DAILY & WOODS A PROFESSIONAL LIMITED LIABILITY COMPANY ATTORNEYS AT LAW

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1 JERRY L. CANFIELD, P.A. THOMAS A. DAILY, P.A. WYMAN R. WADE, JR., P.A. DOUGLAS M. CARSON, P.A. ROBERT R. BRIGGS, P.A. * C. MICHAEL DAILY COBY W. LOGAN L. MAT THEW DAV IS * Fayetteville Office Also Licensed in Oklahoma DAILY & WOODS A PROFESSIONAL LIMITED LIABILITY COMPANY ATTORNEYS AT LAW KMW BUILDING 58 SOUTH SIXTH STREET P.O. BOX 1446 FORT SM ITH, AR TELEPHON E (479) FAX (479) N. HIGHWA Y 112, SUITE 200 FAYETTEV ILLE, AR TELEPHON E (479) FAX (479) JAMES E. WEST PHILLIP J. NORVELL * DALE CARLTON * OF COUNSEL HARRY P. DAILY ( ) JOHN P. WO ODS ( ) JOHN S. DAILY ( ) March 3, 2009 Arkansas Oil and Gas Commission 301 Natural Resources Drive, Suite 102 Little Rock, Arkansas Re: ORDER REFERENCE NO Application of SEECO, Inc. for Integration of All Unleased Mineral Interests and Non-consenting Working Interests in a unit described as Section 19, Township 8 North, Range 17 West, Conway County, Arkansas Commissioners: SEECO, Inc., 2350 N. Sam Houston Parkway E, Houston, TX 77032, hereby applies to the Arkansas Oil and Gas Commission for the integration of all unleased mineral interests and non-consenting working interests in its proposed drilling unit which is described above. 1. The proposed drilling unit is an established unit as defined in paragraph (f) of Arkansas Oil and Gas Commission General Rule B-43. Applicant proposes to drill a horizontal well from a non-exceptional surface location in the Northwest Quarter down to a non-exceptional bottom hole location in the Southwest Quarter of the abovedescribed unit. The proposed well will be drilled to a total vertical depth of 5,177 feet to test the Fayetteville Shale Formation. Applicant has obtained one or more oil and gas leases covering its proposed drill site. 2. Applicant owns oil and gas leases covering a substantial part of the proposed unit. Applicant should be named as operator of the well. The person or persons to be integrated are shown in Exhibit "A" attached hereto and made a part hereof. 3. Applicant has made diligent efforts to negotiate with the non-participating leasehold working interest owners, each of said parties owning an oil and gas leasehold interest in the proposed unit, but applicant has been unable to secure an assignment of the leasehold interest on an equitable basis or to secure participation by said parties in the drilling of the proposed well.

2 4. Applicant states that it has made repeated efforts to negotiate with the owners of the unleased mineral interests in order to agree on a plan of development of said drilling unit; that those owners have been offered an opportunity to participate in the proposed well; that they have been offered a fair and reasonable bonus consideration for the execution of an oil and gas lease covering their interests; that they have been furnished with a proposed oil and gas lease and a copy of the AAPL operating agreement form which applicant proposes to use in connection with the drilling of said well; but that all of the efforts of the applicant have produced no agreement by said parties. 5. Applicant states that it is in the best interest of conservation and the protection of correlative rights of all interested parties that the proposed unit be developed for oil and gas production without undue delay. 6. In order that applicant may proceed with the orderly development of said unit, applicant hereby requests that the Arkansas Oil and Gas Commission issue its order, in the alternative, that: (a) (b) The owners of non-consenting oil and gas leasehold working interests indicated above shall participate in the cost of drilling, testing and completion of the test well to be drilled by applicant on the captioned unit, subject to the terms of an Operating Agreement which substantially employs the terms of the AAPL Operating agreement, with a COPAS attached. All of the non-consenting oil and gas leasehold working interests within the proposed unit shall be force pooled and integrated into said unit, and a reasonable risk factor shall be established and assessed as a penalty against said integrated interest. 7. Applicant further states that due to the risks and costs inherent in the drilling of the proposed well, the Commission should fix a reasonable risk factor to be assessed as a penalty against the integrated interests within the unit. The risk factor should be applied to the proportionate cost and expense of drilling, completing and equipping the well, which would have been borne by the interest of said parties had they participated. Applicant requests that if the integrated parties do not elect within 15 days after issuance of the Commission's order as between alternatives (a) and (b), it shall be assumed that the integrated parties elected alternative (b) in lieu of the right to participate in the working interest in said unit. 8. Applicant requests that the Arkansas Oil and Gas Commission set this matter for public hearing, and after same, issue its order, in the alternative, that: (a) Each of the owners of the unleased mineral interests indicated above execute and deliver to applicant a one year oil and gas lease, on an AAPL lease form, for a bonus consideration of

