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C,~-_~//_ Conservation Order Category Identifier Organizing RESCAN n Color items: [] Grayscale items: [] Poor Quality Originals: [] Other: NOTES: DIGITAL DATA [] Diskettes, No. [] Other, No/Type OVERSIZED (Scannable with large plotter/scanner) [] Maps: [] Other items OVERSIZED (Not suitable for plotter/scanner, may work with 'log' scanner) [] Logs of various kinds [] Other BY: L ROB~,/) MARIA Scanning Preparation Production Scanning Stage 1 PAGE COUNT FROM SCANNED DOCUMENT: '~~ PAGE COUNT MATCHES NUMBER IN SCANNING PREPARATION: Y YES NO BY: Stage 2 IF NO IN STAGE 1 , PAGE(S) DISCREPANCIES WERE FOUND: __ YES BY: ~ MARIA ' DATE :~..~-~ ~ / (SCANNING IS COMPLETE AT THIS POINT UNLESS SPECIAL ATTENTION IS REQUIRED ON AN INDIVIDUAL PAGE BASIS DUE TO QUALI'I-Y, GRAYSCALE OR COLOR IMAGES) General Notes or Comments about this Document: 5/21/03 ConservOrdCvrPg.wpd STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: THE APPLICATION OF ALASKAN ) CRUDE CORPORATION, to estab-) lish a 640 acre drilling ) unit for the Mike Pelch #1 ) well. ) Conservation Order No. 254 June 8, 1990 IT APPEARING THAT: · Conservation Order #210, dated May 31, 1985, permitted Far North Oil and Gas, Inc. to re-enter the abandoned Cannery Loop Unit #2 well to explore for hydrocarbons. · · In the event of hydrocarbon discovery upon re-entering the Cannery Loop Unit #2 well, Conservation Order #210 denies permission to place the well on regular produc- tion until a drilling unit for the well is established and persons owning mineral interests in the drilling unit have pooled their interests. By a March 20, 1990 letter, Alaskan Crude Corporation, operator of record for the Mike Pelch #1 (formerly Cannery Loop Unit #2) well, states that the Mike Pelch #1 well has established natural gas production and requests AOGCC to establish a 640 acre drilling unit in accord with AS 31.05.100. · · Notice of a public hearing on the matter of Alaskan Crude's request was published March 23, 1990 in the Anchorage Daily News. A public hearing on the matter was held May 10, 1990 in the conference room of the AOGCC, 3001 Porcupine Drive, Anchorage, AK. FINDINGS: 1. ~ The Alaskan Crude Corporation Mike Pelch #1 well is reported to be capable of producing natural gas from sands occurring within the drilled depth interval of 9252-9326 feet. No evidence has been presented that the well has been tested in accordance with 20 AAC 25.225. Conservation Or~ ' No. 254 Page 2 June 8, 1990 · ~ , · · ~ · 10. 11. 12. Alaskan Crude Corporation and others claiming to own mineral interests in the Mike Pelch #1 well want to place the well on regular production for natural gas sale. Conservation Order #210 prohibits placing the Mike Pelch #1 well on regular production until a drilling unit for the well has been established. Conservation Order #210 further prohibits placing the Mike Pelch #1 well on regular production until persons owning drilling rights and the right to share in the production from the drilling unit reach a voluntary agreement pooling their interests or until an order pooling these interests is issued by the commission in accordance with AS 31.05.100(c). Alaskan Crude Corporation proposes a 640 acre drilling unit for the Mike Pelch #1 well consisting of the NWl, SW¼, Sect 1T5N RllW (40 acres); the W~ NWl, Sect 1T5N RllW (80 acres); the N~ SEt Sect 2 T5N RllW (80 acres); the NEt SWt Sect 2 T5N RllW (40 acres); the E~ NWl Sect 2 T5N RllW (80 acres); the NE¼ Sect 2 T5N RllW (160 acres); the SEt SW~ Sect 35 T6N RllW (40 acres)~ the S~ SE~ Sect 35 T6N RllW (80 acres); and the SWt SWk Sect 36 T6N RllW (40 acres) for a total of 640 acres. The Mike Pelch #1 well is located on a 120 acre parcel of fee land owned by Pelch and subject to an oil and gas lease to Far North Oil and Gas Inc. Several persons other than Far North Oil and Gas Inc. have the right to drill for and produce gas on tracts of land other than the Pelch tract that are within the boundary of the proposed drilling unit. The boundary for the 640 drilling unit proposed by Alaskan Crude Corporation approximates a drilling unit constructed on the circle-tangent principal. No testimony was offered in opposition to the boundary of the 640 acre drilling unit proposed by Alaskan Crude Corporation. No testimony was offered by persons owning mineral interests in tracts of land within the proposed drill- ing unit that opposed the voluntary development of an agreement to pool their interests within the proposed 640 acre drilling unit. Alaskan Crude Corporation has not contacted other persons holding mineral interest within the proposed Conservation Or'f ~· No. 254 Page 3 ~ June 8, 1990 13. 14. 15. 16. 17. 640 acre drilling unit with a proposed agreement for pooling their interests. Persons holding interests in the proposed 640 acre drilling unit have been invited by a James A White representing the Peninsula Pipeline Company to estab- lish a fair and equitable agreement for pooling their interests within the boundary of the drilling unit. Peninsula Pipeline Company does not appear to have a right to drill for or share in the production from any lands within the proposed drilling unit. Persons holding interests in lands within the proposed drilling unit have unsuccessfully sought from Alaskan Crude Corporation a draft proposal of an agreement pooling their interests in the drilling unit along with other information necessary for them to make an intel- ligent business decision regarding the sharing of costs and production. 20 AAC 25. 055(a)(4) sets forth a governmental section (640 acres) as the size for a natural gas well drilling unit. A 640 acre drilling unit is widely accepted by industry and regulatory bodies in other jurisdictions as the normal or properly sized drilling unit for a natural gas well. CONCLUSIONS: · Establishment of a 640 acre drilling unit for the Mike Pelch #1 well is appropriate. · The boundary proposed by Alaskan Crude Corporation for the Mike Pelch #1 drilling unit is appropriate. · The door is open for mineral interest owners of tracts within the proposed Mike Pelch #1 drilling unit to negotiate voluntarily an agreement pooling their interests pending receipt from Alaskan Crude Corpo- ration of a draft agreement and sufficient data on cost and production rewards necessary to make a business decision with respect to adopting a pooling agreement. · Absent a well test by the multi-point back-pressure method as required by 20 AAC 25.225, the potential and productivity of the Mike Pelch #1 well and the well's capability to sustain gas production prevents tract mineral interest owners from making a prudent business Conservation Ord,' No. 254 Page 4 June 8, 1990 judgement at this time with respect to entering an agreement to pool their interests. · Determination of the well's potential and the actual and reasonable cost of development and operation of the drilling unit is necessary for tract mineral interest owners to proceed with development of an agreement pooling these interests. · These data can best be developed by placing the well on regular production for a reasonable period of time to develop operating costs and test the well in accord with 20 AAC 25.225. · An amendment to Conservation Order #210 is required to permit regular production for a reasonable time to evaluate the Mike Pelch #1 well's potential and operat- ing cost data. · Development by the commission of an order to involun- tarily pool the interests of tract mineral owners within the proposed Mike Pelch #1 drilling unit is not ripe at this time for commission action under AS 31.05.100(c). NOW THEREFORE, IT IS ORDERED: i · · The Mike Pelch #1 well 640 acre drilling unit is established comprising NWl, SWt, Sect 1 T5N RllW (40 acres); the W~ NWl, Sect 1T5N RllW (80 acres); the N~ SEt Sect 2 T5N RllW (80 acres); the NE¼ SWt Sect 2 T5N RllW (40 acres); the E~ NWl Sect 2 T5N RllW (80 acres); the NEt Sect 2 T5N RllW (160 acres); the SEt SWt Sect 35 T6N RllW (40 acres); the S~ SEt Sect 35 T6N RllW (80 acres); and the SWt SWk Sect 36 T6N RllW (40 acres) for a total of 640 acres. Conservation Order #210 is amended to read: NOW, THEREFORE, IT IS ORDERED: With an approved Drilling Permit, Far North Oil and Gas, Inc. is permitted to re-enter the abandoned Cannery Loop Unit No. 2 well to explore for hydro- carbons. If the well proves to be capable of hydro- carbon production, regular production will not be permitted until the commission has established a drilling unit for the pool and issues an order inte- grating the interests of owners within the drilling unit, absent voluntary integration by the owners[.], or until the commission is furnished by the operator of the 'Mike Pelch #1 well'with a copy 'of an agreement, ~ertified by the. operator to be signed by all persons ~ith a right to drill for and share in the production Conservation Or~,' Page 5 June 8, 1990 No. 254 it' · · from lands within the Mike Pelch #1 well drilling unit, to prod6ce the well for a six month period following the date of initial production. Absent the filing of a voluntary agreement with the commission, as required by 20 AAC 25.517(c), validly integrating the interest of persons owning mineral interests on lands within the Mike Pelch #1 drilling unit to pool their interests within six months follow- ing the date of initial production, the operator shall shut the well in. In the event of failure to reach voluntarily a pooling agreement within six months following initial produc- tion, the operator shall submit to the commission a certified audit report setting out the operator's actual and reasonable expenditures covering the costs of development and operation of the Mike Pelch #1 well, unless the operator determines that production from the well is no longer appropriate. DONE at Anchorage, Alaska. and dated June 8, 1990· ~~~~AC i~Vs~aCoh~t ~nr ~s :~oa~emravnat ion Co,isa ion Alaska Oil and Gas Conservation Commission 10 11 12 13 THE SUPERIOR COURT FOR THE STATE OF ALASKA · THIRD JUDICIAL DISTRICT AT KODIAK 14 15 16 17 18 19 20 21 22 23 24 JAMES W. WHITE, Appellant, vs. ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. 25 Al~$k~ ]'rial Courts Thiru Judi:ial District at ~od!ak AUG 6 199 Clork of [ho Trial Courts By.---- GEPUTY Case No. 3AN-90-6998CI MEMORANDUM DECISION James W. White appeals the decision of the Alaska Oil and Gas Conservation Commission manifested by Order No. 254. The order requires a pooling agreement before ,, allowing production from the Mike Pelch Well #1. As an alternative, the order allows all the interest holders to agree to production for up to six months without a pooling agreement to allow the parties to develop produCtion information on which to negotiate an agreement. On appeal, White claims that the Commission acted without statutory authority. It is White's contention that once a drilling unit is established, each interest owner has the right to immediately produce his fair share WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 1 OF 15 Alaska Court System 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of the resource. White also argues that certain factual findings of the Commission were erroneous. The State contends that White not only misapplies the law, but that his appeal is procedurally defective for failure to exhaust administrative remedies. Because certain findings are not supported by evidence, the case is REMANDED to the Commission with instructions. In all other aspects the appeal is DISMISSED. I. STATEMENT OF THE CASE In 1978, Union Oil proposed to develop an oil and gas field near Kenai known as the Cannery Loop Unit. Wells were drilled in 1981, including a well on the homestead of Mike Pelch. This well was known at the time as Cannery Loop Unit 92, and is now called the Mike Pelch Well #1. The well was plugged and shut in. It was abandoned until 1983, when Pelch leased to James W. White, the appellant, for the purpose of re-entering the well and determining if it could be b~ought to production. Because the well was closer to the homestead line than the regulations allowed, an exception was sought in 1985. The proper parties were notified and, there being WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 2 OF 15 Alaska Court System RI ¢E. IVED AUG 0 8 1991 cons. Commisslo. 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 no objection, an exception was granted by the Oil and Gas Conservation Commission pursuant to 20 AAC 25.055. Order No. 210, May 31, 1985. Gas was found by the operator, Far North Oil and Gas, Inc. In 1987, the Commission approved the substitution of Alaskan Crude Corporation as the operator of the well, replacing Far North. In 1990, Alaska Crude applied for the establishment of a drilling unit and for a production permit. After a hearing, a 640-acre drilling unit was established. This is the minimum size for a drilling unit and nobody is contesting the size or the particular acreage that has been designated. The 640 acres, however, encompass several parties who have an interest in the ~gas contained in the unit. Prior to drilling, some, but not all, of the other interest owners had been contacted to see if anybody was willing to invest in the exploration. Nobody was. At the time of the hearing, the interest owners had not reached an agreement on the pooling of the interests, but there was no testimony that anyone refused to voluntarily enter an agreement. Several owners, especially the two WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 3 OF 15 Alaska Court System 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 interest owners with the greatest oil and gas experience--CIRI and Unocal--expressed concern that the operator was not providing any information on which an agreement would be negotiated. Specifically, Union Oil Company of California, as an example, testified by letter that they desired to review the well test data and be provided with a detailed, orderly and prudent project proposal which includes cost allocation, timing scenarios, designation of operatorship, and a mutually agreed upon operating agreement. CIRI submitted a similar letter. Following the hearing, the Commission issued Order No. 254, which set the drilling unit, but specifically reserved the question of pooling interests. The Commission found that the operator had not .shown that a voluntary agreement could not be reached, only that one had not been reached. To allow for more information, the commission agreed to allow production for six months. If a voluntary agreement was not reached within those six months, the Commission would require the operator to submit to the Commission a certified audit report setting out the operator's actual and reasonable expenditures covering the costs of development WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 4 OF 15 Alaska Court System .. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and operation of the well, unless the operator abandoned production. The well was to be shut in after the six month period unless a pooling agreement was in effect. Following the issuance of the order, James A. White, the son of the appellant, wrote two letters to the Commission. The first, dated June 8, 1990, specified two factual errors. First, White claimed that Finding No. 7 was incorrect. The Commission found that Pelch had leased his interests to Far North Oil and Gas. White claimed that the lease was actually to his father, James W. White. Second, White objected to Finding No. 8, where the Commission found that several parties other than Far North had a right to produce gas on tracts of land within the drilling unit (excluding the Pelch homestead). White's objection was that Far North was not the lessee and was no longer the operator, and thus had no right to produce, gas. Also, White claimed that only the operator, Alaskan Crude, had the right to work on the well. The second letter from James A. White is dated July 20, 1990, and is designated by White as "our appeal." White repeats the objection to Finding No. 7, and goes on to argue that the Commission was bound by its earlier WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 5 OF 15 Alaska Court System , . 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 order, No. 210, to order an involuntary pooling. The Commission treated the letters as an application for rehearing under AS 31.05.080(a). In its decision on the rehearing, the Commission noted that the lease from Mike Pelch was to "James W. White et al." The Commission determined that "James W. White et al" is in reality James W. White acting as President and CEO of Far North Oil and Gas, and therefore, the lease was from Mike Pelch to Far North Oil and Gas. As to being bound by its earlier order, and being required to order involuntary pooling, the Commission noted that any party could petition under AS 31.05.100 for a hearing to involuntarily integrate the interests either after the well had been producing for six months "or at any such time that evidence can be presented that a voluntary agreement cannot be reached . . ." Letter from the Commission to James A. White (July 30, 1990) (containing the agency's decision on rehearing). James W. White filed the instant appeal on August 20, 1990. The State moved for dismissal, arguing lack of standing and failure to exhaust administrative remedies. The case was assigned to Superior Court Judge Pro Tempore WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 6 OF 15 Alaska Court System 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Ralph Stemp for motions. He originally granted the Motion to Dismiss October 29, 1990, noting that it had been unopposed. An opposition had been filed, however, on October 19, 1990. Judge Stemp vacated his Order of Dismissal on November 2, 1990. II. STANDING The State challenges James W. White's standing based on AS 31.05.080. The statute sets out the procedure for rehearing by any party affected by an order of the Commission, and the procedure for appeal to the Superior Court, It says, "A party to the rehearing proceeding, dissatisfied with the disposition of the application for rehearing, may appeal from it to the Superior Court ..." AS 31.05.080(b). The State contends that James W. White was not a party to the rehearing proceeding, which consisted entirely of two letters to the Commission by James A. White. The appellant's response is that the letters sent by his Son to the Commission were sent on James W. White's behalf. There is some merit to the appellant's argument. In James A. White's first letter to the Commission, where WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSIO~ 3AN-90-6998CI - PAGE 7 OF 15 Alaska Court System 10 11 12 13 14 15 17 18 19 20 21 22 23 24 25 he challenged Findings No. 7 and 8, it is apparent that he was asserting a claim on behalf of his father. In the letter, the younger White says: The Pelch fee land is not now, nor has it ever been leased and/or assigned to Far North Oil & Gas, Inc. The Pelch fee land oil and gas rights are leased to James W[.] White and/or to whomever else he may have assigned this lease to. The Commission, while questioning James A. White's standing, directly addressed the issue on its merits. The Court is reluctant to dismiss the appeal on the basis of standing. At the least, James W. White has acquiesced in, and adopted, the arguments presented on rehearing. Additionally, requiring James W. White to apply for rehearing on an issue which the Commission has already addressed on rehearing would contributed nothing to "administrative autonomy and . . . sound judicial economy." State, Dept. of Labor v. University of Alaska, 664 P.2d 575, 581 (Alaska 1983) (citing B. Schwartz, Administrative Law, § 172, at 498 (1976)). III. FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES The State also argues that the Court should not reach WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 8 OF 15 Alaska Court System 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the merits of the appeal because the appellant has not exhausted administrative remedies on either of the two arguments raised on appeal. Following a brief discussion of the' analysis used on an exhaustion question, each of these two issues will be taken up separately. The exhaustion argument is based on the statutory requirement that before an aggrieved party appeals a decision of the Commission to the Superior Court, the party must first apply to the Commission for rehearing. AS 31.05.080(b) explicitly says, "[T]he questions reviewed on appeal shall be only questions presented to the Commission by the applicant for rehearing." The Alaska Supreme Court has observed that '"[t]he basic purpose of the exhaustion doctrine is to allow an administrative agency to perform functions within its special competence--to make a factual record, to apply its expertise, and to correct its own errors so as to moot judicial controversies." Ben Lomond, Inc. v. Municipality of Anchorage, 761 P.2d 119, 121-22 (Alaska 1988) (quoting Van Hyning v. University of Alaska, 621 P.2d 1354, 1355-56 (Alaska 1981), other citations omitted). The statute referred to above complements and mandates WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 9 OF 15 Alaska Court System 10 11 12 13 14 15 17 18 19 20 21 22 23 24 25 the judicial doctrine of exhaustion before Superior Court review of the Commission's orders. Admnistrative decisions are presumed to be judicially reviewable, unless the legislature provide otherwise. Bethel Utilities Corp. v. City of Bethel, 780 P.2d 1018, 1022 (Alaska 1989). Here the legislature has provided that the Commission's orders are not reviewable unless the Commission has had an opportunity to review them on rehearing. Thus, it is incumbent upon the Court to examine each issue raised on appeal to determine whether it has been reviewed by the Commission on rehearing. A. FINDINGS NO. 7 AND 8' On appeal, James W. White argues that Far North Oil & Gas has no present interest in the drilling unit and therefore reference to Far North in Findings No. 7 & 8 should be stri'cken. Brief of Appellant at 10. As discussed earlier, this issue was presented to the Commission by James A. White in his first letter, and the Commission squarely addressed it on its merits. The Court determines that the issue is properly presented on appeal, as administrative remedies have been exhausted. WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 10 OF 15 Alaska Court System 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The decision on rehearing by the Commission makes it clear that although the challenge is to what are termed findings, the findings are the result of a mixed question of fact and law. The Court will accept the factual findings of the Commission if, after review of the record as a whole, the findings are supported by substantial evidence. Alaska Advocacy Council v. State, DEC, 778 P.2d 1126, 1139 (Alaska 1989). The legal conclusions that flow from those facts, however, are subject to the independent judgment of the Court. Earth Resources Co. v. State, Dept. of Revenue, 665 P.2d 960, 965 (Alaska 1983). In its decision on rehearing, the Commission said: The Commission's records indicate that the lease is in fact under the name of James W. White et al .... Further, the records show that James ,. W. White is the President and CEO of Far North Oil and Gas, Inc., and that James W. White, acting for and on behalf of Far North Oil and Gas, requested the Commission to grant a . spacing exception to reenter the abandoned Cannery Loop #2 well, now known as Mike Pelch #1 well. The Commission granted the spacing exception (CO210) to Far North Oil and Gas, and issued a permit to drill (#86-7) addressed to James W. White, President and CEO, Far North Oil and Gas, Inc. Based upon the records, and the representations made by James W. White, our conclusion is that James W. White et al is Far North Oil and Gas, Inc. WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 11 OF 15 Alaska Court System 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Letter from the Commission to James A. White (July 30, 1990) (containing the Commission's decision on rehearing) (emphasis in original). While the record supports the factual premises in the Commission's letter, those premises do not' support the legal conclusion the Commission reached. The commonly used phrase "et al" or "et al." is an abbreviation for et alius (and another) or et alii (and others). Therefore, the lease to "James W. White et al" was to James W. White as principal and to unknown others. This Court is not asked to identify who the others might be; that is not the issue being litigated. The Court has found no authority, however, for the proposition that "et al" may be interpreted to mean "acting as agent for" or "in his position as President and CEO of" some unnamed company. The finding by the Commission that the lease to "James W. White et al" is in reality a lease to Far North Oil and Gas has no basis in fact or law. The Commission is 'directed to amend the order accordingly. B. WHETHER THE COMMISSION EXCEEDED ITS AUTHORITY WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 12 OF 15 Alaska Court System 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The only other issue James A. White raised in his application for rehearing was whether the Commission had the authority to amend the previous order. White argued that the Commission was bound by its previous order and that the amendment did not protect the correlative rights of the interest owners. Because this is the only other issue that was decided on rehearing, this is the only other issue the Court may consider. See discussion of AS 31.05.080(b), .supra. James W. White does not raise this issue on appeal, however. As a matter of fact, James W. White's argument on appeal before this court is antithetical to James A. White's ar'gument on rehearing before the Commission. While the son argued on rehearing that the commission must order involuntary pooling, the father argues on appeal that the Commission has no authority to order involuntary pooling. James W. White argues that, except for pre-development organization and disputes over development costs, "the Commission has no statutory authority to get involved in the relationships of the parties, the expenses of development and operation or the business decision of the leaseholders of small units." Reply Brief of Appellant at 8. WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 13 OF 15 Alaska Court System 10 11 12 13 14 15 17 18 19 20 21 22 23 24 25 Elsewhere, the appellant appears to rely on a different argument. He contends, "Order 254 formed the unit and therefore was the pooling order integrating the parties' interests provided for in AS 31[.]05.100(c). Nothing further was or is authorized by Alaska law." Brief of Appellant at 9. Thus, the two theories relied upon by James W. White are that the Commission either has no authority to order involuntary pooling or that the Commission automatically pooled the interests by forming the drilling unit. Neither of these theories is in any way consistent with James A. White's argument on rehearing that the Board was bound by its previous order and was required to pool interests involuntarily. The arguments raised by James W. White on appeal have not been addressed by the Commission as required by AS 31.05.080(b), and there is nothing in the record to indicate they were ever argued before the Commission. Where a party has failed to exhaust administrative remedies, the Court may properly dismiss the appeal. Standard Alaska Production Co. v. State, Dept. of Revenue, 773 P.2d 201, 206 (Alaska 1989). WHITE vs. ALASKA OIL AND GAS CONSERVATION C05~ISSION 3AN-90-6998CI - PAGE 14 OF 15 Alaska Court System 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The case is REMANDED to the Commission to enter findings consistent with this decision. In all other respects, the appeal is DISMISSED. DATED this 6th day of August, 1991 at Kodiak, Alaska. I?¢/ a copy o'~ ~he ~t:)ove ;,,'as :~;a~t,:~d ~ each ct the following at their addr6ss of ~ecgrd: ~ WHITE vs. ALASKA OIL AND GAS CONSERVATION COMMISSION 3AN-90-6998CI - PAGE 15 OF 15 Alaska Court System 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, VS. ALASKA OIL AND GAS CONSERVATION COMMISSION, ) ) Appellant, ) ) ) ) ) ) Appellee. ) Case No. 3AN-90-6998 Civ. ) . ORDER On motion of appellee Alaska Oil and Gas Conservation Commission, which was unopposed by appellant, IT IS ORDERED that the time by which appellee must prepare, certify and ~r..anSmit the record is extended until 15 days after service of ~ order, enyi~ meticn to dismir~ tbs. Dated: '~~~~-'~ ~-,311 ROBERT C. ELY ATTORNEY AT LAW 608 WEST 4TH AVENUE, SUITE 21 ANCHORAGE, ALASKA 99501 (907) 276-1916 FAX (907) 258-9053 November 21, 1990 Commission Secretary Alaska Oil and Gas Conservation Commission 3001Porcupinc Drive Anchorage, AK 99501-3192 Re: Application of Alaska Crude resulting in Conservation Order No. 254 Dear Filing Officer: Please file the enclosed notice of bankruptcy in this matter. Robert C. Ely Attorney for James W. White RECEIVED ROBERT C. ELY A'rlORNE¥ A~ LAw 608, W 4TII AVE., SUITE 21 ANCHORAGE, AK 99501 (907) 276-1916 FAX (907) 258-9053 ALASKA OIL AND GAS CONSERVATION COMMISSION RE: THE APPLICATION OF ALASKAN CRUDE CORPORATION, to estab- lish a 640 acre drilling unit for the Mike Pelch $ well. NOTICE OF FILING BANKRUPTCY PROCEEDINGS COMES NOW James W. White by and through his attorney, Robert C. Ely, and gives notice to this Commission that Alaskan Crude Corporation predominant owner of ~318612, $318613 and the predominent owner of ~318614, has filed a Chapter 7 bankruptcy proceeding in the United States Bankruptcy Court for the District of Alaska, under Case No. A90-00567. A copy of the Petition is attached hereto as an Exhibit. ~.. Robert C. Ely At~ey. for/~ ~ James W. White ~6~ert-Ct. Ely RECEIVED NOV 2 61990 Alas~ Oil .& Gas Cons. C.o. mmisslOn ~chora~a Public Notices --. 900 STATE OF ALASKA ALASKA SEAFOOD MARKETING INSTITUTE A meeting of the Board of Directors of the Alaska Sea- food Marketing institute MI) is scheduled for April 3, 1990 at the Westmark Juneau from 8:00 a.m. until approxi- mately 6:00 p.m. The order of business will include but not be limited to financial reports, promotional/marketing/public relations/advertising reviews, quality assurance updates, and any other business to come before the Board. For further information call ASMI al (907) 5B6-2902 in Juneau. March 23, 24, 25, 1990 AO: 084042 Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission (AOGCC) Re: Request by Alaska Crude Corporation, operator of re- :ord for the Far North Oil and GaS, Inc. Mike Pelch //1 well, to establish a 640 acre drilling Jnit for the Mike Pelch #1 well lOcated 1481' FNL and 863' FEL in Section 2, T5Ni R11W, SM and formerly Known as the Union Oil Company of Califor- qia, Cannery Loop Unit #2 Nell. i' i1! Public Public Notices 900 ! Alaska Crude Corporation, P.O. Box 11-1187, Anchorage, Alaska 99511, operator of re- cord for the Mike Pelch #1 well states that the well is capable of producing natural gas and requests that a 6a0 acre drilling unit be estab- lished for the Mike Pelch 81 well as required by the com- mission's May 31, 1985 Conser- ration Order NO. 210. Accord- ingly a public hearing on the matter will be held at 9:00 AM, May 10, 1990 in the con- ference room of the AOGCC, 3001 Porcupine Drive, Anchor- age, Alaska 99501. /s/Lonnie C. Smith Commissioner Alaska Oil 8, Gas Conservation Commission Pub: March 23, 1990 AO: 08-5624 In accordance with Title 23, USC, the State of Alaska De- partment of Transportation and Public Facilities has re- ceived "Location and Design Approval" for highway ,ira' provement work on Federal- Aid Project F-OOOS (101), Areawide Guardrail Project. This project consists of the installation of guardrail and slope flattening on the follow- ing routes: Kenai River Crossing Road Old Glenn Highway, j i i Public Notices 900 Notices 900 I I I II I IIIII ! I I I1' I PUBLIC NOTICE PUBLIC EMPLOYEES RETIREMENT BOARD MEETING NOTICE IS HEREBY GIVEN that the Public Employees' (PERS) Retirement Board will hold its semi-annual spring board meeting in Juneau, on March 29, 1990. The meeting will begin at 8:30 a,m. in the 10th Floor Conference Room of the State Office Building and is open to the public. PERS employees and retirees are invited to attend and present their concerns to the' board on matters pertaining to the PERS, the Supplemental Benefits System, and the Deferred Compensation Plan for State of Alaska employees. TEACHERS' RETIREMENT BOARD MEETING NOTICE IS HEREBY GIVEN that the Teachers' Retirement (TRS) Board will hold its semi-annual spring board meeting in Juneau on March 27, 1990 at 8:30 a.m. The meeting is o~e.n'~o"the public and will be held in the .iQ, th:Fi0o'~ Conference Room of the State Office."B'ujld!'hgi: TRS employees and retirees are invited:to ~attend. Pub: March 21, 22, 23, 1990 .~ ' . I . ~"~:~" iiii ~vitations Invitations o Bid 910 To Bid 910 UNITED STATES POSTAL' SERVICE NEEDS LAND IN KING SALMON, ALASKA Site size desired is approximately one acre. The preferred area is as follows: The site should front on the King Salrnon-Naknek Road and be located between one mile west of Eskimo Creek and the south end of the King Salmon AFB crosswind runway. 1. Off~.rs should be received by 4:00 p.m. on April 6, 1990. 0~',' "ocdved a~e~ that tim9 may or may not be Anchorage Daily News Public Notices 900 Glenn Hwy. to Palmer Parks Highway, Glenn Highway to Wasilla Wasilla/Fishook Road Parks Highway, Wasilla to Willow Preliminary maps, drawings, and approved environmental documents are available for public inspection at the De- pertinent of Transportation and Public Facilities, 4111 Avl- etlon Avenue, Anchorage, Alaska, 99519-6900. The mate- rials may be reviewed by con- tacting Dennis Morford of the Traffic and Safety Section at 266-1528. Mark S, Hickey Commissioner, Department of Transportation and Public Facilities Pub: March 23, 1990 AO: 25-4756 Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission Re: UNOCAL application to commingle production of those oil bearing sands which under- lie the Trading Bay Field, Hemlock Oil Pool. UNOCAL is correspondence dated March 21, 1990 has ap- plied for an order allowing commingled production of those oil bearing sands which underlie the Trading Bay Field, Hemlock Oil Pool with production form other defined oil pools In the field. A hearing on the matter will be held at the Alaska Oil and Gas Conservation Commis- sion, 3001 Porcupine Drive, Anchorage, Alaska 99501, at 2:00 pm on April 23, 1990 in conformance with AS 31.05.100(a). /s/Lonnie C. Smith Commissioner Alaska Oil & Gas Conservation Commission Pub: March 23, 1990 AO: 08-5622 NOTICE OF PUBLIC MEETING ALASKA DEPARTMENT OF ENVIRONMENTAL CONSERVATION & THE U.S. ENVIRONMENTAL PROTECTION AGENCY TECHNICAL ADVISORY GROUP ALYESKA BALLAST WATER TREATMENT Date: Thursday, April 5, 1990 I~o~a~i~n: Frontier Oldg[, 2) Status Reports · Water column sampling study - Benthic microinvert~brate distribution stud~ 3) Final proposal for toxicity study Dated at Anchorage, Alaska on March 19, 1990. /s/Bill H. Lamoreaux Regional Supervisor Pub: March 22, 23, 1990 AO: 20-802-90 F~, .~y, March 23, 1990 Public Public Notices 900 Notices II I II DIVISION OF GOVERNMENTAL COOROINATION ALASKA COASTAL POLICY COUNCIL Minor revisions to the Skag- way Coastal Management Pro- gram will be filed with the Lieutenant Governor's Office and will go into effect on March 23, 1990. As of March 23, 1990, review of projects within the City of Skagay for cor~'sistency with the Alaska Coastal Management Program (ACMP) will be based on the Revised Skagway Coastal Management Program. The plan was approved by the Coastal Policy Council on June 2, 1989. As provided in federal regulations, the Revised Skag- way Coastal Management Pro- gram has been incorporated into the ACMP by the federal Office of Ocean and Coastal Resource Management, De- partment of Commerce. No- tice of the federal review was given on December 14, 1989. Copies of the revised plan are available from the Division of Governmental Coordination (DGC), P.O. Box AW, Juneau, Alaska 99811, telephone 465-3562. A reprinted document will be distributed in April 1990. For further information, contact Joaqlin Estus at DGC at the above address. Pub: March 23, 1990 AO: 90-7964 STATE OF ALASKA DEPARTMENT OF ENVIRONMENTAL CONSERVATION PUBLIC NOTICE In response to requests for additional time for'submitting public comment on the Trien- nial Review of Alaska's Water Quality Standards, the Depart- ment of Environmental Con- servation is extending the deadline for public comment from February 23, 1990 to April 6, 1990. The purpose of the public comment period is to receive information, evi- dence and guidance that can be used to develop, revise or reaffirm Alaska's Water Qual- ity Standards. Written com- ments may be sent to: Alaska Department of Environmental Conservation Water Quality Management Section P.O. Box O Juneau, AK 99811-1800 Attention: George Franklet (Telephone: (907) 465-2653) Dated at Juneau, Alaska, this 14th of March, 1990. /s/Amy D. Kyle for Dennis D. Kelso ~',~'~la~Jrg~ ~tment of, :EngJ~n~e~f~l Conservation .... ,:. ,. ;~he Bureau of Land Manage- ment (BLM) has a require- ment for the performance of an original Cadastral Survey for Sitka - Green Lake State Selections, Group Nos. 507 and 508. This proiect consists of the survey of selected town- ship and subdivisional lines within approximately 6 town- ships and 10 U.S. Surveys comprising 12 metes and bounds parcels, located within the Tongass National Forest on Baranof and Admiralty Is- lands in the vicinity of Sitka and Angoon, Alaska. Wor. k shall include the following rimmed quantities: Rectangular Survey 3360 Chains of PUBLIC NOTICE I I I I II II ii I i Invi'tation.~ I~,,;,~,,=-- -- H9 900 Cadastral Survey 121 Monuments 46.3 Chains of Retracement 2 Ties 1080 Chains of U.S. Forest Service boundary to be posted and marked 1 Meander Line Determination (Job) 6 Township Plats with Field ~otes U.S. Surveys 940 Chains of Cadastral Survey 42 Monuments 113.6 Chains of Retracement 437 Chains of U.S. Forest Service boundary to be posted and marked 7 Ties 3 U.S. Survey Plats with Field Notes 7 U.S. Survey "Plat Only" Plats · Field work shall begin approx- imately June 01, 1990, and end on or before September 01, 1990. The Contractor shall be li- censed to practice professional land surveying in the State of Alaska and have and maintain an office in Alaska at the time of contract award and perfor- mance for contractual liaison purposes during contract per- formance. This requirement is a labor surplus area set-aside, but oth- erwise unrestricted. Large and small businesses may par~ ticipale. Proposal documents under So- licitation Number YA651- RFPO-340024 should be avail- able on or about March 09, 1990. Written requests for this solicitation should be ad- dressed as follows: Request For: YA651- R F P0-340024 Bureau of Land Management Attention: LaVonna Hughes SC-651B, Building 50, Denver Federal Center P.O. Box 25047 Denver, CO 80225-0047 Telephone requests shall not be honored. Availability of this solicitation is limited and shall be fur- nished on a first received, first served basis. If a nonavailabil- ity notice is desired, furnish a self-addressed stamped enve- lope. Pub: March 20 through 29, 1990 AO: 036 Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission Re: UNOCAL application to establish spacing rules for the development of those oil bear- ing sands which overlie the Middle Kenai "B" oil pool in the Trading Bay Field. UNOCAL in correspondence dated March 21, 1990 has ap- plied for spacing rules for 1he development of 1hose oil bear- ing sands which overlie the Middle Kenai "B" oil pool in /he Trading Bay Field, A hearing on the matter will be held at the Alaska Oil and GaS Conservation Commis- sion, 3001 Porcupine Drive, Anchorage, Alaska 99501, at 9:00 a.m. on April 23, 1990 in conformance with AS 31.05.100(a). /s,~Lonnie C. Smith C~m m issioner Alaska Oil & Gas Conservation Corem ission ~P'.J~: March 23, 1990 AO: 08-5623 August 2, 1990 Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: Conservation Order No. 254 R .CEIV D NOW Gentlemen: It is a matter of a $100,000,000.00 potential loss in future gas sales that have Union, CIRI, ARCO and their other partners concerned about the Cannery 2 (renamed Pelch #1) well, and not the potential exposure and/or expense in the Cannery 2 well. They know they do not have to spend another dime on that well if they don't want to. And they haven't spent a dime on its redevelopment so far. That's right! $100,000,000.00 in gas sales is the amount that Union, CIRI, ARCO and their other partners know they stand to lose should Union and CIRI allow the Cannery well to come on stream. Union, CIRI, ARCO and their other partners know that Peninsula Pipeline Company will iflstantly latch a $100,000,000 gas contract in place with the City of Anchorage the instant the Cannery 2 well comes on stream thereby displacing 7% of their existing gas sales. And that's their concern and is what this whole charade is all about. That's right! Union and CIRI have the authority to exercise sole discretion to allow the Cannery 2 well to produce or not to produce. That's right! Alaska Oil and Gas Conservation Order No. 254 precisely gives Union and CIRI the prerogative to determine when and/or whether the Cannery 2 well flows or not. And CIRI only has net interest in about 70 acres of the 640 acres of the Cannery 2 drilling block. Union only has a net interest of about 130 acres of the 640 acres drilling block. Their combined equity in the drilling block is only about a That's right! Alaska Oil and Gas Conservation Order No. 254 does not protect the correlative rights of the other owners who owns % of the 640 acre drilling block. That's right! Alaska Oil and Gas Conservation order is capricious, and arbitrary because of the Conservation Order No, 254 obvious omission of clear directives to protect the correlative,rights of the other owners who owns % of the 640 acre drilling block, Union and CIRI assert they do not have enough information to make a decision participate in the production of Cannery 2 well. That's pure bologna - Union as the drilling operator spent about, $6,000,000.00 of CIRI'S and others' money drilling that well (Cannery #2) in 1981. After spending that much money Union and CIRI ought to know about all there is to know about that hole in the ground. They promptly plugged and abandoned that hole when they finished drilling it. Union and CIRI refused to participate in any manner in the redevelopment of Cannery 2 well in 1985. Alaska Oil and Gas Commission was made aware of that fact and subsequently issued a permit to re-enter that well in 1985. Union and CIRI do not have to spend a thin dime or have an ounce of exposure in the redevelopment and the resultant proving up of the Cannery 2 well. yet they alone have right to allow the well to produce or not to produce. AND that's wrong! The law doesn't allow Union and CIRI to keep the other owners who own about 410 acres of that 640 acre drilling block (% of the approved drilling block) from taking their gas. Union and CIRI were asked once to participate. They said NO. The English language is concise. No means no. How many times must Union and CIRI be asked to participate in redevelopment of the Cannery 2 well? There is no statute of limitation pertaining to a "NO" in the Oil Patch in Alaska. Union and CIRI have h~td all the information that they are entitled to get for a very long time (since 1988 at least). They have been told. The spoken and written word has relevance - just ask Texaco, they will tell you the spoken word has a lot of relevances. Union and CIRI are competitors of the other owners who own % of the 640 acre drilling block. And Union and CIRI, by evidence of their actions, are not about to do any thing that would jeopardize Union, CIRI and their partner's economic advantage by creating other competitors in the very limited gas soles business in Alaska. Union, CIRI, Marathon, ARCO and the other major oil companys in the consortium control the entire consumer gas market in Alaska and simply makes sense that they, Union and CIRI to try to continue to keep the aforementioned parties in control. (See the attached copy printed by the Houston Chronicle May 1988). Union and CIRI by saying "NO" obviously can rely on Alaska Statute 31-05-100 to protect their correlative rights. Which in fact Alaska Statute 31-05-100 more than adequately protects them. Alaska Statute 31-05-100 allow them to take their gas at their discretion without having to risk a dime to get it. Union and CIRI do not control enough acreage in the unit to arbitrarily select the operator of the drilling unit. The meaning of the law is clear. All parties to a producible drilling unit are required to diligently and expeditiously get and keep a well on stream if there is a market for its product, and as a matter of fact, there is an existing market for their gas, -- at least for the time being. The Cannery 2 Operator should be ordered to diligently place the well on production as quickly as reasonably possible. Should any portion of the wells production ~v~e~V E D NOV 16 1990 ~{.a Gas Cons. ~chorag~ disputed, then the Commission should order the Operator to escrow the disputed production revenue until a proper authority declares how the disputed production revenue is to be dispersed. The Operator obviously should be ordered by the Commission to disperse operation expenses and cost from the production revenue before any disputed funds are escrowed. Alaska Statute's and its oil and gas regulations adequately and equitably mandate for the aforementioned to take place. Gentlemen, I am being screwed around by the situation of Union and CIRI. They are not being required to go by the rules, which is good for them and bad for me. And I am suffering huge economic losses and damages by this well not being expeditiously ordered to be placed on stream as the existing law and rules mandate. My customers are threatening dire consequences if they do not receive gas. Their patient level is being strained to the limit because of the State's actions. I obviously will seek restitution for any losses incurred. The State of Alaska is now down to 0nly two Alaska Independent Oil and Gas Operators, and one of them is a U.S. Bankruptcy Court Trustee, all because the way the game is being played up here. And that's a ridiculous situation for Alaska, a State that produces 20% of the nations crude. In fact it's almost ludicrous. But, as T. Boone Pickens once said, "You can do anything you want to do to a Independent Oil and Gas Operator except make him go away". J W White l~qui~y Owner in 640 acre Drilling Block created " by Alaska Oil and Gas Conservation Commission Order No. 254. "g~a'~'~o_ cc: Mr. Zerbeth, Alaskan Crude Bankruptcy Trustee and Qperator Mr. Star, Manager - Anchorage Municipal Light and Power Company Mr. Tom Fink, Mayor of Anchorage, Alaska Mr. Pratt, Assistant to Mayor of Anchorage, Alaska McAlpi Steve ne, Lt. Governor, Dr. James A. White Mr. Bob Ely See attached copy of article printed in the Houston Chronicle May 12, 1988. Describing Union, Marathon, Shell's and others 856 billion cubic foot of gas sales to Enstar, a wholly owned subsidiary of Seagull Energy Corporation located in Houston, Texas. .Seagu, II negotiates new gas supply,: By BARBARAchrooiclesHOOK' ~'/~//'" completed soon. Call: said. 'Fha reno- thousand cubic feet with a con[in.buy N~ ~7! gotiated contract replaces three ex- gent additional commitment to Houstc~I isling agreements between Seagull up to 400 billion cubic feet at. a base and the.producers and covers about price of $1.35 per met. over approxi- · Seagull Energy Corp..l~aa negotic · ~.,hal/the company's Alaskan gas sup- :. mutely 16 years. .~ . , "..'. ated new natural gas supply ar- ply needs, The new contract terms rangements with two major produc- . ;must be approved by the Alaska Combined with Enstar's other sup- . plier contracts, the initial commit- era that serve Seagull's Alaskan gas Public Utilities Commission. pipelln6 and utility Units. '~ ~'.~ ;.' Alaska' Pipeline and Enstai' N~t~-' ;ment la expected to meet all o! the Clufirman Barry J. Gait'said ~ed- '~ral Gas Co.', Seagull's utility division, utility's gas supply and peak-day nesday that the Houston firm's provide natural gas transmission requirements going into the next Alaska Pipeline Co, subsidia~ I~aa vand diatxibution service to Anctmr-... century, Gait said. ' . siIFml a letter o/intent with Mars- t age and other communities in south- '~ ~heil'~)'~l ~-0~'ls'the ~pany;~' other. thon Oil Ce. and Union Oil Co. of central Alaska. - -: ~ ' major natural gas supplier. ' ~ Caligernla for up 856 billloa cubic The agreement calls for Alaska The new agreement a~ures An- {eet o! gas. ': '"' :"" ..... Pipeline to purchase 456 billion cubic chorage-area gas costs will increase Definitive agree~ts shbuld: be - feet of gas at a base price of $1.~ p~r --.at a slower rate Urea under previousI rrangemenfs with two pro 4ucers. ;= ~ntracta, GaltandEnstarl:~sident ~mmii~'ts,-the two ex~u~ves'~ commitment, alorg with Richard F. Barn~ ~id in a joint ~l~. .~ ................. ~ Plpeline's other s~temenL :.'. A ~guil s~k~an said ~e agr~men~ provid~ a "' ~ .... al ~k~r-pay clai~' ~uid have in- of 16 yea~ Gait ~id. . . ~norag~ar~ co~umem - . ' I b c . ~ u~er one ' ' s at "a' are volv~ asmuch~bdloncu 1 ~oy enjoy ga r ~ ~ t t~,~.~o ' . ' ply agr~ment a~ ~e among the lower In the nation. This ,~, v- a~ , · · ." ~n~ng littga~on among~he Should help a~e ~at ~ey~n~nue Pri~ am sub~t to annual aa- but ~e tawsuit an~ to"do ~ [ar ln~ ~e guture," they justmen~ after 1989 ~d o~ ,a clai~, which ~! '~id.',~ .. · c~de oll prl~ ~dez '~ith corem ~e new a~angemen~ mUev~ ' provisions to protect' consumers ~Alaska~ttl~blicand Utm~dism~"a ~e~, .... a ,~ ,~s ....... of ex~ '~agai~t ~c~ively ~pid ~t ~a- app~vM of ~e ag~menL lpay liabilifi~, at the ~me ~me .' ~nrnthon' will p~vlde t~ gas minion and ~lstribuUon o~.-a~ , giving ~ a meam o( ~t~lying ~k- under ~ ~m~n~ but Un,al a~un~ lot tw~ir~ ot ~ demands wi~out ham~ 'm n~d to p~vide g~ when ~nra- ~venu~ and 7~ ~r~nt ":mak~,urther costly take-or-pay ~on~u~ble~de,ve~,~el~,al ~' ... ' '" · ....'., C' -.~ ': .... · ..... ' ~?~'"':':":"" "" . NOV 161990 Alaska 0il & Gas C;o~s. G.~iamlss!0~ Rncho~a~ 12 14 16 17 18 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, ) Appellant, ) vs. ALASKA OIL AND GAS CONSERVATION COMMISSION, RECEIVED NOV o Case No. 3AN-90-6998 civo Appellee. MOTION FOR EARLY'ASSIGNMENT OF JUDGE Appellee Alaska Oil and Gas Conservation Commissior ("Commission") moves for this case to be assigned to a judge prio~ to briefing, in order that appellee's motion to dismiss the appeal may be decided promptly. On September 6, 1990, Presiding Judge Brian C. Shortel~ issued an order providing that this case "will be assigned to ~ judge in the Superior Court Appeals Division for decision upo~ completion of briefing." In the interim, the order assigned th( case "to Ralph Stemp, Superior Court Judge Pro Tempore of thc Appeals Division, for determination of any procedural motions whic] may be filed." On October 3, 1990, the Commission filed a Motion t, Dismiss Appeal for Lack of Standing and for Failure to Exhaus' Administrative Remedies. On October 29, 1990, Judge Stem' initially granted the motion, but on November 2, 1990, he vacate. that order, stating: "Motion to Dismiss Denied. Ail issues ma be raised in the briefs for decision by the Judge assigned to th merits of this case." It appears, therefore, that Judge Stemp 10 12 16 17 18 19 ~ '~ 22 0 0 0 '" 23 24 25 26 determined that as a potentially dispositive motion, the Commission's motion to dismiss falls outside the realm of the "procedural motions" assigned to him and should rather be decided ~y the judge to whom the merits of the case are assigned. The Commission does not disagree with Judge Stemp. 5owever, the Commission does believe that considerations of judicial and administrative economy argue strongly in favor of an early determination of the motion to dismiss, rather than waiting until the merits of the appeal are briefed. Obviously, if the motion is granted, both litigants-will be saved the expense and effort of briefing and arguing the appeal, and the court will likewise be spare'd the burden of reviewing the substance of the appeal. The Commission therefore requests that the case be assigned to a judge now, rather than upon completion of briefing, in order that the Commission's motion to dismiss may be considered ~nd decided on its merits prior to further proceedings in the ~ppeal. Dated: November 8, 1990' Thi~ k, ~e c~rt~y ?hc~t on ih% ,..':,z~-~ a cepy cf the pa;"i'!e$ o'..: recc, rd-. 5ignaturg DOUGLAS B. BAILY ATTORNEY GENERAL BY: Robert E. Mint Assistant Attorney General 10 12 13 14 16 17 18 19 ~' z 22 23 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, vs. ALASKA OIL AND GAS CONSERVATION COMMISSION, ) Appellant, ) ) ) ) ) ) Appellee. ) Case No. 3AN-90-6998 Civ. ) ORDER The above-captioned case is assigned to Superior Court Judge for all purposes, including determination of appellee's motion to dismiss. DATED at Anchorage, Alaska this , 1990. day of Brian C. Shortell Superior Court Judge IN THE SUPERIOR COURT FOR THE STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. J O~DBR · ' The court 'having considered appellee Alaska Oil and Gas Conservation Commission's motion to dimmiss this appeal and having concluded that the motion should be granted, IT IS ORDERED that James W. White'$ appeal in this case is DISMISSED. 14 16 Superior Court Judge 22 23 24 25 26 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W.WHITE, VS. ALASKA OIL AND GAS CONSERVATION COMMISSION, ) Appellant, ) ) ) ) ) ) Appellee. ) Case No. 3AN-90-6998 Civ. ) ORDER The court having considered appellee Alaska Oil and Gas Conservation Commission's motion to dismiss this appeal and having concluded that the motion should be granted, IT IS ORDERED that James W. White's appeal in this case is DISMISSED' O~'Date: -- Superior Court Judge RECEIVED OCT :4'%~k~' 0'# e, (~as Cons. Co~mlss~ Anchorage 10 15 16 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, VS. Appellant, ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. Case No. 3AN-90-6998 Civ. MOTION FOR LEAVE TO FIT~ REPLY MEMORANDUM Pursuant to Appellate Rules 612(a) and 503(d), appellee Alaska Oil and Gas Conservation Commission moves for leave to file a memorandum in reply to Appellant's Response to Appellee's Motion to Dismiss Appeal. In that response the appellant opposes the Commission's motion based on a theory of agency, and the appellant also makes assertions about what the Commission supposedly must have known in this connection. The Commission should have the opportunity to address these new matters. The accompanying proposed reply does so in a very brief fashion that will not unduly burden the court or the appellant. Dated: October 23, 1990 DOUGLAS B. BAILY ATTORNEY GENERAL · Robert E. Mintz Assistant Attorney General RECEIVED OCT 2 & Cons. chora 12 14 15 23 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, VS. Appellant, ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. Case No. 3AN-90-6998 civ. REPLY TO APPELLANT'S RESPONSE TO APPET,T~E'S MOTION TO DISMISS James A. White's application for rehearing neither stated that it was being submitted on behalf of James W. White nor indeed made any reference to James W. White.1 Appellant now contends, however, that James A. White filed the application "as an authorized agent for James W. White although he inadvertently failed to indicate his agency capacity." Affidavit of James A. White (filed with Appellant's Response to Appellee's Motion to Dismiss Appeal) at 2. If such after-the-fact disclosure of agency capacity were allowed to satisfy the requirements of AS 31.05.080, the potential for confusion would be greatly increased and the statutory purpose of providing for an orderly administrative process would be defeated. 1 Appellant points out that the application used the first person plural, but the Commission should not have to guess whether by that usage James A. White intended to include the three entities actually named therein (Peninsula Pipeline Company, Alaskan Crude Corporation Trustee, and Far North Oil & Gas, Inc.), or whether he was referring to an unnamed prin~%l~,~.~now contended, or whether he was simply trying to fo~~~~~ style of writing. OCT 2 61990 Oil & Gas Cons. Anchora~ '~ rr r~ oo nO~ z ~ lO 20 22 23 24 26 Appellant further contends that the "Commission could in no way . . . not have known that Appellant [James W. White] was the party on whose behalf the request for rehearing was filed." Appellant's Response at 5. This contention is mistaken. As explained in the accompanying Second Affidavit of Lonnie C. Smith, the Commission has consistently had difficulty obtaining clear information about the roles and relationships of the various persons and entities associated with the well at issue in this case. As best as could be gathered, James W. White's interest appeared to be as president and chief executive officer of Far North Oil and Gas, Inc., while James A. White's interest appeared to be as Director of Peninsula Pipeline Company. The Commission did not view James A. White as a mere proxy for James W. White. With specific reference to Conservation Order No. 254 and the application for rehearing, James A. White (accompanied by another person not James W. White) had a lengthy meeting with members of the Commission shortly after the Order was issued, in which he discussed his objections to the Order. He appeared to the Commission members to be representing the interests of Peninsula Pipeline Company in this meeting. It was therefore no surprise later to receive a written request for rehearing from James A. White, as distinct from James W. White. The fact that James W. White independently had reason to be interested in Conservation Order No. 254 and would be entitled to apply for rehearing if he so chose does not mean that he in fact applied for rehearing or that the Commission should be compelled lO 12 13 16 2O 2! 22 23 24 25 26 to treat James A. White's application as having been made on behalf of James W. White. The Commission treated the application as what it purported to be and as what the Commission reasonably believed This court should it to be: the application of James A. White. do likewise. Dated: October 23, 1990 DOUGLAS B. BAILY ATTORNEY GENERAL B¥~ Robert E. Mintz Assistant Attorney General 10 ~6 ~ 20 <g g ~ 22 o o 23 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, vs. Appellant, ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. Case No. 3AN-90-6998 Civ. SECOND AFFIDAVIT OF LONNIE C. SMITH STATE OF ALASKA ) ) ss THIRD JUDICIAL DISTRICT ) 1. Conservation Order No. 254, which is the subject of this appeal, involves a well known as the Mike Pelch #1 well. It is important for well owners and operators to be clearly identified in order for the Alaska Oil and Gas Conservation Commission to implement bonding, reporting, permitting, and other regulatory requirements, but the Commission has consistently had difficulty obtaining clear information about the roles and relationships of the various persons and entities associated with the Mike Pelch ~1 well. 2. For instance, when the previous well operator, Far North Oil and Gas, Inc., designated Alaskan Crude Corporation as the new operator, James W. White (who has represented himself as president and chief executive officer of Far North Oil and Gas, Inc.) informally complained about the transfer to Commission Chairman Chatterton. Both corporations are now in bankruptcy, raising the question of financial responsibility, which may revert back to the z~.~< 14 19 20 21 22 23 24 25 26 well owner. Unfortunately, there is also uncertainty on this score, because the oil and gas lease to "James W. White et al," which the Commission believes is or was actually held by Far North Oil and Gas, Inc., would have expired in 1986 according to the only lease extension of which the Commission has been provided a copy. For his part, James A. White has held himself out as Director of a different entity, Peninsula Pipeline Company. 3. Shortly after the Commission issued Conservation Order No. 254, James A. White had a lengthy meeting with the members of the Commission at which he discussed his objections to the Order. He appeared to be representing the interests of Peninsula Pipeline Company in this meeting. He was accompanied by another person, not James W. White. When James A. White later submitted his letter applying for reconsideration of the Order, the Commission assumed he had interests distinct from those of James W. White to pursue thereby, and the Commission treated the letter as the application of James A. White, not James W. White. ~990. Notary/~ublic, State of Alaska My c~mission e~ires: l0 16 ~g 20 g ~ 22 23 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, Appellant, ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. Case No. 3AN-90-6998 Civ. ORDER Appellee Alaska Oil and Gas Conservation Commission having moved for leave to file a reply memorandum to Appellant's Response to Appellee's Motion to Dismiss Appeal, and good cause appearing therefor, IT IS ORDERED that appellee's proposed reply memorandum shall be accepted for filing. Dated: Superior Court Judge Oz ~ lO IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, vs. Appellant, ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. ) ) ) ) ) ) ) ) ) Case No. 3AN-90-6998 Civ. CERTIFICATE OF SERVICE I certify that I am a legal secretary in the Office of the Attorney General, Anchorage, Alaska and that on October 23, 1990, I mailed a copy of the State of Alaska's REPLY TO APPELLANT'S RESPONSE TO APPELLEE'S MOTION TO DISMISS, MOTION FOR LEAVE TO FILE MEMORANDUM , SECOND AFFIDAVIT OF LONNIE C. SMITH, proposed ORDER, and this CERTIFICATE OF SERVICE to the following attorney 18 19 of record: 20 21 22 23 Robert C. Ely Attorney at Law 608 West 4th Avenue, Suite 21 Anchorage, AK 99501 C~th~ R. Gaal ~ 24 25 26 OCT 22 '90 :].8:23 gTTY GEN OTL, GRS, NTH Appe 11 ant, vs. ;N THE SUPERIOR COURT FOR TME STATE OF ALASKA P.E/1B ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. ) ) ) ) ) ) ) ) ..... ) Case No. 3AN-90-8998 APPELLANT'S RESPONSE TO APPELLEE'S Ho?