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CO 435
Conservation Order COver Pa~e XHVZE This page is required for administrative purposes in managing the scanning process. It marks the extent of scanning and identifies certain actions that have been taken. Please insure that it retains it's current location in this file, ,J'~_ Conservation Order Category Identifier Organizing RESCAN [] Grayscale items: [] Poor Quality Originals: [] Other: NOTES: DIGITAL DATA D Diskettes, No. [] Other, No/Type OVERSIZED (Scannable with large plotter/scanner) OVERSIZED (Not suitable for plotter/scanner, may work with 'log' scanner) [] Logs of various kinds [] Other · BY: ~ MARIA Scanning Preparation TOTAL PAGES Production Scanning Stage 1 PAGE COUNT FROM SCANNED DOCUMENT: ~ PAGE COUNT MATCHES NUMBER IN SCANNING PREPARATION: ~ YES NO Stage 2 IF NO IN STAGE 1, PAGE(S) DISCREPANCIES WERE FOUND: ~ YES NO General Notes or Comments about this Document: 5/21/03 ConservOrdCwPg.wpd STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION 3001 Porcupine Drive Anchorage Alaska 99501-3192 Re' THE APPLICATION OF ARCO ALASKA ) INC. to present testimony classifying the pool ) and establishing rules for development of the ) Tabasco Oil Pool in the Kuparuk River Field. ) Conservation Order No. 435 Kuparuk River Field Tabasco Oil Pool November 5, 1998 IT APPEARING THAT: 1. By letter dated June 22, 1998, ARCO Alaska, Inc. ("AAI') requested a public hearing to present testimony to define the Tabasco Oil Pool and establish rules for development and production of the reservoir. 2. The Commission published notice of public hearing in the Anchorage Daily News on June 27, 1998. 3. A hearing concerning the matter of the applicant's request was convened in conformance with 20 AAC 25.540 at the Commission's offices, 3001 Porcupine Drive, Anchorage, Alaska 99501 at 9:00 am on August 12, 1998. FINDINGS: 1. AAI is operator of the Kuparuk River Unit ("KRU"). 2. AAI petitioned the Alaska Department of Natural Resources to form the Tabasco Participating Area ("PA") within the KRU on July 17, 1998. AAI's application for the Tabasco PA is limited to the area underlying the KRU Drill Site 2T ("DS 2T") area. ADNR approved the Tabasco PA on October 14, 1998. 3. The Tabasco Sandstone is an informal member of the Schrader Bluff Formation, which corresponds with the Campanian-aged Late Cretaceous Colville Group in the KRU area. 4. The Tabasco Sandstone is a prograding sequence of deltaic to near shore marine sediments, deposited at or near a shelf margin. The interval is discontinuously distributed over a broad region, with sand thickness generally most significant along the shelf margin. Large scale slumping and erosion characterize the interval. 5. The Tabasco Sandstone is composed of two lithologies: a discontinuous thin-bedded sandstone facies with shale interbeds and an overlying amalgamated sandstone facies. The thin-bedded sandstone facies is more widespread; its gross interval thickness is about 80' to 400'. The amalgamated sandstone facies ranges in thickness between 45' to 350' thick. The transition between the two facies is abrupt. 6. The Tabasco Sandstone is stratigraphically separated from the overlying West Sak sands by an interval of interbedded claystone, shale and mudstone between 300' to 400' thick. 7. The Tabasco Sandstone underlies a large portion of the southern and western portions of the KRU. Throughout the exploration and development history of the KRU, significant shows of oil have been reported within the Tabasco Sandstone or equivalent rocks. Conservation Order No 43~ Tabasco Oil Pool November 5, 1998 Page 2 8. The geographical extent of the potentially hydrocarbon-productive Tabasco interval in the KRU appears to corresponds with the outer shelf and shelf margin environments during Tabasco deposition. 9. Producible hydrocarbons were encountered in the Tabasco Sandstone between 3352' to 3599' measured depth ("MD") in the KRU 2T-201 well, which appears to contain a typical and representative stratigraphic section of the Tabasco Oil Pool. 10. The Tabasco structure is a monocline, dipping east to northeast and striking north to northwest in the western portion of the KRU and east to southeast in the southern portion. 11. The trapping mechanism is a combination of stratigraphic and structural elements. Oil distribution appears controlled by the stratigraphic distribution of reservoir sands. 12. The Tabasco accumulation is cut by a series of north-south and east-west normal faults, with throws typically ranging between 10' to 50' and maximum throws to 100'. 13. Petrophysical information is derived from open hole log data, supplemented with core samples from the KRU 2T-12 and 2T-202 wells. Porosity ranges from 17 to 22 percent and averages 20 percent. Log water saturation ranges from 17 to 60 percent, with 20 to 25 percent representative of the 2T pad area. Pressure transient permeability range from 3 to 100 Darcies; oil API gravity is 16 degrees, viscosity 253 centipoise at reservoir temperature of 71 o Fahrenheit. 14. The Tabasco oil is saturated at reservoir conditions, with an initial pressure of 1512 psig, a bubble point pressure of 1476 psig at 3000' subsea datum, and a solution gas oil ratio of 169 standard cubic feet per barrel. 15. A small gas cap of about 32 acres exits in the 2T-201 area, with the gas-oil contact at 2915' SSTVD. The gas cap contains an estimated 100 MMSCF of gas in place, and is not expected to have a major impact on reservoir performance. No definitive oil-water contacts have been delineated within the proposed Tabasco Oil Pool. 16. AAI plans a phased development for the Tabasco Oil Pool with initial efforts directed toward the amalgamated sand facies in the 2T pad area with some testing of the thin-bedded sandstone facies. 17. AAI estimates original oil in place ("OOIP") for the DS 2T area to be between 48 to 131 million barrels, with a mean aggregate volume of 85 million barrels. Volumetric calculation for the rest of the Tabasco accumulation have not been performed, but the potential reserves base for the entire pool is thought to be substantial. 18. Reservoir simulation shows recovery under primary depletion of only 5% of OOIP due to the high viscosity (253 cp.) of the crude oil and the corresponding low solution gas-oil ratio. 19. Waterflood is planned to coincide with initial development to maintain reservoir pressure at or near bubble point by maintaining voidage replacement. Recovery could range between 21% to 30% under waterflood. A producer-injector ratio of 2-1 appears most likely. Injection water will be derived from Kuparuk area produced water and seawater. 20. Preliminary screening studies suggest that a polymer-augmented waterflood could reduce the mobility ratio of the Tabasco oil and improve recovery. Additional work is needed to confirm compatibility of the polymer with Tabasco mineralogy. Mobility ratio of injection fluids and reservoir heterogeneity will have an impact on future depletion plans and ultimate recovery from the reservoir. Conservation Order No Tabasco Oil Pool November 5, 1998 Page 3 21. Initial development of the DS 2T area will be limited to 10 to 20 wells covering only about 900 acres of approximately 131,000 acres of the Tabasco Pool area. Estimated recoverable reserves are 23 million barrels with waterflood recovery. 22. Subsequent development of the Tabasco accumulation may include the Drill Sites 3G, 2M, 2X, and 2D. 23. Simulation studies show that well spacing of approximately 50 acres per well is optimal given the high permeability of the reservoir. Some portions of the reservoir may require a denser spacing of up to 10 acres per well to address permeability barriers, poorer than expected well performance, or reduced displacement rates of the viscous polymer injectant. 24. Well performance will vary throughout the productive area, but is expected to range between 800 to 4000 BOPD, with an average of approximately 2000 BOPD. Electric submersible pumps (ESPs) will be used as artificial lift, which will allow greater pressure draw down and higher production rates. 25. AAI will use existing KRU facilities and infrastructure to develop the Tabasco Oil Pool. 26. AAI will measure initial reservoir pressure in producing and injection wells and within portions of the reservoir on a periodic basis to monitor reservoir performance. Other surveillance such as profile logs may be applied to wells where multiple intervals are open for production or injection. 27. Casing and cement plans will adhere to 20 AAC 25.030 with designs based on performance factors to withstand permafrost and downhole conditions. 28. AAI proposes to use well annuli in accordance with 20 AAC 25.080 to dispose of drilling wastes as part of the development operations and may also dispose of approved wastes in permitted North Slope Class II injection wells. There are no freshwater aquifers within the Kuparuk River Unit. 29. AAI proposes to commingle Tabasco oil with hydrocarbons from the Kupamk Oil Pool for processing in KRU production facilities. Production will be allocated back to Tabasco Oil Pool on the basis of monthly well tests. CONCLUSIONS: 1. Pool rules for the initial development of the Tabasco Oil Pool are appropriate at this time. 2. Initial pool development will be conducted on leases that are participating in the KRU. 3. Minimum well spacing of 10 acres will allow the operator to deal effectively with difficult fluid and rock properties and stratigraphic constraints in locating wells, and should not cause waste, compromise ultimate recovery or jeopardize correlative rights. 4. The Tabasco Oil Pool has not been completely delineated. 5. Depletion plans and enhanced recovery mechanisms will not be optimized until the pool is more completely delineated and fluid mobility and reservoir heterogenity is more completely understood. 6. Early implementation of waterflood will preserve reservoir energy and enhance ultimate ' recovery from the pool. 7. Flexibility may be required in some areas of the reservoir to control placement ofinjectant, and improve the ability of the injectant to sweep the rock and maintain reservoir pressure. Conservation Order No 435 Tabasco Oil Pool November 5, 1998 Page 4 8. Annular disposal of drilling wastes can occur in an environmental safe manner if conducted in accordance with 20 AAC 25.080, but will require subsequent Commission review on a well-by-well basis to ensure that the provisions of 20 AAC 25.080 are met. The area injection order for the Kuparuk Oil Pool may provide a partial basis for any subsequent Commission determinations concerning annular disposal. 9. Reservoir pressure should be measured in wells using standard industry practices on a regular basis to manage production and monitor reservoir performance. 10. Exception from the gas-oil-ratio limitations of 20 AAC 25.240 is appropriate provided a pressure maintenance project starts within six months of the start of regular production. 11. Commingling Tabasco and Kuparuk production streams on the surface is appropriate provided that there is adequate individual well testing to assure production allocation quality. 12. Two well tests per month has been a minimum standard for commingled pools with the advent of commingling pools in surface facilities prior to custody transfer and severance from leases. 13. An allocation factor of 1.0 for the Tabasco Pool is acceptable during the first year of production to evaluate multiphase well test equipment and allocation quality. NOW, THEREFORE, IT IS ORDERED THAT the rules hereinafter set forth, in addition to statewide requirements under 20 AAC 25, apply to the following affected area referred to in this order. Umiat Meridian T10N R8E Sections 1, 2, 3,4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 27, 28, 29, 30, 31, 32, 33, 34. T10N R9E Sections 1, 2, 3, 4, T10N R10E Sections 1, 2, 3, 4, T11N R8E Sections 1, 2, 3, 4, 27, 28, 29, 30, 31, T11N R9E All 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 17, 18, 19, 20, 23, 24. 5, 6, 7, 8, 9, 10, 11, 12, 17, 18, 19, 20. 9, 10, 11, 12, 13, 14, 15, 16, 21, 22, 23, 24, 25, 26, 32, 33, 34, 35, 36. T11N R10E All TllN RllE T12N R8E Sections 5, 6, 7, 8, 16, 17, 18, 19, 20, 21, 22, 29, 30, 31. Sections 1, 2, 3, 4, 9, 10, 11, 12, 13, 14, 15, 16, 21, 22, 23, 24, 25, 26, 27, 28, 33, 34, 35, 36. Rule 1 Field and Pool Name The pool is in a geographic area known as the Kuparuk River Field and will be contained within the Kuparuk River Unit. Hydrocarbons underlying the affected area and within the referenced intervals of the Schrader Bluff Formation constitute a single oil and gas reservoir called the Tabasco Oil Pool. Conservation Order No 4.~5 Tabasco Oil Pool November 5, 1998 Page 5 Rule 2 Pool Definition The Tabasco Oil Pool is def'med as the accumulation of hydrocarbons common to and correlating with the intervals between 3352' to 3599' MD in the KRU 2T-201 well. Rule 3 Spacing Units Nominal spacing units within the pool will be 10 acres. The pool shall not be opened in any well closer than 300 feet to an external boundary where ownership changes. Rule 4 Casing and Cementing Practices a.) Conductor casing must be set at least 75 feet below ground level and cemented to surface. b.) Where required for annular disposal, surface casing must be set at least 500 feet below the permafrost and be cemented to surface. Rule 5 Iniection Well Completion a.) Injection wells must meet the requirements of 20 AAC 25.412. b.) Injection wells may be completed with tapered casing provided a sealbore assembly, packer, or other isolation device is positioned not over 200 feet above the top of the injection or perforated interval. c.) A sealbore assembly, packer, or other isolation device may be positioned within 200 feet of a secondary target interval within the defined pool where potential reserves are reasonably expected and will be evaluated or exploited. Rule 6 Automatic Shut-in Equipment a.) All wells capable of unassisted flow of hydrocarbons will be equipped with a fail-safe automatic surface safety valve. b.) Injection wells will be equipped with a double check valve arrangement. c.) Surface safety valves will be tested at six-month intervals. Rule 7 Common Production Facilities and Surface Commingling a.) Production from the Tabasco Oil Pool may be commingled with production from the Kuparuk Oil Pool and/or other oil pools in the KRU in surface facilities prior to custody transfer. b.) c.) d.) The allocation factor for the Tabasco Oil Pool will be 1.00 for the first year of production to evaluate the allocation method, testing frequency and quality. Each producing well will be tested a minimum of two times per month during the first year of regular production. The Commission may require more frequent or longer tests if the allocation quality deteriorates. e.) The operator shall submit a monthly file(s) containing daily allocation data and daily test data for agency surveillance and evaluation. Conservation Order No 435 Tabasco Oil Pool November 5, 1998 Page 6 f.) The operator shall provide the Commission with a well test and allocation review report after six months and after one year of commingled production. Subsequent report frequency and necessity will be determined after the first year of regular production. g.) After one year of regular production, an evaluation of test frequency and allocation quality must be done to support extension of the 1.00 allocation factor or consideration of alternatives. Rule 8 Reservoir Pressure Monitoring a.) Prior to regular production or injection an initial pressure survey shall be taken in each well. b.) A minimum of one bottom-hole pressure survey per producing or injecting governmental section shall be measured annually. Bottom-hole surveys in paragraph (a) may fulfill the minimum requirement. c.) The reservoir pressure datum will be 3000 feet subsea. d.) Pressure surveys may consist of stabilized static pressure measurements at bottom-hole or extrapolated from surface, pressure fall-off, pressure buildup, multi-rate tests, drill stem tests, and open-hole formation tests. e.) Data and results from pressure surveys shall be reported quarterly on Form 10-412, Reservoir Pressure Report. All data necessary for analysis of each survey need not be submitted with the Form 10-412 but must be available to the Commission upon request. f.) Results and data from special reservoir pressure monitoring tests or surveys shall also be submitted in accordance with part (e) of this rule. Rule 9 Gas-Oil Ratio Exemption Wells producing from the Tabasco Oil Pool are exempt from the gas-oil-ratio limits of 20 AAC 25.240(b) so long as the provisions of 20 AAC 25.240(c) apply. Rule 10 Pressure Maintenance Project A pressure maintenance injection project must be initiated within six months after the start of regular production from the Tabasco Oil Pool. Rule 11 Reservoir Surveillance Report A surveillance report will be required after one year of regular production and annually thereafter. The report shall include but is not limited to the following: 'a.) Progress of enhanced recovery project(s) implementation and reservoir management summary including engineering and geotechnical parameters. b.) Voidage balance, by month, of produced fluids and injected fluids. c.) Analysis of reservoir pressure surveys within the pool. d.) Results and where appropriate, analysis of production logs, tracer surveys and observation well surveys. e.) Results of well allocation and test evaluation for Rule 7 and any other special monitoring. f.) Updated future development plans including an estimated development schedule, progress report and basis of timeline for the complete pool development. Conservation Order No Tabasco Oil Pool November 5, 1998 Page 7 Rule 12 Production Anomalies In the event of oil production capacity restrictions at or from the Kuparuk facilities, all commingled reservoirs produced through the Kuparuk facilities will be prorated by an equivalent percentage of oil production, unless this will result in surface or subsurface equipment damage. Rule 13 Administrative Action Upon proper application, the Commission may administratively waive the requirements of any rule stated above or administratively amend this order as long as the change does not promote waste, jeopardize correlative rights, and is based on sound engineering principles. DONE at Anchorage, Alaska and dated November 5, 1998. David W. Johnston, Chairman Rolgert N. ~tll'l'(tenso~, P.E. Commissioner Camill60echsli Commissioner AS 31.05.080 provides that within 20 days after receipt of written notice of the entry of an order, a person affected by it may file with the Commission an application for rehearing. A request for rehearing must be received by 4:30 PM on the 23rd day following the date of the order, or next working day if a holiday or weekend, to be timely filed. The Commission shall grant or refuse the application in whole or in part within 10 days. The Commission can refuse an application by not acting on it within the 10-day period. An affected person has 30 days from the date the Commission refuses the application or mails (or otherwise distributes) an order upon rehearing, both being the final order of the Commission, to appeal the decision to Superior Court. Where a request for rehearing is denied by nonaction of the Commission, the 30 day period for appeal to Superior Court runs from the date on which the request is deemed denied (i.e., 10th day after the application for rehearing was filed). KUPARUK RIVER UNIT APPLICATION FOR THE FORMATION OF THE TABASCO PARTICIPATING AREA LCOM~---~b _COM~ ' - COMM I~RES ENG SR ENG _ NRO _ S~R .GEOL GEOL, ASST '~STAT TECH STAT TECH _ _ -- _ __ _.F.!~E_ - , DECISION AND FINDINGS OF THE COMMISSIONER ALASKA DEPARTMENT OF NATURAL RESOURCES OCTOBER 14, 1998 RECeiVED OCT' i 5 1998 Naska Oil & Gas Cons. Commission Anchorage KUPARUK RIVER UNIT FORMATION OF THE TABASCO PARTICIPATING AREA I. INTRODUCTION AND BACKGROUND ARCO Alaska, Inc. (ARCO), as Kupamk River Unit Operator, and on behalf of the Working Interest Owners (WIOs) in the Kupamk River Unit (KRU), applied to form the Tabasco Participating Area (TABPA) within the current boundary of the KRU. The proposed KRU TABPA includes approximately 3,040 acres around two existing Tabasco wells and numerous KRU Drillsite 2T wells. The geologic, well, and production data that ARCO submitted justifies the formation of the TABPA. The data indicate that the Tabasco Reservoir within the Tabasco Sands is capable of producing or contributing to the production of hydrocarbons in paying quantities. The Division approves ARCO's application to form the TABPA. The TABPA should be limited to the area proposed by ARCO because that area has been shown to be "reasonably known to be underlain by hydrocarbons and known or reasonably estimated ...to be capable of producing or contributing to production of hydrocarbons in paying quantities." 11 AAC 83.351(a). If additional data are obtained or submitted in the future, the boundaries of the TABPA may be revised. The division also approves the Tract Allocation Schedule for the TABPA proposed in Exhibit 8 of the application. The tract allocation schedule "equitably allocates production and costs among the leases" in the TABPA. The effective date of the TABPA and the TABPA Tract Allocation Schedule is April 1, 1998. II. APPLICATION FOR THE FORMATION OF THE TABASCO PARTICIPATING AREA ARCO submitted the TABPA application dated July 17, 1998, under 11 AAC 83.351 and Section 6.3 of the KRU Agreement. Portions of four state oil and gas leases, ADL 25548 (Tract 29), ADL 25569 (Tract 44), ADL 25643 (Tract 30), and ADL 25644 (Tract 43), totaling approximately 3040 acres, are proposed for the TABPA. The WlOs in the proposed TABPA are ARCO, BPXA, UNOCAL, Mobil, and Chevron. The proposed TABPA acreage encompasses the Tabasco reservoir within the Tabasco Sands, which are capable of producing or contributing to the production of hydrocarbons in paying quantities. The proposed vertical definition for the TABPA is the sequence of oil-bearing sandstones and conglomerates within the Tabasco Sands (See Exhibit 3 and 4 of the application). The legal description of the leases proposed for TABPA, the initial tract participation schedule for the leases in the TABPA, and a map depicting the proposed TABPA are Exhibits 7, 8, and 2, respectively of the application. There is geologic and engineering evidence to support the formation of the TABPA to develop the Tabasco Reservoir within the KRU under a unified plan of development. The are numerous well penetrations of the Tabasco Sands in the KRU Dfillsite 2T area. ARCO drilled and tested 2T-201 in October 1995. Another well, 2T-202 was drilled and completed as a producing well in April 1998. Since April 1998, ARCO has been conducting a Tabasco Pilot Waterflood Tract Operation on ADL 25569 (KRU Tract 44). The production and injection data from the Tract Operation demonstrate that 2T-201 and 2T-202 are capable of producing or contributing to production in paying quantities. Production from the Tabasco Pilot Watefflood Tract Operation is currently over 2500 BOPD. ARCO filed several other exhibits in support of its application. These included: a proposed plan of development for the TABPA; a Tabasco Sandstone Type Log; a map and legal description of the leases proposed for the TABPA; geological and engineering data supporting the proposed TABPA; a Tabasco Reservoir Paying Quantities Determination; a proposed methodology for allocating production from the participating areas that will share the Kuparuk infrastructure, facilities, and gathering system prior to any stream passing through a custody transfer meter; proposed methods for reporting the allocated production and gas reserve/gas debits from each participating area (PA) sharing the Kuparuk facilities; and a copy of the Tabasco Special Provisions to the KRU Operating Agreement for Satellite Operations. ARCO and the DNR agree that the effective date for the TABPA and initial tract participation schedule for the TABPA will be April 1, 1998. The is the first day of the month when production commenced from the Tabasco Pilot Waterfloo~l tract Operation. The leases proposed for the TABPA are already included in the Kupamk Participating Area (KPA) of the KRU. The leases reserve a 12.5% royalty share to the state. The state's royalty share is subject to Appendix I of the KRU Agreement, Settlement of Cleaning, Dehydration, and Transportation Charges Applicable to Royalty Oil Taken from the Kupamk River Unit. III. DISCUSSION OF THE PARTICIPATING AREA DECISION CRITERIA A PA may include only land reasonably known to be underlain by hydrocarbons and known or reasonably estimated through use of geological, geophysical, or engineering data to be capable of producing or contributing to the production of hydrocarbons in paying quantities. 11 AAC 83.35 l(a). "Paying Quantities" means: quantities sufficient to yield a return in excess of operating costs, even if drilling and equipment costs may never be repaid and the undertaking as a whole may ultimately result in a loss; quantities are insufficient to yield a return in excess of operating costs unless those quantities, not considering the costs of transportation and marketing, will produce sufficient revenue to induce a prudent operator to produce those quantities. 11 AAC 83.395(4). A PA application must be evaluated under these standards, and the standards in 11 AAC 83.303. Under 11 AAC 83.303(a), a proposed PA will be approved if the commissioner finds that the PA is necessary or advisable to protect the public interest. To make such a finding, the commissioner must determine that the proposed PA will: (1) conserve natural resources; (2) prevent economic and physical waste; and (3) protect all parties of interest, including the state. In evaluating these criteria, the commissioner will consider: (1) the environmental costs and benefits; (2) the geological and engineering characteristics of the potential hydrocarbon accumulation or reservoir proposed for inclusion in the PA; (3) prior exploration activities in the proposed PA; (4) the applicant' s plans for exploration or development of the proposed PA; (5) the economic costs and benefits to the state; and (6) any other relevant factors (including mitigation measures) the commissioner determines necessary or advisable to protect the public interest. 11 AAC 83.303(b). The following evaluates the TABPA under these criteria and considerations. (A) Conservation of Natural Resources The formation of oil and gas units and PAs within unit areas to develop hydrocarbon-bearing reservoirs conserves hydrocarbons. A single PA encompassing that portion of the Tabasco reservoir capable of producing or contributing to the production of hydrocarbons in paying quantities will provide for more efficient, integrated development of the area. A comprehensive operating agreement and plan of development governing that production will help avoid duplicative development efforts on and beneath the surface. Producing hydrocarbon liquids from the TABPA through the existing KRU production and processing facilities reduces the incremental environmental impact of the additional production. Using the existing facilities, gravel pads, and infrastructure eliminates the need for new ones. Tabasco fluids will be commingled with KPA fluids at existing KRU drillsites and produced into the existing Central Production Facility (CPF-2). The TABPA's utilization of the KRU infrastructure will maximize oil and gas recovery, while minimizing negative impacts on other resources within the area. (B) Prevention of Economic and Physical Waste Generally, forming a PA facilitates the equitable division of costs and allocation of hydrocarbon shares, and provides for a diligent development plan, which maximizes hydrocarbon recovery from a reservoir. The formation of the PA and facility sharing opportunities may also allow development of economically marginal hydrocarbon accumulations. Providing for PA operations of the leases improves the likelihood of more complete development of a reservoir with variable productivity across adjoining leases. ARCO has represented that sharing the existing KRU facilities and infrastructure makes the Tabasco Reservoir development possible. Some of the KRU owners have negotiated agreements among themselves to share the existing production capacity of the KRU facilities and the KRU infrastructure. These facilities can be used to process the relatively small volume of recoverable hydrocarbons in the TABPA. Eliminating the need for construction of additional production facilities minimizes any additional surface impacts and costs. The state has agreed to allow commingled production through the existing facilities (at the drillsite and CPF prior to either th~ Tabasco or Kuparuk production passing through a custody transfer meter) and has approved a well test-based production allocation methodology for current and future reservoirs sharing the KRU facilities: The methodology is designed to accurately and fairly allocate production. The adoption of that methodology is subject to periodic review and reconsideration to assure that the state's royalty and tax interests are protected. Further facility consolidation will save capital and promote better reservoir management through pressure maintenance and enhanced recovery procedures. In combination, these factors allow the Tabasco Reservoir to be developed and produced to the benefit of all interested parties. (C) Protection of All Parties Forming separate PAs protects the economic interests of all working interest owners and the royalty owner. By combining interests and operating under the terms of a unit agreement and unit operating agreement, the owners may fairy allocate costs and revenues among themselves. Because hydrocarbon recovery will be maximized and additional production-based revenue will be earned from TABPA production, the state's economic interest is promoted. Additional recovery of hydrocarbons, however, in and of itself may not always be determinative of the state's best interest. Production must occur under suitable terms and conditions to assure that the economic interests of both the working interest owners and the state, as the royalty owner, are protected. All the leases proposed for the TABPA were issued on state of Alaska lease form DL-1. The interpretation of the royalty provisions in the form DL-1 lease were the subject of litigation, State of Alaska v. Amerada Hess Corporation, et al (C.A. No. 77-847. Superior Court for the State of Alaska, First Judicial District at Juneau). (ANS Royalty Litigation). When the KRU Agreement was signed in 1981, the state and the lessees disagreed whether and to what extent the cost of cleaning and dehydrating the oil could be deducted from the state's royalty share. The state and the lessees agreed to a formula for calculating and paying these field costs. This field cost allowance settlement is Appendix I to the KRU Agreement. The area proposed for the TABPA is completely within the boundaries of the KPA and the KRU. The Applicants and the Department of Natural Resources, Division of Oil and Gas ("the Division") agree that the provisions of Appendix I of the KRU Agreement apply to the royalty share of production from the TABPA. The state's economic interest in the allocation of production, royalty value and costs to process the state's royalty share of production from the TABPA is protected by Appendix I to the KRU Agreement, the ANS Settlement Agreements for the determination of royalty value for the TABPA and KPA production, and the methodology that allocates the production between the reservoirs that share the KRU infrastructure. In reviewing the above criteria, the following factors were considered: (1) The Environmental Costs and Benefits Sharing the existing KRU facilities eliminates duplication and reduces the surface area altered by the Tabasco development. The Phase 1 Tabasco development will take place from existing KRU Drillsite 2T in the CPF-2 area of the unit. Some gravel will be added to the existing pad to accommodate construction of Tabasco facilities-and wells. Tabasco fluids will be commingled with KPA fluids at the drillsite and produced into the existing CPF-2 Only existing KRU roads will be used to support drilling, constmction, and production operations. Existing cross-country KPA pipelines serving Drillsite 2T will be used for Tabasco production. The KRU owners propose to make maximum use of existing KRU infrastructure. No significant additional impacts to habitat or biological resources are anticipated because of the additional Tabasco production. (2) The Geological and Engineering Characteristics of the Reservoir The Tabasco sands is an informal name given to a sequence of incised valley fill sandstones and conglomerates of Campanian age that are correlative with the lower portion of the Schrader Bluff Formation (part of the Upper Cretaceous Colville Group). ARCO provided the following confidential data to support the TABPA application: (1) five representative seismic lines, A thrOugh E; (2) a base map illustrating the location of the seismic lines; (3) three well log cross- sections through the Tabasco interval; (4) Tabasco Hydrocarbon Pore Thickness (HPT) Map locating the cross-section lines and outlining the proposed Tabasco participating area; (5) Top and Base Structure Maps of the Tabasco Interval; and (6) an Oil Pore Volume Map with tentative development well locations. The Tabasco sands were initially encountered while drilling to the Kuparuk sands of the KPA on Drillsite 2T in the middle 1980's. The type log for the Tabasco sands is the interval encountered in the ARCO 2T-201 well (that was fully dedicated to drill only the Tabasco objective in the mid 1990's) between 3352 feet and 3599 feet measured depth, where it attains a gross vertical thickness of 244 feet. Test production from 2T-201 averaged 2,500 BOPD of 16.5 degree AP1 gravity oil. The Tabasco sands vary in thickness between 0- 397 feet in the proposed TABPA. The Tabasco interval lies below the regional C-80 log and seismic marker. Approximately 300 feet of inter-bedded claystone, mudstone, and shale separate the Tabasco interval from the overlying West Sak sands. Well control indicates that the Tabasco sands have high lateral heterogeneity, and are limited in aerial extent. Faults have influenced the preservation, thickness, and geometry of the Tabasco sands. ARCO has worked diligently at associating log character with seismic attributes. The Tabasco reservoir contains two types of sandstone facies that were deposited at or near the shelf margin that was characterized by large-scale slumping and erosion. One facies consists of amalgamated sands that were deposited as fluvial channel fill in a valley that was incised into the underlying shales, oriented approximately perpendicular to the shelf/slope break. The second type of sandstone facies is comprised of stacked thin-bedded marine sandstones that are separated by mudstones that were deposited at or near the shelf margin. ARCO's seismic analyses accurately define the prospective areas and roughly predict the gross thickness of the pay zones. ARCO has submitted enough technical data to justify the size and shape of the initial TABPA. Only the drilling of additional wells will