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Home My WebLink AboutCO 478 Conservation Order Cover Page XHVZE This page is required for administrative purposes in managing the scanning process. It marks the extent of scanning and identifies certain actions that have been taken. Please insure that it retains it's current locatiOn in this file. ~/.~_ Conservation Order Category Identifier Organizing ido.~) [] Orayscale items: [] Poor Quality Originals: [] Other: DIGITAL DATA [] Diskettes, No. [] Other, No/Type NOTES: BY; ~ MARIA Scann~g Prepara#on OVERSIZED (Scannable with large pl~,anner) B..---'"Other items OVERSIZED (Not suitable for plotter/scanner, may work with 'log' scanner) [] LOgs of various kinds [] Other TOTAL. PAGES Production Scanning Stage I PAGE COUNT FROM SCANNED DOCUMENT: ! '~ '~ PAGE COUNT MATCHES NUMBER IN SCANNING PRE'PAI~ATION: ~ YES NO Stage 2 IF NO IN STAGE 1, PAGE(S) DISCREPANCIES WERE FOUND: ~ YES ~ NO General Notes or Comments about this Document: 5/21/03 ConsewOrdCvrPg.wpd INDEX CONSERVATION ORDER NO. Nicolai Creek Unit Wells No. lB, No. 2 and No. 8 478 1) 2) 3) 4) 5) 6) July 12, 2002 July 12, 2002 July 17, 2002 August 28, 2002 September 30, 2002 Aurora's Application for Well Spacing Exception for Nicolai Creek lB, 2 and 8 Nicolai Creek Unit Agreement Notice of hearing, Affidavit of publication for the Anchorage Daily News and Peninsula Clarion BPXA's Pre-filed Testimony for Pool Rules Hearing and bulk mailing list Various letters and e-mails from The Trust Land Office And Fairweather Nicolai Creek crOss Section and NCU sand correlation document Letter from Aurora Well Name Change, Nicolai Creek 8 to Nicolai Creek 9 Conservation Order 478 CHECIC~IST- SPACING EXCEPTION APPLICATION OPERATOR FIELD/POOL WELL NAME PROPERTY ID/LEASE NO VERTICAL EXPLORATORY GAS DEVIATED DELINEATION OIL DEVELOPMENT SURFACE LOCATION ANTICIPATED PRODUCTIVE, INTERVAL(S) (Top&Bottom) BOTTOM HOLE Check applicable reason(s) for spacing exception: (1) to drill a well for oil within 500 feet of a property line (2) to drill a well for gas within 1500 feet of a property line (3) to drill and complete more than one oil well in a governmental quarter section; or to drill and complete an oil well closer than 1000' to any well drilling to or capable of producing from the same pool (4) to drill and complete more than one gas well in a governmental section; or or to drill and complete a gas well closer than 3000' to any well drilling to or capable of producing from the same pool Does the application contain: A brief explanation, for why the operator has chosen to drill the specified location. A plat drawn to a scale of one inch equaling 2,640 feet or larger, showing the location of the well or portion of the well for which the exception is sought, all other completed and drilling wells on the property, and all adjoining properties and wells within 1,000 feet of a well or porti6~ o.f the well requiring the spacing exception that is drilling for oil or'within 3,000 feet of a well or portion of the well requiting the spacing exception that is drilling for gas. The names of all owners, landowners, and operators of all properties within 1,000 feet of a well or portion of the well requiring the spacing exception that is drilling for oil or within 3,000 feet of a well or portion of the well requiring the spacing exception that is drilling for gas. A copy of the notice sent by certified mail to the owners, landowners and operators described above, the date of mailing, and the addresses to which the notice was sent. An affidavit by a person acquainted with the facts verifying that all facts are true and that the plat correctly portrays pertinent and required data. If the operator requests a variance from the notice requirements of 20AAC25.055(d), sufficient information to demonstrate that it is not feasible to comply with the notice requirements because of the complexity of ownership within the notice area. STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION 333 West Seventh Avenue, Suite 100 Anchorage Alaska 99501 Re: THE APPLICATION OF Aurora Gas, LLC ) for an order granting an exception to the ) spacing requirements of 20 AAC 25.055(a)(2) ) and (a)(4) to provide for the drilling and testing) of the Nicolai Creek Unit Wells No. lB, No. 2 ) and No. 8 in an undefined gas pool. ) ) Conservation Order No. 478 Nicolai Creek Unit Wells No. lB, No. 2 and No. 8 Drilling and Testing September 5, 2002 IT APPEARING THAT: 1) Aurora Gas, LLC ("Aurora") by letter dated July 12, 2002 has requested an order from the Alaska Oil and Gas Conservation Commission ("Commission") allowing a spacing exception in accordance with 20 AAC 25.055 to drill and test the Nicolai Creek Unit No. lB and No. 8 wells and recomplete and test the No. 2 well within 3000 feet of each other and within 1500 feet of a property line. 2) The Commission published notice of opportunity for public hearing in the Anchorage Daily News on July 17, 2002, and the Peninsula Clarion on July 19, 2002, pursuant to 20 AAC 25.540. 3) On August 5, 2002 the Alaska Mental Health Trust Land Office requested that the tentatively scheduled hearing be held. 4) On August 19, 2002 the Alaska Mental Health Trust Land Office withdrew the request for the hearing. Subsequently, the Commission decided to issue an order without a public hearing. 5) On August 26 and 28, 2002 Aurora provided a corrected exhibit and accompanying text to the July 12, 2002 application for spacing exception. FINDINGS: 1) The surface location of the Nicolai Creek Unit Well No. lB well is 2018' from the south line (FSL) and 195' from the west line (FWL), Section 29, Tl lN, R12W, Seward Meridian (SM). The top of the anticipated productive interval is 1637' FSL and 97' FWL, Section 29, T1 IN, R12W, SM. The projected bottom hole location for this well is 1637' FSL and 97' FWL, Section 29, T1 IN, R12W, SM 2) The surface location of the Nicolai Creek Unit Well No. 2 is 2018' FSL and 205' FWL, Section 29, T11N, R12W, SM. The top of the anticipated productive interval 3) is 1176' FSL and 696' FWL, Section 29, T1 iN, R12W, SM. The projected bottom hole location for this well is 877' FSL and 870' FWL, Section 29, T1 IN, R12W SM The surface location of the Nicolai Creek Unit Well No. 8 well is 2030' FSL and 245' FWL, Section 29, T11N, and R12W SM. The top of the anticipated productive interval is 2030' FSL and 245 FWL, Section 29, T11N, R12W SM. The bottom hole location is 203' FSL and 245' FWL, Section 29, T11N, R12W, SM. 4) The anticipated productive interval of Nicolai Creek Unit Wells lB, 2 and 8 are within 1500 feet of a property line between State of Alaska and Bureau of Land Management leases. 5) Currently subsurface control in the Nicolai Creek Unit is inadequate to constrain with certainty the productive limits of the reservoir. However, Aurora's interpretation of the present well and seismic control suggests that the reservoirs and structure are complex. 6) Gas prOduction from the Nicolai Creek Unit has come from an undefined gas pool in the Tyonek Formation. The individual sands are named sequentially by depth prefixed by the letter T. 7) The Nicolai Creek Unit Well No. lB is proposed to be perforated in the T 2350 ~ (- 2557' sstvd), T3330 ~ (-3074'), T3450 ~ (-3162'), and T3650 ~ (-3347') sands. 8) The Nicolai Creek Unit Well No. 2 is proposed to be perforated in the T1900 ~ (- 2070'), T2000 @ (-2242'), and T2200 @ (-2419') sands. 9) Nicolai Creek Unit Well No. 8 is proposed to be perforated in three Beluga Formation sands that have not been previously developed and overly the undefined Tyonek Formation gas pool. 10) An exception to the well spacing provisions of 20 AAC 25.055 (a)(2) and 20 AAC 25.055 (a)(4) is required for the drilling and testing of wells in a common pool within 3000 feet of each other and within 1500 feet of a property line where ownership changes. 11) Aurora sent notice of the application for spacing exception by certified mail to all offset owners, landowners, and operators of all properties within 3000 feet of the proposed productive intervals in Nicolai Creek Unit Wells No. lB, No. 2 and No. 8. CONCLUSIONS: 1) An exception to 20 AAC 25.055 (a)(2) and 20 AAC 25.055 (a)(4) is necessary to allow drilling and testing of the Nicolai Creek Unit Wells No. lB, No. 2 and No. 8. Conservation Order No. 478 September 5, 2002 Page 2 of 3 2) Granting a spacing exception to allow drilling and testing of the Nicolai Creek Unit Wells No. lB and No. 8 and to recomplete and test the No. 2 will not result in waste or jeopardize the correlative rights of adjoining or nearby owners. 3) Additional control, including additional seismic data and information obtained through the drilling and production of the subject wells may improve the definition of the limits of the reservoirs. 4) Before regular production is permitted from the Nicolai Creek Unit Wells No. lB, No. 2 and No. 8, the Commission must take such action as will offset any advantage which the person securing the exception may have over other producers by reason of the drilling and testing of the wells as an exception, and so that drainage to the tract with respect to which the exception is granted will be prevented or minimized. AS 31.05.100(b). NOW, THEREFORE, IT IS ORDERED: Aurora's application for exception to the well spacing provisions of 20 AAC 25.055 (a)(2) and 20 AAC 25.055 (a)(4) for the purpose of drilling and testing the Nicolai Creek Unit No. lB and No. 8 wells and for the purpose of recompleting and testing the No. 2 well is approved. The Nicolai Creek Unit Wells No. lB, No. 2 and No. 8 may not be placed on regular production until the Commission takes additional action, upon petition, and after notice and hearing, to offset any advantage a landowner or owner may have by reason of the Nicolai Creek Unit Wells No. lB, No. 2 and No. 8 having been drilled to the exception locations. and dated September 5, 2002. Cammy O~hsli Taylor, Ch/dr Alaska Oil and Gas Conservation Commission ld ~. ~:!~,~.~,:,.~ ~;.,~:.~,~,,~ D~iel T. Seamount, Jr., Commissioner ,~}~?~*~a~s ,~. ~,~, ~. Alaska Oil ~d Gas Conse~mion Commission AS 31.05.( ~~~~~ after receipt of written notice oft he e ntw o'f an order, a person affected by it may file with the Commis~~bn fbr rehearing. A request ~br rehearing must be received by 4:30 PM on the 23rd day tbllowing the date of the order, or next working day if a holiday or weekend, to be timely filed. The Commission shall grant or refuse the application in whole or in pa~ within 10 days. The Commission can refuse an application by not acting on it within the 10-day period. An affected person has 30 days t~om the date the Commission re'~ses the application or mails (or otherwise distributes) an order upon rehearing, both being the final order of the Commission, to appeal the decision to Superior CouP. Where a request for rehearing is denied by nonaction of the Commission, the 30-day period for appeal to Superior Coral runs from the date on which the request is deemed denied (i.e., 10th day at~er the application for rehearing was filed). Conservation Order No. 478 September 5, 2002 Page 3 of 3 SD Dept of Env & Natural Resources Oil and Gas Program 2050 West Main, Ste 1 Rapid City, SD 57702 Citgo Petroleum Corporation PO Box 3758 Tulsa, OK 74136 Mary Jones XTO Energy, Inc. Cartography 810 Houston Street, Ste 2000 Ft. Worth, TX 76102-6298 Paul Walker Chevron 1301 McKinney, Rm 1750 Houston, TX 77010 David McCaleb IHS Energy Group GEPS 5333 Westheimer, Ste 100 Houston, TX 77056 Corry Woolington ChevronTexaco Land-Alaska PO Box 36366 Houston, TX 77236 Chevron USA Alaska Division PO Box 1635 Houston, TX 77251 Shawn Sutherland Unocal Revenue Accounting 14141 Southwest Freeway Sugar Land, TX 77478 Doug Schultze XTO Energy Inc. 3009 North Garfield, Ste 175 Midland, TX 79705 John Katz State of Alaska Alaska Governor's Office 444 North Capitol St., NW, Ste 336 Washington, DC 20001 Alfred James 107 North Market Street, Ste 1000 Wichita, KS 67202-1822 Conoco Inc. PO Box 1267 Ponca City, OK 74602-1267 Gregg Nady Shell E&P Company Onshore Exploration & Development PO Box 576 Houston, TX 77001-0576 G. Scott Pfoff Aurora Gas, LLC 10333 Richmond Ave, Ste 710 Houston, TX 77042 William Holton, Jr, Marathon Oil Company Law Department 5555 San Fecipe St. Houston, TX 77056-2799 Texico Exploration & Production PO Box 36366 Houston, TX 77236 Donna Williams World Oil Statistics Editor PO Box 2608 Houston, TX 77252 Kelly Valadez Tesoro Refining and Marketing Co. Supply & Distribution 300 Concord Plaza Drive San Antonio, TX 78216 Robert Gravely 7681 South Kit Carson Drive Littleton, CO 80122 Daniel Donkel 2121 North Bayshore Drive, Ste 1219 Miami, FL 33137 Christine Hansen Interstate Oil & Gas Compact Comm Excutive Director PO Box 53127 Oklahoma City, OK 73152 Mir Yousufuddin US Department of Energy Energy Information Administration 1999 Bryan Street, Ste 1110 Dallas, TX 75201-6801 Michael Nelson Purvin Gertz, Inc. Library 600 Travis, Ste 2150 Houston, TX 77002 G. Havran Gaffney, Cline & Associations Library 1360 Post Oak Blvd., Ste 2500 Houston, TX 77056 T.E. Alford ExxonMobil Exploration Company PO Box 4778 Houston, TX 77210-4778 W. Allen Huckabay Phillips Petroleum Company Exploration Department PO Box 1967 Houston, TX 77251 Chevron Chemical Company Library PO Box 2100 Houston, TX 77252-9987 James White Intrepid Prod. Co./Alaskan Crude 4614 Bohill SanAntonio, TX 78217 George Vaught, Jr. PO Box 13557 Denver, CO 80201-3557 Jerry Hodgden Hodgden Oil Company 408 18th Street Golden, CO 80401-2433 John Levorsen 200 North 3rd Street, #1202 Boise, ID 83702 Kay Munger Munger Oil Information Service, Inc PO Box 45738 Los Angeles, CA 90045-0738 John F. Bergquist Babson and Sheppard PO Box 8279 Long Beach, CA 90808-0279 Samuel Van Vactor Economiclnsightlnc. 3004 SWFimt Ave. Portland, OR 97201 Thor Cutler OW-137 US EPA egion 10 1200 Sixth Ave. Seattle, WA 98101 Michael Parks Marple's Business Newsletter 117 West Mercer St, Ste 200 Seattle, WA 98119-3960 Jim Arlington Forest Oil 310 K Street, Ste 700 Anchorage, AK 99501 Ed Jones Aurora Gas, LLC Vice President 1029 West 3rd Ave., Ste 220 Anchorage, AK 99501 Duane Vaagen Fairweather 715 L Street, Ste 7 Anchorage, AK 99501 Robert Mintz State of Alaska Department of Law 1031 West 4th Ave., Ste 200 Anchorage, AK 99501 Julie Houle State of Alaskan DNR Div of Oil & Gas, Resource Eval. 550 West 7th Ave., Ste 800 Anchorage, AK 99501 Susan Hill State of Alaska, ADE(~ EH 555 Cordova Street Anchorage, AK 99501 Steve E. Mulder Dorsey & Whitney 1031 West 4th Ave., Ste 600 Anchorage, AK 99501 Richard Mount State of Alaska Department of Revenue 500 West 7th Ave., Ste 500 Anchorage, AK 99501 Cammy Taylor 1333 West 11th Ave. Anchorage, AK 99501 Williams VanDyke State of Alaska Department of Natural Resources 550 West 7th Ave., Ste 800 Anchorage, AK 99501 Tim Ryherd State of Alaska Department of Natural Resources 550 West 7th Ave., Ste 800 Anchorage, AK 99501 Trustees for Alaska 1026 West 4th Ave., Ste 201 Anchorage, AK 99501-1980 · Mark Wedman Halliburton 6900 Arctic Blvd. Anchorage, AK 99502 Cid Land Department PO Box 93330 Anchorage, AK 99503 John Harris NI Energy Development Tubular 3301 C Street, Ste 208 Anchorage, AK 99503 Schlumberger Drilling and Measurements 3940 Arctic Blvd., Ste 300 Anchorage, AK 99503 Mark Dalton HDR Alaska 2525 C Street, Ste 305 Anchorage, AK 99503 Mark Hanley Anadarko 3201 C Street, Ste 603 Anchorage, AK 99503 Baker Oil Tools 4730 Business Park Blvd., ~44 Anchorage, AK 99503 Judy Brady Alaska Oil & Gas Associates 121 West Fireweed Lane, Ste 207 Anchorage, AK 99503-2035 Aden Ehm 2420 Foxhall Dr. Anchorage, AK 99504-3342 Greg Noble Bureau of Land Management Energy and Minerals 6881 Abbott Loop Rd Anchorage, AK 99507 Rose Ragsdale Rose Ragsdale & Associates 3320 E. 41st Ave Anchorage, AK 99508 Jeff Walker US Minerals Management Service Regional Supervisor 949 East 36th Ave., Ste 308 Anchorage, AK 99508 Jill Schneider US Geological Survey 4200 University Dr. Anchorage, AK 99508 Paul L. Craig Trading Bay Energy Corp 5432 East Northern Lights, Ste 610 Anchorage, AK 99508 Jim Scherr US Minerals Management Service Resource Evaluation 949 East 36th Ave., Ste 308 Anchorage, AK 99508 Chuck O'Donnell Veco Alaska,Inc. 949 East 36th Ave., Ste 500 Anchorage, AK 99508 Richard Prentki US Minerals Management Service 949 East 36th Ave., 3rd Floor Anchorage, AK 99508 Thomas R. Marshall, Jr. 1569 Birchwood Street Anchorage, AK 99508 Gordon Severson 3201 Westmar Cr. Anchorage, AK 99508-4336 Jim Ruud Phillips Alaska, Inc. Land Department PO Box 100360 Anchorage, AK 99510 Kristen Nelson IHS Energy PO Box 102278 Anchorage, AK 99510-2278 Perry Markley Alyeska Pipeline Service Company Oil Movements Department 1835 So. Bragaw - MS 575 Anchorage, AK 99515 Jordan Jacobsen Alyeska Pipeline Service Company Law Department 1835 So. Bragaw Anchorage, AK 99515 Robert Britch, PE Northern Consulting Group 2454 Telequana Dr. Anchorage, AK 99517 David Cusato 600 West 76th Ave., #508 Anchorage, AK 99518 Jeanne Dickey BP Exploration (Alaska), Inc. Legal Department PO Box 196612 Anchorage, AK 99518 Jack Laasch Natchiq Vice President Government Affairs 6700 Arctic Spur Road Anchorage, AK 99518 Tesoro Alaska Company PO Box 196272 Anchorage, AK 99519 J. Brock Riddle Marathon Oil Company Land Department PO Box 196168 Anchorage, AK 99519-6168 Kevin Tabler Unocal PO Box 196247 Anchorage, AK 99519-6247 Sue Miller BP Exploration (Alaska), Inc. PO Box 196612 Anchorage, AK 99519-6612 BP Exploration (Alaska), Inc. Land Manager PO Box 196612 Anchorage, AK 99519-6612 Dudley Platt D.A. Platt & Associates 9852 Little Diomede Cr. Eagle River, AK 99577 Bob Shavelson Cook Inlet Keeper PO Box 3269 Homer, AK 99603 Shannon Donnelly Phillips Alaska, Inc. HEST-Enviromental PO Box 66 Kenai, AK 99611 KenaiPeninsula Borough Economic Development Distr PO Box 3029 Kenai, AK 99611 James Gibbs PO Box1597 Soldotna, AK 99669 Claire Caldes US Fish & Wildlife Service Kenai Refuge PO Box 2139 Soldotna, AK 99669 Penny Vadla Box 467 Ninilchik, AK 99669 Kenai National Wildlife Refuge Refuge Manager PO Box 2139 Soldotna, AK 99669-2139 John Tanigawa Eve~reenWellService Company PO Box 871845 Wasilla, AK 99687 Richard Wagner PO Box 60868 Fairbanks, AK 99706 Bernie Karl K&K Recycling Inc. PO Box 58055 Fairbanks, AK 99711 Senator Loren Leman State Capitol Rm 113 Juneau, AK 99801-1182 Cliff Burglin PO Box 131 Fairbanks, AK 99707 Williams Thomas Arctic Slope Regional Corporation Land Department PO Box 129 Barrow, AK 99723 Harry Bader State of Alaska Department of Natural Resources 3700 Airport Way Fairbanks, AK 99709 North Slope Borough PO Box 69 Barrow, AK 99723 #6 Aurora Gas, LLC www. aurorapower, com 30-September-2002 Mr. Tom Maunder P.E. Senior Petroleum Engineer 333 W. 7th Ave., Ste. 100 Anchorage, AK 99501 Re: Well name change, Nicolai Creek No. 8 to Nicolai Creek No. 9. Dear Mr. Maunder: Please find attached a new AOGCC Form 10-401 Permit to Drill application. This form is being submitted as a result of our having to move the surface location of the Nicolai Creek No. 8. While driving the conductor for the Nicolai Creek No. 8, refusal was reached at- 57', which we considered to be too shallow. The conductor was pulled ,and the rig moved exactly 7 feet due east. Upon inspection, it'was revealed the drive shoe had collapsed, probably from a boulder. A new drive shoe was installed and the 13 3/8" conductor was driven to refusal at 99 feet. A phone call to your office indicated that because of the change in our surface location, it would be necessary to file a new PTD application and change the name of the well. Because of the minimal change in surface coordinates (7 feet), AurOra Gas wishes to work under the already approved drilling program and permit issued for the Nicolai Creek No. 8, only we will now call the project well, Nicolai Creek No. 9. The new surface coordinates are indicated on the attached Form 10-401 being submitted. Please find attached a plat map indicating the relationship of the NC No. 9 with respect to the originally proposed NC No. 8 and other wells already on the site. Well No. 6 is P&A'd. Please do not hesitate to call the undersigned at (713) 977-5799, or Duane Vaagen at 258-3446 with any questions or concerns. Sincerely; j~. ~ward Jones ~'~ Executive Vice President Aurora Gas,'LLC Attachments: cc: Duane Vaagen (Fairweather E&P Service, Inc.) RE£'EIVED OCT 0 4 2002 AI~ Otl,& Gas ~ns. Gommlssl°n Anchorage 10333 Richmond Avenue, Suite 710 · Houston, Texas 77042 · (713) 977-5799 · Fax (713) 977-1347 1029 West 3rd Avenue, Suite 220 ° A~hoy'~. e,~Ai;~ska~9950~ · (907) 277-1003 · Fax (907) 277-1006 #5 Revised NCU Documentation Subject: Date: From: Organization: To: CC: Revised NCU Documentation Wed, 28 Aug 2002 09:24:47 -0500 "Andy Clifford" <acclifford~aurorapower. com> Aurora Power "Bob Crandall" <Bob_Crandall@admin.state.ak.us>, "Chris Ruff' <car~dnr. state.ak.us>, "Mike Franger" <mikefr~dnr. state.ak.us>, "Paul Daggett" <pdaggett~gci.net> "Ed Jones" <jejones~aurorapower. com>, "Mike Flaherty" <mikef~kfoc.net>, "Scott Pfoff' <gspfoff~aurorapower. com> Please find attached a revised Nicolai Creek cross section and NCU sand correlation document. The main change relates to the desire to drill