[0N TO DI, SHISS. APPEAL Appellant protests Appellee's effort to deny him his right to appeal through its ill founded contentions that Appellant lacks standing and.has failed to exhaust his administrative remedies. Although the record received by Counsel for the Commission on appeal may not reveal it, Commission members were well aware that Appellant believed himself to be affected by Order $254 and specifically granted him and his agent extensions of time for filing His request for rehearing. Recognizing the broad effect that proceedings and orders of the Alaska Oil and Gas Conservation Commission may have, AS $1.05.080 provides that the right of '°a person affected by [an order or decision] "to,request reconsideration by the Co~mission is not restricted solely - 1 - OCT ~E '90 10:~3 ~4TTY GEM OIL,~S, MIM ,. P. 3/'13 to "parties" Or persons who formally "appear" a% or "participate" in the Commission's proceedings. Rather a much broader category is reco&nized as being entitled'to request review: persons "affected". If an affected person asks for review by the commission of matters believed to be erroneous, the co~mission must act on the request within I0 days. ., Requesting a rehearing makes, that person, at tha~ point, a , formal "party" to the proceeding and entitled to a'$uperio~ Court appeal if dissatisfied with the Commission's response to the rehearinE request. II. Appel/ant is a teaseholder within the unit for which Alaskan Crude Corporation is the opera%or. (See affidavit of Appellant.) Conservation Order $2!0, issued in p~rmitted re-entry of an abandoned well in the Kenai gas field and provided for further action leading to production in the event gas were found in commercial ~uantities. In , ~ · March of 1990, Alaskan Crude Corporation, the well's operator, asked the Commission' to establish a production unit and permit operation of the gas well. As appellant's affidavit ~ndicates, this occurred after Appellen%, a lea~eholder within the unit for which A!as!a Crude was the - 2- OCT ~ '90 10:84 ATTY GEM OIL, GAS, MIH R, OBERT C. ELY operator, was informed by the Com~,ission that only the opera%or could initiate such a proceeding. The Commission held a hearing May 10, 1990 at which the operator, a Union Oil Company official, a CIRI official and two private citizens testified. Other members of the public were present as cBservers. Some k$igned a register; others d~d not. After ~uestioning the operator and reviewing the other testimony, the Commission issued Conservation Order ~254. The order adversely affected Appellant, a leaseholders in the unit in that it did no% permit gas owners within the unit to produce and market their gas under reasonable conditions. Appellant's son., James A. White, acting for Appellant, was present in Alaska at the time. He wr~te the Commission the day that Order #254 was announced setting out several errors in the order. Subsequently James A. White and the Appellant had conversations with Commission Chaiz~nan · Chatterton. Concerning extensions of time for filing a request for rehearing. (See attached copies of letters of June 8th, ~?th, July 6th and 16th) On July 20th appellants son acting for Appellant filed a request for rehearing (titled "Application to Appeal") stating that "this is Dq,r application...re~uesting an appeal." (Emphasis supplied. Copy Attached.) Rehearing was granted and determined in a letter dated July 30th. The rehearin~ was ~ented Appellant subsequently filed this - 3 - OCT 22 '98 18:24 ATTY GEM OIL.,GAS, MIH ,., P. 5/13 appeal. On June 26th Alaska Crude filed for protec%ion under the Bankruptcy Code. Attached are fax copies of original affidavits (which will be filed with the court shortly) setting out the relationship of Messrs. ~nite to each other, the authority of James A. White to act for Appellant and the intent of both Messers. White that he do so and %he dealings wil~h Mr. Chattenton that ackncwledEed ~ames W. ~nite's relationship , and interest in the rehearing application. III. ,, , .¢. The administrative procedures act provides, at AS 44,82.580, that "judicial review may be had by filing a must have been "parties" to the administrative proceeding. Ketchikan Ret..a. il Liquor Dealers v$ Stat..e., 802 P.2d 434, 439, (lSTS) Pursuant to AS 31.05.080, persons "affected: by an Order of the Alaskan Oil and Gas Commission, though not parties in the initial proceeding, become "parties" by filing a request for rehearing, In reviewing the need to exhaust administrative remedies against the mandate to do justice to the parties ,before them, the courts have developed a balancing te~t in which the interests of p~ivate parties in finding adequate OCT 22 '90 10:£5 RTTY GEM OIL, GGS, MIH . P,6/13 ROBERT C. ELY redress for'their grievance~ is balanced a~ain~% the principal of deferring to %he administrative ag6ncy'$ expertise and its expectation %hat it will be allowed to review matters throughly before they are reviewed by courts. .~cratma~ vs. Watt, 856 F. ~d t321 (CA Alaska 1981); L.e Resch vs 5usti~, 883 P.2d 542 (Alaska 1983). The exkaus%ion doctrine is no% applicable where the remedy ~ought. is ~ud~cial rather %hah administrative. C~rter Alaska Public E~loyees Assn. 883 P.2d 91S (Alaska 1983). In this case, Appellee is no~ ¢on%en~in~ %here exist ~echnical mat%ers the resolution of which properly before ~he Commission, Ra~her i~ im con%endin~ that Appellant was no% %he person who moved for rehearing, The attached affidawi~s make clear no% only %ha% %he revues% fo~ rehearing was filed on Appellan%~ behalf but %h~ Commission was aware throughout ~he ~ime in question both of ApDellan%'s interest in %he procee~in~ and him desire appeal Order ~54 if a se~temen~ could no% be worked The Com~ission could in no way have 56eh surprised 5¥ appeal nor no% have known ~ha~ Appellant was the party on whose behalf ~he request for rehearing was filed. In applying ~%r~_~D (supra) and balancin~ equities between ~he parties %o this appeal, they C!earl~ weigh heavil7 in favor of allowing i% to be de~ermlned on ~%s merits. This is particularly true considering ~ha~ OCT 8? '90 10:~5 ATT',' GEM OIL.,GAS, MIM ,. P.?×13 ROBERT C. ELY proceedings before the Commission was not adjudaca%or¥. (See · ttached Agency's List of Parties) IV. The Alaskan Oil ann Gas Conservation Commission Statute, AS 31.05.01, by its terms, allows for broad public participation in its proceedings. Not just formal parties, as in SuPerior Court, are permitted to asr for rehearings but also persons "affected" by its decisions. Participants need not have lawyers represent them. Appellant is a leaseholder in the unit crea%ed by Order $254 (see affidavit of James W. White), White's lawyer (see attached affidavit of Robert C. Ely) and his son's lawyer attended the May loth hearing. (See Agency's List of Parties, attached) Appellant and his son both called the Commission chairman aSout projected rehearings and were given extensions of time for doing so. (see attached correspondence and'affidavits of James A. and James W. White) The rehearing application was ~ubseq~ently received and ruled on. (See letter denying rehearing attached to , Lonnie Smith's affidavit). Appellant has standing to pursue this appeal and has exhausted his administrative remedies prior to filing'in the Superior Court. Appellee's motion should be denied.~ Dated this 19th day of October, 1990. , 'c, Attorney at Law OCT £Z '90 10:~6 ATTY ~EM OIL, GAS, MIM · · IN TIlE SUPERIOR COURT FOR ~ STATE OF AlakSIC* P,8×IB JAMES W. WH1TE, ALASKA OIL AND GAS C0NSER. VATION COMMISSION, Appellee ) ) ) ) ) ) ) ) .) Case No. 3AN-96-6998 STATE OF TE~ ) co~ oF BEXAR ) ~es W. ~e berg ~s~ d~y ~o~ ~po~s ~d 1. ~t he g ~ holder of a ~en~ v~d ieee to a~e~go ~t~ ~e ~t ~e~d by Order ~254. A co~ of my le~e ~ 2. ~at l~t w~ter a.~t wrb~y portioned C, V. Cha~emon ~~~ of the Co~~on to request a he~g to ~ptement Commission Order ~210 ~d w~ told m ~ le~holder ho co~d not request a he.g; o~y ~e operator, '~~ ~do Co~omfion co~d. ~t ~n ~u&o~ed ~k~ ~d~ to request s~d h~g, whick it did, and m he~g was he1& "3. ~a~ bo~h t~ough ~ a~omey ~ed by ~ ~om ~d t~ou~ ~ o~ Robem C. Ely, he mo~ored ~e procee~ ~flmt~d by ~ka ~de Co~ora~on before the AIm~ Off ~d O~ Comem'a~on ~mm~sion ~ sp~g. 4. ~; re~t of s~d h~g &e ~~ Off and G~ ~msion ~sued Order P. 9/13 · #254 ~i¢ 8. 1990. ~amcs W. White ~ld ~ C~ Co~~on ~d~r ~4. ~~ C~e ~orafio~ a~e~d rehe~g, on or 5~fore 3~e ~, 1990. Howevgr, ~~a ~de Co~ora~o~ ~o honor frs cogent ~d ~d ~apter 7 ~ U.S. B~p~q ~ on ~: 26'& 3. W. White ~en requested ~ so~ 3~_mes ~ %~tg a professio'~ e~eer, who was ~ehorage to ~e f~ ~ a r~e~g of ~e~afioa Or,er ~Z4. ~o:mes ~ ~te did ~mely rede for s~d he~g oa or about ~e 27, ~990. . , aa~lon ~ant ~d ~ son were co,dung ~sio~ ~th o~er ~eaed p~es as how ~o resolve ~e proble~ ~ea~ed by ~e Order ~ order ., agency or co~ procee~gs. ~ore ~e w~ needed ~o p~ep~e ~o attempt ~o resolve d~eaces be~een sever~ ~ected p~es'.... ..... ; . 6. ~ a re~ AppeR~s phone~ ~~s~on ~~~ C. V. requested ~d w~s ~ve~ ~ e~e~io~ (See a~ched J~e ~h co~g leuer ~om ~p_~es A. ~te) ~es ~ ~te, on my beh~ ~bsequendy ~d for second e~e~ion (See a~ehed lenee of ~y 6~). ~t ~ked for o~e ad~don~l' ~e~ion w~ch ~. ~astenon or~y gave ~d w~cb w~ co--ed by 5~es at~ched Iener of 1uly OCT E.~ '90 18:87 ATTY GEM OIL, GAS, MIM ,,~ . 7. In addition to the two conv=r~atiom w/th Mr. Cnan=~-mn referenced in th= attached letter, a.ffi~t hsd many other phone conversations with Mr. Chattarmn invohdn$ · perceived problems with the Order #254, the status of settlement neBotia',~ons with other imerested part/es and the n~d for firther e, xt~nsions until these negotiations concluded. Durint one request for ex~nsion NL-. Clm~=non sa/d, when I askod how soon I would how whether my request wo~d ha grant=d, "W='tl s~ui= it righ~ now. Lonni= Sm/th and Dave Joho~on are riih~ h~ro; H~ Lonni~ and Dave, rv~ l cs w, w~ ~ m~ phom~ ~sldng for a 10 day ~=ension for ~li_ng a r~qu~s~ for reh~m-/ag. Any Objections? Ok, Jkn, you've go~ your extension." 8. There is no doubt ~aroulgh my many conversatiom with them and through otI~er means that th~ Commission was awa.r~ of my ~t~rest in the dril~g vnet (in ~ddition to Zame.~ A. Whit¢'$ affidavit se~ ~ttach~d l~tter of June Sth from him to thc Commission) and of'my i~zention to. rcqu~s! s reh~axLug if s~ttlement discussloms with other affected parties W. White SUBSCBmED AND SWOILN ~o before me ~ ..../~ .,a_., N0~xPu.bl/.C for T?xas '3 .,,) ~ ,/ My commss~on cxp~rcs:._c~.-_~'.~' _.'. OCT .~_~. _9~ J.¢;;:>.'.'.7_RTTY GEM OIL,,GRS,.~2.,~MI~_~,= o=,:o · · IN THE SUPERIOR COURT FOR THE STATE OF ALASKA Appellant, ALASKA OIL AND GA~ O0~$F~RVATION CO~ISSIO~I, Al:,,~ellee. ) ) ) ) ) ) STATE OF OREGO~ ) GOUTY OF WASHI~GTO~ ) James A. ~hite being first dulF sworn, deposes and 1. That he has a PhD. in mechanical eegineering, has worked for the ~tate of Texas ~overnor's En~gF ~&nagement Center and has worke~ clo~el~ ~ith hia father in connection wi~h his family's oil and gas lease hol~ing~, 2. That affiant was in Alaska in the late sp~ing an~ early summer of 19~0 and was asked b~his father Jam~s W. White, to arrange for a la~Mer tc Be present ~t the~ 10th Cc~mtssion hearing and, later, to help in arrangiU~fcr and con~irming several extensions ~or filing his father's request ~or rehearing of Commission Order ~2~5. ,, DB~RT C. ELY OCT ~8 ~90 10:87 ATTY GEM OIL, GAS, MIM and o'~hez'~s behalf. That where aftian~ filed %he letter of June 8th si~ne~ %hem in his own name, he did s~ as am a~thorized ... agen~ ~o= James W. White al%hough he inadvertently ~ailed to indicate hi~ agenc~ capacity. Affiant's insensi~ivity to %his tecknical stat~s ~/scri~tion was the result of the numerous communications with Oommission ~embers about %he re2uee% for rehearing which both he and his father had had %hrou6hou$ the more .than a month which passed be=ween the issuance cf Or, er 2~4 ~d the filing o~ Appell~t's re2u~s~ for rehearing. ~~os A. ~ite ' - / SUBSCRIBED ~D ~ORN to before me o~ Oc%obe=, 1990. ~., .... ...... _~ .... ...... _ ........ ~'.'t ~~' ' ~'~ ~ .-'~4.~' ~ __, . , _~_;~-: b~' . ~ --- ' ' '~':-;~XTa~i~-~ ~'u~,,~Lk'"' -[ ,.,-,o~a~ ~,~ _ . ==.~ !,, I'" ':,l, ";' t"ll.I OCT ~? '90 10:28 IqTTY GEbl P. 13/:L3 IN THE SUPERIOR COURT..FOR THE STATE OF AhASKA JAMES W. WHITE, Appe 11 ant, . VS. ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. ) ) ) ) ) ) ) ) .,) Case No. 3AN-90-6998 ROBERT C. ELY AFFIDAVIT OF ROBERT C~_:ELY STATE OF,' ALASKA ). ) sS. TRIRD JUDICIAL~DISTRICT ) Robert C. Ely being first d=ly sworn, deposes and sams: 1. That he is an attorney representing James W. White of Bulve~de,. Texas. 2. That, at Mr White's request, affiant attended the May 10~h hearing before the Alaska Oil and Gas Conservation Commission which resulted in Order $264. 3. That, affiant did not "sign in" at the hearing or otherwise indicate why he was present, there being no reason to do so as the proceeding involved the well operator and the Commission. 4. That, following the hearing, affiant discussed the proceedings with his client. Dated this _/~day of October 1990 SUBSCRIBED AND SWORN to before me this ~ day of October, 1990. L' - '~",~Tt~ ~~ ..... NOTARY PUBLIC MARY A, HENRY otar~ Public for ;Alas}ia MM commission expires: IN THE SUPERIOR COURT FOR THE STATE OF ALASKa, JAMES W. WHITE Petitoner, VS. ALAS[fA OIL AND GAS CONSERVATION COMMISSION Respondant. Case No. STIPULATION FOR EXTENSION OF TIME COMES NOW the parties hereto, by and through their respective attorneys of record, and stipulate to an extenstion of time until October 19, 1990 for Appellant to respond to the Motion to Dismiss Appeal for Lack of Standing and for Failure to Exhaust Administrative Remedies. DATED: If",/, l,,,~, ¢'0 DOUGLAS. B. BAILY ATTORNEY GENERAL BY: Robert E. Mintz Assistant Attorney General ROBERT C. ELY ROBERT C. ELY AT~NFt At 643~ W 4TH AVE.. $~JITE 21 A~C~OR~E. AK 99~1 (~ 27~191~ FAX (~7} 25~53 'ECEIYED 10 12 14 16 17 19 20 21 22 23 24 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, vs. ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. ) ) Appellant, ) ) ) ) ) ) ) Case No. 3AN-90-6998 Civ. ) UNOPPOSED MOTION TO EXTEND TIME FOR TRANSMITTING RECORD The Alaska Oil and Gas Conservation Commission ("Commission") moves to extend the time for transmitting the record until after the court has ruled on its pending motion to dismiss this appeal. On October 3, 1990, the Commissionmoved to dismiss the appeal for lack of standing and for failure to exhaust administrative remedies. Should the court grant that motion, there will be no need to prepare for transmittal the record in this matter under Appellate Rule 604(b). 'For reasons of administrative economy, therefore, work on preparation of the record should be deferred until after the court has ruled on the motion to dismiss. Should the court deny that motion, the commission.expects it will then be able to prepare the record within' 15 days. 10 12 16 17 18 24 25 26 motion. The Appellant James W. White does not oppose this See accompanying Affidavit of Counsel. Dated: October 12, I990 DOUGLAS B. BAILY ATTORNEY GENERAL Robert E. Mintz Assistant Attorney General This is '!': "c. , .:..:i r;,-. '.:'L: .Jo:'.? .': ,:ppy ef th~ C.::i' ,'='3 ;; !'~:,vj ?:,.'.ii':d d~ f3 )":,', :'c.!c;,::i-.,,'.; ai~cr,?~.'s or' pattie~ c.~ r.~cr.:rd: Dc.l'e I0 12 14 16 17 18 20 21 22 23 24 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, VS. Appellant, ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. Case No. 3AN-90-6998 Civ. AFFIDAVIT OF COUNSEL STATE OF ALASKA ) THIRD JUDICIAL DISTRICT ) 1. I am an assistant attorney general, and I represent the Alaska Oil and Gas Conservation Commission in this case. 2. Today I spoke by phone with Robert C. Ely, attorney for appellant James W. White, and he said he does not oppose my Motion to Extend Time for Transmitting Record. RO~ Mintz SUBSCRIBED A2,1D SWORN TO before me on 1990. Notary Public, State of Alaska My commission expires: 10 12 14 16 17 18 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W. WHITE, VS. ALASKA OIL AND GAS CONSERVATION COMMISSION, ) · ) Appellant, ) ) ) ) ) ) Appellee. ) Case No. 3AN-90-6998 Civ. ) ORDER ~ On motion of appellee Alaska Oil and Gas Conservation Commission, which was unopposed by appellant, IT IS ORDERED that the time by which appellee must prepare, certify and transmit the record is extended until 15 · days after service of an order of this court denying appellee's motion to dismiss the appeal. Dated: Superior Court Judge October 14, 1990 James W. White called AOGCC asking if we ever received an origi- nal copy of a Fax he sent to our office re: CO No. 254 - Gentle- men dated August 2, 1990. Researched our C.O. file, Lonnie Smith's file and Dave Johnston's file. Did not find any letter from him dated August 2, 1990. Did not have anything logged in with that date either. He then said he was not sure of the date and it started out "It is a matter of $100,000,000.00 potential loss" After researching our files a letter dated July 31, 1990 fit thg description of the letter he was referring to. I then contacted Mr. White and let him know we located the letter. I told him we only had the FAX copy of such letter. He then said he was going to send a hard copy that would be dated August 2, 1990 and that was a "cleaned-up" version with some grammar corrections. He said this was basicly the same letter. I said I would be keeping my eyes open for it. Robert C. Ely Attorney at Law 608 West 4th Avenue, Suite 21 Anchorage, AK 99501 DEI A i - iE OF LAW' ENG ASST I OFF I ,'~.~'~ tik~"~ 7~7'C. RNEY GENERAL -S,q GEOL I GEOL ASSTt GEOL ASSTI STAT TECHI STAT TECH1 STEVE COWPER, GOVERNOR REPLY TO: [~/1031 W 4th AVENUE SUITE 200 ANCHORAGE, ALASKA 99501-1994 PHONE: (907) 276-3550 FAX: (907) 276-3697 [] I$t NATIONAL CENTER October 3, 19 9 0 100 CUSHMAN ST. SUITE 400 FAIRBANKS, ALASKA 99701-4679 PHONE: (907) 452-1568 FAX: (907) 456-1317 '[] RO. BOX K--STATE CAPITOL JUNEAU, ALASKA 99811.0300 PHONE: (907) 465-3600 FAX: (907) 463-5295 Dear Mr. Ely: RE: James W. White v AOGCC Case No. 3AN-90-6998 Civ. Our File No. 221-91-0188 In recently reviewing the record in connection with the compilation of the required "Agency's List of Parties and Attorneys on Appeal" in the above-referenced case, I saw clearly that there is a fundamental problem with your client's appeal: namely, he did not fulfill the statutory requirements that must precede an appeal. Accordingly, I am convinced that the appeal must be dismissed, and I have filed the enclosed motion for that purpose. If my calculations are correct you should be back from your bicycling trip about now, but if there has been a delay and you need more time to respond to the motion, please let me know. Sincerely, DOUGLAS B. BAILY ATTORNEY GENERAL Robert E. Mintz Assistant Attorney General RECEIVED OCr 0,5 1990 . :,'¢,,,~ . ,, ,:,,...;~:~..,~ .(JjJ .& 6aS CoilS. 03-C5LH 14 15 20 21 22 23 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W.WHITE, vs. Appellant, ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. Case No. 3AN-90-6998 Civ. MOTION TO DISMISS APPEAL FOR LACK OF STANDING AND FOR FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES The Alaska Oil and Gas Conservation Commission moves to dismiss this appeal on the ground that appellant James W. White lacks standing to appeal and failed to exhaust his administrative remedies. The remedies for one aggrieved by a decision of the Alaska Oil and Gas Conservation Commission ("Commission") are established by statute. AS 31.05.080(a) provides, first, that "a person affected by" an order or decision of the Commission "may file with the commission an application for the rehearing in respect of the matter determined by the order or decision." AS 31.05.080(b), in turn, provides that "[a] party to the rehearing proceeding, dissatisfied with the disposition of the application for rehearing, may appeal from it to the superior court .... " (Emphasis supplied). When the legislature has specified administrative procedures for obtaining judicial review of an agency decision, those procedures must be fol- ]o 16 17 2o 22 23 24 25 26 lowed. Bethel Utilities Corp. v. City of Bethel, 780 P.2d 1018, 1021 (Alaska 1989). The appellant here, James W. White, failed to follow those procedures. As explained in the Affidavit of Commis- sioner Lonnie C. Smith, submitted herewith as Exhibit 1, James W. White was not "a party to the rehearing proceeding" in this matter. In fact, he did not appear either in the original proceeding that resulted in Conservation Order No. 254 or in a rehearing proceeding. The original proceeding was initiated by an applica- tion submitted to the Commission by Alaskan Crude Corporation. Following public notice, the Commission held a hearing on the application on May 10, 1990, at which representatives of the applicant and other interested persons testified. One person submitted written testimony only. Several others, including an attorney for James A. White, attended the hearing and signed an attendance sheet but did not otherwise participate. James W. White did none of these things. See Exhibit 1. Following the hearing, the Commission rendered its decision on Alaskan Crude Corporation's application and issued Conservation Order No. 254, on June 8, 1990. See Exhibit 2. On July 20, 1990, James A. White wrote to the Commission "requesting an appeal of AOGCC Order No. 254," and setting out various grounds on which he objected to that order. See Exhibit 3. The Commission responded on July 30,'1990. While noting that his "standing relative to this matter is not clear lO 12 14 15 20 2! 22 23 24 25 26 to the Commission," it decided to treat James A. White's "arguments for appeal as a petition for a rehearing under AS 31.05.080(a)." See Exhibit 4. The Commission addressed James A. White's arguments on the merits and determined that the application for rehearing should be denied. Id. at 2. James A. White did not appeal this determination to superior court in accordance with AS 31.05.080(b). Nor did the original applicant, Alaskan Crude Corporation. Nor did anyone else who participated in the Commission proceedings. Instead, an appeal was filed by someone who took no part in any stage of the proceedings, James ~. White. Since James W. White did not meet the statutory prerequisites for obtaining judicial review, he has no standing to prosecute this appeal. In addition to the obstacle posed by James W. White's lack of standing, the doctrine of exhaustion of administrative remedies also counsels against allowing his appeal. Under this doctrine, the "superior court may dismiss an action over which it has jurisdiction where the plaintiff has improperly bypassed available administrative remedies." Standard Alaska ProduCtion Co. v. Department of Revenue, 773 P.2d 201, 206 (Alaska 1989). The "basic purpose of the exhaustion doctrine is to allow an administrative agency to perform functions within its special competence -- to make a factual record, to apply its expertise, and to correct its own errors so as to moot judicial controver- sies.'' Id. (citation omitted). 10 12 13 18 2O 21 23 24 26 The Commission's procedures allowed ample oppor- tunities for an interested person to participate, present facts and arguments to the Commission, and bring alleged errors to the Commission's attention. It would contravene the principles of "administrative autonomy and . . . sound judicial admin- "id. to allow someone to ignore and bypass these istration, ,,, opportunities and inject the judiciary into a dispute that the Commission has never been given the chance to address or even hear. Not only is this a needless imposition on the court and the Commission, but it is also unfair to those persons who did participate in the Commission proceedings and have not had an opportunity to represent their interests with respect to the claims James W. White now raises. Such an outcome would be particularly inappropriate in this case, where the record does not even clearly disclose the nature of the appellant's own interest in the Commission proceedings or his relationship with other affected persons. There is already the potential for considerable confusion on this score, given that the application for reconsideration was made by someone (James A. White) other than the applicant in the original proceeding (Alaskan Crude Corporation). Although neither of them has appealed, a third person now asks the court to intervene. This simply illustrates the importance of requiring aggrieved persons to utilize available administrative remedies so the agency has an opportunity, inter.alia, "to make a factual record." Standard, 773 P.2d at 206. CONCLUSION For the reasons set out above, the court should dismiss James W. Dated: White's appeal. October 3 , 1990 DOUGLAS B. BAILY ATTORNEY GENERAL BY: Robert E. Mintz Assistant Attorney General 14 16 18 20 2! 22 23 24 25 26 10 12 13 14 15 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W.WHITE, VS. ALASKA OIL AND GAS CONSERVATION COMMISSION, ) Appellant, ) ) ) ) ) ) Appellee. ) Case No. 3AN-90-6998 Civ. ) AFFIDAVIT OF LONNIE C. SMITH STATE OF ALASKA ) ) ss THIRD JUDICIAL DISTRICT ) 1. I am a member of the Alaska Oil and Gas Conservation Commission ("Commission"), and I participated in the proceedings that resulted in Conservation Order No. 254 and the denial of rehearing thereon. 2. These proceedings were initiated by an application to establish a drilling unit, submitted to the Commission by Alaskan Crude Corporation on March 20, 1990. A notice of public hearing on this application was published in the Anchorage' Daily News, and a hearing was held before the Commission on May 10, 1990. 3. Participation in this hearing was as described in Form AP-311, "Agency's List of Parties and Attorneys on Appeal," which I signed on September 26, 1990, and which I understand has been filed in superior court in this case. In particular, the record of the hearing reflects no participation, whether by oral testimony, written testimony, or even mere attendance, by a James W. White. (Attorney Bill Bankston signed the attendance sheet . EXH)B T '!::"':: '" :'' '" .................. ~_ ~,, ~, - ~ : ~ 14 24 25 26 as representing James A. White.) 4. The Commission issued Conservation Order No. 254 on June 8, 1990, a copy of which is attached as Exhibit 2. On July 20, 1990, James A. White submitted a letter to the Commission "requesting an appeal of AOGCC Order No. 254" and setting out various grounds on which he objected to the order. A copy of his letter is attached as Exhibit 3. 5. The Commission considered James A. White's letter as an application for rehearing under AS 31.05. 080(a) . We responded on July 30, 1990, denying rehearing. A copy of the Commission's order, in letter form, is attached as Exhibit Lonnie C. S~ith' ,.Z ~",~7 " ~ ) ~- ~, .....~" · . , , ', EXH~BIT ~ PAGE ~ of 7.....,., STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COM~_ISSION 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: THE APPLICATION OF ALASKAN ) CRUDE CORPORATION, to estab-) lish a 640 acre drilling ) unit for the Mike Pelch #1 ) well. ) Conservation Order No. 254 June 8, 1990 IT APPEARING THAT: I · Conservation Order #210, dated May 31, 1985, permitted Far North Oil and Gas, Inc. to re-enter the abandoned Cannery Loop Unit #2 well to explore for hydrocarbons· · In the event of hydrocarbon discovery upon re-entering the Cannery Loop Unit #2 well, Conservation Order #210 denies permission to place the well on regular produc- tion until a drilling unit for the well is established and persons owning mineral interests in the drilling unit have pooled their interests. · By a March 20, 1990 letter, Alaskan Crude Corporation, operator of record for the Mike Pelch #1 (formerly Cannery Loop Unit #2) well, states that the Mike Pelch #1 well has established natural gas production and requests AOGCC to establish a 640 acre drilling unit in accord with AS 31.05.100. · · Notice of a public hearing on the matter of Alaskan Crude's request was published March 23, 1990 in the Anchorage Daily News. A public hearing on the matter was held May 10, 1990 in the conference room of the AOGCC, 3001 Porcupine Drive, Anchorage, AK. FINDINGS: 1. The Alaskan Crude Corporation Mike Pelch #1 well is reported to be capable of producing natural gas from sands occurring within the drilled depth interval of 9252-9326 feet. No evidence has been presented that the well has been tested in accordance with 20 AAC 25.225. EXHIBIT P. AGE'. I - of ->'-~' Conservation Ork ' No. 254 Page 2 June 8, 1990 · Alaskan Crud~ Corporation and 'others claiming to own mineral interests in the Mike Pelch #1 well want to place' the well on regular production for natural gas sale. Conservation Order #210 prohibits placing the Mike Pelch #1 well on regular production until a drilling unit for the well has been established. · Conservation Order #210 further prohibits placing the Mike Pelch f~l well on regular production until persons owning drilling rights and the right to share in the. production from the drilling unit reach a voluntary agreement pooling their interests or until an order pooling these interests is issued by the commission in accordance with AS '31.05. 100 (c). · Alaskan Crude Corporation proposes a 640 acre drilling unit for the Mike Pelch #1 well consisting of the NW~, SW¼, Sect 1 T5N RllW (40 acres); the W~ NW¼, Sect 1 T5N RllW (80 acres); the N~ SE¼ Sect 2 T5N RllW (80 acres); the NE¼ SWt Sect 2 T5N RllW (40 acres); the E~ NWl Sect 2 T5N RllW (80 acres); the NEt Sect 2 T5N RllW (160 acres); the SE¼ SWt Sect 35 T6N RllW (40 acres); the S~ SE~ Sect 35 T6N RllW (80 acres); and the SWk Sect 36 T6N RllW (40 acres) for a total of 640 acres. ~ The Mike Pelch #1 well is located on a 120 acre parcel of fee land owned by Pelch and subject to an oil and gas lease to Far North Oil and Gas Inc. · Several persons other than Far North Oil and Gas Inc. have the right to drill for and produce gas on tracts of land other than the Pelch tract that are within the boundary of the proposed drilling unit. · The boundary for the 640 drilling unit proposed by Alaskan Crude Corporation approximates a drilling unit constructed on the circle-tangent principal. 10. No testimony was offered in opposition to the boundary of the 640 acre drilling unit proposed by Alaskan Crude Corporation. 11. No testimony was offered by persons owning mineral interests in tracts of land within the proposed drill- ing unit that opposed the voluntary development of an agreement to pool their interests within the proposed 640 acre drilling unit. 12. Alaskan Crude Corporation has not contacted other persons holding mineral interest within the proposed EXHIBIT ~ PAGE ~ "~- _ of -5~ ~ Conservation Ord~ .lo. 254 "'Page 3 June 8, 1990 13. 14. 15. 16. 17. 640 acre drilling unit with a proposed agreement for pooling their interests. Persons holding interests in the proposed 640 acre drilling unit have been invited by a James A k~ite representing the Peninsula Pipeline Company to estab- lish a fair and equitable agreement for pooling their interests within the boundary of the drilling unit. Peninsula Pipeline Company does not appear to have a right to drill for or share in the production from any lands within the proposed drilling unit. Persons holding interests in lands within the proposed drilling unit have unsuccessfully sought from Alaskan Crude Corporation a draft proposal of an agreement pooling their interests in the drilling unit along with other information necessary for them to make an intel- ligent business decision regarding the sharing of costs and production. 20 AAC 25.055(a)(4) sets forth a governmental section (640 acres) as the size for a natural gas well drilling unit. A 640 acre drilling unit is widely accepted by industry and regulatory bodies in other jurisdictions as the normal or properly sized drilling unit for a natural gas well. CONCLUSIONS: · Establishment of a 640 acre drilling unit for the Mike Pelch #1 well is appropriate. ~ The boundary proposed by Alaskan Crude Corporation for the Mike Pelch #1 drilling unit is appropriate. · The door is open for mineral interest owners of tracts within the proposed Mike Pelch #1 drilling unit to negotiate voluntarily an agreement pooling their interests pending receipt from Alaskan Crude Corpo- ration of a draft agreement and sufficient data on cost and production rewards necessary to make a business decision with respect to adopting a pooling agreement. · Absent a well test by the multi-point back-pressure method as required by 20 AAC 25.225, the potential and productivity of the Mike Pelch #1 well and the well's capability to sustain gas production prevents tract mineral interest owners from making a prudent business EXHIBIT - PAGE -~ of -,~ Conservation Or~.· No. 254 Page 4 June 8, 1990 judgement' at this time with respect to entering an agreement to pool their interests. · Determinatio~ of the well's potential and the actual and reasonable cost of development and operation of the drilling unit is necessary for tract mineral interest owners to proceed with development of an agreement pooling these interests. · These data can best be developed by placing the well on regular production for a reasonable period of time to develop operating costs and test the well in accord with 20 AAC 25.225. · An amendment to Conservation Order #210 is required to permit regular production for a reasonable time to evaluate the Mike Pelch #1 well's potential and operat- ing cost data. · Development by the commission of an order to involun- tarily pool the interests of tract mineral owners within the proposed Mike Pelch #1 drilling unit is not ripe at this time for commission action under AS 31.05.100(c). NOW THEREFORE, IT IS ORDERED: I · · The Mike Pelch #1 well 640 acre drilling unit is established comprising NWl, SW¼, Sect 1 T5N RllW (40 acres); the W~ NWl, Sect 1T5N RllW (80 acres); the N~ SE¼ Sect 2 T5N RllW (80 acres); the NEk SWk Sect 2 T5N RllW (40 acres); the E~ ~ Sect 2 T5N RllW (80 acres); the NE~ Sect 2 T5N RllW (160 acres); the SE¼ SWI. Sect 35 T6N RllW (40 acres); the S~ SEk Sect 35 T6N RllW (80 acres); and the SWk SW¼ Sect 36 T6N RllW (40 acres) for a total of 640 acres. Conservation Order #210 is amended to read: NOW, THEREFORE, IT IS ORDERED: With an approved Drilling Permit, Far North Oil and Gas, Inc. is permitted to re-enter the abandoned Cannery Loop Unit No. 2 well to explore for hydro- carbons. If the well proves to be capable of hydro- carbon production, regular production will not be permitted until the commission has established a drilling unit for the pool and issues an order inte- grating the interests of owners within the drilling unit, absent voluntary integration by the o~mers[.], or until the commission is furnished by the operator of the Mike Pelch ~1 well with a copy of an agreement, certified by the operator to be signed bv all persons with a righ~ to drill for and share in t~e production EXHIBIT~ · Conservation Orde~ o. 254 Page 5 June 8, 1990 · · from .land~' W~thin the Mike Pelch f~l well drilling unit to, pmoduce the well for a six month period 'following the date of initial production. Absent the filing of a voluntary agreement with the commission, as required by 20 AAC 25.517(c), validly integrating the interest of persons owning mineral interests on lands within the Mike Pelch #1 drilling unit to pool their interests within six months follow- ing the date of initial production, the operator shall shut the well in. In the event of failure to reach voluntarily a pooling agreement within six months following initial produc- tion, the operator shall submit to the commission a certified audit report setting out the operator's actual and reasonable expenditures covering the costs of development and operation of the Mike Pelch #1 well, unless the operator determines that production from the well is no longer appropriate. DONE at Anchorage, Alaska and dated June 8, 1990· Lonnie C. Smit~, C6~nissioner Alaska Oil and Gas Conservation Commission EXHIBIT PAGE RECEIVED d U L 2. 3 ]990 Oil & Gas Cons. commissio[~ Anchorag~ Dr. James A. White, P.E. 2628 Redwood St. Anchorage, ' Alaska. 99508 July 20, 1990 Mr. C. V. Chatterton, Chairman Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: Application to ApDeal AOGCC Order No. 254 Dear Mr. Chatterton: In accord to Alaska Statute §31.05.080, this letter is our application to the Alaska Oil and Gas Conservation Commission (AOGCC) requesting an appeal of AOGCC Order No. 254. Finding number seven is in error and the order does not protect the correlative rights of the mineral interest owners located within the 640 acre drilling unit established for the Mike Pelch #1 well. we do not object to the 640 acre drilling unit established for the Mike Pelch #1 well. Specifically, we are requesting that the Alaska Oil and Gas Conse~mration Commission abide by the original terms and conditions of its Order No. 210 dated May 31, 1985. The Mike Pelch #1 well was originally re-entered and developed under the original terms of AOGCC Order No. 210. AOGCC Order No. 210 clearly stated that the AOGCC shall issue an_~nvoluntary order pooling and integrating the interest of the parties, if all the parties cannot come to a voluntary agreement. Instead of issuing an involuntary order pooling and integrating the interests of all the parties, AOGCC Order No. 254 amended the terms of Order No. 210-to in effect say that if all the parties cannot come to a voluntary agreement, the well shall be shut-in and not produced. Order No. 254 does not Protect the correlative rights of the mineral owners that are entitled to receive their share of gas from the Mike Pelch #1 well. · Unocal and CIRI have not voluntarily agreed to any development work on the Mike Pelch #1 well since they plugged and abandoned the well in 1982. · Unocal and CIRI have not contributed any money or expended any effort toward the reworking of the Mike Pelch #1 Well. · Unocal and CIRI have not put forth any proposals of their own for the completion of this well. · Unocal and CIRI have stated that the development of the Mike Pelch #1 well is not a high priority at their offices. EXHIBIT PAGE Mr. C.V. Chatte~on July 20, 1990 Page 2 Unocal will not agree or disagree with any proposal that has been submitted to them and they have not proposed any alternatives to the proposals that have been submitted to them. Unocal and CIRI have no time limit to come to a voluntary agreement. The six month time period following the "date of initial production" stipulated by the AOGCC to come to a voluntary agreement, is an arbitrary, capricious and meaningless. "Initial production" cannot occur until there is an agreement between the parties. Since there can never be any production without an agreement, and the six month time period does not begin until "the date of initial production", the time period specified by Order No. 254 is effectively meaningless. It is obvious that a timely voluntary agreement pooling and integrating the interests of all the parties is not going to occur in time to bring the Mike Pelch #1 well on production this .year. Therefore, we have no alternative but to obj'ect to the wording changes made to Order No. 210 as found on pages 4 and 5 of Order No. 254, and also to object to the terms of the order stated in paragraphs three and four for the reasons stated above. S inc3~z~ly, oc~tt~ z%. 't , P.E. f cc: Peninsula Pipeline Company Alaskan Crude Corporation Trustee Far North Oil & Gas, Inc. EXHIBIT PAGE of C ALASKA OIL AND GAS CONSERVATION COMMISSION July 30, 1990 STEVE COWPER, GOVERNOR DE F~6'6i POnCO'P,N~'DRWS 'ANCHORAGE, ALASKA 99501-3192 PHONE: (907) 279-1433 '~ JIJL32 ~2:1 Aif0~ELECOPY NO. Dr. James A. White, P.E. 2628 Redwood St. Anchorage, Alaska 99508 Re: Conservation Order No. 254 Dear Dr. White: The Commission has received your July 20, 1990 letter requesting an appeal of Conservation Order No. 254 (CO254). Although your standing relative to this matter is not clear to the Commission, . we will treat your arguments' for appeal as a petition for a rehearing under AS 31.05.080(a). The merits of your arguments are discussed below. Your stated reasons for objecting to C0254 is' that finding #7 is not correct and that the order does not protect the correlative rights of the mineral interest owners located in the drilling unit established for the Mike Pelch #1 well. Further, you object to the wording changes made to C0210 by CO254, and to the terms of Rule 3 and Rule 4. Finding #7 states, in part, that the Mike Pelch #1 well is "...subject to an oil and gas lease to Far North Oil and Gas Inc." In a previous letter to the Commission (June 8, 1990), you contend that the finding is incorrect because the lease is under the name of James W. White and has never been leased and/or assigned to Far North Oil and Gas Inc. The Commission's records indicate that the lease is in fact under the name of James Wo White et al (emphasis added). Further, the records show that James W. White is the President and CEO of Far North Oil and Gas Inc., and that James W. White, acting for and on behalf of Far North Oil and Gas, requested the Commission to grant a spacing exception to reenter the abandoned Cannery Loop #2 well, now known as Mike Pelch #1 well. The Commission granted the spacing exception (CO210) to Far North Oil and Gas, and issued a permit to drill (#86-7) addressed to James W. White, President and CEO, Far North Oil and Gas, Inc. Based upon the .records, and the representations made by James W. White, our conclusion is that James W. White et al is Far North Oil and Gas, Inc. The Commission finds that C0254 does in fact protect the correla- tive rights of mineral interest owners within the Mike Pelch #1 well drilling unit. The order, and the resulting amendment to EXHIBIT PAGE __L__._ of Dr. James A. Whine, P.E. July 30, 1990 Page 2 CO210, clearly provides that the well cannot be produced unless all owners agree to integrate their interest voluntarily; or until the Commission issues an order pooling their interests, absent voluntary integration by the owners; or, if the owners agree that limited production is necessary to gain information upon which to base an agreement to integrate their interests, the well can be produced for a period of six months pending acquisi- tion of that information. If the owners agree to limited production for six months, CO254 requires the well to be shut-in only if the owners, armed with information gained from six months of production, still cannot come to an agreement voluntarily integrating their interests (Rule 3). At that time, or at any such time that evidence can be presented that a. voluntary agreement cannot be reached, the Commission may be petitioned under AS 31.05.100 to hold a hearing for the purpose of involuntarily integrating the interests Of all 'concerned mineral owners. In that event, the operator would be · required to submit cost information covering development and operation of the unit so that the Commission may determine the actual and reasonable expenditures that may be chargeable to the unit per AS 31.05.100 (Rule 4). Evidence presented at the hearing held prior to the issuance of C0254 clearly shows that the door is still open for voluntary integration, and that the operator of record had not taken all reasonable steps to secure a voluntary agreement among the mineral owners. Accordingly, the Commission concluded that its involvement under AS 31.05.100(c) was not yet appropriate. Nothing in the letter filed on July 20, 1990 presents any credible evidence to the contrary. The general allegations contained in the letter are insufficient to contradict the testimony presented at the hearing, including testimony by representatives of Unocal and CIRI that they are willing to explore voluntary pooling. It is the decision of the Commission that C0254 is correct in all matters, and that the correlative rights of all mineral owners in the Mike Pelch #1 well drilling unit are protected. Accordingly, the application for a rehearing is denied. Conservation Order No. 254 represents the final action of the Commission in this matter. David W. ~ohn~ton Commissione /L~o~nie C. Smith Commissioner BY ORDER OF THE COMMISSION EXHIBIT PAGE 16 17 18 19 ~ 21 a: z 22 0 0 23 24 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W.WHITE, vs. ALASKA OIL AND GAS CONSERVATION COMMISSION, ) Appellant, ) ) ) ) ) ) Appellee. ) Case No. 3AN-90-6998 Civ. ) ORDER The court having considered appellee Alaska Oil and Gas Conservation Commission's motion to dismiss this appeal and having concluded that the motion should be granted, IT IS ORDERED that James W. White's appeal in this case is DISMISSED. Date: Superior Court Judge · · DEPARTMENT OF LAW OFFICE OF THE A T'i'ORNEY GENERAL ou~ ~ax ~mbe~: (907) 278-7022 PLF,~SE DE~~ THE FOLLO~gNG I~GE8 TO: STEVE COWPEr, GOVF~NO/, TOT~,, NUNJa~It OF P~GE8 7 Z]gC'LUDZNG COVER LETTER. C0~8 ~ ~sszstant &fro=ney General ZF YOU DO NOT RECEZVBI~L THE PAGE$~ PLEBE C;ItLL: (907) 276'-277S. RECEIVED OCT 0 Oil & Gas Cons. Commission 03.¢5LH A,/~ 'd HZH'S~D"~IO H'qD A.L.L~ 01::Cj'l; 08, EO .LO0 MOTION TO DISMISS APPEAL FOR LACK OF 8TANDIN~ AND FOR FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES The Alaska Oil and Gas Conservation Commission moves to dismiss this appeal on the ground that appellant James W. White lacks standing to appeal and failed to exhaust his administrative remedies. The remedies for one aggrieved by a decision of the Alaska Oil and Gas Conservation Commission ("Commission") are established by statute. AS 31.05.080(a) provides, first, that "a person affected by" an order o= decision of the Commission "may file with the commission an application for the rehearing in respect of the matter determined by the order or decision." AS 31.05.080(b), in turn, provides that "£a] ~a:t~_~o___~he rehearinq Droc~ed~n_~_, dissatisfied with the disposition of the application for rehearing, may appeal from it to the superior court .... " (Emphasis supplied). When the legislature has specified ad- ministrative procedures for obtaining Judicial review of an agency decision, those procedures must be followed'. Bethe_____~_l Utilities Corp. v. City'of Bethel, 780 P.2d 1018, 1021 (Alaska 1989). The appellant here,'$ames W. White, failed to follow · those procedures. As explained .in the Affidavit of Commissioner Lonnie C. Smith, submitted herewith as Exhibit 1, James 9. White . was not "a party to the rehearing proceeding" in this matter. In fact, he did not appear either in the original proceeding that resulted in Conservation O~der No. 2~4 or in'~.a, rehearing'~roceed- ing. The original proceeding was initiated by an application -- )-/E'd ~I~'S~9'qIO ~39 AII~ II:9I 06, EO submitted to the Commission by Alaskan Crude Corporation. Following public notice, the commission held a hearing on the application on May 10. 1990, at which representatives of the applicant and other interested persons testified. One De:son submitted written testimony only. Several others, including an attorney for James A~ White, attended the hearing and signed an attendance sheet but did not otherwise participate. James W. White did none of these things. See Exhibit 1. Following the hearing, the Commission rendered its · decision on Alaskan Crude Corporation's application and issued Conservation Order No. 254, on June 8, 1990. See Exhibit 2. On July 20, 1990, James A. White wrote to the Commission "requesting an. appeal of AO~CC Order No. 254," and setting out various grounds on which he objected to that order. See Exhibit 3. The Commission responded on July 30, 1990. While noting that his "standing relative to this ma~ter is not clear to the Commis- sion," it decided to treat James A. White's "arguments for appeal as a petition for a rehearing under AS 31.05.080(a)." Se__e Exhibit 4. The Commission addressed James A. White's arguments on the merits and determined that' the application for rehearing should be denied. Id. at 2. James A. White did not appeal this determination to superior court in accordance with AS 31.05.080(b). Nor did the original applicant, Alaskan Crude Corporation. Nor did anyone else who participated in the Commission proceedings. Instead, an appeal was filed by someone who took no part in any stage of the. proceedings, James ~. White. Since James W.. White did not meet the statutory prerequisites for obtaining Judicial review, he has no standing to prosecute thi~ appeal. " In addition to the obstacle posed by James W. White's lack of standing, the doctrine of exhaustion of administrative remedies also counsels against allowing his appeal. Under this doctrine, the "superior court may dismiss an action over which it has Jurisdiction where the plaintiff has improperly bypassed available administrative remedies." Standard Alaska Production Co. v. Depa~ment_of Re~enu. e, 773 P.2d 201, 206 (Alaska 1989). The "basic purpose of the exhaustion doctrine is to allow an ad- ministrative agency to perform functions within its special competence -- to make a factual record, to apply its expertise, and to correct its own errors so as to moot Judicial controver- sies.'' Id. (citation omitted). The Commission's procedures allowed ample opportunities for an interested person to participate, present facts and arguments to the Commission, and bring alleged errors to the Commission's attention. It would contravene the principles of "administrative autonomy and . . . sound ~udicial administration," i__d., to allow someone to ignore and bypass these opportunities and inject the ~udi¢iary into a dispute that the Commission has never been given the chance to address or even hear. Not only is this a needless imposition on the'court and the commission, but it is'also unfair to those persons wh° did participate in the Commission proceedings.and have not had an.' opportunity to represent their interests with respect to'the...~....~. ' claims James W. White now raises. )./~'d ~I~'S~9'qIO ~3D AII~ Et:pt 86, ~0 Such an outcome would be particularly inappropriate in · this case, where the record does not even clearly disclose the nature of the appellant's own' interest in the Commission proceedings or his relationship with other affected persons. There is already the potential for considerable confusion on this score, given that the application for reconsideration was made by someone (James ~. White) other than the applicant in the original proceeding (Alaskan Crude Corporation). Although neither of them has appealed, a third person now asks the court to intervene. This simply illustrates the importance of reguiring aggrieved persons to utilize available administrative remedies so the agency has an opportunity, inter alSa, "to make a factual record." Standar_.~, 773 P.2d at 206. CONCLUS.! ON For the reasons set out above, 'the court should dismiss James W. White's appeal. AFFIDAV~T OF 1. I am a member o£ the Alaska Oil and Gas Conservation Commission ("Commission"), and I participated in the proceedings that resulted in Conservation Order No. 254 and the denial of rehearing thereon. 2. These proceedings were initiated by an application to establish a drilling unit, s,lbmitted to the Commission by Alaskan Crude Corporation on March 20, 1990. A notice of public hearing on this application was published in the Anchorage Daily News, and a hearing was held before the Commission on May 10', 1990. 3. Participation.in this hearing was as described in Form AP-311, "Agency's List of Parties and Attorneys on Appeal," which I signed on September 26, 1990, and which I understand has been ~tled in superior court in this case. In particular, the record ~f the hearing re£1ects no participation, whether by oral testimony, written testimony, or even mere attendance, by a James W. White. (Attorney Bill Bankston signed the attendance sheet as representing'James ~. White.) ' 4. The Commission issued Conservation Order No. 254 on June 8, 1990, a copy of which is attached as Exhibit 2. On July 20, 1990, James A. White submitted a letter to the COmmission "requesting an appeal of AOGCC Order No. 254" and setting out various grounds on which he objected to the order. A'copy of his letter is attached as Exhibit 5. The commission considered James A. White's letter as an application for rehearing under AS 31.05.080(a). We responded on July 30, 1990, denying =ehearing. A copy o~ the Commlssion'~ o=de~, in letter ~o=m, is attached as Exhibit 4. RCV BY:Xerox Teleco0£er ?020 : ?-31-90 ;12:13PM ; 5123414965'* , i VED dUi ~J~k~ ~-. ~ .u~.& Gas Cons. ~o~. Anchora~ Alaska !P)501-3192 Re: Comervation Order No. h is a matter of & $100,000,000.00 potential 1o~ in future gas sales that has Un/on and concerned about the C--nery 2 (renamed Pelch ~1) well, and not their potent/al and/or expense in the Cannery 2 well They know they do,not have to spend mmther dime on that well if they don't want to. And they haven't spent a dime on its redevelopmant far, That's ~htt SI00,000,000 in Sas sales h the amount that U~ton and CIRX know they stnnd to lose should Un/on and CIRI aZlow the Canne~ well to come on stream. U~on and CIRI know that Peninsula Pipeline Company will instantly latch a $100,000,000 ga~ contrnet in place with the City of Anchorage the instant the C~--ery 2 well comes on ~ream thereby di~lacin/7~ of their ~g gn~ sales. And that's tlu~ eoneem and ii what thts whole · Iil'I l~iIt| Ultioli and CIRI have the authority to exercise sole discretion to allow the Cannery 2 well to produce or not to produce. That's fight! Alaska Oil and Gas Conservation Order No. 254 gives precisely gives Union and KHRI the prerogative to determin~ when and/or whether the l".~nqery 2 well flows or not. And CIRI only has net interest in about 70 acres of the 640 acres of the Cannery 2 drillin8 block. Union only has a net intm'est of about 1.30 acres of the 640 acres drilling block. Their combined equit~ in the drilling block is only about a ~. That's ~t! Alaska Oil and Gas Con~tw'at/on order no. 254 does not protect the correhtive ri/,hts of the other owners who owns ~ of the 640 acre drQlhg block. That's ri~tI Alaska Oil and Gas Conservation order is capricious, arbitr~ because of the conse~n order ~254 obv/ous omiss/on of clear direc~es to l:n'otect the correlative ri/hts of the other owners who owns s,i of the 640 acre drilling block Union and (XR] a~ert they do not have enough information to make a dec/don in the production of Cannery 2 well That's pure bologna - Union al the ~ operator spent about, $6,000,000.00 of CIRI'S and others' money ~ that well (Cannery ~2) in 1981, After spendin~ that much money Union and CIRI oust to know about all there is to know about that hole in the ground. ...... ., ...... ,~ ............. ,~ ........ , ..~ .......... ..! ...... ..~s ^~.,.~, t,.,.l,~ ...t=?~ '~t,,.,,, ~la,..l.~_~ .,.1..,~I1~..,,.~. LI,, Exl;en~e(~ Page They promt:,~ plugged(~a~-~on~ tt~t t~ote .ne, mey~ 't'"' ~a.u~ .,.. 2,1 RGV BY:Xerox Telec0D£er ?020 ; ?-31-90 ;12:15P1~ ; 5123414965-* ,t'" n! ;#3 Union and ~ ~ to participate in any manner in the redevelopment of Cannery 2 well in 1985. Alaska Otl and Oas Commi~_~on was re_nde aware of that fact and subsequently issued a permit to re-enter t~t ~ ~, 1985. , Union and CIRX do not have to spend a fh~ dime or have an ounce of ~e in the redevelopment and the resultant provi~ up of the L~. ,~e~ 2 well yet they nlone have rl~t to allow the well to pmdace o~ not to produce. AND that's wron~ The law doesn't allow U~on and CI~ to ke~ the other owners who own about 410 acres of that 640 acre drllli,,g block (~ of the approved ~ block) from Union and (HRI were asked once to partite. They said NO. The En~tish language is concise. No means no. How many times must Union and CIRI be asked to participate in redevelopment of the Cannery 2 well? There is no statute of limitation pertaining to a 'NO" in the Oil Patch in Union and CIRI have had all information that they are entitled to set for a very long time (_since 1988 at least). They have been told. The spoken and written word has relevance - just ask Texaco, they will tell you the spoken word has a lot of relevances. Union and CIRI are competitors of the other owners who own ~ of the 640 acre dn'lling Mock. And Union and ~ by evidence of their actions, arc not about to do any thing that would jeopar~ Union and CIRI's economic advau'ta~e by creating other competitors in the very limited sas sales business in Alaska. Union, CIRI and Marathon currently control the mn ]mer tn mnrlet in Aln In nM simile.m, al nrnr thnt they. ITntnn and IWRT Union and __ORI. by saying 'NO" obviously can rel~ on Alaska Statute 31-05-t00 to protect their correlative rights. Which in fact Alaska Statute 31-05-100 more than adequately protects them. Alaska Statute 31.05.100 allow them to take their gas at their discretion. ~t havin~ to risk a dime to Set it. Union and CIRI do nnt control enou~ ncreagc in the unit to arbitrarily select the operator o~ the drlRtng unto The meanin~ of thc law is dear. All parties to a producible ~ unit are requi~'ed to d~¢~ and ~tiously get and keep a well on stream if there is a market for its product, and as a matter of fact, there is an ezisti~ market for their sas. The Cs,~r~ery 2 operators should be ordered to diligently place the well on production as quickly as reasonably possible. 51mold any portion of the wells production revenue be ,~ .,~t~d, thcn th~ disputc~l r~cn~c ~ould be e,~ow~d b~ th~ opc4'~tor ~J.util ~ pro]~r n~,l,, ~-~-fl;;-w L,~. ,.L., .II,.~,.A...I t,.,.J,.-~ .......... I,, ~.. IL. iL, ...... .L rflL_ =r=.=t_. RCV BY:Xerox Teleco;3£er ?020 ; ?-31-90 ;12:18PM ; · 5123~,1~965'* ob~tou~ should b~ ~ow~ to ~ oper~on expenses tucl cost from the production l'even~ before &uy dis~ted funds are ~ Alaska Statute's and its oil and gas Fe~tfl,mttcrns ~tc~ and equitably provide ~or the Lrm~msntton~d to mice phcc. t"/antlen~ I am b~ing so~~ around by th~ ~ltuacton of lTmon and CIRL They ar~ not being required to go by thc rules, which is good for thcm and bad for me~ And I am suWm-~ huse economic loss~ amd damages by this wett not beinS expeditiously ordered to Equi Owner in 640 acre by Alaska Oil and Oas Conservation Comrnt~ion Order ~254. kir. Zerbeth, Alaskan Crude Bankruptcy Tn~te~ and Operator Mr. Star, Manager - Anchorage Mtmictpal Light and Power Company ]dr. Tom Fink, Mayor of Alaska Mr. Pratt, Asaistant to Mawr of Alasim Lt. ~ Steve Alpine Dr. James A. White See attar, bed copy of article printed in thc Houston Chronicle May 12, 1988. De. scribing Union and Marathon's 856 billion cubic foot of gas sale to Fastat*. APPEALS DIVISION ALASKA COURT SYSTEM ~03 K Street Anchorage, AK 99501-2083 ALASKA CONSERVATION COMMISSION 3601 C STREET, SUITE 1380 ANCHORAGE, AK 99503 I1,1,,1,1,,,I,i,11,,,,,11,,t,1,1,1,,,I,,11,,!,1,,I,I IN THE SUPERIOR COURT FOR THE STATE OF ALASKA ~. ~ANCHORAGE JAMES W. WHITE, Appellant, ) ) ) ) ALASKA OIL and GAS CONSERVATION ) COMMISSION, ) Appellee. ) ) TATE OF ALASKA. THIR0 OlSmK;l' ^~'~ALS O,ws,oN SE P 1 8 1990 -~,~ ~q~ ..... Y~,', By ~ [~ ' ' ~-..' '- ..... CASE NO. 3AN-90-6998 NOTICE FOR P~P~TION To: Alaska Oil and Gas Conservation Commission (agency) Attached is a copy of the notice of appeal filed on_ September 13 19 90 _, from an order or decision of your agency. Pursuant to the Appellate Rules: · Within 10 days of service of this notice, the agency must file with this court a list of names and addresses of all counsel and pro se parties who appeared in the matter before the agency. Please use the attached form AP-311. Appellate Rule 602(¢)(2). . The agency must prepare, certify and transmit the record to this court within 40 days from the date of service of this notice. The agency record must contain a table of contents listing each document and exhibit contained in the record with corresponding volume and page numbers where each document may be found· Appellate Rules 604(b) and 210. · The appellant must arrange for preparation of a transcript, if any, and pay in advance for the expense of the preparation of the record, unless otherwise directed by the court. The timely cer- 'tification and transmittal of the record is the ultimate respon- sibility of the appellant· Appellate Rule 210(a)(3) and (g) and 604 (b) (1) lc] . September 18, 1990 ~ ~"~4~~ I certify that on 9/18/90 a copy of this notice was sent to.. Appellant: Ely Appellee: Sintz Agency: Alaska Oil and Gas Conservation Commission Clerk: ~s~fl~ ~~ ~,~ ~ ~~ NOTICE FOR P~P~TION OF ~COD/~MIN. ~P~ S E P 2 8 1990 Alaska Oil & Gas Cons. Commission Anchorage _.,..~-=,~-. App. R. 601-607 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA JAMES W. WHITE, Appellant, VS. ALASICA OIL AND GAS CONSERVATION COMMISSION, Appellee. ROBERT C. ELY ATTORNEY AT LAW 608 W 4TH AVE., SUITE 21 ANCHORAGE, AK 99501 (907) 276...1916 FAX (907) 258-9053 NOTICE OF APPEAL Pursuant to Appellate Rule 602 ,. Notice is hereby given that Petitioner, James W. White, whose current address is Route 1 Box 1326, Bulverde, Texas, 78163, hereby appeals to the Alaska Superior Court from Conservation Order 254 of'the Alaska Oil and Gas Conservation Commission (a copy. of which is attached hereto). This appeal is authorized by the provisions of AS 31.05.080(b). This Notice of Appeal substitutes for that Petition for Review filed in this matter August 21, 1990 as provided by this court's stipulated order dated September 6, 1990' A Statement of Points on Appeal is filed herewith as well as an appropriate cost bond. The filing fee was previously paid. Dated this /3~day of ~~~L _ , 1990. R ¢EIVED mo Counsel for Appellant 00 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION 3001 Porcupine Drive Anchorage, Alaska 99501-3192' Re: THE APPLICATION OF ALASKAN CRUDE CORPORATION, to estab- lish a 640 acre drilling unit ~for the Mike Pelch ~1 well. Conservation Order No. 254 June 8, 1990 IT APPEARING THAT: ! 1. Conservation Orders{210, dated May 31, 1985, permitted Far North Oil and Gas, Inc. to re-enter the abandoned Cannery Loop Unit {2 well to explore for hydrocarbons. . ~, 2. In the event of hydrocarbon discovery upon re-entering the Cannery Loop Unit #2 well, Conservation Order ~210 denies permission to place the well on regular produc tion until a drilling un{t for the well is establishe~ and persons owning mineral interests in the drilling unit have pooled their.interests. , 3. By a March 20, 1990 letter, Alaskan Crude Corporation, operator of record for the Mike Pelch {1 (formerly Cannery Loop Unit #2) well, states that. the Mike Pelch {1 well has established natural gas production and requests. AOGCC to establish a 640 acre drilling~unit in accord with AS 31.05.100. · · NotiCe of a public hearing on the matter of Alaskan Crude's request was published March 23, 1990 in the Anchorage Daily News, A public hearing' on the matter was held May 10, 1990 in the conference room of the AOGCC, 3001 Porcupine Drive, Anchorage, AK. FINDINGS 1. · The Alaskan Crude Corporation Mike Pelch ~1 w~ll is reported to be capable of~ producing natUral gas from sands occurring within the drilled depth interval of 9252-9326 feet. No evidence has been presented that the .Well has been tested in accordance .with 20'AAC.25.225.O~.~,W~~ i\ L ~. L i ¥ !.. i.~ ,SEP B 1990: · 'Alaska, Oil & G~s GoDs. Gorem~ss~'°~ 'Anchorage Conservation Order No. 254 ~Page 2 1'~ June 8, 1990 · · · · · · · 10. 11. 12. Alaskan Crude Corporation and otliers claiming to own mineral interests in the Mike Pelch ~1 well want to place the well on regular production for natural gas sale. Conservation Order ~210 'prohibits placing the Mike Pelch ~1 well on regular production until a drilling unit for the well has been established. Conservation Order ~210 further prohibits placing the Mike Pelch ~1 well on regular production until persons owning drilling rights and the right to share in the production from the drilling unit reach a voluntary' agreement pooling their interests or until an order pooling these interests is 'issued by the Commission in accordance with AS 31.05.100(c). Alaskan Crude Corporation proposes a 640 acre drilling unit for the Mike Pelch ~1 well consisting of the NWl, 'SWt, Sect 1 TSN RllW (40 acres)~ the W~ NW~, Sect 1T5N RllW (80 acres); the N~'SEt Sect 2 TSN RllW (80' acres)t the NE¼ SW~ Sect 2 T5~ RllW (40.acres); the Eh NWl Sect 2 TSN RllW (80 acres); the NE~ Sect 2 TSN RllW (160 acres)~ the SE~ SW~ Sect 35 T6N RllW (40 acres)l the S~ SEk Sect 35 T6N RliW (80 acres)! and the SW~ SW~ Sect 36 T6N RllW'(40 acres) for a total of 640 acres. The Mike Pelch ~1 well is 'located on a 120 acre parcel of fee land owned by Pelch and subject to an oil and gas lease to Far North Oil and Gas.Inc. SeVeral persons other than Far North Oil and Gas ~Inc. have the right to drill for and prodUce 'gas on tracts of land other than the Pelch tract that are within the boundary of the proposed drilling unit.