3 $1, per net mineral acre to be paid as fair and reasonable compensation in lieu of the right to participate in the working interest in said unit, and that said oil and gas lease provide for a 1/8 royalty on oil and gas. (b) (c) (d) Each of the owners of the unleased mineral interests indicated above execute and deliver to applicant a one year oil and gas lease, on an AAPL lease form, for a bonus consideration of $ per net mineral acre to be paid as fair and reasonable compensation in lieu of the right to participate in the working interest in said unit, and that said oil and gas lease provide for a 1/6 royalty on oil and gas. Each of the owners of unleased mineral interests indicated above be force pooled and integrated into the captioned unit with assessment of a reasonable risk factor penalty against their interest. The owners of unleased mineral interests shall participate in the cost of drilling, testing and completion of the test well to be drilled by applicant on the captioned unit, subject to the terms of an operating agreement which substantially employs the terms of the AAPL Operating Agreement. Applicant further requests that said mineral owners be required to elect within fifteen (15) days after issuance of the Commission's order which method will be pursued in the development of the above described unit, and, in the event no election is made, that it shall be assumed that the owner of said unleased mineral interest has elected to accept a bonus of $1, per net mineral acre as compensation in lieu of the right to participate in the working interest in said unit, and with the royalty to be 1/8. 9. Applicant further states that due to the risks and costs inherent in the drilling of the proposed well, the Commission should fix a reasonable risk factor to be assessed as a penalty against the integrated interests within the unit. The risk factor should be applied to the proportionate cost and expenses of drilling, completing and equipping the well, which would have been borne by the interest of said parties had they participated. 10. Applicant further requests that this Commission's order specifically provide that any party electing either to participate or be force pooled subject to recoupment of a risk factor penalty be bound by the terms of the attached AAPL Operating Agreement for the life of commercial production within the unit so that all future unit operations might be proposed pursuant to the provisions of such agreement without the necessity of future action by this Commission. 11. Applicant also requests that said order be made applicable to any unknown spouse, heir, devisee, personal representative, successor or assign of said parties.

4 12. The names and addresses of parties interested in this proceeding are set forth in Exhibit "A" attached hereto and made a part hereof. 13. Please note the appearance of Thomas A. Daily of Daily & Woods, P.L.L.C., P.O. Box 1446, Fort Smith, Arkansas, 72902, on behalf of applicant. Very truly yours, Thomas A. Daily jmt

5 Green Bay Packaging #1-19H Section 19 T8N R17W Conway County, Arkansas EXHIBIT A INTERESTED PARTIES MINERAL OWNERS Cheek, G. W., Heirs See page 1 of Exhibit B Laws, Ike, Jr. a/k/a Ike Allen Laws, Jr. See page 2 of Exhibit B Leonard, William C., Heirs See page 3 of Exhibit B Stubbs, Grady and Pauline Stubbs or their heirs See page 4 of Exhibit B Templeton, Beth McCollum See page 1 of Exhibit B WORKING INTEREST OWNERS: BP America Production Company See page 5 of Exhibit B Chesapeake Exploration, L. L. C. See page 6 of Exhibit B David H. Arrington Oil & Gas, Inc. See page 7 of Exhibit B Petit Jean Land Company, L. L. C. See page 8 of Exhibit B Page 1 of 1