resolve the ultimate shape of this structural/stratigraphic trap. One of the major uncertainties with the Tabasco reservoir is predicting the geometry and distribution of reservoir sands that were deposited as non-continuous sandstone bodies. Although 3-D seismic can readily identify channels, the lithology of the rock present cannot be reliably predicted. Drilling, to date, has not encountered an oil/water contact. The 2T-201 Well did encounter a gas-oil contact at-2915 feet. An up-dip stratigraphic pinch- out, caused by non-deposition or erosion of the Tabasco sands, is believed to limit the reservoir. The currently proposed drilling schedule (Phase lB) justifies the size of the proposed TABPA. The first phase of development drilling within the TABPA consists of 8 producers and 4 injectors. Reservoir performance in the first phase of drilling will influence the distribution of additional development wells, and could result in the expansion of the TABPA. Conversely, areas included within the proposed PA that are currently interpreted to be hydrocarbon-bearing may turn out to be disappointing because of the unpredictability of the geometry and sand distribution of the Tabasco sands system. (3) Prior Exploration and Development Activities The KRU Owners have collected Tabasco reservoir delineation data since the start of drilling at KRU Drillsites 2T, 3G and 3H. They have log data from wells on these western KPA Drillsites. The KRU Owners selectively logged and cored KPA development wells to evaluate the Tabasco sands within the KRU. Prior Tabasco exploration activity included the drilling and testing of 2T-201 in 1995 and the drilling of a KRU Drillsite 2U well in 1997. In the 2~ Quarter of 1998, ARCO began the Pilot Phase lA evaluation of the Tabasco Sands. This Phase lA evaluation included (1) a production test of the 2T-201 Well; (2) the drilling, coring and testing of Tabasco 2T-202; and (3) a pilot waterflood of the Tabasco sands with water injection into the 2T-201 Well and 2T-202 on production for approximately 6 months. The Tabasco Phase 1A/Pilot Waterflood Tract Operation on ADL 25569 (Tract 44) was approved by the DNR on March 25, 1998. The Tract Operation was approved for approximately 6 months, until September 30~ 1998. Currently, 2T-202 is producing over 2500 BOPD. Based on the results of the Tabasco Phase 1A/Pilot Waterflood Tract Operation to date, ARCO has represented to the DNR that wells 2T-201 and 2T-202 are capable of production or contributing to production in paying quantities. A paying quantities calculation was submitted with the TABPA application. (4) The Applicant's Plan for Exploration or Development of the Participating Area Tabasco development plans call for a phased approach in which development proceeds as the understanding of the overall project improves. Phase lA was the Pilot Waterflood Operation mentioned above. Phase lB will consist of approximately 10 to 18 new wells (in addition to the two existing wells 2T-201 and 2T-202) to develop the Tabasco accumulation at Drillsite 2T. Four to six wells are planned in the fourth quarter of 1998. The remaining Phase lB wells are planned in 1999 and 2000, taking advantage of reservoir performance data and improved seismic calibrations acquired from earlier wells. Approximately, one-third of the wells will be water injection wells. Waterflooding of the reservoir is planned from the initial development to maintain reservoir pressure. Injection water will be derived from a suitable makeup water, which may be any combination of Greater Kuparuk Area produced water and seawater. A polymer flood enhanced oil recovery project is currently under review. The estimated ultimate recovery for the TABPA under the initial plan of development is between 25 and 30 million barrels (gross). Beyond the Drillsite 2T development, additional Tabasco sands are present at several other KRU Drillsites. Plans envision Tabasco Phase 2 operations at KRU Drillsite 3H in early 1999. (5) The Economic Costs and Benefits to the State and Any Other Relevant Factors (including mitigation measures) the Commissioner Determines Necessary or Advisable to Protect the Public Interest ARCO has represented to the division that development of the Tabasco is possible because the existing KRU facilities and infrastmcture will be shared. Sharing existing production facilities is possible because of spare liquid capacity at Kupamk facilities. Tabasco production will be commingled with KPA production at the drillsite. The production will be commingled before either production stream passes through a custody transfer meter. ARCO proposes to allocate the KRU production between the TABPA and the KPA based on an individual well test allocation methodology currently in place at the West Sak Participating Area (WSPA) and Tam Participating Area (TPA) in the KRU. The Tabasco Phase lA/Pilot Waterflood Tract Operation used the existing DS 2T test separator equipment to meter the individual well production. Tabasco Phase lB well test allocation procedures will employ a same type of separation device to meter the Tabasco production before it enters the KRU facilities as Tam and West Sak; the Accuflow metering system. This multiphase meter system uses a separation approach in handling the oil/gas/water flow stream by first separating the gas from the liquid stream and then measuring the gas and the oil/water separately. ARCO also proposed that Tabasco use a fixed production allocation factor (AF) of 1.0 to the Tabasco well tests for revenue and accounting purposes. See Attachment 9 of the application. An AF of 1.0 means that the Accuflow meter data for the individual well test volumes will represent the volume of oil, gas and water allocated and reported for the TABPA wells. ARCO's proposed production allocation methodology for the TABPA is similar to procedures proposed and approved for the WSPA and the TPA. The division approves ARCO's TABPA production commingling, allocation and well testing procedures for volume and royalty accounting subject to the same terms and conditions imposed on the WSPA and TPA. Those terms and conditions are: (1) the Allocation Factor (AF) for the TPA will be 1.0 for the first year of TPA production to evaluate either the Accuflow metering system or a conventional test separator, the individual well test allocation methodology, well test frequency and quality of the individual well test data; (2) during the first year of production, the individual well test frequency will be a minimum of 2 well tests per month; (3) ARCO submit a monthly production allocation report similar to the report currently submitted for the KRU WSPA and TPA; (4) an allocation and well test review meeting be held with the DNR, DOR, and AOGCC after 6 and 12 months of commingled production; and (5) after 12 months of commingled production, the TABPA production allocation methodology will be evaluated to determine the continued use of the allocation procedures. ARCO submitted an allocation of production and cost for the leases in the proposed TABPA (Attachment 3 to this Decision and Findings) as required by 11 AAC 83.371. The proposed allocation distributes working interest equity among the lease tracts on a surface acreage basis. Because all the leases within the TABPA were issued on the DL-1 lease form which reserves a 12.5% royalty to the state and the state is in sole royalty owner of the leases in the TABPA, ARCO's tract allocation schedule is acceptable for allocating production and costs among the leases within the TABPA. The TABPA will be the fourth PA in the KRU that will share the KRU facilities and infrastructure. In order to properly allocate KPA, WSPA, TPA, TABPA, and any other KRU participating area produced gas, gas used for fuel, flare, gas reinjected into the KPA reservoir or any other participating area reservoir established in the KRU, and natural gas liquids that go through the KRU facilities, the TPA Owners should continue to use the gas reserve and gas debit reporting procedures already established for the facility sharing at the KRU. The monthly gas reserves and gas debit report should be similar to the form approved for the WSPA. (See WSPA Decision and Findings, dated December 18, 1997) Finally, in accordance with the applicable WlO Alignment Agreements that have been filed with the division, ARCO, BPXA, UNOCAL, Chevron, and Mobil are the only WlOs in the Sixth KRU Expansion Area. Currently, the division's title ownership records do not reflect this realignment of interests in the Greater Kuparuk Area. The WIOs have represented that the lease assignments implementing the realigned interests will be filed with the Division before the end of 1998. To simplify the monthly royalty reporting for the TPA, the Division will permit the WlOs to use the same procedures in the TPA as are now used in the KPA and WSPA for royalty reporting. Attachment 4 to this Decision and Findings describes those procedures. VI. FINDINGS AND DECISION Considering the facts discussed in this document and the administrative record, I hereby make findings and impose conditions as follows: 1. The proposed TABPA meets the requirements of ! 1 AAC 83.303. 2. The available geological and engineering data submitted demonstrate that a paying quantities certification is appropriate for the area of the Tabasco Reservoir proposed for the TABPA. The acreage is known to be underlain by hydrocarbons and known or reasonably estimated to be capable of production or contributing to production in sufficient quantities to justify the formation of the TABPA within the KRU. 3. The geological and engineering data supporting the TABPA justify the inclusion of all the proposed tracts at this time. The entire TABPA is wholly contained within the boundaries of the current KRU. Under the terms of the applicable regulations governing formation and operation of oil and gas units (11 AAC 83.301 - 11 AAC 83.395) and the terms and conditions under which these lands were leased from the state, the following lands are to be included in the TABPA: T. 12.N., R.8.E., U.M., Sec. 35: SE/4; Sec. 36: all (ADL 25548 (Tract 29); T. 12.N., R.9.E., U.M., Sec. 31: W/2 (ADL 25643 (Tract 30)); T. 11.N., R.9.E., U.M., Sec. 6:NW/4 (ADL 25644 (Tract 43). T. 1 IN., R.8.E., U.M., Secs. 1 and 2: all; Sec. 11: N/2; Sec. 12:NW/4 (ADL 25569 (Tract 44). 4. Formation of the TABPA equitably divides costs and allocates produced hydrocarbons, and sets forth a development plan designed to maximize physical and economic recovery from the Tabasco Reservoir within the approved TABPA. 5.The production of TABPA hydrocarbon liquids may be commingled with KPA production in surface facilities prior to custody transfer. Facility sharing reduces the environmental impact of the additional production. Utilization of existing facilities will avoid unnecessary duplication of development efforts on and beneath the surface. 6.The proposed well test allocation methodology, as conditioned in Article 111(5), is acceptable for royalty allocation purposes and for allocating the commingled gas and hydrocarbon liquids productioh between the TABPA and the KPA as those streams are processed through the common KRU facilities. ARCO, as KRU Operator, shall provide the division with the monthly production allocation reports and well test data for the Tabasco wells producing through CPF-2 by the 20th of the following month. The Division reserves the right to request any information it deems pertinent to the review of those reports from ARCO. Moreover, this approval of the allocation methodology is conditioned upon the operator's agreement to promptly and fully reply to any such requests. The monthly allocation report shall include a summary of monthly allocation by well, and specific well test data for all tests which have been conducted. 7. The Division reserves the right to review the well test allocations to insure compliance with the methodology prescribed in this decision. Such review may include, but is not limited to, inspection of facilities, equipment, well test data. 8. During the first year in which commingled production from the TABPA is allocated, semi-annual reviews of the allocation methodology will be scheduled with the Division. Following its review, the Division, in its discretion, may require revision of the allocation procedure. Either the Division or the operator may request subsequent reviews. The allocation procedure may only be revised with the written consent of, or upon the written direction of, the Division. 9. To account for the gas produced from each participating area within the KRU, the gas volume disposition and gas reserves debited from or credited to each PA using the shared KRU facilities, ARCO shall submit a monthly gas disposition and reserves debit report using the form indicated in Attachment 2. The gas disposition report shall be submitted with the monthly production allocation reports. 10. The field cost allowance for the state's royalty share of oil produced from the approved TABPA is governed by Appendix I to the Kuparuk River Unit Agreement. 11. Diligent exploration and delineation of the Tabasco Reservoir underlying the approved participating area is to be conducted by the Unit Operator under the KRU plans of development and operation approved by the state. 12. The plan of development for the TABPA meets the requirements of 11 AAC 83.303 and 11 AAC 83.343. The plan is approved for a period of two years from the effective date of this Decision and Finding. Annual updates to the plan of development which describe the status of projects undertaken and the work completed, any changes or expected changes to 10 the plan, and a further plan of development, must be submitted in accordance with 11 AAC 83.343. 13. Approval of the TABPA within the KRU is effective April 1, 1998. For these reasons and subject to the conditions and limitations noted, I hereby approve the Tabasco Participating Area within the Kupamk River Unit. ,~. Boyd . Division of Oil and Gas ~ Date Attachments: 1) TABPA Map with Existing KRU Boundary 2) TABPA and Reservoir Outline 3) TABPA Tract Participation Schedule 4) KRU Allocation and Ownership of Production, DNR letter dated April 7, 1998 KRU.TabascoPA.Appv.txt 11 Attachment TABASCO PARTICIPATING AREA MAP WITH EXISTING KRU BOUNDARY -- Scale: N.T.S. '-"- ¢ Note:""~ l ,:_--P Ali~n l~; Jr + '*"' Jr -re-, ,,,w, tment Agreement __ ~.,_, ............ lease ownerships are posted. · ' ~' I:©.".X'..'-.X~..~'~.%~'C.~ ' -..',, .'"' "t ',.' /4' '-' I'w"" '¢""""i,.~..:.. '_x-:._'/.. ~e~-~' .' ~ %'% , ', ' ~ *~ ~mJ[ ' '~ = = = ~~~,.,s~ TABASCO , _~ ~.:x~..~.x~~ ~~/IMi~/IIN~ ~H~ ~,, ' ~ ~ ~ ~ ~ . ~ : ~' ' ~ " ' ' ~ ;' I ~,' ' ,x,.,' ,, ~ ~ ,, ' , x' ' .' ' , ~ ~ _ ~, u =~.~,_~x , x',.. =g~-~ ...~, ,,:,, .~ ,, . ,~ .. .~ , ' '~. , ,,~' N '. "x*' x ~ X "'.,'~ ' ' ~ ' '(x .~x , ~ ~. . , ,. ,.x :; ~ ~..".t'~2 "?~% * t~N' ' ~" ,~, ~, ~"~,~ ~ ~ ! KI In~r'Hk H~t' Attachment 2 TABASCO PARTICIPATING AREA AND RESERVOIR OUTLINE Scale: 1' - 4,000' UNOCAL AAI, UNOCAL -- 25 ALK2660 ~DL025546' ;61 ;547 9 565 2_,O [, BPX, UNOCAL AAI, BPX;Ui ;¢PX ? ~6 TABASCO PARTICIPATING AREA 34 OUTLINE OF TABASCO SANDSTONE BPX, AAI 3 2T-201 21' 2~-Z2 o2'i'...04 · 25 3 UNOCAL 2T-~1 #11 \ / 3O 2t~-TAI~-01 ZU-ETR 3O lO L025568 UNOCAL ADTM AAI, BPX, MINE ALK2575 · 21'-19 AAI, 18 AL 8 DS-2V '7 2571 ADL025570 AttacD~n~t 3 Tabasco Participating Area and Tract Participation Decimals Alaska Net Agreed Leasehold Working Interests Area Inside Lease Lessor Profit 0' Contour Tract Tr. No. Lease No. Exp. Date Legal Description. Acres Royalty Share ARCO BPX U. NOCAL MOBIL CHEVRON (Acres) Participation 29 ADL025548 03/26/80 T12N, R08E, UM: Sec. 35: SE 1/4; Sec. 2,560 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% 237 0.2176 36: All. T11N, R08E, UM: Sec. 1'All; Sec. 2: All; 2,560 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% 782 0.7181 44 ADL025569 03/26/80 Sec. 11' N 1/2; Sec. 12: NW 1/4. · , 30 ADL025643 03/26/80 T12N, R09E, UM: Sec. 31: W 1/2. 2,459 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% 68 0.0624 43 ADL025644 03/26/80 T11N, R09E, UM: Sec. 06: NW 1/4. 2,469 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% 2 0.0018 · TONY KNOWLE$. GOVERNOR DEPARTMENT OF NATURAL RESOLrRCF~ April 7, 1998 D/VISION OF OIL AND GAS -- 3601 "C" STREET. SUITE I380 ANCHORAGE. ALASKA 99503-5948 PHONE: (907} 269-8800 Ed Hendrickson, Supervisor Production and Revenue Accounting ARCO Alaska, Inc. P O Box 103560 Anchorage, AK 99510-3560 RE: Kupamk River Unit Allocation and Ownership of Production Dear Mr. Hendrickson: Thank you for your letter dated March 6, 1998 explaining the production allocation/ownership scheme currently being used by the Greater Kuparuk Area Owners. ! understand that the unit operator's allocation/ownership schedule is different than the one described in the Kupamk River Unit Agreement and lease ownership records for the Kupamk Participating Area and the West Sak Participating Area. The schedules in the unit agreement do not reflect the Greater Kuparuk Area Alignment Agreements that recently have been executed by ARCO, BP, Unocal, Chevron and Mobil. All of the lease assignment applications to change the record title ownership to reflect the alignment agreements have not been submitted to the division for approval nor has the lease ownership information in the. unit agreement been amended to reflect the alignment changes. You have asked that for royalty reporting purposes I approve the allocation/ownership schedules shown on the Kuparuk River Unit operator, report starting as of January 1, 1997 and continuing in effect until the lease assignments reflecting the alignment agreements are approved and the unit agreement schedules amended accordingly. This would eliminate the need to file numerous revisions to the operator reports and each lessees royalty reports at a later date and would reflect.the actual agreements now in effect between the lessees. It is my understanding that the current allocation/ownership reporting by the unit operator reflects the same allocation/ownership schedule that will follow after all the lease assignments are approved. I also understand that the lessees are preparing the remaining lease assignments that need to be executed and the assignments soon will be submitted for approval. Once the lease assignments are approved new exhibits to the unit agreement need to be submitted. In addition, the unit operator will have to revise as necessary all "Production and Allocation Offtake Schedules" and "Gas Attachnent 4 "Develop, Conserve and Enhance Natural Resources for Present and Future Alaskans.". ... April 7, 1998 Page 2 Disposition and Reserve Debit Reports" effoctive January 1, 1997 forward to reflect the approved changes in ownership. Each lessee will also have to revise as necessary their "Royalty Report Summaries" effective January 1, 1997 forward to reflect the ownership change in volumes and leases to include the Net Profit Share leases and other leases that are not allowed a field cost deduction for royalty reporting purposes. Based on ARCO's representations we understand that there is no downside to the state in approving the unit operator's alternative allocation/ownership royalty reporting schedule for a limited period of time. As always, the volumes and values are subject to audit and confirmation at a later date. The reporting schedule as described in your letter dated March 6, 1998 is approved for royalty reporting purposes effective January 1, 1997 and will remain in effect until the lease assignments and new unit exhibits are approved, but no later than December 31, 1998. This approval is only for royalty reporting purposes. The lease assignments have to be submitted as soon as possible to allow them to be processed before the end of 1998. Sincerely I' Kenneth A. Boyd Director CC: Jim Stouffer, Royalty Accounting Kuparuk River Unit file File: KRUalign ARCO Alaska, Inc. Kuparuk Development Post Office Box 100360 700 G Street Anchorage, Alaska 99510 Telephone 907 265-6268 Jack Walker, Tabasco Coordinator September 17, 1998 Mr. Jack Hartz Alaska Oil and Gas Conservation Commission 3001 Porcupine Road Anchorage, AK 99501 Re: Tabasco Gas Sample Analysis Dear Mr Hartz: Enclosed for your information is a gas analysis from the Tabasco reservoir. Separator gas from the 2T-201 well was the subject of the attached analysis. This gas sample was collected from the same source as the crude sample assayed in Exhibit 5 of the written Testimony for Tabasco Pool Rules, August 12, 1998. We would be happy to answer any questions regarding this gas analysis. I can be reached at 265-6268 or jawalker@mail.arco.com via the internet. Sincerely, ck Walker Tabasco Coordinator EC IV D 0 r-~ Alaska 0il & Gas Cons. Anchorage ARCO Alaska, Inc. is a Subsidiary of AtlanticRichfieldCompany Arco ploration & Production Technol~',' 2T-TAB-01 Well RFL 950199 Composition of Separator Test Gas ( From Chromatographic Technique ) Component Mole % GPM MW Hydrogen Sulf'~le 0.00 Ca,on Dioxide 0.33 44.010 Nitrogen 0.19 28.013 Methane 92.45 16.043 Ethane 4.91 1.306 30.070 Propane 1.30 .356 44.097 iso-Butane 0.35 .114 58.123 n-Butane 0.19 .060 58.123 iso-Pentane 0.11 .040 72.15 n-Pentane 0.06 .022 72.15 Hexanes 0.07 .029 86.18 Methylcyclopentane Trace .000 Benzene Trace .000 Cyclohexane Trace .030 Heptanes 0.03 .014 100.20 Methylcyclohexane Trace .030 Toluene Trace .000 Octanes 0.01 .005 114.23 Ethylbenzene Trace .000 Meta & Para Xylenes Trace .000 ortho-Xylene Trace .000 Nonanes Trace .0(X) iso-Propylbenzene Trace .000 n-Propylbenzene Trace .000 1,2,4-Trimethytbenzene Trace .000 Decanes Trace .000 Undecanes plus Trace .0(X) , Sampling Conditions 0 psig 60 °F Critical P _re~__-re (psia) ............................. at 14.65 psia and 60 °F Heating Value, Btu/scf dry gas Sample Characteristics This is Core Lab sample number 503 For Trace detections, component properties are assigned zero. 667.4 Critical Temperature ('R) ..........................361.7 Average Molecular Weight ........................ 17.62 Calculated Gas Gravity (air = 1.000) ......... 0.608 Calculated Average Molecular Weight of C7+ .............................................. 103.7 Calculated Average Density of C7+ .............................................. 0.693 Gas Gravity Factor, Fg ................................................ 1.2822 Super Compressibility Factor, Fpv at sampling conditions ............................. 1.0009 Gas Z-Factor at sampling conditions ............................. 0.998 1080 Page 12 CORE LABORATORIES ARCO Alaska, Inc. Kuparuk Development Post Office Box 100360 700 G Street Anchorage, Alaska 99510 Telephone 907 265-6268 Jack Walker, Tabasco Coordinator August 14, 1998 Mr. David Johnston Alaska Oil and Gas Conservation Commission 3001 Porcupine Road Anchorage, AK 99501 Re: Legal Description for Proposed Tabasco Pool Rules ORIG KIAL Dear Chairman Johnston: ARCO's written testimony for the proposed Tabasco Pool Rules included an "Exhibit 2 Tabasco Pool Area." This Exhibit 2 indicates the area for which the proposed pool rules would be ordered. The legal description corresponding to Exhibit 2 of the proposed pool rules area is as follows: Umiat Meridian T10N R08E T10N R09E T10N R10E T11 N R08E T11 N R09E T11N R10E T11N R11E T12N R08E Sections 1-24, 27-34 Section 1-14,17-20, 23, 24 Sections 1-12, 17-20 Sections 1-4, 9-16, 21-36 All All Sections 5-8, 16-22, 29-31 Sections 1-4, 9-16, 21-28, 33-36 I would be happy to answer any questions relating to Tabasco. My phone is 265-6268 and e-mail is jawalker@mail.arco,com. Sincerely, (~ck Walker~'j ~ Tabasco Coordinator Cc: Bob Janes BP Exploration (Alaska) ARCO Alaska, Inc. is a Subsidiary of AtlanticRichfieldCompany 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 ALASKA OIL AND GAS CONSERVATION COMMISSION PUBLIC HEARING In Re: ) ) THE APPLICATION OF ARCO ALASKA INC. FOR ) A PUBLIC HEARING TO PRESENT TESTIMONY TO ) DEFINE AND DEVELOP THE TABASCO OIL POOL ) RULES. ) ) TRANSCRIPT OF PROCEEDINGS Anchorage, Alaska August 12, 1998 9:00 o'clock a.m. APPEARANCES: Commissioners: MR. DAVID W. JOHNSTON, CHAIRMAN MS. CAMILLE OECHSLI MR. ROBERT N. CHRISTENSON ARCO Alaska Inc.: MR. JACK WALKER MR. MARK LONGDEN MR. STEVE KRANKER MR. TOM McKAY ,RECEIVED AU~ 2. 8 1998 ~aska Oil & Gas Cons. commissioll Anchorage ELITE COURT REPORTING 4051 East 20th Avenue ~65 . Anchorage Alaska 99508 907 · 333 · 0364 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 P R O C E E D I N G S (On record - 9:07 a.m.) CHAIRMAN JOHNSTON: I'd like to call this hearing to order. I'd note the time is approximately seven minutes after 9:00 o'clock. The date is August 12, 1998, and we are located at the offices of the Oil and Gas Conservation Commission, located at 3001 Porcupine Drive, Anchorage, Alaska. My name is David Johnston, I'm chairman of the commission. To my right is Commissioner Camie Oechsli, and to her right is Commissioner Bob Christenson. We'll be making a transcript of these proceedings today. The recording is being done by Shirley Cohen of Metro Court Reporting, but Laurel Earl, our normal court reporter, will be making the transcript. She's with Elite Court Reporting. If you wish to get a copy of the transcript of these proceedings, we'd ask that you contact Elite Court Reporting directly and obtain a copy from them. The purpose of these proceedings are to consider an application by ARCO Alaska to define and establish pool rules for the Tabasco Oil Pool. We put a notice in the paper, the Anchorage Daily News, on June 27, 1998, and advertised these proceedings at that time. The hearing will be conducted under our commission regulations, 20 AAC 25.540. I think most everybody understands those requirements, but basically they allow us to take sworn testimony or unsworn statements. It allows for the E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . AnchoIage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 consideration of expert witnesses and other procedures having to do with the questioning and answering of questions from the commission. We'd ask that members of the audience, if you have a question for an individual testifying, we'd ask that you write that on a piece of paper, forward it to the commission, and if we feel that it is germane, we'll go ahead and ask the question. So I think that pretty well takes care of preliminary matters. I guess at this time we'll open up the floor to the applicant ARCO Alaska. MR. WALKER: Okay. My name is Jack Walker, and I'd like to give sworn testimony. Would you like me to use the overhead or do you want to follow along just in the -- it's your ..... CHAIRMAN JOHNSTON: Actually what I'd like to do is have you present it on the screen so the audience can see what you're saying. We'll follow along either on the screen ourselves or with -- you know, looking at the overhead or the paper that you handed out to us. MR. WALKER: Okay. CHAIRMAN JOHNSTON: I guess before we begin, you indicated that you wished to offer sworn testimony? MR. WALKER: Uh-huh (affirmative). CHAIRMAN JOHNSTON: If you'd raise your right hand? (Oath administered) E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 MR. WALKER: Yes, I do. CHAIRMAN JOHNSTON: If you'd state your name for the record again and your affiliation? MR. WALKER: My name is Jack Walker, and I'm employed by ARCO 0il and Ga- -- ARCO Alaska. CHAIRMAN JOHNSTON: Thank you. MR. WALKER: I'll just plug this in. CHAIRMAN JOHNSTON: And do you wish to be considered an expert witness? MR. WALKER: Yes, I do. CHAIRMAN JOHNSTON: If you'd state your qualifications for the record? MR. WALKER: I graduated in 1979 from the University of Tulsa with a bachelor of science in mechanical engineering, and was hired by ARCO immediately upon graduation, and transferred to Alaska in 1980, with ARCO, and have been working here ever since. I've worked the Prudhoe Bay field, Lisburne, Pt. McIntyre, Kuparuk fields, and assignments ranging from. facilities engineering, operations engineering, reservoir engineering, engineering supervision, production supervision, and in February of 1998 of this year I was assigned the coordinator for the Tabasco Project at ARCO. CHAIRMAN JOHNSTON: Thank you. Any objections in considering him an expert? COMMISSIONER CHRISTENSON: No objections. E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 COMMISSIONER OECHSLI: No objection. CHAIRMAN JOHNSTON: Thank you, Mr. Walker. The Commission will consider you an expert witness in this matter. MR. WALKER: Thank you. I'll begin ARCO's testimony with an introduction, and then we will have testimony by Mark Longden on Tabasco geology; Steve Kranker on reservoir development and depletion planning; Tom McKay will testify to Tabasco well construction plans; then I'll wrap up our testimony with some discussion of facilities and then summarize. Our proposed pool rules, -- we've also brought along written testimony that we'd like to enter into the record at some point. We can do that at the end, I suppose, but in that written testimony there are proposed pool rules which are summarized here. We will be presenting testimony to support these pool rules -- proposed pool rules. And we've modeled these after the recently ordered rules for West Sak in late 1997, and more recently Tarn in 1998. The rules are worded very similarly to -- the proposed rules are worded very similarly to the Tarn and West Sak or actual bordered rules, and we will be presenting testimony beginning, in a moment, on the pool name and definition, and then we'll actually skip around a little bit. We won't exactly follow the order that's listed on -- as according to the pool rule numbers, but we will jump around just a little bit according to the agenda I showed E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 you earlier. But before we get into the geology I wanted to address some things regarding the Tabasco development with regard to the Kuparuk River Unit and provide some background. The Tabasco development, first and foremost, will protect health, safety and the environment, and it will also conserve the resource by officially producing Tabasco oil. We believe our proposed pool rules will prevent waste and promote conservation, protect correlative rights, promote maximum, ultimate recovery, and provide consistency with West Sak, Kuparuk, Tarn, as well as some other North Slope pools. It's particularly important for us to have some consistency with the Kuparuk, West Sak, and Tarn oil pool rules because we plan to include the Tabasco operations under the operating umbrella of the greater Kuparuk area. I'd like to talk about the Tabasco accumulation and the Tabasco reservoir in relation to the Kuparuk River Unit, and just mention that our field, the Tabasco accumulation, was subject to some alignment agreements that were executed in 1997 and 1998 amongst the Tabasco Working Interest Owners, and those alignment agreements set the facility sharing terms and conditions for Tabasco facility -- or for Kuparuk facility sharing. It also cross-assigned interests in a large area of -- including the Kuparuk River Unit and actually going beyond the Kuparuk River Unit. And the interest in the Tabasco E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . AnchoIage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 accumulation are shown on this slide. And you'll note that the Kuparuk participating area and the Tabasco Working Interests are very close. The only exception to that is Exxon is not a party to the alignment agreements and they have no interest in the Tabasco accumulation. Otherwise, the interest for Unocal, Chevron, and Mobil are identical, and then the interest for ARCO and British Petroleum are very closely aligned to the Kuparuk participating area interests. To give a little more background on the Tabasco accumulation and some history, as early as 1986 -- actually I think there's maybe a typographical error in your slides there -- we had some very good shows at Drill Site 2-T while drilling -- Kuparuk River Unit Drill Site 2T while drilling Kuparuk wells. The Tabasco formation is at approximately 3000' subsea, and the Kuparuk formation there is roughly 6000' subsea, and while.drilling through the Tabasco formation we observed the very good shows in the Tabasco zone. Then in the course of development drilling we continued to have good shows and even before that time there were reports in -- before the 1986 time frame there were reports of shows in what was referred to as the ColVille sands. Now Mark Longden will explain the geology and where Tabasco fits in stratigraphically later, but even before 1986 there were some reports of shows. But then after the development of the Tabasco or of the Kuparuk -- pardon me -- after the development of the E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 Kuparuk wells in the western area of the Kuparuk River Unit, we conducted a Tabasco production test in 1995. And that test demonstrated the feasibility of the Tabasco development is dependent on Kuparuk River Unit facility sharing. That was confirmation to us. We expected that result, but it did confirm that the accumulation will require facility sharing with Kuparuk to become feasible. We also acquired a high quality sample of the Tabasco crude which was very important for our development planning. You'll hear more about that sample later. Then in 1997 and '98 the almgnment agreements, that I referred to earlier, were executed among the Tabasco Working Interest Owners, and as I mentioned, that provided access to the Kuparuk facilities and established the close alignment with the Kuparuk participating area and the Tabasco working interests. Then in 1998, with the approval of the Alaska Oil and Gas Conservation Commission and the Department of Natural Resources, we began work on the Tabasco Pilot Waterflood Tract Operation, and that information, coupled with other geologic and engineering information that we've collected over the years, has provided sufficient information to justify and plan the initial development, the initial phase of development for the Tabasco accumulation. To overview the Tabasco development we plan to make E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 maximum use of Kuparuk River Unit facilities that will promote conservation and minimize environmental impact. We plan a phase development of Tabasco, beginning at Kuparuk River Unit Drill Site 2-T, and then in early '99 we plan to move to Drill Site 3-H and do some testing there. And beyond Drill Site 3-H there will be other Kuparuk drill sites where we would look for the Tabasco accumulation and try to develop it. We plan to have wells dedicated to Tabasco. That is we are not proposing any downhole commingling of Tabasco production with any other pools at this time. However, in the future we may come back and seek approval to have downhole commingling, but we are not requesting that today. We will propose waterflooding the Tabasco accumulation from the beginning of the development. We've initiated some enhanced oil recovery studies, and we plan to continue those, although we're not seeking approval of an enhanced oil recovery project in the sense of beyond waterflood at this time. We also haVe some ongoing geologic studies, both in Anchorage and at our technology center in Plano, to help us understand the priority and other potential development areas in the Tabasco, and we plan to continue those. With that I'll conclude this section of my testimony and turn the floor over to Mark Longden, if there are no questions. CHAIRMAN JOHNSTON: Just one briefly on the ownership E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . AnchoIage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 10 percentages. As you said, Exxon is not a participant in this. In your metering of production from Tabasco you'll be using the Accuflow meter, and then you are suggesting an allocation factor of one being attached to that which would shift any errors really over to Kuparuk if there were errors occurring in the metering. Is there any objections from Exxon? MR. WALKER: We've not had any objections from Exxon regarding that. We believe those errors are negligible and the Accuflow testing is actually more accurate than the Kuparuk testing, so it's appropriate to do so, to use the allocation factor of one. CHAIRMAN JOHNSTON: And then in terms of the downhole commingling, if you were to come to us in the future and request that, I assume that you would be proposing downhole commingling with Kuparuk? MR. WALKER: It would probably be Kuparuk at this time. I've not seen any maps that have other zones overlying or underlying the Tabasco. Right now we would be preliminarily looking at commingling injection, potentially, which is much easier to control. The production -- commingling production would be more complicated, but we are -- we have some preliminary looks at commingling production but we're not proposing that. CHAIRMAN JOHNSTON: I guess we'll worry about that at that time. Thank you. E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 AnchoIage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 11 MR. LONGDEN: My name is Mark Longden, and I'm a geologist involved in Tabasco project, and at this time I'd like to be sworn in and also -- thank you also like to be recognized as an expert witness. CHAIRMAN JOHNSTON: Thank you. If you'd raise your right hand, please. (Oath administered) MR. LONGDEN: Yes, I do. CHAIRMAN JOHNSTON: Thank you. And if you would state your qualifications? MR. LONGDEN: Yes. As I said, my name is Mark Longden, I'm employed as a geologist for ARCO Alaska, where I'm working on the Tabasco Sandstone. I received a bachelor's degree in geology in 1981 from the California State University at Chico, and a master of science degree in geology from the University of New Mexico in 1986. My professional experience includes approximately 6~ years with Texas Oil and Gas, working California, Arkansas, Oklahoma, and Texas; and I've been employed by ARCO, in one of the various forms of the company, since 1990, and most recently moved up to the Alaska group here in 1997. CHAIRMAN JOHNSTON: I assume you have been actively involved in the Tabasco ..... MR. LONGDEN: Yes, I have. CHAIRMAN JOHNSTON: ..... project? E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchozage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 12 MR. LONGDEN: My assignments have been wholly shallow sandstone studies in the Kuparuk field since I arrived in June of '97, and dedicated to Tabasco since October of '97. CHAIRMAN JOHNSTON: Thank you. Any objections? COMMISSIONER CHRISTENSON: No objections. COMMISSIONER OECHSLI: No objection. CHAIRMAN JOHNSTON: Thank you, Mr. Longden. We will consider you an expert. MR. LONGDEN: Thank you. I'd like to address pool rules numbers 1 and 2 which are the name of the field and the name of the pool, being rule 1, and then the pool definition. The field is the Kuparuk River Field -- let me turn this the right way, and the pool we are calling the Tabasco Oil Pool. The pool is defined with respect to the 2T-201 which we are considering a type log, and defined between the depths of 3352 and 3599 measured depth in that well. I'd like to show you a slide of -- showing that well log interval. Here's the type log and the 2T-201, and we see the top of the interval is very sharp contact, right here in red, that is an uncomformity which we refer to as the K-10 uncomformity. In this particular , well, the base is also a very sharp sand on shale contact which is locally incised. It's overlaying by an interval of shale separating it from the West Sak pool, generally in the neighborhood of 300 to 400', and it's underlaying by as much as 2500 or more feet of dominantly shale, mudstones, and minor ELITE COURT REPORTING 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907. 