~ The boundary for the 640 drilling unit proposed by Alaskan Crude Corporation approximates a drilling Unit constructed on the~ circle-tangent principal· No testimony was Offered in opposition to the boundary' of the 640 acre drilling unit. proposed by Alaskan~ Crude Corporation. · No testimony was offered by per.sons owning mineral interests in tracts of land within the .proposed drill- ing unit that opposed th.e voluntary development of an agreement to pool their Interests within the'proposed 640 acre drilling unit.' ...'~ Alaskan Crude CorPoration has not contacted Other persons holding mineral interest within the. proposed · Conservation Order No. 254 Page 3 (. June 8, 1990 13. 14. 15. 16. 17. 640 acre drilling unit with a proposed agreement for pooling their interests. Persons holding interests in the proposed 640 acre drilling unit have been invited by a James A White representing the Peninsula Pipeline Company to estab- lish a fair and equitable agreement for pooling their interests within the boundary of the'drilling unit. Peninsula Pipeline Company does not appear to have a right to drill for or share in the production from any 'lands within the proposed drilling unit. Persons holding interests in lands within the proposed drilling unit have unsuccessfully sought from Alaskan Crude Corporation a draft proposal of an agreement pooling their, interests in the drilling unit along with other information necessary for them to make an intel- ligent business decision regarding the sharing of costs and production. , 20 AAC 25.055(a)(4) sets forth a governmental section (640 acres) as the size 'for a natural gas well drilling unit. A 640 acre drilling unit is widely accepted by industry and regulatory bodies in other Jurisdictions as the normal or properly sized drilling unit for a natural gas well. CONCLUSIONS: · Establishment of a 640 acre drilling unit for the Mike Pelch ~1 well is appropriate. · The boundary proposed by Alaskan Crude Corporation for the Mike Pelch ~1 drilling unit is appropriate. · · The Boor is open for mineral interest owners of tracts within the proposed Mike Pelch ~1 drilling unit to negotiate voluntarily an agreement pooling their interests pending receipt from Alaskan Crude CorPo- .ration of a draft~agreement and sufficient data'on, cost and production rewards necessary to make a business decision with respect to adopting a pooling agreement. Absent a well test by the multi-point back-preSSure method as.required by 20 AAC 25 225, the potential and productivity of the Mike Pelch ~1 well'and the well's capability to sustain gas production, prevents tract mineral interest owners from making a prudent business .Conservation Order N~. 254 page' 4 { June 8, 1990 · judgement at this time with respect tO entering an agreement to pool their interests. Determination of the well's potential and the actual and reasonable cost of development and operation of the drilling unit is necessary for tract mineral interest owners to proceed with development of an agreement pooling these interests. · These data can best be developed by placing the well on regular production for a reasonable period of time to d&velop operating costs and test the well in accord wi th 20 AAC 25.225. · An amendment to Conservation Order ~210 is required to permit regular production for a reasonable time to evaluate the Mike Pelch ~1 well's potential and operat- ing cost data. ~ Development by the commission of an order to involun- tarily pool the interests of tract mineral owners within the proposed Mike Pelch ~1 drilling unit 'is not ripe at this time. for com~ission action under AS 31.05. 100(c). NOW THEREFORE, IT IS ORDERED'. · 2~ The Mike Pelch #1 well 640 acre drilling unit is established comprising NWk, SW~, Sect 1 TSN RllW ('40 acres)~ the W~ NWl, Sect 1 T5N RllW (80 acres)~ the N~ SE¼ Sect 2 T5N RllW (80 acres); the NF~ SWk SeCt. 2 TSN RllW (40 acres); the E~ NW~ Sect 2 TSN RllW (80 acre~)! · the NEk Sect 2 TSN RllW (160 acres)~ the SE~ SW~ Sect 35 T6N RllW (40 acres); the S~ SE¼ Sect 35 T6N RllW (80 acres); and the SWk SWk Sect. 36 T6N RllW (40 acres) for a total of 640 acres. Conservation Order #210 is amended to read: NOW, THEREFORE, IT IS ~ORDERED.' With an approved Drilling Permit, Far North oil and Gas, Inc. is permitted to re-~enter the abandoned Cannery Loop Unit No. 2 well to explore for hydro- carbons· If the well proves to be.capable of'hydro- carbon production, regular production will not be permitted until the commission has established~a drilling unit for the pool and issues 'an'order inte- grating the interests of owners within the drilling unit, absent vo. luntary integration by the, owners [. ], or until the commzssion is furnished by 'the operator.of "~he Mike PelCh #i"~'w~'ll ~i~h a copy of an ag~eeme~t~- ~ertified bY"'the 'op~r~td'r 'to be sigd~d by al'l persons W'i~h a '~ight to drlll for and'share in the prOauCt!0p : :: '~' ,Conservation Order .~. 254 " : Page 5 June' 8, 1990 · from'lands within the Mike Pelch ~1 Well drillin~ unit., to. prodUce--t.he ~.ell~ fdr a Six month.periodTf, otiowing lhe date 6f'lnitlal pr6duCtion~ Absent the filing of a voluntary agreement with the commission, as required by 20 AAC 25.517(¢), validly integrating the interest of persons owning mineral interests on lands within the Mike Pelch ~1 drilling unit to pool their interests within six months follow- ing the date of initial production, the operator shall shut the well in. In the event of failure to reach voluntarily'a pooling, agreement within six months following initial produc- tion, the operator shall submit' to the commission a certified audit report setting out the operator's actual and reasonable expenditures covering the costs of development and operation of the Mike Pelch ~1 well, unless the operator determines that production from the ~well is no longer appropriate. DONE at Anchorage, Alaska and dated Jun. e 8, 1990. ACias~aC~t~nr~e C~oa~ravnat ion Commiss ion stdl" Co~¢nis Sion, r laska Oil a~~~ervation COmmission Lonnie C. Smith,' ¢o'tmliissioner Alaska Oil and Gas~ Conservation Commission IN THE SUPERIOR COURT FOR THE STATE OF ALASKA JAMES W. WHITE ) Petitoner, ) ) VS. ) ALASKA OIL AND GAS CONSERVATION COMMISSION ) Respondant. ) ) Case No. 3AN- CERTIFICATION OF SERVICE I HEREBY CERTIFY that on the 13th day of September, 1990, I mailed a copy of the NOTICE OF APPEAL and STATEMENT OF POINTS ON APPEAL to: Robert Mintz, Esq. Office of the Attorney General 1031W. 4th Ave., Suite 200 Anchorage, Alaska 99501 ROBERT C. ELY ATTORNEY AT ~ 608 W 4TH AVE., SUITE 21 ANCHORAGE, AK 99501 (907) 276-1916 FAX (907) 258-9053 ROBERT C. ELY ATTORNEY AT ~ 608 W 4TH AVE., SUITE 21 ANCHORAGE, AK 99501 (907) 276-1916 FAX (907) 258-9053 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA JAMES W. WHITE Petitoner, ) ) VS. ) ALASKA OIL AND GAS CONSERVATION ) COMMISSION ) Respondant. ) Case No. 3AN-90-6998 APPEALS OlVlU~U SEP 199U Cleric of tn? ;~rml Coud~ CERTIFICATION OF SERVICE I HEREBY CERTIFY that on the 14th day of September, 1990, I mailed a copy of the CASH DEPOSIT IN LIEU OF BOND to: Robert Mintz, Esq. Office of the Attorney General 1031W. 4th Ave., Suite 200 Anchorage, Alaska 99501 DATED' APPEALS DIVISION ALASKA CC/dRT SYSTEM 303 K Street Anchorage, AK 99501-2083 ALASKA CONSERVATION COMMISSION 3601 C STREET, SUITE 1380 ANCHORAGE, AK 99503 llil,:l,l,,,I,l,lt,,,,,ll:,l,t:l,l,:,l,,ll,,I,l,,l:! IN THE SUPERIO[ { JRT FOR THE STATE OF ALAS I"' ~T_ ANCHORAGE Fit~ ~n the Trial STATE OF ALASKA. THIRD JAMES W WHITE ) A~EAL5 DIVISION · , ) Appelianc (person bringing app'e'aZ) ) SEP ~ 7 1EgO ) V~. ALASKA OIL AND GAS CONSERVATION COMMISSION ~ ApPellee ' Clerk of/~rml Courts 8y __ _Deputy 3AN-90-6998 dAY I ~- ) CASE NO. ) ..) CASH DEPOSIT ON APPEAL I am depositing cash in lieu of a bond as described below. I understand that if the appeal is dismissed or if the Judgment/decision is affirmed or modified, the court may order that ~art or all of this cash deposit be paid to the appellee to cover appea: costs, and if the cash deposit is in lieu of a supersedeas bond the court may also order that it be paid to the appellee to pay the Judgment, post-Judgment costs and interest. If the. court reverses the Judgment/decision, the money I am depositing will be returned to me without interest. ~ Cash deposit in the amount of $ 750.00 in lieu of a Cost Bond. I understand that this deposit will n~t result in a stay of execution of the Judgment. '" ' ['--] Cash deposit in the amount of $ in lieu of a iupersedeas Bond. I understand that this 'deposit will stay execution of the Judgment. ! am the owner of the cash deposited. I submit myself to the Jurisdic- tion of the court and irrevocably-appoint the clerk of court as my agent upon whom any papers affecting this deposit may be served. I agree that it is not necessary for an independent act. ion to be filed in order for this deposit tO be used as described abov~ ~1 / /! I.//! ........ Dace' " ~Mignature offer of CaSh John Havelock for Robert C. Ely, 276-1916, 608 W. 4th Ave., Suite 21, Anchorage, AK 99501 Type or Print" Name ' T~'iep'h'0ne? '~./Mailihg "~Sdres's/City/State/Zip ACKNOWLEDGMENT ~e foregoing instrument was acknowledged before me this date, September 14 , 19_90_, by John Havelock , who personally appeare'd before me and acknoWled§ed that h~/tth~ executed the instrument for the purposes stated in it. (SEa. L) . j N 0 T A R Y P U-B-L I C ] ~...~.-....,,.-.-':~/Notaf7 PUbli'C ....... i MARY _A,_ HENRY J H7 commission expires =_.</--- ./'/- ~, 2. . .. I certify a copy of this form was ' , I " - - ' .......... Date~~/~ ~ mailed ~personally .Amt. Deposite.d/~ y~.~~ ~t~Iivered to=- Robert Mintz 'J Receipt No. Attorney General' s By ~ .~~//Wm~ Of fice, · / 1031 W. 4th Ave., Ste. 200 AP-Il0 (7/88)(cs) Anchorage, AK 99501 App. R. 204(c) CASH DEPOSIT ON APPEAL Civil Rule 80(f) & (g) JAMES W. WHITE, Appel lant, VS. IN THE SUPERIOR COURT FOR'THE STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMI SS ION, Appellee. ) ) ) ) ) ) ) ) ) Case No. 3AN-90-6998 STATEMENT OF POINTS ON APPEAL Petitioner hereby appeals from Alaska Oil and Gas Commission conservation Order No. 254 on the following grounds: 1. Although that~order authorized establishment of the requested unit for drilling natural gas, authorization to proceed with production was conditioned upon ambiguous, unreasonable, 'impossible, illegal and inappropriate conditions wholly unsupported by the weight of the evidence before the Commission. These conditions included not allowing the operator to produce the well without approval of all interest holders in the well and setting a six month time limit to production in the absence of such agreement. ROBERT C. ELY ATTORNEY AT LAw W 4TH AVE.. SUITE 21 ANCHOR~C~E, AK 99501 (907) 276-1916 FAX (907) 258-9053 - 1 - 2. The order erroneously names Far North Oil and Gas Company rather than Alaskan Crude Corporation as operator. 3. Petitioner is an interest holder in the well and its potential production; he desires that gas in the well be produced as he has a market for the same; he is prepared to authorize the operator to enter the well, commence production with the costs of such operation charged to petitioner subject to his right a pro rate refund from any other interest holder desiring to produce its gas. These are the conditions that entitle Appellant to an order authorizing the operator to commence operation of the well provided that it provide all interest holders an opportunity to produce their gas subject to paying their pro rata costs of production. Appellant is entitled to produce his gas with or'without unanimous agreement of all interest holders and without a six month limit on production. 4. OPerator should be authorized to produce the well from any interest holder requesting production of the gas provided that operator regularly report relevant data to all interest holders so that they can make informed decisions concerning their gas and ROBERT C. ELY A~Y AT 608 W 4TI-.I ,,qvF_...~..JITE 21 A."~2-tO~ AK gg.~l (?J07~ 2761916 FAX (gO7) 258-9053 provided that operator assess any interest holder requesting production its pro rata share of the cos% or such production. Dated at Anchorage, Alaska this 1990. /~--~day of - 3 - DEPARTMENT OF LAW' / OFFICE OF THE ATTORNEY GENERA L Appeals Clerk, Appeals Division Trial Court Administration 303 K Street Anchorage, AK 99501-2083 September 25, 1990 STEVE COWPER, GOVERNOR REPLY TO: · [[~'1031 W 4th AVENUE SUITE 200 ANCHORAGE. ALASKA 99501-1994 PHONE: (907) 276-3550 FAX: (907) 276-3697 [] 1st NATIONAL CENTER 100 CUSHMAN ST. SUITE 400 FAIRBANKS, ALASKA 99701-4679 PHONE: (907) 452-1568 FAX: (907) 456-1317 [] P.O. BOX K---STATE CAPITOL JUNEAU, ALASKA 99811-0300 PHONE: (907) 465-3600 FAX: (907) 463-5295 Dear Clerk: RE: James W. White v. Alaska Oil and Gas Conservation Commission Case No. 3AN-90-6998 Civil Our File No. '221-91-0188 I represent the Alaska Oil. and Gas Conservation Commission in the above-referenced administrative appeal. In checking with the Commission on whether it had received the Notice for Preparation of Record in an Administrative Appeal, I was informed that the Commission has not received any such notice. I suspect that the reason for this is that the appellant's original certificate of service showed the wrong address for the Commission. The Alaska Oil and Gas Conservation Commission's correct address is: Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, AK 99501 Would you please correct your records in this case accordingly? Thank you for attention. 03-C5LH Sincerely, DOUGLAS B. BAILY ATTORNEY GENERAL cc: Robert C. Ely, Esq. David Johnston, Commissioner Lonnie C. Smith, Commissioner RECEIVED SEP 2 6 !990 Alarum 0il .& t~as Cons. GomiDlSs[~ Ntchorag~ JAMES W. vs. IN THE SUPERIOR COURT FOR THE STATE OF ALASKA~ THIRD JUDICIAL DISTRICT AT ANCHORAGE ' Appellant (s) , ) ) APPEA~S blVISION ) ) SEP 06 199U ALASKA OIL and GAS CONSERVATION ) COMMISSION, ) ) Appellee (s) . ) ) Case No. 3AN-90-6998 Civil O R D E R The above-captioned case will be assigned to a judge in the Superior Court Appeals Division for decision upon completion of briefing. Prior to assignment for decision, the matter is assigned to Ralph Stemp, Superior Court Judge Pro Tempore of the Appeals Division, for determination of any procedural motions which may be fi!~d~ DATED at Anchorage, Alaska this 6th day of S~ptember ,1990. rtell Presiding Judge I certify that on 9/7/90 copies of the above were sent to: Ely; Mintz; AK Conservation Commission Depu, t'~ -(~ie~- (10/18/89) RECEIVED SEP 2 61990 ~j~,~.~j! :& Gas co.~...0~. ~~ September 13, 1990 ROBERT C. ELY ATTORNEY AT LAW 608 WEST 4TH AVENUE, SUITE 21 ANCHORAGE, ALASKA 99501 (907) 276-1916 FAX (907) 258-9053 "90 SF_..P 17 ~'~g :g.,9 ... ATTORNE'( '~:: "", ' ' Robert E. Mintz, Esq. Attorney General's Office 1031W. 4th Ave., Suite 110 Anchorage, AK 99501 Re' James W. White vs. A.O & G C.C., Ao~ea! Dear Bob: I have filed the appropriate appeal papers with points on appeal and am now off for 3 weeks of bicycling from Prague to Budapest. When I get back, you and I should talk about a satisfactory way to resolve the pending matters between our clients. I believe it is possible. Sincerely, /~-~ cc: Jam W. White IN THE SUPERIOR COURT FOR THE STATE. OF ALASKA JAMES W. WHITE, Appel 1 ant, VS. ALASICA OIL AND GAS CONSERVATION COMMISSION, Appellee. ) ) ) ) ) ) ) ) Case No. 3AN-90-6998 NQT ICE OF APP~E..AL Pursuant to Appellate Rule 602 Notice is hereby given that Petitioner, James W. White, whose current address is Route 1 Box 1326, Bulverde, Texas, 78163, hereby appeals to the Alaska Superior Co~rt from Conservation Order 254 of the Alaska Oil and Gas Conservation Commission (a copy of which is attached hereto). This appeal is authorized by the provisions of AS 31.05.080(b). This Notice of Appeal substitutes for that Petition for Review filed in this matter August 21, 1990 as provided by this court's stipulated order dated September 6, 1990. A S'babement of Points on Appeal is filed herewith as well as an appropriate cost bond. The filing fee was previously paid. Dated this /~-day of c~.~~.~,,.. , 1990. ' ROBERT C. ELY W 4TH AVE., SUITE 21 ANCHORA,(~E, AK 99501 (907) 27~-1916 FAX (907) 258-9053 AttOrney at Law / Counsel for Appellant ROBERT C. ELY ATTOIJN~ AT LAW _ 608 W 4TI-,I AVE., SUITE 21 ANCHOR. AC~E, AK 99501 (907) 276-1916 FAX (907) 258-9053 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA JAMES W. WHITE, Appellant, VS. ) t~ r~"l O"') ' ',"'=" ..... ) ) Case No. 3 N-90-6998 ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee. STATEMENT OF POINTS ON APPEAL Petitioner hereby appeals from Alaska Oil and Gas Commission conservation Order No. 254 on the following grounds: 1. Although that order authorized establishment of the requested unit for drilling natural gas, authorization to proceed with production was conditioned upon ambiguous, unreasonable, 'impossible, illegal and inappropriate conditions wholly unsupported by the weight of the evidence before the Commission. These conditions included not allowing the operator to produce the well without approval of all interest holders in the well and setting a six month time limit to production in the absence of such agreement. - 1 - ROBERT C. ELY A~I'ORNE~ AT LAW ~08 W 4TH AVE., SUITE 21 ANCHOR,4~E, AK 99501 (907) 276-1916 FAX (907) 258-9053 2. The order erroneously names Far North Oil and Gas Company rather than Alaskan Crude Corporation as operator. 3. Petitioner is an interest holder in the well and its potential production; he desires that gas in the well be produced as he has a market for the same; he is prepared to authorize the operator to enter the well, commence production with the costs of such operation charged to petitioner subject.to his right a pro rate refund from any other interest holder desiring to produce its gas. These are the conditions that entitle Appellant to an order authorizing the operator to commence operation of the well provided that it provide all interest holders an opportunity to produce their gas subject to paying their pro rata costs of production. Appellant is entitled to produce his gas with or without unanimous agreement of all interest holders and without a six month limit on production. 4. Operator should be authorized to produce the well from any interest holder requesting production of the gas provided that operator regularly report relevant data to all interest holders so that they can make informed decisions concerning their gas and - 2 - ROBERT C. ELY ATTC~N~ AT ,o~ w ~.~r. ^w., surr,"~ ^Nc.o.,.~, ,.,K ~so~ (907) Z76-1916 FAX (~) provided that operator assess any interest holder requesting production its pro rata share of the cost or such production. Dated at Anchorage, Alaska this ~ ~ ~,,.... ~ _, :1.990. /~ ;~_da¥ of - 3 - 3 10 12 13 14 24 25 26 D IN THF~P]E~,~30 COURT FOR THE STATE OF ALASKA ..... ~'PPEALS OI~JI$1ON ) AUG $ '~- 1990 Appellant, ) ALASKA OTT, ~1D GAS ) CONSERVATION COMMTSSTON, ) ) Appellee. ) Case No. 3.~N-90-6998 Civ. ) W~EREAS AS 31.05.080 provides for an appeal to superior court from a final order of the Alaska Oil and Gas Conservation Co~umission a£ter the Co~nission's action on an application fo~ rehearing; and WHEREAS appellant James W. White has purported to prosecute such an appeal in this case by filing a document entitled "Petition for Review of Commission Action"; and WHEREAS there may be a need to clarify that, notwithstanding the title of that document, Appellate Rule 610 does not apply to the instant proceeding because appellant here seeks to appeal from a final appealabl~ order of an administrative agency; and WHEREAS there may also be a need to clarify that the applicable Appellate Rules supersede any contrary procedural provisions of AS 31.05.080; NOW THEREFORE the parties agree and stipulate that: 1. The instant proceeding is not a proceeding on a petition for review under Appellate Rule 610. 2. The instant proceeding is governed by the procedures established in Part VI of the Appellate Rules. IJ.I ' 1o 12 13 14 16 17 19 20 21 22 23 24 25 26 3. Appellant shall have 30 days from the date this stipulation is approved by the court to file and serve a statement of points on appeal and otherwise to comply with Appellate Rule 602(b), at which time he shall be deemed to have timely filed a notice of appeal thereunder. DOUGLAS B. BAILY ATTORNEY GENERAL Date: : /~//~ By: Robert E. Mintz Assistant Attorney General Attorney for Appellee Date: By:~' AR~~"JlrYAppel lan//'' ORDER It is so ordered. , '' / a~ a~d'rcss of ' ~ ~'~ - Deputy Clef S~rior Cou~t Judge A(;1~CI'*S tlST Oil' l'kRTI~S ~ .A..1'~0~$ O~ ~~ ~ i i i~ i i i l ~le I~tle James W. White ~1. Alaska. Oil &Gas ~onservatio~ ~omm'n ~. C=, Case ~o,3AN 90-6998 Civil ~m, ~e=~ ~o, Conservation__ Order .?~4 ~em=~ ~ame Alaska'Oil &~Gas'COnservat~on ~eittm80~e~ {Not ap¢.licablel ~ ~... . i ~ iii1~ ~,.. ..... Commission .... . ~am~ a:d ~g:IlI O~ ...... NOTE: The administrative proceeding in this matter was not an adjudicatory hearing under AS 44.62.330 -- 44.62.630. Listed below is each persOn who' testified, in person or in writing, or who attended without testifying, at the hearing in this matter. The Commission does not know whether every such person "appeared in the matter before the agency" within the meaning of Appellate Rule 602(c)(2). Applicant- Alaskan Crude Corporation P.O. Box 11-1187 .Anchorage, AK 99511 Testified at'hearing: N. K. Goff, Chairman A1 as kan Crude Corpor'ation P.O. Box 11-1187 Anchorage, AK 00511 C. R. Kennelly 704 W. Second Ave. Anchorage, AK 99501 Ron Dolchek P.O. Box 81 ,~A AK 99611 ,,:naS, Brian Burglin P.O. Box 131 Fairbanks, AK 99707 Robert T. Anderson, Regional Land Manager Union Oil Co. of California P.O. Box 190247 Anchorage, AK 99519-0247 :: ~Sts;naL. u:e-o:~'~A&enc7 Xa~)~eaencat::Lve - Znstruct~ons: Send this liaC to the supetio? court vhere the appeal t.s filed. AF-311 (7/88) (cs) AGZlqGT'S LIST OF FAI~TIES Ah'D ATTO~KYS OH ~LFI~F.4L Wh~°te v. Alaska Oil & Gas Conservation Comm'n 3AN 90-6998 Civil Page 2 Far North Oil & Gas, Inc. (no current address in record) Thomas Yerbich 329 F St., suite 210 Anchorage, AK 99501 Submitted written .testimony only: Kevin A. Brown, Manager Manager, Engineering & Operations Cook Inlet Region, Inc. P.O. Box 93330 Anchorage, AK 99509-3330 Attended hearing but did not testify: Kelley Everette A1 pha Resource P.O. Box 73690 Fairbanks, AK 99707 Mike Kotowski .. Division of Oil and Gas Alaska Department of Natural Resources P.O. Box 107034 Anchorage, AK 99510-0734 Dr. James A. White (by Bill Bankston) 2628 Redwood St. Anchorage, AK 99508 Bill Bankston 550 W. Seventh Ave., suite 1800 Anchorage, AK 99501 Applicant for rehearing.: Dr. james A. White -2628 Redwood St. Anchorage, AK 99508 A..ppellant in superior court appeal' James W. White 217 Sunway San Antonio, TX 78232 Robert C.'Ely 608 W. Fourth Ave., suite 21 Anchorage, AK 99501 APPEALS DIVISION ALASKA CO(JRT SYSTEM 303 K Street Anchorage, AK 99501-2083 -r. ALASKA CONSERVATION COMMISSION 3601 C STREET, SUITE 1380 ANCHORAGE, AK 99503 II;I,,I,1,,,I,1,11,,,,,11,,I,!,1,1',,,I,,11,,I,1,,I,I Oz ~ lO 16 17 18 19 20 21 22 23 24 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA . JAMES W.WHITE, VS. THIRD JUDICIAL DISTRICT AT ANCHORAGE ALASKA OIL AND GAS CONSERVATION COMMISSION, ) Appellant, ) ) ) ) ) ) Appellee. ) Case No. 3AN-90-6998 Civ. ) STIPULATION WHEREAS AS 31.05.080 provides for an appeal to superior court from a final order of the Alaska Oil and Gas Conservation Commission after the Commission's action on an application for rehearing; and WHEREAS appellant James W. White has purported to prosecute such an appeal in this case by filing a document entitled "Petition for Review of Commission Action"; and WHEREAS there may be a need to clarify that, notwithstanding the title of that document, Appellate Rule 610 does not apply to the instant proceeding because appellant here seeks' to appeal from a final appealable order of an administrative agency; and WHEREAS there may also be a need to clarify that the applicable Appellate Rules supersede any contrary procedural provisions of AS 31.05.080; NOW THEREFORE the parties agree and stipulate that: 1. The instant proceeding is not a proceeding on a petition for review under Appellate Rule 610. 2. The instant proceeding is governed by the procedures established in Part VI of the Appellate Rules. RE~E~VED SEP - ? 19~ Naska 0il & Gas Cons. comm~ss~ A~horage 10 12 13 14 15 16 17 18 19 ~$I 20 .~ ~ 2~ ~ ~ 22 23 24 25 26 3. Appellant shall have 30 days from the date this stipulation is approved by the court to file and serve a statement of points on appeal and otherwise to comply with Appellate Rule 602(b), at which time he shall be deemed to have timely filed a notice of appeal thereunder. DOUGLAS B. BAILY ATTORNEY GENERAL Date: ~ /~//~[~ ~er?E~.~z ~ J~7~ Assistant Attorney General Attorney for Appellee Date: It is so ordered. ORDER DATE: Superior Court Judge 16 17 18 a:'~ ~ 19 z ~ 21 ,._~g <,,, ~o~ gZo 22 ~ o r, ,,,~ ~z 23 20 24 25 26 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE JAMES W.WHITE, VS. ALASKA OIL AND GAS CONSERVATION COMMISSION, ) Appellant, ) ) ) ) ) ) Appellee. ) Case No. 3AN-90-6998 Civ. ) ENTRY OF APPEARANCE Please take notice that Robert E. Mintz, Assistant Attorney General, Department of Law, 1031 West Fourth Avenue, Suite 200, Anchorage, Alaska 99501, telephone: (907) 276-3550, hereby enters his appearance as counsel of record in the above- captioned matter on behalf of Appellee Alaska Oil and Gas Conservation Commission, State of Alaska. Copies of all notices, motions and pleading should be sent to the address referenced above. Dated: August 31, 1990 of thc: ~,'.,~...:g,:>',cg i; bch'~g ~ (,h~.~.'"ci delivered~ to the following c;t~;',rl~,r,,':; or parties of record: Signature DOUGLAS B. BAILY ATTORNEY GENERAL RECEIVED S E P - 7 1990 Alaska Oil& Gas Cons. Commission Anchorage ,OBERT C. ELY AVF.~ SUITE 21 N~I-tOR,q:[, Al( 99501 276-1916 I}¥ .HE SUFERIOR COURT FOR THE S'rATE OF .. JAMES W. WHI'rE Pet itone r, VS. ALASKA OIL AND GAS CONSERVATION COMMISSION }{espondant. ) Case No. 3AN- PETITIOM FOR REVIEW OF.COMMI.S_~SIQN ACTION Pursuant to AS 31.05.080 (b) ALASK~ ! 1. Petioner, hereby appeals the.decision of Respondent in issuing Conservation Order No. 254 of which a copy is attached hereto an interest holder in' the gas within 'the unit created by that order and its denial of. Petioner's Motion FOr Rehearing pursuan~ to AS 31.05.080 (a). . 2 The nature of the proce.eding before the Commission .was to act on the request of Alaskan Crude .Corporation, ("operator") operator of the Mike Pslch ~l gas well near Kenai Alaska ("the well") to establish a drilling · unit and permit commencement .of drilling, and p~oduotiom from the well. . · 3) Conservation O~der No. 9.54 ("the o~der")'is attached' hereto and made a part hereof. That order authorized 'the requested unit; however, authorization to , proceed with production was conditioned upon ambiguous, unreasonable, impossible, illegal and.inappropriate conditions wholly unsuPpor'bed by the weight 6f the evidence - Page 1 - RECEIVED · ~::Gg0I";I .q9 " OBERT C. ELY Ano~ M ~ 19Q7) ~'6-1916 before tli Commission. These condi%zons were, not allowing operator to produce the well without approval of all interest holders in the well and (2) setting a six month 'time limit' to production without such a agreement :3) The order further erroneousl~ names Far No~th Oil and Gas · . . Company rather than Alaskan Crude Corporation as operator. 4) Petioner is an interest holder in the well and its potential production; he desires that gas in the well be produced as he has a market for the same; he is prepared to authorize the operator to enter the well, commence .production with the cos'ts of such operation charged to petitioner subject to his right a pro rate refund from any' other interest holder desiring ~o produce· its gas; .he is entitled 'bo. an order authorizing the 'operator to comme~ce ~.oPeration of the well provided that it provide all interes{ holders ~m opportunity to produce their gas subject to '~ paying their pro rata cost of'production; and'he'is entitled {o produce his gas 'with or without unanimous agreement of · · all interest holders and without a six month, limit on production. ' · .. 5) Operator should be authorized to produce the . well for .any interest holder requesting production of the gas provided that operator regularly ~eport relevant data. to all interest holders so that they can make informed · decissions concerning their gas and provided that operator - Page 2 - assess- at(" '.nuerest holder requesti~, p~-oduction its pro rata 'share Of the cost or such pz-oduction. · Wherefore, ConserYa%ion Order No. 254 should be appropriately amended by the Da'bed this ~2~,;~day of , · 1990 Robert C. Ely Attorney for the Petitionerz DBERT C. ELY 99501 2.1&-9053 - Page 3 -. o_ ,. · DBERT C. ELY ATTO~j~Lry AT ~ w 41'1.4 ~/F..., 5%JITE 21 rC~OR,~E, AK; 99501 ~9071 276-1916 FAX (gO,~ IN THE SUPERIOR COURT FOR THE STATE OF ALASKA J,~IES W. WHITE ) Petitoner, ) ) VS. · ALAS[fA OIL AND GAS CONSERVATION ) "\ COMMISSION ) Respondant. ) ) Case No. 3AN-90- CERTIFICATION Of' SERVIC]~ 'I HEREBY CERTIFY that on 'the 25~ day Of August, 199(], I pe~-sonally' served a copy of the PETITION FOR REVIEW OF COMMISSION ACTION 'to: Office of 'bhe A'b'borne¥ .General 103t' W. 4'bh. Ave., Suite '200 Anchorage, Alaska 99501 Alaska'. Conservation Commission .3801 C S'breet, Suite .1580 Anchorage, Alaska 9950.3 · MEMO .. State of Alaska .. TO: THRU: FROM: .. Bonnie Johannsen, Assr Attorney General Oil, Gas & Mining Section Anchorage · · · · DATE:· August 24, 1990 FILE NO: A.BEW.158 .. TELEPHONE NO: ' SUBJECT: Alaskan Crude Corp Bankruptcy ' Blair E Wondz~Ct'~ Sr Petr Engineer .. · .... in response to your July'30,'1990 request to C V Chatterton, I .. have compiled the following data regarding ACt's liability under our regulations AAC Title 20 Chapter 25. The estimates below do not include work that would be done to satisfy DNR's responsi- · . b±l±t±es. ACC wells and our estimates to abandon them are as follows: .'...,..· ..... .... .. .,~ .. · ,. · , F-2 & F-3 -. N°rth~Slope (both) $ 10,000 ' Burglin 33-1 -r North Slope 55,000 ...: . Mike Pelch #1 -- Kenai Peninsula' 100,000 McCoy Prospect #1 -- Kenai Peninsula 80,000 ' Katella KS-1 -- Katella Field 65',000 · ' '" ESTII~TED TOTAL 0310,000 : · .: .. . If we'can.be or'further help., please call me at 279-1633. · ,, . . ., . .. · · , c: Sen '% . ,, . '[:' " 'r'...'.' '' · · .. ,. ...· 02-00lA (Rev. 6/89) 2011 I/MEMOI.PM3 July 30, 1990 STEVE COWPER, GOVERNOR 3001 PORCUPINE DRIVE ANCHORAGE, ALASKA 99501-3192 PHONE: (907) 279-1433 TELECOPY NO. (907) 276-7542 Dr. James A. White, P.E. 2628 Redwood St. Anchorage, Alaska 99508 Re: Conservation Order No. 254 Dear Dr. White: The commission has received your July 20, 1990 letter requesting an appeal of Conservation Order No. 254 (C0254). Although your standing relative to this matter is not clear to the Commission, we will treat your arguments for appeal as a petition for a rehearing under AS 31.05.080(a). The merits of your arguments are discussed below. Your stated reasons for objecting to C0254 is that finding #7 is not correct and that the order does not protect the correlative rights of the mineral interest owners located in the drilling unit established for the Mike Pelch #1 well. Further, you object to the wording changes made to C0210 by C0254, and to the terms of Rule 3 and Rule 4. Finding #7 states, in part, that the Mike Pelch #1 well is "...subject to an oil and gas lease to Far North Oil and Gas Inc." In a previous letter to the Commission (June 8, 1990), you contend that the finding is incorrect because the lease is under the name of James W. White and has never been leased and/or assigned to Far North Oil and Gas Inc. The Commission's records indicate that the lease is in fact under the name of James W. White et al (emphasis added). Further, .the records show that James W. Whi~ is the President and CEO of Far North Oil and Gas Inc., and that James W. White, acting for and on behalf of Far North Oil and Gas, requested the Commission to grant a spacing exception to reenter the abandoned Cannery Loop #2 well, now known as Mike Pelch #1 well. The Commission granted the spacing exception (CO210) to Far North Oil and Gas, and issued a permit to drill (#86-7) addressed to James W. White, President and CEO, Far North Oil and Gas, Inc. Based upon the records, and the representations made by James W. White, our conclusion is that James W. White et al is Far North Oil and Gas, Inc. The Commission finds that C0254 does in fact protect the correla- tive rights of mineral interest owners within the Mike Pelch #1 well drilling unit. The order, and the resulting amendment to Dr. James A. ~ ~e, P.E. July 30, 1990 Page 2 CO210, clearly provides that the well cannot be produced unless all owners agree to integrate their interest voluntarily~ or until the Commission issues an order pooling their interests, absent voluntary integration by the owners~ or, if the owners agree that limited production is necessary to gain information upon which to base an agreement to integrate their interests, the well can be produced for a period of slx months pending acquisi- tion of that information. If the owners agree to limited production for six months, CO254 requires the well to be shut-in only if the owners, armed ~with information gained from six months of production, still cannot come to an agreement voluntarily integrating their interests (Rule 3). At that time, or at any such time that evidence can be presented that a. voluntary agreement cannot be reached, the Commission may be petitioned under AS 31.05.100 to hold a hearing for the purpose of involuntarily integrating the interests of all concerned mineral owners. In that event, the operator would be .required to submit cost information covering development and operation of the unit so that the Commission may determine the actual and reasonable expenditures that may be chargeable to the unit per AS 31.05.100 (Rule 4). Evidence presented at the hearing held prior to the issuance of CO254 clearly shows that the door is still open for voluntary integration, and that the operator of record had not taken all reasonable steps to secure a voluntary agreement among the mineral owners. Accordingly, the Commission concluded that its involvement under AS 31.05.100(c) was not yet appropriate. Nothing in the letter filed on July 20, 1990 presents any credible evidence to the contrary. The general allegations contained in the letter are insufficient to contradict the testimony presented at the hearing, including testimony by representatives of Unocal and CIRI that they are willing to explore voluntary pooling. It is the decision of the Commission that C0254 is correct in all matters, and that the correlative rights of all mineral owners in the Mike Pelch #1 well drilling unit are protected. Accordingly, the application for a rehearing is denied. Conservation Order No. 254 represents the final action of the Commission in this matter. Sincerely, David W~. ~ohn~ton Commissione~ Commissioner BY ORDER OF THE COMMISSION / RECEIVED JUL Al-asker Oil & Gas Cons. Anchorage~ Dr. James A. White, P.E. 2628 Redwood St. Anchorage, Alaska 99508 July 20, 1990 Mr. C. V. Chatterton, Chairman Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: Application to Appeal AOGCC Order No. 254 Dear Mr. Chatterton: In accord to Alaska Statute §31.05.080, this letter is our application to the Alaska Oil and Gas Conservation Commission (AOGCC) requesting an appeal of AOGCC Order No. 254. Finding number seven is in error and the order does not protect the correlative rights of the mineral interest owners located within the 640 acre drilling unit established for the Mike Pelch #1 well. We do not object to the 640 acre drilling unit established for the Mike Pelch #1 well. Specifically, we are requesting that the Alaska Oil and Gas Conservation Commission abide by the original terms and conditions of its Order No. 210 dated May 31, 1985. The Mike Pelch #1 well was originally re-entered and developed under the original terms of AOGCC Order No. 210. AOGCC Order No. 210 clearly stated that the AOGCC shall issue an involuntary order pooling and integrating the interest of the parties, if all the parties cannot come to a voluntary agreement. Instead of issuing an involuntary order pooling and integrating the interests of all the parties, AOGCC Order No. 254 amended the terms of Order No. 210 to in effect say that if all the parties cannot come to a voluntary agreement, the well shall be shut-in and not produced. Order No. 254 does not protect the correlative rights of the mineral owners that are entitled to receive their share of gas from the Mike Pelch #1 well. · Unocal and CIRI have not voluntarily agreed to any development work on the Mike Pelch #1 well since they plugged and abandoned the well in 1982. · Unocal and CIRI have not contributed any money or expended any effort toward the reworking of the Mike Pelch #1 Well. · Unocal and CIRI have not put forth any proposals of their own for the completion of this well. · Unocal and CIRI have stated that the development of the Mike Pelch #1 well is not a high priority at their offices. Mr. C.V. Chatterton July 20, 1990 Page 2 Unocal will not agree or disagree with any proposal that has been submitted to them and they have not proposed any alternatives to the proposals that have been submitted to them. Unocal and CIRI have no time limit to come to a voluntary agreement. The six month time period following the "date of initial production" stipulated by the AOGCC to come to a voluntary agreement, is an arbitrary, capricious and meaningless. "Initial production" cannot occur until there is an agreement between the parties. Since there can never be any production without an agreement, and the six month time period does not begin until "the date of initial production", the time period specified by Order No. 254 is effectively meaningless. It is obvious that a timely voluntary agreement pooling and integrating the interests of all the parties is not going to occur in time to bring the Mike Pelch #1 well on production this year. Therefore, we have no alternative but to object to the wording changes made to Order No. 210 as found on pages 4 and 5 of Order No. 254, and also to object to the terms of the order stated in paragraphs three and four for the reasons stated above. Sinc3~r~ly, James A. 'te, P.E. // cc: P~ninsula Pipeline Company Alaskan Crude Corporation Trustee Far North Oil & Gas, Inc. Dr. James A. White, P.E. 2628 Redwood St. Anchorage, Alaska 99508 July 16, 1990 Mr. C. V. Chatterton, Chairman Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: Confirmation of Time Extension for Appealing AOGCC Order No. 25~ Dear Mr. Chatterton: This letter confirms the conversation you had earlier today with James W. White. He asked for, and received from the commission, an additional ten day time extension, for a total of thirty days beyond the twenty day time period given to file an appeal to Conservation Order No. 254. Once again, we appreciate the commission granting the ten day extension to allow time for the parties to try to come to an agreement. Sinc~ely, /~'i"'" "~'''''''" // ' ' / v>.~.. A~ //~~ /./ cc: Peninsula Pipeline Co, any J Alaskan C~de Co~oration T~stee RECEI'VED J U L. 1 6 '1990 Alaska Oil & Gas Cons. L;ommiSSiOn Anchorage July 6, 1990 Mr. C. V. Chatterton, Chairman Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: Confirmation of Time Extension for Appealing AOGCC Order No. 254 Dear Mr. Chatterton: Dr. James A. White, P.E. 2628 Redwood St. Anchorage, Alaska 99508 'i~.. :'~': '-x .:-~ .~:~ ........ i ' ',~;' '~'~ '~-,,~:~ 1 This letter simply confirms our conversation earlier today. I asked for, and received from the commission, an additional ten day time extension beyond the twenty day time period given to file an appeal to Conservation Order No. 254. Our negotiations with the major parties indicates an agreement can be reached, and therefore we feel an appeal may not be necessary. Once again, we appreciate the commission granting the ten day extension to allow time for the parties to try to come to an agreement. Sincgrely, /James A. White, P.E. M cc: Peninsula Pipeline Company Alaskan Crude Corporation R'E¢ IV'ED JUL - 6 1 90 Alaska Oil & Gas Cons, ~nc~omg~ June 27. 1990 Mr. C. V. Chatterton, Chairman Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Dr. James A. White, 262 8 Redwood St. .. Anchorage, Alaska i E:~C:L ASST~ L' ..... ..... Re: Confirmation of Time Extension for Appealing AOGCC Order No. 254 Dear Mr. Chatterton: This letter simply confirms the conversation and agreement made earlier today between James W. White and the Alaska Oil and Gas Conservation Commission. James W. White asked for, and received from the commission, a ten day time extension beyond the twenty day time period given to file an appeal to Conservation Order No. 254. Our negotiations with the major parties indicates an agreement can be reached, and therefore we feel an appeal may not be necessary, we appreciate the commission granting the ten day extension to allow time for the parties to try to come to an agreement. Sincerely, James A. White, P.E. cc: Peninsula Pipeline Company Alaskan Crude Corporation Dr. James A. White, P.E. 820 Harbor Circle Anchorage, Alaska 99515 June 8, 1990 State of Alaska Alaska Oil & Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501 Re: Errors Within AOGCC Conservation Order No. 254 Gentlemen: Preliminary review of your Conservation Order No. 254 revealed two ~.significant errors that should be corrected. These errors are: ~rror No. 1 Finding No. 7 is in obvious error and is not correct. The Pelch fee land is not now, nor has it ever been leased and/or assigned to Far North Oil & Gas, Inc. The Pelch fee land oil and gas rights are leased to James W, White and/or to whomever else he may have assigned this lease to. A copy of the oil and gas lease between Mike Pelch and James W. White, dated July 6, 1983, and the subsequent oil and gas lease extensions between Mike Pelch and James W. White dated May 20, 1985 and December 11, 1985, are included with this letter. Therefore, Finding No. 7 should be corrected to reflect the aforementioned error. Error No. 2 Far North Oil & Gas, Inc. is not the designated operator, therefore, it ~ have.the authority to perform any work on the Pelch well. The designated operator, whomever that may be, is the only entity authorized to perform any work on that well. It would appear that item No. 2 of Conservation Order No. 254 should be amended to reflect the aforementioned error. SincerelY, James A. White, P.E. Attachment: Copy of Oil & Gas Lease Between Mike Pelch and James W. White cc: Alaskan Crude Corporation RE'¢EIVED J UN - 8 1990 Alasl~a Oil ,& Gas'Cons. Commission ~Anchorage · K~ ~. 4 'J, I'~r 'C('lO'. lie''. , 'i~Z']$ /~RT,-~.I£.%'T, £ntered Into t~l: the OIL AND GAS LEASE 1. ~'~TNESSCT~i. That lessor. Jot &nd in consldernti.n of the lure of ~ ~li=ts nn~ of the covenants and n~teements hereinafter l:3t~o~ telepho:e lines and other sttuc:ure~ thereon accesser) or convenient lnr the economical opetation of said land alone st conJomtly w~th lacks ~oled %. '-. ~ - - ~ ' ~ - / I ~ Z ......... ~)-J~e alike: value of luch las it :he mouth of the t-~: 1I a[~ las Is sold by the lessee, then as roylJtJof the proceeds ~t the Init thereof It · ~g ~-~a~f t~.e well ~e lessee shall Day lessor as tovall)~ th~roc~s ~rom the sale o~ ga~ as such at the ~h of the ~'ell where las only ~ loun~. ant ~hete ~uch ~a~ il no: sold or used. lessee shall pay or tenor ~o lessor or depos:t To kin credit :n the her mai er designated depository bank. annually at the erie o: each )'early per,sC durmc which such ~ls is not sold or used. Is adYa,ce royalty, an amount eGual to the delay rental pro¥lded tn pnra=rnph 5 hereof, and ' whl~e ~e a~vance royale)' ~ 1o pat~ or tecdeted or deposited as aforesaid this lense shall be treated as n pr~ucin~ lease under patalraph 2 heteol: the lessor to ha~t ~ free ~f :bathe from any las ~'eli on the leased premises for ~tm'e~ and ~ns~de l~ghts In the principal d~eUin~ house an s~id ~nd b~ mn~ln[ his own eenn~lmal. 111 connettions and use ~ l~s to be at the lessor'l sole risk lad expense. ~ : ~ IS $. If e~tat~ens for the dril:~n~ o~ a ~'ell lot oll or Ins ere not eommenced on arid land on or before the day f ~ ~ 'In ~ lease ~hnll terminate as to both p3ttics, unles~ the lessee shall on or before st:d d~te pay or tender to the lessor or lot ~he lessot'~ credit ': ~nk at or Its successors, t'hlch Bank and its suc- ~neer thss ieee regardless of ~anges o~ ownership in said c sss s are the lessor's -'rent and shall continue as the depository of any and al! sums payable It,d er In the o~ and fas or In the rentals to accrue hereunder, the sum of ~~ /0 Dollars. which shill eta:e ts t rentt~ n~d cover the prlx'JJe&e o~ dc~etrmE the comn~encement o~ operations ~Or ~tz]];~ for & period Of one year. ~n like manner and upon pz~meflts et tar. data. the commencement of opern~ions for ~tl:Jm: may ~urther be dcietred lot h~:e pt:=ods successively. All payments oF tenders ~ay be made by c~ccJ: ur ~tit: of lessee or nfl} uss:~nee thereof, mailed or de'teared o~: or before the rental ~a~:ni date. directS)' to lessor or assigns or to said ~eposttory bank. ne.: It Is understood ~nd fl~reed that the conssOeratlon rJrst rectted harem, the eou-n payment, rovers not only the privilepe eranted to the date ~'hen f:rs: tea:aR Js p~)=bJe ts aforesaid, but slso the lessee's option of exten~m~ that period as aforesaid and any end &il other rights conferee. Notw'lthztnndmc the dr=tb of the lessor or his s,cces~or- In interest, the payment or tender or rentals In the abo%'e manner shall be bindlnE on the heit~ devisees, executors. 8~l~as:Te~ors ~ 1ssJ~% of all such p~tsons. ~ If a~ any time prior to the dtscovery of oli or Cas during the term oX this lense, the J~ss~ shall drill s dry' hole. or holes on this Jand. or any u-zth w~:c~, arm~ t~ uAl:;ze~, this lense shall not terminate, provided operations for thc drtlltnE o~ · t'ell ~hnll be commenced by the ne~ e~uJni rental ptyinl da~e or ~r~s~e: t~e lessee bt'gms or resumes the payment of ten:als in the manner end amount hereinnbove provided, and In this latter event the precedml para,tape,& hereof Eovctflznl the payment o~ rentals and the manner &fld e~fecL thereo~ ~hall continue In force. . ~ Iff case s2,d lessor e~ n less Interest In the above described land t~nn the entire end '~di~-~ded Xee simple esL~tt therein, then the royalties ~nd rent- als ~ete=q ~o~:~'~ ar.~l: b~ paid the said lessor in the propo~ion only which his Interest bears to the ~-hole e~d undivided lee. This Jesse s~ell ~ etfec- tl~'e as to enc~ ~ssor n~ to ht~ or her Interest. and shall be bJndin~ on their resp:ctive execution ~ereof. not~zthstzt~dinE some of the Jeers n~ve named may no: Jo:n In t~e executJon hcreoL t. The lessee shnli have the r:Rht to use. free of cost. las. oll and water Yotmd on ~&td land ~or Its operations thereot:, except water from the ~el~ of the ie~set W~.cn ~equ:te~ by laser, the lessee shah bury its Pl~ lints below' plow depth and shall pay for danJa~e caused .b)' les opernttons to [row-ml crops nearer than 2~0 feet to the house or bnr~ no'o' on s~id ~ssce shall have 9. If t.~e et:nee of either party hereto ts ws~igned land the prlvilece of nssi~.-~:n~ in whole or in part ts expressly allowed1, the corenants hereof shah extend to the ~e.r~. dev:~ee~, executors, ndmlntstr~tor~, successors, nn~ assigns, but no ch~re of o~-ncrshJp I~ the ]and or in the rentals or royalties for any sum pn~aele ~:er tcJ~ lease shall be banding on the lessee until iL shall ~ave been furtti~he~ ~Jth thc o:fgzn31 recorded instrument si conveyance or a duly certified cop:. t~eteo~ or I certt/,ed cop) of the will of n f I )1 deceased owner and of the prob2te :~,ereof. or (crL:~]cd copy of thc proceedings showJflR ap~lntment of in nd* n:~fl,,:rn:o- st e~r:u:or rot the estate of an~ deccaspd owflez, w~tchrvet is IpprOl)r::~te. LoEcther ~'l:h all O~i:lflal recorded instruments or conveyance or duly c~t:;~l~ c~l~s i~:~Jeo[ show~l:~ i complete chain or ti:La ~;~ci: tO lessor to thc fu~ I~:erest claimed, a~d all payments or rentals m2de to previous o-a-nar here- ufle-r eet~re ret-=r: si sale oppropr:ate ~ocumel~Lb and notice of chan~r of o~cfshzp s~.l]] b~ b:n~zR; on ii1)' d~,ect or indirect assignee, grantee, deviate, nd- ~l~l%:fator. exec'J:of, st heir of lessor, rega~O~ess of ~heLher ~uch p~y~ent ~-as made on or be~o~e the ~ate s~me became payable hereunder. 1~ ~ the Jea~ premises nra now or shall hereafter be o~ed Jn scveralty st le separate tracts, the premises nevertheless ~all ~ developed and spar- '. t in the · ted a~ e~e le~e. and all toyalt~e~ ~cctutnl hereunder s~all be t~e~ted a~ a~ en:i~e~y an~ s~al: ~e &;vlde~ amon~ a~d p~d to such ~ep~tnte -g ~.e:e sh~ll be no obhgation os~ the part of the lessee to off- ~FOp~:~ t~t I~ acreage o~'ned by each separate o~ner b~ars to the ~tJ~e Ic~scd acres e ~et ~'e~s e~ se~t::e ~t~cts I~to which the l~nd covered b)- thl~ Jen~ ~y be hereafter d~¥1dcd b)' s2Je. devise, descent st etherwlse, or to ~utRIsh serrate ~easur:nt st recet~'J~ l~ks. It ls'hcteby a~recd that In the e~'c~t th~s le~se shah bt-~s~ncd ~i to ~ p~rl or ~s to p~t~ of the ~bove described the ~.~d-t or owlet of any s~ch part st p~rts shall m~ke de~ault In the payment o~ t~e pro~ort~onete pa~t of the rent~! payable by him or them. such defRutt ass~ nee hereo~ ~h~ll ~ve m~de or ~all m~ke payment sh~:: e~ operate ~o ~elea~ or affec~ this lea~e as to ~n)' pate si ~aid land upon which the lessee or an~' 'g II. ~s~ ~.ereby ~-~r~nt~ ~nd aires to defend the title t~ the land herein descried ant a~tees that the lessee. ~t ets option, may ~ay and ~oJe er t~ p~rt a~y L~e~. mortgages, or other hens e~tsttn:, lev~e~, or nss~%~ed on or o~amst the above de~ct~bed lan~s ~nd. in event It exercllc~ ~u~h It shall be lubroga:td to the ri;hen of any holder or hotdcra thereof and ma)' Kcimbutae Itself by app)ying to the g~schat~e of any such mortgage, t~x OT other hen. any roy~J:y IccFuf~g hereunder. ~ ~o:wJ:hstandm~ an)'thmE Sn this Jesse ~ntal.ed to the contest)', It Is expressly agr~d that Jf lessee or a~i~s shall commence o~tatlons for drilhnl on an) pa:t of the a~o:'e described land or cntttz~ lan~s at herein author,zed bt an) t~me ~-hJle t~is ]ease Js In foice, this lease shall remora In force ter~.~ e~BJl continue so JonK es su~ opera, Sons tee proseculFd a.d. Jr ~r~uctton resuit~ lhc~cfrom, then as lon~ eS produ~Jon contmues. . 13 T~ wfthl~ t~e p~' term st this Se:se. pr~uction on the le~s~ ~tni~s ah:Il ~e2se from ~ny cause, thts Ieee ~11 net terminate provJ~ opers- Jh~Jl be FDm~eltCed Dc[ore or un the :nsuing al )-t: )tovided 'lessee ~gms OT such relcase tO the lessor, or by placl~c same or Il J4 L, ellel rat it an! Lime au:render or cancel th:s Jeabc In ~h~l cJnce obit ~a:' be o~rt,oned In~ bard on &h &trance bas,s, but B& to.the portia ol thc acreage no: lelea~ the terms and provtssons si lh~ Jesse shall eontmue ln~ lemalU iff lull for~e and eflecL for III .. iS A~ ~o~ts~o~ hereof, elpre~ or J~Jl~. thblJ ~ sub~ to OIl I~erBl BIBd ~e I)tS o~d the o~deFs, rule. or r~:u~2tJons dB~d tnterpretat~ns there.. J~ g.~a~%. Io: :&tlur~ tc (o~l,ly utlh I~) oJ thc e~pr~bs or t~pli~ pro~J~ton~ h~reor tf suc~ fa:~e ~ otLr~butn~]e to comphance with I~) &~h l~ll. order& ~dt~.o~. M slalomed ~Bll ~ ~oti)t~trrd for oJJ ~ur~. t.ri:0dtn~ thc pa~mt~ eJ d~JJ~r~ or jo~Jt~. !o ~ the entire pf~u~tsol~ JFo~ that ~rt~n of ~he ,. ,,.,,,..,o.. ,.. %.. ,,-,, OIL & GAS LEASE A DDENDU:,.I $ ,, I. Lessee a9tees to dr~11 at mutually agreed locations~ however it is agreed that the Lessee sba1 have the r~g~t (o drill o~ each tion allotted pe~ well pe~ ac~e and s~11 not be ~equi~ed (o d~ill ~lant and o~ di~ect~onaly (o ~each the geological ]oc~t~on selected by the ~ssee. Provided the well is a p~oduce~ end t%e~e ~s sufficient gas to ~un p~oduct~on units ((zeaters~ ~umps~ ect.) ~esso~ will h~ve the no cos~ a~ (be well ~ead~ (o enough ga~ ~or ~s/her non-come,cia1 use heat his/her ho~e~ barn and greenhouse. 3. Gathering ~acilities (t~nks~ t~e~to~s~h),dra~o~s,e(c.) i~ ~equired v.,i11 ~e placed at ~,u(ually agreed locations. 4. Lessee shall pay all taxes levied on its ~,p~ove~ents and pe~sonal :? ~ezty'~nd (axes levied on ~ts oil and 9~s ~chlch Lessee stoYed on t~e ie~sed land. Lessor s~a11 p~Y his sha~e o~ any ,t~x (wind~all pro~t ta~ ~ sev- erence tax and o~ any ~ther tax) on his royalty p~oduction she~e at well be~d and Lessee' will 'r~ake such payr~eRt~' ~o~'(%e Lesso~ and deduct . . same ~ro~ the Lesso~ ~oyal(y . 5. Lessee r. ay at any time surrender or cancel ~bis lease in v:bole only during ibc %-,'o year lease period of tbi'~ le~se, furtbur defer~nent of lbe lease will be negotiaied beiween Lcsse &nd Lessor. Les.~ee will notify Lessor by m~il or delivery of canceled said lease. 6. Lessee ~.grees to inder~nify and save harmless Lessor from and against suits da~aoes, cost, lo~ses and expenses ~risin9 out ~ny and ~11 claims, , or growing oui of injuries or ~eaib of ]c~e of or dar.~ges io property ~n , g. ny manner dizec%ly or indirectly rcsullzng from or caused by operations of the Lessee on lhe ]eased premises or ~djaccn% lbereto, or lbe existence of oil wells, gas v:e]ls, derricks, p{pe]incs or tanks or.~ppurien~nces there . of, used by i-he Lessee on lhe lease pre:ni.,es or ~djcent t%erelo, unless such damages br injury is caused by ibe 9ross negligence or willful mis- conduct of Lessor or Lcssor'.~ ~9ents or e=~p]oyces. 7. Upon ibe termination of ibis lease in any m. anner, or if any well abandoned~ the Lessee agrees io relevel The surface of lbe land ~nvolved and fill sump boles ~nd exc~valions made or caused to be ~ade by the Lessee. Lessee olso agrees to remove all cemeni blocks, 'foundations, buildings, pipelines, ianks,roads ~nd or any ib~ng else tb~ the Lessee p3eced or caused lo be placed on the leased properly j=nd ~'/e lhe 9round b~ck io its original coniour a% ~ssor{s reques~ 8. Lessor shall further receive a I2~ workin~ in~eres~ BO days after ~he dale ~ha~ all drillin~ a~d developmen~ c~% have been repaid ~ ~he investors by ~he e~is~in~'s wells production or 5 years after ~he da~e well is pu~ on production, which ever comes first. 9. This lease agreemen~ becomes null and void if Union, ~a~ho~. ~d any o%he~ lea~e im in effect. IO. ~ssee a~rees ~o indemnify and save harmles~ ~sso~ from and any and all claims ~ s~i~s ~ damages,c~,'i~mes and e~ense{ ' ' of original leases; Umion, ~ra~hon and/or 2 · DISTRICT ~"' ;s .ar~zng out RE OUE$ T E O~/B~~ ~kDDRESS ~ STXT~ ' .. - ~ -'~' ' ' '~ ss. ACKNOWI,~I)GMENT INDIVIDUAL (Kans., Okla., Cob,.) the unJer~i~ned, a Notary Public, within and for said county and state, on this day of 19~_, l)er~o,mlly appe:Hed ~ ~ ....... /x 0 ~ . tO ale ,)e[,,onaJJy known to ')e {lie identical pe½'so.n__who executed the .vlJJlJ,l :t,l(J fuJ't, gojjlg JnsJJ'llJllent .g. ackno~'ludRe,] ,~ ale that ../~/~ executed' the same as~E''~ free an,I voluntary. · act ,and deed, for the uses and, p~rpos~_~(~~fort h. * ~'- ._ . ~ IN WITNESS WHEREOF, I have hel'culllo ~et lay hand -md offici'tl se'il the day 'md 'e'tr Just a~ve ~i~ ~ '/ '. _ ' ' ~' ' ~ ' -. .~.~--'- ~7,. ,'qy commission expires .. ;~=,,,ta,, 14, I,'7",,4 ss. ACKNOWLEDGMENT FOR INDIVIDUA~ .(~s.,~l~; ~ Colo.) Before: ~h~ ~.dersigned, a Notary Public, wit~. and for said county and state, on this ;~" ,. that ~q~ executed the same as.~J' ~ free an(l voluntary act and deed for the uses ~1 IN WITNESS WHEREOF,. I h ' ~' · udto set my hand and official seal the day and year ~toh. .:/~P/ittem;_ -_, ' .~' mm~l~~ · My commission expires ~~t ~' 19" ~~ V' STATE OF. ~- ACKNOWLEDGMENT " ss. FOR GDiTPORATmN ,-., COUNTY OF. . ,.~' ,~e~,; :t!i' ..,.~ "" f-' ' On this _ . day of. , A. D., 19 , Before me, the [~ridet'signed, a ~°~ary Public in and for the county and state aforesaid, personally appeared ' i}'.-' /-" . ~ , to me personally known to be the identical person who signed the name of the maker thereof to the within and foreg~ng instrument as its_ President and acknowledged to me that. executed the same as free and voluntary act and deed, and as the free and voluntary act and deed of said corporation; for the uses and purposes therein set forth. Given under my ~nd and seal the day and year last above written. commission expires , Notary Public. [- c NOTE: When signature by mark in Kan::a.'-, said'ni;at:k to be witne.~sed by at-qeast one person and also acknowledged. For acknowledgment by mark, use re,.~u]m' Kansa.~ acknowledgment. STATE OF. }, ';:' s.~. ACKNOWLEDGMENT FOR INDIVIDUAL (Karts., Okla., COUNTY OF. __J Before iile, the undersigned, a Notary Public, within lin(! for said county anti state, on this , day of 19 . _, personally appeared and to me personally known to be the identical person__who execute,l the within and foregoing instrument-and acknowledged tO ;ne that____ executed the same as free and volur, tary act and deed for the uses and purposes therein ,et forth. IN WITNESS WIIEREOF, I have hereunto set my hand itlld official seal the (lay and year last above written. .My commission expires_ POOR FIL~ING OUA_LIT~/-'--J Notary Public. · EXTENSION OF OIL AND GAS LEASE THIS AGREEMENT [EXTENSION ] dated this llth day of December 1985, by and between MICI-bkEL JOHN PELCH as Lessor and JA/VIES W. WHITE as Leasee refers to that certain "0il and Gas Lease" dated the 6th of July, 1983 which called for a lease term of two (2) years, expiring on the 6th day of July 1985 and additionally to that certain "Extension of 0il and Gas Lease" dated the 20th day of May, 1985 which extension served to extend the terms of the original lease to the 1st day of January 1986. THEREFORE BY MUTUAL AGREEME. NT (consideration having been made) the term of this lease is hereby extended to the 6th day of Jul¥~ 1986. All other terms and conditions of the "Lease" are to remain in full force and effect -, (conJisting of 17 numbered paragraphs and 10 numbered paragraphs of addendums). IN WITNESS WHEREOF , MICI-L~EL JOHN PEACH has hereunto set his hand and seal this day of December, 1985 and J~ES W. WHITE has set his hand and seal this llth day of D~ember, 1985. /7/7 // MI CI-IAEi_d JOHN PELCH (--"~ ~ES ~ ~F~I~.£TE-- STATE OF OREGON ~ ss. COUNTY OF LANE BEFORE ME, the undersigned, a Notary Public within and for said county and state, on the /~B day of December, 1985, personally appeared MICHAEL JORN PEACH to me personally known to be the identical person who executed the within and foregoing act and deed for the uses and purposes therein set forth. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year last above written. Notary' Public ~7 Mv Commission Expires: /,'Q'~') STATE 'OF ALASKA THIRD JUDICIAL DISTRICT SS. BEFORE ME, the undersigned, a Notary Public within and for the State of Alaska, on the llth day of December, 1985, personally appeared JAMES W. WHITE to me personally known to be the identical person who executed the within and foregoing instrument'and-acknow- ledged that he executed the same as his free and voluntary act and:deed for the uses and purposes therein set forth. IN WITNESS WHEREOF, I have hereunto set~mynanaanao~lclal,.s~my hand and official al the day and year last above written. ~ / / ] . ~Nb-tk~blic for Alaska . ~ My Conm~ission Expires: /:/,!/,~ EXTENSION OF OIL AND GAS LEASE THIS AGREEMENT dated 20th day of May, 1985, by and between MICHAEL JOHN PELCH as Lessor and JAMES W. WHITE et.al, as Leasee refers to that certain "Oil and Gas Lease" dated the 6th of July, 1983 which called for a lease term of two (2) years, expiring on the 6th day of July 1985. THEREFORE BY MUTUAL AGREEMENT the term of this lease is hereby extended to the 1st day of January 1986 and the expiration date shall now be January 1, 1986. All other terms and conditions of the "Lease" are to remain in full force and effect (consisting of 17 number paragraphs and 10 paragraphs of addendums) . IN WITNESS WHEREOF Michael John Pelch has herunto set his hand and seal this .~g._-x/ day of May, 1985 and James W. White has set his hand and seal this 20th day of May, 1985. Before me, the undersigned, a Notary Public within and for said county and state, on the ~~ day of May, 1985, personally appeared MICHAEL JOHN PELCH to me personally known to be the identical person who executed the within and foregoing instrument and acknowledged to me that he executed the same as his free and voluntary act and deed for the uses and purposes therein set forth. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year last ab°us written~ ~/~ ~~.~ No{ary Public STATE OF ALASKA ) ) ss. THIRD JUDICIAL DISTRICT ) Before me, the undersigned, a Ncta~' Public within and for the State of Alaska, on the 20th day of May, 1985, personally appeared JAMES W. WHITE to me personally known to be the identical person who executed the within and foregoing instrument and acknowledged to me that he executed the same as his free and voluntary act and deed for the uses and purposes therein set forth. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day 'and year last above written. Notary Public My Commission Expires:~-~.~/~)~' STATE OF ALASMA ALASKA 0IL AND GAS CONSERVATION CObRMISSION 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: THE APPLICATION OF FAR NORTH) OIL AND GAS, INC. for an ) order granting an exception ) to 20 AAC 25.055(a)(1) to ) re-enter the Cannery Loop ) Unit No. 2 well. ) Conservation Order No. 210 May 31, 1985 IT APPEARING THAT: I · Far North Oil and Gas, Inc., by letter dated May 3, 1985, requested the Alaska Oil and Gas Conservation. CommiSsion to issue and order granting an exception to 20 AAC 25.055(a)(1) in order to re-enter the Cannery Loop Unit No. 2 well which is only 160 feet from the property line on which it is located. · · Notice of public hearing was published in the Peninsula Clarion and the Anchorage Times on May 17, 1985o There were no protests to the request set forth in the notice of public hearing. FINDINGS: 'l. ~ · j · The Cannery Loop Unit No. 2 well was drilled and abandoned by Union Oil Company of California in 1981. At the time it Was drilled, the Cannery Loop Unit No· 2 well was in the Cannery Loop Unit and was drilled as an exploratory well.