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Home My WebLink AboutCO 217 ,r'" Conservation Order Cover Pag 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 '~r_ Conservation Order Category Identifier Organizing RESCAN [] Grayscale items: [] Poor Quality Originals: [] Other: NOTES: DIGITAL DATA [] Diskettes, No. [] Other, No/Type OVERSIZED (Scannable with large plotter/scanner) [] Other items OVERSIZED (Not suitable for plotter/scanner, may work with 'log' sccj:mer) of various kinds [] Other · BY: ,r" Scanning Preparation TOTAL PAGES BY: MARIA DATE:" - . '~ /S/ Production Scanning Stage I , PAGE COUNT FROM SCANNED DOCUMENT: , ~ I ~ PAGE COUNT MATCHES NUMBER IN SCANNING PREPARATION: NO Stage 2 IF NO IN STAGE 1, PAGE(S) DISCREPANCIES WERE FOUND: ~ YES ~ NO (SCANNING IS COMPLETE AT THIS POINT UNLESS SPECIAL ATTENTION IS REQUIRED ON AN INDIVIDUAL PAGE BASIS DUE TO QUALITY, GRAYSCALE OR COLOR IMAGES) General Notes or Comments about this Document: I I 5/21/03 ConservOrdCvrPg,wpd STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Re: THE APPLICATION OF CHEVRON ) U.S.A. INC. for an order ) granting an exception to the) spacing requirements of ) Title 20 AAC 25. 055(a)(4) ) for the drilling of Pretty ) Creek Unit Well No. 224-28 ) Conservation Order No. 217 Pretty Creek Unit Undefined Gas Pool and Gas Field July 18, 1986 IT APPEARING THAT: Chevron U.S.A. Inc., operator for the Pretty Creek Unit (PCU), submitted an application on April 28, 1986 requesting an exception to 20 AAC 25.055(a)(4) to permit drilling PCU Well No. 224-28 as a vertical well bore located 770 feet north and 2066 feet east from the southwest corner of Section 28, T14N, R9W SB&M. · Notice for a public hearing on June 26, 1986 to consider Chevron's application for an exception to spacing requirements for the drilling of PCU Well No. 224-28 was published May 22, 1986 in the Anchorage Times. · · A public hearing on Chevron's application was held at 9:00 AM, June 26, 1986 in the Commission's conference room at 3001 Porcupine Drive, Anchorage, Alaska. Members of Chevron's technical staff testified in support, of granting an exception to spacing regulations for PCU Well No. 224-28. · Burglin et al, a working interest owner in the PCU, protested Chevron's application by letter of May 27, 1986 and presented testimony in opposition to granting an exception to spacing regulations for PCU Well No. 224-28. No other person testified. FINDINGS: · Chevron U.S.A. Inc. re-entered the abandoned Halbouty Alaska Oil Co. Theodore River Well #1, renamed Pretty Creek Unit (PCU) Well No. 2, on February 7, 1979. Conservation Ord,' No. 217 Page 2 July 18, 1986 · · · · · ~ · · 10. 11. After testing gas flows at commercial rates, the PCU Well No. 2 was plugged and suspended February 26, 1979. The Commission took no action under 20 AAC 25.538 (repealed 4/2/86) to officially establish a gas field area, and has not designated under 20 AAC 25.520 a gas pool or established pool rules for the PCU Well No. 2 discovery. In the absence of an order by the Commission issued under 20 AAC 25.520 establishing a well spacing pattern for a pool, 20 AAC 25.055(a)(4) establishes a governmental section as the drilling unit for gas development wells and sets out the well spacing requirements. Chevron is currently in progress with a program to complete PCU Well No. 2 as a gas producer. 20 AAC 25.055(b) sets forth a means for an operator to apply for an exception to spacing requirements and AS 31.05.100(b) sets forth the findings which the Commission must make to grant a well spacing exception. Testimony by Chevron, as demonstrated by their submitted Exhibit F, indicates that Section 28, T14N, R9W SB&M is, by and large, within the productive limits of a gas pool discovered by PCU Well No. 2. Well sites, conforming with 20 AAC 25.055(a)(4), exist in Section 28 from which potentially productive development wells may be vertically drilled. A potentially productive development well may be directionally drilled from a surface well site located 770 feet north and 2066 feet east from the southwest corner of Section 28, T14N, R9W SB&M to expose the gas bearing strata at a location which conforms with the spacing requirements set forth by 20 AAC 25.055(a)(4). The record indicates that the cost to directionally drill a well that complies with the spacing requirements set forth by 20 AAC 25. 055(a)(4) will not exceed 110% of the cost to drill at the requested exception location. The spacing requirements established by 20 AAC 25.055(a)(4) protect correlative rights and prevent waste. Conservation Ord,(" No. 217 Page 3 July 18, 1986 CONCLUSION: The Commission is constrained by AS 31.05.100(b) from granting an exception to 20 AAC 25. 055(a)(4) because: I , Virtually the entire Section 28 drilling unit lies within the estimated productive pool limits. · A well located in compliance with spacing regulations appears to be reasonably located structurally to prove productive. · Topographic conditions do not make the drilling of a well at a location in compliance with spacing regulations unduly burdensome. · The incremental increase in cost to directionally drill a well to expose gas bearing strata in compliance with spacing regulations is not unduly burdensome. DECISION: Chevron U.S.A. Inc.'s application for an exception to 20 AAC 25.055(a)(4), for the purpose of completing PCU Well No. 224-28 from gas bearing strata exposed by PCU Well No. 2, is denied. DONE at Anchorage, Alaska and dated July 18, J986. C. . erto~,/C~airman I A laska Oil and G~s Conservation Commission _' Lonnie C.Smi Commissioner Alaska Oil an, Gas Conservation Ciommission W. W. Barnwell, Commi~sz~q-~'er ' Alaska Oil and Gas Conservation Commission C. Burglin Land Consultant P.O. Box 131 Fairbanks, Alaska 99707 (907)452-5149 July 1, 1986 Commissioner Chatterton Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501 Re: Public Hearing June 26, '1986 Dear Commissioner Chatterton- .Burglin et al (Burglin) is hereby submitting additional written comments for the public record with regard to Chevron's application to an exception to 20 AAC '25.055. Burglin takes strong exception to Chevron U.S.A., Inc. item #17 statement: "The only written protest filed regarding Chevron's application by Mr. Burglin, has not met the notice of hearing requirements published by the AOGCC by not stating in detail the' nature of his aggreivement . Mr. C. Burglin has not indicated how he .may be a~lgreived if the referenced order is issued .qrantin.q the request." Bu~rglin, as a Working Interest Owner of the Pretty'Creek Unit, was never informed by 'Chevron U.S.A., Inc., the unit operator of the Pretty Creek Unit, that Chevron was applying for a well-spacing exception for the proposed PCU #224-28. well. Chevron did not supply Burglin with any detailed infOrmation concerning Chevron~s application for a well-spacing exception, therefore Burglin did not have the necessary information to "state in detail the nature of his aggreivement" within the 15 day response period. Burglin, as a Working Interest Owner within the Pretty Creek Unit, did indicate how they .maY be'aggreived if the exception to well-spacing was granted by the Commission. Chevron appears to be stating in item #18 that the best way to delineate the PCU gas formations is through well-spacing exceptions. Burglin does not agree that well-spacing exceptions are the best method for delineation of all under- lying gas reservoirs' within the PCU. Burglin feels that a Unit Plan of' Development, proposed initial PA's, and well- spacing are all equally important in order to prevent waste, insure a greater ultimate recovery of gas, and protect correlative rights by clearly delineating all productive formations within the PCU. In the hearing, Chevron et al made several references to the marginal economics of developing and delineating the PCU. Burglin et al feels that if this is such a marginal prospect for Chevron and Chevron cannot fUlfill the requirements of the laws and regulations, then the Pretty Creek field should not be developed. Possibly gas to supply their contract could be supplied more profitably from the Ivan C. Burglin Land Consultant P.O. Box 131 Fairbanks, Alaska 99707 (907)452-5149 Commissioner Chatterton page 2 River Unit, or the Lewis River Unit, or the Beluga River Unit, or the Stump Lake Unit. Burglin does not agree with Chevron's evaluation of the Burglin well #66-1. Although this well was plugged and abandoned, Burglin feels that this well was not tested. In 'comparing the logs from the Burglin well with available logs from Chevron et' al~s producing wells, we find the producing areas in all the wells are very similar. We have presented these comparisons to the AOGCC in testimony on other occasions as well as an offer to re-enter that well and test it. We definitely felt that with a re-entry and adequate testing the Burglin well would extend the BelUga River Unit production substantially. Burglin et al 'expects the AlaSka Oil and Gas Conservation Commission, the Department of Natural Resources, and Chevron et al, or any other unit operator 'in the State of .Alaska~ to comfOrm to and comply with all of the state laws and regUlations without exception or exemption, In conclusion, Chevron 'did not demonstrate at the June 26, 1986 public hearing that adherence to 20 AAC 25.055 would cause' the drilling of Chevron~s proposed #224-28 to be unproductive or unduly burdensome. S~erely, Brian Burglin cc: J.D. Arlington .' BB/CB/bbr ?.O. }3ox 1 a ! Fairbanks, Alaska 99707 (90,~)4~.-o i49 July 1, "1986 La~'~d IDe,,,,gartment PO Box 107839 Anchorage, Alaska 99510 Dear Mr',. A¢li¢,gton: Burgiin et al (Burglin) as a Working interest Owner of tt~e P~'etty C~'eek Unit is requestin9 a copy of al~ exhibits p~'esented by Chevron at the ~u~e 26, 1986 public hearing. R eg'a rds, B ri'ar~ Bur'9~n cc: Co~missioaer Ch.a'~.tecton Cl'~evron Land DeparLmen! Chevron U.S.A. Inc. 3001 C S'[ree'h Anchorage, AK 99510 Ma~I Address: P.O. Box 107839, Anchorage, AK 99510 Phone (907) 786 6600 May 28, 1986 EIGHTI~ PLAN OF DEVELOPMEN'I & OPERATIONS- PRETTY CREEI~ COM M __~ '~"~" *"~ ~'~ .... 'REs ;:;",,~ .... IL'." ~';. _ :;._~ ?'2.'-?,;:~: 'STAT, ........ STAT TEC MS. K. Brown,..Dkr~or~ Division of_~_ & G/is / Depart/m~nt of Na~}r'~l Resources P.O./gox 7034 /~ho~rage, Alaska 99510 Dear Ms. Brown: Chevron U.S.A. Inc., as Unit Operator of the Pretty Creek Unit, submits for your review and approval the attached Eighth Plan of Development and Operations. Following approval, this Plan will go into effect on August 26, 1986. Should you have any questions or concerns regarding this submittal, please do not hesitate to contact the undersigned at 786-6665. Very truly yours, j.~~D. Arlington~~ JDA:mw Attachment Union Oil Co. of California P.O. Box 6247, Anchorage, AK 99502 Texaco Alaska, Inc. 10 Universal City Plaza, Universal City, CA 91608-1097 Ms. Lorna Call P.O. Box 1747, Bellevue, WA 98009 Mr. E.W. Crafton, Sr. Mr. Charles F. Stack Mr. Clifford Burglin P.O. Box 131, Fairbanks, AK 99707 Gas Conservation Commission 3001 Porcupine Dr., Anchorage, AK 99501-3192 EIGHTH PLAN OF DEVELOPMENT AND OPERATIONS PRETTY CREEK UNIT STATE O17 ALASKA I® II. PERIOD This plan shall cover the period from August 26, 1986 to August 25, 1987. DRILLING/REMEDIAL PROGRAM A. Seventh Plan Review Completion operations for the Pretty Creek Unit No. 2 Well are to be completed before expiration of the Seventh Plan of Development and Operations (POD). The well will be tested, and completed during the Seventh POD and placed on produc- tion during the Eighth POD. ® Article IV of the Seventh POD was amended indicating Chevron's intent to obtain permits to drill another commercial gas well, the PCU #224-28 Well. Drilling is still scheduled to start during the Seventh POD with completion and commence- ment of production occurring during the Eighth POD. B. Eighth Plan Proposed Work lo The PCU #224-28 Well will be completed and placed on production during the period of the Eighth POD. m wellpad to supply non-potable drilling water. A new water well will be drilled near the PCU #224-28 · PRODUCTION PROGRAM' A. Seventh Plan Review Article II of the Seventh POD was amended to indicate Chevron'S' intent to submit to the State for approval the Initial Participating Area, comprised of 40-acre legal subdivisions of unitized lands regarded as productive of unitized substances in paying quantities. The Initial Participating Area will be submitted to the appropriate State agencies for approval at least 90 days prior to sustained unit production and before expiration of the Seventh POD. " B. Eighth Plan Preview Both the PCU #2 and the PCU #224-28 Wells are scheduled to be completed and on production during the period of the Eighth POD. EIGHTH PLAN OF DEVELOPMENT AND OPERATIONS PRETTY CREEK UNIT Page 2 The completion of the PCU #2~.4-28 Well will allow opportunity for confirming the structural interpretation and the productive limits of the Beluga and Sterling formations thereby preventing waste and allowing for the protection of correlative rights for the owner of each property in the producing pool. IV. SURFACE AND FACILITY OPERATIONS A. Seventh Plan Review le Surface production facility and pipeline construction for the PCU #2 Well will begin approximately July 1, 1986 and be completed by September 1, 1986. Facilities include a heater building, dehydration building, electrical building, contactor tower and interconnecting pipelines with associated equip- ment. e Installation of 3,000 feet of 4" pipeline between the PCU #2 and the ENSTAR pipeline should be completed before expira- tion of the Seventh POD. o Clear the site and construct the wellpad for the PCU #224-28 Well. Be Eighth Plan Proposed Work Install production facilities at the PCU #224-28 wellsite. Facilities required at the wellsite include a heater building, dehydratior building, wellhead building, electrical building, heater oil and drain tanks, and associated equipment, each~ with interconnecting pipe and electrical lines. e Install approximately 300 feet of 4" pipeline between the PCU #224-28 Well and the ENSTAR pipeline. e StaCk and burn the cleared stumps, brush and small trees from clearing operations for the PCU #224-28 wellpad construction." :': . V® STATEMENT OF OPERATOR'S REPRESENTATIVE I hereby certify that I, or persons under by direct supervise'on,~- ~ave'~/~'' ,, inspected the proposed drill sites, access routes, and areas of operation; that I am familiar with the conditions which currently exist; that the statements made in this POD are, to the best of my knowledge, true and correct; and that the work associated with operations proposed herein will EIGHTH PLAN OF DEVELOPMENT AND OPERATIONS PRETTY CREEK UNIT Page 3 be performed by Chevron U.S.A. Inc. and its contractors and subcontrac- tors in conformity with this POD and the terms and conditions under which it is approved. Mr. J. L. Weaver Area Operations Superintendent Chevron U.S.A. Inc. P.O. Box 107839 Anchorage, AK 99510 Submitted by Chevron U.S.A. Inc., Operator, May ,1986. Approved this day of ,1986. By Department of Natural Resources Divison of Oil & Gas 12 16 17 20 2! 22 23 24 25 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION In the matter re: Application for Exception to Statewide Rules and Regulations by Chevron USA, Incorporated, in the Pretty Creek Unit. FOR THE APPLICANT: FOR THE PROTESTANT, BURGLIN, ET AL.: FOR THE COMMISSION: COMMISSION MEMBERS: FORMAL HEARING BEFORE THE FULL COMMISSION MR. JAMES ARLINGTON MR. MICHAEL HAUSER MR. NORM STONE MR. GREGG MOLESWORTH MR. CLIFF BURGLIN MR. BRIAN BURGLIN~ MR. GARY PLAYER MS. ANN PREZNA Assistant Attorney General MR. CHAT CHATTERTON, CHAIRMAN MR. LONNIE SMITH, MEMBER MR. WILLIAM BARNWELL, MEMBER 3001 PorCupine Drive Anchorage, Alaska June 26, 1986 9:00 a.m. R & R COURT REPORTERS 8 ! 0 n STREET, SUITE ! O ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 I 5 l0 l! 12 14 16 17 19 20 2! 22 23 '24 25 P R O C E E D I N G S MR. CHATTERTON: Thank you, Meredith. I would like to call this hearing to order, and I would like to make a note of the date. It is June the 26th, 1986, and it is the -- approximately 9:15 a.m., and we are in the conference room of the offices of the Alaska Oil and Gas Conservation Commission. I will introduce to you here the people at the head table. At my extreme right, your left, is Ann Prezna from the Attorney General's Office. She has been giving us legal counsel for a good many years, and very ably. Again next -- seated next to me on my right is Commissioner Bill Barnwell. I am Chat Chatterton. To my left is Commissioner Lonnie Smith. And to my extreme left why is Meredith Downing of the R & R Court Reporters who will be taking down the Proceedings as we go through here. The purpose of this hearing is to consider, take testimony on an application by Chevron USA I guess. I can't keep up with their name changes. Chevron USA, Incorporated to drill a well at Pretty -- in the Pretty Creek Unit, which we will find will be numbered 224-28, and they're requesting exception to the statewide rules and regulations on spacing with two respects: the stand-back from a governmental section line and the distance between bottom hole locations of the producing horizons in wells. Notice of this hear- -- opportunitY for a hearing was published in the Anchorage Times on May the 22nd, 1986, and the -- anyone who chose to avail theirselves of the opportunity for the public -- for the public hearing could so advise us within R & R COURT REPORTERS 810N STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 12 14 16 17 19 2O 2! 22 23 ¸24 25 a 15-day period following the May 22nd, 1986, publication. Cliff Burglin -- Burglin, et al., chose to exercise that and in -- and in a timely fashion they requested that a hearing be held, and that is the reason that we are here. We shall conduct the hearing right in line with the format of 20 AAC 25.540. I will highlight roughly what the procedures are that regulation sets forth. We shall have the applicants testify first, and then any Others wishing to give testimony shall follow the apPlicants. And at the Commission's discretion, and it Will be basically through the Chair, at the Commission's discretion, why we will permit applicants and/or affected owners to cross examine witnesses. If you wish people to testify as an expert witness, why we will ask you -- we -- we will ask that witness to set forth for us his qUalifications and we will make the determination as to whether we will accept his testimony as that of an expert or not. Oral statements are permitted at the conclusion of all the direct testimonies. Questions from the audience may not be posed directly to any of the people testifying. I think that pretty well covers the meat of how we'll try and run this meeting. We plan to give the broadest latitude for all concerned in presenting evidence, testimony, so forth and so on. Broadest latitude as to subject matter. There is a rule of reason, and if we think we get too far astray of what really is before us, why R & R COURT REPORTERS 810 N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 2O 2! 22 23 ¸24 25 we might ask you to try and summarize and -- and cut it a little bit short. So I guess with no further ado we'll proceed to ask Chevron USA, Incorporated, the Applicant, to tell us all about it. MR. ARLINGTON: Thank you, Mr. Chairman. I have been ..... MR. SMITH: The witnesses official swearing in? MR. CHATTERTON: We'll find out if he's going MR. SMITH: Okay. MR. CHATTERTON: .... have any witnesses to swear in as peopl, e testify. MR. SMITH: Okay. MR. ARLINGTON: I do have prepared ..... MR. CHATTERTON: You are -- you are an attorney I take it? 'MR. ARLINGTON: Yes. MR. CHATTERTON: Yeah, okay. Ail right. MR. ARLINGTON: And I've got prepared sworn testimony that I'd like to make and make available to the Commissioners. I'd like to read it into the record. I have provided a copy to the gentlemen across the table from me, and I don't know your name? MR. PLAYER: I'm Gary Player. I'm a consultant R & R COURT REPORTERS 810N STREET, SUITE I01 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 10 12 14 16 17 20 21 22 23 ¸24 25 -5- to the Berglins. MR. ARLINGTON: Okay. Reading from -- well, there was a question as to whether or not I should be sworn in. I would request to be sworn in at this time. MR. CHATTERTON: Normally attorneys are not sworn in, but this is rather strange. You are going to give all the testimony? MR. ARLINGTON: At the Outset, yes, sir. MR. CHATTERTON: Okay. Let's have him sworn in. MR. SMITH: Shall we swear in others at this time that are planning to testify? MR. CHATTERTON: Might as well. That's fine. Tha will get them all at once. Who all wants to testify before we get through? You? MR. B. BDRGLIN: Well, we want to hear what they have to say. MR. CHATTERTON: Yeah, but -- but sooner or later you want ..... MR. B. B~RGLIN: Yeah, sooner or later, yes. MR. B. BDRGLIN: .... to testify. We can swear you all or we can swear one side in first. Go ahead. MR. SMITH: Okay. Those that are planning to be witness, will you stand, please? (Gregg Molesworth, Norm Stone, Mike Hauser, and Jim Arlington duly sworn under oath) R & R COURT REPORTERS 8 ! O n STREET, SUITE 10 ! 509 W. 3RD AVENUE 277-O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUe 272-75 i 5 l0 12 14 16 17 19 2O 2! 22 23 ¸24 25 -6- ask you .... MR. SMITH: Be seated. MR. ARLINGTON: Thank you. MR. CHATTERTON: Okay. Mr. Arlington, may I MR. ARLINGTON: Can I proceed? MR. CHATTERTON: .... are you -- what are your qualifications to testify? MR. ARLINGTON: I think they're, you know, out- lined here in the -- in the testimony. I'm a land attorney with Chevron USA employed'by Chevron USA in its Anchorage, Alaska, District Office. I have been authorized to represent Chevron before the Alaska Oil and Gas Conservation Commission, referred to throughout the rest of my testimony here as AOGCC, regarding Chevron's request for exception to 20 AAC 25.055, Which would permit the drilling of the Pretty creek Unit Well Number 224-28 at a surface location less than 1500 feet from a governmental section boundary, a gas pool to be opened to the well bore at closer than 1500 feet to the governmental sectoin line and closer than 3,000 feet to any well drilling to or cpable of producing from the same pool. MR. CHATTERTON: Okay. I don't want to belabor this, Mr. Arlington, but do you choose to be qualified as an expert to -- for the testimony you're planning to give? MR. ARLINGTON: Yes, most of the issues raised by this request for exception are land related issues. R & R COURT REPORTERS 810N STREET, SUITE lO! 509W. 3RD AVENUE 277-0572 - 277~O573 277-8543 ANCHOrage, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 i 5 12 17 20 2! 22 23 24 25 moment. MR. CHATTERTON: Let's go off the record for a (Off record) (On record) MR. CHATTERTON: Mr. Arlington, if you will proceed, please? MR. ARLINGTON: Okay. Thank you, Mr. Chairman. To reiterate what you had already done at the beginning as far as a background as to why we're her'e, Chevron filed a permit to drill the subject well with the Alaska Oil and Gas Conservation Commission on March 26, 1986. Chevron subsequently received a telephone call f~om an AOCGG engineer reviewing the application notifying Chevron that the application was not in compliance with AOGCC's new regulations in so far as well spaCing was concerned which went into effect April 2nd, 1986. Chevron subse- quently filed a written request dated April 28th, 1986, making application for exception to section .055 of these new oil and gas conservation regulations, to permit the drilling of a gas well, the Pretty Creek Unit Well Number 224-28, at the following location: Surface location plus or minus 770 feet north and plus or minus 2,066 feet east of the southWest corner of section 28, township 14 north, range nine west, Seward base and meridian. The bottom hole location proposed is the same as that just indicated. The AOGCC subsequently issued an order dated May 7th, R & R COURT REPORTERS 810N STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-75 ! 5 10 12 13 16 17 19 2O 2! 22 23 24 1986, which indicated that anticipated action by the AOGCC regarding the Pretty Creek Unit would be inconsistent with Chevron's request for exception, and which, therefore, negated any action by the AOGCC on Chevron's request at that time. Chevron subsequently filed a request for reconsideration on May 15th, 1986, requesting that the AOGCC approve Chevron's original application for exception and reconsider the need for establishing pool rules for development of the field at this time. AOGCC subsequently published on May 22nd, 1986, a notice of public hearing indicating that unless a written protest of Chevron's application was filed within 15 days of the notice stating in detail the nature of the filing party's aggrievement, the AOGCC would .consider the issuance of an order without a hearing. Subsequently one letter of protest was filed by Mr. C. Burglin, dated May 27th, 1986, objecting to Chevron's request for a well location exception, among other things, thereby neces- sitating this hearing. Since the AOGCC regulations provide no standards for the review of applicatiens for spacing exceptions, Chevron suggests the following reasons and findings of facts be adopted by the AOGCC to support the granting of Chevron's request in addition to the reasons indicated in Chevron's request for reconsideration dated May 15th, 1986, and Chevron's orginal application for exception dated April 28th, 1986, which are R & R COURT REPORTERS 8 I 0 N STREET, SUITE 1 O1 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 l0 13 14 16 17 19 2O 2! 22 23 24 incorporated by reference for the purposes of this hearing. Number one, as indicated above, Chevron filed its appli- cation for permit to drill on March 26, 1986, at which time Chevron was in compliance with the existing well spacing regula- tions except for the 3,000 feet distance requirement from existing wells capable of producing from the same pool. Since Chevron's proposed location is a very minor variance from this requirement, Chevron's application for permit to drill should therefore be approved based upon the regulatins that were in effect at the time that the application was filed. Number two, the gas pool to be produced in the Pretty Creek Unit is simiiar and analogous to the pool being produced from the Beluga .formation in the Beluga River unit, which is adjacent to the Pretty Creek Unit. The geological'and well data that Chevron has from the Pretty Creek Unit indicates that the geological information and Chevron's production experience in the Beluga River Unit are directly applicable to the pool to be produced in the Pretty Creek Unit. Three, Chevron has received several well spacing exception rulings from the AOGCC in the Beluga River Unit which is an adjacent producing gas field with similar and analogous gas bearing sands. 'Four well spacing exceptions in the Beluga River Unit have been obtained from the AOGCC for wells completed during the last drilling season. These wells include BRU 224-34, BRU 211-3, BRU 224-23, and BRU 232-26. R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGe, aLASKA 9950! 1007 W. 3RD AVENUE 272-7515 10 l! 12 13 14 16 17 19 2O 2! 22 23 24 25 -10- Number Four, the commercial wells that have been drilled within the Beluga River Unit are within 160 acre spacing of other commercial wells. Number five, Chevron's proposed location for the PCU Number 224-28 well would be within 160 acre spacing of the existing PCU Number Two Well, which is a gas well capable of producing in commercial quantities. Number six, a bottomhole location for the PCU 224-28 well at a location within the small area that would be allowed by the current AOGCC regulations would jeopardize future drilling locations based on 160 acre spacing within the Pretty Creek Unit. Number seven, The location proposed by Chevron would optimize the opportunity to delineate the Sterling formation as welI as the Beluga formation within the Pretty Creek Unit. Eight, the current AOGCC regulations would imit to hoe the number of wells that could be drilled within any governmental section in a unit not subject to field rules. Number nine, there currently exists a well within the Prety Creek Unit capable of producing in commercial quantities, the PCU Number Two Well, which allows comparison to the Beluga River Unit. While there is not sufficient technical and operating data to propose field rules within the Pretty Creek Unit at this time, there is sufficient data to indicate that a govern- mental section within the Pretty Creek Unit will support more than on well producing from the Beluga formation. R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, aLASKA 9950! 1007 W. 3RD AVENUE 272-7515 l0 13 16 17 19 2O 2! 22 23 24 25 -11- Number ten, producing data from the adjacent Beluga River Unit indicates a high probability of having more than one well capable of production within any governmental section producing from the Beluga sands. Number 11, the risk factor for the subject well, which is the BRU 224-28 (sic), would be too great if the bottomhole were located further from the PCU Number Two Well than what is proposed by Chevron to economically justify the drilling of the subject well. Number 12, Chevron is committed to a gas contract which requires production from the PCU Number Two well by November 1, 1986, and further requires that another well be proven capable of production by January 1, 1987. While the PCU Number Two Well is capable of producing in commercial quantities, the PCU 224-28 Well is marginally economical at the present location due to the need for additional surface facilities and other factors, and would probably not economically support additional costs or risks. Additional costs or risks associated with the PCU Number 224-28 Well will .jeopardize the well economics and could result in a decision by Chevron to cancel its drilling. Number 13, the topography within the governmental section where the PCU Number 224-28 Well is proposed -- proposed to be drilled severely limits the possible surface locations for the well. The proposed location is surrounded by wetlands and is bounded on the northeast by the Theodore River. Limitations R & R COURT REPORTERS 810 n STREET, SUITE IO1 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 l0 14 16 17 2O 21 22 23 ¸24 25 -12- by other regulatory agencies would delay locating the wellpad any place else within this governmental section. Therefore, if the exception to the bottomhole location regulation is denied, a wellbore deviation from Chevron's proposed surface location would be required. This wellbore deviation would substantially increase the drilling costs for the PCU Number 224-28 Well. Number 14, denial by the AOGCC of Chevron's request for exception would require additional Permitting time which in turn would delay drilling and production from the well, substan- tially increasing the possibility of breaching the gas contract obligations. Number 15, Chevron's request for spacing exceptions are all minimal variances from the current AOGCC spacing requirements. Number 16, the Potential benefit to the state of Alaska is greater with the AOGCC granting Chevron's request for exception due to the increased probability of commercial production than if the AOGCC were to deny Chevron's request. Number i7, the only written protest filed regarding Chevron's application, by Mr. Burglin, has not met the notice of hearing requirements published by the AOGCC by not, and I quote from the notice, "stating in detail t'he nature'of his aggrievement," end quote. Mr. C. Burglin has not indicated how he, and again I quote from the notice, "may be aggrieved if the referenced order is issued granting the request," end quote. Number 18, Chevron concurs with the statement made in R & R COURT REPORTERS 81on STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-7515 l0 12 14 16 17 2O 2! 22 23 24 25 -13- Mr. Burglin's protest letter of May 27th, 1986, that the produc- tive limits of the Beluga and Sterling formations within the Pretty Creek Unit have not been delineated at this time. However, it is precisely for this reason that Chevron has requested the spacing exception. The location Chevron has proposed will afford a greater opportunity to delineate both the Beluga and Sterling formations as well as increase the probability that commercial quantities of hydrocarbons will be encoUntered. All other references made by Mr. Burglin in his letter of May 27th, 1986, pertaining to Chevron's unit plan of development and a proposed initial participating unit for the Pretty Creek Unit are therefore inappropriate and irrelevant for this hearing. Methodology the State of Alaska .uses to determine a participating area is a policy decision made by an appropriately charged state agency and is outside the scope of this hearing. As a supplement to this written sworn testimony of Chevron USA, Incorporated, Mr. Norm Stone, development geologic coordinatol Mr. Mike Hauser, area engineer, and Mr. Gregg Molesworth, produc- tion engineer, are available following this presentation to answer any questions the Commissioners may have that would elaborate upon the facts and statements I've just presented. Following any presentations by them and following testimon from any aggrieved parties, we'll be available for cross examina- tion if such is allowed by the Commissioners. Chevron appreciates this opportunity to present its R & R COURT REPORTERS 810 N STREET, SUIte 101 509 W. 3RD AVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 l! 12 17 2! 22 ¸24 25 -14- testimony and requests that the AOGCC approve Chevron's applica- tion for an exception to 20 AAC 25.055 as specified in Chevron's letter of April 28th, 1986. And that concludes our formal testimony at this time. MR. CHATTERTON: Thank you, Mr. Arlington. In other words, you do not plan to have Mssrs. Stone, Hauser, and Molesworth to give any direct testimony? They're here to only reply to questions? MR. ARLINGTON Correct. If the Commissioners feel that there needs to be elaboration to the points I've made, we otherwise feel that what we've presented is a substantial argumentation to support our request for exception. MR. CHATTERTON: Okay. Mr. Stone? MR. STONE: Yes, sir? MR. CHATTERTON: Would you state your qualifica- tions as an expert in geological development, geological coordinator activities, please? ~MR. STONE: Ail right. Mr. Chairman, I am a graduate of Washington State University. I currently hold a B.S. and an M.S. degree in -- in geology, and I completed a thesis to obtain those -- those degrees working with soft rock geology in the Puget Sound area, Washington. Subsequently I was hired by Chevron out of -- out of -- directly out of the University and went to work in -- in California as a petroleum geologist. I have currently been employeed by Chevron as a R & R COURT REPORTERS 810 n STREET, SUITE IO! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENue 272-7515 l0 12 13 17 19 20 2! 22 23 ¸24 25 -15- petroleum geologist assigned to the Alaska area, and specifically the Cook Inlet area, for the last three years of my employment. I was recently, a year ago in fact this July, transferred to Alaska as -- as area geologist for the Cook Inlet Region. And within my area of responsibility Pretty Creek and in fact the northern side of the Cook Inlet involving similar gas fields, Beluga River field, Ivan River, Stump Lake, and what potential that we see and are involved in at Lewis River comes under my charge. And I have worked on the Pretty Creek 224-28 location and am in fact responsible for the inception of the -- of the location of the well, and the reasons 'and the expertise behind picking the particular location that we have submitted to the State. MR. CHATTERTON: Okay. Thank you.~ The -- I'm sure I'm speaking for the Commission, 'find you qualified as an expert to testify ..... MR. STONE: Thank you, Mr. Chairman. 'MR CHATTERTON: ..... on matters before us. MR. STONE: May I say one additional statement? MR. CHATTERTON: That .... MR. STONE: Is -- would be 'that prior to our -- Mr. Arlington's oral testimony and written testimony associated with the same, we did have consultations prior to writing this, and I have had a chance to read his statements and -- and I do agree with what Chevron or Mr. Arlington has written -- written R & R COURT REPORTERS 810 N STREET, SUITe 101 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! ! 007 W. 3RD AVENUE 272-7515 l0 12 13 14 16 17 20 2! 22 23 24 25 -16- or spoken into the record at this hearing. MR. CHATTERTON: You anticipated what.one of my questions was going to be, and in part you've satisfied that, but I may be back in more detail with you. Mr. Hauser, would you state your qualifications as an expert in the field of petroleum engineering, please? MR. HAUSER: Okay. I graduated from the Universit of Missouri at Rolla in 1978 with a B.S. degree in geological engineering with petroleum option. I was hired out of -- out of that school by Chevron in -- as a production engineer, which is Chevron's classification for a general all-around petroleum engineer. I worked in several areas in California in that capacity and priOr to leaving California I was -- for -- for three years I was a supervising engineer for the engineering department in -- in two different areas. I was transferred to Alaska a year ago in the capacity of area engineer, which is the -- the senior engineer for the Alaska area for Chevron, and under that responsibility I have three engineers and -- and two engineering assistants that report to me working on various fields. One of those engineers does work on the Pretty Creek Field. And all correspondence, engineering related or not, does -- does go through me and is -- has a'certain amount of input by me and my engineering group. I guess that's about it. MR. CHATTERTON: Thank you, Mr. Hauser, and the Commission will accept you as an expert to testify on matters R & R COURT REPORTERS 810 N STREET, SUITE 10! 509W. 3RD AVENUE 277-0572 - 277-0573 277~8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUe 272-75 ! 5 10 12 13 14 16 17 20 2! 22 23 24 -17- before us at this point in time. Let's go to the next gentleman, Mr. Molesworth, please. Would you state your qualifications? MR. MOLESWORTH: Yes, sir. My name's Gregg Molesworth. I'm a graduate in 1980 from Marietta College with a B.S. in petroleum engineering. Since that time I've been employed by Chevron, initially in California at Taft and subse- -- subsequently at Elk Hills as a produCtion engineer. Since March of 1985 I've been transferred to the Anchorage office and -- as a production engineer, and my primary functions have been with -- as production engineer in charge of Beluga River and Pretty Creek. I also have -- I also --my other -- my other functions concer.n the Cook Inlet area, platforms in Cook Inlet area that we don't operate, but we do have an interest in. MR. CHATTERTON: Thank you, Mr. Molesworth. We -- the Commission will accept you as an expert to testify on matters before us. Just as an aside and obviously facetious, are you the gentleman that is responsible for Navy O- --.off,i., .~ excuse me, DOE producing Elk Hills beyond the MER? MR. MOLESWORTH: They like to point the finger at Chevron. 