333. 0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 13 sandstones from the underlying Kuparuk pool. The Tabasco sandstone is an informal member of the Schrader Bluff Formation which is part of the Late Cretaceous Colville Group. i~nd the Tabasco is Campanian in age. If there are no questions on that particular slide, I'd like to show you the area that we'd like to consider for the pool rules. And here is that map. What we see here is a structure contour map on a shale marker, directly overlying the top of the Tabasco that we called C-80, and we saw that briefly on the preceding slide. This map is constructed wholly from well data, not from seismic data. I'm showing several things here. The contours on the map here at 100' contour interval. The blue line that you see here is the outline of our proposed pool area. And I'll discuss the reasons for its limitations here in the western portion in just a moment. In addition to that we're also showing the initial development area at the 2-T pad which Jack had referred to as the Phase I development area right in here. And I'm showing a line of cross-section A to A prime which is on the wall, and I will refer to that in just a moment. By way of interpretation of this map, we can see that the contours throughout this area here are fairly widely spaced. This area in here has a dip rate or a slope rate of about 1° Moving into this area of closely spaced contours E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 14 that dip rate or slope is much steeper, in the neighborhood of 7 to 10° We also know from some seismic examination that it's a highly faulted margin. We interpret these contoured patterns then as a shelf area, a very broad area of relatively low dip, a very steep slope in this area, and then the shallow or the deeper area but widely spaced contours out here as the basin. We believe that the Tabasco is deposited geologically as a prograding shoreline and deltaic system. And so ~ts accumulation is confined largely to the shelf area and particularly so along this shelf margin, and that's the area in which our initial development is Phase I, also Phase II at the 3H pad. And it's that shelf to slope margin that is defining this western -- or eastern boundary of our proposed pool area which we believe in to be geologically related. The remainder of the boundary is wholly contained within the KRU outline. If there are no questions on that diagram, I'd like to ..... ~ CHAIRMAN JOHNSTON: How large an area is the Tabasco pool area? MR. LONGDEN: In square miles or ..... CHAIRMAN JOHNSTON: In square whatever. MR. LONGDEN: Okay. That is a good question, and actually I'd have to refer to someone else's slide here for just a moment. In fact I may be able to overlay these approximately. These larger blocks here are tracts generally ELITE COURT REPORTING 4051 East 20th Avenue %65 ' Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 15 four square miles, so we're referring to an area that is contained largely like this. So just glancing at that I would have to say it's on the order of about 80 to 100 square miles, eyeball estimate. I'll leave this structure map with the outline and the cross-section line in place so that I might refer to my cross-section AA prime, which is behind us here, and perhaps I should move this -- thank you, Jack, if you'd move that tablet? The cross-section runs from the northwest -- and my pointer is not working -- there we go up in the 3H pad, and it's essentially one well per pad that I'm showing here, just to show that the sand is widely distributed, though it varies quite greatly, and indeed in some areas the Tabasco is not present due to erosion. Here is the 3G pad. Here are two wells in the 2T pad, showing the rapid and extreme variability that we see in the reservoir, and here is the well in the 2X pad, and a well in the 2D pad. The Tabasco appears to have two dominant facies types that we can recognize, just empirical facies. We have these relatively thin -- thinner bedded sandstones with shale interbeds, and we have a very thick amalgamated sandstone units as we see here in the 2T-201. The upper contact is this uncomformity that I referred to in the red squiggly line, it's approximated by this solid line which is the C80 shale marker that the map that we're looking at is constructed on. The E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 Anchozage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 16 basal contact, as we've defined it in our written pool rules, is the lowest stratigraphic development of sandstone below the K10 unconformity, and generally falling within approximately 400' of that uncomformity so as not to extend that down indefinitely. That's not an exact number, it just corresponds to the thickest accumulation we have seen to date. In other areas the contact is very, very sharp. We believe it to have some 'incision or scouring, and in this cases it's much more unambiguous. But you can see here, there's tremendous reservoir variability, but in spite of that we consider it to be one pool, for the reason that it was all deposited in what I think to be a similar and continuous geologic setting with some local encisement, but this amalgamated sandstone facies would be in a sand-on-sand contact with the layers of sand that it incises in the thinner bedded facies. So we believe it's going to behave as a single pool. It also shares these same top seal, that K10 unconformity, which actually forms the stratigraphic trapping component of the accumulations as we understand it to date. At this point I think I would like to summarize the testimony I've given so far, unless there's any questions. And what I've attempted to do here is address pool rules numbers 1 and 2, and that is the name of the field, the name of the pool; and the pool definition. Just to reiterate then it's the Kuparuk River Field and the Tabasco Pool, to satisfy Rule 1. E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 17 And the pool definition is the 2T-201 type log. We're defining it with respect to between the certain depths 3352 and 3599 measured depth, and, of course, its lateral equivalents. And that would conclude my testimony if there are no further questions. CHAIRMAN JOHNSTON: Can you -- I didn't notice that it was in -- as part of your submittal, but I think it would be helpful; could you give us -- and you don't have to do it today but maybe as a follow-up -- a listing of the legal description of property that you wish to include in the pool rule area? MR. LONGDEN: Yes. Yes, we'll do that. And I believe that is part of our written testimony that we will be submitting today. And I'd like to turn it over to Steve Kranker, the reservoir engineer involved in the project at this time. MR. KRANKER: Yes, Mr. Chairman, I am Steve Kranker. I'm employed as a senior petroleum engineer by ARCO Alaska, and would also like to be sworn and considered an expert for testimony today. CHAIRMAN JOHNSTON: Thank you. If you'd raise your right hand, please. (Oath administered) MR. KRANKER: Yes, I do. CHAIRMAN JOHNSTON: Thank you. If you'd state your qualifications? E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 18 MR. KRANKER: Yes. I graduated from the Colorado School of Mines in 1984 with a bachelor of science degree in petroleum engineering. In my 14 years of professional experience since then I have been employed by Shell Oil, Conoco, Maxis Energy, and most recently ARCO Alaska. I've been involved primarily in reservoir engineering during that 14 years and have extensive experience in exploration evaluation, primary development of new fields, waterflooding, and enhanced oil recovery projects. For the year that I have been in ARCO Alaska, I've been exclusively committed to the Tabasco Reservoir Engineering Study. CHAIRMAN JOHNSTON: Thank you. Any objections? COMMISSIONER CHRISTENSON: No objection. COMMISSIONER OECHSLI: No objection. CHAIRMAN JOHNSTON: Thank you, Mr. Kranker. The commission will consider you an expert witness. MR. KRANKER: Thank you. My testimony today will involve all the reservoir engineering aspects of the Tabasco accumulation, and in that regard I will be addressing five of the proposed field rules to include -- and they will bounce around a little bit from the order that Jack presented, but I will cover proposed well spacing, gas-oil-ratio issues, as well as reservoir surveillance. In doing so I will hit on these four top -- excuse me, four topics and then conclude by reiterating how they support our proposed field rules. I will E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 19 give an update of the current status of the 2 well waterflood pilot in the Tabasco accumulation, and I will discuss the reservoir properties and reservoir mechanisms and how we have concluded that we want to waterflood this reservoir. And go on to explain our initial development plans and plans to develop the entire pool area; touch briefly on reservoir surveillance as that applies to a couple of the field rules, and, again as I said, I'll make sure that I summarize how all of this testimony applies to the five field rules that I'm covering. In addition to the more elaborate treatment of the reservoir description in our written testimony submitted today, this slide summarizes the reservoir properties of the Tabasco accumulation within the Kuparuk River Field. We currently understand the porosity of this unconsolidated sandstone and conglomerate reservoir to have 17 to 22% porosity. A good average is around 20% throughout our study area. Water saturations in the pay that contains hydrocarbon can vary from 17 to 60% initially, however, the 20 to 25% water saturations are representative on most of the pay in our study area. The reservoir permeability is very high. We have two well tests in the Drill Site 2T area that confirm that the permeability here ranges from three to 100 darcies, and that is darcies, not millidarcies. Extremely permeable. The oil gravity is 16~°API, so it is relatively heavy and viscous, compared to other North Slope fields. In fact, initial E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue ~65 . Anchozage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 2O reservoir conditions of approximately 1500 psi and 71° Fahrenheit, we have 253 centipoise oil viscosity, which is extremely viscous and it leads to some unique reservoir issues in this accumulation. I'd also like to point out that the initial solution gas-oil-ratio' of this crude oil accumulation is only 169 standard cubic feet per stock tank barrel which gives rise to a very low energy from solution gas drive mechanisms. CHAIRMAN JOHNSTON: How about the temperature of the reservoir; do you have that? MR. KRANKER: Yes. Initially at 71° Fahrenheit. CHAIRMAN JOHNSTON: 71° MR. KRANKER: AS early testimony alluded to, we have a two well waterflood pilot being conducted presently in the Tabasco formation at Drill Site 2T within the Kuparuk River Unit. In May of this year the well known as 2T-202 is a new producer dedicated to the Tabasco interval, and it came on in May of '98, and as this graph shows, was quickly brought onto as much as 3500 barrels of oil per day. This was great news for our Tabasco development team because this well's production capability was much higher than we had anticipated. In fact, during this time frame in early June we conducted a pressure build-up test which has led us to the conclusion that this well location, the Tabasco reservoir has 100 darcies' permeability, and very good news. And as you can see, we have conducted E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 · Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 21 additional testing up until this date, and the most recent test in early August of '98 is still showing 3200 barrels of oil per day. CHAIRMAN JOHNSTON: What happened in here, in late July, was the oil well shut-in or something? MR. KRANKER: It wasn't completely shut--in, but this well is on gas-lift, for an artificial lifting mechanism, and the particular mechanical configuration of the well that's -- there are -- as we have tried to increase the gas-lift to get maximum draw-down on the formation, produce at our highest economic rates, we have encountered hydrate formations in the annulus as the gas-lift gas goes through the small orifices and has plugged off, and so we have had a few hours or a few days of shut-in time. But no other reason for that lower production in those days. CHAIRMAN JOHNSTON: So do you see the hydrate problem, is that going to be a continuing problem for you to deal with or ..... 'MR. KRANKER: As Mr. McKay will testify later in the testimony, we plan to install electric submersible pumps in all of the Tabasco producers. The 2 well is equipped with gas-lift in the interim until the electricity can be supplied for such a pump. And so this is not expected to be an ongoing problem. An additional slide to show you the status of the current waterflood pilot, the previous slide concentrated on E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 Anchozage Alaska 99508 907.333.0364 t0 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 22 the production from the 202 well, but the 2T-201 well is an injector that has been on-line since mid-June of 1998. And this slide shows three curves; it shows a cumulative oil and gas production as converted to reservoir barrels equivalent in reservoir conditions, and that is shown in the green curve here. And in the blue curve we show the cumulative injection from the 201 well. The difference between those two would be the net voidage coming out of the reservoir, and is shown here with the red symbols. So as the injector came on-line, we had accumulated about 80,000 reservoir barrels of voidage from the production prior to establishing injection about a month later. And we have by early July arrested that voidage and have been matching voidage, and now in late July and early August we are replacing that voidage, and within a month or two we will be back to original reservoir pressure. I would now like to discuss more of the study of the reservoir mechanisms and how that has impacted our development plan. The majority of our understanding of the reservoir has been based on the information gathered from those two wells, combined with reservoir simulation of this accumulation. And that has been a black oil reservoir simulation finite difference model. It represents quite a few grid blocks. It approximates about a fifth of the reservoir in that 2T drill site area. And with that pattern of -- or that representative model of the reservoir setup, we have looked at different well E L I T E C O U R T R E P 0 R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 23 spacings, different configurations of wells, different injection patterns, as well as different injection schemes. The model was later extended to address uncertainties in reservoir heterogeneity and a small extension of that reservoir simulation study began to look at enhanced oil recovery projects that I will speak briefly to. From the reservoir simulation model we did look at reservoir mechanisms to optimize the economic recovery of oil from the Tabasco pool which included no injection at all or, in other words, primary depletion. But as I have spoken of the low gas-oil-ratio and the viscous crude here, gives rise to about only 5% of oil-in-place to be recovered under primary depletion, and at that point we have eliminated that as a viable option. Similarly, we were able to study in a simulation model the viability of a gas injection pressure maintenance project, but with the extremely viscous oil and the several orders of magnitude lower viscosity of the gas we experience in the model, a rapid coning of the gas, extreme gas cycling and, again, a very low oil recovery factor. The majority of our study was centered, therefore, on waterflooding which has been shown to be a very viable and economic development plan for this reservoir. I have a future slide to talk about what we know about a polymer enhanced waterflood, which would be an enhanced oil recovery project as a natural extension of that waterflooding process, and I'll E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 24 give you some highlights of that in just a minute. The characteristics of a waterflood in the Tabasco oil pool within Kuparuk is characterized by that very high mobility ratio. With the extreme oil viscosity we have a 50:1 mobility ratio. The water would like to flow 50 times more easily than the oil. That will be characterized in the future as an early break-through of water and excessive or severe water cycling in this project. However, in light of that we still believe that we can recover 21 to 30% of the original oil-in-place. And as I alluded to earlier, that range of recovery factors is driven primarily by how much reservoir heterogeneity we'll expect from this reservoir. We have looked at what we believe the representative range from homogeneous type reservoirs to severely laminated reservoirs with vertical heterogeneities that would lower the recovery factor. That will not be resolved until more wells are drilled and we figure out what Nature has given us in this accumulation. With such a waterflood pattern this next slide is a graph of what oil rate we might expect from the Tabasco 2T accumulation. Much of our study has been concentrated on the Phase 1 development, although our pool rules are proposed to incorporate all future Tabasco accumulation within the Kuparuk Unit. This slide is what we would be able to develop from the 2T. It shows the gross production that we would get when the 2T drill site is fully developed with perhaps 18 to 20 wells. E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchozage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 25 In the solid purple line we have the gross production. That is what the Tabasco accumulation is capable of doing by itself. We are projecting a peak rate of 13,500 barrels of oil per day in 1999 when all the wells are drilled. This slide also shows one additional fact that is of interest to the commission. Because we are sharing facilities with the greater Kuparuk Unit area the other reservoirs producing, namely the Kuparuk and a couple of other satellites, will be slightly impacted by bringing on this Tabasco reservoir. In the early years we have shown in the dash line the amount of oil that will be net production, less this back-out effect. In the early years the back-out is due to deferment of some Kuparuk oil because the Tabasco project will be taking quite a bit of water injection. In the later years the Tabasco waterflood is characterized by high watercut production and therefore with the limited water handling facilities that we have at Kuparuk, some of these Tabasco wells would have to be deferred and produced at less than their full capacity. We have studies -- engineering studies underway to investigate ways to increase the facility capacity and aim at minimizing this back-out effect. So that is another target for improved production performance in the future. In addition to the waterflood recovery I have just talked about, we have studied the feasibility of an enhanced oil recovery project, namely a polymer assisted waterflood in E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 26 which we would propose or we have studied viscosifying our waterflood water from perhaps a one centipoise to a 10 centipoise. An industry way of doing that is a polyacrylamide polymer. With a ten-fold increase in the water viscosity that mobility ratio improvement would also be ten-fold and would reduce the amount of water cycled and would increase the oil recovered. Industry analogs suggest that four to 11% of the oil-in-place could be recovered by such a polymer augmented waterflood. We have some very preliminary reservoir simulations in a chemical flooding simulator that support oil recovery in that range. And because the high permeability and the high reservoir oil viscosity the Tabasco accumulation is a candidate for such a flood, however as shown in the second half of this slide, the feasibility study has to address two or three very critical areas before we could sanction and proceed with a full field-wide polymer flood. One of these is the amount of polymer that would be absorbed to the clays in the formation. So we have currently some core data from the Tabasco accumulation being studied for the clay absorption, the compatibility of that fluid with our mineralogy. Following that study, those absorption numbers would be used in the chemical flooding reservoir simulation study to look at the actual -- the more refined recovery that we would expect from a polymer flood in this reservoir. Provided that those two steps are still encouraging, we might suggest that E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . AnchoIage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 27 possible field injectivity tests to make sure that that polymer solution, that viscous injectant could be economic -- could be injected at economic rates. Following that type of a study would be in a position to evaluate the economics in the oil recovery end and come back with an enhanced oil recovery proposal. At this ..... CHAIRMAN JOHNSTON: It was ..... MR. KRANKER: I'm sorry. CHAIRMAN JOHNSTON: I think we'd be interested in receiving periodic updates on your work on this polymer. MR. KRANKER: Very good. CHAIRMAN JOHNSTON: So if you'd be willing to touch bases with us every so often ..... MR. KRANKER: Yes. CHAIRMAN JOHNSTON: ..... and let us know what's happening, we'd appreciate that. MR. KRANKER: We'd be very happy to do that. As we move from the description of the reservoir and the mechanisms that we plan to use, I'd like to now turn to more of an emphasis on the development planning. Two or three issues I'd like to highlight, first of all it has been concluded that a waterflood is the best methOd and most economic method to proceed with. The EOR polymer extension to that is very applicable, and there is nothing that ELITE COURT REPORTING 4051 East 20th Avenue #65 . Anchozage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 28 we are doing today that would preclude us from adding that in the future. The second idea is that we would like to proceed with a phase development to minimize the risk of uncertainties in the reservoir. So as Jack has stated, we are calling the Phase I development that Tabasco accumulation we can reach from the drill site 2T area. In the eight or 900 acres that are around Drill Site 2T, 10 to 20 wells may be drilled. We hope to do that beginning in the fourth quarter of this year, continuing into 1999 and perhaps the year 2000. The amalgamated sands, the thicker part where it's up to two to 300' thick would be developed first, and some initial testing of the thinner sands to the east, and if warranted, full development of that part of the accumulation. With 10 to 20 wells in that area, that would nominally be around a 50 acres per well development spacing. However, in June of this year the new data point at the 202 well with a 100 darcies, we have to give consideration to a wider well spacing that would allow us the flexibility to develop this with fewer wells, and we would be happy to do that if the reservoir warrants. However, we're very conscious of the fact that reservoir heterogeneities and some localized faulting could cause us to need more wells than even 50 acres per well. So we are proposing in one of our field rules to have a 10-acre per well spacing unit that would allow us the flexibility to place E L I T E C O U R T R E P 0 R T I N G 4051 East 20th Avenue #65 . Anchozage Alaska 99508 907.333.0364 !il 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 29 producer injector pairs in any small fault blocks or any stratigraphically confined areas, even though our initial development would be on the order of 50 acres. The second phase, again, will be tested in early '99 up at the drill site 3H with five or six additional drill sites to be studied and developed, if warranted, in a Phase 3 and beyond. CHAIRMAN JOHNSTON: A couple of questions for you. You might as well leave that slide up. In terms of the -- if the polymer flood proved feasible would you go back in and re-flood the existing areas with the polymer or is it best -- would that process best work with virgin rock that had not seen water yet? MR. KRANKER: There are industry analogs that are accomplishing great recovery with both of those aspects. There are some advantages in doing it early. It doesn't have to be from day one, but early in the life of the field is better. Our projection for this waterflood is that we're going to be here 15 to 30 years anyway, depending on facility constraints, and so we have quite a long -- it will be one -- the waterflood with polymer flooding added will be one and the same; it will not need a redevelopment. And then as we move into Phase 2 and 3 we could consider polymer flooding in those drill sites as well. CHAIRMAN JOHNSTON: And then in terms of Phase 1, in terms of the areal size of it, how does that compare to the E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue %65 ' Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 3O overall pool rule area? MR. KRANKER: The initial development area is very small. It's 800 to 900 acres at the Drill Site 2T. As Mark has said, there are perhaps 80 to 100 square miles of potential Tabasco accumulation throughout the Kuparuk River Unit area. We are focusing on Phase 1 because we have seen the greatest thicknesses of sand in the Drill Site 2T area, and have the chance of the highest recovery per well in that location. It may be more of a challenge to develop some of the other drill sites with thinner pay. CHAIRMAN JOHNSTON: So the data that you've provided us on the oil-in-place and the amount of recoverable is really limited to what you'd expect to take from the 2T area and is not an indicator of what the overall potential of the Tabasco oil pool may be? MR. KRANKER: That's correct. And given that it is thinner in those outlying areas we think that the oil-in-place could grow three or four or five-fold from what was provided in the written testimony. CHAIRMAN JOHNSTON: So it's -- Tabasco could prove to be a much more significant accumulation than what it first appears through the development of 2T? MR. KRANKER: That's correct. CHAIRMAN JOHNSTON: Thank you. MR. KRANKER: In addition to our current understanding ELITE COURT REPORTING 4051 East 20th Avenue #65 ' Anchozage Alaska 99508 907,333. 0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 31 of the reservoir with just the two wells having been tested and the pilot waterflood operation, we'll continue our simulation based study to consider how we can best develop this field in light of the possibility of a higher reservoir permeability than we even thought a couple of months back, and that will include continuing to look at the optimum well spacing, the optimum producer to injector ratio, and even the opportunity for some horizontal or multi-lateral wells, in addition to the conventional wells we'll be drilling first. Beyond that, as we get more well data and more waterflood performance data, we expect that the reservoir will dictate that we respond and we will have opportunity to optimize in ways that we can't imagine today, and based on our well performance we expect to respond to namely the heterogeneities of having to respond to perhaps some faulting and compartmentalization. In the Drill Site 2T area we expect that the faults -- the minor faults that are out there, don't have sufficient throw to where we would still have -- we still expect to have sand on sand contacts across those faults. But should that be later resolved to be a flow boundary, we may need to add additional wells in the future, and we'll be refining those well locations as we develop it. So there are steps within the Phase 1 to where we would drill five or six wells at a time, watch the performance for perhaps six months, and continue to do some more development drilling. E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 32 Moving then from the development planning aspect to talk just briefly about the reservoir surveillance, with a waterflood ongoing 'from day one, and that is one of our proposals to establish the waterflood injection at least within six months of the regular production from the pool, as I said, we've already got one injector going in the pilot operation. That well will continue and we would plan to drill injectors along with producers in each step of the phase development. And so we believe we can adequately meet or exceed that six month time frame to get injection on and support the reservoir pressure and keep the reservoir pressure at around its original condition. But the ongoing reservoir surveillance will be that classical and prudent type of reservoir engineering surveillance that will include all of our oil, water, gas production rates, as well as the water cuts in the injection and pattern balancing. Pressure measurements will be very important to that, and we -- as you will see as we discuss and testify to the well construction, we are going to the added expense to provide a method of acquiring surveillance logging even in light of an electric submersible pump being in the way. So we have the ability to perform those types of surveillance and data gathering operations. I'd like to then just go through the five specific field rule proposals that I've touched on here. Again, the permeability of the Tabasco reservoir allows us to plan for a E L I T E C O U R T R E P O R T I N G ~051 East 20th Avenue #65 ' Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 33 50 or perhaps slightly larger 50 acres per well development spacing, however, in light of our uncertainties of the heterogeneity of the reservoir, the faulting and the stratigraphy, we would propose that we have field rules that would allow up to a 10-acre spacing in some portions of the reservoir to allow us the flexibility to react to what the reservoir has dealt us. And hand-in-hand with that we would propose that no well be drilled closer than 300 feet from an ownership change. And that part of the rule is not anticipated being any problem, given the greater Kuparuk Alignment Agreements that we have in place. In proposed Tabasco pool rule number 8, we address the reservoir pressure monitoring. We would recommend that an initial pressure survey be conducted on each new well before regular injection or production has commenced. And thereafter at least one pressure survey per governmental section each year, and that pressure data would be reported to the commission quarterly. We propose reporting all of the reservoir pressures at a depth or a datum of 3000' subsea which is approximately the middle of the Tabasco interval in this initial study area. And as shown here and more carefully elaborated in the written testimony, these types of pressure type tests would be acceptable as representative measurements of the reservoir pressure. And they do include the opportunity for a surface shut-in and perhaps an injector of sufficient E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65. Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 34 length of time that we could extrapolate a bottomhole pressure knowing the fluid column in the well. In proposed Tabasco pool rule number 9, we address the gas-oil-ratio exemption. Because we plan to waterflood this reservoir from the very beginning, and because we anticipate keeping reservoir pressure at or near the 1500 psi initial reservoir condition, ideally this waterflood would all be conducted at a 169 cubic feet per barrel gas-oil-ratio. And that would be our attempt and that would be our ideal. However, we do have a localized gas cap that has been in the area of the 2T-201 well. Our current understanding and geologic mapping of the accumulation shows that to be a very small and insignificant gas cap, only .2 of a percent of the hydrocarbon core volume in the reservoir. It is not something that will significantly effect the recovery mechanisms, nor is it something that we can spend a lot of time or effort or money in trying to manage. So there may be localized gas caps within the accumulation throughout the entire pool area that may allow us -- that may cause us to exceed the initial GOR. The fact that we'll be waterflooding in all cases, we would recommend that this would be an acceptable exemption from the commission. The proposed Tabasco pool rule number 10, having to do with the Pressure Maintenance Project, we would propose that the pool rules for the Tabasco include the rule that waterflood injection shall start within six months of regular production. E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 35 And in addition, we have a proposed reservoir surveillance report shown here as proposed rule number 11, in which we would recommend the pool rules include the requirement of a surveillance report at the one year anniversary of the regular production of the pool, and each year thereafter would include such things as a reservoir management summary, progress of the enhanced recovery project, including the waterflood, summary of cumulative production and injection volumes, summary of any reservoir pressure analyses. If any production or injection surveillance logs have been conducted, results of that would be included. And under rule number 7, having to do with -- and yet to be testified to, having to do with the surface commingling of Tabasco fluids with other formations, we'd be furnishing data on the well allocations and test evaluation there. And also a summary of any future development plans on an annual basis. And that would conclude the summary of how the reservoir engineering aspects of this reservoir affect the five pool rules as stated there. If there.are no other questions, I have no further testimony. CHAIRMAN JOHNSTON: Thank you very much. MR. McKAY: My name is Tom McKay, and I'd like to present to you today the well construction aspects for the Tabasco pool as they relate to the pool rules. And I'd also E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907,333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 36 like to be recognized as an expert witness. CHAIRMAN JOHNSTON: And I assume you wish to wive sworn testimony? MR. McKAY: Yes, sir. CHAIRMAN JOHNSTON: If you'd raise your right hand, please. (Oath administered) MR. McKAY: Yes, sir, I do. CHAIRMAN JOHNSTON: Thank you. If you'd state your qualifications? MR. McKAY: Okay. I graduated from Montana Tech in 1980, with a degree -- bachelor's degree in petroleum engineering. Worked for Amoco from 1980 to 1986, both in Alaska and in the Rocky Mountain area. I worked in the environmental remediation industry for a couple of years, from '86 to '88, and then since 1988 I've worked for ARCO in Alaska. I've worked a variety of drilling projects, both onshore and offshore over the years. I am currently positioned as the drilling team leader for the Shallow Sands Projects which include Tabasco, Ugnu and West Sak. I'm a licensed professional engineer in Alaska, and I first worked on the Tabasco project back in 1989 and 1990 when it was referred to as the Colville sands. CHAIRMAN JOHNSTON: Any objection? COMMISSIONER OECHSLI: No objections. E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 37 COMMISSIONER CHRISTENSON: No objection. MR. McKAY: Thank you. CHAIRMAN JOHNSTON: The commission will consider you an expert witness, Mr. McKay. Please proceed. MR. McKAY: Thank you. My discussion will revolve around the rules 4 and 5 which relate to casing and cementing, and completion practices. In all other cases with regard to Tabasco operations, well operations, we will, of course, conform to the statewide rules. With regard to rule 4, casing and cementing, of course we will be setting a conductor a minimum of 75' below ground level, and that will be cemented in place. Surface casing will be required at Tabasco for well control purposes because of the small gas cap that exists and because this formation is capable of flowing in an unassisted fashion. Surface casing will be cemented to surface per all existing state regulations. We plan to use lightweight permafrost cement to accomplish this in a single stage. We will employ a port or stage collars as necessary to -- and in addition to top jobs to insure that we get cement to surface in all wells. Surface casing will be set at least 500' below the permafrost to allow for annular pumping, if desired. In most cases, however, we see the surface casing being set immediately above the Tabasco zone, particularly in the producers. And, obviously, we will install a BOP stack prior to penetrating the E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 38 Tabasco interval. That stack would be installed on the surface casing and everything would be pressure tested prior to drilling out. With regard to annular disposal, we would like to preserve this as an option to allow waste disposal for the Tabasco wells on the drill sites that we're operating on. As the field evolves, we'll be moving to different drill sites and waste disposal will be a necessary feature that we'd like to incorporate in our wells. We would permit this through the normal APD process. We would be looking to use permitted zones above the Tabasco. Obviously they would have to be non-hydrocarbon bearing and non-commercial in nature. And we'd have to apply for that through the APD process. We could also use other class II injection wells in the Kuparuk River Unit. And that's our current plan for the immediate round, of wells. We'd like to have the option to haul to another drill site and use an existing Kuparuk well annulus, as well as a Kuparuk annulus on the same drill site. So all of these options we'd like to preserve in the pool rules, depending on which pad we're on, and it depends on the specific geology that we're working with on that drill site. With regard to the producer wells, we envision a need for flexibility to optimize the productivity and recovery from this reservoir. We are dealing, of course, with a heavy oil, unconsolidated formation. Thus far our experience in Tabasco, ELITE COURT REPORTING 4051 East 20th Avenue %65 . AnchoIage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 39 and particularly with regard to the T2-202 well which Steve alluded to earlier, we used a -- what we call a clean fluid completion with an open hole gravel pack and wire wrap screen in that well. And you saw the very positive results that we achieved at the 3200 barrel a day current production rate, utilized that technology very favorably. We also may under-ream in the producer wells through the pay zone to expose more wellbore area to the gravel pack, and by doing so we also increase the productivity of the well. Other techniques that we may employ include case hole completions that are selectively perforated. We may look at fracture stimulated wells to enhance productivity and recovery, and we may look at resin-coated propens (ph) to control sand. Ail of these techniques are used in heavy oil reservoirs and, you know, it's just kind of a custom-fit application to increase the productivity and optimize the recovery. We may look at horizontal or high angle profile wells. As you've seen, the Tabasco Formation is a very thick, blocky conglomerate, and a high angle well that would penetrate a lot of the -- you know, the entire block of sand, if you will, could be a very nice producer. We're just looking at a lot of different options right now and want to preserve all those, of course, in the pool rules. We may look at multi-laterals which enables you to open up several wellbores through one central casing. And our E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue ~65 . Anchorage Alaska 99508 907,333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 4O current base plan is to employ a centrifugal high rate ESPs, electric submersible pumps, to lift the wells. And a high rate ESP requires a sand exclusion and completion, so -- because the sand can damage the ESP. And we're designing our wellheads using horizontal trees which are very similar to the trees that we are using currently on West Sak. Now I'll just show you a wellbore diagram for the current Tabasco producer that we envision. That's kind of off the page here a little bit. You can see that we would have surface casing set right above the pay zone, and then we would have an open hole completion with a wire wrap screen and gravel pack installed across the Tabasco formation. What we have in the well is an electric submersible pump, and in this case we're looking at using what we call a Y-block feature. The Y-block allows a slick line, E-line, and coil tubing access through this, what we call, instrument tube which is alongside the ESP, and then you can get down into your pay interval to run logs or clean-out if you need to with coil tubing. So it's a little bit of a twist there on your conventional ESP completion. As Steve mentioned, we will also be adding heat trays up at the top of the well, primarily to reduce the occurrence of hydrates in the tubing annulus. The injector completions will be very, very similar to the current design that we're using at West Sak, only we will E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 , Anchozage Alaska 99508 907.333,0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 41 be adding a string of surface casing. As you recall, the West Sak wells are basically a single string of casing through the pay zone, and the Tabasco wells will be putting a string of surface casing at -- above the Tabasco. I'll show you a wellbore diagram in a moment, but the designs include an annulus that we will be able to pressure test and monitor for any leakage. We'll be utilizing a tapered casing monobore design. It's a 5~ by 3~ tapered casing string, and then you tie back the 3~ casing with a string of 3~ tubing to surface. We use a sealbore as a packer device. That can be positioned between 100 and 200 feet above the perforations. As per state regulations this monobore technique provides you the ability to use patches to shut-off any thief zones that -- in the injectors and which will help increase the ultimate field recovery. Again, it's very similar to the West Sak injector design, only we've added a string of surface casing. This is a diagram of the injector completion. Here's the string of surface casing that we've added, and then here's the 5~ by 3~ tapered string. This would be cemented and perforated, and then the 3~ tubing would be stabbed into the sealbore and tied back to surface. And the injection flow path, of course, is down through the 3~ tubing and into the zones. In summary, that's a basic overview of pool rules 4 and E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 42 5 which relate to the casing and cementing practices, setting the conductor at least 75' below ground level, and having surface casing at least 500' below the permafrost, depending on, you know, it would be on a well-by-well basis. And then the injection well completion which allows for a sealbore to be used as the packer device within 200' of the injection interval. And that concludes my testimony unless there's any questions. CHAIRMAN JOHNSTON: I don't believe we have any questions for you, Tom. MR. McKAY: Oh, okay. Thank you very much. CHAIRMAN JOHNSTON: Thank you. COMMISSIONER OECHSLI: Thank you. MR. McKAY: I'll turn it back to Jack Walker. MR. WALKER: I'd like to give some testimony regarding Tabasco facilities, and then just summarize the testimony for the proposed pool rules. I've mentioned before that Tabasco requires facilities sharing with the Kuparuk River Unit. There's a great deal of infrastructure sharing that we are planning and that are required for the feasibility of the Tabasco development. From medical facilities and staff, camps and communication systems, construction, operations, and maintenance systems, roads, air strips, transportation, warehousing material systems. And E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 ' Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 43 probably one of the key elements is electrical power because we are planning electric submersible pumps in the Drill Site 2T Phase I development. We're also, in addition to the infrastructure -- existing infrastructure at Kuparuk, we're planning to use Kuparuk processing facilities as well, including drill site facilities, injection and production, pipelines, and central production facilities to process the produced substances from Tabasco, along with the other Kuparuk satellites, and the Kuparuk produced substances as well. We also plan some Tabasco specific facilities. And I'll work in reverse order here. Our Phase 3 has currently envisioned to develop potential at these drill sites listed, beginning at iL, 2D, 2E, 2M, and 2X. Those are the most prospective drill sites outside of the others that are listed on the slide, 3H, 3G and 2T. That would be Phase 3 or even beyond that at those drill sites I've just mentioned. The Phase 2, Steve mentioned that we have tests planned at Drill Site 3H. We may also even try 3G in early 1999. Our Phase 1 development, you've heard a lot about, is drill site 2T, and the facilities that are planned and actually under construction today are listed on the slide. We have a gravel expansion on the north end of the pad. Now this slide shows a Kuparuk drill site that's very similar to 2T. Although it's not 2T, it is very similar. 2T would be oriented with the E L I T E C O U R T R E P 0 R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 44 road entering the pad on the south end, as well as the pipelines enter the drill site pad on the south end. And then on the north end would be the area where we would add some gravel which we've actually already started doing. We also had filled in this closed out northern reserve pit at Drill Site 2T with gravel to provide some area for Tabasco facilities. The existing Kuparuk wells at 2T would be located similar to these wells shown in this north/south well rail. And if you look at the drawing in the map view, north is to the right. The Tabasco surface locations would be on the north end of the drill site shown here. And then some of the dedicated Tabasco facilities would be placed in an area where we filled in the old closed out reserve pit. CHAIRMAN JOHNSTON: How tight are these wells going to be together at the surface? MR. WALKER: The wellhead spacing is 12~' ultimately. We plan to locate our electric submersible pump transformers and control module right in this area. We plan trunk and lateral piping systems, so we'd have a trunk line for injection that runs along the western side of the well row -- the wellhead row over here, with lateral lines coming over to the injectors. This is one of our initial injectors here and here. And then we'd also have a production header and a test header that also ran parallel to the injection header on the western side of the well row. We'll have automated valves to control E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 45 the -- and remotely actuate the wells into and out of the test header and the production header to be able to test the wells. In addition to that we have installed a Tabasco dedicated process heater, located in this area of the drill site. And we will be installing an Accuflow test facility dedicated to Tabasco producers located in this area. The final thing I'd like to mention with regard to surface facilities is that we're proposing in our pool rules surface safety valves, and those surface safety valves will be automatically triggered on high or low pressuref as well as we will have the ability to remotely actuate those from a central processing facility. CHAIRMAN JOHNSTON: So would that shut-in the ESPs as well? MR. WALKER: Yes. Yes, it will. Now if I may, I'd like to just reference those proposed rules. These are identical -- the proposal is identical for automatic shut-in equipment to the Tarn and West Sak rules. Ail wells capable of an assisted flow of hydrocarbons will be equipped with a fail-safe surface safety valve. Injection wells would be equipped with a double check valve arrangement and we would propose testing the surface safety valves at six month intervals. The other rule, proposed rule number 7, is common production facilities and surface commingling, we've discussed E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 46 earlier. We're proposing to surface commingle Tabasco production with other production from the greater Kuparuk area, including Tarn and Kuparuk and West Sak. We're proposing two Tabasco tests per month minimum, and monthly reports of all allocation and test data. We're also proposing the allocation factor of 1.0 for the first year, and then revisiting that after we have established a track record. There are two other proposed pool rules that we have included, and that is a production anomalies. In the event that we are pro-rated due to oil capacity limits in the Kuparuk pipeline or the trans-Alaskan pipeline, we're proposing that we would attempt to pro-rate all pools by an equal percentage, and that we would have the flexibility to bury that if we need to in the event of equipment damage or increased operating costs. And, finally, the final proposed rule is administrative action that states that the commission may administratively amend the rules. Now, with that I'd like to just sUmmarize our testimony, if I may. The Tabasco Waterflood Pilot and Tract Operation, as well as other geologic and engineering information, have provided sufficient information to plan the development. The Tabasco Working Interest Owners and ARCO, as operator of the Kuparuk River Unit, are committed to a safe and environmentally sound operation. ARCO can properly undertake concurrent operations into Tabasco pool, along with the other E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 ' Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 47 Kuparuk River Unit pools. We believe that the pool rules for the Tabasco oil pool are appropriate at this time. We're proposing minimum well spacing of 10 acres to enable us to effectively manage permeability barriers. This will not cause waste, nor will it compromise ultimate recovery, nor jeopardize correlative rights. We believe that early implementation of a waterflood will maintain -- to maintain reservoir pressure will improve recovery. The conditions such as faulting or discontinuities or localized gas caps may cause the gas-oil-ratio to exceed the solution GOR, and therefore we're seeking exemption from that requirement set forth in regulation 25.240(b). We're proposing reservoir pressure measurements similar to other industry practices on a regular basis to manage the injection production. The plan for Tabasco development wells employs a string of surface casing set in cement, and just above the top of the Tabasco formation. The surface casing and Tabasco wells would be cemented to surface primarily using a single stage cementing system, and would isolate other zones from Tabasco. These proposed casing and cementing requirements are consistent with AOGCC regulations. Annular disposal of drilling wastes can occur in an environmentally safe manner if conducted in accordance with the AOGCC regulations, and ARCO will propose annular disposal on a well-by-well basis. Tabasco E L I T E C 0 U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 48 facilities have been designed to safely and efficiently operate and to be compatible with existing KRU facilities. Surface safety valves have been included in the producer designs. Commingling Tabasco and other Kuparuk River Unit production is appropriate because there will be adequate individual well testing of the Tabasco wells to assure production allocation quality. A minimum of two tests per month is planned in accordance with the standard for commingling pools and surface facilities prior to custody transfer and severance from leases. Development of the Tabasco accumulation, according to the proposed rules, will prevent waste and promote conservation, protect correlative rights, and promote maximum ultimate recovery. ARCO, on behalf of the Tabasco Working Interests has applied for the formation of a participating area with the Department of Natural Resources, and although that participating area has not yet been approved, we have every indication that it will be approved in a timely manner. ARCO is committed to a safe, responsible, and efficient development of the Tabasco accumulation. We would like to enter into the record a written testimony that is slightly different from the draft that we had submitted earlier. There's a few typos and some minor wording changes, but if we may enter that into the record, as well as we're prepared to enter into the record the visual aids for the oral testimony E L I T E C O U R T R E P 0 R T I N G 4051 East 20th Avenue #65 Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 49 that we've presented today. With that I'd like to conclude our testimony and answer any further questions. CHAIRMAN JOHNSTON: With your phase development, Phases 1, 2, and 3, do you anticipate with the Phase 3 that you would -- would that be to exploit the remaining potential of the Tabasco accumulation or would there be additional potential development beyond Phase 3? MR. WALKER: Well, we've -- in the slide that I've shown you, we've called Phase 3 potential development at those drill sites IL, 2D, 2E, 2M and 2X. That should really be referred to as Phase 3 and beyond. We would probably expect that -- or we do expect that we would have sequential development in some cases, and even simultaneous development in other cases, depending on the -- what we find at those drill sites. We have not tested the Tabasco at those drill sites, although we have quite a lot of geologic information that leads us to think that there's good potential there. CHAIRMAN JOHNSTON: Then the area that you're proposing for the Participating Area Agreement is really just the 2T area; is that right? MR. WALKER: That's correct. CHAIRMAN JOHNSTON: The pool area that you feel is much more extensive than what you're currently requesting DNR to consider as a participating area for the reservoir? E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 5O MR. WALKER: That's correct. The application to the Department of Natural Resources was predicated on only those areas where we've demonstrated a production in paying quantities, and that's only at Drill Site 2T. CHAIRMAN JOHNSTON: So, hopefully, in the future you'll be expanding the participating area to include a much larger area? MR. WALKER: Yes, we hope so. CHAIRMAN JOHNSTON: And I guess just one other matter. Just to get on the record, I wanted to indicate that the Tabasco Pilot Waterflood Project was approved by the commission. It was approved as Area Injection Order Number 2A, dated June 4, 1998. And I guess do we have any other questions at this time? COMMISSIONER OECHSLI: I don't have any questions. COMMISSIONER CHRISTENSON: No, I don't have any other questions. CHAIRMAN JOHNSTON: Okay. I guess it would be appropriate to officially enter the written testimony. We have a date -- dated August 3, 1998, and the copies of the overhead that -- graphs that we saw today, dated August 12, 1998. MR. WALKER: If I may, may I submit this written testimony dated August 127 It's slightly different than the draft that was ..... E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 ' Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 51 draft? CHAIRMAN JOHNSTON: It's slightly different than the MR. WALKER: Yes, sir. CHAIRMAN JOHNSTON: But essentially it's the same material; is that right? MR. WALKER: Essentially it's the same material. There were some typographical corrections. CHAIRMAN JOHNSTON: I see. Okay. Then we'll recognize that the written testimony, dated August 12, 1998, is made part of the record. MR. WALKER: Thank you. CHAIRMAN JOHNSTON: I guess at this time it would be appropriate for the commission to take a small recess. I'd like to -- it's not only my habit to gather briefly to consult with staff to see if we have any additional questions, and we'll come back in 10 minutes or so and if we have additional questions we'll ask them then. If not, we'll turn you loose. MR. WALKER: Thank you. CHAIRMAN JOHNSTON: Thank you. (Off record) (On record) CHAIRMAN JOHNSTON: I'd like to call the session back to order, please. We have a few follow-up questions, probably -- Mr. Walker, you're probably the best person to direct these to, but if not then we can get another person up to the E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 52 microphone. Have you come across any oil-water contacts in the pool area? MR. WALKER: The evidence of oil-water contacts in the Phase I area are there are no oil-water contacts in the Phase I development area. We have some evidence of an oil-water contact in the 3H area, although we don't consider it a definitive oil-water contact. CHAIRMAN JOHNSTON: So it's pretty much unknown as to whether there is a -- where the oil-water contact is ..... MR. WALKER: Yes, sir. CHAIRMAN JOHNSTON: ..... in the pool area? The drilling in the 2T area, is it constrained by net sand? MR. WALKER: Our development drilling plan is targeting the thicker intervals first, but we do have plans to drill in our ultimate -- up to 20 well development at 2T to drill some fairly thin sands. Although we have not tested those yet, and we plan to drill one of those in a thinner area this year. CHAIRMAN JOHNSTON: So when I look at the pool rule area, it's quite a bit more extensive than I had originally thought. In terms of drilling development wells to the Tabasco pool from other pads, are you going to be constrained by the amount of reach that you're able to get or are you going to be able to -- are you going to be developing Tabasco on an opportunistic basis from existing Kuparuk pads, and will you E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . AnchoIage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 53 have the ability to reach portions of the reservoir between pads? MR. WALKER: We believe that we can reach with all of the within the perimeter of the pad and some departure beyond that seven or 8000' We believe that we can reach all of the Tabasco interval in that perimeter. The areas outside of that, along the southern boundary would probably require additional gravel. Although we don't have specific plans to add drill sites right now, but we do believe we can develop all of the Tabasco within the perimeter of the existing drill sites. CHAIRMAN JOHNSTON: And relative to the juxtaposition of Tabasco with the other shallower pools out there, does generally the -- would the West Sak be overlying the Tabasco in kind of an offset to the east; is that the way to think of it with Tabasco, a little bit deeper down and more extensive to the left? MR. WALKER: Stratigraphically, of course, West Sak is above Tabasco. And to the east West Sak is actually the development area for West Sak is actually deeper at about 3500' subsea, and the core area that's being developed at Drill Sites lC and iD; whereas we're at Drill Site 2T, the Tabasco interval is about 3000' subsea. Although -- well, does that answer the question? CHAIRMAN JOHNSTON: Well, you know, in both E L I T E C 0 U R T R E P 0 R T I N G 4051 East 20th Avenue #65 . Anchozage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 54 developments we see a core area being developed with tremendous potential in outlying areas, and I was just curious as to where those outlying areas are relative to one another. Are there areas where one is overlying the other, so in terms of using a well and downhole commingling are we talking downhole commingling of just potentially, I should say, of just Tabasco and Kuparuk or are we also talking about possible downhole commingling of West Sak and Tabasco? MR. WALKER: Our preliminary look at downhole commingling has focused on Kuparuk and Tabasco, and further it's been more focused on the injection side than the production side because of the different artificial lift mechanisms and the completion complexities on the production side. We haven't given consideration to downhole commingling with West Sak, although I could not rule it out. From my knowledge, and I don't want to be -- I'm not considered an expert in West Sak, but from my knowledge of the development areas of West Sak, I believe that we're generally to the west of the West Sak phase development areas. CHAIRMAN JOHNSTON: Yeah, it was hard for me ~o figure that out just looking at the map that was before me, but it would seem like it was my recollection from West Sak testimony that you did have some overlap of the two areas in terms of the western side of the West Sak and the eastern side of the Tabasco, I guess. I was just curious as to whether there might E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 55 be some opportunities there for downhole commingling and cost savings. MR. McKAY: I don't think we've looked that far down the road, Mr. Chairman, on that issue. That's something where maybe multilaterals or horizontal wells might -- you know, might be an application several years down the road. CHAIRMAN JOHNSTON: Okay. And then in terms of actually dedicated Tabasco pads, you're saying that maybe you might see that in the future but not likely? MR. WALKER: We don't have any plans right now, and although we have -- along the southern periphery there are some Tabasco potential areas that probably with current technology it would be economically reached from the existing pads, we have 3-D seismic over that area, and we're looking at that -- setting that 3-D seismic -- actually mostly focusing in the 3H area currently. And then also in the 2X and the other drill sites that I've listed. But eventually we would look at those other areas as well, I would expect. CHAIRMAN JOHNSTON: I think the commission will be interested in sitting down with you maybe on an annual basis to see how your ideas are flushing out and what kind of potential we're seeing for future development in the Tabasco accumulation. And I think generally we should all be pretty excited by this accumulation. It looks like it has wonderful potential, and hopefully we'll see a lot of oil flowing from E L I T E C 0 U R T R E P O R T I N G 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 56 Tabasco. MR. WALKER: Yeah, we hope so. Thank you. CHAIRMAN JOHNSTON: So any further questions then MR. CHRISTENSON: I have no further questions. MR. OECHSLI: I don't either. Thanks. MR. WALKER: Well, thank you. CHAIRMAN JOHNSTON: At this time I guess we'll turn you loose. I want to thank you again for your presentation. We appreciate the information. We, hopefully, will get the pool rules out as they currently are scheduled within 30 days, but I do have to caution the folks here that the commission has experienced just a tremendous amount of activity here lately which is, of course, good news for the State of Alaska. It means a lot more oil is coming to the surface, but it has caused a bit of a backlog in our ability to just process permits and get these orders out and such. So we are experiencing some delays and we apologize for that, but I guess in one sense, you know, as I said, it's good news that we have these delays, I guess. But rest assured, we'll try and get these orders this order out as soon as we possibly can. So with that, again, thank you for your presentations and I'd like to then close this meeting. Thank you. (Off record - 11:00 a.m.) END OF PROCEEDINGS E L I T E C O U R T R E P O R T I N G 4051 East 20th Avenue #65 ' Anchozage Alaska 99508 907.333.0364 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 CERTIFICATE UNITED STATES OF AMERICA) )SS. STATE OF ALASKA ) I, Laurel L. Earl, Notary Public in and for the State of Alaska, and Reporter for Elite Court Reporting, do hereby certify: That the foregoing Alaska Oil & Gas Conservation Commission Hearing was taken before Shirley Cohen, Metro Court Reporting, on the 12th day of August 1998, commencing at the hour of 9:00 o'clock a.m., at the offices of Alaska Oil & Gas Conservation Commission, 3001 Porcupine Street, Anchorage, Alaska; That the hearing was transcribed by myself to the best of my knowledge and ability. IN WITNESS WHEREOF, I have hereto set my hand and affixed my seal this 24th day of August 1998. Notary Public in and for Alaska STATE OF ALASKA, ELITE COURT REPORTING 4051 East 20th Avenue #65 . Anchorage Alaska 99508 907 · 333 · 0364 KUPARUK RIVER UNIT VISUAL AIDS FOR ORAL TESTIMONY TABASCO POOL RULES HEARING AUGUST '12, 1998 Tabasco Pool Rules Hearing Introduction Jack Walker Geology Mark Longden Reservoir Development Steve Kranker Drilling & Completions Tom Mc Kay Facilities Jack Walker Summary Jack Walker *Written testimony has been filed. August 12, 1998 Tabasco Pool Rules Hearing =. ~~lc.. L~2 LL~. L C:L'LLL I · 2. 3. 4. 5. 6. 7. 8. 