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CO 070
Conservation Order Cover Page XHVZE This page is required for administrative purposes in managing the scanning process. It marks the extent of scanning and identifies certain actions that have been taken. Please insure that it retains it's current location in this file. Conservation Order Category Identifier Organizing RESCAN [] Color items: [] Grayscale items: [] Poor Quality Originals: [] Other: NOTES: DIGITAL DATA [] Diskettes, No. [] Other, No/Type OVERSIZED (Scannable with large plotter/scanner) [] Maps: [] Other items OVERSIZED (Not suitable for plotter/scanner, may work with 'log' scanner) [] Logs of various kinds [] Other BY: ~ MARIA , Scanning Preparation TOTAL pAGEs-~ Production Scanning Stage I 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 (SCANNING IS COMPLETE AT THIS POINT UNLESS SPECIAL A'rTENTION IS REQUIRED ON AN INDIVIDUAL PAGE BASIS DUE TO QUALITY, GRAYSCALE OR COLOR IMAGES) General Notes or Comments about this Document: 5/21/03 ConservOrdCvrPg.wpd STATE OF ALASKA DEPARTMENT OF IiATURAL RESOUP, CES DIVISION OF OIL Ai~D GAS Alaska Oil and Gas Conservation Committee 3001 Porcupine Drive Anchorage, Alaska 99501 Re: THE APPLICATION OF MOBIL OIL CORPO- ) RATION, operator of the No. I-1 MUC ) (Mobil-Union-Chakachatna) well located ) on or near a part of the common line ) between State leases ADL 18742 and ADL ) 18761 which is specifically the south ) boundary of the SE$~ of Section 12, TION, ) R12W, S.M., and the SW$~ of Section 7, ) TION, RllW, S.M., and the north boundary ) of the NE¼ of Section 13, TION, R12W, ) S.M., and the NW¼ of Section 18, TION, ) RllW, S.M., in the Granite Point Field, ) for.an exception to Section 2061 of the ) Oil and Gas Conservation Regulations. ) Conservation Order No. 70 Granite Point Fi eld Lease line deep exploratory test and water injection well February 15, 1969 IT APPEARING THAT: 1. The Mobil Oil Corporation submitted a request dated January 8, 1969, for an exception to the'spacing provisions of Section 2061 of the Oil and Gas Conservation Regulations for the referenced well. 2. Pan American Petroleum Corporation, as operator of State lease ADL 18742 for itself, Phillips Petroleum Company, Sinclair Oil & Gas Company, and Skelly Oil Company (the Chakachatna Group), will join Mobil Oil Corporation, operator of State lease 18761 for itself and Union Oil Company of California, in the drilling of the well. 3. The MUC No. I-1 well is being drilled as a Middle Kenai Pool water injection well and as an exploratory test of the sediments below the Middle Kenai Pool. 4. Notice of the hearing on the request was published in the Anchorage Daily News on January 15, 1969, pursuant to Section 31.05.050 of the Alaska Statutes, but no protest was received. AND IT FURTHER APPEARING THAT a drilling permit for the referenced well was approved on January 17, 1969, and emergency orders were issued to permit drilling. AND IT FURTttER APPEARING TttAT an exception to Section 2061 of the Oil and Gas Conservation Regulations permitting the Mobil Oil Corporation to drill jointly with Pan American 'Petroleum Corporation the MUC No. I-1 well to a target area along the common lease line should be granted to protect correlative rights, prepare for field-wide fluid injection and further evaluate deeper horizons for possible production. CONSERVATION ORDER NO. 70 Page 2 February 15, 1969 NOW, THEREFORE, IT IS ORDERED that the Mobil Oil Corporation be permitted to continue the drilling of the MUC No. I-1 into an area lying between 300 feet and 800 feet west and between 200 feet north and 200 feet south of the northeast corner of Section 13, TION, R12W, S.M., at the Middle Kenai Pool horizon and to an area lying between 400 feet east and 1,400 feet west and between 600 feet north and 200 feet south of the northeast corner of Section 13, TION, R12W, S.M., at the top of the Jurassic horizon. DONE at Anchorage, Alaska, and dated February 15, 1969. Harry W. Kugler, Acting' Executive Secretary Alaska Oil and Gas Conservation Committee Concurrence' · Thomas R. Marshall, Jr., Acting Chairman Alaska Oil and Gas Conservation Committee 0'. K. Gil~feth, jr., Me~f~Fr~as designated by the Deputy Commissioner Alaska Oil and Gas Conservation Committee K~rl L. VonderAhe, Member ' Alaska Oil and Gas Conservation Committee STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES DIVISION OF OIL AND GAS Alaska Oil and Gas Conservation Committee 3001 Porcupi ne Drive Anchorage, A1 aska 99504 Re- Emergency Order - January 31, 1969 Conservation File No. 70 Mobil Oil Corporation MUC #I-l, Granite Point Field Bottomhole target area covers portions of NE¼ of Section 13, SE¼ of Section 12, TION, R12W, S.M., the SW¼ of Section 7, ...... or"the NW¼ of Section 18, TION, RllW, S.M. Mobil Oil Corporation petitioned the Alaska Oil and Gas Conservation Committee on january 8, 1969, for an order excepting the referenced well location from the footage spacing requirements of Section 2061, Title 11, AAC. On January 17, 1969, said corporation requested an emergency order to permit the drilling of the referenced well and this request was granted. On January 30, 1969, said corporation requested a renewal of this emer- gency order after the original emergency order would expire on January 31, 1969. The affected operators have joined Mobil Oil Corporation in the request for an emergency order. An emergency order is hereby granted pursuant to and in accordance with Section 2012 of the Alaska Oil and Gas Conservation Regulations permitting the drilling of the referenced well. This emergency order expires February 15, 1969. Thomas ~'. Marshall, jr' Executive Secretary Mobil Oil Corporation 612 SOUTH FLOWER STREET LOS ANGELES, CALIFORNIA 90054 P. O. Box 1734 Anchorage, Alaska 99501 January 30, 1969 State of Alaska Division of Oil & Gas 3001 Porcupine Drive Anchorage, Alaska. 99503 Attention: Mr. Homer L. Burrell Gentlemen: Mobil Oil Corporation requests that an emergency order be issued regarding our "Request For Exception to Spacing Regulation, Well MUC #I-1, Granite Point Field", dated January 8, 1969 in order that the well may be drilled with no delay. Pan American Petroleum Corporation, being the only other affected operator, has notified the State that they have no objection to the spacing order. Any delay, due to the 30-day protest period will cause an economic hardship on all parties involved. /kb Very tr ~, yours, W, G. Chr±stensen Area Superintendent JAN 3 1 ": '~'' ' DIVISION OF OiL AND GAS STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES DIVISION OF OIL AND GAS Alaska Oil and Gas Conservation Committee 3001 PorcuPine Drive Anchorage, Alaska 99504 Re: Emergency Order - January 17, 1969 Conservation File No. 70 Mobil Oil Corporation MUC #l-l, Granite Point Field Bottomhole target area covers portions of NE¼ of Section 13, SE¼ of Section 12, TION, R12W. S.M., the SW¼ of Section 7, or the NW¼ of Section 18, TION, Rl lW, S.M. Mobil Oil Corporation petitioned the Alaska Oil and Gas Conservation Committee on January 8, 1969, for an order excepting the referenced well location from the footage spacing requirements of Section 2061, Title ll, AAC. On January 17, 1969, said corporation requested an emergency order to permit the drilling of the referenced well. The affected operators have joined Mobil Oil Corporation in the request for an emergency order. An emergency order is hereby granted pursuant to and in accordance with Section 2012 of the Alaska Oil and Gas Conservation Regulations permitting the drilling of the referenced well. This emergency order expires January 31, 1969. Executive Secretary 5 PLEAS-~ HAND DELIVER THE FOLLOWING WIRE TO MR HOMER L BURRELL. w ~ DENVER HOMER L BURRELL, DIRECTOR DIVISION OF OIL & GAS DEPARTMENT OF NATURAL RESOURCES ~001 PORCUPINE DRIVE ANCHORAGE ALASKA MR W G CHRISTIANSEN S LETTER OF JANUARY 8, 1969, REQUESTED'~ N EXCEPTION TO SPACING PROVISIONS OF SECTION 2061, OF' THE WIDE RULES AND FIELD':RULES DRILLING OF .THE MOBIL OPERATED I-! TO THE MIDDLE'~ ,KEN,Al.ZONE AND A DEEP EXPLORATORY TEST AT THE JOINT LEASE LINE OF STATE LEASES ADL 187~2 AND ADL 18761. PAN AMERICAN AS REPRESENTATIVE OF THE CHAKACHATNA GROUP JOINS MOBIL · IN THIS REQUEST. R B GILES PAN AMERICAN PETROLEUM CORPORATION SECURITY LIFE BUILDIN6 DENVER COLO Mobil Oil Corporation 612 SOUTH FLOWER STREET LOS ANGELES, CALIFORNIA 9(X)54 P. O. Box 1734 Anchorage, Alaska 99501 January 17, 1969 State of Alaska Division of Oil & Gas 3001 Porcupine Drive Anchorage, Alaska 99503 Attention: Mr. Homer L. Burrell Gentlemen: Mobil Oil Corporation requests that an emergency order be issued regarding our "Request For Exception To Spacing Regulation, Well MUC #I-l, Granite Point Field", dated January 8, 1969 in order that the well can be spudded as soon as possible. Pan American Petroleum Corporation, being the only other affected operator, is submitting notification to the State that they have no objection to the spacing order. Further delay, due to the 30-day protest period, will cause an economic hardship on all parties involved. MJMeyer Very ~ruly Mpurs, ,/ /~"~' ? ' ~o G. Christensen Legal, Notice," CORRECTED NOTICE OF PUBLIC HEARIN(] STATE OF ALASKA . DEPARTMENT OF NATURAL RESOURCES DIVISION. .OF, 'OIL AND GAS [ Alaska Oil and Gas CO~servatio~,. Committee ' , ~ ,Conservation· File NO. 70 Re~ .' The appli0at!on ,0~ ' Mobil Oil Corpc.ratlon £or an order ,grazlt'- ing', exceptiOn to Section 208,1, Title: .,11, AAC, allowing the , Muc No, 1-1 well t0 be drilled ,at ,or, near the ,lease line 'tWeen State lea'SeS. ADL 18~ . and/ADL 1876L .: The bottom- ' hole, location 'of the . proposad. ' . wei! .,will be. either in the NE.~:' .: . of Section. 13,'the': SE~A · tfbn. 1,2; .'~10N~.?R,12W,. S..M~ . SWV~ 0f Section 7,.or the N~ ! . :of SeCtion iS,'~T10N, RllW, Oil 'CorP0rati~n 'has requested AlaSka' Oil .and.' .Gas ~. conse~-vati'~: Committee. to .issue an. order ex- ~ erupting the captioned well'.from the ~footage spacing requirements .o~ , SeCtion. 