Monday, February 11, 2013

Case No. 18618 RESPONSE OF HESS CORPORATION TO JEPSON PETITION FOR SUSPENSION, RECONSIDERATION AND REHEARING


BEFORE THE INDUSTRIAL COMMISSION
OF THE STATE OF NORTH DAKOTA
In the matter of the application of Hess )
Corporation for an order amending the )
applicable orders for the Little Knife - )
Bakken pool to authorize up to 8 horizontal )
wells to be drilled on four 1280-acre spacing )
units described as all of Sections 25 and 36, )
T. 146 N., R. 97 W. and all of Sections 14 )
and 23 and Sections 15 and 22, T. 147 N., R. )
97 W., and all of Sections 27 and 34, T. 148 )
N., R. 97 W., Dunn County, ND, and )
granting such other and further relief as may )
be appropriate. )
Case No. 18618
RESPONSE OF HESS
CORPORATION TO JEPSON
PETITION FOR SUSPENSION,
RECONSIDERATION AND
REHEARING
By application dated August 24, 2012, Hess Corporation ("Hess") requested that the
Commission authorize up to 8 horizontal wells to be drilled on each of four spacing units in the
Little Knife-Bakken pool on which then-current orders of the Commission authorized up to four
horizontal wells to be drilled. In accordance with the policies of the Commission, Hess
submitted affidavits and exhibits supporting its request for additional wells and the affidavits and
exhibits were received in the record without objection. However, Loren Jepson ("Jepson"), who
owns an interest in the surface of Section 1, Township 145 North, Range 97 West, directly south
of the spacing unit described as all of Sections 25 and 36, Township 146 North, Range 97 West,
filed a written objection and appeared at the hearing on October 24, 2012 and objected to the
request for authorization of additional wells that would have surface locations on the south end
of Section 36. Other individuals submitted comments by email prior to the hearing date. A
hearing was had on October 24, 2012 and the record was reopened on November 21, 2012 to
receive additional information on the schedule for site construction and the existence of any
known archeological sites. The Commission also included certain public documents in the
record in accordance with Section 28-32-25, N.D.C.C. The record of the case was closed on
January 7, 2013.
On January 24, 2013, the Commission at a scheduled meeting considered the approval of
an order in this case. There was considerable publicity about the scheduled meeting and to
afford the public and all interested parties an opportunity to attend the meeting, the meeting was
held in the Brynhild Haugland Room of the State Capitol. The Commission generously allowed
Jepson and a number of other members of the public, including those who had not previously
appeared in the case, an extended opportunity to comment. The record was not re-opened and
neither Jepson, nor any of the other individuals who offered comments on January 24 were
sworn and their comments do not constitute part of the record in this case. Later that day, the
Commission approved Order No. 20920, which authorized the infill wells requested by Hess but
imposed substantial safeguards and restrictions on drilling operations that are intended to address
the concerns of Jepson and others, including those who timely entered appearances in the case
and those who did not do so.
Jepson now seeks a suspension of Order No. 20920, reconsideration of Case No. 18618,
and a rehearing to allow the submission of additional evidence. Jepson's request is not supported
by the law or the facts and Hess in all things opposes the request.
1. Statutory Authority and Procedures. As authority for his petition, Jepson cites
N.D.C.C. §38-08-13 and N.D.A.C. §43-02-02-41. N.D.A.C. §43-02-02-41 relates to the
regulation of "subsurface minerals" such as volcanic ash, precious minerals, and carbonates.
§38-12-01(7), N.D.C.C. The rule addressing rehearing of oil and gas matters was repealed in
1992 and petitions for reconsideration or rehearing on oil and gas matters are governed by §§38-
08-13 and 28-32-50, N.D.C.C. Section 28-32-40, N.D.C.C., provides in part that a party seeking
reconsideration must "submit with the petition for reconsideration a statement of the specific
grounds upon which relief is requested or a statement of any further showing to be made in the
proceeding." There is no statutory authority, and no administrative rule, which authorizes the
"suspension" of an order while a petition for reconsideration or rehearing is considered. In fact,
it has long been held that the Commission has no authority to suspend an order pending
rehearing or to require the filing of a bond in such circumstances. Thomas Producing Company
v. Pan American Petroleum Corp., 229 F. Supp. 433, 435 (D.N.D.1964). Upon filing an appeal
to the District Court, an appellant may request a suspension of the order, but if the Commission
suspends the order, the Commission must fix the amount of a supersedeas bond running in favor
of the Commission for the use of any person who may suffer damage by reason of the suspension
of the order, and the order is only suspended upon filing the bond. §38-08-14(2), N.D.C.C.
The Industrial Commission is an administrative agency and its actions in deciding matters
presented to it are subject to Chapter 28-32, N.D.C.C., the "North Dakota Administrative
Agencies Practice Act." As such, the Commission is required to "make and state concisely and
explicitly its findings of fact and its separate conclusions of law and the order of the agency
based upon its findings and conclusions." §28-32-39 (1), N.D.C.C. Pursuant to §28-32-24,
N.D.C.C., the findings must be based upon evidence submitted in accordance with the Rules of
Evidence, as supplemented in accordance with §28-32-25, N.D.C.C. On appeal, orders of the
Commission are to be sustained "if the commission has regularly pursued its authority and its
findings and conclusions are sustained by the law and by substantial and credible evidence."
The Commission is authorized to appoint examiners, who have the power and duty to conduct
hearings and to prepare a report and recommendation for the disposition of the matter, which
report may be in the form of a proposed order. §§43-02-03-93, 43-02-03-95, and 43-02-03-98,
N.D.A.C. Petitions for review of a recommended order and oral arguments following the