~ The Cannery Loop Unit No. 2 well is located 1481 feet from the north line and 863 feet from the east line of Section 2, T5N, RllW, SM. Far North Oil and Gas, Inc. claims the right to enter Cannery Loop Unit No. 2 well to explore, produce and remove hydrocarbons by virtue of an oil and gas lease from Michael Pelch, the owner in fee of the mineral rights beneath a nominal 160 acre tract comprising the SE ~, NE ~; NE~, SE¼; SW~, SEk and ~k, SEk of Section 2, T5N, RllW, SM. The Cannery Loop Unit No. 2 well is located 160 feet from the north line and 457 feet from the west line of the Michael Pelch Lease· , Conservation 0ri' No. 210 Page 2 May 31, 1985 · · Far North Oil and Gas, Inc. states the Cannery Loop Unit No. 2 well has potential as a crude oil producer. Exceptions to spacing requirements can be obtained as provided for in 20 AAC 25.055(b). CONCLUSIONS: i · An exception to 20 AAC 25.055(a)(1) is necessary to re-enter the subject well in order to explore for hydrocarbon production. · Should a hydrocarbon pool be discovered by re-entry of Cannery Loop Unit No. 2 well, the Commission must establish a drilling unit for the pool in accord with AS 31.05.100(a) and enforce the protection of correlative rights f. or the owners in the pool in accord with AS 31.05.100(c). NOW, THEREFORE, IT IS ORDERED: With an approved Drilling Permit, Far North Oil and Gas, Inc. is permitted to re-enter the abandoned Cannery Loop Unit No. 2 well to explore for hydrocarbons. If the well proves to be capable of hydrocarbon production, regular production will not be permitted until the Commission has established a drilling unit for the pool and issues an order integrating the interests of owners within the drilling unit, absent voluntary integration by the owners. DONE at Anchorage, Alaska and dated May 31, 1985. ia V aC o tln= m ,/Chairman Gas Conservation Commission Harry W./Kugler, ~ommissioner Alaska Oil and Ga~_Conservation Commission Lonnie C. Sm~cn, uommissioner Alaska Oil and Gas Conservation Commission I III WESLEY WIECHMANN 217 S~mway San Aut~o, Texas 78:13:1 (S~) 49~744 May 9, 1990 CONFIDENTIAL Alaskan Crude Corporation P.O. Box 111187 Anchorage, Alaska 99511 Dear Sirs: The Mike Pelch No.'1 gas well is completed through perforations 9256-9276 and 9300-9310 in the Upper Tyonek formation. 'l'hts well is located 1491 feet from North line and 863 from east line of Section 2, T-5-N, R-11.W. The dipmeter of the Mike Pelch well (originally drilled by Union "'" Company '~ '"'"'~"~":" :- ~oQ~ ~ ~,^,,,, ,~;,, d,,,-- ,n ,he southeas~ at the perforated ~tc~al at a ;ate of 4 to 6 degrees. I was employed as a consultant by Pan Arctic Corporation August 1988 to evaluate the Pelch prospect mxd Pelch well. Sometimo during the period M,-uch 1977 and October 1977 the Pelch well had been severely damaged by blatant acts of industrial sabotage. Some saboteur/s put a huge amount of gravel through the tree down the tubing and into the rathole of this well, severely limiting the capacity of the well to produce gas, The well completely plugged itself December ~977, The well had no capacity to flow until it was cleaned mech_~._~tcally with coil tubing July 1988. I witnessed and assisted in the cleaning processes of blowing the well down in order to remove the gravel sabotage, therefore witnessing the well flow under varying conditions. I witnessed large amounts of gravel sabotage, drilling mud, sand, and methane gas produced during these blowdown cleaning processes. These blowdown cleaning processes have resulted in partially cleaning the well. A moderate amount of cleaning processes remains to be done in order for this well's perforated interval to reach its flowing potential. During flow periods I witnessed thc well flow gas at a stabilized surface flowing ',',, i pressure of 1500 psig through a 3/16 inch choke at a rate of 1,200,000 cubic feet of gas day. This. flow rate defi~, 'tely qualifies this welt as a commercial producer of g~s: This rate. of flow will continue to increase as the welt continues to clean Itself of gravel sabotage aha. mud. When fully clean, thc productive rate of the Pelch well is expected to increase radically. .... LIIii~ I!l, i ..... i!~ - i-- in _ The Union Off Company of C_~!!¢ornia Cannery Loop well No. 4 is currently produc/ng from thc same upper ~.,,.~.t.,~,~..,,, ~.....~"*'~l._ ,h~,.__. the.__ Mike Pc!ch well is completed in. During February 1990 the Union #4 Cannery Loop well produced 370,589 MCF and 155 barrels of water. From January 1988 through February 1990 the well has produced 9,457,347 MC~. By comparison of the electric logs and porosity logs of the #1 Mike Pelch well and the ~4 Cannery Loop well, the Pelch well has 51 net feet of gas productive sandstone with an average of 17% porosity. The ~4 Cannery Loop well has 15 net feet of gas productive s~mcmu~ w'i~h an ........~o~ ,,~^~,,~ It L~ rex~nable to believe that the Mike Pelch well could out produce the #4 C~_..~nery Loop well. Sincerely, Wesley Wiechmann Geologist Alaska Oil & Gas Conservation Commission Pan Arctic Corp. James A. W~te James W. White WESLEY WIECHMANN Geoio~l.~ 217 S~w&y San Antonio, 'texas 7~232 ($~2) 494-6744 _Mike i~_!~ #1 (Orl~nally Dritl~t m thc C. aan~ Loop/r2 by Union Oil Co, of CaliL) .__UPP~ TYON~R:_: pERFORA __T~3_INTERVA L Gross Sand, 9252-9326 = 74 Ft, {3mss Net 5a~d 2- h ~ a.~ MMS_CF/160 Acres 9261 9 21 ~5 17'78 ...... 9263-9270 7 17 :55 ! 120 9271-9278 7 16 5.5 1034 9284-9286 2 17 60 285 9288-9294 6 16 60 803 9300-9304 4 17 60 570 9308-9316 8 16 60 1070 OGIP Aaaum~l Om ~es: 100% M~tha~ T- 150F 5200 psi_. - 300 SCl:mC~ Assume 80% Recovcr~,rable__: R_.,e_se_.r~es=,?_=.~:3 BCF;160 Acre_.. , .... 5 M~SCF - Million Standard Cubic Feet of Natural Gas BCF a Billion Standard Cubic Feet of Natural Gas Written Testimony COOK INLET REGION, INC. Alaska Oil and Gas Conservation Commission Hearing May 10, 1990 Dear Mr. Chairman and Commissioners of the State of Alaska, Oil and Gas Conservation Commission. My name is Kevin A. Brown, Manager, Engineering and Operations in the Oil and Gas Department of Cook Inlet Region, Inc. (CIRI). I regret that I was unable to be with you today to present this testimony on behalf of Cook Inlet Region regarding our interests in the area of the Michael Pelch #1 well proposed by Alaska Crude Corporation. My intent here is not here to object to the establishment of a unit for potential gas production from this well, but merely to express CIRI's concerns for our affected lease acreage. CIRI has a lease interest of approximately 20% in the 640-acre drilling unit as proposed. CIRI has requested on more than one occasion that Alaska Crude Corporation submit documentation as to associated costs, cost allocations and timing, as well as a proposed Unit Agreement and Unit Operating Agreement. CIRI has not received the requested information to date, yet is being asked to make decisions under very short deadlines. Most requests from Alaska Crude Corporation have been received through telephone calls and telecopies. CIRI would like an opportunity to review such documentation to enable us to make a responsible business decision and to ensure reasonable and equitable distribution and production allocation in accordance with the requirements of the Alaska Oil and Gas Conservation Act, reference: AS 35.05.1'00. ,. At this point, CIRI feels it has not received enough information to encourage or discourage participation in the proposal. We would' appreciate the calling of a meeting with Alaska Crude Corporation to discuss further details of the proposal, and to obtain specific cost information and documentation. We are requesting that the Commission place the responsibility for an agreement in the hands of the landowner's involved, and would appreciate the opportunity to seek the Commission's intervention at such time that a reasonable decision cannot be reached. Sincerely, COOK INLET REGION, INC. Kevin A. Brown Manager, [ngineering 8, Operations RECEIVED MAY I 0 1990 Alaska Oil & (]as Cons. CommlsslOil Anchorage nam:4:109 CIRI BUILDING 2525 "C" STREET P.O. BOX 93330 ANCHORAGE, ALASKA 99509-3330 (907) 274-8638 FAX (907) 279-8836 TELEX 090-26-465 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION Re: Request by Alaska Crude ) Corporation, operator of record ) for the Far North 0il and Gas, ) Inc. Mike Pelch #1 well, to ) establish a 640-acre drilling ) unit for the Mike Pelch #1 well ) located 1481' FNL and 863' FEL ) in Section 2, TSN, RllW, SM and ) formerly known as the Union Oil ) Company of California, Cannery ) Loop Unit #2 well. ) ) PUBLIC HKARIN~ APPEARANCES: FOR THE COMMISSION: ALSO PRESENT: MR. CHAT CHATTERTON, CHAIRMAN MR. LONNIE SMITH, MEMBER MR. DAVE JOHNSTON, MEMBER MR. SIN TAN, ASST. ATTORNEY GENERAL MR. ROBERT ANDERSON, UNOOAL MR. ROBERT PROVINCE, UNOCAL MR. KEVIN TAYBOR, UNOCAL MR. BOB WARTHEN, UNION MR. BRIAN BURGLIN, BURGLIN MR. KELLEY EVERETTE, ALPHA RESOURCE MR. KELLY GOFF, ALASKA CRUDE MR. C. R. KENNELLY, ALASKA CRUDE MR. RON DOLCHEK MR. MIKE KOTOWSKI, ADNR/DO&G MR. THOMAS J. YERBICH, FAR NORTH OIL AND GAS MR. BILL BANKSTON, JAMES A. WHITE May 10, 1990 9:00 a.m. Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive~ Anchorage, Alaska . ECEIVED r & r COURT REPORTERS 8 ! 0 N STREET, SUITE 101 509 W. 3RD AVENUE 277'0572 - 277'0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUe': ~ -- 272-75,5 :::~.a.~k%J~Jl.& Gas Cons, Commissi ~7 2O 25 PROCEEDINGS MR. CHATTERTON: On the record. Good morning, ladies and gentlemen. By way of introduction, I am Chat Chatterton, Chairman of the 0il and Gas Conservation Commission. I'll further introduce the people at this time that are at this head table here, and to my extreme 'right and to your extreme left, why, is Sin Tan from the A.G.'s office who tries to keep me out of trouble, and does a pretty good job of it. Next to me on my right is Commissioner Dave Johnston. And to my immediate left is Commissioner Lonnie Smith. And to my far left is Meredith Downing from R & R Court Reporters who will be keeping a record of this -- of this procedures (sic). The -- the hearing will be conducted in -- in accord with our regulation, 20 AAC 25.540, on hearings. And the -- we have now called the hearing to order, and I would like to have Commissioner Smith read into the record the notice that was published some -- some days ago regarding the meeting. MR. SMITH: Yes. The notice was published in the Anchorage Daily News, March the 23rd, 1990. "Notice of Public Hearing. State of Alaska, Alaska Oil and Gas Conservation Commission. Reference: Request by Alaska Crude Corporation, operator of record for the Far North Oil and Gas, Inc., Pike Pelch Number One well, to establish a 640-acre drilling unit for the Mike Pelch Number One well located 1481 feet from the north line and 683 feet from the east line in r & R COURT REPORTERS 810N STREET, SUITE 101 509W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 11 12 13 1¸4 15 16 17 18 19 2O 21 22 24 25 section two, township five north, range 11 west, Seward Meridian, and formerly known as the Union 0il Company of California, Gannery Loop Unit Number Two well. "Alaska Grude Gorporation, Post Office Box 11-1187, Anchorage, Alaska 99511, operator of record for the Mike Pelch Number One well states that the well is capable of producing natural gas and requests that a 640-acre drilling unit be established for the Mike Pelch Number One well as required by the Gommission's May the 3lst, ~985, Gonservation Order Number 210. Accordingly a public hearing on the matter will be held at 9:00 a.m. May the lOth, ~990, in the conference room of the AOGGG, 3001 Porcupine Drive, Anchorage, Alaska. Lonnie Smith, Commissioner" MR. CHATTERTON: Thank you very much, Lonnie. I would like to have entered into the record at this time Conservation Order Number 210 as Exhibit A, and have it part of this record. And if anyone wishes to peruse that, why, Meredith will have a copy of it. MR. CHATTERTON: (Exhibit A marked) Because of the way it appears to us the -- the -- that order is our running order and brings us to why we are here today. It specifically says that regular production, and regular production is defined by statute, "will not be permitted until the Commission has established a drilling unit." -- but, of course, the well is already drilled, that 1007 W. 3RD AVENUE 272-7515 r & r COURT REPORTERS 810 N STREET, SUITE I O 1 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 R E C E IV E iV AY 1 1990 ~,~,,~ ~ ~n~hor~' .~.'.;,:~:~,: , ' . . 17 becomes a production in anybody's thinking -- "for the pool and issues an order integrating the interests of owners within the drilling unit, absent voluntary integration by the owners." The -- that -- that is what we are -- expect to get from this hearing is some feel for the -- the course of voluntary agreement between the mineral interest owners of -- of the land to see if it's come to a stalemate or what. Because we interpret the statute of us being unable to act until there's clear-cut evidence that there cannot be a voluntary agreement to take care of these things. It would -- what we might do now, are -- is perhaps to swear in all of those that might wish to testify if you'd be willing to -- to signify if you wish to put any testimony, why, we can swear you all in at once. Kelly, I know you're going to testify, because you're the applicant, so anyone else that -- that is going to put on testimony? Brian, okay. Very fine. Bob Anderson, fine. Anyone else wish -- planning to testify at this time anyway? Would you three please stand and -- and, Lonnie, would you swear them in? BI~IAN B~I~GLIN ROBERT ANDERSON duly sworn under oath by Commissioner Lonnie Smith. MR. SMITH: Okay. You may be seated. R & R COURT REPORTERS 810 n STReet, Suite 101 509 W. 3RD AVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 17 2! MR. CHATTERTON: k Thank you. I think we -- I think the Commission is well enough aware of -- of you three gentlemen and your backgrounds to accept you as expert witnesses on the matters that are before us today, so you will be testifying as expert witnesses. The order of business under 25.540 is -- now comes down to Alaska Grude. I -- I might'point out before com- -- coming directly from here, Gonservation Order Number 210 was issued in May 31st of 1985, and at that time, why, Far North Oil and Gas, Incorporated, was the operator of record for this Mike Pelch Number One well. Subsequently to that, why, Far North relinquished its operatorship and the operatorship is now -- operator of record now is Alaska Grude Gorporation, and they are the ones that made the application, and they are ones that will be testifying as the operator of this Mike Pelch well. Okay. Kelly, it's all yours, if you want to come up here and sit and make yourself comfortable, why, have at it. If you want anybody to join you, we've got some chairs here. MR. GOFF: There's another chair if anybody else wants to sit there, it's fine. I have here a report by a geologist who run the test on the Mike Pelch well for the Commission. MR. GHATTERTON: Thank you. MR. GOFF: There's -- the points of interest are R & R COURT REPORTERS 81ON STREET, SUITE 10! 509W. 3RDAVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUe 272-75 ! 5 l0 l! 17 2O 2! 22 24 25 outlined in yellow. The rest of it is .... hear? MR. CHATTERTON: All right. MR. GOFF: ..... there for your information. MR. CHATTERTON: Can -- can you people back there UNIDENTIFIED: Not very well. MR. CHATTERTON: Kelly, could you -- you can swing around ..... MR. GOFF: Yeah, I can ..... MR. CHATTERTON: ..... to the corner pocket -- either one. (Indiscernible) MR. GOFF: ..... I can swing around. I can ..... MR. CHATTERTON: ..... or -- or speak up, either UNIDENTIFIED: That's all right, Kelly. MR. SMITH: Exhibit Two? MR. CHATTERTON: Exhibit A -- oh, ..... MR. BURGLIN: Are these exhibits that are ..... ? MR. CHATTERTON: We -- do you chose to refer to this as an exhibit? What you ..... MR. GOFF: Yes. MR. CHATTERTON: ..... have just MR. GOFF: Yes. MR. KENNELLY: Yeah. R & r COURT REPORTERS 8ION STREET, SUITE 101 509W. 3RDAVENUE 277'0572" 277-0573 277-8543 ANCHORAGE, ALASKA 9950! IOOTW. 3rD AVENUE 272-7515 25 MR. GOFF: Excuse me. MR. CHATTERTON: Okay. We will accept a letter I guess to Alaska Crude from a Wesley Wiechmann as Exhibit B to the record. MR. CHATTERTON: that, Kelly, or ..... ? (Exhibit B marked) Would you like to read from MR. GOFF: I'd like to just ..... MR. KENNELLY: Tell them who it is, first. MR. GOFF: Well, I ..... MR. KENNELLY: They don't know. MR. GOFF: Well, I'd like to just, you know, address something else in here. The purpose for our request for this meeting is to verify that under Conservation Order Number Two -- Number 210 that hydrocarbons have been proven producible from that well, and that we're asking for the Commission to rule on a drilling unit surrounding the well bore. The example of the acreage is just an example, the final ..... MR. CHATTERTON: Kelly, may I interrupt you? Obviously I goofed up. I know you too well. Would you -- would you state your name and who -- whom you're with for the record? I sure as heck forgot to get that into the -- into the record. MR. GOFF: Okay. My name is Norton Kelly Goff, R & r COURT REPORTERS 810 N STREET, SUITE ~O! 509 W. 3RDAVENUE 277-0572 ~ 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3rD AVENUE 272-7515 14 17 24 G-o-f-f. I'm with Alaska Crude Corporation as chairman and CEO of that company. MR. CHATTERTON: All right. Thank you very -- and -- and the ..... ? MR. KENNELLY: My name is Nell Kennelly. attorney here in Alaska. And ..... MR. CHATTERTON: Okay. Thank you. MR. KENNELLY: ..... I have my office in Anchorage. MR. CHATTERTON: All right. I'm sorry I interrupted you, Kelly, but we did -- we've ..... MR. GOFF: It's okay. I'm an MR. CHATTERTON: ..... got to get this on that record. MR. GOFF: Basically Alaskan Crude verifies that the well is capable of producing hydrocarbons in accordance with Conservation Order Number 210, and we're requesting the Commission to establish the drilling unit as prescribed in Conservation Order Number 210. The outline of acreage that was sent to the Commission is strictly there for example, and we realize that the Commission will, if it did -- if it does approve the unit, that they will designate that acreage. And we submit the -- the only thing that I submit that I haven't submitted to the Commission before is the report by R & R COURT REPORTERS 810 N STREET, SUITE ! Ol 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 17 2O 24 Mr. Weekman ..... MR. KENNELLY: Wiechmann. MR. OOFF: ..... Wiechmann. And I did that just so there'd be something in writing as far as the test. I personally have witnessed the flow of hydrocarbons from the well. MR. CHATTERTON: Okay. MR. GOFF: And it is Alaskan Grude's position that we're here for one purpose, and one purpose only, and that is to the application for the unit under the Conservation Order Number 210. MR. GHATTERTON: Anything else, Kelly? MR. GOFF: That's all I have at this time. MR. GHATTERTON: Okay. And -- and you need this -- we'll call it drilling unit, because that's what we have -- drilling unit established for -- because you are planning to go on to hook the well up to -- for regular production, is that ..... ? MR. GOFF: That is correct. MR. GHATTERTON: That is the plan. And that -- that is imminent? In other words, that's an early plan of yours? It's not anything down the road? MR. GOFF: It's not down the road. It will be accomplished within ..... MR. GHATTERTON: Yeah. You -- you need to know R & R COURT REPORTERS 8 ! 0 N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-O573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 l0 17 2O 10 this information, get this established? MR. GOFF: Right. MR. CHATTERTON: Mr. Goff, what -- what attempts have you made to comply with Conservation Order Number 210 which says that -- that -- try your best to do voluntary -- get this 640 acres put together voluntarily? MR. GOFF: I personally not -- have -- have not contacted any of the participating acreage owners for voluntary involvement in the lease. However, Mr. James A -- James W. White, who is the person that we have the agreement with at this time, has contacted them according to documents that we have on -- on file. Now, whether hers contacted a full lOOk of all the people, I do not know. But I do have documents where he has contacted the majority acreage holders. MR. CHATTERTON: Well, is he -- is he -- I guess, is he an officer of Alaska Crude or ..... ? MR. GOFF: He is not. He is -- itts my understanding here that the owner for us (ph) naturally is Mr. Pelch, and he is the lessee, and he is the person that we have the farm-out agreement with. MR. CHATTERTON: Okay. You have a farm-out agreement from ..... ? MR. GOFF: Jim White. MR. CHATTERTON: From Jim White. MR. GOFF: James ..... R & r COURT REPORTERS 810 N STREET, SUITE ! O! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 aNChORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 !3 17 !9 2O 11 MR. CHATTERTON: Okay. MR. GOFF: ..... W. White. MR. GHATTERTON: So I guess -- I guess a query I have, to me, it is -- what is his interest in -- in this whole proceeding right now? MR. GOFF: Mr. White's? MR. GHATTERTON: Yeah. MR. GOFF: His interest would be he is the lessee. He's going to get some revenue out of this. MR. GHATTERTON: But you -- you don't have -- don't you have -- you have a farm-out did you say? MR. GOFF: We have a farm-out agreement with him stating that we're the operator, et cetera, et cetera. MR. GHATTERTON: He's -- he's one of the many people that are ..... MR. GOFF: One of the ..... MR. GHATTERTON: ..... mineral holders ..... MR. GOFF: ..... many people. MR. CHATTERTON: ..... in the 640-acre parcel that you're proposing. MR. GOFF: Besides, he -- besides the property owners and holders, it's my understanding that the people involved in this are James A. White, James W. White, Peninsula Pipeline Gompany referred to as PPC, Pan Arctic Corporation, PAC, Far North Oil and Gas, Incorporated, FNOGI, and they list their r & R COURT REPORTERS 810 N STREET, SUITE 10 ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 i0 i5 16 17 18 2O 21 22 23 24 25 12 address as 1102 Warrenton Drive, Austin, Texas, 78753, fax number 512-835-1078. MR. CHATTERTON: Okay. Well, if I hear you right, Mr. Goff, why, the operator of record has not attempted to seek voluntary agreement that would ..... MR. GOFF: No, that's not. I did work with Mr. White, with him contacting different people. But we personally ourselves did not. But he was working with Alaska Crude and Drilling ..... MR. CHATTERTON: Okay. MR. GOFF: ..... that -- talks (ph) and that end of this type of operation. MR. CHATTERTON: And are you confident that voluntary agreement cannot be reached? MR. GOFF: In my mind, that's the absolute truth. It cannot be reached. MR. CHATTERTON: commissioner? Any questions from any MR. SMITH: Well, I'm wondering about this Exhibit you submitted by Mr. Wiechmann. Are you -- are you ready -- you're ready to testify that this is the -- a true statement concerning the -- the well's productivity? MR. GOFF: It's the -- it's Mr. Wiechmann -- I'm willing to testify that I witnessed the flow of hydrocarbons myself personally from that well bore. I am not going to say R & R COURT REPORTERS 810 N STREET, SUITE I O ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3rD AVENUE 272-7515 10 11 13 15 16 17 18 19 2O 21 25 13 that everything on that report is true. It's just a report. I do know that -- and I did witness him there on location to do the test and doing part of that, but the results I cannot verify, other than the fact that I do know it will produce hydrocarbons, and that's the question before the Commission at this time. MR. KENNELLY: Well, maybe ..... MR. SMITH: Yeah. MR. KENNELLY: ..... you could tell them who Mr. Wiechmann is and when he was there and what he did, if you know? MR. GOFF: Well, the dates are on the document, and they clarify when he was there. He was a geologist, and he'd been involved -- and I also believe that he's also -- was some type of investor somewhere up and down the line in the well. MR. SMITH: Well, I think it might make it clearer, Kelly, if -- if you read into the record this statement knowing ..... MR. GOFF: To the best ..... MR. SMITH: ..... the preface (ph) ..... MR. GOFF: ..... of my knowledge ..... MR. SMITH: ..... the preface ..... MR. GOFF: ..... it is true, Mr. Smith. MR. SMITH: ..... preface you'd just given. MR. GOFF: But I cannot tell you that it's the absolute truth. To the best ..... R & R COURT REPORTERS 810N STREET, SUITE IO! 509W. 3RD AVENUE 277-0572 - 277-O573 277-8543 ANChORage, ALASKA 9950! 007 W. 3RD AVENUE 272-75 ! 5 i{I 10 12 13 17 19 20 2! 22 23 24 25 14 MR. SMITH: MR. GOFF: MR. SMITH: Well, ..... ..... of my knowledge, it is true. Okay. I can -- I can accept that, but for the matter of record and the people here at the public hearing, if you read the document into the record, then it will be more apparent what we're discussing. MR. KENNELLY: question, please? MR. CHATTERTON: MR. KENNELLY: Is -- is -- could I ask him a Yes. Of course. Ail right. This Mr. Wiechmann, is he -- do you know him in this field as being an expert in this area, Kelly? MR. GOFF: Well, who knows who is an expert. MR. KENNELLY: But I mean you know of him and know of his ..... ? MR. GOFF: I know of him. How much of an expert, I'm not going to say. MR. KENNELLY: Okay. But he was hired for this purpose, to run ..... MR. GOFF: That is ..... MR. KENNELLY: these tests? MR. GOFF: ..... correct. MR. CHATTERTON: And he was hired by Alaska Crude, right? MR. GOFF: He was hired by James W. White and r & r COURT REPORTERS 8 ! 0 N STREET, SUIte ! O 1509 W. 3RD AVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 17 20 2! 22 23 24 25 15 paid by James W. White according to James W. White. MR. GHATTERTON: And he addresses this to Alaska Crude? MR. GOFF: He address that to me to submit to the Oommission. I had thoughts about not even submitting it, because that's not the question, of whether he's real or otherwise. The application that I made and the statement that I made that I witnessed the test is what I'm going to stand on only, which I did do and which I've sworn to and which actually is the truth of what happened. MR. GHATTERTON: Okay. We -- we accept the fact that -- your testimony that the well will produce gas, no question about that. MR. GOFF: And it is Alaskan Grude's position that it is the Commission now who has to make this decision and has to take this -- al/ these steps that they deem necessary to get -- to make the (indiscernible, simultaneous speech) MR. GHATTERTON: To let you put to work. Hook the well up and put it on ..... MR. GOFF: On line. MR. GHATTERTON: MR. GOFF: Yes. MR. CHATTERTON: ..... regular production, right. That's correct. MR. OOFF: So with ..... MR. CHATTERTON: And ..... R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHOrAGe, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 17 2! 24 25 MR. GOFF: ..... so that everybody that's involved and has been involved that has rights or claims to it can see a return on this investment. MR. GHATTERTON: And you have exhausted al/ possibility -- possibilities of the affected mineral interests of voluntarily joining in? MR. GOFF: There -- in my opinion, there is no possibility of a voluntary unit here. MR. CHATTERTON: Okay. MR. GOFF: Absolutely. MR. GHATTERTON: All right. Thank you. Now, I -- I do wish to have the letter read into the letter at this time, so other people can hear it. Either that, or I'll distribute copies of Exhibit B at this time. MR. KENNELLY: Do you want me to read it, sir? MR. GHATTERTON: Would you be so kind? And would you introduce yourself and then -- and ..... MR. KENNELLY: My name is Neil Kennelly, G.R. Neil Kennelly. I'm an attorney here in Anchorage. And do you want me to read Mr. Wiechmann's letter? MR. CHATTERTON: Please read that, and read it loud so everyone can hear it? It's a rather -- rather interesting letter. MR. KENNELLY: I'm not sure if I've got it. I don't know if I -- oh, here it is. Here. Here. Okay. R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUE 277-0572 ~ 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-75 I 5 10 11 12 13 14 1.5 16 17 18 19 2O 21 23 24 17 MR. CHATTERTON: There you are. MR. KENNELLY: This is a letter from Wesley Wiechmann, W-i-e-c-h-m-a-double n, geologist, 217 Sunway, San Antonio, Texas 78232. It's dated May 9th, 1990. Addressed to Alaska Crude Corporation, P.O. Box 111187, Anchorage, Alaska, 99511. "Dear Sirs: The Mike Pelch Number One gas well is completed through perforations 9256-dash-92?6 and 9300-dash-9310 in the Upper Tyonek formation. This well is located 1491 feet from north line and 863 from east line of section two, township five north, range 11 west. The dipmeter of the Mike Pelch well, originally drilled by Union 0il Company of California in 1981, shows dip down to the southeast at the perforated interval at a rate of four to six degrees. "I was employed as a consultant by Pan Arctic Corporation August 1988 to evaluate the Pelch prospect and Pelch well. Sometime during the period March 1977 and October 1977, ..... " MR. CHATTERTON: May I interrupt you there? Would you read that carefully? March --? I -- Itm reading the same as you, March 1977. MR. KENNELLY: Yeah. MR. CHATTERTON: Yeah. And the well was drilled? MR. KENNELLY: "Sometime during the period March 1977 and October 1977 ..... " MR. CHATTERTON: And the well was drilled? R & R COURT REPORTERS 8 ! O N STREET, SUITE I O 1 509 W. 3RD AVENUE 277'0572" 277-0573 277-8543 ANChOrage, aLaSKA 99501 007 W. 3RD AVENUE 272-7515 l! 17 2O 2] 22 23 24 18 MR. KENNELLY: The Pelch well had been -- oh, in front of that? ..... MR. CHATTERTON: Excuse me. MR. KENNELLY: ..... Pardon me? drilled ..... MR. CHATTERTON: Yeah. When -- when was the well MR. KENNELLY: Let me see. MR. CHATTERTON: ..... by this letter? MR. KENNELLY: It says 1981. MR. CHATTERTON: Thank you. Continue, please. MR. KENNELLY: The ..... be '87. MR. GOFF: That is I believe a typo. That should MR. KENNELLY: This is a typographical error obviously. If the well was drilled in eighty- -- '81, it couldn't have been severely damaged in '??. MR. CHATTERTON: It doesn't seem so. MR. KENNELLY: No, that's clearly got to be a typographical ..... MR. GOFF: Mistake (ph) MR. KENNELLY: He must -- he must have mean -- meant '87. At any rate, "Sometime during the period," reading it that way, "March '8? and October '8?, the Pelch well had been severely damaged by blatant acts of industrial sabotage. Some R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RD AVENUE 277-O572 - 277-0573 277-8543 ANChOrAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ~ 5 10 11 12 13 ¸14 15 16 17 18 19 2O 21 22 23 24 25 19 saboteurs put a huge amount of gravel through the tree down the tubing and into the rathole of this well, severely limiting the capacity of the well to produce gas. The well completely plugged itself," it says December '??, but it must mean '8?. "The well had no capacity to flow until it was cleaned mechanically with coil tubing July 1988. "I witnessed and assisted in cleaning process -- in the cleaning process of blowing the well down in order to remove the gravel sabotage, therefore witnessing the well flow under varying conditions. I witnessed large amounts of gravel sabotage, drilling mud, sand, and methane gas produced during these blowdown cleaning processes. "These blowdown cleaning processes have resulted in partially cleaning the well. A moderate amount of cleaning processes remains to be done in order for this well's perforated interval to reach its flowing potential. "During flow periods, I witnessed the well flow gas at a stabilized surface flowing pressure of 1500 per square inch gas through a 3/16 inch choke at a rate of 1,200,000 cubic feet of gas per day. This flow rate definitely qualifies this well as a commercial producer of gas. This rate of flow will continue to increase as the well continues to clean itself of gravel sabotage and mud. When fully clean, the productive rate of the Pelch well is expected to increase radically. "The Union Oil Company of California Cannery Loop well R & R COURT REPORTERS 810 N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277~8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 !9 2O 2! 2O number four is curren- -- currently producing from the sa~e upper Tyonek interval that the Mike Pelch well is completed in. "During February 1990, the Union number four Cannery Loop well produced 370,589 MCF and 155 barrels of water. From January 1988 through February 1990, the well has produced 9,457,347 MCF. "My -- by comparison of the electric logs and porosity logs of the number one Mike Pelch well and the number four Cannery Loop well, the Pelch well has 51 net feet of gas productive sandstone with an average of 17~ porosity. The number four Cannery Loop well has 15 net feet of gas productive sandstone with an average of 19~ porosity. It is reasonable to believe that the Mike Pelch well could not produce the number -- could out produce," excuse me, "the number four Cannery Loop well." And the letter is addressed Wesley Wiechmann, geologist, and it's addressed to Alaska Oil and Gas Conservation Commission, Pan Arctic Corp., James A. White and James W. White. And then it has attached to it a number of sheets showing the test results and ..... MR. CHATTERTON: You -- You don't have to read that, sir. MR. KENNELLY: Okay. MR. CHATTERTON: Thank you very, very much. Appreciate having that in the record. Itts ..... Well, Mr. Golf, coming back to you for a moment, one of R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3rDAVENUE 277-0572 - 277-0573 277-8543 ANChORAGe, aLASKA 99501 007 W. 3RD AVENUE 272-7515 l0 13 17 2O 2! 22 25 il tI 21 the things I know you're aware of, why, for us to involuntarily form a drainage unit, why are going to be required to follow AS 31.0§.011, and part of that is going to require us to make a finding as to what reasonable costs are, that have been spent to date or expected. Are you in a position to testify on -- on those -- on anything like that at this time? MR. GOFF: No, I am not. MR. CHATTERTON: Thank you. In other -- in other words, those -- that information would have to be ..... MR. GOFF: That information ..... MR. CHATTERTON: ..... developed? MR. GOFF: ..... can be gained, but it has nothing to do with the determination of whether or not this well is capable of producing hydrocarbons according to the conservation order. Those figures can be obtained, but I don't want to get off on those tangents if neces- -- if it's absolutely not necessary, because we've -- we've outlined what the geology reported stated, that it's producible, and it is in compliance with the conservation order. MR. KENNELLY: May I see the ..... MR. GOFF: That's not the question. I don't want to bring that question up. MR. KENNELLY: MR. CHATTERTON: Okay. Okay. That's fine. At least you certainly don't have any data on that at this time? R & r COURT REPORTERS 810 N STREET, SUITE101 509 W. 3RD AVENUE 277-0572-277-0573 277-8543 ANChOrAGE, ALASKa 99501 1OO7 w. 3rD AVENUE 272-7515 l0 14 17 20 2! 22 23 24 25 MR. GOFF: No, it can be obtained, and we'd be more than willing to do that. There has been considerable costs by numerous entities that have invested in that well that were involved with all the companies that I read off a few minutes ago, but that's -- and then it -- and to my knowledge that's all the people. I'm not saying that it is, ..... MR. CHATTERTON: True. MR. GOFF: ..... I'm 3ust saying that there has been considerable investment. I know Alaskan Crude has got some money in it. Not near what the other people have. But our purpose is to go back to the original conservation order and -- and state that it's been complied with, and ask for the unit to be established. And I will state again that I do not believe there's any way possible that you can get a voluntary unit. MR. CHATTERTON: Okay. Well, I wanted you to realize that we're going to have to develop -- we will have to develop this information in some form or fashion, I'm sure of that at -- at some -- some time. MR. GOFF: Excuse me, please? (Off record discussion between Mr. Golf and Mr. Kennel/y) MR. CHATTERTON: Would you like to go off the record? appreciate it. MR. KENNELLY: If we could for a minute, I'd R & R COURT REPORTERS 810 N STREET, SUITE ! O ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, aLASKA 9950! 007 W. 3RD AVENUe 272-7515 l0 2O 2! 22 24 record. MR. CHATTERTON: Yes, off the record, please? (Off record) (On record) MR. CHATTERTON: We're ready to go back on the 23 While we were off the record, why, we -- that was for the purpose of providing an opportunity for -- for Mr. Golf to consult with counsel, and nothing of -- no testimony was offered or anything of that nature. Okay. Any -- any other questions of Mr. Golf? MR. SMITH: Yes. Mr. Goff, of the geologic- -- geological -- geologist's report you submitted into the record, are you aware that the -- the data in that submittal is not a matter of record in the well file, at least in that form, and I -- I don't think the perforations or the vol- -- volumes spoke of in that letter agree with what we have as a matter of record in the well file. Are you aware of that? MR. GOFF: I'm aware that you don't have this document here. I'm not aware of the fact that there's some kind of information in a file. MR. SMITH: Well, the history of well work doesn't support what's stated in this letter I don't think, at these times at least. And I just want you to -- want that to be in the record. MR. GOFF: May I ask you a question? R & R COURT REPORTERS 810 N STREET, SUITE !01 509 W. 3rDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 17 ~9 2! 24 25 24 MR. SMITH: Sure. MR. GOFF: I've testified that it will flow hydrocarbons, ..... MR. SMITH: Well, Kelly, your ..... MR. GOFF: ..... and I've testified and asked the Commission to comply -- wait, let me finish here if I could, please? It's a very simple question here. And I realize you've got to go through a lot of steps. If there's things that are not in the records, they will be there shortly. The truth is is it will flow hydrocarbons. The truth is is that the conservation order exists. The truth is is that there cannot be a voluntary unit. And I'm asking the Commission to do an involuntary unit or whatever it takes designating -- surrounding that particular well bore for the particular acreage requirements so that we can start recouping costs and hopefully profits for everybody that's involved. To leave the well setting there and not be able to produce it is ludicrous. MR. SMITH: Well, my comment is that normally truth is backed up by the record, and especially the records required by the regulations, and I just wanted to mention ..... MR. GOFF: I -- I understand. MR. SMITH: ..... show that obviously in this case that it isn't -- it isn't there. R & R COURT REPORTERS 810 N STREET, SUITE ! O I 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, aLASKa 99501 1007 W. 3RD AVENUE 272-7515 ll 17 18 2O 2! 24 25 MR. GOFF: I understand, Mr. Smith, but I believe that that's a nitpicking statement, and I'll be more than happy to see that it gets in the records. MR. SMITH: Well, there seems to be evidence coming forth from this well that, you know, it's -- it's in question whether or not it was ever generated at that time or in that way. I -- we have no way of knowing now after the fact about some of these things. MR. GOFF: Mr. Smith, I will make every effort to satisfy your own mind, because you raised the question, and you stated that it is a fact it's not in the records. I will make every effort to correct that and see that your -- that it is taken care of to your satisfaction. MR. SMITH: Thank you. MR. CHATTERTON: I gather what's at question is this statement then as to where the gas -- the I guess accuracy of the statement that is made in the Wiechmann or Wiechmann letter, Exhibit B, about where the well was completed from, is that apparently what's at issue? MR. GOFF: Are you bringing that issue up, Mr. Chairman? MR. CHATTERTON: I'm questioning it I guess ..... MR. GOFF: Okay. MR. CHATTERTON: ..... in view of what we ..... MR. GOFF: I cannot ..... r & r COURT REPORTERS 810~I StrEEt, SUITE 10! 509W. 3RD AVENUE 277~O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RDAVeNUE 272-7515 l0 14 2O 26 MR. CHATTERTON: ..... I just heard. MR. GOFF: ..... verify those statements in that letter. I cannot say they're the absolute truth. MR. CHATTERTON: Yeah. Our records apparently do not indicate that that's the producing interval. MR. GOFF: We fully understand that. MR. CHATTERTON: Yeah. And anything that you could give us later on to clarify that would be appreciated. MR. GOFF: My attorney can say something, that we will ..... MR. KENNELLY: Well, you have documentary evidence with regard to the ..... ? MR. GOFF: I have statements showing where that -- different property owners have been contacted for a voluntary unit, and -- and to the best of my knowledge, they're accurate. Now, I can't say one -- that they're accurate 100~, but I will furnish those documents showing where they were ..... MR. KENNELLY: We'd request to leave the record open to submit those ..... MR. CHATTERTON: May I ask you a ..... MR. KENNELLY: ..... documents. MR. CHATTERTON: ..... question, Mr. Golf? If -- if the Commission in its wisdom felt that it might be in order to amend Conservation Order Number 210 to provide for you to proceed and give you some type of a time period -- to proceed to put the R & R COURT REPORTERS 810 n STREET, SUITE IO1 509 W. 3Rl~ AVENUE 1007 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 272-7515 ANCHORAGE, ALASKA 9950! l0 17 2O 2! 22 23 24 25 27 well on regular production as is required in -- in the order here, the fourth line there, and -- and if we could find in our minds to do that for some time period to Give you time to develop some of this additional information, to again -- or Alaska Crude, the operator of record, to approach other people and -- and document the approach to the other mineral interests, would that -- would that be possible? Why, would that take care of your immediate problem? MR. GOFF: Yes, sir. With all due respect, and I do respect this Commission and all the people here involved, if it is a decision by the Commission to -- whatever you come out with, what- -- whatever procedures, you require, I shall endeavor to do ..... MR. CHATTERTON: Okay. MR. GOFF: ..... to everybody's satisfaction. MR. CHATTERTON: Yeah. The delay -- if -- if you were given a period of time, and we'll -- to produce the well before you had to have this unitized, why, your immediate problems would be taken care of, I -- do I hear that? MR. GOFF: At this time I don't have any immediate problems, but I -- I'm -- would you repeat that? I don't quite understand what the last ..... MR. CHATTERTON: Well, right now as we say, you cannot put the well on production ..... MR. GOFF: Well, if that's what ..... R & R COURT REPORTERS 810 N STREET, SUITE IO! 509W. 3RDAVeNUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-75 ! 5 17 2O 2! 25 28 MR. CHATTERTON: ..... until this ..... MR. GOFF: ..... the Commission says, ..... MR. CHATTERTON: ..... is formed, ..... MR. GOFF: ..... it's what the Go,mission says. MR. CHATTERTON: Now, -- that's right ...... MR. GOFF: But if they ..... MR. CHATTERTON: ..... That's what the ..... MR. GOFF: ..... do, then they're ..... MR. CHATTERTON: ..... Commission -- that's ..... MR. GOFF: ..... violating their ..... MR. CHATTERTON: ..... what the ..... MR. GOFF: ..... own order. MR. CHATTERTON: ..... Commission says. Now, if we were -- could find a way to -- just to grab number without even thinking about it, you can proceed with regular production for a year's time before you have .to have this ..... MR. GOFF: You will have our full ..... MR. CHATTERTON: ..... drilling ..... MR. GOFF: ..... cooperation in any ruling that you now ..... MR. CHATTERTON: Okay. MR. GOFF: ..... and that would -- as long as it -- it's satisfactory to everybody involved. MR. CHATTERTON: Yes. Understood. Okay. MR. GOFF: Mr. Chatterton, whatever it takes to R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277~8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 l0 12 14 17 20 2! 22 23 24 29 get this well on line, and get on with an appropriate oil field operation, I'll comply with. I don't fully understand exactly what it is that you're referring to in a way, but in another way, whatever you rule here, or the Commission rules, the steps, whatever, we will endeavor to comply with 100~, and go from there. MR. CHATTERTON: MR. JOHNSTON: Thank -- thank you very much. Excuse me, Kelly, how -- how long would it take you to get the well on line? MR. GOFF: To the best of my knowledge that it will be on line within 60 days from a ruling. MR. JOHNSTON: Of a ruling. Also, earlier you said that it was your opinion that a voluntary drilling unit could not be formed. What -- what is your opinion based on? MR. GOFF: It's based on the efforts between James W. White and myself, me working with him and him doing the contact work, and the different property owners. MR. JOHNSTON: Is -- is James White present today? MR. GOFF: He is not. MR. CHATTERTON: Anything -- I failed to mention that if people in the audience chose to ask a -- have the Commission ask a question, we will not let them directly ask a question of the -- of -- of any of the people that are testifying, but if they do wish ques- -- do have questions, are r & r COURT REPORTERS 8 l O N STREET, SUITe ! O 1 509 W. 3rD aVeNUE 277-0572 ~ 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 10 11 12 13 14 15 17 18 19 2O 21 24 3O willing to submit them to the Commission, and we will look at them, and if we think that they are germane to the matter before us, we will certainly gladly try to get those questions answered for you. So I wanted you to be aware of that as we go. Well, Mr. Golf, if there's nothing else from the Commissioners here, why, we appreciate very much your testimony, Kelly. And we will proceed to hear from others that would chose to testify. MR. KENNELLY: Could -- could I ask him one question to make it clearer for the record what ..... MR. CHATTERTON: You ..... MR. KENNELLY: ..... he~s saying about the productivity of this well? MR. CHATTERTON: Well, -- ask him what he"s saying about the productivity? MR. KENNELLY: Just one question to ..... MR. CHATTERTON: Yes, you ..... MR. KENNELLY: ..... make the record ..... MR. CHATTERTON: ..... certainly may, sir. MR. KENNELLY: Are you saying, Kelly, based on your experience in this industry and your own observations that -- that this well meets the requirements of the order 2XO, capable of hydrocarbon production? MR. GOFF: I do. MR. KENNELLY: Based on your own observations r & r court REPORTERS 810 N STREET, SUITE 101 509W. 3RDAVENUE 277°0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 1! 12 14 17 2O 21 22 23 24 25 and ..... departing ..... MR. GOFF: Yes. MR. KENNELLY: ..... your own experience? MR. GOFF: That is correct. MR. KENNELLY: Thank you. MR. CHATTERTON: Thank you, sir. We ..... MR. GOFF: I would like ..... MR. CHATTERTON: ..... appreciate the ..... MR. GOFF: ..... to say one thing before MR. CHATTERTON: Yes. MR. GOFF: ..... the bench. I would like to after hearing the comments be able to come back and address the Commission after everybody else's comments. MR. CHATTERTON: Very much so. And our excusing you now, why, we may wish to have you come back. MR. GOFF: And I request to ..... MR. JOHNSTON: Could I ..... MR. GOFF: ..... to talk again after the other comments today. comments, right. MR. CHATTERTON: After we've heard the other MR. KENNELLY: Could we also request to leave the record open on the other issue to submit any documentation that he may have in his files to be marked as exhibits. That is, the R & R COURT REPORTERS 810 N STREET, SUITe ! O! 509 W. 3RD AVENUE 277-0572 - 277-O573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3rD AVENUE 272-75 ! 5 10 11 12 13 1¸4 15 16 17 18 19 2O 21 22 23 24 25 32 attempts to contact the -- the other interested parties to m~ke a MR. CHATTERTON: Do -- do you have a time frame that you would like to keep the record open on it for? MR. GOFF: Whatever is convenient for the Commission and the other interested parties, and I'd like to keep that to a minimum. You know, I don't want no -- another 60 days or 30 days. I'd like to do it within ten days. MR. CHATTERTON: Okay. MR. JOHNSTON: Excuse me. I have -- I have one last question, Kelly. You said that you thought the well was capable of producing hydrocarbons? MR. GOFF: Um-hm. MR. JOHNSTON: What did you yourself observe relative ..... MR. GOFF: WelI, ...... MR. JOHNSTON: ..... to that well? MR. GOFF: Well, first of all, I didn't say I thought the well. I said the well ..... MR. JOHNSTON: Excuse me. MR. GOFF: ..... is capable of producing hydrocarbons. And I observed a flow test, and I also shut that flow test down at that time. MR. JOHNSTON: And is that the flow test that is R & R cOUrt rEPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3rD AVENUE 272~7515 l0 20 2! 22 23 24 25 33 referred to in the Exhibit B? MR. GOFF: That is one of them. MR. SMITH: Could I ask a further question then? Kelly, during that -- those -- that or those flow tests, were there any measurements of pressure or volumes taken? MR. GOFF: Only what's on the back sheet there to the best of my knowledge. I witnessed this test for approximately 30 minutes the first time. The second time I witnessed the -- from a -- from a distance of about lO0 feet for about 15 to 20 minutes. And as operator of record, they had not ..... I believe I'm going to make a wide open statement here. The proper notification of the Commission, so on and so forth, in my opinion was not proper at the time. I didn't think that the proper work had been submitted so I went on location and shut those operations down, not before they gained this information, but during these two tests that I witnessed down there. It was an internal problem with the participating parties not communicating with the operator so that they could make in my opinion sufficient arrangements or notifications to the Commission that this is what we wanted to do and procedure. And I'm going to say that right straight out. But regardless of the fact, it will flow hydrocarbons, and it -- and that does comply with the order, and that's an open and ..... R & R COURT REPORTERS 810 N STREET, SUITE I 01 509 W. 3rD AVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 10 l! !2 !3 14 !5 16 !7 !9 2O 2! 22 23 24 25 34 MR. SMITH: Okay. It's ..... MR. GOFF: ..... shut guestion (indiscernible, simultaneous speech). MR. SMITH: ..... my understanding from your testimony then -- then, that they had entered the well and conducted these flow tests without your permission as operator? MR. GOFF: Without notifying us so that we could notify the proper regulatory people. Yes, sir, I fully admit that. MR. SMITH: Thank you. MR. CHATTERTON: Thank you, Kelly. Thank you, sir, very much. Appreciate it. Before calling the next person who wishes to testify, because it might have a bearing on their testimony, and as we already have heard, why, Alaska Crude would like to come back and make some further statements, why, I think it's appropriate for me to read into the record something that just was handed to me a few minutes ago, because it's most -- most germane to -- to the issue that's before us. So first of all I will request that this letter be entered into the record as Exhibit C. (Exhibit C marked) MR. CHATTERTON: And I -- I shall so read. Received from Cook Inlet Region, Incorporated, and it's headed "Witness (sic) Testimony. Alaska Oil and Gas Conservation R & R COURT REPORTERS 0 N STREET, SUITE ! 0 ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-B543 ANCHORAGE, ALASKA 9950! 007 W. 3rD AVENUE 272-7515 10 1! 12 13 14 16 17 18 19 2O 21 22 23 24 25 35 Co~aission Hearing, May 10, 1990." I a~ now reading. "Dear Mr. Chairman and Commissioners of the Oil and Sas Conservation Commission. My name is Kevin A. Brown Manager, Engineering and Operations in the Oil and Sas Department of Cook Inlet Region, Incorporated, C-I-R-I, CIRI. "I regret that I was unable to be with you today to present this testimony on behalf of Cook Inlet Region regarding our interests in the area of the Mike Pelch Number One well proposed by Alaska Crude Corporation. My intent here is not to object to the establishment of a unit for potential gas production from the well, but merely to express C-I- -- CIRI's concerns for our affected lease acreage. CIRI has a lease interest of approximately 20~ in the 640-acre drilling unit as proposed. "CIRI has requested on more than one occasion that Alaska Crude Corporation submit documentation as to associated costs, cost allocations and timing, as well as a proposed unit agreement and unit operating agreement. CIRI has not received the requested information to date, yet it is being asked to make decisions under very short deadlines. Most requests from Alaska Crude Corporation have been received through telephone calls and telecopies. "CIRI would like an opportunity to review such documentation to enable us to make a responsible business decision and to ensure reasonable and equitable distribution and R & R COURT rEPORTERS 8 ! 0 n STREET, SUITE 101 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 l0 2O 36 production allocation in accord with the requirements of the Alaska Oil and Gas Conservation Act, reference 30- --" a mistype here. It is actually 35.05.100, which I trust we all know it should be 31.05.100. "At this point, CIRI is not -- has not received enough information to encourage or discourage participation in the proposal. We would appreciate the ca/ling of a meeting with Alaska Crude Corporation to discuss further details of the proposal, and to obtain specific cost information and documentation. We are requesting that the Commission place the responsibility for an agreement in the hands of the landowners involved, and would appreciate the opportunity to seek the Commission's interface -- intervention at such time that a reasonable decision cannot be reached." And that is signed Sincerely, Cook Inlet Region, Incorporated, Kevin A. Brown, Manager, Engineering and Operations. I will make -- have copies made of this right now so anyone that's interested can pick up a copy of the letter. May we go off the record for a moment? (Off record) (On record) MR. CHATTERTON: We took a break here so that we could have time to make a copy of what has become Exhibit C, which is a letter from CIRI, and so that other people could have R & R COURT REPORTERS 8 ! 0 N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 l0 l! 12 14 17 2O 2! 22 23 24 a chance to read that and become aware of it. Is there anyone that -- there are still some copies available here if anyone would like a copy. And at this time I remind everyone we hoped they signed up on the -- is there a sign-up sheet circulating around at some place for those in attendance? MR. JOHNSTON: It's at the head table there. MR. CHATTERTON: Okay. Make sure everyone is signed up. Ron, you -- you signed that? I think I saw you. MR. DOLGHEK: Yes. MR. CHATTERTON: Yeah. Okay. All right. We will proceed with any other witnesses that chose to be -- give testimony, and we will -- and -- and we will select the order in which they come. And while we were at the break, why, Ron Dolchek joined us from -- he came up from Kenai, and he is one of the owners of interest of minerals down there in close association with the Mike Pelch well, and is -- has been included in -- his lands are included in the proposed area of that -- that has bee proposed by Alaska Grude. And he would like to testify, and, Ron, first of all would you ..... MR. SMITH: Are we on the record? MR. GHATTERTON: Pardon? MR. SMITH: Are we on the record? GOURT REPORTER: Yes. MR. SMITH: Okay. R & R COURT REPORTERS 81ON STREET, SUITE 10! 509W. 3RDAVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AveNuE 272-75 ! 5 l0 14 15 ¸17 19 2O 2! 23 25 38 MR. CHATTERTON: Would -- would you come up and sit here please and give us ..... MR. DOLCHEK: Right here? MR. CHATTERTON: Either place, ..... MR. DOLCHEK: Okay. Fine. MR. CHATTERTON: ..... whatever's convenient for you. And -- and state your name and -- and ..... MR. SMITH: Swear him in. MR. CHATTERTON: And then we'll swear you -- have Lonnie swear you in. MR. DOLCHEK: Okay. My name is Ron Dolchek. I'm from Kenai, Alaska, Box 83. MR. CHATTERTON: And your -- your interest ..... ? MR. DOLCHEK: I'm -- I have subsurface located within the proposed unit or -- of -- of this well here. MR. CHATTERTON: Okay. And you want to testify on -- in regard to the application of -- of ..... MR. DOLCHEK: Yes. MR. CHATTERTON: ..... Alaska Crude? MR. DOLCHEK: Yes. MR. CHATTERTON: Would you mind standing and being sworn in, please? RON DOLOHEK having first been duly sworn under oath, testified as fo/lows: MR. SMITH: Thank you. You may sit -- be seated. r & r COURT REPORTERS 810 N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 aNChORAGE, AlaSka 9950! 007 W. 3RD AVENUE 272-7515 10 12 14 16 17 2O 2! 22 23 24 25 39 MR. CHATTERTON: We'll accept you as an expert witness seeing as how you're a mineral owner down there. MR. DOLCHEK: All right. Thank you. I've been included -- or not -- yeah, included in this well here, in the participating and -- and the forming of it through the conception of Far North Oil and Gas. I am a private landowner down there. I received my subsurface property rights from my father who was an Alaska veteran. He received his through being a veteran. Fee property. As -- as well as the rest of the people that are involved in this well. For years we've -- we've tried to get this thing going, but we've had a bunch of set backs on it, because it's -- to my knowledge, this was and is the only independent operating well at the time in Alaska. There may be more, and I could be corrected. I feel that this well should go forward and should be developed, drilled by whose -- whoever is holding the operating permit at this time, because I am, oh, like a -- you know, I'm not -- I'm not a major oil company and I don't have a lot of money, but what I had, I had invested in it, as well as a lot of small investors in Kenai. I've -- we've suffered emotional and monetary, you know, money problems in the last five, six years with the -- the downfall of the economy. And we was hoping that this thing would move along a lot -- a lot faster. But we've had some set backs. I feel that the Commission here should take into r & R COURT REPORTERS 810 N STREET, SUITE ! 01 509 W. 3RD AVENUE 277-0572 - 277-O573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-7515 l0 17 19 2O 2! 22 23 24 25 4O consideration that this being what you would call an independent, and we are -- we do operate not in the same capacity as majors do, because of our limited, you know, financial status here. But they did off- -- they did offer subsurface rights to veterans during the -- after World War II, and which my family was a part of, and other people signed up within Far North Oil and Gas and within the area of this Mike Pelch number one. As private property owners that do enjoy having subsurface rights, we feel that we should be able to go forward and develop this well. Day after tomorrow and the -- the next day after that, a major oil company could come in and go ahead and hold us down or file a brief or file another piece of property that would go ahead and stop us from developing this. And I could -- I could see the point on -- on their part. Basically the oil and gas laws have been written by the majors in Alaska, and -- and that is still true today. But we shouldn't be disallowed our -- our involvement and our right of capture, and -- and that should be above anybody -- not above anybody else's concern, but it should be considered. I have it. I have that subsurface rights. My next door neighbor, Mike Pelch, has it. My next door neighbor, Ed Halliard has it. And since -- when I was a -- from the time I could remember, they've been my neighbors, and we have been basically subdued from doing anything. We've had wells drilled in the r & R COURT REPORTERS 81ON STREET, SUITE TO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 I 5 l0 15 17 20 2! 22 23 24 25 area, but they've been P and A'd, and a little ~nowledge has come out of it. But it's not that I am without knowledge of that area. My father worked for GSI, Western and United during the seismic activity in the §Os on the Peninsula. I am quite aware of what's down there and underlining (ph) our area. I have worked for Alaska Map Service in the ?Os, and I am familiar with basically all the geological information that goes with every well within the State up until the time that I left there. There's a gas field to the south and a gas field to the north. All this property is federal/state/CIRI property, but it isn't private property. The development of -- of -- there's a whole strip of property that runs from Kenai to Soldotna, splitting both these fields. We have gas in this well. We have gas I believe at certain intervals. I don't believe that we should be stopped or hindered from developing the well, or proving that our -- the placement of this well for us to prove or that we might be in the existing gas fields that have been tapping us for over 20 years. The only way that can be proven is if this well is established and becomes a producer. MR. GHATTERTON: Ron, do you suppose I might interrupt you and try and bring you back to ..... MR. DOLGHEK: Yes, sir. r & R COURT rEPORTERS 810 N STREET, SUITE ! O ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, aLASKA 99501 007 W. 3RD avenue 272-75 ! 5 10 11 12 13 14 16 17 18 19 2O 21 22 23 24 25 right now? 42 MR. CHATTERTON: ..... the issue here before us MR. DOLCHEK: Yes, sir. MR. CHATTERTON: The application that is before us is to establish a 640-acre ..... MR. DOLCHEK: Yes. MR. CHATTERTON: ..... square ..... MR. DOLCHEK: Yes. MR. CHATTERTON: ..... with -- with the Pelch well about roughly reasonably in the center of that square, ..... MR. DOLCHEK: Right. MR. CHATTERTON: ..... and as I understand it, you have -- and -- and that's it, and -- and apparently we've been hearing that no one will voluntarily proceed along this line to establish. Are you familiar with Conservation Order Number 210, which is ..... MR. DOLCHEK: Not right off hand here. MR. CHATTERTON: Okay. Well, ..... MR. DOLCHEK: I didn't bring ..... MR. CHATTERTON: ..... let me -- let ..... MR. DOLCHEK: ..... no paperwork ..... MR. CHATTERTON: ..... me help you ..... MR. DOLCHEK: ..... up here. MR. CHATTERTON: ..... on the -- it's -- it R & R COURT REPORTERS 8 ! 0 N STREET, SUITE ! 01 509 W. 3RD AVeNUE 277-0572 - 277-0573 277-8543 aNChORage, alaska 99501 ! 007 w. 3rD AVENUE 272-75 ! 5 l0 l! 12 13 14 17 19 20 2! 23 24 25 specifically required the operator of the Mike Pelch well ..... MR. DOLCHEK: Yes. MR. CHATTERTON: ..... to integrate the ownerships in an agreement ..... MR. DOLCHEK: Right. MR. CHATTERTON: ..... with this 640-acre ..... MR. DOLCHEK: Okay. MR. CHATTERTON: ..... parcel before they could put the well on production. MR. DOLCHEK: Yes. production. that conservation order. Now, is your land -- and -- and you have land, I understand that -- within this 640 acres? MR. DOLCHEK: Yes, sir. MR. CHATTERTON: Is your land then under lease, or -- or do you -- does someone hold a lease on your mineral rights? MR. DOLCHEK: At this time it's -- I feel it's not under lease. 43 ,, MR. CHATTERTON: On what's, quote, regular" And that's what we're really here for is because of MR. CHATTERTON: Okay. You -- you feel you own the minerals in other words? MR. DOLCHEK: Right. MR. CHATTERTON: And you haven't given any part R & R COURT REPORTERS 810 N STREET, SUITE ! 0 ! 