'MR. C. BURGLIN: Poor Chevron. MR. CHATTERTON: Ail right. I would like to now go back to you, Mr. Storm -- Stone, if I may. One, you have definitely already stated, and I want to re-affirm, you have R & R COURT REPORTERS 810 N STREet, SUITE IO1 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 12 13 14 16 17 19 2O 21 22 23 24 25 -18- read the testimony, and you listened to the testimony, and you're familiar with the testimony that Mr. Arlington just gave. Those subjects within that testimony that deal with petroleum geology basically, geological information, you concur with everything that is said there? MR. STONE: Yes, sir, I concur. MR. CHATTERTON: That's particularly referring to item number two? I may be -- point out a few, but may not be all inclusive. You agree with state- -- the statement in item number two? MR. STONE: Yes, sir, that is .... MR. CHATTERTON: Okay. MR. STONE: .... a definite .... MR. CHATTERTON: Thank you. MR. STONE: ..... agreement there. MR. CHATTERTON: Would you -- would you take.~ particularly look at item number 11, please? MR. STONE: Yes, sir. MR. CHATTERTON: Would you explain to me what that says? In other words, what's-- what risk factor I guess? Could you embellish on that one, please? MR. STONE: Yes, sir. MR. CHATTERTON: The risk of what I guess is the question. MR. STONE: What -- what we're talking about R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277~O573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 12 13 16 17 19 20 2! 22 23 24 25 -19- here, sir, is Pretty Creek Unit is a -- is essentially a one -- one well gas field at this time for which we have not in fact produced any gas that we have sold commercially. We are in fact currently -- currently completing the first well in the field. The Beluga formation is a formation which can best be conceived as a formation containing many discontinuous sands. And as you -- as you either -- as you go a greater distance from good, known well data that we have proven to be commercially productive, you increase the risk by -- by not being able to trace the limits of those discontinuous sands from that point of -- of good well data. And simPlY what this risk factor is referred to is just a simple geology and distance comparison that if ' the further you go perhaps the less likely the formation will be exactly the same as the formation is at the point where we have already looked at it. And to pUt an economic justification or to attach an economic justification to that risk would be the charge of our area engineer. MR. CHATTERTON: Thank you. Would you agree with -- with --see if you agree with what.I'm about to say, because I can say it so I can understand what I'm thinking. You have discovered a gas accumulation, a gas accumulation has been discovered. You now are faced with the problem I guess of R & R COURT REPORTERS 810 N STREET, SUITE IO1 509 W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 14 16 17 19 20 2! 22 23 24 25 -20- drilling confirmation wells to limit -- to establish the limits of the field, is that right? MR. STONE: Correct. MR. CHATTERTON: Yeah. Okay. Very good. Any other questions of -- of ..... ? MR. BARNWELL: I have on on number seven. Is this well that you're proposing then mostly related to trying to delineate this field more closely, and the geology climate more closely or is it a little bit of one .... MR. STONE: Yes, sir, .... MR. BARNWELL: .... and a little of the other? MR. STONE: Mr. Commissioner, if I may show you an electric log of Pretty Creek Two Well, to support an answer to that question? I'm not sure where I can~-- if I can hang this up or if I can lay this out so that other folks can see it as well? What -- what we have here is just a ..... 'MR CHATTERTON: Pull that chair back if you want and (indiscernible, simultaneous speech) MR. STONE: ..... the open hole dual induCtion log ran by Slumberjay (ph) at the time the Well was drilled in -- in 1969, which in fact was drilled by Howbuney (ph), and we later re-entered the well under a farming (ph) agreement and renamed the well Pretty Creek Two. What I've done is simply in the spontaneous potential R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 20 2! 22 23 24 25 -21- curve colored those deflections which I believe are sandstone with a -- with a yellow crayon, and those sands which we have proven commercial, to be commercial gas bearing sands as red opposite those -- those yellow sands. Above these Beluga formation sands, and this wiggly line here is -- is our geologic marker in the North Cook -- Cook Inlet area to differentiate between the lower Sterling and the Beluga formation. Above these Beluga -- gas bearing Beluga sands are several lower Sterling sands that have been tested three different times actually. There is a test here 3-A, 4-A and a GST Number Three, and have produced some gas. But associated with that gas they also produced sa.nd and water. In fact, this lower test produced 100 MCF per day with a small stream of water and and some sand. And it is our contention that if we can get slightly up dip from this location that we are at in the Pretty Creek Two Well, and according to our in-house geology based on seismic data that we have acquired and -- and data from the well, we believe that the location that we have proposed to the Commission would in fact be a location that would be 50 to 6'0 feet up dip from -- from this particular well, we believe that some of these sands could become gas bearing, and we would like to delineate these sands in the Sterling formation and prove them as productive prior to coming in and establishing field rules for the Pretty R & R COURT REPORTERS 810N STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUe 272-7515 10 12 14 16 17 19 20 2! 22 23 24 25 -22- Creek Field. Beyond that, the location also, because of the discon- tinuous nature of these Beluga sands, which -- which I might mention is in direct conflict with the more continuous nature of these upper lower Sterling sands, or at least from what we've seen at Beluga River Field, we believe that the drilling of the -- the well in the location as proposed would also confirm the extent of these gas sands or prove the discontinuous of those sands which we have seen at Beluga River, and we would complete in either a same section or similar sands of -- of the Beluga formation, and therefore we would actually be delineating the field both in the Beluga as well as the Sterling formation. MR. SMITH: Do you intend to make this an exhibit, an official exhibit? MR. STONE: If -- if you would like it, Commissioner. MR. SMITH: Since you're talking from it, I think probably yOu should. MR. STONE: All right. I will submit a copy if you'll allow a time period .... MR. SMITH: Sure. MR. STONE: ..... after the meeting to .... MR. SMITH: Yes. MR. STONE: ..... prepare it and then return it to the Commission, I will submit it. R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-7515 l0 12 13 15 17 2O 21 22 23 24 25 -23- on this. MR. CHATTERTON: We'll keep the record open I don't know whether the testimony included, if it did I sure missed it, or I can't spot it, where is -- you're asking for a spacing exception to drill 224-28. You have shown us before us (sic) a log of well defined as Pretty Creek Number Two. You have talked about the Sterling sands as possibly having gas in them at some structural position. COuld you tell us where -- where is -- if we haven't seen it, where -- where is 224-28 going to be located with respect to Pretty Creek Two? Is it northeast, southwest? How far? MR. STONE: May I pin this to the wall? MR. CHATTERTON: Yes, please. MR. SMITH: Please do. MR. CHATTERTON: And anybody that wants to get up and look at it closer, have at it. Let's go off the record while he's doing this. (Off recOrd) (On record) MR. CHATTERTON: Let's be back on the record. While we were off the record, why the AppliCant, Chevron USA, Incorporated, put on the board a structure.map that is designated as 401811-01 depicting structures on top of the Beluga formation within the Pretty Creek Unit. And that map is dated April -- April of '86. R & R COURT REPORTERS 8 ! O N STREET, SUITE ! 0 ! 509 W. 3Rd AVENUe 277-0572 - 277~0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-7515 10 12 14 16 17 19 2O 2! 23 24 25 -24- Mr. -- Mr. Hauser, do you plan to make this an exhibit? MR. HAUSER: Yes, if we do have opportunity to prepare a copy? MR. CHATTERTON: Okay. We would like to -- and you also plan to make the log ..... MR. HAUSER: Right. MR. CHATTERTON: .... an exhibit. We will desig- nate the IES, commonly referred to as an electric log, of the Pretty Creek Unit Number Two Well as Exhibit E. I mean E, I have my reasons. And we would like to designate the map I just referred to, 401811-01, as Exhibit F. MR. HAUSER: We would like to -- to state that what is being presented is Chevron's interpretation and is subject to change as new data is developed, and is not officially a Pretty Creek Unit interpretation. It is Chevron's interpretation as operator. MR. CHATTERTON: There -- there is ..... MR. HAUSER: It hasn't -- it hasn't -- it hasn't received partner consensus for the Pretty Creek Unit at this time. MR. CHATTERTON: Pretty Creek Unit, Chevron is the operator of the Pretty -- Pretty creek Unit? MR. ARLINGTON: That's correct MR. HAUSER: And this is -- this Chevron's inter- pretation of the Pretty Creek structure. MR. CHATTERTON: All right. Thank you. Now, R & R COURT REPORTERS 8iON STREET, SUITE IOI 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANChORAge, ALASKA 99501 007 W. 3RD AVENUE 272-75 I 5 10 12 14 16 17 2O 21 22 24 25 -25- Mr. Stone, I believe that pretty well sets forth my -- answers my question as to where the -- what the relationship of -- of the well in question is to Pretty Creek Number Two. And I think it leads me to -- we had talked about number 11 and the risk factor and the step-out, and Mr. Barnwell had questioned on item number seven of the direct testimony, referring to the opportunity to delineate Sterling zone. You have pointed out that the Sterling zone sands in Pretty Creek Number Two might be close to a gas/water contact I guess is about the best inference I could get from what you said? MR. STONE: Yes, sir. .MR. CHATTERTON: Is that right? MR. STONE: I would agree with that. MR. CHATTERTON: Yeah. MR. STONE: At this location we had nearly produc- tive sands if you will. MR CHATTERTON: Right. MR STONE: It produced gas and water. I feel if we can come up dip slightly we would be near the bounds of delineating -- delineating the Sterling formation as well as ensuring a commercially productive sand --~or well in the -- in the Beluga formation. MR. CHATTERTON: Based upon the structure map that you have posted there and are talking from, why the farther R & R COURT REPORTERS 8 ! O N STREET, SUIte 10 ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUe 272-7515 l0 l! 12 14 16 17 19 2O 2! 22 24 25 -26- -- it looks like within reason the further to the north you go, the further away from Pretty Creek Number Two you go in a northly direction, why you gain structure, is that right? MR. STONE: That is correct. As you do go up dip, then, of course, our general .... MR. CHATTERTON: So .... MR. CHATTERTON: .... geologic axiom is go up dip and .... MR. CHATTERTON: You ..... MR. STONE: .... gas and water -- gas and ..... MR. CHATTERTON: .... could drill a ..... MR. STONE: ..... (indiscernible, simultaneous speech) should be up dip. MR. CHATTERTON: You could drill a well in what- ever that section is, it looks like 28 I believe it is, ..... MR. STONE: Right. MR. CHATTERTON: .... section 28, you could gain structure considerably by your interpretation by getting further away from Pretty Creek Unit Number Two? MR. STONE: Yes, sir, but we have limitations in the topography which limit a location north of the Theodore River. MR. CHATTERTON: Limits the bottomhole location? MR. STONE: Limits surface location north ..... MR. CHATTERTON: Surface location. R & R COURT REPORTERS 8 I 0 N STREet, SUITE 10 ! 509 W. 3RD AVENUE 277-O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 l! 13 14 16 17 19 2O 2! 22 23 24 25 -27- MR. STONE: ..... north of the Theodore River, and the depth to the gas objective at Pretty Creek is relatively shallow in -- in oil and gas terms, we're at 3500 feet, which would also limit the kick of any well that we could -- we could drill from any surface location. It's -- it is so shallow, we cannot sustain a large directional kick. MR. SMITH: How large of a directional kick could you sustain? Is it ..... MR. STONE: (Indiscernible, simultaneous speech) MR. SMITH: ..... feasible to drill from the proposed location to -- to the standard required location, which is a kick of an 'additional 800 feet to the north/northeast? MR. HAUSER: It is feasible technically to drill that far. It does pose two problems. One, additional cost, the other is enough of a hole angle that we could have operational problems with the completion that we plan in to put in the well. And I doubt that we would do that. 'MR. SMITH: So the trade off would be between those conditions in drilling a directional hole to t'he standard location or getting -- dealing with the topography and the surfaCe location? MR. HAUSER: Yeah, plus --. plus the hole angle you'll get with the directional hole. MR. CHATTERTON: When you answer like that, would you state your name, please? R & R COURT REPORTERS 810 n STREET, SUIte ! O ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAge, ALASKA 99501 ! 007 W. 3RD AVENUe 272-7515 l0 l! 12 13 14 16 17 19 20 21 22 23 24 25 -28- catch you. MR. HAUSER: Okay. Yeah. MR. CHATTERTON: So it can be -- Meredith can MR. HAUSER: This is Mike Hauser still speaking. Another answer to what you just asked Mr. Stone, which he should be saying, but the other reason for not stepping out too far, in addition to location and directional drilling costs is the fact that we would get too far away from the known Beluga forma- tion, and we may lose -- we -- we may lose the commercial sands that we are aware of. Even though we will be going up dip, discontinuous sands, they may not -- they may not be continuous very far. MR. SMITH: Mike or Norm, either one, do you have any -- any justification for -- I mean, substantial reasoning behind how far is too far? What -- you know, .... MR. STONE: Yes, sir. MR. SMITH: ..... what distance do you --is there a break in topography -- I mean, in the structure integrity of the Beluga formations? MR. STONE: Yes, sir, we do have considerable experience actually in the area. Highlighted on the map are -- are approximatel'y two-thirds of the wells that we do have data on, and it -- you use at those large black stars are the wells that are productive in the Beluga formation. If -- using our similar data, and that's why simply R & R COURt REPORTERS 810 N STREET, SUITe 10! 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 l0 l! 12 14 16 17 19 2O 2! 22 23 ¸24 -29- we stated this in our -- in our written testimony from similar and analogous data from -- from Beluga River Field. We have very good well data as -- because we are operator, on -- on these particular wells that are well within the same distance that we are proposing at Pretty Creek Field. And I can tell you that at, for instance, these particular two wells, that sands of the Beluga formation are not continuous between the wells. MR. SMITH: And how far apart are those two wells? MR. STONE: Those wells are -- well, I -- I can't tell you without getting a measurement out and doing it, but they're -- the r.eason I use them are (sic) just looking at them, they're at the same scale or very close to -- to the same distance between these two wells. So we're at a marginal distance already at the 224-28. MR. SMITH: For the adjacent field? , MR STONE: Yes. MR. SMITH: How about on the other side? MR. STONE: The same is true at Ivan River. We have two gas wells that are proving commercially productive, although they have not been on sustained production as the well -- both wells are currently shut in. But looking at electric logs and from formation and analysis, I would have to say that the similar -- the same Beluga sands are not productive in either R & R COURT REPORTERS 810 n STReet, SUITe 10! 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 I 5 10 12 14 16 17 19 20 2! 22 23 24 25 -30- well, that the sands are discontinuous between these two locations And I might add to the north at Lewis River, which would essentially surround the entire Pretty Creek Unit, that the two producing wells, the -- in fact the participating area for these two wells are -- are at different vertical levels in the Beluga formation. Although both wells are productive from the Beluga formation, one well is quite a bit deeper than the other and the particating areas are in fact staggered. One 640 acre participating area for this well, and then deeper for this. MR. SMITH: Okay. Then what I hear that you're telling me is that surrounding this field, it does not require continuous sands from one well to another to have a commercial development, .....,. MR. STONE: That is correct. MR. SMITH: .... is that true? MR. STONE: That is correct as well. From what we can see in the entire region, the -- even the -- the fact that the Beluga sands are discontinous would make one suspect that you could have stratigraphic traps in -- in the"Beluga, and that you may be able to drill in fact a homocline, and because of the shaling out of the sand discover a gas -- commercial gas quantities.' However, I'm not aware of.any -- any field in the Cook Inlet area that that is true of. What is typical of the Beluga is that you do have this discontinuous stratigraphic problem with it, however, the gas is localized by anticline R & R COURT REPORTERS 810N STREET, SUITE IO1 509W. 3RDAVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 100? W. 3RD AVENUE 272-75 ! 5 l0 13 14 16 17 19 20 2! 22 23 24 -31- structures. And -- and all -- in fact, the best commercially -- the best commercial locations are those associated with especially the anticlines. And this is certainly true at Beluga formation -- or at the Beluga River Field where -- where the structure runs basically down the middle of the -- of the unit area that's outlined here, and you can see that many of the wells are -- are stepped out right along the crest of the anticline. And that is because that wells that go off to the flank of the anticline become tight and -- and/or water productive. They -- they are tight off -- off the the flanks of the anticlines where you do not have a full structure. And, in fact, there is an Alaska Energy Well here that was a dry hole off the flank. A dry hole here at Beluga River 14-19, a dry hole here at Pretty Creek One, all off the flanks of the structure, and two marginally economic wells, the 221-23 is off the flank of -- of Beluga River Field, but is -- is productive, but -- but not as good a well as those located along the crest. UNIDENTIFIED: Excuse me a moment? MR. SMITH: Okay. With -- with regard to this testimony then along this line, why would you not want to position this new well as you -- I mean, your -- as ~you've shown your structure there to be on the crest of it more? MR. STONE: Well, in -- in essence it is. When I say on the crest, you're looking at a point and saying directly R & R COURT REPORTERS 8 ! 0 n STREET, SUITE 1 O! 509 W. 3rd AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! ! 007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 19 2O 2! 22 23 24 25 -32- on the crest. I'm looking at the crest and seeing a fairway down -- down the crest of some width. And -- and this well is essen- tially located within that fairway. And it's also in line with what we feel will be the optimum spacing from what we've learned at -- at Beluga River Field. We -- we are drilling currently. And right now these wells are on approximately 160 acre spacing. And we would like to see a number of wells for Pretty Creek. We see a number of wells here, and -- and our plans are to develop something like BelUga River at this time until we have additional data to say otherwise. And we could drill a location here and then we would also have another location here which would both fit this fairway analysis along.t, he crest of the anticline. So we are looking .at future development of~the field and -- and considering what is best for the field and how can we get maximum use of -- of locations available to produce gas in the field. 'MR HAUSER: If I could say -- this is Mr. Hauser again. If I could say one more thing to supplement what Norm said, I think it'll be around what you asked, Lonnie, was -- and Norm hopefully will back me up on it. The section that we do know is productive in Pretty Creek is not as large a section of -- of gas bearing sands as what we see in Beluga. And even though we've been able to, you know, have wells that closely spaced in -- in Beluga, and that's really -- really what we've R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 I OO7 W. 3RD AVENUE 272-7515 l0 12 13 14 16 17 19 20 2! 22 23 24 25 -33- got to draw our -- our experience on, is Beluga and not so much Ivan and Lewis River, because we don't -- we aren't involved in producing those fields as we are at Beluga. Is even though from one well to the next we might lose some sands and be able to make up enough other -- other sands to make a commercial producer, that may or may not be the case at Pretty Creek since we do not have the -- the large vertical section in -- in the -- incident (ph) in the Beluga sands as we do in Beluga. MR. STONE: Good point. I -- I certainly agree. This is Norm Stone again. Yeah, the sands do come and go, but as long as you're within that closed portion of the anticline, you're likely -- if -- if you lose sands, you're likely to pick up other sands. We would like to stay, as -- as Mike was saying, close to good data, and -- and also delineate the Sterling at the same time. MR. CHATTERTON: Well, I -- I have a difficult problem with your statement, Mr. Stone and Mr. Hauser. Statements You're -- you're making all this supposition on something that.'.s several miles away You only have one well, and -- and yet you immediately are jumping to the conclusion that everything in the Pretty Creek Unit is as it is miles away. 'Now, what gives you that feeling? MR. HAUSER: May- -- maybe I can start off on that, because maybe that's a good time to -- to bring up the -- the main reason why this is being developed in the first place. R & R COURT REPORTERS 8 I O N STREET, SUITE 101 509 W. 3RD AVeNUE 277-0572 - 27?-0573 277-8543 ANCHOrage, ALASKA 99501 007 W. 3RD AVENUe 272-7515 10 14 16 17 19 2O 2! 22 23 24 -34- First of all, to answer your question real quickly, and then I'll come back -- this is Mr. Hauser again. Beluga is the only data we've got for one thing. UNIDENTIFIED: Well, ..... MR. HAUSER: As far as -- as far as from experience between the -- the wells, performance between the two wells on 160 acre spacing, that's the data that we have on- going production experience from that we can show -- you know, we've -- we've experienced the sands coming and going. We know we have commercial production in a good amount of the field. We hope to have the same thing at Pretty Creek. But let me go back to, you know, ..... MR. CHATTERTON: But you don't know? MR. HAUSER: No, we don't. We sure don't. And that's the ..... MR. CHATTERTON: Okay. MR. HAUSER: ..... reason, that's the main reason why we're .... MR. CHATTERTON: Yeah. Can you .... MR. HAUSER: ..... we're wanting it. MR. CHATTERTON: .... explain the validity of comparing this with Beluga? MR. HAUSER: Okay. Well, that I'll have to let Norm say. MR. STONE: Mr. Commissioner, geology is -- is R & R COURt REPORTERS 81on STREet, SUITe 101 509W. 3RDAVeNUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 l! 12 l? 20 2! 22 23 24 25 -35- a lot -- most of the geology that a person works in, especially in petroleum geology, is based on trends. And looking at the Beluga formation on not only a fieldwide or local area, meaning Northern Cook Inlet -- I could expand the trends of the Beluga formation to cover the entire Cook Inlet, and even draw in data from the Kenai gas field with -- in which Chevron also partici- pates, which is operated by the Union Gas -- Union Oil Company, to suggest that they have also developed this -- the Beluga formation on 160 acre spacing well, for the -- for the most greater part. Not only the Kenai gas field, but Cannery Loop gas field as well has some of the similar problems of the Beluga formation. And what I've done or tried to show in this particular map, or could show with -- with other electric logs and -- and our local analysis is that we have surrounded the field both to the north by Lewis River, to the eaSt by Ivan River and Stump Lake, to the -- to the west by Beluga and -- Beluga Field, and -- and to the south if you'd like, you can extend it also out into the Cook Inlet at the Sterling Gas Field operated by Phillips and then, of course, many miles away to the gas rield at Kenai on the other side of the Kenai Peninsula, and the Beluga formation is -- is very similar in all these locations. The sands are noted to be very discontinuous in nature, but gas seems to be trapped in -- in anticlinal structures. The data can also be supported by -- by studies by Legun and Claypoole to name just one, and -- and other persons of -- of R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-75 ! 5 10 13 14 16 17 20 22 23 24 25 -36- reputation from local universities to suggest that indeed we are dealing with the Beluga formation, a formation that we do know something about rather (sic) we have other existing wells in -- in Pretty Creek area or not. MR. CHATTERTON: Thank you. Do -- I don't know whether you gentlemen appreciate my dilemma or not, but my dilemma resolves -- revolves around some of your what I take are very conflicting statements, such as number nine versus number 11. In number nine in effect because of Beluga River or something, you say that a governmental section can support more than one well. In number 11 you say you can't step out any further from Pretty Creek Number Two because it's too risky. Now, -- and I heard a response to Commissioner Smith's question that, heavens, 160 acre -- each -- each place is a little different -- a little gas field. You don't need a great big area. Now, what -- to me 11 and nine are incompatible, just to name -- give you one example of inconsistency. ~MR. STONE: May I address that, sir? MR. CHATTERTON: Pardon? MR. STONE: May I address that? MR. CHATTERTON: Why please do. I hOpe somebody does. MR. STONE: This is Norm Stone again. And I -- I might use some -- some other data in the area that geologic risk is not only based on stratigraphy, but also on structural R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 I 5 l0 l! 14 16 17 19 20 2! 22 23 ¸24 -37- complications. And looking at -- at the region, there -- there is a good example that I can use on this map, that at the Lewis River area, this particular structure which extends, although I don't have the contours on here, I can show you that this well is gas productive, this well is not. This -- this well that is a dry hole is only half the distance away from what we are proposing at -- at Pretty Creek Unit. There is a risk that you can cross a bulk (ph) boundary, some sort of structural complication that you cannot see with the seismic data, increases the risk of damaging something beyond the stratigraphy that is controlling accumulation at -- at the Pretty Creek field. So there is a correlation between distance from the well and risk that you can draw from -- from other .... MR. CHATTERTON: Well, why are you. .... MR. STONE: ..... other points of (indiscernible, simultaneous speech). MR. CHATTERTON: ..... proposing to go as far away from Pretty creek Unit Number Two as you are, if that risk is there? MR. STONE: Because we are limited by surface location to a great extend. There are wetlands all around the location, and we did get a fairly dry high'location that we are able to permit and -- and drill from. MR. CHATTERTON: There is no other surface loca- tion closer to Pretty Creek Unit Number Two than that one? R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 ! 007 W. 3RD AVENUE 272-75 ! 5 10 12 13 14 16 17 2O 2! 22 24 25 -38- MR. STONE: Let me say this: There is no other surface location closer to Pretty Creek Two that -- that has the advantages that this particular location has. Now, we could say -- we could go out into the tidal flat and -- and certainly apply for a permit to drill and -- and are capable technologically of putting in a surface location to drill. However -- however, as you're well aware, permitting something of that nature is -- is long and costly as well as surface construction in those sites -- in -- in those types of conditions. And we are limited because of the minimal gas accumula- tions that we're seeing at Pretty Creek by economics, by the amount of money .that we can spend to make this a feasible economic project. Therefore, we -- we need a surface location that has advantages to it that we -- we may use to make our project economic within our own company. MR. CHATTERTON: Fine. Thank you very much. Mr. HauSer, how far have you explored the -- attempting to get a permit for a surface location other than the one you're proposing? MR. HAUSER: We have not. MR. CHATTERTON: You haven.'t even tried? MR. HAUSER: Well, there's -- there's a reason behind that. It's -- you know, this -- this -- the development of this well's been -- been in progress for -- for a number R & R COURT REPORTERS 81ON STREET, SUITE IO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 19 20 2! 22 23 24 25 -39- of months, and in conjunction with permitting for the location, getting the well approved, getting -- getting the permit to drill approved and getting the spacing exception approved, this is all an on-going thing. Well, -- And then at that time we are rapidly approaching a time frame that we have committed to on a gas contract. We felt that this particular location was a proper location to -- to begin delineating from the known well that we have. Again, the only data that-- you know, not -- you know, the -- the -- we can draw best, our own personal situa- tion is, from -- from what we know has happened in Beluga, and to at this time or even as -- as recent as two to three months ago, to start going back in a different location, which -- which really didn't --.we didn't have internally any reason to do that, it would have delayed us enough to where we Would not be able to comply with our gas contract. MR. STONE: Yes. This is Mr. Stone again, and as -- as was stated in one of the -- I'm not sure which statement, that Jim read it', Jim Arlington read into the -- into the minutes here is that -- is -- is that when we applied for thi's -- this exception, the ruling -- the regulations under the Commission were -- were different at that time. They have since changed since we applied for -- for this variance.. MR. CHATTERTON: You never had a permit before April 2nd, did you? MR. STONE: No, but what I'm saying is that just R & r cOUrt REPORTERS 81ON STREET, SUITE lO! 509W. 3RDAVENUE 277~O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 19 20 2! 22 23 24 25 -40- planning for this particular location, we were planning under different regulations. MR. SMITH: Yeah. And your plans then were to what? Were you preparing the record to be how far from ..... ? MR. ARLINGTON: As was proposed in our application submitted. · MR. SMITH Yeah. MR. STONE: The 750 feet north and ..-,~.~:' ......... MR. ARLINGTON: 770. MR. CHATTERTON: Is Chevron a member of the Alaska Oil and Gas Association? MR. HAUSER: Yes, we are. MR. CHATTERTON: Okay. Is Chevron -- are you -- is Chevron aware of the fact that through the Alaska Oil and Gas Association the industry has been perusing the regulations that became effective April 2nd, 1986, for about two years? MR. HAUSER: I assume so. I've been up here a year, but I -- I would -- I would believe that. MR. CHATTERTON: Are you aware since you've been here .... MR. HAUSER: Um-hm. Yes. MR. CHATTERTON: ... that they were doing that? MR. HAUSER: In fact I was one of them that was reviewing them. MR. CHATTERTON: Yeah. When the -- the -- when did R & R COURT REPORTERS 810 N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 l0 12 13 16 17 19 20 2! 22 23 24 -41- Chevron first become aware of the spacing requirements statewide? MR. HAUSER: We knew -- we knew of the spacing requirements when -- I don't know when it was that I read it myself, but it was before -- it was before we submitted it. You know, we -- we know that we submitted an application for -- for something that was not going to spacing regulations, whether it was the old rules or the new rules. It was not going to fit. MR. CHATTERTON: Okay. MR. HAUSER: But .... MR. CHATTERTON: I was going to ask, could you tell me where the old rules were different than the new rules in this regard? .MR. HAUSER: In that regard is -- the only -- the only difference would .have been that -- I assume it was -- it was lease line before? MR. CHATTERTON: Standback from the ..... MR. HAUSER: Yeah. MR. CHATTERTON: .... quarter section. MR. HAUSER: Yeah. But that's -- we still had a 3,000 foot one to get through, and -- and we realized that. MR. CHATTERTON: Okay. So they're really not too much ..... ? MR. HAUSER: No. MR. SMITH: There is a difference in the old and the new rules from the standpoint of the -- the lease line, but R & R COURT REPORTERS 810 n street, SUITE 101 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 ! OO? W. 3RD AVENUE 272-7515 12 17 20 2! 22 23 24 25 -42- just considering ....... MR. CHATTERTON: Section line. MR. SMITH: ..... that this is between wells, the 3,000 feet, I think that's the same, .... MR. HAUSER: Right. The .... MR. SMITH: ..... and could you meet that criteria in your economic and -- analysis? MR. HAUSER: The way we have currently forecasted the production of Pretty Creek, no. If the well came on better, yeah. But that -- it's that close. And maybe it would be a good time for me to run through the -- how we -- how we came up with in general terms the economics of this venture. Would that be ..... ? MR. CHATTERTON: I said we'd grant a broad lati- tude. At the moment let's not get int° economics ..... MR. HAUSER: Okay. MR. CHATTERTON: .... They are not really a concern of this (indiscernible, simultaneous speech). MR. HAUSER: It's real general as far as to how it's tied in -- into the gas contracts and that. MR. CHATTERTON: Well, then -- then even they're of less concern 'to this agency. MR. HAUSER: Okay. MR. CHATTERTON: We don't worry about economics. MR. SMITH: Well, let me restate my question. R & R COURT REPORTERS 8 ! 0 N STREET, SUITE ! 0 ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 12 13 14 16 17 19 20 2! 22 23 ¸24 -43- What I'm saying is that to drill 3,000 feet from the existing well is only half the distance to meet the -- the lease line, .... MR. HAUSER: Yes. MR. SMITH: .... but it's only about 400 feet for the (indiscernible, simultaneous speech). MR. HAUSER: Right. MR. SMITH: Is that within your directional and expertise and capability? MR. HAUSER: yes. MR. SMITH: And as far as the depth of this well, that would -- that could be done? MR. HAUSER: Yes. And we are -- if -- if deter- mined -- I will saY this, because I -- it would be -- it's truthful and we -- I know -- you know, the data we'present show that to our -- our interpretation a straight hole is the -- is the safest, less -- less risky, and with the known data we have, the best way to go. However, if -- if -- if we are forced to -- to comply with the 3,000 foot part of this regulation, it will mean kicking the Well 400 foot plus or minus, and the cost that it adds onto the drilling, while technically we can do it, the cost it adds onto it adds on enough it -- you know, it -- it's significant, but we would -- we would not back down from drilling the well if that's what we were forced to do. I will say that. That would be the most that we could probably do operationally. MR. ARLINGTON: Mr. Chairman, I -- this is Jim R & R COURT REPORTERS 810 N STREET, SUITE IO1 509W. 3RD AVENUE 277-0572 - 277-O573 277-8543 ANCHORAGe, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 l0 l! 13 14 16 17 19 20 2! 22 23 ¸24 -44- Arlington. I would like to clarify a statement regarding the surface location and Chevron's attempts to try and arrange a different surface location with the other regulatory agencies. The statement had been made yourself and Mr. Hauser, the conclusion was made that there had been no attempts to try and locate other surface locations. That's not altogether correct There have been a number of conversations with the Alaska Depart- ment of Environmental Conservation, the Army Corps of Engineers, who had assessed that entire area as to possible surface locations and the wetlands determination within that section. And their concerns with locating any pad or structure within a wetland. And it was our effo~rts to try and minimize the wetlands impact that led us to keep the surface location where we have it proposed at this time. We've received several comments from the Environmental Protection Agency and the Fish and Wildlife Service even regarding this surface location which had been indicated to us by the Army Corps of Engineers and the Alaska Department of Environmental Conservation that those agencies would have concerns should this surface location be located in an area that was impacted even more by the wetlands than what this area is So in that -- there was consideration given to other surface locations, there was conversations, several conversations with other permitting agencies. MR. CHATTERTON: Thank you. We're not really R & R COURT REPORTERS 810 N STREET, SUITE I O ! 509 W. 3RD AVENUE 277-0572 - 277'0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272'75 ! 5 l0 12 13 14 16 17 2O 2! 22 23 24 -45- concerned about surface locations here. We're concerned about bottomhole locations, but thank you for the rundown. I think -- do you have any more questions of these gentlemen? MR. SMITH: Not at this point. MR. CHATTERTON: I think it would be appropriate at this time, I would like to put into the record four exhibits. And I will pass around to the interested people those exhibits. For the record why I would like to introduce an Exhibit A, which is an April 28th, 1986, letter from Chevron USA, Incorporated, to the Oil and Gas Conservation. It's been referred to in testimony already, but it's an application for an exception to section 055 for the drilling of 224-28. And Exhibit A with its attachments. And I would like to introduce as Exhibit B a May 7th, 1986, response from Commissioner Harry Kugler to a Mr. Weaver of the Chevron USA, Incorporated, denying their application for a spacing exception for Well Pretty Creek Unit 224-28. I would like to introduce an Exhibit C without attachment dated May fif- -- it's a letter dated May 15th, 1986, from -- on the subject requesting a reconsideration of the -- Mr. Kugler's decision, the COmmission's decision that we not grant an exception for the drilling of that. And then I would like to introduce as an Exhibit D a letter dated May 27th, 1986, addressed to Mr. Lonnie Smith from R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 10 12 13 14 16 17 19 20 2! 22 23 24 25 -46- Brian .