the upcoming NCU#8 well to a measured depth of 2,200' in order to get continuous FMT (Schlumberger's Focused Micro-Imaging) log data coverage over the entire Nicolai Creek Beluga and Tyonek intervals for stratigraphic and structural modeling, with FMT data being acquired within the NCU#1-B well below 2,200' as well. Aurora will be especially vigilant with regards to not perforating potentially gas-bearing sands within the NCU#1-B and NCU#8 wells that we believe are in pressure communication with those recently perforated in the NCU#2 recompletion. Please call me if you have any questions. Andy Clifford VP Exploration Aurora Gas, LLC ~Nicolai Creek Field Sand Correlations.doc Name: Nicolai Creek Field Sand Correlations.doc Type: WINWORD File (application/msword) Encoding: base64 J NCU Log Cross Section Revised.pdfj Name: ~NCU Log Cross Section Revised.pdf, Encoding:Type: base64Acrobat (application/pdf~ I of I 8/29/2002 8:50 AM NICOLAI CREEK FIELD SAND CORRELATIONS The enclosed charts show Aurora's current sand correlations for the NicolaJ Creek Field, with estimated logged gas pay and perforated intervals, shown separately in both measured depth (MD) and true vertical depth (TVD). The sand packages have been separated into the Tyonek sand intervals, prefixed with the letter "T", and the overlying Beluga sand intervals, prefixed with the letter "B". The intervals shown in red are those sands already perforated and producing, the orange-colored zones are perforated and awaiting production, the zones colored yellow are target intervals, and the blue intervals are assumed depleted from earlier production. The NCU#1-B will target the T3330, T3450 and T3650 sands that were found in the NCU#1 well. The latter two sands were tested and flowed gas. The NCU# I-B aims to intersect these same sands at least 100' updip from that original wellbore and also test the thinner T3330 sand, if logs are encouraging. As shown by the attached correlation chart, none of the deeper sands targeted by the NCU#:L-B well are gas productive in any of the other wellbores. Since these same sands are interpreted as being water-bearing at the NCU#3 well updip to the north, a sealing cross fault is interpreted between the two wells or the sands are not truly correlative or continuous between the two wells. There should be some contingency to potentially test the T2350 sand updip from the NCU#1 wellbore in NCU#1-B, since this sand has been interpreted as being depleted within the NCU#2 well and was not tested accordingly within the recent recompletion in that well. FM:[ log data will be acquired within the NCU#1-B in order to better evaluate the Tyonek stratigraphy. Aurora's correlation suggests that the same sands are productive in the NCU#2 and NCU#3 wells, namely the T1900 thru T2200 sands, with the T2300 sand in NCU#3 being tight in NCU#2 and the lowermost T2350 being depleted. These sands, currently producing in NCU#3 have been successfully perforated in the recent NCU#2 recompletion with MeshRite screens and are awaiting production, expected by year-end 2002. The NCU#2 well appears from seismic data to be fault-separated from the central and northern parts of the field, as shown in the attached map. However, comparison of the logs between the NCU#1 and NCU#2 wells does not seem to support this notion. The interpreted fault, a normal fault with approximately 200' of throw down to the west, would have to cut the NCU#2 wellbore close to the Top Tyonek at about 2,000' MD. There is a strong likelihood that the interpreted fault is caused by a shallow gas anomaly on seismic data, otherwise known as a "gas chimney effect", where shallower gas- saturated sands and coals distort the seismic energy such that the reflections appear too have Iow frequency and high amplitude characteristics with lower interval velocities that have a "push down" effect on underlying seismic events. ]~n this way, an apparent collapse graben exists at the field with the field itself being a southward-plunging nose with little closure to the north, whereas, in effect, the structure might be much simpler with a structural high point somewhere between the NCU#1 and NCU#3 well locations. This is the rationale behind a possible NCU#7 well, in the near future after acquisition of new seismic data and evaluating the performance of the NCU wells. The NCU#8 well will target the previously untested Beluga sands seen in the NCU#1, NCU#2 and NCU#3 wells. There are three sands in particular that appear to be regionally correlative over the field, namely the B900, B1200 and B1500 sands, with two others, B1350 and B1400, offering secondary objectives. The NCU#8 well will be drilled to a measured depth of 2,200' MD in order to get log data coverage of the complete Nicolai Creek stratigraphic sequence together with the FM! data to be acquired in the NCU#1-B well. The first chart, shown below, is of estimated net pay intervals for various sands within the field. The explanation for the color-coding follows the third chart below. Estimated Pay Thicknesses Zone NCU-#5 INCU#3 NCU#8 NCU#1A 'NCU#1B NCU#2 .......................... .B....9...0...0.' ................................................................................. ~. .......................................... 50' Pay ....................... ....B....1.......2...0....0... ....................... ..3.....5..?...a..y...~ ................ L3.....7...?...a..y... ............. 100, Pay 112' Pay ~82' Pa B1350 12' Pay? 112' Pay ~ite? iTite i15' Pay .. ................................. .. B1500 27' Pay 25' Pay 25' Pay ~ 25' Pay i i F ' i aunt ..................................................................................................................................... ? ............................................... ? ....................................................... ~ ..................................................................................................... ~ .................................................. T1850 ............................................................................... ,10' Pa'/ ,, i ' . ..................... ...................................................................................... T2065 ~ : T2300 ~ ~ite ! ~ te ....................... ~'§'~' ............................................................................... ~ ....................................................... '~i' ............................... ? '46' Pay ........................ ¥'~'§'§~' ............................................................................... ~.!..t.....e. .............................. ! ....................................................... 10' Pay 10' Pay --~-.~----~---~-.~--~--~-~-~-~-~-~-.~-~-~-~-~-~-~-~-~--~-~-~-~-~--~-~-~i .............................. '.iii'.i'.'.'.i'.iiii'.'.iii'.iii'.iiiiiiii'.i'.'.ii'.ii'.'.ii'.'.i'.'.'.'.ii 35' Pay 35' Pay T3650 i~Vet 20' Pay 120' Pay The second chart shows measured depth tops in feet of the various sands within the field whilst the third chart shows true vertical depths subsea, using directional survey data to convert the sand tops. Tops in Measured Depth~ NCU Field Zone NCU#5 NCU#3 NCU#8 iNCU#1A NCU#1B iNCU#2 Base Glacial Wash ~00' ~630' 630' i630' 650' ~00 . 1~0'? 1~40' l~0' 1~40' I , J B1400 J ,1400 J ~ ~ ........................................ i~':i"~6'6 .................... i ................ l ......................................... Ji"~'~'6; ................ 1.~7.~o' .i"~':i'6'; .......................... j ................................................... i'i"~'~'~; ........................... ..,... .... ., ~, .. ,~ ..... ,.,,......~:. :~, t~.. , ~J ......... ~. ,.,, , ...... ~,...,. ~,,.,...,.~ g? .. ':'." ,' ,,'~r:~' ~ ...... .'..'-1'"~'"...."~',[J..~_.,~ '[. r,'~ ';'.','~'t'~?~. . - .~.,"'.' .. .... ..,.,~.~,.,...,,..,...., J:..,..,. ....... i~!~,~!.,.,.:~,:,~:~...e: ........ ..~,..,...:::. ...... I~...~ ....... J '~ ' i i Fault ...................................... ~'i"~'~'~ ................................ I .................................... iS"i~'~; ................. ]~ ......................................................................................... i ..................................................... ~;'~'~'~; ........................... T1900 .. :.. T2000 , T2065 T2200 ........................................ ~..: ............ :.....: .................. ........................................ ~ ........................................ ........................................ ~.~ ........................................ ........................................ ~.~ ........................................ T3650 2165' 2307' 2065' 2350' J · ~.. ~,.'... · ~ 2620' J ........................................ / ........................................... ~; ......................... ~700' .................................................................................... ~ G226' ......................................... ~'~i ................. ] .......................................... 3420' ~320' i ......................................... §~"~ ............................................................. 3615' ~515' Tops in True Vertical Depth Subsea~ NCU Field Zone NCU#5 NC0#3 NCU#8 N~U#1A JNCU#1B INCU#2 Base Glacial Wash ~586' a900 1634' 739' 739' 1739' ....................................... ~'~'~ ....................................... §~;'"~'~'"'"'"~; ....................... 1223' ~'~; .......................... i~'~'; .......................... J~"~'; ................. ....................................... ~'§~ ........................................ ~"~;'"~'~ ......... ~"i"~; ................................................................... .................................. ~'~'~ ....................................................................................... ~'~ ................... 1637 ~'~; .......................... ]~'~'; .......................... ]~"~'; ................. J " 'J" Fault .' ................... ~ .......... ~'; ................ [ ........................................................................................... 1 .................................................. 1~"~ ................... : T1900 ..... /2068'...206~'.' ' 2068' T2OO0 ~2203' 2203' 2203' T2065 i1849' i i2234' 2200' · T2200 · . ~ ' 2372, ~330,' T2300 ~ 2500' J245~' 2663' ~ I ~'i"~; ......................... 2557' 2731' 3074' ....................................... ~ ....................................................................................... J ...................... ; ........................................................... 3174' . ........................................ ....................................... ~ ......................................................................................... ~.~ .............................................................. 3262' 3162' ~.~: ................. T3650 2994' 3447' 3347' nr already perforated & producing already perforated & awaiting production et zones for perforating already perforated & assumed depleted !n summary, the 2002 program of Aurora Gas aims to extend gas production at the Nicolai Creek Field to the southern end of the field, as follows: 1. Tyonek sands equivalent to those currently producing in NCU#3, located some 7,600' to the north, within the NCU#2 well. These sands have already been perforated and are awaiting production; 2. Tyonek sands equivalent to those that were tested in the NCU#1 well but some 100+' updip to the north within the NCU#1-B well. Aurora will need the flexibility to potentially test the T2350 sand that was apparently tight in the NCU#1 well and gas-bearing but depleted in the NCU#2 well. The T2350 sand would be expected at about +/- 2,700' MD in the NCU#1-B well; 3. Beluga sands seen in other wells in the field but never tested within the NCU#8 well; 4. Aurora seeks to get Fr4! log data coverage over the entire Beluga and Tyonek formations at Nicolai Creek thru acquisition within the NCU#1-B well below 2,200' HD and the NCU#8 well above 2,200' HD to aid with stratigraphic/structural interpretation. Andy Clifford, Aurora Gas, 8/25/2002. Structural Correlation Section across Nicolai Creek Field North NCU#3 HORIZONTAL SCALE: NOT TO SCALE ~Aurora Gas, LLC Produdng ~3 MMCFD I from 5 zones I ,~ · . :.': I NCU#8 I NCU#t'B I NCU#t A~8/2~2 Structural Cross Section & Sand Correlation Nicolai Creek Unit 3650' MD Beluga Format/on Tested 3.3 t4MCY-'D m 20/64' dlo~, 1295 F1P. 24 hr. rate =735 HMC:~D @ 1].47 FI'P. Tested 2.9 HI'40:D on V~,' chake, 1200 FI'P. AOF=17.S HHO:D for 2 zones, SG=0.575 NCU#2 ;? ' Legend ExislJng Perforated Intervals Proposed PerforaUng Intervals m m South Gas Sands Wet Sands Coal Seams NCU Sand Correlations Subject: NCU Sand Correlations Date: Mon, 26 Aug 2002 14:49:56 -0500 From: "Andy Clifford" <acclifford~aurorapower. com> To: "Bob Crandall" <Bob_Crandall~admin.state.ak.us> Bob, Further to our conversation this morning, here are the files relating to the NCU sand correlation in support of the well spacing issue. Call me if you have any questions. Regards, Andy. i Name: Nicolai Creek Field Sand Correlations.doc Nicolai Creek Field Sand Correlations.doc Type: WINWORD File (application/msword) .......... ~ .................. i Name: NCU Log Cros--"~'-----'-----'-'---~e'~;i~ed.13p~[ ............... · · ti Type' Microsoft PowerPoint S~ow - - ' t (apphcatlon/vnd.ms-powerpmnt) NCU Log Cross Section Revised pptl ' . . . [Encoding: base64 Structural Correlation SectiOn across Nicolai Creek Field North NCU#3 HORIZONTAL SCALE: NOT TO SCALE Produdng ,,,3 MMCFD I from 5 zones I NCU#8 NCU#1-B (89~. 81200 & ~, 1900' MD ~Aurora Gas, LLC Structural Cross Section & Sand Correlation Nicolai Creek Unit A~C' 2200' MD 3650' MD a/ms to gain NCU#1 South NCU#2 Beluga Formation Tested 3.3 MHCFD on 20/64' ohoke, 1295 F'rP. 24 hr. rate =7.35 NMO:D ~ 1147 FTP. .,. O~ke, 1200 Frp. AO~-I?.$ B Legend Existing Perforated Intervals Proposed Perforating Intervals I B I (;as Sands Wet Sands Coal Seams NICOLAI CREEK FIELD SAND CORRELATIONS The enclosed charts show Aurora's current sand correlations for the Nicolai Creek Field, with estimated logged gas paY and perforated intervals, shown separately in both measured depth (MD) and true vertical depth (TVD). The sand packages have been separated into the Tyonek sand intervals, prefixed with the letter "T", and the overlying Beluga sand intervals, prefixed with the letter "B". The intervals shown in red are those sands already perforated and producing, the orange-colored zones are perforated and awaiting production, the zones colored yellow are target intervals, and the blue intervals are assumed depleted from earlier production. The NCU#1-B will target the T3330, T3450 and T3650 sands that were found in the NCU# 1 well. The latter two sands were tested and flowed gas. The NCU# I-B aims to intersect these same sands at least !00' updip from that original wellbore and also test the thinner T3330 sand, if logs are encouraging. As shown by the attached correlation chart, none of the deeper sands targeted by the NCU#:~-B well are gas productive in any of the other wellbores. Since these same sands are interpreted as being water-bearing at the NCU#3 well updip to the north, a sealing cross fault is interpreted between the two wells or the sands are not truly correlative or continuous between the two wells. There should be some contingency to potentially test the T2350 sand updip from the NCU#1 wellbore in NCU#1-B, since this sand has been interpreted as being depleted within the NCU#2 well and was not tested accordingly within the recent recompletion in that well. FlVl! log data will be acquired within the NCU#1-B in order to better evaluate the Tyonek stratigraphy. Aurora's correlation suggests that the same sands are productive in the NCU#2 and NCU#3 wells, namely the T1900 thru T2200 sands, with the T2300 sand in NCU#3 being tight in NCU#2 and the lowermost T2350 being depleted. These sands, currently producing in NCU#3 have been successfully perforated in the recent NCU#2 recompletion with MeshRite screens and are awaiting production, expected by year-end 2002. The NCU#2 well appears from seismic data to be fault-separated from the central and northern parts of the field, as shown in the attached map. However, comparison of the logs between the NCU#1 and NCU#2 wells does not seem to support this notion. The interpreted fault, a normal fault with approximately 200' of throw down to the west, would have to cut the NCU#2 wellbore close to the Top Tyonek at about 2,000' IVlD. There is a strong likelihood that the interpreted fault is caused by a shallow gas anomaly on seismic data, otherwise known as a "gas chimney effect", where shallower gas- saturated sands and coals distort the seismic energy such that the reflections appear too have Iow frequency and high amplitude characteristics with lower interval velocities that have a "push down" effect on underlying seismic events. ]~n this way, an apparent collapse graben exists at the field with the field itself being a southward-plunging nose with little closure to the north, whereas, in effect, the structure might be much simpler with a structural high point somewhere between the NCU#1 and NCU#3 well locations. This is the rationale behind a possible NCU#7 well, in the near future after acquisition of new seismic data and evaluating the performance of the NCU wells. The NCU#8 well will target the previously untested Beluga sands seen in the NCU#1, NCU#2 and NCU#3 wells. There are three sands in particular that appear to be regionally correlative over the field, namely the B900, B:[200 and B1500 sands, with two others, B1350 and B1400, offering secondary objectives. The NCU#8 well will be drilled to a measured depth of 2,200' MD in order to get log data coverage of the complete Nicolai Creek stratigraphic sequence together with the FM! data to be acquired in the NCU#1-B well. The first chart, shown below, is of estimated net pay intervals for various sands within the field. The explanation for the color-coding follows the third chart below. Estimated Pay Thicknesses Zone NCU-#5 ~NCU#8 ~~ B900 I? 50' Pay i j ........................ .B.,!...2.0.0,. ....................... ,..3......5...i....~...a...Y~ ................ ~.,..7..'........P.....a.,y.. ............ 100' Pay .1,,..,.l......2..?...,a,.y ............................................................ .,8.....2..?,.,,a..y ................ B1350 12' Pay? 12' Pay.,, ~ite? rite 15' Pay !................................................................................................................................................................................ B1400 I7' Pay 'Tite? ......................................................................................................... Tite ': .................................................. ~ ................................................ .................................................................................................................................................................................................................................. 81500 1~;7' Pay 25' Pay 25' Pay l' .................................................. [!25' .................................................. Pay i i i i i Fault ...................... ............................................................................... .................................................................................................... i .................................................. ............... T2000 Pay 41 1 T2065 Wet I T2200'" ~ " 14" ' ' T2300 ' ' ~ ~iie ...................... ....................... I ...................................................... ....................................................... .............................. I? ...................... '~§'~'~' ....................... / ........................................................ Tite ....................................................... 10' Pay 10' Pay T3650 Wet 20 Pay 20' Pay rite ............... The second chart shows measured depth tops in feet of the various sands within the field whilst the third chart shows true vertical depths subsea, using directional survey data to convert the sand tops. Tops in Measured Depthf NCU Field Zone NCU#5 ~CU:~3 [NCU#8 NCU#1A iNCU#1B ,NCU#2 Base Glacial Wash ~00' i~630' ~30' 1630' 1650' B900 L8...50'? 740' .7.....4.....0..i ................................ J...7.~...0..i. ................................ [ .................................................. B1350 1462' il 345' I , i 1565' ~400 ?~001 , . .................... ;. .......................... j ................................................... i ...................... ; .......................... ........................ ~'"'"'i~'~'"~'~ .................... i' ........................................................... i"~'~'~ ................... ~7~0 ~7~0 ! ~35 ?.':.?'.~.~.~:~~ ~.~.?~.',.':? '?.`~.%~:!:?.~?~~;i?~t...~?~!;.~L~.~;~?.?...!!~;~;;:;:``~;~.~..~. ......................................... :i:'i"~'~'~ ................................................................................. ~~ ........................................................................................ 