2061, 'Title' 11,' AAC~ The, 9roposed well will be drilled' as deep' exploratory test and may ,be comPl,'et~:d in the Middle. Kenai zone. parties who may be aggrieved i,~: ~he requested order is issued ar~ allowed 30~ days' fr°m',the date "' ~his p~,biicatfon," in: ~ protes~ 'and reqUest fOr' hearing.. l~lace, of filing is 3001 POrcupine Dri~,i'~ch0rage, Al.aska[ If suCh:la ,pr0t'~st' is timely fi!edi' a hear~g ' ~n the ,, matter will .be, held ~t the ,.~bove,, address at 9:3,0 a.m.', , FebruarY ~14, 1969~ at Which 'time proteSt~n~l and. Others may .. be . heard. I£ n0 sUch. protest is' timely fried, th~ 'Committee Will ' consider th~ , ante', of' the order withou~ ~ heariPg~', , ~hOmas R. Marshall, jla. ', '~, ', ' Executive SecretarY . Alaska Oil and Gas ~onse~va. , 'tipn COmmittee ~001 porcupine DriVe ' " ' Anchorage,. Alaska 99504 l pUblish:,, lan,uarY 1,5, ,1969,''''. ..... Legal,',Noflce ,No. 1582. ,, : ', i CORRECTE[J NOTICE OF PUBLIC HEARING STATE OF ALASi~, OEPARTMENT OF iiATURAL RESOURCES DIVISION OF OIL AND GAS Alaska Oil and Gas Conservation Committee Conservation File !to. 70 Re: The application of Mobil Oil Corporation for an order granting exception to Section 2061, Title 11, AAC, allowing the MUC #1-1 well to be drilled at or near the lease line between State leases ADL 18742 and ADL 1~3761. The bottomhole location of the proposed well will be either in the of Section 13, the SE¼ of Section 12, TION, R12W, S.M., the SW~ of Section 7, or the NW~ of Section 18, TION, RllW, S.M. Notice is hereby given that Mobil Oil Corporation has requested the Alaska Oil and Gas Conservation Committee to issue an order exempting the captioned well from the footage spacing requirements of Section 2061, Title 11, AAC. The proposed well will be drilled as a deep exploratory test and may be completed in the Middle Kenai zone. Parties who may be aggrieved if the requested order is issued are allowed 30 days from the date of this publication in which to file a protest and request for hearing. Place of filing, is 3001 Porcupine Drive, Anchorage, Alaska. If such a protest is timely filed, a hearing on the matter will be held at the above address at 9:30 a.m., February 14, 1969, at which time protestants and others may be heard. If no such protest is timely filed, the Committee will consider the issuance of the order without a hearing. ~ / . ,. ,,,,~ Thomas R. Marshall, Jr. Executive Secretary Alaska Oil and Gas Conservation Committee 3001 Porcupine Drive Anchorage, Alaska 99504 Publish January 15, 1969 ANCHORAGE OAILY HEWS January 14, 1969 Legal RESOURCES · DIVISION OF 0IL AND GA~:' : Alaska Oil and Gas Conserva/IOn Committee COnServation File No. , 'ail= The appli~atioll, of Mobil .'=Corporation ~or".~n ~rder ' . iinfF, eXceptio//"'~'t~' "SicifOn :.' '~itle . 11,. AA~,~ MUC No. 1~1. :at'i0r near' .' itween State ~leas~~ "' 'an/l ADL 18?61..~li6!"bot hole locatima ~ iot,,the,. .....well will be .... of. 'r Section ' .flon'12, the or./the : TION-RliW, S.M; : '" .' :ii..'.' ,,;. , er'eby,, iv n:', 'Oil' C°rporatiO~t has req. ueSted}."t~., ~l~ska' 0il .and...G~s: Co~.,erv~ '.' Committee t01./iSSl/e :.' ':an. order~ ;'.empflni~.. the: Captioned ~ell "'{he ioOlage spac~g require~ . .'sectiOn .2061,. Title 11, ~'. ][. "prOPosed.. 'well maY.' .be' c'omplete~?~ "the Middle Kenai. zone. or .as a ~.: ]. eXploiai0'r~ Well. Parties '[' }e aggrieved' if the reqUgsted o!~6~ [.'it"issued are allowed t~n. days. [; .:~e 'date. of . this publicati°n;~".'[;'~ Whieh.:to;'file a protest and.re~i~ ior hear~g; Place. 0f filing PorCuP~e DriVe, ~ Anchor a "~ska'i[.,It Such a protest is. ~ ~.lpd,, a hearing on the matte~ .~[ h.eid at the above .add~es; ~'0 a.[m., February 14, 1969; which.:.: protestan~ and 'others, 'b~ ~heard. Ii'.nO. such protei iimeI~" .' filed, .the Co~ittee .cOnSider the issuance of. the without a hearing.. ' , ' ' ' Thomas R..Marshall, lt.' EXecutive Secreta~. ' " Alaska Oil and Gas'.. i ConserVation :" S0.01 .Porcup~e Drive [" ': : AnCho.rag.e, Alaska 9950t '; , , i.'~, ~.~, i ' ~ ' Mobil Oil Corporation 612 SOUTH FLOWER STREET LOS ANGELES, CALIFORN IA 90054 N-W Producing Area P. O. Box 1734 Anchorage, Alaska 99501 January 8, 1969 State of Alaska Division of Oil & Gas 3001 Porcupine Drive Anchorage, Alaska 99501 Attention: Mr. T. R. Marshall~ Jr. REQUEST FOR EXCEPTION TO SPACING REGULATION WELL MUC ~I-1 GRANITE POINT FIELD Dear Sir: Mobil Oil Corporation requests that an order of exception to the spacing provisions of Section 2061, Title II be issued regarding the drilling of well MUC #I-1 in the Granite Point Field in that the well, proposed as a joint operation between Mobil as operator for Mobil-Union and Pan American Petroleum Corporation as operator for Pan American, Phillips, Sinclair, and Skelly, will be located on or near the lease line between State Leases ADL 18742 and ADL 18761 and therefore deviate from the required 500' minimum standback at a lease line. The subject well is to be drilled as a joint Mobil-Union-Chakachatna (MUC) Middle Kenai zone water injector and a deep exploratory test.~-'~e target location at 10500'± MD, which is the approximate mid-point of the Middle Kenai producing zone, is 500' west of the NE Corner of Section 13, T10N, R12W, S.M. and the interval between the top of the Middle Kenai producing zone and total depth is programmed to be within the target area, as shown on the attached location plat. f The exact dimensions of the target areas shown on the plat have not been finalized by a signed line well agreement, however, the target areas as shown are the maximum areas under consideration by the operators and it is therefore anticipated that the final target configuration will be encompassed by the boundries shown on the attached location plat. A copy of the line agreement between all partners involved will be made available to the State Division of Oil & Gas upon its completion. The State of Alaska unleased tract approximately 1 mile east of this proposed location is the nearest affected property to the subject Mobil-Pan American leases. JAN 1 0 19 9 DIVISION OF OIL AND GAS ANCHORAGE - 2 - All facts herein stated are within the knowledge of the affiant true and the accompanying plat is accurately drawn to scale and correctly reflects pertinent and required data. Copies of this request have been forwarded by registered mail to the affected parties on the attached mailing list. MJMeyer:cg Attachment Very truly yours, W o G. Christensen Area Superintendent RECEIVED J/~l 1 0 1969 I~IVI$10N OF OIL AND GAS I 16 10 '2 14 "' 1 I1 3 13 2o '4N - AM 6 . ·'_ It w~,'- l~.:~ucz-1 ' ~ 5 T ~ '~' - '~ _ . ~rAN ~ ADL 18742 , . ~ Jurassic Tcz~.~t ~~ 31'13 ~ ~Ker,~i Tar~e~ Area . ., ~/~' _'_ RECEWED . ~s-~ ~~ ~ / o u / / ~-~c' ' I : / /--'~ . i: MAILING LIST Phillips Petroleum Company Mr. C. W. Corbett Attention: H. W. Patterson 1230 Security Life Building Denver, Colorado 80202 Phillips Petroleum Company Mr. H. D. Redding 515 D Street Anchorage, Alaska 99501 Sinclair Oil & Gas Company Mr. C. L. Cox 501 Lincoln Tower Building Denver, Colorado 80203 Skelly Oil' Company Mr. F. L. Franz 1088 Lincoln Tower Building Denver, Colorado 80203 Pan American Petroleum Corporation Mr. A. E. Piper Security Life Building Denver, Colorado 80202 Pan American Petroleum Corporal.ion Mr. F. K. Krebill P. O. Box 779 Anchorage, Alaska 99501 Union Oil Company of California Mr. R. W. Yarbrough 2805 Denali Street Anchorage, Alaska 99503 jAN 1 0 t969 LINE WELL AGREEMENT THIS AGREEMENT, made and entered into this 9th day of January, 1969, by and between PAN AMERICAN PETROLEUM CORPORATION (Pan American) , PHILLIPS PETROLEUM COMPANY (Phillips) , SINCLAIR OIL CORPORATION (Sinclair) and SKELLY OIL COMPANY (Skelly), hereinafter referred to collectively as "Chakachatna" and MOBIL OIL CORPORATION (Mobil) and UNION OIL COMPANY OF CALIFORNIA (Union), hereinafter referred to collectively as "Mobil-Union", WITNESSETH, That: WHEREAS, Chakachatna is the owner and Pan American is the Operator of Granite Point Chakachatna Platform "A" and Mobil-Union is the owner and Mobil is the Operator of the Granite Point Mobil-Union Platform, the locations of said platforms being shown on the map attached hereto, marked Exhibit "A" and by this reference made a part hereof; and WHEREAS, the parties hereto have agreed upon the drilling of a well (hereinafter referred to as the "line well") from the Mobil-Union Platform to a location along the common boundary of the Chakachatna State of Alaska Lease No. ADL 18742 and the Mobil-Union State of Alaska Lease No. ADL 18761, for the purposes and in the manner and upon the terms and conditions hereinafter provided. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein set out to be kept and performed by the parties it is hereby agreed as follows: 1. Mobil as Operator for Mobil-Union shall drill the line well from the Mobil-Union Platform to a bottom hole location near the southeast corner of Section 12, Township 10 North, Range 12 West, Seward Meridian, Alaska. The target area within which said well is intended to penetrate the Tertiary Middle Kenai Formations, and the target area within which said well is intended to penetrate the Pre-Tertiary Formation which said well is intended to test are shown on Exhibit "A" hereto. 2. The actual drilling of the line well shall be commenced no later than the date the first suitable rig becomes available following the effective date of this agreement and the well shall thereafter be drilled in accordance with the drilling program specified in Exhibit "C" attached hereto and by this reference made a.part hereof, without unnecessary delay in a manner and direction so that the well will penetrate the Tertiary Middle Kenai Formation as specified in said drilling program. After the well has so penetrated the Tertiary Middle Kenai Formation the drilling of said well shall be continued until said well has been drilled to a depth of 15,000 feet, measured vertically from the surface or 2300 feet measured vertically below the base of the Hemlock (identified in the Granite Point Discovery Well at 11,370 feet) whichever shall 'first occur or until impenetrable formations are-encountered which make further drilling impracticable or until the parties pursuant to the voting procedure hereinafter set out agree that drilling should be discontinued. 