6 Green Bay Packaging #1-19H Section 19 T8N R17W Conway County, Arkansas EXHIBIT B RESUME OF EFFORTS TO LEASE G. W. Cheek, Heirs Beth McCollum Templeton January 2, 2009 January 6, 2009 January 7, 2009 January 8, 2009 January 10, 2009 January 19, 2009 January 22, 2009 February 10, 2009 February 24, 2009 March 3, 2009 Checked office for old leasing information and possible contact information on owner. No information found. Initiated internet search and located contact information for Bill Cheek, a possible relative. Called Bill and spoke with Char Cheek, his caretaker. She is going to talk with Bill about gathering information related to George Cheek. Called a listing for Jimmy Cheek, a possible relative. Left a message with his daughter to call. Spoke with Bill Cheek, grandson of owner. Obtained address and contact information for all the heirs. Called some of the heirs. Received commitments from some of the heirs. Still gathering heirship information to properly prepare leases. Received commitments from all heirs. Leases and related documents being prepared. Leases and related documents mailed. Executed documents received for all heirs except Beth McCollum. Spoke with Beth McCollum. She said she mailed the executed documents on the 23 rd of February. Well proposal letter and AFE mailed to the heirs of G. W. Cheek in care of Mary Anna Cheek Bailey. Well proposal letter and AFE mailed to Beth McCollum Templeton. Page 1 of 8

7 Green Bay Packaging #1-19H Section 19 T8N R17W Conway County, Arkansas EXHIBIT B RESUME OF EFFORTS TO LEASE Ike Laws, Jr. aka Ike Allen Laws, Jr. This interest was found late upon receipt of the title opinion. The title opinion showed the interest as undetermined pending curative. After extensive research it was decided that owner needed to be named in the integration proceedings. A patent was found covering the NENE from the USA to the State of Arkansas for railroad purposes. No deed was found of record from the railroad. However, recorded in Book 62, Page 251, Grady Stubbs, Jr. et al (See Page 4 of Exhibit B) conveyed this interest to I. B. Bell, et ux. Said warranty deed contained the following reserving however all the oil, gas and other minerals that may be in on or under and that maybe produced from the above lands, as previously reserved by the railroad. Subsequently, after various other transactions, Ike Laws, Jr., the then owner of the interest conveyed the surface only to James Jackson, et ux. The only oil and gas lease executed by anyone covering this interest was executed by Missouri Pacific Railroad Company or its successor. The Missouri Pacific Railroad Company is currently assessed with owning the minerals in the NENE. This interest is being named for protection purposes pending resolution of title issues. February 25, 2009 March 3, 2009 Contact was made with Ike Allen Laws, Jr. He stated that he always kept his minerals. He doesn t remember the details of the sale, but said he keeps extensive records of all transactions. He asked that we provide him with copies of the deeds. He will research his records. If he does own the minerals, he will lease with us. Well proposal letter and AFE mailed. Page 2 of 8

8 Green Bay Packaging #1-19H Section 19 T8N R17W Conway County, Arkansas EXHIBIT B RESUME OF EFFORTS TO LEASE William C. Leonard, Heirs All the known heirs of William C. Leonard have leased their interest to SEECO, Inc. (see below). Heirship information was established by heirship affidavit and not by judicial probate. Therefore, this interest is being named for protection purposes. Cathern R. Leonard March 3, 2009 Well proposal letter and AFE mailed to the heirs of William C. Leonard in care of Cathern R. Leonard. Page 3 of 8

9 Green Bay Packaging #1-19H Section 19 T8N R17W Conway County, Arkansas Grady Stubbs and Pauline Stubbs, Heirs EXHIBIT B RESUME OF EFFORTS TO LEASE January 5, 2009 January 13, 2009 January 18, 2009 January 27, 2009 February 4, 2009 February 12, 2009 February 24, 2009 February 25, 2009 March 3, 2009 Searched local phone directories, internet and courthouse documents for information on owner. Nothing found. Expanded internet search to the state of Arkansas. Located a listing for Grady Stubbs. Called, left a message for owner to call. Called listing again. Spoke with a woman who said that her husband, Grady, was deceased. He was not the Grady Stubbs we were looking for. He did not know a Grady and Pauline Stubbs. Searched courthouse documents again for an helpful information. Last time owners were found of record was in Expanded internet search again. It appears that owners are deceased. Located a possible relative in California, Connie L. Stubbs. No phone listing found, only an address. Mailed lease proposal letter. No response to lease proposal letter. Searched internet again for any new information on owner. Nothing new found. Still no response to lease proposal letter. Mailed second lease proposal letter. Expanded the internet search again, located a phone number for Connie Stubbs. Contacted and spoke to Connie. She is the daughter-in-law of Grady and Pauline Stubbs. Her husband Keith is their son. She confirmed that Grady and Pauline Stubbs are deceased. She said they would be willing to sign a proof of death and heirship. Discussed the terms of the lease with Connie and she was going to check with Keith. Well proposal letter and AFE mailed to the possible heirs, in care of Connie L. Stubbs. Still no response to lease proposal letters. Page 4 of 8

