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Home My WebLink AboutCO 026Conservation Order Cover Page XHVZE This page is required for administrative purposes in managing the scanning process. It marks the extent of scanning and identifies certain actions that have been taken. Please insure that it retains it's current location in this file. Conservation Order Category Identifier Organizing (done) RESCAN [] Color items: [] Grayscale items: [] Poor Quality Originals: [] Other: NOTES: DIGITAL DATA OVERSIZED (Scannable with large plotter/scanner) [] Diskettes, No. ~'"'~~Maps~' [] Other, No/Type [] Other items OVERSIZED (Not suitable for plotter/scanner, may work with 'log' scanner) [3'"'"'~Logs of various kinds [] Other BY: ,~~ MARIA Scanning Preparation Production Scanning Stage I PAGE COUNT FROM SCANNED DOCUMENT: /'.~O,/,- PAGE COUNT MATCHES NUMBER IN SCANNING PREPARATION' X YES NO /' Stage 2 IF NO IN STAGE 1, PAGE(S) DISCREPANCIES WERE FOUND: __ YES NO (SCANNING IS COMPLETE AT THIS POINT UNLESS SPECIAL ATTENTION IS REQUIRED ON AN INDIVIDUAL PAGE BASIS DUE TO QUALITY, GRAYSCALE OR COLOR IMAGES) General Notes or Comments about this Document: 5/21/03 ConservOrdCvrPg.wpd STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES DIVISION OF MINES AND MINERALS ALASKA OIL AND GAS CONSERVATION COMMITTEE 3001 Porcupine Drive Anchorage, Alaska RE: THE APPLICATION OF THE PAN AMERICAN ) PETROLEUM COMPANY, covering the develop- ) ment of part of the MGS Field, for an ) exception to Section 2061.1 of the Alaska ) Oil and Gas Conservation Regulations, ) Title 11, AAC ) Conservation Order #26 August 4, 1966 IT APPEARING THAT: 1. The Pan American Petroleum. Corporation submitted a request dated June 6, 1966, for an exception to Section 2061.1 of the Alaska Oil and Gas Conservation Regulations, Title II, AAC. 2. Notice of hearing was published in the Anchorage Daily News on June 27, 1966. 3. Personal service of the notice of hearing was made to all affected parties except Sinclair Oil and Gas Company. A waiver of personal service was obtained from Sinclair Oil and Gas Company. 4. A hearing was held in the City Council Chambers of the Z. J. Loussac Library, Anchorage, Alaska, on July 12, 1966, commencing at 9:30 a.m. 5. Testimony in support of the application was given by Pan American Petroleum Corporation and objection to the application was presented by Shell Oil Company. AND IT FURTHER APPEARING that certain exceptions to Section 2061.1 of the Alaska Oil and Gas Conservation~ Regulations should be granted because of the hazards and hardships of developing multiple reservoirs in this offshore area from permanent platforms by means of directed holes, AND IT FURTHER APPEARING that reservoir data is insufficient to determine that a change in the existing acreage spacing requirements of Section 2061.1 of the Alaska Oil and Gas Conservation Regulations is necessary. CONSERVATION ORDER #26 Page 2 August 4, 1966 NOW, THEREFORE, IT IS ORDERED that the area described as follows is affected by this order. T9N-R12W~ S.M. Section 19:S/2 Section 30: Ail Section 31: Ail T9N-R13W, S.M. Section 25:E/2 Section 36:E/2 ~.8N-R13W, S.M. Section 1: Ail Section 2:E/2 Section 11: SW/4, E/2 Section 12: SW/4, N/2 Section 13:W/2 Section 14: All Section 23:N/2 Section 24:NW/4 The following special rules apply to the aforementioned area: RULE 1 Spacing Footage - Oil wells may be completed closer than 500 feet to the section lines or quarter section lines and may be completed closer than 1000 feet to any well drilling to or capable of pro- ducing from the same pool except that no oil well shall be com- pleted at a distance of less than 500 feet from a lease line where ownership changes or less than 500 feet from the lines forming the perimeter of the above described acreage. RULE 2 Spacing Acreage - No more than one oil completion in a pool as designated in Rule 3 shall be allowed in each governmental quarter section or governmental lot corresponding thereto. .%ULE 3. Pool Designation - Until ordered otherwise, the vertical producing intervals shall be divided into seven (7) pools which will correlate with the following intervals in the Pan American Petroleum Corporation State 17595 #4 well. MGS Oil Pool A - 5300' to 5830' MGS Oil Pool B - 5830' to 6100' MGS Oil Pool C - 6100' to 6400' MGS Oil Pool D - 6400' to 6750' MGS Oil Pool E - 6750' to 7050' MGS Oil Pool F - 7050' to 7375' MGS Oil Pool G - 7375' to 9215' CONSERVATION ORDER #26 Page 3 August 4, 1966 RULE 4 Permissible Commingling a. Production from MGS Oil Pools B, C, and D as defined in Rule 3 may be commingled in the same well bore. b. Production from MGS Oil Pools E, F, and G as defined in Rule 3 may be commingled in the same well bore. This order is made pursuant to Section 2061.3 of the Alaska Oil and Gas Conservation Regulations and shall continue in force for a period of not more than eighteen (18) months, at the expiration of which time a hearing shall be held at which Pan American Petroleum Corporation may be required to present such evidence as will enable the Committee to determine the proper spacing rules for the field. DONE at Anchorage and Juneau, Alaska, and dated August 4, 1966. Thomas R. Marshall, Jr., Executive Secretary Alaska Oil and Gas Conservation Committee Concurrence: ~_m~sA. ~Willi_ams, Chairman a Oil and Gas Conservation Committee Charles F. Herbert, Member Alaska Oil and Gas Conservation Committee ~/arl ~. VonderAhe'Member Alaska Oil and Gas Conservation Committee THE HEARING BY THE ALASKA CONSERVATION COMMITTEE OF THE DEPARTMENT OF NATURAL RESOURCES, ON THE PAN AMERICAN PETROLEUM CORPORATION'S REQUEST FOR AN EIGHTY ACRE EXCEPTION SPACING PERMIT IN THE MIDDLE GROUND SHOAL OIL FIELD IN COOK INLET S T A T E 0 F A LA S KA . , . July 12, 1966 _j R & R DEPOSITIONS P.O. BOX 1947 277-4713 ANCHORAGE. ALASKA 10 1! 12 13 14 15 16 19 2o 21 22 24 25 THE HEARING BY THE ALASKA CONSERVATION COMMITTEE OF THE DEPARTMENT OF NATURAL RESOURCES, ON THE PAN AMERICAN PETROLEUM CORPORATION'S REQUEST FOR AN EIGHTY ACRE EXCEPTION SPACING PERMIT IN THE MIDDLE GROUND SHOAL OIL FIELD IN COOK INLET S T A T E O F A L A.S KA APPEARANCES: ,, FOR THE APPLICANT PAN AMERICAN PETROLEUM CORPORATION & ASSOCIATES: Eben Lewis, Attorney at Law Oscar Swan, Attorney at Law FOR THE RESPONDENT SHELL OIL COMPANY AND ASSOCIATES: Joseph Rudd, Attorney at Law Leslie Kell, Attorney at Law R & R DEPOSITIONS P. O. BOX 1947 277-471:3 825 WEST EIGHTH'AVENUE -- BUITIf 5 ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 2o 21 22 23 TABLE OF CONTENTS Opening Statement by Mr. Swan Opening Statement by Mr. Rudd Closing Statement by Mr. Swan Closing Statement ,by Mr. Kell Closing Statement by Mr. Swan ,FOR,, ,THE, APPLICANT: R. B. GILES FOR THE RESPONDENT: DEAN ALLEN WITNESSES DIRECT 7 62 FOR THE APPLICANT: 1 3 4 5 6 7 8 FOR THE RESPONDENT: 1 EXHIBITS R & R DEPOSITIONS P.O. BOX 1947 277.471:3 825 WEST EIGHTH AVENUE -- EUITE B ANCHORAGE, ALASKA Page 2 5 58 85 89 94 CROSS None RED IRE CT 56 None None ADMI~TzD 16 23 29 31 43 43 35 66 10 11 12 13 15 17 18 2o 21 22 24 25 Page 3o PROCEEDINGS . : ,~. ~ , ~ ~ j~. ~ CHAIRMAN WILLIAMS: This meeting is now called to order. Before I forget it, if there is anyone here who has not regis- tered on the sheets back by door with Mrs. Homme there (indica- ting), please do so before you get away. The purpose of this hearing is to take the testimony from Pan American Petroleum Company in support of their request and that of their partners, of course, for an exception for and eighty acre well density in the Middle Ground Shoals Field, which would be an exception to the 168 year requirement of our regulat±o:~s. The published legal notice of this hearing on June 27, which is sufficient time for a hearing of this nature, which is not a state-wide application. We also served notices on the interested parties, so far as we are aware of who the interested parties are, in compliance with the statute. We are sitting here today as the AlaSka Oil and Gas Conservation Committee. There. are three of us of the four present. My name is Williams. On my left (indicating) is Tom Marshall, the executive secretary of the Committee. On my right (indicating)' is Carl VonderAhe, a member of the Com- mittee. Chuck Herbert, the other member of the Committee is unable to be here. today. We have as technical advisors Oo K. Gilbreth on the far right (indicating), petroleum engineer, and Harry Kugler on the far left (indicating), petroleum geoiogis~ and Ralph Crews on Tom's left (indicating), is our legal advis~ R & R DEPOSITIONS P.O. BOX 1947 277-4713 ANCHORAG£, ALASKA 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 4. from the Attorney General's office, State Department of Law. I would like to acknowledge the presence of a couple of men from the Divisions of Lands and Minerals officers, Earl Mathis, and minerals leasing officer, Pedro Denton. I thought maybe Roscoe Bell might be here, but I don't see him. Heretofore the Oil and Gas Conservation Committee has not been very formal, but we are starting to get more formal this morning. Witnesses will be sworn in befome they testify, and we will also require a very brief statement of each witness.~s qualifications from him before he proceeds, for the record. We might interpose questions from the Committee during the testimony, but we will try and refrain from this until he is through, and I believe that is sufficient introductory infor- mation to get thing rolling. I believe that we should hear Pan American gs testimony first since they are 'the applicants for this exception to our regulations. MR. LEWIS: Mr. Chairman, members of the Committee, I"m Eben Lewis, attorney for Pan American Petroleum Corporation. MR. MARSHALL: Would you please be sworn in ? (Pause) Are you a witness? MR. LEWIS: No, sir° I thought at this point, at this juncture it would, be appropriate to enter, for the record, the appearances for the parties, and I believe Mr. Rudd had the desire to do the same on behalf of his client. I am appearing for Pan American Corporation and its associates. With me is R & R DEPOSITIONS P.O. BOX ~947 277-4713 825 WEBT EIGHTH AVENUE -- EUITE ANCHORAGE, ALASKA 10 11 13 14 15 17 19 2O 21 23 25 Page 5o Mr. Oscar Swan, a member of the Bars of Wyoming and Colorado, who will present the case for Pan American Corporation and its associates. MRo RUDD: Mr o Chairman, if I might take a moment for my appearance as Joseph Rudd for Shell Oil Company and its pa=tner. Standard and the United Richfield Company, and Leslie Kell, a · California attorney with Shell Oil Company, who will appear With me. Thank you. MR° SWAN: Are you ready to proceed with an opening statement ? MR. MARSHALL: Will you~please raise your right hand? MR° SWAN: I don't think you swear an attorney do you? (LaUghter) We appear under oath ~all the time° (Laughter) MR. MARSHALL: Can we hold you to that'? (Laughter) MR° SWAN: I had that argument with Dr. Laird in North Dakota, and he won it, so -- (Laughter). I'm Oscar Swan, attorney for Pan American Petroleum Corporation. I would like to make just a brief opening statement here. Our case is reall' going to follow very closely the application which is filed° It will be just testimony in support of it. We're concerned with the area around the two platforms in the Middle Ground Shoal Field, and .with two oil zones that are now being develope from those two platforms, and I think, while there may be some disagreement as to what kind of order the Committee should enter in this case, we have -- everybody will agree, we've R & R DEPOSITIONS P. O. BOX 1947 277-4'/13 825 WEI3T EIGHTH AVENUE -- BUITE B ANCHORAGE:, ALASKA 10 1! 13 14 15 16 17 18 19 2O 21 22 24 25 Page 6o reached a point where we can't continue t° develop the field under the state-wide rules. Now, basically, we're asking that the interior subdivision lines in the leases be, for all practi- cal purposes, disregarded; that we only have to maintain set- back requirements where there is a competitive situation across lease lines. We're also asking for 80 acre well density as opposed to 160 acre density, and we are recommeding that, in effect, the Committee pass on every well location before it~!,,s drilled. We can't think of any more precise way to handle the problem of avoiding the clustering of wells,and handling the problem of protection of correlative rights. We do think that you may want to add to provision number eight of our application, some language that -- in that last sentence is .says, "The Committee may refuse to grant the permit if it appears that the well will be so located as to result in an inefficient development of the two zones". Add to that a phrase to the effect that the Committee may also refuse to grant the permit if it appears that the well will be so located as to result in an impairment of the correlative rights of either lease holder or working interest owners. I think the law says that's what the Committee can do anyway, but it might be well to put it. in the order itself. I have four witnesses, but before you get too disturbed, the case will be put on by one witness. The other three are back-up in case my chief witness feels that he should put a R & R DEPOSITIONS P.O. BOX 1947 277-4713 825 WEST EIGHTH AVENUE -- ~UITE !~1 ANCHORAGE, AL,ASKA 10 11 13 16 17 18 19 2O 21 Page 7. question to someone else. I'd like to have them sworn at this time. SRo MARSHALL: Please raise your right hand° Do you swear that the testimony that you are about to give in the matter now in hearing, shall be the truth, the whole truth, and nothing but the truth, so help you God? MR. GILES: I do. MR° KREBILL: I do. MR° CONRAD: I do. MR o RAUSCH: I do. MR0 SWAN: My principal witness i$ Mr. R. Bo Giles. ,QL Gi S being first duly sworn under oath, testified as follows on DIRECT EXAMINATION BY SRo SWAN: q Will you state your name, please? R. B.~ Giles. By whom are you employed,, and where? By Pan American Petroleum Corporation in Denver, Colorado. What position do you hold with Pan American? I am an engineering supervisor. lqave you previously testified before this Committee? No, I have not. Would you state briefly, for the record, what your educa- tional background and training has been as .an engineer? R & R D£PO$1TIONS P. O. E}OX 1947 277.4713 825 WEST EIGHTH AVENUE -- SUITE B ANGHORAOE, ALASKA 10 1! 12 13 14 16 17 18 2O 21 22 A Page 8. I graduated from Pannsylvania State University in 1948, with a B.S. degree in petroleum and natural gas engineerin~ Shortly after graduation, I went to work with Pan Ame=ican Petroleum Corporation in Wyoming. I spent the first two years at three different locations; Winkleman-Dome Field, Beaver Creek Field, and Little Buffalo Basin Field. These are all located in westcentral Wyoming. I received training and experience in the basic engineering fundamen- tals of field producing operations for those two years. In 1950, I was transferred to Casper, W¥oming, to the divi- sion office, and spent the next 40 months carrying out various reservoir engineering assignments within Pan American division boundaries. The Pan American division a that time, embraced the North and South Dakotzs, Montana, Wyoming, .Idaho, Utah, Colorado and Nebraska; therefore my duties as a reservoir engineer concerned investigating fields to see how we might better improve the ultimate oil recovery from these fields. Another ~two years in ~he Casp~ office was spent on engineering matters concerning conser- vation period° In 1956, I was transferred to Tulsa~ Oklahoma, which is the Company's headquarters, and ~ spent 20 months in the capacity of an engineering advisor to management on producing operations, as well as pro- perty evaluation throughout the Rocky Mountain division, as well as the Canadian division° In 1958, I returned to R & R DEPO$1TION~ B2~ WESTEIGHTHAVENUE--BUITEB ANCHORA~£, ALASKA 10 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 Q A Page 9. Casper, to assist in the formation of field-wide producing units throughout that division. In 1959, I was transferre~ to Cody, Wyoming, where I had general supervision over 28 engineers involved in producing operations'for north- western Wyoming and Montana. In 1962, I was transferred again to Casper, Wyoming where I had general supervision over some 27 engineers in much the same type of work; engineering for field produ- cing operations, and this involved a different geographi- cal area; Colorado, Nebraska, Utah and southern Wyoming. In 1963, Pan American, in the Rocky Mountain division, did away with one level of supervision; what they call their district office, and consolidated that organization- al level into the division office. At that time, in Casper, I was given the responsibility for handling the unitization and conservation matters throughout the Rocky Mountain DivisiOn° Even since that time, I have essentially been in the same capacity for Pan American, although, in 1965, here about a year ago, we had another reorganizational shuffle, and this was mainly geographical whereby Alaska came under the jurisdiction of the Denver division office° Are you active in any professional organizations, or oil industry associations, Mr. Giles? Yes, I am. I, for the past three years, have been R & R DEPOSITIONS P. O. BOX 1947 277-4713 823 WEST EIGHTH AVENUE -- SUITE 1~ ANCHORAGE. ALASKA 10 11 12 13 14 15 16 17 18 2o 21 22 Q A A A Q A Page 10o chairman of the technical committee of the Rocky Mountain Oil and Gas Association, and for two spells totalling six years, I've been a member of the technical committee of the North Dakota Oil and Gas Association. I've also been a member of A. I. f~d E. for sixteen years, and presently hold the position of regional vice-chairman f_or membership in the Rocky Mountain area. Are you a registered professional engineer in any State? Yes, sir, in two states; the states of Colorado and Wyominl Are you familiar with the Middle Ground Shoal Field in the Cook Inlet, in Alaska? I am° 'Are you familiar with the application upon which this hearing is being held? Very definitely. Was it prepared by you and under your supervision? Under my general supervision. Are you familiar with its content? Yes, I am. Are the statements and allegations made in that applica- your tion ~true and correct to the best of/knowledge and belief? Yes, sir, they are. Do you have any exhibits which will show us the area with which we're concerned in this hearing? Yes, sir, Itd like to refer you to Exhibit number 1, and R & R DEPOSITIONS P. O. BOX 1947 277-4713 825 WEST EIGHTH AVENUE -- 8UITE ANCHORAGE, ALASKA 10 1! 12 13 15 16 17 18 19 ,21 23 Q Page 11. explain it for you. Okay. The red solid outline is the area for which our order for exception has been requested (indicating). Shown in yellow (indicating) iS.~:the acreage that is held by the Chakachatna group. I might explain for you,the word Chakachatna is simply the group name for four companies that comprise that group° These comPanies are Phillips Petroleum Company, Skelly Oil Company., Sinclair Oil and Gas Company and Pan American Petroleum Corporation, each of the four having an undivided twenty-five percent lease hold interest in the group, with Pan American as operator of the group. You'll notice the tan area to the south of the yellow area (indicating). This acreage is held by the S.A.S. group, this being comprised of Shell Oil Company,, Atlantic Richfield Company and the Standard Oil Company Of California, Western Dperations, Inc. Each holds an un- divided one-third interest in that~ tan acreage, with Shell Oil Company as the group operator. Under~ the yellow and tan colored areas (indicating),. the State of Alaska holds the entire mineral interests° Now we also show on Exhibit One with green squares (indicating), the locations of the two permanently erected platforms in this field° The Chakachatna platform B is located in the north west quarter of section 31. The R & R DEPOSITIONS P. O. BOX 1947 277-47~3 82~ WEBTEIQHTH AVENUE--$UITEB ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 20 21 23 9.5 Q A A A A Page 12. S. A. So group platform is located in the southeast quarte~ of section 11o Now this exhibit shows two other things: One is the location of all wells that have been drilled from these permanently erected platforms. And finally, this exhibit shows the structural contours on the approx- imate top of the Middle Kenai Oil zone, one of the two zones with which we are concerned here today. What information was used in determining the location of these structural contours that are shOwn on this map? These contours were projected down to the top of the Middle I~nai Oil zone from shallow ~'ci~mi¢ information, and integrated with the data that's been accumulated from the wells drilled, at this time. ' Is there 'a possibility or a probability that some changes in these contours may have to be made as additional wells, are drilled ? Yes, in all likelihood, .this will be true. Then they are more of a general representation than a specific delineation of the structure at this time? Yes, sir, that's all they really could be at. this parti- cular time° ~ Well, now Mm. Giles, what factors were considered in determining the area for which this order for exception has been requested? Two factors: The first concerns how we delineated the R & R DEPOSITIONS P. O. BOX ~947 277-4713 825 WEST EH3HTH AVENUE -- BI,lITE ANCHORAGE, ALAgKA 10 1! 