3. If the line well is not drilled in accordance with the criteria set out above, then, unless the parties agree that it may satisfactorily be used as a production or an injection well, such well shall be plugged and abandoned. If the line well is drilled in accordance with the above criteria, or if notwithstanding the fact that it may not have been drilled in strict compliance with the criteria the parties &gree that the well can and should be used as a production well or an injection well, such well shall be completed for pro- - 2 - duction and for future use as a water injection well. If the well is capable of producing from both the Pre-Tertiary formation and the Tertiary Middle Kenai formation it shall be dually completed and produced from both formations. If the well is capable of being completed as a producing well in only one formation it shall be completed as a. producing well in that formation. If the wel.1 cannot be completed as a producing well it shall nevertheless be completed in a manner which will permit its use as an injection well in the Middle Kenai formation. Thereafter, as soon as Operator judges it practicable to do so but in no event more than six-months from and after the date of the completion of un~ line well as a producing well, or if it is not completed as a producing well within six months from and after the date said well has been completed in a manner which will allow its use as an injec- tion well, the Operator shall convert the line well to a water injection well in the Middle Kenai formation and shall discontinue its use as a producing well from any formation in which it may have been completed, unless the parties agree pursuant to the voting procedure hereinafter provided for to continue said. well as a producing well, in which event Operator shall continue to produce the well, provided however, the well shall thereafter be converted to an injection well at any time that written demand that it be so converted is made by any two or more parties. 4. If the line well is completed as a producer either in the Pre-Tertiary Formation or in the Tertiary Middle Kenai Formation or in both formations it shall be operated by Operator for the joint account of Chakachatna and Mobil-Union. During the time that said well is produced and operated as an oil or a gas well, the amount of production therefrom shall be determined by production tests of said well and of all wells from which produc- tion is co.mmingled on the platform with said well, at least - 3 - once each month following the date of first production into tanks or lines as the case may be.. Each such test shall be conducted under normal producing conditions for a minimum of twelve hours under stabilized conditions. Operator shall furnish the Operator for the other group at least twenty-four hours notice prior to each such quantitative determination to enable said other Operator to witness each test so made if it desires to do so. Upon request the Operator will furnish such notice to any other party. For the purpose of allocating production from the well, and determining the manner in which such production is to be owned, and royalties on such production are to be paid~ all produc- tion from the line well shall be deemed to have been produced one-half (1/2) from State of Alaska Lease No. ADL 18742 and owned by Chakachatna, and one-half (1/2) from State of-Alaska Lease No. ADL 18761 and owned by Mobil-Union. Subject to payment of royalties, the production allocated to each lease shall be owned by the parties in the following proportions: Percent of Production Allocated to the lease Chakachatna Lease ADL 18742 Percent of Total Production from well Pan American 25% 12-1/2% Phillips 25% 12-1/2% Sinclair 25% 12-1/2% Skelly 25% 12-1/2% Mobil-Union Lease ADL 18-761 Mobil 75% 37-1/2% Union 25% 12-1/2% Each party hereto shall own and at its own expense take in kind or separately dispose of its proportionate part of all of such production except so much of same as may be used by an Operator in producing operations, in preparing and treating oil for market purposes and production unavoidably - 4 - lost. Any such party taking its proportionate part of production in kind or separately disposing thereof shall pay or secure the payment of any royalty interest in its proportionate part of said production. If any party shall at any time fail or refuse to take in-kind or separately.dispose of its proportionate part of said production, the Operator shall have the right to enter into a contract for the sale of all or part of such production at the price which Operator receives for its own portion~ of the production, but any such contract shall be only for such reasonable period of time as is consistent with the minimum needs of the industry under the circumstances, and in no event~shall the term thereof exceed 4 months; provided, however, that any party hereto may revoke at any time Operator's right to dispose of its proportionate part of production. 5. In the event that after a line well has been drilled in compliance herewith any party desires to perform substantial reworking operations in the well; to change the manner of operation substantially; to convert, the well from injection to producing status or to plug and abandon the well, it shall notify the Operator outlining its proposal in detail. The Operator shall obtain the vote of the parties on said proposal. If the parties agree with the proposal, Operator shall proceed to carry out the work or operation proposed. The actual costs and expenses incurred in connection with such work or operation proposed and carried out shall be-borne and paid one-half (1/2) by the parties who are members of the Chakachatna Group and one- half (1/2) by Mobil-Union. 6. Whenever in this agreement provision is made for the agreement of the parties or the direction of the parties, - 5 - unless otherwise specifically provided it shall be understood to mean by a vote of the parties of this agreement, owning at least 83.33% of the total production from the well provided, however, that a proposal may not be defeated by the negative vote of a single party. Failure of any party to vote within ten days shall be considered as a negative vote. 7. Operator will obtain an adequate source of water suitable for injection. Operator shall in designing the facilities to be used for injection into the line well, provide for an injection pressure capacity of 7500 p.s~i, at the wellhead unless the parties agree to a different injection pressure, in which event the injection pressure shall be the pressure so agreed to. Operator shall not be liable hereunder to any party for failure to obtain sufficient quantities of water for injection purposes or failure to inject water into the line well at a sufficient rate, where either or both of such failures result from adverse physical conditions in the reservoir or other circumstances beyond the control of Operator which cannot be reasonably remedied or overcome. However, once injection operations have been undertaken, Operator shall not have the right to be relieved of its share of the costs of said injection except by agreement of the parties hereto, and except as provided in Section 8 below. 8. If after the well has been completed, produced and converted to an injection well and after the well-has been used as an injection well for no less than thirty days it is found that water cannot be injected at a rate as great as 1,000 barrels of water per day, the parties shall determine in accordance with the voting procedure specified in Article 6, what steps will be taken to increase the well's ability to take injective water. Once injection operations have been successfully under- taken they shall not be discontinued unless all other drilling, production and injection operations are also discontinued except~ by consent of parties owning a majority of the working interest in Lease ADL 18742 and by parties owning a majority of the working interest in Lease ADL 18761, for a period of five years or until a total of 3,600,000 barrels of water has been injected into the Tertiary Middle Kenai Formation, whichever involves the shorter period of time, nor shall any party have the right during said period to be relieved of its share of the costs of said injection operations. After five years from the date of the first injection of water into the line well is accomplished or after injection of 3,600,000 barrels of water into the Tertiary Middle Kenai Formation, whichever involves a shorter period of time, either group may elect to discontinue injection into the line well. If a group elects to discontinue injection into the line well, the other group may nevertheless, at its own cost, risk and expense, continue such injections or require that the Operator do so for it. If one group elects to continue injection in the line well after another group has elected to discontinue injection and be relieved of its obligation to pay the cost, there shall be an appropriate adjustment of investments for all injection facilities other than the well. If the pressure maintenance operations contemplated by this agreement are discontinued at any time less than fourteen years from the date of first injection of water into the line well, then the Operator shall charge Pan American, Phillips, Sinclair, and Skelly, in the proportion of 1/4 each for one-half of the undepreciated investment cost less salvage, chargeable to the line well, of the injection water source - 7 - and injection facilities. Payment therefor shall be made as for any other billing under this agreement. Depreciation shall be computed on the basis of a useful life of 14 years. The propor- tion chargeable to the line well will be determined by multiplying the total undepreciated investment by a fraction, the numerator of which is one and the denominator the total number of completions which have been utilized for water injection from the Mobil-Union Platform for a period of six months or more prior to the time injection into the line well is dis- continued. 