17-003253 Hendry Energy Services, Llc vs. Department Of Environmental Protection Status: Closed DOAH Final Order on Tuesday, April 10, 2018.

Summary: Petitioner proved by a preponderance of the evidence that the proposed nonroutine drilling unit prevents waste as required by Florida Administrative Code Rule 62C-26.004(6).

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HENDRY ENERGY SERVICES, LLC,

Petitioner,

vs. Case No. 17 - 3253

DEPARTMENT OF ENVIRONMENTAL

PROTECTION,

Respondent.

_______________________________/

SUMMARY FINAL ORDER

Pursuant t o notice, a final hearing was held in this case

on January 23, 2018, in Tallahassee, Florida, before Garnett W.

Chisenhall, a duly - designated Administrative Law Judge of the

Division of Administrative Hearings (ÐDOAHÑ).

APPEARANCES

For Petitioner: Richar d S. Brightman, Esquire

Robert C. Volpe, Esquire

Hopping, Green and Sams , P.A.

Post Office Box 6526

Tallahassee, Florida 32314

Timothy M. Riley, Esquire

Hopping, Green and Sams, P.A.

Suite 300

119 South Monroe Street

Tal lahassee, Florida 32301

For Respondent: Sean Timothy Desmond, Esquire

Department of Environmental Protection

Mail Station 35

3900 Commonwealth Boulevard

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

W hether P etitioner, Hendry Energy S ervices, LLC ( Ð Hendry

Energy Ñ ) , is entitled to issuance of an operating permit

recertification of the Red Cattle Co. # 27 - 4 well , and an Oil

and Gas Drilling Permit, Permit No. OG 0904AH.

PRELIMINARY STATEMENT

On October 29, 2015, Hendry Energy submitted an

application for o perating permit recertification of the Red

Cattle Co. # 27 - 4 well (PA No. 304674 - 001; API No. 09 - 051 - 20076)

(ÐRCC 27 - 4Ñ) .

On April 12, 2016, Hendry Energy submitted an application

for a permit to establish a new, nonroutine drilling unit a nd

reenter the RCC 27 - 4 well to drill a new horizontal well to a

new bottom - hole location in the Mid - Felda Field in Hendry

County, Florida (File No. 0904AH; PA No. 304674) .

On December 13, 2016 , the Department of Environmental

Protection ("the DepartmentÑ) issued a Ð Notice of Denial

[of the] Oil and Gas Operating Permit Recertification Ñ for

RCC 27 - 4. The Department stated as its principle reason for

denial that every shut - in well must be retested for mechanical

integrity prior to recertification of its ope rating permit.

Such retesting in the form of a pressure test has not been

performed here .

On December 13, 2016, the Department also issued a Ð Notice

of Denial [of the] Oil & Gas Drilling Application Ñ for the

application number 0904AH. The reason for deni al was that Ðthe

application does not adequately demonstrate that the proposed

non - routine drilling unit is necessary to protect correlative

rights or to prevent waste as required by Rule 62C - 26.004(6),

F.A.C.Ñ

Hendry Energy timely filed a Ð Combined Petiti on for Formal

Administrative Hearing Challenging the Two Agency Decisions. Ñ

The Department dismissed the petition with leave to amend.

On May 10, 2017, Hendry Energy filed Ð Amended Combined

Petition s for Formal Administrative Hearing s Challenging Two

Agen cy Decisions,Ñ which w ere referred to D O AH on June 2, 2017.

The parties timely filed a ÐJ oint M otion to Conduct S ummary

H earing Ñ in accordance with s ection 120 .574, Florida Statutes

(2016), 1/ on June 22, 2017. The Administrative Law Judge

previously assig ned to this case granted the motion and set the

hearing for July 31 and August 1, 2017.

On July 7, 2017 , this case was transferred to the

undersigned. The final hearing was subsequently rescheduled for

January 23, 2018.