12 13 14 15 16 17 18 19 2O 21 22 23 A Page asking western boundary of the area for which we 're/for an order of exception, as well as the eastern boundary, and this factor was used as the general configuration of the structure. This structure closely resembles a quonset hut. It's somewhat flat on top, but it has steep sides, so we also, in considering the eastern and western limits of this area, had to consider the mechanical limitations of drilling off these steep flanks. Now the second factor concerned the north and the south boundary of. the area, and was governed by an 8,000 foo~ ~adius swung from these platforms, our feeling being that 8,000 feet is a reasonable horizontal distance limitation along the longitudinal axis of the structure to which we can intentionally deviate wells out from the platform to penetrate the objective zones. Taking into a~.count the fact that the rules of the Commission provide that any order which would be entered as a result of this hearing, would be a 'temporary order for a period of -- not to exceed 18 months, do you think you've included, within the area which would be affected by the order, all of the lands which "could reasonabl~ be expected to be penetrated by wells drilled.from.these two fixed platforms during the life of this temporary order? Yes, sir. Yes, sir, for the length of this temporary orde~ I think we have. R & R DEPOSITIONS P. O. BOX 1947 277.471:3 82~ WEBT EIGHTH AVENUE -- BUITE ANC:HORAGEo ALASKA 10 1! 13 15 16 17 18 20 21 22 23 25 A A A Page 14 It's also probable, is it not, that you may have included some lands which will not be penetrated? Yes, this --- During that time? (Continuing)--- this is possible. Is there any way, at this time, to tell which is which; in other words, can you predict the exploration with that degree of accuracy? No, because as each additional well is drilled, it might change the structural confSguration to some extent, and thereby alter future drilling plans° You do feel, however, it's large enough so that if an order is 'grant.ed as requested, there should be no reason to have to enlarge it during the life of this 18 month order? No, I don't feel that either Shell as operator tO the S.A.S. group, or Pan American ~s operator for the Chakachatna group will have any need., to reque~t an order for an exception. Well now,', as to wells, that may be drilled in this area in the future, and which encounter either the Middle Kenai Oil zone, or. the Hemlock zone, and are completed a~ pro- ducers, do you have an opinion as to-whether or not these wells will be in the same source of supply as the wells which have already beene, drilled.? R & R DEPOSITIONS P. O. BOX I{)47 2.77.47 825 WEST EIGHTH AVENUE -- 8UITE ANCHORAGE:, ALASKA 10 11 12 13 15 16 17 18 19 20 21 22 23 24 25 Page 15. A Yes, I believe they will. Q Do you have an exhibit that will show us e~sentially the same information on the Hemlock zone? A Yes, sir° I'd like to refer the Committe's attention to exhibit number Two. Basically, Exhibit number Two is exactly the same as Exhibit number One except for one feature;the structural contours are on top of the Hemlock zone, whereas Exhibit number One has s~ructural contours on top of the Middle Kenai Oil zone. Q The structural contours here were determined in the same manner as the structu~ral contours on the -- Exhibi~ number One ? A That is correct. Q Excuse me, just a minute. Would the Committee prefer that we offer each exhibit as we consider it, or can I wait and offer them in a bundle at the end of the case? CHAIRMAN WILLIAMS: Wel~ll have them as you're talking about them° Q Ail right, let's go back to Exhibit number One, Mr. Giles, just for 'a minute. Now these are slides, but we have prints from the slides that we offer -- give for the record. Referring to Exhibit number One., Mr° Giles, which is a map showing the area for whict~ this order of excep- tion is --- has been requested and showing structural contours on the top of. the Middle Kenai Oil zone, was that R & R DEPOSITIONS P. O. BOX 1947 277-4713 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 13 14 15 16 17 18 21 Page 16. exhibit prepared by you, or under your supervision? A Under my supervision° Q We offer Pan American's Exhibit number One, at this time. (Pause) May it be admitted at this time? CHAIRMA~ WILLIAMS: Subject to any objection, it is admitted into the hearing at this time° (Exhibit number Otto on behalf of Pan American Petroleum Corporation was duly marked and admitted in hearing) Would you refer to Exhibit Two there (indicating), Mr. Giles? A Yes, it's showing that --- Q Right here (indicating). This is a map, again, showing the area for which the order of exception has been re- quested, bu~' showing structur.&l contours on the top of the Hemlock. Was this exhibit also prepared by you, or under your supervision? A Under my supervision. Q We offer Pan American's Exhibit Two, at this time. !nci- dently, we have some copies. Are we giving out copies to interested people in the audience here? Within the limits of what we have we'll pass some out. Mr. Giles, are there any special field rules now applicable to the development of the Middle Ground Shoal field, or to the area shown on Exhibits One, an~ Two? A No, there are no special field rules at this time° R & R DEPOSITIONS P. O. BOX 1947 277-471::3 82~ WEST EIQHTH AVENUE -- BUITliC B ANC:HORAGE, ALASKA 10 1! 12 13 14 15 16 17 18 2O 21 Q A Q A A Page 17o Under what rule -- conservation rule, that is, is the development of this field being carried out from these two platforms? The state-wide rules. Well, I realize the Committee can take judicial notice of this, but would you tell us what you understand the state- wide rules to require, with respect to the location of wells. Well, not more than one oil well to a Pool can. be located on a governmental quarter section, nor can that one well be located closer than 500 feet to the boundary of ~ha~ governmental quarter section, nor can it be located closer than 1,000 feet to another producing well in that same pool. Mr° Giles, do you have an opinion as to whether the area shown on Exhibit One and Exhibit Two, can be developed from these two platforms in the two zones with which we're concerned, efficiently and economically with com- pliance with this state-wide rule? No, I don't believe it can. Let me elaborate by saying that the state-wide 160 acre rule that you now have in my opinion, an excellent rule for initial development of uplands or pn-shore lands° I would.expect that Alaska has profitted from the experCence of the older producing states in the Lower Forty-Eight in adopting this rule. R & R DEPOSITIONS P. O. BOX 825 WEST EIGHTH AVENUE -- BUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 17 18 21 23 A ~age 18. It's particularly an excellent rule from the standpoint of -- lands are generally held under a wide diversity of ownership, and a party has the opportunity to pool his lands into a drilling unit and drill his wells initially, under such a rule, on wide spacing, so as to give each pa~ty an opportunity to drill and produce wide until he sees the need, if there be one, for drilling closer. Pan American has taken the lead in the Rocky Mountains in advocating wide spacing. Initially we were the first to ask for and receive an order from North Dakota, Wyoming and Montana for 160 acre oil spacing. Now in North Dakota and Montana, the state-wide rule was a 40 acre rule. in Wyoming, at that time, they had no state-wide rule. They have a 40 acre rule now. My point is that for initial development of upland, I think it's an excellent rule, but I don't think it fits out in the waters of the Cook Inlet where we are drilling from these single fixed points; the permanently erected platforms. Would you explain in a 'little more detail, why it's dif- ficult or impossible to develop this particular area that way? Well as I say, unlike drilling on land, out here in the waters of the Cook Inlet, we're drilling from s. ingle fixed points; the permanently erected platforms, and we're tryinl to drill wells, many of them as long ~step-outs to a R & R DEPOSITIONS P. O. BOX ~947 277-47~3 I)25 WEST EIGHTH AVENUE -- SUITE ANCHORAGE. ALASKA 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 A q A A A A Page 19. predetermined target area, and it's a little impractical to try to drill these wells as long step-outs from the platform and try to conform with your state-wide rule governing quarter sections. Has Pan American, as operator for the Chakachatna group drilled the wells which have been drilled from its plat- form, in compliance with the state-wide rule? Yes, sir, in every instance, we have. Have we experienced any unnecessary difficulty in ~drilling these wells so they did comply with the state-wide rule? Yes~ sir~ we have. Have yau got an eXhibit that would explain this a little better? Yes, sir, Exhibit number Three. I wonder if it wouldn't be better to flip that over (indi- cating) ? Ail right. Can the Con~nittee see that all right from the --- (pause). Okay, referring to Exhibit number Three, what is that, Mr. Giles, and what does it show? Well, Exhibit Three is a profile of directinnally drilling well number 5 from the Chakachatna platform B, and that would be from this platform north to the number 5 target area. The vertical scale is the true vertical depth in feet. The horizontical scale is the distance from the R a R DEPOSITIONS P. o. BOX 194'7 277.4713 82~ wr:'sT EIGHTH,AVENUE -- GUIT~ · -- ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 21 Page 20. platform to the north. Both the vertical and the horizon- tal scale are to the same increments of depth; 400 feet between the designated depths, and this a true perspective of how the number 5 was drilled from below the surface by-- through the objective Middle Kenai Oil zone, and the Hemlock Oil zone, to a total depth, measured depth, of 11,142 feet. You'll see that underneath the surface casing we built ~an angle, first seven degrees, and then another 500 feet deeper we were at 21 degrees, and the depths and angles are shown, and this was done with special down-hoe assembly. I have to now explain the orange band (indica- ting): The left side of. the orange band repre, sents the boundary of 'the quarter section for our target area,which would be the southwest quarter .of section 30. The east --. the right hand side of the orange band represents the ,500 foot state-wide standback provision inside the south- west~ quarter section 30. Going back to Exhibit Three, we built up'the angle until we had reached our permissable area within the s~outhwest quarter section 30. Then we tet i'~the angle drop more nearly toward vertical, as~ we~penetrated the two objective zones. Now, I might look at this another way: It would have been ranch simpler, knowing our target depth , and how far we needed to be away from the'~tatform, if we had simply drilled this well underneath the surface pipe, R & R DEPOSITIONS P. o. BOX !947 277-4713 82~ WEST EIGHTH AVENUE ' , ANCHORAGE, ALASKA 10 11 12 13 16 17¸ 18 2O 21 A A Page 21. and let the angle build up to, say, 14 or 15 degrees, .and taken her right on to the target depth. The way .we did it was time consuming; therefore it was expensive. There are some inherent hazards and risks involved in drilling a well this way. For example, there is a possibility of sticking your drill pipe, under strain. We'v.e got to ~un extra heavy caSing in order to compensate for the two elbows below the surface pipe, and there are hazards of mechanically producing these wells. I believe it's a rather impractical way to drill in this off-shore field ! simply to comply with a state-wide rule that, in my way of thinking,, was adopted for on-shore drilling. Mr. Giles, drilling the well here (indicating), number 5, in the manner in which it was drilled, increase in any way the efficiency with which that well can drain the portion of the reservoir in which it's located, over drilling it the way you said it might have been drilled easier? No, not in the least. Well, now would the order of exception which we pro'pose in our application permit future wells to be drilled with less deviation? Yes, sir. It would give us the freedom and flexibility to drill wells to specific optimum geological locations which is the way that they ought to be drilled. R & R DEPOSITIONS P. O. BOX 1947 277-4713 B2~ WEST EIGHTH AVENUE -- SUITI~ ANCHORAGE, ALASKA 10 I1 12 13 14 15 16 17 18 19 9.1 9.4 A A A A Page 22. Well now, with reference to the area to the south there (indicating), the brown colored area, do you know whether wells have been drilled in that area which have deviated greatly from the vertical? To the best of my knowledge, they were not. · Now, I don~t think you hear'd my question. Have wells been drilled in there which have deviated greatly from the vertical? Oh, yes'. Where are they? Shell has drilled some long 'step-outs to the south from their platform~ as well as to the north from their plat- form° So they have the same problem then that. Pan American does? Very definitely. DO you know whether they have been drilled in the manner shown on Exhibit Three there, or not? To my knowled§e~ they were not intentionally drilled the way we drilled number 5. Do you know whether exceptions were asked ford or granted to permit the completion of these wells in any manner 'which doesn't comply with the state-wide rule? , We have not been advised as to whether they asked for or received such exception.. if~.?.such an e. xception is necessary for any of them, would R & R DEPOSITIONS · P. O. BOX I~)47 277-4713 82:~ WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 1! 12 13 14 15 16 17 18 19 2o 21 22 25 Page 23. Pan American have any objection to the granting of these exceptions ? A Certainly not. Q In other words, we think this is the way they should have been drilled, is that right? A That' s correct. Q Well now, the state-wide rule also says that not more than one well shall be completed -- excuse me, before I leave that, Exhibit Three, was this prepared under your super- vision, Mr. Giles? A~ It was. Q We offer Pan American's Exhibit Three at this time. CI-~IRMAN WILLIAM: Subject to any objection, Exhibit Three may be entered in the hearing record. (Exhibit number Three on behalf of Pan American Petroleum Corporation was duly marked and admitted in berating) Q Well now, Mr. Giles, in the state-wide rul¢~ in additiOn to to this requirement as/location within a 160 acre subdi- vision, it is also provided that only one well shall be completed on each 160 acre subdivision. Do you think the area which could be affected by this order which is re- quested today~'can be properly developed from these two platforms if the number of wells which are drilled in these two zones is limited to one well to each 160 acz~e tract? R & R DEPOSITIONS P. O. BOX I947 277-4713 825 WEST EIGHTH AVENUE -- SUITE: ANCHORAGE, ALASKA 10 I1 12 13 14 15 16 17 18 19 2O 21 22 25 A Q Q Q Q A Page 24° No, sir, I do not. i feel that in this particular field the two zones should be developed to a greater density 'than 160 acres per well. Will you tell us why, please, you have that opinion? Each of the permanent platforms that have been erected over this field represent a sizeable investment. There are 32 slots available for drilling from each of these platforms. It behooves us to utilize these slots that are available for d~illing in the most efficient manner, and to drill the number of wells that it makes 'the most sense economically to drill from the platform° well Well what/density would you recommend, Mr. Giles, and why? I would recommend an 80 acre oil well density to each of the two zones with which we are concerned with in this hearing. And why? I recommend this because the -- from the data that has been accumulated we see a substantial section of pay sand, several hundred feet, and a substantial section of Hemlock conglomerate pay, and this substantial build-up of p~ay in each of the two zones economically justifies, in our opinion, 80 acre oil well density to each of 'the two zones Could the field be developed profitably on a density of .one well to 160 acrea? Yes~ sir, it could. , ,, R,& R DEPOSITIONS P. O. BOX 1947 277-4713 8~ WE~T EIGHTH AVENUE -- SUITE = ANCHORAGE, ALASKA i( 10 1! 13 14 15 16 17 18 21 A A A A Page 25. How about the economic picture on it, one well to approx-. imately every 80 acres? ~It's much more pro~z'aabi~_. Do you think that permitting the drilling of wells in this area to an approximate density of one well to each 80 acres will in any way adversely ~= av~ect ultimate recover5 of oil from the two zones with which vie're concerned in this hearing ? No~ I do not. As a matter of fact .... Could it~ in some circumstances, increase ultimate re- covery? Yes. Not insofar as primary recovery is concerned~ but let's look at it from the standpoint that each well we drill at this time must be programmed to serve two purpose One is primary recovery, and the other is secondary re- · covery. Now under a secondary program, the more wells we have~ the better opportunity we will have to force injec- tion fluids to contact 'more of the reservOir rock, and thi: could, perhaps, increase the .ultimate secondary recovery. Are there any other factors which exist here and are more · or less peculiar to this type of operation which might affect ultimate recovery? Yes,. sir, there is a rather important one. We really don't know how long these platforms will~!ast. Now re- cognizing the test that has to -- as to the stability of R'& R DEPOSITIONS P. O. BOX 1947 277-47~3 ~2~ WEST EI(~HTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 21 22¸ A A Page 26. the platform that was given to our platform a couple of days ago, well this is certainly no way to find out, but be that as it may, why we cannot be sure that the platform will last the fifty or more years it would be required under a 160 acre spacing order. Well we certainly hope they'll last~ a~nd we have every reason to believe they will, but we have no e~perience and neither does anybody else in this type of inlet water with the ice floes and all the attendant hazards to prove whether it will be the case, or it won't. Now if a platform fails to last as long as it is needed, and it's not economically justifiabl~ to "repair it or to Put another one back in~ we could l~eave ren'overable oil in the ground forever unrecoverable. , wgll go acre density, as opposed to 160 acre density, improve yoUr chances or lessen your chances of recovering oil before the platform should fail or need extensive repair? ' It would improve your chances because at a given point in time, the ~':cumulative oil recovery under 80 acre oil well density would be greater than under 160 acre density. Well now suppose the platform does last until you produced the last drop of oil that can economically be produced fror this field~ is there still a factor which might make 80 acre spacing more desireable than the 160 acre density? Yes, there is. The operating cost for the platform Should R & R DEPOSITIONS P~. O. BOX 1947 277-4713, B25 WEST EIGHTH AVENUE -- SUITE ~ ANCHORAGE. ALASKA 10 11 13 14 15 16 17 18 19 20 21 22 23 24 25 A A q A Page 27. be relatively constant throughout the life of the. field . regardless of the number of wells that are drilled. Now this means that the per well cost for a platform with ~ 20 producing wells would be roughly 40 percent less than the per well cost for a platform with 10 producing wells. The lower per well operating cost would make it economical/ possible to p~oduce oil to a lower economic limit, a~d to recover oil that couldn't be recovered from a platform w&th a higher per well cost. Now it's awfully difficult at this time to predict how substantial this might be, but the extra oil that's recovered could be a substantial quantity. Would it be possible, Mr. Giles, to drill these extra wells late in the life of the field to achieve this low operating cost? No. -- Why not ? It's just too late. You ought to do it now. Do you have an exhibit which would show about how Pan American now feels it might develop the Middle Kenai Oil zone in this area? ~. Yes, sir, I do. Exhibit number Four. Is this substantially the same information which was submitted to the C6mmittee as its request? Yes, it ~is. R & R DEPOSITIONS P. O. BOX 1947 277-4713 825 WEST EI(~HTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 il 12 13 14 15 17 18 A A Page 28. Would you explain Exhibit Four to us? What does it show? Well 'it shows for the Chakachatna acreage only, how we feel the 80 acre density order would ultimately look likeo Now we have shown here (indicating) the -- with the small red circle where we expect to encounter the top of the~ Middle Kenai Oil zone, and we show with a black line the course that is expected of the well bore through the Middle .Kenai Oil zone, and then the large red ~dot re- presents where we would expect to leave the base of that are Middle Kenai .Oil zone. On this exhibit/22 walls. Now under the density o~der that we are requesting, we would be permitted to drill up to 28 wells. We just don't know how to project the last six if they need b.e drilled° I notice you have some of the wells numbered and some are not numbered. Why is~this? Number 5 has already been drilled; number 6 has already been drilled; number 7 has been drilled; and number 8 has been authorized by the Chakachatna group for drilling. Do all'of 'those wells comply with the state-~ide o~der~ or will they, when number 8 is drilled? They will not. They will not. .