9. (a) The actual costs and expenses incurred in connection with the drilling, testing, completing, recompleting or plugging and abandoning of the line well shall be borne equally by Mobil-Union and by Chakachatna and the well and its equipment shall be owned in the same proportions in which such costs are borne. In addition, at the time the initial injection well is drilled upon any platform a slot charge of $135,000 shall be made which shall be billed by the platform operator to the non-operating group. Such slot charge shall be borne by the members of the non-operating group and shared by the members of the operating group in the. proportions set out in Section 4 above. Only one slot charge shall be payable as to each platform, and if for any reason the well provided~ for herein is not used for a period of at least one year, either as a producing well or an injection well or both, the charge will be refunded. (b) Operating Costs - The actual costs and expenses incurred in connection with operating the line well. (both as a producer and as an injector) as the same are determined in conformity with the Accounting Procedure shall, as between Chakachatna and Mobil-Union be borne and paid in accordance with the following criteria: - 8 - (1) During such period of time as the well is operated as a producing well, such actual costs and expenses shall be· borne and paid equally by Chakachatna and Mobil-Union. The charge made for oper- ation of pipeline and onshore production facilities shall be determined in accordance with the procedure.approved by the State: for such charges~against royalty oil. (2) During such period of time as the well is operated as an injection well~ a charge per barrel of water injected shall be made. monthly to cover the cost of furnishing water for injection, of amortization of the water supply and injection facility investment, and of other costs incurred by Operator including platform operating costs. Platform operation, maintenance and repair costs shall be considered as applicable to said line well in all phases of their operation beginning with the com- mencement of rigging up for drilling of said well. Such costs shall be allocated on a well basis consistent with Operator's ac- counting procedure. The initial, charge for water injected shall be five cents (5¢) per barrel, which charge shall be and remain in effect for one year from and after the first day of the month in which injection of water into the line well is commenced. At the termination of said one year period, and as of each anniversary, date thereof, - 9 - a retroactive adjustment shall be made by Operator to the end that charges shall equal the actual cost of injecting water into the line well. "Actual cost of injecting water", as that phrase is used in this paragraph, shall be determined by dividing the cost incurred by Operator in supplying and injecting water to all wells connected to the injection facilities by the total number of barrels of water injected into all wells connected to said facility. The per barrel charge for water for each subsequent one-year period shall be the per barrel cost computed for the preceding year. (c) Water Supply and Injection Facilities - Platform Operator shall at the sole cost and expense-of the Platform owners~develop the source of injection water and provide the injection facilities referred to in this agreement. All such water supply, and injection facilities shall be and remain the property of the respective Platform owners. Actual cost of injecting water into the line well.shall include an amount of amortization of the water supply and injection facilities plus interest on the unamortized value thereof at the rate of eight percent (8%) per annum. The parties hereto further stipulate and agree that said water supply and injection facilities shall have a useful life of fourteen (14) years from and after date of first injection. 10. In the event that an Operator elects to require the parties hereto to advance their respective proportionate shares of the above mentioned costs and expenses, such Operator shall on or before the 10th day of each month submit an itemized - 10 - estimate of the costs and expenses for the succeeding calendar month to said parties, reflecting the proportionate part- of such estimated costs and expenses chargeable to each. Within fifteen (15) days after receipt of said estimate, each.such party shall pay to Operator such party's share of said estimated costs and expenses and if such payment is not made when due, the unpaid. balance thereof shall bear interest at the rate of ten percent. (10%) per annum from the due date until paid. Adjustments between estimated and actual costs and expenses shall be made. by Operator at the close of each calendar month and accounts of-the parties hereto adjusted accordingly° Unless Operator elects to require the parties hereto to advance their respective proportionate shares of the costs and expenses incurred by such Operator pursuant to the. terms of this agreement, Operator shall initially advance and pay such costs and expenses incurred by it hereunder and shall charge each party hereto conformably with the following provisions of this Section 10. As between Mobil-Union and Chakachatna, all of the above mentioned costs and expenses, and all credits and related matters and the accounting with respect thereto, shall be ascertained, computed, allowed or conducted in accordance with the pro- visions of the Accounting Procedure, marked Exhibit "B" annexed hereto and made a part hereof. In the event of any conflict between the provisions contained' in the body of this agree- ment and those contained in the body of said Accounting Procedure, the provisions of this agreement shall control. Herein, references to Operator shall mean the Operator incurring the~expense. Operator shall make no single expenditure in excess of Twenty- Five Thousand Dollars ($25,000) without the prior written consent of the parties hereto.having been first obtained, except - 11 - that in the case of an accident or other emergency, Operator shall take such action as in its judgment is required for the protection of life and property and may incur for the joint account of the parties hereto all necessary costs and expenses in connection therewith. Any such accident or other emergency and the action taken in connection therewith shall be reported by. Operator to each other party hereto as soon as is reasonably practicable thereafter. 11. Each party hereto shall have~ access to Platform at all reasonable times, at its sole risk, to inspect or observe those operations thereon relating to said line well~ and shall have access at all reasonable times to information pertaining to the drilling and operation thereof, including Operator's books and records relating thereto. 12. As between Chakachatna and Mobil-Union, each shall.be solely responsible for any damage to its Platform (including the wells drilled therefrom), and for injury to persons and damages to property, resulting from the drilling and operation therefrom of the line well. Neither shall be liable to the other for any damage resulting to the reservoir, or the producing wells completed therein, because of oper. ations conducted pursuant'to this agreement unless such damage is.the result of willful or wanton negligence. As between parties hereto, the liability of such parties shall be several, not joint or collective. Each party hereto shall be responsible only for its obligations, and shall be liable only for its proportionate share of the costs and ex- penses of the operations contemplated by this agreement. - 12 - It is not the intention of the parties hereto to create, nor shall this agreement be construed as creating, a mining or other partnership of association or to render them liable as partners. 13. Each of the parties hereto_elects, under the author- ity of Section 761 (a) of the Internal Revenue Code of 1954, to be excluded from the application of all of the provisions of Subchapter K of Chapter 1. of Subtitle A of the Internal Revenue Code of 1954. If the income tax laws of the State of Alaska now contain, or may hereafter contain, provisions similar to those contained in the Subchapter of the Internal Revenue Code of 1954 above referred to under which a similar election is permitted, each of the parties agrees that such election shall be exercised~. Each party hereto authorizes and directs Operator to execute such an election or elections on its behalf and to file the election with the proper governmental office or agency. If requested by Operator so to do, each party hereto hereby agrees to execute and join in such an election(s)° 14. If any party hereto is rendered unable, wholly or. in part, by force majeure to carry out its obligations under this agreement, other than the obligation to make money payments, such party shall give all other parties hereto prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the party giving the notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the continuance of the force majeure. The affected party shall use all possible diligence to remove the force majeure as quickly as possible. The requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty by the party - 13 - involved, contrary to its wishes; how all such difficulties shall be handled shall be entirely within the discretion of. the party concerned. The term "force majeure" as here employed shall mean an act- of God, strike, lockout, or other industrial disturbance, act. of the. public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, governmental restraint, unavailability of equipment, and any other cause, whether of the kind specifi- cally enumerated above or otherwise, which is not reasonably within the control of the party claiming suspension. 