Hendry Energy and the Department resolved by stipulation

the issues of fact and law related to the operating permit

recertification. The Department agrees that the temporarily

abandoned RCC 27 - 4 well can be recertified if the order of

recertification includes a specific condition requiri ng that the

well be permanently plugged and abandoned if not returned to

production via a new bottom - hole.

Hendry Energy is willing to accept recertification of the

RCC 27 - 4 operating permit with the specific condition requiring

the well be tested during r eentry to determine whether the well

is suitable for reuse and pressure tested before any production.

The stipulation to incorporate the specific condition into

the operating permit recertification satisfies the requirements

of Florida Administrative Cod e Chapters 62C - 26, 62C - 27, and

62C - 29, regarding operating permit recertification. Hendry

Energy and the Department do not contest the issuance of the

recertification permit for RCC 27 - 4 subject to the specific

condition .

Hendry Energy and the Departmen t also resolved by

stipulation the issues of fact and law related to whether the

nonroutine unit, as proposed in the drilling application, was

necessary to protect correlative rights. The Department

recognized that, at the time of the final hearing, Hendr y Energy

controlled over 90 percent of the mineral interests in the

proposed nonroutine unit, as compared to 52 percent at the time

the application was denied, thus satisfying any factual issues

regarding the protection of correlative rights.

Accordingly, the only issue in dispute concerns whether

Hendry Energy has demonstrated that the proposed nonroutine

drilling unit prevents waste as required by Florida

Administrative Code Rule 62C - 26.004(6).

The final hearing was held as scheduled on January 23,

2018. At the final hearin g, the undersigned accepted

Joint Exhibits 1 through 7 and Hendry EnergyÓs Exhibits 1

through 16 into evidence. Hendry Energy prese nted the

testimony of Cengiz Ha n cer, Michael Whitaker, and John Meyer.

Mr. Whitaker was proffered and accepted as an expert in

petroleum engineering . Mr. Meyer was proffered and accepted as

an expert in petroleum geology . The Department offered no

exhibits outside Joint Exhibits 1 through 7, and offered no

witness testimony.

The T ranscript of the fina l h earing was filed on

February 15, 2018. Via an Order i ssued on February 23, 2018,

the deadline for submitting proposed final orders was

subsequently extended to March 8, 2018.

Hendry Energy and the Department filed timely Proposed

Final Orders on March 8, 2018, and the aforementioned filings

were considered in the preparation of this Final Order.

On March 13, 2018, Hendry Energy filed a ÐResponse in

Opposition to RespondentÓs Proposed Final OrderÑ (Ðthe Response

in OppositionÑ). Through the aforementioned pleading, Hendry

Energy asserts that the Department raised one or more issues in

its Proposed Final Order that were not set forth as disputed

issues in the Joint Pre - hearing Stipulation.

The undersigned construes the Response in Opposition as a

Motion to Strike. After considering the Motion to Strike and

the substance of the DepartmentÓs Proposed Final Order, the

undersigned has elected to grant the Motion to Strike. As a

result, the undersigned will disregard any issues in the

DepartmentÓs Proposed Fin al Order that were not identified in

the Joint Pre - hearing Stipulation. See Palm Beach Polo

Holdings, Inc. v. Broward Marine, Inc. , 174 So. 3d 1037,

103 8 - 39 (Fla. 4 th DCA 2015)(stating that Ð[p]retrial

stipulations prescribing the issues on which a cas e is to be

tried are binding upon the parties and the court, and should be

strictly enforced.Ñ); Delgado v. Ag. for Health Care Admin. ,

2018 Fla. App. LEXIS 1012, at *10 (stating that Ðthe ALJ erred

in failing to give full force and effect to AHCAÓs agreem ent in

the Joint Pre - Hearing Stipulation that Appellants had the right

to contest the amount payable to AHCA pursuant to the formula

set forth in section 409.910(11)(f), by filing their petition

with DOAH under section 409.910(17)(b).Ñ). Also, the

undersi gned will not consider any issues that are encompassed

within any stipulations announced during the final hearing.

