1. BY DORSEY ROACH, CPL OKLAHOMA CITY ASSOCIATION OF PROFESSIONAL LANDMEN APRIL 4, 2016 UPDATING THE AAPL MODEL FORM JOA: NEW HORIZONTAL DRILLING PROVISIONS AND MORE

2. INTRODUCTION  AS INDUSTRY HAS EVOLVED, NEW DRILLING AND COMPLETION TECHNOLOGIES DEVELOPED  HORIZONTAL DRILLING  FRACKING

3. INTRODUCTION (CONTINUED)  THINGS THAT EFFECT GOVERNING CONTRACTS & AGREEMENTS  NEW TECHNOLOGIES  CASE LAW  INDUSTRY CUSTOMS & PRACTICES

4. HISTORY OF HORIZONTAL DRILLING  AROUND SINCE 1920  COMMERCIALLY VIABLE IN LATE 70’s  OVER 15,000 HORIZONTAL DRILLING PERMITS ISSUED IN THE PAST 4-5 YEARS

5. HISTORY OF HORIZONTAL DRILLING (CONTINUED)  LONGEST LATERAL NEARLY 7 MILES LONG (SOUTHERN ENGLAND)  HORIZONTAL DRILLING WAS THE MAJOR REASON GIVEN FOR IRAQ’S INVASION OF KUWAIT IN 1990

6. HISTORY OF THE JOA  PRE-1956  COMPANY FORMS  ROCKY MOUNTAIN MINERAL LAW (1954)  FORM 610-1956 MODEL FORM JOA  COMMON PROVISIONS  INDUSTRY CUSTOMS/PRACTICES

7. HISTORY OF THE JOA (CONTINUED)  1956 JOA - ALTERNATE TITLE LOSS PAGES RELEASED IN 1967  INDIVIDUAL LOSS PAGES, or  JOINT LOSS PAGES

8. HISTORY OF THE JOA (CONTINUED)  FORM 610-1977  REVISION COMMITTEE FORMED IN 1975  RELEASED 21 YEARS AFTER 1956 JOA  NEW PROVISIONS  CASING POINT ELECTION  SUBSEQUENTLY CREATED INTEREST

9. HISTORY OF THE JOA (CONTINUED)  FORM 610-1982  REFORMATTING OF PROVISIONS  SIDETRACKING PROVISION ADDED  GAS BALANCING ADDRESSED  ALTERNATE PAGE 8’s  PAGE 8 – GBA ATTACHED  PAGE 8 ALTERNATE – NO GBA ATTACHED

10. HISTORY OF THE JOA (CONTINUED)  FORM 610-1989  RELEASED IN AUGUST 1989  27 YEARS AGO!  CONSIDERED MAJOR OVERHAUL OF 1982 JOA

11. HISTORY OF THE JOA (CONTINUED) 1989 JOA  BANKRUPTCY/CREDITOR RELATED ISSUES ADDRESSED  SEPARATE SIDETRACK AND DEEPENING PROVISIONS  TERMINATION OF OPERATIONS  COMPETING PROPOSALS  ADDRESSED MANY KNOWN PROBLEMS, PITFALLS AND AMBIGUITIES

12. HISTORY OF THE JOA (CONTINUED)  2002 COALBED METHANE MODIFICATIONS  PROVIDES OPTIONAL PROVISIONS  SHARING OF ROADS, PADS AND PRODUCTION FACILITIES  EQUITABLE ALLOCATION OF COSTS

13. FORMATION OF AAPL 2015 JOA TASK FORCE  FORMED IN SEPTEMBER 2011  TWO OBJECTIVES INVOLVING JOA  DRAFT NEW HORIZONTAL DRILLING PROVISIONS  REVISE THE ENTIRE JOA

14. 2015 JOA TASK FORCE  THE FORMATION OF THE 2015 JOA TASK FORCE  5 LANDMEN  5 ATTORNEYS  PEER REVIEW GROUPS  LANDMEN & ATTORNEYS  COPAS

15. 2015 JOA TASK FORCE  RELEASE OF 1989 HORIZONTAL JOA ( MARCH 2013)  RELEASE OF THE 2015 JOA  ROLLOUT 11/5/15  AVAILABILITY OF NEW 2015 JOA FORM