15. Ail notices authorized or required among the parties hereto which are required by any of the provisons of this agree, ment, shall, unless otherwise specifically provided, be given in writing by United States mail or Western Union telegram., postage or charges prepaid, and addressed to the party to whom the notice is given at its address as same appears in conjunction with its signature hereinbelow. The originating notice to be given under any provision of this agreement shall be deemed given only when received by the party to whom such notice is directed and the time for such party to give any notice in response thereto shall run from the date the originating notice is received. The second or any responsive notice shall be deemed given when deposited in the United States mail or with the Western Union Telegraph Company, with postage or charges prepaid. Each party hereto shall have~ the right to change its address at any time, and from time to time, by giving written notice of such change to all of the other parties hereto. 16. The terms and provisions or. this agreement shall be binding upon and inure to the benefit of the parties hereto- and their respective successors and assigns. - 14 - 17. This agreement shall be subject to all valid and applicable State and Federal laws, rules, and regulations and orders and the operations conducted hereunder shall be performed in accordance with the said laws, rules, regulations and orders. In the event this agreement or any provision hereof is, or the operations contemplated hereby, are found to be inconsistent with or contrary to any such law, rule, regulation or order, the latter shall be deemed to control and this agreementrshall be regarded as modified accordingly, and, as so modified, shall continue in full force and effect. 18. This agreement may be executed as one instrument or in two (2) or more original counterparts (no one of which need be executed by all of the parties hereto) with the same force and effect as if all parties hereto.had executed the same instrument~ 19. Insurance provisions. At all times while operations are being conducted hereunder, each Operator shall carry, for the benefit of the parties hereto, Workmen's Compensation and Employer's Liability Insurance which shall fully comply with the laws of the State of Alaska, and United States and maritime coverages as applicable. Each Operator shall charge to the joint account the amount of premium applicable to this insurance coverage. In the event it is deemed necessary by the individual parties, each may purchase such other insurance as it felt adequate for its own protection, but the Operators may not carry or maintain any other insurance for the joint account without the approval of the parties. Each Operator shall require its contractors and subcontractors engaged in work on or for the benefit of the said Platforms to comply with the Workmen's Compensation and Employer's Liability Laws of the State of Alaska-, and shall maintain such other insurance as each Operator may require. - 15 - 20. Any additional line wells to be drilled along the common boundary (such additional wells being referred to as "subsequent line wells") shall be drilled only upon a written proposal agreed to by all the parties. Such written proposal shall make reference to this Section 20 and shall: (1) Specify the Operator of the subsequent.line well and the platform from which such well is to be drilled; it being understood that if the well is to be drilled from the Mobil-Union platform, Mobil shall be the designated Operator, and that if the well is to be drilled from the Chakachatna Granite Point "A'~ platform, Pan American shall be the designated Operator. (2) Specify the date on or before which the Op- erator shall commence operations for drilling the particular subsequent line well, subject always to the approval of the drilling thereof by the State of Alaska. (3) Designate the location. (4) Specify the criteria for drilling and com- pleting the subsequent line well. (5) Specify the amount of investment charge to be made to the parties hereto who own no interest in the platform from which such subsequent line well is to be drilled. (6) Be delivered in duplicate, to each of the parties hereto at least 30 days prior to the date specified for commencement of drilling operations for such subse- quent line well. Ail of the provisions of this agreement pertaining to the-drilling, testing, completing, equipping, producing, converting to injection and operating of the first line Well including the paying and~ - 16 - bearing of costs and risks in6ident thereto and the accounting therefor also shall apply and be performed with respect to each subsequent line well, provided that only one $135,000.00 slot charge shall be made for each platform. IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first above written. PAN AMERICAN PETROLEUM CORPORATION By_ Its Attorney in Fact Security Life Building Denver, Colorado 80202 MOBIL OIL CORPORATION By ItS Attorney in Fact 610 So. Flower Street Los Angeles, California 90054 PHILLIPS PETROLEUM COMPANY By Its Attorney in Fact Security Life Building Denver, Colorado 80202 UNION OIL COMPANY OF CALIFORNIA By, Its Attorney in Fact Union Oil Center Los Angeles, California SKELLY OIL COMPANY By_ Its Attorney in Fact Oil Center Building Tulsa, Oklahoma 74102 ATTEST: Assistant Secretary SINCLAIR OIL CORPORATION By Vice President Lincoln Tower Building Denver, Colorado 80203 STATE OF AI~ASKA - 17 - By bearing of costs and risks incident thereto and %he accoUnting therefor also shall apply and be performed with respect to each -. subsequent line well, provided that only one $135,000.00 slot charge · shall be made for each platform. IN WITNESS WHEREOF, the parties have executed this agreement. as of the day and.year first above written. ippr6vals I Initial ] Date PAN ~VLERICAN PETROLEUM CORPORATION I~s '-~Attorney in Fact Security Life' Building Denver, Colorado 80202 MOB~RATION~ ' . -/I/s~hey in Fact ' '1~'~~, Alask~ Los Angeles, Ca. 9oo54 PHILLIPS PETROLEUM COHPANY By Its Attorney in Fact Security Life Building Denver, Colorado 80202 UNION OIL COMPanY OF CALIFORNIA By. Its Attorney in Fact Union Oil Center Los Angeles, California SKELLY OIL COMPANY ATTEST: Assistant Secretary STATE OF A'L~SKA By By Its Attorney in Fact Oil Center Building Tulsa, Oklahoma 74102 . SINCLAIR OIL CORPdRATION By' Vice President Lincoln Tower Building Denver, Colorado 80203 bearing of costs and risks incident thereto and the accounting therefor also shall apply and be~performed with respect_to each subsequent line well, provided that only one $135,000.00 slot charge shall be made for each platform. IN WITNESS WHEREOF, the parties have executed this agreement~ as of the day and year first above written, PAN AMERICAN PETROLEUM CORPORATION By Its Attorney in Fact Security Life Building Denver, Colorado 80202 MOBIL OIL CORPOP~TION By Its Attorney in Fact 700 "G~' Street Anchorage, Alaska- PHILLIPS PETROLEUM COMPANY Its A~t~orney'in 'Fact Security Life Building Denver-, Colorado 80202 UNION OIL COMPANY-OF CALIFORNIA By Its Attorney in-Fact - Union Oil Center Los Angeles, California SKELLY OIL COMPANY By Its AttOrney in Fact- Oil Center Building Tulsa, Oklahoma 74102 ATTEST: A~sistant. Secretary SINCLAIR OIL CORPORATION By~ Vice President Lincoln Tower Building Denver, Colorado 80203 By. STATE OF ALASKA - 17 - bearing of costs and risks incident thereto and. the accounting therefor also shall apply and be performed with respect.to each subsequent line well, provided that only one $135,000.00 slot charge shall be made-for each platform. IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first above written. PAN AMERICAN PETROLEUM CORPORATION By Its Attorney in Fact Security Life Building Denver, Colorado' 80202. MOBIL OIL CORPORATION ~By Its Attorney in Fact 700 "G-'' Street Anchorage, Alaska PHILLIPS PETROLEUM COMPANY By . Its Attorney in Fact Security Life Building Denveri, Colorado 80202 R Los Angeles, California SKELLY OIL COMPANY By Its Attorney in ~act Oil Center Building Tulsa, Oklahoma 74102 ATTEST: Assistant Secretary SINCLAIR OIL CORPORATION By Vice President Lincoln TowerIBuilding Denver, Colorado 80203 By. STATE OF ALASKA - 17 - bearing of costs and risks incident thereto and the accounting therefor also shall apply and be. performed with respect_to each subsequent line.well, provided that only one $135,000.00 slot .charge shall be made for each platform. IN WITNESS WHEREOF, the parties have executed this agreement- as of the day and~year first above written. PAN AMERICAN PETROLEUM CORPORATION By. Its Attorney in Fact Security Life Building Denver, Colorado 80202- MOBIL OIL CORPO?