FINDINGS OF FACT

Parties

1. Hendry Energy is a Florida Limited Liability Company

organized under the laws of the State of Florida. At al l

relevant times, Hendry Energy could lawfully conduct business in

the State of Florida.

2. The Department is the state agency with the authority

under c hapter 377, part I, Florida Statutes , to issue permits

for the drilling for, exploring for, or product ion of oil, gas

or other petroleum products which are to be extracted from below

the surface of the land.

Background Regarding the Mid - Felda Oil Field

3. The Mid - Felda Field is an established oil field in

Hendry County , Florida, discovere d in 1977. The M id - Felda

Field generally exists within Sections 22, 23, 26, 27, 34,

and 35 of Township 45 South, Range 28 East . The Mid - Felda Field

includes three historically producing wells: RCC 27 - 4 (Permit

No. 904), Red Cattle #27 - 1 (Permit No. 983), and Turner # 26 - 3

(Permit No. 949).

4. The RCC 27 - 4 was originally drilled and completed in

1977; the Turner #26 - 3 (ÐTurner 26 - 3Ñ) was drilled and completed

in 1979 ; and the Red Cattle #27 - 1 (ÐRC 27 - 1Ñ) was drilled and

completed in 1979.

5. All three wells were ver tical completions, meaning that

the wellbore is vertical or nearly vertical from the surface -

hole to the bottom - hole location.

6. All three wells are located in routine drilling units.

Routine drilling units are based on the U.S. Government Surveyed

To wnship and Range system .

7. The RCC 27 - 4 routine unit consists of the southeast

quarter section of Section 27, Township 45 South, Range 28 East .

The Turner 26 - 3 routine unit consists of the southwest quarter

section of Section 26, To wnship 45 South, Rang e 28 East. The

RC C 27 - 1 routine unit consists of the northeast quarter section

of Section 27, Township 45 South, Range 28 East.

8. RCC 27 - 4 is located approximately in the center of the

southeast quarter section of Section 27. The true vertical

depth o f RCC 27 - 4 is approximately 11,686 f ee t.

9. Turner 26 - 3 is located approximately in the center of

the southwest quarter section of Section 26. The true vertical

depth of Turner 26 - 3 i s approximately 11,518 f ee t.

10. Between 1978 and 200 0, wells in the Mid - Felda Field

produced nearly 1,500,000 barrels of oil. The RC C 27 - 4 and

Turner 26 - 3 produced approximately 700,000 barrels each.

11. The RC C 27 - 1 and Turner 26 - 3 have been plugged and

abandoned. The RCC 27 - 4 has been temporarily abandoned with a

plu g installed.

Facts Regarding Geophysical and Geological Data Supporting the

Proposed New Bottom - Hole Location

12. In 2013, Hendry Energy began engaging in production

curve analysis of the existing wells in the Mid - Felda Field,

conducted subsurface geolog ical mapping of the Mid - Felda Field,

and performed a 3D seismic survey of the Mid - Felda Field.

13. Mr. Whitaker, a petroleum engineer, analyzed the

historic production of the Mid - Felda Field, specifically

production from the RCC 27 - 4 and the Turner 26 - 3 w ells.

This analysis was to determine whether there is additional

recoverable oil that can be exploited from the Mid - Felda Field.

14. Mr. Whitaker charted the field performance data as a

graph of the production rate over time and the cumulative

production versus the water to oil ratio. Using this analysis,

he was able to determine that economically recoverable oil

reserves likely remain in the Mid - Felda Field.

15. Petroleum geologist Barry Falkner analyzed the

subsurface geological data and developed reservoir maps for the

Lower Sunniland C reservoir in the Mid - Felda Field. These maps

depict the Top of Porosity, Average Permeability, and the Net

Oil Pay Isopach , collectively describing the reservoir quality.

16. Mr. Falkner also developed structural cross sections

of the underground structure, on a north - south and east - west

direction in the Mid - Felda Field.

17. A 3D seismic study was conducted and anal yzed by

Charles Morri son, a petroleum geophysicist.