16. 2015 JOA TASK FORCE (CONTINUED)  AAPL BOARD APPROVED NEW HORIZONTAL DRILLING LANGUAGE AT MARCH 2013 BOARD MEETING  SUBMITTED TO FORMS-ON-A DISK  RETURNED TO TASK FORCE FOR MINOR CHANGES MAY 2013  RE-SUBMITTED TO BOARD JULY 2013  JOA AVAILABLE NOVEMBER 2013

17. 2015 JOA TASK FORCE (CONTINUED)  CHANGES FIRST MADE TO 1989 JOA  CHANGES THEN TRANSLATED TO 1982 JOA  SUBMITTED TO FORMS-ON-A-DISK TO BE SET UP FOR PUBLICATION AND SALES BUT IT WAS NEVER SET UP/PUBLISHED

18. 2015 JOA TASK FORCE (CONTINUED)  LAMONT LARSEN PAPER  “HORIZONTAL DRAFTING: WHY YOUR FORM JOA MAY NOT BE ADEQUATE FOR YOUR COMPANY’S HORIZONTAL DRILLING PROGRAM”  ROCKY MTN. MINERAL LAW FOUNDATION JOURNAL

19. REDEFINED TERMS AND NEW PROVISIONS FOUND IN THE 1989 HORIZONTAL JOA

20. RE-DEFINED TERMS FOR HORIZONTAL WELLS  AFE – NOT A CONTRACT OR COMMITMENT; ESTIMATE MADE IN GOOD FAITH  DRILLSITE – ALL TRACTS WELLBORE TRAVELS ON OR UNDER  PLUGBACK – COMPLETION IN STRATI- GRAPHICALLY SHALLOWER ZONE

21. RE-DEFINED TERMS (CONTINUED)  DEEPEN - EXTENSION OF LATERAL  NON-CONSENTING PARTIES DO NOT HAVE THE RIGHT TO PARTICIPATE  SIDETRACK – CHANGE ZONE OR DIRECTION OUTSIDE EXISTING LATERAL  NON-CONSENTING PARTIES DO NOT HAVE THE RIGHT TO PARTICIPATE

22. NEW PROVISIONS (CONTINUED)  NEW DEFINITIONS  DISPLACEMENT - LENGTH OF LATERAL  HORIZONTAL RIG MOVE-ON PERIOD – NO. OF DAYS BETWEEN RELEASE OF SPUDDER RIG AND DATE BIG RIG MOVES IN  HORIZONTAL WELL – WELL CONTAINS HORIZONTAL LATERAL(S) EXTENDING AT LEAST 100’ IN OBJECTIVE ZONE

23. NEW PROVISIONS (CONTINUED)  NEW DEFINITIONS (CONTINUED)  LATERAL – THAT PORTION OF A WELL THAT DEVIATES FROM VERTICAL TO HORIZONTAL ORIENTATION  SPUDDER RIG – A DRILLING RIG UTILIZED FOR DRILLING ALL OR A PORTION OF THE VERTICAL COMPONENT OF A HORIZONTAL WELL

24. NEW PROVISIONS (CONTINUED)  DEFINITIONS  TERMINUS – FURTHEST POINT DRILLED IN A LATERAL  TOTAL MEASURED DEPTH – DISTANCE OF WELLBORE PATH FROM SURFACE OF THE GROUND TO TERMINUS  VERTICAL WELL – ANY WELL DRILLED OTHER THAN A HORIZONTAL WELL

25. NEW HORIZONTAL DRILLING PROVISIONS  WELL PROPOSAL LETTERS MUST NOW STATE THE TYPE OF OPERATION IS FOR THE DRILLING AND COMPLETION OF A HORIZONTAL WELL

26. NEW HORIZONTAL DRILLING PROVISIONS  DRILLING AND COMPLETION PLANS  TOTAL MEASURED DEPTH  SURFACE AND BOTTOM HOLE LOCATIONS  HORIZONTAL DISPLACEMENT  RIG UTILIZATION  COMPLETION STAGING & SIZING