~TION By Its Attorney in Fact 700 "G" Street Anchorage, Alaska PHILLIPS PETROLEUM COM3ANY By Its Attorney in Fact Security Life Building Denver-, Colorado 80202 UNION OIL COMPANY- OF CALIFORNIA By Its Attorney in Fact Union Oil Center Los Angeles, California ATTEST: SKELL~ OIL COMPANY Oil Center Building Tulsa, Oklahoma 74102 ATTEST: Assistant Secretary SINCLAIR OIL CORPORATION By Vice President Lincoln Tower Building Denver, Colorado 80203~ By STATE OF ALASKA - 17 - bearing of costs and risks incident thereto and the accounting therefor also shall apply and be performed with respect_to each subsequent line well, provided that only one $135,000.00 slot charge shall be made for each platform. IN W~TNESS WHEREOF, the parties have executed this agreement as of the day and year first above written. PAN AMERICAN PETROLEUM CORPORATION By Its Attorney in Fact Security Life Building Denver, Colorado 80202- MOBIL OIL CORPORATION Its Attorney in Fact 700 "G-" Street Anchorage, Alaska PHILLIPSIPETROLEUM. COMPANY By Its Attorney in Fact Security Life Building Denver-, Colorado 80202 UNION OIL COMPANY- OF CALIFORNIA By Its Attorney in-Fact Union Oil Center Los Angeles, California SKELLY OIL COMPANY BYt Its Attorney in Fact Oil Center Building Tulsa, Oklahoma 74102 SINCLAIR OIL CORPORATION By ~ice P~es~ nt ' Lincoln Tower-Building Denver, Colorado 80203- By STATE OF ALASKA - 17 - e2 ~>1 ~44-14 R.12W. ADL 18742 ®25 Chakachatna ·4 PIt."A" 13 19 12 ®5 \ "[ARGET AREA FOR PRE-TER. TIARY ·9 ~'~ "T----._ !~0~';?°°'- F / ~- 900' ~ 9( ~.ZA~E~AREA FOR MIDDLE e31-1go - KENA~ SAND TOP ·22-13 Mobil - Union Pit I · 33-13 ·24-13 ADL 18761 TOP ®15 EXHIBIT 10 o' -~' N. "A" EAST GRANITE LINE WELL LINE WELL POINT AGREEMENT TARGET AREA SCALE 1"-1000' /'~.,~;~ 60i TUt. hA I. OKLAHOMA EXHIBIT "s" COPAS -- 1962 Recommended by the Council of Petroleum Accountants Societies of North America. Attached to and made a part of ....... GRJkNITE__P_OINT__F_I~LD .................................. ............................................... LZ~IE___?~..~L_ A~,,IE~I'~ .................................................. ................................................... ~TATE__OF___ALASKA ..................................................... ACCOUNTING PROCEDURE (JOINT OPERATIONS) I. GENERAL PROVISIONS 1. Definitions "Joint Property" shall mean the real and personal property subject to the agreement to which this "Accounting Pro- cedure" is attached. · "Joint Operations" shall mean all operations necessary or proper for the development, operation, protection and maintenance of the Joint Property. "Operator" shall mean the party designated to conduct the Joint Operations. "Non-Operators" shall mean the nonoperating parties, whether one or more. "Joint Account" shall mean the account showing the charges and credits accruing because of the Joint Operations and which are to be shared by the Parties. "Parties" shall mean Operator and Non-Operators. "Material" shah mean personal property, equipment or supplies acquired or held for use on the Joint Property. "Controllable Material" shall mean material which at the time is so classified in the Material Classification Manual as most recently recommended by the Council of Petroleum Accountants Societies of North America. 2. Conflict ~vith Agreement In the event of a conflict between the provisions of this Accounting Procedure and the provisions of the agree- ment to which this Accounting Procedure is attached, the provision.s of the agreement shall control. 3. Collective Action by Non-Operators Where an agreement or other action of Non-Operators is expressly required under this Accounting Procedure and if the agreement to which this Accounting Procedure is attached contains no contrary provisions in re~ard thereto, the agreement or action of a majority in interest of the Non-Operators shall be controlling on all Non- Operators. 4. Statements and Billings Operator shall bill Non-Operators on or before the last day 'of each month for their proportionate share of costs and expenses, for the preceding month. Such bills will be accompanied by statements reflecting the total charges and credits as set forth under Subparagraph ........ ~_ ................. below: A. Statement in detail of all charges and credits to the Joint Account. B. Statement of all charges and credits to the Joint Account, summarized by appropriate classifications indicative of the nature thereof. C. Statement of all charges and credits to the Joint Account summarized by appropriate classifications indicative of the nature thereof, except that items of Controllable Material and unusual charges and credits shall be detailed. 5. Payment and Advances by Non-Operators Each Non-Operator shall pay its proportion of all such bills within fifteen (15) days after receipt thereof. If pay- ment is not made within such time, the unpaid balance shall bear interest at the rate of six per cent (6%) per annum until paid. 6. Adjustments Payment of any such bills shall not prejudice the right of any Non-Operators to protest or question the correctness thereof; provided however, all bills and statements rendered to Non-Operators by Operator during any calendar year shall conclusively be presumed to be true and correct after twenty-four (24) months following the end of any such calendar year, unless within the said twenty-four (24) month period a Non-Operator takes written excep- tion thereto and makes claim on Operator for adjustment. No adjustment favorable to Operator shatl be made unless it is made within the same prescribed period. The provisions of this paragraph shall not prevent adjust- ments resulting from a physical inventory of the Joint Property as provided for in Section VII. 7. Audits A Non-Operator, upon notice in writing to Operator and all other Non-Operators, shall have the right to audit Operator's accounts and records relating to the accounting hereunder for any calendar year ~vithin the twenty-four (24) month period following the end of such calendar year; provided however, the making of an audit shall not ex- tend the time for the taking of written exception to and the adjustment of accounts as provided for in Paragraph 6 of this Section I. Where there are two or more Non-Operators, the Non-Operators shall make every reasonable effort to conduct joint or simultaneous audits in a manner which will result in a minimum of inconvenience to the Operator. II. DIRECT CHARGES Subject to limitations hereinafter prescribed, Operator shall charge the Joint Account with the following items: 1. Rentals and Royalties Delay or other rentals and royalties when such rentals and royalties are paid by Operator for the Joint Account of the Parties. 2. Labor A. Salarie.~ and wages of Operator's employees directly engaged on the Joint Property in the conduct of the Joint ©?:'~lions, and salaries or wages of technical employees who are temporarily assigned to and directly ~:n,l)loyed on the Joint Property. . ',~. (~,,~,'~.;.',:'s cost of holiday, vacation, sickness and disability benefits and other customary allowances paid to the (;~;~.p]c,y~.,:s whose salaries and wages are chargeable to the Joint Account under Paragraph 2A of '~h':.s Section II ar.d ]',,ragraph 1 of Section III; except that in the case of those employees only a pro rata pore:on of whose :-:aid.ri(:.. and wa;4r's are chargeable to the Joint Account under Paragraph i of Section III. not more ~.:.xa-.'~ .:he same pr(, ,';,ta portion of the benefits and allowances herein provided for shall be charged to the Joint Account. Cost u:,d(-:' ~his I)ara~4raph 2B may be charged on a "when and as paid basis" or by "percentage assessmeu~" o:'~ the a;r',,',~,: ,,f m~lari("s and wages chargeable to the Joint Account under Paragraph 2A of this Section ~ and Para- .v:':~;,~. : ~,f S(.(.lio~ III. Il' l)ercentage assessment is used, the rate shall be based on the Operator's cost experience. C l,:xi,~.:,,;itt~re:~, or c,~tributions made pursuant to assessments imposed by governmental authority which are ap- ;,iir.:,i,l~. ~o Ol,,rator's labor cost of salaries and wages chargeable to the Joint Account under Pa':agraphs 2A ;,:,,! 2i~, of thi.~ Section II and Paragraph 1 of SeetionIII. i~. ~-',.:,:<r,~.:,i,le p~,rsonal expenses of those employees whose salaries and wages are chargeable to the 3pint Account ..,,.rI(.r ['a~'agraph 2A of this Section II and for which expenses the employees are reimbursed under Operator's ,~::~_,,I p:'acticc. 3.' Emph~yee Benefits ~-~ ~--~' ©pc:'a'~or's current cost of established plans for employees' group life insurance, hospitalization, pension, retire- mcn~. s~ock purchase, thrift, bonus, and other benefit plan~Li~$ natm~pplicable to Operator's labor cost: pro- vialed however, the iolal of such charges shall not excee(~xpercent (~,) of Operator's !abet costs chargeable ~o ~he Jo/ut Account under Paragraphs 2A and 2B of this Section II and Paragraph 1 of Section III. 4. Ma~crlal ~[a:cri:~I purchased or furnished by Operator [or use on the Joint Property. So Jar as ~ is reasonably pract~- ca! and consislent with efficim~t and economical operation, only such Material shall be purchased [or or ~rans~errcd lo thc Joint P~'operty as may be required for immediate use; and the accumulation of surplus stocks shall be avoided. 5. Transportation Trat~sportation of employees and Material necessary for the Joint Operations but subject to the following limitatiops: A. If 5Iateriat is moved to the Joint Property from the Operator's warehouse or other properties, no charge shall be made to the Joint Account for a distance~greater than the distance from the nea.es~- ' reliable supply. ~ store or railway receiving point where like material is available, except by agreement with Non-Operators. B. If surplus Material is moved to Operator?s warehouse or other storage point, no charge shall be made to the Joint Account for a distance greater than the distance to the nearest reliable supply store or railway receiving poiut, except by agreement with Non-Operators. No charge shall be made to Joint Account for moving ~aterial to other properties belonging to Operator, except by agreement with Non-Operators. C. In the application of subparagraphs A and B above, there shall be no equalization of actual gross trucking costs of $100 or less. 6. Services A. The cost of contract services and utilities procured from outside sources other than services covered by Para- graph 8 of this Section II and Paragraph 2 of Section III. B. Use and service of equipment and facilities furnished by Operator as provided in Paragraph 5 of Section IV. 7. Damages and Losses to Joint Property Ail costs or expenses necessary for the repair or replacement of Joint Property made necessary because of damages or losses incurred by fire, flood, storm, theft, accident, or any other cause, except to the extent that the damage or loss could have been avoided through the exercise of reasonable diligence on the part of Operator. Operator shall furnish Non-Operators written notice of damages or losses incurred as soon as practicable after a report thereof has been received by Operator. 