RAILROAD CoMMIssIoN OF TExAs

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Technical CHRI5TI CRADDICK, CHAIR1L4N RYAN SITTON, Co1!4ussIorvER WAYNE CHRISTIAN, C owiiissioner DANA AVANT LEWIS INTERIM DIRECTOR RAILROAD CoMMIssIoN OF TExAs HEARINGS DIVISION OIL AND GAS DOCKET NO. 08-031 0856 APPLICATION OF CENTENNIAL RESOURCE PROD. LLC (141077) TO AMEND FIELD RULES IN THE PHANTOM (WOLFCAMP) FIELD, CULBERSON, LOVING, REEVES, WARD, AND WIN KLER COUNTIES, TEXAS HEARD BY: Karl Caidwell Examiner Jennifer Cook Administrative Law Judge HEARING DATE: RECORD CLOSED: CONFERENCE DATE: APPEARANCES: APPLICANT: August 22, 2018 August 22, 2018 October 16, 2018 REPRESENTING: Centennial Resource Prod, LLC Davin McGinnis Tim Smith, P.E. Sean Marshall OBSERVERS: Bill Hayenga Dan Gutieurrez Energen Resources Corporation Texas General Land Office EXAMINERS REPORT AND RECOMMENDATION STATEMENT OF THE CASE Centennial Resource Prod, LLC (Centennial) requests to amend field rules for (Wolfcamp) Field, Culberson, Loving, Reeves, Ward, and Winkler Counties, Texas. The only field rule Centennial requests to amend is Rule No. 2 as it pertains to lease line spacing for first and last take points for horizontal wells. Centennial requests to reduce first and last take point lease line spacing rule for horizontal wells in non-perpendicular direction from 200 feet to 100 feet. Notice of application was provided to all operators in (Wolfcamp) Field. The application is 1701 NORTH CONGRESS AVENUE * POST OFFICE Box 12967 * AUSTIN, TEXAS 78711-2967 * PHONE: 512/463-6924 * Fx: 512/463-6989 TDD 800/735-2989 OR TDY 512/463-7284 Ax EQUAL OPPORTUNITY EMPLOYER http://www.rrc.texas.gov

OIL AND GAS DOCKET NO. 08-0310856 PAGE 2 OF 5 unprotested, and Technical Examiner and Administrative Law Judge (collectively, Examiners ) recommend approval of application. DISCUSSION OF THE EVIDENCE The (Wolfcamp) Field is largest of Wolfcamp fields in Delaware Basin. The August 1, 2018 oil proration schedule for (Wolfcamp) Field lists I,669 oil wells on schedule, while gas proration schedule for (Wolfcamp) Field lists 385 gas wells on schedule. A dual lease line spacing rule for first and last take points was first adopted for (Wolfcamp) Field in Oil and Gas Docket Number 08-0269114. In that docket, a dual lease line spacing rule for first and last take points of 200-feet non-perpendicular, 467-feet perpendicular was adopted to allow recovery of additional reserves that would orwise go unrecovered. This same dual lease line spacing rule for first and last take points was amended to 200-feet non-perpendicular, 330-feet perpendicular in Oil and Gas Docket No. 08-0290788. The Ford, West (Wolfcamp) Field is positioned immediately west of (Wolfcamp) Field and se two fields have grown toger. Recently, field rules for Ford, West (Wolfcamp) Field were amended with lease line spacing rule for first and last take point for horizontal wells in non-perpendicular direction reduced from 200 feet to 100 feet (Oil and Gas Docket No. 08-0308425). Find of Fact No. 7 stated that field rule amendment will increase recovery and prevent waste. Centennial has drilled and cored wells in multiple zones in Wolfcamp formation. These core samples show that reservoir is ultra-low permeability that will not produce without hydraulic fracture stimulation. A statistical analysis of core-derived permeability from 3 wells in (Wolfcamp) Field shows 94% of cores to be in nano-darcy range or lower, and 5% in micro darcy range. The significance of core permeability study is that re won t be flow in this reservoir rock without creating some kind of conductivity. With horizontal wells drilled perpendicular to direction fractures tend to propagate, re will be little contributing flow in direction along lateral. As a result, re is a need to get closer to lease line in non-perpendicular direction with respect to hydraulically-induced fractures created, in order to recover reserves that would orwise go unrecovered. Using micro-seismic data, drainage distance beyond first and last take point in heel-ward and toe-ward direction is estimated at 53 feet. This estimate is based on average heel-ward and toe-ward growth of 21 monitored completion stages in a horizontal well targeting correlative interval for (Wolfcamp) Field. To estimate additional reserves that could be recovered by adding an additional 100 feet of perforated interval along each end of a horizontal well, Centennial looked at production results of several operators with wells in

