OCAPL 2011 Shale Reservoir Development Act Multi-Unit Horizontal Wells in Oklahoma March 7, 2016

Woodford Horizontal Wells June 30, 2005

Woodford Horizontal Well June 30, 2011

Largest Spacing Unit 640 acres spacing unit is not big enough 640 acre spacing unit 18 NYSE: DVN www.devonenergy.com

1280 Acre Spacing Legislation Technology to drill 10,000’ 18 10,000’ Lateral 2008 Newfield 2009 Continental 19 330’ 165’

1280 Acre Spacing Mineral Owners Objection 3,500’ Lateral 18 19 330’ 165’

1280 Acre Spacing Mineral Owners Objection 3,500’ Lateral 18 19 330’ 165’

Multiunit Drilling Sections 18 & 19-3N-11E Coal County

Multiunit Drilling Sections 18 & 19-3N-11E Coal County

Short Lateral in Section 19 18 19 Fault Mississippian Mississippian Woodford Woodford Hunton Hunton

Multiunit Drilling – Stranded Reserves Sections 18 & 19-3N-11E Coal County

Multiunit Drilling First Mutiunit well spud 10/31/2010

Single Well 73% of Drilling Cost 1 Section 5,280’ NYSE: DVN www.devonenergy.com

Two Single Wells 2 x Drilling Cost 73% of Drilling Cost 73% of Drilling Cost 2 Sections 10,560’ NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well 1.3 x Drilling Cost 63% of Drilling Cost 2 Sections 10,560’ NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well Additional Reserves 2 Sections 10,560’ NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well Off Unit Surface Location NYSE: DVN www.devonenergy.com

House Bill 1909 In August 2010, Commissioner Murphy assembled a group of stakeholders to come up with a solution to fully develop the Shale Reservoirs. The group found that the OCC was constrained in its ability to adequately protect the correlative rights, prevent of waste and promote the full development of these Oklahoma resources because of the limitations placed upon it by the existing statutory scheme. Advances in horizontal drilling techniques for wells drilled and completed in shale reservoirs (i.e., Woodford) advanced beyond the historical statutory spacing scheme, in particular with laterals exceeding 5,280 feet in length. Beginning in August 2010, the working group met eight (8) times, usually for three (3) hours per meeting, with the participants collectively investing hundreds of hours in discussing, drafting and re-drafting the Act.

2011 Shale Reservoir Development Act House Bill 1909 – April 13, 2011

2011 Shale Reservoir Development Act The Act is not the same 1,280-acre drilling and spacing unit bills that royalty owners have opposed in prior years. The Act is a comprehensive piece of legislation to promote development of shale reservoirs and is limited to shale reservoirs. Aid in preventing waste and protecting the correlative rights of the owners of oil and gas rights. Harmonize Oklahoma’s historical oil and gas law with the expanding technology of drilling and completing horizontal wells in shale reservoirs, including the use of horizontal laterals of over one mile long.

2011 Shale Reservoir Development Act Mineral Owner Organizations supported the Act Coalition of Oklahoma Surface and Mineral Owners (COSMO) OK-NARO (National Association of Royalty Owners) Oklahoma Mineral Owners Association (OMOA) Farmers Royalty Company (one of Oklahoma’s oldest, largest and most active royalty companies) The Act creates two new tools for the development of the Shale Reservoir Multiunit Horizontal Wells (similar to Arkansas approach) A new hybrid Unitization (similar to enhanced or secondary recovery units)

2011 Shale Reservoir Development Act Allows drilling of horizontal wells in shale reservoirs across existing unit boundaries (i.e., across two or more existing 640-acre units). These wells are called “multiunit horizontal wells.” The drilling & production costs, the oil and gas production and the sales proceeds will be allocated to each of the affected units in a manner to protect the correlative rights of parties in each unit. The default allocation is a proration between the units based upon the feet of perforations in each of the units.

2011 Shale Reservoir Development Act The portion of the completed horizontal lateral in each unit will be treated as a separate well for that unit. The application and notice of hearing must be served on all owners who have a right to share in proceeds from the affected units.

2011 Shale Reservoir Development Act Definitions Shale Reservoir – a common source of supply which is a shale formation that is so designated by the Oklahoma Corporation Commission through rule or order and shall include any associated common source of supply. Associated Common Source of Supply – a common source of supply which is immediately adjoining the shale common source of supply which is inadvertently encountered in the drilling of the lateral of a multiunit horizontal well.

Multiunit Horizontal Well Associated Common Source of Supply 18 19 Mississippi Woodford Hunton

2011 Shale Reservoir Development Act Pooling Pooling – The Commission may require the owners to pool their interests in each affected unit as to the development involving the multiunit horizontal well. Prior Pooling – If the Commission has previously pooled the interest of owners in an affected unit in which a multiunit horizontal well is proposed, the Commission may amend the pooling order to the extent necessary to have the pooling order cover the development involving the multiunit horizontal well.