1 .................... i2240' T2000 ~ 2307 ' ....................................... ~.~..0...~.~ .................................................................................. I~~ .......................................... ~.~.~...0..: ....................... i...I ................................................... L____ T2200 ~ i2485' ....................................... ~:'~'~6'~ ................................................................................. ~ .......................................... '~;'~'~'~; .......................... ....................................... :i:'~'§~'~ .................................................................................. ~ .......................................... '~'~;'~'~; .......................... 2700' §~'~'~; .......................... ....................................... ~'~'~'~'~ .................................................................................. 1 ...................... ., ................. .[ .......................................... ~: ~' ....................... ....................................... ~'~'~ .................................................................................. .i~i~i~i~. i i ii ii .......................................... ~4~o ~o' ~'~'~ ............................ ....................................... ~'§~'~'~ .................................................................................. ~; ........... '1 .......................................... 3615' 3515' '~'~:' .......................................... Tops in True Vertical Depth Subsea~ NCU Field - Zone NCU#5 NC~#3 NCU#8 NCU#IA NCU#1B iNCU#2 Base Glacial Wash 584' 1586' 586' [~586' 598' '~111 Ilrl B900 i634' 739' 739' 739' i B1200 35' Pay..,? I..9...84' 1223' 1223' 11223' i1257' ....................................... i~'~'"§'~'~' ....................................... ~"~';'"i~'~;i~ ......... ~'"~"~'~'; ................. ~ .................................................. ~ .................................................. ~"~'~'~ ................. ....................................... ~'~"~'~ ........................................................................................ ]~*'~'~'~'; ................. 1637' '~'"~'~'; ........................... ~'"~'~'~'; .......................... ~"~'~'~'; ................. ~;..',*'~'.~.,~'~:,~ ~ ,'.~.. ,~ ~ ~;,~'.',.;~ .~;-~'~,~;;'~ · r ~. ~:'"'"'~'l e ' ~,,~-~','..' ~ Fault ....................................... ~'~"~'~'~ ....................................................................................... ]~"~'~'~"; ............................................................................................................. '~ .................................................. ~'"9'~'~; ................. ....................................... ~..~...~..~ ...................................... j ............................................. ~~.~.~.~ ................. ~.~.; ......................... ~.~.~ ....................... ~ .. ~2000 .... ~2203' .2203~ .2203' ~ T2065 1849' 12234' i2200' T2300 / ~ 12500' 2450 .2663 ~i~i~i~ iiii ii i ii~i ii iiii'~'~"~'"~'~' ........................ ~' ~ T3330 I ! "," 3174' 3074', I ......................................... ....................................... ~'~'~'~ ....................................... ~ ................................................ i~'~'~ ................... [ ........................................ 3262' 3162 l~i~i~'.~i!i ....................................... ~'~'~ ....................................................................................... l~'~'~; ................. i ........................................ ~447' 3347' [~ ................ already perforated & producing already perforated & awaiting production et zones for perforating already perforated& assumed depleted ~[n summary, the 2002 program of Aurora Gas aims to extend gas production at the Nicolai Creek Field to the southern end of the field, as follows: 1. T¥onek sands equivalent to those currently producing in NCU#3, located some 7,600' to the north, within the NCU#2 well. These sands have already been perforated and are awaiting production; 2. T¥onek sands equivalent to those that were tested in the NCU#1 well but some 100+' updip to the north within the NCU#1-B well. Aurora will need the flexibility to potentially test the T2350 sand that was apparently tight in the NCU#1 well and gas-bearing but depleted in the NCU#2 well. The T2350 sand would be expected at about +/- 2,700' f4D in the NCU#1-B well; 3. Beluga sands seen in other wells in the field but never tested within the NCU#8 well; 4. Aurora seeks to get FM! log data coverage over the entire Beluga and T¥onek formations at Nicolai Creek thru acquisition within the NCU#1-B well below 2,200' MD and the NCU#8 well above 2,200' I~ID to aid with stratigraphic/structural interpretation. Andy Clifford, Aurora Gas, 8/25/2002. #4 August 19, 2002 Alaska Oil and Gas Conservation Commission 333 West 7th Avenue, Suite 100 Anchorage, Alaska 99501 RE: Withdrawal of Hearing Request Aurora Gas, LLC-Spacing Exception To Whom It May Concern: The Alaska Mental Health Trust Land Office hereby withdraws its request for the hearing that was scheduled to be held on August 20, 2002 at 9:00 am. This meeting had been scheduled to discuss the spacing exception requested by Aurora Gas, LLC for well nos. 1 B, 2, and 8 in the Nicolai Creek Unit. The Trust is a landowner in the area. Senior Resource Manager cc: Stephen C. Planchon G. Scott Pfoff, Aurora Gas, LLC Duane Vaagen, Fairweather Alaska Mental Health Trust Land Office · Dep_a__rt__m_en__t._of_.N__a_m_r__al_.._R_e_s.o_..u._r....c..e.s- 550West 7th Avenue, Suite 1430 · Anchorage, Alaska 99501 · Telephone: (907) 269-8658 · Fax: (907) 269-8905 fiUG-19-2002 MON 05' 10 PM TRUST LfiND OFF IOE (' NO, 269 890~ O1 Fax Transmittal Sheet Deliver to; JAoGCC .......... Fax Number: 276-7542 RE: Aurora LLC Spacing Exception Hearing,. 550 West 7t~ Ave. Suite1430 Anchorage, AK 99501 Phone: (907) 269-8658 FAX: (907) 269-8905 From: Mike"Franger'--' Date: 8/19102 No. of pages: 2 (cover sheet included) URGENT FOR REVIEW Comments: Please see attached PLEASE COMMENT Ill, --- ii .. PLEASE REPLY PLEASE RECYCLE .. · . 'Fa-~operatbr: ............ [' Phon~: ;~-9-8658 " · i . i ._ , . .J iii .._ ~ i, ,1 . mini . . iii . L -- . - IF FAX DOES NOT TRANSMIT PROPERLY, PLEASE CALL FAX OPERATOR. The Information ~ntained in this fax is CONFIDENTIAL AND/OR PRIVILEGED, This fax is intended to be reviewed initially by only the individual named above, If the reader of this transmittal page is not the intended recipient or a representative of the intended recipient, you are hereby notified that any review, dissemination or copy of this fax or the information contained herein is prohibited. If you have received this fax in error, plea, se immediately notify the sender t3y telephone and return this fax to the sender at the above address, Thank you, Form Date: 8119/200~ fit,,JG-O8-2002 TFIU 02;4'1 PI'I Tt~i "' L~,ND OFFICE FAX NO. 1 !~"-''' 269 8905 RUG 09 ~1)0~ B:GSRH FIURORFI POldER r 90"Z ) ;~??- 1006 901 269 8905 P, 02 ~qU, G-08-2002 THU 02;41 Pl'i ?~"'"? LRND OFFICE NO, 1. ~'~'~ 269 8905 Fax Transmittal Sheet Deliver t0i Tom Maunder AOGCC Fax Number: 276-7542 RE: Aurora Gas-Nicolai Creek 550 West 7t~ Ave. Suite1430 Anchorage, AK 99501 Phone: (907) 269-8658 FAX: (907) 269-8905 From: Mike Fran'ger Date: 8/8/02 No. of pages: 2 (cover sheet included) . URGENT FOR REVIEW PLEASE COMMENT PLEASE REPLY Comments: Please see attached re: Aurora's activities at Nicolai Creek. PLEASE RECYCLE . ~ . Mike Franger P, O1 Fax Operator: Phone: ~69-8658 RECEIVED AUG o ? ~, Alaska Oil & Gas C(ms.O Aa:borage ~mmission IF FAX DOES NOT TRANSMIT PROPERLY, PLEASE CALL FAX OPERATOR. The Information contained in this fax is CONFIDENTIAL AND/OR PRIVILEGED. This fax is intended to be reviewed initially by only the individual named above. If the reader of this transmittal page is not the intended recipient or a representative of the intended recipient, you are hereby notified that any review, dissemination or copy of this fax or the information contained herein is prohibited. If you have received this fax in error, please immediately notify the sender by telephone and return this fax to the sender at the above address. Thank you. Form Date: 8/8/2002 August 5, 2002 Alaska Oil and Gas Conservation Commission 333 West 7th Avenue, Suite 100 Anchorage, Alaska 99501 RE: Request for Hearing Aurora Oil and Gas-Spacing Exception To Whom It May Concern: The Alaska Mental Health Trust Land Office requests that the hearing tentatively scheduled to be held on August 20, 2002 at 9:00 am be formally, scheduled and held on that date. This meeting is being held to discuss the spacing exception requested by Aurora Oil and Gas for well nos. lB, 2, and 8 in the Nicolai Creek Unit. The Trust Land Office is a landowner in the area. Sincer,.elyo Senior Resourci~' Manager cc: Stephen C. Planchon Ed Jones, Aurora Oil and Gas Duane Vaagen, Fairweather Alaska Mental Health Trust Land Office · Dep..a._rtm___e_n_t_o._f_N_a__m_r_a.l_.._R..e_s_ou__r..c.e_5.s ...................................... 550West 7th Avenue, Suite 1430 · Anchorage, Alaska 99501 · Telephone: (907) 269-8658 · Fax: (907) 269-8905 ~qUG-05-2002 NON 11 '30 fill TRUST L~qND OFFIOE F~qX NO, 1 907 269 8905 O1 550 West 7th Ave. Suite1430 Anchorage, AK 9950I Phone: (907) 269-8658 FAX: (907) 269-8905 Fax Transmittal Sheet Deliver to: Commissioner Fax Number:276-7542 RE: Hearing: Aurora Gas Well Spacing "From: Mike Franger .... Date: 8/5/02 No, of pages: 2 (cover sheet included) URGENT FOR REVIEW PLEASE COMMENT PLEASE REPLY PLEASE RECYCLE ~ Comments: Attached is a request for a hearing on the Well Spacing Exception submitted by Aurora Gas for the Nicolai Creek Unit. Mike Franger IF FAX DOES NOT TRANSMIT PROPERLY, PLEASE CALL FAX OPERATOR, The Information contained in this fax is CONFIDENTIAL AND/OR PRIVILEGED, This fax is intended to be reviewed initially by only the individual named above. If the reader of this transmittal page is not the intended recipient or a representative of the intended recipient, you are hereby notified that any review, dissemination or copy of this fax or the information contained herein is prohibited. If you have received this fax in error, please immediately notify the sender by telephone and return this fax to the sender at the above address. Thank you, Form Date; 8/5/2002 11:30 AM TRUST LAI, ID OFFIOE FA× lqO, 1 907 2B9 8905 August 5, 2002 Alaska Oil and Gas Conservation Commission 333 West 7t~ Avenue, Suite 100 Anchorage, Alaska 99501 RE: Request for Hearing Aurora Oil and Gas-Spacing Exception To Whom It May Concern: The Alaska Mental Health Trust Land Office requests that the hearing tentatively scheduled to be held on August 20, 2002 at 9:00 am be formally scheduled and held on that date. This meeting is being held to discuss the spacing exception requested by Aurora Oil and Gas for well nos. lB, 2, and 8 in the Nieolai Creek Unit. The Trust Land Office is a landowner in the area. Senior Resourc~fManager cc: Stephen C. Planchon Ed Jones, Aurora Oil and Gas Duane V~agen, Fairweather Ahska Ment~tl Health Trttst Land Office · Department of Natural Resources 550 West 7th Avenue, Suite 1430 . Anchorage, Alaska 99501 · Telephone: (907) 269-865g ' Fax: (907) 269-8905 MEMORANDUM STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION TO: File DATE: August 1, 2002 FROM: Jody Colombie SUBJECT: Telephone Call I received a telephone call from Duane Vaagen at Fairweather re: Nicolai Creeks pending spacing exception hearing. He told me that The Trust Land Office was meeting with Aurora Gas on their questions on August 8, 2002. The Trust office has not made a formal request for a hearing, but they want to preserve their right to do so, if their issues weren't resolved. And he was wondering how that could be done. I suggested to Duane that The Trust Office should formally request a hearing (to preserve their right) and if their issues are resolved they can withdraw their request for a hearing. [Fwd: Nicolai Crk Spacing Exception] Subject: [Fwd: Nicolai Crk Spacing Exception] Date: Wed, 24 Jul 2002 05:46:34-0800 From: Tom Maunder <tom maunder~admin.state.ak.us> To: Jody J Colombie <jody_colombie~admin.state.ak.us> Jody, You might want to print this note and include in the Nicolai Creek spacing exception file. Thanks. Tom Subject: Date: From: To: Nicolai Crk Spacing Exception Tue, 23 Jul 2002 10:17:44 -0800 Tom Maunder <tom_maunder@admin.state.ak.us> Cammy Oechsli <Cammy_Oechsli~admin.state.ak.us>, Daniel T Seamount JR <dan_seamount~admin.state.ak.us>, Bob Crandall <bob_crandall~admin.state.ak.us>, Steve Davies <steve_davies~admin.state.ak.us>, John D Hartz <jack_hartz~admin.state.ak.us>, Winton G Aubert <winton_aubert~admin.state.ak.us>, Jane Williamson <Jane_Williamson~admin.state.ak.us>, Jim Regg <jirn_regg~admin.state.ak.us> All, I received a message from Bob Frasier at the "Trust Lands Office" (I presume this is the Mental Health Trust Lands) regarding the hearing for the spacing exception for Nicolai Crk. I attempt to return the call and he is out this week. I spoke with his supervisor Wendy Wolf and she indicated that they have "concern" for the trajectory of one of the wells (not sure which one) and that it will pass through their "earth" enroute to the bottomhole location. She was not completely familiar with the issue, although she indicated that they will likely have some comments. It seems they may be intent on giving some sort of right of way to traverse their "earth. As I hear anything more, I will forward the information. Tom ~ ' > i Tom Maunder<tom maunder(d~,admm.state.ak.us Sr. Petroleum Engineer Alaska Oil and Gas Conservation Commission 1 of 2 7/24/2002 8:54 AM uj.-2 -2oo? THU 09:22 AM TRUST LAND OFFIOE FAX NO, 1 90? 269 890E; P, July 18, 2002 Mr. J. Edward Jones Executive Vice President Aurora Gas, LLC 10333 Richmond Avenue, Suite 710 Houston, Texas, 77042 RE: Well Spacing Except[on-Nicolai Creek Unit Dear Mr. l, ones: The Trust Land Office (TLC) is in receipt of the information prepared and submitted by Fairweather E&P Services on behalf of Aurora that pemim to the Well Spacing Exeepti'on at Nicolal Creek. The TLC has some concerns regarding the proposed facilities to be constructed on Trust land that would provide for production from the wells proposed to be reworked on state leases offshore from the Trust uplands. Specifically, we feel that a land use authorization in the form of a surface lease is needed to utilize Trmt land for off-site development of your state lea~es, Additionally, based on our limited review of the material with respect to the well spacing exception itself, we my have some concerns about thc implications of produ~on from thc offshore state leases.as it affectz production (and potential Trust royalty interests) from federal lease AA-8426. We will be having our petroleum consultant review the material from this point of view. We certairfly encourage Aurora in its proposed activities at Nicolai Creek, but feel that a meeting would be beneficial m discuss the derails of your project, if any, that will require TLC support or approval. Both Steve Planehon and I will be out of town next week, so perhaps a meeting sometime after July 31 would be acceptable, RECEIVED O2 cc: Step. hen C. Plauchon, Executive Director Carol Lee, Division of 0il aud G~ AOGCC g la.~ka Mental t-Ieakh Trust Land Office .._.'.__ Dep.a?tment of Natural Resource~ ~0 West 7th Avenue, Suite 1430 · Anchorage, Alaska 99501 - Telephone: (907) 269-8658 · Fax: (g07)269-8905 JU.L-25-200,2 THU 09:22 AN TRUST LAND OFFIOE FAX NO, 1 907 269 8905 (' O1 550 W~st 7th Avenue, Suite 1430 Anchorage, AK 99501 Phone: (907) 269-86511 FAX: (907) 269-8905 Fax Transmittal Sheet Deliver to: Tom Maunder AOGCC Fax Number: 276-7542 RE: Nicolai Creek Spacing Exception From: Wendy Wool~" Date: 7/25/02 No. of pages: 2 (cover sheet included) ., .. URGENT FOR REVIEW PLEASE COMMENT PLEASE REPLY PLEASE RECYCLE Tom, Attached is the letter from Mike Franger that he faxed last Thursday. I talked to Mike today, and he will get back with you on Monday when he returns. Wendy Woolf RECEIVED, Alaska Oil & Gas Cons. Comrnissio~ Anchorag, e Fax Operator: Wendy Woolf Phone: 907- 269-8661 IF FAX DOES NOT TRANSMIT PROPERLY, PLEASE CALL FAX OPERATOR. The Information contained in this fax is CONFIDENTIAL AND/OR PRIVILEGED. This fax is intended to be reviewed initially by only the individual named above, If the reader of this transmittal page is not the intended recipient or a representative of the intended recipient, you are hereby notified that any review, dissemination or copy of this fax or the information contained herein is prohibited, If you have received this fax in error, please immediately notify the sender by telephone and return this fax to the sender at the above address. Thank you. Form Date; 7/25/2002 #3 STATE OF ALASKA (( NOTICE TO PUBLISHER { ADVERTISING ORDER NO. ADVERTISING INVOICE MUST BE IN TRIPLICATE SHOWING ADVERTISING ORDER NO., CERTIFIED AFFIDAVIT OF PUBLICATION (PART2 OF THIS FORM)WITH A'FrACHED COPY OF AO-02214050 ORDER ADVERTISEMENT MUST BE SUBMITTED WITH INVOICE . , .SEE' BOTTOM'FOR :INVOICE ADDRESS :~ :' · '.%":' .r . ....,,~.:.?..;..?;.:.v .,' '. ,.~.:,:i?i.,. :;i i !;.,~.,.' ~., i · F AOGCC AGENCY CONTACT DATE OF A.O. R 333 W 7th Ave, Ste 100 Jody Colombie July 16, 2002 o Anchorage, AK 99501 PHONE PCN M - (907~ 793-1221 I~ATE~ ADVERTISEMENT REQUIRED: x Anchorage Daily News July 17, 2002 o P O Box 149001 Anchorage, AK 99514 mt MATERIAL BETWEEN THE DOUBLE LINES MUST BE I'RINT£1) ~N ITS ENTIRETY ON THE DATES SHOWN. SPECIAL INSTRUCTIONS: Account #STOF0330 Advertisement to be published was e-mailed Type of Advertisement X Legal [--1 Display ~ Classified ~--]Other (Specify) SEE ATTACHED PUBLIC HEARING ';.:i:'.: :. '~..: :"'.' ::'.: :' .'.:"TO' '.' :'... ' '. :..' TOTAL OF I Anchorage~ AK 99501 2 PAGES lIEF TYPE NUMBER AMOUNT DATE COMMENTS 1 VEN 2 ARD 02910 3 FIN AMOUNT SY CC PGM LC ACCT FY NMR DIST LIQ ~ 01 02140100 73540 2 3 4 REQ~E~~~ ~ I I~TVISION APPAROVAL: ~. ,) 02-902 (Rev. 3~94) Publisher/Original Copies: Department Fiscal, Department, Receiving AO.FRM Anchorage Daily News Affidavit of Publication 1001 Northway Drive, Anchorage, AK 99508 7/17/2002 AD # DATE PO PRICE OTHER OTHER GRAND ACCOUNT PER DAY CHARGES CHARGES #2 TOTAL 493316 07/17/2002 02214050 STOF0330 $227.42 $0.00 $0.00 $227.42 $227.42 $0.00 $0.00 $227.42 STATE OF ALASKA THIRD JUDICIAL DISTRICT Lorene Solivan, being first duly sworn on oath deposes and says that she is an advertising representative of the Anchorage Daily News, a daily newspaper. That said newspaper has been approved by the Third Judicial Court, Anchorage, Alaska, and it now and has been published in the English language continually as a daily newspaper in Anchorage, Alaska, and it is no~ and duri'ng all s-ai~l time was printed in an office maintained at the aforesaid place of publication of said newspaper. That the annexed is a copy of an advertisement as it was published in regular issues (and riot in supplemental form) of sdid newspaper 6n the above dates and that such newspaper was regularly distributed to its subscribers during all of said period. That the full amount of the fee charged for the forego~blication is not in excess of the rate charged private indi~ ~..-~ /~ Signed C) ~ c_.~-/._~l ~ Subscribed and sworn to me before this date: Notary Public in and for the State of Alaska. Third Division. Anchorage, Alaska MY~ISSION EXPIRES: RECEIVED JUL B .v ZOO? Alaska Oil & Gee C;on$. C, ommis$on Anchorage Notice of Public Hearing ' ' ' STATE, OF AL'ASK[A ' .Alasko 0il and Gas~Conservation Commission ,R~:!., Nicolai Creek.Ui Wells N°. 1B;'No. 2, and ' No. 8 2W, Seward Merid- ian ed Leases; ADL B, ADL 63279' ~ffected Lease .; AA-8426 ' . ' , ,' AUrora Gasl kkC by otter dated"cnd re- Ceived by th'e Commissi0n on July 12. 2002 has ap- plied for on order allowing spacing exceptions in accordance with 20 AAC 25.055 (o) (2) and (o) (4) for the'completion and production of three wells within 3,000 feet of.each other~ within 1500 feet of a .property boundary and witl~in the same govern- "~ntal section. t:~'~i:~i c:~'~k.b~it i~il' N'0.' i'"=f' ..... 'v.:. Surface Location: 2018 fe~t FSk. and 195 fe0t ~c FWL, Secti.on 29,. T11 N, .R12W, SM ~:,~t::... AWdciPated Productiv~'.:~erval:· 1637 feet FSL and 97 feet FWL, Section 29, T11N, R12W, SM ?- '-* '~ .Bottom Hole Location: 1637.feet FSL and 97 feet. FWL, Section 29, T11 N, R12W, SM Nicolai Creek Unit Weft No. 2 . ~'' . ru"'..qcc Lccc. t .~ ::... ,.[ .'.1 ~,:'~ ',;'. ,-' ~7~'*P.. fee' r:'$2: ~d 205feet ;'; I~1/.'. ~'" ;,"' I'. O'.'1.,'.:: '"~. : ,'..c ::',".:. 1176feet FSLSond 696 feet FWL, Section 2.9; T11N, R12W SM R~"~W' ' 'r." ' .."...-: l: .. 877 feet FSL and'8~o · ' .'., .'. · .. ..,, '11N, R12WSN1 · No. 8 · ;".:",." ~ '!: '..:<, ~S ..'; 245feet~ ~:; I", :~'2;. ~,'.' feet 20§0 feet FSL and 245 · , '..ri,'t..;. , ::;I:;H':',":.:'I:}'~;,;.,.~' i,' ;':)],.. :~3; ," "; ::' ~ ': ',,' .' P.~',. (', ::'" (: ."' ,' · :: ~:m'"l ~. ':" ~" ',4,i',i .'. '. ' ' .' Win,'-' S ,' e : ,~', '.' . I;f~"r:U;' ' ~..~k{' ~..