9. Field and Pool Name Pool Definition Spacing Units Casing and Cementing Practices Injection Well Completion Automatic Shut-in Equipment Common Production Facilities and Surface Commingling Reservoir Pressure Monitoring Gas-Oil Ratio Exemption 10. Pressure Maintenance Project 11. Reservoir Surveillance Report 12. Production Anomalies 13. Administrative Action August 12, 1998 Tabasco Pool Rules Hearing The Tabasco Development first and foremost will protect health, safety, and the environment, and it will conserve the Tabasco resource by efficiently producing Tabasco oil. Proposed Tabasco Pool Rules will: Prevent waste and promote conservation Protect correlative rights Promote maximum ultimate recovery Provide consistency with Kuparuk, West Sak, Tarn, and other North Slope pools. August12,1998 Tabasco Pool Rules Hearing 1985 Good shows in development wells targeting deeper Kuparuk River Formation 1995 Production test demonstrated Tabasco feasibility required KRU facility sharing 1997 & '98 Greater Kuparuk Alignment Agreements Provided access to Kuparuk facilities Close alignment with Kuparuk Participating Area 1998 Pilot Waterflood Tract Operation sufficient to justify and plan initial phase of development. August12.1998 Tabasco Pool Rules Hearing AAI BP Unocal Mobil xxon Chevron Total KPA 55.1667% 39.1920% 4.9506% O.3648% 0.2173% O. 1086% 100.0000% Tabasco 55.2938% 39.2822% 4.9506% O.3648% 0.0000% 0.1 O86% 100.0000% August12,1998 ARCO Alaska, inc. Exhibit "A" --'---- Attached to and made a part of that cer. tain Greater Kuparuk Al£gnment Agreement dated March 1, 1997 by and between, ARCO Alaska, Inc. and BP Exploration (Alaska) Inc. Greater Khparuk Area Scale: N.T. S. 2-2~-97 97012303B01 + + ! Tabasco Pool Rules Hearing Share Kuparuk River Unit facilities Phased development Phase I - Drill Site 2T Phase 2 - Drill Site 3H Phase 3+ - Other KRU drill sites Dedicated Tabasco wells Waterflood from start Continue EOR studies Continue geologic studies August12,1998 Tabasco Pool Rules Hearing ':~ LC L T.,~ ~L ~-L'L T ~_ I · Field and Pool Name · Kuparuk River Field o,Tabasco Oil Pool B Pool Definition · 2T-201 Type Log · Between 3352' and 3599' MD August12,1998 TOP TABASCO BAS~ '~ABASCO II I-- NOR THWES T A 3H-'14 50-05 2T-31 2T-201 2X-lO 2D--13 o o o o o o Arco Alaska, Inc. Arco Alaska, Inc. Kuparuk River Unit Kuparuk River Unit Basic Log Basic Log WELL: 3H-14 WELL: 36-05 501032009200 501032013200 Arco Alaska, Inc. Kuparuk River Unit Basic Log WELL: 2T-31 501032022600 Arco Alaska, Inc. Arco Alaska, Inc. Kuparuk River Unit Kuparuk River Unit Basic Log Basic LoG WELL: 2T-201 WELL: 2X-lO 501032023000 500292118700 Arco Alaska, Inc. t(uparuk River Unit Basic hog WELL: 2D-13 500292107000 ?..L ..... ~ Cross section A-A' Tabasco Poo be ow o nd the character of and'stacked thin DATUM ° C 80 Barker No hor:izon-lo sca e Mark R. Longden 8/98 shows the occuronce of the the K- 10 unconformit}, the "omo garnered sandstone fac]es sandstone facies" EX--B C A ARCO ALASKA Al Component Name Tabasco Pool Rules Testimony Exhibit 5 Crude Composition Assay Tabasco 2T-201 Well Composition of Stock Tank Liquid (by Capillary Chromatography) Methane 0.00 0.00 02997 16.043 Ethane 0.OO 0.00 0,~5_~ 30.67 Propane 0.OO 0.03 0.~_~L~_5 44.097 iso. Butane 0.00 0.00 0.5623 58.123 n-Butane O.OO 0.00 0.5834 58.123 iso-Pentane 0.19 0.04 0.8241 72.15 rkPentane 0.14 0.03 0.6:N:)5 72.15 Hexanes 026 0.05 0.56~2 86.t77 n-Hexane 0.05 0.02 0.68~ 86.177 Methylcyc~pentane 0.05 0.01 0.7529 84.162 Benzene 0.03 0.01 0.88~6 78.114 Cyclot~mne 0.10 0.02 0.7826 84.162 Heptanes 0.20 0.05 0.6875 1 05,204 Methylcyciohe~mne 0.05 0.02 0.7732 98.189 Toluene 0.05 0.01 0.8710 92.141 Octanes 0.51 0.15 0.7063 114,231 Ethytl~enzene 0.05 0.02 0.8708 106.168 Meta & Para Xylenes 0.03 0.01 0.8664 106,168 ortho-Xylene 0.04 0.01 0.68~8 106.168 Nonanes 0.76 026 0.7212 128258 is~.Propylbenza~e 0.02 0.01 0.8856 120,195 n-Pmpylbenzene 0.10 0.03 0.8656 120.195 1.2.4-Trimethylbenze 0.05 0.03 0.8798 1 20.2 Decanes t .54 0.54 0.7780 1~4 Unclecanes 2.47 0.95 0.7890 147 Dodecanes 3.27 1.38 0.8000 161 Tddecanes 4.43 2.03 0.8110 175 Tetradecanes 4.30 2.14 0.8220 190 Pentadecanes 4.56 2.46 0.8320 206 Hexaclecanes 4.90 2.85 0.8:~0 222 Heptaclecanes 3.81 2.36 0.8470 237 Octaclecanes 4.42 2.90 0.8520 251 Nonadecanes 3.71 2.55 0.85'70 26~ Eic__~-e__nes 3,84 2.76 0.8620 275 Heneicosanes 3.38 2.5'7 0.8670 291 D_ __~-~_ _.nes 3.36 2.68 0.8720 305 Tricosanes Z46 2.05 0.8770 318 Tetracosanes 2.55 221 0.8810 331 PentL_~'~__nes 2.28 2.06 0.8850 :MS Hexacosanes 2.18 2.05 0.8890 359 Heptacosanes 1.65 1.62 0.8~0 374 Octacosarms 2.01 2.04 0.8960 388 Nonacosanes 2.15 226 0.8990 402 Triacontanes 1.58 1.72 0.9020 416 Hentriacontanes 1.43 1.61 0. _9060__ 430 Dotriacetd~,s 1.1 3 1.31 0.~)90 444 Tritriacontanes 1.51 1.81 0.9120 458 Tetratriacontanes 1.37 1.69 0.9140 472 Pentatriacontanes 1.12 1.42 0.9170 486 Hexatriacontanes plu 25.80 47.19 1.0895 699 Total Sample Properties Molecular Weight ............................................. Theoretical Liquid Density, gnVscc .................. 382..OO 0.9571 Plus Fractions Hmmms ~ 99.67 99.93 Heplanes pus 99.15 99.81 Decanes plus 97.21 992! Pentaclecanes plus 8120 92.17 E.~?:_,~_nes ~ 59.80 79.05 Pentacesanes plus 44.21 68.78 Triacontanes plus 33.94 56.75 Pentatriacontanes plus 26.92 48.61 0.9574 ~68 0.95'78 ~85 0.9595 39O 0.9'rd6 434 0.9988 5O5 1.0264 577 1.0544 639 1 .__n8~_5 69O Totals 100.00 100.00 16" Conductor @ 80' J Weatherford Gemoco 9-5/8" DV Stage Collar Stnd. Grade BTC Threads or 9-5~8" TAM Port Collar, BTC 4-1/2" LaSalle Clamps 3-1/2" LaSalle Clamps ESP power cable splice above Y-block 2 jts, 3-1/2" 9.3# L-80 EUE8RD tubing Centrifilt Series 562 ESP assembly w/power cable, 5.62" OD 9-5/8" Surface Casing 40.0# L-80 BTCM ,,' Tabasco Pool Rules Testimor Exhibit 6 Producer Completion FMC Tabasco Producer horizontal wellhead/hanger system w/125 amp penetrators Heat Trace, Raychem, 3000' 4-1/2" 12.6# L-80 BTCM tubing to surface XO sub, L-80 4-1/2" BTCM x 3-1/2" BTCM Baker Sentry gauge, 3-1/2", w/I-wire 3 jts, 3-1/2" 9.3# L-80 BTCM tubing 3.865" Special Clearance couplings 3-1/2" x 8' Landing pup, 9.3#, L-80, BTCM 3.865" Special Clearance couplings 3-1/2" Trico Y-Block, 3-1/2" EUE8RD, 3-1/2" BTCM on uphole end XO sub, L-80 3-1/2" EUE8RD x 2-7/8" Hydrill 511 flush it, Trico 2-7/8" Trico 'X' landing nipple w/2.312" No-Go profile, Hyddll 511 2-7/8" 6.5# L-80 Hydrill 511 flush jt tubing to bottom of ESP assembly "-( ** 0.184" planned clearance as per Centrilift ~ drift) - (ESP OD) - (I tube ID) = 8.679" - 5.62" - 2.875" 2-7/8" Wireline Entry Guide, Hydrill 511 Gravel Pack Assembly (run on drillpipe) -- Baker SC-1 Gravel Pack packer, 9-5/8" -- 4 jts, Baker 4" blank tubing, Hunting Seal Lock threads -- Baker ceramic flapper valve -- Baker 4" Gravel Pack screen, Hunting Seal Lock 20 gauge (0.02") screen 12-20 US mesh gravel pack sand TAB, 07/16/98, v.3 16" Conductor @ 80' Weatherford Gemoco 5-1/2" DV Stage Collar Stnd. Grade BTC Threads or 5-1/2" TAM Port Collar, BTC 7-5/8" Surface Casing 29.7# L-80 BTCM Production Csg. 5-1/2" 15.5# L-80 BTCM run XO/SBE to surface XO set +/-100' above top perf Production Csg. 3-1/2" 9.3# L-80 EUE 8RD-Mod run TD to XO/SBE tabasco Pool Rules Testimod" Exhibit 7 Injector Completion 3-1/2" FMC GEN IV tubing hanger 3-1/2" EUE 8RD-Mod pin down F. 3-1/2" L-80 9.3# EUE 8RD-Mod tubing to surface E. 3-1/2" x 1" Camco 'KBG-2-9' mandrel w/DV & latch, 3-1/2" x 15' pups installed above & below, BTCM pin x EUE 8RD-Mod box Special Clearance Coupling D. 1 jt 3-1/2" L-80 9.3# EUE 8RD-Mod tubing C. 3-1/2" Camco 'DS' landing nipple w/2.812" No-Go profile. 3-1/2" x 6' L-80 pups installed above and below. EUE 8RD-Mod B. 1 jt 3-1/2" L-80 9.3# EUE 8RD-Mod tubing A. Baker 3-1/2" 'GBH-22' Locator Seal Assembly w/12' of seals & Iocator 3-1/2" x 6' handling pup installed on top. EUE 8RD-Mod box up Baker XO Coupling w/Iocator shoulder, BTC x SBE Baker 5" OD x 4" ID Seal Bore Extension Baker XO, SBE x 3-1/2" EUE 8RD TAB, 6111/98, v.2 Tabasco Pool Rules Hearing · Waterflood Pilot Status · Recovery Mechanisms · Development Plan · Reservoir Surveillance · Proposed Pool Rules August 12, 1998 Tabasco Pool Rules Hearing Porosity 17-22% Water Saturation 17-60% Permeability 3-100 Darcies Initial Reservoir Pressure 1512 PSI Oil Gravity 16.5© APl Oil Viscosity 253 CP Solution Gas-Oil-Ratio 169 SCF/STB August12,1998 T~ ?itot Wateril~ Tr~ ~ion 2T-~ Weti Te~ History 4000 35OO 3OOO 2500 2000 15OO 1000 5OO 0 5/1/98 5/16/98 5/31/98 6/I 5/98 6/30/98 7/15/98 7/'30/98 8/14/98 August 12 1996 Tabasco Pool Rules Hearing Reservoir t~et Voidage 300 25o 200 150 100 5O Net Voidage Production injection 0 4/17/98 5/2/98 5/17/98 6/1/98 6/16/98 7/1/98 7/I6/98 7/31/98 ALigust 12 !998 Tabasco Pool Rules Hearing Black Oil Finite Difference Model 3D Representative Model 61 x 13 x 48 (38,000 Gridblocks) Development Screening Well Spacing, Configuration and Patterns Injection Schemes Degree of Heterogeneity Polymer EOR Potential August12,1998 Tabasco Pool Rules Hearing ,~ L U L z. ~ "L -~ L 'L L L Injection Options Primary Depletion Gas Injection Waterflood Polymer Enhanced Oil Recovery Potential .Primary Depletion & Gas Injection Eliminated Low Recovery Excessive Gas Production August12,1998 Tabasco Pool Rules Hearing Recovery Issues Mobility Ratio 50:1 Severe Water Cycling Degree of Heterogeneity Vertical Permeability Barriers or Faults Recovery Range · 21 to 30% of Original Oil in Place August 12, 1998 Tabasco Pool Rules Hearing 14,000 12,000 0,000 8,000 6,000 4,000 2,000 Gross Production Less Backout~---~¢~'' ~ ~'~ ~ ~'~ 1998 2000 2002 2004 2006 2008 2010 2012 August 12 1998 Tabasco Pool Rules Hearing Improved Recovery Mobility Ratio Improvement Perhaps Tenfold Reduced Water Cycling Industry Analogs with 4 to 11% OOIP Incremental Recovery Feasibility Study Ongoing Reservoir Mineralogy Compatibility Chemical Flooding Reservoir Simulation Possible Field Injectivity Testing August 12. 1998 Tabasco Pool Rules Hearing ~ LCLL~ Phase I - Drill Site 2T Drill 10 to 20 Wells (1998-2000) Develop Amalgamated Sands Test Thin Stacked Sands Phase 2- Drill Site 3H Test in early 1999 Phase 3+ - Other KRU Drill Sites August12,1998 Tabasco Pool Rules Hearing ~~~'.. i, dLt~ "L-C-L'LLL Simulation Based Optimization Optimum Well Spacing Conventional, Horizontal or Multi-Lateral Wells Optimum Producer/Injector Ratio Reservoir Performance Based Optimization Voidage Replacement Heterogeneity & Compartmentalization Well Location Refinement August 12. 1998 Tabasco Pool Rules Hearing Well Tests Pressure Measurements Surveillance Logs August12,1998 Tabasco Pool Rules Hearing 3. Spacing Unit Minimum of 10 Acres No closer than 300' from ownership change August12,1998 Tabasco Pool Rules Hearing el Reservoir Pressure Monitoring Initial survey on each new well One survey per section per year 3000' subsea datum Measurement by: Stabilized downhole or extrapolated from surface Pressure build up Pressure fall off M ulti-rate test Drill stem test Open-hole formation test August 12, 1998 Tabasco Pool Rules Hearing 9. Gas-Oil Ratio Exemption Exempt from producing GOR limit August12,1998 Tabasco Pool Rules Hearing 10. Pressure Maintenance Project Injection start up within 6 months of production August 12, 1998 Tabasco Pool Rules Hearing 11. Reservoir Surveillance Report Progress of enhanced recovery project Reservoir management summary Summary of production and injection Summary of pressure analyses Results of production and injection logs Results of well allocation and test evaluation Future development plans August 12, 1998 Tabasco Pool Rules Hearing ,c~ Lu Lz.g · Special Tabasco Pool Rules Rule 4: Casing and cementing Rule 5: Completion practices · Otherwise conform to state wide rules August12,1998 Tabasco Pool Rules Hearing & LuLl_g ~L~,~L'LL7_ · Cemented conductor set at a minimum of 75 feet below ground level · Surface casing required for well control purposes; cemented to surface · Will use lightweight permafrost cement for single stage cementing · Will employ port or stage collars, as well as top jobs to assist in achieving cement to surface as necessary · Surface casing set at least 500' below permafrost for Annular Pumping · Will install BOP stack prior to penetrating Tabasco interval August 12, 1998 Tabasco Pool Rules Hearing · Annular disposal of drilling waste · Recognize as possible option for local waste disposal · Permit through normal APD process · Disposal in permitted zones above the Tabasco · Option to use other Class II injection wells in KRU · Option to haul to another drill site and dispose into Kuparuk well annulus · Option to use Kuparuk well disposal annulus on same drill site August 12, 1998 Tabasco Pool Rules Hearing · Need completion flexibility; envision a variety of possible techniques for heavy oil/unconsolidated formations · Clean fluid completions key factor in well productivity · Open hole completions with wire wrapped screens & gravel packs · May underream to expose more wellbore area · Cased hole completions Selectively perforated casing Fracture stimulated perforations Gravel packed in place slotted liners ! wire wrapped screens Resin coated frac proppants · Horizontal or high angle profiles possible · Multi-lateral completions · ESP's or gas lift for artificial lift, horizontal trees on wellhead August 12, 1998 16" Conductor @ 80' J Weatherford Gemoco 9-5/8" DV Stage Collar Stnd. Grade BTC Threads or 9-5/8" TAM Port Collar, BTC 4-1/2" LaSalle Clamps 3-1/2" LaSalle Clamps ESP power cable splice above Y-block 2 jts, 3-1/2" 9.3# L-80 EUE8RD tubing Centrifilt Series 562 ESP assembly w/power cable, 5.62" OD 9-5/8" Surface Casing 40.0# L-80 BTCM Tabasco Pool Rules Testimony Exhibit 6 Producer Completion FMC Tabasco Producer horizontal wellhead/hanger system w/125 amp penetrators Heat T[ace, Raychem, 3000' 4-1/2" 12.6# L-80 BTCM tubing to surface XO sub, L-80 4-1/2" BTCM x 3-1/2" BTCM Baker Sentry gauge, 3-1/2", w/I-wire 3 its, 3-1/2" 9.3# L-80 BTCM tubing 3.865" Special Clearance couplings 3-1/2" x 8' Landing pup, 9.3#, L-80, BTCM 3.865" Special Clearance couplings 3-1/2" Trico Y-Block, 3-1/2" EUESRD, 3-1/2" BTCM on uphole end XO sub, L-80 3-1/2" EUE8RD x 2-7/8" Hydrill 511 flush jr, Trico 2-7/8" Trico 'X' landing nipple w/2.312" No-Go profile, Hydrill 51 2-7/8" 6.5# L-80 Hydrill 511 flush jt tubing to bottom of ESP assembly "~( ** 0.184" planned clearance as per Centrilift ~ drift) - (ESP OD) - (I tube ID) = 8.679" - 5.62" - 2.875",,,J ~ I I I I 2-7/8" Wireline Entry Guide, Hydrill 511 Gravel Pack Assembly (run on drillpipe) -- Baker SC-1 Gravel Pack packer, 9-5/8" -- 4 jts, Baker 4" blank tubing, Hunting Seal Lock threads -- Baker ceramic flapper valve -- Baker 4" Gravel Pack screen, Hunting Seal Lock 20 gauge (0.02") screen 12-20 US mesh gravel pack sand TAB, 07/16/98, v.3 Tabasco Pool Rules Hearing · Surface casing set above Tabasco interval · Designs include an annulus to pressure test and monitor for leakage · Tapered casing/monobore design preferred - 5-1/2" x 3-1/2" casing string - 3-1/2" tie back tubing string - Uses seal bore / PBR as packer device - Can position seal bore 100' to 200' above perfs - Provides ability to use patches for water thief zone shut off to increase ultimate field recovery - Similar to West Sak injector design with surface casing August12,1998 16" Conductor @ 80' Weatherford Gemoco 7-5/8" DV Stage Collar Stnd. Grade BTC Threads or 7-5~8" TAM Port Collar, BTC 7-5/8" Surface Casing 29.7# L-80 BTCM Production Csgo 5-1/2" 15.5# L-80 BTCM run XO/SBE to surface XO set +/-100' above top perf Production Csg. 3-1/2" 9.3# L-80 EUE 8RD-Mod run TD to XO/SBE Tabasco Pool Rules Testimony Exhibit 7 Injector Completion 3-1/2" FMC GEN IV tubing hanger 3-1/2" EUE 8RD-Mod pin down F. 3-1/2" L-80 9.3# EUE 8RD-Mod tubing to surface E. 3-1/2" x 1" Camco 'KBG-2-9' mandrel w/DV & latch, 3-1/2" x 15' pups installed above & below, BTCM pin x EUE 8RD-Mod box Special Clearance Coupling D. 1 jt 3-1/2" L-80 9.3# EUE 8RD-Mod tubing C. 3-1/2" Camco 'DS' landing nipple w/2.812" No-Go profile. 3-1/2" x 6' L-80 pups installed above and below. EUE 8RD-Mod B. 1 jt 3-1/2" L-80 9.3# EUE 8RD-Mod tubing A. Baker 3-1/2" 'GBH-22' Locator Seal Assembly w/12' of seals & Iocator 3-1/2" x 6' handling pup installed on top. EUE 8RD-Mod box up I Baker XO Coupling w/Iocator shoulder, BTC x SBE - Baker 5" OD x 4" ID Seal Bore Extension Baker XO, SBE x 3-1/2" EUE 8RD TAB, 6/11/98, v.2 Tabasco Pool Rules Hearing 4. Casing and Cementing Practices Conductor at least 75 feet below ground level Surface casing at least 500' below permafrost for annular disposal 5. Injection Well Completion Sealbore, packer, or other isolation device positioned < 200' above injection interval August12,1998 Tabasco Pool Rules Hearing KRU Infrastructure Sharing Medical facilities & staff Camps & communications systems Construction, operations, & maintenance systems Roads, airstrip, transportation systems Warehouse and materials systems Electric power KRU Processing Facilities Drill site facilities Production and injection pipelines Central production facilities Augusl 12, 1998 Tabasco Pool Rules Hearing Phase 3- Potential at Drill Sites 1L, 2D, 2E, 2M, 2X Phase 2 - Drill Site 3H/3G Phase I - Drill Site 2T Expansion of Drill Site 2T gravel on north end ESP transformers and variable speed drives Control room Trunk & lateral production, test, and injection headers Automated production and test valves Process heat Accuflow well test facility Surface safety valves August 12, 1998 Tabasco Pool Rules Headng August 12 1998 127'-6" 25'-0" 355'-9" 65'-9' 335'-0' · I ROAO R£SERVE PIT HEATER H-,3M~I OIE~L STORAGE -- T~K PR~UCR~ U~IF~D ~ ~I~[NG U~ULE ~81 ~ .__ OIE~L PIP.AY o"72128191817 16.3~15 14~I,3 12 11 Iia T T T 12s'-B' 175"-B' 5 S~ACES · 15'-B' 7 SPACES 0 25'-~' FIXED SUPPORT 127'-6' MANIFOLD UOOULE 1125'-B' 2 22; i' OIVERT VALVES LJL )L~f]I ][]r~E]E]F IT 2g6 208 210 212 214 216:218 22,'e O00A 0 A 0 295 287 209 211 213 215 217 .... 165'-8' T 225'-9" 27§'-0' LEGEND · EXISTING PROOUCER A EXISTINO INJ~CTOR O PROPOSED PROOUCER ~ PROPOSED INJECTOR NEW GRAVEL'--',, PAD EX~N510N ~,~% 7 SPACES O 25'-0' I1 SPACES O 15'-~" 1089'-9' x 1086'-9' -- SURVI~Y 'W1NDOW '"\1111Y! ~)1 ~\~1111 ~l~:l i I I ! ! Tabasco Pool Rules Hearing 6. Automatic Shut-in Equipment All wells capable of unassisted flow of .hydrocarbons equipped with fail-safe SSV Injection wells equipped with double check valves SSVs tested at 6 month intervals August 12, 1998 Tabasco Pool Rules Hearing 7. Common Production Facilities & Surface Commingling Surface commingle Tabasco with GKA Two Tabasco tests per month minimum Monthly reports of allocation and test data Tabasco allocation factor of 1.0 for 1st year August 12, 1998 Tabasco Pool Rules Hearing 12. Production Anomalies Attempt to prorate all pools by equal percentage May vary to avoid equipment damage or increased operating cost 13. Administrative Action Commission may administratively amend rules August 12, 1998 ,--% Tabasco Pool Rules Hearing I · 2. 3. 4. 5. 6. 7. 8. 9. Field and Pool Name Pool Definition Spacing Units Casing and Cementing Practices Injection Well Completion Automatic Shut-in Equipment Common Production Facilities and Surface Commingling Reservoir Pressure Monitoring Gas-Oil Ratio ExemPtion 10. Pressure Maintenance Project 11. Reservoir Surveillance Report 12. Production Anomalies 13. Administrative Action August 12, 1998 ALASKA OIL AND GAS CONSERVATION COMMISSION PUBLIC HEARING TABASCO POOL RULES AUGUST 12, 1998 9:00 AM SIGN IN PLEASE NAME - COMPANY Do you plan to testify? YES NO ARCO Alaska, Inc. Kuparuk Development Post Office Box 100360 700 G Street Anchorage, Alaska 99510 Telephone 907 265-6268 Jack Walker, Tabasco Coordinator August 3, 1998 Mr. David Johnston Chairman Alaska Oil and Gas Conservation Commission 3001 Porcupine Road Anchorage, AK 99501 Re: Proposed Pool Rules for the Tabasco Accumulation in the Kuparuk River Unit Dear Chairman Johnston: Enclosed for your information are proposed Tabasco Pool Rules and draft testimony for the pool rules hearing scheduled for August 12, 1998. Also encloSed is a copy of the application to the Director of the Division of Oil and Gas, State of Alaska Department of Natural Resources to approve the Tabasco Participating Area. Three copies of the draft testimony and proposed pool rules are included for your convenience. We would be happy to answer any questions regarding this. I can be reached at 265-6268 or jawalker@mail.arco.com via the internet. Sincerely., f.J/ack Walker Tabasco Coordinator ORIGINAL Gas ConS. C0mm'tss[0n Anchorage ARCO Alaska, Inc. is a Subsidiary of AtlanticRichfieldCompany . Tabasco Oil Pool Rules Te~umony -- DRAFT August 3, 1998 I. INTRODUCTION II. GEOLOGY III. RESERVOIR DESCRIPTION IV. RESERVOIR DEVELOPMENT 12 V. FACILITIES 17 VI. WELL OPERATIONS 19 VII. RESERVOIR SURVEILLANCE 26 VIII. SUMMARY OF TESTIMONY 28 IX. PROPOSED TABASCO POOL RULES 29 i: Tabasco Oil Pool Rules Te~[imony -- DRAFT August 3, 1998 LIST OF EXHIBITS Exhibit 1 Tabasco Pool Type Log Exhibit 2 Tabasco Pool Area Exhibit 3 Tabasco Pool Stratigraphic Cross-Section A-A' Exhibit 4 Top Tabasco Structure map Exhibit 5 Crude Composition Assay Exhibit 6 Tabasco Production Well Schematic Exhibit 7 Tabasco Injector Schematic RECEIVED Alaska 0il & Gas Cons. Commissi0tl Anchorage Tabasco Oil Pool Rules Tes[imony -- DRAFT August 3, 1998 I. Introduction This hearing has been scheduled in accordance with 20 AAC 25.540 with a public notice period started on June 27, 1998. The purpose of this hearing is to present testimony to support classification of the Tabasco Reservoir as an oil pool and establish pool rules for development of said oil pool pursuant to 20 AAC 25.520. ARCO Alaska, Inc. (ARCO) is presenting testimony on behalf of the Tabasco Working Interest Owners (WlOs). The scope of this testimony includes a discussion of geological and reservoir properties, as they are currently understood, and AAI's plans for reservoir development and surveillance, well planning, facilities installation and project scheduling. This testimony will enable the Commission to establish rules that allow economical development of resources within the Tabasco Oil Pool. Confidential data and interpretation concerning the Tabasco formation will be furnished to the Commission as additional support testimony. Development drilling is scheduled to commence during the fourth quarter of 1998 with regular production beginning as early as October, 1998. The proposed Tabasco Oil Pool includes all potential hydrocarbon-bearing zones within the Tabasco Reservoir. The WlOs recognize a need for a consistent development strategy for the Tabasco Reservoir. Pool rules for the entire reservoir will help maintain this consistency. As additional information and understanding of the Tabasco Reservoir is acquired, ARCO will work with the Commission to ensure the Tabasco Oil Pool definition continues to make sense. Kuparuk River Unit (KRU) facilities will be employed to process production and supply injection water. Greater Kuparuk Area alignment agreements, which set new tract ownership and facility sharing terms in the Tabasco area, will help govern business issues associated with sharing infrastructure. The properties to be developed (i.e., the Tabasco Oil Pool) are leased from the State of Alaska. The Tabasco Oil Pool is located within the present boundaries of the Kuparuk River Unit. ARCO, on behalf of the Tabasco Oil Pool WIOs, has filed an application for Department of Natural Resources approval of a Tabasco Participating Area, which will include the Tabasco Oil Pool. The Application will also include plans of development and operations for the Tabasco Participating Area, including the Tabasco Oil Pool. ARCO has filed a copy of the Tabasco Participating Area Application with the Commission. The Tabasco WlOs have integrated their interests through a series of alignment agreements. These alignment agreements have been filed with the Commission as Exhibits 9, 10, and 11 for the Tarn Oil Pool Rules testimony. Tabasco Oil Pool Rules Te~L~mony -- DRAFT August 3, 1998 II. Geology Introduction This section provides geologic data and interpretation. It is comprised of subsections regarding Stratigraphic Nomenclature, Stratigraphic Description, Age of Sediments, Proposed Pool Name, Proposed Vertical Pool Boundaries, Structure, Trapping Mechanism, and Controls on Oil Distribution. Stratigraphic Nomenclature The Tabasco sandstone is an informal name applied to the sequence of sandstone and conglomerate encountered in the ARCO ALASKA, Inc. 2T-201 between the depths of 3352' and 3599' MD, and its lateral equivalents. It attains a gross thickness of 244 feet true vertical thickness (TVT) in the 2T-201 well and ranges from 0'- 397' in the proposed Tabasco Pool area. The Tabasco sandstone is correlative with the lower portion of the Schrader Bluff Formation, which is a part of the Late Cretaceous Colville Group. The Tabasco Sandstone is Campanian in age. It occurs stratigraphically below the regionally correlatable log/seismic marker C-80 which is approximately coincident with the regional K- 10 sequence boundary. It is stratigraphically separated from the overlying West Sak Sands by an interval of inter-bedded claystone, shale and mudstone which is generally greater than 300' thick (Exhibit 1). The Tabasco sandstone has been proven capable of producing hydrocarbons in paying quantities as evidenced by production tests in the ARCO 2T-201 and 2T- 202 wells. The geographic extent of potentially hydrocarbon-productive reservoir within the Kuparuk River Unit is outlined on Exhibit 2, and corresponds geologically to the outer shelf and shelf margin environments during Tabasco deposition. Stratigraphic Description The Tabasco Sandstone is interpreted as a prograding sequence of deltaic to near shore marine sediments deposited at or near a shelf-margin characterized by large-scale slumping and erosion. Two general facies types are recognized. An "amalgamated sandstone facies" such as penetrated in the 2T-201,and a more commonly occurring "stacked thin-sandstone facies" comprised of distinct sandstone units separated by mudstone. The transition between the two facies is abrupt and may be due to either paleo-topographic control of sediment accumulation or erosional incisement of the amalgamated facies rocks into the stacked thin-sandstone facies. Tabasco Oil Pool Rules Teodmony -- DRAFT August3,1998 The amalgamated sandstone facies (Exhibit #3) ranges in thickness between 45' and 344' TVT in current well penetrations in the Drill Site 2T where it's distribution is well known. It commonly displays an overall coarsening upward log character consisting of several stacked parasequences. A blocky or fining- upward log character is present in several wells. The "stacked thin sandstone facies" is more widespread and occurs in many locations throughout the shelf region (Exhibit #3). It exhibits a gross interval thickness of 82' to 397' in current well penetrations in the Drill Site 2T where detailed mapping has been done. Net sand interpreted at an 8 ohm resistivity cut-off ranges between 20' to 120'. Individual sand layers generally display a coarsening-upward log character. Net sandstone isopach maps have been interpreted to show syn-depositional fault control on thickness distribution. Conventional core recovered in the 3H-11 well located at KRU Drill Site 3H has been interpreted to represent deposition in a prograding shoreline or deltaic system. Similarity in bed thickness, bed-thickness trends (thickening upward) and lithology between the 3H and other Tabasco penetrations indicate the 3H-11 core provides an acceptable analog for the Tabasco interval in the proposed Pool area. Age of Sediments Based on regional stratigraphic relations and ARCO in-house palynology and micropaleontology the Tabasco is considered to be Campanian in age. Proposed Pool Name The name Tabasco was first applied to a related group of Campanian-age geologic play-types developed jointly by ARCO and BP in 1994 and included deposits from a wide range of geologic settings. Subsequently Konkler, et al (1997) referred to the Tabasco in a more restrictive manner as comprising an incised valley play-type. The name Tabasco Pool as proposed herein is defined as the sequence of sandstone and conglomerate encountered in the ARCO ALASKA, Inc. 2T-201 between the depths of 3352' and 3599' MD and its lateral equivalents. As such, it pertains to both the incised valley deposits and the associated shallow marine sediments deposited on the shelf or shelf margin. Proposed Vertical Pool Boundaries The Tabasco Pool is comprised of the hydrocarbon-bearing sands encountered in the 2T-201 well between the depths of 3352' and 3599' MD, and its lateral equivalents. Within the proposed Tabasco Pool area, the top Tabasco Pool occurs between depths of approximately-2700' to -4700' sstvd. Tabasco Oil Pool Rules 'r~.,.,L~mony -- DRAFT August3,1998 The upper boundary of the Tabasco Pool is placed at 3352' MD in the ARCO 2T- 201 well. The top Tabasco is a regional unconformity (K-10) which is overlain by an extensive marine shale. This shale is generally greater than 300' thick and separates the Tabasco Pool from the West Sak Pool. The top Tabasco coincides with the base of this marine shale. The lower boundary of the Tabasco pool is placed at 3599' MD in the ARCO 2T- 201 well. The base of the Tabasco is locally unconformable, with a sharp basal contact in some wells. Elsewhere the contact is gradational and displays a coarsening-upward log motif. Here the base of the Tabasco is placed as the stratigraphically lowest sandstone occurrence within approximately 400' below the K-10 unconformity. Structure Within the Kuparuk River Unit the C-80 horizon locally coincides with, or is sub- parallel to, the top Tabasco sandstone and has been mapped using 3D seismic data in the Drill Site 2T area. The C-80 marker has been mapped from well data throughout most of the remaining KRU area. The regional structure on the C-80 marker is an arcuate monocline that strikes north-northwest in the western part of the KRU, and east-southeast in the southern part. Dip is toward the east and northeast. The monoclinal flexure corresponds to the shelf margin during Tabasco deposition (Exhibit #4). The Tabasco sandstone as defined herein is restricted to the western and southern parts of the KRU. Both north-south trending and east-west trending normal faults cut the Tabasco. Faults are generally Iow-angle detachment-style normal faults, which ultimately sole above the HRZ. Both fault sets appear to be of similar age, and most exhibit offset which post-dates deposition of the Tabasco. Throws typically are 10' to 50', with maximum throws locally of 100' Down'to the north and down to the east are the most common directions of offset, although antithetic faulting is also present. An earlier stage of movement on some faults can be inferred from well control. Faults may have influenced sediment thickness as well as where reservoir rock has been preserved from later erosion. Trapping Mechanisms The trapping mechanism of the Tabasco is a combination of stratigraphic and structural elements. Up-dip stratigraphic pinch-out and/or erosion of the Tabasco is considered to be the primary trapping mechanism. East-northeast structural dip may influence oil distribution to the northeast but no well penetrations are present to confirm this and no oil-water contact is currently known. Tabasco Oil Pool Rules Teoumony -- DRAFT August 3, 1998 Controls over Oil Distribution No water has been encountered within the Tabasco Interval and oil distribution is controlled by the stratigraphic distribution of reservoir sands. A gas-oil contact - was found in well 2T-201 approximately 8' from the top of the Tabasco at a subsea depth of-2915' sstvd Tabasco Oil Pool Rules Testimony -- DRAFT August 3, 1998 III. Reservoir Description Introduction This section will summarize reservoir properties necessary to perform volumetric calculations for determining original oil-in-place and recovery mechanisms for the initial development area at Dill Site 2T. The reservoir rock properties are based on available open-hole log data, supplemented by a limited sampling of core data, and production tests. A laboratory fluid study performed on subsurface oil samples, obtained while flow testing the 2T-201 well, provide the basis for the reservoir fluid description. Lithology The Tabasco is comprised predominately of sandstone, pebbly-sandstone, and sandy conglomerate in approximately equal, proportions. Open-framework conglomerate and mudstone are less abundant but important constituents. Framework grains in the 2T-12 samples consist predominately of quartz and chert, with less common volcanic and sedimentary lithic grains, and rare plagioclase feldspar. Sandstone is mostly fine grain and well sorted, and occurs most frequently in the lower part of the section. Medium grain, moderately sorted sandstone is less abundant and occurs in the upper part of the unit. Pebbly sandstone is generally bimodal, comprised of a moderate- to well-sorted fine- to medium-grain sand fraction with less than 50% well-sorted granules to fine pebbles. Sandy conglomerate is comprised predominately of granules to fine pebbles (>50%) and fine- to coarse-grain sand matrix. Open framework conglomerate is less abundant, and consists mostly of well-sorted granule to medium pebbles with little or no sand matrix. Pebbles to 3.5 cm occur locally. An overall coarsening- upward trend is observed in samples and inferred from log character. Matrix is comprised of silt, clay, and volcanic tuff. XRD data of 20 samples from the 2T-202 indicate clays are locally abundant, ranging from 3 to 21% and consist predominately of illite or an illite/smectite mix. Chlorite and kaolinite are only locally common. Samples are generally poorly to non-cemented. Cement, where present, occurs as discreet carbonate-cemented beds 0.5 - 2 feet thick, or as widely disseminated zeolites. Reservoir quality appears to be controlled largely by mean grain-size, sorting, and clay content, with the best reservoir being the well-sorted open-framework conglomerates. Porosity, Permeability and Water Saturation Porosity and water saturation of the Tabasco sandstone is determined largely from conventional log analysis. Log evaluation by ARCO consisted of Tabasco Oil Pool Rules Testimony -- DRAFT August3,1998 determination of shale volume from one or more of gamma ray, SP, Resistivity, or comparison of neutron and density curves. An average of available indicators was used. Effective porosity was then calculated from neutron and density curves. Porosity in the reservoir intervals is interpreted to range 17%-22% and average 20%. Water saturation was calculated using a Simandaoux model with parameters a=l, m-1.7, and n-1.9. Saturation is calculated to range 17%- 60%. Core from the 3H-11 well was used as a check on the validity of the log interpretation. Permeability interpretation is based on pressure transient analyses of the 2T-201 and 2T-202 well tests, which yielded results of 3.6 Darcies and 100 Darcies average permeability, respectively. Reservoir Fluids and PVT Properties Reservoir fluid properties are estimated from fluids recovered during an October 1995 production test of the 2T-201 well. After flowing at an initial rate of 200 to 400 BOPD (of 16.5° APl gravity crude) and 12,500 SCF/STB gas-oil-ratio, original reservoir pressure was calculated at 1512 psig (-3000 ft. Subsea Datum) from a pressure buildup test conducted immediately after the flow test. Subsequent interpretation of available open-hole and production logs confirms that the high gas flow rate is due to a small initial gas cap. Thus, the Tabasco accumulation is a saturated crude with small initial gas cap at-2915 ft. sstvd depth. After additional production testing and conditioning of the well at Iow draw down pressures, bottom hole fluid samples were collected near the middle of the Tabasco interval at-2989' sstvd. Subsequent laboratory analysis resulted in a sample bubble-point pressure of 1476 psig, which is in satisfactory agreement with the pressure at the gas-oil-contact. A differential vaporization was performed on the cell contents at reservoir temperature. Additional flash vaporization to the standard stock tank conditions was also performed to allow adjustment of the differential vaporization results to surface conditions, as summarized below. Pressu re Bo Rs Po (psig) (Rvb/STB) (SCF/BO) (cp) 1512 1.061 169 253 1476 1.061 169 251 1200 1.053 144 243 1000 1.047 124 259 800 1.040 103 301 A corresponding stock tank crude composition assay is shown in Exhibit 5. Tabasco Oil Pool Rules Testimony -- DRAFT August 3, 1998 There are no production tests in any other wells within the proposed Tabasco Pool area. RFT samples and oil extracted from sidewall cores in the 3H-11 well at Drill Site 3H yielded oil of similar gravity to that tested in well 2T-201. Net Pay Determination ARCO has discriminated net pay from log analysis as having calculated effective porosity of >12%, and water saturation of < 60%. Other reasonable methods were also used to estimate net pay. A statistical mean of the various net pay values has been used in the calculation of OOIP, with a 0.61 Net/Gross ratio used in the amalgamated sandstone facies, and 0.67 Net/Gross ratio in the stacked thin sandstone facies. Original Oil-in-Place (OOIP) Oil in place has been calculated for the initial development area at drill-site 2T where sufficient data exist to allow a meaningful analysis. Elsewhere in the Tabasco pool area volumetric calculations have not been performed. By analog with the areal extent of the known accumulation and volume at drill-site 2T, the potential reserve base in the proposed pool area is thought to be substantial. Original Oil in Place (OOIP) for Tabasco Phase 1 development at Drill Site 2T was characterized by using a range of probabilistic input parameters and assuming that the possible reserve outcomes are log-normally distributed. Tabasco OOIP was calculated by dividing the volumes into two separate components: the amalgamated sand component, and the stacked thin sand component. While these two reservoir components likely have hydraulic communication, they have different reservoir quality, and petrophysical properties. Input parameter ranges for petrophysical properties were determined for each reservoir component independently. All calculations of volumes were conducted separately for each component and then aggregated together. 