509 W. 3rD AVENUE 277-0572 - 277-O573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVeNUe 272-7515 17 2O 2¸! 24 44 of them out to anybody else. Okay. Have you been approached by Alaska Crude about joining in this 640-acre parcel? MR. DOLCHEK: No, not ..... MR. CHATTERTON: You have not ..... MR. DOLCHEK: ..... until recently. MR. CHATTERTON: ..... been approached. Okay. MR. DOLCHEK: Not until recently. MR. CHATTERTON: Would you be wi/ling to enter into some type ..... MR. DOLCHEK: Yes, I would. MR. CHATTERTON: ..... of a voluntary agreement? You would? MR. DOLCHEK: Yes. MR. CHATTERTON: Would you want to know what the conditions of the agreement were first? MR. DOLCHEK: Yes. MR. CHATTERTON: I would think so. MR. DOLCHEK: Yes. MR. CHATTERTON: If you've got a boat on the way to Cordova, I think you might -- I think you know ..... MR. DOLCHEK: Yes. MR. CHATTERTON: ..... you're sophisticated enough to know that. Okay. Well, that -- that's fine. In other words, -- r & r COURT REPORTERS 810 n street, SUITE 101 509 W. 3rDAVENUE 277-0572 - 277-0573 277-8543 aNCHORage, ALASKA 9950! 1007 W. 3rD AVENUE 272-7515 10 1! 12 13 14 16 ¸17 18 19 2O 21 22 23 24 25 45 before you were in attendance, because you just flew up from Kenai just for the purpose of being here, I ..... MR. DOLCHEK: Yes. MR. CHATTERTON: ..... understand that, and we deeply appreciate that. Before you arrived, why, we had read into the record an Exhibit G, and ..... MR. DOLGHEK: Yes, I've -- I've ..... MR. CHATTERTON: ..... I think you've ..... MR. DOLGHEK: ..... I've seen ..... MR. GHATTERTON: ..... got a copy right ..... MR. DOLGHEK: ..... it. Yes. MR. CHATTERTON: ..... there. CIRI here says they're not closing the door on voluntarily forming something, but they're -- want more information to make a business decision before they say yes. MR. DOLGHEK: Yeah. MR. GHATTERTON: Is that what I heard you say just about -- in other words, you're -- you're not against voluntarily joining it, but you want to know what the hell you're joining? MR. DOLCHEK: I basically know what I'd be joining, yes. MR. CHATTERTON: Yeah. All right. MR. DOLCHEK: Um-hm. MR. CHATTERTON: Okay. And -- and you -- you're r & R cOUrt REPORTERS 810 N STREET, SUITE ~01 509W. 3rDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 ! 007 W. 3rD AVENUe 272-7515 l! 15 17 46 -- you're willing to do that? MR. DOLCHEK: I -- yeah, I -- I feel I've -- I'm -- I'm that much involved ..... MR. CHATTERTON: Okay. MR. DOLCHEK: ..... in this that I would ..... MR. CHATTERTON: All right. MR. DOLGHEK: ..... like to see it ..... MR. CHATTERTON: You haven't ..... MR. DOLGHEK: ..... continue. MR. CHATTERTON: ..... just told -- told Alaska Crude "no," then, "I will not join"? MR. DOLGHEK: No, I haven't. MR. CHATTERTON: Okay. Thank you. MR. DOLGHEK: Okay. MR. CHATTERTON: You may proceed. MR. DOLGHEK: Ail right. GIRI has some property to the north, and I'm -- I'm -- on -- to the east here. I would like, you know, whether I'd be participating in it or if I'm included in it or to a major extent or to a lesser extent, I would like to see this well developed for my interests, just that we can, you know, for -- that I can -- you know, that we can just prove that we can do it. MR. CHATTERTON: Right. Right. MR. DOLGHEK: I -- there were other things I had in mind, but -- of saying here, but I'd just like to go ahead and R & R COURT REPORTERS 810 n STREET, SUite ! 0! 509 W. 3rDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3rD AVENUE 272-75 ! 5 10 11 12 13 14 1.5 17 19 2O 21 23 47 emphasize that I -- I am a private landowner, and I would like to exercise my right of capture. MR. CHATTERTON: You betcha. You want an opportunity to get ..... MR. DOLGHEK: Right. MR. CHATTERTON: ..... your fair share. MR. DOLGHEK: Right. MR. GHATTERTON: That's called a correlative right, and that's ..... MR. DOLGHEK: Right. MR. GHATTERTON: You bet. We're -- we're supposed to protect that, ..... MR. DOLGHEK: Yes, sir. MR. GHATTERTON: ..... and we'll do our best. Okay. MR. DOLGHEK: Yes, sir. MR. GHATTERTON: Any questions of Ron? MR. JOHNSTON: Yeah, I have -- I have one question. You -- in -- in your testimony, you referred to other fee holders down there, your neighbors? MR. DOLGHEK: Yes. MR. JOHNSTON: In your opinion, would they hold a similar desire to enter into an agreement with Alaska Crude? MR. DOLCHEK: Yes. MR. JOHNSTON: Thank you. r & r COURT REPORTERS 8 ! 0 N STr EET, SUITE 101 509 W. 3rD AVENUe 277~0572 - 277-0573 277-8543 ANChOrAGE, aLASKA 9950! 007 W. 3RD AVENUE 272-75 I 5 10 II 12 13 14 15 16 17 18 19 2O 21 22 23 !4 25 48 MR. DOLCHEK: And we've been after this for years and -- and I'd also like to stress a point. Now, I don't know if -- you know, we -- we have run into some roadblocks and stops here, but, you know, there's -- I can -- I can see where there would be reason for it not coming on by other interests and -- but that should not outweigh our reasons for ..... MR. JOHNSTON: Are -- excuse me. Are you aware of any of your neighbors that hold fee interest to this land of being contacted by Alaska Crude or a representative of Alaska -- of Alaska Crude to enter into such an agreement? MR. DOLCHEK: No, I'm not. MR. JOHNSTON: Okay. Thank you. MR. CHATTERTON: Ron? Any other questions? MR. SMITH: Yes. Ron, as a matter of record, could you on this map that's in the well file -- from the well file, it has the clearest presentation I think, clearly show me which is your property? This is the Pelch well, and ..... MR. DOLCHEK: MR. SMITH: MR. DOLCHEK: MR. SMITH: Yes. All ..... If you'll outline it here? I'll outline the original 160. Okay. And you -- you still have surface -- subsurface right ownership to that whole amount? MR. DOLCHEK: Not of the whole amount. 111 acres. There's bits and pieces of it that had been sold off prior or that the mineral rights were not retained, so that would r & r cOUrT REPORTERS 8~ON STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99507 007 W. 3RD AVENUE 272-7515 l0 13 14 16 17 19 20 2! 22 23 24 25 49 be under -- but the ..... MR SMITH: Okay. Do you still retain in -- in this major section here? The ..... MR. DOLCHEK: Yes. MR. SMITH: ..... within this ..... MR. DOLCHEK: Yes. I ..... MR. SMITH: ..... area? MR. DOLCHEK: Yes, I do. MR. SMITH: Okay. That's within this -- confirms that it's within the 640 acres. for coming up. MR. CHATTERTON: Ail right. MR. SMITH: Thank you. MR. CHATTERTON: Thank you, Ron, very, very much MR. DOLCHEK: Thank you. MR. CHATTERTON: Have a good summer. MR. DOLCHEK: You bet. MR. CHATTERTON: Catch lots of fish. MR. DOLCHEK: I will. MR. CHATTERTON: Okay. MR. DOLCHEK: Thank you. MR. CHATTERTON: The -- okay. Next, Brian, you -- I believe you chose to testify. Would you come up here, get comfortable, identify yourself. You've already been sworn in. MR. BURGLIN: Okay. My name is Brian Burg/in, R & R COURT REPORTERS 81ON STREET, SUITE 10! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 aNCHORAGE, ALASKa 99501 007 W. 3RD AVENUE 272-7515 {i 10 11 12 13 14 15 17 18 19 20 21 22 23 24 25 50 and I'd just like to state for the record that we are, you know, 100~ in favor of seeing the well go on production as soon as possible. There's a lot of things I agree with what Ron Dolchek just said, but I'd also like to point out that we do not want to see anything happen until the interests have pooled and integrated. The only thing that we have on the record so far is that CIRI claims 20~ of that. There are several corporations that Mr. Goff mentioned that are involved in this. We don't know what percentage or -- or anybody else's percentage in this well bore. And I think that -- you know, that the Commission before production is allowed -- I haven't heard anybody state that they wouldn't voluntarily commit to a drilling unit. CIRI seems to be indicating that they would. We haven't heard from Unocal yet, but I think until we get that testimony, I don't know where any parties are at at this point in time. that for the ..... and Gas. And I'd just like to state MR. CHATTERTON: Right. MR. BURGLIN: ..... for the record. MR. CHATTERTON: And you're speaking for? MR. BURGLIN: As a stockholder in Far North Oil MR. CHATTERTON: North Oil and Gas. Okay. Okay. A stockholder in Far R & R COURT rEPOrTERS 81ON STREET, SUITE 10! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 l0 ll 12 13 17 20 2! 22 23 24 25 51 You've heard me mention something that we might consider, but I'm afraid I heard you say you didn't like it, but I'll try it on you. So that Alaska Crude can proceed, why, in placing the well on production, for a period of time to enable people to find out several things: What the well will produce, to explore in depth the mechanism of how the correlative rights of the individual property owners in -- in this area can be arranged. Did I hear you say you didn't want that to happen? MR. BURGLIN: What -- what I would like to see is, you know, some of the basic parameters followed. To produce the -- start producing the well without any percentages or interests out there, regardless of whether there's a formal agreement. All that we have so far that I can see is CIRI c/aiming essentially 20~ of that well bore. MR. CHATTERTON: Yeah, I know. I understand. Right. Yeah. MR. BURGLIN: I have not seen any break down of any other percentages or, ..... MR. CHATTERTON: Yeah. MR. BURGLIN: ..... you know, which corporation owns what, or fee simple land owners, and even in Ron Dolchek~s case, I~m sure he would like to know going in what percentage of that gas ..... MR. CHATTERTON: Sure. MR. BURGLIN: ..... he should have in that R & r COURT REPORTERS 810 N STREET, SUITe ! 01 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3rD AVENUe 272-7515 10 11 12 13 14 .15 16 ¸17 18 19 20 21 22 23 24 25 drilling unit. 52 MR. CHATTERTON: Sure. As you remember, statute does permit the operator to recover his costs out of the gas produced before he has to start sharing it. This is an agreement that could be voluntarily agreed to, and say "we'll do it that way," and -- and so ..... MR. BURGLIN: If -- if we're not arguing over what those costs are for ten years. That's ..... MR. CHATTERTON: If -- if we give you a time period, a finite time period, are you -- or else shut the well in, why .eeee. MR. BURGLIN: And -- and my suggestion there would be within 30 days to -- either the parties will come together or they won't, and -- plus the -- the operator in that time could supply the Gommission with a lot more information than what they're giving you right now as far as costs and AFEs, estimated AFEs and ..... MR. CHATTERTON: Yeah. MR. BURGLIN: ..... We have not seen any physical documents like ..... MR. CHATTERTON: Right. MR. BURGLIN: ..... that produced. MR. CHATTERTON: Do you think that if Alaska Crude was permitted to produce this well for a year's time that he -- that he would have gotten back by then al/ of his R & R COURT REPORTERS 810 N STREET, SUITe ! O 1 509 W. 3rD AVENUE 277-O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-75 ! 5 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 reasonable costs? wondering? 53 Is -- is it that short a pay-off I guess I'm MR. BURGLIN: I would say until there were some parameters on those costs, and even if it's a ballpark figure, I think the Commission needs to set some parameters on those costs before production, or else I don't see how that's going to be resolved if there is no voluntary agreement on that and the Commission has not ruled ..... MR. CHATTERTON: Yeah. MR. BURGLIN: ..... somewhat on that issue. What we would like to avoid is, you know, a court battle over this thing for the next five years. And if they produce it for a year and all the money is escrowed in one account, I -- I don't-know if we would have a problem with that. MR. CHATTERTON: Something of that nature ..... MR. BURGLIN: But some -- some ..... MR. CHATTERTON: ..... would do that? MR. BURGLIN: ..... tangible costs have got to be put on this, ..... MR. CHATTERTON: Yeah. MR. BURGLIN: ..... and -- and some evidence of what costs have gone into this have got to be documented. And -- otherwise nobody knows whether their costs are going to come in at $10 million or $100,000.00, ..... MR. CHATTERTON: Yeah. r & r COURT REPORTERS 810N STREET, SUITE 10! 509W. 3RDAVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9850! 007 W. 3RD AVENUE 272-7515 10 11 12 13 14 1¸5 16 17 18 19 20 21 22 23 24 25 $10 million, their time here percentage. 54 MR. BURGLIN: ..... and if you're recovering MR. CHATTERTON: You'll never ..... MR. MR. BURGLIN: ..... maybe every ..... CHATTERTON: ..... get it. BURGLIN: ..... maybe everybody's wasting MR. CHATTERTON: Yeah. MR. BURGLIN: ..... worrying about their MR. CHATTERTON: Okay. You'd have MR. BURGLIN: And -- and ..... MR. CHATTERTON: ..... no objection to escrowing of the proceeds from production, or ..... ? MR. BURGLIN: We would say unless percentages are established, who owns what percentage of that well bore, or maybe there's 600% of that well bore that's ..... MR. CHATTERTON: That's owned? MR. BURGLIN: ..... claimed, ..... MR. CHATTERTON: Yeah, claimed. Okay. MR. BURGLIN: Okay. Until that's established, that basic fact, ..... (Off record) (On record) MR. CHATTERTON: Okay. R & r cOUrt REPORTERS 8 ! 0 N STREET, SUITE ! 01 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 ¸10 16 17 19 2O 2! 22 23 24 25 55 MR. BURGLIN: But it -- you how, I'd like to go back to the original conservation order. MR. CHATTERTON: Well, let's -- when -- when we're -- are we back together? MR. SMITH: We're okay. COURT REPORTER: Okay. MR. CHATTERTON: Okay. Go -- go ahead, Brian, let's ..... MR. BURGLIN: Do you want me ..... MR. CHATTERTON: ..... do that? MR. BURGLIN: ..... to repeat that, or ..... ? MR. CHATTERTON: Okay. MR. BURGLIN: Okay. And I -- I think the Commission when they issued that order, I think that they were on the right track when they added to that, you know, not only establishing the drilling unit, but issues an order integrating the interests of owners within the drilling unit, and I think that's a primary ingredient before production should begin, or else everything should be escrowed until that's determined. MR. CHATTERTON: Okay. I -- I hear you. We're -- And, of ..... MR. BURGLIN: And, you ..... MR. CHATTERTON: ..... course, it's ..... MR. BURGLIN: ..... know, I would like to emphasize again that we would like to see the well go on line as r & r COURT REPORTERS 810 N STREET, SUITE 101 509W. 3rdAVeNUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 10 11 12 13 i4 15 16 i7 18 19 20 21 22 23 24 25 56 soon as possible, and perhaps the Commission setting a time line for all parties to voluntarily ..... MR. CHATTERTON: Yeah. Yeah. MR. BURSLIN: ..... agree, of -- of 30 days or ..... MR. CHATTERTON: Yes. MR. BURGLIN: ..... to expedite it. I don't know what a good ..... MR. CHATTERTON: Right. MR. BURGLIN: ..... time frame is there. Maybe you can ..... MR. CHATTERTON: What ..... MR. BURGLIN: ..... ask the operator, but ..... MR. CHATTERTON: Well, to make a good business decision, do you feel you have enough information -- has there been enough information as to the capability of the well to produce over a protracted length of time? MR. BURGLIN: I -- I think that is a risk regardless of what well you get into, that a working interest owner takes in the very beginning. That's a ..... MR. CHATTERTON: Okay. MR. BURGLIN: ..... that's a decision that whether that well will produce for two days or ..... MR. CHATTERTON: Right. MR. BURGLIN: ..... 30 years is -- who knows R & R COURT REPORTERS 810 N STREET, SUITE 10! 509 W, 3RDAVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASka 99501 1007 W. 3RD AVENUE 272-7515 l! 17 2O 2! 23 until you get a production history, ..... MR. CHATTERTON: Right. MR. BURGLIN: The way that we would look at it now to protect all parties in there, whether they're big or little is some parameters going in or else you're -- you're giving an open checkbook to the operator who's giving no information at all. MR. GHATTERTON: Understood. Yeah. Brian, as -- as you know, why, 31.05.100, if the Commission is forced to do this, if there is no way, and -- and any way of getting volun- -- you people -- the people with interest to voluntarily reach an agreement, why, then we do have to proceed and -- and that statute particularly let's us basically proceed on apportioning the -- the proceeds of -- of the Mike Pelch number one well to parties of interest on an acreage basis -- on a -- on their acreage share of the total unit. And by the same token, the quote/unquote, "reasonable costs" to drill the well, or not to drill the well in this case, but to re-enter the well, and operate the well, whatever that reasonable cost is, is also shared in the same percentage. Now, the only thing at issue is what it's going to be. I think rightfully so. It's going to be a hard nut to crack as to what the reasonable cost is. And we're -- you can get as many different numbers as you're going to have people involved in it, but hopefully we don't have to get to that point. Okay? r & r court REPORTERS 8 ! O N str Eet, SUITE 101 509 W. 3RD aveNue 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 II 12 16 17 18 20 2! 22 !3 24 25 58 MR. BURSLIN: Well, you know, I can appreciate that, but I guess in listening to this testimony, it's not clear in my mind at this point whether it's an involuntary or voluntary. We've got parties that have -- the operator has said that the other parties involved have said they do not want to participate. We've heard from other parties involved, CIRI's letter, that they want to discuss that. I think there needs to be some time frame there to get that issue resolved. MR. CHATTERTON: There has to be a period of negotiation, is that a -- a time to provide for opportunity to negotiate, is that ..... ? MR. BURGLIN: That -- that would be what I would suggest, just to get that issue resolved. And I -- I don't know how the Commission can make a decision until it is resolved, because in my mind it's not clear yet whether this is voluntary or involuntary, and everybody has had an opportunity to participate ..... MR. CHATTERTON: Well, you've ..... MR. BURSLIN: ..... or make a business decision, ..... But ..... MR. CHATTERTON: Right. MR. BURGLIN: ..... however you want to put it. MR. CHATTERTON: Brian, you -- you have touched on the very point that we've been kicking around. Until -- we r & R COURT REPORTERS 810 N STREET, SUITE 1OI 509W. 3RD AVENUE 277-0572 - 277-0573 277~8543 aNCHORAGE, ALASKA 9950! ! 007 W. 3RD AVENUE 272-7515 l0 ll 12 13 14 16 17 19 2O 21 22 23 24 25 59 don't think -- from what we've heard so far, we don't think it's right for the Commission to proceed and form a unit, that's about it. We -- we don't think that all opportunities to voluntarily reach an agreement have been exhausted. We haven't heard anybody that says they won't proceed, yet. We may before testimony is over yet this morning. So it becomes a matter of how do we comply with Conservation Order 210, which we wrote, our own order, or how do we amend it so that it's going to be reasonable -- that it's a reasonable approach or the amendment. And -- and -- and so that -- I -- your dilemma is our dilemma as I heard your testimony. MR. BURGLIN: Yeah, depending on which way it goes, it's ..... but that's ..... MR. CHATTERTON: Right. MR. BURGLIN: ..... could be everybody's dilemma, MR. CHATTERTON: MR. JOHNSTON: MR. CHATTERTON' Right ...... Question? ..... Question? MR. JOHNSTON: Yes. Mr. Burglin, could you state in what capacity you are speaking for -- on behalf of Far North Oil and Gas? MR. BURGLIN: I -- 3ust as a stockholder, and -- but we are also speaking as people that have -- can document that we have put bonds into that well, and have agreements with R & R COURT REPORTERS 810 N STREET, SUITE 101 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1 OO7 W. 3RD AVENUE 272-75 ! 5 l0 l! 2O 24 25 various entities that, you know, we have an interest in that well. MR. JOHNSTON: No further questions. MR. CHATTERTON: Kelly, I recognize you, but -- but what are you going to do? MR. GOFF: I want to direct a question to ..... MR. CHATTERTON: You write it out ..... MR. GOFF: ..... Mr. Burg/in. MR. CHATTERTON: ..... on a piece of paper, and you hand it to us, and when we get around to it, we'll ask the question if we think it's germane. We don't permit cross examination. MR. GOFF: If you think it's ..... MR. CHATTERTON: Pardon? 60 MR. GOFF: You said if you think it's germane? MR. CHATTERTON: If you write at it, and we look at it, why, then we'll decide whether to ask the question, when those questions will be asked after all the direct testimony has been presented. You're out of order. MR. GOFF: Well, I didn't receive the same consideration (indiscernible). Thank you anyway. MR. CHATTERTON: As I indicated that -- when we started this, we're going to conduct this in accord with our ..... MR. GOFF: I just had a ..... R & r COURT REPORTERS 8 ! 0 N STREET, SUITe 101 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 i 007 W. 3rD AVENUE 272-7515 l0 l! 12 13 14 16 17 2O 2! 22 23 24 25 MR. CHATTERTON: ..... 540 regulation. MR. GOFF: ..... question to -- to the Commission to try to help further this along that I wanted to ask of ..... MR. CHATTERTON: We will appreciate your question, I'm sure, so please write it out and send her up to us. But not at this time. MR. BURGLIN: Okay. I don't think I have anything more to ..... MR. CHATTERTON: Okay. MR. BURGLIN: ..... to add. MR. GOFF: And I'd like to say one other thing. The question I had in mind ..... MR. CHATTERTON: Would you come up here again? Do you wish to test- -- is this ..... MR. GOFF: I just wanted ..... MR.'CHATTERTON: ..... did you want ..... MR. GOFF: ..... the record ..... MR. CHATTERTON: ..... to testi- . .... MR. SOFF: ..... to (indiscernible, simultaneous speech) MR. CHATTERTON: Pardon? MR. OOFF: I wanted to present ..... MR. CHATTERTON: Would you ..... MR. GOFF: ..... a question ..... MR. CHATTERTON: ..... sit down and ..... r & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3rD aVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-7515 10 .! ! 12 16 17 18 2O 22 23 24 25 62 MR. GOFF: ..... to ..... MR. CHATTERTON: ..... sit down and identify yourself? Thank you very much, Mr. Burg/in. MR. GOFF: Norton Kelly Goff, Alaskan Crude Corporation. My question for the Commission and for their consideration was -- and I'd like the question directed to Brian, the -- and I agree with him. He's concerned with his correlative rights, and his investment. And this is coming back to what you pointed out as a possibility of a year's operation. If Alaskan Crude Corporation can come up with a cost estimate that is satisfactory to his group and other groups, strictly for putting the well on line and getting it to market, with al/ the other net revenues going into an escrow account until all of these interests are arbitrated, would that be satisfactory. That was my question ..... MR. CHATTERTON: Okay. MR. GOFF: ..... to the Commission for ..... MR. CHATTERTON: You -- you ..... MR. GOFF: ..... their consideration. MR. CHATTERTON: ..... you would -- you would support something like that? MR. GOFF: Yes, sir, I ..... MR. CHATTERTON: All right. R & r COURT REPORTERS 8 ! O n STREET, SUITE 101 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 10 11 12 13 14 ¸15 16 17 18 19 20 21 22 23 24 25 very much ..... MR. GOFF: MR. CHATTERTON: 63 ..... certainly would. And we appreciate that testimony MR. GOFF: Okay. MR. CHATTERTON: won't give you ..... I eleel ..... and we -- we will -- I MR. GOFF: And that was ..... MR. CHATTERTON: ..... an answer right now. MR. GOFF: Well, I'll -- I'm not asking the court -- I mean, the Commission to make a decision. The -- the question is whether or not that would satisfy him and his interests so that he'd realize that the Commission was going ..... MR. CHATTERTON: Yeah. MR. GOFF: ..... to see that everybody's correlative rights underneath the statute ..... MR. CHATTERTON: Right. MR. GOFF: ..... would be protected. But that is one way we could proceed and put -- get it on line. If we can come up with a cost estimate for just putting the well on line, and -- and those costs be taken care of, and there's -- the rest of the net revenues going into an escrow or whatever, I don't care. And given a year or less for everybody to arbitrate their interests in that particular well. It is not Alaskan Crude's intention to delete anybody, or R & R COURT REPORTERS 810 N STREET, SUITE I O I 509 W. 3rD aVENUE 277-0572 - 277-0573 277-854~ ANCHORAGE, ALASKA 9950! ! OO7 W. 3rDAVENUE 272-75 ! 5 10 11 12 13 .14 15 16 17 18 19 2O 21 22 23 24 25 64 isolate anybody outside of this as long as they've got something in it. We're just interested in getting the well on line, getting the product to market, and we'll do anything that -- but to go back and get all this other information, all that arbitration done about involuntary/voluntary or -- or -- and of course, that question hasn't been fully answered yet, and I'll acknowledge that, and everybody arbitrate their interest n that well, I can -- and I'm sure that it's going to take some time. MR. GHATTERTON: I'll bet. MR. GOFF: There's a lot of people involved in it. And that was the only suggestion or question I thought maybe you might be consideration (sic) for his satisfaction and we would be willing to work any scenario like that. And -- and we would submit those costs to put it on line so that everybody could review them. MR. GHATTERTON: Very good. MR. GOFF: And that's all I have. MR. GHATTERTON: Thank you very much, Kelly. Kelley Everette, did you Wish to -- let's see, you didn't want to testify. Do you want to change your mind? MR. EVERETTE: I think I would just be repeating some stuff that had been said, because we are approaching the reasonable cost as -- the cost that Kelly Goff just discussed ..... MR. CHATTERTON: Okay. R & r COURT rEPORTErS O N STREET, SUITE 10 ! 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 995OI ! 007 W. 3rD AVENUE 272-7515 10 l! 12 !4 !$ !6 !7 !8 !9 2O 2! 22 23 24 25 MR. EVERETTE: discussing, and ..... MR. CHATTERTON: issue here before us ..... MR. EVERETTE: MR. CHATTERTON: ..... would be what I would be 65 All right. Yeah, and that's an Right. ..... at this present time. Who else wishes to testify? Bob? Come on up to the bench, please, or whatever we call it. And state your name and your -- who you're representing and we know you -- know you well enough to know that you're an expert. MR. ANDERSON: Thank you. Mr. Chairman and Commissioners of the State of Alaska, Oil and Sas Conservation Commission. My name is Robert T. Anderson. I'm the Regional Land Manager for the Alaska Region of Union Oil Company of California. And I'm here today not to ob3ect to the development of the potential production from the Michael Pelch number one well. We are here in -- as an interested party holding leaseholds in the area, in the vicinity of the accumulated -- accumulation limit, and I think it's approximately 133 acres as we -- as we plotted it out. We feel the Commission has the authority to require that reasonable and equitable -- equitable distribution of costs and production be attained at -- at a -- in a forced unitization if you will. R & R COURT rEPORTERS 8 ! 0 N STREET, SUITE 10 ! 509 W. 3RD aVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3rD AVENUE 272-7515 ¸10 12 i4 16 17 ~9 20 2! 22 24 25 66 Our involvement today again is not to -- to question your authority to do this, but to try to get information so that Unocal, can make a good business decision. As mentioned earlier, we're -- we're not here to preclude Alaska Crude Corporation from going forward with their project. We are concerned, however, that Union -- Union be afforded the opportunity to review the well test data and to be provided with a detailed, orderly and prudent project proposal, which includes cost allocations, timing scenarios, designation of operatorship, and an operating agreement for review for possible participating in a -- in a mutually agreeable unitization. No joint meetings have been held to disseminate the information and discuss a proposal. All communications have been by phone or an occasional facsimile requesting unrealistic response expectations and deadlines. The burden as we see it of not only regulatory compliance, but standard operating procedures rests squarely with the operator, and should not be imposed on the other working interest owners. In other words, is it our respons- -- we don't feel it's our responsibility to put a unit together for the -- for Alaska Crude. I -- I feel it's their responsibility as unit operator to put a plan together and submit it to the working interest owners in the area for discussion and negotiation and approval. Allocation of the necessary manpower to analyze such a r & R COURT REPORTERS 8 I O N STREET, SUITE 101 509 W. 3rD AVENUE 277-O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVeNUE 272-75 ! 5 l0 12 17 19 2O 2! 23 24 25 proposal cannot begin in the absence of a logic- -- logical systematic, informationally comprehensive proposal. Additionally, we are concerned with the financial capabilities of the proposed operator, and the potential liability that Union may have as a working interest owner. In summary, we feel it is premature for the Commission to get involved in the cost allocations and production allocations, and we'd request that the appropriate information previously mentioned be made available to Union by the operator for proper review and appropriate action. Just to -- to indicate these contacts that had been made, and they have been made by Mr. White, ..... MR. CHATTERTON: Thank you. there? MR. ANDERSON: Alaska Crude? MR. CHATTERTON: MR. ANDERSON: MR. CHATTERTON: MR. ANDERSON: MR. CHATTERTON: MR. ANDERSON: May I interrupt you Surely. Have you ever been contacted by Not that I'm aware of, no, ..... Thank you, ..... ..... that -- that ..... ..... proceed. The -- the contacts that we have had are -- have been from James A. White, Peninsula Pipeline Company, the last of which was a -- was a fax to us on May ! requesting that we indicate our support of nonsupport by r & R COURT rEPORTERS 8 |0 N STREET, SUITE ! O! 509 W. 3RD AVENUE 277-O572 - 277-0573 277-8543 ANChORAgE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 12 17 19 2O 21 22 24 25 68 §:00 p.m. Central Standard Time May 4th. We responded on May 4th requesting the information that we had solicited in a letter that we had written to the Peninsula Pipeline Company and to Mr. -- Mr. White, and that letter was -- was dated March 19th, 1990, with -- with no response. And the questions that we asked, I did bring a copy of it so that we can put this in the record if we chose, but I don't know if it's important. The detail information that we asked was a summary of costs incurred to date; what are the expected remaining costs to place this well into production; what total costs are to be borne on a pro-rata basis by the prospective working interest owners; how will well participation be determined, i.e., surface acreage, acre-feet, costs, et cetera; what override burdens does the proposed unit currently carr or may be obligated to carry; what is the current condition of the producing well? Documents that we see that need to be executed would be a unit outline and -- and lease boundaries in the -- in the unit agreement; a unit operating agreement complete with lease descriptions and ownership records; and a plan of development. We have gotten no response to that. Additionally, we've -- a gas balancing agreement, if it's necessary, and I -- we find that gas balancing agreements in these gas fields are very desirable, having had a little bit of experience in -- in that regard; well completion schematics; r & r COURT REPORTERS STREET, SUITe 10! 509W. 3rDAVENUE 277-O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 69 transportation agreement with the Cannery Loop Unit. Apparently there was some thought at one time of running the pipeline into the KNPL line. I understand now that that may not be the case, so ..... So these are, you know, questions that -- that I think any prudent person, and particularly someone representing some shareholders, need to have answered before they can -- can say, "yes, we want to participate," or, "no, we don't want to participate." You've got to recognize that we have a fiduciary responsibility to our -- to our lessors to protect their interests, and -- and we -- we just can't do that until we have this information. And it's not just the -1- the cost of -- of putting that well on production, but the total costs that are going to be allocated and be recouped by the operator, whether it be through a direct payment by working interest owners, or through an over- taking of production until those costs are -- are satisfied. I -- Those things just have to be in -- in place before -- before we can -- we can make a business decision. And that's al/ the testimony I have. MR. CHATTERTON: Do you -- Mr. Anderson, do you -- do you request that that letter that you referred to in your testimony be entered into the record as an exhibit? MR. ANDERSON: I don't know that it's necessary. R & R cOUrt rEPORTERS 81ON STREET, SUITE 10! $O9W. 3RDAVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 l 5 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 70 I -- I think that just my reading parts of it and -- and ..... MR. CHATTERTON: Yeah. MR. ANDERSON: ..... giving you the date. If you would like to have it in the record, I have no objection putting it in the record. That's -- that's not a problem. MR. CHATTERTON: I would like to have it in the record, and -- and we'll designate it Exhibit D if in fact you're right? MR. SMITH: Correct. (Exhibit D marked) MR. ANDERSON: May I ask my -- my associate, Kevin Taybor (ph), Kevin, is this a copy of that letter? Do we have another one in the file? MR. CHATTERTON: We can make a copy of that if you like. MR. TAYBOR: (Indiscernible) MR. ANDERSON: We have a copy in the file. Okay. I guess ..... of it. MR. CHATTERTON: Or I can ..... MR. ANDERSON: ..... we can leave ..... MR. CHATTERTON: make you a ..... MR. ANDERSON: ..... that here. MR. CHATTERTON: ..... copy of the letter. MR. ANDERSON: No, that's fine. We have a copy R & r COURT rEPORTErS 0 N STREET, SUITE ! O 1 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! ! 007 W. 3RD AveNue 272-7515 12 14 16 17 19 2O 2! 22 23 24 25 MR. CHATTERTON: All right. MR. ANDERSON: And I do have copies of basically what I said in my testimony that I ..... MR. CHATTERTON: All right. MR. ANDERSON: ..... will be willing MR. CHATTERTON: So this ..... MR. ANDERSON: ..... to leave MR. CHATTERTON: ..... will be ..... MR. ANDERSON: ..... with you. MR. CHATTERTON: Fine. And your indicatedyou had no response from Alaska Crude on this? MR. ANDERSON: No. this? MR. CHATTERTON: Who -- to whom did you address MR. ANDERSON: This is Peninsula ..... MR. SMITH: Should be in here. MR. CHATTERTON: Okay. MR. ANDERSON: ..... Peninsula ..... MR. CHATTERTON: Fine. MR. ANDERSON: ..... Pipeline Company that -- that presumably'have an interest, and I think it was brought out earlier that they do have some interest in this -- in this property. We had been dealing with the -- the Messrs. White, both James W. and James A., for an extended period of time on this and R & R COURT REPORTERS 810 N STREET, SUITE IO1 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 anchorage, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 l0 13 2O 2! 22 23 24 25 72 other matters, and -- and we'd like to cooperate, but we've got to -- you know, you have to know what the game looks like before -- the rules of the game before you can play or make a decision to play. MR. CHATTERTON: We empathize. We know that. You can't ensure that you're going to win. MR. ANDERSON: Well, that's a judgment you have to make, ..... MR. CHATTERTON: Yeah. MR. ANDERSON: ..... of course. And -- and it's a business judgment and -- and as -- as Mr. Burg/in said, you know, you're shooting -- you're shooting in the dark to a certain extent on how long a well is going to produce, but, you know, with the expertise that we have with some -- some valid formation tests, we can -- we can make those judgments. And obviously our judgment was supported by you, by the way, by the Commission, to -- to plug and abandon that well as a -- as a noncommercial well ..... MR. CHATTERTON: MR. ANDERSON: MR. CHATTERTON: MR. ANDERSON: Yes. ..... when we drilled it. That's right. And so when we looked at it -- now, they may have developed some other formations or tested other formations that we didn't test, which is fine. ANd -- and if it's commercial, great, that's -- that's -- let's -- let's get R & R COURT REPORTERS 81ON STREET, SUITE I01 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 ! 007 W. 3rD AVENUE 272-7515 10 11 12 1¸3 14 15 16 17 19 2O 23 24 after it. Mr. Anderson? 73 MR. CHATTERTON: You betcha. Questions of MR. JOHNSTON: We've been kicking around the idea of allowing Alaska Crude to produce this well for a period of time. Would Union Oil have any ob3ections to doing that? A/lowing ..... MR. ANDERSON: I would have ..... MR. JOHNSTON: speech ) ..... (indiscernible, simultaneous MR. ANDERSON: ..... some concern, because you're getting into a quagmire, or you may be. You -- you have -- you have land owners out there that -- that own the mineral interests, some are leased and some are not leased. I -- It's your responsibility, particularly for those that are not leased, to protect their interests, and you've got to figure out a way to do that. It's our responsibility to -- to protect those people who have entrusted their minerals to us to -- to explore and develop. It would be -- it would be -- it -- you really have got to look at it very carefully, and I think your -- your attorney had better take some -- some long hard looks at it, because these monies have to be set aside. Now, that doesn't mean that -- that the amount of money to connect this thing up can be allocated out, because for every MCF that's produced out there, there's a R & R COURT REPORTERS 810 N STREET, SUITE 101 509 W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 995OI 007 W. 3rD AVENUE 272-7515 .10 1! 12 1¸3 14 15 16 17 lg 19 2O 21 22 23 24 responsibility to pay a royalty. MR. GHATTERTON: Oh, yes. MR. ANDERSON: And those that are -- are not under lease, they get 100~ of it I would presume. MR. GHATTERTON: I would think so. MR. ANDERSON: Their allocated share, on some basis. 74 MR. GHATTERTON: Yeah. That's right. MR. ANDERSON: But here again we haven't decided on that basis. The basis hasn't even been presented. You did indicate, Mr. Chairman, that under the statutes you would allocate -- or the State would allocate production and costs on a -- on an acreage basis, ..... MR. CHATTERTON: Yes. MR. ANDERSON: ..... and that's -- that's certainly common and we have several units that -- that do that. Cannery Loop does that, the Kenai Unit does that, Beaver Creek does that. MR. CHATTERTON: It's a common ..... MR. ANDERSON: It's a common practice. MR. CHATTERTON: Yeah. We'll (ph) ..... MR. ANDERSON: There are other methods, as you're well aware, that -- that may or may not be applicable, an acre feet determination, a volumetric determination, so ..... MR. CHATTERTON: True. Well, where there's a R 8< R COURT REPORTERS 810 N STREET, SUITE IO1 509 W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 ( 10 11 12 ( 13 1,4 15 16 17 18 19 2O 21 22 23 24 25 paucity of evidence, why, usually the best you go on is -- is the acreage, ..... MR. ANDERSON: MR. CHATTERTON: MR. ANDERSON: Sure. ..... the surface acreage. Well, I agree with that, and -- and particularly, you know, it's true in exploratory units, because you don't get proud of -- after you've made a discovery, you get kind of proud of what you have, and then you start trying to figure out sophisticated ways to -- to maximize what you have, ..... MR. CHATTERTON: MR. ANDERSON: Okay. ..... where you are in location to the -- to the crest of the structure and so forth, so you're right. A simp/er way to handle it is by an acreage participation. question? MR. JOHNSTON: MR. CHATTERTON: No further questions. Do you -- Lonnie, have you got a MR. SMITH: No, I don't. MR. CHATTERTON: Do you feel that your right of opportunity to share in this well has been denied as of yet? MR. ANDERSON: Oh, I don't think it's been denied. We -- we haven't -- we haven't had a basis to -- to -- they said "here it is, you're either in or you're out." I -- I think by lack of information it may be implied that it has been R & R COURT REPORTFR-'::; l0 !2 13 16 !7 19 20 2! 22 23 24 25 denied. I -- I don't believe in -- in laundering our dirty laundry, having you guys come in and say "this is the way it should be." I think that -- that men can agree on a logical, reasonable way to participate. Now, if we can't, then, yes, I think that you have the mechanism, and as I remember, Mr. Chairman, you were a significant part of developing the Alaska statute, S1.05.100, when you were in Juneau in another capacity. And you and I talked about it at that time. MR. GHATTERTON: I think we did. MR. ANDERSON: in eae.e MR. CHATTERTON: MR. ANDERSON: MR. CHATTERTON: MR. ANDERSON: 76 But I think I disagreed with you I expect you ..... ..... some aspects. ..... did. I know you did. But it came out your way rather than my way. But I -- insofar as being precluded, I -- with -- with the lack of information, I suppose I can say yes. I don't think I've been foreclosed. I am not going to -- to spend my shareholders' money without a beck of a lot more information than I have. MR. CHATTERTON: All rlght. You heard one suggestion here from one of the previous peop- -- persons that R & R COURT REPORTERS 81ON STREET, SUITE IOI 509W. 3rDAVENUE 277-0572 - 277-0573 277-854:3 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 ~9 24 77 testified, about the -- about any proceeds coming from the production of this well be escrowed so to speak, and -- and time provided for people to voluntarily get together. Is -- is that -- How do you ..... ? MR. ANDERSON: Well, as I -- as I heard that, and -- and maybe I misheard it, it -- it sounded to me like the request would be for an allocation of the completion costs, and anything over and above that would be escrowed. Maybe I misunderstood. If all, 100% of the proceeds are escrowed, subject to being allocated on a -- on a basis, whether it be on a voluntary unitization or ..... MR. CHATTERTON: However they, you know, -- however. MR. ANDERSON: Or -- or however, ..... MR. CHATTERTON: Yeah. MR. ANDERSON: ..... yeah, I don't think that I would -- I would take issue with that as long as I can convince myself that I have -- I have exercised my fiduciary responsibility towards my landowners, my -- my lessors. MR. CHATTERTON: Right. MR. ANDERSON: And I would have to -- to really think that out pretty carefully, and probably talk to our legal people. MR. CHATTERTON: Okay. Any further questions? MR. SMITH: Nothing. R & R COURT rEPORTERS 81ON STREET, SUITE lO! 509W. 3RDAVENUE 277-0572 - 277~0573 277-8543 aNCHORAgE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 12 14 17 19 2O 2! 22 23 24 25 MR. CHATTERTON: MR. ANDERSON: MR. CHATTERTON: Thank you very much, sir. Okay. Are there others choosing to test- -- yes, sir? Please ..... MR. YERBICH: Not really to ..... Yerbich. 78 MR. CHATTERTON: ..... come forward? MR. YERBICH: ..... testify. My name is Thomas I'm an attorney for Far North Oil and Gas. MR. CHATTERTON: Okay. Let's -- did you catch that on the record? He wasn't quite ..... COURT REPORTER: If he could spell his last name? MR. CHATTERTON: ..... re-identify ..... ? MR. YERBICH: Y-e-r-b as in "boy" -i-c-h. Representing Far North Oil and Gas. MR. CHATTERTON: You don't have to be sworn. You're an ..... MR. YERBICH: Okay. I -- I just want to make some things clear with respect to Far North's position in this matter, and -- and a couple of comments. One is Far North has excess of $3 million invested in drilling this well. Far North on behalf of its various creditors and shareholders is I guess one would say obviously very interested in getting this well in production. It is our position that getting this well in production is the paramount concern. R & R COURT REPORTERS 810 n STREET, SUITE 10 I 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 11 12 13 14 16 17 18 19 20 21 22 23 24 25 79 We also -- we share -- share the concerns of costs and cost allocations as do the other parties. However, it is our position that first and foremost we need a fund over which to argue before we argue. If we don't get that well into production shortly, Far North Oil and Sas, which is already operating in Chapter 11 in Bankruptcy Court, has serious problems, not only for us, but for our creditors and our shareholders, and those people who have an interest. We have not voluntarily joined in this and like others we don't object to it. Our first preference would be to move the boundaries of the drilling unit south until they coincide approxi- -- the northern boundary coincided approximately with the boundary of sections 35/S6. However, this is our second choice, and we see that there is no -- you know, it's logic, because the bill -- or because the well is essentially in the center. We -- we've heard CIRI, we've heard Unocal come in and say, "Well, we don't really object to establishing a drilling union and -- unit and then spending all kinds of time as to why one should not be established. We need to get the drilling unit established. We need to get the well in production. We need to find out exactly what that well will or will not produce. We need to find out what the production costs are, what the costs of delivering that gas to market will be, what the market will bear. R & R COURT REPORTERS 810 N STREET, SUITe ]Oi 509W. 3rdaveNuE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950] 007 W. 3RD AVENUE 272-75 ] 5 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 80 Then, when we've got a pot, let's argue over it. Okay. But if we don't have a pot, maybe Unocal and CIRI can sit back and no pot and not worry about it, but Far North Oil and Gas and its shareholders and its creditors cannot sit back. We're in dire, desperate straits right now. Okay. That well has to go forward. We acknowledge that maybe not all of the nice little information that has been -- that people would like to have to make a good business decision has been present, but that information isn't here. Any information that -- that Mr. Goff or myself or anyone else comes up with is going to be somebody's best estimate, not the actual. We fully support the suggestion, let's get this thing on a one-year production. Let's get it in production. Then let's see if we've got anything to worry about. If the well doesn't produce enough gas to support anything, let's find that out. Okay? If it does produce it, then I can assure Mr. Burglin, who is one of the shareholders of the company I represent, that we'll be in there fighting for our fair share, whatever it may be. But right now we need to get moving so there is something to fight about, and delaying the production unit does nothing more than delay production, and to the detriment of Mr. Polchek whom we believe we have a lease with, to Mike Pelch whom we have a lease with, the Halyards whom we have a lease with, and our shareholders, including Mr. Burglin. Thank you. R & R COURT rEPORTERS 8 ! 0 N STREEt, SUITE ! O ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 l0 22 23 24 25 26 27 25 29 2O 22 22 23 24 25 81 yourself. MR. CHATTERTON: Please, don't -- don't excuse MR. YERBICH: Pardon? Oh, yeah. MR. CHATTERTON: I'll ask you (indiscernible). One question. Did I hear you -- and you're representing Far North -- or Far North Oil and Gas, ..... MR. YERBICH: Yes, sir. MR. CHATTERTON: ..... say that you needed more information on the productivity of the well? MR. YERBICH: Well, we need to prove out the well. We -- we have preliminary information which indicates that ..... UNIDENTIFIED: True. MR. YERBIGH: ..... the well is a commercial producer. Okay. And we have preliminary indications that show that it will produce at a certain level. Okay. MR. CHATTERTON: All right. MR. YERBICH: We also have information that -- that because of the problems with the well -- the sabotage in 1987, will probably produce greater in the future than it will during, say, the first year. We'll see an increase in -- in the ability to produce. But when I say "prove out" the well, I mean, geology may be a science, but it's not an exact science, and gas has a habit of following the path of least resistance when it starts flowing r & r COURT REPORTERS 810 N STREET, SUITE 101 509 W. 3RD aVENUE 277-0572 - 277-O573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3rD AVENUE 272-75 ! 5 l0 12 14 16 17 19 2O 2! 22 23 24 25 82 somewhere. So I don't know where that pocket of gas is going to go, at least until the geologists tell me. And I'm not a geologist. And when I say "prove out," I mean, the -- the whole nine yards. What is it actually going to sustain? What is the market going to be? What is the cost of transporting it to market? What are we going to receive at the wellhead? MR. CHATTERTON: Um-hm. MR. YERBICH: What is actually going to be there is -- when I talk about "prove out the well." I'm an attorney. I talk in dollars not thousand cubic feet of gas. MR. CHATTERTON: Okay. MR. YERBICH: An MCF means very little to me, okay? lot though? MR. CHATTERTON: A dollar and 50 cents means a MR. YERBICH: A buck 50 I can understand. MR. CHATTERTON: Okay. MR. YERBICH: 1500 MCF I have a little difficulty visualizing that. It -- it ..... MR. CHATTERTON: Okay. MR. YERBICH: ..... doesn't compute. Okay. MR. CHATTERTON: And as representative, you've heard some testimony by others here I know, Tom, because you've been present. Somebody ventured a -- one or more I guess had R & R COURT REPORTERS 8 ! 0 N STREet, SUITE ! 0 ] 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 l0 12 14 16 17 ! 8 2O 2! 22 23 24 25 83 ventured a concept of -- of proceeding, putting the well on production, and escrowing -- escrowing the proceeds from that to be applied at -- at a later date to pay off whatever the costs of the well were. In -- in other words, the costs that Far North Oil and Gas has -- has got. Do -- do you ..... MR. YERBICH: Yes. MR, CHATTERTON: ..... Is -- is that a reasonable approach from your standpoint? MR. YERBICH: We certainly would not object ..... MR. CHATTERTON: Yeah. MR. YERBICH: ..... to that approach. MR. CHATTERTON: Okay. MR. YERBICH: I mean -- I mean, we wouldn't want the -- the thing put off for ten years, ..... MR. CHATTERTON: Oh, no, no, no. I ..... MR. YERBICH: ..... but a ..... MR. CHATTERTON: ..... A year? MR. YERBICH: Yeah. A year's time I feel would probably be reasonable. MR. CHATTERTON: Okay. MR. YERBICH: We're willing to work with Mr. Goff and Alaska Crude along those lines. We've -- Mr. White, who is the chairman of Far North, has been in contact with Mr. Golf more than I have ..... MR. CHATTERTON: All right. R & R COURT REPORTERS 0 N STREET, SUITE 10 ! 509 W. 3RD AVENUE 277-0572 - 277-0573 I 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 l0 12 17 2O 21 22 23 24 25 MR. YERBICH: ..... on this matter. But our official position is we would not object to such a proposal. is our position that we need to get that well in production yesterday. testify? Yes? 84 It MR. CHATTERTON: Understood. MR. YERBICH: All right. MR. CHATTERTON: All right. MR. JOHNSTON: None. Questions of Tom? MR. SMITH: No. MR. CHATTERTON: Thank you very much, sir. MR. YERBICH: Thank you. MR. CHATTERTON: Are there others who wish to MR. DOLCHEK: I've got ..... MR. CHATTERTON: Do you want to come back up here and identify yourself again, Ron, please? MR. DOLCHEK: I'm Ron Dolchek. I'd -- I'd just like to on this escrowing, or whatever, that we don't have nothing to escrow yet, I -- I don't see how Far North or the operator can go ahead and even operate amongst themselves if everything is escrowed. A certain percentage of that would have to be left out for them to operate themselves, and as long as that escrow does not include any. royalty payments to the people that are involved. MR. CHATTERTON: I would think, and -- and you -- R & r cOUrt REPORTERS 8 i 0 N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 89501 007 W. 3RD AVENUE 272-7515 itl l0 12 13 16 17 20 2! 22 23 24 25 85 you raise a good point, Ron, and -- and I don't know the answer right now, but basically I understand that if some type of an escrow deal was set up, every dollar that -- all the dollars that were -- that were collected from the sale of gas would be put into -- and I'm no expert on this, I'll tell ..... MR. DOLGHEK: Well, no, ..... MR. GHATTERTON: ..... you that, ..... MR. DOLGHEK: ..... that -- that ..... MR. GHATTERTON: ..... would be ..... MR. DOLCHEK: ..... I -- I would ..... MR. GHATTERTON: ..... put in the ..... MR. DOLGHEK: ..... object to that as ..... MR. GHATTERTON: No, it would be put into a pot to be -- once everything (sic) had a chance to look at their hold card on this, why, that pot would then be diwied up to -- to every- -- to ..... MR. DOLGHEK: Well, just as long as it does not -- that pot ..... MR. GHATTERTON: Yeah. MR. DOLGHEK: ..... doesn't include the subsurface holders then. MR. GHATTERTON: Oh, it's going to -- it's -- it's gotta -- the -- all the people that have an interest are going to get into the -- their fingers into that pot, you bet your boots. R & R COURT REPORTERS 810 N STREET, SUITE 10 ! 509 W. 3RD AveNue 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKa 99501 007 W. 3RD AVENUE 272-75 ! 5 l! 14 16 17 20 2! 22 86 MR. DOLCHEK: Well, the -- yeah. MR. CHATTERTON: Yeah. Okay. MR. DOLCHEK: I ..... MR. CHATTERTON: Does that -- does that ..... MR. DOLCHEK: No, not ..... MR. CHATTERTON: ..... ease your ..... MR. DOLCHEK: ..... at all. I don't see how far north, I don't see how Alaska Crude -- I mean, you're -- if -- if you're going to have -- if you're going to have umpteen dollars coming in the door, and you have nothing to operate the -- I mean, you're going to have to set aside so much a percentage for somebody to, you know, pay the gas bill. MR. CHATTERTON: You're always getting into the details, aren't you? MR. DOLCHEK: Well, yeah. Well, you know, ..... MR. CHATTERTON: (indiscernible, simultaneous speech) ..... MR. DOLCHEK: ..... I've got ..... MR. CHATTERTON: ..... We understand that. Yes. MR. DOLCHEK: Okay. MR. CHATTERTON: Yeah. MR. DOLCHEK: And -- but I -- I have a question here, that the percentages that are paid to the mineral rights holders, you know, and I'm -- you know, I'm (sic) probably be a very small, insignificant part of that, if I am at al/, but the R & r COURT REPORTERS 810N STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANChORAgE, ALASKA 9950! ~ 007 W. 3RDAVENUe 272-75 I 5 10 11 12 13 14 15 17 18 19 2O 21 24 25 87 first nickel that comes out of there, I would like to have my share of it, and then the rest you can escrow till hell freezes over. MR. OHATTERTON: Yeah, I ..... MR. DOLGHEK: I -- but it's -- if my gas is coming out of that hole, or any holes within the vicinity that I'm going to be included in, that's -- that doesn't include -- none of that is -- operating costs includes me. That's ..... MR. OHATTERTON: Yeah. MR. DOLOHEK: ..... because without my participation or my neighbors' participation, there would be no gas coming out of there to begin with, so you can go ahead and escrow any part that belongs to the company or any of the companies involved, but I feel that your -- your property right holder, your subsurface mineral rights holders, that first nickel that comes out, hey, that -- that goes out to them. MR. GHATTERTON: Well, -- okay. If -- I'm thinking out loud here frankly. If ..... MR. DOLGHEK: Well, it's -- see, the company's assets, or anybody's assets included in this is the percentage that they have outside of the agreement, lease agreement. That's -- that's the assets that they can go ahead and play with, not with the assets of the signing of leasing agreements. MR. OHATTERTON: If a lease -- In other words, if I hear you correctly, Ron, it's if -- if you have your -- if r & R COURT REPORTERS STREET, SUITe 10 ! 509 W. 3rd AveNue 277~O572 - 277-0573 277-8543 ANCHORAge, ALASKA 9950! 1007 W. 3RD AVENUE 272-7515 l0 17 2O 2! 22 24 25 88 there's a -- if your mineral rights are under lease, and it says you will get one-eighth or one-sixth, whatever it is, of the proceeds of that, you want that from day one. You don't want that escrowed? MR. DOLCHEK: You bet. MR. CHATTERTON: Okay. I understand you. Now, what do you do with a person that -- that doesn't have his land under lease to anybody, but he just owns it period. He hasn't -- do you want him to get his -- his acreage share of - - of that thing before it's escrowed? MR. DOLCHEK: A person owns what property? MR. CHATTERTON: In other words, I didn't lease my oil and gas rights, see, so ..... MR. DOLCHEK: Okay. MR. CHATTERTON: ..... let's say I'm down there right next -- your neighbor. MR. DOLCHEK: Okay. MR. CHATTERTON: I did not lease my oil and gas rights ..... MR. DOLCHEK: I might ..... MR. CHATTERTON: ..... (indiscernible, simultaneous speech) MR. DOLCHEK: ..... I might just assume, yOu know, chose to sit out of any agreement and see what happens. MR. CHATTERTON: Well, -- understood. R & R COURT REPORTERS 8 ! 0 N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 I 5 l0 13 14 17 19 20 2! 22 23 24 25 89 MR. DOLCHEK: I -- I might be in a better ..... MR. CHATTERTON: Yeah, but -- but ..... MR. DOLCHEK: ..... position by ..... MR. CHATTERTON: ..... this is ..... MR. DOLCHEK: ..... not participating ..... MR. CHATTERTON: ..... pending ..... MR. DOLCHEK: ..... at all. MR. CHATTERTON: ..... pending any agreement, would -- would I -- do I hear you -- if I -- in other words, you -- you own your property, you own the gas down there, ..... MR. DOLCHEK: Right. MR. CHATTERTON: ..... and everything else. Well, you don't -- you own -- you have a right to get your share of it. MR. DOLCHEK: Right. MR. CHATTERTON: Okay. And -- and then -- then you -- you -- but you want to get it from day one. You don't want to have the funds escrowed in other words? MR. DOLCHEK: No, that -- that wouldn't be in -- any -- it doesn't make sense, ..... MR. CHATTERTON: Yeah, I -- read you (ph). MR. DOLCHEK: ..... because this -- any agreement that -- you know, any operating costs, any recovery cost, that, you know, -- you know, that's why the percentages are usually lower on my end of it, because it's taken up by the, you know, R & R COURT REPORTERS 810 N STREET, SUITE 1OI 509W. 3rDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 I007 W. 3RD AVENUE 272-7515 10 11 12 13 14 15 16 17 18 19 2O 21 23 24 25 go recovery costs. MR. CHATTERTON: Sure. MR. DOLCHEK: But any -- if I am included, or chose to be, that's -- that's not ..... MR. CHATTERTON: Okay. MR. DOLCHEK: ..... my bill. MR. CHATTERTON: Yeah. Fine, Ron. MR. DOLCHEK: Okay. MR. CHATTERTON: Thank you very much. MR. DOLCHEK: I'm out of here. Thank you. MR. CHATTERTON: Yeah. Anyone else wishing to testify before us? MR. BURSLIN: I do. MR. CHATTERTON: Brian? MR. BURSLIN: This is Brian Burglin again. I'd 3ust like to -- on all this escrowing of things, to -- maybe I wasn't, you know, clear enough on that, but in my mind, the only funds that would be escrowed would be the involuntary participants in the drilling unit. If -- if people are voluntarily participating, I can't envision a need to -- you know, to escrow those funds. If -- if the operator has a certain percentage of that, or -- where six people agree to go ahead with the drilling unit and two don't, then the only funds that I could see -- it -- see it being necessary to escrow would be the funds for the part in dispute. R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3Rd AVENUE 277-O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3rD AVENUE 272-7515 10 12 13 14 16 17 19 20 2! 22 23 24 25 MR. CHATTERTON: administer that, but ..... I'm not sure I grasp a way to 91 MR. BURGLIN: Well, why the -- why I say if -- if the percentages are -- are set by thee Oommission to the best of its knowledge going in based on an acreage basis, I mean you hopefully will have at least that much information. MR. CHATTERTON: Could -- could -- and I think almost as far as we can go, because the court is where you get -- is if we issued something now saying that we're -- we're going to apportion, and we will -- I can honestly tell you we -- we're going to -- would apportion the -- the proceeds on an acreage basis, and -- and apportion the costs on the same way, so if we were to issue a -- an order, which I think is about as far as we can go, is saying the mineral interests of owners of the northeast quarter of the northeast quarter, or something, will get 10~ or something like that of the proceeds and share in 10~ of the reasonable costs. I think that's as far as we can go, and if anybody doesn't like it, they can go to court -- they can go to court, and that's the place to argue about ownerships, you know. We -- we don't -- we're not going to be the judge as to who has the right to the gas. We will assign the right to various property owners, but there -- as -- as parcels of land, not as indi- -- individuals, if you -- if you follow my -- my reasoning. I don't think we can say, "Brian, you're going to get 10~." We can say the owners or whatever you want of -- of 10% of R & R COURT REPORTERS 81ON STREET, SUITE 10! 509W. 3RDaVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKa 99501 007 W. 3rD AVENUE 272-7515 10 l! 12 13 16 17 19 2O 2! 22 23 24 92 the acreage, you're going to get 10%, and then you're left as to whose -- who the owner is. MR. BURGLIN: Yeah. MR. CHATTERTON: There's other -- other avenues to -- to the -- to settle on the arguments there. That -- do you -- do you ..... ? MR. BURSLIN: I -- I agree with that, yes. MR. CHATTERTON: Okay. You have no objection to that. MR. BURGLIN: I'm just looking at the case where -- I mean, there's no question who the -- the lessee is, and they chose not to participate, to protect that person's interest by having those funds being escrowed or in -- in the event that -- to expedite this thing, get the well on line, which is basically what everybody is saying, if you're going to produce it for a year and try to reach an agreement in that period of time or something. MR. CHATTERTON: Right. Okay. Thank you, kind sir. Any other people wish to testify here at this point in time? We have some questions here which we will address. Here -- do you have another -- ? Okay, Kelley, fine. Well, Kelley, you came in last, you're out first. The -- I will bring this out -- out, because it -- it's for me to -- I guess I could ask Kelly to answer it, but I think R & R COURT REPORTERS 810 N STREET, SUITE ! 