(; ~I'l . "g~sO'~ ":'; '=:'i;,"'~' ;['~" ',' ~.l'l [~'" '., ',:O~ "q'l: I '~" ;" :'~ .. ' h ':::' ''':''~:((~ ' ' :" ': If.° request for o earing is' not timely filed~¥he Commission will consider the issuance of on order without o. hearing. To learn if f~ Commission will hold the public hearing, please ~oll 793-1221. . In addition, a'persofi m~y submit written comments regarding,thiS o'ppfi~otion to *he Alaska ali and Gas Con~ 7th Avenue, Written comments must be received no 4:30 pm on August 19, 2002 except that if the Com- mission decides to hold o public hearing, written ra~*m~n',, ,',~.,; I:~ ,, ,. '.:.< no later than 9:00 am :~'; ..i.{= ~.i ~' ~'~0~ ..;, ,. ... ~ ' ~ persbn'.:.wiffi' o'.:di'g~bil, i:fy w~0 may ~oa'ific0'tion':.i n"b~de,'.to. Comment. the .Pu.bli'~ at 793~1'J21' b~6r8 August 15/'2002'.~ .... ;' co,my Oehhsfi l~Ylor .. · ','.'.::.:;':,:':" '. ' . ' . Choir; Alosko"O'i.I.':~ Gas C0nie~v0tion"cbm'~islton.'... . . 'Publish: July '1'7, 2~02 .'- ""' ;' ' :" .. '?. ' . , .: · ·..: '.:.,. · .;.. · . .......... STATE OF ALASKA (" NOTICE TO PUBLISHER '! ADVERTISING ORDER NO. ADVERTISING INVOICE MUST BE IN TRIPLICATE SHOWING ADVERTISING ORDERN~., CERTIFIED AFF,DAV,* OF PUBL,C^T,ON (P^.T 2 Or T.,S ~ORM)W,TH A~ACHEO COP~ OF AO'O 221 40 $0 ORDER ADVERTISEMENT MUST BE SUBMI~ED WITH INVOICE F AOGCC AGENCY CONTACT DATE OF A.O. ~ 333 West 7th Avenue, Suite 100 Jodv Colombie July 16. 2002 o ~chorage, ~ 99501 PHONE ": PC~ ~ - (907~ 793 - ] 221 ~ATE~ ADVERTISEMENT ~QUI~D: x ~chorage Daily News July 17, 2002 o P O Box 149001 ~chorage, ~ 99514 x.~ ~A~mA~ S~. ~.~ ~O~ U.~S ~S~ ~ m~ ~. ~S ~NTI~ ON TH[ ~AT[S SHOWN. SPECIAL INSTRUCTIONS: Accost ~STOF0330 AFglDAVlT Og PUBLICATION United states of America R~MIND~R State of ss INVOICE MUST BE IN IRmPLIGAIE AND MUST REFERENCE THE ADVERTISING ORDER NUMBER. division. A GERTIFIED GOPY OF THIS AFFIDAVIT OF PUBLICATION MUSI BE SUBMI~ED WITH THE INVOmGE. Before me, the undersigned, a nota~ public this day personally appeared ATTACH PROOF OF PUBU~ATION HERE. who, bein~ first duly sworn, according to law, says that he/she is the of Published at in said division and state of and that the adve~isement, of which the annexed. is a true copy, was published in said publication on the day of 2002, and therea~er for ~ consecutive days, the last publication appearing on the ~ day of ,2002, and that the rate char~ed thereon is not in excess of the rate charged private individuals. Subscribed and sworn to before me This ~ day of 2002, Nota~ public for state of My commission expires . 02-901 (Rev. 3/94) AO.FRM Page 2 PUBLISHER Re: Advertising Order Subject: Re: Advertising Order Date: 16 Jul 2002 11'17:01 -0800 From: Lorene Solivan <lsolivan~adn.com> To: Jody Colombie <jody_colombie~admin.state.ak.us> Thank you Jody ...... Lorene 257-4296 On Tuesday, July 16, 2002, Jody Colombie <jody_colombie@admin.state.ak.us> wrote: > >Louono: > >Please publish the attached on Thursday July 17, 2002. Please confirm >by e-mail. > >Jody > >Nicolai Creek Unit Wells No. lB, No. 2, No. 8. > > STATE OF ALASKA NOTICE TO PUBLISHER A[~W~S~60~:R ~o. ADVERTISING ~NVO,CE MUST BE IN TRIPLICATE SHOWING ADVERTISING ORDER NO., CERTIFIED AFFIDAVIT OF PUBLICATION (PART2 OF ~IS FORM)WITH A~ACHED COPY OF 4051 ORDER ADVERTISEMENT MUST BE SUBMI~ED WITH INVOICE ~:;:;~., ::.SEE, B~,FOR':INVOICE',AD~ESS&; :;':: .~...'..:. ,,,..,~,,..',,,,~.. ~ r :, ,..,.., A,,.. ........... ~ .... :,,< .... : . ,.... .;..: "¢ .L:, ~:;.g' '.:'~ %: :':'%:',..'~..:~:':'.~ ':L:::'.;c:?: '; :?..:: :: :. :..% ~.;..::.;..' :¢:.';.:"." F AO~OC AGENCY CONTACT DATE OF A.O. " 333 W 7~ Ave, Ste 100 Judy Colombie July 16, 2002 o ~chorage, ~ 99501 PHONE PCN M - (907~ 793-1221 ~ATE~ ADVERTISEMENT ~QUIRED: t Peninsula Cleon July 19, 2002 o P O Box 3009 Kenai ~ 99611 t.r ~tmA[ ~rmtrs ~.~ nOUa~r ustS ~USt ~t ~mstr~ ~s ~tS ENTI~ ON THE DATES SHOWN. SPECIAL INSTRUCTIONS: Accost g2914034 Adve~isement to be published w~ e-mailed Type of Advedisement X Legal ~ Display ~ Classified ~Other (Specie) SEE ATTACHED PUBLIC HEA~NG I , ~SEND]NVOICE;IN TRIPUCATE ~] AOGCC, 333 W. 7th Ave., Suite 100 PAGE a OF ALL PAGES$[ ;~:~;,:~}~:~? ?:; ':~; ;:: ;:';':?.;~;,;iJ~:' ;:':' To :'{~:.::~}:?.':~;:' ~'-~'~ :':'~: ~:?'-?'::.::',:~ ;:" ~ ~chorage~ AK 99501 2 PAGES a~F WPE UUaaE~ AaOUnT OATE COaaEnXS 1 VEN 2 A~ 02910 3 4 FIN AMOUNT SY CC PGM LC ACCT FY NMR DIST LIQ 1 01 02140100 73540 2 3 02-902 (Rev. 3/94) Publisher/Original Copies: Department Fiscal, Department, Receiving AO.FRM PUBLISHER'S AFl UNITED STATES OF AMERICA, STATE OF ALASKA SS: RECEIVED JUl. ~ 6 ZOO/. Al~k~Oil & G~ Go~,Goml~ili~ior~ Denise Reece ri ........... 'l ..... " Notice of' Public Hearing I STATE O'F ALASKA ~, I. Alaska OII and Gas Conservation Commission I Re: Nicolai Creek Unit Wells No. lB, No. 2, and No. 8 ! Section 29, T11N, R12W, Seward Meridian I state of AlaSka Affected Leases; ADL 17585, ADL ! 17598, ADL 63279 I Bureau of Land Managemi~nt Affected'Lease AA-8426 I' Aurora Gas, LLC by letter dated and received by the I .Commission on July 12, 2002 has applied for an order allow- ~ng spacing exceptions in accordance with 20 AAC 25.055 (a) Il(2) and (a) (4) for the completion and production of three wells within 3,000 feet of each other, within 1500 feet of a property I boundary and within the same governmental section. I Nlcolal Creek Unit Well No. lB I Surface Location: 2018 feet FSL and 195 feet FWL, I . Section 29, T11N, R12W, SM I Anticipated Productive Interval: 1637 feet FSL and 97 feet FWL, Section 29, T11N, R12W, SM I Bottom Hole Location: 1637 feet FSL and 97 feet FWL, I Section 29, T11.N, R12W, SM I NlColal Creek Unit Well No. 2 I .Surface LOcation: 2018 feet.FSL and 205 feet FWLiI I Section' 29, T11N, R12W, SM I Anticipated Productive Interval: 1176 feet FSLand 696. i feet FWL Section.29 T11N, R12W SM '. Bottom Hole Location: 877 feet FsL and 870 feet FWL, i ...Section29, T11N, R12WSM' .. ' ' Nlcolal Creek Unit Well No. 8 = I .SurfaCe Location: 2030 feet 'FSL and 245.'feet FWL,; I ' Section 29, T11N, R12W SM. ! Anticipated,PrOductive Interval: 2030 feet FSL 'and. 245 feet FWL, Section 29, T11N, R12W SM I ~ Bottom Hole Location: 2030 feet ESL.and 245 feet FWd,' Section 29 T11N. R12W SM ' .... :' ~,':..' I The C°mmlSsi°n has tentatively set a public hearing. °n;thls ,...application for August 20, 2002. at 9:00 am. at the Alask~.OII '1 "and Gas COnservation Commission at333 West 7th Avenue, I Suite 100, Anchorage, Alaska 99501:, A perSon may ~equest I sworn, on oath deposes and says' I that. the tentatively scheduled hearing be held by filing a writ-' I ~t ~11 t-linde h~,r I ten request with the Commission no later than 4:30 pm on I That I am and was ................ i~August6, 2002. ' ' Be ' · · f a request for a hearing s not t me y f ed, the Comm ss on Supervisor of Legals of the mnsula Clan , . ~! will Consider the'Issuance.of.an order without a hearing. To I learn if the Commission will hold the public hearing, please circulation and published at Kenai, Alaska, I cail793.1221[ that the Nic01ai Creek Uni.t Wells I In addition, a person may submit written comments regard- I AO-02214051 I lng this application to the Alaska OII and Gas Conservation I ~ COmmission at 333 West 7th Avenue, Suite 100, Anchorage, a printed copy of which is hereto annexed w I Alaska 99501, Written comments must be received no later than 4:30 pm on August 19, 2002 .except that 'if the ~ Commission decides to hold a public hearing, written com- paper one each and every day I ments must be received no later than 9:00 am on August 20, successive and consecutive .... day 1 2002, I If you are a person with a disability who may need a special following dates: I 'modification in order to comment or to attend the public hear. 'l lng, please cOntact Jody Colombia at 793-1221 before August July 197 2002 , i .1.s, 2002. I Cammy Oechall Taylor X/~/~'/2J~._ _ F_. x~~~_.., /--, ,~,., -,,.,,.,I .Chair, Alaska Oil & Gas Conservation Commission SUBSCRIBED AND SWORN to me before L'~_nZ'_.":z"_'2°°2 2945/2074 23r~ ,.----,, c[,4~f ,~ July , 2,002, NOTARY PUBLIC in favor for the State of Alaska. My Commission expires 22-Jan-06 STATE OF ALASKA vi NOTICE TO PUBLISHER [~ ADVERTISING ORDER NO. ADVERTISING IN ',--- MUST BE IN TRIPLICATE SHOWING ADVERTISING ORDE~ .., CERTIFIED AFF,DAV,T OF PUBL,CAT,ON (.^RT 2 OF T.,S FO.M~ W,T. ~C.~ CO~ O~ A 0'0221 4--. 1 ORDER ADVERTISEMENT MUST BE SUBMI~ED WITH INVOICE ' 'SEE Bosom FOR INVOICE ADDRESS' ' . .:. .,.,......'.'"..:~:::'~'.~.. :.~... ...=..: ..~ ~ " 333 West 7th Avenue, Suite 100 Jodv Co]ombie o ~chorage, ~ 99501 p.O~E PC~ ~ - (907~ 793 -122 l ~ATE~ ADVERTISEMENT REQUI~D: ~ Peninsula Cleon July 19, 2002 o P O Box 3009 ~enai ~ 99611 ~.~ ~~ ~~ ~.~ ~ous~ u.~s ~us~ ~ ~ ~ ~s ENTI~ ON THE ~ATES SHOWN. SPECIAL INSTRUCTIONS: Accost ~2914034 AFFIDAVIT PUBLICATION United states of America State of ss INVOICE MUST BE IN TRIPLICATE AND MUST REFERENCE THE ADVERTISING ORDER NUMBER. division. A CERTIFIED COPY OF THIS AFFIDAVIT OF PUBLICATION MUST BE SUBMI~ED WITH THE INVOICE. Before me, the undersigned, a nota~ public this day personally appeared ATTACH PROOF OF PUBLICATION HERE. who, being first duly sworn, according to law, says that he/she is the of Published at in said division and state of and that the adve~isement, of which the annexed is a true copy, was published in said publication on the day of 2002, and thereafter for ~ consecutive days, the last publication appearing on the ~ day of ,2002, and that the rate charged thereon is not in excess of the rate charged private individuals. Subscribed and sworn to before me This ~ day of 2002, Nota~ public for state of My commisSion expires 02-901 (Rev. 3/94) AO.FRM Page 2 PUBLISHER Notice of Public Hearing STATE OF ALASKA Alaska Oil and Gas Conservation Commission Re~ Nicolai Creek Unit Wells No. lB, No. 2, and No. 8 Section 29, T11N, R12W, Seward Meridian State of Alaska Affected Leases; ADL 17585, ADL 17598, ADL 63279 Bureau of Land Management Affected Lease AA-8426 Aurora Gas, LLC by letter dated and received by the Commission on July 12, 2002 has applied for an order allowing spacing exceptions in accordance with 20 AAC 25.055 (a) (2) and (a) (4) for the completion and production of three wells within 3,000 feet of each other, within 1500 feet of a property boundary and within the 'same governmental section. Nicolai Creek Unit Well No. lB Surface Location: 2018 feet FSL and 195 feet FWL, Section 29, T1 IN, R12W, SM Anticipated Productive Interval: 1637 feet FSL and 97 feet FWL, Section 29, T1 iN, R12W, SM Bottom Hole Location: 1637 feet FSL and 97 feet FWL, Section 29, T1 IN, R12W, SM Nicolai Creek Unit Well No. 2 Surface Location: 2018 feet FSL and 205 feet FWL, Section 29, T1 IN, R12W, SM Anticipated Productive Interval: 11. 76 feet FSL and 696 feet FWL, Section 29, T1 IN, R12W SM Bottom Hole Location: 877 feet FSL and 870 feet FWL, Section 29, T11N, R12W SM Nicolai Creek Unit Well No. 8 Surface Location: 2030 feet FSL and 245 feet FWL, Section 29, T1 iN, R12W SM Anticipated Productive Interval: 2030 feet FSL and 245 feet FWL, Section 29, T1 iN, R12W SM Bottom Hole Location: 2030 feet FSL and 245 feet FWL, Section 29, T1 IN, R12W SM The Commission has tentatively set a public hearing on this application for August 20, 2002 at 9:00 am at the Alaska Oil and Gas Conservation Commission at 333 West 7th Avenue, Suite 100, Anchorage, Alaska 99501. A person may request that the tentatively scheduled hearing be held by filing a written request with the Commission no later than 4:30 pm on August 6, 2002. If a request for a hearing is not timely filed, the Commission will consider the issuance of an order without a hearing. To learn if the Commission will hold the public hearing, please call 793-1221. In addition, a person may submit written comments regarding this application to the Alaska Oil and Gas Conservation Commission at 333 West 7th Avenue, Suite 100, Anchorage, Alaska 99501. Written comments must be received no later than 4:30 pm on August 19, 2002 except that if the Commission decides to hold a public hearing, written comments must be received no later than 9:00 am on August 20, 2002. If you are a person with a disability who may need a special modification in order to comment or to attend the public hearing, please contact Jody Colombie at 793-1221 before August 15, 2002. ,.., ,~' Cammy (Yechsli Taylor Chair, Alaska Oil & Gas Conservation Commission Published Date: 07/17/02 ADN AO# 02214050 Published Date: 07/19/02 Clarion AO# 02214051 ALASKA OIL & GAS CONSERVATION COMMISSION 333 W. 7TH AVE, SUITE 100 ANCHORAGE, AK '99501-3539 FACSIMILE TRANSMITTAL SHEET FaX lm.l~El~ TOTAL NO. OF PAGES INCLUDING COVER: PHONE NUMBEI~ RE: SENDER'S REFERENCE NUMBER: YOUR REFERENCE NUMBE~ [] URGENT [] FOR REVIEW [] PLEASE COMMENT [] PLEASE REPLY [] PLEASE RECYCLE NOTES/COMM]:-NTS: PHONE NO. (907) 279-1433 FAX NO. (907) 276-7542 NY PUBLIC LIBRARY DIV E, GRAND CENTRAL STATION P O BOX 2221 NEW YORK, NY 10163-2221 OFFICE OF THE GOVERNOR, JOHN KATZ STE 518 444 N CAPITOL NW WASHINGTON, DC 20001 ARENT FOX KINTNER PLOTKIN KAHN, LIBRARY WASHINGTON SQ BLDG 1050 CONNECTICUT AV NW WASHINGTON, DC 20036-5339 US MIN MGMT SERV, CHIEF OCS STATS & INFO 381 ELDEN ST MS 4022 HERNDON, VA 20170-4817 LIBRARY OF CONGRESS, STATE DOCUMENT SECTION EXCH & GIFT DIV 10 FIRST ST SE WASHINGTON, DC 20540 U S DEPT OF ENERGY, PHYLLIS MARTIN MS EI823 1000 INDEPENDENCE SW WASHINGTON, DC 20585 TECHSYS CORP, BRANDY KERNS PO BOX8485 GATHERSBURG, MD 20898 US GEOLOGICAL SURVEY, LIBRARY NATIONAL CTR MS 950 RESTON, VA 22092 DPC, DANIEL DONKEL 2121 NORTH BAYSHORE DR #616 MIAMI, FL 33137 SD DEPT OF ENV & NATRL RESOURCES, OIL& GAS PROGRAM 2050 W MAIN STE#1 RAPID CITY, SD 57702 BP EXPLORATION (ALASKA), INC., LIBRARY/INFO CTR P O BOX 87703 CHICAGO, IL 60680-0703 ILLINOIS STATE GEOL SURV, LIBRARY 469 NATURAL RESOURCES BLDG 615 E PEABODY DR CHAMPAIGN, IL 61820 LINDA HALL LIBRARY, SERIALS DEPT 5109 CHERRY ST KANSAS CITY, MO 64110-2498 ALFRED JAMES III 107 N MARKET STE 1000 WICHITA, KS 67202-1811 UNIV OF ARKANSAS, SERIALS DEPT UNIV LIBRARIES FAYETTEVILLE, AR 72701 IOGCC, P O BOX 53127 OKLAHOMA CITY, OK 73152-3127 R E MCMILLEN CONSULT GEOL 202 E 16TH ST OWASSO, OK 74055-4905 OIL & GAS JOURNAL, LAURA BELL P O BOX 1260 TULSA, OK 74101 BAPI RAJU 335 PINYON LN COPPELL, TX 75019 US DEPT OF ENERGY, ENERGY INFORMATION ADMINISTRATION MIR YOUSUFUDDIN 1999 BRYAN STREET STE 1110 DALLAS, TX 75201-6801 DEGOLYER & MACNAUGHTON, MIDCONTINENT DIVISION ONE ENERGY SQ, STE 400 4925 GREENVILLE AVE DALLAS, TX 75206-4083 STANDARD AMERICAN OIL CO, AL GRIFFITH P O BOX 370 GRANBURY, TX 76048 XTO ENERGY, MARYJONES 810HOUSTON ST STE2000 FORT WORTH, TX 76102-6298 SHELL WESTERN E&P INC, G.S. NADY P O BOX 576 HOUSTON, TX 77001-0574 H J GRUY, ROBERT RASOR 333 CLAY STREET SUITE 3850 HOUSTON, TX 77002 PURVIN & GERTZ INC, LIBRARY 2150 TEXAS COMMERCE TWR 600 TRAVIS ST HOUSTON, TX 77002-2979 RAY TYSON 2016 MAIN #1415 HOUSTON, TX 77002-8844 CHEVRON, PAUL WALKER 1301MCKINNEY RM1750 HOUSTON, TX 77010 OIL & GAS JOURNAL, BOB WILLIAMS 1700 W LOOP SOUTH STE 1000 HOUSTON, TX 77027 PETRAL CONSULTING CO, DANIEL L LIPPE 9800 RICHMOND STE 505 HOUSTON, TX 77042 AURORA GAS, G. SCOTT PFOFF 10333 RICHMOND AVENUE, STE 710 HOUSTON, TX 77042 GAFFNEY, CLINE & ASSOC., INC., LIBRARY 1360 POST OAK BLVD., STE 2500 HOUSTON, TX 77056 MARATHON OIL COMPANY, WILLIAM R HOLTON, JR. 5555 SAN FELIPE STREET SUITE 2511 HOUSTON, TX 77056-2799 , MARK ALEXANDER 7502 ALCOMITA HOUSTON, TX 77083 UNOCAL, REVENUE ACCOUNTING P O BOX 4531 HOUSTON, TX 77210-4531 EXXON EXPLORATION CO., T E ALFORD P O BOX 4778 HOUSTON, TX 77210-4778 EXXON EXPLOR CO, LAND/REGULATORY AFFAIRS RM 301 P O BOX 4778 HOUSTON, TX 77210-4778 TEXACO EXPLORATION & PRODUCTION INC, CORRY WOOLI NGTON PO BOX 36366 HOUSTON, TX 77236 CHEVRON USA INC., ALASKA DIVISION ATTN: CORRY WOOLINGTON P O BOX 1635 HOUSTON, TX 77251 PETR INFO, DAVID PHILLIPS P O BOX 1702 HOUSTON, TX 77251-1702 PHILLIPS PETROLEUM COMPANY, W ALLEN HUCKABAY PO BOX 1967 HOUSTON, TX 77251-1967 WORLD OIL, DONNA WILLIAMS P O BOX 2608 HOUSTON, TX 77252 EXXONMOBIL PRODUCTION COMPANY, J W KIKER ROOM 2086 P O BOX 2180 HOUSTON, TX 77252-2180 PENNZOIL E&P, WILL D MCCROCKLIN P O BOX 2967 HOUSTON, TX 77252-2967 CHEVRON CHEM CO, LIBRARY & INFO CTR P O BOX 2100 HOUSTON, TX 77252-9987 MARATHON OIL COMPANY, NORMAL. CALVERT P O BOX 3128, Ste 3915 HOUSTON, TX 77253-3128 ACE PETROLEUM COMPANY, ANDREW C CLIFFORD PO BOX 79593 HOUSTON, TX 77279-9593 WATTY STRICKLAND 2803 SANCTUARY CV KATY, TX 77450-8510 TESORO PETR CORP, LOIS DOWNS 300 CONCORD PLAZA DRIVE SAN ANTONIO, TX 78216-6999 JIM WHITE 4614 BOHILL SAN ANTONIO, TX 78217 INTL OIL SCOUTS, MASON MAP SERV INC P O BOX 338 AUSTIN, TX 78767 XTO ENERGY, DOUG SCHULTZE 3000 N GARFIELD SUITE 175 MIDLAND, TX 79705 BABCOCK & BROWN ENERGY, INC., 350 INTERLOCKEN BLVD STE 290 BROOMFIELD, CO 80021 ROBERT G GRAVELY 7681 S KIT CARSON DR LITTLETON, CO 80122 DIANE SUCHOMEL 10507D W MAPLEWOOD DR LITTLETON, CO 80127 GEORGE G VAUGHT JR P O BOX 13557 DENVER, CO 80201 US GEOLOGICAL SURVEY, LIBRARY BOX 25046 MS 914 DENVER, CO 80225-0046 C & R INDUSTRIES, INC.,, KURT SALTSGAVER 7500 W MISSISSIPPI AVE STE C4 LAKEWOOD, CO 80226-4541 JERRY HODGDEN GEOL 408 18TH ST GOLDEN, CO 80401 NRG ASSOC, RICHARD NEHRING P O BOX 1655 COLORADO SPRINGS, CO 1655 8O9O1- RUBICON PETROLEUM, LLC, BRUCE I CLARDY SIX PINE ROAD COLORADO SPRINGS, CO 80906 JOHN A LEVORSEN 200 N 3RD ST #1202 BOISE, ID 83702 PLAYER GAS CO., GARY PLAYER 1671 WEST 546 S CEDER CITY, UT 84720 US GEOLOGICAL SURVEY, LIBRARY 2255 N GEMINI DR FLAGSTAFF, AZ 86001-1698 MUNGER OIL INFOR SERV INC, P O BOX 45738 LOS ANGELES, CA 90045-0738 BABSON & SHEPPARD, JOHN F BERGQUIST P O BOX 8279 VIKING STN LONG BEACH, CA 90808-0279 ANTONIO MADRID P O BOX 94625 PASADENA, CA 91109 ORO NEGRO, INC., 9321 MELVIN AVE NORTHRIDGE, CA 91324-2410 US GEOLOGICAL SURVEY, KEN BIRD 345 MIDDLEFIELD RD MS 999 MENLO PARK, CA 94025 SHIELDS LIBRARY, GOVT DOCS DEPT UNIV OF CALIF DAVIS, CA 95616 H L WANGENHEIM 5430 SAWMILL RD SP 11 PARADISE, CA 95969-5969 ECONOMIC INSIGHT INC, SAM VAN VACTOR P O BOX 683 PORTLAND, OR 97207 US EPA REGION 10, THOR CUTLER OW-137 1200 SIXTH AVE SEATTLE, WA 98101 MARPLES BUSINESS NEWSLETTER, MICHAEL J PARKS 117 W MERCER ST STE 200 SEATTLE, WA 98119-3960 STATE PIPELINE OFFICE, LIBRARY KATE MUNSON 411 W 4TH AVE, STE 2 ANCHORAGE, AK 99501 TRUSTEES FOR ALASKA, 1026 W. 4th Ave, Ste 201 ANCHORAGE, AK 99501 DEPT OF REVENUE, BEVERLY MARQUART 550 W 7TH AV STE 570 ANCHORAGE, AK 99501 DUSTY RHODES 229 WHITNEY RD ANCHORAGE, AK 99501 GUESS & RUDD, GEORGE LYLE 510 L ST, STE 700 ANCHORAGE, AK 99501 DEPT OF REVENUE, OIL & GAS AUDIT DENISE HAWES 550 W 7TH AV STE 570 ANCHORAGE, AK 99501 FOREST OIL, JIM ARLINGTON 310 K STREET STE 700 ANCHORAGE, AK 99501 FAIRWEATHER, DUANE VAAGEN 715 L STREET STE 7 ANCHORAGE, AK 99501 DEPT OF REVENUE, CHUCK LOGSTON 550 W 7TH AVE, SUITE 500 ANCHORAGE, AK 99501 AURORA GAS, J. EDWARD JONES 1029 W 3RD AVE, STE 220 ANCHORAGE, AK 99501 DEPT OF ENVIRON CONSERVATION, DIV OF ENVIRONMENTAL HEALTH JANICE ADAIR 555 CORDOVA STREET ANCHORAGE, AK 99501 DEPT OF REVENUE, DAN DICKINSON, DIRECTOR 550 W 7TH AVE, SUITE 500 ANCHORAGE, AK 99501 CAMMY TAYLOR 1333 W 11TH AVE ANCHORAGE, AK 99501 DEPT OF ENVIRON CONSERVATION, DIV OF AIR & WATER QUALITY TOM CHAPPLE 555 CORDOVA STREET ANCHORAGE, AK 99501 PRESTON GATES ELLIS LLP, LIBRARY 420 L ST STE 400 ANCHORAGE, AK 99501-1937 ALASKA DEPT OF LAW, ROBERT E MINTZ ASST ATTY GEN 1031 W 4TH AV STE 200 ANCHORAGE, AK 99501-1994 GAFO, GREENPEACE PAMELA MILLER 125 CHRISTENSEN DR. #2 ANCHORAGE, AK 99501-2101 DEPT OF NATURAL RESOURCES, DIV OF OIL & GAS TIM RYHERD 550 W 7th AVE STE 800 ANCHORAGE, AK 99501-3510 DEPT OF REVENUE, OIL & GAS AUDIT FRANK PARR 550 W 7TH AVE STE 570 ANCHORAGE, AK 99501-3540 DEPT OF NATURAL RESOURCES, DIV OF OIL & GAS JIM STOUFFER 550 W 7TH AVE, SUITE 800 ANCHORAGE, AK 99501-3560 DEPT OF NATURAL RESOURCES, DIV OF OIL & GAS JULIE HOULE 550 W 7TH AVE, SUITE 800 ANCHORAGE, AK 99501-3560 DEPT OF NATURAL RESOURCES, DIV OIL & GAS WILLIAM VAN DYKE 550 W 7TH AVE, SUITE 800 ANCHORAGE, AK 99501-3560 DNR, DIV OF OIL & GAS JAMES B HAYNES NATURAL RESRCE MGR 550 W 7TH AVE, SUITE 800 ANCHORAGE, AK 99501-3560 DEPT OF NATURAL RESOURCES, DIV OF OIL & GAS BRUCE WEBB 550 W 7TH AVE, SUITE 800 ANCHORAGE, AK 99501-3560 ALASKA JOURNAL OF COMMERCE, ED BENNETT 2000 INTL AIRPORT W #Al0 ANCHORAGE, AK 99502 AK JOURNAL OF COMMERCE, OIL & INDUSTRY NEWS ROSE RAGSDALE 2000 INTL AIRPORT RD W #Al0 ANCHORAGE, AK 99502 YUKON PACIFIC CORP, 1400 W BENSON BLVD STE 525 ANCHORAGE, AK 99503 BAKER OIL TOOLS, ALASKA AREA MGR 4730 BUSINESS PK BLVD STE 44 ANCHORAGE, AK 99503 ANADARKO, MARK HANLEY 3201 C STREET STE 603 ANCHORAGE AK 99503 HDR ALASKA INC, MARK DALTON 2525 C ST STE 305 ANCHORAGE, AK 99503 N-I TUBULARS INC, 3301 C Street Ste 209 ANCHORAGE, AK 99503 ALASKA OIL & GAS ASSOC, JUDY BRADY 121 W FIREWEED LN STE 207 ANCHORAGE. AK 99503-2035 ANADRILL-SCHLUMBERGER, 3940 ARCTIC BLVD #300 ANCHORAGE, AK 99503-5711 FINK ENVIRONMENTAL CONSULTING, INC., THOMAS FINK, PHD 6359 COLGATE DR. ANCHORAGE, AK 99504-3305 ARLEN EHM GEOL CONSLTNT 2420 FOXHALL DR ANCHORAGE AK 99504-3342 JAMES E EASON 8611 LEEPER CIRCLE ANCHORAGE, AK 99504-4209 US BUREAU OF LAND MNGMNT, ANCHORAGE DIST OFC DICK FOLAND 6881 ABBOTT LOOP RD ANCHORAGE, AK 99507 BUREAU OF LAND MANAGEMENT, GREG