~ Because we, for purposes of this exl~ibit, have disregarded · the interior lease subdivision lines° No~ I -- in my question I was referring to the numbered R & R DEPOSITIONS P. O. BOX ~947 277-4713 82~ WEST EIGHTH AVENUE -- SUITE ~ ANCHORAGE, ALASKA 10 11 12 13 14 15 17 18 19 20 '21 Page 29. wells. A The numbered wells do, but all the other dots do not. · Q Okay, why haven' t you numbered the others? A We don't know the sequence in which they will be drilled'~ Q Is it possible, that when the next well -- that is, well number 8 'is drilled that the Whole picture will be changed again? A This is conceiveable. Q And 'that this might happen after each well is d~illed? A Right, it Could° Q In other words, ~hi~ is merely a prediction at this ~ime? A That is true. . Q Now in locating those wells have you disregarded interior subdivision lines in locating them? A Ail except the ones that are numbered~, right. Q Do you have a similar exhibit'-- oh, wait, before we leave this, ~was this exhibit prepared by you or under your supervision? A Under my supervision° Q We offer Pan American's Exhibit Four at this time. CHAIRMAN~WILLIAMS: Exhibit number Four will be entered in the hearing record, if there are no objections. (Exhibit number Four on behalf of Pan American Petroleum Corporation was duly marked and admitted in hearing) Q' Do you have a similar exhibit for the Hemlock zone? R & R DEPOSITIONS P. O. BOX 1947 277-4713 82~ WEST EIGHTH AVENUE -- SUITE ~ ANCHORAGE, ALASKA 10 11 14 15 16 17 18 19 2O 21 Page 30. Yes, I do. Exhibit number Five. This is the same ex- hibit except for the structural contours that are located on top of the Hemlock, and also the wells again shown by the small red dot (indicating) where we would expect to encounter the top of the Hemlock~: The large red dots (indicating) indicate where we would expect to bottom in the Hemlock zone. Again, there are 22 locations. Are these the same wells, actually, that were shown on exhibit Five, I mean Exhibit Four, in most cases2 Yes, sir. Would you -- can you put one' on top of the other so that that will show up? There is a certain amount of shrinkage in the reproduction and makeup of these exhibits, but we ought to be able to pretty closely show that the overlay is an extension of the underlay. ~In other words, these two zones are, for the most part are going to be developed by wells that penetrate both zones, is that right? Generally, yes. Can they be completed in'a manner which will allow the two zones to be produced .separately and independently? Yes, by dual completion equipment. Is this a, more or less, standard practice in the indusary Where this situation arises? R & R DEPOSITIONS P. O. BOX 1947 277-4713 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA , 10 11 14 15 16 17 18 21 Page~31. A A Yes, sir, it is. Q Well, at this time, refer -- take those exhibits apart and let's leave exhibit Five on. Has Exhibit Five also been prepared by you or under your supervision? Under my supervision, yes. Q I offer Exhibit Five, Pan American's Exhibit Five at this · time. CHAIP~MAN WILLIAMS: Subject to any objections, Exhibit Five will he entered in the~ record. (Exhibit number Five on behalf of Pan American Petroleum Corporation was duly marked and admitted in hearing) Well now, Mr. Giles, although this is the way that Pan American visualizes the area will be developed into these two zones if we merely -- provided that this yellow area (indicating) could be developed by 28 wells drilled from this platform, theoretica~'ly it would be possible to put ~all 28 in the full quarter section immediately around the p%atform, wouldn't it? A Ye~, it would. Do you think this would happen? A I don't -- it's awfully hard .for me to believe that any operator would do this in view of the relatively high cost , to drill each of these development wells. Q Well why wouldn't they do it? A It~'s just not the efficient way to develop the acreage R & R DEPOSITIONS P. O. BOX I947 277-4713 825 WEST EIGHTH AVENUE -- SUITE ~ ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 2O 21 A Q Page 32. under each of the platforms. Well do you think the Co~n~ission's order in this case, or the Committee's oz~der in this case should contain a provision to protect against this possibility of clustered wells, even though you think economics will pre~ent it an ywa y ? Very definitely. What sort of a provision would you recommend? A provision that would simply be that each individual well sundry notice be used by the State as the controlling measure to decide whether a proposed well is too close to an existing well. The sole authority would rest with you, gentlemen. We have endeavored in brain storming sessions to try and come up with a horizontal distance limitation between wells; keep them so many feet apart. And every time we discuss 'it we come up against impracti- ca!ities of doing it. It is because we are dealing with a three dimensional perspectives and a particular well being drilled may unavoidably come closer to another well than a given distance while it's penetrating the objective two zones, and yet that same well may be targeted further away than that given distance, and still satisfy the con- ~OW tents of the density type of order we're asking for. ~ let me illustrate by putting the overlays back on top of one · another. (Pause) R & R DEPOSITIONS P. O. BOX 1947 277-47~3 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 1! I2 i3 15 16 17 18 19 21 Page 33. it slipped off again. v~!~==~ it sure did. it's hard to do. ° You've got to have your eyeballs going in zn oblique angle. Let's just take two wells, now. Let's just take these two (indica- ting). At the top of the Middle Kenai, they may be closer o toge~mer than, let's say~ 1~000 feet~ about the minimum distance requirement~ and yet as they penetrated the l~iddl~ Kenai~ they could be further than 1,000 feet and look at the objective'target dePths in the Hemlock zone~ which woul be more than 1,000 feet. Now let's presume that since it was closer than 1,000 feet, just to use a round number~ at the top of the Middle Kenai and that was the provision in the order that you had to stay at least 1~000 feet away from the existing well, the only way we could do it from. the platform would be to curve our well bore further out~ let's Say to the southwes~ to be sure that we are at least 1,000 feet away. Now when we do that, we encroach upon the next well further south and maybe we would have to change its target area and its program, and then by doing that 'you could change the next well~ and pretty soon you're so' messed up with the latest -- the wells that would have to be drilled later on that it would be i~nprac- have tical to try to/an efficient and orderly 80 acre density drilling program. Let me show it another way. Is this problem peculiar to Pan American's -- or to R & R DEPOSITIONS P. O. BOX 1947 277-47~3 825 WEST EIGHTH AVENUE -- SUITE ANGHORA(~E, ALASKA id 10 11 12 13 14 15 16 17 18 19 21 A Page 34. · the Chakachatna acreage or does it also exist on the other acreage? It exists ans~vhere in the area really° Let's say that looks like a platform (indicating), and Shell has drilled their number 13-1 which was north of their platform, and I understand that they are now drilling a well -- (pause) 13-1 is the Well to the north here (indicating), but I understand that they are now drilling a well that is to target in the quarter section just to the south, off-setti~ the Chakachatna well number 11 -- 7, excuse me. I believe they call that well 11-1. Ail right, if they drill that well, it may be targeted for a considerable distance out beyond well 13-1. Now this is the top of the Middle Kenai Oil' zone, and this is the top of the Hemlock zone. Well anywhere at the top of the Middle Kenai or within the Middle Kenai, they may be closer than a given distance of~ let's say 1,000 feet~ and yet out here (indicating)~ ~hey are considerably farther away. They drilled the well in a proven manner. They've had to go really ou'~ over the top of their previous one in order to reach their objectiw target area. So in a three dimensional plane~ or perspec- tive, you have three different planes to loo~, with this distance limitation. I wonder if we ought to mark that as an exhibit, Mr. Giles, and it's not very fancy, but maybe we better put it R & R DEPOSITIONS P. O. BOX 1947 277-47~3 G2~ 'WEST EIGHTH AVENUE -- ~UITE ANCHORAGE, ALASKA ~g 10 11 19. 13 14 15 16 17 18 19 2O 21 Page 35. A Q in the record anyway. Eight. I think it's Eight~ isn't it? Yes. It will be a little out of 'sequence here. We have some other exhibits that are numbered ahead of this, but I~11 offer this as Exhibit Eight, which is a sketch that the witness made at the time it was -- while he was testifying CI~P~IPR~AN WILLIAM: Subject to any objections~ the Exhibit Eight will be accepted.. Q A (Exhibit number Eight on behalf of Pan )anerican Petroleum Corpoz~ation was ' duly marked and admitted in hearing) Well now~ to sum this up what is your recommendation' as to a provision in the order to prevent clustering? I would prefer to see that the State approve individual well sundry notices as to wells that are planned for dril- ling to satisfy, in their own minds, that well is targeted far enough away from an existing well so as to avoid clusterings and if you approve it then reasonable effort be made by the operator drilling the well to 'target it at the' 'preplanned target area. This method, i think~ will provide the best control of the well density situation. Do you think with a 'provision such as this and with a' plan of development such as the one that we have sho~cn on Exhibit four and'Exhibit Five,. that the Committee can R & R DEPOSITIONS P. O. BOX 1947 277-47~3 82~ WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 13 15 16 17 2o 21 A A Page 36. exercise its control in a manner which will achieve eL- ficient development of its reservoir and also protect co~celative right ? Yes, sir, I do. Well now, up to this time we've talked about 'these two different zones, but we haven't really defined them. Have you got an exhibit that will show us how we have defined ~hem? Yes, sir, Exhibit number Six. Let me first refer back to Exhibit number Two to show you how this cross- section was drawn, it was dra~m from the northern most half, Chakachatna well number 5 on south through the number 4~ further south through number 7~ further soUth on the ShelI acreage to include their well 13-1, further s'outh to include their well 43-11~ and finally at the southern extremity of the area foz~ which we are asking for an order of exception, we have included the S.A.S. well 34-14. Why are some of those logs on this exhibit (indicating) at an angle? We've done this purposely. Well number 4 underneath the Chakachatna platform B was drilled essentially straight so we put the log vertical. Our well number 5, as you saw in Exhibit Three, ~in penetration of the objective Middle Kenai Oil zone and the Hemlock zone had an avezage R & R DEPOSITIONS P. O. bOX ~47 277-4713 IB2~ WEST EIGHTH AVENUE -- ~UITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 2O 21 A Page 37. angle of about four degrees in penetration of these two zones so we angled the log just a slight bit. We did the same for well number 7 on the Chakachatna acreage which averaged approximately g. degrees in the penetration of the two zones. Shell, ~having drilled longer step-outs~ ,' had two wells in this cross-sections well ~3-~ and well 34-14~ and this is the extreme southern well and it reached an angle of approximately 40 degrees in its penetz~ation of' the two zones. Now the reason we tipped these logs is to put the gross pay section of the Middle Kenai - Hemlock zone in its proper perspective. 0the=wise you'd have quite a bit of distortion. Now how do you pick theSe two zones from the log? Well .the top of the Hemlock zone is a very~disninctive lithological break between the overlying shale and the underlying conglomerate section. The top of the Middle Kenai '0il zone was selected on the basis that it contained all presently known oil sands above the top of the Hemlock zone. The top of the Middle Kenai was selected in well number 4 and then projected through correlation through all the ~other logs on this cross-seCtion (indicating). What are the -- maybe we need to talk a little about the reservoir. What kind of a geological trap do you have here anyway? We have an anticlinal or structural trap. R & ~ DEPOSITIONS P. O. BOX I~}47 277-47~3 82~ WEST EIGHTH AVENUE -- SUITE ANCHORAGE. ALASKA 10 11 12 13 14 15 16 17 18 19 2O 21 A Page 38. And-what are the characteristics of the reservoir rock? What kind of rock do you have?. Well in the Middle lienai 0il zone it.!s made up of fine to medium grained sand, and it has -- and it -- two measure- able characteristics of the rock are porosity and permea'- bility. Let me just briefly say that porosity is a measur~ of the effective void space that is inter-connected in the reservoir~ and pez~meability is a' measure of the a- bility of the f!uids~ to pass through that reservoir rock. The higher the porosity and. the higher the pen~meability, the better .quality rock you have. Now in the Middle ilenai Oil zone, the porosity ranges from 12 to 22 percent~ and will average about 16 Percent. The~'.~permeability will range from one millidarcy to about 500 millidarcies~ although there are some instances where they exceed 1,000 mi!lidarcies~ and the Average will run about 100 millidar- cies o' Now the Hemlock"~zone is an entirely different type of rock. The rock particles wi, ll vary from pea size up through pebble size and perhaps 'to the size of your fist~ and these rock particles ar~ then held together by the fine to medium grained sand that we see up in the Kenai ,Oil zoue. ~ow in the Hemlock the porosity will range from 7 to 18 percent and!~i!l pro, bably average about 11 percent. The pez-meability will range from practically nothing to 100 millidarcies and average on the order of R & R DEPOSITIONS P. O. BOX 1947 277-471:3 82~ WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 21 A A A Page 39. !0 millidarcies. Mr. Giles~ based on your present ~nzorma~lon is it poss~bie · to say whether all of the oil~hich will be p~oduced from this Hemlock zone within the area with which we're con- cerned Would be produced from the same reservoir source of supply or not? Yes, i think all of the oil produced in the Hemlock ~ill be from one con~on source of supply. How about the Middle,Kenai Oil zone. Yill all of that be produced from the same source of supply or can you tell at~ this time ? We are nOt so certain with respect to the Middle Kenai 0il zone. Does it make any difference in the initial stages of deve- lopment, of this field, whether there is mo~e than one reservoir in thls Middle Kenai Oil zone? No, in my opinion~ it makes no difference~ and I think that for the purposes of this temporary order~ the Middle Kenai Oil zone ought to be considered as one zone until we have substantial evidence which indicates otherwise. Now if we find evidence at any time that it should b~ more than one zone, we can present this to the Co~nittee and get appropriate changes made to the order. Will there be any adverse effect on ultimate reCovery ~'~ wells are completed in this Middle Kenai Oil zone and R & R DEPOSITIONS P. O. BOX 1947 I 277-4713 825 WEST EIGHTH AVENUE -- SUITE ~ ANCHORAGE, I.A LASKA 10 11 12 13 18 16 17 18 19 2O 21 A Q Q Page 40. produced from it as though it were one source of supply and you'd later =' ~ zznc out that it was more than one source of supply? No, not in my opinion. Have other fields been produced in this manner? Yes. In fact, i just -- Do you have personal knowledge of some? Yes, we have an exhibit -- (pause~_, Exhibit lqumber Seven which provides an excellent example, where, one pool~ the Weber sand pool in Rangely 'field northwestern Colorado was produced and is still operated as one pool. Exhibit 7 shows a cross-section from the entire west to east length of the Rangely-Weber sand pool. The yellow banded area (indicating) shows the gross section within'the Weber sand and this gross section of about 600~ 700 feet approximates the gross section we see for ~ ~: ~idd!e lienai 'Oil zone in Middle Ground Shoal field. The darker areas represent shale breaks between the sand bodies in the Weber sand pool. The 'initial wells that were drilled in this field were drilled to the top of the Weber, where production casing was set, and then the Weber was pene- trated and left open hole for production purposes, l~ow after a few years of primary 'production the reservoir was replenished for pre~.sure'~.maintenance purposes with gas injection, and then even later~ by water 'flOod. At the R & R DEPOSITIONS P. O. BOX 1947 277-4713 825 WEST EIGHTH AVENUE -- SUITE 1~ ANCHORAGE, ALASKA (i 10 11 12 13 14 15 16 17 18 21 41. time we znsnatze~ 'aha secondary recovery program~ we ran .C casing liners in many o: 'abe peripheral wel!s~ 'the wells around the edge of 'the P, angely-?Teber pool. We did 'this to more accurately control the injection volumes as well as to more accurately control the through-put into these sand bodies~ but many of the up-structure wells even today are being produced from the open hole. r .... , zna~ s up in this area here (indicating)° Q ~ Mr. Giles~ was the development of this Range!y field supervised by a conservation commission in Colorado~ u~Jer a law similar to the Alaska law? A Yes~ sir. In fact, this field is unitized. It's a Federal producing unit, and so the U.S.