01 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 93 -- I think we can answer it to your satisfaction. You question, you say, "I believe the Commission has established a drilling unit in Alaska to be a governmental section," and your question is, "Why is the outline of this drilling unit being considered include parts of four governmental sections?" Kelley, I'll try and respond to that. The reason it does probably is of suggestions that we have made to the operator -- the operator, that let's try and keep this well as, well- centralized as we can. Now, your point about the governmental section is in the absence of pool rules or things of that nature, you shall -- to drill an exploratory well, you -- the -- to drill one, an exploratory well, it's a S40-acre parcel for gas. You're absolutely correct. As you remem- -- this is a -- has been left-handed all the -- thread all the way through. The well had already been drilled here, and so it seemed like this was a reasonable 640- acre parcel around the well. MR. EVERETTE: MR. CHATTERTON: Okay. Okay. That answered my question. And -- and I'm as guilty as anybody for suggesting the outline of it. Okay. All right. MR. SMITH: May I state also for the record that, Kelley, in Conservation Order 210 we recognize this is a location exception ..... R & R COURT REPORTERS 810 N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 anchorage, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 10 12 13 14 16 17 2O 2! 22 23 24 25 94 MR. CHATTERTON: Yeah. MR. SMITH: ..... to the statewide regulation. MR. GHATTERTON: And in fact -- and, of course, that 210 was written before the current regulations. That was under the old 1981 regulations. Okay. And that's really what we've taken as our guide to how we can proceed now. MR. EVERETTE: Okay. MR. CHATTERTON: We have a question here, "How long was the test in hours, and was the rate of pressure measured, estimated or calculated," and, Kelly, can you provide an answer to that or is it going to be we just ..... MR. SOFF: As I stated before when I was under oath, and I'll state it again, ..... MR. SMITH: Gould ..... MR. SOFF: Okay. Do you want me to come up there? MR. SMITH: Yes, please. MR. CHATTERTON: Yeah. MR. GOFF: Norton Kelly Goff, Alaska Crude Corporation. I answered the question prior to this. No, I cannot, but I can obtain that information and will supply it ..... MR. CHATTERTON: Right. MR. GOFF: ..... to the interested parties. MR. CHATTERTON: Okay. And -- and in part, why, r & r COURt REPORTERS 810 N STREET, SUITE ! O1 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 12 17 2! 24 we have that letter the -- from the -- oh, from ..... MR. GOFF: Mr. Wiechmann. MR. CHATTERTON: That's -- yeah, that -- right. In -- in the record. Okay. Very good, Kelly. Thank you. MR. GOFF: You bet. MR CHATTERTON: Here is a question. "Has the petition- -- petitioner submitted a recommendation," and -- and I'll short-phrase it, "in accord AS 31.05.110(b)?" I can answer that real quickly. 31.05.110(b). They have not, nor is that -- are we within the framework of that statute. That's a pool -- that's unitization of a pool, not for spacing. And -- and so, no, they have not, and there's no requirement for them, and I again come back to the fact that we are basically operating now in order -- in -- under Conservation Order 210. We -- I think we've answered this question already. MR. BURGLIN: Yeah, I -- I think you have, Chat. I just wanted ..... MR. CHATTERTON: Yeah. Okay. MR. BURGLIN: ..... to clarify it for the record, you know, the ..... MR. CHATTERTON: Yeah. MR. BURGLIN: ..... specific method was ..... MR. CHATTERTON: Right. MR. BURGLIN: ..... used there, and essentially R & R COURT REPORTERS STREET, SUITE 101 509 W. 3RD aVENUe 277-0572 - 277-0573 277-8543 ANChOrage, aLASKA 9950! 1007 W. 3RD AVENUE 272-7515 il 10 13 14 17 19 20 21 22 23 24 you said that you use the circle tangent rather than 640 acres around the well bore. MR. CHATTERTON: Right. You're satisfied on that? 96 MR. BURGLIN: (Nods affirmative) MR. CHATTERTON: There -- has -- has there been a request -- it seems like, and, boy, my memory is getting bad. Did someone not request that this record be kept open? MR. SMITH: Yes. MR. KENNELLY: Yes, I requested that. MR. CHATTERTON: And you requested SO days? MR. KENNELLY: I think we requested ten days to supply ..... MR. CHATTERTON: Oh, ten? Okay. MR. KENNELLY: ..... documents. Is that right, Mr. Kelly (sic)? MR. GOFF: That was a suggested procedure at that time. I would still like to address the Commission again before this over, and we'll -- I'd like to address that question at that time if -- if I could do so. MR. CHATTERTON: The purpose of -- of the -- of keeping it open for ten days is -- we've heard testimony from many people here that we want to get this -- that this -- this well should have been on production yesterday. MR. GOFF: If we take the suggestions of Unocal r & r cOUrt rEportErs 810 N STREet, SUITE ! O 1 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 12 14 17 18 19 20 22 23 24 25 97 and the rest of this, there's no way you're going to be able to accomplish that in ten days. MR. CHATTERTON: I would not think so. MR. SOFF: I would like -- again this is Kelly Goff, Alaskan Crude -- propose that we put that well on line. We -- and one thing that ..... MR. JOHNSTON: Excuse me, ..... MR. SOFF: ..... you and Kelley ..... MR. JOHNSTON: ..... Kelly, ..... MR. SOFF: ..... pointed out, yes, we're not Unocal ...... MR. JOHNSTON: Could you come up to the front table able, please? MR. GOFF: Alaskan Crude ..... MR. CHATTERTON: Identify yourself again, ..... MR. SOFF: Okay. MR. CHATTERTON: ..... Kelly, I'm sorry. MR. SOFF: That's all right. Norton Kelly Goff, Alaskan Crude. MR. CHATTERTON: And? MR. KENNELLY: Neil Kennelly, attorney. MR. CHATTERTON: Okay, Neil. Fine. MR. SOFF: We've heard testimony from everybody, and we respect everybody's testimony, and realizing, of course, that we have a lot of little people. Far North Oil and Sas has r & r COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 11 12 13 14 15 16 17 18 19 2O 21 22 24 25 98 stated their position of where they're at. Mr. Dolchek has stated his position of where he's at. Alaskan Crude has stated a position of where they're at. We cannot accomplish everything that everybody has suggested in ten days. And -- but reassured of one thing: Alaskan Crude Corporation made the suggestion earlier that if they could present a reasonable cost for putting this well on line and producing it to the interested parties, have that accepted by them, that we would be allowed to go ahead and put the well on line for one year under the direction of the Commission, ex- -- allowing it to take those costs out that everybody had agreed to, and give us three months, six months, a year to arbitrate everybody's interest. And that's basically simple (ph). Now, if the Commission request of me to bring in certain information, if I can, within ten days, I'll certainly try to do that. Okay. Myself, I don't see any need to -- for a second -- or to adjourn -- not adjourn, but to extend this meeting. I think enough information has been supplied. I think everybody has stated their positions and their opinions. And I believe it's now up to the Commission to say that -- and they don't have to do it today, I'm not saying, you know, what the ..... MR. CHATTERTON: Sure. Sure. MR. GOFF: ..... I'm just saying to help R & R COURT REPORTERS STREET, SUITE ! 01 509 W. 3rD Avenue 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1 OO7 W. 3RD AVENUE 272-7515 l0 16 17 20 2! 22 23 24 25 99 underneath the statures (sic), not favoritism, but underneath the statutes to go ahead and get this unit established, even if it's for a one-year period. And during that time see if we can appease the interest of Mr. Anderson and Unocal, and the other interested parties, which we will endeavor to do. We will endeavor to do anything that it takes. Now, I am not a pro, and -- I understand everything he said, because I've been acquainted with it all my life. But if we go through all those steps, it's just another procedure by a major oil company to see that we don't put that thing on line and become competition for them. MR. OHATTERTON: Um-hm. MR. SOFF: We're not trying to be competition. We're only trying to complement their efforts. We're trying to get back the investment dollars that people's got in it, put that well ..... MR. CHATTERTON: Yeah. MR. SOFF: ..... on through, promote jobs, taxes for the State, income for the people that's involved it. There's no big criteria over this little old well down there that -- that a big major oil company should object to. And -- and in ..... MR. CHATTERTON: I'm sorry, I'd ..... MR. SOFF: ..... all due respects, ..... MR. CHATTERTON: ..... like to bring you back to the subject that's before us, and that is the -- the hearing that R & R COURT REPORTERS 810 N STREET, SUITE 10! 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, aLASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 X0 l! 12 13 14 16 17 19 2O 2! 22 23 24 25 lO0 you're -- on your application for -- for a drilling unit. Now, if -- if a drilling unit is not established at this point in time, and you're permitted to go ahead and produce the well, do you have any problem? MR. GOFF: Oh, no, I don't have any problem ..... MR. CHATTERTON: Okay. That's ..... MR. GOFF: ..... if there's ..... MR. CHATTERTON: ..... all I need ..... MR. GOFF: ..... a year's ..... MR. CHATTERTON: ..... to know. MR. GOFF: ..... delay. No, I don't have ..... MR. KENNELLY: The ..... MR. GOFF: ..... no problem with that ..... MR. KENNELLY: ..... the only ..... MR. GOFF: ..... whatsoever. MR. KENNELLY: ..... the only request I made on the ten days was to submit documentation that he had ..... MR. CHATTERTON: Right. MR. KENNELLY: ..... as to contacts that have been made with other interested parties in attempting to work this out. That was the only request that ten days was for. MR. CHATTERTON: Are you willing to withdraw that request? MR. KENNELLY: Yes. MR. CHATTERTON: Okay. r & R COURT REPORTERS 8ION STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3rD AVENUE 272-7515 10 11 12 13 14 15 16 17 lis 19 2O 21 22 23 24 25 101 MR. KENNELLY: Yes. MR. CHATTERTON: So that ..... MR. KENNELLY: Since it's ..... MR. CHATTERTON: ..... there's no ..... MR. KENNELLY: ..... not going to be addressed, there's no reason for it at this point. MR. CHATTERTON: I -- I think this is correct. MR. KENNELLY: Fine. MR. CHATTERTON: Yes. I -- I appreciate that very much. You -- is -- is this serving you? You asked initially to have ..... MR. GOFF: This is all ..... MR. CHATTERTON: ..... a chance ..... MR. GOFF: ..... This is my ..... MR. CHATTERTON: ..... That's ..... MR. GOFF: ..... final comments. MR. CHATTERTON: Okay. This is -- you -- you feel comfortable? MR. GOFF: (Nods affirmative) MR. GHATTERTON: Okay. MR. GOFF: Again, I apologize for any discomfort that I have given to anybody here. It was not my intent. My intent is strictly to do and move forward and be sure that the Commission understands that the little people cannot do what the big majors ..... R & R COURT REPORTERS 810 N STREET, SUITe 101 509 W. 3rD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 2O 2! 22 23 24 25 102 MR. CHATTERTON: Yeah. MR. GOFF: ..... have requested, because ..... MR. GHATTERTON: We're -- we're ..... MR. GOFF: ..... if we do that, ..... MR. CHATTERTON: ..... We're -- we're ..... MR. GOFF: ..... the economics are out the window and they've accomplished what they set out to do, and that's to stop us. MR. CHATTERTON: We'll -- we're seriously considering -- will seriously consider ways and means of letting you proceed. Let's go off the record for a minute. (Off record) (On record) MR. CHATTERTON: We're back on the record. While we were off the record, the Commission was having a -- for which I apologize for taking your time for, but on a -- on a matter about whether or not the -- how long -- if we should keep the record open any longer. We've had testimony here, of course, that we want it closed -- or we want to get on with it so we can produce the well. Everybody seemed to say that, and then, sir, you indicated now that you would ..... MR. KENNELLY: I would withdraw the request for the ..... MR. CHATTERTON: Yeah. R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUe 277-0572 - 277-0573 277~8543 ANCHORAGE, ALASKA 99501 007 W. 3rD AVENUE 272-7515 l0 1! 12 14 15 16 17 19 2O 2! 22 23 24 25 MR. KENNELLY: MR. CHATTERTON: unconditionally? MR. KEN-NELLY: MR. CHATTERTON: ..... ten days. And is it withdrawn 103 Unconditionally. You're not expecting anything from us to -- in exchange for having withdrawn that? MR. KENNELLY: No. MR. CHATTERTON: Okay. Does that take care of our -- any concern we have in that respect? MR. JOHNSTON: I believe it does. MR. CHATTERTON: Okay. Then we have no -- before the table we have no request for -- from any party for extending the hearing record, or keeping it open for submission of any additional data or anything of that nature. We've had testimony that indicates the parties that -- reportedly that have under lease most of the acreage within this 640 acre parcel have not closed the door to voluntary unitization. They're still open -- open to negotiation, and -- and would like to know what some of the facts are which they have not ever been gotten (sic) before they make a business decision as to whether to oppose the drilling unit or not. And -- and the people that did -- have testified, and the letter that come (sic) in, I think represent a good portion of that 640-acre area that's under -- that -- that's in question here. Anything else on anybody's mind before we pull the plug R & R COURT REPORTERS 81ON STREET, SUITe 10! 509W. 3RDAVEnUE 277-0572 - 277-0573 277-8543 ANCHOrAGe, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 104 on this thing? Up here? Have we got anything? MR. SMITH: No. MR. CHATTERTON: Okay. Without further adieu, I want to thank everyone that participated here and we will bring this hearing to a close, and the time is roughly 12 -- or, excuse me, 11:40 a.m. (END OF PROGEEDINGS) r & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3rDAVENUE 277-O572 ~ 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 10 11 12 ].3 14 15 16 17 18 19 20 21 22 23 24 105 CERTIFICATE UNITED STATES OF AMERICA ) ) ss STATE OF ALASKA ) I, Meredith L. Downing, Notary Public in and for the State of Alaska, residing at Anchorage, Alaska, and Electronic Reporter for R & R Court Reporters, Inc., do hereby certify: THAT the annexed and foregoing Public Hearing was taken before me on the lOth day of May, 1990, commencing at the hour of 9:00 o'clock a.m., at the offices of the Alaska Oil and Gas Commission, 3001 Porcupine Drive, Anchorage, Alaska, pursuant to Notice. THAT the witnesses, before examination, were duly sworn to testify to the truth, the whole truth, and nothing but the truth; THAT this Transcript, as heretofore annexed, is a true and correct transcription of the testimony given at said Public Hearing, taken by me and thereafter transcribed by me; THAT the original of the Transcript has been lodged as required with the Alaska Oil and Gas Conservation Commission, 3001 Porcupine Drive, Anchorage, Alaska. THAT I am not a relative, employee or attorney 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 14th day of May, 1990. ! , Notary PubliC'in and fo_r...-A~laska SEAL My Commission Expi~'[ .... 5/3/94 R & R COURT REPORTERS 81ON STREET, SUITE lO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: THE APPLICATION OF FAR NORTH) OIL AND GAS, INC. for an ) order granting an exception ) to 20 AAC 25.055(a)(1) to ) re-enter the Cannery Loop ) Unit No. 2 well. ) IT APPEARING THAT: I · Conservation Order No. 210 May 31, 1985 gla~.~....~j!.& Gas Cons. Commission '~"~'~' Anchorag~ :Far North O±l and Gas, Thc., by letter dated Hay 3, 1985, requested the Alaska Oil and Gas Conservation Commission to issue and order granting an exception to 20 AAC 25.055(a)(1) in order to re-enter the Cannery Loop Unit No. 2 well which is only 160 feet from the property line on which it is located· · Notice of public hearing was published in the Peninsula Clarion and the Anchorage Times on May 17, 1985. · There were no protests to the request set forth in the notice of public hearing. FINDINGS: 1. · · ~ · The Cannery Loop Unit No. 2 well was drilled and abandoned by Union Oil Company of California in 1981. At the time it was drilled, the Cannery Loop Unit No. 2 well was in the Cannery Loop Unit and was drilled as an exploratory well. The Cannery Loop Unit No. 2 well is located 1481 feet from the north line and 863 feet from the east line of Section 2, T5N, RllW, SM. Far North Oil and Gas, Inc. claims the right to enter Cannery Loop Unit No. 2 well to explore, produce and remove hydrocarbons by virtue of an oil and gas lease from Michael Pelch, the owner in fee of the mineral rights beneath a nominal 160 acre tract comprising the SE ¼, NE ~; NEb, SE¼; SW~, SE~ and ~, SE¼ of Section 2, T5N, RllW, SM. The Cannery Loop Unit No. 2 well is located 160 feet from the north line and 457 feet from the west line of the Michael Pelch Lease. Conservation Orde~ .~. 210 Page 2 May 31, 1985 . · Far North Oil and Gas, Inc. states the Cannery Loop Unit No. 2 well has potential as a crude oil producer. Exceptions to spacing requirements can be obtained as provided for in 20 AAC 25.055(b). CONCLUSIONS: · An exception to 20 AAC 25.055(a)(1) is necessary to re-enter the subject well in order to explore for hydrocarbon production. · Should a hydrocarbon pool be discovered by re-entry of Cannery Loop Unit No. 2 well, the Commission must establish a drilling unit for the pool in accord with AS 31.05.100(a) and enforce the protection of correlative rights for the owners in the pool in accord with AS 31.05.100(c). NOW, THEREFORE, IT IS ORDERED: With an approved Drilling Permit, Far North Oil and Gas, Inc. is permitted to re-enter the abandoned Cannery Loop Unit No. 2 well to explore for hydrocarbons. If the well proves to be capable of hydrocarbon production, regular production will not be permitted until the Commission has established a drilling unit for the pool and issues an order integrating the interests of owners within the drilling unit, absent voluntary integration by the owners. DONE at Anchorage, Alaska and dated_~!May 31,:85. C, V." Chatt-~r'tgfi,/Chairman Alaska Oil and~Gas Conservation Commission ~., ~ ~ 7, ,~ ,,~? ~ · ,,~ .~ ~,~ ~:" /,,: .~'~,. ~~'~,:'.~ I Harry W./'Kugler,' ~o~issioner ,~,"","~ ~'.~ .... ~.-::.~'.~ ~,~l.:::~ ~ Alaska Oil and G~Conservation Co~ission .... .:L-::2~ ,,'~,~'~, ':~'+.>~ , ~;.' ~ 0 , EEEIVED Lonnie G. Smit ': Co~issioner Alaska Oil and Gas Conservation Co~ission 1 0 1990 ~.~,~a Oil .& Gas Gons, '', nchora! WESLEY WIECHMANN 217 $~mw~ San Atttoaio, T~ 78232 (s~.) ~-~7~ May 9, 1990 Alaskan Crude Corporation P.O. Box 111187 Anchorage, Alaska 9951! Dear Sirs: CONFIDENTIAL RECEIVED ~A¥ 1 o 1990 A. iaska .Oil .& Gas Cons. Comml~l~ ~ ~ gnchorag~ ' Thc Mike Pelch No. I gas well is completed through perforations 9256-9276 and 9300-9310 in the Upper Tyonek formatlon. Thts well is located 1.491 feet from North line and 863 from east line of Section 2, T-5.N, R-11-W. The dipmeter of the Mike Pelch well o n drilled Urdon Oil Conipaay of ,~,u,,u,,-. ,,, -,,,,~ o,.,~ ..... r ............ southeast at the perforated interval at a rate of 4 to 6 degrees. I was emplOyed as a consultant by Pan Arctic Cotporatio~ August 1988 to evaluate the Pelch prospect and Pelch well. Sometime daring the period .Mach 1977 and October 1977 the Pelch well had been severely damaged by blatant acts of industrial sabotage. Some saboteur/s put a huge amount of gravel through the tree down the tubing and into the rathole of this well, severely limiting the capacity of the well to produce gas. The well completely plugged itself December 1977. The well had no capacity to flow until it was cleaned mechanically with coil tubing July 1988. I witnessed and assisted in the cleaning processes of blowing the well down in order to remove the gravel sabotage, therefore witnessing the well flow under varying conditions. I witnessed large amounts of gravel sabotage, drilling mud, sand, and methane gas produced during these blowdown cleaning processes. These blowdown cleaning processes have resulted in partially cleaning the well. A moderate amount of cleaning processes rem'aim to be done in order for this well's perforated interval to reach its flowing potential. During flow periods I wimessed the well flow g~ at a stabilized surface flowing pressure of 1500 psig through a 3/16 inch choke at a rate of 1,200~000 cubic feet of gas per day. This flow rate definitely qualifies this well as a commercial producer of gos. This rate of flow will continue to increase as the well continues to clean itself of gravel sabotage and mud. When fully clean, the productive rate of the Pelch well is expected to increase radically. The Uuion Oil Company of California C_~__r, nery Loop well No. 4 is currently producing irom thc saiue upper ,,-,..,.,.t., ~,,-,,,- .~.....; ,, +,' ,-, o l. _. tl~m,_.., the .... Mike Pc!ch well is completed in. During February 1990 the Union ~4 Cannery Loop well produced 370,589 MCF and 155 barrels of water. From .lauuaxy 1988 through February 1990 the well has produced 9,457,347 MCF. By comparisou of the electric logs and porosity logs of the # 1 Mike Pelch well and the ~4 C..auuery Loop well, the Pelch well has 51 net feet of gas productive sandstone with au average of 17% porosity. The ~4 Cauuery Loop well has 15 act. feet of gas productive sandsione with an average ~o~., ,v "~'-,,~;*,,~,,,.,,_.~. It_. i.~__ reo.~nnable to believe that the Mike Pelch well could out produce the #4 Carmery Loop well. Sincerely, Wesley Wiechmaun Geologist Cc: Alaska Oil & Oas Conservation Commission Pan Arctic Corp. James A. White J~es W. White _Mik~_Pp__leh_ # 1 WESLEY WIECHMANN · 217 Sunw&y San Antonio, Texas 78232 (512) 494-6744 (Oriitnail), Drilled ti the Cannery Loop g2 by Union Otl Co, of Ctlif,) _..UYPl~R_TYONEX: PERFORA _ .TC~I3.1NTERVAL Gross Sand, 92112-9326 · 74 Ft, Gross Net Sand 9261 9 2 I 9263-~70 7 17 55 1120 9271-9278 7 16 55 1~4 92~4-~86 2 17 ~ 285 92~8-9294 6 16 ~ ~3 93~-93~ A~sumed Oas Properties: 100% M~thane T- i$0F ]~ - :R}O SCF/RCF OGIP Assume 80% Recover~Recov. e_?a_O_;_e__:~...sg_rv.!~es=~,6~:3 ltCFI. . ,!,,.~6~.. nert=..=~ MMSCF .- Million Standard Cubic Feet of Natural Gas BCF ,- Billion Standard Cubic Feet of Natural Gas Written Testimony COOK INLET REGION, INC. Alaska Oil and Gas Conservation Commission Hearing May 10, 1 990 Dear Mr. Chairman and Commissioners of the State of Alaska, Oil and Gas Conservation Commission. My name is Kevin A. Brown, Manager, Engineering and Operations in the Oil and Gas Department of Cook Inlet Region, Inc. (CIRI). I regret that I was unable to be with you today to present this testimony on behalf of Cook Inlet Region regarding our interests in the area of the Michael Pelch #1 well proposed by Alaska Crude Corporation. My intent here is not here to object to the establishment of a unit for potential gas production from this well, but merely to express CIRI's concerns for our affected lease acreage. CIRI has a lease interest of approximately 20% in the 640-acre drilling unit as proposed. CIRI has requested on more than one occasion that Alaska Crude Corporation submit documentation as to associated costs, cost allocations and timing, as well as a proposed Unit Agreement and Unit Operating Agreement. CIRI has not received the requested information to date, yet is being asked to make decisions under very short deadlines. Most requests from Alaska Crude Corporation have been received through telephone calls and telecopies. CIRI would like an opportunity to review such documentation to enable us to make a responsible business decision and to ensure reasonable and equitable distribution and production allocation in accordance with the requirements of the Alaska Oil and Gas Conservation Act, reference: AS 35.05.100. At this point, CIRI feels it has not received enough information to encourage or discourage participation in the proposal. We would appreciate the calling of a meeting with Alaska Crude Corporation to discuss further' de~ails of the proposal, and to obtain specific cost information and documentation. We are requesting that the Commission place the responsibility for an agreement in the hands of the landowner's involved, and would appreciate the opportunity to seek the Commission's intervention at such time that a reasonable decision cannot be reached. Sincerely, COOK INLET REGION, INC. Manager, Engineering & Operations RECEIVED MAY 1 0 1990 Alaska Oil & Gas Cons. Commi~lOll Anchorage nam:4:109 CIRI BUILDING 2525 "C" STREET P.O. BOX 93330 ANCHORAGE, ALASKA 99509-3330 (907) 274-8638 FAX (907) 279-8836 TELEX 090-26-465 Unocal 011 & C~, ,tn Unocal Corporal[, P.O. Box 190247 Anchorage, Alaska 99519-0247 Telephone (907) 276-7600 Robert T. Anderson Manager. Lands Alaska Region UNOCAL March 19, 1990 RECEIVED i AY 1 o 1990 AJaska .Oil .& Gas Cons. Commission ~: Anch0rag~ Dr. James A. White, P.E. Peninsula Pipeline Company 1102 Warrington Drive Austin, TX 78753 CANNERY LOOP AREA State of Alaska Proposed Pelch #1 Well Dear Dr. White: Reference is made to your letter dated February 26, 1990 inviting Union to participate in the establishment of a Participating Area and the joining of a Unit concerning the above proposed well. As mentioned in our phone conversation on March 5, 1990., Union is unable to make any decision, either on a Working Interest basis or an override basis, pertaining to your proposal. This decision can not be made without the below required detailed information and all necessary documents executed before Union will consider joining the proposed unit. Detailed Information · · · · · Summary of costs incurred to date. What are expected remaining costs to place this well into production? What'total costs are to be borne on a pro-rata basis by prospeCtive working interest owners? How will unit participation be determined, i.e., surface acres, acre-feet, cost, etc.? What override burden does the proposed unit currently carry or may be obligated to carry? What is the current condition of the producing well? Documents to be EXecuted i · · Unit outline and lease boundaries. Unit agreement complete with lease descriptions and ownership records. Plan of development. Dr. White March 19, 1990 Page Two 4. Unit operating agreement, complete with Accounting procedure. 5. Override participation agreement, if necessary. 6. Gas balancing agreement. 7. Well completion schematic and summary of workover details, proposed completion schematic. 8. Transportation agreement with Cannery Loop Unit. 9. Gas sale and/or gas exchange agreement with Union, if necessary. 10. Transportation agreement with Enstar Pipeline Company, if necessary. If you have any questions or comments, please give me a call. Very truly yours, Robort ~. Provin¢o Landman RAP:rms cc: Walt Nellis Testimony R. ECEIVEi? 'iV AY 1 o lg.q0 A/aska Oil & Gas Cons. Commission Anch0ra~ Alaska Oil and Gas Conservation Commission Hearing May 10, 1990 Mr. Chairman and Commissioners of the State of Alaska, Oil and Gas Conservation Commission. My name is Robert T. Anderson, Regional Land Manager of the Alaska Region for Union Oil Company of California. Union Oil Company of California is not here today to object to the development of potential production from the Michael Pelch #1 well. We are here as an interested party holding valid leasehold interests in the vicinity of the proposed accumulation limits for said well, which might possibly be pooled and integrated by State regulatory action. The authority empowered to the Commission requires that a reasonable and equitable distribution of costs and production be effectuated in the absence of agreement by all affected parties. Our involvement today is not to. question or request Commission intervention as to cost and production allocation but to try and acquire the necessary information by' which Union Oil Company may make a responsible business decision. As mentioned earlier, our intent is not to preclude Alaska Crude Corporation from going forward with their project. We are concerned, however, that Union be afforded the opportunity to review the well test data and .be provided with a detailed, orderly and prudent project proposal which includes cost allocations, timing scenarios, designation of operatorship, and a mutually agreed upon Operating Agreement for review prior to Commission involvement. No joint meetings have been held to disseminate information and discuss this proposal, All communication has been by phone or occasional facsimile requesting unrealistic response expectations and deadlines. The burden of not only regulatory compliance but standard operating procedure rests squarely on the operator and should not be .imposed on the other working interest owners.. Allocation of the necessary manpower to analyze such a proposal can not begin in the absence of a logical systematic and informationally comprehensive proposal. Additionally, we are concerned with the financial capabilities of the proposed operator and the potential liability Union may have as a working interest owner. In summary, we feel it to be premature for Commission involvement in cost and production allocation and would request that the appropriate information previously mentioned be made available to Union by the operator for proper review and appropriate action. ALASKA CRUDE CORPORATION/AOGCC PUBLIC HEARING MAY 10, 1990 ATTENDANCE SHEET NAME COMPANY l! TO' F r o m · Subject· Alaskan Crude Corporation P.O. Box 11-1187 Anchorage, Alaska 99511 March 20, 1990 Alaska Oil & Gas Conservation Corsmission 3001 Porcupine Drive Anchorage, Ak 99501-3192 Alaskan Crude Corporation P.O. Box 111187 Anchorage, Ak 99511 (A.C.C.) .Application by A.C.C. requesting the establishment of a Drilling Unit per (A.O.G.C.C.) Conservation Order No' 210. Gentlemen: .Alaskan Crude Corporation is the Operator' of The Michael Pelch, Cannery Loop Unit No. 2 Well, located 1481' feet F.N.L. and 863' feet F.E.L. in Section 2- T-5-N, R11W, S.M. Alaskan established bore. Crude Corporation states that hydrocarbons have been from The Micheal Pelch, Cannery Loop Unit No 2 well A.C.C. therefore request the A.O.G.C.C. to establish a Drilling Unit in accordance to Conservation Order No. 210, dated May 31, 1985. In accord with AS 31.05.100(C), to include no less than 640 acres surrounding the well bore. (See attached map outline. ) The A.O.G.C.C.'s prompt attention to this request wOuld be greatly appreciated. Sincerely Chairman / C.E.O. Phone No: (907) 563-3550 Fax No' (907) 562-6468 cc A.C.C. file Far North Oil & Gas Inc. James A. White Peninsula Pipeline Co. Pan Arctic Corporation Jim White · · 0 .. 0 Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission (AOGCC) Re: Request by Alaska Crude Corporation, operator of record for the Far North Oil and Gas, Inc. Mike Pelch #1 well, to establish a 640 acre drilling unit for the Mike Pelch #1 well located 1481' FNL and 863' FEL in Section 2, T5N, RllW, SM and formerly known as the Union Oil Company of California, Cannery Loop Unit #2 well. Alaska Crude Corporation, P. O. Box 11-1187, Anchorage, Alaska 99511, operator of record for the Mike Pelch #1 well states that the well is capable of producing natural gas and requests that a 640 acre drilling unit be established for the Mike Pelch #1 well as required by the commission's May 31, 1985 Conservation Order No. 210. Accordingly a public hearing on the matter will be held at 9:00 AM, May 10, 1990 in the conference room of the AOGCC, 3001 Porcupine Drive, Anchorage, Alaska 99501. ~~ ~ ~/ ........... , Lonnie C. Smzth Commi s s ioner Alaska Oil & Gas Conservation Commission Published March 23, 1990 United States Department of the Interior BUREAU OF LAND MANAGEMENT 6881 Abbott Loop Road Anchorage, Alaska 99507-2599 March 26,1987 IN REPLY REFER TO: 3160 (984) Mr. Lonnie Smith, Commissioner State of Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Dear Mr. Smith: RECEIVFD MAR 2 6 198'7 Alaska Oil & Gas Cons. ~;ommissio[I Anchorage The following is a clarification of our letter to the Commission, dated February 14, 1987, concerning the pooling and integration of mineral interest within section 22, T. 13 N., R. 10 W., SM, for the purpose of developing the section as a drilling unit for the production of natural gas. Also included is our response to issues raised during the public hearing of March 4, 1987. To clarify the issue of jurisdiction, we refer you to our regulations contained in 43 CFR Subpart 3160 (Onshore Oil and Gas Operations - General), Subpart 3180 (Onshore Oil and Gas Unit Agreements-General), and Subpart 3181 (Application for Unit Agreement). Our jurisdiction, in the Beluga River Unit, is limited to the joint approval, with the State of Alaska - Department of Natural Resources, of unit boundary contractions or expansions, participating area revisions, amendments or other changes to the unit agreement, and with the commission on various oil and gas operations conducted therein according to the regulations cited above. Therefore, our letter of February 14 was not intended as an infringement upon the authorities of the Alaska Oil and Gas Conservation Commission. Our letter of February 14 expressed our interest in keeping the proposed drilling unit and the Beluga River Unit separate. To further clarify Mr. Gibson's voluntary testimony at the public hearing, we offer you the following additional information. We initially opposed the inclusion of unitized acreage in the proposed drilling unit for these reasons: 1. If the request was approved as submitted, it appeared to be possible that the entire section 22 could be allocated production, without a well being drilled, since a portion of this section is presently allocated production from the Beluga River Unit. It is our function to protect the interests within the unit by administering the terms of the unit agreement; i.e., lands reasonably proven productive; Public Lands USA: Use, Share, Appreciate 2. It also appeared possible, if the request was approved, that a nonworking interest owner could drill a well on unitized acreage without the approval of the working interest owners or our office; and 3. It was our opinion that it was not appropriate to include unitized lands proven productive, by the terms of the Beluga River Unit Agreement, in a drilling unit which included nonunitized acreage. To elaborate further, it was mentioned during the February 24, 1987, pre-hearing conference that the purpose of an exploratory unit is to combine a number of leases into one entity for the purposes of discovering, developing, and defining an oil/gas field. We believe that process has taken place in the Beluga River Unit and available data indicates the field has been defined. Therefore, we regard any action by Burglin et. al., on their acreage, as an exploratory venture. We encourage Burglin et. al. to drill their acreage, but we do not feel there is any need to involuntarily integrate the mineral interest of section 22. The unit agreement and the regulations provide provisions for the discovery of hydrocarbons outside, but in close proximity to, the unit boundary, should this occur. We trust we have clarified and adequately responded to various issues raised during the public hearing. Please inform us of your decision concerning the Burglin et. al. request. If you have any questions concerning this letter, please call me at 267-1220. Sincerely, Joseph A. Dygas Chief, Branch of Lease Operations KELLEY EVERETTE PO BOX.?3960 FAIRBANKS, ALASKA 99707 PHONE (90?) 456-4BB0 25 MARCH 1987 STATE OF ALASKA OIL AND GAS CONSERVATION COMMISSION 3001 PORCUPINE DRIVE ANCHORAGE, ALASKA 99501-3192 BURGLIN, ET AL, APPLICANT ARCO, ET AL, RESPONDENT PRE-HEARING CONFERENCE 24 FEB FORMAL HEARING 4 MAR 1987 GENTLEMEN, I REQUEST THE "PRE-HEARING CONFERENCE" HELD ON 24 FEBRUARY I987' BE INCORPORATED WITH AND BE FORMALLY MADE PART OF THE "FORMAL HEARING" HELD ON 4 MARCH 1982. REASON~ THE PRE- HEARING CONFERENCE OUTLINES AND DEFINES SEVERAL TOPICS AND THEMES WHICH ARE USED AND REFERENCED BY ALL PARTIES IN THE FORMAL HEARING. I ALSO REQUEST THE COMMISSION RECOGNIZE THAT COMMISSIONER CHAT CHATTERTON DID CONDUCT THE PROCEEDINGS ON. 24 FEBRUARY 19B? FOR THE PRE-HEARING CONFERENCE AND HIS PARTICIPATION BE RETAIN AS HIS OFFICIAL DUTY AT THAT TIME ALTHOUGH COMMISSIONER ~HATTERTON DID REMOVE HIMSELF FROM HEARINGS AFTER 2? FEBRUARY 1987. I ALSO REQUEST THE COMMISSION TO DISREGARD ALL REFERENCES~ 'INPUTS AND OR TESTIMONY TO.THE FOLLOWING TWO TOPICS. ,.' 1. REFERENCE TO ANY SUPERIOR COURT 'PROCEEDINGS OR HEARINGS CONDUCTED PRIOR TO 24 FEBRUARY 19B?. THE PRESENT CONFLICTS 'ARE NOT BREACHED IN ANY MANNER. 2. REFERENCE TO ANY "PARTICIPATING AREAS". THIS IS N~T THE ISSUE AT THIS TIME. 'THE COMMISSION HAS~'ESTABLISHE~ SECTION 22~ TOWNSHIP 13 NORTH, RANGE 10 WEST, SEWARD. MERIDIAN AS A GAS "DRILLING UNIT" FOR EXPLORATION OR DEVELOPMENT OF GAS AS DEFINED BY STATE OF 'ALASKA OIL AND GAS LEASING REGULATIONS AN~ STATUES 20 AAC · 25.055." THE COMMI SS ION HAS FURTHER DEFINED THE CONFLICT BETWEEN BURGLIN, ET .AL AND AR~O~ ET AL REGARDING SECTION 22 BY PRESENTING THE CONFLICT IN THE FORM DF SIX QUESTIONS. (SEE FORMAL HEARING 4 MARCH I9~7, PAGE 5, LINE I3 THR~U~H{_P~E PAGE 25 MAR~H 1987 LINE 1~). THESE SIX QUESTIONS SHOULD BE .VIEWED AS THE OIL AND GAS ~OMMISSION~S AUTHORITY TO SUPPORT ALL STATE STATUES AND REGULATIONS KEEPING IN MIND THE RIGHTS OF ALL PARTIES, BURGLIN~ ET AL, ARCO, ET AL AND THE STATE OF ALASKA DEPARTMENT OF NATURAL RESOUR~ES~ (DNR). PART OF THE ~COMMISSION~S DUTIES ARE "APPROVAL OF A PLAN OF DEVELOPMENT AND OPERATION FOR A FIELD OR POOL IN ORDER TO PREVENT WASTE, INSURE A GREATER ULTIMATE RECOVERY OF OIL AND GAS~ AND PROTECT THE CORRELATIVE RIGHTS OF PERSONS OWNING INTEREST IN THE TRACTS OF LAND AFFECTED." 'QUESTION ON~ DOES THE ~OMMISSION HAVE AUTHORITY TO ACT ON SUBJECT REQUEST BY BURGLIN UNDER ALASKA STATUTE~ TITLE 31, CHAPTER FIVE, SECTIONS 2? AND 1007 YES~ I BELIEVE IT QUITE CLEAR. THE ~OMMISSION~S AUTHORITY 'DOES APPLY TO ALL LAND IN THE STATE LAWFULLY SUBJECT TO ITS POWERS~ NOW WITH STANDING, BUT ALSO TO LAND OF THE UNITED STATES TO ~THE EXTENT THAT CONTROL AND SUPERVISION~ OF ~ONSERVATION OF OIL AND GAS AND PREVENTION OF WASTE~BY THE UNITED'STATES ON ITS LAND FAILS TO CARRY OUT THE INTENT AND PURPOSE OF AS 31.05.005 -31.05.170." THE COMMISSION DOES HAVE THE RIGHT TD ESTABLISH DRILLING "'~NITS.FOR POOLS. THAT RIGHT AND PURPOSE IS CLEARLY DEFINED IN · ~'AS 31.05.100 CA), (B) AND QUESTION TWO: DOES THE DRILLING UNITS AND WELL SPACING REGULATION~ TITLE ~0~ ALASKA ADMINISTRATIVE CODE~ CHAPTER ~5~ SECTION' 055 (A) (4) ESTABLISH A GAS DRILLING UNIT AS A GOVERNMENTAL S~CTIO~ IN THIS ~ASE WHERE NO SPECIAL PO~L RU~ES ORDER HAS ESTABLISHED OTHERWISe. · · YES. THE REGULATION IS VERY SPECIFIC ON THIS POINT AS DEFINED IN (4). "NOT MORE THAN ONE WELL MAY BE DRILLED TO THAT POOL ~oN ANY GOVERNMENTAL SECTION." 'QUESTION THREE: CAN LANDS THAT ARE ALREADY PART OF THE FIELD WIDE BELUGA RIVER UNIT B~ INVOLUNTARILY POOLED AND THEIR" INTEREST INTERGRATED UNDER AS 31.05.100 (~) SO THAT A PERMIT MAY BE ISSUED FOR'DRILLING A WELL FR~M ANY SUCH GOVERNMENT~E SECTION? YES. "IR THE P~RSONS DO NOT AGREE TO POOL THEIR'INTEREST, THE' COMMISSION. MAY ENTER AN ORDER POOLING AND INTEGRATING THEIR INTEREST FOR THE DEVELOPMENT OF THEIR LANDS AS A DRILLING 'UNIT FOR THE PREVENTION OF WASTE, FOR THE PROTECTION DF 'CORRELATIVE RI~HTS~ 0~ TO AVOID DR~LLIN~ OF UNNECESSARY ~WELL~. ORDERS EFFECTUATING SUCH POOLING SHALL BE MADE AFTER~' NOTICE AND HEARING, AND SHALL BE UPON TERMS AND CONDITIONS 25 MARCH 19~7 WHICH WILL AFFORD TO THE OWNER OF EACH TRACT THE OPPORTUNITY TO RECOVER OR RECEIVE HIS JUST AND EQUITABLE SHARES OF THE OIL AND GAS IN THE POOL WITHOUT UNNECESSARY EXPENSE ........ THE COMMISSION MUST ISSUE AN ORDER POOLING AND INTEGRATING THEIR INTEREST BEFORE DRILLING OF WELL WITHIN THE DRILLING UNIT. THERE ARE NO ALASKA STATUES OR REGULATIONS TO CAUSE THIS POOLING AND INTEGRATING OF THEIR INTEREST AFTER~ ~DISCOVERY. IN SUCH CASE WHERE THE PERSONS NEVER AGREE, AN UNNECESSARY WELL MUST BE DRILLED WITHIN THE DRILLING UNiT TO PROTECT CORRELATIVE RIGHTS. 'QUESTION FOUR: COULD A COMMISSION ORDER UNDER AS 31.05,100 AND/DR 20 AAC 25.055 ALLOW CROSS CONVEYANCE OF INTEREST FOR LOCATION OF ANY SUCH WELL? YES. NOT ONLY COULD THE.COMMISSION ORDER UNDER AS 31.05.100 AND/OR ~0 AAC ~5,055 BUT THE COMMISSION MUST ISSUE AN ORDER UNDER AS 31.05,100 AND/OR 20 AAC ~5o055 TO ALLOW CROSS CONVEYANCE OF INTEREST FOR LOCATION OF ANY SUCH WELL ~'PERMITTED. EXAMPLE: A PERSON OWNS 40 ACRES OF MINERALS WITHIN A GOVERNMENTAL SECTION. H~ MUST BE ALLOWED TO EXPLORE WITHIN THAT SECTION AND BE ALLOWED TO DRILL AT THE MOST PROBABLY LOCATION FOR DISCOVERY BECAUSE IF THAT WELL IS A DISCOVERY IT WILL BE THE ONLY WELL TO BE DRILLED WITHIN THAT GOVERNMENTAL 'SECTION AND PRODUCTION WILL BE ALLOCATED TO THE LEASEE OF EACH TRACT INCLUDED IN THE ~RILLIN~ UNIT FORMED ~Y A POOLING ORDER. 'QUESTION FIVE: WHAT TERMS AND CONDITIONS 0F INTEGRATED" INTEREST OTHER THAN THOSE SPECIFIED IN AS 31.05.100 (C) WILL ~AFFDRD THE OWNER OF EACH TR~' THE OPPORTUNITY TO RECOVER OR RECEIVE A JUST AN~ EQOITABLE SHARE DF GAS SHOULD A WELL DRILLED SUBSEQUENT TO POOLING AND INTEGRATION OF INTEREST BE ~APABLE OF PRODUCIN~ GAS? A~ A TIME WHEN THERE IS A DISCOVERY SUBSEQUENT TO AN ORDER FROM THE COMMISSION FOR POOLING AND INTEGRATION DF INTEREST AND SOME PERSONS MAINTAIN AN INVOLUNTAIRY STATUS WITHIN THE DRILLIN~ UNIT THE ONLY COURSE LEFT IS TO DETERMINE THE RESERVES FOR THE DRILLING UNIT AND ALLOW THE ~RILLIN~ PARTIES TO PRODUCE THE'IR RESPECTIVE SHARE LEAVING THE INV~LUNTAIRY ~ERSONS SHARE TO BE RECOVERED BY OTHER MEANS. THIS MAY CAUS~ UNNECESSARY DRILLING OF WELLS AND WASTE TO PROTE~T CORRELATIVE RIGHTS. THE COMMOSSION MUST ISSUE AN ORDER OF INTEGRATION OF INTEREST UNDER AS 31,05,100 (C) PRIOR TO EXPLORATION WITHIN A DRILLING 'UNIT AND THEN IF NO COMPRDMISE IS REACHED BETWEEN ALL PARTIES THE COMMISSION SHOULD MANDATE WHAT TERMS~ CONDITIONS AND/OR PAGE 4. 25 MARCH 1987 WHAT'PENALTIES ARE TO BE IMPOSED. QUESTION SIX, IS INTEGRATION OF~INTEREST IN THE SUBJECT DRILLING UNIT NECESSARY TO PREVENT WASTE, TO PROTECT CORRELATIVE RIGHTS OR TO AVOID THE DRILLING OF UNNECESSARY WELLS? 'YES. IT IS THE COMMOSSION'S DUTY TO SEE THAT INTEGRATION OF INTEREST OF EVERY DRILLING UNIT, (EVERY GOVERNMENTAL SECTION) IN ALASKA BE COMPLETED PRIOR TO EXPLORATION TD PREVENT WASTE, TO PROTE~T CORRELATIVE RIGHTS OR TO AVOID THE DRILLI8 OF UNNECESSARY WELLS. EXAMPLE, STATE OF NEW MEXICO. IN THE EARLY 1900~S THE NEW MEXICO STATE OIL AND GAS ~OMMISSION DETERMINED EVERY HALF 'SECTION, 320 ACRES WERE TO BE A GAS DRILLING UNIT FOR LEA COUNTY. SOME DRILLING UNITS, (3~0 ACRES) HAVE REMAINED ONE OWNER, THE U.S. DEPARTMENT OF THE INTERIOR~ THE STATE OF NEW MEXICO OR ONE INDIVIDUAL WHILE OTHER DRILLING UNITS HAVE 'BECOME DIVIDED AMONG AND OVE~ 300 OWNERS. EVERY OWNER 'IS ALLOWED THE RIGHT AND OPPORTUNITY TO EXPLOR~ FOR GAS AT THE LOCATION DEEMED TO HAVE THE MOST PROBABLE CHANCE DF DISCOVERY .WITHIN THE DRILLING UNIT REGARDLESS OF HIS LANDS WITH RESPECT TO THE DRILLING LOCATION WITHIN THE DRILLING UNIT SINCE ALL LANDS WILL BE ALOCATED THEIR SHARE DF PRODUCTION FROM THE DRILLING~UNIT. EXAMPLE. STATE OF MONTANA: I OWN THE FOLLOWING DESCRIBED MONTANA OIL AND GAS LEASE. STATE OF MONTANA OIL AND GAS LEASE NO. 27,200-84 .TOWNSHIP ~3 NORTH, RANGE 59 EAST SECTION 3~, 1~.50 ACRES, PA~?..OF "A" ISLAND "A" ISLAND IS IN THE MIDDLE OF THE MISSOURI RIVER AND EXTENDS .-.SOUTH 'I~NTO TOWNSHIP 22 NORTH, SECTION 1. (SEE EXHIBIT I, ~-5- 94, KELLEY EVERETTE). THE'S.TATE OF MONTANA MANDATED I DRILL OR CAUSE TO BE DRILL MY LEASE AS MY PART OF THE DRILLING UNIT. (WEST HALF OF SECTION 3~, SEE EXHIBIT II). IN MY CASE TO DRILL ON MY LEASE I MUST FIRST 9UILD A BRID~E TO CROSS THE MISSOURI RIVER AND THEN BUILD A STABLE~ REINFORCED DRILLING PAD TO SUPPORT A DRILLING RI~ AND WITHSTAND ~O0~ING JUST TO START EXPLORATION. THIS WOULD CAUSE UNDUE WASTE AN~ UNNECESSARY DRILLING. I, FOLLOWING THE STATE OF MONTANA DEPARTMENT OF LAND'S MANDATE DID,~ WITH COMPROMISE AND AGREEMENT OF OTHERS CAUSE A WELL TO BE 'DRILLED WITHIN THE DRILLING UNIT AT THE MOST PRO~ABLE LOCATION FOR DISCOVERY ALMOST ONE HALF MILE NORTH OF MY 13.50 ACRE LEASE, "A" ISLAND. (SEE EXHIBIT I, STATE ~-3~, NW1/4NW1/4). AND AGREEMENT AMONG INTEREST OWNERS WAS NECESSARY TO PREVENT WASTE, TO PROTECT CORRELATIVE RISHTS AND 'PAGE 5. 25 MARCH 1987 TD AVOID THE DRILLING OF UNNECESSARY WELLS. CDNCLUSION' I BELIEVE THE ALASKA OIL AND GAS COMMISSION WILL MAKE A JUST AND FAIR DECISSIDN TD PROTECT THE CORRELATIVE RISHTS OF ALL AND TO PREVENT WASTE AND UNNCESSARY DRILLING. RESPECTITIVLY YOURS~ 'CC~ OTHER INTERESTED PARTIES SEC. 3 6 - T23 tV - Ie59 ~ RICH£,~ND COUNTY, MOtVT~IV~ .o. · o 3-6-89 V¢~,'~;.Z i.~'.-~- Double EaEle Pet. & ~ining o Srmte 2-36 H~P Union Taurus Petroleu~ / Utax, e= al 50% 5Cr/o ~ex, e= al 5(71, (C!airmd by AI~ & Utex, e= al by virtue of accretion ri~n=s. ) Everet=e ANR 36 }{BP Farmers Union Central Exchange State 8-36 h~P Farmars blzion Central Exchange .Ke~uasting Farmars Lhion's quit claim of rahiJ in:erest into ANP, & U:ex, et al.) HBP F~rs Union Central Kxmhange $C,~L£: ~ DEPART~ OF STATE LANDS · ' -STAT (40~) 4~4.2074 June 19, 1985 162S llTH ~I£LY_.NA. Iv~ONTANA 59620 Kelley Everette P.O. Box 73960 Fairbanks, AK 99707 RE- State Lease #27,2DD-84 Island - Section 36, T23N, R59E Richland County, Montana . Dear Gentlemen' .- :.- The west half of the above section contains four leases (among others) issued by the State Land Department. This complicated half section was leased in parts at different times as to the riverbed of the Missouri River, non-riverbed dry land, an island and a tract of recently litigated accreted land from the Jackson vs Burlington Northern suit. The oldest and largest lease, the river- bed, is being reviewed for possible cancellation from failure to diligently develop. The status of all the leases in the west half are also being considered at this time, due to the severe drainage problem which has existed since the first of several offset wells was drilled in the NW¼SE¼ of Section 25 by Shell Oil in 1978. I am hereby requiring that an offset well be spudded-in on or before August 23, 1985, within the approximate 320 acres of the west half of Section 36, such that at least the following formations are adequately tested and developed' Mississippian Madison Devonian Nisku Silurian Interlake Ordovi ci an Stoney Mounta i n Ordovi ci an Red River Since the title dispute has been resolved by District Court in the west half of this section, there appears to be no reason to delay action r. egardi.ng drainage by this Department. Awaiting your reply, I am Yours 'Truly, Geologist Land Administration Division "AN EQUAL OPPORTUNITY EMPLOYEt::?" DELANEY, WILES, HAYES, REITMAN ~ BRUBAKER, IN(::. ATTORNEYS AT L.AW 1007 WEST -qRD AVENUE %NCHORAG£, ALASKA (g07) 279-3581 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION In Re: BELUGA RIVER UNIT; BURGLIN, et al., Petitioner, VS. ARCO ALASKA, INC., Respondent, Conservation File No. AFFIDAVIT OF SERVICE STATE OF ALASKA ) ) ss. THIRD JUDICIAL DISTRICT ) KATHERINE L. MOSBY, being first duly sworn, deposes and says that she is employed by DELANEY, WILES, HAYES, REITMAN & BRUBAKER, INC., 1007 West Third Avenue, Anchorage, Alaska, and that on the 25th day of March, 1987, she served a true and correct copy of: BRIEF OF ARCO ALASKA, INC. TO: Mr. Brian Burglin 17 Adak Fairbanks, Alaska 99707 by sending the same in a sealed envelope, via DHL. and TO: Mr. Michael G. Hotchkin Assistant Attorney General State of Alaska RECEIVED Al,?,ska 0il & Gas Cons. Commissio~ Anchorage DELANEY, WILES, HAYES, REITMAN & BRUBAKER, INC. ATTORNEYS AT LAW SUITE 400 1007 WEST 3RD AVENUE ANCHORAGE. ALASKA (907) 279-3581 Department of Law 1031 West Fourth Avenue, Suite 304 Anchorage, Alaska 99707 via messenger of Delaney, Wiles, Hayes, Reitman & Brubaker, Inc. 1987. DATED at Anchorage, Alaska, ~his 25th day of March, 1987. Katherine L. Mosby ~ SUBSCRIBED AND SWORN to before me this 25th day of March, Notary Public My Commission iE~p~resf:~~~/~!~, RECEIVED b,~,qR 2 5 !987 DELANEY. WILES, HAYES, REITMAN ~ BRUBAKER, INC. ATTORNEYS AT LAW SUITE 400 1007 WEST 3RD AVENUE ANCHORAGE:, ALASKA (907) 279-358! STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION In Re: BELUGA RIVER UNIT; BURGLIN, et al., Petitioner, VS. ARCO ALASKA, INC., Respondent, Conservation File No. BRIEF OF ARCO ALASKAr INC. I. INTRODUCTION Burglin's petition asks the Commission to form a drilling unit in Section 22 of Township 13N., Range 10W., S.M. Burglin proposes to drill a well on that portion of Section 22 which is within the boundary of the Beluga River Unit (BRU). This unprecedented request is inconsistent with fundamental principles of Unitization. If granted, the proposal would significantly harm Arco and the other working 'interest owners, as well as result in a significant windfall to Burglin. Moreover, the precedent created by granting the petition would have grave consequences for other field-wide units in Alaska. Accordingly, the petition must be denied. , RECEIVED DELANEY, WILES. HAYES. REITMAN : BRUBAKER. INc. ~.TTORN£YS AT LAW SUITE 400 o o 7 WEST $ RD AVENUE ~NCHORAGE, ALASKA (907) 279-358! applicable spacing regulations. 6 Williams & Meyers, Oil & Gas Law, § 905 at 13-14 (1964). AS 31.05.100 is Alaska's drilling unit statute. It authorizes the Commission, after a hearing, to create drilling units where certain findings are made. AS 31.05.100(a) provides: Sec. 31. 05.100. Establishment of drilling units for pools. (a) For the prevention of waste, to protect and enforce the correlative rights of lessees in a pool, and to avoid the augmenting and accumulation of risks arising from the drilling of an excessive number of wells, or the reduced recovery which might result from too small a number of wells, the Commission shall, after a hearing, establish a drilling unit or units for each pool. The establishment of a unit for gas shall be limited to the production of gas. Both the Commission and Judge Shortell considered the application of AS 31.05.100 to field-wide units in connection with their deliberations on Burglin's BRU petitions filed in 1977. s~,e, Conservation File No. 150 and Bur_91in v. The Alaska Oil and Gas Conservation Commission and Chevron U.S.A. Inc., .Civil No. 3AN-82-9250. The Commission' s October 14, 1982 Decision in Conservation File No. 150 (Arco Exhibit J-l) denied Burglin's 1977 petition. Burglin appealed that decision to Judge Shortell. The Commission and the producers' position before Judge Shortell was that it was unnecessary for the court to review the entire agency record. Rather, the Commission's decision could be affirmed solely on the basis of AS 31.05.110(b). Burglin took DELANEY, WILES, HAYES. REITMAN ~ BRUBAKER, INC. ATTORNEYS AT LAW SUITE 400 1007 WEST SRD AVENUE ~NCHORAG£. ALASKA (907) 279-358! This memorandum addresses the six issues designated by Commissioner Smith at the March 4, 1987 hearing (Tr. 5-6). We establish that the petition must be denied for a number of reasons and regardless of the interpretation of 20 AAC 25.055. We initially discuss the issue of the location of a drilling unit within a field-wide unit because the Commission has characterized that issue as a threshold issue (Pre-Hearing Conference transcript at 19-20), and because we believe it is dispositive of the petition. II. LAND INCLUDED WITHIN THE BOUNDARY OF A FIELD-WIDE UNIT CANNOT THEREAFTER BE INCLUDED WITHIN A DRILLING UNIT. 20 AAC 25.570(19) defines a "drilling unit" as the "area of a pool set by the Commission . . . to which no more than one oil or gas well may be drilled or produced." That definition is consistent with the usual definition of a drilling unit as the maximum area which may be efficiently and economically drained by one well. Nunez v. Wainoico Oil & Gas Co. , 488 So. 2d 955, 959 (La. 19,86) ; Bennon v. Gulf Oil Corp., 716 P.2d 267, 269 (Utah 1986). See qenerally, William & Meyers, Manual of Oil & Gas Terms, at 250-51 (1984). The drilling unit concept arose in response to situations where owners of small tracts were unable to drill because of applicable spacing regulations. The owners' remedy is to pool their interests and create a drilling unit so that collectively they control enough acreage to sat'isfy the DELANEY, WILES, HAYES. REITMAN ~ BRUBAKER, INC. ATTORN£YS AT LAW SUITE 400 ;007 WEST SRD AVENUE ~.NCHORAGE. ALASKA (907) 279-3581 exception to that proposition and argued that AS 31.05.100 could also provide a remedy. Judge Shortell consequently requested additional briefing with respect to the applicability of AS 31.05.100. See Exhibit 1 attached hereto. The parties then extensively briefed AS 31.05.100. The brief submitted by the Commission and the producers contained a general discussion of pooling and drilling units. It was not limited to the specific facts involved in Burglin's 1977 petition. That brief made two points which are relevant here: 1. AS 31.05.100 is a pooling statute which embraces a small tract concept. Where small tracts are not involved, the statute has no application. 2. AS 31.05.100 cannot be used to establish a drilling unit which includes land that is already a part of a field-wide unit. Commissioners Chatterton and Smith submitted affidavits in support of those positions. (Arco Exhibit K-1 & K-2). Paragraph 8 of those affidavits provides: "It is my opinion that land included within the boundaries of a unit agreement cannot thereafter be included within a drilling unit." Based on the commissioners' affidavits 'and the briefs of the parties, Judge Shortell concluded that the contentions of the Commission and the producers, as set forth above, were correct. Judge Shortell specifically stated: DELANEY, WILES, HAYES, REITMAN t: BRUBAKER, INC. ATTORNEYS AT I.AW SUIT£ 400 1007 WEST -qRD AVENUE 3, NCHORAGE. ALASKA (907) 279-358! I also find that appellees [the Commission and the producers] are entitled to summary judgment on the basis of their second argument~ i.e.~ that AS 31.05.100 cannot be used to join lands which are already part of a fieldwide unit. It is undisputed that appellees' lands, which appellants seek to join with through AS 31.05.100, are a part of fieldwide units, i.e., the Beluga River Unit and the Ivan River Unit. These lands are also not "small or irregularly shaped tracts" within the meaning and purpose of AS 31.05.100. I therefore find as a matter of law that AS 31.05.100 is not applicable. Arco Exhibit L-2 at 4-5 (Emphasis added). Judge Shortell's holding is a general proposition and is not limited to the facts involved in the 1977 petition. Accordingly, it is a matter of law in Alaska that a drilling unit cannot be formed to include land which is already included within the boundaries of a field-wide unit. For this reason alone, the Burglin petition involved here must be dismissed. III. 20 AAC 25.055 DOES NOT REQUIRE THAT THE BURGLIN PETITION BE GRANTED.1 20 AAC 25.055 was recently amended. The amendment, to be valid, must be consistent with AS 31.05.100. Section III.B. below demonstrates that if 20 AAC 25.055 is construed as establishing Section 22 as a drilling unit, then the regulation is unlawful. An alternative construction of the regulation, .. lwe believe the discussion contained in Section II above is dispositive of the Burglin petition. The remaining portion of this brief is included in light of the Commission's request that additional issues be addressed. However, our discussion of those issues should not be construed as an admission of uncertainty as to the dispositive effect of the issues addressed in Section II. REC IVE. D D£LANEY, WILES, HAYES, REITMAN 5 BRUBAKER, INC. ATTORNEYS AT LAW SUITE 400 1007 WEC~T -~RD AVENUE ANCHORAGE, ALASKA (907) 279-358! which is consistent with AS 31.05.100, is preferred. See 2A Sutherland Statutory Construction §45.11 (4th Ed. 1984). A. 20 AAC 25.055 Does Not Designate Section 22 As A Drillinq Unit For Gas 20 AAC 25. 055(a) (2) provides in material part: "a governmental section constitutes a drilling unit for gas exploration." Gas exploration is not involved here. 20 AAC 25.570(20) defines an "exploratory well" as "a well that is drilled to discover a pool." That definition is consistent with that provided by the American Geological Institute in its Glossary of Geoloqy and Related Sciences, 102: "A well drilled either (a) in search of a new and as yet undiscovered pool (of oil or gas), or (b) with the hope of greatly extending the limits of a pool already developed." Burglin's proposed well location is within the participating are of the Beluga River Unit. Under 11 AAC 83.351, the BRU participating area includes "only the land reasonably known to be underlain by hydrocarbons and known or reasonably estimated through use of geological, geophysical, and engineering data to be capable of producing or contributing to production of hydrocarbons in paying quantities." Pursuant to 11 AAC 83.356(b), the BRU participating area and the unit boundary are identical. Mr. Foley testified that .7855% of BRU production is allocated to that portion of Section 22 which is within the Unit. (Tr. 25). Section 22 has gas reserves of 8,193,889 mcf. DELANEY, WILES, HAYES. REITMAN 5 BRUBAKER, IN(:. ATTORN£Y~ AT LAW SUITE 400 1007 WEST Sl~l) AVENUE ANCHOEAGE, ALASKA (907) 279-358! (Arco Exhibit B). Thus, the Burglin well would not be an exploratory well. It would not be drilled to an as yet undiscovered pool, nor would it even extend the limits of the pool. Thus, gas exploration is not involved here. Accordingly, 20 AAC 25.055(a)(2) is inapplicable. Rather Subsection 4 of the regulation is controlling. It provides: [W]here gas has been discovered, not more than one well may be drilled to that pool on any governmental section, nor may any gas pool be opened to the well bore closer than 1,500 feet to any section line, nor closer than 3,000 feet to any well drilling to or capable of producing from the same pool. Subsection 4 is properly silent on the drilling unit issue because it ' addresses development wells. As such wells are typically drilled under a field-wide unit agreement, the formation of a drilling unit is unnecessary. By its plain terms, 20 AAC 25.055(a)(4) does not authorize or create drilling units. If this interpretation of 20 AAC 25.055 is adopted, there is no basis under which Burglin can drill a well within the BRU boundary. B. If 20 AAC 25.055(a) Is Construed As Establishing Section 22 as a Drilling Unit, Then It Is Inconsistent With AS 31.05.100. We acknowledge that 20 AAC 25.055(a) may be construed as establishing a drilling unit in Section 22. If the regulation DELANEY, WILES, HAYES, REITMAN ~ BRUBAKER, INc. ATTORN£YS AT ~.AW SUITE 400 1007 WEST 3RD AVENUE ANCHORAGE. ALASKA (g07) g79-3581 is so construed, it is inconsistent with AS 31.05.100 and therefore unlawful. AS 44.62.030. i. Under AS 31.05.100, a drilling unit may only be established after a hearing and on a pool by pool basis. AS 31.05.100(a) provides in material part: "[T]he Commission shall, after a hearing, establish a drilling unit or units for each pool." Thus, AS 31.05.100 expressly provides that (1) a hearing is required before any drilling unit may be established and (2) a drilling unit must be formed with a particular pool in mind. A drilling unit cannot be formed in the abstract without reference to a specific pool. In order to form the appropriate size drilling unit, the Commission must know the characteristics of the reservoir. AS 31.05.100(a) thus requires a hearing for each pool. Cf. La. Rev. Stat. Annot. § 30: 9B, as discussed in Digby, The Conservation Laws and Their Administration, 24 Tulane L. Rev. 155 , 158 ( 1949 ) . This result is further assumed by AS 31.05.100(b), which requires wells to be drilled in accordance with the spacing pattern described for the pool in which the well is located. Thus, a regulatory system which establishes each governmental section as a drilling unit for gas is inconsistent with this portion of AS 31.05.100. ii. Even though Burglin has been afforded a hearing, AS 31.05.100 still precludes the formation of a drillinq unit in Section 22. DELANEY. WILES, HAYES, R£1TMAN ~ BRUBAKER. INC. ATTORNEYS AT LAW $1JITE 400 1007 WEST 3RD AVENUE ANCHORAGE, ALASKA (907) 279-358! In addition to the requirement of a hearing, AS 31.05.100(a) further provides that the Commission can only establish a drilling unit where it is satisfied that each of the following criteria are met: 1. The establishment of a drilling unit will prevent waste; 2. The establishment of a drilling unit will protect and enforce the correlative rights of lessees in a pool; and 3. The establishment of a drilling unit will avoid the augmenting and accumulation of risks arising from the drilling of an excessive number of wells, or the reduced recovery which might result from too small a number of wells. None of these criteria can be satisfied here. (a). The formation of a drilling unit will not prevent waste. The Beluga River Gas Field is a dry gas accumulation. (Arco Exhibit J-l, Page 12, ~ 6; Arco Exhibit J-2, Page 2, ~ 1). Accordingly, the drilling of an additional well by Burglin "will not substantially increase the ultimate recovery of gas." (Arco Exhibit J-2, Page 2, ~ 4). Thus, waste is not an issue. (b) Burglin's correlative rights are not in jeopardy. AS 31.05.170(2) defines the term "correlative rights" as: The opportunity afforded, so far as is practicable to do so, to the owner of each property in a pool to produce without waste the owner'~ just and equitable share of the oil or gas, or both, in the pool; . . . DELANEY, WILES, HAYES. REITMAN ~ BRUBAKER, INc. ATTORNEYS AT LAW SUITE 400 :007 V~EST -qRD AVENUE ~NC;HORAGE. ALASKA (907) 279-3581 Emphasis added. Professor Kuntz characterizes correlative rights as "the right to a fair opportunity to extract oil or gas". 1 Kuntz, Treatise on the Law of Oil & Gas (1962) §4.7 at 101. The Burglin lease in question, ADL 326070, encompasses approximately 4,190 acres. (Arco Exhibit F-7). Thus, Burglin controls more than sufficient acreage to drill a well. Indeed, he has always been free to drill on his lease. His opportunity to drill has never been impaired. Mr. Player testified that he believed a well drilled on the Burglin lease would likely be a producer. (Tr. 50). Given this testimony, Burglin's petition is wholly unnecessary. It should be noted that we believe there is no gas beneath the Burglin lease (see Mr. Foley's testimony at Tr. 23-24). Even assuming Burglin's acreage is being drained, no correlative right issue is raised. Burglin's opportunit.y to drill his land remains unimpaired. That opDortunity is all that is encompassed by correlative rights. (c) Burglin's proposed well is unnecessary and therefore excessive. It may reasonably be inferred that the existing BRU wells are sufficient to meet the needs of the producers' customers. Otherwise, additional wells would be drilled. Hence, the proposed Burglin well is unnecessary and excessive. 