18. The subsurface geological and geophysical seismic data

revealed a structural high point at approximately 11,340 feet to

11,400 feet below ground level located on the section line

between the southwest quarter of Section 26 (i.e., the routine

drilling unit for the Turner 26 - 3 well, which was a pro ducer)

and the southeast quarter of Section 27 (i.e., the routine

drilling unit for the RCC 27 - 4 well, which was a producer) .

19. RCC 27 - 4 and Turner 26 - 3 were drilled to depths of

11,686 feet and 11,518 feet respectively. These completion

depths are bot h below the identified structural high point.

20. As oil is produced, th e water level in and around

the well rises resulting in more water being produced and an

increasing water - to - oil ratio. This phenomenon occurred in both

RCC 27 - 4 and Turner 26 - 3 wi th the result that these wells are no

longer economically productive. Accordingly, these two wells

cannot extract oil reserves that may be present in the structure

above their completion depths.

21. A high point in the reservoir structure indicates a

location where the presence of oil is likely. The geological

and geophysical data indicate that the identified high point and

point of thickness in the Sunniland C structure is a Ðclosed

contour , Ñ which also indicates a trap of oil in the reservoir.

The oil located at the top of a reservoir structure and above

the completion depths of adjacent wells is also known as Ðattic

oil.Ñ Furthermore, a review of the subsurface geological data

revealed a point of thickness in the reservoir structure as

depicted on the map of the seismic data presented with net pay

isopach for the Sunniland C structure.

22. With the combined analysis of the field performance,

the geophysical seismic interpretations, and the geological

data, Hendry Energy identified the location of an optimal point

in the subsurface structure from which Hendry Energy believes it

can produce the most oil economically. This optimal point is

located on the section line betw een the south halves of

Section 26 and Section 27, between the existing RCC 27 - 4 and

Turner 26 - 3 wells.

Proposal to Reenter and Redrill Existing RCC 27 - 4 and Establish

New Nonroutine Unit

23. Based on the optimal extraction point identified

through Hendry EnergyÓs geophysical and geological analysis of

the Mid - Felda Field, Hendry E nergy proposed to establish a new,

nonroutine unit (consisting of the eastern half of the southeast

quarter of Section 27 and the western half of the southwest

quarter of Section 26), reenter the existing RCC 27 - 4 well, and

drill a new horizontal well to t he identifi ed target bottom - hole

location.

24. Mr. Hancer, director of Hendry Petroleum, the parent

company to Hendry Energy, testified that Ð[a]s a result of the

studies that [Hendry Energy] conducted, the 3D seismic survey

and the subsurface mapping a nd the production curve analysis, we

discovered a structure that straddles the section lines between

Sections 27 and 26, and we requested the establishment of a new

drilling unit in order to be able to drill to that optimal

bottom - hole location. And this application [Joint Exhibit 2] is

a request for approval of that well.Ñ

25. The optimal target bottom - hole location cannot be

reached by a routine, or statutory, drilling unit because of the

setback requirements from section lines applicable to the

bottom - hole location in routine units. See Fla. Admin. Code R.

62C - 26.004(4)(a). However, establishing a nonroutine unit would

allow Hendry Energy to access the target bottom - hole location.

26. The proposed nonroutine unit is necessary to produce

the Ðattic o ilÑ that may exist at the proposed bottom - hole

location. The identified optimal bottom - hole location is

located approximately at the center of the proposed nonroutine

unit, as required by section 377.25(3).

Facts Regarding the Need to Horizontally Comple te a New Bore to

Access the Remaining Reserves from the Subsurface Structur e

27. To recover the remainin g attic oil, Hendry Energy

must hit a bottom - hole location at the top of the identified

structure. A horizontal entry and a lateral completion of

the well are required to economically drain the remaining attic

oil reserves identified at this location in the Mid - Felda Field.

28. The surface - hole location of the existing RCC 27 - 4

well is the optimal surface entry point to achieve a horizontal

and lat eral completion in the target bottom - hole location.

