than the other one or lower than

[4:39:45] the other one? And if indeed the production far exceeds the demand, we're

[4:39:50] saying that's waste. And that's pretty much what the statute says. So I'm

[4:39:55] here's what I'm trying to lead up to. If the commission is going to do what

[4:40:03] these cases mandate us to do, and the statute does to try to assess waste, we

[4:40:10] have to assess demand. And let me just tell you folks, the assessment of demand

[4:40:17] is not simple. Uh it could involve not only a function of price, it could use

[4:40:25] all kinds of econometric analysis. And you might say, oh well, we didn't want

[4:40:30] to get into that. But we do that around here when it comes to utility rate

[4:40:35] cases. when you want to determine what the return on equity for a publicly

[4:40:40] traded uh public utility should be. And and I'm just telling you that a

[4:40:47] legitimate um

[4:40:51] determination of demand requires some rather uh sophisticated things. That's

[4:40:57] as far as I'll go at this point. But I appreciate the fact that I think your

[4:41:02] relief sought does acknowledge the demand isn't just one thing. It's not a

[4:41:08] fixed thing. It's something that that does vary with price and it does vary

[4:41:14] with economic conditions and market forces. Thank you very much.

[4:41:20] Well, with that, mayor, vice chairman, I would say, you know, very well said and

[4:41:27] would note that the relief we're currently asking, we want it to be

[4:41:30] reviewed routinely so that as demand evolves,

[4:41:34] as does supply and the other things, we can continue to evaluate those things.

[4:41:40] There's lots of research, public materials that address that. Um, we're

[4:41:45] not going to be addressing it on a company by company basis

[4:41:50] in this ordered relief, but on more of a broad industry basis for the state of

[4:41:57] Oklahoma.

[4:42:01] All right. Thank you, Mr. Parish.

[4:42:05] Yes, uh, I'm sorry to interrupt, but I just

[4:42:10] received an email that Dr. Dean Thor uh Foreman is on the line. Apparently, he

[4:42:16] had requested last Friday to be heard in these proceedings and I do not believe

[4:42:22] his email was forwarded to the proper

[4:42:26] parties. Um I believe he notified the general counsel's office.

[4:42:34] All right. And that seeing no objections, uh I'm certainly

[4:42:39] amanable to um allow comment. I'm sorry. I If you'll restate the name

[4:42:46] and and uh set up that comment. Dr. Dean Foreman. Um now I don't know if

[4:42:54] the moderator has his contact information.

[4:42:59] Okay. Can you hear me?

[4:43:01] We have unmuted him. Yes, we can hear you, sir.

[4:43:04] Chairman Hayatt, thank you very much and sorry for the misunderstanding on that,

[4:43:08] but um I'll keep this to just a few minutes and I want to thank you for the

[4:43:12] opportunity to testify on behalf of the American Petroleum Institute and its 620

[4:43:16] members across the value chain. Uh just to summarize the key points from the

[4:43:21] written testimony and contribute. Excuse me. Dr. Foreman. Dr. Foreman. Dr.

[4:43:25] Foreman. Yeah. Uh if you will speak slowly so the

[4:43:31] court reporter can take down your in uh what you're saying

[4:43:35] because we have a court reporter and if you'll speak very loudly

[4:43:40] and tell him to start over because I lost all that.

[4:43:43] Okay. Okay. If you'll start over for the court

[4:43:46] reporter and speak very loudly. Okay. Hang on. Let me disconnect one

[4:43:53] thing.

[4:43:56] Okay. I hope this gives you a little bit better audio.

[4:44:01] So, thank you for the opportunity. Thank you for the opportunity to testify

[4:44:06] on the behalf of the American Petroleum Institute and its 620 members across the

[4:44:11] value chain. Uh, I'd like to summarize the key points from my written testimony

[4:44:17] within just a couple of minutes here and contribute some recent weekly oil market

[4:44:23] data from the US Energy Information Administration and API.

[4:44:29] As you may know, API we survey upwards of 90% of the industry each week. And

[4:44:38] here is what we see now. [clears throat] There is no sugar coating that the

[4:44:43] recent data are pervasively weak yet. Let's start with supply. The first

[4:44:50] point is that oil production has already fallen nationwide and is projected to

[4:44:56] continue to fall. For the week ending May 1st,

[4:45:03] EIA found that US crude oil production was

[4:45:07] 11.9 million barrels per day. That's down by

[4:45:15] 1.1 million barrels per day just since the end of March.