~G.S. now exercises the control over this field. Q But in the initial stages the Colorado' commission did exercise control? A Yes, sir. Q Did you appear a't any of the hearings that were held on this matter? · A On numerous occasions. Q. Did the commission ever make any e~or'~- to require segre- gation of production from these various sand bodies in · the Weber ? A No, it's all treated as one reservoir', one zo~ne or one pool. R & R DEPOSITIONS P. O. bOX ~947 277-47~3 825 WEST EIGHTH AVENUE -- SUITE S ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 2O 9.1 9,4 9.5 A Q A Q A Q Page 42. Did -- or in your opinion did this open hole completion practice which was followed, in any way impair ultimate recovery? No. is secondary recovery now being conducted in a manner which in your opinion will achieve the ma×i-mum economical recovery from this field? It is. Now inciden:tly~ who are Some of the operators in the field? The operator of the i~ange!y-Weber unit is Chevron 0il Company, a subsidiary of the Standard 0il Company of California~ and they hold approximately /~7 percent parti- cipation in this unit. Pan American has the second larges participation of just under 24 percent. ~.,~.~.~. are a numbe of other smaller companies and individuals that own inter- ests in Rangely. I realize that you may not be able to answer this very precisely, but in general' how does the size of the Rangeiy field compare with the area with which we're concerned hera in this hearing? I would say that Rangely is probably larger than the ~..iiddle Ground Shoal field would, be. The entire field.~ or the area with which we:,'re concerned? The entire field. R & R DEPOSITIONS P. O. BOX 1947 277-4713 82~ WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 20 21 Page 43. Q of courses you realize the entire field hasn't been defined yet? A Right. Range!y's a little c~_~_eren~ shape, it's probably wider than we'lt find at l~iddte Ground Shoal. It~'~ questionable about the lend.no I think i forgot to offer Exhibit Six when you were testifying from that. Mm. Giles~ was that prepared under your supervision? A It was. Q I offer Pan American's Exhibit Six at this time. CHAIRMAN WILLIAMS' Subject to any objections~ Exhibit Six will be accepted into the record. (Exhibit number Six on behalf of Pan ~nerican Petroleum Corporation was duly marked and admitted in hearing) Q And now~ Mr. Giles~ was 'that also prepared under your supervision? Exhibit Seven? A It was. Q I offer Pan American's Exhibit Seven. CHAIRMAN WILLIAMS: Subject to any objections~ Exhibit Seven will be accepted into the record. (Exhibit number Seven on behalf of Pan American Petroleum Corporation was duly marked and admitted in hemring) Q And now~ Mr. Giles~ we're getting close to the end of this. What recormnendations would you make as to the provisions which should, be included in an order entered R & R DEPOSITIONS P. O. BOX 11947 277-47113 825 WEST EIGHTH AVENUE -- SUITE S ANCHORAGE. ALASKA 10 11 14 15 16 17 18 19 21 A A Page 44. by the Committee for this hearing? Well, I would recommend that 'the order contain permission on the 80 acrea oil well density to each of the 'two zones. i would further recorm~end that the ordezA waive the state- wide 500 foot stand-back provision, as well as the interior lease subdivision lines, they be waived also. Finally, I would recom~end that the Oil and Gas Conser- vation Committee should rightfully have the final say so as .to whether a proposed well seems to be located too close to~.~an existing well so as to prevent any concern as to the undue clustering of wells on the structure. I feel that such authority will provide for orderly develop- ment under an 80 acre density order. What provisions would, you suggest with respect to protec- tion of correlative rights of lease holder working interest owners ? Let me put the slide of Exhibit number One back on. We haven't touched, on this before, but there are two differ- ences of ownership. One concerns the t'ownship line separating the yellow colored acreage from the 'tan colored acreage. There's a difference in lease hold ownerships across that township !ine~ and up along the east side of the yellow colored area, as well as along the north side~ there's a difference in royalty ownership. The yellow colored acreage being five percent royalty, and the an~ea R & R DEPOSITIONS P. O. BOX 1947 277-4713 82~ WEST EI~HTI4 AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 ~ ~'( 13 14 15 16 17 18 19 2O 21 22 23 24 25 A Q A A Page /+5. to the east and north of the yellow acreage being twelve and a half percent royalty. There's also a difference in royalty ownership between --- across the township lineo Yes, there is. That is correct, and we would recommend that no more than two wells be permitted in any quarter section adjoining the cormmon line where there's a dif- ference in ownership, .and that each and every part, whethe~ it be ~perforated ~ or open hole section in the two zones with which we are concerned, you must be at least 500 feet back from t~e common line in those two zones. WoUld you also recommend 'that this problem of correlative rights 'be taken care of to some extent by adding to ~provision number eight, the phrase that I suggested in my opening statement, to allow the Committee to reject any well location, not only along this boundary line, but anywhere within the area if they felt it might impair correlative rights in the location in which it was pro- posed to drill it? Yes, I think that!s a proper amendment to our application. Well, without reading these provisions through -- you have read and are familiar with the application? Yes, sir. Do you think that provisions contained on page '5 .and page 6, if incorporated in this order~ will give an order which R & R DE,POSITIONS 277-4773 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 18 19 21 Page 46. A A accomplish what you think should be accomplished in it? A Yes, I think so. Q Do you think that such an order will permit the operators to develop this field and produce it in the most efficient and, therefore, most profitable manner? A ! most certainly do. Q Can we have a break for just a minute? I think I'm through .but I~d like to consult here. ~CHAIRMAN WILLIAMS: A five minute recess. Off the Record On the Record C~L~IP~N WILLIAMS: Now we will go back on the rec o rd. Q Mr.. 'Giles, referring to Exhibit Six, which is the log cross-section that shows the~e two zones, you stated that - whether the Middle I~enai Oil Zone was one reservoir or more than one reservoir for the purposes of this temporary order i' · it made no difference, it should -- should be permitted to be produced as though it were one reservoir, did you not? Yes, each -- the ~Middle Kenai and the Hamlocko Why not produce the Middle Kenai and the'Hemlock all toge- ther as one zone? WelI, we feel that, in most eases~ the future wells will be dually completed so that production is segregated, but we recognize that~ depending upon what a well finds.in its particular circumstances, we may want to apply for R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 2O 21 A A A A Page 47. permission to comingle the Middle Kenai Oil zone with the Hemlock in the same well bore. i think this would be particularly true in areas where there is not as much productive pay sand build-up, or pay conglomerate build-up, and I feel that that ought to be a permissable type of request. Is provision for this made in paragraph number four of. Pan American's requested provisions for an order? It is. And you do believe that there may be cases where this will be desired? Yes, sir, I certainly do. Is there any way at this time to predict which wells might need to have such comingling provisions? Not as it pertains to the Chakachatna acreage. You showed a primary development for the Chakachatna. You did not show one for the S.A.S. acreage. Why not? We understood that, at the June 8th informal hearing in Anchorage on Middle Ground 'Shoal fiAtd~ that we~ as opera- tor for the Chakachatna group and Shell, as operator for the S.A.S. group, was to have submitted a tentative plan of development as to how each of our respective acreages m~ght look ultimately. Of course, Exhibits four and five reflect the Chakachatna's interpretation for their acreage. In view of the request from the State~ we didn't feel it R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 Page 48. proper to try to project what might Shell's acreage look like from such an order. I would expect, however, that it would look quite similar in the density a~rangement as we show for our Chakachatna acreage. MR. VONDERAHE'' Mr. Giles, in your recon~endation that two~ only two -- not more than two wells be drilled on a quarter section, nor within 500 feet of a common property line, did you also mean that to include differences in royalty~ o~ the -- you have the two royalty interests of -- one on one side and the other .... A Yes, we did. .~. MR o VOI~DERAHE: I see° A Which would be up along the --- MR° VONDERAHE: East side. A (Continuing>--- east side~ and also, Mr. VonderAhe~ the -- up along the north side here (indicating) because this is twelve and a half up here~ but the basic lease extends over here to the w~est (indicating~. , Q It's actually the only place that you don~t have that problems Mr. Giles, is along the west boundary, isn't it? A That is correct. MRo SWAN: I believe this closes my direct examination of this witness° CHAIR~AN WILLIAMS' Thank you. MRo SWAN: He~s yours for cross examination~ R & R DEPOSITIONS 277-47~3 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 17 18 19 21 Page 49. CHAiRi~AN WILLIAMS: Do any of you have any questions? ~. CREWS' I just have one question, Mr. Giles' Does this map run north and south? A Yes~ it does. ITm sorry. Yes, it certainly does. Here's the south end and here's the 'north end (indicating). MR.' P'S~RSHALL: Mr. Giles, you mentioned in your testimony that fill in wells could not be drilled later~ that is, the 80 acre' wells could not be drilled as fill in wells later on. Was this because of the mechanical problem of getting out through the completed wells -- in other words, your path is narrowed and your mechanical difficulties are increasing and filling in on 80 acre spacing through 160 acre density? A NoD Mr. Marshall~ I didn't mean it quite that way. i just used, as an illustration~ that if there was a horizontal distance limitation to avoid clustering, I just presumed something; that it would make it difficult to go out throug the corridors and not be closer than a given distance from an existing well~ but there's no sequence that we have in mind for drilling these wells at this timed except to try to spread them out much as we show it on our Exhibits Four and Five. MR. MARSHALL: Another question: You've used the term several times of sundry notice. In our particular suite of forms would we -- I believe you're referring to the application for permit to drill, is this --- R & R DEPOSITIONS 277-4713 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 21 Page 50. You can see that i have been dealing with the Federal governmen t. ~o MARSIiALL · You're right. MI~. GILBRETH: I see. A (Pause) Mr. Gilbreth? Mr.. Giles, i'd like to ask a question. Do you believe that one well can effectively or efficiently drain 160 acres in the Middle Ground Shoal pool -- field? A I don't -- there isn't any question in my mind for the Middle Kenai Oil zone. I'm sure it can; but for the 'Hemlock zone~ I would have some reservations because it's so much tighter than the Middle Kenai 0il zone. YfRo GILBKETH: This did not come out in testimony; you may not be prepared to answer. Do you know yet whether a water ry up or a partial water dry u~P exists in this pool? A I do not know. I would expect that~ if it does exist, it might be somewhat limited. ~. CREWS: Mr. Giles, what is your rate 'of production on your current producing wells out there? A We have -- when we are producing~ we produce 1~600 barrels a day from our number 6' well~ which is\9ompleted in the Middle Kenai Oil zone. We are testing the number 7 to the south and number 5 to the north. We don't have either well finally completed at this time. MR. CREWS: On the well that you mention that's producing 1,600 a day~ what --- what would you say is its R & R' DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE 5 ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 Page 51. potential? A Sixteen hundred. ~Rt. GILBRETH- What plans would you have for these ad- ditional wells, as far as production --- since we don't have any prorations here in the State of Alaska? A Well, we expect to dually complete both number 7 to the south ~and number 5 to the north in the ~two zones keeping the production segregated~ and 'to produce them at the M. E. R., for each zone, which is the maximum 'efficient rate. MR. CREWS: And M. E. R. would be determined by Pan Am? A No, it would be determined by the reservoir's ability to give up .the fluid. MRo MARSHALL: Mr. Giles~ on your Exhibit number Six you mentioned that the zones were picked in we~l number 4. Since that well has been drilled~ have you made any other considerati¢ for zones higher in the sections the stratographic section than that which was picked on the number ~4 well as being the · top Middle Kenai Oil zone? A No, we were trying to confine ourselves solely to all presently known oil centers. We didn't~lwant to include any commercial gas zones up above. ~o ~ARSHALL: I see. My -- i~d like to direct my question further, that on Exhibit number Siix~ because of the scale i can't pick the 'top of the Middle lIenai Oil zone from the R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 22 23 24 25 Page 52. Exhibit, and I -- we, from our information, believe that there is a possibility of a oil zone with considerable difference in gravity to the oil, within the zone which you lump -- the Kenai Oil zone. Have you any feeling on the engineering practice, or the advisability of producing 'these sands with the different gravity ? A Yes, .let me answer your question this way: We did include this higher G. O. R. zone within our Middle Kenai Oil sand zone. MR. MARSHALL- Yes. A And tb~ top of the Middle Kenai is 5,300 in depth~ the number 4 well. We included 'all Presently known oil sands below that depth in that wel~l. Now, we admit that this high G. O. R'. zone has fluid of different composition than we have seen in the other sands comprising the Middle Kenai Oil zone, but further down the flank in this zone, we may find fluids of similar context to those in the sands now in' the Middle Kenai. The other, point I'd like to make is that we don't intend to test this zone, open it for pro- duction, until we can conserve the gas that~jwould be pro- duced from it. In other words, get a compresser out there and conserve the gas rather than flare it. Give it a pro- per?~.test at that time to really see what it does contain. At this time, under a temporary' order, we prefer that we be allowed the opportunity to include it with the Middle R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANC:HORAGE, ALASKA 10 11 12 i""i 13 14 16 17 18 19 2O 21 22 23 24 25 Page 53. Kenai Oil zone, and if we find that it doesn't belong there, we'll come to you and suggest that it be taken out of that zone. MR o ¥~kRSHALL: Thank you. CHAIRMAN WILLIAMS' Anything further ? MR. CREWS: Just one more question. Mr. Giles~ in your capacity as a professional engineer~ do you think there's any possible or potential danger of damaging the reservoir, or reservoirs, in producing on an 80 acre density? A None'!. whatsoe.v, er o MR. CREWS: You don't think there would be any by-passing or coning, as it's known?. A No,' I do not, sir. These orders are temporary and if we see something with additional performance in additional drilling that justifies a change, we know that we can apply for that change, and come before you and ask you to consider a change. 'We like this feature. We think it is the way it should be. MRlo M~RSHALL: Mr. Giles? A Mr. Marshall? MR. MARSHALL: You mentioned that some of the acreage with- in your outlines would probably not be developed within the temporary period of the order. I am stating 'this really as a question because I'm not sure whether you meant that it would not develop during the temporary period, or in the ultimate R & R DEPOSITIONS 277-4713 823 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 2O 21 ~ a~e 54 development ? A No, we were -- Mr. Marshall, we were concerned only with the duration of the temporary order, and we don~t know which parts of this yellow and tan acreage (indicating) would not be developed, it's hard to predict at this time MR. MARSIiALL: i see. A But we were concerning ourselves with the length of time during which we'd be operating under the temporary order. MRo MARSHALL: .My question is based on the ratio between the -- well, actually between .the wells density stat'~ment~ if so many wells per so many acres, or well per so many acres, and by the uncertainty as to ~the size of the area which we develop during ~the temporary period, this has, of course, a relationship on'the number of wells to be drilled within it? · A This is correct. MR o MARSHALL: Thank you.~ MR. CREWS: I have one further question. A Mr. Crews ? · MRo CREWS: Mr. Giles, in'paragraph 7 on page 6 of your ~'i application you say, well which has been completed in and produced from only one zone, and which is thereafter completed in the other zone, and produced from both zones, shall, so long as it is produced from both zones, be considered the equivalent of two wells, as above provided.'~ Could you explain 'that just a little bit? Is there any particular reason that you want R & R DEPOSITIONS 277.4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 Page 55. our consideration? A Yes. This was to compliment the earlier provisions 4, 5 and 6 in our application, and it provides that, if you have dual completion equipment in the hole to where you can produce each zone independant of the other, that would be two zones being produced. If you, instead, comingle the p~roduction from the Middle Kenai Oil zone with the Hemlock zone, that would be called two zones for purposes of production. Either way, you're producing both zones with two wells. MR. CREWS: Do you -- are the hydrocarbons that are pro- duced out of both these zones, do they ~contain nearly the same graPity, or are they substantially different? A No, they are not substantially different. The gravities will run 35 degrees A.P.I to almost 37 A.P.i. in both zone~ C~IAiRMAN WILLIAMS: I believe that concludes the Cormmittee~ questions. MRI. SWAN: Does -- did you. have some cross-examination? (Pause) I have a little redirect if you don vt. FRt. RUDD: No, we have no cross-examination. As I under- stand the procedure~ the questions of witnesses are to come only from the Committee. CH~IRFi~N WILLID~S: Not necessarily, if you wish to cross- examine, I believe this would be in °rder. F~,. SWAN: I think so. R & R DEPOSITIONS ' 277-4713 823 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 20. 