29. Mr. Whitaker testified that Ð27 - 4 offers several

different advantages, and we looked at this real closely,

because, again, weÓre all into Î part of the exploitation effort

is efficiency and that mea ns capital efficiency and recovery

efficiency. . . . And when you look at the geometry of where

the wells sit and with the desired completion method, with the

entry angle and then the lateral, 27 - 4 became the optimal

point.Ñ

Facts Regarding t he Drilling Application

30. On April 12, 2016 , Hendry Energy submitted an

application for a permit to establish a new, nonroutine unit a nd

drill a new horizontal well in the Mid - Felda Field in Hendry

County, Florida ( File No. 0904AH; PA No. 304674).

31. By stipul ation, except for the issue of preventing

waste, the p arties agree that Hendry EnergyÓs Oil and Gas

Drilling Permit Application sa tisfies the criteria of

c hapter 377 and c hapters 62C - 26 through 62C - 30, with regards to

drilling a new oil well.

Facts Regard ing the Establishment of a Nonroutine Unit and the

Prevention of Waste

32. Rule 62C - 26.004(6) provides: Ð The Department may

grant drilling permits within shorter distances to adjacent

drilling unit boundaries or on different drilling units than

those pr escribed in this rule whenever the Department determines

that such steps are necessary to protect correlative rights or

to prevent waste. Ñ

33. The terms ÐwasteÑ and Ðphysical wasteÑ are statutorily

defined as:

a . The inefficient, excessive, or improper

u se or dissipation of reservoir energy;

and the locating, spacing, drilling,

equipping, operating, or producing of any

oil or gas well or wells in a manner that

results, or tends to result, in reducing

the quantity of oil or gas ultimately to

be stored or r ecovered from any pool in

this state.

b. The inefficient storing of oil; and the

locating, spacing, drilling, equipping,

operating, or producing of any oil or gas

well or wells in a manner that causes, or

tends to cause, unnecessary or excessive

surface l oss or destruction of oil or

gas.

c. The producing of oil or gas in a manner

that causes unnecessary water channeling

or coning.

d. The operation of any oil well or wells

with an inefficient gas - oil ratio.

e. The drowning with water of any stratum or

pa rt thereof capable of producing oil or

gas.

f. The underground waste, however caused and

whether or not defined.

g. The creation of unnecessary fire hazards.

h. The escape into the open air, from a well

producing both oil and gas, of gas in

excess of the amount that is necessary in

the efficient drilling or operation of

the well.

i. The use of gas for the manufacture of

carbon black.

j. Permitting gas produced from a gas well

to escape into the air.

k. The abuse of the correlative rights and

opportunities of each owner of oil and

gas in a common reservoir due to

nonuniform, disproportionate, and

unratable withdrawals, causing undue

drainage between tracts of land.

§ 377.19(31) , Fla . Stat.

34. The paragraphs of the definition specifically at issue

were pa ragraphs (b), (f), and (k).

35. Hendry Energy performed extensive geophysical and

geological due diligence in the Mid - Felda Field to identify and

assess the likelihood of finding producible quantities of oil in

the field. As a result, Hendry Energy iden tified an optimal

location in the subsurface structure of the Mid - Felda Field for

exploiting oil reserves remaining in the field. This optimal

target straddles the Section 26 and 27, Township 45 South, Range

28 East, section lines.

36. Hendry EnergyÓs oi l and gas drilling application

proposes the establishment of a nonroutine drilling unit,

consisting of 160 acres straddling Section 26 and 27.

37. This proposed drilling unit consists of portions of

two existing routine drilling units and wells, the RCC 27 - 4 and

the Turner 26 - 3. Both wells previously produced oil in economic

quantities until they were no longer economically viable.

38. Hendry EnergyÓs application locates the nonroutine

unit and the proposed bottom - hole at the optimal location for

extr acting any remaining oil. This is verified by the

geophysical and geological analysis conducted.