[4:45:20] EIA further projects domestic crude oil production could drop by another 900,000

[4:45:29] barrels per day by the end of June. That would be a 2 million barrel per day

[4:45:36] decrease within a couple of months and supported by the record drop in drilling

[4:45:43] that has been previously mentioned. Now while the applicants are seeking an

[4:45:48] open-ended proration order, the market has already responded in these

[4:45:54] historically large ways. The second key point is that US petroleum demand and I

[4:46:00] take the points that have just been mentioned about the complexity in

[4:46:04] measuring demand. But as a primary data source, this is one of the things that

[4:46:08] we do. Demand has risen since the filing of the application. you'll appreciate

[4:46:14] that the imbalance between oil demand and oil supply that's causing these low

[4:46:19] prices right now is largely a demanddriven problem more than a supply

[4:46:25] driven problem. Yet almost all of the policy solutions including the hearing

[4:46:30] today are targeting supply. EIA found US petroleum demand as of May

[4:46:37] 1st had increased by 1.3 million barrels per day over just the past two weeks. At

[4:46:45] the same time, refinery throughput also rose and increased the uptake of crude

[4:46:51] oil. And now some 31 states are gradually reopening. We're obviously

[4:46:57] looking at a small sample size of data in just a couple of weeks here to

[4:47:04] identify a turning point, but we're hopeful that the worst may be past us

[4:47:07] now as April was widely expected to be the worst point. Also, EIA projects that

[4:47:14] the global oil supply demand balance will be largely re-equilibrated over the

[4:47:20] third quarter of this year. And the Bloomberg consensus expectations are for

[4:47:25] economic recovery by 2021 with more than eight trillion dollars of

[4:47:31] stimulus so far being pumped into the global economy. All of this should be

[4:47:36] positive for oil demand. The third key point is that the threshold the

[4:47:42] commission would apply to determine that market supply exceeds demand should fail

[4:47:47] given the current data. Oklahoma has long been a net exporter of oil and

[4:47:52] natural gas. So beyond very local conditions, if you look at the US

[4:47:57] national supply demand balance on this basis, EIA data indicate that the US

[4:48:03] produced 11.9 million barrels per day of crude oil for the weekend ended May 1st.

[4:48:09] While refinery throughput of crude distillation units, just the simple

[4:48:13] refining, not including cracking and coing, that increased to 13.4 4 million

[4:48:18] barrels per day for the week. So that the demand for the crude oil

[4:48:22] domestically is there and Oklahoma is competing well for it. Oklahoma is among

[4:48:27] the most economically competitive sources of domestic supply and by the

[4:48:32] commission's own own criteria, these data would not support an affirmative

[4:48:36] finding of economic waste. The final point is that no other state has

[4:48:41] implemented proration measures in response to CO 19 and where they have

[4:48:45] been implemented in the past they've failed. Texas rejected a similar

[4:48:49] proposal last week. The closest analog is Alberta Canada which has also filed

[4:48:55] uh a letter in in this proceeding. Alberta thought it was implementing

[4:49:00] temporary measures at the end of 2018, but a year and a half later has

[4:49:05] increased its production curtailments and seen its oil trade at relatively

[4:49:09] lower prices than before the curtailments began. To summarize,

[4:49:12] overall recent challenges have certainly been difficult for the industry, but

[4:49:18] supply and demand are responding on a market basis, and we need Oklahoma, its

[4:49:24] most efficient wells, fields, and operators poised to ramp back up in an

[4:49:29] economic rebound. And we see sources of resilience and remain confident that

[4:49:33] demand will rebound as the effects of CO 19 diminish. Please resist the

[4:49:38] temptation to intervene in the market and send OPEC plus the message that

[4:49:42] Oklahoma's oil production can and will endure. I welcome your questions. Thank

[4:49:47] you.

[4:49:54] Commissioner questions of Dr. Foreman. I see no questions. Dr. Foreman, thank

[4:50:00] you for joining us and sorry for the the uh confusion and getting you connected.

[4:50:06] Judge Presler, anything? Thank you so much,

[4:50:10] Judge Presler. Anything further from your end?

[4:50:14] No. No, Chairman. Thank you. I I think we're uh nearing a point to

[4:50:20] adjourn the meeting. Uh first want to ask my fellow commissioners, I assume we

[4:50:26] want to take this matter under advisement. So, we will take the matter

[4:50:30] under advisement. And before we adjourn, I want to thank you, Judge Presler, for

[4:50:36] uh assisting in this process and thank everyone for their patience. Obviously,

[4:50:43] uh this type of uh meeting uh is not ideal, but uh we're doing the best we

[4:50:51] can under the circumstances. So, I appreciate appreciate everyone's

[4:50:56] patience. Seeing no further new business to come before the meeting, the

[4:51:01] meeting's adjourned. Thank you, Commissioner.

[4:51:04] Thank you, Commissioner. Thank you, Mr. Presler.

[4:51:08] Thank you, chairman. Thank you.

[4:51:10] And commissioners, thank you to the commissioners.

[4:51:13] Appreciate it. Thank Thank you, J. I appreciate the

[4:51:18] time here. First class. Thank you.

[4:51:30] [clears throat]

[4:51:47] You want to go lie down? You want to go lie down, Sophie?

Regular Commission Meeting May 11, 2020, 9:30 AM

Transcript