8. Legal Expense All costs and expenses of handling, investigating and settling litigation or claims arising by reason of the Joint Operations or necessary to protect or recover the Joint Property, including, but not limited to, attorneys' fees, court cos}s, cost of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation or claims; provided, (a) no charge shall be made for the services of Operator's legal staff or o~her reg- ularly employed personnel (such services being considered to be Administrative Overhead under Section III), ex- cept by agreement with Non-Operators. and (b) no charge shall be made for the fees and expenses of outside at- torneys unless the employment of such attorneys is agreed to by Operator and Non-Operators. 9. Taxes All taxes of every kind and nature assessed or levied upon or in Connection with the Joint Property, the operation thereof, or the production therefrom, and which taxes have been paid by the Operator for the benefit of the Parties. 10. Insurance Premiums Premiums paid for insurance required to be carried 0n the Joint Property for the protection of the Parties. 11. Other Expenditures Any other expenditure not covered or dealt with in the foregoing provisions of this Section II, or in Section III,. and which is incurred by the Operator for the necessary and proper conduct of the Joint Operations. III. INDIRECT CtIARGES Operator may charge the Joint Account for indirect costs either by use of an allocation of district expense items plus a fixed rate for administrative overhead, and plus the ;vat, housing charges, all as provided for in Paragraphs 1. 2, and 3 of this Section III OR by combining all three of said items under the fixed rate provided for in Paragraph 4 of this Section III. as indicated next below: OPERATOR SHALL CHARGE THE JOINT ACCOUNT UNDER THE TERMS OF: ~ Paragraphs 1, 2 and 3. (Allocation of district expense plus fixed rate for administrative overhead plus warehousing. ) ~ Paragraph 4. (Combined fixed rate) 1. District Expense Operator shall charge the Joint Account with a pro rata portion of the salaries, wages and expenses of Operator's production superintendent and other employees serving the Joint Property and other properties of the Operator in the same operating area. whose time is not allocated directly to the properties, and a pro rata portion of the cost of maintaining and operating a production office known as Operator's ........ P~~q ........................................................ o,_tceC¢' located at or near __ .Anchorage,_ ~laska__k ............... (or a comparable office if location changed), and neces- sary sub-offices (if any). maintained for the convenience of the above-described office, and all necessary camps, including housing facilities for employees if required, used in connection with the operations of the Joint Property and other properties in the same operating area. The expense of, less any revenue from, such facilities may, at the option of Operator. include depreciation of investment or a fair monthly rental in lieu of depreciation. Such charges shall be apportioned to all properties served on some equitable basis consistent with Operator's accounting practice. 2. Administrative Overhead Operator shall charge administrative overhead to the Joint Adcount at the folloxving rates, xvhich charge shall be in lieu of the cost and expense of all offices of the Operator not covered by Paragraph 1 of this Section IIL including salaries, wages and expenses of personnel assigned to such offices. Such charges shall be in addition to the salaries, wages and expenses of employees of Operator authorized to be charged as direct charges as provided in Paragraphs 2 and 8 of Section II; provided that travel expenses of Operator's personnel head- quartered in offices other than the office of Operator described in Paragraph 1 of this Section III shall be a direct charge to the joint account -when incurred for the specific benefit of the joint operations. A. The Administrative Overhead shall be assessed on the following basis: (1) Development - One percent (1%) of the cost of development, exclusive of costs provided under Paragraph 8 of Section II and all salvage credits. (2) Operating - Seven and one-half percent (7-1/2%) of the cost of operating the property, exclusive of costs provided in Section II under Paragraphs l, S a~ that portion of Paragraph 9 dealing with taxes and assessments which are levied, assessed and paid upon the mineral interest in and to tke property, and the cost of injected substances purchased for secondary recovery and interest computed as set forth in Article 9c of' the Agreement. (3) Major Contruction - Overhead on major construction shall be the result of negotiations among the affected parties initially bearing the costs thereof. For the purpose of determining these charges, "Development" shall include al! costs in connection with drilling, redrilling, deepening or any remedial operations on any or all wells involving the use of drilling crew and equipment; also prelimi- nary expenditures necessary in preparation for drilling and expenditures incurred in abandoning when well is not completed as a producer; and original cost of construction or installation of fixed assets, the expansion of fixed assets and any other project clearly discernible as a fixed asset, except "Major ConstruCtion.'' "Major Construction" shall include all costs of construction or installation of compressor plants, water stations, secondary recovery systems, salt water disposal facilities, and other such projects, as distinguished from the more usual drilling and producing operations. Ail other costs shall be considered as "Operating." The charges provided in this Section III may be amended from time to time by mutual agreement between the parties hereto if, in practice, they are found to be insufficient or excessive. The cost and expense of services from outside sources in connection with matters of taxation, traffic, accounting, or matters before or involving governmental agencies shall be considered as included in the overhead rates provided for in this Paragraph 2 of Section III, unless such cost and expense are agreed upon between Operator and Non-Operators as a direct charge to the Joint Account. Operator's Alaskan Warehouse Operating and Maintenance Expense. To cover Operator's cost of ordering, handling and storing materials, equipment and supplies, Operator shall make the following charges: ae For tubular goods (2" in diameter and larger) and major equipment such as derricks, tanks, boilers, compressors, engines, pumps, motors (3 H.P. and over), oil and gas separators, pumping units, gear reduction units, and other large units delivered from Operator's storehouse to.the property, there shall be assessed an overhead charge of two percent (2%) of the cost thereof. For all other materials and supplies delivered from Operator's storehouse to the property, there shall be assessed an overhead charge of three percent (3%) of the cost thereof. IV. BASIS OF CHARGES TO JOINT ACCOUNT Subject to the further provisions of this Section IV, Operator wi'Il procure all Material and services for the Joint Prop- erty. At the Operator's option, Non-Operator may Supply Material or services for the Joint Property. 1. Purchases Material purchased and service procured shall be charged at the price paid by Operator after deduction of all dis- counts actually received. 2. ~Wlaterial furnished from Operator's Warehouse or Other Properties A. New Material (Condition "A") (1) Tubular goods, two inch (2") and over, shall be priced on Eastern Mill base (i. e. Youngstown. Ohio; Lorain, Ohio; and Indian~ Harbor, Indiana) on a minimum carload' basis effective at date of movement and f. o. b. railway receiving point nearest the Joint Property, regardless of quantity. In equalized hauling charges, Operator is permitted to include ten cents (10c) per hundred-weight on all tubular goods furnished from his stocks in lieu of loading and unloading costs sustained. (2) Other Material shall be priced ai the current replacement cost of the same kind of Material, ~ffective at date of movement and f. o. b, the supply store or railway receiving point nearest the Joint Property %vhere Material of the same kind is available. (3) The Joint Account shall not be credited with cash discounts applicable to prices provided for in this Para- graph 2 of Section IV. B. Used Material (Condition "B" and "C") (1) Material in sound and serviceable condition and suitable for reuse without reconditioning, shall be classified as Condition "B" and priced at seventy-five per cent (75%) of the current price of new Material. (2) Material which cannot be classified as Condition "B" but which, (a) After reconditioning will be further serviceable for original function as good secondhand Material (Condition "B"), or (b) Is serviceable for original function but substantially not suitable for reconditioning, shall be classifi- ed as Condition "C" and priced at fifty per cent (50%) of cua-rent new p~ice. (3) Obsolete Materi~l or'Material which cannot be classified as Condition "B" or Condition "C" shall be priced at a value commensurate with its use. Material no longer suitable for its original purpose but usable for some other purpose, shal}~"doe priced on a basis comparable with that'.,~items normally used for such other purpose. (4) Material involving erection costs shall be charged at applicable percentage of the Current knock~d-down price of new Material. 