39. This target bottom - hole cannot be accessed from a

routine drilling unit. As stated by Michael Whitaker, Hendry

EnergyÓs expert in petroleum engineering , Ð[T]he statutory units

as they exist today, even if we wanted to reactivate them, just

physically donÓt permit us to reach the target.Ñ

40. The drilling permit application proposes using

existing surface infrastructure of the RCC 27 - 4 well. Using the

e xisting su rface - hole location and surface infrastructure of the

RCC 27 - 4 well is the most efficient manner of draining the

remaining reserves. The existing RCC 27 - 4 surface - hole is in

the optimal location and provides the proper geometry for a

lateral com pletion in the target bottom - hole.

41. Not allowing the target bottom - hole location or

attempting to drain the target point from another surface

location would reduce the quantity of oil ultimately recovered

and leave underground waste.

42. Specifical ly, failure to authorize the permit for the

well as proposed by Hendry Energy will prevent recovering the

oil and thus leaving the oil underground without benefit to

Hendry Energy or the mineral owners and other stakeholders.

43. Mr. Hancer testified tha t a horizontal completion of

the well allows the operator to more efficiently reach and drain

oil from the underground structure. This increases the ultimate

recovery and minimizes underground waste.

44. Increased recovery equates to increased royalty

p ayments.

45. The remaining reserves are contained in an area that

lies across the section lines of Section 26 and 27. The

proposed nonroutine unit also lies across the section lines of

Section 26 and 27. This proposed unit allows for a

proportionate pr oduction of oil and therefore protects

correlative rights.

46. The proposed horiz ontal completion penetrates

the structure in a way that encompasses portio ns of both

Section 26 and 27, and therefore implicates the mineral owners

in both sections. The pr oposed well will be draining the

minerals of both parties, and thus paying royalties to both

parties, creating a fair and equitable arrangement.

47. Over 90 percent of the mineral rights in the proposed

unit have been leased to Hendry Energy, evidencing the mineral

owners Ó desire to drain the reserves in the nonroutine unit.

48. The greater weight of evidence supports that the

nonroutine unit is necessary to prevent waste.

CONCLUSIONS OF LAW

Jurisdiction

49. DOAH has jurisdiction over the parties to a nd the

subject matter of this proceeding pursuant to sections 120.569

and 120.57( 1 ), Florida Statutes.

50. The Department is a uthorized under c hapter 377,

part I, to issue permits for drilling, exploring, or producing

oil, gas or other petroleum products , which are to be extracted

from below the surface of the land.

51. The Department's authority includes adopt ing rules

and enter ing orders necessa ry to implement and enforce the

provisions of c hapter 377 . § 377.22, Fla . Stat. In particular,

the Departm en t has been given authority to regulate the drillin g

for oil and gas in Florida v ia sections 377.22(2)(a) through

(y ). Pursuant to this authority, the Department has promulgated

c hapters 62C - 25 through 62C - 30.

Standing

52. As the applicant for the permit s at issue,

Hendry Energy has standing to challenge the denial of its

a pplication s , and is a ÐpartyÑ by operation of law because it

is the specifically named person whose substantial interests are

being determined by the Department's denial of the permit.

§ 120.52(13)(a), Fla. Stat.; Ft. Myers Real Estate Holdings, LLC

v. DepÓt of Bus. & ProfÓl Reg. , 53 So. 3d 1158, 1162 (Fla. 1st

DCA 2011;) W. Frank Wells Nursing Home v. Ag. for Health Care

Admin. , 27 So. 3d 73, 74 (Fla. 1st DCA 2009); Maverick Media

Grp. , Inc. v. Dep't of Transp. , 791 So. 2d 491, 492 (Fla. 1st

DCA 2001).

Burden o f Proof

53. As the party seeking to demonstrate entitlement to

the permit s , Hendry Energy be ars the burden of proving, by

a preponderance of the evidence, that it satisfied all o f

the requirements for issuance of the operating permit

recertification and the Oil and Gas Drilling Permit, and was

entitled to receive the permit s . § 120.57(1)(j), Fla. Stat.;

Dep't of Banking & Fin., Div. of Sec. & Inv . Prot. v. Osborne

Stern & Co. , 67 0 So. 2d 932, 934 (Fla. 1996); Fla. Dep't of

Transp. v. J.W.C. Co. , 396 So. 2d 778, 788 (Fla. 1st DCA 1981).