OIL AND GAS DOCKET NO. 08-0310856 PAGE 3 OF 5 (Wolfcamp) Field. The results ranged from 13,000 BOE to 28,000 BOE per 100 feet of drainhole length. If you multiply se results by 2 to account for adding an additional 100 feet to each end of lateral (first and last take points 100 feet closer to lease lines), additional recovery with proposed rule change is 26,000 BOE to 56,000 BOE per horizontal drainhole well. These additional reserves would orwise go unrecovered and wasted without proposed rule change. In addition to Ford, West (Wolfcamp) Field adopting field rule amendment Centennial has proposed for (Wolcamp) Field, or resource plays in Texas have already adopted this field rule, including Spraberry (Trend Area) Field. Centennial agreed that, pursuant to provisions of Texas Government Code 2001.144(a)(4)(A), this Final Order shall be final and effective on date a Master Order relating to this Final Order is signed. FINDINGS OF FACT 1. Notice of this hearing was provided to all operators in field at least ten (10) days prior to date of heating and no protests were received. 2. The (Wolfcamp) Field is largest of Wolfcamp fields in Delaware Basin. 3. The August 1, 2018 oil proration schedule for (Wolfcamp) Field lists 1,669 oil wells on schedule, while gas proration schedule for (Wolfcamp) Field lists 385 gas wells on schedule. 4. A dual lease line spacing rule for first and last take points was first adopted for (Wolfcamp) Field in Oil and Gas Docket Number 08-0269114. In that docket, a dual lease line spacing rule for first and last take points of 200-feet nonperpendicular, 467-feet perpendicular was adopted to allow recovery of additional reserves that would orwise go unrecovered. 5. The dual lease line spacing rule for (Wolfcamp) Field for first and last take points was amended to 200-feet non-perpendicular, 330-feet perpendicular in Oil and Gas Docket No. 08-0290788. 6. The Ford, West (Wolfcamp) Field is positioned immediately west of (Wolfcamp) Field and se two fields have grown toger. a. The field rules for Ford, West (Wolfcamp) Field were amended with lease line spacing rule for first and last take point for horizontal wells in non-perpendicular direction reduced from 200 feet to 100 feet (Oil and Gas Docket No. 08-0308425).

OIL AND GAS DOCKET NO. 08-0310856 PAGE 4 OF 5 b. Find of Fact No. 7 that field rule recovery and prevent waste. stated amendment will increase 7. Centennial has drilled and cored wells in multiple zones in Wolfcamp formation. a. These core show reservoir is ultra-low permeability will not produce without hydraulic fracture stimulation. samples that that b. A statistical analysis of core-derived permeability from 3 wells in (Wolfcamp) Field shows 94% of to be in or lower, and 5% in micro darcy range. range cores c. The significance of core permeability study is in this reservoir rock without creating kind of conductivity. some nano-darcy that re won t be flow d. With horizontal wells drilled to direction tend to will be little contributing flow in direction along lateral. propagate, re perpendicular fractures lease respect reserves that may orwise go e. Reducing line spacing in to hydraulically-induced unrecovered. non-perpendicular fractures created direction with will recover 8. Micro-seismic beyond first and last point in heel-ward and toe-ward direction at 53 feet. This is on heel-ward and toe-ward growth 0121 monitored completion in a horizontal well targeting correlative interval for (Wolfcamp) Field. average data estimates drainage distance estimate based stages 9. Estimating additional could be by adding an additional 100 feet of perforated interval along end of a horizontal well, on production results of (Wolfcamp) Field from 13,000 BCE to 28,000 BCE per 100 of drainhole length. shows West reserves that each recovered several operators with wells in feet based 10. The Ford, (Wolfcamp) Field and (Trend Area) Field a first and last point spacing rule for horizontal wells of 100- foot non-perpendicular, 330-foot by Centennial for (Wolicamp) Field. already adopted Spraberry take perpendicular as requested take have 11. Centennial on record that, to provisions of Government Code 2001.144(a)(4)(A), this Final Order shall be final and effective on a Master Order relating to this Final Order is signed. date agreed pursuant Texas

OIL AND GAS DOCKET NO. 08-0310856 PAGE 5 OF 5 CONCLUSIONS OF LAW 1. Proper notice was issued as required by all applicable statutes and regulatory codes. 2. All things have occurred and been accomplished to give Commission jurisdiction in this matter. 3. Amending field rules for (Wolfcamp) Field will allow operators in field to recover additional reserves and prevent waste. 4. Pursuant to 2001.144(a)(4)(A), of Texas Government Code, this Final Order is final and effective when a Master Order relating to this Final Order is signed. EXAMINERS RECOMMENDATION Based on above findings of fact and conclusions of law, Examiners recommend that Commission amend field rules for (Wolfcamp) Field, Culberson, Loving, Reeves, Ward, and Winkler Counties, Texas as requested by Centennial. Respectfully submitted, Karl CaIdwell Technical Examiner inifer Cook Administrative Law Judge