3D seismic mapping provided the gross interval container for volumetric analysis. The amalgamated sand component was mapped directly from the seismic data by constructing top and base sand maps. The stacked thin sand component was mapped from seismic data and volumes where calculated using a range of gross sand thickness and net/gross ratios. The formation volume factor (1.061 RB/STB) was derived from PVT analysis on the 2T-201 well test and was used for all volumetric cases. Calculated OOIP for the P.90, P.10, and mean aggregate Volumes for the entire Tabasco development are 48, 131, and 85 MMSTB, respectively. 10 Tabasco Oil Pool Rules Testimony -- DRAFT August 3, 1998 As discussed above, the Tabasco oil is saturated at original reservoir conditions with a small gas cap present at-2915' sstvd. The gas cap is confined to an area of 32 acres at the crest of the accumulation where the gas saturated net pay thickness is limited to an average of four feet. Integration of the geologic net pay thickness maps indicates that the reservoir volume contained in the initial gas cap is only 0.2% of the reservoir pore volume, and contains an estimated 100 MMSCF of gas in place. The Tabasco gas cap is not expected to have a significant effect on reservoir producing mechanisms. 11 Tabasco Oil Pool Rules Testimony -- DRAFT August3,1998 IV. Reservoir Development Introduction This portion of the testimony includes a discussion the development strategies, recovery process selection, and reservoir management plans for the Tabasco Reservoir. Discussion is also presented on expected well performance. Development Approach A phased development approach is planned to help minimize the risk associated with the reservoir uncertainties, namely the degree of heterogeneity and the original oil in place (OOIP). The scope of the Tabasco "Phase 1" development project involves drilling 10 to 18 new wells (in addition to the two existing wells) to develop 23 MMBO associated with the 85 MMBO OOIP estimate for the Drill Site 2T area. An initial drilling program of four to six wells are planned to begin Phase 1 development in the fourth quarter of 1998. The remaining Phase 1 wells are planned in 1999 and 2000, taking advantage of reservoir performance data and improved seismic calibrations acquired from the earliest wells. As currently envisioned, the fully developed Phase 1 Tabasco development will ultimately include a twelve well development (8 producers and 4 injectors)in the amalgamated sands portion of the Drill Site 2T accumulation, and up to seven wells in the eastern "stacked thin sands" portion of the Tabasco accumulation at Drill Site 2T. Beyond the Drill Site 2T development, additional Tabasco sands are present at several other KRU Drill Sites. Plans are being formed to conduct Tabasco Phase 2 operations at Drill Site 3H in early 1999. Subsequent developments may include Phases at any of Drill Sites 3G, 2M, 2X, or 2D as warranted by additional study. Recovery Mechanisms & Recovery Process Selection One of the most critical aspects to the Tabasco development plan is the selection of a recovery process and corresponding development drilling plans. To assist in these decisions, finite difference reservoir simulation was employed. A three-dimensional grid representative of a large portion of the Tabasco Phase 1 development area was constructed. Up to 48 vertical layers were incorporated to allow reservoir layers of differing permeabilities, vertical permeability barriers and to account for the reservoir thickness changes and gravity effects in this relatively thick oil column. Subsequent "black oil" simulation runs investigated a variety of development options and fluid injection schemes. 12 Tabasco Oil Pool Rules Testimony -- DRAFT August 3, 1998 Due to the high oil viscosity (253 cp) of the 16.5° APl Tabasco crude, and corresponding Iow solution gas-oil-ratio, the relatively Iow reservoir energy would be inefficient under primary depletion. Reservoir simulation was used to confirm that recovery would be only 5% of the OOIP under depletion drive, and thus, a fluid displacement recovery process is desirable in the Tabasco reservoir. Recovery with a gas injection process would be quite Iow due to the extremely high mobility of the gas relative to the viscous oil. Thus, a gas injection project would be characterized by high producing gas-oil-ratios and corresponding uneconomic gas cycling. While a waterflood recovery mechanism in the Tabasco reservoir also has an unfavorable mobility ratio (water-to-oil mobility ratio of 50:1), numerical reservoir simulations indicate that waterflood recovery could range between 21% and 30% of the OOIP, depending on the degree of reservoir heterogeneity. Poorer recovery is predicted in those simulator runs conducted with a relatively heterogeneous reservoir description, due to lack of vertical communication between injectors and producers, and due to unfavorable water cycling through higher permeability "thief zones". If the reservoir is found to be more homogeneous, the more optimistic recovery factor may be achieved due to the improved areal and vertical sweep efficiencies. Based on the waterflood simulation study, a producer-injector ratio of 2 to 1 appears economically optimal. Early performance of water injectivity will be monitored to ensure that the relative permeability of the Tabasco reservoir, which has a dominant effect on the injectivity, is fully understood. More favorable injectivity would lead to the discovery that fewer injection wells would be required to replace production voidage. Conversely, early development drilling could reveal more severe reservoir heterogeneity or compartmentalization that would likely require more injection wells. Because the Tabasco oil is at its bubble point pressure, waterflooding is planned from initial development to maintain reservoir pressure. Injection water will be derived from a suitable makeup water, which may be any combination of Greater Kuparuk Area produced water and sea water. The simulation study also concluded that a well spacing of approximately 50 acres per well would be optimal for the Tabasco reservoir, given the 3.6 darcy average reservoir permeability employed in the study. The most recent data available at the 2T-202 well indicates dramatically higher reservoir permeability of 100 darcies, as measured by pressure transient analysis. Additional reservoir studies are currently underway to investigate more widely spaced wells should the reservoir be more permeable than originally envisioned. 13 Tabasco Oil Pool Rules Te~umony -- DRAFT August 3, 1998 Initially employing a waterflood recovery process is essential to successfully developing the Tabasco reservoir. However, given that portions of the reservoir, (e.g. the Drill Site 2T eastern "stacked thin sands" portions), could be locally isolated by faulting or stratigraphically separated sand accumulations, isolated areas may experience primary depletion. Although remedial measures (i.e., additional drilling and well conversions) will be considered to optimize recovery in all areas, maintaining waterflood support may not be justified in all situations. Waterfiood Pilot The Tabasco Waterflood Pilot Tract Operation involves two wells. Well 2T-202 began producing from the Tabasco interval on May 11, 1998 and has produced at rates of up to 3500 BOPD since then. On June 8, 1998, water injection commenced into Tabasco injector 2T-201; at the current 4000 BWPD injection rate, plans are to replace voidage and maintain reservoir pressure. Upon conversion from producer to injector, pressures measured in well 2T-201 had been affected by the first month's production from the 2%202 well. ThUs, early pilot performance is encouraging that waterflood support may be accomplished at the approximately 2000 foot spacing between these two wells. Enhanced Oil Recovery (EOR) Potential Given the poor mobility ratio caused by the viscous Tabasco crude, waterflooding will be characterized by water "cycled" through the reservoir. Preliminary screening studies suggest that a polymer augmented waterflood could reduce the mobility ratio by perhaps ten-fold, and improve the mobility ratio, but additional lab work is required to determine whether viscosified injectant is confirmed to be compatible with the Tabasco reservoir mineralogy. Laboratory studies of the rock and fluid interactions are currently underway and will be incorporated into a chemical-flooding reservoir simulation study of the Tabasco EOR polymerflood. If proven to be technically and economically feasible, the EOR process could be added to the Tabasco development. Optimization Optimizing field development will be an ongoing process requiring additional field data, laboratory studies and reservoir modeling. Work efforts currently in progress are designed to understand reservoir heterogeneity, optimize well spacing and producer-to-injector ratio, and study the technical and economic feasibility of a polymer enhanced oil recovery project. Plans are to develop the reservoir on nominally 50-acre well spacing. A geostatistical modeling effort is in progress to predict reservoir heterogeneity and 14 Tabasco Oil Pool Rules Te~L~mony -- DRAFT August 3, 1998 confirm that a 50-acre average well spacing is optimum given the resulting reservoir continuity between injectors and producers. Regardless of the outcome from this work, some portions of the reservoir may require a relatively dense spacing to address permeability barriers (e.g., faults, calcite cement) or poorer than expected well (productivity/injectivity) performance. Furthermore, the polymer EOR simulation study could lead the a requirement for closer well spacing due to the reduced displacement rates of the viscous polymer injectants. A 10-acre well spacing is therefore requested to allow a flexible well placement strategy that will maximize recovery. Producing Gas-Oil-Ratio Expectations. Because the Tabasco waterflood is to be operated to maintain initial reservoir pressure, ideally, the entire producing life of the pool would proceed at the constant initial gas oil ratio (GOR) of 169 SCF/STB. However, conditions such as faulting, reservoir discontinuity, and the localized gas caps (as was evidenced in the testing of the 2T-201 well) may cause gas-oil ratios of some producing wells to exceed limits set forth in 20 AAC 25.240(b). For this reason we request an exception to this rule. Well Conversion Strategy Because Tabasco producing wells will require technologically advanced and expensive gravel pack completions, wells completed as producers are not anticipated to be converted to injectors in the future. In the case of isolated fault blocks or stratigraphically compartmentalized portions of the reservoir, producers may be converted to injection to optimize recovery. In addition, producers experiencing high watercut production (i.e. early "watering-out") could become candidates for conversion to injectors. Stimulation Plans With high permeabilities (in the 3 to 100 darcy range) expected, Tabasco wells should not need to be stimulated to achieve economic flow rates. The unconsolidated sand and conglomerate formation, however requires sand control, particularly in view of the Electric Submersible Pumps (ESPs) planned for artificial lift. While current plans are to complete producers with open hole gravel packs, experience gained in the ongoing West Sak development within the Kuparuk River Unit may some day be found applicable to the Tabasco formation, including combinations of fracturing and gravel packing or fracturing for sand control. Stimulations of injection wells are not planned. However, if injectivities are poor or if injection logs indicate significant portions of the reservoir are not accepting 15 Tabasco Oil Pool Rules Te~umony o- DRAFT August 3, 1998 water, injectors may be stimulated with high-pressure breakdowns. The initial operating philosophy will be to operate at or below parting pressure. To avoid significant increases in average reservoir pressure, we will not inject volumes substantially greater than offtake. If voidage replacement can not be achieved with injection at the parting pressure, injection pressure will be increased to the minimum pressure necessary to maintain voidage replacement. The goal is to keep reservoir pressure at a level controllable with normal KRU surface hole mud weights Well Performance There is considerable uncertainty in well performance projections. While actual Tabasco net pay thickness varies greatly throughout the productive area, the average reservoir permeability in any well is difficult to predict. Tabasco development plans therefore require flexibility to address uncertainties and performance variations. Despite the uncertainty, advance planning is based on a range in producer performance of 800 to 4000 BOPD per well, with an average expectation of approximately 2000 BOPD. Artificial Lift Electric Submersible Pumps (ESPs) will be employed at Tabasco as the artificial lift mechanism. ESPs will allow greater reservoir pressure drawdowns, and hence, higher production rates, particularly at the increased watercut anticipated from the waterflood response in one to two years. 16 Tabasco Oil Pool Rules Te~,mony -- DRAFT August 3, 1998 V. Facilities Introduction Discussion of the pads, roads, drill site facilities and other infrastructure is presented for Phase 1 Development. Subsequent development phases have not been planned in detail, but are envisioned to be similar to Phase 1 in making maximum use of existing Kuparuk River Unit (KRU) facilities and infrastructure. This maximizes reserves and minimizes the environmental impacts. Economical development is also contingent upon utilization of KRU facilities. The Greater Kuparuk Area Alignment Agreement will govern facility sharing and the allocation of costs and production to the working interest owners. Tabasco production will be commingled with Kuparuk production in surface facilities prior to final processing and ultimate custody transfer. Sharing existing production facilities is possible due to existing spare liquid capacity at Kuparuk's facilities. Pads and Roads Tabasco Phase 1 development involves use of existing KRU Drill Site 2T. Gravel will be added to the existing pad to accommodate construction of Tabasco facilities and wells. Only existing roads will be used to support Tabasco development and operations. Pipelines Existing cross-country pipelines serving Drill Site 2T will be used for Tabasco production. Production and water injection pipelines may be expanded to accommodate the combined production from Tabasco and Kuparuk depending on the Tabasco reservoir performance. Powerlines Increased load presented by the Tabasco project requires an upgrade of the overhead CPF-2/Drill Site 2T transmission line from 13.8 kV to 34.5 kV along with requisite transformers and switch gear retrofits at other KRU drill sites between Drill Site 2T and CPF-2. Drill Site Facilities All data gathering and routine operations are to be accomplished remotely from CPF 2 and/or a Tabasco drill site control room. Data gathering is based on "Foundation field bus" technology, which offers two wire control and diagnostic capabilities for all field instruments. 17 ir Tabasco Oil Pool Rules Te~,,mony -- DRAFT August 3, 1998 Facilities to be installed initially includes: · Production, test, and water injection lateral piping and headers · Three-phase metering skid for well testing · Instrumentation, control, and communication equipment · Variable speed controllers, transformers, and electrical equipment for electric submersible pumps · Indirect-fired process heater Remote operations include: · Well testing using Accuflow metering · Emergency shutdown · Injection fluid metering · Production pressure metering · Annular pressure monitoring. On-site operations include injection choke valve actuation. Remote well control and testing functions will be performed using the foundation field bus control system. Well production rate will be controlled using an automated choke valve. Testing can take place remotely through a divert valve system, which redirects the flow from the production header to the test. Emergency Shutdown Emergency shutdown systems meet API-RP-14C requirements and ARCO specifications for safety systems. All production and test piping is designed to ANSI 1500 and will contain the wellhead shut-in pressure and ESP dead head pressures up to the pad emergency shut down (ESD) valves. The water injection piping will be designed to ANSI 1500 to be compatible with the existing injection system. At an expected injecting temperature of 140° F, ANSI 1500 provides a working pressure rating of 3575 psig. Production wells will be capable of shut in from over- and under-pressure through pressure switch signals which close the surface safety valves (SSVs). Wells also will be capable of remote shut off through the control system. 18 Tabasco Oil Pool Rules Te~,.rnony -- DRAFT August 3, 1998 VI. Well Operations Introduction This portion of the testimony will include a description of Tabasco well designs and completion designs.. The drilling section will include a brief description of our drilling, casing, and cementing programs for the Tabasco Pool. This will be followed by a discussion of typical completion designs, safety systems and reservoir surveillance plans. DRILLING AND WELL DESIGN Directional Drilling Continuous MWD surveys have proven to be as technically reliable and accurate as gyros on the north slope. Gyro surveys are not required, MWD surveys are adequate. Logging Operations The minimum log suite planned for Tabasco includes resistivity and gamma ray logs. These logs will be obtained from MWD / LWD tools positioned in the drilling BHA. At some point in the future, it is possible that at least some Tabasco wells could be drilled using rate of penetration (ROP) and other drilling operational data to locate the pay zones. Casin~l and Cementing The Tabasco Pool casing and cementing requirements are generally consistent with AOGCC Regulation 20 ACC 25.030, requiring that casing and cementing programs meet the following criteria: 1 ) Provide adequate protection of all fresh water zones. 2) Prevent fluid migration between strata. 3) Provide protection from pressures and forces that may be encountered, including pressure and forces due to thaw subsidence and freezeback within the permafrost interval. With some changes, the proposed standard casing program for a typical Tabasco well resembles the standard casing program employed in the surface hole section of the Kuparuk River wells in the vicinity of the West Sak oil pool. 19 Tabasco Oil Pool Rules Te~,~mony -- DRAFT August 3, 1998 In Kuparuk River Unit wells, conductor casing is set at 80' to provide anchorage and support for the rig diverter assembly. Surface casing is set through the West Sak interval, effectively casing off the permafrost, Ugnu, and West Sak producing formations. The surface casing is cemented to surface, and is later drilled out after a BOP stack is installed. This approach will also be employed on Tabasco wells for well control and zonal isolation purposes. The current plan for Tabasco development wells also employs a string of surface casing set and cemented just above the top of the Tabasco formation. The surface casing in Tabasco wells would be cemented to surface, primarily using a single stage cementing system, and would isolate the West Sak and Ugnu formations from the Tabasco producing interval. The Tabasco surface casing will be cemented to surface using a lightweight permafrost lead cement slurry, followed by a normal weight neat cement tail slurry. Cementing technology for Tabasco wells will also include a provision for a newly developed lightweight, high strength permafrost cement system to be used in cementing the combination surface / production casing strings to surface in one stage. A type of port collar may be included in the designs, which allows for optional opening and closing in case cement does not circulate to surface. Top jobs, or jobs in which cement is pumped down a small circulating string along the outside of the casing, may also be used to achieve cement to surface on these strings. The proposed Tabasco casing program would employ a 9-5/8" OD surface casing for the producer wells and a 7-5/8" OD surface casing for the injector wells. These casing sizes are always subject to change depending on current well design, casing availability, and potential downsizing of the wells. Although the completion plans for Tabasco wells may vary with time as new experience and knowledge is gained, the current plans for Tabasco completions would employ open hole gravel packs using kill weight, clear, non-damaging completion fluids. A typical producing well diagram is attached (Exhibit 6). A blend of techniques could be employed as time goes on and technology advances for optimizing completions in heavy oil, unconsolidated reservoirs such as Tabasco. The current plan for injector wells calls for a 5-1/2" by 3-1/2" tapered casing string which serves as the production casing installation. The 3-1/2" casing is then tied back to surface with a string of 3-1/2" tubing inserted into a seal bore or polished bore receptacle which provides a tubing annulus with isolation and pressure integrity (Exhibit 7). The seal bore or polished bore receptacle will be positioned above the top pay zone perforation unless otherwise approved by the Commission. As an alternative to the above, a conventional packer with tubing 20 Tabasco Oil Pool Rules Testimony -- DRAFT August 3, 1998 well design may be used for injector wells. In either case, the production casing across the pay zone would be cemented and perforated in the injector wells. It is proposed that the Tabasco casing and cementing rules be written as specified in 20 ACC 25.030 and in accordance with the current Kuparuk River Field rules as follows: 1) For proper anchorage and to divert an uncontrolled flow, a conductor casing shall be set at least 75' below the surface and sufficient cement will be pumped to fill the annulus behind the casing to surface. 2) For proper anchorage, to prevent an uncontrolled flow, and to protect the well from the effects of permafrost thaw-subsidence and freeze-back, a string of surface casing will be set at least 500' MD (measured depth) below the base of the permafrost section. Sufficient cement shall be pumped to adequately cement the casing to surface, and to provide a hydraulic seal at the surface casing shoe, which provides well control integrity in the event the well must be shut-in during well control operations. 3) To prevent well failure due to permafrost action, the operator shall install surface casing including connections, with sufficient strength and flexibility to prevent failure. To be approved for use as surface casing, the Commission shall require evidence that the proposed casing and connections meet the above requirement. Other means for maintaining the integrity of the well from the effects of permafrost thaw-subsidence and freeze-back, based on sound engineering principles, may be approved by the Commission upon application. The surface casing, including connections, shall have minimum post-yield strain properties of 0.9% in tension and 1.26% in compression. Several types and grades of casing, with connections, have been shown to meet the strain properties mentioned above, and have been approved for use by the commission. They are listed as follows: 13-3/8" 72# L80 BTC 13-3/8" 72# N80 BTC 13-3/8" 68# N80 BTC 10-3/4" 45.5# K55 BTC 10-3/4" 45.5# J55 BTC 9-5/8" 36# K55 BTC 9-5/8" 40# K55 BTC 9-5/8" 36# J55 BTC 9-5/8" 40# J55 BTC 9-5/8" 47# L80 BTC 21 Tabasco Oil Pool Rules Te(~mony -- DRAFT August 3, 1998 In addition to these sizes, weights, and grades, the following casings need commission approval for use in Tabasco wells as surface casings for permafrost service: 7-5/8" 29.7# L80 BTC 5-1/2" 15.5# L80 BTC 4) In addition to conventional open hole gravel pack and perforated completions, it is proposed that the Commission approve a ruling allowing the following alternative completion methods: a) slotted liners, wire-wrapped screen liners, or combination thereof, landed inside of cased hole and which may then be gravel packed. b) open hole completions, provided that the casing is set not more than 50' above the uppermost oil bearing zone. Open hole completions may subsequently be completed with slotted liners, wire-wrapped screen liners, or combinations thereof, and may be gravel packed. c) horizontal completion with liners, slotted liners, wire-wrapped screens, or combination thereof, landed inside the horizontal extension, and which may be gravel packed. d) multi-lateral type completions in which more than one wellbore penetration is completed in a single well, with production gathered and routed back to a central wellbore. The Commission may approve other completion methods upon application and presentation of data which shows the alternatives are based on sound engineering principles. Blowout Prevention It is proposed that the rule for blowout prevention in the Tabasco Pool be written identically to the provisions established in Regulation 20 ACC 25.035 (Secondary Well Control: Blowout Prevention Equipment (BOPE) Requirements) of the AOGCC regulations.* Except as modified by the AOGCC regulations, blowout prevention equipment and its use will be in accordance with APl Recommended Practice 53 for blowout prevention systems. * Formal testimony will include regulations in force at the time of the hearing. 22 Tabasco Oil Pool Rules Tesumony -- DRAFT August 3, 1998 Drilling Fluids The drilling fluid program designed for Tabasco wells will be prepared and implemented in full compliance with 20 AAC 25.033 in the AOGCC regulations. Formation pressure data for the strata to be penetrated is well known and documented based in numerous Kuparuk wells which have already been drilled through the Tabasco interval in the Kuparuk River Unit. Tubing / Casing Annulus Mechanical Integrity Since the Tabasco injector wells will have an annulus and seal bore / polished bore receptacle as part of their design, ARCO will have the capability to pressure test the tubing / casing annulus to periodically check and verify the well's mechanical integrity. The Tabasco producer wells however, will have an electric submersible pump (ESP) suspended at the end of the tubing string with no packer present in the well. This prevents testing of the tubing / casing annulus to verify mechanical integrity, since there are also open perforations in the pay zone below the ESP. The surface casing will be pressure tested however to all AOGCC regulations, following the cementing operation, and prior to drilling out the casing shoe. Wellhead and Production Tree Design The Tabasco wellheads and production trees are designed with several new technological innovations specifically adapted for the operating conditions expected at Tabasco. The injector wellheads are very similar to wellheads currently being used in the Kuparuk River Field, however the producer wellheads contain some new technologies, yet do not sacrifice safety and environmental protection. The injector wells will also be equipped with dual check valves which allow waterflood injection water to be injected down the well, but block the well from flowing back at surface. The producers will utilize a "horizontal tree" configuration. The horizontal tree routes the oil and gas production flow through a port in the side of the tubing hanger, and then through a wing valve to the production flow line. This design reduces the height of the wellhead and allows the well to be worked over using a rig, without the need to remove the flow line. All wellhead and production tree equipment carries the APl monogram and meets or exceeds APl RP 14C. 23 Tabasco Oil Pool Rules Te~.mony -- DRAFT August 3, 1998 Annular Disposal of Drilling Wastes Annular disposal of drilling wastes is possible during Tabasco drilling and completion operations. Several options are possible for ultimate annular disposal of such wastes, and these options will be permitted in specific wells under the standard APD submittal and review process (also reference 20 AAC 25.080). Fluids permitted for such disposal include, but are not limited to: · Waste drilling fluids · Drill cuttings ground into slurry form · Excess rig washdown water · Excess cement returns from surface casing and other cementing operations · Cement rinseate fluids generated from cementing operations · Reserve pit fluids · Cement contaminated drilling fluids · Completion fluids · Formation fluids · Drill rig domestic waste water · Other formation fluids associated with the act of drilling a well permitted under 20 AAC 25.005. · Other substances that the Commission determines upon application are wastes associated with the act of drilling a well permitted under 20 AAC 25.005. Disposal of such wastes in existing or future, permitted North Slope Class II injection wells is also a possibility, and will be employed at operator discretion. WELL DESIGN AND COMPLETIONS Producing wells will be designed to commingle production of all Tabasco member sands. We anticipate profile modification and control of thief zones will be primarily managed by controlling fluid injection in offset injection wells. Profile modification in this reservoir management scenario is greatly facilitated by the monobore injector designs that allow mechanical patches to be run on wireline and selectively placed across discrete perforation sets. Artificial lift will be utilized in Tabasco producers to enhance well production rates. Initial completions will utilize electric submersible pumps of standard centrifugal design. Over time, the life cycle performance of these lift systems will be compared to alternative artificial lift methods. Artificial lift techniques may be modified later on if economics warrant. 24 Tabasco Oil Pool Rules Te~.mony -- DRAFT August3,1998 We anticipate that other economically practical forms of artificial lift could require either gas or fluid flow through the production casing and tubing. Casing connections will be designed for gas or fluid service. We anticipate using a modified casing connection to enhance gas seal capability. Subsurface Safety Valves The Tabasco development area is largely coincident with the Kuparuk reservoir development and will rely on the same operating infrastructure. Consistent with statewide AOGCC regulations (20 AAC 25.265) and current Kuparuk River Unit Field Practice (as modified by Conservation Order 348), we do not foresee a need for sub-surface safety valves (SSSV's) in Tabasco development. Surface Safety Valves Tabasco wellheads will be specifically designed to accommodate the subsurface pump systems required to lift the Tabasco reservoir fluids. Surface safety valves (SSV's) are included in producer wellhead equipment designs in a "wing" valve position. These devices will be activated by high and Iow pressure sensing equipment and are designed to isolate well fluids upstream of the SSV should pressure limits be exceeded. When ESP's are employed, the sensing devices. will de-energize artificial lift concurrent with closing the SSV. Stimulation Methods Stimulation techniques may be used at some point to enhance productivity of the Tabasco reservoir. Stimulation to remove drilling induced formation damage and enhance near wellbore flow characteristics may be performed to increase the commercial flow rates in this reservoir. Propped hydraulic fractures appear to be the most promising producer stimulation technique available at present. Wellbore trajectories, cementing programs, and tubulars will be designed to accommodate hydraulic fracture stimulation techniques, if such techniques are employed. 