~urglin requesting a -- protesting this application of Chevron's and requesting a hearing. Now, I'd like to point out that subsequent to -- well, I'd like to have you pass these outs. Exhibit C which I referred to a while ago of being entered into the record without an attachment, it -- we now find that that attachment is actually map -- Chevron USA's map 401811-01 which has been introduced as Exhibit B (sic) if my memory is correct. MR. SMITH: Exhibit F. MR. CHATTERTON: I'll pass these out to you and then let's .... MR. SMITH: (Indiscernible, simultaneous speech) MR. CHATTERTON: ...... we'll take a recess so people can familiarize theirselves With -- with these exhibits if they so wish, and we'll take about a five minute, ten minute break. Off the record, please. (Off recOrd) (On record) ~' MR. HAUSER: Mr. Chairman? MR. CHATTERTON: Mr. Arlington, I believe this might appropriately be addressed to you. I'm referring to Exhibit A. I notice that copies of that letter were sent to City Service and Pacific Lighting. And the reason being that they are working interests in the offsettin9 properties to the north? R & r cOUrt REPORTERS 810N STREET, SUITe IO1 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 10 12 13 16 17 2O 2! 22 23 24 -47- MR. ARLINGTON: To -- adjacent, yes. MR. CHATTERTON: Yeah. Okay. Thank you very much. I have further noticed that on Exhibit B the location of Pretty Creek Unit Number Two is not properly plotted. Or, excuse me, on Exhibit E. Exhibit. E. That map, whichever -- whichever one number we called it. MR. SMITH: F. MR. CHATTERTON: F. MR. SMITH: E is .... MR. CHATTERTON: F? Okay. On Exhibit F, Pretty Creek Unit Number Two is not appropriate- -- is not properly plotted. MR. HAUSER: Pardon me? The -- the well location that's shown on that map is not ..... ? MR. CHATTERTON: The well location is not correct. MR. STONE: Yeah, you've got it -- you show it a little further south than it actually is. MR. CHATTERTON: Honestly, it's a fact. If you don't believe it, ..... MR. HAUSER: I'm not aware .... MR. CHATTERTON: ..... you know, I'll get you a scale and you scale it off. But don't worry, I .... MR. HAUSER: How close -- I mean, (indiscernible, simultaneous speech) MR. CHATTERTON: ..... will give you a chance to r & r court REPORTERS 81ON STREET, SUITE I01 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, aLASKA 99501 1 OO7 W. 3RD AVENUE 272-75 ! 5 l0 13 16 17 2O 2! 22 23 24 -48- rebut that statement, but I want the record to show that Exhibit F, the location has been deemed to be improperly plotted from what the records, completion report sets forth as to the location of the well. MR. STONE: We're about 300 feet off. Mr. Chairman I -- you know, I would have to scale it off, but .... MR. CHATTERTON: You will have to scale it off, and you'll ..... MR. STONE: yeah, but .... MR. CHATTERTON: .... have to correct it sometime. MR. STONE: Yes. MR. HAUSER: Correct the ..... MR. STONE: Yes, we will .... MR. CHATTERTON: For your own in-house problems. MR. HAUSER: If -- if we -- if -- if I might say, it will be. If it is incorrect, it will be correct on the official copy submitted for the record. 'MR. CHATTERTON: Very good. MR. STONE: And there's a .... MR. CHATTERTON: Anybody have any other qUestions of the applicant? MR. HAUSER: If -- If I may, I would like to make one more statement? MR. CHATTERTON: yep. MR. HAUSER: This is Mr. Hauser. There was -- R & R COURT REPORTERS 810 N STREET, SUITE 10! 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! ! 007 W. 3RD AVENUE 272-7515 l0 12 13 16 17 19 20 2! 22 23 ¸24 25 49- the statement was made previously -- well, first of all, I'd like to stand corrected on the -- on the surface location issue. I was asked if it was right and -- and I should have referred it to -- to Mr. Arlington, because he is Chevron's land person in charge of permitting and that is his expertise. Also I -- I would like to say that I do think that surface location and bottomhole locations are related in this type of development simply because of the -- the nature of wetlands type topography. All bottomhole locations are dependent upon surface location, depending on how much you can directionally drill a well. So there is a certain amount of relationship between surface and bottomhole we believe. Another statement I would like to make is, you know, in -- in this gas -- I mean, gas fields on the west side of Cook Inlet and in particular right now Pretty Creek, we kind of have a different -- a different animal. You don't have a gas field where you're -- where you are drilling wells as economics and funds permit. We are essentially drilling wells to satisfy a utility. The reason that we instigated developing, further developing Pretty Creek is because we were approached by Enstar to have -- to sell them gas. The -- the entire development is tied to a gas contract that -- that requires two wells in order to sell gas. The only way that we would -- we could and would commit to a gas contract was to drill a well that we felt would be commercially productive, equal to Pretty Creek Two, and we felt R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 10 12 !3 14 16 !7 19 2O 21 22 23 ¸24 25 -50- that the only optimum location for doing that is the one proposed. And I would venture to say that if we were not able to drill a well, that we could be convinced of ourselves internally that we would get an economic producer equivalent to Pretty Creek Two, not just to produce gas, but equivalent to the rates of Pretty Creek Two, we would not be drilling a well, and we would not be selling gas to Enstar in Pretty Creek. MR. CHATTERTON: Thank you very much. Are there any others that wish to testify in this matter that we have before us? testify. do .... ? MR. B. BURGLIN: We'd like to have Mr. Player MR. PLAYER: Do you want me to go first, or MR. C. BURGLIN: Well, I would like to, and Brian probably well, and we're -- as part of the Burglin manage- ment, and Mr. player as our geologist. 'MR. CHATTERTON: Well, okay, so all three of you may and would you like to swear them in, please? MR. SMITH: Would you stand please? (Cliff Burglin, Brian Burglin and Gary Player duly sWorn under oath) MR. SMITH: Thank you. MR. CHATTERTON: Brian, Cliff, ..... MR. C. BURGLIN: Okay. I'll .... R & R COURT REPORTERS 81ON STREET, SUITE lO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 995OI ! 007 W. 3RD AVENUE 272-7515 l0 12 13 14 16 17 19 2O 2! 22 23 ¸24 -51- ahead. go first. MR. CHATTERTON: .... have at it. Cliff, go MR. C. BURGLIN: I'm Cliff Burglin, and I'll Why is your P.A. so large if your information is so small? I mean, if you're not sure that -- the P.A. is the participating area. Everybody that holds a lease in that area will participate in the gas -- in the money earned from the gas production. Okay? Is that right? I think I'm aSking you, Mr. Arlington. MR. ARLINGTON: Mr. Chairman, has the Commission ruled that cross examination is -- is allOwed? MR. CHATTERTON: Yeah. Cliff, you ..... MR. C. BURGLIN: Or do you want -- do you want me just to make a statement? MR. CHATTERTON: Yeah. MR. C. BURGLIN: Okay. MR. CHATTERTON: Yeah, Cliff, would you do it that way? And -- and let me help you a little bit. You .... MR. C. BURGLIN: Okay. Well, let me -- I can -- I can make a statement ..... MR. CHATTERTON: ..... We ' we don't have any- thing before us yet .... MR. C. BURGLIN: Okay. MR. CHATTERTON: ..... that -- setting forth anything about the P.A. application. That went to another agency, R & R COURT REPORTERS 81ON STREET, SUITE 10! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 l0 14 16 17 19 2O 2! 22 23 24 25 -52- okay? MR. C. BURGLIN: Okay. Well, we have that, too. MR. CHATTERTON: I know you have a copy of it, ... MR. C. BURGLIN: ..... Chevron -- Chevron's (indiscernible, simultaneous speech) here so ..... MR. CHATTERTON: ..... and we have a copy of it, too, but we don't have it into the record yet. If you would like to -- I've been suspecting that you might want to put some of that in as an exhibit. I don't know. I've made copies of that request for a participating area if -- if somebody gives us an excuse to introduce it. MR. B. BURGLIN: This -- this is Brian Burglin. Could we just go..into the question, cross examination portion here now before we -- get some questions clear and'then go into our -- the way we look at it, surface location and geologically or ...... MR. CHATTERTON: Yes, I prob- -- I said that we would give aiI the latitude in the world that we could, and that's the way it's going to be. MR. B. BURGLIN: Okay. MR. CHATTERTON: This is informal. We're not all that formal. MR. ARLINGTON: Mr. Chairman, however, it is not consistent with the published regulations, and what I thought you had indicated would be the format prior to the outset of the R & R COURT REPORTERS 81ON STREET, SUITE IOI 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 10 14 16 17 l0 2! 22 23 24 25 -53- hearing, that we would have all sworn testimony first, and then after the conclusion of the sworn testimony, then the Commissioners would decide if there would be cross examination allowed? MR. CHATTERTON: Well, there may not be any more sworn testimony. I don't know. MR. ARLINGTON: I guess that's what I'm requesting a clarification on now, is ..... MR. B. BURGLIN: This -- this is Brian Burglin again. We'd just as soon go ahead then with Mr. Player's testimony and .... MR. C. BURGLIN: And then we would like to cross examine (indiscernible, simultaneous speech). MR. CHATTERTON: Perfect. Okay. Then -- Okay. Then we'll -- then -- then we'll be toeing the letter of the law. MR. B. BURGLIN: Go ahead. MR. PLAYER: I'm Gary Player. I'm a certified petroleum geologist, number 3097. I'm from Tulsa, Oklahoma. I've been retained by the Burglins to be their consulting geologist. MR. CHATTERTON: Mr. Player, on occasions before and for this purpose here, why we will -- the Commission accepts you as -- as an expert witness on -- to testify on the matters before us. Go ahead. MR. PLAYER: All right. Thank you. Chevron did apply for a participating area, and I realise that's not R & R COURT REPORTERS 810N STREET, SUITE lO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUe 272-7515 10 12 14 16 17 2O 2! 22 23 ¸24 -54- directly applicable to this hearing, but in one respect it is. They outlined a participating area at Pretty Creek Unit, and I used that outline plus well control from the Pretty Creek Unit Numbers One and Number Two to prepare what I called a hypo- thetical structure map of the Pretty Creek Unit. I had no access to seismic data, and all I had was Chevron's outline of the P.A. and the two wells. And I prepared that, and I would like to present that as an exhibit. And I was fortunate in that the map I came up with is almost an overlay of the map Chevron presented. The only thing I haven't put on here are those two flanking reverse faults, because originally I didn't have any reason to put them in there and I didn't have seismic to suggest their existence. MR. CHATTERTON: Mr. -- Mr. Player, may I inter- rupt? We'll -- we'll be happy to accept that as an exhibit. Do you also propose to or have any desire to put the Chevron -- the operator's application for approval of a participating area, a copy of that int'° the record? MR. PLAYER: Yes, I do. MR. CHATTERTON: Okay. That being a May 27th, 1986, letter to the Department of Natural Resources, attention of Kay -- Ms. Kay Brown, and the subject is "request for approval of the initial participating area, Beluga formation," "Beluga formation, Pretty Creek Unit, Alaska". And that is from -- signed by Mr. Thacker, T-h-a-c-k-e-r. And if you wish to introduce that, R & R COURT REPORTERS 810 N STREET, SUITE ! O ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 10 12 14 16 17 20 2! 22 23 24 -55- I'd like -- I would chose to have it introduced as Exhibit G. MR. PLAYER: Yeah, that would be necessary to corroborate the proposed P.A. outline that I've shown in my map. MR. CHATTERTON: All right. Let me get that around there. Exhibit G. MR. PLAYER: The only reason my structure map I believe is necessary at all in this hearing is to suggest that the ..... MR. CHATTERTON: Excuse me. Now, do you wish to introduce your structure as an exhibit? MR. PLAYER: Yes, I would like to introduce the structure map. MR. CHATTERTON: And -- and can you -- do -- would you for the record define or -- or designate it, and we will call it -- and -- so it can be referred to as an Exhibit H? MR. PLAYER: Exhibit H would be my plate number one, the Cliff Burglin and Associates Pretty Creek Unit proposed P.A. hypothetical structure map with structural contours on the Beluga River Unit A-2 marker. MR. CHATTERTON: Very fine. Thank you. MR. PLAYER: The reason that I've presented this structure map at all is to suggest that there are alternative locations within Chevron's proposed participating area to test for gas accumulation in the Pretty Creek Unit. Now, they, of course, have argued that their location R & R COURT REPORTERS 8 ! O N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 12 17 20 2! 22 23 ¸24 25 -56- is -- is the only one -- well, not the only one, but the optimum one for a structural test, and I won't argue that point. I think it's well located for a structural test. However, I will disagree with their statement that that's the only surface location they can use, but I will leave that to later testimony by Mr. Cliff Burglin. We have through our research, including study of existing topographic maps and false colored infra red aerial photography shown to our satisfaction that there are at least four locations that are available to CheVron which would require no wetlands permits, and it would be -- well, that's my assessment. I can't decide fo the agencies whether they require wetlands permits or not, but they have analogous topography and accessability to this -- to the location which Chevron has requested. In my studies of the Union Pretty Pretty Creek Number One well, I was concerned to find that that well probably is the dryest dry hole ever drilled on the west side. Every formation potentially available to Union to complete in had very, very low porosity, and that, of course, seems to be the reciprocal of the gas content seems to be porosity on that side. If you have a low porosity well, you will not be able to produce gas. However, Chevron drew a P.A. down to include I believe it was -- let me -- I'm sorry. One minute. Chevron drew the P.A. to -- to include 120 acres that were tested by the Pretty Creek Unit Number One Well. At least, if you were to draw a 640-acre r & R COURT REPORTERS 810 N STREET, SUITE lO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, aLASKA 995OI 1007 W. 3RD AVENUE 272-7515 l0 l! 12 14 16 17 19 2O 2! 22 23 24 25 -57- unit, drilling unit around that well, three 40-acre subdivisions lie within that 640. And I'm concerned that -- if that's the case, but that -- I realize that's something for another agency to address. MR. ARLINGTON: Yeah. Mr. Chairman, along that time -- along that line, I would object to this testimony that's being offered at this time, and it's -- there's just been an admission that it's beyond the purview of this Commission to -- to consider that.. MR. CHATTERTON: Your objection is duly noted and overruled. Proceed. MR. PLAYER: All right. Now, since Chevron ..... MR. SMITH: Would -- would you like to put your exhibit on the ..... ? MR. PLAYER: Yes, this would be Exhibit I. MR. SMITH: Well, the other exhibit, let's get it up there, .... MR. PLAYER: Okay. MR SMITH: .... both of them. UNIDENTIFIED: How are we doing for pins? I'll get them. MR. PLAYER: I've got one here. MR. SMITH: Pull some out of the others. Right. MR. PLAYER: The reason that I feel that's -- it's significant that Chevron's extended the P.A. down so close to R & R COURT REPORTERS 8iO N STREET, SUITe lO! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 ! 007 W. 3RD AVENUE 272-7515 l0 13 14 16 17 19 2O 2! 22 23 24 25 -58- the Pretty Creek -- Pretty Creek Unit Number One, is Chevron obviously thinks that gas must exist in commercian quantities to a point that close to the PCU Number One dry hole, otherwise they wouldn't have requested this P.A. Now, because of that, it's difficult for me to understand why they have to be 2500 feet away from an existing well to find more gas in a lowlist (ph) situation in their proposed new well. The -- what is the -- the name of that well, Two? The proposed well? MR. C. BURGLIN: 224-28. MR. CHATTERTON: 224-28 I believe. MR. PLAYER: Yeah. The 224-28 location, proposed location is the small circle on my Exhibit H, and that is approximately 2500 feet away from the existing Pretty Creek Unit Number Two Well, and they've testified that it would be extremely risky to get any further away from that well. However, using the other hand of their information, they've gone to a different agency and applied for this very, very large P.A. by saying there's gas everYwhere under there. Now, I'm only going to submit that it's difficult for me to know which is the truth, whether Chevron believes there's gas everywhere out there, or whether they're frightened that they won't find it if they move 500 feet. Now, these four locations in yellow that I've marked on Exhibit H are proposed alternative locations for the Chevron R & R COURT REPORTERS 8ION STREET, SUITE 10! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 12 13 14 16 17 20 2! 22 23 24 25 -59- PCU Well 224-28. Chevron may not wish to drill them for whatever reasons is their own. That's fine. But each of those four locations do have access, they're not in wetlands,and they are within the participating area, and they could be drilled economically as straight holes. MR. CHATTERTON: Let me interrupt. Within an area .... for as ..... MR. PLAYER: The proposed .... MR. CHATTERTON: ..... that has been applied MR. PLAYER: Yes. MR. CHATTERTON: .... the participating area? MR. PLAYER: Within a proposed participating area. · MR. ARLINGTON: Mr. Chairman, I object. Mr. Player just indicated they're not in wetlands. His qualifica- tions are not an enVironmental engineer. I would propose that he is not qualified to determine whether that's wetlands or not. MR. PLAYER: May I address that question? I worked for seven years as an engineering geologist with Dames and Moore, and as a federal inspector on the Trans Alaska Pipeline System for McAcks (ph) Research, Incorporated. My title was assistant area engineer, and I was in charge of the environmental compliance for Alyeska Pipeline System. MR. CHATTERTON: Mr. Arlington, have you examined R & R COURT REPORTERS 8 ! O N STREET, SUITE I O ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! ! 007 W. 3RD AVENUE 272-75 ! 5 12 17 20 2! 22 23 24 25 -60- the locations, the surface of -- at the locations spotted on Exhibit H as to determine whether they're wetlands or not? MR. ARLINGTON: No, I have not. MR. CHATTERTON: Oh, then you .... MR. ARLINGTON: That's exactly the point I'm making is that we have not examined them as far as wetlands. Mr. Player was asserting that they are not wetlands, and I was objecting that that assertion can be made. And we have not been out and examined it. I don't know that he has or has the qualifications to determine whether they're wetlands or not. MR. CHATTERTON: Your objection is duly noted and overruled. Proceed. MR. PLAYER: Okay. I've stated on here quite strongly that my geological interpretation is hypothetical based only on the proposed P.A. However, I Was very pleased to find that the cross fault that I put in there because of the end of the participating area matches the cross fault that Chevron has either mapped or put in because of the P.A. I'm not sure whether it's a seismic fault or a land mass fault. I don't have any knowledge to know whether it is. And the dip rates and the basic size of the structure seem to fit what they've mapped, and I was.patting myself on the back over there this morning. But that's not important. I'm done with the geological presentation, because it is hypothetical and I can't sit here and -- and swear up and R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277'0572 - 277-O573 277'8543 ANChORaGE, ALASKA 99501 ! 007 W. 3RD AVENUE 272-7515 12 17 20 2! 22 23 24 25 -61- down about how wonderful it is. I'd like to turn the time over to Cliff to present some information that we have concerning the wetlands character of the Pretty Creek Unit. MR. CHATTERTON: Okay. Before you do, Gary, I -- is that part of this exhibit? MR. PLAYER: I would -- to propose that as Exhibit I. MR. CHATTERTON: Ail right. Would you define it for the record, please? MR. PLAYER: Yeah, well, Exhibit I is a 640-acre -- or 640-acre circle drawn around the bottom hole location of the area tested in Union's Pretty Creek Unit Number One. MR. CHATTERTON Okay. Very good. MR. PLAYER: And there's one other plate that Cliff suggested that I present. And it's -- I don't have that. I don't have it. You'll have to present it. MR. C. BURGLIN: My name is Cliff Burglin and I'd like to make this Exhibit ..... MR. CHATTERTON: H.I. J I think it.f? MR. C. BURGLIN: J? This is a contour map of the area that we're talking about. MR. SMITH: A contour map or a topo map? MR. C. BURGLIN: Topo map. MR. PLAYER: Surface topo map. R & R COURT REPORTERS 81ON STREET, SUITE lO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-7515 10 12 13 14 16 17 19 2O 2! 22 23 ¸24 25 -62- MR. C. BURGLIN: Surface -- surface topo map. MR. SMITH: It's still got contours on it. MR. C. BURGLIN: I don't know whether you can see this, but where Mr. Player has designated alternative drilling sites there is road access and it looks like to be like it is not in the wetlands, but I'm not authority either, although Mr. Player may be. And I think he's designated five or four potential other locations. MR. CHATTERTON: And Exhibit J is what, is an U.S.G.S ...... ? MR. C. BURGLIN: Topographic. MR. CHATTERTON: Topographic map that -- of the Tyonek A-3 quadrangle. Okay. MR. PLAYER: Yeah, it's A-3 and B-3 spliced togethew: MR. C. BURGLIN: And I might comment too that Chevron's -- one of Chevron's exhibit of Pretty Creek shows the road system is t'here also. MR. SMITH: What is this now? MR. C. BURGLIN: This is part of one of the four exhibits. MR. CHATTERTON: Yeah, it -- it is already in. MR. C. BURGLIN: Yes. So .... MR. CHATTERTON: It -- it is already an exhibit. MR. C. BURGLIN: But it sort of confirms what we R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RD AVENUE 1OO7 W. 3RD AVENUE 277-0572 - 277'0573 277-8543 272-75 ! 5 ANCHORAGE, aLASKA 99501 l0 14 16 17 20 21 22 23 '24 25 -63- have also -- these are aerial photography that also shows the road system and the topographic area, and ...... MR. PLAYER: May I .... MR. C. BURGLIN: ..... it would be J -- I guess K, Exhibit K. MR. PLAYER: Yeah. These air photos are false color infrared photos which are used by biologists to differentiate soils and vegetation types, and these were flown in August of 1984 They show the existing road sYstem and the existing vegetation out there. And I might also -- this is a small point, but I want to state it again: I did a route survey for Union on the west side for the -- for a pipeline which -- which they built back in the early '70s. And I was involved in the soils investigation, actual site investigation and aerial photo, chosing of the route. And so I'm fairly familiar with the abrupt changes in vegetation type, especially near the tidelands. MR CHATTERTON: Thank you. MR. PLAYER: I'd like to suggest that' Chevron has chosen their surface location for a good reason. It's apparently an old gravel pit, and they won't have to prepare a pad or anything. And it's very cheap. And I don't argue that point. I think that's good economics. However, whether or not that is strong enough to negate the intent of the regulation to explore thoroughly and to protect the reservoirs, but with R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RDAVENUE 277-0572 ~ 277'0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272~75 ! 5 10 l! 12 14 16 17 20 2! 22 23 24 25 -64- 3,000 foot spacing, I -- that's up to you to decide. MR. C. BURGLIN: I would -- this is Cliff Burglin again, and I would just like to make some general comments. Chevron discovered the Beluga, as long as we're talking about the Beluga River field. Chevron discovered the Beluga River field in December 1962, and according to the latest -- or 1984 statistical report put out by the Alaska Oil and Gas Conser- vation Commission, this field is still Undefined. So being in a unit with Chevron, you know, it's been established for 24 years and it's still not defined. And we -- we'd like to have Chevron be sure that they're gOing to define this field that we're in with them, and we definitely are concerned that they have a drilling program that is going to discuss this definition of these fields -- of this field. And this is -- I'm talking aboUt the Beluga River field, it's a producing field, and it should be defined and it should have been defined a long time ago. But the Ivan River field is also undefined~ and I think Chevron again is the operator. And I think I'll turn -- turn it over to Brian. He has some comments. MR. CHATTERTON: Okay. Brian? MR. B. BURGLIN: This is Brian Burglin. I just basically have some questions if we can get into the cross examina- tion part of this or if that's ..... MR. CHATTERTON: Okay. Could -- may .... R & R COURT REPORTERS 81ON STREET, SUITE IO! 509W. 3RD AVENUE 277-0572 - 277'0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 12 17 20 2! 22 23 24 25 65- MR. B. BURGLIN: ..... permissible at this point? MR. CHATTERTON: .... May I -- in other words, we're down to where we want to have a little cross examine -- or -- or examination. Could I, Brian, Cliff, Gary, any of you or all of you respond, specifically what is your objection to granting the exception that Chevron has requested? Does it -- do you visualize that it is affecting correlative rights or do you visualize it may lead to waste, or is it just that that ain't the way the rule is? UNIDENTIFIED: No. MR. CHATTERTON: Let -- let me -- let me point out, before you answer, while you think about it, let me read a portion of Alaska statute sec- -- which is section 31.05.100, establishment of drilling units or pools. And thrOugh the public hearing process for all pools statewide why we have adopted for gas wells a spacing, a drilling unit size of 640 acres. Now, we can make exceptions. The statute requires us to consider maki'ng exceptions to that, and I read, "exceptions to the rules and .spacing pattern may be granted it is shown after notice and hearing that the unit --" and that's -- we're here, "after notice and hearing, that the unit is partly outside the pool, or for some other reason a well so located on the unit would not be productive, or topographical conditions are such as to make the drilling at such a location unduly burdensome." Now, apparently from those three choices, why the last one is the only R & R COURT REPORTERS 81ON STREET, SUITE 10! 509W. 3RDAVENUE 277-0572 - 277'0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 l! 12 l? 20 2! 22 23 24 25 -66- one that we seem to be faced with, and I don't know what "unduly burdensome" really means. To be truthful, I think it leaves a lot for -- for discretionary consideration. But specifically, we can grant an exception on showings like that. Do -- why do you object to -- to granting that? MR. C. BURGLIN: Well, because the participating area is so large, if .... MR. CHATTERTON: The --the application for the participating area? MR. C. BURGLIN: Yes. MR. CHATTERTON: Okay. MR. C. BURGLIN: And -- well, they've asked us to sign, you know, the unit agreement and agree to that participating area, and we will -- you know, we will not agree to that, because to set aside that large an area, they Should drill at least six wells. As far as -- as far as the regulations state. MR. B. BURGLIN: This is Brian Burglin. I'd like to make a C°mment. Number one, we are a member of the Pretty Creek Unit, and we are a working interest owner of the Pretty Creek Unit. And anything that happens within the Pretty Creek Unit boundaries affects us and we want to make sure that the problem of delineation is addressed, and well spacing requirements are a very important part of delineation. MR. CHATTERTON: Brian and Cliff, you gave me the opportunity to do what I've been wanting and hoping I'd get the R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 ! 007 W. 3RD AVENUE 272-75 ! 5 12 l? 20 2! 22 23 24 25 -67- opportunity to do, because I would like to introduce into the record as whatever the heck the next alphabet is .... MR. SMITH: L.. MR. CHATTERTON: ..... Exhibit L, a copy of the Pretty Creek Unit Agreement. I do not have copies to pass around, and I do not believe that is necessary, because everyone represented here is a signator (sic) to that unit agreement. And I would like to have that introduced as -- as an exhibit to this hearing. Now -- now that leads me to a question to Cliff and Brian, and I think -- and you don't have a copy, so you're going to have to -- maybe I shouldn't do it this way. Well, let -- let me ask you this:. You have stated and you are a working interest owner within the Pretty Creek Unit. You apparently have been unable to get the operator to -- and under the terms of that unit agreement, to -- to really follow what -- what you think should -- should be done, and so you -- you in effect I think are using, and rightfully s°, using the -- a governmental agency to hear this, and to more or less adjudicate this difference of opinion that -- if you want to think of it. Whether this is the proper governmental agency for that, I don't know, but let ..... Item 13 of the unit agreement provides a method for the protection of correlative rights, in -- in -- for those working interest owners with any unit that are beyond a partic- -- the boundaries of a participating area. I don't know whether R & R COURT REPORTERS 8IO N STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-7515 l0 12 13 14 16 17 19 20 2! 22 23 24 -68- that's germane or not, but it -- here, Brian, you want to read it, there it is. I've got it marked out there. I don't know what the unit operating agreement does, but whatever it says, it -- it -- this will be binding, whatever the unit agreement says is binding. It overrides any conflict that the unit operating agreement might offer. We do not have a copy of that, you know, the operating agreement. MR. ARLINGTON: Mr. Chairman, could I request that that .... MR. CHATTERTON: Yes. MR. ARLINGTON: .... be read out loud, because I didn't bring a copy of the unit agreement with me. MR. CHATTERTON: You may read six and 13 (ph) -- let -- let him read it, too. MR. B. BURGLIN: Okay. MR. ARLINGTON: May I read it out loud so the rest of them .... speech) loud. 'MR CHATTERTON: I'll be happy ..... MR. ARLINGTON: .... (indiscernible, simultaneous MR. CHATTERTON: ..... to have you read it out MR. ARLINGTON: Thank you. It's titled "Develop- ment or operatoin of non-participating land or formation. Any party or parties hereto owning or controlling the working interests R & R COURT REPORTERS 810 n STREET, SUITE 10! 509 W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 12 l? 20 2! 22 23 24 25 -69- in any unitized land having theron regular well location, may, with the approval of the Director and subject to the non- conflicting provisions of the unit operating agreement, at such party's or parties' sole risk, costs, and expense, drill a well at such location on such land to test any formation for which a participating area has not been established or to test any formation for which a participating area has been established if such location is not within said particpating area, unless within 90 days of receipt of notice from said party of his intention to drill the well the unit operator elects and commences to drill such a well in like manner as other wells are drilled by the unit operator under this agreement. "If any well drilled as aforesaid by a working interest owner results in production such that the land upOn which it is situated may properly be included in a participating area, such participating area shall be established or enlarged as provided in this agreement, and the well shall thereafter be operated by the unit operator in accordance wit the terms of this agreement and the unit operating agreement. "If any well drilled as aforesaid by a working interest owner obtains productin in quantities insufficient to justify the inclusion ina participating area of the land upon which such well is situated, such well may be operated and produced by the party drilling the same subject to the conservation require- ments of this agreement." R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 10 12 14 16 17 19 2O 2! 22 23 24 25 -70- it. That's about all of the ..... MR. CHATTERTON: Thank you, Mr ...... MR. B. BURGLIN: Thank you very much. Appreciate MR. CHATTERTON: Okay. You or Blaire, for Meredith would you make a copy, a Xerox of that so that she can -- won't have any problem getting it off the record? Okay. Very fine. In -- in other words, you do have a way to -- to argue I guess ..... MR. B. BURGLIN: Well, I'd like to .... MR. CHATTERTON: ..... within -- within the unit ..... MR. B. BURGLIN: ..... I'd like to find out, going back to the unit agreement, and I don't have it before me, and I don't .... MR. CHATTERTON: No, I know you don't. MR. B. BURGLIN: ..... know which article it is, but it also goes on to say that once a participating area is -- or basically once production commences, that it is all of the working interest owners' responsibility to diligently drill to clearly delineate all producing formations. MR. SMITH: That's after production commences? MR. CHATTERTON: Yeah, that's right. That's right. MR. B. BURGLIN: And that is not .... R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGe, ALASKA 99501 1007 W. 3RD AVENUE 272-75 I 5 12 17 20 2! 22 23 24 25 -71- MR. CHATTERTON: Okay. MR. B. BURGLIN: ..... one inter- -- one working interest owner's sole responsibility. That is everyone that signed the unit agreement. MR. CHATTERTON: Okay. Anything else? MR. C. BURGLIN: Well, I'd just like to repeat what Mr. Player said, if that -- you know, we -- we don't believe Chevron is dumb when they put that participating area in there, and they're going as far away as the Beluga River field for correlation. They must have good reason to believe that everythin! in that participating area would be productive, or why put it in? MR. CHATTERTON: Okay. MR. C. BURGLIN: And if that is the case, then if the terrain is -- if it's feasible to drill next to any of those road systems, and I think it is, then I don't think they have any reason to ask for the exception -- you know, the excep- tions. Either there's gas under the participating area, or , there isn't. And if there isn't, the participating area should be smaller. And I don't see where there's a problem. It either is or it isn't. MR. CHATTERTON: You -- you have brought this up, so it -- it just -- the Commission has to make note of a few things in regards to this application for a participating area, because it has been brought before us in this matter, even though R & R COURT REPORTERS 8 I O N STREET, SUITE I 0 ! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVeNUe 272-7515 l0 14 16 17 19 20 2! 22 23 24 25 -72- it is beyond the purview of -- of this Agency in this case. But it -- it is interesting to note that there are three leases that carry a 16 and 2/3% royalty interest to the State of Alaska, and normally are -- or nominally are across the upper tier of sections on the Pretty Creek Unit, and their request for the balance of the leases further to the south carry a 1/8th royalty. And yet there has been a tremendous expansion of area requested within the participating area application of one-eighth lands, which seem to dilute the one-sixth royalty interest land to quite an extent. Your point being as a good America- -- Alaskan citizen I guess is why make it so large that it dilutes these -- these higher royalty leases. Good point. MR. B. BURGLIN: Also, Commissioner, on that line we'd like to bring up that there is even a higher royalty lease to the State of Alaska that is between the Ivan River Unit and the Pretty Creek Unit boundaries. So delineation is also definitely in the best interest of the State. I believe that lease is around a 60% royalty lease to the State of Alaska. MR. CHATTERTON: Okay. Anything else? Any questions? MR. HAUSER: Is it permissi~ble for us to respond to their statements, or how should we work.this? MR. CHATTERTON: Do you wish -- chose to respond? MR. HAUSER: Norm"WOuldilike~to. MR. STONE: I would like to respond on -- on quite R & R COURT REPORTERS 810 N STREET, SUITE IO! 509 W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 10 12 13 14 16 17 19 20 2! 22 23 24 25 -73- a few of the points that were brought up, if you would, Mr. Chairman? MR. CHATTERTON: Okay. We're listening. MR. STONE: Well, I'm hearing stories of -- of our large P.A. and why aren't we drilling since we're -- we're fairly confident according to our P.A. that there is gas under- neath the majority of -- of the structure there at Pretty Creek, and I certainly don't disagree with that. We -- we do feel that there is gas there. I -- I think one of the points that -- that seems to surface and then again is buried again with -- as we get off on -- on other points of interest in -- in this particular hearing is -- is an analysis of the risk involved, and when we submit a participating area to the State, we -- we simply have to show reasonable evidence that there exists an accumulation of -- of hydrocarbon in -- in commercial quantity on that acreage. Now, reasonable evidence is something different to me than -- than say -- you -- you can relate to reasonable risks in -- or reasonable evidence in different sorts of risk. And what we're looking at is Pretty Creek -- at Pretty Creek, of course, is -- is to develop this field and -- and fulfill our -- well, I'll say our two-well contract. We don't have any other -- other wells to develop at Pretty Creek. We don't have a continuing contract beyond two wells, and we have to face this thing ..... MR. CHATTERTON: Well, may -- may -- do you R & R COURT REPORTERS 810 N STREET, SUITE IO1 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORaGe, aLASKA 9950! 007 W. 3RD AVENUe 272-7515 l0 14 16 17 20 2! 22 23 ¸24 25 -74- not have a continuing contract ..... ? MR. STONE: No, we do not, sir. We .... MR. CHATTERTON: I think you have a contract with the leasor to evaluate .... MR. STONE: We have a contract, excuse me, to sell gas. MR. CHATTERTON: You have a contract with the leasor, it's called a lease. And what are the covenants of that lease? MR. STONE: Well, what -- what -- right now what I'm talking about is our contract to -- to sell gas. MR. CHATTERTON: Oh, okay. MR. STONE: Not -- not our Contract with -- with the State of Alaska. And to sell that gas, we have to present a well and present a well that is an economic venture to our company. And -- and to say that there is gas on that structure, yes, there is. To say that' it is not more risky to drill a well further away from -- from' the good well that we currently haVe is -- is incorrect. So that as you go further away from the well, you increase the risk. Or as you go down the structure, you also increase the risk. And, of course, increased risk is something that we calculate and give a number to and .... MR. CHATTERTON: And as you go up structure, ..... MR. STONE: .... and -- and economics. As .... R & R COURT REPORTERS 810 N STREET, SUITE lO! 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 ! 