NOBLE 6881 ABBOTT LOOP ROAD ANCHORAGE AK 99507 AMERICA/CANADIAN STRATIGRPH CO, RON BROCKWAY 4800 KUPREANOF ANCHORAGE, AK 99507 US BUREAU OF LAND MNGMNT, ANCHORAGE DIST OFC PETER J DITTON 6881 ABBOTT LOOP ROAD ANCHORAGE, AK 99507 US BLM AK DIST OFC, GEOLOGIST ARTHUR BANET 949 EAST 36TH AVE STE 308 ANCHORAGE AK 99508 THOMAS R MARSHALL JR 1569 BIRCHWOOD ST ANCHORAGE, AK 99508 UOA/ANCHORAGE, INST OF SOCIAL & ECON RESEARCH TERESA HULL 3211 PROVIDENCE DR ANCHORAGE, AK 99508 ROSE RAGSDALE 3320 EAST 41 ST AVENUE ANCHORAGE AK 99508 VECO ALASKA INC., CHUCK O'DONNELL 949 EAST 36TH AVENUE ANCHORAGE, AK 99508 TRADING BAY ENERGY CORP, PAUL CRAIG 5432 NORTHERN LIGHTS BLVD ANCHORAGE, AK 99508 US MIN MGMT SERV, RICHARD PRENTKI 949 E 36TH AV ANCHORAGE, AK 99508-4302 US MIN MGMT SERV, AK OCS REGIONAL DIR 949 E 36TH AV RM 110 ANCHORAGE, AK 99508-4302 US MIN MGMT SERV, RESOURCE STUDIES AK OCS REGN KIRK W SHERWOOD 949 E 36TH AV RM 603 ANCHORAGE, AK 99508-4302 GORDON J. SEVERSON 3201 WESTMAR CIR ANCHORAGE, AK 99508-4336 US MIN MGMT SERV, FRANK MILLER 949 E 36TH AV STE 603 ANCHORAGE, AK 99508-4363 REGIONAL SUPRVISOR, FIELD OPERATION, MMS ALASKA OCS REGION 949 E 36TH AV STE 308 ANCHORAGE, AK 99508-4363 US MIN MGMT SERV, RESOURCE EVAL JIM SCHERR 949 E 36TH AV RM 603 ANCHORAGE, AK 99508-4363 US MIN MGMT SERV, LIBRARY 949 E 36TH AV RM 603 ANCHORAGE, AK 99508-4363 JOHN MILLER 3445 FORDHAM DR ANCHORAGE, AK 99508-4555 USGS - ALASKA SECTION, LIBRARY 4200 UNIVERSITY DR ANCHORAGE, AK 99508-4667 CIRI, LAND DEPT P O BOX 93330 ANCHORAGE, AK 99509-3330 PHILLIPS ALASKA INC., LAND MANAGER JIM RUUD P.O. BOX 100360 ANCHORAGE, AK 99510 PHILLIPS ALASKA INC., MARK MAJOR ATO 1968 P O BOX 100360 ANCHORAGE, AK 99510-0360 PHILLIPS ALASKA INC., LAND DEPT JAMES WINEGARNER P O BOX 10036 ANCHORAGE. AK 99510-0360 PHILLIPS ALASKA INC., STEVE BENZLER ATO 1404 P O BOX 100360 ANCHORAGE, AK 99510-0360 PHILLIPS ALASKA INC., LEGAL DEPT MARK P WORCESTER P O BOX 100360 ANCHORAGE, AK 99510-0360 PHILLIPS ALASKA INC., JOANN GRUBER ATO 712 P O BOX 100360 ANCHORAGE AK 99510-0360 PETROLEUM INFO CORP, KRISTEN NELSON P O BOX 102278 ANCHORAGE, AK 99510-2278 PHILLIPS ALASKA INC., KUP CENTRAL WELLS ST TSTNG WELL ENG TECH NSK 69 P O BOX 196105 ANCHORAGE, AK 99510-6105 ALYESKA PIPELINE SERV CO, PERRY A MARKLEY 1835 S BRAGAW - MS 575 ANCHORAGE AK 99512 ALYESKA PIPELINE SERV CO, LEGAL DEPT 1835 S BRAGAW ANCHORAGE, AK 99512-0099 ANCHORAGE DALLY NEWS, EDITORIAL PG EDTR MICHAEL CAREY P O BOX 149001 ANCHORAGE, AK 99514 DAVID W. JOHNSTON 320 MARINER DR. ANCHORAGE AK 99515 LINDA BERG 4210 FRONTIER LANE ANCHORAGE, AK 99516 JWL ENGINEERING, JEFF LIPSCOMB 9921 MAIN TREE DR. ANCHORAGE, AK 99516-6510 NORTHERN CONSULTING GROUP, ROBERT BRITCH, P.E. 2454 TELEQUANA DR. ANCHORAGE AK 99517 GERALD GANOPOLE CONSULT GEOL 2536 ARLINGTON ANCHORAGE, AK 99517-1303 ASRC, CONRAD BAGNE 301 ARCTIC SLOPE AV STE 300 ANCHORAGE, AK 99518 DAVID CUSATO 600 W 76TH AV #508 ANCHORAGE, AK 99518 ARMAND SPIELMAN 651 HILANDER CIRCLE ANCHORAGE, AK 99518 HALLIBURTON ENERGY SERV, MARK WEDMAN 6900 ARCTIC BLVD ANCHORAGE, AK 99518-2146 TESORO ALASKA COMPANY, PO BOX 196272 ANCHORAGE, AK 99519 OPSTAD & ASSOC, ERIK A OPSTAD PROF GEOL P O BOX 190754 ANCHORAGE, AK 99519 JACK O HAKKILA P O BOX 190083 ANCHORAGE, AK 99519-OO83 ENSTAR NATURAL GAS CO, PRESIDENT TONY IZZO P O BOX 190288 ANCHORAGE, AK 99519-0288 MARATHON OIL COMPANY, OPERATIONS SUPT W.C. BARRON P O BOX 196168 ANCHORAGE, AK 99519-6168 MARATHON OIL COMPANY, LAND BROCK RIDDLE P O BOX 196168 ANCHORAGE, AK 99519-6168 UNOCAL, P O BOX 196247 ANCHORAGE, AK 99519-6247 UNOCAL, KEVIN TABLER P O BOX 196247 ANCHORAGE, AK 99519-6247 EXXONMOBIL PRODUCTION COMPANY, MARK P EVANS PO BOX 196601 ANCHORAGE, AK 99519-6601 BP EXPLORATION (ALASKA), INC., MARK BERLINGER MB 8-1 PO BOX 196612 ANCHORAGE, AK 99519-6612 BP EXPLORATION (ALASKA)INC, PETE ZSELECZKY LAND MGR P O BOX 196612 ANCHORAGE, AK 99519-6612 BP EXPLORATION (ALASKA)INC, INFO RESOURCE CTR MB 3-2 P O BOX 196612 ANCHORAGE, AK 99519-6612 BP EXPLORATION (ALASKA)INC, MR. DAVIS, ESQ P O BOX 196612 MB 13-5 ANCHORAGE, AK 99519-6612 BP EXPLORATION (ALASKA)INC, SUE MILLER P O BOX 196612 M/S LR2-3 ANCHORAGE, AK 99519-6612 AMSINALLEE CO INC, WILLIAM O VALLEE PRES PO BOX 243086 ANCHORAGE, AK 99524-3086 PINNACLE, STEVE TYLER 20231 REVERE CIRCLE EAGLE RIVER, AK 99577 L G POST O&G LAND MGMT CONSULT 10510 Constitution Circle EAGLE RIVER, AK 99577 D A PLATT & ASSOC, 9852 LITTLE DIOMEDE CIR EAGLE RIVER, AK 99577 JAMES RODERICK PO BOX 770471 EAGLE RIVER, AK 99577-0471 DEPT OF NATURAL RESOURCES, DGGS JOHN REEDER P O BOX 772805 EAGLE RIVER, AK 99577-2805 COOK INLET KEEPER, BOB SHAVELSON PO BOX 3269 HOMER, AK 99603 PHILLIPS PETROLEUM CO, ALASKA OPERATIONS MANAGER J W KONST P O DRAWER 66 KENAI, AK 99611 RON DOLCHOK P O BOX 83 KENAI, AK 99611 DOCUMENT SERVICE CO, JOHN PARKER P O BOX 1468 KENAI, AK 99611-1468 KENAI PENINSULA BOROUGH, ECONOMIC DEVEL DISTR STAN STEADMAN P O BOX 3029 KENAI, AK 99611-3029 NANCY LORD PO BOX 558 HOMER, AK 99623 PENNY VADLA P O BOX 467 NINILCHIK, AK 99639 BELOWICH, MICHAEL A BELOWICH 1125 SNOW HILL AVE WASILLA, AK 99654-5751 JAMES GIBBS P O BOX 1597 SOLDOTNA, AK 99669 PACE, SHEILA DICKSON P O BOX 2018 SOLDOTNA, AK 99669 KENAI NATL WILDLIFE REFUGE, REFUGE MGR P O BOX 2139 SOLDOTNA, AK 99669-2139 VALDEZ PIONEER, P O BOX 367 VALDEZ, AK 99686 ALYESKA PIPELINE SERVICE CO, VALDEZ CORP AFFAIRS SANDY MCCLINTOCK P O BOX 300 MS/701 VALDEZ, AK 99686 VALDEZ VANGUARD, EDITOR P O BOX 98 VALDEZ, AK 99686-0098 EVERGREEN WELL SERVICE CO., JOHN TANIGAWA PO BOX 871845 WASILLA, AK 99687 NICK STEPOVICH 543 2ND AVE FAIRBANKS, AK 99701 UNIV OF ALASKA FAIRBANKS, PETR DEVEL LAB DR V A KAMATH 427 DUCKERING FAIRBANKS, AK 99701 COOK AND HAUGEBERG, JAMES DIERINGER, JR. 119 NORTH CUSHMAN, STE 300 FAIRBANKS, AK 99701 RICK WAGNER P O BOX 60868 FAIRBANKS, AK 99706 FAIRBANKS DALLY NEWS-MINER, KATE RIPLEY P O BOX 70710 FAIRBANKS, AK 99707 C BURGLIN P O BOX 131 FAIRBANKS, AK 99707 DEPT OF NATURAL RESOURCES, DIV OF LAND REG MGR NORTHERN REGION 3700 AIRPORT WAY FAIRBANKS, AK 99709-4699 K&K RECYCL INC, P O BOX 58055 FAIRBANKS, AK 99711 ASRC, BILL THOMAS P O BOX 129 BARROW, AK 99723 RICHARD FINEBERG P O BOX 416 ESTER, AK 99725 UNIV OF ALASKA FBX, PETR DEVEL LAB SHIRISH PATIL 437 DICKERING FAIRBANKS, AK 99775 UNIVERSITY OF ALASKA FBKS, PETR DEVEL LAB DR AKANNI LAWAL P O BOX 755880 FAIRBANKS, AK 99775-5880 SENATOR LOREN LEMAN STATE CAPITOL RM 113 JUNEAU, AK 99801-1182 DEPT OF ENVIRON CONSERV SPAR, CHRIS PACE 410 WILLOUGHBY AV STE 105 JUNEAU, AK 99801-1795 #2 14 '15 ., ! i i' TABLE _U~I? _A. GR_EEMEkNT Ydgl.L%I PENINSL~A BOROUGH THIRD JUDICIAL DIVISIO~x: STATE OF ~jLASKA OF CONTENTS ;i 10 iI Certification - Determination .............. 1~1! Approval-Certification-Determination .......... 12 il Preliminary Recitals .................. 13 Section 1 Enabling Act and Regulations ........ Section 2 Unit Area ................. Section 3 Unitized Land and Unitized Substances 16j Section 4 Unit Operator .............. l?i Section 5 Resignation or Removal of Uni 01 18 ( Section 6 Successor Unit Operator .......... II Accounting °Yovisions and Unit Ooeratino. 19 Section 7 ~II figr cement A -9 52 29 30 28 27 25I 21 ,~ II I' ! - i - Section 8 Rights and Obligations of Unit operator . - Section 9 Discovery ................. section 10 Plan of Further Development and operation - 12 Section 11 Participation After Discovery ....... 15 Section 12 Allocation of Production .......... Section 13 Development or Operation of Non-Participating Land or Formations : ............ !6- 17 Section 14 Royalty Settlement ....... ? ..... Section 15 Rental Settlement ........ - .... 19 ~on etlon ' Section 16 serv ................ Section 17 Drainage .................. Section 18 Leases and Contracts Conformed and Extended. 19 Section 19 Covenants Run With Land .......... 24 ii Section 20 Effective Date and Term .......... II Section 21 Rate of Prospecting, Development and .: Production ................. ~: Section 22 Appe ,; arances . . . . . · · · ........ · I, · '~ Section 23 Notices 10 11 12 14 '15 16 18 ,: Section 24 No Waiver of Certain Rights ........ ,, Section 25 Unavoidable Delay . . . .......... Section 26 Nondiscrimination ............. Section 27 Loss of Title . . . · ........... .. section 28 Non-Joinder and Subsequent Joinder ..... Section 29 Counterparts . . . . · ........... Section 30 Conflict of Supervision .......... · Section 31 Conformance of Descriptions ........ Section 32 Filings . . · ............... Signature Spaces EXHIBITS Exhibit "A" - Map or Plat Exhibit "B" - Lease Schedule ~8 - ii- 25 26 26 27 27 27 28 28 28 30 30 3O 30 8 9 10 11 13 14 '15 16 17 18 19 ~0 ~3 ~4 ~7 ~HEREAS, the parties hereto hold sufficient interests described to give reasonably effective control of operations therein; and, ~LEREAS, it is the purpose of the parties hereto to conserve natural resources, prevent waste, and secure other benefits obtainable~'throUgh development and operation of the area subject to this agreement under the terms, conditions' and limita- tions herein set forth; and, ?~{EREAS, State Lands, for the purposes of administration of lands, under this agreement, means those lands title to which is vested or that become vested in the State of Alaska. In addition to the above, Federal lands not covered by an existing Federal oil and gas lease at the time tentative approval for selection is granted the State and conditional State leases are issued prior to final patent as provided for in section 6(g) of the Statehood Act, shall be administered by the State under 'this agreement. NOW, THEREFORE, in consideration of the premises and the promises herein contained, the parties hereto commit to this agreement their respective interests in the b.elow-defined unit area, and agree severally among themselves as follows: 1. ENABLING ACT AND REGULATIONS. The Mineral Leasing Act of February 25, 1920, as amended, supra, and all valid pertinent regulations, including operating and unit plan regulations, hereto- fore issued thereunder or valid, pertinent, and reasonable regula- tions hereinafter issued thereunder, are accepted and made a part of this agreement as to Federal lands, provided such regulations are not inconsistent with the terms of this agreement; and, as to the State of Alaska and privately owned lands, 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, -2- 1 or hereafter issued thereunder, governing drilling and producing 2iI operations, no: inconsistent with the terms hereof or the laws of 5 the State of Alaska, are hereby accepted and made a part of this 4 agreement. · 5' 2. UNIT AREA. The area specified on the map attached 6 ? 8 9 10 11 lZ 15 14 '15 16 18 19 ~0 ~4 Z6 Z? ~8 hereto marked Exhibit "A# is hereby designated and recognized as - .~" ~'"'"' ' acres, more or less constituting the unit area, containing ~-- Exhibit "A# shows, in addition to the boundary of the unit ~rea, the boundaries and identity of tracts and leases in said area to the extent known to the Unit Operator. Exhibit attached hereto is a schedule showing, to the extent known to the Unit operator, the acreage, percentage, and kind of ownership of oil and gas interests in all land in the unit area. However, nothing herein or in said schedule or map shall be construed as a representation by any party hereto as to the ownership of any interest other than such interest or interests as are shown in 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 such revision necessary, or when requested by the Oil and Gas Supervisor, U. $. Geological Survey,-hereinafter referred -- to as "Supervisor," or when requested by the Director, Division of Lands of the Department of Natural Resources, hereinafter referred to as "Director, A.D.L..," and not less than six (6) copies of the revised exhibits shall be filed with the Supervisor, and five (5) copies thereof shall be filed with the Director, A.D.L. The above-described unit area shall, when practicable, be expanded to include therein any additional tract or tracts regarded as reasonably necessary or advisable for the purposes of this agreement, or shall be contracted to exclude lands not within any participating area whenever such expansion or contraction is necessary or advisable to Conform with the purposes of this agree- men:. Such expansion or contraction shall be affected in the -3- 1 4 6 ? 8 9 10 11 15 14 '15 16 · 17 18 19 ~4 25 ~6 following manner: (a) Unit operator, on its own motion, or on demand of the Director of the United States Geological Survey, hereinafter referred to as "Director, U.S.G.S., or on demand of the Com- missioner, after preliminary 'concurrence by the Director, U.S.G.S., and the Commissioner, shall prepare a notice of proposed expansion or contraction describing the contemplated changes~ in the boundarie~ 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 Supervisor, and the Commissioner, and copies thereof mailed to the last known address of each working interest owner, lessee, and 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 fil'e with the A.D.L., evidence of mailing of the Supervisor and the Director, notice of expansion or contraction and a copy of any objections thereto which have been filed with the Unit ~perator, 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 infor- mation, the expansion or contraction shall, upon approval by the Director, U.S.G.S. and th~ Director, A.D.L., become effective as of the date prescribed in the notice thereof. (e) All legal subdivisions of unitized lands, (i.e., 40 acres by Government survey or its nearest lot or tract equivalent in instances of irregular surveys; howev_er~ unusually large lots or tracts shall be considered in multiples of 40 acres, or the nearest aliquot equivalent thereof, for the purpose of elimination under this ~ubsection), no parts of which are entitled -4- 1 £ 3 4 ~0 18 27 ~0 32 to be in a participating area within five years commencing the first day of the month following the effective date of the first initial participating area established under thi. s unit agreement, shall be eliminated automatically from this agreement, effective as of the first day thereafter, and such lands shall no longer be a part of the unit area and shall no longer be subject to this agreemgnt, and as to State lands, shall no longer be a part of · ... the unit area and shall no longer be subject to this' agreement except as provided in paragraph 18 (J), unless at the expiration of said five-year period diligent drilling operations are in pro- gress on unitized lands not entitled to participation, in which event all such lands shall remain subject hereto for so long as such drilling operations are continued diligently, with not more than 90 days time elapsing between the completion of one such well .and the commencement of the next such well, (any such elimination after completion of any well which defers elimination after said 5 years, shall be effective as of the first day after the time allowed to commence the next such well, if not timely · commenced) except that the time allowed between such wells shall not expire earlier than 30 days after the expiration of any period 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 b~come participating under the applicable pro'- visions of this agreement within ten years commencing on said first day of th~ month following the effective date of said first initial participating area shall be eliminated as above spe. cified. Determination of creditable. "Unavoidable Delay" time shall be . made by Unit Operator and subject to approval of the Director, UoS.G.S. and the Director,' A.D.L. The Unit Operator shall, within 90 days after the effective date of any elimination here- -5- under, describe the area so eliminated to the satisfaction of the 2 Director, U.S.G.$. and the Director, A.D-L. and promptly notify 5 all parties in interest. 4 If conditions warrant extension of the ten-year period § specified in this subsection 2 (e), ~ single extension of not to 6 exceed two years may be accomplished by consent of the o%~ners of ~ 90 percent of the current unitized working interests ~nd 60 per- 8 cent of the current unitized basic royalty interests (e):clusive 9 of the basic royalty interests of the United States and ~e State 10 of Alaska), on a total nonp~rtici.~atlng-acreage basis, respectively, 11 with approval of the Director, U.S.G.S. and the Com-.n%issioner, 12 provided such extension application is submitted to the Director, 13 U.S.G.S. and to the Director, A.D.L. not later than 60 days prior 14 to the expiration of said ten-year period. '15 16 ~0 ~4 ~0 .Any expansion of the unit area pursuant to this section which embraces lands theretofore eliminated pursuant to this sub- . section 2 (e), shall not be considered automatic coi~itment or recommitment of such lands. 3. UNITIZED I~-'~D AND UI~ITIZED SUBSTANCES. All land committed to this agreement shall constitute-land referred to herein as "unitized land" or-"land subject to this agreement." All oil and gas in any and all formations of the unitized land are unitized under the terms of ti%is agreement and herein are called "unitized substances. 4. UNIT OPER~TOR. Texaco Inc., with offices at 3350 Wilshire Boulevard, Los ~a~9eles, California 90005~ is hereby designated as Unit Operator, and by signature hereto as Unit Operator commits 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 the discovery~ development, and production of unitize-J substances as herein provided. ~'~enever reference is made herein to the Unit Operator, -6- 1 4 5 6 7 8 9 10 11 12 14 '15 16 17 18 19 2O 21 22 2~ 24 25 26 27 28 29 ~0 ~2 such reference means the Unit Operator acting in that capacity and not as an owner of interest in unitized substances, and the term "working interest owner" when used herein shall include or refer to Unit Operator as the owner of a working interest when such an interest is owned by it. 5. RESIGNATION OR R~OVAL OF UNIT OPERATOR. Unit Operator shall have the right to resign at any time prior to the establishment of a participating area or areas hereunder, but such resignation shall not become effective so as to release Unit Operator from the duties and obligations of Unit Operator and terminate Unit Operator's rights as such for a period of six months after notice of intention to resign has been served by Unit Operator on all working interest owners and the Director, U.S.G.S. and Director, A.D.L., and until all wells then drilled hereunder are placed in a satisfactory condition for suspension or abandonment, whichever is required by the Supervisor as to Federal Lands, and by the Director, A.D.L. as to State and pri- vately owned lands, unless a new Unit Operator shall ha.ve been selected, accepted and~ approved and shall have taken over and assumed the duties and obligations of Unit Operator prior to the 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 participating area established hereunder is in existence, but in all instances of resignation or removal, until a successor Unit Operator is selected, accepted and approved' as hereinafter provided, the working interest Or,hers shall De jointly responsible for performance of the duties of Unit Operator, and shall not later than 30 dsys before such resignation or removal becomes effective appoint a cor~on agent to represent th~m in any action to be taken hereunder. The resignation of Unit Operator shall not release -7- i.0 1 4 5 6 8 9 10 ll 13 14 '15 16 18 19 ~5 Z7 Unit Operator from any liability for any default by it hereunder occurring prior to the effective date of its resignation. The Unit Operator may, upon default or failure in the performance .of its duties or obligations hereunder, be subject to removal by the same percentage vote of the o%~ers 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, U.S.G.$. and the Director, A.D. 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 'interest in unitized sub- stances, 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 authorizing removal of any material, equipment and appurtenances needed for the p~eservation of any wellsl .. 6. SUCCESSOR UNIT OPERATOR. ~.~enever the Unit Operator shall tender his or its resignation as Unit Operator, or shall be removed 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 qualified to vote are owned by one party to this agreement, a concurring vote of one -8- 1 or more additional working interest owners shall be required to 2 select a new operator. However, in event unit operator owns 75 5 percent or more of the Working Interest's qualified to vote, he 4 or it may select the new unit operator by assignment without any § supporting vote. Such selection shall not become effective until: 6 (a) a Unit Operator so selected shall accept in ? writing the duties and responsibilities of Unit Operator, and 8 (b) the selection shall have been filed with the 9 Supervisor and filed with and approved by the Director, A.D.L. If 10 no successor Unit Operator is-selected and qualified as herein 11 provided, the Director, U.S.G.S. and Commissioner, at their lZ lS 14 '15 16 17 18 19 20 ~7 election, may declare this Unit Agreement terminated. 