21 22 24 25 Page 56. Y~. RUDD: Well, may we let Mr. Swan go ahead with his additional questions? MRo SWAN' Okay° I'll just have one question on redirect that I think will make -- it may take me several questions to get it out of you, (laughter) but i think there's one thing that needs a little more explanation, and this is 'this question of whether the rate of production may affect ultimate recovery. R o Bo GILES -- previouslY sworn testified as follows on PCEDiRECT E]LAPIINAT ION BY IvLR ~ SWAN: · Q Mr. Giles, in your opini'on, will this reservoir be likely to be rate sensitive under primary production? A No, this is --- QWould you explain why you don~t think it would be? A From the data that's been accumulated, we expect this to be produced under solution gas drive mechanism, and there is no rate sensitivitY connected with that type of com- pletion mechanism. QThat's all I have. CItAIRICAN WiLLiAi~S: l~r. Gilbreth? MRo GILBiIETH: Is this an undersaturated reservoir? A Yes, sir, it is. FRt. GILBRETH' You think there Vs no water drive associated. with it in any way? R & R DEPOSITIONS 277-4713 82~ WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 2O 21 22 24 25 Page 57. A No active water drive. MRo CREWS' Did I understand you to say n~na~-~ "- you believe. that the Middle Kenai Oil zone is one common source of supply then? A Yes, we would like to have it considered this way for purposes of a temporary order, i indicated that I wasn't real sure at this time whether it should be called one zone or more than one zone, but for purposes of the temporary order,' let's say 18 months, why we think it ought to be treated as one zone until proven otherwise. FRto CilEWS' You don't know whether there's communication · throughout this Middle Kenai zone, as of yet? A No. ~o CREWS' How about -- is there any conm~unication between the Hemlock and the Middle Kenai? A I would suspect that there is~ so that it is really one common source of supply. That's my opinion at this time. Mit. SWAN: Mr. Giles, did You mean that; that there's communication between the Middle Kenai and the Hemlock? A I didn't.understand the q~estion. MRo CREWS: Yes~ that was my question. A Oh, i~m sorry. No~ no. I expect that the Hemlock by itself is a separate entity~ a separate source of supply from the Middle Kenai Oil zone. MR° CREWS: I see. R & R DEPOSITIONS 277-4713 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 17 18 19 20 21 Page 58. CHAIRMAN WILLiA~M$' Nr. Rudd, do you now have any cross- examination or do you ~vish to proceed? M~o RUDD' No, we do not wish to cross-examine, and we might also note for the ~ecord that Shell has no objection to the admission of the exhibits. CHAIRMAN WILLIA3~S' Would you like to proceed now with Shell~ s .... MRo RUDD: I wonder if we might have a break.? CHAIP4W~N WILLIAMS: A ten minute break would be in order. Off the .Record On the Record CtiAIRMAN WILLIAMS: Before we start, Mr. Rudg, I wonder y. ou , , Mr. Swan~ if/would enumerate, for the benefit of the record, the witnesses that were sworn in? MP, o SWAN: Yes. Mr. Krebill. F. K., isn't it? MR. KREBILL: Yes. PIRo SWAN': Mr. Conrad, what--- MR o CONPJtD- C.L. FRlo SWAN: C. L. Conrad, and what are your initials, Dick? MR. RAUSCH: R.W. MRo, SWAN: R. W. Rauscho You'll have to spell it for us. MR. RAUSCH' R-a-u-s-c-h. CI-~iPR~AN WILLIAi~S: Thank you .' Mr. Rudd ? MR° RUDD: Mr. Chairman and Gentlemen~ our witness will no review the general situation on Middle Ground Shoal to any grea R & R DEPOSITIONS 277-47~3 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 2O 21 Page 59. extent. We recognize that all of you Gentlemen have known that as long as there's been any activity on Middle Ground Shoal, there has been some disagreement between the parties as to the size and the shape of the structureD and the nature of the reservoirs. These factors were gone into at great lengtl- two years ago in the 5 percent discovery royalty hearing and it should be generally familiar to all of you. We will seek to show that with other additional wells, defining the structure and obtaining the production information~ there can be no definitive answers t° the problems raised. Our witness will point out that the application is~ in part~ pre- mature, particularly as it relates to the spacing and density problem. From a legalistic standpoint~ the courts have often supported statements to the effect that~ wells are most ef- ficiently -- fields, rather~ 'are most efficiently developed by outlining the field, determining the reservoir data necessary and then deciding upon in-fill wells. As the Conservation Committee~ you are charged by law with assuring that the fields are developed in a most efficient manner and a prudent manner~ so ~that the greatest ultimate recovery of oil results. Our witness will show that part of the prudent~manner test of development, includes the';~accumnlm-. tion of adequate knowledge before taking steps altering the basic plans. As a Conservation Committee you are also, as in' every other state, charged with the duty to the various lessors R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE. ALASKA 10 11 12 14 15 16 17 18 21 Page 60. and to the lessees. Here, your duty is simpler; you need not consider a number of lessors. There is but one, but your duty is no less. You do have a duty to see that the State Vs and the public's interest is protected by assuring yoUrself · that no long range objects of conservation, including primary and secondary recovery, are frustrated by the expediency that sometimes economics seem to demand. Our witness will indicate that generally We concur with Pan American's Proposal regarding government subdivision lines set backs. The basic spacing matter, however, of 160 acres for oil wells, have stood on our books for a long time, and we feel that without the obtaining~ of detailed information which is re-~ liable~' and which results ~from a matter of history, rather than from a matter of prediction, no change in that order should be made. We feel that the burden is on Pan American to come forth with the evidence to show that this change in spacing or densit] is demanded now. Our witness who will testify this mornings is Dea~ Allen. He is staff production exploitation engineer for Shell in 'their Anchorage office. MR. MARSHALL' Mr o Alien~ please raise your right hand. Do you swear that in thee testimony that you're about to give in the matter now in hearing, that you shall tell the truth, the whole truth and nothing but the t~uth, so help you God? F[R o ALLEN: I do. R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 Page DEAN ALLEN being first duly sworn under oath, testified as follows on: D IP~CT EY~IMiNAT iON BY MR. RUDD: · A I presume I'm to qualify myself? Q Please. A I~m a graduat~ petroleum engineer with Bachelor degree and Master' s degree from c. d~ ' ~' °tan ~ord'University, graauanzng with the latter degree in 1955. I'm employed by the Shell Oil Company and my present title is Staff Exploitation Enginee~ I've been with the Company for eleven plus years, and all of tRat time has been spent in our Pacific Coast area which encompasses the -- or at the time that I started, encompassed the Rocky Mountain states and the West Coast states. During the past five years, I have worked as a --- I have served as an alternate member of the conservation committee of the State of California and during the last years that I was there, I served actively on the engineeri~ board itself~ of that corm~ittee. I've been working on Middle Ground Shoal development and planning since about 19 --- since September of 1965, in our Los Angeles area office and since -- transferred to this division here from March lst~ 1965 --- 1966. I represent Shell in its joint operations and dealings with our S. A S. participants ~ our engineering con~nittee meetings, and I represent our R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 2O 21 Page 62. S. A. S. group in our joint S. A. S. Chakachatna biiddle Ground Shoal engineering conmittee meetings. i'd like to submit our o~.~n exhibit, which, is our interpretation of the Middle Ground Shoal structure. The structure?'si.i~conto~rs "that you see on here (indicating), are drawn on the H. C. marker~ which is the same marker that Pan Am uses at the top of the conglomerate zone. The log that we have here shows -- shows Shell~s identificatior markers of the log characteristics that are compiled from well to well.. On the map i~ve shown an expected limit of the oil accumulation as wouid~ be demonstrated by an anomalous, condition, perhaps, but not necessarily so, aS' we found in A 23 12, 'the only part of the Hemlock zone that is actually oil productive there. We're not -- i don't believe that we can state that this is O. il.~water,~., contact. Ail we can state is that this represents a zone of no hydrocarbon accumulation, and it may be --- this may be caused by the change in 'the lithologic character of the rock and the porosity bec'amc so small that the oil was not able to actually get into -- by the rock due to the capillary action. But 'this represents our present inter- pretation of where the limits are. Obviously it's based on what limited well data we have at this point. The spots t~a t you see on here (indicating) are the wells that have been drilled from the two pez~manent platforms that ar~ R & R DEPOSITIONS 277-47~3 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA i, 10 11 12 14 15 16 17 18 19 2O 21 Page 63. now completeds and.~as you can sees we have a total of about 6 completion points in tlie lower zones and two ., completion points in what we call the upper zones and you'll notice that 'there's a significant attenuation of what we consider the upper zone over what Pan American has described, and i'!! get in. to that as I read my statement. The green outline is the Chakachatna group acreage · that is' included in 'the request for an exception, and the red -- this larger area here (indicating) is the S. A. S. p!a~S'that lie within this same request. This is 'the fault trace (indicating), and we show 'our faults I gathers' from looking at their map~ somewhat more westerly 'than the~ dos and we~ve done this on the basis of penetration of the fault from this well~ and on the basis of what we believe from the penetrations in that well and that well (indica- ting). As I said, the contours are nn the H. C. markers and " shown on here is just 'these epitome limits, as we think they exist right now with the limited well data that is available of the -- what we term the upper zone. Our zon'ation points as you can see here' (indicating) s is different from Pan Am~s zonation p[oint~.~m. I I! describe our reasons for pzcmzng this particular poznt. Are there any questions about what the exhibit re- presents at this point? R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE- SUITE ANCHORAGE. ALASKA 10 11 12 13 14 15 16 17 18 19 21 Page 64. Q }ir. Allen, at this point i might ask you, was this exhibit prepared by you and other's in your office in Anchorage? A It was. Q We would offer it in evidence. · A I might also dra~v attention to this !ittla cn~oss-section (indicating) that goes through'our platform A. It shows only 'the lower zones productive in this 'particular loca- tion because with 'the Middle lienai portion which they~ claim which is from here up to there (indicating) is not productive in this par. t right here and only these two small sands are productive at that point (indicating). M~R. CP~EWS: Mr. Allen~ is the west flank of the structure abounded by a fault? · A We believe it is~ partiCularly in the Hemlock. We're .not so certain of that in the upper zone. MR. CP~EWS: And i believe you said you discovered no oil-. water contact on the east flank? A We don't believe we've actually found a .ligitimate oil- water Contact° We only have one well out on the flank at this p0int~ and the conditions were such that the zone tha was not hydrocarbon would produce neither water or oil. So we ~really don~t know where thais line is. it may be farther out; it may be -- well~ it can't be any closer in because this (indicating) represents the base of that particular hydrocarbon zone that we did find. So the R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA Page~ 6 5" 10 11 12 14 15 17 18 19 2O 21 23 actual orientation of these things is based on -- is predicated on the geological interpretation of the evidence we have thus far'~ and as I mentioned, it's pretty meagre at this point. Primarily it's on well control to -- and some interpretation of 'the Seismic data. I would offer 'that in evidence. CI!AIPd~AN WILLIAMS: Subject to any objections~ it will be accepted into evidence. MT... CREWS: Is that your Exhibit number One~ may I ask? ~Q That 'is number One, and it is the only exhibit that will A be offered. (Exhibit number One on behalf of Shell Oil Company was duly marked and admitted in hearing.) I~d like to read a statement that I~ve prepared, which .covers pretty well the problems that we have with the timing of the application, and then answer any questions you might have concerning it. The S. A. S. group, with Shell Oil Company as operato~ for itself, Atlantic Richfield and Standard of California, acre believes that an exception to tl~e state-wide i60/spacing regulation should not be granted for the Middle Ground Shoal field at this time. In our opinion, field develop- ment is insufficient and well production performance cmaracteris~ics are not yet sufficiently well defined to justify increasing the well density of the field to 80 R & R D~'I~O$ITION$ 277-4713 825 WEST EIGHTH AVENUE -- SUITE ANC:HORAGE, ALASKA · P~oe 66 10 11 12 14 15 16 17 18 19 21 acres per well. We cannot argue that subsequent develop- ment of the fie!~, may~ indeed, indicate that a narrower spacing than 160 acres per well is an optimum basing, but we simply are not now in a position of sufficient reservoir knowledge to state what that optimum spacing ought to be. Much depends upon~ we believe~ the size of the cumula- tion on a stabilized oil rate~ that these wells can be produced at and in a form that pressure maintenance secondary recovery might take'. We believe that granting a temporary order for 80 acre' development now would tend to delay our drilling aimed at defining' some of the very things that we should know before we can decide what is the optimum s~pacing of this field. Instead, we have fears that in-fill drilling will be - that drilling might be directed at in-fill l~c&tions on a competitive basis which could then increase the rate of reservoir depletion in certain areas~ where other areas would, lie undeveloped. This differential depletion could cause problems~ perhaps not from a primary standpoint~ but certainly from a secondary standpoint where the pressure is allowed to drop too iow before a 'pressure maintenance program can be installed~ and it is our opinion that this could result in an adoption of a ha'atily conceived pres- sure maintenance pro~ ~ or=m which might not be optimum foz the field conditions. A temporary order~ as you are aware is R & r DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA · . ~'aoe 67. 10 11 12 14 15 16 17 18 19 2O 21 2,2 2,4 a temporary order in name only; that the wells that have been drilled, under such an order cannot be undrilled, and if further study should indicate that a spacing wider than 80 acres per well is optimum~ 'then some unnecessary wells will have been drilled. Under a progz-am of stepping out under 160 acres per well Spacing, the extent of the reservoir should be defined first before in-filling in those areas where reservoir , , development and. economic considerations warrant a narrower spacing. We have pursued a policy of 160 acre out-step development starting with the installation of our platform A. To date~ we have built and completed six wells and we're drilling a seve'nth. Pan American, as they indicated~ have drilled, tl~ree wells from the 'platform~ one of which is completed and. they are completing the other two. There has been no evidence thus far 'that the reservoir limits would be exceeded by continued 160 acre development. We believe production experience is too meagre at this point for a reliable determination of optimum spacing. At the end. of June~ only about 567~000 barrels had been pro- duced from the whole Middle Ground Shoal field~ and the S. A. S. wells has 'produced over 524~000 of that, about 93 percent of the 'total. Production has been interrupted frequently by drilling operation~ and twice by pipe line at this breaks. As a consequence, we still do not have~ R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE-SUITE 5 ANCHORAGE, ALASKA Page ~o'8' 10 11 12 13 14 15 16 1'7 18 19 21 time, a very good idea of the sustained well performances well production performance. Our wells are now back in production following temporary repairs of the pipeline to shores and it is hoped that the desired production per- formance data will become available in the next several 'months~ provided we don~t have 'any more pipeline breaks. This will allow us 'to perform economic studies based on the actual well performanCe data, and on reliable informa- tion about reservoir rock and fluid properties, rather than on assumed conditions~ or what can best be described, as assumed cOnditions under our present state of our knowledge of the field. Our belief that it is premature to change the spacing provisions for Middle Ground Shoal as they relate 'to the number of wells that can 'be drilled in a land subdivision~ we find that we are in partial agreement with Pan American on some aspects of field development. They indicate that the field should be developed on a two zone basis~ and we also recognize sufficient differences between sands to warrant a two zone development; however~ as I pointed out before, we do differ on the precise point of zonal separa- tion, and I might point out on this exhibit (indicating)~ if I may, what our pz~oblems are.. The' two sands 'that they included in their Kenai -- Middle Kenai zone~ what we term the Go iqo and thE"'G. £. R & R DEPOSITIONS 277-4713 825 WEST EIGHTh AVENUE - SUITE 5 ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 Page 69. sands, actually have a much wider amrial extent -- hydzo- carbon aerial extent than any of the other sands 'that rare up above this point. This little bit i've shown you here (indicating) represents the limit of these sands above our zonation point, to a point slightly above Go N. The G. N, and the G. S. sands are present and pro- ductive in every one of our wells except this one ~indi- cating). Present here, present here and present here (in- dicating). Ail three of these spots are beyond the limits of the -- what appears to be the limits of 'the upper zone accumulation. .Only two of our wells actually have these other sands prOductive; A-32-11 and A-13-1. These two sands, the G. N. and G. S. sands, are too thin to warrant · separate development, and. for that reasons if we were to pick Pan Am~s point of separation, then we would not inclu¢ those sands, or could not include those sands in the com- pletion in that these wells (indicating) lie beyond 'the limits of what we show as the upper zone accumulation. If these sands all had essentially the same aerial extent, I don~t think I could argue very strongly that ther. e would be any change in the ultimate recovery from these sands, by virtue of the completion that would include all of those sands~ but since they' do' have~ indeed~ a muck wider aerial extent here (indicating)~ the time that these other upper sands might become ready for abandonment, the R & R DEPOSITIONS 277-4713 82-=; WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 21 Page 7 0. G. N. and G. S. sands could very well be in a-_very low stage of depletion, and for that reason alone, would be left behind. From a more practical -- just from a prac- tical standpoint we would not prefer to place those two sands in the completion of the wells that are drilled on down to the conglomerate zone itself. As to actually whether they are a part of this zone (indicating), I can't tell you. We do see that -- the extent of them as being considerably different fz~om these (indicating). A second point of agreement that we have with Pan American, and perhaps I should stay over 'there (indicatingl to show you on the map, is in recognition of the difficulty of placing the producing interval of a strongly deviated well into the area that is presently prescribed by the 500 .foot standback requirements. This little arrow that you see here (indicating) shows the 500 foot standback, and each one of these squares then is the area right now under the order which we would be allowed to drill and replace the entire completion interval of a well. 'In recognition of this particular problem, we have asked for exceptions and have been granted exceptions by the State~ and it's expected~ that without change in that Provision of the regulations, we would have to come to you again on an individual well by well basis to ask for ad- ditional exceptions because of the problems that have been R & R DEPOSITIONS 277.4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 29. 