007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 20 22 23 24 25 -75- MR. CHATTERTON: ..... do you increase the risk? MR. STONE: ...... we go down structure, you increase risks. As ..... MR. CHATTERTON: And as you go up structure? MR. STONE: ..... you go up -- up structure, you will decrease risks. MR. CHATTERTON: You will decrease risks. MR. STONE:' For the most general part, we feel we will decrease risk. And t° make this economic venture fly, we had to come up with a location that was economic and -- and accord it -- and included in those economics would, of course, be a reasonable evaluation of risk involved in the well. And I've just noticed, I've noticed and I've been looking, of course, without saying Mr. Arlington said that we did not lOok at these wells that Mr. Burglin sUggested that could be drilled indeed at all for wetlands determination, well, that's true. We did not go stomp around and look at them in detail, because we had no, of course, prior knowledge to them. But we did look at the same data. We have the same topographic sheet and aerial photo. And there are several things that would preclude any of those locations that Mr. Burglin has suggested. Any well location north of the Theodore River is -- the timing on a locatio to -- to obtain a permit to -- to construct a flow line back across the Theodore River would be out of -- of the timeframe R & R COURT REPORTERS 810N STREET, SUITE 101 509W. 3RDAVeNUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 19 20 2! 22 23 ¸24 25 -76- that we have to satisfy our contract. We would also incur additional expense for road construction. There is a road through the unit, but there is not road access to these particular locations. I -- I would like to note that Mr. Burglin said there was in fact a road access, but there would have to be the construc- tion of some distance of road into any of these locations that -- that he's -- he's noted. So we're looking at anything north of the Theodore River, we would have to have a special permit to build a flowline back across the Theodore River,~ because the tie-in to the Enstar pipeline is on the southern side of the -- of -- of the Theordore River, and we are, Of course, restrained by the migratory seasons of -- of fish coming up the Theodore River. MR. CHATTERTON: Now, let me ask yOu a question. You could satisfy the spacing requirements and still stay south of the Theodore River, is that not correct, with your surface location? MR. STONE: Yes, that .... MR. CHATTERTON: Okay. Thank you. MR. STONE: .... is true, sir, with the exception -- or with the qualification that too much of a kick also creates physical risk in the well. It's -- it's -- the well is planned to be a dual completion, a dual string completion, and getting packers in and out of the well with any excess deviation in the wellbore, kicking it, for instance, from 400 to eight or 900 R & R COURT REPORTERS 810N STREET, SUITE 10! 509W. 3RDAVENUE 277'0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 14 16 17 19 2O 2! 22 23 24 -77- feet would -- would build the angle substantially. I -- I believe Mr. Hauser mentioned that it would increase it up to in the 20%. And that, of course, increases risk of operational problems in the well as well. So it is ..... MR. CHATTERTON: Yeah. But you .... MR. STONE: ..... it is physically possible, ..... MR. CHATTERTON: ..... you are testifying as an engineer now, as ..... MR. STONE: .No, sir, I'm not. MR. CHATTERTON: ..... an expert engineer? MR. STONE: I -- that's why I qualified that statement with -- with Mr. Hauser. So -- so to ..... MR. CHATTERTON: But -- yeah. · MR. STONE: .... addreSs again the -- the locations, the locations that I see on -- on the maps suggested by -- by the Plaintiffs would be off structure, increasing the risk. They would have to have a road built to it, which would increase the construction expense. Mr. Player was absolutely right in that we were fortunate to find the location that we did, an old gravel pit, which we are using to defer expenses, because again'this is a marginal -- a marginal economic venture, and to incur additional cost would -- would in fact cancel the venture. MR. CHATTERTON: All right. R & R COURT REPORTERS 810 N STREET, SUITE 1OI 509W. 3RDAVeNUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 l! 12 14 16 17 20 2! 22 24 25 -78- MR. C. BURGLIN: May -- May I respond to ..... MR. CHATTERTON: Yes. MR. C. BURGLIN: ..... Mr. Stone? Mr. Stone, we are in a producing area in the Cannery Loop, which means that we will contribute to the development. We will also when production begins, we will receive a part of the revenue propor- tionate to our ownership. To me, the participating area is a production area. In other words, you cOrrect me if I'm wrong, but when you drill and you start selling gas to Enstar, everybody that is in that producing area will get a part of the revenue, am I correct? MR. STONE: That's correct. MR. C. BURGLIN: Okay. Now, to be very redundant again, Chevron must feel that there is gas under that participating area, or they wouldn't be giving away money to people who own the acreage. And, again, my point is, why do you need the exceptions? It's -- it's ..... MR. STONE: Well, to be redundant, we ..... MR. HAUSER: There's plenty -- there's plenty of gas -- there's -- fine, there's gas. If you drill a well up to the north and make 5 million a day, they can drill those out and make one or two million a day. That -- that's commercial gas depending on what kind of conditions you're in and -- and the economic situation. We're going to drill a well where we feel is the best place to drill one to produce gas to satisfy a R & R COURT REPORTERS 81ON STREET, SUITE 1OI 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 12 13 14 17 19 20 2! 22 23 24 25 -79- gas contract at this point in the game. MR. C. BURGLIN: Okay. MR. HAUSER: Eventually the -- the field will be, you know, hopefully, there will be gas. You guys can go out and find a -- find a gas contract as easily as we can. We can start drilling wells. MR. C. BURGLIN: Well, just wait a second. Both your unit agreement and the State law requires these fields to be defined and you're ..... MR. HAUSER: Fine' MR. C. BURGLIN: ..... you know, two wells ...... MR. ARLINGTON: Mr. Chairman, .... MR. C. BURGLIN: ... is not going to define the... MR. ARLINGTON: ..... I -- I think we're wandering away from .... speech) MR. C. BURGLIN: Okay. Well, .... MR. HAUSER: Well, ..... MR. ARLINGTON: ...... the purpose of this hearing MR. HAUSER: ..... (indiscernible, simultaneous MR. ARLINGTON: We aren't looking at whether or not there could be other wells drilled Within a proposed participating unit within the unit. Chevron I think is willing to concede the fact, and we hope indeed that there are other commercial well locations within the Pretty Creek Unit. That is R & R COURT REPORTERS 8 ! O N STREET, SUITE 10 I 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 12 14 16 17 19 2O l! 22 23 24 25 -80- not what we are here to discuss. What we're here to discuss is whether or not the particular well that is proposed at this time at the location that Chevron has suggested can be economical as we've proposed to have it drill. This is the well that the applicant is proposing to drill, and we would hope that the State or -- would not be in a position of telling us exactly where we must drill a well and -- and in what order. MR. CHATTERTON: Mr. Arlington, your point is well taken and we have strayed far afield here in discussing the P.A. It may be of benefit to all concerned before we get through that we have had the discussion though. I do recognize that we have strayed far afield. And -- and, no, I don't think there is any law that will tell you where you have to drill anything. I think there are laws that tell you where you will not drill things though. I believe they are there, though, and we are responsible for one of those, ..... MR. ARLINGTON: I agree. MR. CHATTERTON: .... enforcement of one of those laws. The -- I'd like to get back to one thing here. The -- I believe I heard testimony to the effect that as you got further removed from Pretty Creek Unit Number Two,.the risk of getting a gas well increased. Is -- is there anybody -- anybody that heard it differently than that? MR. STONE: O.r ex- -- with one"exception, of R & R COURT REPORTERS 8 ! O N STREET, SUITE ! O1 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 l0 12 13 14 16 17 20 2! 22 23 '24 25 -81- perhaps going upstructure. MR. CHATTERTON: I also heard ..... MR. STONE: That ..... MR. CHATTERTON: .... correctly I believe that the risk is decreased by going upstructure? MR. STONE: Relative to any well drilled in any other direction. Now, you -- you would have to set a risk on any well, any second well in a field is -- is essentially a delineation well. I -- I guess I would take that exception. We -- we've presented evidence that we would be drilling a delinea- tion well to -- to look at the Sterling. This is ideally located to delineate Sterling reserves, which we've seen none in the field. And I would say that any well as a second well in the field is a delineation well which would have to haVe a risk attached to it. Now, the lowest risk on a delineation well would be updip. Now, any other direction would be decreased -- or increased risk from -- from an updip direction if you will. So I wouldn't say -- I guess to say the risk is decreased going updip is -- is not true. I guess the -- the minimum risk would be a location northerly from -- from Pretty Creek Two if you will, sir. MR. CHATTERTON: Okay. Fine. Thank you. Any -- any further questions or anything else to be said before we might consider pulling the string on this thing? MR. B. BURGLIN: I -- if it's all right, I have R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RDAVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 I 5 l0 12 13 14 16 17 19 20 2! 22 23 ¸24 25 -82- a few questions here. MR. CHATTERTON: Sure. MR. B. BURGLIN: One of you made the statement that you had plans to drill future wells. How many future wells were you looking at and what timeframe are you looking at to start a delineation program? MR. HAUSER: We're not in a position to answer that at this time. MR. STONE: We -- we could outline future plans for the field and say that we -- we have many wells to drill. I -- I didn't count them, but I would say on -- if -- if the P.A. proved true the way that we have it drawn, we could have as many as 16 wells. Larger or smaller, of course, it would be adjusted. To say when we would do it is certainly based on ..... MR. HAUSER: Market condition. MR. STONE: ..... market conditions. MR. B. BURGLIN: Okay. Here again, I don't which one was teStifying to -- you -- you keep bringing up a difference in cost between a directional hole and a, you know, a whole new pad. And what -- how much difference in cost are you talking about, ballpark figures or -- or what are these big differences in costs that we're looking at? MR. HAUSER: Which -- what -- what do you want to know about -- I mean, ..... MR. B. BURGLIN: As -- as opposed to why you R & R COURT REPORTERS 81ON STREET, SUITE lO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 12 20 2! 22 23 ¸24 25 -83- can't look at following the regulations under the well spacing that exist? Why -- why are the costs so extreme that you absolutely have to have an exception? MR. HAUSER: For -- which -- what do you want to know the cost difference between? MR. B. BURGLIN: The difference in costs of say a directional hole will add a tremendous amount of cost or a little bit of cost or -- as opposed to a new pad and new location? MR. HAUSER: I think it suffices to say at this point in the game that the economic numbers we ran, the additional cost, it -- it makes the -- it puts the economic merit of this project in jeopardy. And since we've already mentioned here that economics is not.'really the issue, I don't think that actual dollar numbers ..... · MR. CHATTERTON: Well, I'd like to follow up on Mr. Burglin's question. The -- your testimony has been replete with this horrible burden of additional cost. We have not put anything to -- %o define it. I don't know whether it's a burden- some problem or -- or anything. I -- we've even heard that you can't direct a well very far. Maybe we should get down to finding out other than just an arm-waving staement, .... MR. HAUSER: Okay. MR. CHATTERTON: .... how much more is it going to cost to direct this well for the surface location 1,000 feet? MR. HAUSER: Okay. Since we are -- since I'm -- , ,, , , R & R COURT REPORTERS 8 I O N STREET, SUITE ! O ! 509 W. 3RD AVENUE 1007 W. 3RD AVENUE 277'0572-277-0573 277-8543 272-7515 ANCHORAGE, ALASKA 99501 10 12 13 14 16 17 19 2O 2! 22 23 24 25 -84- I was prepared to say it, so if we wanted it -- want to get into it, that's fine. The way -- the way Chevron works their economics which, you know, the manner that we do and the -- and the -- and the conditions that we do is proprietary, but I can say that the -- the numbers, the production numbers that went into this well and the cost to drill and complete it and the facility costs added onto it, the economics -- the only way that this well was economic was to look at the whOle picture of the two wells together. Pretty Creek -- first of all, Pretty Creek Two's -- because we -- we have to look at this as a -- as a package. It's not just the drilling of one well. Pretty Creek Two's economics are economic onlY when we consider the completion costs. We didn't even ..... MR. CHATTERTON: EconOmic by whose ..... MR. HAUSER: Chevron .... MR. CHATTERTON: .... whose standards? MR. HAUSER: Chevron's standards. MR CHATTERTON: And what are those standards? MR. HAUSER: The -- the criteria we use is it has to pay out in four years, rate of return of 20%, and a discount factor of 1.5, which is a -- it's'a number that nobody will understand. MR. CHATTERTON: That's not too shabby, is it? MR. HAUSER: Hmm? R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-O573 277-8543 ANCHORAGE, ALASKA 99501 | 007 W. 3RD AVENUE 272-7515 10 !2 !3 !5 !6 17 !8 !9 2O 21 22 23 ¸24 -85- could ...... MR. CHATTERTON: That's not too shabby. You MR. SMITH: A discount factor of what? MR. CHATTERTON: ..... stand a discount .... MR. HAUSER: 1.5. MR. CHATTERTON: ..... you could stand -- stand about 15% and still make money? MR. HAUSER: No, no, no. The discount -- the discount percentage is ten. The -- the nominal number is a -- is a number that nobody will understand except someone within Chevron, because I went through an economics course and Chevron's the only one that used that kind of calculation. But ..... MR. CHATTERTON: Yeah. Would this be the same for all the other working .interest owners in the .,..? MR. STONE: No, sir, it's just Chevron. MR. HAUSER: Well, -- pardon me? MR. CHATTERTON: Would this be the same economic limit for the other working interests? MR. HAUSER: No, no. Each company has their own economics they put in this thing. Each company has -- has the option to ...... MR. CHATTERTON: You are a~minority interest .... MR. HAUSER: ..... approve or disapprove. MR. CHATTERTON: ..... in this unit, are you not? R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 10 12 13 14 16 17 19 20 2! 22 23 ¸24 25 -86- MR. HAUSER: Majority? MR. ARLINGTON: Minority. MR. CHATTERTON: You're a minority interest? MR. HAUSER: Right. MR. CHATTERTON: Yeah. You're calling the shots for the majority? MR. HAUSER: No. All we can do is we can propose a venture, put -- after it's met our own company internal economics, and each -- each other working interest owner involved has the option to approve or disapprove based on their own economic evaluation. If they don't want to do it, we won't do it. We have received approval from -- from the others involved that this -- this one will go at the conditions that we've set. MR. CHATTERTON: Well, we have heard from one working interest owner that he has not approved it. MR. HAUSER: This is -- this is -- this is .... MR. C. BURGLIN: This is the P.A. participants. MR. HAUSER: .... for -- this is within the P.A. MR CHATTERTON: What P.A.? MR. HAUSER: Well, ..... MR. B. BURGLIN: The proposed P.A. MR. CHATTERTON: There isn't one. MR. HAUSER: Yeah, but the -- you know, ..... MR. B. BURGLIN: Proposed P.A. MR. HAUSER: ... the proposed P.A. R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 | 007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 19 20 2! 22 23 ¸24 -87- this point ..... MR. CHATTERTON: Well, there is not a P.A. at MR. HAUSER: Right. MR. CHATTERTON: .... in time, is that correct? MR. HAUSER: That's correct. MR. CHATTERTON: Yeah. So why is this approval just limited to a select few? MR. HAUSER: It -- it is at this point in the game, if -- if -- and, you knOw, the -- the cost sharing -- cost sharing can be set up any way any working interest owner want to do it, okay. It will become official once the P.A. is -- is approved. And if some- -- I'm -- I'm not as well versed ..... MR. CHATTERTON: What if the P.A ...... MR. HAUSER: ..... in this as -- as ..... MR. CHATTERTON: .... is not approved? MR. HAUSER: Then we go back to the drawing board. MR. CHATTERTON: What if the P.A. is approved in a fashion that the percentage of Chevron's cost will increase materially over what it would now? MR. HAUSER: You mean, what'-- how -- what would the outcome be on this? MR. CHATTERTON: Yeah, would Chevron still want to drill it? MR. HAUSER: Do you want ..... R & R COURT REPORTERS 810 N STREET, SUITE 1OI 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 16 17 19 20 2! 22 23 ¸24 25 -88- MR. STONE: The percentage of Chevron's participa- tion isn't a question in the economics. It's .... MR. HAUSER: Yeah. I need -- I need to back up, because we've got a special circumstance on this particular venture. MR. CHATTERTON: We sure do, don't we? MR. HAUSER: There is -- there is -- there is a cost sharing right now of this well and the follow-up well, the Pretty Creek Two Well and the follow-up well, which is the 224-28, that is solely bore by Texaco and Chevron, as with -- with agreement -- as far as the drilling completion of the well. Okay. We -- we bear 8% of it, Texaco 20%. MR. CHATTERTON: I see. MR. HAUSER: That's -- that's okay' That's okay. And -- and then from there on, the -- the follow-up working interest percentage will follow suit. So anyway, to go back to the, you know, the original question, we had -- we had economics on Pretty Creek Two saying that it was an economic venture. However, there was no market for that gas, and to -- to -- to be able to deliver that gas to -- to a buyer, more of a gas demand was required, and more security. They did not want to rely on a one-well supply, so two wells was put into the gas agreement. Now we've got a lot higher cost. We've got a new well we've got to drill., we've got new facilities, and this new well R & R COURT REPORTERS 8 ! O N STREET, SUITE 10 I 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 l0 13 16 17 19 20 2! 22 23 24 25 iii -89- economically on its own will not stand. The only way that it would meet economics is to combine the project together as a two-well venture. And then it -- and then it just barely met the criteria that I -- that I said was -- was.necessary from Chevron's point of view. On -- and that's all we have to satisfy for our own approval of the project is whether it meets our own company standards. To -- for the -- to do the different scenarios, we -- we technically could do. One is kick it to meet the 3,000 foot criteria, we've got additional cost of $200,000.00. To kick it elsie MR SMITH: Say that again, Mike? .MR. HAUSER: To kick it 400 feet, plus or minus, whatever we need to kick it to meet the three -- 3,000 foot requirement, we figure would be $200,000.00. To kick it .... MR. CHATTERTON: Are you prepared to give us a break down of these costs? MR. HAUSER: Not at this time, no. I -- you can only ..... me. MR. CHATTERTON: I could arm wave 500,000 then. MR. HAUSER: Yes. MR. CHATTERTON: It's -- it's meaningless to MR. HAUSER: Ail you can rely on at this point in the game is -- is the number -- I -- you know, this is sworn R & R COURT REPORTERS 810 N STReeT, SUITE IO1 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 995OI 007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 19 2O 2! 22 23 ¸24 25 -90- testimony by a prev- -- you know, an expert witness, ..... MR. CHATTERTON: I'd be -- yeah. I -- it's ..... MR. HAUSER: .... and if -- my numbers are what I could have .... MR. CHATTERTON: ..... it is just beyond belief that it would be anything of that order. I think .... MR. HAUSER: Well, this is all I .... MR. CHATTERTON: .... there'd be ~no drilling~ at Prudhoe Bay if that was a Straight line function. MR. HAUSER: But it's not a straight line function But for this par- -- you know, for this particular instance on this well and the hole size we're going to drill and everything considered, our drilling department's cost estimate for -- for a kick of this distance on this well is $200,000.00 it came in at. MR. SMITH: Would be an additional 200,000? MR. HAUSER: Right. MR. PLAYER: Why don't you just ask them what (indiscernible, simultaneous speech) by itself? MR. CHATTERTON: Out of -- and what is the cost of the well as a straight hole? MR. HAUSER: I didn't bring that. UNIDENTIFIED: I have it. Hold. on a second. MR. B. BURGLIN: But -- if I may interrupt, but you're welling to put the expense into gas facilities and -- and R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 I 5 l0 12 14 16 17 19 20 2! 22 23 ¸24 25 -91- everything else based on two wells and -- what -- what are your gas facility costs in there? You've got your well costs and then, you know, you're going to have your gas facility and ..... MR. HAUSER: Right. That's all part of the package. You know, you've got the facility and put the well on production. MR. B. BURGLIN: Um-hm. MR. HAUSER: I'm not sure I understand .... MR. BARNWELL: What kind of percentage I think we're trying to get at ..... MR. B. BURGLIN: Of cost .... MR. BARNWELL: ..... is this (indiscernible, simultaneous speech) MR. B. BURGLIN: Yeah. What -- how much is the gas facility percentage cost bases the well cost in your ..... MR. HAUSER: He's got the numbers there. MR. STONE: That will be the same regardless of what it is. MR. HAUSER: It -- it -- Yeah, you know, whether it's two million or three million, if $200,000.00 has an effect on the economic -- there's -- there's a goal -- there's a magic line that these economic standards, if we don't meet economics, it doesn't get approved, period. MR. SMITH: Okay. But now -- yeah. Okay. Well, to -- to go along with your -- the 400 is 200,000 more, if it's R & R COURT REPORTERS 810 N STREET, SUITE 10! 509 W. 3RD AVENUE 277-0572 - 277'0573 277'8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 19 20 2! 22 23 24 25 -92- 800 feet, it's ..... ? MR. HAUSER: If it's 800 feet, it's 300,000 plus operational problems. We don't feel that we could have a well that we'd feel comfortable with having dual completion in it with a 20 degree angle. MR. SMITH: So higher maintenance and operational. MR. CHATTERTON: Do you have .... MR. HAUSER: Right. MR. CHATTERTON: ..... any feel of what that 200 or $300,000.00 represents as a percentage of your total costs? MR. HAUSER: That's what ..... ,MR. MOLESWORTH: Original costs for the straight hole estimate is $2.8 million. IDENTIFIED: Boy. whew. MR. CHATTERTON: And so we're talking ..... MR. MOLESWORTH: Our facility cost -- in addition to that, we have a.facility cost, surface facility cost, feeders, separators and so forth ..... MR. CHATTERTON: Okay. Let's .... MR. MOLESWORTH: .... over $1 million. MR. CHATTERTON: All right, Let's stay with just the well cost if we may. 2.8 million for the well? MR. MOLESWORTH: Correct. MR. CHATTERTON: And you're worrying about R & R COURT REPORTERS 8ION STREET, SUITe IOI 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 I 5 l0 12 13 16 17 19 20 2! 22 23 24 25 -93- $200,000.00 additional expenditure ...... MR. HAUSER: Well, .... MR. CHATTERTON: .... do you call that substantive MR. HAUSER: I have already mentioned that -- that our position is that if -- if told to do so, we would be willing to make that kick. We .... MR. SMITH: Yeah, he said they (indiscernible, simultaneous speech) MR. HAUSER: ..... don't think it's necessary based on geologic interpretation. MR. CHATTERTON: Okay. MR. SMITH: This is the one. MR. CHATTERTON: Yeah. Now -- well, I'll ask the question. You also say to kick it -- and -- and I think some of these numbers are going to change when you plot these wells properly, but $300,000.00 out of $2.8 million, is that -- is your -- is that even within the limits of accuracy of your estimating? That's what, .... MR. HAUSER: I -- I believe -- you.~know, we'-- we just come 'off of'a ma~or.drilling program at?B~eluga River,'a~nd I think we. are.very.close, in our estimates. But irregardless of that, that -- the -- the second kick also adds operational problems that we don't feel we could live with that would increase the risk, and we just -- we don't feel that that's warranted for this well. R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277~8543 ANCHORAGE, ALASKA 9950! 1007 W. 3RD AVENUE 272-7515 l0 12 13 14 16 17 19 20 2! 22 23 24 25 -94- MR. CHATTERTON: Let me ask you another question, Cliff, Brian, so forth. How would you people feel if they were -- would -- would you feel more comfortable -- obviously you'd feel more comfortable. Would you feel comfortable if they met the requirement of 3,000 foot distance between wells, but maybe not the standback? We're all unitized here, so the -- maybe not the standback, the 1500 foot standback? MR. B. BURGLIN: CommisSioner, our -- our problem is that at this point in time all Chevron has proposed for the foreseeable future which,'you know, we can look at it as five years, ten years, or ..... MR. CHATTERTON: Sure. MR. B. BURGLIN: ..... or 20 years as a two- well program. Until the field is delineated, we d° not feel, unless there's an extraordinary circumstance that a well spacing exception should be granted. MR. CHATTERTON: Okay. MR. C. BURGLIN: And just as a correlary to that, we do not see how it's in the State's best interest, because they could be draining with those two wells, you know, only God knows how much acreage. And some of it poSsibly could not belong to them. MR. PLAYER: Yeah, we were in a similar hearing situation last year, and I believe Chevron's expert witness testified that he could drain three to four miles in these R & R COURT REPORTERS 810 N STREET, SUITE I01 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUe 272-75 ! 5 12 13 14 16 17 19 20 2! 22 23 24 25 -95- permeable sands with one well. MR. HAUSER: In the Beluga sands? MR. PLAYER: Yes. With a field. MR. CHATTERTON: Okay. MR. HAUSER: Beluga sands? MR. PLAYER: Yes. UNIDENTIFIED: No. Sterling. MR. HAUSER: Sterling sands. MR. PLAYER: That -- that could be. MR. HAUSER: Yeah, that's true. MR. CHATTERTON: Well, I have no further questions Anybody else have any further questions or comments? .MR. ARLINGTON: Yeah. Mr Chairman, I'm not sure that I have yet to hear either of the Burglins or Mr. Player indicate other than it's just their feeling why they would be better served, or the State would be better served to have the well located, you know, as it would be if we were 1500 feet from the governmental section line, or 3,000 feet from the bottom- hole location of Pretty Creek Unit Number Two. MR. CHATTERTON: Mr. Arlington, I have not heard anything from the applicant other than a little arm Waving as to what I would consider anything that was'substantive re- -- and requiring an exception to the law. MR. ARLINGTON: I respectfully take exception in that the geologic information that Mr. Stone had presented I R & R COURT REPORTERS 8 ! O N STREET, SUITE 101 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 l0 l! 12 13 14 16 17 20 2! 22 23 24 25 -96- think is compelling in that we are going to be receiving a greater ..... expert now? MR. CHATTERTON: Are you testifying as a geologic MR. ARLINGTON: No, sir, I'm merely trying to .... MR. CHATTERTON: How can you take exception to what he says then? MR. ARLINGTON: No, I'm -- I'm taking exception to the statement that Chevron has not presented anything to indicated that the Commission should grant the exception. I'm just trying to refocus the Commission's attention back to the testimony that Mr. Stone has given, and that is, based on the geologic information that we have available, that there is compelling reasons to grant the exception as we've' suggested. MR. CHATTERTON: BecaUse of risk is the only testimony I recall that he gave that requires an exception. Because .... ~MR. ARLINGTON: Not .... MR. CHATTERTON: ... it becomes more"risky the further you go away. MR. ARLINGTON: Not just ri'sk. That baSed upon not only the contours that we have proposed or suggested might be for the Beluga and Sterling formations, but also what i...~~, Player's indicated, that there's a greater opportunity that we can delineate the -- the contours of the Sterling and Beluga R & R COURT REPORTERS SION STREET, SUITE IO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 I 5 l0 12 14 16 17 19 2O 2! 22 23 24 25 -97- at the location. If we miss and don't find productive sands in the Sterling or Beluga should we go further north and drill such it were 1500 feet or 3,000 feet, I -- I would expect, and I think Mr. Stone could elaborate further if necessary, but we have lost ..... MR. CHATTERTON: I would rather ..... MR. ARLINGTON: ..... a significant ...... MR. CHATTERTON: .... have them elaborate.than yOUr ..... MR. ARLINGTON: .... significant opportunity. MR. CHATTERTON: .... I can tell you that. .MR. STONE: I -- certainly I -- I know what Jim's trying to say here is again we -- we are delineating -- we -- we think we're very close to gas/water contact in the Sterling formation, and based on our surface location that I -- I don't think anybody here disagrees with -- with the fact that we're putting the surface location in this particular area for -- for several reasons. To .... MR. CHATTERTON: Cost. MR. STONE: ..... minimize impact elsewhere. MR. CHATTERTON: Cost. MR. STONE: It's just a question of whether to kick it or not a few hundred feet. MR. CHATTERTON: That's right. R & R COURT REPORTERS 81ON STREET, SUITE lO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 10 12 13 14 16 17 19 20 2! 22 23 24 25 -98- MR. STONE: And I would like to -- I guess one other thing I would like to say, to delineate that Sterling formation, if we go further north, the chances are, being optomistic, that we're going to be in Sterling gas. And we could be right in the middle, and -- and, of course, then we have to step back down to the south to delineate the edge of it, so you -- you keep going back and forth. And we're simply looking at we -- we're tied into this surface location. There's simply no way that we can get out of the surface location. And for a few hundred feet, why kick it? We are in a position, why don't we drill a straight hole? It's in the best interest of everybody to drill a mechanically successful well. I -- I don't think anybOdy would argue that we have much higher success of doing that .using a straight hole than a -- than a deviated hole. And we are asking for a very minimal variance and the location of the well will in fact delineate the Sterling formation It will help resolve questions of -- of the Beluga formation. MR. CHATTERTON: Well, there's a lot to be said to the advantage of all concerned, leasor, lessees, everyone, that you -- if you're going to drill a second well that you bottom it at the most optimum position tha% you can, because of this Sterling sand situation you're speaking of. I would say bottom it close to the axis of the anticlinal nose of the nose, and you just refuse to do that. You -- you want to drill a straight hole. You don't want to take -- to -- to do good R & R COURT REPORTERS 810 N STREET, SUITE 10! 509W. 3RD AVENUE I OO7 W. 3RD AVENUE 277-O572 - 277-0573 277-8543 272-75 ! 5 ANCHORAGe, ALASKA 9950! l0 12 13 14 16 17 19 2O 2! 22 23 ¸24 25 -99- for everybody, and is -- that right? MR. HAUSER: Well, we -- we could get it close to the axis, but you -- the best way of getting close to the axis is not to kick it, no, farther north to meet that 1500 foot direction line. You'd kick it east. MR. PLAYER: May I suggest that you .... MR. CHATTERTON: Well, up structure toward the axis, yeah, that -- that ..... MR. STONE: Yeah. MR. HAUSER: Yeah. That would be the ..... MR. CHATTERTON: ..... would be northeast, right? MR. HAUSER: .... that would be the best thing to do. Yeah. ~ MR. CHATTERTON: Looking at your map, that would be northeast? MR. STONE: Mr. Chairman, if -- now going back to our other argument, using analogous sands at Beluga River, one thing I -- I didn't post on there is we would like to crowd, in the best interest of the State, all of the good locations that we can in the Pretty Creek along the crest of -- crest of the field. And I think I didn't (ph) make mention at Beluga River and what We're planning at -- at Pretty Creek, is to think of the crest as a single line. I -- I prefer to think of it as -- as a fairway of some width, .... MR. CHATTERTON: I see. R & R COURT REPORTERS 8 I 0 N STREET, SUITe 1 O1 509 W. 3RD AVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 10 11 12 13 14 15 16 17 18 19 20 21 22 23 ~24 -100- MR. STONE: ..... a couple thousand feet to 3,000 feet wide ..... MR. CHATTERTON: The nominal 320-acre spacing that you have at Beluga is not too bad, is it? MR. STONE: Pardon me? MR. CHATTERTON: A nominal 320-acre spacing, development spacing is not bad. It's about what you hit at Beluga? MR. STONE: FOr -- ~ I -- I don't understand what you mean by a nominal 320? MR. CHATTERTON: Well, you -- you certainly can get two wells in that section is what I'm trying to say, and still meet the requirement of standing 1500 feet back from the section line? MR. STONE: Uh-huh. But if we push it to the north -- to the east up on top of the crest, then we affect the section adjacent to it, and the next well that would snug up against that would push it down dip. You see, we're trying to -- to -- in -- in the best interests of yourself and us as well, we'd like to have as many producers in this fairway along the crest that we could. And that's .... MR. CHATTERTON: Well, I don't want any more producers than you need to to drain the reservoir. MR. STONE: Right. MR. HAUSER: Well, whatever that optimum number :'.R'&"R:COURT'REpORTERS 810 N STREET, SUITE IO1 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUL 272-7515 ]0 14 ]6 17 ]9 20 2] 22 23 ¸24 25 -101- is. MR. STONE: Exactly. Which we -- we .... MR. HAUSER: (Indiscernible, simultaneous speech) MR. STONE: ..... we have evidence of regional expertise to suggest that that number is going to be somewhere in the vicinity of what we would have if we drilled on 160-acre spacing. MR. CHATTERTON: Okay. You have ..... MR. PLAYER: May I ask .... MR. CHATTERTON: .... some questions over here? MR. PLAYER: ..... one more question? This is on a slightly different .... MR. CHATTERTON: Do you have your calendar here? MR. SMITH: I have one more before we're through. MR. PLAYER: Yeah. one more question and then I'm done. It's -- it's short, too. MR. CHATTERTON: Okay. MR. PLAYER: On the Pretty Creek Unit Number Two Well, your exhibit that you've turned in today show drill stem tests number 3A and 4A. Now, I may be wrong, but I didn't see either of those reported to the State.on t. he hist- -- the physical history of the well. If you could submit copies of those drill stem test data to the State, I'd sure appreciate it. Now, you may have already done that, but the research I've done on the well suggests that drill stem tests 3A and 4A were R & R COURT REPORTERS 810N STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGe, ALASKA 9950! 1 OO7 W. 3RD AVENUE 272-75 I 5 ]0 ]! 12 13 14 ]5 ]6 ]7 ]9 20 2] 22 23 ¸24 25 -102- never reported. I'd like you to do that. MR. STONE: Well, no, they were. MR. PLAYER: Okay. Could .... MR. STONE: On our participating area application or what? MR. PLAYER: No, on the -- the well history when you re-entered the Theodore River .... MR. STONE: Oh, we didn't -- that's because those tests were not conducted by Chevron. Those were Haubuty (ph tests. original .... MR. PLAYER: Okay. Those .... MR. STONE: Prior to re-entry of .... MR. PLAYER: .... okay. Those are the old MR. STONE: Yes. MR. PLAYER: ..... tests? Okay. Thank you-. You just renumbered them. 'MR. SMITH: I have a question of Chevron here. With the drilling of this second well, wherever the location may~ be, after it's drilled, will Chevron then be ready for a pool rules hearing to delineate that portion of 'this field and set field rules for it? MR. HAUSER: Yes, I think so. MR. CHATTERTON: Along with that question, you -- I -- you have -- we have approved I believe your re-entering · R & R COURT REPORTERS 810 N STREET, SUITE IO1 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 10 1! !2 13 14 15 !6 !7 18 19 20 21 22 23 24 '25 -103- Pretty Creek Number Two to do some testing? MR. HAUSER: Right. MR. CHATTERTON: Is it -- as I recall, you were silent on -- on your request, do you plan to make any four-point tests? Are you going to be able to do some testing on that well that will give you a -- be able to give you a feel as to the limits of the reservoir? MR. HAUSER: Any testing we could come up with would -- the best time to do that would be put the -- after we put the well on production, on stream, and not -- not short term drill stem testing. And, yes, we would. MR. MOLESWORTH: We -- that's a state requirement, absolute (ph) flow test. MR. CHATTERTON: Well, I don't know it's a State requirement, but it's a healthy one. MR. MOLESWORTH: Yes, it is. MR. HAUSER: Yeah. MR CHATTERTON: Okay. Anything else to come before us? MR. B. BURGLIN: So -- yes. This is Brian Burglin again, another question for Chevron. So are you planning on -- if you ever drill more than two wells, are you planning on asking for well spacing exceptions on all of them or -- we're still back to a deligent drilling program to delineate once you start producing? R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-0573 277'8543 ANCHORAGE, ALASKa 9950! 007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 ]5 ]6 ]7 ]8 ]9 2O 2! 22 23 24 25 -104- MR. ARLINGTON: I think it's impossible to say at this time whether they'll be required, well spacing exceptions or not. You know, a lot of it's .... MR. B. BURGLIN: And .... MR. ARLINGTON: ..... going to depend on the topography again. A lot of it's going to depend on the same sort of parameters that have been introduced in this hearing. MR. B. BURGLIN: Okay. And our problem with that is unless there is -- there are some long-range plans and plans can be changed. They -- they're submitted every year. We're not inclined to go along with any well spacing exceptions, because those could be the only two wells for the next 30, 30 years, and they'.re definitely not going to delineate either formation clearly. MR. ARLINGTON: That's your opinion. MR. B. BURGLIN: That's my opinion. MR. STONE: Any two wells, I -- I would -- I would challenge you to pick two locations on that map that would delineate the limits of the field. MR. B. BURGLIN: That's my point. MR. STONE: Any two wells are -- are not going to delineate the -- the limits of the field clearly ..... MR. C. BURGLIN: But any two wells can .... MR. STONE: .... Clearly. MR. C. BURGLIN: .... can drain most of the field. R & R COURT REPORTERS 810 N STREET, SUITE 10 ! 509 W. 3R D AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGe, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 ]0 ]! ]2 !3 !4 !6 17 !9 20 2! 