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CONCURRENT RESOLUTION
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WHEREAS, Gulf Energy Exploration Corp. alleges that: |
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(1) Gulf Energy Exploration Corp. acquired four |
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inactive "orphaned" wellbores in Sherman Field, Offshore Calhoun |
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County, Texas, that are strategically located to enhance the |
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capture of reserves that would otherwise be uneconomical to |
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recover; |
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(2) One of these orphaned wellbores is designated |
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"State Tract 708-S No. 5"; |
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(3) Gulf Energy Exploration Corp. intends to rework |
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the orphaned wellbores it owns in Sherman Field and tie them back in |
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to the Sherman pipeline system; |
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(4) In a conference on May 19, 2008, representatives |
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from Gulf Energy Exploration Corp., the Railroad Commission of |
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Texas, the Office of the Attorney General of the State of Texas, |
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American Coastal Energy, Inc., and bankruptcy counsel for American |
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Coastal Energy, Inc., reached a tentative settlement and |
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forbearance agreement, pending approval of the commission, |
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attorney general, and bankruptcy court; |
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(5) On or about May 25, 2008, the Railroad Commission |
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of Texas wrongfully plugged and abandoned State Tract 708-S No. 5, |
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using Superior Energy Services, Inc., as the plugging contractor; |
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(6) By June 9, 2008, all parties to the agreement of |
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May 19, 2008, had signed the settlement and forbearance agreement; |
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(7) On June 27, 2008, Gulf Energy Exploration Corp. |
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paid a deposit of $400,000 and filed Certificates of Compliance and |
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Transportation Authority with the Railroad Commission of Texas; |
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(8) On June 30, 2008, the Railroad Commission of Texas |
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held a hearing and legal examination, and J.W. "Bill" Rhea IV, who |
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was at the time the president and chief executive officer of Gulf |
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Energy Exploration Corp., testified on the merit and benefit of |
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Gulf Energy Exploration Corp.'s Certificates of Compliance and |
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Transportation Authority; |
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(9) In a memorandum dated August 11, 2008, requested |
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by the Railroad Commission of Texas following the hearing on June |
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30, 2009, Gulf Energy Exploration Corp. submitted a brief |
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discussion and proposed operation of each of its orphaned wells in |
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Sherman Field, including State Tract 708-S No. 5, and its reserve |
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potential; |
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(10) On September 9, 2008, the Railroad Commission of |
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Texas approved Gulf Energy Exploration Corp.'s Certificates of |
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Compliance and Transportation Authority and rescinded its previous |
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plugging orders; |
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(11) On November 10, 2008, Superior Energy Service, |
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Inc., provided a wellbore diagram in support of the workover or |
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recompletion procedure to be performed by Gulf Energy Exploration |
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Corp. on State Tract 708-S No. 5; |
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(12) Under the State of Texas Oil and Gas Lease |
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#M-107592, the amount of royalties Gulf Energy Exploration Corp. |
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would have to pay to the State of Texas would increase if production |
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in paying quantities was not established by February 6, 2009; |
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(13) On December 30, 2008, Gulf Energy Exploration |
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Corp. commenced operations on State Tract 708-S No. 5 in |
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anticipation of completing workover operations and placing the well |
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in production ahead of the February 6, 2009, deadline only to |
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discover that State Tract 708-S No. 5 had been wrongfully plugged; |
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(14) One week later, on January 9, 2009, |
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representatives of Gulf Energy Exploration Corp. and the Railroad |
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Commission of Texas met to discuss the wrongful plugging of State |
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Tract 708-S No. 5; |
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(15) On January 14, 2009, representatives of Gulf |
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Energy Exploration Corp. and the Railroad Commission of Texas met |
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again, and the commission admitted to wrongfully plugging State |
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Tract 708-S No. 5; |
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(16) To date, Gulf Energy Exploration Corp. has |
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invested, spent, or committed to spend $2,810,000, in addition to |
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the $400,000 deposit paid to the Railroad Commission of Texas, in |
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support of workover, recompletion, pipeline, and facilities |
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repairs to the Sherman Field area gathering system and two of its |
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other orphaned wells; |
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(17) Gulf Energy Exploration Corp. has calculated the |
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known cost to unplug and drill out State Tract 708-S No. 5 to 2,000 |
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feet to be at least $1,596,650; |
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(18) Due to the manner in which State Tract 708-S No. 5 |
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was plugged, a very real risk exists that substantial, unforeseen |
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problems may emerge in unplugging and drilling out the well and the |
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amount of contingency to use in calculating total costs cannot be |
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estimated with any degree of certainty; |
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(19) Given the degree of uncertainty in calculating |
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the contingency, Gulf Energy Exploration Corp. has used a range of |
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15 to 50 percent of the known costs, estimating the total cost to |
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unplug and drill out State Tract 708-S No. 5 to 2,000 feet to be |
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anywhere from $1,836,200 to $2,395,000; however, Gulf Energy |
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Exploration Corp. also recognizes, based on experience, that any |
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cost overrun could exceed the amount of known costs by 100 percent |
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or more and could result in the abandonment of the well; |
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(20) Alternatively, Gulf Energy Exploration Corp. has |
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received from Applied Drilling Technology, Inc., a viable, turnkey |
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proposal to redrill the well to 3,250 feet for known costs amounting |
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to $2,075,000 plus nominally estimated additional costs for setting |
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and cementing production casing, mobilization and demobilization, |
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a structural link to the existing caisson and structure, the |
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expected use of the wellhead, tubing, packer, and supplies, and a |
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prefabricated flowline bridge connection, which brings the |
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estimated total cost to redrill State Tract 708-S No. 5 to 3,250 |
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feet to $2,426,000; |
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(21) Taking advantage of a third-party, turnkey |
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operation like Applied Drilling Technology, Inc.'s proposal |
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transfers the risk and responsibility of unforeseen problems and |
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expenses to the third party, making it a risk-free alternative; |
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(22) A risk-free option does not exist for the |
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Railroad Commission of Texas to reenter the abandoned well and |
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return the wellbore to useable condition for Gulf Energy |
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Exploration Corp., and a very real risk exists that the time and |
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money spent attempting a reentry would very likely exceed the cost |
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of a turnkey operation; |
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(23) Gulf Energy Exploration Corp. respectfully |
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requests that the Railroad Commission of Texas provide the funds |
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necessary to proceed with a risk-free alternative like the proposal |
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submitted by Applied Drilling Technology, Inc.; |
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(24) Gulf Energy Exploration Corp. also requests a |
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timely response from the Railroad Commission of Texas in providing |
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these funds considering the corporation's lost opportunity in the |
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well due to the wrongful plugging of State Tract 708-S No. 5; now, |
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therefore, be it |
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RESOLVED by the Legislature of the State of Texas, That Gulf |
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Energy Exploration Corp. is granted permission to sue the State of |
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Texas and the Railroad Commission of Texas subject to Chapter 107, |
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Civil Practice and Remedies Code; and, be it further |
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RESOLVED, That the total of all damages awarded in the suit |
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authorized by this resolution, including any court costs, |
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attorney's fees, and prejudgment interest awarded under the law, |
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may not exceed $2,500,000, and that Gulf Energy Exploration Corp. |
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may not plead an amount in excess of that amount in any suit |
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authorized by this resolution; and, be it further |
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RESOLVED, That the chairman of the Railroad Commission of |
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Texas and the attorney general be served process as provided by |
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Section 107.002(a)(3), Civil Practice and Remedies Code. |