7. ACCOUNTING PROVISIONS AND UNIT OPERATING AGREEMENT. If the Unit Operator is not the sole owner of working interests, costs and expenses incurred by Unit Operator in conducting unit operations hereunder shall be paid and apportioned among, and borne by, the owners of working interests, all in accordance with the agreement or agreements, whether one or more, .entered into by and between the Unit Operator and the owners of wOrking interests, separately or collectively. Any agreement or agree- ments, whether one or more, entered into between the working interest owners and the Unit Operator as provided in this section are herein referred to as the "Unit Operating Agreement." Such unit operating agreement shall also provide the manner in which the working interest owners shall be entitled to receive their respective proportionate and allocated share of the benefits accruing hereto in confor~ity with their underlying operating agreements, leases, or other independent contracts, and such other rights and obligatiohs as b~tween Unit _Operator and the working interest o%~ners as may be. agreed upon by Unit operator and the working interest owners; however, no such unit operating agreement shall be deemed either to modify any of the terms and -9- 1 2 4 6 ? 8 9 10 11 12 14 '15 16 17 18 19 2O 21 22 25 24 25 26 27 28 29 30 31 52 conditions of this unit agreement 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 unit agreement shall prevail.. Three (3) true copies of any unit operating agree- ment executed pursuant to this section should be filed with the Supervisor, and three (3) true copies with the Director, A.D.L., prior to approval of this unit agreement by the Director, U.S.G.S., and the Commissioner. Any amendment of such operating agreement shall be filed immediately upon becoming effective in the same manner as the original document. 8. RIGHTS AND OBLIGATIONS OF UNIT OPERATOR. Except as otherwise specifically provided herein, the exclusive right, privilege, and duty of exercising any and all rights of the parties hereto which are necessary or convenient for prospecting for, producing, storing, allocating, and distributing the unitized substances are hereby delegated to and shall be exercised by the Unit Operator as herein provided. Acceptable evidence Qf title to said rights shall be deposited with said Unit Operator and, together with this agreement, shall constitut-e 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 purposes herein specified. 9. DISCOVERY. Inasmuch as three (3! wells, Nicolai Creek Wells $1, $2 and $3, capable of producing unitized sub- stances in paying quantities (to-wit: quantities sufficient to · repay the cost of drilling and producing operations, with a reasonable profit) have already been drilled and tested within the unit area no initial test well shall be re~~d?~9~p n An(~hora[te~ 1 2 3 4 5 6 8 9 10 11 12 13 14 '15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 52 terms of this agreement and 'it shall be considered that production is had in paying quantities under this agreement on the effective date hereof. 10. PLAN OF FURTHER DEVELOPMENT AND OPERATION. Within six months after the effective date of this unit agreement, the Unit Operator shall submit for the approval of the Supervisor and the Director, A.D.L., an acceptable plan of development and oper- when approved by the Supervisor ation for the unitized land which, and the Director, A.D.L., shall constitute the further drilling and operating obligations of the Unit Operator under this agree- ment for the period specified therein. Thereafter, from time to time before the expiration of any existing plan, the Unit Operator shall submit for the approval of the Supervisor and the Director, A.D.L., a plan for an additional specified period for the development and operation of the unitized land. Any plan submitted pursuant to this section shall provide for the explor- · ation of the unitized area and for the diligent drilling necessary for determination of the area or areas thereof capable of pro- ducin9 unitized substances in paying quantities in each and every productive formation and shall.be as complete and adequate as the Supervisor and the Director, A,D.I~ may determine to be necessary for timely development and proper conservation of the oil and gas resources of the unitized area and shall: (a) specify the number and locations of any wells to b~ drilled and the proposed order and time for such drilling; and, (b) to the extent practicable, specify the operating -11- 1 4 5 6 ? 8 9 10 11 15 14 '15 16 18 19 ~0 28 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 Supervisor and the Director, A.D.L. Said plan or plans shall be modified or supplemented when necessary to meet changed conditions, or to protect the interests of all parties to this agreement. Reasonable diligence shall be exercised in complying with the obligations of the approved plan of development. The Supervisor and the Director, A.D.L. are authorized jointly 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 any unitized substance in paying quan- tities, no further wells, except such as may be necessary to afford protection against operations not under this agreement or such as may be specifically approved by the Supervisor and the Director, A.D.L., shall be drilled except in accordance with a plan of development approved as herein provided. 11. PARTICIPATION ~FT~ DISCOVERY. Upon completion of a well capable of producing unitized substznces in paying quantities, the Unit Operator shall within the month of such completion, if practicable, or as soon thereafter as required by the Supervisor and the Director, A.D.L., submit for approval by the Director, U.S.G.S. and the Director, A.D.L. a schedule, based on subdivisions of the public land survey or .aliquot parts thereof of all unitized land then regarded as reasonably proved to .be productive of unitized substances in paying quantities; alt lands . · · in said schedule on aPProval o~ the Director, U.S.G S and the Director, A.D.L. to constitute a p~rticipating area, effective as of the date of completion of such well or the effective date -12- ! o 1 of the unit agreement, whichever is later. The acreages of both 2 Federal and non-Federal lands shall be based upon approved pro- 5 traction diagrams or appropriate computations from the courses 4 and distances shown on the' last approved protraction diagram or § public-land survey as of the effective date of the initial par- 6 ticipating area. Said schedule also shall set forth the percentage 7 of unitized substances to be allocated as herein provided to each 8 unitized tract in the participating area so established and shall 9 govern the allocation of production from and after the date the 10 participating area becomes effective. A separate participating 11 area shall be established in like manner for each separate pool 12 or deposit of unitized substances or for any group thereof pro- 15 duced as a single pool or zone, and any two or more participating 14 areas so established may be combined into one with the consent of '1§ the owners of all working interests in the lands within the 16 participating areas so to be combined, on approval of the Director, 17 18 19 2O 21 22 23 24 25 26 27 29 SO 32 U.S.G.S. and the Director, A.D.L. The participating area or areas so established shall be revised from time to time, subject to like approval, whenever such action appears proper as a result of further drilling operations or otherwise, to' include additional land then regarded as reasonably proved to be productive in paying quantities,or to exclude land then regarded as reasonably proved not to be productive in paying quantities, and the percentage of allocation shall also be revised accordingly. The effective date of any revision shall be the first of the month in which is ob- tained 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, U.S.G.S. and the-Director, A.D.L. No land shall - . be excluded from a participating area on account of depletion of · un'' 'zed substances.. i' -13- 4 5 6 ? 8 9 10 11 12 14 '15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 52 It is the intent of this section that a participating area shall represent the area known or reasonably estimated to be productive in paying quantities; but, regardless of any revision of the participating 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 absence of agreement at any time between the Unit Operator and the Director, U.S.G.$. and the Director, A.D.L. as to the proper definition or redefinition of a participating area, or until a participating area has, or areas have, been established as provided herein, the portion of all payments affected thereby may be impounded in a manner mutually acceptable to the owners of working interests, except royalties due the United States and the State of Alaska, which shall be determined by the Supervisor for Federal lands and the Director, A.D.L. for State lands and the amount thereof deposited, as directed by the Supervisor and the Director, A.D.L. respectively, to be held as unearned money until a participating area is finally approved and then applied as earned or returned in ac'cordance with a determination of the sum due as Federal and State royalty 'on the basis of such approved participating area. Upon request of the operator (or working interest owners pursuant to section 13) the Director, A.D.L., shall hold as confidential any engineering, geophysical, geological data (including but not limited to drilling logs, and daily drilling reports) or any other data of like or similar nature which may be requested or required by the Director, A.D.L., for any purpose of this agreement. This shall not apply to those items required t° be submitted to the State .. · under the State oil and gas conservation regulations. P~enever it is determined, subject to the approval of the Supervisor as to Federal land and the Director, A.D.L. as to -14- 1 2 $ 4 § ? 8 9 10 11 12 15 14 '15 16 18 19 2O 21 22 24 25 26 27 28 29 51 $2 ,l State or privately owned land that a well drilled under an approved plan of development of 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 well 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 provided in the unit oper ati.ng agreement. 12. ALLOCATION OF PRODUCTION. All unitized sub- stances produced from each participating area established under this agreement, except any part 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 Supervisor and the Director, A.D.L., or.unavoidably lost, shall be deemed to be produced equally on an acreage basis from the several tracts of unitized land of the participating area established for such 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 percentage of said production as the number of-acres of such tract included in said participating area bears to the total acres of unitized land in said participating ar~a, except that allocation of production hereunder for purposes other than for settlement of the royalty, overriding royalty, or payment out of production obligations of the respective working interest owners, shall be on the basis pre- scribed 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 -15- 1 participating area shall be allocated as provided herein regardless ~ of whether any wells are drilled on any particular part or tract 5 of said participating area. If any gas produced from one partici- 4 Fating area is used for repressuring or recycling purposes in 5 another participating area, the first gas withdrawn from such 6 last-mentioned participating area for sale during the life of ? this agreement shall be considered to be the gas so transferred 8 until an amount equal to that transferred shall be so produced 9 for sale, and such gas shall ~e allocated to the participating 10 area from which initially produced as constituted at the time of 11 such final production. 12 13. DEVELOPMENT OR OPERATION OF NON-PARTICIPATING 13 LAND OR FORMATIONS. Any party hereto owning or controlling' the 14 working interests in any unitized land having thereon a regular *1§ 16 19 ~0 ~? 3O 31 32 well. location may, with approval of the Supervisor as to Federal land and the Director, A.D.L. as to State or privately owned land, 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 participating area, unless within 90 days of receipt of notice from said party of his intentio 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 with the terms Of this agreement and the unit operating agreement. -16- 1 2 3 4 6 ? 8 9 10 11 12 13 14 16 · 17 18 19 2O 21 22 23 24 25 26 27 29 30 31 ~2 If any well drilled as aforesaid by a working interest owner obtains production in quantities insufficient to justi£y the inclusion in a participating area of the lan.d upon %£nich such well is situated, such well may be operated and produced by the party drilling the same, subject to the conservation requirements of this agreement. The royalties in amount or value of production from any such well shall be paid as specified in the. underlying lease and agreements affected. 14. ROYALTY SETTLEF~NT. The United States and the State of Alaska and all royalty owners who, under existin~ con- tract, are entitled to take in kind a share of the substances now unitized hereunder produced from any tract, shall hereafter be entitled to the right to take in kind their share 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 o%.~er aka!! make deliveries of such royalty share taken in kind in conformity with the applicable contr'acts, 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 land from their respective lease obli- gations for the payment of any royalties due under their le~ses. No deductions for dehydration and cleaning ch.arges shall be charged to the State's royalty except where royalty is taken in kind unless the State subsequently agrees that such deduction is · . o reasonable and proper.. If gas obtained from lands not subject to this agree- ment is introduced into any participating area hereunder, for usa in repressuring, stimulation of production, or increasing ultimate -17- 1 recovery, which shall be in'conformity with a plan first approved 2 by the Supervisor and Director, A.D.L., a like amount of gas, after 3 settlement as herein provided for any gas transferred from any 4 other participating area and with due allowance for loss or § depletion from any cause, may be withdrawn from the formation into 6 which the gas was introduced, royalty free as to dry gas, but not ? as to the products extracted therefrom; provided that such with- 8 drawal shall be at such time as may be provided in the plan of 9 operations or as may otherwise be consented to by the Supervisor 10 and Director, A.D.L. as conforming to good petroleum engineering 11 practice; and provided further that such right of withdrawal shall 12 terminate on the termination-of this unit agreement. 15 Royalty due .the United States shalI be computed as pro- 14 vided in the operating regulations and paid in value or delivered 15 16 17 18 19 2O 22 23 24 25 26 ~8 29 3O 31 52 in kind as to all unitized substances on the basis of the amounts thereof allocated to unitized Federal land as provided herein at the rates specified in the respective Federal leases,, or at such ~wer rat~ or rates as may be authorized by law or regulation; · provided, that for leases on which the royalty rate de~ends on the daily average production per well, said aver~age production shall be determined in accordance with the operating regulations as though each participating area were a single consolidated lease. Royalty due on account of State of Alaska shall be computed and paid as to all unitized substances on the basis of the amounts allocated to such lands, and in accordance with appropriate statutes and regulations. · 15. RENTAL SETTLEMENT. Rental or minimum royalties due on leases committed hereto shall be paid by working interest owners responsible therefor under existing contracts, laws, and regulations, provided that 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 2 $ 4 5 6 ? 8 9 10 lieu thereof due under their leases. Rental or minimum royalty for lands of the United States subject to this agreement shall be paid at the rate specified in the respective leases from the United States unless such rental or minimum royalty is waived, suspended, or reduced by law or by approval of the Secretary or his duly'authorized representative. Rentals or minimum royalty on State of Alaska lands subject to this agreement shall be paid at the rates specified in the respective leases and in accordance with appropriate statutes and regulations. 11 12 13 14 '15 16 18. 19 20 21 With respect to any lease on non-Federal and non-State land containing provisions which would terminate such lease unless drilling operations were-within the time therein specified commence, upon the land covered thereby or rentals paid for the privilege of deferring such drilling operations, the rentals 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 commenced upon the land covered thereby or some portion of such land is included within a participating area. 16. CONSERVATION. Operations hereunder and production 23 · of unitized substances shall be conducted to provide for the most 24 26 27 29 3O economical and efficient recovery of said substances without waste, as defined by or pursuant to State or Federal law or regulation. 17. DRAINAGE. The Unit Operator shall take appropri and adequate measures approved or required by the Supervisor and the Commissioner to prevent drainage of unitized substances from unitized land by wells on land not subject to this agreement. 18. LEASES AND COt{TRACTS CONFORMED.~/gD EXTENDED. The 31 terms, conditions and provisions of all leases, subleases and 32 other contracts relating to exploration, drilling, development or ~aska Oil & Gas Cons, Commissic~~, Anchorage 1 2 3 4 6 ? 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 3O 31 operation for oil or gas on lands committed to this agreement are hereby expressly modified and amended to the extent necessary to make the same conform to the provisions hereof, but otherwise to remain /~ full force and effect; and the parties hereto hereby · consent that the Secretary as to Federal leases and the Commission- er as to State leases shall and each by his approval hereof, or by the approval hereof by his duly authorized representative, does change or revoke the drilling, producing, hereby establish, alter, rental, minimum royalty and royalty requirements of Federal and State leases committed heret° and the regulations in respect there- to and conform said requirements to the provisions of this agrees ment and, without limiting the generality of the foregoing, all leases, subleases, and contracts are particularly 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 d~velopment 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 in interest, or any of them. (b) Ikrillin9 and producing operations performed hereunder upon 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 Secretary and the Commissioner or their duly authorized repre- -20- 1 3 4 6 ? 8 9 10 11 12 13 14 '15 16 17 18 19 2O 21 22 23 24 26 27 28 29 3O 31 52 sentative, 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 exploration, drilling, development or operation for oil or gas of lands, other than those of the United States and State of Alaska, committed to this agreement which, by its terms might, expire prior to the termination of this agreement, is hereby extended beyond any such term so provided therein so that it shall be continued in full force and effect for and during the term of this agreement. (e) Any Federal lease for a fixed term of Twenty (20) years or any renewal thereof:or any part of such lease which is m~de subject to this agreement Shall continue in force beyond the term provided therein until the termination hereof. Any other Federal lease committed hereto shall continue in force beyond the term so provided therein or by law as to the land committed so · long as such lease remains subject hereto, provided that production is had in paying quantities under this unit agreement prior to the expiration date of the term of such lease, or in the event actual drilling operations are commenced on unitized'land, in accordance with the provisions of this agreement, prior to the end of {he primary term of such lease and are being diligently prosecuted at that time, such lease shall be extended for two years and so long thereafter as oil or gas is produced in paying quantities in accordance with the provisions of the Mineral Leasing Act Revision of 1960. (f) Each sublease or contract relating to the operation and development of unitized substances from lands of the United States committed to this agreement, which by its terms would expire prior to the time at which the underlyin'g lease, as extended by the immediately preceding paragraph, will e:qpire, is hereby extended beyond any such term so provided therein so that it shall be con- -21- 4 5 6 ? 