9.5 Page 71. mentioned by Pan ~nericans in which we concur. So Pan ~erican's proposal asks for a complete removal of the internal subdivision lines, that is to says these lines (indicating) that az~a not near a lease boundary or an ownership change boundary~ and frankly we believe that this is desireable; however, we forsee significant dif- ficulties in administering such a' proposal, from the spacing density regulation point. As was bn~ought outs thez~e would be some problems 'that you would have to fallow on a well by well basis in handling the ~veli drilling per- mit. Wells could 'be drilled in a cluster in certain areas under the provisions that they have oz~dered. They might be --- put wells in thez~e on a much closer spacing than. ~as actually intended under the wording of the particular agreement~ or the ~particular proposal, as long as the number of wells that you've drilled, into this little thing here (indicating) doesn't actually add up to more 'than a specified number~ which is based on the resultant size of this thing~ it wOuld be all right to drill them, at least according to the terms of the proposal,~ with ~the exception of course~ that you' granted the provision 'to deny ap- plication~ but as i say the administrative problems will cause some headaches. As a more easily administered policy which would insure adhez~ence· to the well .density R & r DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 2O 21 Page 7 2. provisions of the regulations, but we suggest that a .C simple relaxation o~. the 500 foot standback requirements themselves, the retention of the subdivision lines would allow us a higher degz-ee of d~iiling f!exabiiity to ac- complish our end oz oelng =oie to put these wells where they should be, at least on the 160 acre spacing basis. We're pretty sure that we can place one well within one quarter section, as long as we don't have to concern ou-~'selves with these 500 foot quarters. I don~t know whether you've actually calculated the area that is ~in- volved here, but this is 160 acres (indicating)~ and of the 160 acres, only 62 acres can be developed under your present regulations~ and it rea%ly makes it very difficult from our drilling standpoint to do so. We would retain, of course~ the 500 foot .... F~I.' CREWS: Mr. Allen, would you repeat that again? don~t quite -- I wasn't following you on that. A Sorry. NR. CREWS: That only --- how many' acres can be developed?. A Right this moment, your regulations specify, we can only drill within this particular square (indicating)~ which~ is ~ portion of 160 acres, and that portion~ the calculated area of this particular square (indicating) is 62 acres out of the 160 that is involved in that quarter section. MR. CP~W$: Thank you. R & R DEPOSITIONS 277-4713 WEST EIGHTH AVENUE-SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 Page 73. A Well~ of course, in the case of the external lease boundaries ~here o~,~ers~p aha royalty rates, oil royalty rates differ, we believe the 500 foot standback restric- tion should remain. That constitutes my con~nents on this thing as con- tained in this, but are there some questions that I can answer? (Pause) MRo CREWS' Mr. Allen, you heard Mr. Giles'statement that the drive in this reservoir is a solution gas drive. Do you agree with that? A i don't think we have sufficient evidence at this Point to verify what kind of a drive we have. I think that from our experience in dealing with reservoirs of a similar types we would be inclined to believe, that a solution gas drive would be more prevalent in the lower zone. I don't know ~vhat we'll ~et in the upper zone MR. CREWS: But you don't think there' ,, at this time to be able to say? s enough information A 'I don't believe we haves at this stages enough information to state. MR. CREWS- Assuming that it were a so!ution.gas drive~ do you agree with Mr. Giles~ statement that an'initial high rate of production doesn't damage this type of reservoir? A Is that the statement that he made? Mil. CREWS: Correct me, if you will, but that was my R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA Page 7 4. 10 11 12 14 15 16 17 18 19 21 under standing. A I don~t believe that a higher rate; per se~ of solution gas drive reservoir~ will affect the production performance characteristics of the ~ iution gas drive. MR. CREWS: Assuming that an order were granted with respect to Pan Am~s request for the 80 acre density~ do you have an opinion on whether or not =-~ = c~aznage might result~ assuming they got their wells in before the wells -- more wells were drilled in your red outlined area (indicating)? A if the density relationships between the two sides of separating lined between Pan Am's, or the Chakachatna group's property and ours was different~ if they had a higher density of wells than we had on our propert'y~ there would be drainage. MRo CREWS: So you would have to develop along .... A We would have to develop in order to protect our plans from drainage. Mit. CI~EWS: Now you stated that there could be clustering of wells. How do you go along with the Pan Am~s proposal to have an order submitting all these wells on an individual basis so as to prevent clustering? Do you think that would effective] cure your obj~ections there? A Weli~ that would put you in the position of a well by well police dog, and this is an administrative problem that will always be difficult of couz~se. The problem we would R & R DEPOSITIONS 277-47~3 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA P~ 75 10 11 12 14 15 16 17 18 19 21 see is that, if you were given this as a thing 'that you could agree to or not agree to on your o~ without us having any particular knowledge of what was involved here. You see the present regulations require that if it's going to be close enough to affect us, we should kno~ about it and have a chance to protest it at a hearing. If this is going to be eliminated~ I think that we would have some strong objections to it~ but if it's going to be put in such a fashion that it could be handled this ~way~ then we might be inclined to agree. It could be hmndled in a fashion 'that allows us to -- we!l~ let's say -- I can't imagine that anybody would want Shell to haVe Pan Am in putting out their development pattern~ just as much as we would not want Pan Jan to put together our development pattern, until such time as we might be unit- ized. So this does create some problems as you can see° Mil. CREWS: And you agree with Pan Am that the 500 foot standback distance creates serions problems in develo'~ment of the structure or the rese~voir~ as it was?' A Yes. F~o M~ARSIiALL- i want to ask a question· Fir. Allen, in of your vertica% sep.aration/.i~theitw0~i~, zones Which you contemplate developing, is your cziteria for this separation mainly a pro- duction convenience at this time? A Well~ it's two-fold~ isn't it? The -- it's a much R & R DEPOSITIONS 277-47~3 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12. 13 14 15 17 18 19 2.1 2.3 practical thing to consider developing those two sands with the conglomerate zone in those areas that lie outside 4--I of the major build-up of sand that lies in the o~ner zone, but by the same token, if we were to take and split the zone at a point below those two small sands then tee would not be in a position to develop those sands at all, beyond what we consider to be 'the upper accumulation. You see, their upper accumulation, the width of the thing concludes all of the G.N. and sure enough~ the G. N. and 'the G. S. comes all the way down into here (indicating) so that the boundaries that they Show for the accumulation in the upper zones are based really on the boundaries of this G. N, G. S. sand, or. at least some where near that~ and--- MP,. lVukRS?JiLL: Mr. Allen --- A Go ahead. MAR. zvkqRSHALL: Pardon me. Won' t you be faced with the same problems as Pan American north of the line when you develop up to your conm~on boundaz-y? This strikes me as somewhat of an inconsistency that youz* vertical zone separation is different and you will be developing a common boundary. This would become ,, acute at that line, i believe. A I'm not 'sure I follow you, Mr. Marsh'all. MP,. iVLARSHALL: If you have a different distinction in the separation of your two 2~z-o~uczng zones, now~ and if you carry .this distinction of separation up to your common boundary, ~ehen R & R DEPOSITIONS 277-47~3 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 20 21 Page 7.7. you get' to the cormn~on boundary, then we will have, instead of two separate zones, we'll have some composite overlapping. A That would be true if both of us were allowed to continue developing this thing so that we included,, the G. N. and the G. S. sand, it will where ever we care to do so. I'm suggesting that -- a better way of splitting this thing at this time, is 'to split it up here (indicating), so that the G. N. and the Go S. sands are included with the lower zone. MR o VONDEP~HE- Do you feel then that the G. S. and G. N. sands will not produce in that lower section if you had dual completion; there's not enough volume~ there?' A That there's not ~u~flcient volume of oil there that can be recovered to warrant the separate completion of those sands, outside of this area here (indicating). I~Ro KUGLER: Mr. Allen, on your two southerly wells~ do yo~ have those G. S. and G. N. sands separated from the lower Hemioc · A They're produced through a common tubing str~'~ right now. We do have them perforrated and separated as far as the inspector is concerned~ but we can only produce them~ one or the other, or two o'f them in combination, but only through 'one tubing str~ and the reason that we have · , separated them is for well test to determine the produc- tivity of these different kinds of sands we see. ~. VONDERA~- What will they produce down in that area, R & R DEPOSITIONS 277-47~3 825 WEST EIGHTH AVENUE - SUITE aNCHORAGE. ALASKA ~? 10 11 12 ( 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 78. the two sands by themselves? A These two (~n~icat~ng~ ? F'~,. VONDERAHE- Yes. ., A Initial flush production. ~. CP~EWS: Well Mro Allen, as I understand it, we now have two platforms out thence, is that right? A That's correct. Milo CREWS: And you state that we need more information before making that determination of 80 acre density spacing. Can this information be derived from the platforms that are in existence out there right now, or --- A The -- in drilling wells from the existing plat,f0rms. MR. CREWS- How long would you estimate the structure is longitudinally? ., A Well, this is our present interpretation of it (indicating) and I didn't actually add up t. he number of miles. Let's see what we can do. MR. CREWS' Well, just a rough estimate. A Okay. (Pause) Roughly nine~ nine and a half. i¢~. CREWS: And that information can be secured from the I1OW platforms/in existence ? A Well, mind you~ we can't -- a platform -- we agree pretty well with Pan American as far as the business of justifying the platform is concerned. You have to have an amount of reservoir that you can reach from that platform that will R & R DEPOSITIONS 277-47~3 82~ WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 Page 79. support the investmenn that you've made on the platforms and we recognize we aren't going to be able to reach any farther with something about like this (indicating), under our present techno~ ~ ~o~y of drilling from these platforms, so that we envision putting another platform down here (indicating), but 'the knowledge that we need to have in order to justify the denser spacing would come from de- velopment around the platform, our particular platform that's presently involved~ that is presently inst&l!ed, and that the justification for a spacing of any sort on the next platform we put in will be based on the condition. that are around there (indicating). CHAIRMAN WILLIAMS - Mr. Gilbreth? Mi!. GILBRETH: Mr. Allen~ I'd like to ask if, in your opinion~ the zonation as you have it shown on your Exhibit numbe One~ if you think the sands or stringers in the upper section represent one common source of supply? A These sands above here (indicating)? FiR. GILBRETH: Yes, sir. A We're not sure. We haven't sufficient information on that point to be able to tell. Ali of these wells right here (indicating) are crestai weils~ as far as that zone de- velopment is concerned. We have no rear flank deve!opmen'~ Some light development has been beyond the limits of the --- what we cons idez~ the upper zone.' R & R DEPOSITIONS 277.4713 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 2O 21 22 23 24 25 . z.,..,.o~x~zn You indicated 'that ~.n would 'be ~ossib!e to cluster wells under the Pan Am proposal and it .would be neces- sary for the Com~mittee to pass on each one individually. If the Conzmittee were to appz~ove the 'Pan American application for an 80 acre density pattern, or 80 acre densCty, not pattern, would you have any recommendation to make regarding minimum distances between wells: A Well just -- when you start dealing with minimum distances between wells you're again getting into the problem of -- the problem that they've pointed out, the diffez~ences of the position of the well within the reservoir itself so that perhaps 'paz~t of it would be closer and part of it would be farther away, but the intent of it would be to try and develop it 'on some sort of unit ptan~ but i envision problems if you were to put a minimum distance between wells. lfR. G!LBRETH' Thank you. lxfR. CREWS- What kind of data do you think is needed additionally? Would that be a well control data or additional seismic work? A No, it would be primaz~ily prod'uction information~ plus of couz~se 'the actual development woi~k that must be done, , drilling out on the flanks to decide -- to determine how far out. the -- are oil bearing to get some idea of th.a ultimate size as wa continue as it relates to 'the two R & R DEPOSITIONS 277-47~3 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 2O 21 Page $1. platforms, or to our platform, and sustained production performance to get some idea of what the stabilized rates might be, and the rate of decline that these wells might expect. ~. CREWS' Thank you. CI-IAiP~Y~N WILLiA2¥[S' Are there any other questions? MR. KUGLER: How soon do you plan drilling wells along the flank? A Well our development program calls for drilling out on 160 acre. out-steps from the present development to this here (indicating) so we're proceeding along tlnat basis right now. It will take us -- we don't know how long it will tak us to drill the wells. You can't drill them overnight. it will take several months before we'll bmve those flank wells all drilled. '.C~iAI~MiqN WILLIAI~S: Did you have something? lv~<. MARSILALL' Yes. I would just like to state a question. Mr. Allen, you feel that 'the 160 acre spacing now in effect is the best spacing for the development of your present platform area? I believe you stated that you felt this was satisfactoz~y for the present? A That this would allow us to continue our out-step drilling and define ~the reservoir size~ and to be able to gain that production information that would be required for us, being able to make the decision to go to a naz~rower R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 ~ ( 13 14 15 16 17 18 19 2O 21 22 23 24 25 ~oe 82 spacing, if that was indicated. I~. ~IkRSHALL' And would you say that it depends completely upon the development of the sub-surface information in this drilling, that you would' come to the decision of whether you wanted a smaller well spacing? A Well not, of course, entirely on the seismic information, but the total volume you could produce and the rate of production that you 'could expect these wells would all enter into the Calculations that you have to make in order to weigh the economics of one development patter,n against another. MR. MARSILALL: So then we can't forecast a date at which time you might expect that this information would be developed. it would be dependant more or less on what's found, by the producti6n characteristics and the field size? A I can't tell you precisely when we will be able to come to a conclusion and say, "Now we know that this is the thing that we ought to be doing here". Ail i can really do at this point is say that I need some~'~additional information before i can decide which way to go. Right at this moment i don't have sufficient confidence in the data that we have accumulated, l..Te have very little to rely on for a decision to be necessary at this time to go to 80 acres. P51. IxL~RSI~-~LL: Thank you. CHAIRMAN WILL!;2'4.S- Any cross-examination, Mr. Swan? R & R DEPOSITIONS 277-4713 WEST EIGHTH AVENUE - SUITE ANE:HORAGE, ALASKA 10 11 12 14 15 16 17 18 19 2O 21 FRI. SWAN: ~[o cross-examination. CHAIPd~hiN WiLLIAI, iS · Any redirec t, Mr. Rudd ? FKt. RUDD- No redirect. CH~AIP~¥~kN WILLI~uMS· ;my questions from the public? (Pause) If none, why we'll close the hearing. MR. SWAN' I do have a .... CHAiPGiAN WILLiamS' ~z~. Swan ? MR. SWAN: (Continuing --- a rebuttal witness~ and I also would like to make a 'brief closing statement, but I see it's lunch time. i hate to ask you to come back, but i think we can do it in, what, 30 minutes. Would you rather take a break for lunch and come back about i:30, or delay lunch for a while? C~hiiP~LqN WILLIAMS' Want to go to lunch? MR. SWAN: Okay, let's do that then. CHAiPaMAN WILLIamS' We'll reconvene at 1' 30. (Whereupon at 12 :i0 p.m. ~ Chairman Williams adjourned the hearing. At 1:30 p.m. the hearing resumed its session and the following proceedings were had-) CI-LAiRMAN WILLIAMS: The hearing now will reconvene. MR. SWAN: Mr. Chairman? C~LAIRMA~N WiLLi~MS: Mr. Swan ? · MR. SWAN: During the lunch hour we talked ourselves out of 'putting On a rebuttal witness~ so if you'll just let me make my closing statement and Shell will make their closing statemen~ I think we're ready to go home. R & R DEPOSITIONS 277-4713 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 20 21 Page $4. C~LAIPd~-~N WiLLiA~[S' Very well. ~. SWAN'. Actually~ as you can see from nne~ case, our area of disagreement here is not really so very great. !~m sorry we can't give you a case where Shell and Pan American could completely agree, but i don't think that's ever possibles and that's what you're for is to make the final decision. Quite frankly, ! don't think it's any secret~ we've had some disagree- ments in our own company on some of these things~ but somebody has to make the decision as to what is done~ and we have done it. i think our principal area of disagreement here is more timing than anything else, and we have to admit that we don't have as much evidence as we'd like to have. I don't think we'!l ever have as much evidence as we~d like to have. If we wait until we have all the evidence the field's going to be developed and probably substantially depieted, and we simply do not feel that that should be done. We think that it's im- portant to us from an economic standpoint to get the producing rate in this field up as high as we can, as soon as we can and keep it up there. Now St~ell's position is that they're not quite ready to consider this, and they don't know When they will be, but this in effect~ is tying her development plans to what development that they're willing to undertake, and i don't ~h~ni~ that is the proper yardstick to ap'ply to it. i think that -- anymore · '~Well Shell's than i think it would be proper for us to say, ~ . R & R DEPOSITIONS ' 277-47~3 825 WEST EighTH AVENUE - SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 2O 21 Page 8 5. drilled more wells than we have and you ought to make them wait until we can catch up with them . ~ s the same type of reasoning. We think that ~.,.