Nature of the Proceeding

54. This is a de novo proceeding, intended to formulate

final agency action and not to review action taken earlier an d

preliminarily. Young v. DepÓt of Cmty. Aff. , 625 So. 2d 831,

833 (Fla. 1993); Hamilton Cnty. Bd. of Cnty. Comm'rs v. Dep't of

Envtl. Reg. , 587 So. 2d 1378, 1387 (Fla. 1st DCA 1991); McDonald

v. DepÓt of Banking & Fin. , 346 So. 2d 569, 584 (Fla. 1st DCA

1977).

55. The only issue in dispute is whether the oil and gas

drilling permit application should be approved based on the

criteria of r ule 62C - 26.004(6).

56. The parties stipulated that the RCC 27 - 4 operating

permit may be recertified with the addition of a specific

condition requiring that the well be permanently plugged and

abandoned , if not returned to p roduction via a new bottom - hole .

57. Hendry Energy and the Department resolved all factual

and legal disputes regarding the operating permit

recerti fication in a manner consistent with the DepartmentÓs

rules.

58. The Department has the statutory authority to

establish or approve drilling units for oil and gas wells, which

can be standardized or customized for a specific pool of oil or

natural gas. Section 377.25(2) provides that :

[f]or the prevention of waste and to avoid

the augmenting and accumulation of risks

arising from the drilling of an excessive

number of wells, t he board shall establish

a drilling unit or units for each pool.

A drilling un it, as contemplated herein,

means the maximum area in a pool which may

be efficiently and economically drained by

one well, and such unit shall constitute a

developed area as long as a well is located

thereon which is capable of producing oil or

gas in pay ing quantities.

59. Additionally, section 377.25(3) provides:

Each well p ermitted to be drilled upon

any drilling unit shall be drilled

approximately in the cent er thereof,

which such exception as may be reasonably

necessary where the division finds tha t the

unit is partly outside the pool or, for some

other reason, a well approximately in the

center of the unit would be nonproductive or

where topographical conditions are such as

to make the drilling approximately in the

center of the unit unduly burdens ome . . . .

Wherever an exception is granted, the

division shall take such action as will

offset any advantage which the person

securing the exception may have over other

producers by reason of the drilling of the

well as an exception, and so that drainag e

from developed units to the tract, wi t h

respect to which the exception is granted,

will be prevented or minimized, and the

producer of the well drilled, as an

exception, will be allowed to produce no

more than his or her just and equitable

share of the o il and gas in the pool, as

such share is set forth in this section.

60. ÐThe Department may grant drilling permits within

shorter distances to adjacent drilling unit boundaries or on

different drilling units than those prescribed in this rule

whenever th e Department determines that such steps are necessary

to protect correlative rights or to prevent waste.Ñ Fla. Admin.

Code R. 62C - 26.004(6).

61. ÐThe Department shall determine whether the

non routine well or unit is necessary to prev ent waste as

defined in Section 377.19(10), F.S., or to pro tect correlative

rights, and shall grant, deny or condition the permit on that

basis.Ñ Fla. Admin. Code R. 62C - 26.004(6)(b).

62. The applicant must prove, by a preponderance of the

evidence , that a nonroutine unit is necessary to protect

correlative rights or prevent waste.

63. It is undisputed that Hendry Energy satisfied the

applicable statutory requirements for oil and gas permitting in

c hapter 377, part I . It is also undisputed that Hendry Energy

satisfied all a pplicable rule criteria for oil and gas

permitting set forth in chapters 62C - 25 through 62C - 30, except

as to the issue of preventing waste.

64. The p arties resolved all factual and legal disputes

regarding the issue of correlative rights.