8 9 10 11 12 13 14 '15 16 · 17 18 19 ~0 26 ~7 28 tinued in full force and effect for and during the term of the underlying lease as such term is herein extended. (g) Any lease embracing lands of the State of Alaska which are made subject to this agreement, shall continue in forc~ beyond the term provided therein as to the lands committed hereto so long as such lease remains subject hereto, provided that pro- duction is had in paying quantities under this unit agreement prior to the expiration date of the term of such lease, or in the event actual drilling operations are commenced on unitized land, in accordance with the provisions of this agreement, prior to the end of the primary term of such lease and are being diligently pro- secuted at that time, such lease shall be extended for two years and so long thereafter as oil or gas is produced in paying quantities. (h) The segregation of any Federal lease committed to this agreement is governed by the following provision in the fourth paragraph of Sec. 17 (j) of the Mineral Leasing Act, as amended by the Act of September 2, 1960, (74 Stat. 781-784): "kny (Federal) lease heretofore or hereafter committed to any such (uni.t) plan embracing lands that are in part within and in part outside of the area covered by any such plan shall be segregated into separate ,.. leases as to the land committed and the lands not committed as of the effective date of unitization: Provided_, howeve~r_, that any ~uch leases as to the non-unitized portion shall continue in force and effect for the term thereof but for not less than two years from the date of such segregation and so long thereafter as oil or gas is produced in paying quantities." (i) Any lease embracing land of the-' State of klaska having only a portion of its lands committed hereto, shall be segregated as to .the portion committed and the portion not committed, and the provisions of such lease shall apply separately to such segregated portions commencing as of the effective date hereof; provided, however, notwithstanding any of the provisions -22- 1 4 6 ? 8 9 10 11 14 '15 16 18 19 S4 ~8 of this agreement to the contrary' any lease embracing lands of the State of Alaska' having only a portion of its lands 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 lands embraced therein shall remain in full force and effect so long as such operations are being diligently prosecuted, and if they result in the pro- duction 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 thereaft~ as oil or gas in paying quantities is being pro- duced from any portion of said lease. Provide.d, howevers, that any such lease as to the non-unitized portion shall continue, in force and effect for the term thereof but for not less than 2 years from the date of such segregation and so long thereafter as oil or gas is produced in paying quantities. Any State lease having production in paying quantities, as defined in this agreement, on said lease prior to commitment to this agreement shall not be segregated. The non-unitized portion shall not participate in the unit area but shall be extended by virtue of the production on the unitized portion and so long as it produces in paying quantities. Nothing herein shall operate to excuse further development on the portion lying outside the-unit area where the circumstances would require a reasonably prudent . lessee to further develop. (j) ?Ruere some portion of a State lease is included within the final participating area as provided in Paragraph 2 (e) -23- 1 4 6 ? 8 9 10 11 14 '15 16 lS 19 ~0 ~4 Z8 51 of this agreement, the following shall apply as to the area of the lease not so included: That area of lease lands not so included in the final participating area shall ~e eliminated as in Paragraph 2 (e) of this agreement and shall terminate after the expiration of 90 days unless annual rentals at the rate specified in the original lease shall have been paid within the said 90 days. The entire lease shall continue in force and effect so long thereafter as production is allocated to a partion of said lease and so long as annual rentals are paid 'on the portion not within the partici- pating 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 rental. Thereafter, annual rentals are due and payable on the anniversary date of the lease. (k) Any lease, other than a Federal or State lease, having only a portion of its lands committed hereto shall be segregated as to the portion committed and the .portion not committed, and the .provisions of such lease shall apply separately to such segregated portions commencing as of the effectiv, e date hereof. In 'the event any such lease provides for a lump-sum rental payment, such payment shall be prorated between the portions so segregated in proportion to the acreage of the respective tracts. 19. COVENANTS RUN WITH LAND. The covenants herein shall be construed to be covenants running with the land with respect to the interest of the parties hereto and their successors in interest until this agreement terminates, and any grant, trans- fer 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 trsnsfer of any work- ing interest, royalty or other interest subject hereto shall be · binding upon Unit Operator until the first day of the calendar month after Unit Operator is furnished with the original, photo- -24- 1 2 4 § 6 ? 8 9 10 11 12 13 14 '15 16 17 18 19 20 21 22 24 25 26 27 29 50 32 static or certified copy of the instrument of transfer. 20. EFFECTIVE ~ATE AND TERM. This agreement shall become effective upon approval by the Secretary .and the Commissioner or their duly authorized representatives, as of the date of approval by the Secretary and shall terminate five (5) years from said effective date unless~ (a) such date of expiration is extended by the Director, U.S.G.S. and'the Cx)mmissioner, or (b) it is reasonably determined pr.ior 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 formations'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 known addresses, the agreement is terminated with the approval of the Director, U.S.G.S. and Commissioner, or (c) a valuable discovery of unitized substances has been made or accepted on unitized land during said initial term or any extension thereof, in which event the agreement shall remain in effect for such term and so long as unitized substances can be produced in quantities sufficient to pay for the c?st of pr6ducing same from wells on unitized land within any participating area established hereunder and, should production cease, so long thereafter as diligent operations are in progress for the restorati¢ of production or discovery of new production and so long thereafter as such unitized substances can be produced as aforesaid, or (d) it is terminated as heretofore provided in this agreement · This agreement may. be terminat_ed at any time by the - owners of not less than 75 percentum, oh an acreage basis, of the committed working interests, with the approval of the Director, U.S.G.S. and the Commissioner; notice of any such approval to be -.25- 1 2 4 6 ? 8 9 10 11 12 14 '15 16 17 18 19 20 21 22 23 24 25 26 27 28 32 given by the Unit Operator to all parties hereto. 21. RATE OF PROSPECTING, DEVELOPMENT, AND PRODUCTION. The Director, U.S.G.S. is hereby vested with authority to alter or modify from time to time in his discretion the quantity and rate of production under this agreement when such quantity and rate is not fixed pursuant to Federal or 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 bei.ng hereby limited to alteration or modification in the public interest, the purpose thereof and the public interest to be served thereby to be stated in the order of alteration or modification. Without regard to the foregoing, the Director, U.S.G.S. is also hereby vested with .authority to alter or modify from time to time at his discretion the rate of prospecting and development and the quantity and rate of production under this agreement when such alteration or modi- · fication is in the interest of attaining.the conservation objectives stated in this agreement and is not in violation of any applicable Federal or State law; provided further that no such alteration or modification shall be effective as to any land of the State of Alaska as to the rate of prospecting and developing in the--absence of specific written approval thereof by the Director, A.D.L. and as to the lands of the State of Alaska or privately owned lands · subject to this agreement as to the quantity and rate of production in the absence of specific written aPProval thereof by the Director A. D.L. Powers in this section vested in the Director, U.S.G.S. shall only be exercised after notice to Unit Operator and oppor- tunity for hearing to be held not less than fifteen (15) days from . notice. 22. APPEARANCES. Unit Operator shall, after notice to other parties affected, have the right to appear for and on -26- 1 4 5 6 8 9 10 11 12 15 14 '15 16 17 18 19 2O 21 22 24 25 26 28 29 50 52 behalf of any and all interests affected hereby before the Depart- ment of Interior, or 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 Commissioner, or to apply for relief from any of said regulations or in any proceedings relative to operations before the .Department of the Interior, the Commissioner, or any other legally constituted authority; provided, however, that any other interested party shall also have the right at'his own expense to be heard in any such pro..ceeding. 23. NOTICES. All notices, demands or statements required hereunder to be given or rendered to the parties hereto shall be deemed fully given if given in writing 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 hreof 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 be construed as a waiver by any party hereto of the right to assert any legal or constitutional right or defense as to the validity or invalidity of any law of the state wherein said unitized lands are located, or of the United States, or regulations issued thereunder in any way affecting such party, or as a waiver by any such party of any right beyond his or · its authority to waive. 25. UNAVOIIIABLE DELAY. All 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, the Unit operator despite the exercise of but only so long as, due care and diligence is prevented from complying with such -27- 1 4 § ? 8 9 10 11 12 15 14 '15 16 17 18 19 2O 21 24 27 28 29 51 52 obligations, in whole or in part, by strikes, acts of God, Federal, · State or Municipal law or agencies, unavoidable accidents, uncon- trollable delays in transportation, inability to. obtain necessary materials in open market, or other matters beyond the reasonable control of the Unit Operator whether similar to matters herein enumerated or not. 26. NONDISCRIMINATION. In connection with the perform- ance of work under this agreement, the operator agrees to comply with all of the provisions of Section 202 (1) to (7) inclusive, of which are h~reby incorporated Executive Order 11246 (30 F.R. 12319), by reference in 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 readjustmen 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, payment or delivery on account thereof m~y be withheld without liability for interest until the dispute is finally settled; pro- vided that, ~s to Federal and State land or leases, no payment of funds due the United States or the State of Alaska should be with- held, but such funds due the United States shall be deposited as directed by the Supervisor, and such funds due the State of Alaska shall be deposited as directed by the Director, A.D.L., 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 f_rom any responsibility - for any defect or failure of any title hereuhder. - . 28. NON-JOINDER AND SUBSEQUENT JOI[~DEK. if the owner of any substantial interest in a tract within the unit area fails -28- 1 2 3 4 5 6 8 9 10 11 12 13 14 '15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 3O 32 or refuses to subscribe or consent to this agreement, the owner of the working interest in that tract may withdraw said tract from this agreement by written notice to the Director, U.S.G.S., the Director, .AoD.L., and the Unit Operator, prior to the approval of this agreement by the Director, U.S.GoS. Any oil or gas interests in lands within the unit area not Committed hereto prior to sub- mission of this agreement for final approval may thereafter be committed hereto by the owner or owners thereof subscribing or consenting to this agreement, and, if the interest is a working interest, by the owner of such interest also subscribing to the unit operating agreement. After operations are commenced hereunder, the right of subsequent joinder, as provided in this section, by a working interest owner is subject to such requirements or approvals, if any, pertaining to such joinder, as may be provided for in the unit operating agreement. After final approval hereof, joinder by a non-working interest owner must be consented-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 to 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 Supervisor and the - Director, A.D.L. of duly executed counterparts of all or any papers necessary to establish effective commitment of any tract to this agreement unless objection to such Joinder is duly made within -29- I sixty (60) days by the Director, U.S.O.S. or Director, A.D.L. ~ 29. COUNTERPARTS. This agreement may be executed in $ any number of counterparts, no one-of which needs to be executed 4 by all parties, or may be ratified or consented to by separate § instrument in writing specifically referring hereto and shall be 6 binding upon all those parties who have executed ,uch a counterpart, 7 ratification or consent hereto with the same force and effect as 8 if all such parties had signed the same document and regardless 9 of whether or not it is executed by all other parties owning or 10 claiming an interest in the lands within the above-described unit 11 area. 12 30. CONFLICT OF SUPERVISION. Neither the Unit Operator 13 nor the working interest owners nor any of them shall be subject to 14 any forfeiture, termination or expiration of any rights hereunder '15 or umder any leases or contracts subject hereto, or to any penalty 16 or liability on account of delay or failure in whole or in part to 17 comply with any applicable provision thereof to the extent that the 18 Unit Operator, working interest owners or any of them are hindered, 19 delayed or prevented from complying therewith by reason of failure Z0 of the Unit Operator to obtain, in the exercise of due diligence, ~1 the cOncurrence of proper representatives of the United States and proper representatives of the State of Alaska in and about any matters or thing concerning which it is required herein that such ooncurrence be obtained. 31. CONFORMANCE OF DESCRIPTIONS. The parties hereto consent to the conformation of the metes and bounds description of any Federal leases issued prior to June 21, 195.9, being accom- plished in the same manner that Federal leases issued on or after -39 51 that date will be conformed pursuant to 'the regulations 43 C.F.R. 3123.8(d). 32. FILINGS. The Unit Operator shall file the required number of copies of all notices, reports and applications -30- 6 7 10 11 12 14 '15 pertaining to unit operations with both the State and U.S.O.S. Where approval of such instruments is required, the approving agency shall notify the othex agency in wxiting, of action taken on %he request. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed and have set opposite their respective names the date of execution. Date of Execution FEB 2 9 19~1~ ~ ; JL . c , _ -- · · Address: 3350 Wilshire Boulevard · Los Angeles, Calif. 90005 UNIT OPERATOR AND NORKING INTE~$T t OWNER .. STATE OF CALIFORNIA.~ SS County o~ My Conunis~on expires: '7 (/ / · / L,: o~vrms. :~ / ~o/ ~4',_{.'~'~ ~v -- Eu~h~r V. 1' ' ,,:i,;'n /- , a Not~y Public in a~ /or 5aid County ~d Statg, r~ziding therein, tl~y commissioned and sworn, personally appgarcd known to tnt to bt the per5on who executed the within instrument on bchal/ o/ TEXACO /nc.. a Delaware corporation, the corporation therein named, and who,e name ~oithin instrument a~ thc attorn~-/.in.]act o! .~id corporation, and acknowledged to mc that he zub,cribcd tar name o/ acid corporation thereto a~ principal, and hi~ own nam, as attorney.in./act, and acknowledged to mc taut au. ch corporation executed the ,am¢. IN I~iTNESS II'HEREOF, I hem, hereto ~¢t my hand and a#ixed my pl~cial ~al thc day and year in thi~ c,,rtiflcat¢ first above writtcn,~..' , / · /.-~ ~... -'/' "'-.-" .' '?' '-' c.'-")~.c '~. · " Notar~ Public in and/or ~aid Coun'O' JAy Com,,'t2zion E.-.f. it'cs '- -,-- . ,,,.sa,~ 16, 1970 '=-: ~' i- = .... v · . Proof of authority of and attorney in fact for Texaco Inc. reference is hereby made to Serial No. to State of Alaska Qualifications File Ashauer to act as agent has been duly filed and Anchorage 061450 and ADL QF-12. R12W T N UNION MARATHON - ADL,- 175'}1 UNION MARATHON · · R12W · UNION MARATHON T 11 NORTH 1:., .4OOO' T RAC"i' NO. TOTAL STATE LSE NO. ADL 63279 ADL 17585 ADL 17.598 ACREAGE 320.00 196o82 181.48 698.30 LEGEND · o UNIT BOUNDARY TRA"'" ~.,, BOU;;DAF, Ai' TRACT NUMBER 'ILED FROM THE FOLLOWING . . . · EXHIBIT "A' (REVISIED 2/1/89) NICOLAI CREEK UNIT · COOK INLET BASIN ALASKA OESCRIPTION TllN. R12W, EXHIBIT "B" (Revised-2/1289) NICOLAI CREEK UNIT AREA- ALASKA ACREAGE LEASE NO., SERIAL NO. & EXPIRATION ROYALTY & DATE PERCENTAGE OWNERSHIP & OVERRIDING ROYALTY INTEREST ~20.00 ACL-65279 State - Ail ' HBP Alice F. & O. Bailey Hinkle (.25794%) Mitsue & Robert K. Masuda (.28571~) Keiso & Marcella T. Masuda (.28571%) Donald L. Stroble (.25794%) Alice Coulthard (.25794%) Katie H. & Satoshi Kaku (.25794%) Hatsuyo V. & Etsuo Miyamoto (.28571%) ~ayne Y. & Fred $. Hokama (.25794%) Ichiro I. Ishii (.57141%) Rose Marie & Bernard Maresh (.25794%) Ruth 5. & Mobley A. Pharis (.25794%) WORKING INTEREST OWNERS and PERCENTAGE Union Oil. Company of California .- 50% Marathon Oil Company -50% TRACT NUMBER DESCRIPTION TllN, Ri2W~ S.M. SeGtion~29:'' F~rtion of w-i/2 lying seaward of shoreline Section 32: N-l/2, NW-1/4 ACREAGE LEASE NO., SERIAL NO. & EXPIRATION DATE ROYALTY P~RCF'NTAGE OWNERSHIP & OVERRIDING ROYALTY INTEREST tiiN, R!2W, S.M. Section 30: Pdrtion of E-l/2 lying seaward of shoreline Section 31: N-l/2, NE-l/4 TOTAL STATE ACREAGE LEASES 196.82 181.48 ADL-17585 (1-31-~7) HBP 2 -Zzo ADL-17598 H8P State - All State - All Patricia & Oack 8. Conway (.25794%) Lavema I. Traxinger (.2~794%) Gerald Ganapole (.12 oo ) Oohn R. Roderick (.125oo%) None None 698.30 Page 2 WORKING INTEREST OWNERS and PERCENTAGE Union Oil Company of California - 50% Marathon Oil Company -50% Union 0il Company of California - 50% Marathon Oil Company 5O% TOTAL ACREAGE 698.30 R12W T 11 UNION MARATHON AD~- 1751~ ~O. UNION ~ $0 UNION MARATHON · /~-~4~4 31 ,. .GAS POOL B'P.A. GAS POOL A P.A.. UNION MARATHON R12W · T 11 NORTH 1.'., .4000' TRAC~ NO. 1 3 4 TOT~%L STATE LSE NO. __ ADL 63279 ADL 17585 ADL 17598 ACREAGE 320.00 196.82 181.48 698.30 LEGEND · o UNIT BOUNDARY . TRACT EIOUNPARY TRACT NUMBER VIPILED FROM THE FOLLOWING · EXHIBIT "I. (RE'vISIED 2/1/89) NICOLAI CREEK UNIT . COOK INLET BASIN ALASKA EXHIBIT 2 SCHEDULE- Nicolai Creek Gas Pool A Initial Participating area, effective April 24, 1986. (NOTE: Descriptions conform to the map marked Exhibit "l" attached hereto.) Lease Serial Number: Lessees of Record: Working Interest Owners: Participating Acreage: Percent of Participation: Participating Lands: Tract 3 ADL 17585 Union Oil Company of California 50% Marathon 0il Company 50% Union 011 Company of California 50% Marathon 0il Company 50% 196.82 52.02749% Tn_N_, R..1.2W, Section 29: Portion SW-1/4 lying seaward of shoreline Section 32: N-l/2, NW-1/4 Lease Serial Number: Lessees of Record: Working Interest Owners: Participating Acreage: Percent of Participation: Participating Lands: Tract 4 ADL 17598 Union Oil Company of California Marathon Oil Company Union 0il Company of California Marathon 0il Company 181.48 47.97251% T!iN,_ R1.2W, _S~.N... Section 23: Portion SE-l/4 lying _ seaward of shoreline Section 31: N-l/2, NE-l/4 5O% 50% 5O% 5O% TOTAL PARTICIPATING ACREAGE: 378.30 3~991 EXHIBIT SCHEDULE Nicolai Creek Gas Pool B Initial Participating area, effective April 24, 1986. (NOTE: Descriptions conform to the map markled Exhibit "1" attached hereto.) Lease Serial Number: Lessees of Record: , Working Interest Owners: Participating Acreage: Percent of Participation: Participating Lands: Tract 1 ADL 63279 Union Oil Company of California 50~ Marathon Oil Company 50~ Union Oil Company of California 50~ ~arathon Oil Company 50~ 320. O0 ~llN, R12W, S:M_. Section 20: W-l/2 TOTAL PARTICIPATING ACREAGE: 320.00 58991 -' ~J~I"SC]CI" MOUI~T~ UNIT OPD~'ITN, r,;~ 2 (D~vJd,~:l la~reat) M,:a~,3,'y', ]955 UNIT OPERATING AGREEMENT CRSS UNIT AREA C U': TY OF OaOUG STATE OF Preliminary Recitals TABLE OF CONTEN*I~ ARTICLE 1--DEFINITIONS Section 1.1 Unit Agreement Definitions_ Section 1`2 Unit Operator Section l~ Party ...... Section 1.4 Costs Section 1.5 Committed Working IntereiL...._...= Section 1.6 Acreage Basis. .... Section 1.7 Production Section 1.8 Lease Burdens Section Section Section ~Section Section 1.14 Subaequent Te~t Well Section 1.15 Development Well Section 1.16 Exploratory Well ..... Section 1.1'1 Approval of the Parties or Direction of the Section 1.18 Salvage Value Section 1.19 Neuter Pronoun 1.9 Drilling Party ............ IA1 Drill 1.11 Deepen or Plug Back. ARTICLE ~,---NO LIABILITY FOR DRILLING, DEEPENING PLUGGING BACK WELL8 WITHOUT CONSFAgT Section 2.1 No Liability Without Consent.