~e are ready for 80 acre spacing on our tract now. We think that we can drill these wells without impairing Shell"s correlative right, and i realize 'that ~e're giving you a tough one when we put so much responsibility on you to decide how these wells should be drilled, but I don~t think there's any other~ answer. I wish we could devise some kind of set-back rule or something that would make it so we could simply file a well application and say, ~This complies with your rule and let us go ahead and drill it," but we can't and I don't think anybody can. If you think you can, we'd like to look at it though. i think that maybe our difference of philosophy is that we're just -- we would rather run 'the risk here of drilling an unnecessary well, rather than delay the development that .we think should be undertaken, and if it develops that we have well, drilled an unnecessary/ we're the ones that suffer the loss. I don't think the z~eservoir can be damaged in any way. I think -- here again, I think that Shell and Pan American agree that this is not going to be a reservoir that will be -- where the producing rate will be critical, in other words~ where overproducing wells is going to affect ultimate recovery in any way. If we ever find any evidence of it, I think we~!! both be right back in here asking the Commission to help us out R & R DEPOSITIONS 277-47~3 825 WEST EIGHTH AVENUE - sUITE ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 21 Page 86. on that problem. Well, they did raise one point here that perhaps we should answer, and that is on this question of zonation. We recognize the problem they have, and we have it too; that is that it may not be sound economically' to produce that lower part of the Middle Kenai as separate from the con- glomerate. There may be cases where it should be comingied with the conglomerate production. That was the reason 'that we had. this provision in our suggested order; that comingling would be permitted by the Committee on a 'proper showing, and ! think that where that situation arises that comingting should be permitted. . For instance~ ! think they have one well where they are separated only for testing 'pu~,~poses, but to produce both of them~ they have to 'produce them as a coming!ed well. i don~t see any harm in that. ! think Pan American may find itself in that same situation, and. I can't think of a 'better way to pro- vide for it. I don~t think we can provide in advance or predict in advance for sure, where that situation is going to arise in a particular wello In general, we think that there should be some cons istency. in other words, i don't think where there are dual completions that Shell should be putting the line in one spot and us at another. I think the Committee should provide for a standard division between the two zones, and naturally we think our di- vision line is the proper one. One other point: They indicated that they would like 'to R & 1~ DEPOSITIONS 277-47~3 825 WEST EiGhTH AVENUE- SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 21 Page 87. see all of a well kept within a quarter section, in other words, do away with the 500 foot standback, but permit you to complete a well only within a particular quarter section. Whether you go for an 80 acre density or 160 acre density, we would objec'~ to ~nat. We 'think there vary well may be situatior where you would actually want to have the productive part of your well in two d~z~erant quarter sections, and these are completely artificial subdivisions. We have a situation hare Where you can really do what you really ought to do i'n developing a field throughout most of them, and that is~ try to put your wells where they are most advantageously located on the structure, 'not -- you don~t have the problem of separate tract ownership except to a very limita~ extent here. It isn't like back in the Other Forty-Eight~ or the Lower For~-~y-Ezgh.~,'~' ~ where you b.ave a great number of small tracts, forties, eighties~ one hundred and. sixties and separate ownership on each one of them. Well that"s one reason --- one of the main reasons for o' ~ . ~ op=cing is 'to take ca~e. of that problem of sep'arate ownership,, and we just d. on~t'have that here"~ so we would prefer that the --- regardless of what well 'density you have, 'that the interior subdivision lines in this lease just be forgotten; that the only time you need. to worry about a line is where it separates the ~'== a,z~zerent ownership of ~'-' ~ ~z~n.~r royalty or changes~ and I might p6int out,that particular 'provision is going to ezzect Pan American much more than anyone else. Only R & R DEPOSITIONS 277-47~3 825 WEST EIGHTH AVENUE -- SUITE IS ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 2O 21 22 24 25 along the west side will we have any quarter sections where we can get closer than 500 feet to a line, or under our order, ~ ~ along the drill more than two we!is, because a~on~ the south: east, along the north we will be required to be back 500 feet on all of that. Shell, on the othe'~~ hand, has it only on ~he~ northern · boundary, as I understand it. i don't believe there's any difference in lease owne~_~ship below that. i don~t believe there's anything else. I'm sorry 'to bring you back for such a short statement, but ! thought that it needed to be made. C~:~IPdVlAN WILL!~iS' Thank you, Mr. Swan. (Pause) MR. ~ELL: Gentlemen, first ! would like to address myse~ briefly in regard to 'two legal considerations that have azisen during the course of this hearing~ this morning. First is in regard to spacing versus well density. Now I'm not sure that i quite understand how the density pattern fits in with the statutory provisions in the regulations which talk in terms of spacing of wells. I read Section 31.05.030~ subsection which authorizes the Conservation Committee to deal with. the spacing of wells~ and also I tuzn over here (indicating) to the regulations which is involved in this~ which is essentially Section 2061.3 dealing with temporary exceptions to spacing orders, and it also refe~s 'to the fact, after 'the Cormnittee has had a hearing, if it elects to gzant an exception, it shall R & r DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE. 'ALASKA 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 enter an order describing the temporary spacing pattern. So both the' statutes and regulations seems to be encouched in terms of spacing patterns, and ~ith the oral amendments that have been given today~ it would seem that you would not, under the proposal of the 'applicant, be giving a spacing pattern as i would be inclined to read the statute and regulations, that you would give~ perhaps on a well by well basis, as you may have made application. Under those circumstances, in any event I would say that in view of this state of affairs in the law, certainly, if any consideration is to be given to this order which we oppose, it certainly~'sh, ould be qualified by the re- quirement for notice and hearing preceding any of th. ese varia- tions that relate to either correlative rights or off-set wells And in this light, I would point out that, as the Cormmittee is well aware~ that these things have been discussed very satis- factorily~ very informally~ and worked out and i have no doubt that there is alot of latitude of working them out in the 'futur~ but so that we are kept advised~ so that we can give you our views as well as Pan Am can give us their views if we have a well like this~ I do think that any variations should be on a notice and hearing basis. .Secondly, again in the realm of legal considerations~ would point out that nothing had been mentioned of the buz~den of proof in 'these proceedings. Now~ there has probably been more oil and gas administrative decisions and more case law in IR & IR DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE- SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 20 21 Page 90. the State of Texas than in any other state, although ~ '- ]5~e~e ~as been alot in New Y~exico and Oklahoma too, but if you go through these decisions, one constant and one very continuous trend is followed and that is, when a party comes in and asks a state agency to make an exception or qualification to a state-wide spacing ruling, or existing order rather, they have the burden of showing by a preponderance of the evidence that this excep- tion is necessary. Now~ here today, I've heard nothing that shows -- other than the same doubts~ the same uncertainties that we' have expressed at this time. There has been nothing definitive. There has been a -- I would say~ a common recognition as to the · need for more data, for more information which can only be obtained by the drilling of wells. I think both parties agree on that. So in my opinion, the burden of proof has not been met; in fact.~ if anything, our evidence as to the need for more data has been agreed to. Now I would also like to state, briefly, the position of. the S. A. S. group, 'relative to the present development of the field. Now at this time ~I also' agree with counsel for the applicant here~ that i think what we are talking about is a question of time; however I do not agree~ and it is not the position of the S. A. S. group that this additional information which we .wili need to make a determination and to come to you with Our proposal of the development of this field, is some R & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA i0 11 12 13 14 15 17 18 19 20 21 29. Page 91. vague, indefinite~ far off, remote future time. We are drilling . ~- ~ these wells one an a time. %~;e are ~ll=_ng step-outs on a 160 acre basis. We:-'are dr~ ~ ~ ' ~z~ng them as fast as we can. In our opinion~ the time period involved is one of months, and just months. It may be a little more 'than a year~ it could be a litt~ o !e ~= ss than a year~ but you may rest assured that as soon as wa get the information~ we'll be back in either with Pan Am jointly or upon the basis of a separate application, but we do think at this time that a year is a good ball park figure~ as- suming the present rate of drilling and development that's now in progress° So that the sole question before you in connection with this hearing is not whether or not this exception 'is granted at all~ but 'whether it be granted at this time. Now a little bit more as to the economic co-nsiderations which have received considerable emphasis in this field. Now 'expenditures in this field~ as everyone knows~ were con~enced with lease acquisitions in 1961, and they have continued to date and we're certain that the Committee is well aware of the mag- nitude of these expenditures~ however~ in our opinion~ the fact that We a~e"~dealing with large amounts only accentuates the need for more careful and thorough analysis of the entire re- servoir before jumping into a spacing exception. Shell and its partners~ Standard and Atlantic Richfield~ have likewise bought leases~ constructed permanent p!atfor~ms~ and have drilled wells. We presently have six wells. Likewise~ r & R DEPOSITIONS 277-47~3 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE. ALASKA 11 12 14 15 16 17 18 19 21 Page 9~2. we took the lead in the engineering and construction of the pipeline to shore. ~u~ther, a cursory review of the map will show that we have even a larger acreage-wise percentage of the reservoir outline and a stake in 'this spacing than do the ap- plicants. Yet we feel, and ! might -- another economic con- sideration is that we wez~e not granted the 5 percent discovery royalty. Yet, notwithstanding all these considerations, we reel that we have much more to gain by waiting a few more months for reservoir data. We don~t feel that the early in- creased economic return which, might result from clustering of ' ~' £~ course Of wells under the proposal justmrmes the risk. action might not be compatible with the ultimate maximum re- covery of hydrocarbons, fz-om the reservoir, which, by law, is a 'primary concern of this Committee. Denial to the a'pplication for spacing exception is not an unalterable course of action~ When more information is available later, it can be considered again and another ap- plication can be filed if it is decided this is the way' to go. Witnesses for Pan American have testified that there are no mechanical impedements to the drilling of 80 acre in-fill wells at a later date, thus leaving economics being the sole consid- eration, which we indicated, we feel is a matter of months. Now it has also been. said that this application deals with a temporary spacing order~ a tem'porary well. Eighty acre ~l!s once they're drilled,can't be undri!ied. If this turns out not R & R DEPOSITIONS 277-47~3 825 WEST EIGHTH AVENUE -- SUITE ANCHORAGE, ALASKA 10 11 12 13 14 15 16 17 18 19 21 Page 93. to be the '-~ - ~.o- ~' opn~mum spac~,o zor both primary and secondary re- covery operations~ all operators as well as the State as the royalty o~ers wi£± De the losers. Insno~" -~ and to the point~ the risk inherent in granting the application at this time~ in our opinion, z=r out weigh any possible benefits. Thank you. MRo SWAN' I assume since, as counsel says, i have the burden of proofs i also have the privilege of closing. ! would like to make just one conm~ent. The Connnittee is in a 'fortunate position here~ and I hope you don't go to some of the other states where the Conm~ission has taken the position and the courts have taken the position that your orders are, in effect~ res judicata, as counsel suggests here. No matter what you do here today, if you find out 'that you've made a mistake~ you can always correct it o So if you elect to grant our order now, and. find out three months down the road that you should not have, or do it the other way around~ don't grant it and find out · three months down the road that you should have~ that can be done. Nothing you do is final. You have the duty of continual supervision, and I think the only time an order~ a conservation order is considered more or less res judicata would be in a situation where you have forced .pooling and have actually affected, ownership of iands~ or have forced unitization upon someone. Thank you for your time~ and as I say~ I'm sorry we brought you back for just twenty minutes. R & R DEPOSITIONS 277.4713 825 WEST EIGHTH AVENUE - SUITE 5 ANCHORAGE, ALASKA 10 11 12 14 15 16 17 18 19 2O 21 CH~ii~¢~IN WiLLiJ4'{S' That's parzectiy all right No problem. (Pause) Apparently we have all the information wa need so we'll conclude the meeting, i would like the interestec parties not to rush right off. I would like to talk of some- thing else -- about something else and it should be off the record So i'= . ~ there are no objections, we will conclude this beefing. END OF HEARING --- r & R DEPOSITIONS 277-4713 825 WEST EIGHTH AVENUE - SUITE ANCHORAGE, ALASKA CERT[F]CATE UNITED STATES OF AMERICA STATE OF ALASKA I, ..... :.>.~,;.~..~.+~...Q.., .... .C..~...-..7.j_...v...e..~..u. .................. , Notary Public, itu and for the State of Alaska, re- siding at Anchorage, Alaska, and Electronic reporter for 2 & 1% Depositions, do hereby certify: Heari~zg of ivan ~ ..... ','" an ~ ~,~',~,~" '~ That the a~exed and forego~g :d~p~~,~Z~p L~.~ i ~. ~ % iO.r~ ...f.O :C... Q~i ~,e.r....o.f...~ ~ m.. c~ption. was taken before me on the ...... ~2.th...day of ............ Ju..iy ........................... , 1966, be~ing at the Loussac L:~israry~ hour of ........9.:.3.0....&.fa ........ , at the .ulfi¢~.m~C. itM...C.ounail...Ckambera ................................. , Anchorage, Alaska, pursuant to Notice to take the ~po'~ of said witness on behalf of t~ear~ng That the above-named witness, before examination, was duly sworn to testify to the truth, the whole truth, and nothing but the truth; ~Hea. ring ' That thia~.'dep~itior~ as heretofore annexed, is a true and correct transcription of the testi- mony of said witness, taken by me electronically and thereafter transcribed by me: Rearing That the/~teBesj}:i~D~ has been retained by me for the purpose of filing the same with the office k~.!~r~th.e:.l~t:~o.r, ne.y...Ge.n.e:£a.l.?.s .... /. ......... ~l~.~t, Anchorage, Alaska, as required by law. I am not a relative or employee or attorney or counsel of any of the parties, nor am I financially interested in this action. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal this ....... 2.2m.d.. day of ............ J.~!~ ................................ , 1966. /~?' .?."') /7 .......... ~y commission expires: ....... 6./l~./.7.O .............. (Seal) R & R DEPOSITIONS P.O. BOX 1947 277-4713 ANCHORAGE. ALASKA FORM SA-I B I OOM 9,~§5 MEMORANDUM TO: ~Thomas R. Marshall, Jr. Petroleum Supervisor State of Alaska DIVISION OF MINES AND MINERALS FROM: DAlE : August 2, 1966 Harry W. Kugler ~~ Petroleum Geologist SUBJECT: De~inition.. of Pools in MGS Field This memorandum is written to add details to my memorandum of July 11, 1966, on the same subject. It is believed that the changed definition o~ pools will establish a better precedent to handle the same situation in other fields when they are being developed. Pan American Petroleum Corporation has provided us with Exhibit "A" as an attachment to their request for 80 acre density in the MGS Field. This exhibit is part of an Induction - Electrical Log of the Pan American MGS State 17595 #4 well. The exhibit indicates two "oil zones" in the field as 4efined by the following intervals in the above named well: Top of Middle Kenai Oil Zone - 5300' Top of Hemlock Zone - 7375 ' Shell Oil Company, in their testimony at the public hearing, indicated two sand "zones" which were not in agreement with Pan American. Using the same well as above, the 'Shell zonation would be as follows: Top of Upper Sands - 5300 ' Top of Lower Sands - 6750' The different tops defining the lower zone involves two sands which are capable of production. Present evidence further indicates that these two sands will be productive over most of the area of the field. It is recommended that eight pools be established in the MGS Field. The pools will be defined by intervals in the same well, the Pan American Petroleum Corporation MGS State 17595 #4, as follows: Kenai Gas Pool or Pools - To be defined when required Kenai Oil Pool A - 5300' to 5830' Kenai Oil Pool B - 5830' to 6100' Kenai Oil Pool C - 6100' to 6400' Kenai Oil Pool D = 6400' to 6750' Kenai Oil Pool E - 6750' to 7050' Thomas R. Marshall, Jr. -2- SUBJECT: Definition of Pools in MGS Field August 2, 1966 Kenai Oil Pool F - 7050' to 7375' Hemlock Oil Pool - 73 75' and be low It is further recommended that the MGS Field rules should permit the fol lowing: 1. Kenai Oil Pools B, C, and D may be produced and commingled in the well bore. 2. Kenai Oil Pools E and F and the Hemlock Oil Pool may be produced and commingled in the well bore. These intervals used to define the pools are based on lithology, separation of oil bearing sands, and physical characterists of the petroleum. It appears, at this time, that if this method is used to determine pools in every field and any commingling be covered by field rules, we will have a standard operating procedure. ~/cjh BEFORE THE ALASKA OIL AND GAS CONSERVATION COMMITTEE In the Matter of the Application of ) Pan American Petroleum Corporation ) for an Order of Exception Relating ) to the Middle Ground Shoal Field ) ) ) ) Docket No. STIPULATION REGARDING EXHIBITS COME NOW the Applicants by and t'hrough their attorneys Robison, McCaskey & Lewis, and Protestants by and through their attorneys, Ely, Guess, Rudd & Havelock, and stipulate and agree as follows: 1o That the exhibits offered in evidence by Applicants and Protestants at the 'hearing on the captioned matter held in Anchorage, Alas'ka on July 12, 1966, contain information in the nature of trade secrets which is properly revealed to parties and to those involved in the decision-ma'king process; and that said persor~.