issuance of a recommended order and pending issuance of a final order are expressly prohibited.
§43-02-03-90.3.
Against this statutory and regulatory backdrop, the Commission, through a duly
appointed examiner, conducted a hearing on October 24, 2012. Following the hearing, the
Commission received additional evidence in accordance with its statutory authority. On January
24, 2013, the examiner presented his report and recommended order in the form of a proposed
order to the Commission. Despite the prohibition against oral argument on a recommended
order, and in probable recognition of the substantial publicity this case has received, the
Commission patiently and admirably allowed Jepson, Jepson's attorney and a number of other
members of the public to make public comment at the January 24 meeting. The Commission
also allowed the Director of the Department of Mineral Resources, Lynn Helms, who was also
the examiner, to respond to the public comments and to explain his recommended order. The
Commission approved the recommended order, subject to an understanding with respect to the
need to minimize flaring.
2. Jepson's Basis for Rehearing or Reconsideration.
Jepson's primary objection regarding Order No. 20920 is that Mr. Helms, in presenting
his recommended order to the Commission, utilized an illustrative aid which set forth a number
of alternatives (the "Summary of Alternatives") that Mr. Helms considered in arriving at his
recommended order. Jepson asserts that the Summary of Alternatives should have been
transmitted to the parties of record in advance pursuant to Section 28-32-25. He argues that
some of the statements are "untrue" and "prejudiced." He complains that that Mr. Helms
incorrectly stated in the Summary of Alternatives that Section 36 is "approximately five miles
from Killdeer Mountain" instead of "within the Killdeer Mountain Range" and that he identified
a "rural residential subdivision" without stating the number of structures contained in Section 26.
He disputes Mr. Helms' estimation of how much of Section 36 is within the Killdeer Battlefield
study area even though Mr. Helms clearly displayed the plat with the depiction of the study area
to the Commission. He argues that Mr. Helms statement that no further development would
"leave more than three million barrels of oil stranded" is "inscrutable and impenetrable."
Initially, Hess disagrees with Jepson's characterizations. The record established at the
hearing and supplemented after notice to Jepson supports that Section 36 is located "in the
foothills to the southwest of Killdeer Mountain." See, for example, OGD SA, page 2, paragraph
2. A portion of Section 36 (as well as the portion of Section 1 on which Jepson and his family
reside) is located in the "Killdeer Mountain Battlefield Study Area" but is several miles from the
"Killdeer Mountain Battlefield Core Area" (OGD 1) and 2.8 miles from the Historic Marker for
the Battlefield (OGD SA). Section 26 does indeed include a residential subdivision and two
residences. The record does indeed establish that each additional well in this spacing unit is
expected to recover 433,000 barrels of oil and 7 (the difference between the eight requested wells
and the one existing well) times 433,000 barrels is 3,031,000 barrels. Hess Exhibit 6.
More importantly, however, while critical of the presentation Mr. Helms made to the
Commission in support of the recommended order, Jepson identifies no deficiencies in Order No.
20920 and identifies no "specific grounds" or "further showing to be made" that is material - or
that would make any difference in the outcome. The Summary of Alternatives is not part of the
evidentiary record in this case and is not cited in the order as support for any finding of fact.
Resolving whether Section 36 is "five miles from Killdeer Mountain" as stated by Mr. Helms or
"within the Killdeer Mountain Range" as urged by Jepson or "in the foothills to the southwest of
Killdeer Mountain" as described in OGD SA will not impact the outcome of this case.
Determining how many residential and commercial structures are located in Section 26 ("rural
residential subdivision, plus two additional residences" as stated by Mr. Helms or "two ...
residential structures and one ... commercial structure" as asserted by Jepson) will not impact the
outcome of this case.
Order No. 20920 is supported by findings and conclusions that are sustained by the law
and by substantial and credible evidence. In entering Order No. 20920, Mr. Helms, as examiner,
and the Commission, regularly pursued their respective authority. There is no basis in law
allowing, and Jepson has presented no cogent argument supporting, a suspension of Order No.
20920. He has not identified any grounds or further showing that will make any difference if a
rehearing or reconsideration is granted.
Hess recognizes that this case presents complex and difficult issues for the Commission
to resolve. The Commission must balance the interests of Hess as a lessee and its mineral
owners, including the State Department of Trust Lands, in realizing the economic benefits
against the legitimate concerns of Jepson and others who see their way of life impacted by oil
and gas development. In Order No. 20920, the Commission struck an appropriate compromise.
Order No. 20920 allows the oil and gas interests to be developed, which will provide substantial
benefits to the State of North Dakota through severance taxes and royalties to the Common
Schools Trust Fund, with appropriate restrictions to promote safety and preserve cultural and
other resources. Hess is committed to complying fully with the requirements of the Commission
and the State Department of Trust Lands.
For the foregoing reasons, Hess respectfully requests that Jepson's petition be denied.
Dated this 11th day of February, 2013.
HESS CORPORA nON
CROWLEY FLECK PLLP
Attorneys for the Applicant
Suite 600, 400 East Broadway
P.O. Box 2798
Bismarck. D 58502
By: John W. Morrison

CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing document was on the 11th day of February,
2013, mailed and electronically mailed to the following:
Thomas A. Gehrz
Mackoff, Kellogg, Kirby & Kloster, p.e.
38 2nd Avenue East
Dickinson, ND 58601

JOHN W. MORRlSON