2011 Shale Reservoir Development Act Definitions Allocation Factor – the percentage of costs, production or proceeds allocated to a unit affected by a multiunit horizontal well. The allocation factor for each affected unit shall be determined by dividing the length of the completion interval located within the affected unit by the entire length of the completion interval in the subject multiunit horizontal well.

Allocation Factor #1 #2 5,000’ / 9,000’ 55.56% 5,000’ / 8,000’ 62.50% 18 5,000’ Fault 3,000’ 4,000’ 4,000’ / 9,000’ 44.44% 19 3,000’ / 8,000’ 37.50%

Multiunit Horizontal Well Well Proposal Location of the well in both sections. Proposed depth. Proposed number feet of perforated lateral in each section. Options in lieu of participation. AFE NYSE: DVN www.devonenergy.com

Multiunit Spacing Filed separate for each section Space 640 acres 28 Space 640 acres 33 330’ 165’

Multiunit Pooling Filed separate for each section Pool 640 acres 28 Pool 640 acres 33 330’ 165’

Multiunit Location Exception Filed separate for each section No closer than 150’ FNL No closer than 0’ FSL 28 No closer than 0’ FNL 33 330’ No closer than 150’ FSL 165’

Multiunit Horizontal Well Application NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well Application Applicant anticipates that approximately 50% of the completion interval of such multiunit horizontal well will be located in Section 28 and approximately 50% of such completion interval will be located in Section 33, with the cost of an the production and proceeds from such multiunit horizontal to be allocated between the affected units. NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well Application Participants pay drilling and completion costs based upon the proposed allocation. After well is drilled the allocation is adjusted based upon the actual number of perforated lateral in each section. NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well Final Order NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well Perforations NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well Allocation NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well Allocation 49.376% 50.624% 2 Sections 10,560’ NYSE: DVN www.devonenergy.com

5,000’ Lateral vs. 10,000’ Lateral 5,000’ Lateral Well 12,000’ Vertical - $2,500,000 5,000’ Horizontal - $1,000,000 5,000’ Completion - $3,500,000 __________ $7,000,000 10,000’ Lateral Well 12,000’ Vertical - $2,500,000 5,000’ Horizontal - $1,000,000 5,000’ Horizontal - $500,000 10,000’Completion - $5,500,000 __________ $9,500,000

Jacobs / Annalou Single vs Multi-Unit Economics 2 Single Units CAPEX = $14,000,000 F&D = 7.15 $/BOE ROR = 15% NPV = $1,459,000 1 Multi-Unit CAPEX = $9,200,000 F&D Cost = 5.21 $/BOE ROR = 28% NPV = $4,232,000 NYSE: DVN www.devonenergy.com

Multiunit Horizontal Well Applications From April 2011 to February 2016 thirty nine operators have filed 912 Multiunit applications. NYSE: DVN www.devonenergy.com

Newfield’s 27 Section Unitization Filed 2009 – Denied 2011

2011 Shale Reservoir Development Act Horizontal Well Unitization for Shale Reservoirs Is a hybrid concept between a drilling and spacing unit and a unitization (secondary recovery). Each unit shall be two governmental sections. 1280 acre unitization OCC may expand to four sections if necessary to prevent waste, to protect correlative rights and will result in increased recovery of substantially more oil and gas.

2011 Shale Reservoir Development Act Horizontal Well Unitization for Shale Reservoirs Application of hearing must be served on all owners who have a right to share in proceeds from the affected units. Legal description of the land covered. Name and depth of each shale reservoir, including any associated common source of supply. Log of a representative well completed in the applicable shale reservoir. Plan of development – Proposed allocation factors and timing and sequence of drilling. NYSE: DVN www.devonenergy.com

2011 Shale Reservoir Development Act Horizontal Well Unitization for Shale Reservoirs Existing Production – OCC may adjust the sharing of future costs incurred in connection with and future production and proceeds from any existing well or wells. NYSE: DVN www.devonenergy.com

2011 Shale Reservoir Development Act Horizontal Well Unitization for Shale Reservoirs 18 19 330’ 165’

2011 Shale Reservoir Development Act Horizontal Well Unitization for Shale Reservoirs Drilling patterns and setbacks for the unit, including the permitted well location tolerances for the permitted wells within the unit. No Location Exceptions, Increased Density, Separate Allowable Applications. Well by well elections for working interest owners. Consent of owners - No Unitization Order shall become effective without the written consent of sixty three percent (63%) of the working interest owners and sixty three percent (63%) of the royalty owners.

Royalty Owner Approval 2011 Shale Reservoir Development Act Horizontal Well Unitization for Shale Reservoirs 18 17 63% Working Interest & Royalty Owner Approval 19 20

Proposed Legislation Multiunit wells in other formations 2013, 2014, 2015 - Proposed legislation that would allow the use of multiunit horizontal wells in “targeted reservoirs”, not just shale reservoirs. Targeted reservoirs is any common source of supply which has been determined by the OCC that is appropriately suited for development through a multiunit horizontal well. 2016? NYSE: DVN www.devonenergy.com