22 23 24 -105- MR. STONE: No, sir. UNIDENTIFIED: Yeah. At least the Sterling. UNIDENTIFIED: It's not our understanding. MR. CHATTERTON: It is of interest to -- to -- and I make this quick observation. It really doesn't have too much bearing, but I can't resist making it. That the proposed the application for the proposed participating area has been very adroitly drafted so that all leaseS within the Pretty -- Pretty Creek Unit with one exCeption will be protected forever more and never expire. And, of course, the exception is the Burglin, et al., lease ...... UNIDENTIFIED: What about all these? UNIDENTIFIED: There's quite a number of them. MR. CHATTERTON: .... It's very, Very adroitly done. I had to make that observation. MR. ARLINGTON: Mr. Chairman, I take exception. We've got ADL 58821. 'MR. CHATTERTON: Did you get rid of one? I -- well, where is that little mother? MR. ARLINGTON: Southern, very southern. MR. B. BURGLIN: Down in the water in the south. MR. CHATTERTON: Is that section 167 MR. ARLINGTON: Twenty-one. MR. CHATTERTON: Section 21. Oh, yeah, that -- you were hanging down there. Oh, yes. Yes. That's offshore, R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUE 277-0572 - 277-O573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 ]0 ]! 12 14 16 17 20 22 23 '24 -106- isn't it? Yeah. I -- I apologize. With that exception. And whose lease is that? Union. MR. STONE: It's a Union lease. MR. ARLINGTON: I be- -- Yes, I believe it's MR. CHATTERTON: Union? .... MR. STONE: Sir, .... MR. CHATTERTON: .... is it a 640-acre lease? MR. STONE: yes, but, sir, I've got -- boy, I've got to take exception to that, too. There are reasons why both those leases were not included in the participating area, and I'd also like to mention that we've been talking about expanding and -- and contr, acting this thing. Mr. Burglin would argue that it should be smaller, and if it is, his -- his lease is even further away from ..... MR. CHATTERTON: Yeah. Yeah. Yeah. MR. STONE: ..... any future proposed P.A. And the reason that'th°se are excluded is that based on the best geologic, seismic, geophysical evidence we have, those leases are way down dip. We -- we did try to be optomistic in a P.A. I -- yes, we did, but leases are not excluded bY who owns them and who does not. They -- they were excluded on geologic evidence or .... MR. CHATTERTON: Okay. Your exception is -- Your exception is duly noted, and I was in error. Still interesting, though. R & R COURT REPORTERS 81ON STREET, SUITE 101 509W. 3RDAVENUE 277'0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-7515 l0 13 14 16 17 19 2O 2! 22 23 ¸24 -107- I would like to keep this -- let -- let me ask you -- you participants here, do either of you chose to keep the hearing record open for subsequent comments? MR. B. BURGLIN: Yes, we do. MR. CHATTERTON: Okay. MR. B. BURGLIN: We'd like to have an opportunity to respond in writing to various points ..... MR. CHATTERTON: All right. MR. B. BURGLIN: .... that Chevron .... MR. CHATTERTON: Would -- would .... MR. B. BURGLIN: ... has made. MR. CHATTERTON: If we kept the record open until July the 17th, that's three weeks from now, would that be sufficient? MR. B. BURGLIN: That Would be fine. MR. CHATTERTON: Would that be all right with you? MR. C. BURGLIN: May I ask whether the -- their participating area will be approved by then? MR. CHATTERTON: I have no knowledge~' Cliff. MR. ARLINGTON: We have no idea. You know, we'~,~Ve~?~ heard from DNR that they've got concerns with the participating -- participating area as proposed, but, of.course, we don't have any idea how long they will take to -- to approve any -- any amendments to our proposal. MR. CHATTERTON: To be quite frank with you, I do R & R COURT REPORTERS 81ON STREET, SUITE IO1 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! 007 W. 3RD AVENUE 272-75 ! 5 i Ii ]0 !2 !3 !4 !5 !6 !7 !8 !9 20 2! 22 23 24 25 -108- know they told me they were not going to take any action on their thing until after this hearing. And I don't know what -- how long "after" is, whether it's a year, two years or so forth. They've got to have a participating area before they can deliver any of that gas they've already sold though. The State law both -- there's two agencies that require that. One~s':'.a'-~90.~dayS.,~ and the other a 30-day. MR. HAUSER: I would like to make one comment, and it's -- to us it's a very serious one. We have a real timing problem, and if this record is kept -- kept open that late, there is a distinct possibility with -- 'cause we -- we cannot as a company build a location somewhere where we may not be drilling a well. And until this is resolved, we cannot build a location, and if it's 'til July -- some --the end of July, We won't build a location until August at best, with some operation. It takes at least a month to build location in this kind of condition. So I guess what I'm saying is that we're ....... MR. CHATTERTON: There is nothing to prevent ,, you from building a location, is there? MR. ARLINGTON: Yes, there is. MR. HAUSER: Yes. MR. ARLINGTON: The regulations that we are seeking an exception from specifically indicate in number two that the surface location for a well exploring for gas must be at least 1500 feet from the drilling unit boundary, and if I could R & R COURT REPORTERS 81ON STREET, SUITE 10! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 10 1! 12 13 14 16 17 18 19 20 2! 22 23 ¸24 25 -109- request that the Commission, if they feel that they've got enough information regarding that aspect of our application grant a partial exception for that aspect, we could begin constructing the surface location if there's a reasonable anticipation on the Commission's part that we would be able to -- to drill as indicated with whatever conditions the Commission -- the Commis- sion might put on for directional drilling. MR. B. BURGLIN: Commissioner, we would be willing to withdraw our request for that if -- it's not our intent to stop production from the Pretty Creek Unit, so if time is a factor we would withdraw our request for a time limit. We will just make our comments and submit them. MR. CHATTERTON: Well, .... MR. HAUSER: Well, we still have t° close the whole thing pretty quick, because we -- if it is determined we have to kick it to the 1500 foot stand-off, there -- it is conceivable we would -- we would withdraw the application to drill the well. MR. CHATTERTON: The -- could you tell me -- you have me a little confused. I made a statement here at almost the early part of this hearing that we could care less about a surface location. We were only worrying'about a subsurface location. Now, is this an exploratory well that you're drilling? MR. ARLINGTON: Is it ..... MR. SMITH: It would help ..... R & R COURT REPORTERS 810 N STREET, SUITE ! O 1 509 W. 3RD AVENUe 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-7515 ]0 ]! 12 14 15 ]6 17 ]9 20 2! 22 23 24 25 -110- building (ph)? MR. CHATTERTON: Is this an exploratory .... MR. SMITH: ..... if you'd reference .... MR. CHATTERTON: .... well that you're drilling? MR. SMITH: .... reference which one you're MR. ARLINGTON: I'm referencing 20 AAC 25.055. MR. CHATTERTON: I -- okay. What part? MR. ARLINGTON: Okay. (a)(2) MR. CHATTERTON: That's for exploratory wells. Are you drilling an exploratory well? MR. HAUSER: I didn't think so, if this would -- surface location, right. MR. ARLINGTON: Okay. MR. HAUSER: The-- the key is MR. CHATTERTON: For gas exploration. Exploring for gas. Are you exploring? MR. ARLINGTON: No. MR. HAUSER: No. MR. CHATTERTON: Okay. Then do you have a problem Mr. Arlington? MR. ARLINGTON: No. MR. CHATTERTON: Okay. There is nothing to keep you from preparing a surface location, is there? MR. HAUSER: Not -- not regulatory. MR. ARLINGTON: Yes, yes, Mr. -- Yes, R & R COURT REPORTERS 810 N STREET, SUITE IO1 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-7515 l0 12 14 16 17 19 20 2! 22 23 ¸24 25 -111- Mr. Commissioner. As Mr. Hauser just indicated, the expenses that we would incur in building the surface location would be some cost. Should we go ahead and risk building that location without having the decision made by the Commission, if the Commission were to make a decision that we could not -- that they would not grant the exception, that we'd have to kick the well to meet the 1500 foot requirement, as Mr. Hauser indicated, we may decide not to drill that well at all. If .... MR. CHATTERTON: But you've ..... MR. ARLINGTON: ..... we make that .... MR. CHATTERTON: .... you've also testified that you were contractually committed to because of your gas sales? ,MR. ARLINGTON: Okay. It -- it may be advantageous to seek to renegotiate with ..... MR. CHATTERTON: I'm getting ratcheted (ph) around here until the point I don't like it. MR. HAUSER: No. There -- there are two condi- tions. There -- the gas contract is for two wells. Okay. If we do nOt drill the second well, it -- naturally a contract of this nature with -- with an unknown well at this point, there's got to be a clause in there that if the well becomes uneconomic or if it -- if we drill it and there's no gas'there, or if we -- or if something happens, we don't get to drill it, then -- then it reverts back to a different condition and different takes by Enstar. So essentially what will happen is it'll -- it'll scale R & R COURT REPORTERS 810 N STREET, SUITE lO! 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGe, ALASKA 99501 007 W. 3RD AVENUE 272-7515 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -112- down the gas contract and we will not drill a well, and instead of delivering X-amount of million gas a day out of two wells, we'll deliver half of that out of one well, if that well isn't drilled. That's -- that's all. And .... MR. B. BURGLIN: Excuse me, is this your gas contract or Union's gas contract? MR. HAUSER: It's our gas contract. MR. CHATTERTON: And with -- with all that that you have just said then, what's the problem with -- why is there such a rush to do everything? If you go -- you're in .... MR. HAUSER: Summer -- summer construction ..... MR. CHATTERTON: ..... (indiscernible, simul- ltaneous speech). MR. HAUSER: ..... season, basically. MR. CHATTERTON: The -- the what? MR. HAUSER: The summer construction season~,~. basically. We've got -- we've got -- we've got basically up until part way into September to build a location. And then we've got to drill .... MR. CHATTERTON: Well, -- well, wait ..... MR. HAUSER: ..... and get the well down. 'MR. CHATTERTON: .... why -- why -- what,~s the limiting factor -- what's the seasonal limit? What -- what's limiting? MR. HAUSER: Dealing with frozen ground. R & R COURT REPORTERS 810 N STr EET, SUITE I O 1 509 W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 l0 13 14 16 17 19 20 2! 22 23 24 -113- Constructing in frozen ground. MR. CHATTERTON: Well, normally it's less damaging to work on frozen ground? MR. ARLINGTON: Well, as far as -- no, .... MR. SMITH: No, this is -- you're building a year-round road, is that correct? So that .... MR. ARLINGTON: Not a road. We're building adjacent to the existing road. We're bUilding a year-roung pad, and there'll be production facilities located on that pad, so we need to construct during the summer so that we can get adequate compaction of the -- of the pad, on the gravel. If we were to complete constru~.tio~i~"durling ~he;:~-"the~.wi.~te~ months~when;~thereli.~. was water crysta, lization in the pad, it would jeopardize the integrity of the -- of the pad. MR. HAUSER: Well, we've got three things. We've got -- we've got to build location, we've got to drill the well, and then we've got to get all those facilities in. Foundations, buildings, everthing. And the construc- -- after the well's completed, there's a four-month construction time to get the facilities in. MR. CHATTERTON: Well, we have 30 daYs -- if we were to close the record today, why we might not give you an an~swer ........ MR. HAUSER: That's right. MR. CHATTERTON: .... for 30 days. R & R COURT REPORTERS STREET, SUITE IOI 509W. 3RDAVENUE 277-O572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 I 5 ]0 12 ]4 16 17 19 2O 2! 22 23 24 25 -114- MR. HAUSER: That's right. MR. ARLINGTON: That's right. And .... MR. HAUSER: We -- we -- we already may be in trouble. I don't know. From our -- from our own company's standpoint. And, you know, what the economic conditions are today, I don't know what our company would decide on something like this. It's -- it's -- no telling. MR. CHATTERTON: Off the record. (Off record) (On record) MR. CHATTERTON: We are back on the record, and we did have a discussion as far as timing of how long we would keep the ~ecord open beyond what is already on the hearing record, and there has been an agreement amongst all concerned that we shall keep the hearing record open until 4:30 p.m. Thursday, July the 10th, 1986. MR. ARLINGTON: Mr. Chairman, may I ask if it's possible for alI parties that have testified here today to present additional information up until that time, or what's the purpose? I guess I'm asking for clarification. What's the purpose for keeping the record open until that time? 'MR. CHATTERTON: I could be very nasty and say because I damn well want to keep it open until then, but I will give you a better reason, Mr. Arlington. There has -- have been several exhibits introduced here. I think we're up -- pretty R & R COURT REPORTERS 810 N STREET, SUITE 101 509W. 3RDAVENUe 277-0572 - 277-0573 277-8543 ANCHORAGe, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 10 11 12 13 14 16 17 19 20 21 22 23 ¸24 25 -115- well halfway through the alphabet almost. That none of us have had a chance to review. And we may very well upon review wish to comment or make further -- enter further information into the record upon which this Commission will have to make a decision. And it is for that reason, so that we will all have an opportunity to -- to review the exhibits that have poured forth. In fact, as you well know, one of the exhibits that is now a part of the record is the unit agreement, and there were not even any copies for passing out of that. So it's a matter for everyone, to give -- give them a chance to -- to look at what we have developed so far and see if there are any loose spots left. MR. ARLINGTON: I agree with that. I guess I -- I wasn't questioning the authority of the Commission to do that. I was really seeking clarification as to wh'ether or not Chevron might be allowed to present additional information during that time. I've heard from the Burglins that they want to respond in -- in writing t° additional comments. I guess I'm wondering if there might be -- if the Commission is going to allow any other parties that weren't present here to present testimony during this open period of time? Are there any restrictions as to what additional information the Commission will accept? MR. CHATTERTON: Well, if 'you were going to try to enter in additional testimony so to speak, and you -- you people have been worrying about this timing, why then this becomes -- what's the legal term? -- a brief, if you hand in R & R COURT REPORTERS 810N STREET, SUITE 101 509W. 3RD AVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9~)501 007 W. 3RD AVENUE 272-75 I 5 !2 !3 !4 !6 !7 20 2! 22 23 ¸24 25 -116- something then you've got to go another six months before -- for people to answer that, and it keeps on going ad infinitum. I think as far as the testimony is concerned, we've had it. We -- we don't want any new facts developed. But we would like any comments that anyone has that will provide guidance for the Commission to -- in making a decision on this matter. But if you were to develop a whole new set of facts and testimony, I would not -- we would have to give the opposition, the protestants to rebut that. We'd be in -- rebuttal. So I don't know what -- Ann, what are the legal terms for what I'm arm waving about? MS. PREZNA: No, you're pretty much on target. We've -- like he said, he doesn't want any new evidence at this point, but you can be responsive to things that were brought in today that you have -- like some of the exhibits and so forth that you really haven't had an opportUnity to look at and evaluate and submit comments on that. MR. CHATTERTON: New evidence would require us to reconvene'at a -- if we were still within the timeframe, with the same hearing, or -- or establish another hearing so that all sides could be heard. MR. ARLINGTON: I agree. · MR. CHATTERTON: Does that answer your .... ? MR. ARLINGTON: Yes, it does. Thank you, Mr. Chairman. MR. CHATTERTON: Okay. Anything else to become R & R COURT REPORTERS 81ON STREET, SUITE 10! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 99501 007 W. 3RD AVENUE 272-75 ! 5 l0 12 13 14 16 17 19 20 2! 22 23 ¸24 -117- -- come before us? Okay. The hearing -- what's -- what's the language I need now? The session is adjourned. The hearing record is kept opon until what we've noted before, July 10th, 1986, for comments on the testimony that has come before us in this hearing. Period. It's adjourned. Off the record. (END OF PROCEEDINGS) R & R COURT REPORTERS 81ON STREET, SUITE 1OI 509W. 3RDAVENUE 277-0572 - 277-0573 277~8543 aNChORAGE, ALASKA 99501 1007 W. 3RD AVENUE 272-75 ! 5 10 l! 12 13 14 16 17 19 2O 2! 22 23 ¸24 25 CERTIFICATE UNITED STATES OF AMERICA STATE OF ALASKA I, Meredith L. Downing, Notary Public in and for the State of Alaska, and Electronic Reporter for R & R Court Reporters Inc., residing at Anchorage, Alaska, do hereby certify: That the annexed and foregoing Transcript' of formal hearing before the Alaska Oil and Gas Conservation Commission was taken before me on the 26th day of June, 1986, commencing at the hour of 9:00 o'clock, a.m., at the offices of the Alaska Oil and Gas Conservation Commission, 3001 Porcupine Drive, Anchorage, Alaska, pursuant to notice. That the witnesses, before testifying, were duly sworn to tell the truth~, the whole truth and nothing but the truth. That this transcript, as heretofore annexed, is a true and correct transcription of the testimony given at said hearing, taken by me electronically and thereafter transcribed by me. That the original of the transcript has been retained by me for the purpose of filing the same with the Alaska Oil and Gas Conservation Commission, Anchorage, Alaska, as required. That I am not a relative, employee, attorney, nor counsel of any of the Parties, nor am I financially interested in this action. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal this 8th day of July, 1986. ~,/-~-~~//~ J *dt~ry ~b2ic in and ~r Alaska My Commission Expire~5/3/90 S ~ ~ B R & R COURT REPORTERS 81ON STREET, SUITE lO! 509W. 3RDAVENUE 277-0572 - 277-0573 277-8543 ANCHORAGE, ALASKA 9950! ! 007 W. 3RD AVENUE 272-75 ! 5 TESTIMONY OF CHEVRON U.S.A. INC. AT A PUBLIC HEARING BEFORE THE ALASKA OIL & GAS CONSERVATION COMMISSION JUNE 26, 1986 RE: THE APPLICATION OF CHEVRON U.S.A. INC. FOR AN EXCEPTION TO 20 AAC 25.055, TO PERMIT THE DRILLING OF THE PRETTY CREEK UNIT WELL NO. 224-28 WITH SPACING VARIANCES. MR. CHAIRMAN AND MEMBERS OF THE COMMISSION, MY NAME IS JIM ARLINGTON AND I AM EMPLOYED BY CHEVRON U.S.A. INC. (CHEVRON) AS A LAND ATTORNEy IN THE ANCHORAGE, ALASKA OFFICE. I HAVE BEEN AUTHORIZED TO REPRESENT CHEVRON BEFORE THE ALASKA OIL AND GAS CONSERVATION COMMISSION (AOGCC) REGARDING CHEVRON'S REQUEST FOR EXCEPTION TO 20 AAC 25.055 WHICH WOULD PERMIT THE DRILLING OF THE PRETTY CREEK UNIT WELL NO. 224-28 AT A 'SURFACE LOCATION LESS THAN 1,500 FEET FROM A GOVERNMENTAL SECTION BOUNDARY, A GAS POOL TO BE OPENED TO THE WELL BORE CLOSER THAN 1,500 FEET TO THE GOVERNMENTAL SECTION LINE AND CLOSER THAN 3,000 FEET TO ANY WELL DRILLING TO OR CAPABLE OF PRODUCING FROM THE SAME POOL. APPLICATION HISTORY CHEVRON FILED A PERMIT TO DRILL THE SUBJECT WELL WITH THE ALASKA OIL AND GAS CONSERVATION COMMISSION ON MARCH 26, 1986. CHEVRON SUBSEQUENTLY RECEIVED A TELEPHONE CALL FROM AN ENGINEER REVIEWING THE APPLICA £ION NOTIFYING CHEVRON THAT THE APPLICATION WAS NOT IN COMPLIANCE WITH AOGCC'S NEW REGULATIONS IN SO FAR AS WELL SPACING WAS CONCERNED, WHICH WENT INTO EFFECT APRIL 2, 1986. CHEVRON SUBSEQUENTLY FILED A WRITTEN REQUEST DATED APRIL 28, 1986 MAKING APPLICATION FOR EXCEPTION TO SECTION .055 OF THESE NEW OIL AND GAS CONSERVATION REGULATIONS, TO PERMIT THE DRILLING OF A GAS WELL, THE PRETTY CREEK UNIT WELL NO. 224-28, AT THE FOLLOWING LOCATION: SURFACE LOCATION: +/-770 FEET NORTH AND +/-2066 FEET EAST OF THE SOUTHWEST CORNER OF SECTION 28, TOWNSHIP 14 NORTH, RANGE 9 WEST, S. B. & M. BOTTOM HOLE LOCATION: SAME AS ABOVE. THE AOGCC SUBSEQUENTLY ISSUED AN ORDER DATED MAY 7' 1986 WHICH INDICATED THAT ANTICIPATED ACTION BY THE AOGCC REGARDING THE PRETTY CREEK UNIT WOULD BE INCONSISTENT WITH CHEVRON'S REQUEST FOR EXCEPTION AND WHICH, THEREFORE, NEGATED ANY ACTION BY THE AOGCC ON CHEVRON'S REQUEST AT THAT TIME. CHEVRON SUBSEQUENTLY FILED A REQUEST FOR RECONSIDERATION ON MAY 15, 1986 REQUESTING THAT THE AOGCC APPROVE' CHEVRON'S ORIGINAL APPLICATION FOR EXCEPTION AND RECONSIDER THE NEED FOR ESTABLISHING POOL RULES FOR DEVELOPMENT OF ~I..'.{E FIELD AT THIS TIME. THE AOGCC SUBSEQUENTLY PUBLISHED ON MAY 22, 1986 A NOTICE OF PUBLIC HEARING INDICATING THAT UNLESS A WRITTEN PROTEST OF CHEVRON'S APPLICATION WAS FILED WITHIN FIFTEEN DAYS OF THE NOTICE STATING IN DETAIL THE NATURE OF THE FILING PARTY'S AGGRIEVEMENT THE AOGCC WOULD CONSIDER THE ISSUANCE OF AN ORDER WITHOUT A HEARING. SUBSEQUENTLY ONE LETTER OF PROTEST WAS FILED BY MR. C. BURGLIN DATED MAY 27, 1986 OBJECTING TO CHEVRON'S REQUEST FOR A WELL LOCATION EXCEPTION, AMONG OTHER THINGS, THEREBY NECESSITATING THIS HEARING. JUSTIFICATION FOR SPACING EXCEPTION SINCE THE AOGCC REGULATIONS PROVIDE NO STANDARDS FOR THE REVIEW OF APPLICATIONS FOR SPACING EXCEPTIONS, CHEVRON SUGGESTS THE FOLLOWING REASONS AND FINDINGS OF FACTS BE ADOPTED BY THE AOGCC TO SUPPORT THE GRANTING OF CHEVRON'S REQUEST, IN ADDITION TO THE REASONS INDICATED IN CHEVRON'S REQUEST FOR RECONSIDERATION DATED MAY 15, 1986 AND CHEVRON'S ORIGINAL APPLICATION FOR EXCEPTION DATED APRIL~ 28, 1986, WHICH ARE INCORPORATED BY REFERENCE FOR THE PURPOSES OF THIS HEARING. 1) AS INDICATED AB(~VE CHEVRON FILED ITS APPLICATION FOR PERMIT TO DRILL ON MARCH 26, 1986 AT WHICH TIME CHEVRON WAS IN COMPLIANCE WITH THE EXISTING WELL SPACING REGULATIONS EXCEPT FOR THE THREE THousAND FEET DISTANCE REQUIREMENT FROM EXISTING WELLS CAPABLE OF PRODUCING FROM THE SAME POOL. SINCE CHEVRON'S PROPOSAD LOCATION IS A VERY MINOR VARIANCE FROM THIS REQUIREMENT, CHEVRON'S APPLICATION FOR PERMIT TO DRILL SHOULD THEREFORE ~ BE APPROVED BASED UPON THE REGULATIONS THAT WERE IN EFFECT AT THE TIME THAT THE APPLICATION WAS FILED. 2) THE GAS POOL TO BE PRODUCED IN THE PRETTY CREEK UNIT IS SIMILAR AND ANALOGOUS TO THE POOL BEING PRODUCED FROM THE BELUGA FORMATION IN THE BELUGA RIVER UNIT WHICH IS ADJACENT TO THE PRETTY CREEK UNIT. THE GEOLOGICAL AND WELL DATA THAT CHEVRON HAS FROM THE PRETTY CREEK UNIT INDICATES THAT THE GEOLOGICAL INFORMATION AND CHEVRON'S PRODUCTION EXPERIENCE IN THE BELUGA RIVER UNIT ARE DIRECTLY APPLICABLE TO THE POOL TO BE PRODUCED IN THE PRETTY CREEK UNIT. 3) CHEVRON HAS RECEIVED SEVERAL WELL SPACING EXCEPTION RULINGS FROM THF AOGCC IN THE BELUGA RIVER UNIT, WHICH IS AN ADJACENT PRODUCING GAS FIELD WITH SIMILAR AND ANALOGOUS GAS BEARING SANDS. FOUR WELL SPACING EXCEPTIONS IN THE BELUGA RIVER UNIT HAVE BEEN OBTAINED 'FROM THE AOGCC FOR WELLS COMPLETED DURING THE LAST DRILLING SEASON. THESE WELLS INCLUDE BRU 224-34, BRU 211-3, BRU 224-23, AND BRU 232-26. 4) THE COMMERCIAL WELLS THAT HAVE BEEN DRILLED WITHIN THE BELUGA RIVER UNIT ARE WITHIN 160 ACRE SPACING OF OTHER COMMERCIAL WELLS. CHEVRON'$ PROPOSED LOCATION FOR THE PCU NO. 224-28 WELL WOULD BE WITHIN 160 ACRE SPACING OF THE ExiSTING PCU NO. 2 WELL, WHICH IS A GAS WELL CAPABLE OF PRODUCING IN COMMERCIAL QUANTITIES. 6) A BOTTOMHOLE LOCATION FOR THE PCU NO. 224-28 WELL AT A LOCATION WITHIN THE SMALL AREA THAT WOULD BE ALLOWED BY THE CURRENT AOGCC REGULATIONS, WOULD JEOPARDIZE FUTURE DRILLING LOCATIONS BASED ON 160 ACRE SPACING WITHIN THE PRETTY CREEK UNIT. 7) THE LOCATION PROPOSED BY CHEVRON WOULD OPTIMIZE THE OPPORTUNITY TO DELINEATE THE STERLING FORMATION, AS WELL AS THE BELUGA FORMATION, WITHIN THE PRETTY CREEK UNIT. 8) THE CURRENT AOGCC REGULATIONS WOULD LIMIT TO ONE THE NUMBER OF WELLS THAT COULD BE DRILLED WITHIN ANY GOVERNMENTAL SECTION IN A UNIT NOT SUBJECT TO FIELD RULES. 9) THERE CURRENTLY EXISTS A WELL WITHIN THE PRETTY CREEK UNIT CAPABLE OF PRODUCING IN COMMERCIAL QUANTITIES, THE PCU NO. 2 WELL, WHICH ALLOWS COMPARISON TO THE BELUGA RIVER UNIT. WHILE THERE IS NOT SUFFICIENT TECHNICAL AND OPERATING DATA ~1~O PROPOSE FIELD RULES WITHIN THE PRETTY CREEK UNIT AT THIS TIME, THERE IS SUFFICIENT DATA. TO INDICATE THAT A GOVERNMENTAL SECTION WITHIN THE PRETTY CREEK UNIT WILL SUP~P~RT MORE THAN ONE ~ELL PRODUCING FROM THE BELUGA FORMATION. 10) PRODUCING DATA FROM THE ADJACENT BELUGA RIVER UNIT INDICATES A HIGH PROBABILITY OF HAVING MORE THAN ONE WELL CAPABLE OF PRODUCTION WITHIN ANY GOVERNMENTAL SECTION PRODUCING FROM THE BELUGA SANDS. 11) THE RISK FACTOR FOR THE SUBJECT WELL WOULD BE TOO GREAT, IF THE BOTTOMHOLE WERE LOCATED FURTHER FROM THE PCU NO. 2 WELL THAN WHAT IS PROPOSED BY CHEVRON, TO ECONOMICALLY JUSTIFY THE DRILLING OF THE SUBJECT WELL. 12) CHEVRON IS COMMITTED TO A GAS CONTRACT WHICH REQUIRES PRODUCTION FROM THE PCU NO. 2 WELL BY NOVEMBER 1, 1986 AND FURTHER REQUIRES THAT ANOTHER WELL BE PROVEN CAPABLE OF PRODUCTION BY JANUARY 1, 1987. WHILE THE PCU NO. 2 WELL IS CAPABLE OF PRODUCING IN COMMERCIAL QUANTITIES, THE PCU NO. 224-28 WELL IS MARGINALLY ~ECONOMICAL AT THE PRESENT LOCATION~DUE TO THE NEED FOR ADDITIONAL SURFACE FACILITIES AND OTHER FACTORS AND PROBABLY WOULD NOT ECONOMICALLY SUPPORT ADDITIONAL COSTS OR RISKS. ADDITIONAL COSTS OR RISKS ASSOCIATED WITH THE PCU NO. 224-28 WELL WILL JEOPARDIZE THE WELL ECONOMICS AND COULD RESULT IN A DECISION TO CANCEL ITS DRILLING. 13) THE TOPOGRAPHY WITHIN THE GOVERNMENTAL SECTION WHERE THE PCU NO. 224-28 WELL IS PROPOSED TO BE DRILLED SEVERELY LIMITS THE POSSIBLE SURFACE LOCATIONS FOR THE WELL, THE PROPOSED LOCATION IS SURROUNDED BY WETLANDS AND IS BOUNDED ON THE NORTHEAST BY THE THEODORE RIVER. LIMITATIONS BY OTHER REGULATORY AGENCIES WOULD DELAY LOCATING THE WELLPAD ANY PLACE ELSE WITHIN THIS GOVERNMENTAL SECTION. THEREFORE, IF THE EXCEPTION TO THE BOTTOMHOLE LOCATION REGULATION IS DENIED A WELLBORE DEVIATION FROM CHEVRON'S PROPOSED SURFACE LOCATION WOULD BE REQUIRED. THIS WELLBORE DEVIATION WOULD SUBSTANTIALLY INCREASE THE DRILLING COSTS FOR THE PCU NO. 224-28 WELL. 14) DENIAL BY THE AOGCC OF CHEVRON'S REQUEST FOR EXCEPTION WOULD REQUIRE ADDITIONAL PERMITTING TIME WHICH IN TURN WOULD DELAY DRILLING AND PRODUCTION FROM THE WELL, SUBSTANTIALLY INCREASING THE POSSIBILITY OF BREACHING THE GAS CONTRACT OBLIGATIONS. 15) CHEVRON'S REQUEST FOR SPACING EXCEPTION IS A MINIMAL VARIANCE FROM THE CURRENT AOGCC SPACING REQUIREMENTS. 16) THE POTENTIAL BENEFIT TO THE STATE OF ALASKA IS GREATER WITH THE AOGCC GRANTING CHEVRON'S REQUEST FOR EXCEPTION, DUE TO THE INCREASED PROBABILITY OF COMMERCIAL PRO~'UCTION, THAN IF THE AOGCC WERE TO DENY CHEVRON'S REQUEST. 17) THE ONLY WRITTEN PROTEST FILED REGARDING CHEVRON'S APPLICATION BY MR. BURGLIN, HAS NOT MET THE NOTICE OF HEARING REQUIREMENTS PUBLISHED BY THE AOGCC BY NOT "STATING IN DETAIL THE NATURE OF HIS AGGRIEVEMENT". MR. C. BURGLIN HAS NOT INDICATED HOW HE "MAY BE AGGRIEVED IF THE REFERENCED (~r~DER IS ISSUED GRANTING THE REQUEST". 18) CHEVRON CONCURS WITH THE STATEMENT MADE IN MR. BURGLIN'S PROTEST LETTER OF MAY 27, 1986 THAT THE PRODUCTIVE LIMITS OF THE BELUGA AND STERLING FORMATIONS WITHIN THE PRETTY CREEK UNIT HAVE NOT BEEN DELINEATED AT THIS TIME. HOWEVER, IT IS PRECISELY FOR THIS REASON THAT CHEVRON HAS REQUESTED THE SPACING EXCEPTION. THE LOCATION CHEVRON HAS PROPOSED WILL AFFORD A GREATER OPPORTUNITY TO DELINEATE BOTH THE BELUGA AND STERLING FORMATIONS AS WELL AS INCREASE THE PROBABILITY THAT COMMERCIAL QUANTITIES OF HYDROCARBONS WILL BE ENCOUNTERED. ALL OTHER REFERENCES MADE BY MR. BURGLIN IN HIS LETTER OF ~AY 27, 1986 PERTAINING TO CHEVRON'S UNIT PLAN OF DEVELOPMENT AND A PROPOSED INITIAL PARTICIPATING AREA FOR THE PRETTY CREEK UNIT, ARE THEREFORE INAPPROPRIATE AND IRRELEVANT FOR THIS HEARING. METHODOLOGY THE STATE OF ALASKA USES TO DETERMINE A PARTICIPATING AREA IS A POLICY DECISION MADE BY AN APPROPRIATELY CHARGED STATE AGENCY AND IS OUTSIDE THE SCOPE OF THIS HEARING. AS A SUPPLEMENT TO THIS WRITTEN SWORN TESTIMONY OF CHEVRON U.S.A. INC., MR. NORM STONE, DEVELOPMENT GEOLOGIC COORDINATOR, MR. MIKE HAUSER, AREA ENGINEER, AND MR. GREGG MOLESWORTH, PRODUCTION ENGINEER, ARE AVAILABLE FOLLOWING THIS PRESENTATION TO ANSWER ANY QUESTIONS THE COMMISSIONERS MAY HAVE THAT WOULD ELABORATE UPON THE FACTS AND STATEMENTS I'VE JUST PRESENTED. FOLLOWING ANY PRESENTATIONS BY THEM AND FOLLOWING TESTIMONY FROM ANY AGGRIEVED PARTIES WE'LL BE AVAILABLE FOR CROSS EXAMINATION, IF SUCH IS ALLOWED BY THE COMMISSIONERS. CHEVRON APPRECIATES THIS OPPORTUNITY TO PRESENT ITS TESTIMONY AND REQUESTS THAT THE AOGCC APPROVE CHEVRON'S APPLICATION FOR AN EXCEPTION TO 20 AAC 25.055 AS SPECIFIED IN CHEVRON'S LETTER OF APRIL 28, 1986. Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission Re: The application of CHEVRON U.S.A. INC. for an exception to 20 AAC 25.055 to permit the drilling of a well in Pretty Creek Unit. The Alaska Oil and Gas Conservation Commission has been requested, by letters dated April 28, and May 15, 1986 to issue an order permitting Chevron U.S.A. Inc. to drill the Pretty Creek Unit Well No. 224-28 in an undefined gas reservoir in the Pretty Creek Unit. The wells proposed locations require exceptions to both the distance from the section line and the distance from another well as specified in 20 AAC 25.055(4)(a). Parties who may be aggrieved if the referenced order is issued granting the request are allowed 15 days from the date of this publication in which to file a written protest stating in detail the nature of their aggrievement and their request for a hearing. The place of filing is the Alaska Oil and Gas Conservation Commission, 3001 Porcupine Drive, Anchorage, Alaska 99501. If such a protest is timely filed, a hearing on the matter will be held at the above address at 9:00 AM on June 26, 1986 in conformance with 20 AAC 25.540. If a hearing is to be held, interested parties may confirm this by calling the Commission's office, (907) 279-1433, after June 11, 1986. If no such protest is timely filed, the Commission will consider the issuance of order an without a heariDg. C.' S~ith Commissioner Alaska Oil & Gas Conservation Commission Published May 22, 1986 THE ANCHORAGE TIME~' PROOF OF PUSLICATION P.O. 80X ANCHOR.AGE, ALASKA 40 99510-0040 1 . A.LASKA OIL & GAS CONSERV. 3001 PORCUPINE DRIVE ANCHORAGE, AK '99501 COHM MARY GAGNER , 6EING DULY SWORN, ACCORDING TO LAW DECLARES: THAT SHE IS THE LEGAL CLERK OF THE ANCHORAGE TIMES, A DAILY NEWSPAPER PUBLISHED IN THE TOWN OF ANCHORAGE IN THE THIRD JUDICIAL DIVISION, STATE OF ALASKA, AND THAT THE NOTICE OF....... ...... ............. A0-08-5562 Notice of Public Hearl g STATE OF ALASKA Alaska Oil and Gas Conservation commission Re.: The aPPlicati°n'°f CriEr, RON U.S.A', i INC~ .for an'ex- ceptlon tO 20 AAC 25.055 .to : rmlt the drilling.ora well'ln .~ett¥ CreekUnlt; ,' ~ ;' A COPY OF WHICH IS HERETO ATTACHED, WAS PUBLISHED IN................... OF 'THE ANCHORAGE TIMES. BEGINNING ON....................... ENDING ON ..... ..................... I ISSUES 05/22/86 05/22/86 THE SIZE OF THIS AD WAS ............ 68 LINES SIGNED.......... THE PRICE OF THIS AD I$..... ........ $ 21.76 THE AD NUMBER IS.............. .... ... 2352913 SUBSCRIBED AND SWORN TO 8EFORE ME THIS. ..... ... ....... ... NOTARY PUBLIC OF THE STATE OF ALASKA MY 'COMMISSION EXPIRES..... ....... ... 22 DAY OF MAY,1956 RECEIVED A¥2 ? 986 Alaska Oil & (3as Cons. Commissil Anchorage ",.151~ , .' ",.' · ,~ ~-,-,.,.'; ;~. ,,, '?,:1')! ~ iii ,. . M, 218 . CMP" zr feet linear water other prov~':, ~,t .~'4'.00 !, 1~6 · ,. P.M., "; ': ' - NOTICE TO ' ' :i' '~ ABSENT DEFENDANT ', TO:TERESAANNE .-- · ' :' FERRUCCI .' .;: "~ ,... ·, ,; ., ,', ~ ',: ~ · ,, . ,.' . ~ ~' '" 'You,"~lefendant in the"above' entitled action, are hereby sum- maned and required to serve upon the Court and a copy upon PETER TOLL WALTON, whose address Is 330 "L" Street, An- chorage, Alaska 99501, an an- swer to the complaint flied In the above entitled civil action tn this Court. If you tall to do s~ within 30 days after this notice Is served upon you, lud~ement .lllllllUl . .11. ilU JlU % lU prevent further trespass upon said land will without further or any additional notice of any kind whatsoever and without II- ability destroy/ emove imProvements.~ sold /si Wayne A. t~,,den . .' ' District Manager :: ' .,.. 5/12/86 ,, AO6-287 ~:' . ~9~ M~'y 22,'29, June S; :12, Notices/Regulations 195 "NOtiCe Is hereby given that iN THES-PERi-i~CO_R~'U O O T by default may bo rendered The Alaska State Housing tract available against you lor the 'relief da- Authorily will hold a sPecial re- quest... · ;,~.~ ....... :.. '.. FOR THE STATE OF ALASKA manded by the Pllanllff. Service meeting in the conference room 'Award of't~e cohtract will be ' THIRDJUDICIALDISTRICT ulxm you wlll he deemed to heve of the .A.uthor. it~,62~W. I. nterna- been effected on the last date of lionel A~rport ~oad, Anchorage, econtigent.upon School Board WILLIAMMcKENNA,', ,? ') publlcotlonofthlsnotlcewhlch Alaska, on Tuesday, May 27, approval, and will become et- Plaintiff, , ,. ~ /, .;..'. ) wlll be the Sth daY of June, 1986. 1986a12:00p. m." . 'fectlv~ July 1986, upon such al>- vs. ' "' ': '." . ," :-L "':::. L'..' proval...,,., ,~.:,,. ~..,;,, ... ............ . ALASKA CONSTRUCTION"..i ;il All bIds .'(~.~e 'i0.'l~ '.cleariY AND INVESTMENT, INc., SECURITY TITLE AND ' ~'" ) marked '~,EALED' BID, IFB TRUST COMPANY OF ,~,, ~ ) NO. 87-002' and must be re- ALASKA . : ",'~ ) calved by 4:00 p.m., local time, andW. KIRKMARVIN~~ '~','~ .... ) Please take notice that the June 6, 1986, In the District Of- Defendants., ~ = ,~,~. .~, ,~. ) to lhls action because you ore the parson whom the plaintiff al- Alaska Housing Finance Corpo- flcetobeconslderecl...~. ' ~ CaseNo. 3Al~0~.21'~6ClviL.' ..... leges owes the money and has ration will conduct a public caused the damages to the hearing Thursday, June 5,1986 at 9:00 a.m. in the Board Room This Is on action for damages and debt. ' Pub: May 19, ~0, 2f, 22, 23, ~. The relief demanded Is money ludgement In the sum of S1,550.00 , plus Interest, and NOTICE OF PUBLIC costs. · , ..... HEARING You have been made a party' ~,t1'9~30 ';'The bu,~ers re,rye the right '" ~ -lalntlff In sold total su-' _ .. ., ; to refu.se pny ana all bids or to ' ,~,.i :; NOTICE TO '" :" ~ ,: - ..... , -~" ......... i"n ,.nc E""t °tb !m.e,'the. qse ~,na.~qve'r criteria, they ,'.,~', ABSENT DEFENDANT' e,~' ' '-'.. - '- .. :':'~'"-~;' '~',,~'..;,,~'""-F~'I.~' ~',~'~" iclyana aeemDesrlnawardlng the con- ' Civ R 4(e)(5) ,,,, ;.' ~'. '~olqeen..~oe~_/.ellOW : '.< ~-~.y,__,,.I,,,~.~.~:L.~,_,~L_ .~'~:'_y-' the Put- f.racl. They fu. rtber reserve the .~ r-?,,.... ' '... .'. -,~,"T~ . ':.~ ,.',. _Cle.rk of the lrlal Co.urts . ,a_g_e,__~}_a$~_a~Lo,?_ ~. time rlph.t,t.o terminate ~.co.ntract for To:' Alaska' conSiructi0n and~ :" ts/. g. v~ _... . (seal) [,n[~r,,a,,~o~,~,e~a,,~na~[~e~mt~.e ia na ' ' ' ue u ~lerK > ..................... ' ~ ~.wlll W ttney consider lUSt cause~ Investment, Inc.. ., ..... p tv .... ,., tZ;.2,,l-,,;,~,,,,-~:~,.,;,,, .... ;~., e at re-., ' '~ . :' .. ~'.i/'. '~::';,. '~ '] . .;, ~ ~.~.,~ ,;% ~. / .~.,a.u..H...H ..a ~....~-. ~lned by ::"/s/WIl'llam Stonkv*' .. '"' · *~,~ *~, ..'-, .... ' ~.~ ~.:~;'. :"~¥~. '~*.~;' ~ Dated' S/8/M : ~- '. :'.;,~ .~,':". federal Income taxes pursuant 'urchas- .~:~.~:;.BuslnessAdt~lnl~!trmor ..... '""You, d~fenda'~t In'the above- _ . . . :_ ._:...::~ ~:,:...~,,.._ ::.., to26U.S.C. 103A.. *~ . ,,.,:,:',: ~,:~t,.. ~..:,. '.i.: ~o . ~:, ..t.!~ ac,on, ar.* he. re.by sum- .ua: may ~, ~, ~; :une ~,,~ . s~00 000 000 A~"s~a H0;;sing .,;':.~'%~"~' '~ ~,.-...; [-_,--[ ..~, --. --~ .., &v, *., maned and r~:luirea Io serve~ ,::: I:ln~n,-~ Cn~.nnr~tlnn · o COn c4.~..~ ,. 3, 4, 25 26 27~ 28,29, upon John W. Hendrlckson & O THE A .... .'~ 1' , .F R ST TEOFALASKA . .. terallzed Home Mortgage ~.. ex.a ..... '~' 3 ' June ~, 1~86 ...... Associates, ·plaintiff s attorney, ~'Ul ~n itini~'lA/nI~TOICT n,~,~,e, ~ooz co,-,,, a . ~DI tar .......................... .,,.,,., ,-w ....,,~o,~. e .... ~,, , whose address Is 3105A Lake' , , , , ~i' "'" ,.rere- !' ....~..' ~ '~.;' ::'.?iJi:"i.:.;',':.~'. tg!$ IS. ¢i~l'acti~n.l~:.ren~Oy. :i.~ .... "NOTICETO' "" :':"i~":,'~' DATED. M"~"19 1986:' :.' ': ~le. Pt--~ ¢on~tru. ctlon SurveVlr{iil; 'clea~': the c,.o. ua.o.n t!tle to the. pr. openy, L.~'iABSENT DEFENDANT' .',' ' :. , ' ' ' ..' ..u?. lng and grubblna: ma bax qesc. rl .D~g. DelOW crea~.ea ay a. '.' .... "' ~ . .' ", om 'it _. II ___ In- . . ......... ALASKA HOUSING .. .,_~_~ ,_. stallaflo.n' guard rail' Installa. aee~ o. htrust. Jn. Zo. ur .re. var_rib. I TO: ROGER BLACKWELDER, :, · FINANCE . '~.' ", llv~ in, n~ ' , " . coraeaJuflel~ 1¥71, alDOOKllI d/b/oBLACKW L E ' ' ~ ..":' Sing Of- lion; culvert pipe, road signs,, at e82 In/~ -n-"-r- - I..., .... E D. RS .. . C_OR.P.O.R_AT_ION . . . ...... I ~eedlng; hlgl~.wuy fighting sys- ---P~,~- -'.._.Ln~e~J~'_':'¥:u.~e ~e.'l · RAPid/ur .... . /s/ ~-ran~lm c ~oPpal, ' ...... ;~,.",~;' I !em; pavement markl,~o -. Forgmg.c, stnc~.agumst, me roi- .,',' '. ", ' h i m' n" ' _'.~__,' I lng; excavation; rallrpad siN- m.wm.~_aes.c.r].l~_prol~_rtv: , ,j ;;,,,..., ,,;:, ~.? , , ~ ','.,,.,, ., ~ , .. · ,,, .,. , ~.u..~F,- I nals; sepflCfleld ~,. ~ ., ,, .L. ot [.en {mi. u.I .o;.k. [wa (2), '-~ You," defendant I.n th.*' above pUb: May 21, 22,1986 ' ,'; .... ~ust oe I ., · ~ · ,',,,~;v',. ~; ,,,~,,.,., ;, ,, ,~,,{ I ' Hawmorne ,~ulxIiVlSiOn, ac- ,,,' entllled action, are nereoy sum- ': .... ~)slt re- ']', 'Bldsn,~n'M~L]'~'i'9~";;~i"!~ I"' cording to Plat No. P-332, '"'l maned and required to serve .~. "._ /.__'. ' ;' )acorn- ""'2'~P r v I '"~ % "Records of the Anchorage u n the Court and a co u n ~ · . '~ e al~ n~ time', .... ,,. , . Neflco of Public Itearmg .... . r, I.' Reca:d,ng ..,:,r,c,... Th,r,. OSTO. · ' ..... ,. ,..,. ~nltted. I Ail .,ropoSals to M.,~:~,~.,, .,,~,..i I, Judicial DIstrict, State m ", Plaintiff s attorne wnoso aa .... " "~ '"'~' .... '~ ' t ' Y, - , STATE OF ALASKA .. ,( de~,~l:, I andslgnedanddellvered~o: , i' _A.lask. a.,..,,. ~. ,:,,, ,,,, :, I dress Is 821 N Street, Sulle 102, ,.,:,~',, Alaska OIl and Gas ,~,, ,!' , c~';: I : . ' - - ' . '~ ;!~i' ILd?o(~W],o-°,~?..u,E~?,,,c-r-~t~ I Ancho.ra~.*,Alaska.~501, ana.n- ',~.ConservatlonCommlsslon ,~ '~;.~.'_ I ,'.r,-~ ~i' :Hermo_n uros,,constr.',,.;':'/',~ r;:,-,_~._-_v_,--L w......;?u.,., u. swat. to me compm~nt filed m ,/, ' ' ,. ."_, "Z'J" I '~:A,~;',, ' Co., In(:.' ,, ~ ,':,v, ~.~ I nncDenn, u and_ nnav..is _M.c..Kennq the above entitled civil action In I Re' The apallcotlofl 'of CHEV-" Aourt. ,f you roi, to do i O, U.S.A. for on ex-' ri"ell- I ~.',~i~ ,.AK99645 ,,,"',~;'1_ . npa ..... I wl h n 20 days after last date ofl caption to 20 AAC 25,055 to u V'l '?'~(¢~r" (907)74S-3249 '"""': ....... I~r-u§toeq.nqY. ouasu, en.e.t~c,tory. I Publlcotlon--lUdgment by de-I Permltthedrllllngofawell'ln , '. I /'*~:,,:)',//: "(907) 694-6073 - ': ' :" :"' ;' I [ne r. ellet .a.emanaep Is..mr.an I fault may be rendered against I ', Pretty Creek Unit, . d.a tar_ I.~ . . ' ' '.. ' -" '. la~the dWd of trust, and to re:. J ant by theplalntlff ' · '1 or'er Permitting ' Chevron mngof ' I se toplalntlffsucnamountot Th II f d m'nd '1 P I c t rll th Pr ti at con- Legal/General ,~.. 192., l~ ' e re e e a ed s a-U.S.A.n, d l e · y ,. I / o ,.., ,,;,ur.