65. Therefore as stipulated and by the greater weight of

the evidence, the proposed nonroutine unit is necessary to

protect correlative rights.

66. The only disputed issue is whether the proposed

nonroutine unit is necessary to prevent waste as required by

r ule 62C - 26. 004(6).

67. Hendry Energy provided data and analysis demonstrating

the use of the existing RCC 27 - 4 surface - hole and well bore will

avoid the drilling of unnecessary wells and otherwise prevent

waste.

68. Hendry Energy provided data and analysis demons trating

the proposed bottom - hole location in the nonroutine unit is

likely to increase the ultimate recovery of oil and otherwise

prevent waste.

69. As discussed above, t he proposed nonroutine unit

and horizontal well will effectively and efficiently extr act

remaining reserves; will increase the amount of oil ultimately

recovered; will decrease the amount of underground waste; and

will provide a fair and equitable distribution to mineral

owners. The greater weight of the evidence demonstrates that

the pro posed nonroutine unit and drilling plan are necessary to

prevent waste.

70. The preponderance of the evidence demonstrates that

the proposed nonroutine unit is necessary to prevent waste.

This case establishes no reasonable basis in fact or in law to

den y the drilling application.

ORDER

Based on the foregoing Findings of Fact and Conclusions of

Law, it is ORDERED that:

1. Hendry Energy Serv ices, LLC , is hereby granted

the operating permit recertification, consistent with its

applica tion and this O rder, for the Red Cattle Co. #27 - 4 well,

Permit No. 904, with the condition(s) agreed upon and stipulated

by Hendry Energy and the Department herein. Specifically, the

temporarily abandoned RCC 27 - 4 well shall be permanently plugged

and abandoned , if not return ed to production via a new bottom -

hole. Also, the RCC 27 - 4 well shall be tested during reentry to

determine whether the well is suitable for reuse and pressure

tested before any production .

2. Hendry Energy Services, LLC, consistent with its

applicati on and this O rder, is hereby granted the oil and gas

drilling permit and establishment of a nonrou tine unit,

Permit No. OG 904AH.

DONE AND ORDERED this 10 th day of April , 2018 , in

Tallahassee, Leon County, Florida.

S

G. W. CHISENHALL

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 10 th day of April, 2018 .

ENDNOTE

1/ Unless stated otherwise, all statutory references are to the

2017 version of the Florida Statutes.

COPIES FURNISHED:

Richard S. Brightman, Esquire

Hopping, Green and Sams

Post Off ice Box 6526

Tallahassee, Florida 32314

(eServed)

Sean Timothy Desmond, Esquire

Department of Environmental Protection

Mail Station 35

3900 Commonwealth Boulevard

Tallahassee, Florida 32399

(eServed)

Timothy Michael Riley, Esquire

Hopping, Green an d Sams, P.A.

Suite 300

119 South Monroe Street

Tallahassee, Florida 32301

(eServed)

Robert C. Volpe, Esquire

Hopping, Green and Sams, P.A.

Post Office Box 6526

Tallahassee, Florida 32314

(eServed)

Lea Crandall, Agency Clerk

Department of Environmental Protection

Douglas Building, Mail Station 35

3900 Commonwealth Boulevard

Tallahassee, Florida 32399 - 3000

(eServed)

Robert A. Williams, General Counsel

Department of Environmental Protection

Legal Department, Suite 1051 - J

Douglas Building, Mail Station 3 5

3900 Commonwealth Boulevard

Tallahassee, Florida 32399 - 3000

(eServed)

Noah Valenstein, Secretary

Department of Environmental Protection

Douglas Building

3900 Commonwealth Boulevard

Tallahassee, Florida 32399 - 3000

(eServed)

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are comm enced by

filing the original notice of administrative appeal with the

agency clerk of the Division of Administrative Hearings within

30 days of rendition of the order to be reviewed, and a copy of

the notice, accompanied by any filing fees prescribed by la w,

with the clerk of the District Court of Appeal in the appellate

district where the agency maintains its headquarters or where a

party resides or as otherwise provided by law.