10 DELANEY, WILES, HAYES, REITMAN ~: BRUBAKER, INC. ATTORNEYS AT LAW SUITE 400 1007 WEST 3RD AVENUE ~.NCHORAGE. ALASKA (907) 279-:3581 Arco would be harmed if the Commission grants the petition. Arco would be required to contribute to an unnecessary well. A well at Burglin's proposed location is simply not needed at this time: Arco's production requirements are presently satisfied and the well would not extend the known limits of the field. Such a well would disrupt the ordinary and prudent development of the Beluga River Unit. In sum, before a drilling unit can be properly established, three findings must be made. None of of those findings can be made here. (d) The petition must be dismissed in any event because Burglin failed to submit any evidence with respect to the AS 31.05.100(a) criteria. As the petitioner in this matter, the burden of proof was on Burglin to at least attempt to submit evidence with respect to the three criteria contained in AS 31.05.100(a). As Commissioner Smith correctly noted (Tr. 17), Burglin failed to put on any witnesses with respect to these criteria. Burglin's testimony consisted solely of general statements. Id. Thus, even assuming Burglin could theoretically satisfy the AS .31,05.100 (a) criteria, the petitions must be dismissed because the record is devoid of any evidence to that effect. IV. BLM APPROVAL IS REQUIRED FOR THE FULL RELIEF REQUESTED BY BURGLIN At both the pre-hearing conference and the hearing, the Commission raised the issue of its authority vis-a-vis that of 11 DELANEY, WILES. HAYES. REITMAN k BRUBAKER. INC. ATTORNEYS AT LAW SUIT£ 400 007 WI[ST ~RD AVENUE ~,NCHORAGE:. ALASKA (907) 279-358! the Bureau of Land Management (BLM). The Beluga River Unit is administered jointly by both the BLM and the State of Alaska, Department of Natural Resources. (Arco Exhibit E-2). This is because the unit contains both federal and state lands. AS 31.05.027 sets forth the Commission's authority on federal lands. It provides in material part: The authority of the Commission. . . applies to land of the United States . . . so far as an officer of the United States having jurisdiction , or an authorized representative, shall approve . . . orders of the Commission which affect land. The Federal Mineral Land Leasing Act of 1920, 30 U.S.C. ~226(j), requires the Secretary of the Interior to approve unitization or pooling agreements which affect federal lands. The Department of the Interior and state and federal courts have uniformly interpreted this to mean that state conservation commissions are without authority to bind federal land without the consent of the Department' of the Interior. Kirkpatrick Oil & Gas Co. v. United States, 675 F.2d 1122, 1125-26 (10th Cr. 1982). This is in aCcordance with AS 31.05.027. Since the Burglin petition, if granted, would affect federal lands, BLM approval is required pursuant to the above authorities. Accordingly, any order of the Commission which affects the land encomPassed within the Beluga River Unit is contingent upon BLM approval. The Burglin petition may of course be denied without such approval. 12 DELANEY, WILES. HAYES, REITMAN ~ BRUBAKER, INC. ATTORNEYS AT LAW SUITE 400 1007 WEST 3RD AVENUE ANCHORAGE:. ALASKA (907) 279-3581 V. CONCLUS ION The Burglin petition must be denied because it seeks to include land within a drilling unit which is already included within the boundaries of field-wide unit. 11 AAC 25.055 does not mandate a contrary result. That regulation may be reasonably construed as not creating a drilling unit in connection with a development well. Finally, Burglin cannot satisfy any of the requirements of AS 31.05.100 with respect to the establishment of a drilling unit. For all of the foregoing reasons, the Burglin petition must be dismissed. DATED at Anchorage, Alaska, this 25th day of March, 1987. DELANEY, WILES, HAYES, REITMAN & BRUBAKER, INC. Attorneys for Arco Alaska, Inc. By: 'St~hen M. Ellis 13 IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT BURGLIN, ET AL. and CALL, Appellants, VS. ALASKA OIL AND GAS CONSERVATION COMMISSION and CHEVRON U.S.Ad, INC~, Appellees. Case No. 3AN-82-9250 Civil ORDER This matter having come before the Court on appellee's motion for reconsideration, and the court having considered appellee's arguments, , IT IS HEREBY-ORDERED that the appellees may submit an additional brief, limited to the issue of the applicability of AS 31.05.100 to this proceeding. Appellants shall respond to this motion within the time limits applicable to motions for summary judgment under Civil Rule 72. DATED at Anchorage, Alaska this ~day of January 1984. BRIAN SHORTELL SUPERIOR COURT JUDGE I certify that on /". .._~-,. hand del~verc~l ,~t,,,r,,?~'--' and or individuals : h,ol/- Z, ld re.~se$ / -- EXHIBIT 1 C. Burglin Land Consuimn! P.O. Box 131 Fairbanks. Alaska 99707 (907) 452-5149 March 17, 1987 Co~nissioner Lonnie Smith Alaska Oil and Gas Conservation Commission 3001 Porcupine Anchorage, Alaska 99501 Re: Application of Burglin et al (Burglin) requesting the Commission to order the pooling and integration of interests within Section 22, ~3N, R10W, S.M~ for the purpose of developing Section 22 as a gas drilling unit. Dear Conmnissioner Smith: Burglin et al (Burglin) is hereby submitting a copy of the pre-hearing conference held on 2-24-87 to be included as an exhibit to the formal public hearing held on 3-4-87. The pre- hearing conference was attended by all parties. The pre-hearing conference was referenced by all parties'at the 3-4-87 public hearing: Con%uissioner Lonnie Smith: pg; 3, line 14;~pg~ 5, lines 13-14; pg; 36, lines 15-26; pg. 37, lines 1-2; pg. 72, lines 18-20; pg; 76, lines 21-22; Mr; Ellis: pg~ 57, lines 17-23; pg. 64, lines 6-7; Mr. Brian Burglin: pg. 14, lines 23-24; pg; 21, lines 3-7. Burglin feels that acceptance of the pre-hearing conference held on 3-4-87 by the Commission is essential for establishing con- tinuity in this proceeding; Burglin would also like to point out that Commissioner Chat Chatterton was acting as chairman of the Alaska Oil and Gas Conservation Co~%nission (AOGCC) at the pre-hearing conference held on 2-24-87. Commissioner Chatterton did not recuse himself from any further participation in pro- ceedings or con~unications involving the subject application until 2-27-87; Burglin would like to reiterate the undisputed facts as presented at both the pre-hearing 2-24-87 conference and the public hearing 3-4-87' (1) It is Burglin's intent to drill a gas well in Section 22, T13N, R10W, SiM, (2) Under 20AAC 25;055 (a)(2)(4)(d)a governmental section constitutes the drilling unit for a gas well. (3) There ar~ no gas wells existing, abandoned, producing, or permitted to be drilled in Section 22, T13N, R10W, S.M.. (4) Burglin and Arco et al (Arco) both own property and gas rights located within Section 22, T~3N, R10W, S.M., and have failed to voluntarily pool and integrate their interests in Section 22' p FCF!VFD MAR 2 C. Burglin Land Cons-iron; P.O. Box 131 Fairbanks. Aiaska 99707 (907) 452-5149 CDmmissioner Lonnie Smith March 17, 1987 page 2 (5) Burglin has a right to drill a well on his lands in Section 22 to produce gas. (6) Tr~e commission has not adopted special pool rules under 20AAC 25.520 for the Beluga River Unit field. (7) The State of Alaska is the landowner of all lands within Section 22. The Arco leases, parts of which are lo- cated within Section 22 contain a 12%% royalty interest to the State of Alaska. The Burglin lease, part of which is located within Section 22 contains a 27% royalty to the State of Alaska. (8) Under 20AAC 25.055 (d) "If two or more separately owned properties are embraced within ::: a governmental section to be drilled, or a well re-entered for gas, persons owning the oil or gas rights may voluntarily pool their separate interests to form a drilling unit: A copy of the pooling agreement must be submitted to the commission. If one or more persons owning oil and gas rights fail to voluntarily pool their interests, the commission, upon petitio~ or its own motion, and after public hearing, will, in its discretion, issue an order pooling the owner's interests for the development of their land as a drilling unit:" Keepiag in mind these undisputed facts Burglin will now respond in detail to each of the Commissions six questions which were presented at the 3/4/87 public hearing: (1) Does the Commission have authority to'act on subject request by Burglin'under Alaska statute, Tilte 31, Chapter Five, Sections 27and 1007 Burglin feels that there is little doubt that the Alaska Oil and Gas Conservation ~k~muission has authority over drilling units and well spacing on all lands within the State of AlaskaJ It is clear the commission has authority under Section 31:05~030, POWERS AND DUTIES OF coMMIsSION. (a)" The commission has jurisdiction and authority oNer all persons and property, public and private, necessary to carry out the purposes and intent of this chapter...(c) The commission shall adopt regulations and orders and take other appropriate action to carry out the purposes of this chapter...(e) The C. Burglin Land [.z)nsutmn! P.O. Box 131 Fairbanks. Aiaska 99707 (907) 452-5149 Commissioner Lonnie Smith March 17, 1987 page 3 conmmission may regulate, for conservation purposes (1) the drilling, producing and plugging of wells; ... (3) the spacing of wells'- ' And under 20AAC 25~515 U2S. GOVERNMENT LEAS~' #A person, including a federal agency, drilling for or producing oil or natural gas or conducting underground injection activities related to the recovery and production of oil or gas on federal land shall comply with all applicable regulations and orders of the commission." Additionally, under Section 31 .05.027. LAND SUBJECT TO COMMISSION"S AUTHORITY. "The autho.rity of the commission applies to all land in the state lawfully subject to its police powers. It applies to land of the United States or to land subject to the jurisdiction of the United States only to the extent that control and supervision of conser- vation of oil and gas and prevention of waste of the United States on its land fails to carry out the intent and purposes of this chapter, and otherwise applies to federal land so ' far as an officer of the United States having jurisdiction, or an authorized representative, shall approve any of the provisions of this chapter or orders of the commission which affect land. The authority of the co,~nission further applies to all land included in a cooperative or unit plan of development or operation entered into in accordance with AS 38 :'0511 80 (p) '~" Also,' under Section 31 .05.060. ACTION BY COMMISSION. (a) 'The comission may act upon its own motion, or upon the petition of an interested person. On the filing ora petition concerning a matter within the jurisidiction of'the commission under this chapter, the conm~ission shall promptly fix a date for a hearing, and shall cause notice of the hearing to be given l The hearing shall be held without undue delay after the filing of the petition. The .- co~mission shall enter its order within 30 days after the hearing... (b)... Any action by the comm/ssion under this chapter that has application to a single well or single field nccd not comply with the pro-' visions of AS44.62.330-44.62.630, but shall be performed in accordance:~with regulations of the commission designed ~o afford persons affected by the action notice and an opportunity to be heard.' C. Burglin Land Consultan! P.O. Box 131 Fairbanks. Alaska .c~9707 (907) 452-5149 (k~-i ssioner Lonnie Smith March 17, 1987 page 4 Obviously, drilling units and well-spacing are designed to prevent waste and protect the correlative rights of all lessees in a pool.(Pool is defined: p.A26, Section 31 .05.170 Definitions '- ~T~. ) Burglin feels strongly that the English language is very clear with regard to the authority of the Alaska Oil and Gas conservation Commission as a quasi-judicial agency, to issue orders concerning drilling units and ~ell-spacing. (2) Does the drilling units and well spacing regulation, Title 20, Alaska Administrative Code, Chapter 25, Section 055(a)(4) establish a gas drilling unit as a governmental section in this case where no special pool rules order has established otherwise? It is quite clear from the undisputed facts that no gas wells have been drilled in Section 22, Tq3N, R10W, S.M. It is also clear that the comission has not adopted any special pool rules for the Beluga River Unit field in accordance with 20 AAC.25.520. Under 20AAC 25,055~ DRILLING UNITS AND WELL SPACINGo(a) "In proven oil~'and~gas~fields~.the establishment of drilling units and a spacing pattern may be governed by special pool rules adopted in accordance with 20 AAC 251520. In the absence of an order by the comission establishing drilling units or prescribing a spacing pattern for a pool, the following apply: (2) a governmental .section constitutes the drilling unit for gas exploration; the surface location for a well ex- ploring for gas must be at least 1 500 feet from the drilling unit boundary; .... (4) where gas has been discovered, not more than one well may be drilled to'that pool on any g~vernmental section, nor may any gas pool be opened to the well bore closer than" 1500 feet to any section line, nor closer than 3000 feet to any well drilling to or capable of producing from the same pool' (d) If t.~. or more separately owned properties are ~braced within a governmental quarter section to be drilled, or a well re-entered for oil, or a governmental section to be drilled, or a well re-entered for gas, persons owning the oil or 9as rights may ~luntarily pool their separate interests to form a drilling unit' A copy~ of the pooling agreement C. Burglin Land Consutmm P.O. Box 131 Fairbanks. Alaska 99707 (907) 452-5149 Co~nissioner Lonnie Smith March 17, 1987 page 5 must be su/mmitted to the commission. If one or more persons owning oil and gas rights fail to voluntarily pool their interests, the comission, upon petition or its own motion, and after public hearing, will, in its discretion, issue an order pooling the owner's interests for the develo~ent of their land as a drilling unit.' Although gas has been discovered in paying quantities in the Beluga and Sterling pool by drilling, no gas in pay- ing quantities has been discovered by drilling in Section 22, T~3N, R10W, S~Mi The productive limits of the Beluga and Sterling pools have been reasonably estimated and not clearly delineated by drilling. The Co~mission has already issued Conservatuon Order No~ 217 regarding THE DRILLING OF PRETTY CREEK UNIT WELL NO. 224-28 dated 7/18/86, and has ruled that: "FINDINGS: ::, 4~ In the absence of an order by the Commission issued under AAC 25.520 establishing a well spacing pattern for a pool, 20 AAC 25'.055 (a) (4) establishes a governmental section as the drilling unit for gas develop- ment wells and sets out the well spacing requirements .... 11. The spacing requirements established by 20 AAC 25.055 (a) (4) protect correlative rights and prevent waste." (See enclosure ): This was also acknowledged by ~evron's attorney, Mr. J.D. Arlington, at the Pretty Creek Unit well-spacing hearing on 6/26/86, Statement ~8: "The current AOGCC regulations would limit to one the n,-~her of wells that could be drilled within any governmental section in a unit not subject to field rules:" It is:again obvious that 20 AAC 25,055 (a)(2)(4) establishes a goverrunental section as a gas drilling unit for both development and exploratory gas wells where no special pool rules have otherwise been adopted. ("~rilling Unit' is de- fined: pi' 1-38, 20 AAC 25~570: DEFINITIONS. (19); "Develop- ment Well" is defined: p2 1-38, AAC 25~570, DEFINITIONS. (16); 'Exploratory Well' is defined: p: 1-38, AAC 25.570: DEFINI-. TIONSi (20); 'Correlative Rights" is defined: p. A-26, Section 31'-'05 :170 2 Definitions. (2); "Owner" is defined: p2 A-26; Section 31.051170. Definitions. (9).) (3) Can lands that are already part of the fieldwide Beluga River Unit be involuntarily pooled and their interests integrated under C. Burglin Land Consu~nt P.O. Box 131 Fairbanks. Alaska 99707 (907) 452-5149 Commissioner Lonnie Smith March 17, 1987 page 6 AS 31 .05:100(c) so that a permit may be issued for drilling a well from any such governmental section? "Unit" is defined under AAC 25.570, DEFINITIONS. p. 1-39 (38): "Unit means an aggregation, by voluntary agreement, or order of the con~nission, of properties overlying a pool to form a single property unit for the purpose of pool development and operation in a manner to prevent waste, in- sure g~eater ultimate recovery of oil and gas and protect correlative rights~" "Property" is defined under AAC 25:570. DEFINITIONSi p;I-38 (30): "Property means a legally described tract of land, sulmnerged or otherwise, to which a person has the exclusive right to drill, extract, remove, clean, process and dispose of oil, gas, and associated substances." Section 38.05:1 80: Oil And Gas Leasing .states: (s)"When separate tracts cannot be individually developed and operated in conformity with an established well-spacing or development program, a lease, or portion of a lease, may be pooled with other land, whether or not owned by the state, under a co~nunization or drilling agreement providing for an apportion- ment of production or royalties among the separate tracts of land comprising the drilling or spacing unit when deter- mined by the commissioner to be in the public interest. Operations or production under the agreement are considered as operations or production as to each lease committed to the agreement '-" It is clear that under State of Alaska leasing statutes that any lease or portion of a lease may be pooled with other land to form a drilling-or spacing unit: Certainly the Beluga River Unit, as a single property, would be con- sidered as other land within the State of Alaska: It is also clear ~nder 38 ;05;180 (s) that Mr. Ellis' theories on "small tracts?" have no merit: It has been acknowledged by all parties that portions of State leases are located within Section 22 :' Under Section 31.05.100 Establishment of drilling units for pools: (c) "When two or more' separately owned tracts of land are embraced within an established" drilling unit, persons owning the thrilling rights' in it and the right to share in the production from it may agree to pool their interests and develop their lands as a drilling unit. If the persons do not agree to pool C. Burglin Land Consultant P.O. Box 131 Fairbanks. Alaska 99707 (907) 452-5149 Commissioner Lonnie Smith March 17, 1987 Page 7 their interests, the comission may enter an or, er pooling and intecFratinq their interests for the development of their lands as a drilling unit for the prevention of waste, for the protec- tion of correlative riqhts, or to avoid the drilling of unnecessary wells; Orders effectuating such pooling shall be made after notice and hearing, and shall be u~on terms and conditions which will afford to the owner of each tract the opportunity to recover or receive the owner's just and equitable share of the oil and gas in the pool without unnecessary expense~ operations incident to the drllinq of a well upon a portion of a unit covered by a pooling order shall be considered for all purposes to be the conduct of the operation upon each separately owned tract in the unit by the several lessees of it~ The portion of the production allocated to the lessee of each tract included in a drllin~ unit formed by a pooling order shall~ when produced, be considered as if it had been produced from a tract by a well drilled on it. If pooling is effectuated, the cost of development and operation of the pooled unit chargeable by the operator to the other interested lessee is limited to the actual and reasonable ex- penditures for this purpose, including a reasonable charge for supervision~ As to lessees who refuse to aqree upon pooling, the order shall provide for reimbursemnet for costs chaz~eable to each lessee out of, 'and only out of~ production from the. unit belonqinq to such lessee; In the event of a dispute re- lative to the costs, the comission shall determine the proper costs upon notice to all interested parties and hearing. Appeals may be taken from the determination as from any other order from the commission~ If a lessee drills and operates, or pays the e.~x~ense of d_~i!ling and operating the well for the benefit of others, then in addition to any other right conferred by the ~ooling order, the lessee drilling or operating has a lien on the share of production from the unit accruing to the interest of each of the other lessees for the payment of the proportionate share of such expenses; All the oil and gas subject to the lien as ~s necessary shall be marketed and sold by the creditor, and the proceeds.applied in payment of the expenses secured by the lien, with the balance, if any, payable to the debtor." Again~ it is undisputed that both Burglin and Arco own drilling rights on separatley owned leases located within Section 22. It is also undisputed that Burglin and Arco have not voluntarily agreed to pool and integrate their interests for the development of Section 22 as a gas drilling unitl Unitization of leases to form a single lease or property does not exempt those property C. Burglin L~nd Consutmm P.O. Box 131 Fairbanks. Alaska 99707 (907) 452-5149 Co~nissioner Lonnie Smith March 17, 1987 page 8 owners from adherence to drilling units and spacing statutes and regulations ~ (4) Could a (k.mmission order under AS 31 .05:100 and/or 20 AAC 25~055 allow a cross conveyance of interest for location of any such well permitted? Burglin does not believe it takes a cross-conveyance or assignment of leasehold interest in order to effectuate pooling and integration of interests: In most cases it is only necessary to pool and integrate working interests and royalty interests of each separately owned tract of land embraced within a governmental section to be drilled: Each property owner embraced within a gas drilling unit would always retain their separate share of production, if any. (5) what terms and conditions of integrated interest other than those specified in AS 31 ~05:100(c) will afford the owner of each tract the opportunity to recover or receive a just and equitable share of gas should a well drilled subsequent to pooling and integration of interest be capable of producing gas? Burglin feels that in an involuntary drilling unit, the' Working Interest Owners who did. not voluntarily agree to pool and integrate their working interests within the drilling unit should be subject to the same penalties and conditions as a non-Participating Working Interest Owner in the near- est approved unit: In this case the Beluga River Unit~ (6) Is integration .of interest in the subject drilling unit necessary to prevent waste, to protect correlative rights or to avoid the drilling of unnecessary wells? The primary purpose of drilling units and well-spacing are to prevent both physical and economic waste, and protect correlative rights of all property owners, from the drilling of an unnecessary excessive n,-~her of wells, Under Rules of Capture it is clear every property or lease owner has a right to drill a well on their property or lease~ Obviously drilling units and well-spacing were designed for conservation pur- poses to limit surface and subsurface environmental impact and economic waste l For example, if there were five (5) separately owned tracts embraced within a governmental sec- tion in a wetlands area, Burglin cannot envision the Alaska Oil and Gas Conservation Commission allowing the' drilling of five (5) gas wells in order for each property owner to protect their correlative rights l Voluntary and involuntary drilling units in conjunction with well-spacing were specific- .. C. Burglin Land Consuttan! P.O. Box 131 Fairbanks, Aiaska 99707 (907) 452-5149 (k~m~issioner Lonnie Smith March 17, 1987 page 9 ally designed to prevent these situations. In these pro- ceedings any gas well drilled within the Eastern half of governmental section 22 will affect the correlative rights of Arco, the other property owner of lands embraced within governmental Section 22, In sun~ary, Burglin's representative has physically inspected Section 22, T13N, R10W, Seward Meridian and identified Section 22 as a wetlands area~ Burglin's primary well location in Section 22 will prevent both physical and economic waste, The BRX 22-1 well will help clearly delineate the productive limits of both the Sterling and Beluga gas pools~ It is necessary for the AOGCC to pool and integrate the Burglin and Arco interests in Section 22 in order to prevent economic and physical waste and to protect the correlative rights of both Burglin and Arco, the separate property owners located within Section 22. P~oling and in- tegration of interests will also protect the royalty owner, the State of Alaska's interest in Section 22~ For these reasons, Burglin feels the Commission should issue an order under Section 31.05~100 (c) pooling and integrating the Burglin and Arco interests e~braced within Section 22, T13N, R10W, Seward M~ridian for the development of Section 22 as a gas drilling unit~ Sincerely, Brian Burglin enclosures cc: Steve Ellis Alaska Oil and Gas Conserwation Commission . ~ DEPART IENT OF LANV OFFICE OF THE A7'7'ORNEY GENERAL March 11, 1987 STEVE COWPEF. CO%,"ERNOR R EPL Y TO: ~1037 W 4th A VENUE SUITE 200 ANCHORAGE, A/_ASKA 99501 PHONE: (907) 276.3550 [] 1.~ NA TIONA L CENTER 100 CUSHMAN ST. SUITE 400 FAIRBANKS, ALASKA 99701 PHONE: (9071 452-15E,8 [] P.O. BOX K-STATE CAPITOl. JUNEA U, ALASKA ,99811 PHONE: (907) 465.3600 Stephen Ellis, Esq. Delaney, Wiles, Hayes, Reitman & Brubaker, Inc. 1007 West Third Avenue, Suite 400 Anchorage, Alaska 99501 Mr. Cliff Burglin P. O. Box 131 Fairbanks, Alaska 99707 Re: Burqlin, et al., applicant v.. ARCO, et a!.,...respondent Dear Messrs. Ellis and Burglin: It has come to my attention that, following the March 4, 1987 hearing, one of the participants in the hearing engaged a Commissioner in an ex parte communication, which included a reference to the proceedings in this matter (%ee memorandum to FILE/B~r~!in, et al., attached). The Commission requests your cooperation in assuring that all further communications which concern this case, between interested parties and Alaska Oil and Gas Conservation Commission staff, occur only in the presence of .. both parties. Thank you. Sincerely, GRACE BERG SCHAIBLE ATTORNEY/~/i[~I~..~GENEt~Lo~~.~,~,//~, ,? . By: Michael G. H hkin Assistant Attorney General MGH/ma enclosure cc: Lonnie C. Smith, Commissioner, AOGCC MEMORANDUM State of Alaska ~ALASKA OIL & GAS CONSERVATION COmmISSION TO: FILE/Burglin, et. al. DATE: March 5, 1987 THRU: FILE NO.: I.LCS. BER TELECOP¥ NO: 276-7542 TELEPHONE NO.: 279-1433 FROM: Lonnie C. Smith Commissioner SUBJECT: My informal discussion with Mr. Gary Player subsequent to the pub lic hearing The following is my best recollection of the essence of my discussion with Mr. Player yesterday afternoon following the hearing that was held that morning. On Wednesday afternoon of March 4, 1987 Mr. Player, a geologist for Burglin, et al. came to our office and requested to see me. At the time I thought nothing of this since he is frequently in our offices reviewing various well logs and well files (he had been in our office library most of Monday and Tuesday, March 2nd and 3rd. At first, we casually passed remarks about the hearing that morning being over. He told me he was working on a prospect to drill a well near a previous gas discovery which was completely on a Burglin lease and implied ~hat it would not require any special request or hearing such as we were involved in with subject property. I told him I hoped not and we laughed. I asked more about the property and we looked at its location on a map and discussed how it could be drilled. Some reference was made to the hearing held that morning and he said that Cliff (Burglin) was disappointed with it from the standpoint that he thought that the purpose of the pre-hearing conference was to narrow the issues and that the issues at the hearing seemed to be broader. He did not say specificly what issues they thought were out of line and I did not inquire about them. I concurred that the pre-hearing conference was to narrow the issues and that I had attempted to do that at the hearing by focusing on the six questions I had concluded from the pre-hearing conference record. I told him that it did not preclude new points being made and that was certainly what had occurred. I also pointed out that both sides had been given the same opportunities; that it was still open until the briefs were filed; and said I hoped both parties would dig in and file thorough.briefs to aid the Commission in making the best deter- mination. Mr. Player started to ask a question concerning the hearing and I interrupted him and informed him that we really should not discuss the case further. He thanked me and departed. cc: Michael Hotchkin - Assistant Attorney General TELECOPY NO: (907) 279-1433 Stephen M. Ellis ARCO Alaska, Inc. P. O. Box 100360 Anchorage, Alaska 99510-0360 Re: Request by Burglin, et. al. for the Commission to order the pooling and integration of interests within Section 22, T13N, R10W SM. Dear Mr. Ellis: A hearing on subject request will be held as required for such matters by Alaska Statutes and our regulations. The hearing is to be at 9:00 AM on Wednesday, March 4, 1987, at our office, 3001 Porcupine Drive, Anchorage, Alaska. A pre-hearing conference has also been requested.and has been set for 9:00 AM on Tuesday, February 24, 1987, at the same address. Please call me at 279-1433 should any problem arise with these appointments. Very~ truly ~onnie t2. Sm±th ¢omm:l.s s dlf: 1.LCS. 10 cc: Pat Foley, Sr. Landman - ARCO Alaska, Inc. James Eason, Director - DNR/Division of Oil & Gas Joseph Dygas, Branch Chief - Bureau of Land Management TELECOPY NO. (907) 276-7542 February 27, 1987 Mr. Stephen Ellis Delaney, Wiles, HaYes, Reitman & Brubaker, Inc. Suite 400 1007 West 3rd Avenue Anchorage, Alaska 99501 Mr. Cliff Burglin P. O. Box 131 Fairbanks, Alaska 99707 Gentlemen: The purpose of this letter is to memorialize and act upon Mr. Cliff Burglin's February 27, 1987 telephone call to Mr. Chat Chatterton regarding the Appearance of a potential conflict of interest revealed by Chatterton at the February 24, 1987 pre-hearing conference review of the Burglin, et. al. request for a Commission order integrating interests within Section 22, T13N, R10W SM, a gas well drilling unit. Mr. Cliff Burglin asks that Chat Chatterton remove himself from further participation~in hearings and subsequent deliberations with respect to the subject application for a Commission order. To prevent the appearance of impropriety, Chat Chatterton hereby recuses himself from any further participation in proceedings or 'communications involving the subject application. AS 31.05.011 provides for two members of the commission to constitute a quorum for the performance of a duty. Henceforth the subject application ~f C. Burglin, et. al. for a Commission order will be acted-up~n exclusively by Comm~issioners Smith and Barnwell. S~ erel C. V. Chatternon Chairman Lonnie C. Smith Commissioner BY ORDER OF THE COMMISSION dlf: 1.CVC. 14 CC: Pat Foley, ARCO Alaska, Inc. Joe Dygas, Bureau of Land Management Kate Fortney - Department of Natural Resources Mike Hotchkin - De~t of Law TELECOPY NO: (907) 279-1433 February 17, 1987 Brian Burglin P. O. Box 131 Fairbanks, Alaska 99707 Re: Request by Burglin, et. al. for the Commission to order the pooling and integration of interests within Section 22, T13N, R10W SM. Dear Mr. Burglin: · A hearing on subject request will be held as required for such matters by Alaska Statutes and our regulations. The hearing is to be at 9:00 AM on Wednesday, March 4, 1987, at our office, 3001 Porcupine Drive, Anchorage, Alaska. A pre-hearing conference has also been requested and has been set for 9:00 AM on Tuesday, February 24, 1987, at the same address. Please call me at 279-1433 should any problem arise with these. appointments. Very, truly ~o~u~s, onnie C. Smith. Co~ssioner dlf: 1.LCS. 10 CC: Pat Foley, Sr. Landman - ARCO Alaska, Inc. James Eason, Director - DNR/Division of Oil & Gas Joseph Dygas, Branch Chief - Bureau of Land Management DELANEY, WILES, HAYES, REITMAN & BRUBAKER. INC. ATTORNEYS AT LAW SUITE 400 IO07 WEST 3RD AVENUE ANCHORAGE. ALASKA (907) 279o358! STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION re: Request of Burglin, et al. for ) the Commission to order the ) pooling and integration of ) interests within Section 22, ) T13N, R10W S.M. ) ) REQUEST FOR PRE-HEARING CONFERENCE ARCO Alaska, Inc. hereby requests a pre-hearing conference to be scheduled at the Commission's earliest convenience pursuant to AS 31.05.030(c). The purpose of the pre-hearing conference would be to: 1. Simplify, clarify and limit the issues, eliminate immaterial issues, and dispose of issues which are not in dispute; 2. Arrive at stipulations regarding uncontested facts and, if applicable, the genuineness of documents; 3. Dispose of any other matter which will expedite the hearing or a disposition of the matter. DATED at Anchorage, Alaska this ~ day of February., 1987. Al~sk:'~ O',t & G~ ;3ohs. [;ommissior', DELANEY, WILES, HAYES, REITMAN & BRUBAKER, INC. Attorneys for ARCO Alaska, Inc. S Ellis DELANEY, WILES, HAYES, REITMAN & BRUBAKER, INc. ~,TTORNEY$ AT LAW SUITE 400 1007 WEST SR~ AVENUE ANCHORAGE. ALASKA (907) 2?g-RS81 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION re: Request of Burglin, et al. for ) the Commission to order the ) pooling and integration of ) interests within Section 22, ) T13N, R10W S.M. ) ) AFFIDAVIT OF SERVICE BY' MAILING STATE OF ALASKA ) )ss THIRD JUDICIAL DISTRICT ) Katherine L. Mosby, being first duly sworn upon oath, deposes and says that she is employed by the firm of Delaney, Wiles, Hayes, Reitman & Brubaker, Inc., Attorneys, 1007 West Third Avenue, Suite 400, Anchorage, Alaska, and that on the 13th day of February, 1987, she caused to be mailed the following documents: REQUEST FOR PRE-HEARING CONFERENCE and PROTEST OF ARCO ALASKA, INC. by placing the same postage paid and properly addressed to: Brian Burg!in P. O. Box 131 Fairbanks, Alaska 99707 Joseph Dygas Branch Chief, Oil and Gas Operations Bureau of Land Management P. O. Box 230071 Anchorage, Alaska 99510 James Eason, Director Division of Oil and Gas P. O. Box 7034 Anchorage, Alaska 99510-0734 D~'LAN~Y, WILES, HAY£S, R~ITMAN ~ BRUBAKER. INC. ATTORNEYS AT LAW SUITE 400 1007 WEST SRD AVENUE ~NCHORAGE. ALASKA (907) 279-3581 in a receptical provided by the SUBSCRIBED AND February, 1987. United States Post Office. SWOR~N ~O before me,his 13th day ~t~Ymm~sU'sb~Cn iE~p ~ ed s f: °,~a,~ of DELANEY. WILES, HAYES. R]~ITMAN & BRUBAKER. INC. ~,TTORNEY$ AT LAW SUITE 400 1007 WEST 3RD AVENUE ANCHORAGE. ALASKA (907) 279-3581 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION re: Request of Burglin, et al. for ) the Commission to order the ) pooling and integration of ) interests within Section 22, ) T13N, R10W S.M. ) ) PROTEST OF ARCO ALASKAr INC. Pursuant to the Commission's Notice of Public Hearing dated January 30, 1987, ARCO Alaska, Inc. (ARCO), as operator of the Beluga River Unit, hereby requests a hearing in connection with the above-referenced matter.1 Burglin's January 15, 1987 letter to the Commission appears to constitute a request to form an involuntary drilling unit under AS 31.05.100(c). Neither AS 31.05.100, nor the applicable regulation, 20 AAC 25.055, contemplates or authorizes such a unit under the facts involved here. Both the Commission and Judge Shortell have already determined that AS 31.05.100 has no application to this type of petition. The Commission's recent modification of 20 AAC 25.055 does not require a different result. These points will be more fully developed in the pre-hearing brief which ARCO intends to file prior to March 4, 1987. 1ARCO notes that under AS 31.05.'060(a) a hearing appears to be required even absent a formal request by ~ARCO. DELANEY, WILES, HAYES, REITMAN a BRUBAKER, INC. ATTORNE'Y$ AT LAW SUITE 400 1007 WEST 3RD AVENUE ANCHORAGe'. ALASKA (907) 279-3581 1987. DATED at Anchorage, Alaska, this 13th day of February, DELANEY, WILES, HAYES, REITMAN & BRUBAKER, INC. Attorneys for ARCO Alaska, Inc. By: St~hen M. Ellis United States Department of the Interior BUREAU OF LAND MANAGEMENT Division of Mineral Resources 6881 Abbott Loop Road Anchorage, Alaska 99507-2599 February 14, 1987 Mr. Lonnie C. Smith, Commissioner Alaska Oil and Gas Conservation Con~nission 3001 Porcupine Drive Anchorage, Alaska 99501 Dear Mr. Smith: As the jurisdictional agency overseeing operations within the Beluga River Unit,, part of which is located in Section 22 T. 13 N., R. 10 W., SM, we are concerned about the request by Burglin, et. al. for the pooling and integration of interests within the above section. We encourage further development of the area outside the unit boundary; therefore, we have no objection to the.proposed drilling unit as long as the present unitized acreage is excluded from the proposal. However, we must object to any attempt made to include this unitized acreage. Until a well drilled outside the unitized area discovers natural gas in paying quantities, it is imperative to the Federal Government's interest to keep these two entities separate. IN REPLY REFER TO: 3lOO (984) In the future, we would appreciate notification, from your office,.on these matters which directly affect areas which the Federal Government has an interest in. Joseph A. Dygas Chief, Branch of Lease Operations RECEIVED ~.- ~ [3 :[ 8 1987 Oil & Gas Cons. Commission Anchorage Public Lands USA' Use, Share, Appreciate £;~ ....... 9;.'. ..... ,,', C ,i I Unocal Oorporation P. O. B?~x !~247 An~,h~'age~ AK 9'95!9-0247 Attn: F,r, Robert T. Anderson District Land ~anager, Alaska District S~Ject: D.a..nnery toco Unit: Formation of initial Pe~ticipat~g Area, Beluga FOrm--atica-on~ifferentfat_~d Gas Sands Kenai Unit: F~mation cf.,~-1,.._= Pe.._-zpating,"~-~-" Area, Beluga F'Gr~-ati~n Und!ffe. en~o~ed N~thsrn Prea RECEIVED Direr Mr. Anderson: FF ~ 0 2 !987 pr~ed ~ Uno~ ~d the majority of the Cannery Lorn Un'!~' ~!~k~g Interest . O~ers for ~e Bel~a F~mati~ Undifferent~ted.Ges San0s wi~ the Oann~ry Lo~ ~ K~ai Units, s~mittsd to the div~i~ ~ Cotter 15, !985. The divisi~ has ~so reviewed ~d c~sidered mn ~ternative participat~g area proceed' f~ the p~ti~ of th~ f~mati~ with~ ~e 0~qnery Lo~ Unit s~mi~ted by ~rath~ 0~ 0~any, ~d c~nts ~ ~e proceed ~itia! participat~g ~rees s~mitted by other W~k~D Interest ~d Royalty 0~ers w%th~ ~ ~lt. In addition to the above, technical speclal!s.ts frcm the Division of 0tl and Bas and the Division of GeolOgical and Ge~hystcal Surveys have independently assessed the data available on the Cannery Loop Unit, and c~rrelated it to the reason~ie knowledge or estimation ct the capability of the l~nds involved of. producing or contributing to production of hydrocarbons in paying quantities frcm the Beluga F~rmaticn Undifferentiated Gas Sands. . ' '- ,..~,.~,:Li:;'..} ~",~ ::~-,=', :"-'"'~ u~ "" lc~wn t~ bo unz2r].a£n ey ~"~ .... -~'~ g~ .~'~,~_~._~.,..~., geccnys'^a!__ , ~',~ cnO/nee--Jmg, data to. be calcble cf pr~duc~g~ cz eaqtrlo'~u to~.~-~-~r'~, cf hydrccazo~n.c -'.n cayi~?_ aLm.-,t£tLes," and tnst a .' '" ~ '''¢-" TF,~ ali"IS!Lq :'"~ ............. ' · '~z* 4 ' qu.n.i~__~ .... ~=.~_e.= ~,zs rog ~ to-=~ ...... that all lands ~n:l~sS ,.'~l'ahLn g ~efLqcd h~,~.~_~_~ azc~,~=~.~n mU~. be Ln~cd with~ Un$cal's prcpcsed inltia_l partiolpat£ng area f~ the Be!tga F~rmat1~ UnOiffer~tiateO Gas ~ds does net Lqci~s ali cf ~e lo,,~ with~ ~e identified azcum~atl~. ~Lon~s lySn~ ~ithtn the i~mntif!e~ acc~at/~ ~' ..~he nor~. ~nd west have not Dean ~c!~ed within ~he pr~sed ~itisl' participating ~e~:'_ In sddlti~, csrta~ of the l~n~s LtoI~ wlthL~ th~ identified a;c~,~ati~ lie either c~slce o~ %ne Sm~nery Lolp Unit, o~ with~' 'the.boundaries of ~ Kcnal Uni~ (~cl~iq; the proposed ~itiai partisipatL~; ~ea for ~he "==i~a F~mati~ Un.i, ferentiated ~,'~thorn A~ea" ~ith~ the Kenai Un.~). Tn~ St~'e !s not willing to approve a par~=~"~- ~ that is split b~.we~n two ~its ~en there ~ no ~~ rea2~ t~ do s fTaking a!l..of..the -~bove into acoo~t,.the c~o!~i~ of the divis!~ ~ that- with ~ly the l~ited $lismic data ava~ab!e ~nd ~e crestai wells that.have..' be~ drilled so f~, ~e BalSa F~ti~ Undiff~tizt~ ~as Sands reservo~/ ~d~!y~g ~e O~n~y bo~ Unit has not been adeqL~tely de!Lneated at this' ~.. ~tho~ ~e.,est~ated acc~ati~ limit~ ~ ~fici~t to serve .~e.basis_f~..~_~ft~a!.p~ticipat~g area, additi~ ~f~ti~.m~t '~ts~ed_to da~m~e ~e aat~ ~eai extent of %ha hy~~b~ ¢ ;acc~sti~~~~.s_~osed devel~ment pr~r~..f~ ~e O~e~:Lo~ Unit- . ~na~ wo~d. se~e.-to m~e, do~ n~ pr~e to ~~.~y additi~al wells ~ t - 7pre:isely defoe. ~e..~eal ~tent &nd ~e edges.ct the-est~ated.hydr~b~ .ac¢~at!~,.-ss .~e..div~l~ b~iev~ m~t.be.d~e .to ~t~t~y protect The ~ivlslcn does not believe that Unoca!'s prcpssed ~n.~ial participating er'eas for the Beluga For. maticn. Und!fferent!atc~ Gas Sands meets either the' requirements of the reguiatio~s governing participatin~ areas ~ the best interests of the State. I am, t~erefoT, e, disapproving the initial partinipating ara. as proposed for this formaticn as submitted. Lands excluded fram Unocal's proposed /nitial participating area f~ the Beluga Formation Undifferentiated Gas 5ands t~at lie within the identified est!mated hydrocarbon accumulation must be in=luded wtth/n the initial participatinQ area prior to t~e dtvisian's approval of the participatin~ area. This would require the Cannery poop and Kenai Unit ¥;crking Interest Owners ts expand the Cannery Loop Unit end simultaneously cc~tract Lhe Kena! Unit so as to include all of the identified hydrocarbon accunulaticn within a sinTle unit. In addition, Art~¢le 10 cf the Cannery La~p Unit .. ~ ~ _ _ A~.e~-~.n~ resul~¢s the ~ork~g Interest Own~s to "... p~ide f~ ~e exp!~at~ of the ~ea ~d f~ the diligen: ~l~g necessary for determtnati~ oF th~ a!'ea ~e~ thereof cap~le of pr~~g ~tt~ed s~st~nc~ ~ pay~g q~ntttl~ ea~ ~d every ~~tfve f~matl~,..'~nd shall be c~plete ~d a~eq~te ~s the S~erv~ end the O~ect~, A.D.L., may determ~e to be ne:essary f~ tSmely devel~mcnt ~d prcper c~serv~ti~ of .~e o~ ~nd gas reso~ces of the ~It~ed area ... ". As stated, the dtv!st~ believes, that f~ther d~'~eatlon dr~!in~ of ~e estL~ated hydrcsa2b~ asc~ati~ ~ necessary. In partlc~ar, a well to de!D,wate ~ther the portl~ of the ~ttial pa~ticipat~g ~ea with~ TDN, P~lW, S.H., Secti~,s 16, 17, and 18 is needed. Also, a pl~ to to adeq~tely defoe the edges of the est~ated acc~ati~ b, ~,e northern half of ~e identified acc~%t~ wo~d be ~eq,d~ to meet the t~ms of Arti=le 10 of the Unit A¢~eement. The southern well wo~d need to c~ence ¢~l~g by ~r~ 1, 1987, and the. dcl~eati~ of ~e edges ¢ fha est~ated hydroc~b~ acc~ati~ wo~d need to b~ addressed ~ ~e next of Devel~ment f~ ~e O~nery Lo~ Unit. The proposed intti~! participating areas fa~ the Beluga Formation Undifferentiated Gas Sands within the 8snnery Loop Unit and the BelL~a Fo~mation Undiffe2entlated Northern Area within the Kenai Unit ~re not approved. If the Cannery Lcop and Kenai Unit Working Interest znd Royalty Owners would like to meet with division staff to dtsctss the development of workable initial participating a~ea for thls formation, we will be happy to meet with you at you~ cmvenienoe. ~,¥ ~proval of mn initial participating ~r~a f= %his formati~ may need to be concurrently approved by the Depar~mant o~ the Interior, Bureau of. Land Mana~7~.nt. If you have any questions on shy of the above, please c~tact Catherine Fo~tney or Oass Arie¥ of my staff at (907) 561-2020. $~Ce~ely Kay D/r~ctc~ 26~3A Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission Re: Request by Burglin, et.al, for the Commission to'order the pooling and integration of interests within Section 22, T13N, R10W SM. The Alaska Oil and Gas Conservation Commission has been requested by letter dated January 15, 1987, from Burglin et.al., to issue an order pooling and integrating their mineral interests in a tract of land within Section 22, T13N, R10W SM, with the mineral interests of others holding tracts of land within the same Section 22 for the purpose of developing the lands within Section 22, T13N, R10W SM as a drilling Unit for the production of natural gas. A person who may be harmed if the requested order is issued, may file a written protest, prior to February 16, 1987, with the Alaska Oil and Gas Conservation Commission, 3001 Porcupine Drive, Anchorage, Alaska 99501 and request a hearing on this matter. If the protest is filed timel, y and raises a substantial and material issue crucial to the 'Commission's' determination, a hearing on the matter will be held at the above address at 9:00 AM on MarCh '4, 1987, in conformance with 20 AAC 25.540. If a hearing is to be held, intereste~ parties may c0nfi~m-~his by calling the Commission's office, (907) 279-1433, after February 16, 1987. If no such protest is timely filed, the Commission will consider the issuance~ of the order without a hearing. Lonnie C. Smith Commissioner Alaska Oil & Gas Conservation Commission Published January 30, 1987 C. Bur~ulin Land C(~nqilt~? t) 0 F,,~:, ('~)7; ,152 5 i49 January 26, 1987 RECEIVED J. Patrick Fo~ey Sr. Landman F E B 0 2 1987 P.O. Box 100360 Anchorage, Alaska 99510-036~ask~ 0il & Gas Cons. 6ommissioll Ancn0ragc ice: ,:: 7':3 '~'"' " .... 3' '~" :2,~ ~. .-., . ,; FILE: Dear Pat- Thank you for your prompt response and efforts with regard to the Burglin et al (Burglin) request for your voluntary participation in the Section 22, T 13N, R 10W, Seward Meridian drilling unit. Perhaps a review of the current (April, 1986) statutes and regulations will help clarify Burglin~s position. Under 20 AAC 25.055 Drilling Units And Well Spacing:" (a) In proven oil and gas fields, the establishment of drilling units and a spacing pattern may be governed by special pool rules adopted in accordance with 20 AAC 25.520. In the absence of an order by the commission establishing drilling units or prescribing a spacing pattern for a pool, the following apply: ... (2) a govern- mental section constitutes the drilling unit for gas exploration; the surface location for a well exploring for gas must be at least 1500 feet from the drilling unit boundary; ... (4) where gas has been discovered, not more than one well may be drilled to that pool on any governmental section, nor may any gas pool be opened to the well bore closer than 1500 feet to any section line, nor closer than 3000 feet to any well drilling to or capable of producing from .the same pool....' (d) If two 'or more' separately owned properties are embraced within a governmental, quarter section to be drilled, or a well re- entered for oil, or a governmental section to be drilled, or a well re-entered for gas, persons owning the oil and gas rights may voluntarily pool their separate interests-to form a drilling 'unit. A copy of the pooling agreement must be submitted to the commission. If one or more persons owning oil 'and 'gas rights fail to voluntarily pool their interests, the commission,', upon petition or its own motion, and after public hearing, will; in its discretion , issue an order pooling the owner's interests for the development of their land as a drilling unit." .. It is quite clear from 20AAC 25.055 that a governmental section constitutes a drilling unit for the drilling of a gas well whether that well is located in an approved unit boundary, outside an approved unit boundary or adjacent to an approved unit boundary. There should be little doubt that governmental Section 22 of T 13N, R 10W, S.M. constitutes a drilling unit for the drilling J. Patrick Foley January 26, 1987 page 2 of a gas well. The fact that the Beluga River Unit boundary or estimated accumulation has been approved and accepted by both the (BLM) and (DNR) is meaningless, in the Cannery Loop Unit all participating areas or estimated accumulation limits were based on "compromise" geologic interpretations by .the Working Interest Owners of the Cannery Loop Unit, DNR and BLM, and not clearly delineated by the drilling of wells. (See attachment). Under 11 AAC 83.351 P.A. a participating area or unit boundary can always be expanded or contracted based on new interpretations of available data. Neither the DNR nor BLM's authority to '"geologically compromise" participating areas i.e. compromise estimated accumulation limits has been tested through litigation. The fact that Arco et al (Arco) did not submit a bid on ADL 326070 is not relevent, however the fact ADL 326070 was bid with a. 2-~ royalty to the State of Alaska is. ADL 326070 allows Burgiin to drill offset wells in order to protect the State's interest: "2___2. OFFSET WELLS. Lessee.shall drill such wells as a reasonably prudent operator would drill to protect the State adequately from loss by reason of drainage resulting from production on other land." It is apparent that Arco could have had other very good reasons for not bidding on ADL 326070. Further, 20AAC 25-055 revised April 1986 and used in conjunction with Section 31.05.100 appears to dispute Judge Shortell's opinion regarding drilling units and p0ol spacing requirements ........ In conclusion, a governmental section constitutes the drilling unit for gas exploration. Regardless of whether Section 22, T 13N, R 10W, Seward Meridian is within, outside, or adjacent to an approved unit. Under 20AAC 25.055 4(d) "If two or more separately owned properties are embraced within a govern- mental section to be drilled, persons owning the oil 'or gas fights may.... v~luntarily pool their separate: i6terests to form a drilling unit. If one .or more persons owning oil and gas rights fail to voluntarily pool their inte'r&sts, the commission, upon petition or its own motion, and after public hearing, will, in its discretion , issue an order pooling the owner's interests for the dm;eiopment of their land as a drilling unit." The proposed Burglin BRX-22-1 well meets all of the criteria as set forth in Section 31-05.100. Establishment of drilling units for pools, and 20AAC 25.055 Drilling Units And Well Spacing. The extra revenue which the State RECEIVED FEB 0 2 1987 C. Burglin La-,_~ p r.~ ,P,,~:: '"' ,~.~(~7, 4[,2 51.!~>~ J. Patrick Foley January 26, 1987 page 3 of Alaska would derive through the Beluga River Unit Participating Area expansion should the Burglin BRX-22-1 prove successful, would be substantial due to the 27°/, royalty held by the State of Alaska on ADL 326070. Thank you again for your prompt detailed response; however Burglin can find no merit to your arguments and therefore Burglin will proceed with their right to petition the commission to issue an order pooling the owner's interest in Section 22, T 13N, R 10W, Seward Meridian for development as a drilling unit. If you have any questions, please call me at (907) 452-5149. Very Truly Yours, Brian Burglin cc: Lonnie Smith, AOGCC Bill Van Dyke, DOG Senator Coghill .... Representative Mike Navarre Represen. tative Sam Cotteri Governor Steve Cowper Commissioner Judy Brady Attorney General Schaible RE£EIYED 0 2 1987 0ii & '3a,~ ~;~n~. Commission A~it~israge ARCO Alaska. Inc. Post Oft~ce Box 100360 Anc~,orage, AlasKc. 99510-036G T~..i~..p;",on~ cji,? 27"... 121¢ January 23, 1987 Mr. Brian Burglin P.O. Box 131 Fairbanks, Alaska 99707 Dear Brian: ERX-22-1 Well Proposal Beluga River Unit ADL-21126 We have received your letter of December 29, 1986 proposing the drilling of the above captioned well upon the ARCO/ Chevron/Shell lease ADL-21126. As you requested, copies of your letter have been forwarded to our co-lessees and this response represents the views of all Beluga River Unit owners ("the Owners"). The Owners do not support the formation of your proposed drilling unit to cover all of Section '22, T13N, R10W, S.M., nor are we interested in having Burglin et al. drill a well upon our lease. The Owners hold two leases in this Section 22, ADL-21126 and ADL-67055, both of which are included in their entirety within the boundaries of the Beluga River Unit. That unit boundary was not arbitrarily selected; rather, it was established by formal agreement as the limit of the productive reservoir within the unit. This boundary has been approved~and accepted by both the Department of the Interior (BLM) and the State of Alaska (DNR) and, as you know, has withstood the test of litigation. ADL-21126 was issued on July 1, 1963 and originally covered all of Section 22, T13N, R10W, S.M. The Owners surrendered their interest in the NW/4, N/2 NE/4, SW/4 NE/4, N/2 SW/4, aW/4 SW/4 of said Section 22 by instrument dated June 10, 1968. The Owners then acquired lease ADL-63055 in 1974 covering the above released lands and all of Section 15, T13N, R10W, .a.M. By DNR Decision dated July 24, 1981, ADL-63055 was segregated into two leases. The NE/4 NE/4 Section 22 was within the Beluga River Unit and retained the original ADL number; the remainder of the lease outside the Beluga River Unit was assigned the new number, ADL-330766. While the Segregation Decision had the effect of retro- actively terminating ADL-330766, upon review of both the Beluga River Unit Agreement and the State regulations, the Owners concluded that the segregation was proper and made no attempt to request reconsideration of the Decisi~[EIVE~ Alaska 0~. '¢".: ~"~'s. Corn,"niss[o~. ARCO Alaska, Inc, is a Subsidiary of AttanticRichf~eldOomp,'~r~',' Mr. Brian Burglin January 23, 1987 Paqe 2 The lands within the segregated lease, ADL-330766, were offered in State Lease Sale No. 33 held ~ay ]7, 1981 as Tract C-33-70. The Owners did participate in Sale 33. Our sale results files indicate that neither ARCO, Chevron, nor Shell submitted a bid on Tract C-33-70, and the Tract was awarded to the Burglin group. The foregoing was not recited to burden you with histori- cal detail, but rather to establish the fact that the Owners are familiar with the lands in question and have over the years spent considerable efforts in evaluating the potential of these lands. It is our opinion that the lands Burglin holds under lease within Section 22 are not at present eligible to be included in the Beluga River Unit, and the Owners will oppose any attempt to create an involuntary drilling unit involving unitized lands within Section 22. I enclosed a copy of Judge Shortell ' s August 8, 198 4 "Decision and Order Granting Summary Judgement" in the Burglin's litigation concerning the Ivan River and Beluga River Units. Particular attention should be given to pages 4 and 5 of Judge Shortell ' s opinion wherein he expressly states, contrary to Burglin' s arguments, "AS 31.05.100 cannot be used to join lands which are already part of a field wide unit," i.e., the Beluga River Unit and the Ivan River Unit. I suspect my response to your letter is considerably more detailed than your proposal intended; however, the Owners would like to clearly establish the basis for our position. Please advise if you have any questions on this response. I may be reached at (907) 265-6834. Very truly yours, . Patrick Foley Sr. Landman kw Enclosure cc: R. W. Doubt, Shell J. M. Thacker, Chevron L. Smith, AOGCC RE[EIYED ,':- 0 2:1987 Atas!rn. 0i! ~. ~s Cons. Commission ;,. ,c.~ nrafle ARCO Alaska. Inc. ;~ost Office Box 100360 Anchorage. Alaska 99510-0360 Telephone 907 276 1215 January 23, 1987 Mr. Brian Burglin P.O. Box 131 Fairbanks, Alaska 99707 Dear Brian: BRX-22-1 Well Proposal Beluga River Unit ADL-21126 We have received your letter of December 29, 1986 proposing the drilling of the above captioned well upon the ARCO/ Chevron/Shell lease ADL-21126. As you requested, copies of your letter have been forwarded to our co-lessees and this response represents the views of all Beluga River Unit owners ("the Owners"). The Owners do not support the formation of your proposed drilling uni% %o cover all of Section 22, T13N, R10W, S.M., nor are we interested in having Burglin et al. drill a well upon our lease. The Owners hold two leases in this Section 22, ADL-21126 and ADL-67055, both of which are included in their entirety within the boundaries of the Beluga River Unit. That unit boundary was not arbitrarily selected; rather, it was established by formal agreement as the limit of the productive reservoir within the unit. This boundary has been approved and accepted by both the Department of the Interior (BLM) and the State of Alaska (DNR) and, as you know, has withstood the test of litigation. ADL-21126 was issued on July 1, 1963 and originally covered all of Section 22, T13N, R10W, S.M.~ The Owners surrendered their interest in the NW/4, N/2 NE/4, SW/4 NE/4, N/2 SW/4, SW/4 SW/4 of said Section 22 by instrument dated June 10, 1968. The Owners then acquired lease ADL-63055 in 1974 covering the above released lands and all of Section 15, T13N, R10W~ S.M. By DNR Decision dated July 24, 1981, ADL-63055 was segregated into two leases. The NE/4 NE/4 Section 22 was within the Beluga River Unit and retained the original ADL number; the remainder of the lease outside the Beluga River Unit was assigned the new number, ADL-330766. While the Segregation Decision had the effect of retro- actively terminating ADL-330766, upon review of both the Beluga River Unit Agreement and the State regulations, the Owners concluded that the segregation was proper and made no attempt to request reconsideration of the Decision. A-.nCO Alaska. Inc. is a Subsidiary of AllattllcRichf,eldCofr'~an)' RECEIVED JAN 2 ]987 Alaska 0il &Gas 0or~. Commission Anchorage - Mr. Brian Burglin January 23, 1987 Page 2. The lands within the segregated lease, ADL-330766, were offered in State Lease Sale No. 33 held May 17, 1981 as Tract C-33-70. The Owners did participate in Sale 33. Our sale results files indicate that neither ARCO, Chevron, nor Shell submitted a bid on Tract C-33-70, and the Tract was awarded to the Burglin group. The foregoing was not recited to burden you with histori- cal detail, but rather to establish the fact that the Owners are familiar with the lands in question and have over the years spent considerable efforts in evaluating the potential of these lands. It is our opinion that the lands Burglin holds under lease within Section 22 are not at present eligible to be included in the Beluga River Unit, and the Owners will oppose any attempt to create an involuntary drilling unit involving unitized lands within Section 22. I enclosed a copy of Judge Shortell's August 8, 1984 "Decision and Order Granting Summary Judgement" in the Burglin's litigation concerning the Ivan River and Beluga River Units. Particular attention should be given to pages 4 and 5 of Judge Shorte!l's opinion wherein he expressly states, contrary to Burglin's arguments, "AS 31.05.100 cannot be used to join lands which are already "i e. the Beluga River Unit and part of a field wide unit, . , the Ivan River Unit. I suspect my response to your letter is considerably more detailed than your proposal intended; however, the Owners would like to clearly establish the basis for our position. Please advise if you have any questions on this response. I may be reached at (907) 265-6834. Very truly yours, Patrick .Foley Sr. Landman kw Enclosure cc: R. W. Doubt, Shell J. M. Thacker, Chevron ~L. Smith, AOGCC ,RECEIVED {JAN 2 1987 , Alaska Oil &.Gas Cons. Commission Anohorage ¢ C IN THE SUPERIOR COURT FOR THE STATE OF ALASKA ~ V,--.