=. ,o. I mo.,,.,.:, o,.,, o.,oa,on u.,, ,. o. ,, ,, ,' I ' ' IN THE TRIALCOU RTS lYOU .m payment at me aeea at I the amoum of $1 205 77. I undefined gas reservoir In the _eedl. n~g_ ! FO~ THE STATE 61~ ALASKA /tr.u.st. _ ".' "': .... ' ". t You hay.9 bee~ ;~de a party pretty Creek Unit. . ' ' ~m m".l THIRDJUDICIALDISTRICT './. Y..o.u nave. ~e.*n.made a party I to this action bocquse you arel .. ' ' . - ," . I : . . . . . ~/to t.nIs ami. on oecause .you are I the real party In Interest and In-J "The wells proposed locations · -' ':" I GOODYEAR'TRUCK .? :t": '~.' ;" :'i~ '/lhe Ooneflclary at the adore de, I curred the. underlying obllga- re uire exceptions to both the aed_by ITIRECENTER,.. J~?!;'..L)'i' /scrlbed deed of trust. . I tlon ' / " . Idl~ance from the section line la,ur- I I tiff ..... ~ ..... ~,.vy.. . . . . ~.., :',..;r : ..;:, ~ ', .' . . Pan (si .., .q;.~..X'L,.;';;;~,' ':! ...... ' ...... ,' ...... :. ...~ ' . ' ~ ... .... · .... ',~. and the distance from another "' ~.-' ./JOSEPH M, DeVOY, d/b/a' '.~: )'/: "".. "L ~l.er.K .at t..ne Tr,al ~;o.urts.. I",~ .... "Clerk of the Trial Courts.'. 1 25.055(4)(a) ' m..o~_s IJ&MENTERPRISES, ; ':...)'.l..~/s/._MIcne. le~er.gmann IsoalI I .'. /s/ JoS. Hall. . (soolll . ".' ."" '" :_?'.'_~ /detondant(s) · ,~!.'~":';')' l; . ueputv~;!erK , ~ ' ~ I ,, Deputy Clerk '.. ~'' IPartles who may be aggrieved'; ,~,.,,, II ~'' I * '~ 'bi ' ' . i":''~''~''j':'';: :?1--'':'-- ..... ;''''~''~;4 ':''~:''J: '.' I' '':''' ; ' ''''''''~:''~:~'':~;;;'' Iffthereferencedorderlslssued '.'.' ,~.,;+: /Ca~eNO, 3ANM-1149CIV ,,~,,~;..'~ ]uatea:a/~/~ .;,:,~,'.,..~..,%.~, ,.;....;.., / Dated:5/5/e6 ;' ', ,':¥:.~m~,~ Igrantlng the request are al-..~ ~lii""be " '" '" :~'~:' '~"'~'~ p I~' ' ' "?'~"::~'~"¢'"~': ~'~""~:F'?~"~;" ' " ' ''''~' :' lowed 15 days from the date of ..... I :...,.~,? ...... NOTICE TO '""."<.,../ u : May.,'~S, 22, ~, ~,'.?.~, I Pub: ~aY e, ~, 22, 29, ~ "~'" .... I tins publlcactlon In which'to file ~k~,~,,. /) ~i:.';ABSENT DEFENDANT :',~.~:'~.'1~ '~' .... , : ":" ,. ~:..' ;~ ./' , , ~ -: _: ~-'-., o-' ',' la written Protest stating In da-...'i"' ~ ~ ~ ~ IN THE TRIAL COURTS tall the nature of their aggrieve ~mec~l / ennt,ep, ac~!on, are nereay sum- ~vs . . .~..'.",'~'~'~ "~.;: .: '?' ..:., i / LABOR '"' ' ~'' ( / 99501. If soco · protest ~s lime,y .' ..... ' /maned dna required to serve /~,~Ti=~' ~L~RRAy"~'n~i ~;~"' { / ....... . ....... . '..,.."~ { /filed, a hearing on the malter; u n the Court and a co u n .,,~. , ~.. .... ~.. will be held at the above ad-. - for the . VIRGINIAM. MURRAy .... v '~' ".~ ~ '. ~sTo. ~ HEND~S~, ~, · ........... , dress .t ~: AM on J.ne. .... /Plalnflffs,ollorney,.whose ad- /&SOUND .,.......,~,:,..,*..I J ..... ~,.,,~ ............. j/t,M in con°~rmance with ~ ...... Is re- , d/b/aMURRAYTV ~..~..~,~ . PAT ICK cHUGHd/b/a . of the /d,r,,e,.s,,s,,I,s,,~,2 ~S.t~r~ee~S~u~e,,l~0'~, Jdefendanl(s) '.: ..... .. ',i /COMPANY . . ' - 'r'l /.A_A,.C~,S_'._~_:J,f~.h_".P_rJ"_"!.~t°__~ d this '"'"'"'"'"'"' "'"°"" '"~' '"' '"" ' ' ' '" ' ' ' Defendanl "~"~t~ ~' ' ' ~'~.' 'ai~" ' L), I1~1~, III1~I~1 II1~:~ ll]U¥ ~UII' ? ~swer to the complaint ~lled In ~CaseNo 3AN~616834OV "' ! - ":'.~i/';"'~'";';'"~ ",~ '?' ' flrmthlsbycal~r~gfheCommls~'-! , ~ .~,.. ~ ~/the a_bove entitled c.lvll actl.on in I, .. -: - · , ' ...... I',,'.'.-:,~"=- ;;~¥,;.';,;,; .... ,~;~,;.~;.' ~ ~ sloner's office (907) 279-1433 '~.'~ '" /this court' If you toil to aQ SO I~ "' . ........ · " ". · /~.g=,~ nlg,,~/~plg~-iuz~'/'~,lVll';~.'~j.~ ,~.~ h;fA,' /.hA 11 'lOg& I~ nn e.r~ '~i~' · ' / .... ~¥ ~~..~. ,,~,w,~ .., ,~w -- orage ' " , NU I~..1= /U ...... ~ ~ L ,,.. ~wlthln 30 days after last date, of ~; A~'=.T M=K~#~4.T., .' ! ...... ~,A.r,,-,~ ~.A'37 't'~!," Protest iS timely filed, ths Com- ,~.' ;;.'-~,'_ /publlcotlon~ludg.ment.·bY .de:'/ ..... - ........ ' ..... ,1;,,,~ /.{~%,,;.~.v~,=,.v,~.~.: mission will consider the Is- ~'s"~3,';' /tault. mq¥ ~e .r.e.na.erea apa)n.s~ ~'0' PETE R J MURRAY'ar~''?I/, '~i '~!.:: ....... · ......... , suan.ce of order an ,without a ~, ~. -.,'" ~vou mr me rene~ aemanaea ~y h ~/'IRGINIA~ MURRAY, '~ /~;.'" :,._~ ..... - ............ hearing . · ~', inter-/h~enlalntlff , · ., , r' ........ ',. ..... ,.,~. ~.,: ru...,~ ~.nu¥. wu/u '~ ..... ~ , '.,, , arians / T~Js Is a~l/actlo, for'~goucls. ?' .O/..D,/,?,.MUKKAY TV& '~' ~, 'L' McHugh Construction Com- , ~'nn~i,~ c ~m~t~;', %~'~: i, : 0 this ' r n I' I ' ''~ ~UUI~I~ , ........... ';'Ir ~"~' ' PanY '" . ~ ..................... " ,, · ' ..... wa es and mercha dse so~J ,, ..... , ~- , ~ ..... - .... Commissioner -' ' ,.: ,~' . ,~,, ,,~, , ,/;,~ : , 1,,. ~,.,~ ,,,~ ........ ., , . ,~,. ,,, ...... ,,~,~ , . , ,~ .... ~and de,var.,, u,to t~, defe.d ..... ', ....... ,,. ....... ~-'~'~'t'~'('4~'"~':"~' I!...::?'"~: ...... '..- ,-:" ;~:.": ~ A~aska O, & Gas'.. ,' ,' · '~ ~'.~'~'" , , ~ ' ,'",,'"' ,',~ ..... ' " ' 1'''~'''~ "? .... ~: U, I[;I~'T II~QIII In I!1~' UIT~VO ' ', ,~ ~J "~'i' /ant by the p,amflff ........ _ '. ," You~ defendant I!1 the 'above I:~;.[r~.~ ..,.r~..... ,.~.~. .... Conservation Commission ~., e"~ ' The relief demanded Is' Pa -:" ............... ' ........ - ..... . ,.,~, . ;~,,~,, po 'o' I i, tu!, ef so,d ob,,oot,o, '"" .. ' ," ": · ' ' /th" amount of el 207 O0 ' ' .. _ ~ . /UpUll IIIU ~.,UUll UHU U ~;gP¥ UPOI1 ' ..' ~r ....."~:' '. ' ~'~'!~'~" ' ' v -' · · " ' u n~ne~ourtanaacop u n Paul S 'Stohl Assistant Attar- ' ' ' ". ..... ' ....... . ..... :;'?':. de "o'.pa : · attar- Pub: May ., '.'.,~;~':,:~.~ / ...................... z ....... ~le,~utt's_atterney,..w~_n~ 9_a_-j ney, whpsp address Is .1031 W. : ' . :' ' ' ' '. P 175 864 2~3 RECEIPT FOR CERTIFIED MAIL NO INSURANCE COVERAGE PROVIDED NOT FOR INTERNATIONAL MAIL (See Reverse) Sent to _ Street and No. P.O., State and. ZIP Code /.,~. A~J~ cA. 9oo ~'7. Postage $~,~ Certified Fee Special Delivery Fee Restricted Delivery Fee Return Receipt Showing to whom and Date Delivered /(..~ -- Return receipt showing to whom, Date, and Address of Delivew TOTAL Post~~es , P, 175,864 217 ,,, RECEIPT FOR CERTIFIED MAIL NO INSURANCE COVERAGE PROVIDED NOT FOR INTERNATIONAL MAIL (See Reverse) Sent to Street and No. Postage ~ Certified Fee Special Delivew Fee Restricted Delivew Fee Return Receipt Showing to whom and Date Delivered Return receipt showing to whom, Date, and ~~olivo~ P 175 864 212 RECEIPT FOR CERTIFIED MAIL NO INSURANCE COVERAGE PROVIDED NOT FOR INTERNATIONAL MAIL (See Reverse) Sent to ~'~' ~ oll * (..~ Street and No. P.O., State and ZIP Code Special Delive~ Fee Restricted Delive~ Fee - Return Receipt Showing to whom and Date Delivered Return receipt showing to whom, Date, and Address of Delivew TOTAL Postage and Fees iii Postmark or .~ ~ ' 'P 175' 864 214 RECEIPT FOR CERTIFIED MAIL NO INSURANCE COVERAGE PROVIDED NOT FOR INTERNATIONAL MAIL (,See Reverse) Sent to Street and No. ,¢~-o ,4. 74L. Ave, P.O., State and ZIP Code Certified Fee Special Delivery Fee Restricted Delivery Fee Return Receipt Showing to whom and Date Delivered . Return receipt showing to whom, Date, and Address of Delivery · l~:'::~, ~ c~;' P 175 864 215 RECEIPT FOR CERTIFIED MAIL NO INSURANCE COVER^GE PROVIDED NOT FOR INTERNATIONAL MAIL (See Reverse) Sent tS,;t¢_ Street and No. P.O., State a~d ZIP Code T'3~V,~'4,,_t~. Postage :Certified Fee Special Delivew Fee ~Restricted Delive~ Fee serum 8eceipt Showin~ to whom and Date Serum rocoi~t showin~ to whom, Date, and , T 0 T A ~ April 30, 1986 Notification of Exception to Section 055 Of Oil and Gas Conservation Regulations For Pretty Creek Unit Well No. 22t~-28 Gentlemen: Chevron U.S.A. Inc. as Operator of the Pretty Creek Unit hereby notifies you of its request for a spacing exception to the Alaska Oil and Gas Conservation Commission for its proposed well Pretty Creek Unit Well 22~-28. The proposed location is the following: Surface Location: +/- 770' N, +/- 2066' E, SW Corner Section 28, Tlt4N, R9W, SB&M Bottom Hole Location: Same as above· The subject well location does not meet two spacing requirements: 1) it is located within 1,500' of the south section line, both surface and bottom hole locations, and 2) it is within 3,000' of Pretty Creek Unit Well No. 2 (approximately 2,600' between PCU It2 and proposed location of PCU 22#-28). The proposed location of PCU 22q-28 was chosen for two reasons: 1) it is an upstructure location ideally suited for development of the Pretty Creek Unit, and 2) it was also one of the few locations where a well pad could be built due to the wetlands which cover most of the acreage of the unit. PCU 22~-28 will be completed in the discontinuous Beluga and Sterling sands. We do not feel the location of 22#-28 will have a detrimental effect on recovery from either it or PCU It2. There are no other lease operators in the area that would be affected by the granting of the exception requested. This notification was given as a requirement in the application for exception of the Alaska Oil and Gas Regulations. If you have any further questions, please contact Mr. G. R. Molesworth at (907) 786-6600. GRM:cbw Very truly yours, · Weaver a Operations Superintendent Mr. 3ohn Liput Unocal Inc. 909 W. 9th Ave. Anchorage, AK 99501 Mr. Burlin Whiteley Texaco Inc. 550 W. 7th Avenue Anchorage, AK 99501 Mr. 3im Connors Cities Services P.O. Box 939 Bakersfield, CA 93302 Mr. A. D. McDorman Pacific Lighting/Gas 7270 W. 8th Street Los Angeles, CA 90017 Ms. Kay Brown Division of Oil and Gas Department of Natural Resources P.O. Box 703~ Anchorage, Alaska 99510 TESTIMONY OF CHEVRON U.S.A. INC. AT A PUBLIC HEARING BEFORE THE ALASKA OIL & GAS CONSERVATION COMMISSION JUNE 26, 1986 RE: THE APPLICATION OF CHEVRON U.S.A. INC. FOR AN EXCEPTION TO 20 AAC 25.055, TO PERMIT THE DRILLING OF THE PRETTY CREEK UNIT WELL NO. 224-28 WITH SPACING VARIANCES. MR. CHAIRMAN AND MEMBERS OF THE COMMISSION, MY NAME IS JIM ARLINGTON AND I AM EMPLOYED BY CHEVRON U.S.A. INC. (CHEVRON) AS A LAND ATTORNEY IN THE ANCHORAGE, ALASKA OFFICE. I HAVE BEEN AUTHORIZED TO REPRESENT CHEVRON BEFORE THE ALASKA OIL AND GAS CONSERVATION COMMISSION (AOGCC) REGARDING CHEVRON'S REQUEST FOR EXCEPTION'TO 20 AAC 25.055 WHICH WOULD PERMIT THE DRILLING. OF THE PRETTY CREEK UNIT WELL NO. 224-28 AT A SURFACE LOCATION LESS THAN 1,500 FEET FROM A GOVERNMENTAL SECTION BOUNDARY, A GAS POOL TO BE OPENED TO THE WELL BORE CLOSER THAN 1,500 FEET TO THE GOVERNMENTAL SECTION LINE AND CLOSER THAN 3,000 FEET TO ANY WELL DRILLING TO OR CAPABLE OF PRODUCING FROM THE SAME POOL. , APPLICATION HISTORY CHEVRON FILED A PERMIT TO DRILL THE SUBJECT WELL WITH THE ALASKA OIL AND GAS' CONSERVATION COMMISSION ON MARCH 26, 1986. CHEVRON SUBSEQUENTLY RECEIVED A TELEPHONE CALL FROM AN ENGINEER REVIEWING THE APPLICA £ION NOTIFYING CHEVRON THAT THE APPLICATION WAS NOT IN COMPLIANCE WITH AOGCC'S NEW REGULATIONS IN SO FAR AS WELL SPACING WAS CONCERNED, WHICH WENT INTO EFFECT APRIL 2, 1986. CHEVRON SUBSEQUENTLY FILED A WRITTEN REQUEST DATED APRIL 28, 1986 MAKING APPLICATION FOR EXCEPTION TO SECTION .055 OF THESE NEW OIL AND GAS CONSERVATION REGULATIONS, TO PERMIT THE DRILLING OF A GAS WELL, THE PRETTY CREEK UNIT WELL NO. 224-28, AT THE FOLLOWING LOCATION: SURFACE LOCATION: +/-770 FEET NORTH AND +/-2066 FEET EAST OF THE SOUTHWEST CORNER OF SECTION 28, TOWNSHIP 14 NORTH, RANGE 9 WEST, S. B. & M. BOTTOM HOLE LOCATION: SAME AS ABOVE. THE AOGCC SUBSEQUENTLY ISSUED AN ORDER DATED MAY 7, 1986 WHICH INDICATED THAT ANTICIPATED ACTION BY THE AOGCC REGARDING THE PRETTY CREEK UNIT WOULD BE INCONSISTENT WITH CHEVRON'S REQUEST FOR EXCEPTION AND WHICH, THEREFORE, NEGATED ANY ACTION BY THE AOGCC ON CHEVRON'S REQUEST AT THAT TIME. CHEVRON SUBSEQUENTLY FILED A REQUEST FOR RECONSIDERATION ON MAY 15, 1986 REQUESTING THAT THE AOGCC APPROVE CHEVRON'S ORIGINAL APPLICATION FOR EXCEPTION AND RECONSIDER THE NEED FOR ESTABLISHING POOL RULES FOR DEVELOPMENT OF ~I:{E FIELD AT THIS TIME. THE AOGCC SUBSEQUENTLY PUBLISHED ON MAY 22, 1986 A NOTICE OF PUBLIC HEARING INDICATING THAT UNLESS A WRITTEN PROTEST OF CHEVRON'S APPLICATION WAS FILED WITHIN FIFTEEN DAYS OF THE NOTICE STATING IN DETAIL THE NATURE OF THE FILING PARTY'S AGGRIEVEMENT THE AOGCC WOULD CONSIDER THE ISSUANCE OF AN ORDER WITHOUT A HEARING. SUBSEQUENTLY ONE LETTER OF PROTEST WAS FILED BY MR. C. BURGLIN DATED MAY 27, 1986 OBJECTING TO CHEVRON'S REQUEST FOR A WELL LOCATION EXCEPTION, AMONG OTHER THINGS, THEREBY NECESSITATING THIS HEARING. JUSTIFICATION FOR SPACING EXCEPTION SINCE THE AOGCC REGULATIONS PROVIDE NO STANDARDS FOR THE REVIEW OF APPLICATIONS FOR SPACING EXCEPTIONS, CHEVRON SUGGESTS THE FOLLOWING REASONS AND FINDINGS OF FACTS BE ADOPTED BY THE AOGCC TO SUPPORT THE GRANTING OF CHEVRON'S REQUEST, IN ADDITION TO THE REASONS INDICATED IN CHEVRON'S REQUEST FOR RECONSIDERATION DATED MAY 15, 1986 AND CHEVRON'S ORIGINAL APPLICATION FOR EXCEPTION DATED APRIL 28, 1986, WHICH ARE INCORPORATED BY REFERENCE FOR THE PURPOSES OF THIS HEARING. 1) AS INDICATED AB(~VE CHEVRON FILED ITS APPLICATION FOR PERMIT TO DRILL ON MARCH 26, 1986 AT WHICH TIME CHEVRON WAS IN COMPLIANCE WITH THE EXISTING WELL SPACING REGULATIONS EXCEPT FOR THE THREE THOUSAND FEET DISTANCE REQUIREMENT FROM EXISTING WELLS CAPABLE OF PRODUCING FROM THE SAME POOL. SINCE CHEVRON'S PROPOSAD LOCATION IS A VERY MINOR VARIANCE FROM THIS REQUIREMENT, CHEVRON'S APPLICATION FOR PERMIT TO DRILL SHOULD THEREFORE BE APPROVED BASED UPON THE REGULATIONS THAT WERE IN EFFECT AT THE TIME THAT THE APPLICATION WAS FILED. 2) THE GAS POOL TO BE PRODUCED IN THE PRETTY CREEK UNIT IS SIMILAR AND ANALOGOUS TO THE POOL BEING PRODUCED FROM THE BELUGA FORMATION IN THE BELUGA RIVER UNIT WHICH IS ADJACENT TO THE PRETTY CREEK UNIT. THE GEOLOGICAL AND WELL DATA THAT CHEVRON HAS FROM THE PRETTY CREEK UNIT INDICATES THAT THE GEOLOGICAL INFORMATION AND CHEVRON'$ PRODUCTION EXPERIENCE IN THE BELUGA RIVER UNIT ARE DIRECTLY APPLICABLE TO THE POOL TO BE PRODUCED IN THE PRETTY CREEK UNIT. 3) CHEVRON HAS RECEIVED SEVERAL WELL SPACING EXCEPTION RULINGS FROM THF AOGCC IN THE BELUGA RIVER UNIT, WHICH IS AN ADJACENT PRODUCING GAS FIELD WITH SIMILAR AND ANALOGOUS GAS ~BEARING SANDS. FOUR WELL SPACING EXCEPTIONS IN THE BELUGA RIVER UNIT HAVE BEEN OBTAINED FROM THE AOGCC FOR WELLS COMPLETED DURING THE LAST DRILLING SEASON. THESE WELLS INCLUDE BRU 224-34, BRU 211-3, BRU 224-23, AND BRU 232-26. 4) THE COMMERCIAL WELLS THAT HAVE BEEN DRILLED WITHIN THE BELUGA RIVER UNIT ARE WITHIN 160 ACRE SPACING OF OTHER COMMERCIAL WELLS. CHEVRON'S PROPOSED LOCATION FOR THE PCU NO. 224-28 WELL WOULD BE WITHIN 160 AcRE SPACING OF THE EXISTING PCU NO. 2 WELL, WHICH IS A GAS~ WELL CAPABLE OF PRODUCING IN COMMERCIAL QUANTITIES. 6) A BOTTOMHOLE LOCATION FOR THE PCU NO. 224-28 WELL AT A LOCATION WITHIN THE SMALL AREA THAT WOULD BE ALLOWED BY THE CURRENT AOGCC REGULATIONS, WOULD JEOPARDIZE FUTURE DRILLING LOCATIONS BASED ON 160 ACRE SPACING WITHIN THE PRETTY CREEK UNIT. 7) THE LOCATION PROPOSED BY CHEVRON WOULD OPTIMIZE THE OPPORTUNITY TO DELINEATE THE STERLING FORMATION, AS WELL AS THE BELUGA FORMATION, WITHIN THE PRETTY CREEK UNIT. 8) THE CURRENT AOGCC REGULATIONS WOULD LIMIT TO ONE THE NUMBER OF WELLS THAT COULD BE DRILLED WITHIN ANY GOVERNMENTAL SECTION IN A UNIT NOT SUBJECT TO FIELD RULES. 9) THERE CURRENTLY EXISTS A WELL WITHIN THE PRETTY CREEK UNIT CAPABLE OF PRODUCING IN COMMERCIAL QUANTITIES, THE PCU NO.~ 2 WELL, WHICH ALLOWS COMPARISON TO THE BELUGA RIVER UNIT. WHILE THERE IS NOT SUFFICIENT TECHNICAL AND OPERATING DATA TO PROPOSE FIELD RULES WITHIN THE PRETTY CREEK UNIT AT THIS TIME, THERE IS SUFFICIENT DATA TO INDICATE THAT A GOVERNMENTAL SECTION WITHIN THE PRETTY CREEK UNIT WILL SUPPORT MORE THAN ONE WELL PRODUCING FROM THE BELUGA FORMATION. 10) PRODUCING DATA FROM THE ADJACENT BELUGA RIVER UNIT INDICATES A HIGH PROBABILITY OF HAVING MORE THAN ONE WELL CAPABLE OF PRODUCTION WITHIN ANY GOVERNMENTAL SECTION PRODUCING FROM THE BELUGA SANDS. 11) THE RISK FACTOR FOR THE SUBJECT WELL WOULD BE TOO GREAT, IF THE BOTTOMHOLE WERE LOCATED FURTHER FROM THE PCU NO. 2 WELL THAN WHAT IS PROPOSED BY CHEVRON, TO ECONOMICALLY JUSTIFY THE DRILLING OF THE SUBJECT WELL. 12) CHEVRON IS COMMITTED TO A GAS CONTRACT WHICH REQUIRES PRODUCTION FROM THE PCU NO. 2 WELL BY NOVEMBER 1, 1986 AND FURTHER REQUIRES THAT ANOTHER WELL BE PROVEN CAPABLE OF PRODUCTION BY JANUARY 1, 1987. WHILE THE PCU NO. 2 WELL IS CAPABLE OF PRODUCING IN COMMERCIAL QUANTITIES, THE PCU NO. 224-28 WELL IS MARGINALLY ECONOMICAL AT THE PRESENT LOCATION DUE TO THE NEED FOR ADDITIONAL SURFACE FACILITIES AND OTHER FACTORS AND PROBABLY WOULD NOT ECONOMICALLY SUPPORT ADDITIONAL COSTS OR RISKS. ADDITIONAL COSTS OR RISKS ASSOCIATED WITH THE PCU NO. 224-28 WELL WILL JEOPARDIZE THE WELL ECONOMICS AND COULD RESULT IN A DECISION TO CANCEL ITS DRILLING. 13) THE TOPOGRAPHY WITHIN THE GOVERNMENTAL SECTION WHERE THE PCU NO. 224-28 WELL IS PROPOSED TO BE DRILLED SEVERELY LIMITS THE POSSIBLE SURFACE LOCATIONS FOR THE WELL. THE PROPOSED LOCATION IS SURROUNDED BY WETLANDS AND IS BOUNDED ON THE NORTHEAST BY THE THEODORE RIVER. LIMITATIONS BY OTHER REGULATORY AGENCIES WOULD DELAY LOCATING THE WELLPAD ANY PLACE ELSE WITHIN THIS GOVERNMENTAL SECTION. THEREFORE, IF THE EXCEPTION TO THE BOTTOMHOLE LOCATION REGULATION IS DENIED A WELLBORE DEVIATION FROM CHEVRON'S PROPOSED SURFACE LOCATION WOULD BE REQUIRED. THIS WELLBORE DEVIATION WOULD SUBSTANTIALLY INCREASE THE DRILLING COSTS FOR THE PCU NO. 224-28 WELL. 14) DENIAL BY THE AOGCC OF CHEVRON'S REQUEST FOR EXCEPTION WOULD REQUIRE ADDITIONAL PERMITTING TIME WHICH IN TURN WOULD DELAY DRILLING AND PRODUCTION FROM THE WELL, SUBSTANTIALLY INCREASING THE POSSIBILITY OF BREACHING THE GAS CONTRACT OBLIGATIONS. 15) CHEVRON'S REQUEST FOR SPACING EXCEPTION IS A MINIMAL VARIANCE FROM THE CURRENT AOGCC SPACING REQUIREMENTS. 16) THE POTENTIAL BENEFIT TO THE STATE OF ALASKA IS GREATER WITH THE AOGCC GRANTING CHEVRON'S REQUEST FOR EXCEPTION, DUE TO THE INCREASED PROBABILITY OF COMMERCIAL PROI'UCTION, THAN IF THE AOGCC WERE TO DENY CHEVRON'S REQUEST. 17) THE ONLY WRITTEN PROTEST FILED REGARDING CHEVRON'S APPLICATION BY MR. BURGLIN, HAS NOT MET THE NOTICE OF HEARING REQUIREMENTS PUBLISHED BY THE AOGCC BY NOT "STATING IN DETAIL THE NATURE OF HIS AGGRIEVEMENT". MR. C. BURGLIN HAS NOT INDICATED HOW HE "MAY BE AGGRIEVED IF THE REFERENCED (~rlDER IS ISSUED GRANTING THE REQUEST". 18) CHEVRON CONCURS WITH THE STATEMENT MADE IN MR. BURGLIN'S PROTEST LETTER OF MAY 27, 1986 THAT THE PROD~ICTIVE LIMITS OF THE BELUGA AND STERLING FORMATIONS WITHIN THE PRETTY CREEK UNIT HAVE NOT BEEN DELINEATED AT THIS TIME. HOWEVER, IT IS PRECISELY FOR THIS REASON THAT CHEVRON HAS REQUESTED THE SPACING EXCEPTION. THE LOCATION CHEVRON HAS PROPOSED WILL AFFORD A GREATER OPPORTUNITY TO DELINEATE BOTH THE BELUGA AND STERLING FORMATIONS AS WELL AS INCREASE THE PROBABILITY THAT COMMERCIAL QUANTITIES OF HYDROCARBONS WILL BE ENCOUNTERED. ALL OTHER REFERENCES MADE BY MR. BURGLIN IN HIS LETTER OF ~AY 27, 1986 PERTAINING TO CHEVRON'S UNIT PLAN OF DEVELOPMENT . AND A PROPOSED INITIAL PARTICIPATING AREA FOR THE PRETTY CREEK UNIT, ARE THEREFORE INAPPROPRIATE AND IRRELEVANT FOR THIS HEARING. METHODOLOGY THE STATE OF ALASKA USES TO DETERMINE A PARTICIPATING AREA IS A POLICY DECISION MADE BY AN APPROPRIATELY CHARGED STATE AGENCY AND IS OUTSIDE THE SCOPE OF THIS HEARING. AS A SUPPLEMENT TO 'THIS WRITTEN SWORN TESTIMONY OF CHEVRON U.S.A. INC., MR. NORM STONE, DEVELOPMENT GEOLOGIC COORDINATOR, MR. MIKE HAUSER, AREA ENGINEER, AND MR. GREGG MOLESWORTH, PRODUCTION ENGINEER, ARE AVAILABLE FOLLOWING THIS PRESENTATION TO ANSWER ANY QUESTIONS THE COMMISSIONERS MAY HAVE THAT WOULD ELABORATE UPON THE FACTS AND STATEMENTS I'VE JUST PRESENTED. FOLLOWING ANY PRESENTATIONS BY THEM AND FOLLOWING TESTIMONY FROM ANY AGGRIEVED PARTIES WE'LL BE AVAILABLE FOR CROSS EXAMINATION, IF SUCH IS ALLOWED BY THE COMMISSIONERS. CHEVRON APPRECIATES THIS OPPORTUNITY TO PRESENT ITS TESTIMONY AND REQUESTS THAT THE AOGCC APPROVE CHEVRON'S APPLICATION FOR AN EXCEPTION TO 20 AAC 25.055 AS SPECIFIED IN CHEVRON'S LETTER OF APRIL 28, 1986. Chevron Chevron U.SA Inc. P.O. Box 107839, Anchorage, AK 99510 · Phone (907) 786-6600 J.L. Weaver Area Operations Superintendent Production Department April 28, 1986 Application for Exception to Section 055 Oil and Gas Convservation Regulation~ (20 AAC 25.055) for Pretty Creek Unit Well 22~-28 State of Alaska Oil and Gas Conservation Committee 3001 Porcupine Drive Anchorage, Alaska 99504 Gentlemen: RECEIVED rvlAY 0 5 1986 Pursuant to the Oil and Gas Conservation Regulations and the applicable Statutes of the State of Alaska, Chevron U.S.A. Inc. as operator of State of Alaska Oil and Gas Lease ADL630#8, hereby requests the Alaska Oil Conservtion Committee to issue ~an order allowing exception to Seetlon 055 of said regulations to permit the drilling of a gas well, Pretty Creek Unit Well No. 224-28, at the following location: Surface Location: +/- 770' N and +/- 2066' E of SW Corner of Section 28, TI4N, Rgw SB&M Bottom Hole Location: same as above The subject well location does not meet two spacing requirements: 1) it is located within 1500' of the south section line, both surface and bottom hole locations, and 2) it is within 3000' of Pretty Creek Unit Well No. 2 (approximately 2600' between PCU #2 and proposed location of PCU 224-28). The proposed location of PCU, #224-28 was chosen for two reasons: 1) it is an upstructure location ideally suited for development of the Pretty Creek Unit, and 2) it was also one of the few locations where a well pad could be built due to. the wetlands which cover most of the acreage of the unit. PCU 224-28 will be completed in the discontinuous Beluga and Sterling sands that have been documented in the Beluga River Unit. We do nOt feel the location of 224-28 will have a detrimental effect on recovery from either well. Chevron U.S.A. Inc., Unocal Inc. and Texaco Inc., have 44%, 45% and 11% interests respectively in the subject lease and are also the owners, in like proportions, of the working interests in all leases committed to the Pretty Creek Unit. There are no other working interest owners or operators which would be affected by the granting of the exception requested. There are presently no wells completed or drilling within the governmental section containing the proposed location. We believe that the requested exception is necessary and desireable in order to evaluate the extent of the Beluga and Sterling formations. It is therefore respectfully requested that the exception be granted. Attached is a plat indicating well locations, Pretty Creek Unit leases and percentage ownership of the Pretty Creek Unit and the surrounding sections. Also attached is all information concerning notification of all interested parties required by the Alaska Oil and Gas Conservation Committee. I hereby certify that statements made in this exception to the best of my knowledge are true and correct, and that the attached plat correctly portrays all pertinent and required data. Very truly yours CHEVRON U.S.A. INC. GRM=Cbw CC: Unocal Inc. Texaco Inc. Cities Services Pacific Lighting/Gas Alaska Oil & t~as g~ns. G0mm[ssio~ Anchorage Telecopy No: (907) 276=7542 ~ay 7, 1986 Chevron U. 8.A. Inc. Attn: J. L. Weaver P. O. Box 107839 Anchorage, AX 99510 Dear Mr. }leaver: ,,. We have received your letter of .April 28, 1986 requesting, an exception to 20 AAC 25.055 to permit the drilling of the Pretty Creek Unit Ho. 224-28 well, This is to advise you that as a result, of the telephone conversation between Chairman Chat Chatterton ~td Hr. Jim Arlington, the matter of drilling units and spacing in the Pretty Creek Unit participating area will be resolved at a future public hearing which will establish pool rules for the development of the field. This anticipated action negates any action on your request at this time. We understand that you will be requesting the public hearing for the purpose of establishing pool rules in accordance with 20 AAC 25.520 in the near future. Yours very truly, Harry W. Ku§ler Commissioner BY ORDER OF TIlE COIR4ISSION Jo/F.HWK. 4 Chevron Chevron U.S.A. Inc. P.'O. Box 107839, Anchorage, AK 99510 · Phone (907) 786-6600 J.l. Weaver Area Operations Superintendent Production Department HAND CARRIED May 15, 1986 Pretty Creek Unit No. 224-28 Wen Request for ]~xeeption to 20 AAC 25.055 Mr. C. V. Chatterton, Chairman Alaska Oil and Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Dear Mr. Chatterton: RF CEIVED MAY l 6 1986 Alaska 0,i ,~ ,.;~;,s. Commission Chevron U.S.A. Inc. (Chevron), by this letter, appeals Commissioner Kugler's letter of May 7, 1986. Chevron respectfully requests reconsideration and approval by the commission of Chevron's application, by letter dated April 28, 1986, for exception to 20 AAC 25.055. Chevron further requests that the Commission reconsider the need for establishing pool rules for the development of the field at this time. As discussed during our meeting on May 13, 1986, the following reasons are given for postponing the establishment of field rules and allowing the spacing exception requested by Chevron. These reasons include: 1) 2) 3) 4) 5) 6) 7) 8) lenticular discontinuance of the Beluga and Sterling sands is suggested by other drilling in the area; there is no production history for the Pretty Creek Unit; drilling the PCU #224-28 at a location other than that proposed may jeopardize future potential drilling locations to the north; the proposed drilling location will allow opportunity for confirming the structural interpretation and the production limits of the Beluga and Sterling formations; the proposed drilling location should result in economic production potential based on Chevron's structural interpretation of the field; the topography of the area severely limits, and may preclude, other possible drining locations to the north; weU economics will not allow any significant well hole deviation; surface disturbance and environmental impact would be significantly reduced with the production facilities located at the proposed site. Chevron requests that any public notice be published as soon as possible. Enclosed is a Pretty Creek Area map which shows structural contours on top of the Beluga formation for your review during the Commission's consideration of this appeal. Mr. C. V. Chatterton May 15, 1986 Page 2 Ch. evron regards the map... (No. 401811-01) and the interpretative information it contains to be proprietary and confidential. Chevron very much appreciated the opportunity to meet with you and the Commission on Tuesday. Should you require any additional information or have any further concerns regarding this matter, please do not hesitate to contact this office. Chevron looks forward to receiving a favorable reply at your earliest convenienee. :JDA:mw Attachment / J.L. Weaver C. Burglin Land Consultant P.O. Box 131 Fairbanks, Alaska 99707 (907)452-5149 May 27, 1986 Lonnie C. Smith Corn missioner Alaska Oil and Gas Conservation Commission 3001 Porcupine Dr. Anchorage, Alaska 99501-3192 Re- The application of CHEVRON U.S.A. INC. for an exception to 20 AAC 25.055 to permit the drilling of a well in Pretty Creek Unit. Dear Commissioner Smith: Burglin et al (Burglin} is filing written protest against any well location exceptions requested by Chevron on behalf of the Working Interest Owners of the. Pretty Creek Unit. Burglin does not feel any proposed well location exceptions should be granted 'in an approved unit i'n which no underlying reservoir has been clearly delineated. The:~productive limits of the Beluga and Sterling formations within the Pretty Creek Unit have not been clearly delineated at this time. Chevron has not submitted a complete Unit Plan of Development under 11 AAC 83.343 which must include: "(1) long-range proposed development activities for the unit, including plans to delineate all underlying oil or gas reservoirs, bring the reservoirs into production, and maintain and enhance production once established: (2) plans for the exploration or delineation of any land in the unit not included in a participating area:". The DiVision of Oil and Gas admittedly uses "compromiSe" geology for the establishment of initial PA's (Participating Areas). To allow well spacing exceptions in conjunction with "compromise" geology prior to clear delineation of all underlying reservoirs is not in the best interest of the State of Alaska. Compromised initial PA~s (allocation of production) and liberal well-spacing exceptions are two of the primary reasons why Burglin has recommended the State of Alaska adopt the circle-tangent method for determining a PA. RECEIVED MAY 2 1986 Alaska 0il & Gas Cons. Commission Anchorage C. Burglin Land Consultant P.O. Box 131 Fairbanks, Alaska 99707 (907)452-5149 Lonnie C. Smith May 27, 1986 page 2 Adpption of the circle-tangent method would greatly restrict the use of compromise PATs and well-spacing exceptions. If you have any questions, please call Brian at 452-5149. Regards, Brian Burglin cc' Rep. Mike'~ Davis Rep. John Ringstad Rep, steve=Frank Rep. Mike W. Miller Sen. Don Bennett Sen. Bettye Fahrenkamp Kate Fortney, DNR BB/pIb enclosures RECEIVED MAY 2 9 198,5 Alast(a Oil & Gas Cons. 6ommission Anchoracie ' PARTICIPATING AREAS Stu. dy shows as much as'25% error -. ,, · i, · - by Ruth A. Maurer and Bruce C. Kirchhoff Millions of dollars are invested in scientific exploration and develol~nent in federal oil and Ess uni~. Y~t par- ticipating area determinatiofis a~ often made by simple observation. / And those determinations[can be wrong. ' -- Those are among the conclusions of a san~ple study of 30 successful explor- atory wells in Colorado and Wyoming conducted at the Colorado School of Mines. Using a precise, . computer- generated determination of the par- ticipating areas, the study showed 16 of the 30 improperly included or excluded acreage. Even state-of-the-art technology cannot pinpoint the optimal well loca- tion within a reservoir. Geophysical and geOlogiCal infor- mation can only sut~gest, ~i, ithin a sec- tion or quarter-section .of the public land survey, the well .lei:etlon having the greatest potential:, Geological data is.of limited use or/ accuracy in determiniag, upon comple-'~. tion of a well, which lands are reason-j ably proved productive of unitized sub- \ stances in paying quantities, such that certain lands Should Or should not be included in a participating area. There- fore, a technologically sound proxy must be developed' to determine thc boufidaries from within which oil and gas are actually produCed. Several methods of. all6cation are used in the region, the study revealed. New. Mexico uses 'a .drilling block sys- tem, defined by a state well-spacing statute. Montana attempts, optimistic- ally, to use only geological information in its determination of participating areas. Utah has reportedly processed relatively few operating federal units, but uses the circle-tangent method. o~_0_~ra~o~are the only 'Rocky Mountain states surveyed that extensively use the circle-tangent method. This method reasonably as- sumes that the fluid flow from the res- ervoir into the wellbore is in the radial direction. The radius of this drainage boundary is determined primarily by geologic and engineering information. Consid- This chart shows both the working #~terest for each participating area as approved by working interest owners and accepted by the BLM,' and as precisely determined by the soffware used in the eration i's also given t~ the depth of the productive zone and whether oil or gas is the primary substance produced. Only after a .well is determined to be productive in paying quantities is the circle-tangent method applied, ~ According to the circle-tangent method, 40- or 10-acre tracts entirely within the drainage boundary are in- cluded in the participating area. Tracts · MAY 2 9 !98 December 1985 ® 23 . Alaska Oil & Gas Cons. Commission Anchorage ,, -,~ ~ CUSTOM ENGINEERED, PACKAGED UNITS FOR · SALT WATER iJlSPOSAL POLYMER INJECTION SALT WATER TRANSFER WATERFLOOD CO~ INJECTION CRUDE OIL TRANSFER 250 Horsepow~ diesel-driven Injection packages W£ oFpER-- * COMPLETE PACI4AGING WITH ONE.SOURCE ' RESPONSIBILITY. . ON sM sT,,aT uP ASSISTANCE' , COlV~~ PRICING PUMP SYSTEMS, INC. 800 East 73rd, Ur~t 5 Denver,' CO 80229. 1.800-523.9136 1-303-288-1402 (Denver) .' ; Drawer 1940, ~ Hlahway I0 Didde, son, ND 58601 1-701-225-4494 [l~klnson) 1..800-932-8391 In ND 1-8(X)-437-8076 HATL Se~ng the Roc~ Hotm~n Re, on 24 * Westtr7 Oil World 22.76 .'.' · 23.47 · :- 21.94 · i. l i19.7~ · 19.83 i i i Depth: '12,492 feet -- Circle: 640 acres Grid: 40 acres Errors: Operators Interest is: 1/13 Should be: 1/16 17.77'i .. I 1 iI II II I -- -- - --, - .;Correct Bourn ,·...··e·..···., El'l'Ol' . I Human error ~)ne Of lhe l~cOrrectly determined participating area;. Computer.ge"'erated ' determinations showed that 16 out of 30 areas improperly included or excluded. acreage, 'Most often operators, benefited from the errors. cut half or more by the b~undary are also included, When subsequent wells are drilled and determined-to be productive from a common pool, the participating area is often enlarged. The revised participat- ing area now includes all lands within each ~;eparate participating area by vir- tue of the common acreage drained. An individual working interest with- 'in the.participating area is determined by the proportion of acreage contrib- uted by that working interest owner to · -the total acreage in the participating ~'~a. Critical to this study is the rule that all acreage proved reasonably produc- tive by this method shall be included in the participating area and will share in its expense and revenue. Tools implementing the circle-tan- gent method today are basic. Wells are located on a scaled map :b~ ruldr and ' l~ncil. Circles ~ drawn by compass, "~ !-':.~ - The "eyeball technique" determines whether, in a questionable, situation, a ~/ given tract is cut half or/,dore by thc :' drainage boundary;' . .... ......,.~..i:' :::: ....... .-A second technique attempts to l~ :~;~{!!¢!'7'.!:;?'?"":::. more accurate. A scaled grid system is employed to determine, whether a given tract is cut hair or more by the drainage:. bou. ndary. For example,' the number of ~. grids in a questionable tract.contained within the drainage bouhdary are counted and converted to an' acreage figure. Such a tedious technique must assume the accuracy'of the graph paper, the ruler and the. compass. · Clearly, a problem exists where mil- lions of dollars are invested in scientific exploration and development, but the . participative determinations are made by simple observation. In order to de- REGIONAL NEWS termine the problem'S magnitude, a study was conducted at Colorado School of Mines. A sample of 30 successful explora- tory wells was 'studied to determine whether the corresponding participat- ing areas were correctly determined. Data was obtained from several Bureau of Land Management (BI.M) offices in Colorado and Wyoming: The informa- tion requested included the unitized substance produced, productive zone depths, well location coordinates and land maps showing participating area' boundaries. Using a newly available software Package by Precision Units Inc., the participating area for each well was precisely determined, based on the circle-tangent method and the follow- ing assumptions: · Unless otherwise noted on state well completion forms, surface well location coordinates indicate the bot- tomhole location, the true predicate for participating area determination. · .All information received con- cerned i>articipating ama~ determined by the circle-tangent'method, rather than by an exception to the method. Of the 30 participating areas, 16 were in error. Of the 16 errors made by operators and approved by other work- ing interest owners, 10 accrued, or like- ly would accrue to the operator's ben- efit. Of the remaining six errors, three were neutral and three decreased the operator's working interest. In the study, differences between correct operator's working interests and working interests as approved ranged from 0.4167% to 25%. Three qf the errors deserve special mention. In one application, interest owners approved a participating area based on a well location established in the wrong 40-acre tract. In another application, the operator submitted a completed well drilled in SW NW 17 and incorrectly determined the participating area to include all of the section. The operator omitted the ' acreage reasonably proved productive in Section 18. Incredibly, no acreage in Section 17 was leased by the operator,- who held all of Section 18 under lease; .The participating area was modified to include some of the operator's a~reag¢; · .,~. ~ II~L.I II I I I With experienced, efficient crews and well maintained equipment weql save you time; and in the oilfield, time saved is money . saved. Call us for drilling, service work, workovers and completions. ,~,... DeGaugh Well Service and Drilling, Inc. Box $20 Douglas, INY 82633 (307)358-3108 in Section 18, but one 40-acre tract too many was included. In a third case, an operator submitted a participating area. which could only have been determined from a state reg- ulatory commission spacing order. But no such order was iSsued for the acre- age in question. The adjoining interest owners approved an 8/8 working inter- est in favor .of a single' party. That party's correct interest was 6/8. In this case, a single working interest owner test the 1/4 interest in the well. C! , ,, About the authors Ruth A. Maurer, Ph.D..-is assdciate professor of mineral economics at the Colorado School 'of Mines, Golden, Colo.-She has served as a consultant for ~everal firrn~'. Bruce C. Kirchhoff will graduate this month from the Colorado School of Mines with a master of science de- gree in mitieral economics. He com: pleted his law degree at the tJnlverstty of Denver and is employed by a Denver law firm. He is also f. oundcr and p'resi. dent of Precision t. lnit~ Inc.. Denver. .consultant, In unitization. · i , J, . _ Our aim is-- s vi c ...<'"':"', · Water & oil hauling to Ufa'h," ' Colorado, Wyoming and Ida.ho · · Brine Water · VacUum Equipment · KCL Water ° Frac 'J'ank Rentals · Magnesium Chloride'Water.'. · CaJh'""" ·" /f'_.~.~/~ Dan McKee · Russell Billings' Randy Taylor · Rick Skalak · Kenny Prou! p,_~~ ~'~ Vernal, UT . {aaa) 824-7706 24-hour service Craig, CO ~odio dispatched 26 · Western Oil World ., ,,~p ,, Chevron Land Department Western Reoion Chevron U.S.A. Inc. 6001 Bollinoer Canyon Road, San Ramon, California Mai Address: P.O. Box 6066, San Ramon, CA 94583-0906 May 27, 1986 Request for Approval of the Initial Participating Area Beluga Formation, Pretty Creek Uni Alaska VIA AIRBORNE Depart~nt of Natural Resources Division o~Oil and Gas 3601 "C" S~eet · Anchorage, ~,K .99510 Attention: Msx,\ Kay Brown, Director'i Gentlemen: Chevron U.S.A. Inc.:, as Unit Operator of the Pretty Creek Unit, approved on behalf of the State of Alaska effective October I0, 1977, hereby submits for approval the Initial PartiCipating'Area for the Beluga Formation, Pretty Creek Unit. This submittal is made in accordance with the provisions of the Unit Agreement for the Development and Operation of the Pretty Creek Unit Area, the Unit Operating Agreement for the Pretty Creek Unit Area, and applicable laws and regulations. In support of this submittal are the following: I. Land Map of the Pretty Creek Unit Area and the Initial Participating Area. Schedule describing those lands comprising the Initial Participating Area, including the tract participation formula and percentages. 