25 Tabasco Oil Pool Rules T~o~,mony -- DRAFT August 3, 1998 VII. Reservoir Surveillance Introduction This section provides testimony regarding reservoir surveillance and operations during production anomalies. Reservoir Pressure Measurements Pressures will be reported at a common datum of 3000 feet true vertical depth subsea. An initial pressure survey will be acquired for each well prior to establishing regular production or injection. On an annual basis, a minimum of one bottom hole pressure measurement per producing governmental section is planned. Allowable pressure survey techniques should include wireline RFT measurements, pressure buildups with bottom-hole pressure measurement, injector surface pressure falloffs, static bottom-hole pressure surveys following extended shut in periods, or bottom-hole pressures calculated from well head pressure and fluid level in the tubing of an injector which has been shut in a minimum of 48 hours. Pressure survey data would be reported to the Commission quarterly. Surveillance Logs We anticipate that Tabasco producing wells drilled early in the development will be equipped with a "Y-block" tool and instrument tubing to allow surveillance logging below the ESP. Future producers may be so equipped if justified by cost/benefit analysis. Production logs may be employed as needed to investigate gravel pack effectiveness at controlling formation sand production, as well as vertical conformance of producers and injectors. Production Allocation and Well Testing Reservoir management and surveillance requires accurate production data. An Accuflow metering system will be employed for the Tabasco development wells on Drill Site 2T that should ensure these requirements are met. The manufacturer's anticipated accuracy for the Accuflow system is a fluid rate accuracy of 1%, gas rate accuracy of 3% and water cut accuracy of 1%. With a Iow back pressure imposed by the metering equipment and minimal flush volume required to void the previous test fluids, stabilization times are expected to be minimal. Since Iow flow rate variance is anticipated, relatively short well tests should be operationally practical and accurate. These factors, coupled with fact that current expectations of only eight to twelve Tabasco producing wells will 26 Tabasco Oil Pool Rules T!'sL~mony-- DRAFT August 3, 1998 utilize the Drill Site 2T Accuflow meter, should cause Tabasco well tests to be more accurate than Kuparuk well tests. A test frequency of at least two well tests per month for each Tabasco producer is planned. Additional testing will be conducted as needed to ensure that well tests accurately represent production rates. Hence, Tabasco producers will generally be tested more frequently than Kuparuk producers (which are required to be tested at least once per month). For the reasons discussed above, Tabasco well tests should generally be more accurate and frequent than those at Kuparuk. Assigning an allocation of 1.0 to Tabasco well tests for revenue and accounting purposes is therefore recommended in lieu of using the Kuparuk allocation technique described in Exhibit 8. This should be as accurate as the Kuparuk allocation technique and serve to reduce operating costs. Production Anomalies Production prorations at or from Kuparuk facilities will affect all commingled reservoirs produced through the facilities by an equivalent percentage of oil production, unless this will result in either surface or subsurface equipment damage, or increased operating costs At present, no known operational issues particular to the Tabasco wells or facilities cause concern with such proration restrictions. 27 Tabasco Oil Pool Rules '1 estimony -- DRAFT August3,1998 VIII. Summary of Testimony The Tabasco Pilot Waterflood Tract Operation and other geologic and engineering data have provided sufficient information to plan the first phase of Tabasco development. Pool rules for the Tabasco oil pool are appropriate at this time. Tabasco Working Interest Owners, and ARCO as operator, are committed to a safe and environmentally sound operation. ARCO can properly undertake concurrent operations in the Tabasco Pool and other KRU pools. Minimum well spacing of 10 acres will enable ARCO to effectively manage permeability barriers, and will not cause waste, compromise ultimate recovery, nor jeopardize correlative rights. Early implementation of a waterflood will maintain pressure and improve recovery from the reservoir, but conditions such as faulting, reservoir discontinuity, and the localized gas caps (as was evidenced in the testing of the 2T-201 well) may cause gas-oil ratios of some wells to exceed limits set forth in 20 AAC 25.240(b). Reservoir pressure will be measured in wells using standard industry practices on a regular basis to manage production and injection. Remedial operations may become necessary in some wells to manage the waterflood. The plan for Tabasco development wells employs a string of surface casing set and cemented just above the top of the Tabasco formation. The surface casing in Tabasco wells would be cemented to surface, primarily using a single stage cementing system, and would isolate the West Sak and Ugnu formations from the Tabasco producing interval. These proposed Tabasco Pool casing and cementing requirements are generally consistent with AOGCC Regulation 20 ACC 25.030. Annular disposal of drilling wastes can occur in an environmental safe manner if conducted in accordance with 20 AAC 25.080. ARCO will propose annular disposal for Commission approval on a well-by-well basis. Tabasco facilities have been designed to operate safely and efficiently, and to be compatible with existing KRU facilities and operations. Surface safety valves (SSV's) are included in producer wellhead equipment designs. Commingling Tabasco and other Kuparuk River Unit production is appropriate because there will be adequate individual well testing to assure production allocation quality. A minimum of two well tests per month is planned in accordance with the standard for commingling pools in surface facilities prior to custody transfer and severance from leases. An allocation factor of 1.0 for the Tabasco Pool is acceptable because of the high quality and frequent Tabasco well tests. 28 Tabasco Oil Pool Rules ustimony -- DRAFT August 3, 1998 IX. Proposed Tabasco Pool Rules Rule 1. Field and Pool Name The field is the Kuparuk River Field and the pool is the Tabasco Oil Pool. Rule 2. Pool Definition The Tabasco Oil Pool is defined as the accumulation of hydrocarbons common to and correlating with the interval between measured depths 3352 and 3599 feet measured depth in the ARCO 2T-201 well. Rule 3. Spacing Units Nominal spacing units within the pool will be 10 acres. The pool shall not be opened in any well closer to 300 feet to an external boundary where ownership changes. Rule 4. Casing and Cementing Practices (a) Conductor casing will be set at least 75 feet below ground level and cemented to surface. (b) Where required for annular disposal, surface casing will be set at least 500 feet below the permafrost and be cemented to surface. Rule 5. Injection Well Completion Wells may be employed for injection service provided a sealbore, packer, or other isolation device is positioned not over 200 feet above the top of the injection interval. Rule 6. Automatic Shut-in Equipment (a) All wells capable of unassisted flow of hydrocarbons will be equipped with a fail-safe automatic surface safety valve. (b) Injection wells will be equipped with a double check valve arrangement. (c) Surface safety valves will be tested at six-month intervals. 29 Tabasco Oil Pool Rules -I estimony -- DRAFT August3,1998 Rule 7. Common Production Facilities and Surface Commingling (a) (b) (c) (d) (e) Production from the Tabasco Oil Pool may be commingled with production from the Kuparuk River Oil Pool and/or other oil pools in the KRU in surface facilities prior to custody transfer. The allocation factor for the Tabasco Oil Pool will be 1.00 for the first year of production to evaluate the allocation method, testing frequency and quality. Each producing Tabasco well will be tested a minimum of two times per month during the first year of regular production. The Commission may require more frequent or longer tests if the allocation quality deteriorates. The operator may elect to employ the same allocation factor technique employed at the Kuparuk River Oil Pool if these additional testing requirements are deemed burdensome. The operator shall submit monthly file(s) containing daily allocation data and daily test data for agency surveillance and evaluation. Rule 8, Reservoir Pressure Monitoring (a) (b) (c) (d) (e) (f) An initial pressure survey shall be taken in each well prior to establishing regular production or injection. A minimum of one bottom-hole pressure survey per producing or injecting governmental section shall be measured annually. Bottom-hole surveys in as outlined in Rule 8(a) may fulfill the minimum requirement. The reservoir pressure datum will be 3000 feet subsea. Pressure surveys may consist of stabilized static pressure measurements at bottom-hole or extrapolated from surface, pressure fall-off, pressure buildup, multi-rate tests, drill stem tests, and open-hole formation tests. Data and results from pressure surveys shall be reported quarterly on Form 10-412, Reservoir Pressure Report. All data necessary for analysis of each survey need not be submitted with the Form 10-412, but must be available to the Commission upon request. Results and data from special reservoir pressure monitoring tests shall also be submitted in accordance with part (e) of this rule. Rule 9. Gas-Oil Ratio Exemption Wells producing from the Tabasco Oil Pool are exempt from the gas-oil ratio limit set forth in 20 AAC 25.240(b). 30 Tabasco Oil Pool Rules '~ ustimony -- DRAFT August3,1998 Rule 10. Pressure Maintenance Project Injection for pressure maintenance will commence within six months after the start of regular production from the Tabasco Oil Pool. Rule 11. Reservoir Surveillance Report A surveillance report will be required after one year of regular production and annually thereafter. The report shall include but is not limited to the following: (a) Progress of enhanced recovery project(s)implementation and reservoir management summary including engineering and geotechnical parameters. (b) Summary of produced and injected fluids by producing interval. (c) Summary of reservoir pressure analyses within the pool. (d) Results from any production/injection logs when more than one interval is commingled within a single wellbore. (e) Results of well allocation and test evaluation for Rule 7 and any other special monitoring. (f) Future development plans. Rule 12. Production Anomalies In the event of oil production capacity proration at or from the Kuparuk facilities, all commingled reservoirs produced through the Kuparuk facilities will be prorated by an equivalent percentage of oil production, unless this will result in either surface or subsurface equipment damage, or increased operating costs. Rule 13. Administrative Action Upon proper application, the Commission may administratively waive the requirements of any rule stated above or administratively amend the order as long as the change does not promote waste, jeopardize correlative rights, and is based on sound engineering principles. 31 T©P BASE TABASO© fSo'~qJorqeroi, o, [n, v. coorso crc fY LJ(JS[OQ(?, !~op shows Tabasco Pool Area, sections, Lowrshas, (;nos drii! si(es. ,, / NOR THWES T A 3H-14 o Arco Alaska, Inc. Kuparuk River Unit Basic Log WELL: 3H-14 501032009200 .,,L,I.,, ~,,.. ,',,~," --' ' 36-05 o Arco Alaska, Inc. Kuparuk River Unit Basic Log WELL: 3G-05 501032013200 a..,. .,r.,,,~,~,, ~,,,, K 2 MILE~ ~ 2T-51 Arco Alaska, Inc. Kuparuk River Unit Basic Log WELL: 2T-31 501032022600 K 2MIL~8 2T- 2 01 o Arco Alaska, Inc. Kuparuk River Unit Basic Log WELL: 2T-201 501032023000 ,~,~,~m,, ,~,~ ~, ~,, . ,.,,1.,, ,, ~,, ,,.,,~, ,_,., 2X-10 o Arco Alaska, Inc. Kuparuk River Unit Basic Log WELL: 2X-10 500292113700 . ,.~,1, ,i,., K 2U1~$ ~ 2D-13 Arco Alaska, Inc. Kuparuk River Unit Basic Log WELL: 2D-13 500292107000 , ,~,~,., m,,, ,,,.J-,,,-,, ., r,,,,.,.,, ~,,, ,x,,. ~,,,~., .,~.~,.. ,,,,.~ C ..... 8(3 etabasco pool a diachronous cant d thin sends 'rO~nL '".,.,. omo 9 , {. dstone,/ Cross section A- shows the occuronce of the Tabasco Poe be ow the K- 10 unconformity end tine of the "omo 9created facies stocked thin sandstone Marl< R. Longden 8//98 end C 2 ~ }-C l 0 k,] Structure contour map of the C- 80 morker showing interpreted shelf margin in the the Tabasco PooiArea, and ocation of Stratigraphic Cross section A- A' C.I.= 100' EXHIBIT # 4 STRUCTURE MAP TOP TABASCO (C-SO} ARCO ALASKA, INC. Tabasco Pool Rules Testimony Exhibit 5 Crude Composition Assay Tabasco 2T-201 Well Component Name Composition of Stock Tank Liquid (by Capillary Chromatography) Methane 0.OO 0.00 02997 16.O43 Ethane 0.OO 0.00 0~5_r-,8_ 30.07 Pm~ne 0.OO 0.OO 0.~_q~6_5 44.097 bo-Butane 0.00 0.00 0.5623 58.123 rkButene 0.OO O.OO 0.5834 58.123 ts~Pentane 0.19 0.04 0.6241 72.15 n-Pentene 0.14 0.1)3 0.6305 72.15 Hexanes 026 0.06 0.6~___ 88.t77 n-Hexane 0.08 0.02 0.6632 86.177 Methytcymopentane 0.05 0.01 0.7529 84.162 Benzene 0.03 0.01 0.8836 78.t14 Cyclohexane 0.10 0.92 0.7826 84.162 Heptenes 0.20 0.05 0.6875 100204 Methytcyclohe~me 0.08 0.02 0.7732 98.189 Toluene 0.05 0.01 0.8710 92.141 Octanes 0.51 0.15 0.7063 114.231 Ethyll~enzene 0.OO 0.02 0.8708 106.168 Meta & Para Xytenes 0.1)3 0.01 0.8664 106.1 58 ortho-Xylene 0.04 0.01 0.8838 106.168 Nonanes 0.76 026 0.7212 128.258 is~Propytbenzene 0.02 0.01 0.8656 120.195 rkPropytbenzene 0.10 0.03 0.8656 120.195 1,2,4-Tdmethytbenze 0.09 0.03 0.8798 1202 Decenes 1.54 0.54 0.7780 134 Undecanes 2.47 0.95 0.7890 147 Dodecanes 327 1.38 0.8000 161 Tddecanes 4.43 2.03 0.8110 175 Tetradecanes 4.30 2.14 0.8220 190 Pentadecanes 4.56 2.46 0.8320 206 Hexaclecanes 4.90 2.85 0.8390 222 Heptaclecanes 3.81 2.36 0.8470 237 Octadecanes 4.42 2.90 0.8520 251 Nonadecanes 3.71 2.55 0.8570 263 Eicosanes 3.84 2.76 0.8620 275 Heneicosanes 3.38 2.57 0.8670 291 O _ __~,_ _nes 3.36 Z68 0.8720 305 Tricosenes 2.46 2.05 0.8770 318 Tetracosanes 2.55 2.21 0.8810 331 Penta_ _c~.~__nes 2.28 2.06 0.8850 345 Hexacosanes 2.18 2.05 0.8890 359 Heptacosanes 1.65 1.62 0.8930 374 Octacosanes 2.01 2.04 0.8960 388 Nonacosanes 2.15 2.26 0.8990 402 Tdacontanes 1.56 1.72 0.9020 416 Hentriacontanes 1.43 1.61 0.9060 430 Dotriacontanes 1.13 1.31 0.__~Jg0__444 Tritriacontanes 1.51 1.81 0.9120 458 Tetmtriacontanes 1.37 1.69 0.9~40 472 Pentatriacontanes 1.12 1.42 0.9170 486 Hexatriacontanes plu 25.80 47.19 1.0895 699 Totals 100.00 100.03 Total Sample Properties Molecular Weight ............................................. Theoretical Liquid Dens~, grrVscc .................. 382. OO 0.9571 Plus F~ Hexanes ~ 99.67 99.93 Heptanes plus 99.15 99.81 Decanes plus 9721 99.21 pen~=anes plus 81.20 92.17 E'__,c~,~__rtes I~S 59.80 79.05 P~nes plus 44.21 66.78 Triacontanes plus 33.94 56.75 Pentatriacontanes plus 26.92 48.61 0.9574 383 0.9578 385 0.9595 39O 0.9736 434 0.9988 5O5 1.0264 577 1.0544 639 1.0835 69O 16" Conductor @ 80' J Weatherford Gemoco 9-5~8" DV Stage Collar Stnd. Grade BTC Threads or 9-5/8" TAM Port Collar, BTC 4-1/2" LaSalle Clamps 3-1/2" LaSalle Clamps ESP power cable splice above Y-block 2 jts, 3-1/2" 9.3# L-80 EUE8RD tubing Centrifilt Series 562 ESP assembly w/power cable, 5.62" OD 9-5/8" Surface Casing 40.0# L-80 BTCM Tabasco Pool Rules TestimoI,, Exhibit 6 Producer Completion II11 FMC Tabasco Producer horizontal wellhead/hanger system w/125 amp penetrators Heat Trace, Raychem, 3000' 4-1/2" 12.6# L-80 BTCM tubing to surface XO sub, L-80 4-1/2" BTCM x 3-1/2" BTCM Baker Sentry gauge, 3-1/2", w/I-wire 3 its, 3-1/2" 9.3# L-80 BTCM tubing 3.865" Special Clearance couplings 3-1/2" x 8' Landing pup, 9.3#, L-80, BTCM 3.865" Special Clearance couplings 3-1/2" Trico Y-Block, 3-1/2" EUE8RD, 3-1/2" BTCM on uphole end XO sub, L-80 3-1/2" EUE8RD x 2-7~8" Hydrill 511 flush jr, Trico 2-7/8" Trico 'X' landing nipple w/2.312" No-Go profile, Hydrill 511 2-7/8" 6.5# L-80 Hydrill 511 flush jt tubing to bottom of ESP assembly ** 0.184" planned clearance as per Centrilift ~ (drift) - (ESP OD) - (I tube ID) = 8.679". 5.62" - 2.875" 2-7/8" Wireline Entry Guide, Hydrill 511 Gravel Pack Assembly (run on drillpipe) -- Baker SC-1 Gravel Pack packer, 9-5/8" -- 4 jts, Baker 4" blank tubing, Hunting Seal Lock threads -- Baker ceramic flapper valve -- Baker 4" Gravel Pack screen, Hunting Seal Lock 20 gauge (0.02") screen 12-20 US mesh gravel pack sand TAB, 07/16/98, v.3 16" Conductor @ 80' Weatherford Gemoco 5-1/2" DV Stage Collar Stnd. Grade BTC Threads or 5-1/2" TAM Port Collar, BTC 7-5/8" Surface Casing 29.7# L-80 BTCM Production Csg. 5-1/2" 15.5# L-80 BTCM run XO/SBE to surface XO set +/-100' above top perf Production Csg. 3-1/2" 9.3# L-80 EUE 8RD-Mod run TD to XO/SBE tabasco Pool Rules Testimort'. Exhibit 7 Injector Completion 3-1/2" FMC GEN IV tubing hanger 3-1/2" EUE 8RD-Mod pin down F. 3-1/2" L-80 9.3# EUE 8RD-Mod tubing to surface E. 3-1/2" x 1" Camco 'KBG-2-9' mandrel w/DV & latch, 3-1/2" x 15' pups installed above & below, BTCM pin x EUE 8RD-Mod box Special Clearance Coupling D. 1 jt 3-1/2" L-80 9.3# EUE 8RD-Mod tubing C. 3-1/2" Camco 'DS' landing nipple w/2.812" No-Go profile. 3-1/2" x 6' L-80 pups installed above and below. EUE 8RD-Mod B. 1 jt 3-1/2" L-80 9.3# EUE 8RD-Mod tubing A. Baker 3-1/2" 'GBH-22' Locator Seal Assembly w/12' of seals & Iocator 3-1/2" x 6' handling pup installed on top. EUE 8RD-Mod box up Baker XO Coupling w/Iocator shoulder, BTC x SBE Baker 5" OD x 4" ID Seal Bore Extension Baker XO, SBE x 3-1/2" EUE 8RD TAB, 6/11/98, v.2 ARCO Alaska, Inc. Kuparuk Development Post Office Bc,v, 100360 700 G Street Anchorage, Alaska 99510 Telephone 907 265-6268 DI Jack Walker, Tabasco Coordinator July 17, 1998 Mr. Kenneth A. Boyd, Director Department of Natural Resources Division of Oil and Gas 3601 C Street, Suite 1380 Anchorage, AK 99503-5948 Re: Application to Form the Tabasco Participating Area within the Kuparuk River Unit Dear Director Boyd: Pursuant to provisions of 11 AAC 83.351 and Section 6.3 of the Kuparuk River Unit Agreement, ARCO Alaska, Inc. (ARCO), for itself and the other Tabasco working interest owners, applies to the Department of Natural Resources to approve the formation of the Tabasco Participating Area (PA) within the existing boundaries of the Kuparuk River Unit (KRU) with ARCO as operator. Tabasco development is planned in the proposed Tabasco PA in late 1998 and 1999. The Tabasco Pilot Waterflood Tract Operation and other geologic and engineering data has provided sufficient information to form the Tabasco PA. ARCO respectfully submits that formation of the Tabasco PA meets the criteria of 11 AAC 83.303 because it will: 1) promote conservation of oil or gas by providing an efficient, integrated approach to development of the Tabasco reservoir while reducing the environmental impact of that production by using existing production facilities; 2) promote the prevention of economic and physical waste by setting forth a development plan that allows maximization of physical and economic recovery as well as efficient use of existing facilities; and 3) provide for the protection of the interests of all parties including the State of Alaska. This proposed Tabasco PA includes areas that are reasonably known to be capable of contributing to oil production in paying quantities. ARCO estimates ultimate recovery from Tabasco will be 20 to 30 million barrels of oil (gross). Results of planned evaluations and tests outside the proposed Tabasco PA may lead to an application to expand the Tabasco PA. In accordance with the applicable Alignment Agreements previously filed with the Division of Oil and Gas, ARCO, BP Exploration (Alaska), UNOCAL, Mobil, and Chevron are the only working interest owners of the tracts proposed for the Tabasco PA. The lease assignments implementing the alignment will be filed with the Division before the end of 1998. All leases in the proposed PA are subject to a 12.5% royalty. ARCO Alaska, Inc. is a Subsidiary of AtlanticRichfieldCompany ORIGINAL Mr. Kenneth A. Boyd, Director July 17, 1998 Page 2 The Tabsco PA will be subject to the Kuparuk River Unit Operating Agreement ("KRUOA") which is on file with thc Division. In addition, the aligned owners of the Greater Kuparuk Area have adopted Special Supplemental Provisions for Satellite Operations ("Special Supplement Provisions") in accordance with the KRUOA and the Alignment Agreements to govern operations associated with new satellite activities. A copy of the Special Supplemental Provisions is on file with the Division. The Tabasco Working Interest Owners have adopted the Special Supplemental Provisions for Tabasco operations. See Attachment 11. The following attachments are provided to support this application to form the Tabasco PA: 1. Tabasco 2. Tabasco 3. Tabasco 4. Tabasco 5. Tabasco 6. Tabasco 7. Tabasco 8. Tabasco 9. Kuparuk 10. 11. Participating Area Map with Existing KRU Boundary Participating Area and Reservoir Outline Map Reservoir Geologic Description Sandstone Type Log Plan of Development and Operations Development Wells Map Participating Area Leases Tract Participation Decimals and Production Allocation Satellite Well Test Allocation Methodology Tabasco Participation and Voting Interests Tabasco Special Supplemental Provisions to Unit Operating Agreement for Satellite Operations We are sending confidential technical information under a separate cover to satisfy the requests of Division of Oil and Gas technical staff for the following information: Representative seismic lines Corresponding log cross sections Oil pore volume map with planned development wells Top and base structure maps were provided at our meeting of July 8, 1998. Enclosed are an original and five copies of the complete application. The application does not contain any confidential information. We appreciate the Division's work on this application and we would be happy to answer any questions. I can be reached at 265- 6268 or jawalker@maii.arco.com via the internet. Sincerely, ck Walker Tabasco Coordinator Application to Forn( ..~e Tabasco Participating Area witl , ae Kuparuk River Unit Attachment 1 TABASCO PARTICIPATING AREA MAP WITH EXISTING KRU BOUNDARY Scale: N.T.S. Note: Pre-Alignment Agreement lease ownerships are posted. 7-13-98 - ~]-e ARCO o, 98062313C01 Alaska, Inc. TABASCO PARTICIPATING AREA _, _E_xistir~g, _ ~/ , Kupa[uk._~.~t'~_ _. Application to For', ...e Tabasco Participating Area ,,le Kuparuk River Unit Attachment 2 TABASCO PARTICIPATING AREA AND RESERVOIR OUTLINE Scale: 1" = 4,000' ~ 0fqOCAL 25 ALK2660 ~DL025546 7-13-98 UNOCAL 24 ~61 7547 98062313C01 ARCO Alaska, Inc. AAI, BPX .9 gO I, BPX, UNOCAL AAI, BPX,~UI ;~PX TABASCO PARTICIPATING 2,6 AREA ~5 30 30 BPX, I TABAsCO 3,~ OUTLINE OF SANDSTONE 3i 3 2T-201 2T UNOCAL 2T..St #11 2U-TA~-01 ADL02~ 10 L025568 UNOCAL i571 ALK21 ADL02~ AAI, BPX, ADL025570 MINE ISFJJ · ALK2575 ADL02." AAI, 18 8 DS-2V Application to Form the Tabasco Participating Area within the Kuparuk River Unit Attachment 3 TABASCO RESERVOIR GEOLOGIC DESCRIPTION The vertical definition of the Tabasco Participating Area is requested as the interval encountered in the 2T-201 well between the depths of 3352' and 3599' MD, and its lateral equivalents. The top Tabasco occurs at an approximate depth of -2900' to - 3000' sstvd in well penetrations in the KRU Drill Site 2T. It attains a gross thickness of 244 feet true stratigraphic thickness (TST) in the 2T-201 well and ranges from 0' - 397' in wells of the KRU Drill Site 2T area. The Tabasco Sandstone is an informal member of the Schrader Bluff Formation, which is a part of the Late Cretaceous Colville Group. The Tabasco Sandstone is Campanian in age. It occurs stratigraphically below the regionally correlatable C-80 log/seismic marker which is approximately coincident with the regional K-10 sequence boundary. It is stratigraphically separated from the overlying West Sak Formation by an interval of inter-bedded claystone, shale and mudstone (Attachment 4). The current known distribution of hydrocarbon-productive reservoir is outlined on Attachment 2. The Tabasco interval is bounded at the top by a regional unconformity .The .unconformity is approximately coincident with the correlatable log marker (C-80) which is the associated maximum flooding surface. The base of the sandstone appears to be locally unconformable, with a sharp basal contact in some wells as in the 2T-201 well. Elsewhere the contact is gradationai and displays a coarsening-upward log motif. The sand body is not regionally correlatable due to statigraphic pinchout and/or truncation by the overlying unconformity. The unit is wholly contained within the Campanian sequence which is bounded by regional unconformities associated with log markers C- 80(K-10) and C-50 (K-5). The trapping mechanism of the Tabasco is a combination of stratigraphic and structural elements. Stratigraphic pinchout or erosion is interpreted to occur to the south, east, and west. East-northeast structural dip may influence oil distribution to the northeast but no well penetrations are present to confirm this and no oil-water contact is currently known. Faults may have influenced sediment thickness as well as where reservoir rock has been preserved from later erosion. It is not known if faults currently act as seals or conduits to fluid movement. Oil distribution is controlled by the (stratigraphic) distribution of reservoir sands. Tabasco is comprised predominately of sandstone, pebbly-sandstone, and sandy conglomerate in approximately equal proportions. Open-framework conglomerate and mudstone are less abundant but important constituents. Framework grains in the 2%12 samples consist predominately of quartz and chert, with less common volcanic and sedimentary lithic grains, and rare plagioclase feldspar. Matrix is comprised of silt, clay, and volcanic tuff. XRD of 20 samples from the 2T-202 indicate clays are locally abundant, ranging from 3 - 21% and consist predominately of illite or an illite/smectite mix. Chlorite and kaolinite are only locally common. Samples are generally poody to non-cemented. Cement, where present, occurs as discreet carbonate-cemented beds .5 - 2 feet thick, or as widely disseminated zeolites. Reservoir quality appears to be controlled largely by mean grain-size, sorting, and clay content, with the best reservoir being the well-sorted open-framework conglomerates. July 17, 1998 Application to Form the Tabasco Participating Area within the Kuparuk River Unit Attachment 3, p. 2 TABASCO RESERVOIR GEOLOGIC DESCRIPTION Sandstone is mostly fine grain and well sorted, and occurs most frequently in the lower part of the section. Medium grain, moderately sorted sandstone is less abundant and occurs in the upper part of the unit. Pebbly sandstone is generally bimodal, comprised of a moderate- to well-sorted fine- to medium- grain sand fraction with less than 50% well-sorted granules to fine pebbles. Sandy conglomerate is comprised predominately of granules to fine pebbles (>50%) and fine- to coarse-grain sand matrix. Open framework conglomerate is less abundant, and consists mostly of well-sorted granule to medium pebbles with little or no sand matrix. Pebbles to 3.5 cm occur locally. An overall coarsening-upward trend is observed in samples and inferred from log character. Porosity in the reservoir intervals is interpreted to range 17%-22% and average 20%. Water saturation is calculated to range 17%- 60%. Permeability interpretation is based on pressure transient analyses of the 2T-201 and 2T-202 well tests, which yielded results of 3.6 Darcies and 100 Darcies average permeability, respectively. July 17, 1998 Tabasco Sandstone Type Log ARCO Alaska Inc., 2T-201 ,1 i i · O ~_. RA MWD. $_0 DT DAS S 0 ~ ~ '~ :,t' RP MWD S 0 NPHIS M'.VD S 0 ~ E E ~o .... - O ~ ;[,. ....... ~v- ......... ~,. SS~ ~,~_,~., 2~ ~ ~ O ~ GR DA5 S 0 Il', RHOB_M~_S_0 . . , ~ ~ -. ~ ~ '. ~'-' Base WestSak ~ 2~ Claystone, shale, and mudstone ~ o~* ~ lop Tabasco O ~ ~ ' ~ Conglomerate, ~n-v. coarse ~ IL n~ as~ ~ ~~_ sandstone, and mudstone ~ ~ ~ ' ..~ ~ ~.. Base Tabasco ~'~ ' .:. --.. ....' -.2- - .. . . -..'.~-. > ~ ~ :. Claystone, shale, and mudstone O- . Application to Form the Tabasco Participating Area within the Kuparuk River Unit Attachment 5 TABASCO PLAN OF DEVELOPMENT AND OPERATIONS Development operations are underway that will support Tabasco long-term production. Tabasco will be developed as a satellite reservoir to the Kuparuk River Unit (KRU) using Kuparuk processing facilities, operating personnel and other Kuparuk services and infrastructure under the terms of the Kuparuk Satellite Facility Sharing Ballot. Tabasco produced fluids will be commingled with production from other Greater Kuparuk Area reservoirs. Production will be allocated to the Tabasco Participating Area based upon well tests in accordance with applicable rules and regulations. Tabasco Phase 1 development will take place at existing KRU Drill Site 2T. Development drilling is planned with five wells late 1998, five wells in 1999, and remaining wells in 2000. Approximately one-third of the wells will be injectors. Average well spacing is planned at 50 acres. Electric submersible pumps will be used for artificial lift in the producers. Tabasco will be initially developed as a waterflood. Water from the Kuparuk system will be injected for pressure maintenance and to maximize oil rate and reserves. A polymer flood enhanced oil recovery project is being evaluated and planned. Tabasco Phase I development involves use of existing KRU Drill Site 2T. Well test facilities, production/test manifolds, injection manifold, and production heater will be added at Drill Site 2T for Tabasco wells. Gravel was added to the existing pad to accommodate construction of Tabasco facilities and wells. Existing roads will be used to support Tabasco development and operations. Existing cross-country pipelines serving Drill Site 2T will be used for Tabasco production. Expanding the production pipeline and water injection pipeline may be installed to accommodate the combined production from Tabasco and Kuparuk. Electrical power will be delivered from KRU Central Production Facility-2 to' Drill Site 2T over existing power lines which have been upgraded from 13.8 kV to 34.5 kV along with requisite transformers and switch gear retrofits at other KRU drill sites between Drill Site 2T and CPF-2. July 17, 1998 (lalO~T-37 ~2T-16 e2T-17 r~ e2U-05 I 6 e2U-TAB-01 e2~J- 12 e2U-IO · · ~2U-08 IAnC0 Atlachmsnt ~6 Tabasco D~velapment Wells ..... ~-~ ...... L _._~__L_J_ ~._L_.~ Application to Form the Tabasco Participating Area within the Kuparuk River Unit Attachment 7 TABASCO PARTICIPATING AREA LEASES Agreed Leasehold Working Interests ,, Tr. No. Lease Exp. Legal Description Leas Lessor Royalty AK Net Profit ARCO BPX UNOCAL MOBIL CHEVRON No. Date e Share Acre S 29 ADL 03/26/80 T12N, R08E, UM: Sec. 35: 2,56 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% 025548 SE 1/4; Sec. 36: All. 0 44 ADL 03/26/80 TllN, R08E, UM: Sec. 1' All; 2,56 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% 025569 Sec. 2: All; Sec. 11: N 1/2; 0 Sec. 12: NW 1/4. 30 ADL 03/26/80 T12N, R09E, UM: Sec. 31' W 2,45 12.50% 0.00% 55.293767% 39.282233% 4.950600% '0.364800% 0.108600% 025643 1/2. 9 43 ADL 03~26~80 T11N, R09E, UM: Sec. 06: 2,46 12.50% 0.00% 55.293767% 39.282233% i4.950600% 0.364800% 0.108600% 025644 NW 1/4. 9 , Attachment 8 TABASCO TRACT PARTICIPATION AND PRODUCTION ALLOCATION Agreed Leasei3old Working Interests Area Lecjai Description Lease ARCO BPX UNOCAL MOBIL CHEVRON Inside 0' Tract Acres Contour Participa- (Acres) tion T12N, R08E, UM: Sec. 35: 2,560 55.293767% 39.28223% 4.9506%1 0.3648% 0.1086% 237 0.2176 SE 1/4; Sec. 36: All. T11N, R08E, UM: Sec. 1' 2,560 55.293767%'39.282230% 4.950600% 0.364800%1 0.108600% 782 0.7181 All; Sec. 2: All; Sec. 11: N 1/2; Sec. 12: NW 1/4. T12N, R09E, UM: Sec. 31' 2,459 55.293767% 39.282230% 4.950600% 0.364800% 0.108600% 68 0.0624 W 1/2. TllN, R09E, UM: Sec. 06: 2,469 55.293767% 39.282230% 4.950600% 0.364800% 0.108600% 2 0.0018 NW 1/4. The development of the Tabasco resource is made possible through the sharing of the existing KRU infrastructure. Tabasco production will be commingled with production from the Kuparuk Participating Area (KPA), and other reservoirs in the KRU production gathering system, prior to any stream passing through a custody transfer meter. Production will be allocated to Tabasco and other Greater Kuparuk Area producing reservoirs based upon well testing. Through the pool rule application, ARCO will propose that initially, a fixed allocation factor of 1.0 be assigned to the Tabasco well test volumes. An allocation factor of 1.0 was determined as appropriate for the West Sak PA in the West Sak Pool Rules, and ARCO proposes that similar logic should apply to the Tarn PA. Attachment 9 shows the methodology proposed to determine the Kuparuk PA allocation factors assuming the Tabasco, West Sak and Tarn allocation factors are set to 1.0. ARCO intends to conduct and report an average of two well tests per month per producing well to use in allocating production to the Tabasco PA. In addition to the allocation to the participating area, production will also be allocated to the well level using the individual well's test data. ARCO proposes that production will be allocated to the lease tracts on the basis of surface acreage inside the zero foot contour on the net pay map Attachment 2 depicts the tracts proposed in the initial Tabasco PA along with the zero foot contour used to determine the tract allocation percentages. ARCO will work with the DNR and other State agencies to conform the desired formats for the monthly reporting of production and injection information as well as other required surveillance data. Attachment 9 KUPARUK -SATELLITE WELL TEST ALLOCATION METHODOLOGY General Allocation Factor = Actual Produced Volume Theoretical Volume Tabasco Allocation Factor = 1.0 (Applicable to oil, gas and water test rates) Kuparuk Oil Factor = CT Dry Vol. + KRUTP Net Dry Vol. - KRUTP SO tank - 7: Kuparuk NGL's - 7'. Load Crude/Diesel- [: Satellite Well Test Oil Vol. 7'. Kuparuk Well Test Oil Vol. Kuparuk Water Factor = T. Injected Water Vol. - T. Satellite Well Test Water Vol. T~ Kuparuk Well Test Water Vol. Kuparuk Gas Factor = 7~ Injected Gas Vol. + 7~ Kuparuk NGL's + T. Fuel + 7'. Flare- ~ Satellite Well Test Gas Vol. T_, Kuparuk Well Test Formation Gas Vol. Notes: 1) Satellite well tests include Tabasco, West Sak, and Tarn. 2) Kuparuk well test rates are multiplied by the above factors to obtain allocated rates. Attachment 113 TABASCO PARTICIPATION AND VOTING INTERESTS I Tabasco Participation Interests ARCO Alaska, inc. ,,, BP Exploration (Alaska)Inc. Unocal Mobil Chevron Total 55.293767% 39.282233% 4.95O6OO% 0.364800% 0.108600% 100.000000% Tabasco Voting Interests ARCO Alaska, Inc. "BP Exploration (Alaska) Inc. Unocal Mobil Chevron Total 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% 100.000000% 7/14/98 GKA Ballot No. 269 BALLOT ADOPTING SPECIAL SUPPLEMENTAL PROVISIONS FOR TABASCO DEVELOPMENT SATELLITE AND AUTHORIZING FORMATION OF THE TABASCO PARTICIPATING AREA A. RECITALS, 1. In accordance with Article 18 of the Kuparuk River Unit Operating Agreement, the Working Interest Owners of the Kuparuk River Unit have adopted "Special, Supplemental Provisions to Unit Operating Agreement for Satellite Operations" effective March 1, 1997 ("Satellite Provisions"). 2. Section 50.01 of the Satellite Provisions provides that the Satellite Provisions shall become applicable to an individual Development Satellite.upon a 95% vote of the Voting Interests for that Development Satellite. 3. The Working Interest Owners of the Tracts set forth on the attached Exhibit Tabasco - C (hereinafter "Tabasco Owners") desire to make the Satellite Provisions applicable to a Development Satellite which shall be known as the Tabasco Development Satellite. 4. The Tabasco Owners desire to adopt the attached Exhibits Tabasco- A through Tabasco - G as Exhibits to the Satellite Provisions applicable to the Tabasco Development Satellite. 5. In order to promote conservation, prevent waste and protect all parties of interest, the Tabasco Owners desire to form a Tabasco Participating Area which shall include the Tabasco Reservoir as described in the attached Exhibit Tabasco - B and which shall include the leases described in the attached Exhibit Tabasco - D. B. AGREEMENT. 1. The geographic boundary of the Tabasco Development Satellite Area is depicted on the attached Exhibit Tabasco - A. The stratigraphic boundary of the Tabasco Development Satellite Area is the Reservoir description set forth on the attached Exhibit Tabasco - B. A description of the Tracts included in the GKA Ballot No. 269 - 1 - ATTACHMENT 11 Application to Form the Tabasco Participating Area within the Kuparuk River Unit Tabasco Development Satellite Area, and the ownership thereof, is set forth in Exhibit Tabasco - C. 2. The Tabasco Owners hereby adopt the Satellite Provisions and agree that said Satellite Provisions shall apply separately snd individually to the Tabasco Development Satellite. 