~ ~-. / ~'", I ~,-- ~., ~ THIRD JUDICIAL DISTRICT " "' '-' '"" · --.: ,. I ~ ,-, BURGLIN, ET AL AND CALL, Appellants, VS. ALASKA OIL AND GAS CONSERVATION COMMISSION and CHEVRON U.S.A., INC., Appellees. Case No. 3AN-82-925.0 Civil DECISION AND ORDER GRANTING SUMMARY JUDGMENT This matter is before the Court on appellee's motion for summary judgment on the applicability of AS 31.05.100 to this appeal. Appellee first raised this issue on a motion for summary judgment dated February 15, 1983. In my order dated December 19, 1983, I declined to make a ruling on ~he issue of the applicability of this statute stating: I feel that it is inappropriate to grant summary judgment on the applicability of AS 31.05.100 at this point. While I agree with the appellees that AS 31.05.100 applies to pooling and that pooling is generally a small tract concept, I do not believe that it is altogether clear at this point that there are no circumstances under which the statute could apply in this case. Appellant's summary treatment of this issue may well be indicative of its intention not to rely on this statute. However, it is equally possible that it gave short shrift to this issue because it was the understanding of the parties as well as the understanding of this court that the only 'issue for review on summary judgment concerned the applicability of AS 31.05.110 to the instant petitions, i therefore am reserving judgment on the applicability of AS 31.05.100. ¢ DECISION AND ORDER BURGLIN v. ALASKA OIL -2- In a motion for reconsideration dated December 29, 1983, appellees argued that there was no reason for this court to delay ruling on the applicability of AS 31.05.100. In response to this motion, by way of order dated January 5, 1984~ I granted appellee's leave to submit an additional brief on the applicability of AS 31.05.100 to this proceeding. Appellee has since submitted supplemental briefing on this issue to which appellant has had a full opportunity to respond. After considering the arguments raised by all the parties, it is hereby ordered that' defendant's motion for summary Judgment is granted. A summary of the basis for this decision is set forth below. As I read appellees' original and supplemental briefs, they raise three arguments in support of their motion for summary judgment: -. (1) AS 31.05.100 is not applicable to this proceeding because, as a pooling statute, it embraces a small tract concept. Since Burglin's leaseholds are not "small tracts" within the meaning of AS 31.05.100, it is inapplicable. (2) AS 31.05.100 cannot be used t.o establish a drilling unit which includes land that is already a part of a field-wide unit. (3) Since the formation of a drilling unit under AS 31.05.100 would not prevent Burglin's leases from expiring, it is inapplicable. Although I find that there are genuine issues of fact which preclude summary judgment on appeiiee~s last argument, I do find that summary judgment is appropriate with regard to appellee's first and second arguments. JAN 2 1987 A1~sk~ 011 & Gas Cons. Commission Anchorage DECISION AND ORDER BURGLIN v. A/2~KA OIL AND GAS -3- I interpret AS 31.05.100 to be Alaska's pooling statute. As a pooling statute, it has a particular purpose. Although there is no Alaska law on point, the authorities are generally in agreement that the term "pooling" is used to refer to the bringing together of two or more small or irregularly shaped tracts of land to form a drill site in connection with a program of uniform well space. The arrange- ment is essentially a species of joint venture whereby the various owners of the tracts pooled join to drill a well and to share in the benefits to be expected. It may be a pooling of either the working interest alone, or both the working interest and royalty interest. . -. . The drill site formed is sometimes referred to as a drilling unit; thus, confusion is introduced as statutes requiring pooling are often referred to az "unitization" statutes. . . King, Pooling and Unitization of Oil and Gas Leases, 46 Mich. ~ , L. Rev. 311, 312-313 (1948) (Footnotes and citations omitted). Pooling is also described in a 1973 law review article as follows: "Pooling" refers to the consolidation of several small tracts into one unit (a "drilling unit") upon which one well will be drilled. The purposes of pooling are to prevent waste, both physical and economic, that accompanies the drilling of unnecessary wells and to protect those land owners 'with interest in a. common reservoir. Its technological basis is found, in well-spacing regulations, and it is designed to provide a method whereby owners with tracts smaller than that required for a drilling unit under well spacing provisions can combine their interest into a tract of developable size. Pooling basically involves control of oil spacing to passively utilize reservoir pressure and to maximize primary recovery. Rogers and Gault, Mississippi Compu!sor~ Fieldwide Unitization, 44 Miss. L. Rev. 185, 188, 189 (1973). While AS 31.05.100 has as one of its general purposes the protection of correlative rights, the statute is rather limited in its design. As the two authorities. cited above indicate, it is designed to bring together two RECEIVED JAN 2 1987 Alaska 0ii & Gas Cons. Commission Anchorage DECISION AND ORDE~ BURGLIN v. ALASKA OIL AND GAS -4- or more small or irregularly-shaped tracts to form a drill site in connection with a program of uniform well spacing. Appellees have argued that neither Burglin~s leased lands nor Chevron~lands fit within the purposes of the statute. Appellees, by way of affidavit, assert that Burglints lands encompass substantially more than 600 acres~ accordingly,they are of sufficient area to meet well spacing requirements. Burglin does not dispute the fact that the leases encompass more than 600 acres apiece· Burglin claims, however, without explanation, that the primary focus of their petition is on five 40-acre tracts which are immediately adjacent to 1 the Chevron unit fields. "Under the spacing regulations, it was neither possible nor logical for Burglin to drill on these particular tracts." Burglin fails to explain this statement. -. I find that Burglin has failed to raise any genuine issues of fact concerning the question whether the Burglin lands are "~mall tracts" within the meaning of AS 31.05.100. Appellee has met its burden of establishing that the lands are of sufficient area to satisfy well-spacing requirements. On the evidence presented, it appears that AS 31.05.100 has no application to this case. Therefore, summary judgment is granted in favor of appellees on this issue. As I indicated at the outset, I also find that appellees are entitled to summary judgment on the basis of their second argument, ie., that AS 31.05.100 cannot be used to join land~ which are already part of a fieldwide unit. 1 Burglin has offered three documents (appendices I, II, III to supplemental brief) as evidentiary support for this proposition. However, Burglin fails to interpret these documents or explain their significance. ~k~ 0il & G~S Co~. Gommiss~on ~omge · ( DECISION AND ORDER BURGLIN vs. ALASKA OIL AND GAS C -5- It is undisputed that appellees' lands, which appellants seek to Join with through AS 31.05.100, are a part of fieldwide units, i.e., the Beluga River Unit and the Ivan River Unit. These lands are also not "small or irregularly shaped tracts" within the meaning and purpose of AS 31.05.100. I therefore find as a matter of law that AS 31.05.100 is not applicable. Appellee's motion for summary Judgment is hereby GRANTED. DATED at Anchorage, AlaSka this day of August 1984. BRIAN S/40RTELL SUPERIOR COURT JUDGE P.O. Box 131 Fairbanks, Alaska 99707 (907) 452-5149 January 15, 1987 Commissioner Lonnie C. Smith Alaska Oil & Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501 Dear Commissioner Smith' ' Burglin et al (Burglin), leaseholder of ADL #326070, is hereby requesting the Alaska Oil and Gas Conservation Commission to establish a drilling unit for Section 22, T13N, R10W, Seward Meridian of the Beluga River gas pool. Burglin intends to locate and bottomhole a well, (BRX-22-1), on the SE¼ section of Section 22. The BRX-22-1 well will prevent waste, protect and enforce the correlative rights Of lessees in the Beluga River gas pool, and avoid the augmenting and accumulation of risks arising from the drilling of an excessive number of wells, or the reduced recovery which might result from too small a number of wells. Burglin is not seeking any well-spacing exception for BRX-22-1. Burglin has notified Arco et al (Arco), the adjacent leaseholder of ADL 21126. and operator of the Beluga River Unit, of Burglints intentions to drill (BRX-22-1).. Arco has responded that they are not interested in participating in a drilling unit for Section 22 at this time. If the Alaska Oil and Gas Conservation Commission requires more information .or would like more details concerning Burglints request for the establishment of a drilling unit for Section 22, T13N, R10W, §eward Meridian; please contact Brian Burglin at 907-452-5149. ,., Brian Burglin Commissioner Smith, AOGCC (enclosures) Pat Foley, Arco Bill Van Dyke, State of Alaska DOG Kelly Golf (enclosures) BB/bbr RECEIVED JAN 2 0 t987 Alaska 0il & Gas Cons. Commission Anchorage I::OR~ NO. DMEM-l-81 (ROYALTY) STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES DIVISION OF MINERALS AND ENERGY MANAGEMENT Competitive Oil and GaJ Lease ADL.o. 326070 THIS LEASE is made by and ber~een the State of Alaska, acting by and through the Comml~ioner of Natural Ralourcel or his authorized agent, hereafter referred to as "the State," and ' KE.LLE.¥ EVERETTE. (5~) ,ARLI;N H.OGENSON (.23%.) DENN.!'5 LA. RS. ON (.19~;) J0~EPH BURGLIN. (_15~). ZELLA GAFFI,' (.19%~L C~,.RLES HELMS hereafter re(erred to as "Lessee," whether one or more. In consideration of the cash payment heretofore made by Lessee to the State, which payment include~ the first year's rental and any required cash bonus, and the promises, terms, conditions and covanan13 contained herein, including tl~e Stipulation(s} numbered .,. · attached hereto and by this tolerance incorl~rated herein, the State and Lessee agree as follows: 1. GRANT (al Subject to the promlms, terms, conditions and covenants contained herein, the State hereby grentl and leases to Lessee, without werrent"V~ the exclusive right to drill for, extract, remove, clean, process and dispose of oil, lies and associated sube/Jnces irt or under the,following described tract of land.' · ~cr c-33-ox0 TI3N, lllOt~, S£'~A..1D .'..~RIDIAN , Sectl~ 16, All, including all survey$ vithin this Section, containing 640 acres ~e or less; / . Section I;, All, Including all sur~e~s ~ithln this ~ectlofl, contllnlng 640 acres ~re Or less~ ~c~on I~, AII, 1flC~udlng ~11 Surveys vl~in this Sec~1on, cont~tntn~ 63~ IcreS ~re or less: Section 19, All. including all survexS ~lthin ~hiS Section, contd~ntn~ 636 ~cres more or less; Section 20, All, InCluding 411 surveys wlthtn this Section, c~telnlng 640 acres more or less; · Sectio~ ~1, All, Including all surve).s within t~lS Sectio~,. containing $40.. Section 22. N~.1/4. N-I/2 t~E.I/4, K[.I/a t~£-114, ~-I/Z S~-1/4, iN-I/4 Sa-114, Including all surveys wlt~in thR S~-1/4,. S~-1/4 $~-I/4 of Section ZZ, conta~ning 4.10 acres ~m'e Or less: This TraCt contains 4,2J~ acres nora or less , , containing approximately Z~ 2 ~ 0, 0 0 acres, more or less (hereafter referred to as the "leased area"), the nonexcluslve right to conduct within the leased area geological and geophysical exploration for oil, gas and associated substances, end the nonexclusive right th' install pipelines and ~tru~Ures thereOn to find, produce, save, store, treat, process, tronsl~ort, take care of and market all such substances and to house and board employees in its operations thereon. (bi For the purposes of this lease, the leased .area contains the legal subdivisions as shdw~'.on the attached plat' marked Exhibi~..A, ' ' '~' ' ' .... ' ' ...... ' · ' {C] If the leased area is described above by protracted legal subdivisions and the State hereafter causes the leased area to be surveyed under the pub!.ic land rectangular system, the boundaries of the leased area ere those established by such survey, when approved, ~bbjec% however, to {~ ~rovisions of applicable'"f'eg~Jlations relating to such suweys. If for any teasoh"iihe'leased area includes mare"aero'age than the maximum permitted under applicable law (including the "rule of approxima.t..ion' autho~'ized in AS 38.O5.145 end defined in AS 38.05.365(13)), this lease is not void and the acreage included in the leased area shall be reduced to the permitted maximum. If the State determines that this lease e*~Eei~s the permitted acreage end notifies Lessee in writing of the amount of acreage that must be eliminated, Lessee shall have sixty (60) days after such notice to surrender one or more legal subdivisions included in the leased area comprising at least the amount of acreage that musl be eliminated. Any such subdivision(s) surrendered must be located on the perimeter of the leased area es originally described. If such a surrender is not filed within sixty (60) days, the State may terminate this lease ~s to the acres9· that must be eliminated by mailing notice of such termination to Lessee describing the subgllvilion(s) eliminated. {d) If the State's ownership interest in the oil, gas and associated substances in the leased area is less than an entire and undivided interesl, the grant under this lease Is effective only as to the State's interesl in that oil, gas and associated substances, and the royalties and rentals herein provided shall be paid to the State in the proportion which the State's intarerl beam to the entire undivided fee, 2. RESEF~VE.r3 I~IGIfTS. {e) The State, for It,ll and others, ro~erve~il rights not expressly gan!ed to Lam by thit Without limiting the generelit%' of the foregoing sentence, such re~r~-?d rights Include: (1 ~ the right to e~:plort' for oil, gas ~nd as'.ociat~d !ubrtanc~ by' geclogicel end/or geophysical means; [2) the right 1o cxplcn: for, develop and remo~'e natural resources other than oil, gas and ~J~ociatcd substances on or from the leased area; [.3) tho right to est~bli.~h or [~rant casements end ri[~hts-of-w~y for any lev~'ful purpose, Including without limitation for shafts and tunnels neces,..ary or appropriate fcr the ~orklng of the leased are3 or other lands for natural rusourc~'s giber then oil, g,-~ and associated sub,lances; [~) the right to diet, ese of land within the lea~.d area for well sites and well bore,, of wells dcdled from or through the leased area to exp!ore for or produce oil, gas and a~,.ociated substances in 8nd from lands not within the leased era:e; and (5) the right othervvi59 to manege and dispose of the surface of the leased are~ or interesl~' therein bv grant, lea~e, permit or otherwise to third patti,a.a. (b} Rioh:s re~rved by the State may be exerci.-ed in any manner which do~ not unreasonably interefero with or endanger L~ssee's operations under this lea~. 3. TERM. Thi; lease is issued fcr an i~itial primary term of I years from the effective date hereof, which term may be extended as provided in Paragraph 4 below. This lease may be extended beyond its orimary term as provided in Paragreoh 5 below. 4. EXTENSION OF PRIMARY TERM. (a) By Suspension of Operations. If, prior to tho axpi~'ation of thu F. rim~-ry term, the State directs or approves in writing suspension of ell operations on or production from the leased are~, the prima~y term -_.hell be extended by adding the period of suspension to the primary term originally spucified. For purpo~s of this subparagraph, nn¥ suspsnt!on of operetlons or production required by any stipulation made a part of this lease shall not be considered a suspension under any order by, or with the written consent of, the State. {b) By Force Majeure. If the State determines that, prior to the expiration of the primary term, Le~,~e E3$ been prevented by any of the conditions s~aeciticd in Paragraph 32 from performing any act which ~,~ould extend the lease beyond the primary term, the primary term shall be extended by addin~ the period of di~bilit~, to the primary term ori§Ina~ly specified. 5. EXTENSION BEYOND PRIMARY TERM. (a} 3y Production. This lease shall ba extended automatically if and for so long as oil or gas is produced in paying cluantities fror,~ the leased area. {b! By Commitment to Approved Unit. This lea.~ shall be extended automatically if it is committed to a unit agreement approved by the State, and shall remain in full forc0 and e~fcct es long es it remains committed to such a unit agreen~ent. {c) By Drilling. {1) If drilling has commenc~cd as of the date on which this lease otherwise would expire and is continued with reasonable dili.e~nce, this lease shall continue in full force and effect until ninety (g',J} days after cessation of such drilHnG and for so thereafter as oil or gna is produced in pa~,ing quantities from the le.3.*~d area. 12) If oil or gas in paying quantities is produced from the area, and if such production ceases et any time, this lease shall not termir, ate if drilling or reworking operations are commenced on tl~e leased area within {61 months after cessation of production and th~rca;ter are. prosecuted with reasonable diligence; if such driliin.,l or reworking operations result in the production of oil or gas, this lea.~e shah re. main.ir) f.u!l for. c.e and effect es.long as oil or gas is produced in paying· · -. · 'quantities from the~'~ca~d area. (d) By Shut-in Production. If there iS a well cap.able of preducing oil cr gas in paying quantities on the leased area, this lease shall not expire becau~ Lessee fails to produce the san~e unlo~ the State gives notice to Less.~e &llowing a rcason&b'e time, which shell not be le~ theft six (6} months, after such notice to place the well .on a produciog status, and Lessee fail,, to do so. If producing statu~ is within the time allowed, this lease is extended only for so long thereafter as oli or gas is produced in paying q~antlties from th.-, leased ~rea. {e} By Suspension of Operctions or Production. This learn shall not expire because of any suspension of om;rations on or production from the leased area if the sus~Jansion i~ made under any order by, or with the writ-ten consent of, the State. Upon rer~ov¢l of such suspension, Lessee shall have a reasonable time, which shell not be less than six {6) months after notice that the sU.~oension has been ~emoved,' ' to resume opgr,ations or production. For purposes of thi.~ subparsgr'z.oh, any su-~p, ension of operations or production required by any ~tipulation made a part of this lease shall not be considered a suspension under any order by, or t*,ith the written consent of, the State. {fi By Force Maieuro. If the State determines that Lessee has been prevented by any of the conditions tp,;cifi~d in ;aragrc. i3h 32 from performing an act which would extend the lease beyond the primary term, this lease sh~ll not expire during the term of di~abi!ity a reasonable time thereafter, which shell not be less than sixty {60) days, for Lessee to .,'esume operations or production. 6. RENTALS. fa} Lessee shall pay annual rental to the State in accordance with the following rental schedule: (1} For the first year, $1.00 per acre or fraction thereof; , 12) For the second year, $1.50. pe.r acre or fraction thereof; ..... ..... {3)' For th~ third'yee~, $2.00 p-"r acre Or fraction thereof; {4) For the fourth year, $2..50 per acre or fraction thereof; (5) For the fifth y0ar end following years, $3.00 per acre; provided that the State may increase the annual rental rate as , provided by law upon extension of this lease beyond the primary term. {b) Annual rental paid in advance is a credit on the royalty or net profit share due under this leas-, for that year · . '.(c) Lessee shall I~aY the annual rental to the State' (or a'ny depos~tofY designated by the State with at least sixty (6C) gays:. notice to Lessee} in advance, on or before the annual ann,~vereary date of thil lee~e. The State is not required to 9ivu notice that rentals are due by billing Lessee, end no bill need be sent by the State to Levee. If the State's (or'depository's} office is not open for buslnes~ on the a~nuel ' anniversary date of' this lease, the time for payment is extended tO include the next day on which said office is open for business. If the annual rental is not paid timely, this lease automatically terminates as to both parties et 11:59 p.m., Alaska Standard Time, on the d~te by which the rental payment was to have been paid. ...... ........ 7. . ROYALTY ON PRODUCTION. Except for oil, gas, and ass0=~lat'~d substances used on the leased area foe de~l~iprnent .... "~'":'"'~"*"*' an~l ProduC{i'~n or unavoidably lost, Lessee shall pay to the State ~i~ royalty 27. 00000 percent in amount or value.of· the oil, gas, and a;sociated substances saved, removed, or sold from the lease~..,~.~a,.and of the gas bsed on the lea.~il~.~..area for exti~tlon of n~tural t~r btfi~'r ib'rCfducts therefrom. 8. ROYALTY DETERMINATION. The State shall determine whether production royals[/ shall he ~aid in amount or value. 9. REDUCTION OF ROYALTY. After two (2) years' initial productio~ from the field in which the leiMd ama Is I(~catKI he~ occurred, the State, in Its discretion, may reduce Lelsee's obligations to pay royalty on a!l of the leased area or on any tract or portion thereof segregated for royalty purposes upon (1) request by I.~ssee, (2) e clear showing by lessee that the revenue from all oil, gM and euociated subslances produced from the field is insufficient to produce · reasonable rate of return with msl~ect to Lessee's total Investment in the field, end (3) a clear showing by Lessee that a reduction In royalty will Increase total production from the field. 10. ROYALTY IN VALUE. Unless the State elects to recei~ all or a portion of Its royalty in kind as provided In Par~]raph 12 below, Lessee shall pay to the State the value of ell royalty oil, gas and associated substances aa determined under Paragraph 1 ! below. Royalty paid in value shall be free end clear of all lease expenses (and any portion of such expenses which is incurred away from the klesad including, but not limited to, expenses for separation, cleaning, dehydration, gathering, saltwater dir4x)MI, and preparing the oil, gee or associated substances for transportation off the leased area. All royalty that may become payable in money to the State shall be paid on or before the last day of the calendar month following the month in which the oil, gas or associated subatancel are produced. Royalty shall be accompanied by copies of mn tickets or such other information relating to valuation of royalty aa the State may rlquimo which may include, but is not limited to, evidence of sales, shipments, and amounts of gross oil, ga= and a~octated substances produced. 11. VALUE. (a) For purposes of computing royalties due under this lease, the value of royalty oil, gas or el~)clated substincel shall not be less than the highest of: (1) the field price actually' received by Lelsae for such oil, gas or associated ~ubstances= (2) Lassee's posted prlce in the field for such oil, gas or a~ociated substances; (3) the volume weighted average field price actually receivIKl'by other producer, in the lame field or ama for oll of like grade and gravity, ga, of like kind and quality or msoclated substances of like kind and quality et the time such oil, gm or associated are removed from the leased or unit area or such gas is delivered to an extraction plant if such a plant is located on the leawcl or unit eras;or (4) the volume weighted average posted price in the field of other producer, in the same field or ama for oil of like grade and gravity, gas of like kind and quality or associated substances of like kind and quality et the time such oil, g~ or auociated sul~tanc~ removed from the leased or unit ama or such gas is delivered to ~n extraction plant if such a plant ia located on the leased or unit ama. (b) If oil, gas.or associated substances am sold away from the leased or unit ama, the term "field price" in lubpamgmph (a) above shall be the actual price for such oil, gas or ~,K)ciated substances received from the purchaser thereof less the Ictus! celt of transportation away from the leased or unit ama to the point of delivery. (c) Minimum Value Determinations. The State may establish minimum values for purposes of computing royalties on oil, gas or associated substances obtained from this lease, with consideration being given to the price actually received by lassie, to the price rjr prices paid in the same field or area for production of like quality, to posted prices, to prices received by Lessee and/or other producer, from sales occurring away from the leased area, end to other relevant matters. Each such determination will be made only after Leuee hal been given notice and a reasonable opportunity to be heard. Under this provision, it is expressly agreed that the minimum value of royalty oil, gM or.. associated substances under this lease may not necessarily equal tl~e price of suc[~ oil, gas or associated substances. 12. ROYALTY IN KIND. (a) At the State's option, which may be exercised from time to time upon not less than six (6) months' notice to Lessee, Lessee shall deliver all or e portion of the State's royalty oil, ga,( or ar~eciated substances produced from the leased area in kind. Delivery shall be on the leased area or et e place mutually agreed to by the State and Lessee, and shell be to the State or to any individual, firm or corporation designated by the State. (b) Royalty oil, gas or associated substances delivered in kind shall be delivered in good and merchantable condition and be of pipeline quality, and shall be free and clear of all leme expenses (and any portion of such expenses which are incurred away from the leased area), including, but not limited to, expenses for separation, cleaning, dehydration, gathering, saltwater disposal, and preparing the oil, gas or associated substances for transportation off the leased area. (c) After having given notice of its intention to take, or after having taken, Its royalty oil, gaz or euociated substances in kind, the State, at its option and upon six (G) months' notice to Lessee, may elect to receive a different portion or none of its royalty in kind. If, under federal regulations, the Lessor's taking of royalty oil, gas or associated substances in value creates e suppller~urchaser relationship, Lessee hereby waives its right to continue to receive royalty o11, gas or associated sUbstances under such a relationship, end further agrees that It will require any purchasers of the royalty oil, gas or associated substances to likewise waive any such rights. (d) Lessee shall furnish storage for royalty oil and natural gee liquids produced from the leased or unit ama to the same extent · ..that Lessee provides storage for Lessee's shem of oil and natural gas liquids. Lessee shell not be liable for the Iou .or destruction of stored. royalty oil and natural gas liquids from causes beyond Lessee*s reasonable control. 13. RECORDS. Lessee shall keep and have in its possession books and records showing the development and production (including records of development and production expenses) and disposition of all oil, gas and associated substances produced from the leased area. Lessee shall permit the State or Its agents to examine such books and records at ell reasonable times. Such books and records of development end production must employ methods and technlque~ that will ensure the most accurate figures reasonably evailable.withou.t requiring Lessee to provide separate tankage and/or meters for each well. Lessee shall use ~tandarcl and consistent accounting procedur~ which are common to the" industry. 14. APPORTIONMENT OF ROYALTY FROM APPROVED UNIT. The I~ndow~er's royalty sham of the.unit production allocated tO each separately owned tract shall be regarded as royalty to be distributed to and among, or the proceeds of it paid tot the landowners, free and clear of all unit expense and free of any lien for it. Under this provision, the State's royalty sham of any unit production allocated to the leased area shall be regarded as royalty to be distributed to, or the proceeds of it paid to, the State, free and clear of ell unit expenses (and any portion of such expenses 'W~lch is incu. o'ed away from the Ijnlt. eree); InclLIdlng, but not llmlted to, expenses for separation, cleaning, dehydration, gathering, saltwatar..disposal, and preparing o11, gas or associated substances for transportation ?ff the unit area, end free of any lien for it.. 15. PAYMENTS. All payments to the ~tete under this lease shall be made payable to the State in thS'manner dimctecl by the State, and shall be tendered to the State at DEPARTMENT OF NATURAL RESOURCES 323 EAST FOURTH AVENUE ANCHORAGE, ALASKA ga501 or to any depository designated by the State with at least sixty (60) d~ys* notice to Les~e. 16. PLAN OF OPERATIONS. (al No Ieee operations other than surface reconnaissance rney be undertaken by I. eq~, its agents or assigns, on the leased area, except In conformity with a plan of operations approved by the State. levee shall file with the State four (4) copies of Itl application for approval of its proposed plan of operations. (b) The appllcatlon shall set forth a detailed proposed plan of operations, Including, but not limited to, i~ements and mape or drawings setting forth each of the following: (1) the sequence and schedule of the operations propoled to be conducted on the leased (2) projected use requirements associated with the proposed operations, Including, but not limited to, the Ic)c~tion and design of well sites, material sites, water supplies, buildings, roads, utilitlez, airstrips and all other facilitial necessary for exploration, development' and production of the leased ama; (3) planl for restoration of the leased ama upon the completion of operations or phatel thereof; and (4} a detcTIption of operating procedures designed to prevent or minimize adverse impacts upon other nlturel resources and other usel of the leaMd ires end Kljacent areas. · (c) Within sixty (60) dave of Lessee's filing of complete application for approval of tt~ proposed plm~ of operations, th~ Stem ~l~all approve or d,3ny the application. If the application is denied, the State shall state In writing its re·eons for such denial end may propose mGclifications which, if accepted by Lessee, would qualify the plan for approval. (d) Subsequent modification o! an approved plan of operations may be proposed by Lessee. A modification of an approved plan of operations proposed by Lessee shall be considered under the same procedura~ used for review and approval of Lel~ee'l original 131an of operations. (e) Approval by the State of a plan of operations or any modifications thereto lignifles only that the State has no objection to the operations outlined in the plan from the standpoint of the lease administrator and does not relieve Lessee of its obllgationl to obtain approvals af)d permits required by other governmental agencies having regulatory authority over such opera]Siena. (f} All of Lessee's operations on the lease area shall be in conformance with the approved plan of oDerationl. 17. PLAN OF DEVELOPMENT. (a) Within six (6) months after certification of a well capable of producing oil,gas or associated substances in paying Quantities, Lessee shall file two (2) copies of an application for appro~ml by the State of an Initial plan of devalol3ment. The initial plan of development shall describe Lessee's plans for developing the leased area. No development of the leased area may occur until a plan of development has been approved by the State. (b) Within sixty (60) days of Lessee's filing of a complete application for approval of its proposed Initial plan of development, the State shall approve or deny the application. If the application is denied, the State shall state in writing its reason for such a denial and may propose modifications which, if accepted by Lessee, would qualify the plan fro' approval. (c) The plan of development shall be revised, updated and submitted for the State's approval annually on the anniversary date of this lease or on such other date as may be mutually agreed to by Les=e· and the State. If no changes from an approved plan are contemplated for the following year, a statement to that effect shell be filed in lieu of the required revision and updating. 18. EXCEPTION FOR LEASE INCLUDED IN AN APPROVED UNIT. If this lease is Included in an approved unit, the Lel~ee shall not be required to submit a separate plan of operations or plan of development under Paragraphs 16 and 17 above. 19. LOGS AND OTHER RECORDS OF OPERATIOHS. (a) Lessee shall file all logs end surveys taken, a description of all tests run for each well drilled on the leased area, together with a plat showing the exact location of each such well, with the State within thirty (30) days after each such well has been completed, suspended or abandoned. (b) Any end ell information filed by Lessee with the State in connection with this lease shall be available at all times for the confidential use of the State for the purpose of enforcing compliance with the promises, terms, conditions end covenant~ of this lease and the provisions of State law. Inspection of such information by any persons other than officers or employees of the State (and personl performing any function or work assigned to them by the State) shall be governed by applicable law. 20. DIRECTIONAL DRILLING. This lease may be maintained in force by directional wells drilled under the leased area from locations on other lands not covered by this lease. In such circumstances, drilling shall be considered to heys commenced on the leased area when actual drilling is commenced on such other lands for the purpose of directionallv drilling under the leased area. Production of oil or gas from {he leased area through any directional well surfaced on such other lands or drilling or reworking of such directional well shall be considered production or drilling or reworking operations on the leased area for all purposes of this lease. Nothing contained In this Paragraph is intended or shall be construed as granting to Lessee any interest, license, ea~ment or other right tn or with respect to such lands In addition to any such interest, license, easement or other right which the Lessee may have lawfully acquired from the State or from other~. 21. DILIGENCE AND PREVENTION OF WASTE. (a) Lessee shall exercise reasonable dilicjence in drilling, producing and operating wells on the leased ere3 unless consent to suspend operations temporarily is grDnted by the State. ' (b) Upon discovery of oil or gas on the lea~ed area in quantities which would appear to a reasonable and prudent operator to be sufficient to'recover ordinary costs of drilling, completing and producing an additional well in the same geologic structure at another location with a reasonable profit to the operator, Lessee shall drill such wells as a reasonably prudent operator would drill, having due regard for the Interest of the State as well as the interest of the Lessee. (c} Lessee shall carry on all operations under this lees· in a good and workmanlike manner in accordance with the methods and practices set out in the lpproved plan of operations and'plan of deve~pment ~v=th due regard for the prevention of waste of oil~ gas and associated substances and the entrance of water to the oil and gas-bearin,=l sands or strata to the destruction or injury of the same, and to the preservation and conservation of the property for future productive operations. Lessee shell carry out at Lessee's expense all orders and requirements of the State relative to the prevention of waste and the preservation of the leased area. If Lessee fails to carry out such orders, the State shall have the right, together with any other available legal recourse, to enter on the leased area to repair damage or prevent waste at Lessee's expense. (d) Lessee shall securely plug in an approved manner any well before abandoning it. 22. OFFSET WELLS. Lessee shall drill such wells es a reasonably prudent operator would drill to protect the State adequately from toss by reason of drainage resulting from production on other land. Without limiting the generality of the foregoing sentence, If oil or gas should be produced in a well on other land not owned by the State or on which the State receives a lower rate of.royalty than under this lease, arid such well is within 500 feet in the case of an oil well or 1,500 feet in the case of e gas well of lands then subject to this lease, and such well pro. duces oil or gas for a period of thirty (30} consecutive days in quantities which would appear to a re.aeon·bi· end prudent operator to be sufficient to recover ordinary costs of drilling, completing and producing an additional well in the same geologic structure at an offset location with a reasonable profit to the operator, and if, after notice to Lessee and an opportunity to be heard, the State finds that production from such well is draining lands then sub[act to this lease, Lessee shall within thirty (30) days after written demand by the State begin in good faith and diligently prosecute drilling operations for an offset well on the leased area. In lieu of drilling any well required by this Paragraph, Lessee may, with the State's consent, compensate the State in full each month for the estimated loss of royalty through drainage in the amount determined by the State. " 23. UNITIZATION. (a) Lessee may unite with others, Jointly or separately, In collectively adopting and operating under a cooperative or unit agreement for the exploration, development or operation of the pool or field or like area or pa. rt thereof which Includes or underlies the leased area or any part thereof whenever a regulatory agency having appropriate Jurisdiction date:mines and certifies that such an agreement is in the public Interest for the purpose of properly conserving the natural resoures of any oil or gas pool, field or lika area or any part thereof. (b) '"Lessee agrees, within slx (6) months after .demand by the State, to subscribe to a reMl~'rt'a'blilt'el:tol~ratlve or unit agre~Tfl~nt'~ which shall adequately pi;Either 'iill ~'arties In interest, including the State. The State reserves the right to prescribe such an"~igreement. {c) With the consent of Lessee, the State may establish, alter, change, or revoke drilling, producing, rental end royalty requirementti of thts lease if the leased area is committed to any such cooperative or unit agreement, and may adopt such regulations with reference to this lease in connection with the Institution and operation of any such cooperative or unit agreement al the State determines ere necessary and proper to secure the proper protection of the public Interest. (d) If a portion of the leased area or any separate and distinct zone or geological horizon is committed to an approved or prescribed unit agreement, tho committed acreage or zone or horizon shall be segregated into a separate and distinct lease having the same effective date es this lease. Any portion of the leased area or any separate and distinct zones or geological horizons not committed to such a coopera~ve or unit agreement shall remain subject to the terms and conditions of this lease unaffected by the pooling or unitization of any other portion of the leased area or zone or horizon or by operations in any such unit. :24. INSPECTION. Lessee shall keep open at all reasonable times, for inspection by any duly authorized representethm of tho State, the leased area, all wells, improvements, machinery and fixtures thereon, and all report~ and records relative to operations and surveys or investigations on or with regard to the leased area or under this lease. 25. SUSPENSION.. The State may from time to time direct or approve in writing suspension of production or other operations under this lease. 26. ASSIGNMENT, PARTITION AND CONVERSION. This lease, or any undivided interest herein, may, with the approval of the State. be assigned, subleased or otherwise transferred as to the entire leased area or any one or more legal subdivisions included therein, or any separate end distinct zone or geological horizon underlying the leased area or such one or more legal subdivisions therein, to any pemon or persons qualified to hold a lease. No assignment, sublease or other transfer of an interest in this lease, including aMignment~ of working or royalty interests and operating agreements and subleases, shall be binding upon the State unless approved by the State. Levee shall remain liable for all obligations under this lease accruing prior to the approval by the State of any assignment, sublease or other transfer of an interest in this lease. All covenants, conditions and agreements contained in this lea~e shall extend to and be binding upon the helm, edministretom, successors, and assigns of the State and/or Lessee. Applications for approval of an assignment, sublease or other transfer shall comply with ell applicable regulations and must be filed within ninety (90) days after the date of final execution of the instrument of transfer. Transfer of this lease or an interest therein shall be approved by the State unless (1) Lessee fails to comply with applicable statutes and regulations or (2) the State determines in writing that the best Interests of the State Justify a denial. Where en e~ignrnent, sublease or other transfer is mede of ell or a part of Lessee's interest in a~d to a portion of the leased area, that portion may, at the option of the State or upon request of the trenlferee and with the approval of the State, be segregated into a separate and distinct lease having the ~ame effective date as this lease. 27. SURRENDER. Lessee at any time may make and file with the State · written surrender of all rights under this lease or any portion thereof comprising one or more legal subdivision or, with the consent of the State, any separate and distinct zone or geological horizon underlying the leased area or one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of filillg, subject to the continued obligations of Lessee and his surety to make payment of all accrued royalties and to place all wells and surface facilities on the surrendered land or in the surrendered zones or horizons in condition satisfactory to the State for suspension or abandonment. Thereafter, Lessee sh, all be released from oil obligations under this lease with respect to the surrendered lands, zones or horizons. 28. DEFAULT AND TERMINATION; CANCELLATION. {a) The failure of Lessee to perform timely its obligations under this lease, or the failure of Lessee otherwise to abide by all express and implied promises, terms, conditions and covenants of this lease, shall be deemed to be a default in Lessee's obligations hereunder. Whenever Lessee fails to comply with any of the provisions of this lease (other than a provision which, by its terms, provides for automatic termination) and fails within sixty (60) days after written notice of such default to commence to remedy and thereafter diligently prosecute operations to remedy such default, the State may terminate this lease if at that time there is no well on the leased area capable of producing oil or gas in payin~ quantities. If at that time there is a well on the lea~ad area capable of producing oil or gas in paying quantities, this lease may be terminated by an appropriate judicial proceeding. In the event of any termination under this subparagraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each well or wells and such rights,of-way through the leased area as ere reasonably necessary to enable Lessee to drill, operate, and transport' oil and/or gas from such retained well or wells. (b) The State may cancel this lease et any time if the State determines, after Lessee has been given notice and a reasonable opportunity to be heard, that (1) continued operations pursuant to this lease probably will cause serious harm or damage to biologic resources, to property, to mineral resources or to the environment (including the human environmentJ, (2) the threat of harm or damage will not disappear or decrease to an acceptable extent within a reasonable period of time, and (3)the advantages of cancellation outweigh the advantages of continuing this lease in force. Any cancellation under this subparagraph shall not occur unless and until operations under this lease have been under suspension or temporary prohibition by the State, with due extension of the term of this lease, continuously for a period of five (5) years or for a lesser period upon request of the Lessee. Any cancellation under this subparagraph will entitle Lessee to receive such compen',ation as Lessee demonstrates to the State is equal to the lesser of (1) the value of the cancelled right1 as of the date of cancellation, with due consideration being given to both anticipated revenues from this lease and anticipated costs, including costs of compliance with all applicable regulations and stipulations, liability for clean-up costs or damage~, or both, in the case of an oil spill, and all other costs reasonably anticipated under this lease, or (2) the excess, if any, over Lessee's revenues from this lease (plus interest thereon from the date of receipt to date of reimbursement) of all consideration paid for this lease and all direct expenditures made by Lessee after the effective date of this lease and in connection with exploration or development, or both, pursuant to this lease, plus interest on such consideration and such expenditures ,. ~rom the date of payment to the date of reimbursement. 29. RIGHTS UPON TERMINATION. Upon the expiration or earlier termination of this lease as to all or any portion of the leased area, Lessee will be directed in writing by the State and shall have the right at any time within a period of one (1) year thereafter, or such extension thereof as may be granted by the State, to remove from the leased area or portion thereof all machinery, equipment, tools, and materials. Upon the expiration of such period and at the option of the State, any machinery, equipment, tools, and materials which Lessee has not removed from the leased area or portion thereof become the property of the State or may be removed by the State at Lessee's expense. At the option of the State, all improvements such as roads, pads and wells shall either be abandoned end the sites restored by Lessee to the satisfaction of the State or be left intact and Lessee absolved of all further responsibility as to their maintenance, repairs and eventual abandonment and restoration. Subject to the foregoing, Lessee shall deliver up the leased area or such portion or portions thereof in good condition. 30. DAMAGES AND INDEMNIFICATION. {a) ..No rights under reservations contained in leases or grants of Alaska land may Jae exercised by the State or by its Lessee.until provision has been made to pay tho eiWflar of the landupon ~vhich the .re~ ~r~ved rights ore sought to be exercised full payment for all damages sustained by the owner by reason of entering on the land. If the owner for .any reason refuses neglects to settle the damages, the State or its Lessee may enter upon the land after posting a surety .bond determined..by the Stal;e,.af.ter notice and an opportunity to be heard, to be sufficient as to form, amount, and security to secure to the owner payment for damages, and may institute legal proceedings in a court of competent Jurisdiction where the land is located to determine the damages which the owner of the lend may suffer. Lessee hereby agrees to pay any damages that may become payable under AS 38.05.130 and to indemnify the State end hold It harmless from and against any claims, demands, liabilities and expenses arlslng from or in connection with such damage~. The furnishing of a bond in compliance with this Paragraph shall be regarded by the State as sufficient provision for the payment of all damages that may become payable under AS 38.05.130 by virtue of this lease. (b} Lessee shall indemnify the State for, and hold it harmless from, any claim, Including claims for Io~a or damage to property or Injury to a person or persons caused by or resulting from any act or omission committed pursuant to this lease by or on behalf of Lessee. Lessee shall not be held responsible to the State under this subparagraph for any leu, damage or Injury causecl by or re~ultlng from the sole negligence of the State. {c) Lessee expressly waives any defense to an action for b~each of a covenant of this lease or for damages resulting from an oli spill or other harm to the environment which is based on the fact that the act or omission complained of wa~ committed by an Independent contractor. Lessee expressly agrees to assume responsibility for all actiOns of Its independent contractors. 31. BONDS. (e) If required by the State, Lessee shall furni=h a bond prior to the I~suartce of this lease in an amount equal to et least $5.00 per ac~e or fraction thereof contained in the leased area, but no le~ than $10,(XX).00, and shall maintain said bond as ~ m reqt~ired by the Stets. (b) Before beginning drilling operations on the leased area, Levee ~hall furnish a bond in the amount of at lea~t $100,000.00 and shall maintain said bond as long as required by the State. (c) Lessee may, in lieu of the bond required under (al above, furnish and maintain · Statewide bond in accordance with applicable regulations. (d) The State may, after notice to Levee end a reasonable opportunity to be heard, require · bond In a reasonable amount greater than the amount specified in (a) and (b) above where m~ch greater amount is Justified by the r, atum of the surface and it~ u~e~ and the degree of risk involved in the types of operations being or to be carried out under th~$ lease. A Statawicie bond shall not ~atisfy any requirement of a bond imposed under this subparagraph, but shell be considered by the State in determining the need for end the amount of any additional bond under this subparagraph. (e) If' the leased area is committed in whole or in pert to a coo~erative or unit agreerr~nt approved or prescribed by the State and a unit bond is furnished, Lessee need not thereafter maintain any bond with respect to the portion of the leased area committed to such agreement. 32. FORCE MAJEURE. If the State determines that Lessee has been prevented, after efforts mede in good faith, from complying with any express or implied promise, term, condition or covenant of this lease, from conducting drilling operations, or from producing or marketing oil or gas from the leased area, by reason of war, riots, acts of God, unusually ~evere weather, or any other cause beyond Les~ee's reasonable ability to foresee or control (including delays caused by Judicial decisions or lacl(thereof), whether similar to thcee enumerated or not, Lessee's obligation to comply with such provision shall be luspended, but not voided, and Lemee shall not be liable for damages for failure to comply therewith. If Lessee's obligations to conduct drilling or reworking operations are suspended under this Paragraph and the continuation of such operations without ~uspension would have had the effect of preventing the expiration or termination of this lea~e, this lease shall not terminate during the period which the obligation to perform such operations is suspended. Nothing in this Paragraph shall be construed to suspend the obligation to pay rentals, or to suspend the obligation to pay royaltie~ or other production or profit-based payments from operations on the leased area which are not suspended or from operations which ara not affected by any such suspension, to the State. 33. AUTHORIZED REPRESENTATIVES. The State Director of the Divtsion of Minerals and Energy Management, Department of Natural Resources, end the person executing this lease on behalf of Lessee shall be the authorized representatives for their refl~ective principals for purposes of administering this lease. The State or Lessee may change the designation of its alJthorized representative or the address to which notices to that representative are to be sent by a notice given in accord with Paragraph 34 below. Where activities pursuant to a plan of operations are underway, Lessee will also designate, pursuant to a notice under Paragraph 34 below, by name, job title and addreu, an agent who will be present in the State during ell such activities. , 34. NOTICES. Any notices required or permitted under this lease shall be by electronic media producing a permanent record or in writing and shall be given personally or by registered or certified mail, return receipt requested, addressed a~ follow~: TO THE STATE: TO THE LESSEE: DIRECTOR, DIVISION OF MINERALS AND ENERGY MANAGEMENT DEPARTMENT OF NATURAL RESOURCES 703 W. NORTHERN LIGHTS BOULEVARD, SU~.l~e ].00 ANCHORAGE, ALASKA 99503 Any such notice shall be effective when delivered to the foregoing authorized representative. 35. STATUTES AND REGULATIONS. This lease is subject t~.ell State and Federal statutes and regulations in effect on the effective date hereof, and, insofar as is constitutionally permis~ible, to all statutes and regulations hereinafter placed in effect. This lea~e shall not be interpreted as a limitation .,upon the exercise by the State of Alaska or by the United States of America of the power to enact and enforce legislation or to promulgate and enforce regulations affecting, directly or Indirectly, the activities of Lessee or its..aga~ts in connection with this lease or the value of the Interests held under this lease. 36. INTERPRETATION. This lease is to be interpreted In accordance with the rules applicable to the Interpretation of contracts made in the State of Alaska. The Paragraph headings ere not part of this lease and ere Inserted only for convenience. The State and Lessee expressly covenant that the law of the State of Alaska shall apply in any judicial proceeding under this lease. 37. INTEREST IN REAL PROPERTY. It is the intention of the parties that the rights granted to Lessee by this lease constitute an interest in real property in the lease area. 38. SEVERABILITY. If it is finally determined in any judicial proceeding that any provision of this lease Is Invalid, the State and Lessee may jointly determine and agree by a written amendment to this lease that, in conslderatlon of the promises, terms, conditions and covenants contained in that written amendment, the invalid portion of the lease will be treated as severed.from the lease and that'the remainder · " of the lease, as amended, will remain in effect. 39. DEFINITIONS. All words and phrases used in this lease are to be Interpreted where possible in the manner required in respect to the interpretation of statutes by AS 01.10.040. However, the following words have the following meanings unless the context unavoidably requires otherwise: (1) "oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced in liquid form by ordinary production methods, including liquid hydrocarbons known as distillate or condensate recovered by ~eperatlon from gas other than at a gas processing plant; (2) "gas" means all natural ~s (ex,cept helium g~) and all other hydrocarbons produced which are not defined herein a~ ' · oil; ~:;~ (3) "associated substances" means all substances except helium produced as an incident of production of oil or gas by ordinary production methods and not defined. ~..emill es oll or gat; ~,~.'.:~:=~,,,~:'.*'~':'.;~';: .............. (4)' "drilling" means the act of borlng a hole to reach e proposed bottom h01e 16'~flbn thi-5o*~h Which oil or ga~ may be produced if encountered in paying quantities, and includes redrilling, sidetracking, deepening or other means necessary to reach the proposed bottom hole location, testing, logging, plugging and other operations necemary and incidental to the actual boring of the hole; ... (5) "reworking operations" means all operations designed to secure, restore or Imri~'6~ production through ~ use of a ........ hole previously drilled, Including, but not limited to, mechanical or chemical treatment of any horizon, plugging beck to test higher strata, atc= and (6) "paying quentitlas' means quantities sufficient to yield a return In excess of operating costs, even though drilling end equipment costs may never be repaid and the undertaking considered as a Whole may ultimately result in a Ios~. State of Alaska. City of Fairbanks 19~A_., before me, a Notary Public in and for t-he state of Ala~ska', duly commissioned anal sworn, versonally appea~,ed , · ~ me ~k~'own to' be-~h-e pb~-son-~ho e~e'cut~-d the:£6rego.tng strument, and that he executed the same freely and voluntarily.~J~ ~ITN'ESS my hand and official seal. '~o.tarr(~UbT~c~a'n~ for Alaska My comm~ssion expires: ~ ~[~_~ ~, 40. CONDITIONAL LEASE. If all or a part of the leased area is land that hm been ~electad by the State under la~m ~f the United States g~a~t!ng land~ to the State, but such land hm not been patented to the State by the United States, then this lease Is · conditional lame e~ .~. provided by law until much a patent becomes effective. If for any reason muc~ a ~electlo~ ia not finally approved, or much a patent ~ not .,~Ir bec4:~me effective, any rental, royalty or profit-bead payment~ made to the State under thll lease will not be refunded. ~r 41. EMPLOYMENT OF ALASKAN RESIDENTS. ~ ~hmll comply with mil valid and applicable law~ and regulations with regard to the hiring of Alaska residents. Levee will not di~crlminate against Alaska reddent~0 a~ prohibited by applicable lavv~ end regulations of the State of Almka. L~_~e will furnish the Alaska Department of Lebm a quarterly aport regaeding the employment of Almkl re~iclents on the leased ama In compliance with regulationl adopted by the Commi~ion~ of Labor. _/_./ / ,- ---, IN WITNESS WHEREOF the parties have ,xecut~ this leale effective . of the ~ ~.]'~' '-~. d~y of~ .~./.~.~../ ,1~ ~'//'. STATE OF ALASKA By: Title: THE UNITED STATES OF AMERICA ) ) m. Acknowledgement of Lelsor STATE OF ALASKA Thl, cartlfiel that on the (~5 dayof ~U ~,~ ~ ' ~ ~ I o before me,, notary public I,. a..q~ for till Ste~/of Alaska, duly commis~ioned and eNom. parwnall¥ appanred to me known to be the perlOn who executed the foregoing lalE;e Ori bTeh~l[f of the utafe of Alaska, who, after bi, lng 6ul~ lgvorn locordlng to law, stated to me under oath that ha has authority pumuant to lavT to execute tile foregoing leaee on behalf of the State of Alaska0 acting through the Divlaion of Minerals and Energy Management, Department of Natural Resources end that he executed the tame freely and voluntarily as the act and deed of the State of Alaska and for the Divillon of Minemll and Energy Management, Department of Natural Ra~ouroel. N in and for A My Commiulon expires I O / B WITNESS my hand and official mai. STATE OF ALASKA 33RD COMPETITIVE OIL AND GAS LEASE SALE UPPER COOK INLET LEASE STIRULATIONS 1. Protection of Tule Goose Habitat-- Surface entry for lease operations is prohibited below the 100 foot elevation contour line down to the mean low tide line on the West Foreland tracts C-3~-18~ and C-~3-187. 2. All surface exploration and development activities in "primary waterfowl areas" in State Game Refuges will be prohibited from Apri'l I to October 31 unless extended by the Commissioner, Department of Fish and Game. Production, routine maintenance and emergency repairs will be allowed , on a year round basis. 3. Prohibition of drilling facilities near Tyonek-- Offshore drilling facilities are prohibited in the area - .. between Granite Point and the Chuit River (Chuitna) from the mean high tide line to one mile seaward. 4. Spill Prevention, Control and Countermeasure Plan (SPCC)-- A Spill Rrevention, Control and Countermeasure Plan must be submitted to the Department of Environmental Conservation prior to drilling and construction of onshore oil storage. (with a capacity greater than 6~0 gallons), transfer and transportation facilities. The S.P.C.C. plan for drilling operations should include, but not be limited to, method~ for controlling blowouts, location'of spill clean-up equipment, identification and location of a suitable alt'ernativ.e drilling rig, and.the time required, to obtain, mobilize, rig-Up, and commence drilling of a relief well, if needed. Di'scovery of historic or archeologic objects-- In the event any site, structure, or object of historic or archeologic.significa'nce should be discovered during the conduct of any operations on the leased area, the lessee ........ shall report, immediately such findings to the Director, Division of Minerals and"Ene"~'gy Management, and make every ......... reasonable effort to preserve and protect such site, ., ~,,~ ,.~, .......... ,.. .............. structure, or object from damage until the "Director, after .................. consultation with the State Historic Preservation Officer, has given directions as to its protection. "E X H I B I T A" ~ 5u Ac TRACT C-33-070 T13N, RIOW, SEWARD MERIDIAN Section 16, All, including all surveys within this Section, containing 640 acres more or less; Section 17, All, including all surveys within this Section, containing 640 acres more or less; Section 18, All, including all surveys within this Section, containing 634 acres more or less; Section 19, All, including all surveys within this Section, containing 636 acres more or less; Section 20, All, including all surveys within this Section, containing 640 acres more or less; Section,,.gl:F.Rll including all surveys WtEhi~ this Section, contaJntng 640 ...,;~.....:..;... . , .:~., .......................... .........: .,.::;...,~ ..,:....~.~.~,.~:~:~..:,~:: ..... .:......~..,,.~......,..+.....~? ........ Section 22, NN-1/4,"W-"I/g NE-,1/4, NE-I/4 NE-l/4, N-1/2 SN-1/4, SN-1/4 SN-1/4, including ali surveys within the N~-1/4, ~-1/2 NE-l/4, NE-l/4 NE-l/4, N-1/~ SN-1/4, SN-1/4 S~-1/4 of Section 2~, containing 400 acres more or less; This Tract contains 4,230 acres more or less December 29, 1986 Jon A. Wood ARCO Alaska Inc. P.O. Box 100360 Anchorage, Alaska' 99510-0360 C. Burglin Land Consultant P.O. Box 131 Fairbanks, Alaska 99707 (907) 452-5149 t:.~-rA-r'rEcH Dear Mr. Wood' ?'i'L-Ei Burglin et al (Burglin) is proposing the establishment of a drilling unit for T 13 N, R 10 W, Section 22, Seward Meridian of the Beluga River Gas pool. It is Burglin's intent to locate and bottomhole a well on the SE¼ section of Section 22. Burglin will not be requesting any spacing exception, for Burglin's proposed BRX-22-1 well. Burglin is hereby giving notice of their intentions to ARCO et al (ARCO), the adjacent leaseholder of T 13 N, R 10W, Section 22. If ARCO is interested in participating in the drilling of BRX-22-1, please contact Burglin within 15...days of receipt of this letter, or by January 15, 1987. You may contact Burglin at 452-5149 or P.O. Box 131, Fairbanks, Alaska 99707. In order to expedite these matters Burglin is requesting that ARCO, a~..' the unit operator of the Beluga River Unit, notify all other Working Interest Owners of Burglin's proposed drilling unit. Sincerely, Brian Burglin enclosure CC: Comm. Smith, Alaska OGCC Kelly Goff 'Bill Van Dyke, State Div. Oil & Gas Gary Player BB/mbg r, /4 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION 3001 Porcupine Drive Anchorage, Alaska 99501-3192 .: Re :,. THE.. APPLICATION OF CHEVRON' U.S.A.. INC.. for an order "granting an exception to th~) spacing requirements of Title 20 AAC 25.055(a)(4) for the~drilling of Pretty Creek Unit Well No. 224-28 .. Conservation Order No. 217 Pretty Creek Unit Undefined Gas Pool and Gas Field July 18, 1986 IT APPEARING THAT: '1. Chevron U.S.A. Inc., operator for the Pretty Creek Unit (PCU), submitted an application on April 28, 1986 requesting an exception =o 20 AAC 25.055(a)(4) to permit drilling PCU Well No. 224-28 as a vertical well bore located 770 feet north and 2066 feet east from the southwest corner of Section 28, T14N, R9W SB&M. · Notice for a public hearing on June 26, 1986 to consider Chevron's application for an exception to spacing requirements for the drilling of PCU Wel'l No. 224-28 was published May 22, 1986 in the Anchorage Times. A public hearing on Chevron's application was held at 9:00 AM, June 26, 1986 in the Commission's conference room at 3001 Porcupine Drive, Anchorage, Alaska. Members of Chevron's technical staff testified in support of granting an exception to spacing regulations for PCU Well No. 224-28. · Burglin et al, a working interest owner in the PCU, protested Chevron's application by letter of May 27, 1986 and presented testimony in opposition to granting an exception to spacing regulations for PCU Well No. 224-28. No other person testified. FINDINGS: · Chevron U.S.A. Inc. re-entered the abandoned Halbouty Alaska Oil Co. Theodore River Well ~1, renamed Pretty Creek Unit (PCU) Well No. 2, on February 7, 1979. Conservation Order No. 217 Page 2 July 18, 1986 · · · · · · · · 10. 11. After testing gas flows at commercial rates, the PCU Well No. 2 was plugged and suspended February 26, 1979. The Commission took no action under 20 AAC 25.538 (repealed 4/2/86) to officially establish a gas field area, and has not designated under 20 AAC 25.520 a gas pool or established pool rules for the PCU Well No. 2 discovery. In the absence of an order by the Commission issued under 20 AAC 25.520 establishing a well spacing pattern for a pool,~' 20 AAC 25.055(a)(4) establishes a governmental section as the drilling unit for gas development wells and sets out the well spacing requirements .- Chevron is currently in progress with a .program to complete PCU Well No. 2 as a gas producer. 20 AAC 25.055(b) sets forth a means for an operator to apply for an exception to spacing requirements and AS 31.05.100(b) sets forth the findings which the Co~mission must make to grant a well spacing exception. Testimony by Chevron, as demonstrated by their submitted Exhibit F, indicates that Section 28, T14N, Rgw SB&M is, by and large, within the productive limits .of a gas pool discovered by PCU Well No. 2. Well sites, conforming with 20 AAC 25.055(a)(4), exist in Section 28 from which potentially productive development wells may be vertically drilled. A potentially productive development well may be directiona!ly drilled from a surface well site located 770 feet north and 2066 feet east from ~he southwest corner of Section 28, T14N, R9W SB&M to expose the gas bearing strata at a location which conforms with the spacing requirements set forth by 20 AAC 25.055(a)(4). The record indicates that the cost to directiona!!y drill a well that complies with the spacing requirements set forth by 20 AAC 25. 055(a)(4) will not exceed 110% of the cost to drill at the requested exception location. The spacin~ requirements established by 20 AAC 25. 055(a)( ) protect correlative rights and prevent waste. Page 3 July 18, ]986 CONCLUSION: The Commission is constrained by AS 31.05.100(b) from granting an exception to 20 AAC 25.055(a)(4) because: Virtually the entire Section 28 drilling unit lies within the estimated productive pool limits. ~ A well located in compliance with spacing regulations appears to be reasonably located structurally to prove productive. · Topographic conditions do not make the drilling of a well at a location in compliance with spacing regulations unduly burdensome. · The incremental increase in cost to directionally drill a well to expose gas bearing strata in compliance with spacing regulations is not unduly burdensome. DECISION: Chevron U.S.A. Inc.'s application for an exception to 20 AAC 25.055(a)(4), for the purpose of completing PCU Well No. 224-28 from gas bearing strata exposed by PCU Well No. 2, is denied. DONE at Anchorage, Alaska and dated July 18, 1986· AC iasV~aC~ ~ t ~°~ '~s C~Ao~%~vna t ion Commission Alaska Oil Gas Conservati~~. Alaska Oil and Gas Conservation Co~ission