3. Geologic map, type log, and geological/engineering report. We request, that this information .be kept confideptial. -. .. The Initial Participating Area is comprised of all /tO-acre legal subdivisions of unitized lands which can be regarded as reasonably proved to be productive of unitized substances in paying quantities. The acreage figures for these lands are based upon computation using public land survey acreage figures. The Initial Participating Area is.baSed up°n data and information obtained from the Pretty Creek Unit/12 Well, (located in Section 33, T.i/tN., R.gW., S.M.), the Pretty Creek Unit t~1 Well (bottomhole location in Section 17, T. 13N., R.gW., S.M.), and geophysical data as indicated in Attachment 3. The seismic lines referenced in said attachments are available, as you have requested, for your review in our Anchorage office. Please contact Mr. Norm Stone .at (907) 78~;-666/t or the undersigned at (/415) 8/t2-31/41 should you desire to review this data. RECEIVED J U N - 2 1986 Alaska 0il & Gas Cons. Commission · Anchorage -2- Allocation among Tracts of unitized substances is on an "acreage basis" as provided in Article 12 of the Unit Agreement. The tract participation formula and each Tract's participation percentage is shown in Part II of Attachment 2. Chevron, as Unit Operator, hereby requests that the Commissioner, Department of Natural Resources, State of Alaska approve the Initial Participating Area for the Beluga Formation, Pretty Creek Unit, as herein proposed. JMT=blp CC,* (~M~. Thacker Union Oil Company of Californ'i~a Texaco Inc. Mr. Clifford Burglin Mr. Lorna Call Mr. E. W. Crafton, Sr. ., Mr. Charles F. Stack L_Alaska Oil & Gas Conservation Commission RECEIVED JUN- 2 1986 Alaska .Oil & Gas Cons. Commission Anchorage -, . LEGEND FD '- JUN- 2 1986 "'~'ARTIOIPATINe AREA Al. Aa Oil& Gas Cons, Commission .' - Anol~erago ~""'. 'UNIT AREA ; :¥vrf:~ , - TRACT NUMBER INITIAL PARTICIPATING AREA PRETTY CREEK UNIT I. AREA: ; ATTACHMENT 2 INITIAL PARTICIPATING AREA BELUGA FORMATION PRETTY CREEK UNIT RECEIVED J U N - 2 1986 Alaska 0il & Gas Cons. Commission Anr~oraDo Tract Lease Description Royalty Acreaqe I ADL-58809 2. ADL-58810 fi. ADL-58813 5. ADL-588 i 4 6. ADL-58816 7. ADL-58817 8. ADL-58818 10. ADL-63047 II. ADL-63048 12. ADL-63049 13. Fee, USS 2156 T. If iN., R.gW., S.M. Sec. 26: WI2 NW/4 T. I fiN., R.gW.~ S.M. Sec. 27: All Sec 34:N/2 NE/4; SW/4 NE/4; NW/4; SW/4; NW~/~ SE/q; Excluding USS 2156 ; T. 13N., R.gW., S.M. Sec. 3.' W/2 Sec. fi: All T. 13N~ R,gW'., S.M. Sec. 5: E/2; E/2 W/2 T. 13N.~ R.gW.~ S.M. Sec. 8i NE/fi; N/2 SE/4; SE/4 SE/4; E/2 NW/fi T. 13N.~ R.gW.~ S.M. Sec. 9: N/2; N/2 SE/fi; SW/4 SE/fi; SW/4 T. 13N.~ R.?W.I S.M. Sec. 10: W/2 NW/4 T'. I fiN.~ R.gW., S';M.. - Sec. 29:E/2 NE/fi; SE/fi; SE/fi SW/fi T. I qN.~ R.gW., S.M. Sec. 28: All Sec. 33: All T. 14N.~ R.gW.~ S.M. Sec. 32: E/2; E/2 W/2 T. 14N, R.gW, S.M. Sec. 34: USS 2156 12-1/2% 12-1/2% 12-1/2% 12-1/2% 12'1/2% 12-1/2% 12-1/2% 16-2/3% 16-2/3% 16-2/3% 80.00 1099.33 960.00 480.00 360.00 600.00 80.00 280.00 ! 280.00 480.00 20.67 Total Committed Acreage within P.A. 5720.00 I!.~ TRACT PARTICIPATION: Ae Tract Participation Formula: Tract Acreage included within the P.A. ~ Total Committed Acres in Proposed P.A. = Tract Participation B. Tract Participation Percentages: Tract No. Tract Participation (%) ! .................................. I .3~860 2 .................................. I 9.21906 4 ................... ,.; ............ ; . ~ 16.78322 5 ....................: ............. ~8.3c)161 6 .................................. 6.2c)371 7 ................................... 10.48c)5 I 8 ..................... , ............ I .3c)860 !0 .................................. zt.8c)510 II . ................................. 22.37762 12 .................................. 8.39161 13 ................................... 36136 TOTAL I00.00000 C. Working Interest Owners' P.A. Participating Interests: Unocal .......... Chevron (Unit Operator) .......... Texaco .......... 45% I1% 100% ~.. -2- RECEIVED JUN- 2 1 88 · .: Alaska Oil & Gas Cons. COITIrilJSS]o,,1 Ancher~go Chevron Land Department Western Region Chevron U.S.A. Inc. 6001 Bollinger Canyon Road, San Ramon, California Mail Address: P.O. Box 5050, San Ramon, CA 94583-0905 May 27, 1986 Request for Approval of the Initial Participating Area Beluga Formation, Pretty Creek Uni Alaska VIA AIRBORNE Department of Natural Resources Division oT~Oil and Gas · 3601 "C" S~eet ' Anchorage, ~,K .995 I0 Attention: Ms~\ Kay Brown, Director Gentlemen: .. Chevron U.S.A. Inc., os Unit Operotor of the Pretty Creek Unit, opproved on beholf of the Store of Alosko effective OCtober 10, 1977, hereby submits for opprovol the Initiol Porticipoting Areo for the Belugo Formotion, Pretty Creek Unit. This submittol is mode in ocCordonce with the provisions of the Unit Agreement for the Development ond Operotion of the Pretty Creek Unit Ar,o, the Unit Operoting Agreement for the Pretty Creek Unit Ar,o, ond opplicoble laws ond regulotions. In support of this submittal are the following= I. Land Map of the Pretty Creek Unit Area and the Initial Participating Area. . .. Schedule describing those lands comprising the Initial Participating Area, including the tract participation formula and percentages, 3. Geologic map, type log, and geological/engineering report. We request that this information be kept confidential. -- The Initial Participating Area is comprised of all /tO-acre legal subdivisions of unitized lands which can be regarded as reasonably proved to be productive of unitized substances in paying quantities. The acreage figures for these lands are based upon computation using public land survey acreage figures. The Initial Participating Area is based upon data and information obtained from the Pretty Creek Unit II? Well, (located in Section 33, T.I/tN., R.gW., S.M.), the Pretty Creek Unit tli Well (bottomhole location in Section 17, T. 13N., R.gW., S.M.), and geophysical data as indicated in Attachment 3. The seismic lines referenced in said attachments are available, as you have requested, for your review in our Anchorage' office. Please contact Mr. Norm Stone .at (907) 786-66~;/t or the undersigned at (/ti5) 8/t2-31/tl should you desire to review this data. RECEIVED JUN- 2 1986 Alaska Oil & Gas ConS. COmmission . ... . Anchorage . -2- Allocation among Tracts of unitized substances is on an "acreage basis" as provided in Article 12 of the Unit Agreement. The tract participation formula and each Tract's participation percentage is shown Jn Part II of Attachment 2. Chevron, as Unit Operator, hereby requests that the commissioner; Department of Natural Resources, State of Alaska approve the Initial Participating Area for the Beluga Formation, Pretty Creek Unit, as herein proposed. JMT:blp CC.' ~.~- Thacker Union'Oil ComPany of Californib Texaco Inc. Mr. Clifford Burglin Mr. Lorna Call Mr. E. W. Crafton, Sr. l~r. Charles F. Stack sea Oil & Cas Conservation Commission RECEIVED JUN- 2 1986 Alaska Oil & Gas Cons~ Commission Anchorage I. AREA: ATTACHMENT 2 INITIAL PARTICIPATING AREA BELUGA FORMATION PRETTY CREEK UNIT RECEIVED JUN - 2 1986 AIa~I; 0ii & Gas Cons. Commission Anchomgo . Tract Lease Description Royalty Acrea_qe I ADL-58809 2. ADL-58810 4. ADL-58813 5. ADL-58814 ADL-58816 7. ADL-58817 8. ADL-58818 10. ADL-63047 il. ADL-[;3048 12. ADL-[;3049 13. Fee, USS 215[; T. I/~N.~ R.gW.~ S.M. Sec. 2[;: W/2 NW/4 T. 14N.~ R.gW.~ S.M. Sec. 27: All Sec 3~: N/2 NE/41 SW/4 NE/4; NWl4; SW/Z~; NW'/~ SE/t~; E:xcludlng USS 215[; T. 13N.~ R.gW.~ S.M. Sec. 3: W/2 Sec. z~: All' T. 13N., R.gW., S.M. Sec. 5: .E/2; E/2. W/2 T. 13N., R.gW'~ S.M. SeC. 8: NE/4; N/2 SE/4; SE/4 SE/~; E/2 NW/4 T. 13N.~ R.gW.~ S.M. Sec. 9: NJ2; NJ2 SE/~; SW/~ SE/~; sw/ T. 13N.~ R.gW.~ S.M. Sec. 10: W/2NW/4 T'. 14N.~ R.gW.~ ~;M.. - ~' _ Sec. 29: E/2 NE/~ SE/4~ SE/4 SW/4 T. I Z~N., R.gW., S.M. Sec. 28: All Sec. 33: All T. I/~N.~ R.gW.~ S.M. Sec. 32: E/2; E/2 W/2 T. 14N., R.gW.~ $~M. Sec. 34: USS 215[; 12-!/2% 12-1/2% 12-1/2% 12-1/2% 12-1/2% 12-1/2% 12-1/2% 1[;-2/3% 1/8 80.00 1099.33 960.00 480.00 3[;0,00 [;00.00 80.00 280.00 1280.00 ~.80.00 20.67 Total Committed Acreage within P.A. 5720'00 il. TRACT PARTICIPATION: A® Tract Participation Formula: Tract Acreage included within the P.A. · Total Committed Acres in Proposed P.A. = Tract Participation B. Tract Participation Percentages: Tract No. Tract Participation (%) I ..................... , ............I .39860 2 ..............~ ................... 19.21906 4 ................... ,, ............ ~ . ~ 16.78322 5 .................... : .............~ 8.39161 6 .................................. 6.29371 7 .................................. I 0.4895 I 8 .................................. I .39860 0 .................................. 4.89510 I .................................. 22.37762 2 .................................. 8.39161 3 ................................... 36136 TOTAL 100.00000 C. Working Interest Owners' P.A. Participating Interests: Unocol .......... Chevron (Unit Operotor) .......... Texaco .......... 45% 44% Il% 00% ~.. -2- RECEIVED. JUI',.J- 2 1.,o85 Aiack~ Oil & Gas Cons. Commission Ancher~[lO ADL- 6 31 ADL - TO 8506 . I0/I 4/7'T 16 I0 15 26 ADL-58809 35 ADL-5881Z LEGEND PARTICIPATING AREA UNIT AREA ADL-58821 21 RECEIVED JUN- 2 1886 Alaska Oil & Gas Cons. Comn~issJo~ Anchorago TRACT NUMBER 'INITIAL PARTICIPATING AREA PRETTY CREEK UNIT Chevron Land Department Chevron U.S.A. Inc. 3001 C Street, Anchorage, AK 99510 Mail Address: P.O. Box '107839, Anchorage, AK 99510 Phone 1907) 788-6600 June 4, 1986 Pretty C~ee~ Unit, A~'eement Mr. Chat Chatterton Alaska Oil & Gas Conservation Commission 3001 Porcupine Drive Anchorage, Alaska 99501-3192 Dear Mr. Chatterton: Pursuant to your request and to provide background information for the hearing scheduled for June 26, 1986 regarding spacing exception for Pretty Creek Unit Well #224-28, enclosed is a copy of the Pretty Creek Unit Agreement. Please call me if I can be of further assistance. Very truly yours, J. D. Arlington JDA:mw Enclosure R C£1VF..D JUNO 5 1986 Alaska Oil & Gas Cons, commission Anchorage Robed T. Anderson O,slr,c! Land Managtr Union Oil Compar.... f California P.O. Box 6247, Ant. ,ra_qo, Alaska 99502 Telephoto;: (907') 276-1600 January 25, 1979 Director Division of I,ands Department of Natural Resources State of Alaska 703 West ~orthern Lights Blvd. Anchorage, Alaska 99.503 PRETTY ' ' ' ' CKEEk AREA State of Alaska Pretty Creek Unit Agreement Dear Sir: Pursuant to Sections 5 and 6 of the Pretty'Creek Unit Agreement, Uni. m Oil Company ut California, in its capacity as:Unit Operator and major working interest owner in the unitized lands deSires to tender its resignation as designated Unit Operator and appoint, as successor, Chevron U.S.A. Inc., who by execution hereof agrees to assume the d~t. and responsibilities of Unit Operator Subject to and effective upon tl approval of the Director, Division of Lands of the Department of Natm Resources. jAH '",,b i9'¢'9 L'iv, ot f,j!ner;~is & Eno:'gy Mgr. Anchorage, Ak, Very truly yours, UNION OIL COblP~Y OF CALIFORNIA Robert T. Anderson Its Attorney-in-Fact / / : APPROVED AND ACCEPTED THIS -- ; 1979. CHEVRON U.S.A. INC. By C. F. Ki~kvold Area Operations Superintendent TilE TRANSFER OF OPEi~ATORS.~t~P IS tIERE/DY) APPkOVED Tills _.~.~ ~ DAY DIVISION OF L~Xl)S DEPARTMENT OF NATURAL RESOURCES STATE OF ALASKA RECEIVED J U N 0 5 1986 Alaska Oil & Gas Cons. ~'~'~'~-'~ Anchora,3e APPROVAL - CERT[FICATIOH - DETER~-~[HATION Pursuant to the authority vested in the Com~,~issioner of the Department of Natural Resources of the State of Alaska under Title 38 of the Alaska Statutes, as amended, and under the Alaska Oil and Gas Leasing Regulations pursuant thereto, I do hereby' (a) approve the attached unit agreement for the development and operation of the Pretty Creek unit area, State of Alaska. (b) certify and determine that the unit plan of development and operation contemplated in the attached agreement is necessary and advisable in the public ini~erest for the purpose of more properly.conserving natural resources. (c) certify and determine that the drilling, producing, rental, · m~nimum royalty and royalty' requirements of all State of Alaska leases committed to said agreement are hereby established, altered, changed, or revoked to conform with the terms and conditions of-th~s agreement. Provided, however, this approval, certification and determination is made expressly subject to the condition that the del'~tion of the last · sentence'in Paragraph l, Section 16 (pa_o,~ 14) is accepted by each of the unit participants and rai~ifications reflecting such acceptance are filed with the office of the Division of H~nerals and Energy Hanage~ent, Anchorage, Alaska, within 90 days from l~he effective date of this agreement. Time is of the essence for this approval. Dated this /d~ day of ~~ , 1977. Commissioner Department of Natural Resources RECEIVED JUNo S ~86 Alaska Oil & Gas Cons. Commission AnChorage PRETTY CREEK UNIT Unit Agreement Dated: 6[1/77 PCU #2 Well Completed: 2/26/77 SECTION 1 2 3 ? 9 10 11 12 13 15 17 18 19 20 21 22 23 27 28 29 3O PAGE 1 1 7 7 8 9 10 12 13 15 18 lg 19 2O 2O 2O 2O 21 21 21 22 22 INDEX , . CAPTION Enabling Act and Regulations Unit. Area Unitized Land and Unitized Substances Unit Operator Resignation or Removal of Unit Operator Successor Unit Operator _ Accounting Provisions and Unit Operating Agreement Rights and Obligations of Unit Operator Drilling to Discovery Plan of Further Development and Operation Participation after Discovery Allocation of Production Development or Operation of Non-Participating Land or Formation Royalty Settlement Rental Settlement Conservation Drainage '-' Leases and Contracts Conformed and Extended · Govenants Run with the Land Effective Date and Term Rate of Prospecting, Development and Production Appearances Notices No Waiver of Certain Rights Unavoidable Delay Non-Discrimination Loss of Title Non 3oinder and Subsequent 3oinder Gounterparts Alaska Resident Hire RECEIVED JUIV O 5'1g8 Alaska 0il & Gas Co~s. Co~:,.,;~,., UNIT AGREEMENT FOR THE DEVELOPb~NT AND OPERATION OF THE PRETTY CREEK UNiT AREA STATE OF ALASKA THIRD JUDICIAL DISTRICT THIS AGREEMENT, entered into as of the 1st day of June, 1977, by and bet;~een the parties subscribing, ratifying, or consenting hereto, and herein referred to as the "parties hereto," WITNESSETH: I..rHEREAS, the parties hereto are the owners of working, royalty, or other oil and gas interests in the unit area subjeCt to this agreement; and, ~:~HEREAS, the Commissioner of the Department of Natural Resources, State of Alaska is authorized by Alaska Statute 38.05 and appropriate State Regulations to consent to or approve this agreem~nt on beh~nlf of the State of ~aska, insofar as it covers and includes lands and mineral interests of the State of Alaska; and, %~EREAS, the parties h~reto hold sufficient intercst~ in the Pretty Creak Unit Area covering the land hereinafter described to ~,ive reasonably effective control of operations therein; and, WHEREAS, it is the purpose of t]~e parties hereto to conserve natural resources, prevent waste, and secure other be~a~ts obtainable through development and operation of th~ area subject to this agreement under the te~s, conditions, and llm[tation~ herein set forth; and, %.5~EREAS, State Lauds, as that term is u~;ed in this a~j. reement, n':aans thos= lands title to w]~ich is vested or that become ve~;ted in the State of Alaska and lands ~hich have been tentatively approved a[t~r State selection and are not cow~red 1,y an cx'[st:.ing ]:cd~ral o'i]. and gas ]caste at such time as any rigl~t or authority is exercised; ~,0.',, T~EREFORE, in (~onsideration of t]~e premise~ and thc promise ]~erein contnined, the paL-t~;es ~eJ3ct()comm[L [o th[~; a:%r('~(.ment their respec'l:~ve '[~terests in tl~e belo%~-d~,r'Lned unit ar(.;~, and ~::rc~ sew, rally RECEIVED JUNO 5 1. ENABLING ACT AND REGULATION.S. The Alaska Land Act (A.S. 38.05.005-370) and all valid~ and pertinent oil and gas statutes and 'regulations including the oil and gas operating statutes and regulations in effect as of the effective date hereof or hereafter issued thereunder governing drilling and producing operations, not inconsistent with the terms hereof or the laws of the State of Alaska, are hereby accepted and made a part of this agreement. 2. UNIT AIIEA. The area specified on the map attached hereto marked Exhibit "A" is hereby designated and recognized as constituting the unit area, containing 14,059.00 acres, more or less- Exhibit "A" shows, in addition to the boundary of the uni~ area, th-a boundaries and identity' of tracts and leases in said area to the extent known to the Unit Operator. Exhibit "B" attached hereto is a schedule Showing, to the extent kno~ to the Unit Operotor, the acreage, percentage, and kind of o:~me.r-~ ship of oil and gas interests in all land in the unit area. Itowever, nothing herein or in said schedule or map shall be construed as~a repre- Sentation by any party hereto as to the ownership of any ~nterest other ~.. than s.uch interest or interests as are sho~.m on said map or schedule as · owned by such party. Exhibits "A" 'and "B" shall be revised by the Unit Operator whenever changes in the unit area render sucl~ revision neces.';ary, or when requested by the Director, Division of Lands of the Department of Natural Resource:-;, hereinafter referred to as the "Director", and four (4) copies thereof shall be' filed with the Director. The above-described unit area shall., when practicable, be expanded to include therein any additional tract or tra~ts rc:~arded as reasons, y necessary or advisable for the purposes of this agreement, or shall be contracted' to exclude lands'not within any participating area whe~ev~.r ~uch expansion or contraction is necessary or advisable to conform iiI i_ ~i the pu.rl~o:;es of t!~:is a~reement. Such-nxpansion or contraction :;hall be effected in the follow.i, ng manner: (a) Unit Operator, on its own motion, or on dem~tnd of the Director, shall prepare a notice of proposed expansion or contraction describing the contemplated changes in the boundaries of the unit area, the reasons therefor, and the proposed effective date thereof, preferably the first day of a month subsequent to the date of notice. (b) Said notice shall be delivered to the Director and copies thereof mailed to the last known address of each working interest owner, lessee, and the lessor whose interests are affected, advising that 30 days will be allowed for submission to the Unit Operator of any objections. (c} Upon expiration of the 30-day period provided in the preceding item (b) hereof., Unit Operator shall file with the Director evidence of mailing of the notice of expansion or contractions, and a copy of any objections hereto which have been filed wi. th the Unit Operator, together with an application in sufficient number, for approval of such expansion or contraction and with appropriate joinders. (d) After due consideration of all pertinent information, the expansion or contraction shall, upon approval by the Director, become effective as of the date prescribed in the notice th~-:reof. -- (e) Ail legal subdivisions of ~mitized lands (i.e., 40 acres by Government survey or its nearest lot or tract equivalent in instances of irregular s~rveys; however, .unusually .1.arge lots or tracts shall be considere~ in multiples of 40 acres, or the nearest aliquot equivalent thereof, for the purpose of elimination under this .¢;ubsection), no parts of which are entitl.ed to be in a participating area within .five. yearp~ after the .first day of the month fo].loWing the effe. ctive date of the first initial participating area established under this unit a~rcement, shall be eliminated automatically from this a~reement, effective as of the first day thereafter, and such lands shall no longer be a part of the unit area and ~;hall no longer be ~;t~bject to this agreement except as provided in Paragraph lB(f); ~,nlc:;.~; at: tt,e cxp'i, ration of said five-ye;~r period diligent dri'tli,g operations are :la l,rogrc:;.~; oi't unitized lan~l:; not entitled to participation, in which event all ouc. l~ lands shal'i. remain subject hereto for so long as such drilling operations are continued diligently, with no more than one (1) year time elapsing between the~ completion of one such well and the commencement of the next such well, except that the time allowed between such wells shall not expire earlier than 30 days after the expiration of any perio~ of time during which drilling operations are prevented by a matter beyond the reasonable control of Unit Operator, as set forth in the section hereof entitled "Unavoidable Delay"; provided that all legal subdivisions of lands not in a participating area and not entitled to become participating under the applicable provisions of this agreement within 10 years after the first day of the month following the effective date of said first initial participating area shall be eliminated as .above specified. Determination of creditable "unavoidable delay" time shall be made by Unit Operator and subject to approval of the Director. The Unit Operator shall, within 90 days after the effective date of any elimination hereunder, describe the area so eliminated to the satisfact'ion of the Director and promptly notify all parties in interest. If conditions warrant extension of the ten-year period specified in this subsection 2(e), a single extension of not to exceed two years may be accomplished by consent of the owners of ninety percent of the Current unitized working interests and sixty percent of the current un.~tizcd basic royalty interests (exclusive~of the basic royalty interest~ of t]~e State) on a total nonparticipating-acreage basis, respectivaly, w~th approval of the Commissioner prov.~ded ouch extension mpp].i~ation submitted to the Director not later than 60 days p~ior to the expiration of said ten-year period. Any expansion of the unit area pursuant to this section which embraces lands theretofore eliminated pursuant to this subsection 2(e) shall not be considered automatic com. m~itme,~t or recommitment of lands. 3. UNITIZED LAND AND UNITIZED SUBSTANCE.~. Ail land committed to this agreement sl~all constit~.~te land referred to l~er~:ti~ a.'; "tmitiz~,d land" or "land subject to this agreement." All oil and ~as in any and all formation-o of' the unitized land are unitizcd under t]~e terms o[ ~,.; agreement and herein are called "unitized substances." · 4. UNIT OPERATOR. Union Oil Company of California, with offices at 909 W. 9th Avenue, Anchorage, Alaska 99501, is hereby designated Unit Operator and, by signature hereto as U~it Operator and as working interest o~er, co--its to this agreement all interests in unitized substances vested in it and. agrees and consents to accept the duties and_ obligations of Unit Operator for discovery, development, and production of unitized substances as herein provided. ~enever reference is made herein to the Unit Operator, such reference means the Unit Operator acting in that capacity and not as an o~er of interest in unitized substances, and the te~ "working interest o~er" when used herein shall include or refer to Unit Operator as the o~er of a working interest when such an interest is o~ed by it. 5. RESIGNATION OR REMOVAL OF UNIT OPE~TOR. Unit Operator shall have the right to resign at any time prior to the e.stablishment of a participating area or areas hereunder, but such resignation shall not become effective so a~; to rclea[;e Unit Operator from the duties and obligations of Unit Operator and terminate Unit Operator's ~rights a~ such for a period of six months afte~ notice of intention to resign has been served by Unit Operator on all working interest owners and the Director~ and until all w~lls then drilled hereunder are placed in a satisfactory conditi°n for suspension or abandonment, whichever is- required by the Director as to State and private].y ow,~ed lands, unlc~;~; a new Unit Operator. shall have been selected and approved and shall have taken over and assumed the duties and obligations of Unit Operator prior to t]~e expiration of said period. Unit Operator shall have the right to resign in like manner and subject to like limitations, as above provided, at any time a partic- ~.pating area established hereunder is in existence but, in all instances of resignation or removal, until a successor Unit Operator is selected and approved as t~ere'i, nafter provided, the working interest owners shall be jointly zesponslb].e for performnnce of the duties of Unit Operator-, and shall not later tha~ 30 days ]~efore such res'ig~ation or remow~l becomes effective appoint a common agent to represent them in any act,.on to be taken he,:uunder. The resignation of Unit Operator shall not release Unit Operator from any liability for any defa~lt by it hereunder occurring prior to the effective date of its resignation. The Unit operator may, upon default or failure in the perform, ance of its duties or obligations hereunder, be subject to removal by the same percentage vote of the owners of working interests determined in like manner as herein provided for the selection of a new Unit Operator. Such removal, shall be effective upon notice thereof to the Director. The resignation or removal of Unit Operator under this agreement shall not terminate its right, title, or interest as the owner of a working interest or other interests~-in unitized substances, but upon the resignation or removal of Unit Operator becoming effective, such Unit Operator shall deliver possession of all equipment, materials, and appurtenances used in conducting the unit operations and owned by the working interest owners to the new duly qualified successor Unit Operator or to the owners thereof, if no such new Unit Operator is elected, to be used for the purpose of conducting unit operations hereunder. Nothing herein shall be construed as author~izing removal of any material, equip- ment, and appurtenances needed for the preservation of any wells. 6. SUCCESSOR UNIT OPERATOR. ~henever the Unit Operator shall tender his or its resignation as Unit Operator, or shall be remove~ as hereinabove provided, or a change of Unit Operator is negotiated by working interest owners, the owners of the working interests in the participating area or areas according to their respective acreage interests in such participating area or areas, or until a participating area shall have been established, the owners of the working interests according to their respective acreage interests in all unitized land, shall by majority vote select a successor Unit Operator; provided that, if a majority but less than 75 per cent of the working interests ciuali- fied to vote are owned'by one party to this agreement, a concurring vote of one or more additional working interest o~.~ers shall be required to ' se].ect a new operator. Such selection shall not become effective until: (a) a Unit Operator so se].~:cted sl~a].l accept ~n wr:[ting the duties and responsibilities of Unit Ope. ra. tor, and 6 (b) the selection shall have been filed with and approved by the Director. If no successor U~it Operator is selected nnd qualified as herein provided, the Commissioner at his election may declare this Unit Agreement terminated. 7. ACCOUNTING PROVISIONS AblD UNIT OPERATIMG AC. REE~IEL, T. If the Unit Operator is not the sole owner of working interests, costs and, expens~es incurred by Unit Operator in conducting unit operations here- _ under shall be paid and apportioned among and borne by the owners of working interests, all in accordance with the Rgreement or agreements entered,, into..by and between the Un$.t Operator and the owners of working interests,, whether one or more, separately or collectively. Any agree~-~ ment or a~reemen~s entered into between the working interest o~n~ers and the Unit Operator as provided in this section, whether one or more, .are.. herein referred to as the "U~nit Operatin8 Asreement". Such unit oDer-~ 9ting agreeme..nt., shall also provide the manner i~ whi. ch the workin~ interest owners shall be entitled to receive their respective propor~- ti0nate and al. located share of the benefits accruing hereto in con- fortuity with their underlying ope~rating agreements, leases, or other independent contracts, and such other rights and obligations as between Unit Operator and the working 'interest owners as may be agreed upon by Unit Operator and the working interest o~ners; however, no such unit · operating agreement shall be deemed either to modify any of the terms and conditions of this unit ,~;reement or to relieve the Unit Operator of · any right or obligation established under this unit agreement, and in case of any inconsistency or conflict between the unit agreement and the unit operating agreement, this agreement shall prevail. Three (3) true copies of any unit operating agreement e~e. cute~d pursuant to this section shall be filed with the Director prior to approval of the unit agreement .by. the Commissioner. 8. RIGIITS AND OBLIGATIONS O'[: UNIT OP]~.;RATOR. I.L-:ccpt as otherwi[;e 'specifically provided herein, thc c>:clusive right, privilege, and dt~ty of exercising a~y and all right~: of the parties her~,~o which ;~re neces- . sary or convenient-for prospecting for, producing, storing, allocating, and distr.Lbuti.~g the un:[tized ~;td~t. ance~; are herbally cl;~]t~%ated to and shall be exercised by the Unit Operator as herein provided. Acceptable evidence of title to said rights shall be deposited with ~;aid Unit Operator and, together with this agreement, shall constitute and define the rights, privileges, and obligations of Unit Operator. Nothing herein, however, shall be construed to transfer title to any land or to any lease or operating agreement, it being understood that under this agreement the Unit Operator, in its capacity as Unit Operator, shall exercise the rights of possession and use vested in the parties hereto only for the purpose herein specified. 9. DRILLING TO DISCOVERY. Within six (6) months after the effective date hereof, the Unit Operator shall begin to d-rill an adequate test well at a location approved by the Director, unless on such effective date a well is being dril.!ed or has been completed conformably with the terms hereof, and thereafter continue such drilling diligently until the Ster!in~ and Beluga formations have been tested or until at a lesser depth unitized substances shall be discovered which can be produced in paying quantities (to wit: quantities su'fficient to repay the ~costs of drilling, and producing operations, .with a reasonable profit) or the Unit Operator shall at any time establish to the satisfaction of the Director that further drill'ing of said well would be unwarranted or impracticable, provided, however, that Unit Operator shall not in any event be required to drill said well to.a.depth. .. in excess of 7,000 feet. Until the discovery of a deposit of unitized substances under this unit agreement capable of being produced in paying quantities, the Unit Operator shall continue diligent drilling operations of-one well at a time, allowing not more than twelve (12) months between the completion · of one well and the commencement of the next well until a well capable of producing unitized substances in paying quantities is completed to the satisfaction of said Director or until it is reasonably proved that the unitized land is incapable of peoducing unitized substances in paying quantities in the formations drilled hereunder. · 8 · Mothing in this section shall be deemed to limit the right, of the Unit Operator to resign as provided in Section 5 hereof, or as requiring Unit Operator to commence or continue any drilling during the period pending such resignation becoming effective in order to comply with the. requirements of this section. The commissioner may modify the drilling requirements of this section by granting reasonable extensions of time when, in his opinion, such action is warranted. Upon failure to commence any well provided for in this section within the time allowed, including any extension of time granted by the Commissioner, this agreement will automatically terminate; upon f-ailure to continue drilling diligently any well commenced hereunder, the Com/~nissioner may, after 15 days notice to the Unit Operator, declare this unit agreement terminated. 10. PLAN OF FURTHER DEVELOPbIENT AND OPERATION. Within six months- .after completion of a well capable of ~roducing. t. mitized substances in paying quantities, the Unit Operator shall submit for the approyal of the Director an acceptable plan of development and operation for the qnitized land which, when approved by t~he Director, shall constitute the further drillin~ and operatling obligations of the Unit Operator under this agreement for the period specified therein. Thereafter, from time to time before the expiration of any existing plan, the Unit Operato~T shall submit for the approval of the Director a plan for an additional specified period for the devmlopment and operation of the unitized ].and. The Unit Operator expressly covenants to develop the unit area as a reasonably prudent operator in a reasonably prudent manner. -_ An~' plan submitted pursuant to this section shall provide for the, e_~loration of the unitized area and for the diligent drilling necessary for determination of the area or areas thereof capable of producing unitized substances in paying quantities in each and every,, productive formation_ and shall be as completu and adequate: a'.; the Director may 'determine to be necessary for tf.mely development and proper conservation of tile 0il and gas resources of the unitized area, and sl~all: · 9 (a) specify the number and lo~ation of any wel].s to be drilled and f the proposed order and time for such drilling; and, (b) to the extent practicable, specify the operating practices regarded as necessary and advisable for the proper conservation of natural resources. Separate plans may be submitted for separate productive zones, subject to the approval of the Director. ~aid. plan 0F plans sh.all be~ modified or supplemented when necessary to meet changed conditions, or to 'protect the interests of all partie~s of this agreement. Reasonable diligence shall be exercised in complying with the obligations of t~e approved plan of development. The Director is authorized to grant a reasonable extension of the six-month period herein prescribed for submission of an initial plan of development where such action is justified because of unusual conditions or circumstances. After completion hereunder of a well capable of producing unitized substances in paying quantities, no further wells, except such as may be necessary to afford protection against-operations_ not under this agree- ment or such as may be specifically approved by the Director, shall be drilled except in accordance with a plan of development approved as herein provided. -' 11. PARTICIPATION AFTER DISCOVERY. Upon comp].c, tion o~. a well capable______.of_~_producing .............. unitized substances in paying quantities, the Unit O~erator shall within the month o~ such completion, if practicable, or s soon thereafter as ~-,.re~ired .............. by.. the Director, submit for approval by the Director a schedule based on subdivisions of the public land survey or aliquot parts thereof of all unit:ized lan,d then re~arded as reason- ably.proved to be pyoduc,give of unitized substances in paTing quantities.; ,IC ~ all lands in said schedule on appr6val of the Director are to constitute - · a partxc~patzng area~ e~ec~vu ¢ ................... - ........... The acreages of both Stath and non-State lands shall be based upon 3. approved protraction diasrams or nppropriate computations from th~-: courses and d lsEances shown on t]~C last al,proved protrnct'ion diagram public land survey.as of the effect'ire date of the ~ni.t:ial part'lc-[paring area or computed with reference to the last approved protraction :;urvey , · or grids. Said schedule also shall set forth the percentage of unitized tract in the participating area so established and shall govern the · allocation of productiom from and after the date the participating area becomes effective. A separate p~rticipating area shall be established in like manner for each separate pool or deposit of unitized substances or for any group thereof produced as a single pool or zone, and any two or more participating areas so established may be combined into one with the consent of the owners of all working interests in the lands within the participating areas so to be combined, om approval of the Director. The participating area or areas ~o established shall be revised from time to time, subject to like approval, whemever such actiom appears proper as a result of further drilling operations or-otherwise, to include additional land the~z regarded as reasonably proved to be productive in paying quantities, or to exclude land then regarded as reasonably ~roved not to be productive in paying quantities and the percenta§e of allocation shall also be revised accordingly. The effective dace of any revisions shall be the first of tile month in which is obtained the . knowledge or information on which such revision is predicated, provided, however, that a more appropriate effective date may be used if justified by the Unit Operator and approved by the Director. No land shall be excluded from a participating area on account of depletion of the unitized substances · 'It is the inten~ of this section that a~ area shall represent the area known or reasonabl~ted to be_~productive in paying quantities; but, regagdless of any revision of the participatimg area, nothing herein contained shall .be construed as requiring any . retroactive adjustment for production obtained prior to the effective date of the revision of the participating area. In the abseace of agreement at any time between the Unit Operator and the Director as to the proper definition or redefinition of a 'participating area, or until a participating area has, or are~.~s have, been established as provided herein, the port-k~n of all pa3~nents a[fected ~bereby may be impounded in a munner mutually acceptable to tile owners of working interests, except royalties due the State of Alaska, which shall be determined by tl~e Direct'or for State lauds and [.!~e .~mount thereof deposited, as directed by the Director, to be held as unearned · money until a participating area is finally approved and then applied as e&rned or returned in accordance with a determination of the sum due as State royalty on the basis of such approved participating area. Upon the request of the operator or working interest owners, the Director shall hold as confidential any engineering, geophysical, and geological data including but not limited to :drilling logs, daily drilling reports or any other data of like or-similar nature whiCh may be requested or required by the Director for any purpose of this agreement. Whenever it is determined, subject to the approval of the Director, that a well drilled under this agreement is not capable of production in paying quantities and inclusion of the land on which it is situated in a participating area is unwarranted, production from such well shall, for the purposes of settlement among all parties other than working interest owners, be allocated to the land on which the we.ll is located so long as such land is not within a participating area established for the pool or deposit from which such production is obtained. Settlement for working . interest benefits from such a well shall be made as ~ro.vided in the unit operating agreement. · 12. kLLOCATION OF PRODUCTION. All unitized substances produced from each participating area established under this agreement, except ,' any p&rt thereof used in conformity with good operating practices within the unitized area for drilling, operating, camp and other production or development purposes, for repressuring or recycling in accordance with a plan of development approved by the Director, or unavoidably lost, shall ,, · deemed to be .produced e.