~should have access to those exhibits at any reasonable time. 2. That, inasmuch as no public interest would be served by revelationfof such data to persons other t'han those designated above, access to such exhibits should be restricted to employees of the parties, .the parties' attorneys, persons designated in writing by the parties or their attorneys with the approval of the opposing party or its attorney and those involved in the decision-making process; as to all others, said exhibits shall be held in a confidential status. DATED at Anc'horage, Alas'ka, this 13th day of July, 1966. ROBISON, MCCASKEY & LEWIS, Attornevs for Applicants Eben H. Lewis ELY~ GUESS~ RUDD & HAVELOCK Attorneys for Prot~_~tants ~',~ JoS~pR Rudd ~ FORM SA-1B 100M 9/65 MEMORANDUM TO: FThomas R. Marshall, Jr. Petroleum Supervisor Harry W. Kugler FRoM:Petroleum Geologist State of Alaska DIVISION OF MINES AND MINERALS DATE : SUBJECT: July 11, 1966 Definition of Pools in MGS Field Pan American Petroleum Corporation has provided us with Exhibit "A" as an attachment to their request for 80 acre density in the MGS Field. This exhibit is a partial Induction - Electrical Log of t~ Pan American MGS State 17595 #4 well. The exhibit indicates two "oil zones" in the field as defined by the following intervals in the above named well: Top of Middle Kenai Oil Zone - 5300 Top of Hemlock Zone - 7375 It is recommended that we establish three pools in the field and define them by the following intervals in the 'same well: 1. Upper Keru~ Oil Pool - 5300 - 5850' ~ 2. Middle Kenai Oil Pool - 5850 - 7375 3. Hemlock Oil Pool - 7375 and lower The reasons for adding the third pool are as follows: a. The sands above 5850 show a marked difference in API gravity--45° in relation to 37°+ below 5850. b. The gas - oil ratios are indicative of different reservoir conditions-- 4830 above 5850 in relation to 400+ below 5850. All of our data indicates very little difference between the Middle Kenai Oil Pool and the Hemlock Oil Pool. A subtle change in the lithology of the reservoirs is really the only difference and this gives rise to porosity and permeability differences (we do not have facts to back this up). HWK/cJh ROBERT C. ELY W. EUGENE GUESS JOSEPH RUDD JOHN E. HAVELOCK HERBERT D. SOIL SIDNEY R. BIXLER MICHAEL G. BR1GGS JOHN M-cCREA~T LAW OFFICES OF ElY, (~ue$$, F~Udd & HaVElOCk 202 CRAWFORD BUILDING P. O. BOX I332 ANCHORAGE, ALASKA 995OI July 8, 1966 TELEPHONE Mr. Thomas R. Marshall Executive Secretary Alaska Oil & Gas Conservation Committee 3001 Porcupine Drive Anchorage, Alaska. 99504 Re' Pan American Petroleum Corporation - Request for Order of Exception Dear Sir' On behalf of Shell Oil Company, Atlantic Richfield Company, and Standard Oil Company of California, we wis~h to confirm previous conversations between representatives of the companies and members of the Conservation Committee, and further, to confirm written notice delivered to Mr. Williams, Chairman of t'he Conservation Committee. Shell, Atlantic Richfield, and Standard, protest the issuance of an order of exception affecting the Middle Ground Shoal Field., ~as requested by Pan American Petroleum Corporation, notice of which was published on June 27, 1966 in the Anchorage Daily News. The protest is based upon the present lack of sufficient reservoir and other information necessary to justify a variance at this time from the normal oil well spacing pattern. We understand that, in accordance with the Oil and Gas Conservation Regulations, a hearing will be held on July 12, 1966 at 9:30 A.M. at the City Council chambers, at which Shell et al may present testimony and exhibits and otherwise participate fully. Yours very truly, JR'mf cc' Eben H. Lewis, Esq. Attorney for Pan American Petroleum Corporation ELY, GUESS, RUDD & HAVELOCK i~Lvtelon of ~'and ~als Atl~s~nt At~o~ Ge~er&l Anchorage 9~30 A.~., City Do you Me~ that ~ testimony you the .~Ut~, the. 'w~le and nOt~ ~u ~~ie~ ~ ~'io.~ ~i~s and ~ic .~lifi~lti~s ~r~ ~. In this eve:hr ~u ~y ~.Si~'e ~, :~~~~t.. ,Oil and ,~k~s .~ula-~lon Ala.~ka. Oil ~d ~. ~~va~on ~i~'. ~~: of ~~ and ~rals (C~i.r~') the Sta~ ,~e~r~i.e~ let ~ ~ ~ 'i RaLp~ G. C'~ev.e DEPARTMENT OF NATURAL RESOURCES DIVISION OF MINES & MINERALSI Oil and Gas Conservation Committee Notice is hereby given %hat the Pan American Petroleum Corpora- tton has requested the Alaska Oil and Gas Conservatotn Committee issue an e.rder of exception in ac- cordance with procedures described in AAC, Title 11, Section 2061.3 es- tablisI~ng temporary' spacing which would permit the developmen~ that part of the Middle Kenai zone of the Middle Ground Shoal Field which can be developed from the existing permanent platforms now lo,caied in the ~iel4 to an well density of 80 acres, an~ ~development of that par~ ~Hemlock zone of the Middle Gr~d ;S~I Field which can be dev~, {~d ~from the existing permanent Platforms now located tn the '~eld ~/,~n oil well density of 80 a~s. ~' following described acreag~'[ln ;~i~ M. iddle Ground Shoal Field : Section 19:8/2 ~'?' Section 30: Ali , .~,-Section 31: Ali, 25: E/~ :' Section 36:E/2 Section 1: Ail Section 2:E/2 Section 11: S'W/4~ ~/2 Section 12: SW/4, N/2 Section la: Section 14: All ; Section 23: N/~ ~Section 24:NW/4 porarily exempt the field ~rom cer- tain. foo'toge standback and acreage requirement~ of MC, Title 11, See- ti. on 2061.1. The temporary if allowed, would, continue ~ force ,for a period ot not mo~e than~ eighteen mc,nths, after which a~ hearing shall be held at which lthe Committee will consider such~ evidence as will enable It to deter-~ mine lhe permanent field spacing. A bearing on the ~aiter will be{ :held at the City Council Chambers ~in the basement of the Z. J. Lous- .ac Library, 5th and F Street, c:horage., Alaska, a~ 9:30 mm., J~ly i12~ !966, at which, the appl.iCatio~[ :wi!! be ~resented a~d protestants and others may be heard. Tho:mas R, Marshall, Executive Secretary Alaska Oil and Gas tion Committee 3901 Porcupine Drive Anchorage, Alaska 99504 .Publish June 2~, .:196a:;. '.:,,,': :~" N°~' l~ '~ :,' ::' .... ~ NOTICE OF PUBLIC HEARING STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES DIVISION OF MINES AND MINERALS Oil and Gas Conservation Committee Notice is hereby given that the Pan American Petroleum Corporation has requested the Alaska Oil and Gas Conservation Committee to issue an order of exception in accordance with procedures described in AAC, Title 11, Section 2061.3 establishing temporary spacing which would permit the development of that part of the Middle Kenai Oil zone of the Middle Ground Shoal Field which can be developed from the existing permanent platforms now located in the field to an oil well density of 80 acres, and the development of that part of the Hemlock zone of the Middle Ground Shoal Field which can be developed from the existing permanent platforms now located in the field to an oil well density of 80 acres. The following described acreage in the Middle Ground Shoal Field area is affected: Section 19:S/2 Section 30: Ail Section 31: Ail TgN-R13W, S.M. Section 36:E/2 Section 1: All Section 2:E/2 Section 11: SW/4, E/2 Section 12: SW/4, N/2 Section 13:W/2 Section 14: Ail Section 23:N/2 Section 24:NW/4 The requested order would temporarily exempt the field from certain footage standback and acreage requirements of AAC, Title 11, Section 2061.1. The NOTICE OF PUBLIC HEARING Page 2 temporary order, if allowed, would continue in force for a period of not more than eighteen months, after which a hearing shall be held at which time the Committee will consider such evidence as will enable it to determine the permanent field spacing. A hearing on the matter will be held at the City Council Chambers in the basement of the Z. J. Loussac Library, 5th and F Streets, Anchorage, Alaska, at 9:30 a.m., July 12, 1966, at which the application will be presented and protestants and others may be heard. Thomas R. Marshall, Jr. Executive Secretary Alaska Oil and Gas Conservation Committee 3001 Porcupine Drive Anchorage, Alaska 99504 Publish June 27, 1966 ~rpo=a,t l~n FORM 1397 1-66 PAN AMEI CAN PETROLEUM CORPOILATION PRODUCING DEPARTMENT H. T, HUNTER DIVISION PRODUCTION MANAGER SECURITY LIFE BUILDING DENVER, COLORADO 80202 June 6, 1966 File: SBR-276-986 o 511 Well Spacing Middle Ground Shoal Field A'LASKA DISTRICT SUPERINTENDENTS XX/. M. JONES A. E. PIPER T. M. CURTIS JOINT INTEREST SUPERINTENDENT S. B. RICHARDS State. of Alaska Department of Natural Resources Alaska '0il and Gas Conservation Committee 800 L Street Anchorage, Alaska Gent lemen: '. We transmit herewith three copies of Pan American Petroleum Corporation's request fop an Order of Exception to the Statewide Oil Well Spacing Rule, Section 2061ol of the 0il and Gas Conservation Regulations insofar as said Rule applies to the development of a part of the Middle Ground Shoal Field in the Cook Inlet, Alaska° We ask that notice of this request be published as provided in the Rules and that if no protest is ~eceived within the time provided in the Rules, that this request be granted without ~ hearing° If a protest is received, om if the Committee for any reason feels that the request .should not be granted without a heaping, we request that a heaping be had° YOurs very truly, E n c los ute cc: Mr. Jo To Doyle .(3-w/enclosures) Mro Do Ao Mabra, Jr° Shell 0il Company Sinclair 0il and Gas Company 1008 Wes~ 6th Street 501 Lincoln Tower Building Los Angeles, California 9005~ Denver, Colorado Mr. Co L. Blacksher Skelly Oil Company Po Oo Box 1650 Tulsa, Oklahoma Mr° To Lo Osborne Phillips Petroleum Company 1300 Secuvity'Life Building Denver, Colorado ., ,,, FO.J~,M 49.7 5-65 PAN AMEIHCAN PETROLEUM C0P. POP. ATION SECURITY LIFE BUILDING DENVER~ COLORADO 80202 May 26, 1966 State of Alaska Department of Natural Resources Alaska Oil and Gas Conservation Committee 800 L Street Anchorage, Alaska Gentlemen: Pan American Petroleum Corporation, as Operator for Skelly Oil Company, Sinclair Oil & Gas Company, and Phillips Petroleum Company and itself, pro- poses and hereby requests an Order of Exception which would permit the (~%evel- opment of that part of the Middle Kenai Oil zone of the Middle Ground Shoal Field which can be developed from the existing permanent platforms now located in the field to an oil well density of 80 acres, and the development of that part of the Hemlock zone of the Middle Ground Shoal Field which can be developed from the existing permanent platforms now located in the field to an Oil well density of 80 acres. In support of their petition, the Applicants show: All of the above named owners have given their approval to submit this petition. The persons other than the above named parties owning leasehold interests in the lands which would be affected by the requested Order or in any lease offsetting said lands are: Shell Oil Company, Standard Oil Company of California, Western Operations, Inc. and AtlanticRichfieldCom- pany. All of the leases, including offset leases, are leases from the State of Alaska, and the State of Alaska owns all of the minerals under said lands, subject only to the Oil and Gas Leases owned by the parties to this petition. State of Alaska Department of Natural Resources May 9.6, 1966 Page Two The Middle Ground Shoal Field is located on an anticlinal structure, the long axis of which runs in a general north- south direction. The field is located in the Cook Inlet ap- proximately 9 miles from the nearest shore and in water with an average depth throughout that part of the field which would be affected by the requested Order of approximately 100 feet at mean lower low tide. The two zones which would be affected by the requested Order are the Middle Kenai Oil zone and the Hemlock zone. Each of the two zones contains and is capable of producinq substantial quantities of oilo The Middle Kenai Oil zone was encountered in the Pan American, et al MGS 17595 Well No. 4, SW/4 NW/4, Section 31, T-9-N, R-12-W, at a vertical depth of 5,..300 feet, and the Hemlock zone was encountered in said well, at a vertical depth of 7,375 feet. That part of the log of said well showing:the two zones is attached hereto as Ex- hibit "A". Because of the depth of the water and the tides, currents, and ice con- ditions existing in the Cook Inlet, the most efficient way in which oil can be produced from this field is by the drilling of wells from fixed platforms which have their foundations in the ocean bottom under the Cook Inlet and which rise to a sufficient height above the surface of the water so that drilling and prOduc- ing operations may be conducted from the surface of the platform. Each platform' represents an investment by its owners of several million dollars. Two such platforms have been constrUcted in the field, and drilling operations are new being carried out from both of these platforms. One platform has been structed by Shell for itself and its joint interest owners, Standard Oil Company of California, Western Operations, Inc., and AtlanticRichfieldCompany..This platform is located NE/4 SE/4, Section 11, T-8-N, R-13-W. The other plat- form has been constructed by Pan American for itself and its joint interest owners. It is located SW/4 NW/4, Section 31, T-9-N, R-12-W. The area to which the requested Order of Exception would apply represents that part of the Middle Ground Shoal Field in which the Petitioners at this time believe it can reasonabl~[ be expected that oil wells will be drilled to and com- _pleted in the two zones from. the existing platforms, and is described as: State of Alaska Department of Natural Resources May 26, 1966 Page Three T-9-N ,~- i,.2-W Section 19:S/2 Section 30: All Section 31: All T-9-N, R-13-W Section 2'5:E/2 Section 36:E/2 T-8-N, R-13~W Section 1:, All Section 2:E/2 'Sectior~ 1 t': 8W/4, Section 12: SW/4, Section 13:W/2 Section 14: All Section 23:N/2 Section 24:NIAr/4 Only a limited number of wells can be drilled from each oft_he two platforms. The majority of the wells which will be drilled from each of the platforms"will be intentionally deviated from the vertical in order to achieve efficient development of that part of the two zones which can be developed from the platform. ~ause of the great deviation from the vertical at which many of these wells will be drilled, many of them will penetrate .the producing zones under two or more 160- acre drilling units. It is not practical from an engineering standpoint to drill the wells so that they do penetrate the producing zones under only one drilling unit, nor is it sound on the basis of either engineering or economics to restrict the completion of a well which does penetrate either or both zones under more than one drilling unit to that part of the zone or zones under a single dril't-ing unit. ,~.. [j.~t is essential that the wells which are drilled penetrate the zones at'the locations most Conducive to the efficient operation of the two zones both 'under primary recovery and under secondary recovery operations. It is also essential that the area which can be developed from each of the platforms be developed to a well density which will achieve the optimum productivity for said cant believes that to achieve these two results, Operators should be permitted to disregard interior subdivision lines in locating the wells which are drilled and State of Alaska Department of Natural Resources May 26, 1966 Page Four should be permitted to develop the area which can be developed from each of the two platforms to an oil well density of 80 acres. To protect the correlative rights of the parties, restrictions should be placed upon wells drilled in the · 160-acre tracts common to a lease line separating different ownerships of-either leasehold or royalty interests. This will afford all parties a reasonable oppor- tunity to protect themselves against drainage across lease lines. No other re- strictions shoUld be placed upon the location of the wells other than a provision ~tO prevent the'-clus'ter__~q of wells, which 'Operator believes can be achieved by providing. that the Committee ma_y...,~.~.a~pR.r.p~- a__qn_Ap__plication for a Permit to Drill if.. in the~.. ~nlon. the proposed location of the well would result in inefficient operation of the two zones To achieve the most efficient utilization of the wells which will be drilled from the platforms, the operators should be permitted to dually complete a well in both the Middle Kenat Oil zone and the Hemlock zone and to produce each of 'the '~.o zones separately and independently.. Operators s~h~.~d..,at.s~-"~ permitted to complete a well in either of the zones and produce it therefrom without any re- quirement.that it be completed in or produced from the other zone, even though it may penetrate the other zone. There is attached to this Application, as Exhibit "B", and made a .part .hereof, a plat showing: 1. The lands in the Middle Ground Shoal Field which Would be affected by and subject to the requested Order. 2. The location of the two platforms referred to in the petition. The locations of wells which have been drilled and which are being drilled from the two platforms, and which are, or may be expected to be, completed in and produced from one or both of said zones. Petitioners hereby respectfully request that the Committee, pursuant to Sec- tion's 2012 and 206.1',.3, issue ar~'Order of Exception to Section 2061.1 of the Oil and Gas Conser~ation Regulations,. Title 11, Alaska Administrative Code, which Order shall prescribe temporary spacing for~the development of the Middle Kenai State of Alaska Department of Natural Resources May 26, 1966 Page Five Oil zone and the Hemlock zone in that part of the Middle Ground Shoal Field underlying the lands above described, as follows: i · The Middle Kenai Oil zone and the Hemlock zone in the Middle Ground Shoal Field under those lands sub- ject to this Order and located in Township 9 North, may be developed by the drilling of wells into and the completion of wells in said zones without regard to interior subdivision lines within the area. No more than 28 wells may be completed in the Middle Kenai Oil zone upon said lands, and no more than 2~'welts may be completed in the Hemlock zone. upon said lands. The Middle Kenai Oil zone and the Hemlock zone in the Middle Ground Shoal Field under those lands subject t° this Order and located in Township 8 North, may be dev- eloped by the drilling of wells into and the completion of wells in said zones without regard to interior subdivision lines within the area. No more than 42 wells may be com- pleted in the Middle Kenai Oil zone upon said lands, and no more than 42 wells may be completed in the Hemlock zone upon said lands. . Any well may be completed in either the Middle Kenai Oil zone or the Hemlock zone or in both zones at any point in the well bore where the well penetrates the zones, subject to the restriction that, upon each 160-acre tract common to a lease line separating different ownerships of either lease- hold or royalty interests, no more than two wells may be com- pleted on each such tract in the Middle Kenai Oil zone, and no more than two wells may be completed on each such tract. in the Hemlock zone, and all completed (perforated or open hole) sections in the well must be at least 500 feet from the lea se line. ~ Operators shall segregate production from the two zones in the well bore, but shall not be required to segregate the pro- duction from the two zones after it has been produced from State of Alaska Department of Natural Resources May 26, 1966 Page Six 6~ 7~ ~ Enclosures the well. Commingling of production from the two zones in the well bore of a well completed in both zones may be authorized by the Committee in a proper case. A well which is completed in and producing from both the Middle Kenaf Oil zone and the Hemlock zone shall for the purposes of this Order be considered the equivalent of two wells, one completed in and producing from the Middle Kenai Oil zone, and one completed in and producing from the Hemlock zone. A well which is completed in and producing from only one zone shall be considered for the purpose of this Order as a single well in the zone in which it is completed and from which it is producing, regardless of whether the well may have penetrated the other zone and may previously have ... been or might be capable at some later date of being com- pleted in and produced from the other zone. A well which has been completed in and produced from only one zone, and which is thereafter completed in the other zone, and produced from both zones shall, so long as it is' produced from both zones, be considered the equivalent of two wells, as above provided. Operator shall, before commencing operations for the drill- ing of a well, file with:the Committee as a part of its Ap- plication for a Permit to Drill the well a plat showing the course it is anticipated the well will follow and the ap- proximate locations at which it is expected the well encounter the producing zone or zones in which it is to be completed. The Committee may refuse to grant the permit if it appears that.the well will be so located as to result in an inefficient development of:the two zones. Respectfully submitted, PAN AIVIERICAN PETROLEUM CORPORATION