January 10, 2012 TO: Members of the City of Dallas Gas Drilling Task Force FROM: Dallas Cothrum

and Mark Housewright RE: Concerns with Task Force Recommendations Via Electronic Delivery As representatives for several energy companies, we felt compelled to express our serious concerns regarding recommendations to be sent to the Dallas City Council, which were recently approved by the Task Force. In our opinion, some of these recommendations will result in the likelihood of no future applications for gas drilling in the city of Dallas. We think the record speaks for itself. Of the many changes being recommended or considered by the Task Force 164 come from existing ordinances of other cities. There are 99 recommendations that came from either the Southlake or Flower Mound ordinances. Since the current ordinances in those two cities went into effect, there have been zero wells drilled there. Two of the largest operators with vast urban drilling experience, XTO and Chesapeake, have announced they will withdraw from those areas. There is little doubt that the adoption of such changes in Dallas would yield the same results. The recommendations that our clients tell us would be deal killers are: 1) Setback requirements the recommendation of 1000 ft. minimum distance from the boundary of the operation site to the property line of protected uses, by itself, will for all practical purposes eliminates the possibility of drilling in Dallas. Assuming a square tract, an operator will need a vacant tract with a minimum of 134 acres to satisfy the proposed standards. Few such sites, if any, exist in correct proximity and orientation to the properties our clients have leased from the City of Dallas. And if they did exist, the cost for a drillable tract would be $17,511,120 at $3per square foot 134 acres. We ask that an analysis be done by city staff to determine whether or not this eliminates drilling on any leased areas, and if thats the case, then the issue

should be revisited by the Task Force. In short, the setback changes result in another moratorium. 2) Parks prohibiting drilling and production in public parks is a complete reversal of the Citys position when the leases were sold. In fact, two of the pending drill sites are on park lands (one adjacent to L.B. Houston Golf Course and one on the Gun Club). Not only were these sites advertised in the original RFP, but they were also specifically identified by city staff before the leases were purchased. It will result in a breach of agreement. 3) Noise continuous noise monitoring is extremely expensive. The additional costs will likely make operations unaffordable. Also, the proposed noise restrictions should be reasonable and achievable. We believe noise should be averaged over several readings and should be measured at a reasonable distance from the padsite to allow for mitigation. 4) Emissions since wells in the city of Dallas are expected to be dry gas wells, vapor recovery equipment should not be required. However, if any wells require such equipment due to the volume of emissions, then the 95% recovery efficiency level is virtually unachievable on an ongoing basis. 92% is more practical and TCEQ prefers 90%. In addition, its important to define what a Hydrogen Sulfide field is and what producing H2S gas means. The Task Force should keep in mind that even the natural gas we burn in our homes contains trace elements of H2S. We recommend using the definitions in Texas TAC 16 Part 1, Ch. 3.36 to define H2S fields and wells. 5) Pad Site Operations -- produced water or wastewater pipelines may be necessary to reduce the footprint of the well in some cases. Not only have these systems already been approved by the Park Dept. and the Corps of Engineers, they can also reduce truck traffic and redundancy of equipment. These lines can allow the production facilities be located in industrial of less intrusive areas. We recommend that this be a part of the normal SUP process. 6) Duration of Permit there can be no time limit on drilling activities. These wells will require very limited re-working, re-drilling and other operations for many years. Other issues are critical but not necessarily deal killers. We will address those items in a separate memo next week, but we felt that it was important to put absolute deal killers on the table ASAP. We will be happy to provide expert testimony on any of the list above to the Task Force. In fact, we really would

once again urge that the Task Force listen to the industry prior to meeting. 7)

your next

Flood Plain- there are currently 2,429 gas wells in the flood plain in North Texas. This is 15.62% of the wells in North Texas. This confirms your decision before the holiday that gas well drilling and production can be accomplished in the floodplain and it is commonly done. In fact, this is one of the best locations as it puts the activities aware from any other uses and allows for economic production on otherwise undevelopable land.