27. NEW HORIZONTAL DRILLING PROVISIONS (  ESTIMATED COSTS  AFE NOW REQUIRED FOR ALL PROPOSED SUBSEQUENT OPERATIONS  SPUDDER RIGS MAY BE DEPLOYED IF:  ON AN APPROVED AFE  A MAJORITY IN INTEREST TO AN APPROVED AFE SUBSEQUENTLY AGREE

28. NEW HORIZONTAL DRILLING PROVISIONS  FAILURE TO MEET HORIZONTAL WELL MOVE-ON PERIOD  MUST RE-PROPOSE WELL  PREVIOUSLY NON-CONSENTING PARTIES HAVE RIGHT TO JOIN  UNUSED FUNDS MUST BE RETURNED  DRILLING WITH SPUDDER RIG DEEMED COMMENCEMENT OF OPERATIONS FOR JOA PURPOSES

29. OTHER NEW PROVISIONS FOUND IN THE 2015 JOA

30. THE 2015 JOA  DEFINITIONS  Affiliate – A person who is controlled by another person. “Control” means 50% or more ownership. “Person” means partnership, LLC, corporation, parent or subsidiary company, etc.  Workover – Routine maintenance and repair work performed on a well; not a Rework operation

31. THE 2015 JOA  Adjustments to WI%’s of Parties  Operator may make adjustments to a party’s WI% on Exhibit A if errors previously made  Requires approval of affected party  Affected party may pursue litigation

32. THE 2015 JOA  Payment of Royalties and Other Lease Burdens  1989 JOA Changes  WI Unit v. Pro-Ration (Spacing) Unit  2015 JOA Optional Provisions  Option 1: Fill-In Blank On Line 17, or  Option 2: “All Burdens Except Subsequently Created Interests of Other Parties”

33. THE 2015 JOA  Pugh Clauses  Lands/Depths That Terminate Are Now Classified as Joint Losses

34. THE 2015 JOA  OPERATORSHIP IS NOT ASSIGNABLE  OPERATOR DOES NOT “OWN” OPERATORSHIP OF WELLS  OPERATOR IS ELECTED, AND MAY BE REMOVED, BY THE OTHER PARTIES  IF AN OPERATOR SHOULD SELL ___% OR MORE OF ITS INTEREST, OTHER PARTIES ENTITLED TO SELECT A SUCCESSOR OPERATOR

35. THE 2015 JOA  Exculpatory Clause  1989 JOA Was Modified to Provide That Operator Was Not Liable For Losses Sustained or Liabilities Incurred in Connection with Activities Under JOA Except For Gross Negligence  Reeder v. Wood County Exploration (2012 Texas Supreme Court Decision)  2015 JOA limits Exculpatory Clause to Operations

36. THE 2015 JOA  Non-Owner Operator  Allows Parties to Employ a Non-Owner Operator by Majority Vote in Interest  Requires Separate Agreement With Non- Owner Operator  Non-Owner Operator Subject to JOA  Non-Owner Operator May Be Removed Without Cause

37. THE 2015 JOA  WELL DATA  NON-CONSENTING PARTY IS NOT ENTITLED TO WELL INFORMATION UNTIL:  PAYOUT OF THE NON-CONSENT PENALTIES  2 YEARS  WHICHEVER OCCURS FIRST

38. THE 2015 JOA  OPERATIONS  EXTENSIONS OF LATERALS REQUIRE ___% APPROVAL  PRIORITY OF OPERATIONS INCORPORATED INTO THE ORDER OF PREFERENCE OF OPERATIONS PROVISION  OTHER OPERATIONS  COVERS WORKOVERS  NO LONGER COVERS SWD WELLS

39. THE 2015 JOA  EXPENDITURES AND LIABILITIES  JOA PROVIDES 2 OPTIONS  OPTION 1: CASH CALL FOR NEXT SUCCEEDING MONTH’S ESTIMATED COSTS  OPTION 2: CASH CALL FOR AN ENTIRE OPERATION’S ESTIMATED COSTS

40. THE 2015 JOA  NOTICES  EMAILS ALLOWED TO PROPOSE WELLS AND MAKE ELECTIONS  REQUIRES CONFIRMATION OF RECEIPT  AUTOMATIC DELIVERY RECEIPTS NOT ACCEPTED

41. CONCLUSION