3. Premium Prices Whenever Material is not readily obtainable at prices specified in Paragraphs 1 and 2 of this Section IX/' because of national emergencies, strikes or other unusual causes over which the Operator has no control, the Operator may charge the Joint Account for the required Material at the Operator's actual cost incurred in procuring such Material, in making it suitable for use, and in moving it to the Joint Property, provided, that notice in writing is £urnished to Non-Operators of the proposed charge prior to billing Non-Operators for such Material. Each Non- Operator shall have the right, by so electing and notifying Operator within 10 days after receiving notice from Operator, to fm'nish in kind all or part of his share of such Material suitable for use and acceptable to Operator. 4. Warranty of ~Iaterial Furnished by Operator Operator does not warrant the Material furnished. In case of defective Material, credit shall not be passed to the Joint Account until adjustment has been received by Operator from the manufacturers or their agents. 5. Equipment and Facilities Furnished by Operator A. O~erator shall charge the Joint Account for use of equipment and facilities at rates commensurate with cost of o~-nership and operation. Such rates shall include cost of maintenance, repairs, other operating expense, in- surance, taxes, depreciation and interest on investment not to exceed six per cent (6%) per annum, provided such :-ates shall not exceed those currently prevailing in the immediate area within which the Joint Property is located. Rates for automotive equipment shall generally be in line with the schedule of rates adopted by the Petroleum Motor Transport Association, or some other recognized organization, as recommeded uniform charges against Joint Property operations. Rates for laboratory services shall not exceed those currently prevailing if performed by outside service laboratories. Rates for trucks, tractors and well service units may include wages and expenses of operator. B.Whenever requested, Operator shall inform Non-Operators in advance of the rates it proposes to charge. C.Rates shall be revised and adjusted from time to time when found to be either excessive or insufficient. V. DISPOSAL OF MATERIAL The Operator may purchase, but shall be under no obligation to purchase, interest of Non-Operators in surplus Condi- tion "A" or "B" Material. The disposition of surplus Controllable Material, not purchased by Operator, shall be subject to agreement betxveen Operator and Non-Operators, provided Operator shall dispose of normal accumulations of junk and scrap Material either by transfer or sale from the Joint Property. 1. 3Iaterial Purchased by the Operator or Non-Operators Material purchased by either the Operator or Non-Operators shall be credited by the Operator to the Joint Account for the month in which the Material is removed by the purchaser. 2. Division in Kind Division of Material in kind, if made between Operator and Non-Operators, shall be in proportion to the respective interests in such Material. The Parties'will thereupon be charged individually with the value of the Material re- ceived or receivable. Proper credits shall be made by the Operator in the monthly statement of operations. 3. Sales to Outsiders Sales to outsiders of Material from the Joint Property shall be credited by Operator to the Joint Account at the net amount collected' by Operator from vendee. Any claim by vendee related to such sale shall be charged back to the Joint Account if and when paid by Operator. VI. BASIS OF PRICING MATERIAL TRANSFERRED FROM JOINT ACCOUNT 3Iaterlal purchased by either Operator or Non-Operators or divided in kind, unless otherwise agreed to between Operator and Non-Operators shall be priced on the following basis: 1. New Price Defined New price as used in this Section VI shall be the price specified for New Material in Section IV. 2. Ne~v 3Iaterial New Material (Condition "A"), being new Material procured for the Joint Property but never used, at one hundred per cent (100%) of current new price (plus sales tax if any). g. Good Used I~Iaterial Good used Material (Condition "B"), being used Material in sound and serviceable condition, suitable for reuse without reconditioning: A. At seventy-five per cent (75%) of current new price if Material was charged to Joint Account as new, or B. At sixty-five per cent (65%) of current new price if Material was originally charged to the Joint Account as ~condhand at seventy-five percent (75%) of new price. 4. Other Used l~'Iaterlal · Used Material (Condition "C"), at fifty per cent (50%) of current new price, being used Material which: A. Is not in sound and serviceable condition but suitable for reuse after reconditioning, or B. Is serviceable for original function but not suitable for reconditioning. 5. Bad-Order Nlaterial Material (Condition "D"), no longer suitable for its original purpose without excessive repair cost but usable for some other purpose at a price comparable with that of items normally used for such other purpose. 6. Junk 3Iaterial Junk Material (Condition "E"), being obsolete and scrap Material, at prevailing prices. 7. Temporarily Used Material When the use of Material is temporary and its service to the Joint Property does not justify the reduction in price as ' provided for in Paragraph 3 B of this Section VI, such Material shall be priced on a basis that will leave a'net charge to the Joint Account consistent with the value of the service rendered. VII. INVENTORIES The Operator shall maintain detailed records of Material generally considered controllable by the Industry. 1. Periodic Inventories, Notice and Representation At reasonable intervals, inventories shall be taken by Operator of the Joint Account Material, which shall include all such Material as is ordinarily considered controllable. Written notice of intention to take inventory shall be given by Operator at least thirty (30) days before any inventory is to begin so that Non-Operators may be repre- sented when any inventory is taken. Failure of Non-Operators to be represented at an inventory shall bind Non- Operators to accept the inventory taken by Operator, who shall in that event furnish Non-Operators with a copy thereof. 2. Reconciliation and Adjustment of Inventories Reconciliation of inventory with charges to the Joint Account shall be made, and a list of overages and shortages shall be jointly determined by Operator and Non-Operators. Inventory adjustments shall be made by Operator with the Joint Account for overages and shortages, but Operator shall be held accountable to Non-Operator only for shortages due to lack of reasonable diligence. 3. Special Inventories Special inventories may be taken whenever there is any sale or change of interest in the Joint Property. It shall be the duty of the party ~'elling to notify all other Parties as .quickly as possible after the transfer of interest takes place. In such cases, both the seller and the purchaser shall be governed by such inventory. EXHIB~I? "C" DRILLING PRO G R}~{ The well shall be drilled from a platform slot location of the operator's choice. The hole angle and direction shall be planned to allow the well bore to penetrate the Middle Kenai sand at a vertical angle approximately equal to the angle built up for driling the major part of the upper hole. It is anticipated this angle will be approximately 28°. The operator will arrange to drill the well bore which lies between the base of the "B" sand and top of the "C" sand as near as practical to the primary target but in no event will this portion of the well be located outside the target area for the Middle Kenai sand shown on Exhibit "A". By definition the base of the "B" sand occurs at a depth of 9160' and the top of the "C" sand occurs at a depth of 9500' in the Mobil-Union State ADL 18761 No. 31-13. After penetration of the Middle Kenai sands, continued drilling will be designed to obtain geologic information on Pre-Tertiary Formations. The exact bottom-hole location is not .critical, but it is desired that the highest practical structural location be reached consistent with limitations imposed by the upper hole control and economic drilling practices-. Directional control will be relaxed in anticipation that the well will "climb" up- structure. The vertical angle of approximately 28° carried through the Middle Kenai will be gradually reduced to approximately 15°. A dipmeter survey will be run after penetration of approximately 500' of the West Forelands Formation to determine that the direction relative to structure is satisfactory. If a change in direction is needed to gain structure, the operator will endeavor to make such change. Ail parties will be provided the dipmeter information at the earliest practical date. The Pre-Tertiary target area shown on Exhibit "A" is not intended to lim.~ the well progress, and if conditions determined as drilling progresses indicate a need to bottom the well outside ~he Pre-Tertiary target area, the operator will so advise all par~ies. The casing program described below will be followed insofar as practical. In the even~ well bore conditions dictate a sub- stantial change from this planned program, the operator will. promptly advise the parties. Depth Hole Size Size Casing 400' MD 400' to 6000' MD 6000' to 12,400' MD 12,400' to TD 2 2" 18" OD 16" 13-3/8" OD 12-1/ " 9-5/8" OD 8-1/2" 7" OD Liner If in the operator's judgment a completion attempt should not be made in formations below the Middle Kenai Sands, approval to abandon this portion of the hole or to conduct further testing will be obtained in accordance with the voting procedure. - 2 -