10 Green Bay Packaging #1-19H Section 19 T8N R17W Conway County, Arkansas BP America Production Company EXHIBIT B RESUME OF EFFORTS TO LEASE BP America Production Company owns a working interest in the following Oil & Gas lease recorded in Conway County, Arkansas: 1) John C. and Regina K. Sunderland dated July 25, 2006 and recorded in Oil and Gas book 135 at page 43 with a correction of the Oil and Gas Lease being recorded in Oil and Gas book 154 at page 653 with an effective date of July 25, Chesapeake Exploration L. L. C. assigned an undivided interest to BP America Production Company. Said assignment is effective July 1, 2008 and recorded in Oil and Gas book 171 at page 610. February 20, 2009 Well proposal letter and AFE mailed. Page 5 of 8

11 Green Bay Packaging #1-19H Section 19 T8N R17W Conway County, Arkansas Chesapeake Exploration, L. L. C. EXHIBIT B RESUME OF EFFORTS TO LEASE Chesapeake Exploration, L. L. C. owns a working interest in the following Oil & Gas lease recorded in Conway County, Arkansas: 1) John C. and Regina K. Sunderland dated July 25, 2006 and recorded in Oil and Gas book 135 at page 43 with a correction of the Oil and Gas Lease being recorded in Oil and Gas book 154 at page 653 with an effective date of July 25, The original lease (having an incomplete/incorrect legal description was replaced with a correction) was included in an assignment but the corrected lease still remains with David H. Arrington Oil & Gas, Inc. Chesapeake Exploration Limited Partnership, by affidavit of Identity and Corporate Successorship, is now Chesapeake Exploration, L. L. C. effective August 6, 2007 and recorded in Oil and Gas book 151 at page 239. February 20, 2009 Well proposal letter and AFE mailed. Page 6 of 8

12 Green Bay Packaging #1-19H Section 19 T8N R17W Conway County, Arkansas David H. Arrington Oil & Gas, Inc. EXHIBIT B RESUME OF EFFORTS TO LEASE David H. Arrington Oil & Gas, Inc., owns a working interest in the following Oil & Gas lease recorded in Conway County, Arkansas: 1) John C. and Regina K. Sunderland dated July 25, 2006 and recorded in Oil and Gas book 135 at page 43, on October 26, 2006, with a correction of the Oil and Gas Lease being recorded in Oil and Gas book 154 at page 653, on November 7, 2007, with an effective date of July 25, The original lease (having an incomplete/incorrect legal description was replaced with a correction) was included in an assignment but the corrected lease still remains with David H. Arrington Oil & Gas, Inc. February 20, 2009 Well proposal letter and AFE mailed. Page 7 of 8

13 Green Bay Packaging #1-19H Section 19 T8N R17W Conway County, Arkansas Petit Jean Land Company, L. L. C. EXHIBIT B RESUME OF EFFORTS TO LEASE Petit Jean Land Company, L. L. C., owns a working interest in the following Oil & Gas lease recorded in Conway County, Arkansas: 1) Mark Cambiano to Petit Jean Land Company, L. L. C., dated November 11, 2006 and recorded in Oil & Gas book 155 at page 164 on November 14, ) Mark Cambiano to Petit Jean Land Company, L. L. C., dated June 26, 2008 and recorded in Oil & Gas book 172 at page 646 on October 28, February 20, 2009 Well proposal letter and AFE mailed. Page 8 of 8

14 EXHIBIT C Applicant s statement regarding Operating Agreement The applicant requests incorporation of the Model Form Joint Operating Agreement approved by the Arkansas Oil and Gas Commission on October 24, 2006, with Paragraph III.1.A.(1) of the COPAS providing for a drilling well rate of $7, and a producing well rate of $750.00, and with the following proposed revisions, deletions and/or insertions, if applicable: NONE

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