3. The Tabasco Owners agree and hereby adopt the attached Exhibits Tabasco - A through Tabasco - G for the Tabasco Development Satellite. 4. The Tabasco Owners approve formation of a Tabasco Participating Area which shall include the Tracts and Tract Participation decimals set forth in the attached Exhibit Tabasco - D. 5. In accordance with Section 63.03 of the Satellite Provisions, the Development Satellite Effective Date for the Tabasco Development Satellite shall be March 1, 1997. 6. In the event of a conflict between provisions of the Satellite Provisions and provisions of one or more of the Alignment Agreements (excluding exhibits), the provisions of the applicable Alignment Agreement (excluding exhibits) shall prevail as betwee~'~ the parties to that Alignment Agreement (excluding exhibits). 7. ARCO, as Operator of the Kuparuk River Unit and the Tabasco Development Satellite, is authorized to file with the Commissioner of the Department of Natural Resources an application for the formation of a Tabasco Participating Area to include the leases specified in paragraph 4 above. 8. Adoption of the Satellite Provisions for the Tabasco Development Satellite and adoption of the attached Exhibits Tabasco - A through Tabasco - G for the Tabasco Development Satellite are approved upon execution of this Ballot by 95% of the Tabasco Owners in accordance with Section 50.01 of the Satellite Provisions. 9. Formation of the Tabasco Participating Area hereunder is approved upon execution of this Ballot by 95% of the Tabasco Owners in accordance with Section 18.06 of the Kuparuk River Unit Operating Agreement. 10. Unless otherwise specified, all capitalized words herein shall have the same meaning as given them in the Satellite Provisions or the Kuparuk River Unit Operating Agreement. 11. This Ballot may be executed in one or more counterparts having the same effect as if all the parties had executed the same. GKA Ballot No. 269 - 2 - IN WITNESS WHEREOF, the parties hereto have executed this Ballot on the dates beside their respective signatures. ARCO ALASKA, INC. Title: .~'~ /,//b ~ Date: BP EXPLORA'TION (ALASKA)INC. By: Date: Title: CHEVRON U.S.A. INC. By: Title: Date: MOBIL OIL CORPORATION By: Title: Date: UNION OIL COMPANY OF CALIFORNIA By: Title: Date: GKA Ballot No. 269 - 3 - JUL. -17' 98 (FRI ) 09'~4 i' il P. 002 IN WITNESS WHEREOF, the parties hereto have executed this Ballot on the dates beside their respective signatures. ARCO ALASKA, INC. Title: INC. Date: Date: CHEVRON U.S.A. INC. By: Date: 'rifle: MOBIL OIL CORPORATION By: __ __ _ Date: Title: UNION OIL COMPANY OF CALIFORNIA By; Date: T'rUe: ~ost-it® Fax Note 767...___.~1 ~ :ax ~ :ax~ ~ ~ GKA Ballot No. 269 -3- Exhibit "Tabasco - A" Tabasco Development Satellite Area Scale: N.T.S. 7-13--98 98062313A01 "----' ~--- i m- L_. ~ -'~ ~ ~'~...~1~-~. ~],,e ro~¢ ARCO Alaska, Inc. N0ie:Pre-Alignment Agreement ~.,--..-- ..--. "'-'"'"""~"- , , leaseownerships are posted. ~'~ ""'"~"""2° '~'~'"'-2 L~ ~ ' ' ~ ~ ' "'- ~-,~ ~a ~ ~ ~ ~ IlL I , ~. , q ', '+ .-, ~ %.+',, ' ~ '' ~ ~' ' ~ ' ' ', ~ ~N~x .~ ' .~ ~ ~ :' ~ ' "" ' ' ' · - · - " ~ ~ ~ 4 ~ ~ ' I ,, X, ',, ' "' ,, .' .< ~. ~; · - i[,~. .-x~ s.*~-~-, '~'- ,~ .-. .,~7_ -- ..... .. ,,-~'.' ,,' .... ~ ~~ ' ' :~~~~}; Tabasco Development ~ I~ ':?,~-,,.'~' ~ - ~ - ~ .. .. ,.._,, ~ . ~.~ ~ ~T~,,,~ ~r~ .-- ~L%':,,:..,'?~T.'..?4~ ~,,,~ ~ ~~,"~ ~-- , , -- ' , . + ~ ,-,.>~ ~~ ~ ~~:'..t,z~4'~X~,>~,~'~. ,~,,;~,,,,~' --. ,,. ....... _ .......... ., .~ ................. __ -~__ ~ I~~ x,,,'~,..~'~,.',,;~,,,,,~~~,.,, ,, .. . ~S%~x~, ~,-_~ ,,>~ ;~q , .. , , ~ ,,.,~ ,~ ~, ., .,~ . . ..... :,,, ~ ....... ~--~ ~~~~~~~~~~,}~~~~~<~~~" ' ",'<~ ' ~b" x'..~ ,,,~' 'Q,. . ~' X , ~ ~. ... , '~ ~ ,, ,~ , _ ,,, _.~.. ~___. .... ~ '--~ · ~ " ..... '"'"' .... :¢ , ,x ', ..... ,,.,x,-,.,, , x. x ',' , ~ ,,,', ~>X'.,:,._ >... ~ ..,...~. ~;:/~ ,..__:.... ,., ,: . : ,-. ~_ - ,.. , '-" ~"'~" '~ ..... ~pa[[uk -U~f''-~ -'' - 7/14/98 Exhibit Tabasco-B1 TABASCO RESERVOIR STP, ATIGRAPHIC DESCRIPTION The Tabasco Sandstone is the sequence of hydrocarbon-bearing sandstone and conglomerate encountered in the ARCO Alaska, Inc. 2T-201 between the depths of 3352 and 3599 feet measured depth. The Tabasco Sandstone is an informal member of the Schrader Bluff Formation which is a part of the Late Cretaceous Colviile Group. The Tabasco Sandstone is Campanian in age and occurs stratigraphicaily below the C-80 log / seismic marker which is approximately coincident with the regional K-10 sequence boundary. It is stratigraphically separated from the overlying West Sak Formation by an interval of inter-bedded claystone, shale and mudstone (attachment #1). The Tabasco Sandstone has been proven capable of producing hydrocarbons in paying quantities as evidenced by production tests in the AAI 2T-201 and 2T-202 wells. Tabasco Sandstone Type Log ARCO Alaska Inc.', 2T-201 Il Il I I I I , Il I, I O ~_ _RA MWD S 0 ~T c,A$ $ o ~ ~ -.~ rig~ MWD S 0 NPHI5 MWD S 0 .,~'~ ~' I~ ~ .... ~ - ' ~' , ,," ' ~ '.j ~- ' ~~ W~t~k ' ~ _ ~" . .~ , . I -- ' = 31~ 27~ ~~~. Claystone, shale, and mudstone ~ 32~ - 'J~ ~33~ . ~ 0 ~ ~. Conglomerate, In- v. coarse 0 ,J_ ~~ a.~ .~ ~[ sandstone, andmudstone ~ ~'t~ r- ",,' Base Tabajco ,, ~ ~ --- 36~~ . I J I - ,. ~ 37 . 0 38~ ' ~' ' : : ~ "':"'; ·.j · . ~ · ~ : '- . , ~:'.. Exhibit"Tabasco B-2" i i ii i ii i i - T ....... Exhibit Tabasco-C Tabasco Development Satellite Area Leases Alaska Net Agreed Leasehold Working Interests i i Lease Lessor Profit Tr. No. Lease No. Exp. Date Legal Descrlr~fion Acres Royalty Share ARCO BPX UNOCAL MOBIL CHEVRON Unit Initial PA 29 ADL025548 03/26/80 T12N, R08E, UM: Sec. 35: SE 1/4; Sec. 2,560 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% Existing Yes 36: All. .., T11N, R08E, UM: Sec. 1:AIl; Sec. 2: All; 2,560 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364§00%' 0.108600%I ExiSting Yes 44 ADL025569 03/26/80 Sec. 11: N 1/2; Sec. 12: NW 1/4. .... 30 ADL025643 03/26/80 T12N, R09E, UM: Sec. 31: W 1/2. 2,459 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% Existing Yes . , 43 ADL025644 03~26~80 T11N, R09E, UM: Sec. 06: NW 1/4. 2,469 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% ExiSting Yes .. Exhibit Tabasco-D1 Tabasco Participating Area and Tract Participation Decimals i , Alaska Net Agreed Leasehold Working Interests Area Inside ' ' Lease Less~r Profit ' " 0' Contour Tract Tr. No. Lease No. Exp. Date ~e_clal Description Acres Royalty Share ARCO BPX UNOCAL I M.O. BIL CHEVRON (Acres) Participation, .. - - i i i i i i ii1 T12N, R08E, UM: Sec. 35: SE 1/4; Sec. 2,560 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% 237 0.2176 29 ADL025548 03/26/80 36:All. .... .. ,. T11N, R08E, UM: Sec. 1: All; Sec. 2: Ail; 2,560 12.50% 0.00% 55.293767% 39.282233% 4.950600% 0.364800% 0.108600% 782 0.7181 44 ADL025569' 03/26/80 Sec. 11: N1/2; Sec. 12:NW1/4. 30 ADL025643 03~26~80 T12N, R09E, UM: Sec. 31: W 1/2. 2,459 12.50% 0.00% 55.293767% 39_282233% 4.950600% 0.364800% 0.108600% 68 0.0624 43 ADL025644 03/26/80 T11N, R09E, UM: Sec. 06: NW 1/4. 2,469 12.50% 0.00% 55.293767% 39_282233% 4.950600% 0.364800% 0.108600% 2 0.0018 il , I I ~ III I~, II Exhibit "Tabasco D-2" Tabasco Development Area and Sandstone Outline Scale: 1" = 4,000' 7-13-98 98062313B01 · AA, I~ UNOCAL AAI, BPX UNOCAL ARCO Alaska, Inc. / ~ 'DS:' ~ BPX AL~660 / ALF2661 '" OUTLINE OF i TABASCO SANDSTONE At ,~663 ~ AL~62~ AD1'025549 ~ ADL0~~ .... ~1, BPX, UN ~ ~.~ ,,.=-."~' ~ "' ~ '~'~ ~,~ ~ -~ 8 A.~6e6 AL~7 % ~ ~ AL~575 ,~- DS-2V ,, A~"°~~-'"A .. ~~x, UNOC ~, ~X, U b AL~58~ _ ~,~ AL~688 ADL0256~5~ ADL025570 Exhibit Tabasco-E PLAN 0.~ DEVELOP.~ENT AND OPERATIONS FOR THE TABASCO DEVELOPMENT SATELLITE 7114/98 Development operations are underway that will support Tabasco long- term production. Tabasco will be developed as a satellite reservoir to the Kuparuk River Unit (KRU) using Kuparuk processing facilities, operating personnel and other Kuparuk services and infrastructure under the terms of the Kuparuk Satellite Facility Sharing Ballot. Tabasco produced fluids will be commingled with production from other Greater Kuparuk Area reservoirs. Production will be allocated to the Tabasco Participating Area based upon well tests in accordance with applicable rules and regulations. Tabasco initial development will take place at existing KRU Drill Site 2T. Development will take place in phases of drilling with five wells planned for late 1998 and five wells planned for 1999. Approximately one-third of the we!!s.will be injectors. Average well spacing is planned at 50 acres. Potential exists for further development wells beyond the 10 wells planned for 1998 and 1999. Tabasco will be initially developed as a waterflood. Development plans include injection of water from the Kuparuk system for pressure maintenance and to maximize oil rate and reserves. A polymer flood enhanced oil recovery project is being planned. Exhibit Tabasco-F TABASCO .PARTICIPATION AND VOTING INTERESTS 7/14/98 Tabasco Participation Interests ARCO Alaska, Inc. 55.293767% BP Exploration (Alaska)Inc. 39.282233% Unocal 4.950600% Mobil 0.364800% Chevron 0.108600% Total 100.000000% Tabasco Voting Interests ARCO Alaska, Inc. 55.293767% BP Exploration (Alaska)Inc. 39.282233% Unocal .... 4.950600% Mobile 0.364800% Chevron 0.108600% Total 100.000000% 7/14198 Exhibit Tabasco-G to Special Supplemental Provisions to Unit Operating Agreement for Satellite Operations, Kuparuk River Unit DEFINITIONS For the purpose of this Exhibit Tabasco-G, the following terms shall have the following rneanings: "Tabasco Operator" means the Development Satellite Operator for the Tabasco Development Satellite. "Tabasco Owners" means the Development Satellite Owners for the Tabasco Development Satellite. "Tabasco Participation" means the Development Satellite Participation for the Tabasco Development Satellite. OVERHEAD As compensation to Tabasco Operator for indirect costs incurred after March 1, 1997, the Owners shall be allocated their Participation share of Offsite Technical Organization Costs in accordance with Section A below. In addition, the Tabasco Owners shall be allocated their Tabasco Participation share of the Indirect Charges calculated in accordance with Section B below. A. Offsite Technical Organization Costs. Tabasco Operator shall charge the Joint Account with the following Offsite Technical Organization Costs: 1. Labor. a, Compensation, including, but not limited to, salaries, wages, and earned or compensatory time-off of Technical Employees (first line supervisors and below only) assigned to the Alaska Office, and performing services for the benefit of the Joint Account shall be charged direct to AFEs and O&M cost centers if supported by approved time sheets. For the purposes of this agreement, employees, except for secretarial employees, working on the operation, maintenance, and development of the Kuparuk Data Gathering System (KDGS) shall be directly charged hereunder. 7/14/98 b. Compensation, including, but not limited to, salades and wages of Technical Employees (first line supervisors and below only) assigned to offices other than the Alaska Office, including Tabasco Operator's corporsto sad a,,,I,at~,~ or subsidiary companies' technical groups, performing services for the benefit of the Joint Account, shall be charged direct to AFEs and ©&M cost centers if supported by approved time sheets. Technical Support shall be specified annually and approved in a technical labor clearing AFl: approved by 88% of the Tabasco Owners. For the purposes of this agreement, Technical Support means support provided by the Piano organizations, excluding research and development activities. This work will be budgeted and charged to appropriate AFEs and cost centers, but shall clear through this AFE for tracking purposes. The AFE for Technical Support shall be submitted by November 15 and approved by December 31 each year for subsequent year activities. For revision purposes, this AFl: shall have a monetary range of +10% and -100%. C. Tabasco Operator's cost of holiday, vacation, sickness, and disability benefits and other customary allowances paid to the employees whose salaries and wages are chargeable to the Joint Account under subparagraphs (a) and (b) hereunder. Such costs under subparagraph (c) may be charged on a "when and as paid basis" or by "percentage assessment" on the amount of salaries and wages chargeable to the Joint Account under subparagraphs (a) and (b) hereunder. If percentage assessment is used, the rate shall be based on the Tabasco Operator's cost experience. d. Expenditures or contributions made pursuant to assessments imposed by governmental authority which are applicable to Tabasco Operator's costs chargeable to the Joint Account under subparagraphs (a), (b), and (c) hereunder. . Employee Benefits. Tabasco Operator's current costs of established plans for employees' group life insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus, and other benefit plans of a like nature, applicable to Tabasco Operator's labor costs chargeable to the Joint Account under Exhibit Tabasco-G to Special Supplemental Provisions for Satellite Operations -8- 7/14/98 Section (A)(1) hereunder shall be Tabasco Operator's actual cost not to exceed twenty-six percent (26%) thereof. This limitation is subject to review and adjustment as agreed to by the Tabasco Owners. , Travel. Personal expenses of those employees whose salaries and wages are chargeable to the Joint Account under Section (A)(1)(a) and (b) and for which expenses the employees are reimbursed under Tabasco Operator'.s usual practice. . Contract Services. The cost of contract services of technical personnel performing services or labor for the benefit of the Joint Account, but not directly engaged on the Joint Property, shall be charged direct. . Drafting Services. The cost of contract services of draftsmen for the benefit of the Joint Account, but not directly engaged on the Joint Property, shall be direct charged. . Technical Department Indirect Expenses. The pro rata share of the cost of operating and maintaining Tabasco Operator's technical departments attributable to Tabasco Operations. This proration will be based on the ratio of Tabasco Area direct hours per Sections (A)(1)(a) and (A)(1)(b) to total direct hours as depicted in Exhibit Tabasco-G(1). Exhibit Tabasco-G(2) sets forth a sample computation of an adjustment to be made annually to the Technical Department Indirect Charges for the Piano technical organizations. Technical Department Indirect Expenses include the following items: a. Compensation, including, but not limited to, the salaries, wages, payroll burden, employee benefits, and reasonable personal expenses of secretarial/clerical employees typically assigned to a Technical Organization. b. Compensation, including, but not limited to, the salaries, wages, payroll burden, employee benefits, and reasonable personal expenses of personnel above first level supervision up to and including Department Heads. For the purposes of this agreement, Department Head shall mean the third level of management below the President of ARCO Alaska, Inc. With respect to the Piano organizations, Department Head shall mean the fourth level of management below the President of ARCO Oil and Gas Company. In the event future reorganizations change the effect of these definitions Exhibit Tabasco-G to Special Supplemental Provisions for Satellite Operations -9- 7114~98 of Department Head, the Parties hereto shall agree upon a new definition to preserve the original intent of the Parties hereto. Co The cost of contract secretarial/clerical personnel performing services or labor for the benefit of the Joint Account, but not directly engaged on the Joint Property. Employee relocation expenses, excluding expenses associated with the closure or relocation of ARC©'s Piano Research and Technical Services office. e. Compensation, including, but not limited to, the salaries, wages, payroll burden, employee benefits, and reasonable personal expenses of Technical Employees (Department Head and below) for technical or specialized training, other than supervisor school(s), related to employees' current jot responsibilities. The incremental costs of technical or specialized training, other than supervisor school(s), related to employees' current job responsibilities for Technical Employees (Department Head and below). g. Compensation, including, but not limited to, the salaries, wages, payroll burden, employee benefits, and reasonable personal expenses of Technical Employees (first line supervisor and below) not charged to the Joint Account under Section (A)(1) hereunder and not charged to any other cost center. h. Departmental communication costs. Technical Department Indirect Expenses do not include the following: i. Departmental supplies. j. Books, periodicals, trade publications, newspapers, etc. k. Professional dues and memberships. Equipment rental, including peripheral computer equipment such as computer terminals, printers, and microcomputers connected to the main frame, but located outside of the main frame computing facility. Exhibit Tabasco-G to Special Supplemental Provisions for Satellite Operations -10- 7/14/98 m. Expenses charged under Section (A)(1)-(5) hereunder. no Building costs, including, but not limited to, operation and maintenance costs, depreciation, and utilities. Oo All main frame computing facility costs. The main frame computing facility consists of the central processing unit(s) of a full-scale computer and other computer hardware located with the CPU's. Main frame facility costs include, but are not limited to, the wages and salaries of main frame computer operators and operating system programmers, licenses for main frame software, hardware maintenance costs, building costs, and equipment rentals. The main frame computing facility does not including peripheral equipment such as computer terminals, printers, and microcomputers connected to the main frame, but located outside of the main frame computing facility. B. Indirect Charges. The Tabasco Operator shall charge the Joint Account for Indirect Charges as follows: 1. !998. As compensation to the Operator for indirect costs incurred in 1998, Operator shall charge a 1998 Annual Support Fee of $176,000. The 1998 Annual Support Fee shall be divided into twelve monthly installments, and each monthly amount shall be added to the Tabasco Owners' monthly statement for the months January through December 1998. 2. Subsequent Years. On or before December 31, 1998, and on or before December 31 of each subsequent year, the Tabasco Owners shall agree by an 88% vote of the Tabasco Voting Interest, upon an Annual Support Fee for the next calendar year. In the event the Tabasco Owners are unable to agree upon an Annual Support Fee by December 31 of a given year, during the following year Operator shall charge the Joint Account in accordance with 3 below. 3. Operator shall charge the Joint Account monthly as follows: a. A charge of one and one-half percent (1-1/2%) of all Major Construction costs, exclusive of salvage credits. Exhibit Tabasco-G to Special Supplemental Provisions for Satellite Operations -11 - 7114/98 b. Three percent (3%) of Operator's expenditures for development costs. Development costs include: i) Drilling, redriiling, or deepening of a well; ii) Preliminary expenditures necessary for drilling such as site preparation, ice roads; iii) Remedial operations requiring a drilling rig; iv) Abandonment costs when a well is not completed as a producer; and v) All other Capital costs associated with Joint Operations except Major Construction. c. Twelve percent (12%) of Operator's expenditures for the operating costs, exclusive of salvage credits. Operating costs include all other costs in connection with Joint Operations not covered in a or b above. 4. Major Construction shall mean a project with an expected cost to compete greater than ten million dollars ($10,000,000) for construction and installation of facilities and/or equipment, expansion of facilities, or repairs and/or replacement. Exhibit Tabasco-G to Special Supplemental Provisions for Satellite Operations -12- EXHIBIT Tabasco-G1 7/14/98 SAMPLE ALLOCATION OF TECHNICAL DEPARTMENT INDIRECTS la Time Sheet Data TECHNICAL EMPLOYEE KPA AFE AND TRACT O&M AND [NDI~CT TOTAL COST CENTER NON-UNIT ACTIVITY HOURS HOURS HOURS HOURS WORKED Employee 1 148.0 18.0 14.0 180.0 Employee 2 160.4 19.8 13.2 193.4 Employee 3 160.0 15.0 175.0 Employee 4 156.0 77.0 233.0 Employee 5 137.5 20.0 18.0 175.5 Manager 200.0 200.0 Secretary 160.0 160.0 761.9 57.8 497.2 1,316.9 A B C D 2. Allocation of Directs For Technical Department Indirect Expenses of $20,000: [Technical Department Indirect Expenses include Technical labor costs associated with indirect activities, non-Technical labor costs (secretaries), non-labor expenses, and Department Head labor costs.] The allocation to the Tabasco Area is (A + (A+B)) x $20,000 or (761.9 + (761.9 + 57.8)) x $20,000 or $18,589.73 The allocation to other cost centers / AFE's is (B + (A+B)) x $20,000 or (57.8 + (761.9 + 57.8)) x $20,000 or $1,410.27 EXHIBIT Tabasco-G2 SAMPLE COMPUTATION OF ANNUAL ADJUSTMENT TO PIANO TECHNICAL DEPARTMENT INDIRECTS Annual Adjustment - Piano Only m Sm 7/14/98 Total Technical Support Organization Cost $5,500,000 (for organizations charging time to Tabasco Area) (excluding support cost element charges, e.g., office supplies) Less: Direct Clearings Technical Department Indirect Costs Technical Department Indirects as a percentage of direct 40.02% Calculation of Piano Indirects A. Plane Direct Charges to Tabasco Area B. Multiplied by 4. Above Gm Annualized Technical Indirect Charges to Tabasco Area Calculation of Adjustment Amount Annualized Technical Indirect Charge Calculation Less: Sum of Monthly Amounts Billed to Tabasco Area Additional Amount due ARCO Alaska or Credit due Tabasco Area $3,928.000 $1,572,000 $ 800,000 40.02% $ 320,163 $ 320,163 $ 300,000 $ 20,163 Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission Re: Kuparuk River Unit - Tabasco Notice is hereby given that ARCO Alaska, Inc. has petitioned the Alaska Oil and Gas Conservation Commission under 20 AAC 25.520 to hold a public hearing to present testimony to establish pool rules for the Tabasco oil accumulation in the western portion of the Kuparuk River Unit. A hearing will be held at the Alaska Oil and Gas Conservation Commission, 3001 Porcupine Drive, Anchorage, Alaska 99501, at 9:00 am on August 12, 1998 in conformance with 20 AAC 25.540. All interested persons and parties are invited to present testimony. If you are a person with a disability who may need a special modification in order to comment or to attend the public hearing, please contact Diana Fleck at 793-1221 no later than August 4, 1998. Chairman Published Jtme 27, 1998 ADN AO02184057 DRI / MCGRAW HILL R3LN-DALL NOTTINGHAM 24 HARTWELL LEXINGTON MA 02173 PIRA ENERGY GROUP LIBR3LRY 3 PARK AVENUE (34TH & PARK) NEW YORK NY 10016 OVERSEAS SHIPHOLDING GRP ECON DEPT 1114 AV OF THE AMERICAS NEW YORK NY 10036 NY PUBLIC LIBR3LRY DIVE GR3%ND CENTR31L STATION P O BOX 2221 NEW YORK NY 10163-2221 ALASKA OFC OF THE GOVERNOR JOHN KATZ STE 518 444 N CAPITOL NW WASHINGTON DC 20001 AMERICAi~ PETR INST STAT SECT JEFF OBERMILLER 1220 L ST NW WASHINGTON DC 20005 OIL DAILY CAMP WALSH 1401 NEW YORK AV NW STE 500 WASHINGTON DC 20005 ARENT FOX KINTNER PLOTKIN KAHN LIBRARY WASHINGTON SQ BLDG 1050 CONNECTICUT AV NW WASHINGTON DC 20036-5339 US MIN MGMT SERV CHIEF OCS STATS & INFO 381 ELDEN ST MS 4022 HERNDON VA 20170-4817 LIBRARY OF CONGRESS STATE DOCUMENT SECTION EXCH & GIFT DIV 10 FIRST ST SE WASHINGTON DC 20540 U S DEPT OF ENERGY PHYLLIS MARTIN MS EI823 1000 INDEPENDENCE SW WASHINGTON DC 20585 TECHSYS CORP BR3~NDY KERNS PO BOX 8485 GATHERSBURG MD 20898 US GEOL SURV LIBRARY NATIONAL CTR MS 950 RESTON VA 22092 SD DEPT OF ENV & NATRL RESOURCES OIL & GAS PROGRAM 2050 W MAIN STE #1 P~APID CITY SD 57702 AMOCO CORP 2002A LIBRARY/INFO CTR P O BOX 87703 CHICAGO IL 60680-0703 ILLINOIS STATE GEOL SURV LIBRARY 469 NATURAL RESOURCES BLDG 615 E PEABODY DR CHAMPAIGN IL 61820 LINDAHALL LIBRARY SERIALS DEPT 5109 CHERRY ST KANSAS CITY MO 64110-2498 ALFRED JAMES III 107 N MARKET STE 1000 WICHITA KS 67202-1811 MURPHY E&P CO ROBERT F SAWYER P O BOX 61780 NEW ORLEANS LA 70161 UNIV OF ARKANSAS SERIALS DEPT UNIV LIBRARIES FAYETTEVILLE AR 72701 CROSS TIMBERS OPER3~TIONS SUSAN LILLY 210 PA~RK AVE STE 2350 OKLA~OM~A CITY OK 73102-5605 DWIGHTS ENERGYDATA INC JERLENE A BRIGHT DIRECTOR PO BOX 26304 OKLAHOM_A CITY OK 73126 IOGCC P O BOX 53127 OKLA}IOMA CITY OK 73152-3127 OIL & GAS JOURNAL LAUR3~ BELL P O BOX 1260 TULSA OK 74101 CH2M HILL J DANIEL ARTHUR PE PROJ MGR 502 S MAIN 4TH FLR TULSA OK 74103-4425 R E MCMILLEN CONSULT GEOL 205 E 29TH ST TULSA OK 74114-3902 BAPI RAJU 335 PINYON LN COPPELL TX 75019 MARK S MALINOWSKY 15973 VALLEY VW FORNEY TX 75126-5852 US DEPT OF ENERGY ENERGY INFORMATION ADMINISTRATION MIR YOUSUFUDDIN 1999 BRYAN STREET STE 1110 DALLAS TX 75201-6801 PURVIN & GERTZ LIBRARY 1201 MAIN ST STE 2600 DALLAS TX 75202 DEGOLYER & MACNAUGHTON MIDCONTINENT DIVISION ONE ENERGY SQ, STE 400 4925 GREENVILLE AVE DALLAS TX 75206-4083 MOBIL OIL CORP MORRIS CRIM P 0 BOX 290 DALLAS TX 75221 GAFFNEY, CLINE & ASSOC., INC. ENERGY ADVISORS MARGARET ALLEN 16775 ADDISON RD, STE 400 DALLAS TX 75248 GCA ENERGY ADV RICHARD N FLETCHER 16775 ADDISON RD STE 400 DALLAS TX 75248 MOBIL OIL JAMES YOREK P O BOX 650232 DALLAS TX 75265-0232 JERRY SCHMIDT 4010 SILVERWOOD DR TYLER TX 75701-9339 STANDARD AMERICAN OIL CO AL GRIFFITH P O BOX 370 GRANBURY TX 76048 CROSS TIMBERS OIL COMPANY MARY JONES 810 HOUSTON ST STE 2000 FORT WORTH TX 76102-6298 PRITCHARD & ABBOTT BOYCE B BOLTON PE RPA 4521 S. HULEN STE 100 FT WORTH TX 76109-4948 SHELL WESTERN E&P INC K M ETZEL P 0 BOX 576 HOUSTON TX 77001-0574 ENERGY GRAPHICS M_ARTY LINGNER 1600 SMITH ST, STE 4900 HOUSTON TX 77002 H J GRUY ATTN: ROBERT RASOR 1200 SMITH STREET HOUSTON TX 77002 STE 3040 PURVIN & GERTZ INC LIBRARY 2150 TEXAS COMMERCE TWR 600 TRAVIS ST HOUSTON TX 77002-2979 P~AY TYSON 1617 FAlqNIN ST APT 2015 HOUSTON TX 77002-7639 CHEVRON PAUL WALKER 1301 MCKINNEY RM 1750 HOUSTON TX 77010 BONNER & MOORE LIBPd%RY H20 2727 ALLEN PKWY STE 1200 HOUSTON TX 77019 OIL & GAS JOURNAL BOB WILLIAMS 1700 W LOOP SOUTH HOUSTON TX 77027 STE 1000 PETRAL CONSULTING CO DANIEL L LlPPE 9800 RICHMOND STE 505 HOUSTON TX 77042 MOBIL OIL N H SMITH 12450 GREENSPOINT DR HOUSTON TX 77060-1991 M_ARK ALEXAiqDER 7502 ALCOMITA HOUSTON TX 77083 M-AP~ATHON OIL CO GEORGE ROTHSCHILD JR P 0 BOX 4813 HOUSTON TX 77210 RIM 2537 UNOCAL REVENUE ACCOUNTING P 0 BOX 4531 HOUSTON TX 77210-4531 EXXON EXPLOR CO LA-ND/REGULJ~TORY AFFAIRS RiM 301 P 0 BOX 4778 HOUSTON TX 77210-4778 EXXON EXPLORATION CO. T E ALFORD P 0 BOX 4778 HOUSTON TX 77210-4778 CHEVRON USA INC. ALASKA DIVISION ATTN: CORRY WOOLINGTON P 0 BOX 1635 HOUSTON TX 77251 PETR INFO DAVID PHILLIPS P O BOX 1702 HOUSTON TX 77251-1702 PHILLIPS PETR CO ALASKA LAi~D MGR P 0 BOX 1967 HOUSTON TX 77251-1967 UNION TEXAS PETR ALASKA W ALLEN HUCKABAY P 0 BOX 2120 HOUSTON TX 77252 WORLD OIL MARK TEEL ENGR ED P 0 BOX 2608 HOUSTON TX 77252 UNION TEXAS PETR ALASKA CORP MANAGER-WORLDWIDE BUSINESS DEVELOP. STEVEN R FLY P O BOX 2120 HOUSTON TX 77252-2120 UNION TEXAS PETROLEUM TECHNICAL SERVICES JIM E. STEPINSKI, MANAGER P.O BOX 2120 HOUSTON TX 77252-2120 EXXON CO USA RESERVES COORD RM 1967 P O BOX 2180 HOUSTON TX 77252-2180 EXXON CO USA G T THERIOT RM 3052 P O BOX 2180 HOUSTON TX 77252-2180 EXXON CO USA GARY M ROBERTS RM 3039 P O BOX 2180 HOUSTON TX 77252-2180 PENNZOIL E&P WILL D MCCROCKLIN P O BOX 2967 HOUSTON TX 77252-2967 CHEVRON CHEM CO LIBR3LRY & INFO CTR P O BOX 2100 HOUSTON TX 77252-9987 MARATHON MS. NORMA L. CALVERT P O BOX 3128, STE 3915 HOUSTON TX 77253-3128 PHILLIPS PETR CO ERICH R. RAMP 6330 W LOOP SOUTH BELLAIRE TX 77401 PHILLIPS PETR CO JOE VOELKER 6330 W LP S RM 492 BELLAIRE TX 77401 PHILLIPS PETR CO PARTNERSHIP OPRNS JERRY MERONEK 6330 W LOOP S RM 1132 BELLAIRE TX 77401 TEXACO INC R EWING CLEMONS P 0 BOX 430 BELLAIRE TX 77402-0430 TESORO PETR CORP LOIS DOWNS 8700 TESORO DR SAN ANTONIO TX 78217 INTL OIL SCOUTS MASON MAP SERV INC P O BOX 338 AUSTIN TX 78767 ROBERT G GRAVELY 7681 S KIT CARSON DR LITTLETON CO 80122 DIANE SUCHOMEL 10507D W MAPLEWOOD DR LITTLETON CO 80127 GEORGE G VAUGHT JR P 0 BOX 13557 DENVER CO 80201 kMOCO PROD CO C A WOOD RM 2194 P 0 BOX 800 DENVER CO 80201-0800 AMOCO PROD CO LIBR3kRY RM 1770 JILL MALLY 1670 BROADWAY DENVER CO 80202 C & R INDUSTRIES, INC. KURT SALTSGAVER 1801 BROADWAY STE 1205 DENVER CO 80202 JERRY HODGDEN GEOL 408 18TH ST GOLDEN CO 80401 NRG ASSOC RICHARD NEHRING P O BOX 1655 COLORADO SPRINGS CO 80901-1655 RUBICON PETROLEUM, LLC BRUCE I CLARDY SIX PINE ROAD COLORADO SPRINGS CO 80906 EG&G ID~qO INC CHARLES P THOMAS P 0 BOX 1625 IDA}{O FALLS ID 83415-2213 JOFIN A LEVORSEN 200 N 3RD ST #1202 BOISE ID 83702 RUI Ai~ALYTICAL JERRY BERGOSH P O BOX 58861 SALT LAKE CITY UT 84158-0861 TA~tOMA RESOURCES GARY PLAYER 1671 WEST 546 S CEDER CITY UT 84720 MUNGER OIL INFOR SERV INC P 0 BOX 45738 LOS ANGELES CA 90045-0738 LA PUBLIC LIBRARY SERIALS DIV 630 W 5TH ST LOS ANGELES CA 90071 US OIL & REFINERY CO TOM TREICHEL 2121 ROSECR3~NS AVE #2360 ES SEGUNCO CA 90245-4709 BABSON & SHEPPARD JOHN F BERGQUIST P 0 BOX 8279 VIKING STN LONG BEACH CA 90808-0279 ANTONIO MADRID P 0 BOX 94625 PASADENA CA 91109 ORO NEGRO, INC. 9321 MELVIN AVE NORTHRIDGE CA 91324-2410 PACIFIC WEST OIL DATA ROBERT E COLEBERD 15314 DEVONSHIRE ST STE D MISSION HILLS CA 91345-2746 76 PRODUCTS COMPAAIY CHARLES BURRUSS ~ 11-767 555 Ai~TON COSTA MESA CA 92626 SANTA FE ENERGY RESOURCES INC EXPLOR DEPT 5201 TRUXTUN AV STE 100 BAKERSFIELD CA 93309 WATTY STRICKLAND 1801 BLOSSOM CREST ST BAKERSFIELD CA 93312-9286 TEXACO INC PORTFOLIO TEAM MANAGER R W HILL P O BOX 5197X BAKERSFIELD CA 93388 US GEOL SURV KEN BIRD 345 MIDDLEFIELD RD MENLO PARK CA 94025 MS 999 SHIELDS LIBR3%RY GOVT DOCS DEPT UNIV OF CALIF DAVIS CA 95616 H L WANGENHEIM 5430 SAWMILL RD SP 11 PAR3~DISE CA 95969-5969 ECONOMIC INSIGHT INC SAM VAN VACTOR P 0 BOX 683 PORTLAND OR 97207 US EPA REGION 10 LAURIE FLANN OW-130 1200 SIXTH AVE SEATTLE WA 98101 MARPLES BUSINESS NEWSLETTER MICHAEL J PARKS 117 W MERCER ST STE 200 SEATTLE WA 98119-3960 PATTI SAUNDERS 1233 W llTH AV ANCHOt~AGE AK 99501 DUSTY RHODES 229 WHITNEY RD Ai~CHOP~AGE AK 99501 DEPT OF ENVIRON CONSERV PIPELINE CORRIDOR REG OFC PAMELA GREFSRUD 411 W 4TH AVE ANCHOP~AGE AK 99501 DEPT OF REVENUE BEVERLY MARQUART 550 W 7TH AV STE 570 ANC~OP~AGE AK 99501 DEPT OF REVENUE OIL & GAS AUDIT DENISE F_AWES 550 W 7TH AV STE 570 ANCHORAGE AK 99501 FAIRWEATHER E&P SERV INC JESSE MOHRBACHER 715 L ST #4 ANCHOP~AGE AK 99501 GUESS & RUDD GEORGE LYLE 510 L ST, STE 700 ANCHORAGE AK 99501 STATE PIPELINE OFFICE LIBRARY KATE MUNSON 411 W 4TH AVE, STE 2 ANCHOP~AGE A_K 99501 TRUSTEES FOR ALASKA 725 CHRISTENSEN DR STE 4 ANCHOKAGE AK 99501 TRADING BAY ENERGY CORP PAUL CP~AIG 2900 BONIFACE PARKWAY #610 ANCHOtLAGE AK 99501 YUKON PACIFIC CORP JOHN HORN VICE CI{M 1049 W 5TH AV ANCHOP~AGE AK 99501-1930 PRESTON GATES ELLIS LLP LIBRARY 420 L ST STE 400 Ai~CHORAGE AK 99501-1937 ALASKA DEPT OF LAW ROBERT E MINTZ ASST ATTY GEN 1031 W 4TH AV STE 200 ANCHORAGE AK 99501-1994 DEPT OF REVENUE OIL & GAS AUDIT FRANK PARR 550 W 7TH AVE STE 570 ANCHORAGE AK 99501-3540 BAKER OIL TOOLS ALASKA AREA MGR 4710 BUS PK BLVD STE 36 ANCHORAGE AK 99503 HDR ALASKA INC MARK DALTON 2525 C ST STE 305 ANCHORAGE AK 99503 KOREAN CONSULATE OCK JOO KIM CONSUL 101 BENSON STE 304 ANCHORAGE AK 99503 N-I TUBULA~S INC 3301 C STREET STE 209 ANCHORAGE /dK 99503 WEBB'S BUSINESS CONSULTING SERVICES BILL WEBB 1113 W. 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THOMAS FINK, PHD 6359 COLGATE DR. AI~CHOP~AGE AK 99504-3305 ARLEN EHM GEOL CONSLTNT 2420 FOXHALL DR ANCHORAGE AK 99504-3342 RUSSELL DOUGLASS 6750 TESHLAR DR ANCHORAGE AK 99507 STU HIRSH 9630 BASHER DR. 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FIARK BERLINGER MB 8-1 PO BOX 196612 i~NCHOR3kGE AK 99519-6612 AMERICA/CANADIAN STRATIGRPH CO RON BROCKWAY P O BOX 242781 ANCHORAGE AK 99524-2781 AMSI/VALLEE CO INC WILLIAM O VALLEE PRES PO BOX 243086 ANCHORAGE AK 99524-3086 L G POST O&G LAND MGMT CONSULT 10510 CONSTITUTION CIRCLE EAGLE RIVER AK 99577 DIANA FLECK 18112 MEi~DOW CRK DR EAGLE RIVER AK 99577 D A PLATT & ASSOC 9852 LITTLE DIOMEDE CIR EAGLE RIVER AK 99577 PINNACLE STEVE TYLER 20231 REVERE CIRCLE EAGLE RIVER AK 99577 DEPT OF NATURAL RESOURCES DGGS JOHN REEDER P O BOX 772805 EAGLE RIVER A_K 99577-2805 COOK INLET VIGIL JAMES RODERICK P 0 BOX 916 HOMER A_K 99603 RON DOLCHOK P 0 BOX 83 KENAI AK 99611 DOCUMENT SERVICE CO JOHN PA~RKER P 0 BOX 1137 KENAI AK 99611 PHILLIPS PETR J A LANDRUM KENAI REG MGR P O DRAWER 66 KENAI AK 99611 KENAI PENINSULA BOROUGH ECONOMIC DEVEL DISTR STAN STEADMAN P 0 BOX 3029 KENAI AK 99611-3029 PENNY VADLA P 0 BOX 467 NINILCHIK AK 99639 BELOWICH COAL CONSULTING MICHAEL A BELOWICH HC31 BOX 5157 WASILLA AK 99654 JAMES GIBBS P 0 BOX 1597 SOLDOTNA AK 99669 PACE SHEILA DICKSON P O BOX 2018 SOLDOTNA AK 99669 KENAI NATL WILDLIFE REFUGE REFUGE MGR P O BOX 2139 SOLDOTNA A I< 99669-2139 ALYESKA PIPELINE SERVICE CO VALDEZ CORP 3~FFAIRS SANDY MCCLINTOCK P O BOX 300 MS/701 VALDEZ AK 99686 VALDEZ PIONEER P O BOX 367 VALDEZ AK 99686 VALDEZ VANGUi~RD EDITOR P 0 BOX 98 VALDEZ AK 99686-0098 UNIV OF ALASKA FAIRBANKS PETR DEVEL LAB DR V A KAMATH 427 DUCKERING FAIRBANKS AK 99701 NICK STEPOVICH 543 2ND AVE FAIRBANKS AK 99701 RICK WAGNER P 0 BOX 60868 FAIRBANKS AK 99706 JACK HAKKILA P 0 BOX 61604 FAIRBANKS AK 99706-1604 C BURGLIN P O BOX 131 FAIRBANKS AK 99707 FAIRB~NKS DAILY NEWS-MINER KATE RIPLEY P O BOX 70710 FAIRBANKS AK 99707 FRED PP~ATT P 0 BOX 72981 FAIRBANKS AK 99707-2981 DEPT OF NATURAL RESOURCES DIV OF LAND REG MGR NORTHERN REGION 3700 AIRPORT WAY FAIRBANKS i~K 99709-4699 K&K RECYCL INC P O BOX 58055 FAIRBANKS AK 99711 ASRC BILL THOMAS P O BOX 129 BA/~ROW AK 99723 RICIiARD FINEBERG P 0 BOX 416 ESTER AK 99725 UNIV OF ALASKA FBX PETR DEVEL LAB SHIRISH PATIL 437 DICKERING FAIRBANKS AK 99775 UNIVERSITY OF ALASKA FBKS PETR DEVEL LAB DR AKA1VNI LAWAL P O BOX 755880 FAIRBANKS AK 99775-5880 SENATOR LOREN LEMAN STATE CAPITOL RM 113 JUNEAU AK 99801-1182 DEPT OF ENVIRON CONSERV SPAi~ CHRIS PACE 410 WILLOUGHBY AV STE 105 JUNEAU AK 99801-1795 SNEA(P) DISTR FRAiqCE/EUROPE DU SUD/AMERIQUE TOUR ELF CEDEX 45 992078 PARIS LA DEFE FRANCE ARCO Alaska, Inc. Kuparuk Development Post Office Box 100360 700 G Street Anchorage, Alaska 99510 Telephone 907 265-6268 Jack Walker, Tabasco Coordinator June 22, 1998 Mr. David Johnston Alaska Oil and Gas Conservation Commission 3001 Porcupine Road Anchorage, AK 99501 Re: Request for Pool Rules Hearing - Tabasco Dear Sir: ARCO Alaska, Inc. (AAI) in its capacity as operator of the Kuparuk River Unit, requests classification of the Tabasco accumulation in the Kuparuk River Unit as an oil pool and establishment of pool rules for development in accordance with 20 ACC 25.520. AAI requests a hearing on these rules on or after August 4, 1998. I would be happy to answer any questions relating to Tabasco. My phone is 265-6268 and e-mail is jawalker@mail.arco.com. Sincerely, Tabasco Coordinator Cc: M.D. Croft BP Exploration (Alaska) ORIGINAL 'f t Ataska Oil & Gas Cons. t;0~'~n~ssi0~ Anchorage ARCO Alaska, Inc, is a Subsidiary of AtlanticRichfieldCompany