~uall~ on an acreage basis from the several tracts of unitized land of the participating area established for suc]~ production and, for the purpose of determining any benefits accruing under this agreement, each such tract of unitized land shall have allocated to it such percenta~e of said production as the number of acres of such tract included :in said participating area bears to the total acres of unitized ].and in sa-id participating ar¢:a~ except ti,at allocation of production hereunder for purposes other than for settle- merit of the royalty,~ overriding royalty, or pa}~nent out of production ob] igmt ions of the respective work~ng interest owners, ,.;hall be on the · basis prescribed in the unit operating agreement whether in conformity with the basis of allocation herein set forth or otherwise. It is hereby agreed that production' of unitized substances from a participating area shall be allocated as provided herein regardless of whether any wells are drilled on any particular part or tract of said participating arena. If any gas produced from one participating area is used for repressuring or recycling purposes in another participating area, the first gas withdrawn from such last-mentioned participating area for sale during the life of this 'agreeme~tt shall be considered to be the gas so transferred until an amount equal to that transferred shall be so produced · for sale, and such gas shall be allocated to the p~rticipating area from which initially produced as constituted at the time of such final production. 13. DEVELOP,~NT OR OPERATION OF NON-PARTICIPATING LAND OR FO,~ATIOM. Any party or parties hereto owning or controlling the working interests in any unitized land having thereon re5ular well location, may, with the ~approval of the Director and subject to the non-conflicting provisions of the unit operating agreement, at sUch party's or parties' sole risk, costs, and expense, drill a well at such location' om such land to test any formation for which a participatinE area has not been established or to test any formation for w~ich a participating area has been established if such location is not within said participating area, unless within 90 days of receipt of notice from said party of his intention to drill the well the Unit Operator elects and commences to drill such a well in like manner as other wells are drilled by the Unit Operator under this asreement. If any well drilled as aforesaid by a working interest owner ~esults in ~.~oduction such that the land ~pon which it is situated may properly be included in a participating area, such participating area shall be established or enlarged as p.rovided in this ngreemen~t, and the well shall thereafter be operated by the Unit Operator in accordance with the terms of this agreement and the unit operating agreement. If any well drilled as aforesaid by a working interest o~.,~er '~duction in ~uantities ~nsufficient to '"ustif' the inclusion .in a participating area of the land upon which such well is situated, such well may be operated and produc'ed by the.part}; drilling the same subject to the' conservation requirements of ; . The JUN 0 5 1986 · · · in amount or value of production from any such well shall be paid as specified in the underlying lease and agreements affected. 14. ROYALTY SETTLEMENT. The State of Alaska and all royalty owners who, under e~isting contracts, are entitled to take in kind a share of the substances now unitized hereunder produced from any tract, shall hereafter be entitled to the rigl~t to take in kind their .~hare of the unitized substances allocated to such tract, and Unit Operator or, in case of the operation of a well by a working interest owner as herein in special cases provided for, such working interest owner shall make deliveries of such royalty share taken in kind in conformity with the applicable contracts, laws, and regulations. Settlement for royalty interest not taken in kind shall be made by working interest owners responsible therefor under existing contracts, laws, and regulations on · or before the last day of each month for unitized substances produced during the preceding calendar month; provided, however, that nothing herein contained shall operate to relieve the lessees of any ].and from their respective lease obligations for the payment of an)' royalties due under their leases. If gas obtained from lands not subject to this agreement is intro- duced into any participating area hereunder, for use in repressuring, stimulation of production, or increasing ultimate recovery, which' shall be in conformity with a plan first approved by the Director, a amount of gas, after settlement as herein provided for any gas tran.~- ferred from any other participating area and with due allowance or depletion from any cause, may be withdrawn from th°- formation into which the gas was introduced, royalty free as to dry gas, but not a.~; to the products extracted therefrom; provided that such withdrawal at such time as may be provided in the plan of operation or as may otherwise be consented to by Director as conforming to go'od petroleum engineering practice; and provided further that suc!~ right of withd~-a'~'a]. shall terminate on th'.· terminat.i~,n of this unit agreement. - 14 - R,.:vi,';ed 9/13/7'1 Royalty due on account of the State of Alaska shall be computed and · paid as to all Unitized substances on the basis of the amoutxts allocated to such lands, and in accordance with appropriate statutes and regt, latious. 15. RENTAL SETTLEbIENT. Rental or minimum, royalties due on ].eases co~itted hereto shall be paid by working interest owners responsible therefor uader existing contracts, law and regulations, provided tha~ nothing herein contained shall operate to relieve the lessees of any land from their respective lease obligations for the payment of any rental or minimum royalty in lieu thereof due under their leases. Ren~al~ or minimum royalty on State of Alaska lands subject to this agreement ~hall be paid a~ the rates specified in the respective leases and in accordance with appropriate s~atutes and regulations. With respect to any lease on non-State land containing provisions which would te~inate such lease un]ess drilling operations were within the time therein specified commenced upon the land covered thereby or rentals paid for the privilege of deferring such drilling operations, the reatals required thereby shall, notwithstanding any other provision of this agreement, be deemed to accrue and become payable during the term thereof as extended by~this agreement and thereafter until the required drilling operations are co~.enced upon t]~e land covered thereby or some portion of such land is ~ncluded within a participating area. 16. CONSERVATION. Operations hereunder and prod~ction of unitized substances shall be conducted to provide for the most economical and efficient recovery of said substances without waste, as defined by or pursuant to State law~or regulation. 17. DIe, IMAGE. The Unit Operator shall take appropriate and ~dequate measures to prevent drJinage of unitized substances from unitized la:~d . by wells on land not subject to this agreement, or, with prior consent of the Director, pursuant to applic:ab].e regulations, pay a fair and reasonable compensatory roya].ty as may be det~:~mined and al~proved by thc. Director for StatL~ ].and leases. "' ...... 18. LEASES AN1) CONTI~AC'fS C()NI. OkrH'.D A?:I) I EMi)ED. The terms, condition~;, and provisions; o.f all. ]ear;uts, sul~.l(,ascs, and oth{,r relating to exploration, drilli.n~,., d~-.veio~",~.nt,l.., or operati(~n [or oi] or $~as on lands committed to this a;;re~..ment are here,by ~,xp~-c,~:~;'ly and amended to the extent necessary to make the same conform to the · provisions hereof, but otherwise to remain in full force and effect; and the parties hereto hereby consent that the Director as to State leases shall and, by his approval hereof or by the approval hereof by his duly authorized representative, does hereby establish, alter, change, or revoke the drilling, producing, rental, minimum royalty, and royalty requirements of State leases committed hereto and the regulations in respect thereto and conform said requirements to the provisions of this agreement and, without limiting the generality of the foregoing, all leases, subleases, and contracts are particular].y modified in accordance with the following: (a) The development and operation of lands subject to this agreement under the terms hereof shall be deemed full performance of all obligations for development and operation With respect to each and every part or separately owned tract subject to this agreement, regardless of whether there is any development of any particular part or tract of the unit area, notwithstanding anything to the contrary in any lease, operating agreement, or other contract by and between the parties hereto, or their respective predecessors i~n interest, or any of them. (b) Drilling and producing operations performed hereunder up.on any tract of unitized lands will be accepted and deemed to be performed upon and for the benefit of each and every tract 'of unitized land, and no lease shall be deemed to expire by reason of failure to drill or produce wells situated on the land therein embraced. (c) Suspension of drilling or producing operations on all unitized lands, pursuant to direction or consent of the Commissioner or his duly authorized representative, shall be deemed to constitute such suspension pursuant to such direction or consent as to each and every tract of unitized land. (d) Each lease~ sublease, or contract relating to the cxplot-ation, drilling, development, or operation for oil or gas on ].ands con~.itted to this agreement, which by its terms might expire prior to the term'].nation of this agreement, is here. by e~;tended beyond any such term so prov.~ded o therein so that it shall be continued, in ful]. force and effect for and during the term of this agreement. · · (e) Any lease embracing land of the State of Alaska having only a portion of its lands committed hereto shall be segregated as to the portion committed and the portion not committed, and the provisionm of · such lease shall apply separately to such segregated portions cou~enc~ng as of the effective date hereof; provided, however, notwithstanding any of the provisions of this agreement to the contrary, any lease embracing lands of the State of Alaska hawing only a portion of its hands committed hereto shall continue in full force and effect beyond the term provided therein as to all lands embraced in such lease if oil or gas is discovered and is capable of being produced in paying quantities from some part of the land embraced in such lease at the time of approval of the unit agreement by the State of Alaska, or if at the time of approval of the unit agreement by the~ State the .lessee or the Unit Operator is then engaged in bona fide 'drilling or reworking operations on some part of the lands embraced in such lease, the same as to all l~,nds embraced · therein shall remain in full force and effect so long as such operations are being diligently prosecuted, and if they result in th~ production of oil or 'gas in paying quantities, said lease shall continue in full force · and effect as to all of the lands embraced therein so long there- after as oil or gas in paying quantities is being produced from any portion of said ].ease; provided, how. ever, that any such lease as to the non-unitized portion shall cont'~m~e in force and effect for the term thereof, but for not less than two years from the date of ~;uch segregation and so long thereafter as oil or gas ia; produced in paying quantities. Any State lease t~aving p~od~'~ction ~n paying quantities, as de[ined in this agreement, on said lease prLor to commitment to this agreement, shall not be segregated. The nom-umitized portion shall not participate in the unit area but shall be extended by virtue of the production on the unitized portion and :;o long a.~ it produces in paying quantities. · I~thini5 herein shall, operate to excuse furthc-:r deve. toi',me,~t on the port.ion lling out.,;tde the unit area wh,~-re the cJrcmastances wo~].d require a ~$a~onably prudent ].ea.,;ee to ft,rtl,er developi~:ent. · (f) Where su~".'e portion o~ :t ].en:;~. is .i. uc:luded wit. l~iu t'l~e f:tual parti¢il,nting area a:; provid¢,d :i~ l'aral'r;~ph. 2(e) of follow'" ,, ~,~o :;hall hi,ply as to tl~e al.'.t:it of i'l~e ]ea.qe n:,t .~:o 'iu~'ltaled: 'i'hat II area of lease lands not so included in the final participating area shall be eliminated as provided in Paragraph 2(e) of this agreement and shall terminate after the expiration of 90 days. The entire lease s~all continue in force and effect so long thereafter as product.ion 55 allocated to a portion of said lease and so long as annual.rentals are _ ,! paid on the portion not within the participating area~. The first rental payment is due and payable on the first day after the expiration of the above-mentioned 90 day period with allowance for proration of rentals. Thereafter, such annual rentals are due and payable on the anniversary date of the lease. 19. COVENANTS RUN WITH L.~aND. The covenants herein shall be con- strued to be covenants running with the land with respect to the interest of the parties hereto and their successors in interest until this agree- ment terminates, and any grant, transfer or conveyance of interest in land or leases subject hereto shall be and hereby is conditioned upon the assumption of all privileges and obligations hereunder by the grantee, transferee, or other successor in interest. No assignment or transfer or any working interest, royalty, or other interest subj"ct hereto shall be binding upon Unit Operator until the first day of the calendar month after Unit Operator is furnished with the original, .photostatic, or certified copy of the instrument of transfer. 20. EFFECTIVE DATE AND TEPeeS. This agreement shall become effective upon approval by the Commissioner or his duly authorized representative as of the date of approval by the Commissioner and shall terminate five (5) years from said effective date unless: (a) such date of expiration is extended by the Commissioner, or (b) it is reasonably determined prior to the expiration of the fixed term or any extension thereof that the unitized land is incapable of production of unitized substances in paying quantities in the for- mations tested hereunder and, after notice of intention to terminate: the .agreement on such ground is given by the Unit Operator to all parties in interest at their last kno~.m addresses, the agreement is terminated with the approval of the Commissioner, (c) a valuable discovery of u, nitized ,oubstances has been made or accepted on unitized land during ~aid initial term or any extension thereof, in which event the agreement shall remain in effect for ~uch term and so long as unitized substances can be prodt~ced 'in qua.~titJ, es sufficient to pay for the cost of producing same from wells on unitized land within any participating area established hereunder and, should production cease, so long thereafter as diliBent operations are in progress for the restoration of production or discovery of new pro- duction and so long thereafter as the unitized substances so discovered can be p~oduced as aforesaid, or (d) it is terminated as heretofore provided in this agreement. This a~reement ma~ be terminated at any time by not less than 75 ?er centum~ on an acreage basis, of the owners of working interests _signatory hereto, with the approval of the Commissioner; notice o~ any such approval to be given by the Unit Opera~or to ali. parties hereto. 21. RATE OF PROSPECTING, DEVELOPMENT A~MD PRODUCTION. The Director is hereby vested with authority to al~er or modify from time to time in his discretion the quantity and rate of production under this agreement wher~ such quantity and rate is not filled pursuant to State law-or does · not conform to any state-wide voluntary conservation or allocation program which is established, recognized, and generally adhered to by the majority of operators in such State, such authority being hereby limited to alteration or modification in the public intere,qt, the purpose there- of and the public interest to be served thereby to be rotated in the order of alteration or modification. Without regard to the foregoing, the Director is also hereby vested with authority to alter or modify from time to time at his discre~.ion the rate of prospecting and deve.lop- mant and the quantity and rate of production under this agreement when such alteration or modification is in the interest of attaining the conservation objectives stated in this agreement and is not in violation of any applicable State .law. Powers in this sect. ion ve.~ted in the l)i.rector :;hal. 1 only be cised after notice to their Operator and oppo:rtunity for hearing to be held not less than fifteen (15) days from notice. 19 · 22. APPEARANCES. Unit Operator shall, after notice to other · parties affected, have the right to appear for and on behalf of any and all interests affected hereby, before the Commissioner of the Department of Natural Resources of the State of Alaska and to appeal from orders issued under the regulations of said Department, or to apply for relief from any of said regulations or in any proceedings relative to oper- ations before the Co~ssioner or any other le5ally constituted au- thority; provided, however, that any other interested party shall also . have the right at his own expense to be heard in any such proceeding. 23. NOTICES. Ail notices, demands, or statements required here- under to be given or rendered to the parties hereto shall be deemed fully given if given in ~iting and personally delivered to the party or sent by postpaid registered mail or certified mail, addressed to such . party or parties at their respective addresses set forth in connection with the signatures hereto or the ratification or consent hereof or to such other address as any such party may have furnished in writing to the party sending the notice, demand, or statement. 24. NO WAIVER OF CERTAIN RIGHTS. Nothing in this agreement contained shall 5e construed as a waiver by any party l~reto of the right to assert any legal or constitutional right or defense as to the validity or invalidity of any law of the State or of the United-States, or regulations issued thereunder in any way affecting such party, or ns a waiver by any Such party of any right beyond his or its authority to waive. 25. UNAVOID~LE DELAY. Al]. obligations under .this agreement requiring the Unit Operator to commence or continue drilling or to operate on or produce unitized substances from any of the lands covered by this agreement shall be suspended while, but only so long as, the Unit Operator, despite the exercise of due care and diligence, is pre- vented from complying with such obligations, in whole or in part, by strikes, acts of God, Federal, State, or 14unicipnl ].aw or agencies, unavoidable accidents, uncontrollab].e delays in transportation, in- ability to obtain necessary materials in open market, or other matters beyond the reasonable control of thc Unit Operator ~meth~.r sim.L].ar to matters herein enumerated or not. 26. NONDISCRIMINATION. In connection with the performance of work · under this agreement, the operator agrees to comply with all of the provisions of Section 202 (1) to (7) inclusive, of Executive Order 11246 (30 F.R. 12319), which .4re hereby incorporated by reference into this agreement · 27. LOSS OF TITLE. In the event title to any tract of unitized land shall fail and the true owner cannot be induced to join in this unit agreement, such tract shall be automatically regarded as not committed hereto, and there shall be such readjustment of future costs and benefits as may be required on account of the loss of such title. In the event of a~ dispute as to title as to any royalty, working interest, or other interests subject thereto, pa)anent or delivery on account thereof may be withheld without liability fOr interest until the dispute is finally settled; provided that, as to State land or 'leases, no pay- ments of funds due the State of Alaska should be withheld, but such funds of the State of Alaska shall be deposited as directed by the Commissioner, to be held as unearned money pending final settlement of the title dispute, and' then applied as earned or returned in accordance with such final settlement. Unit Operator as such is relieved from any responsibility for any defect or failure of any title hereunder. 28. NON-JOINDER.AND SUBSEQUENT JOINDER. If the owner of any substantial interest 'in a tract within the unit area fails or refuses to subscribe or consent to this agreement, the owner of the working interest in that tract may withdraw said tract from this agree, merit by written notice to the Director and the Unit Operator prior to the approval of this agreement by the Conumissioner. Any oil or gas interests in lands within the unit area not committed hereto prior to submission of this agreement for final approval may thereafter be committed hereto by the o~er or owners thereof subscribin;j or consenting to this agreement and, if the interest J.s a working interest, by the owner of such ~nterest also subscribing to the udit operating agreement. After op~.rations are co~nenced heretmder, tl~e r'ight of subsequent joinder, as provided fin this section, by a working interest owner is subject to .~;u¢:h require- · ment~ or approval, s, if any, pertaining to ouch joinde~', a.~; may be provided for in the unit op~:rntinl: agrc~:ment. AFt.~:~' f'inal al, prow~l · 21 hereof, joinder by a non-working interest owner must be consente~ to in writing by the working interest owner committed hereto and responsible for the payment of any benefits that may accrue hereunder in behalf of such non-working interest. Joinder by any owner of a non-working interest, at any time, must be accompanied by appropriate joinder by the owner of the corresponding working interest in order for the interest to be regarded as committed hereto. Joinder to the unit agreement by a working interest owner, at any time, must be accompanied by appropriate joinder t° the unit operating agreement, if more than one committed working interest owner is involved, in order for the interest to be regarded as committed to this unit agreement. Except as may otherwise herein be provided, subsequent joinders to this agreement shall be effective as of the first day of the month following the filing with the Director of duly executed counterparts of all or any papers necessary to establimh effective commitment of any tract to this agreement unless objection to such joinder is duly made within sixty (60) days by the Director. 29. COUNTERPARTS. This agreement may be executed in any number of counterparts, no one of which needs to be executed by all parties, oC~ may be ratified or consented to by separate instrument in writing sp,~-cif- ically referring hereto, and shall be binding upon all those parties who have executed such a counterpart, ratification, or consent hereto with the same.force and effect as if all such parties had signed the same document and regardless of whether or not it is executed by all other parties owning or claiming an interest in the lands within the above- described unit area. 30. ALASKA P. ESIDENT }lIRE. Ail State of Alaska leases committed to said agreement are hereby altered to require that the ].cssee and unit ~operator shall comply with all valid and applicable laws and regular'ions · 22 with regard to hire of Alaska residents. Qualified Alaska residents shall be hired as required in AS 38.40; lessee shall not discriminate against Alaska residents, as prohibited by AS 38.40~and other applicable laws and regulations of the State of Alaska. UNION OIL COMI/~NY OF CALIFORNIA QUALIFICATION FILE ADL-QF-#6 Its Attorney-in-¥~ c / P. O. Box 6247 / Anchorage, Alaska 99502 UNIT OPERATOR UNITED STATES OF ~-mRICA ) ) ss. STATE OF ALASKA ) On this~g~.day of .~~~.. ', 1977, before me, the undersigned, a Notary Public in and for the State of Alaska, personally appeared Rober.t T. . Anderson, known to me to be the person whose name is subscribed to the .-'"'~,.w~.f]~i~',.'..i~strument, as the Attorney-in-Fact of ~'[ON OII, CO~.~ANY OF '"..':.':."~'~-IPO~'~';and acknowledged to me that he subscribed ~he ,name of UNION .':' /' ,: O~'..eg~X" "OF CALIFORNIA thereto as principal and hi3 o,~n name as :" i ~ovney4in~Fact. . ~ '..-,~(I~SS..~y hand and official seal · ,,,,.~,, ,- · ..... '" Vickie S}~ing tm~ Notary Pub].ic in and for the State of Alaska My commission expires April 16, 1979. II . CHEVRON HALBOUTY UNION 29 ADL- 63047 ,,! ® l CHEVRON- HALBOUTY - UN ION ADL- 63049 31 Q 32 L4_N., R___.9_W; UNION CHEVRON HALBOUTY UNION 28 ADL-63048 CHEVRON PRETTr CK. TD IZ,OZ5 .~ 9/28/69 S.M. UNION CHEVRON HALBOUTY UNION 27 ADL- 58810 UNION UNION UNION ADL- 58816 ADL-58817 ADL-58818 . STATE OIL & OAS LEASES ADL- 58809 I I~_0.00 Ac. 9 I0 UNION ADL-58821 21 ADL-58810 I 179.33 Ac. ADL-58812 800.00 Ac. ADL- 58813 I 080.00 Ac. ADL-58 814 I 2 70.00 Ac. ADL-58816 IZ 80.00 Ac. ADL-58817 I280. O0 Ac. ADL-58818 I280.00 Ac. ADL- 58821 640.00 Ac. ADL- 63047 640. O0 Ac. ADL-63048 ' 1280.00Ac. ADL- 63049 1269. O0 Ac. b CHEVRON HALBOUTY UNION 26 ADL-58809 35 II C. BURGLIN etol ADL-5881Z m U N IT AREA ,TRACT NUMBER 4000" 8000' t 2000 _ EXHIBIT "A" TOTAL STATE ACREAGE~'' FEE LEASE .USS- 2156 TOTAL UNIT ACREAGE .. 13,1'i'8.3;5 Ac. 20.67 Ac. 13,13 9.00Ac. PRETTY CREEK · UNIT Scale I"= 4000' MAY 3 0 1[ Revised SERIAL I,FASE DA~"E & ~3~25R FD~I?ATION ADL-58809 12/1/72 HBU SECOND ~REVISION TO EDG{IBIT "B" OF THqE. PRETI~f CP3I~K L.~IT AGRFF~ENT DATED J~'~ I, 1977 $ 0 1979 As used below, ,"Chevron" means CheVron U.S.A. Inc., "Hal" means Halbouty Alaska Oil Company and "Union" or "Union Oil Co." means Union Oil Company of California GROSS ACRES LESS~R OF RECORD BASIC ROY~J~TY T14N, R9W~ S.M. Section 26: All Section 35: N1/2,N1/2 si/2 1,120.00 Union 0il Co. 12 1/2% Chevron State of P~ Alaska ./ OVERRIDING ROYALT~ None OWNERS & PERC52~AC~ Union- 45% Chevron- 44% Hal- ll% ADD-58810 12/1/72 F~U T14N, R9W, S.M. Section 27: All Section 34: All, excl. USS 2156. & S!/2 SE1/4 1,179.33 Union Oil Co. 12 1/2% Chevron State of Hal Alaska None Union- 45% Chevron- 44% Hal- 11% ADL-58812 12/1/72 HBU ADL-58813 12/1/72 Tt3N, R,9W~ $,:M' Section. 2: ' S1/2 S1/2 Section 11: All 800, O0 T13N, R9W, S.M. 1,080.00 Section 3:"~.q/2,S1/2 SE1/4 NW~4 SE1/4 Section 4: All E. WTM. Crafton 12 1/2% C. C. ~ ~Burglin State of C. F. Stack Alaska L. Call Union 0il Co. 12 1/2% State of Alaska None None E. W. Crafton 40% C. C. Burglin 10% C. F. Stack 40% L. Call 10% Union - 100.00%' ADL-58814 12/1/72 HBU ADL-58816 12/1/72 h~U T13N, R.9W, S.M. Section 5: All Section 6: All T1N~, R9W, S.M. Section 8: All Sectional7: All 1,270.00 1,280.00 Union Oil Co. Union Oil Co. 12 1/2% State of Alaska 12 l/2% State of Alaska None None Union - 100.00% Union- 100.00% Page 2 TRACT NU~ER SE~*2IAL T FASE DATE & EXP~~OIq GROSS AC?ES IESSqEE OF RECORD BASIC ROYALTY OVERRIDING ROYALTY WORKING II.YIE~ST Ok~ & PERC~AGE ~DL-58817 12/1/72 HBU T13N, R9W, W.M. Section 9: All Section 16: All 1,280.00 & Union Oil Co. 12 1/2% State of Alaska None Union- 100/00% ADL-58818 ADL-58821 .12/1/72 hBU 12/1/72 k~U T13N, R9W, S.M. Section 10' All Section 15: All T13N, R9W, S.M. Section 21: All 1,280.00 640.00 Union Oil Co. Union 0il Co. 12 1/2% State of Alaska 12 1/2% State of Alaska None None Union - 100.00% t%%lon - 100.00% l0 ADL-63047 2/1/74 h~U T14N~ R9W~ S.M. Section 29: All 640.00 Union Oil Co. Chevron Hal 16 2/3~; State of Alaska None Union- 45% Chevron- 44% F~i- 11% ll ADL-63048 2/lY74 HBP Ti~N~ .R9W, S.M. Section 28: All Section 33: All 1,280.00 Union 0il Co. Chevron Hal 16 2/3%' State of None Union- 45% Chevron- 44% . Hal- 11% 12 ADL-63049 2/lY74 HBU 7/21/77 7/20/87 ~4N, Rgw, S.M. Section 31: All Section 32: All T14N, R9W, S.M. Section 34: USS 2156 1,269.00 20.67 Union~ 011 Co'. Chevron Hal Union Oil Co. Chevron Hal 16 2/3% State of Alaska F. Grant: 1/8th None None Union- 45% Chevron- 44% Hal- 11% Union- 45% Chevron- 44% F~- 11% S~Y: State Land: Private Land: Total acreage in unit: 13,118..33 acres 20.67 acres 13,139.00 acres (100% leased and committed to unit) RACT SERIAL UMBER NUblBER LEASE D EXPIRATION DESCRII~ON ADL-58817 12/1/72 HBU ADL-58818 12/1/72 · HBU ADL-58821 ~. 07. ADL,63047 12/1/72 HBU 2/1/74 HBU FIRST REVISION TO EXHIBIT "B" OF THE PRETTY CREEK UNIT AGREEblENT DATED JUNE 1, 1977 GROSS ACRES February 1, lg79 Page 2 LESSEE OF RECORD T13N, R9W,__W.M. ~ '1,280.00 Union Oil Co. Section 16: All ~ ' ' T13N, R9W4_S.M~,~.O0 Union Oil Co T13N, R9W, S.M. 640,00 Union, ' Co T14N, R9W, S.M. Section 29: Ail 640.00 · STATE OF ALASKA BASIC ROYALTY OVERRIDING ROYALTY WORKING INTEREST OWNERS & PERCENTAGE I ADL-63048 2/1/74 T14N, R9W, S.M. 1,280.00 HBU Section 28: All Section 33: All '2 ADL-63049 2/1/74 TI4N, R9W, S.M. 1,269.00 HBU Section 3l: Ali. Section 32: All 3 Fee Land 7/21/77 TI4N, R9W, S.H. 20.67 7/20/87 Section 34: USS 2156 TOTAl, I,EASt".D ACRES IN UNIT TOTAL FEE ACRES IN UNIT 13,118.33 20.67 12 1/2% None Union - 100.00% 12 1/2% None Union - 100.00% 12 I/2% None Union- 100.00% oo : Union Oil Co. ¥. Grant l'lone ' Union - 1013 007 TOTAL.ACRF. S IN UN1. T 13,139.00 .. SERIAL LEASE DATE & NUMBER EXPIRATION DE~RIPTION TRACT NUHBER ADL-58809 12/1/72 HBU ADL-58810 12/1/71 HBU 3 ADL-58812 12/1/72 · HBU ADL-58813 12/1/72 HBU ADL-58814 12/1/72 tIBU ADL-58816 12/1/72 HBU FIRST REVISION TO EXHIBIT "B" OF THE PRETTY CREEK UNIT AGREEMENT DATED 'JUNE/l, 1977 ~5~ February 1, 1979 GROSS ACRES LESSEE OF RECORD T14N, R~,. S..~, 1,120.00 Union Oil Co. Section 35: N1/2, ~,~ s1/2 '~ . T14N, R9W, S.M. ~k~79.33 Union Oil Co. Section 34: All, excl. ~,,~ USS 2156 & '-~ s~/2 s~/~ T13N, R9W, S.M. Section 2: S1/2 S1/2 Section 11: Ail 800.0'0 T !3N, Rg.w,_ S .M_._ Section 3: W1/2, Sl/2 SE1/4, NWl/4 SE1/4 Section 4: All TI3N, R9W, S.H. Section 5: All Section 6: All T13N, R9W, S.H. Section 8: All Section 17: All 1.,080.00 1,270.00 1,280.00 STATE OF ALASKA BASIC ROYALTY OVERRIDING ROYALTY WORKING INTEREST OWNERS & PERCENTAGE 12 1/2% None Union -.lO0.00Z '~ 12 1/2% None Union - 100.00% E. W. C~a~.~,0n 12 1/2% None E.W. Crafton 40!! C. C. Burgli~,~ C.C. Burglin 10% C. F. Stack~ C.F. Stac.k, 40% L' Cml! ~"~x L. Call 10Z , Union Oil Co. '~ None Union - 100.00% Union O~1 Co., 12 1/2% ~ . ' Union - IO0.OOZ Union Oil ~o. 12 1/2% None ~,~ Union - 100.OO% -~. AMENDMENT TO U~T AGREEMENT FOR THE DEVELOPMENT AND OPERATION OF THE PRETTY CREEK UNIT STATE OF ALASKA FOURTH .1UDICIAL DISTRICT THIS AMENDATORY AGREEMENT, effective as of the date approved by the Commissioner o! the Department o! Natural Resources, State of Alaska, by and among the undersigned~ herein referred to as the **parties 'hereto," WITNESSETHs WHEREAS, the parties'hereto are the owners of working, royalty or other oil and gas interests in the unit area subject to the Pretty Creek Unit Agreement and this amendatory agreementl and WHEREAS~ the Commissioner of the Department of Natural Resources, State of Alaska, is authorized by Alaska Statute 38.05.180 and Alaska Administrative Code Regulations 11 AAC 83.385 to consent to or' approve this amendment or modification the approved Pretty Creek 'Unit Agreement on behalf of the 'State of Alaska, insofar as it covers- and Includes lands'and mineral interests of the State o! Alaska; and WHEREAS~ it is the purpose of the parties hereto to conserve natural resources, prevent waste~ m~d secure other,benefits obtainable through 'development and operation of the area subject to the Pretty Creek Unit Agreement and this amendatory agreement to the Pretty Creek Unit Agreement under the terms, conditions and limitations set forth in such Unit Agreement as well as herein~ NOW, THEREFORE, in consideration of the premises and the promises herein contained~ the parties hereto commit to this amendatory agreement their respective interests in the unit area subject t° and defined in the Pretty Creek Unit Agreement, and agree ~everally among themselves as follow~ The first sentence of Paragraph 11 of the Pretty Creek Unit Agreement shall be amended to read as follows~ "Upon completion of a weU capable of producing unitized substances in paying quantities, the Unit Operator shall within the month of such completion~ if practicable, or as soon thereafter as required by the Director, submit for approval by the Director, a schedule based on subdivisions of the public land survey~ or aliquot parts thereof of all unitized lands then regarded as reasonably proved to be productive of unitized substances in paying quantitiesl all lands in said schedule on approval of the Director are to constitute a participating area, effective upon approval by the Director2" Otherwise said Pretty Creek Unit Agreeme~ shall remain as written. RECEIVED JUNO 5 1986 · This agreement ma), be executed in any number o! counterparts, no one o! which needs to be executed by all parties, or may be ratified or consented to by. separate instrument in writing specifically referring hereto and shall be binding upon all those parties who have executed such a counterpart, ratification, or consent hereto with the same force and effect as if all such parties had signed the same document and regardless of whether or not it is executed by all other parties owning or claiming an interest in the lands within the above described unit area. . Thi~"~-~dh~eni--shall' be bihdi~g U'p-on"the'~Jndersi§ned, their successors or assigns. EXECUTED AS OF THIS 1st day of December, 1'983. Address: P. O. Box 8000 Concord, CA 94~20 Address: P. O. Box 6247 Anchorage, AK 99502 Address: §100 Westheimer Road HoUston, TX 77056 CHEVRON U.S.A. INC~ As~s~ st ~t Secretary UNION OIL COMPA.NY OF C~J~IFO~NIA -~-------~--~ert/ i:/And~f'soh, . / · At t orney- in-Fact / HALBOUTY ALASKA OIL COMPANY Address: . . P. O. Box 1747 · Bellevue, WA 89009 Lorna Call Address: P..O. Box 131 Fairbanks, AK 99707 E. W. Crafton, Sr. Address: P. O. Box 1.31 Fairbanks, AK ~)9707 Address: P. O. Box 131 Fairbanks, AK 99707 Charles F. Stack Clifford Burglin 29i7'3ones ~._~' 1 c.. ~'"~x.i'~~ '~ ,,. - ~ ~ ~ ) . j'/ '~ / / .. '_..¢,. / '.,~, , . ' ' l~ta~~i~ oE Eo~o~ 1 Francis H. Grant ' ~y co~lo~ ~elEs JAN 6 BOND~ .THRU ~NE~L INS e UN~RW[I~ Fide~s ~. Grant I This agreement may be executed in any number of counterparts, ' no one of which needs to be executed by ail parties, or may be ratified or consented to by separate instrument in writing specifically referring hereto and shall be binding upon ail those parties who have executed such a counterpart, ratification, or consent hereto with the same force and effect as if ail such parties had signed the same document and regardless of whether or not it is executed by all other parties owning or claiming an interest in the lands within the above described unit area. This amendment shall be binding upon the undersigned, their successors or assigns. EXECUTED AS OF THIS 1st day of December., 1983. Address: P. O. Box 8000 Concord, CA 9~20 Secretary Addres~ P. O. Box 62~7 Anchorage, AK 99~02 'Address: --- 5100 W esthelmer Road Houston, TX 7701~6. UNION OIL COMPANY OF CALIFORNIA By_ Address: P. O. Box 17~7 · Bellevue, WA 89009 Lorna CaU Address: P. O. Box 131 Fairbanks, AK 99707 E. W. Crafton, Sr. Address: P. O. Box 131 Fairbanks, AK 99707 Charles F. Stack Address: P. O. Box 131 Fairbanks, AK 99707 :Clifford Burglin Address: 2917 3ones Anchorage, AK 99~02 Addres~ 2917 3ones Anchorage, AK 99:~02 Francis H. Grant ; Fidelis F. Grant" This agreement may be executed in any number of counterparts, no one o! which needs to be executed by all parties, or may be ratified or consented to by separate instrument In writing specifically referring hereto and shall be binding upon all those parties who have executed such a counterpart, ratification, or COnsent hereto with the same force and effect as if all such parties had Signed the same document and regardless of Whether or not it is executed by all other parties owning or claiming an interest in the lands within the above described unit area. This amendment shall be binding upon the undersigned, their successors or EXECUTED AS OF THIS 1st day of December' 1983. . Address:' P. O. Box 8000 Concord, CA 9~520 CHEVRON U.S.A. INC. Secretar~ Address: P. O. Box 62~7 Anchorage, AK 99502 UNION OIL COMPANY OF CALIFORNIA By Address: 5100 Westheimer Road Houston, TX 77056 HALBOUTY ALASKA OIL COMPANY By Address~ P. O. Box 17~7 · Bellevue, WA 89009 Lorna Call Addres~ P. O. Box 131 Fairbanks, AK 99707 E. W. Crafton, Sr. Addressz P. O. Box 131 Fairbanks, AK 99707 Charles F. Stack Address~ P. O. Box 131 Fairbanks, AK 99707 Clifford Burglin Addres~ 2917 3ones Anchorage, AK 9'9502 Francis H. Grant 2917 3ones Anchorage, AK Fidells F. Grant This agreement may be executed in any number of counterparts, no one of . which needs to be executed by all parties, or may be ratified or consented to by separate instrument in writing speclf, lcally referring hereto and shall' be binding upon all those parties · who have executed such a counterpart, ratification, or consent hereto with the same force and effect as l! all such parties had signed the same document and regardless of whether or not it is executed by all other parties owning or claiming an interest in' the lands within the above described unit area. This amendment shall be binding upon the undersigned, their successors or · assigns.' EXECUTED AS OF THIS 1st day of December, I983- Address= P. O. Box 8000 Concord, CA 9~520 Address= P. O, Box 62a7 Anchorage, AK 99502 Address= 5100 Westheimer Road Houston, TX 77056 CHEVRON U.S.A. INC. UNION OIL COMPANY OF CALIFORNIA By. HALBOUTY ALASKA OIL COMPANY By Address~ P. O. Box 17~7 · Bellevue, WA 89009 Lorna Call Addres~ P. O. Box 131 Fairbanks, AK 99707 Address~ P. O. Box 131 Fairbanks, AK 99707 Addres~ P. O. Box 131 Fairbanks, AK 99707 ~F. Stack Addres~ ' 2917 3ones Anchorage, AK 99502 ~ e I I l Franc:s H. Gran?, 2917 3ones Anchorage, AK 99502 JUNo "~hor~ge C°m.~i~ion Grant This agreement may be executed in any number o_i counterparts, no one o! which needs to be executed by all parties, or may be ratified or consented to by separate instrument in writing specifically referring hereto and shall be binding upon ail those parties who have executed such a counterpart, ratification, or consent hereto with the same force and effect as if all such parties had signed the same document and regardless of whether or not it is executed by all other parties owning or claiming an ~ interest in the lands within the above described unit area. This amendment shall be binding upon the undersigned, their succe~ors or EXECUTED AS OF THIS 1st day of December, 1983. Address: P. O. Box 8000 Concord, CA 9~520 CHEVRON U.S'A. I~C. Assistant Secretary Address: P. O. Box 62~7 Anchorage, AK 99502 UNION OIL COMPANY OF CALIFORNIA By. Address~ 5100 Westheimer Road Houston, TX 77056 Address~ P. O. Box 17~7 . Bellevue, WA g9009 HALBOUTY ALASKA OIL COMPANY By Lorna Call Addres~ P. O. Box 131 Fairbanks, AK 99707 Addres~ P. O. Box 131 Fairbanks, AK 99707 E.W. Cra~ton, Sr. C h~U~leS-~F. Stack Address~ P. O. Box 131 Fairbanks, AK 99707 clifford Burglin -[ Addres~ 29i7 :]ones Anchorage, AK 99502 Address~ 2917 3ones Anchorage, AK 99502 RECEIVED JUNO 5 1986 Alaska Oil & Gas Cons. Commission Anchorage Franc/s H. Grant Fidelis F. Grant'