__ ~,:t~,~,., ~,.i~ ;.,~n.-uLto, .... . ...... - ' - ARTICLE ~~SEQ~ ~T Section 4.1 ~ght to ~. ~~E ~ESTABLIS~IE~, RE,SION A~ ~NSOI.~A~0~ OF PARTIC~ATING ~~ Section 5.1 ~oposal Section 5~ Objections to Propos~ ............ Section 5~ Revised Pro~sal Section 5.~ Rejection by Dkoctor.. Section 5.5 Consolidation ARTICLE ~APPORTIONME~ OF COSTS AND DISPOSITION OF PRODU~ON AND PROPER~ Section 6.1 Appoaionment and O~ersMp Wlt~ P~clpa~ng ~ Cos~ B. Production C. Prop~y Section 6.2 0~ership and Cos~ Ou~lde P~pa~g ~e~ ...... S~ti0n 6~ Taking In Kind ............ Section 6.4 Failure to Take In Kind. AR~CLE 7--PLANS OF DE~LOPME~ ~ion ~.1 WeNs and ProJec~ Include. ~ion ~ Notice of Proposed Plan ~lon 7~ Notice of Approval or Disapprov~ S~tion 7.4 Amendmen~ Section 2.5 Ce~atlon of Operations Und~ AETICLE ~DRILLING OF Section 8.1 ~e ~nd Proced~e.. Section 8`2 Notme of Proposed ~r~l~g. Section 8~ Eespo~ to Notice ............. Section 8.4 No,ce ol Election to Drill Section 8.5 ~ffe~ ~ EloCon ~o ~ Section 8.6 Subs~ent Elecl~n ARTICLE ~E~~TOR~ ~~ Sec~on 93 ~ocedure for Drilling ! ARTICLE 10--REQUIRED WELI~ Section 10.1 Definition Section 10.2 Election to Drill ............ Section 10.3 Alternatives to Drilling A. Compensatory Royaltlea B. Contraction C. Termination Section 10.4 Required Drilling A. Development Well B. Exploratory Well ARTICLE I1--ATTEM*PTED COMPLETION, DEEPENING, PLUGGING BACK AND A. tIAHDOHAZENT Section 11.1 Procedure Dt&Lributed br ?ok7 14~,,~n ~ ~ ro____o~4~_ ~ Jem. lng l,~ Bldg. 1 1 1 1 I 1 1 I 1 I I 1 ! i. 1 1 I 1 3 3 3 3 3 ,--'~' 3 3 3 3 ' ROC3fT' MOUIrI'A.~ URIT OPERA'I'INO A6 ~ ection .18.4 · .ctfon 18.5 ;ction 18.6 ARTICLE IZ---RIGHTS AND OBLIGATIONS OF DRII/ANG PARTY' AND NON*DRILLING PARTY* Section 12.1 Scope of Article .... Section 12.2 Relinquishment o! Interest by Non-Dld!!ina Fatty .............. Section 12.3 Reversion of Relinquished Interest_ Section 12.4 Effect of Reversion... SecUon 12~ Rights and Obllg~Uons of DrUling Party, ARTICLE 13---ADJUSTMENT ON ESTABLISHMENT 0E CHANOE OF PAETICH'ATINO AREA Section 13.1 When Adjustment Made ...... 4 Section 13.2 Definitions ' 4 A. Useable 'Well 4 B. Intangible Value 4 C, Tangible Property ................................... 4 D. Value ' 4 Section la.3 Method of Adjustment on Establishme~t'0~-~a'atf~emen~ . 4 Section 13.4 Method of Adjustment on Contraction. .............. '[. ~ 4 Section 13.5 Ownership of Wells and Tangible Propert7 ...................... 5 Section 15.0 Relinquished Interests o! Non-DrlHin~ Partie~_.m 5 ARTICLE I~---=SUPERVISION OF OPERATION8 BY PARTIES Section 14.1 Bight of Supervision.._- .... Ii Section 142 Voting Control ......... ti Section 14.3 Meetings ................ ti Section 14.4 Action Without Meeting. ti Section 14~ Representatives 6 'Section 14.~ Audits 6 Section 1/.? Extraneous Projects 6 ARTICLE IS--UNIT OPEEATOR'S POWERS AND RIGHTS Section 15.1 In General Section 15.2 Employees Section 15.3 Non-IAability Section 15.4 Force Majeure Section 15.5 Lien Section 15.6 Advances Section 1§3 Use of Unit Operator's Drilling Equipment ................ Section 15.8 Rights as Party, ARTICLE 16---UNIT OPERATOR'S DUTIES Section 16.1 Specific Duties A. Drilling of Wells. ............. B. Compliance with Laws and Agreements..., C. Consultation with Partie~ D. Payment of Costa.~, E. Records F. Information G. Acce~ to Unit Area._, Section 16.2 Insurnnce A. Unit Operator's B. Contractor's C. Automotive Equipment Section 10.3 Non-Discrimination Section 16.4 DriIltng Contrncts Section ]6.5 Uninsured Loases AKTICLE 17~LIMITATIONS ON UNIT OPERATOR. Section 17.! SpecLftc IAmitatlonz A. Change In Operations .......... B. Limit on Expenditures ....... C. Partial Relinqui-~hment D. Settlement ot Claims. E. Determinations ARTICLE 18~,-TITLES Section 18.1 Representations of OwnersMp ........ ? Section 182 Title .Papers.to be Furnished ? - ~!~. S~lon 18.3 ~ Wlth~awM fr~ Drffiing P~ 8 ~cc~oa ~=U~ of Title to ~m~tted Wor~g hter~L ..... 8 · ~ ~ of ~oducflom ..... 8- D. ~~em~t for ~v~t __ 8 /kEiI'I(ILE ~$~ENTAX~ AND Sec~lon 20.1 Section :0.2 Lease B~ ............................... S~ ~ ~s o[ ~tted Wor~g ~t~: ARTICLg ~I---TAXES Section 21.1 Payment I~ Section 21.2 Apportionment g Section 21.3 Transfer of Interests .................................. 9 Section :1l,¢ Notice4 and Returns. ............. 9 ARTI.CLE ~ COMPENSATORY ROYALTIES Section 23.1 Notice g Section 23.1l Demand for Failure to Drill a Development Well ..... 9 Section 23,3 Demand for Ftilure to Drill a Well Other than a Development WeH~ I~ ARTICLE 2~-.SEPARATE BIEASUREMENT AND SALVAGE Section 24.1 Separate Measurement Section 24.2 Salvaged Materials ARTICLE Z~SECONDARY RECOVERY AND PRESSU]~ ~_A_INTENANCE Section 25.1 Consent Hequired Section 252 Above Ground Facllltl~ ....... ARTICLE 26---*~S~ OF IArTE~ Section 26.1 Restriction on Zone Transfer·._ Section 26.2 Sale by Unit Operator ...... Section 26.3 AssumptiOn of Obligations...._ Section 26.4 Effective Date .... 10 ._10 ARTICLE iT--RELEASE FROM OBLIGATION8 AND SURRENDER Section 27.1 Surrender or Release Within Participating Section 2?2 Procedure on Surrender Out.side Participating Section 27.3 Accrued Obligations .10 ;.;10 .10 ARTICLE 28--SEVERAl.,, NOT JOINT LIAD~ Section 28.1 Liability Section 28.2 No Partnership Created. Section 28.3 Election 10 ...10 ARTICLE 29-=NOTICES Section 29.1 Giving and Receipt Sect.ion 29.2 proper Addre~es 10 ARTICLE 30--EXECUTED IN COUNTERPARTS AND RATIFICATION Section 30.1 _Co .unterlparts II Section 30.2 Ratification ARTICLE 31--SU~SORS AND ASSIGN8 Section 31.1 Covenants ARTICLE 32.--HEADING8 FOR CONVENIENCE Section 32.1 Headings ARTICLE 3~---RIGKr OF APPEAL Section 33J Not Waived 11 ARTICLE $~. :: SUBSEQUENT JOINDER Section 34.1 Prior to the Commencement of _Operations... Section 34.2 A.~ter Commencement of Operations ARTICLE 35~C, ARItlED INTEp, ESTI~ Section 3,5.1 Treatment oi .... II _I1 1! ARTICLE $6---EFFECTI4~ DATE AND TEEM Section 36.1 Effective Date 11 --~ Section I]62 Term ................................................................ II Section 36.3 Effect of Termination.. ........................... 11 Section 3{!.4 Effect oI Signature ............. -:-_ ............... 11 · ARTICLE 37---OTH~ PROVL~IONS Exhibit Z---Accounting Procedure (referred to in Sections 1.4, 1.18 and 12.2C). ..... ~-' ~ ............... ~, :no ,.i' .... I 12, 2 I, ~,.I; P,.~ ....... E,x. hlblt 4---Part 1--Drltling of Exploratory Wells (zderred to in Sections 1~.2, 11.2, 11.? and 13.7D). Part 2----Attempted Completion, Deepening, Plugging Rack and Abandonment Section ~t 5--1n~n-ance (referred to In Sections 16.2A and 16.2C). ROC'k~ MOUNTAIN UNIT OPEEATING F(xm :2 {Divided tnl.re,O J~nuary. UNIT OPEI: TING AGREEMENT Tcor.,rn: UNIT AREA STATE OF ALASKA _-~-_-_--:~'--- ' KENAI PENINSULA BOROUGH THIs AGREEMENT made as of the. 15th ;___day of. December , Il)._ 67 , by. and among the parties who execute or ratify tbJs agreement or a counterpart here~, WITNES$1t;TH: W RE^S, the have entered into that mazoP zNT OPERATION OF THi ....... ~!_COI.t~L~_.I~.,E~ ......................... ~ Aa,SA, ~ oC_._Ke.naf__;P__~n_t State of ..... .A....1..@.~..k...a. ......... , dated as of the_J.~....~. .... day _~_ _.,,__T):_'_~r.~'. .... II}ia:Z__, ,,ndjand herelnafter~re relerredre'erredto tn that° 6hth~ ;;au,mite n~ml~n~'isc°a~ertenmgenthteula~ "d~s~c~tt ~Area'i~' '~~ ~e~et°" ]~t [~c~~hl~e~; O WHEREAS, the Parties enter into this agreement pursuant to Section ? ol the Unit A~'eement' NOW, THEREFOP, E, in consideration of the mutual-agreements herein set Jorth, it is agreed as ~olloww: AItTICLi~ 1 DF_,FINITIONIi : 1.1 Unli Agreement Definitions. T~_.e definitions contained ia the Unit Agreement are adopted tot aU purples thLs agreement. In addition, each term listed below shall have the meaning stated therefor, whenever t~ed J~ this igre~- ment. 1.2 "-Onif Operator" means ................... .?.~_C_Q.....~...H...C..t.~ ..... ._.and ILs successors, as the Unit Operator designated in accordance with the Unit As~'eement, acting tn that capacity and not as an owner of Working Interest. 1~3 "Pm)"' means a party to !bis agreement, includln~ the Party acting as Unit Operator when acting as an owner o! Working Interest. 1.t "Costs" means all coals and expenses Incurred in the development and oi~eration ot the Unit Area pursuant to · ihls agreement or the Unit Agreement and all other expenses that are herein made chargeable as Costs, determined in accordance with .the .accoun .Ling. procedure set !ox'th in Exhibit 2 attached hereto, which shall govern In all matters covered thereb),, except that tn even[ oz inconsistency between said accounting procedure and this agreement, this agreement shall control 1.5 "Committed Working Interest" means a Working Interest which is shown on Exhibit B to the Unit Agreement as owned by a Party and which is committed to the Unit Agreement. Whenever reterence is made to I Party "in" or "within" the Unit Area, a participating area, or other area designated pursuant to this agreement, such reference shall mean a Party owning a Committed Working Interest tn lands within such area. 1.6 "Acreage Basis", when. used_to describe the baaL1 of participation by the Parties within the Unit Area; · partlcl. paling area, or ot. her. area designated pursuant to this agreement tn voting, Costs, or Production, means participation b7 each such Party in the proportion that the acreage of Its Committed Working Interests in such area bears, to the total acreage of the Committed Working Interests ot all such Parties therein. For the purposes ol this definition, (a) the acre- age ol the working interest in a tract within the Unit Area shall be the acreage ot juch tract as net torth tn Exhibit B to the Unit Agreement: and (b) .il there are two or more undivided working inter,ts in a tract, there shall be apportioned to each ~uch working interest that proportion o! the acreage of the tract that such working Interest bears to the entire working interest in the tract. 13 "Production" means all Unitized Substances produced and saved Irom the Unit.Area except so much thereof a.s is used in the conduct of operations under the Unit Agreement and this agreemenL 1.8 "I.ease B~Jrdens" means the royalty reserved to the lessor in an oU and gas lease, an overriding royalty, a pro- duction payment and an), similar burden, but does not include a carried working Interest, a net profits interest or any other interest which is payable out of profits. 1.9 "Drilling Party" means the Party or Parties obligated to bear the Costs incurred In Drilling, Deepening or Plug- ging Back a well In accordance with this agreement at the commencement ol such operation. 1.10 "Non. Drilling Party" means a Party who has had the optional right to participate In the Dr!!!!_ng,-Deepening or Plugging Back oi a well and who has elected not to participate therein. 1.11 "Drill" means to perform all operations reasonabl), necessary and incident to the DrUllng of a well, including preparation of roads and drill site, testing, and, Lf pr.oductive of Unitized Substances, completing and equipping for pro- auction, including fiow lines, treaters, separators and tankage, or plugging and abandoning, if dry. 1.12 "Deepen or Plug Back" means to peHorm all operaUons reasonably neces.lary and incident to Deepening or Plugging Back a well, testing, and, It producUve of Unltbed Substances, completing or recomPleting and equipping production, including flow lines, treaters, separators and tankage, or plugging and abandoning, It dry. 1.14 "Subsequent 'l'es~ WeU" means a test we]] Drilled after the Drilling o! the Initial Test Wen or Wells, and t~.for~ discovery o~ Unitized Substances in paying quanUtles in the Unit Area. 1.15 'Developmen~ WeU" means a well Drilled wi!bl_n a participating area and projected to the pool or zone ~or which the participating area was established. 1.16 "Exploratory Well" means a well other than a Development Well Drilled after dLscovery o! Unitized Substances In paying quantities in. the Unit Area. 1.17 'Approval of ihe Parties" or 'q:)lrectlon o! the Parties" mean an approwl, authorization or direction which receives the affirmative vote specified in Section lt.i of the Parties entitled to vote on tha giving o! such Approval or Dtrectiom · 1AB "Salvage Yalue" oI a well means the value o! the materials and equipment In or appurtenant to the well deter- mined In accordance with Exhibit 2, ]ess the reasonab]), estimated Costs ot salvaging the same and plugging the well. 1.11} Each Part), la herein referred to b), the neuter pronoun "It", · NO LIABILITY FOR DRILLING, DEEPENING OR PLUGGING BACK WELI~ WITHO~ CONSENT ~-.1 No LlablUty Without Consent. No part7 shall be' liable without its consent for any portion o~ the Coats o~ DrIU. lng, Deepening or Plugging Back a well except as provided in Section 10.~ with respect to ~equlred Wells. :X~~~~~Xi~~~.~X:~3~X3X~ N.othing herein shall be construed to relieve a Pm7 any obligation assumed by it pursuant to Exhibit 3 to participate in the Costs o! the IniUal Test Well ~ ....... - ..... -,:.~ut,:,i- ...... i-, '-,.,,,- .,., .... - ........... ,,.., c-,-,,~ ....... ,.,, - .......... ~'.:qu flCX-XY ~4ntlNT~IN UtIFi' Of~NATING A: UMEHT ARTICLE 4 . SUBSEQUENT TEST WELL8 4.1 Right to Drill The Drilling of say Subsequent T~st Well shall be on such terms ~nd conditions ss the Parties shall ~gree; provided, however, that in the absence o! agreement, such wells ma), 10c Drilled under the provisions o! ArticAe 9 dealing with Exploratory Wells. ARTICLE $ . ESTABLISHMENT, REVISION AND CONSOLIDATION OF PARTICIPATING AREAS 5.1 Proposal, Unit Operator shall Initiate each proposal for thc establishment 'or-r~vt~lon o! a participating ~rea by submitting tho p. ro_p. os&l tn .w}'.iting to each Party at least. ..... _R. lq ........ days before filing the same with the Director. Thc date of ropose.d fi.ling mu~t.,o,e shown, on the proposal. I1 the proposal receives the Approval of the P~rties within the propos~'~ participating area, men aucn proposal shall be filed on the date specified in the notice. I1.2 Objections ~o Proposal Prior to the proposed filing date any Party may submit to ali other Parties written objections to such propose: If, .d. es~te .such .ob. Jeetl..ons, .ti). e p, roposal reeelves..~_e Appr.0v.a_l__of,.t~_ e,.,,P=a.._r?~ within the pro- posed participating area, ~hen me rani' mating the otuecuon~ may renew ~ne same t~xore ~ne ~,~o~. ~.3 Revised Proposal. II the proposal does not receive the Approval o! the Parties within the proposed participating ,, e reval of the Parties within_ ,.~u days trom the_ s.u?m.~.sa~on r If ,,o pr.ope_ssi r.ecelv? ,t,h.,_Ap~.,..,._ ,-.___, ......... ~ 72ii'Z,ST~-~"~'-'~earlv as nractlcame the various views exprer~ then Unit operator snan m~ w~ ~ ~.,u~;,;,,o. ? ~,.ur,~..., o,,,,,-,.,*-,~ -- -,, r by th~ Parties. 5.4 Rejection b.y Director, If a p_ropos.al filed by Unit Operator, as above provided, ts rejected by the Director, Unit Operator shall in. itlate a new. p.r. oposal tn. the. ~,m? m~.uner, as provid~ tu Section B.1, and tho procedure with respect thereto shall be the same aa tn the case ox an sinai propos~ 5.5 Consolidation., Two or more participating areas may be eombtned as provided In the Unit Agreement, APPORTIONMENT OF COSTS AND OWNE~ AND DISPOSITION OF PRODUCTION AND PROPERTY {1.1 Apportionment tad Ownership Within Particlp. at~g ,Are.s. Exc~p,t, ts otherwise provided in Article 8 dealing with Development Wells~_Part I. o! Exhibit 4 doaling with. ~xpwratory wens, and Part I[ el F..xlgblt 4 do!Lng with Attempted Completion' Deepening and Plugging Back: A. Costs. All Costs incurred in the development and operatlpn of a particips, ting area tor, or l.n .c.o.n.n~tion with production el Unitized Substances ires any pool or zone tot which such partic~pating area ts estaunsnea shall be / borne by the parties within such participating area ou an Acreige Basl~ determined ts et the time such ~ are Incurred. 13. Production. All Production ir~m apartle!pattng area_.shall b.,e all .ocate!i' ~ a.cco.,rdance, ,wi.~ ~,e _U_~t ._A~__eeL-- meat to the tracts o! laqd. wi.t. hln..ru.eh partici..' atmg ares- '.t'nat portion et such l.,-rooucuon wmcn ts a mca w asre --- ~ harts Committed Working Interest o.r tnt.ere, its {.h,ef. ein ia th, h__m!! be owned by the I-'arty or P~a't es g as i/ this agreement and the Unit Agreement tmci not Deem execut . 0. Propertr,. All materisls, equipment and other .properS, whether real or personal, the cost of which Is charge- able as Costs ama which hive been acquired In connection with the development or operation o! a participating area shall be owned-by thc Parties wit_b~n such parflcipet_ing are~ on an Acreage 6.2 Ownership smd Costs Outside .ParticipatLug Ar~a. If a well completed as a producer IS not included within s par. rid nting area such well, the Production therefrom, and the materials and equipment therein or appurtenant thereto o aries o! tn.e we~.. shall be c..har, ge.d to and_~bo__n],] ~z_. ~u.~.~ r~a.~ ~.,,. ~,,.,;;~.f; '-'i~ ti~ Ortlline ParW 'cgmo~sea two or ~cy bore the Costs incurred in Drt4!!ng the well. 6 3 T3klng In Kind Each Party shnl! currently as produced take In idnd or ~eparateLv dispose o~ Its ~h~re of Pro- ducti;n and o~y Unit ~perator for sn~ extra expenditure n, ece~.,ltat.e,d thereby,. E. xcep. t ~ /rom the ~.le M its share of Production, and on ~ll purcha~e~ or ~Y~ ,~sc.h Party ~'°~ecuto an.v or contract of stle pert~...intng to Its interest. ..... . .- .. .... .... ............. 6.4 Failure to Take in Kind, In event, any Party ~hall iail to make the arrangemeats necessary to take in kind or.separately dispose of its proportionate share of Available Production, Operator shall have the right for the time being, subject always to revocation at will by the Party owning the same, to purchase such Available Production or to sell the same to others at not less than the market price Prevailing in the area .£or production of the same quality and at not less than the price which Operator receives for its own portion of Available Production; provided that all contracts of sale by Operator of Non-Operator's share- of Available Production shall be only for such reasonable periods of time as are consistent with the minimum needs of the industry under the circumstances, but in no event shall any suCh contract be for a period in' excess of one year. Notwithstanding the foregoing, Unit Operator shall not make a sale into interstate or foreign commerce of any other Party's share of gas production without first giving such Party sixty (60)-days' prior written notice of ~uch intended sale. 7.1 Wells and ProJecls Include& Each plan for the development and operation o! the Unit Area which is submitted b Unit Operator to the Supervisor In. accord.ance .wlt.h, the Un, it .Agree..ment_shall.m~e pr, ovtaion ..only. tor such Drlllln. g, ~Y ................. ,, ..... ,~ ~ omer nro~ects as unit 0 erawr nas oeen aumortzed to conduct by Deepening ana ylugging ~ac,~ oin:~a~u,,~ ,, .... ucl~ .- . P the Parties chargeable with the Costa incurred therein. - 7.2 Notice oI Proposed Plan. At least ten (10) days be/ore submitting any such proposed plan to tho Supervhor, Unit Operator shah give each Party written notice thereof, together with n copy o! the proposed plan. ' . 7.3 Notice o! Approval or Disapproval I! and when a pro. posed plan has been approved or disapproved by the Super- visor, Unit Operator shall give prompt wr~_tten notice thereo! to each Party, In the case oi disapproval, Unit Operator shall state in such notice the reasons therefor, - o eratlon in accoraanee with the provisions oz mrs-a r=~,,,,;-. ......... ~ - - ,~a~n of development a.s approved by the Suoervisor, ~lt Operator shall either (a) request the Supervisor .to approve ~n amendment to such plan which will provide for the conduct o! such operation, or (b) request the Supervisor to con- sent 'to such operation, l/his consent is sufficient, 7.5 Cessation of Operations Under'Plan. If any such p. lan, as app, rove.d by th.,e Supervisof,provt. des f.o,r the cessation of any Drilling or other operations therein provided for on the nappenmg .oIa conungency ama usucn contingency occurs, Unit Operator shall promptly cease such Drilling o.r. other op?,ratlons ana~ s, hall _n.?t l,nc_~ur ,a_ny_ ~d_d. Ll~o__n_a_l ..C.?,s~tz,~.co.n.n.~ec..- ' ties therewith unless and until' such Drilling or other operations ire aga~ autnomzeu m ac~oruu~co w.u ~m- meat by the Parties chargeable with such Costs, BOCk'Y MOUNTAIN UNIT OPi~A'l'lNG ~..EEMEHT Fo~m 2 USlvld~d Inlerosl)J~n~orr, 1955 ARTICLE ! DRILLING OF DEVELOPMENT WELL8 8.1 Purpose and Procedure. It Is the purpose of t.hle Article to set forth the procedure for Drilling a Development Well otherw,!se th,~n h.y. th.e. written .eonse. nt of ali.P?t~..es within the participating area involved. The Drilling o! a Devel- opment We~i pursuant to ~o. I~,rocet~ure herein set torth shall, however, be subject to-such Drilling receiving the Approval ,o_[ .t!m .P_art. lc~,,un!,e[s- t.lj,e..._u,.rl!l,_l,?_~of thejpro,p,o.~,ed, well ~s..n. cc.e~gl? .to prcv?t the loss of Committed Working Interest Jn u~e trnc~ et ~nnu un wmcu the proposee _Well IA. tO ne urluect. Vote oy any rnrty in favor el Approval o! the Drilling of ~ny ~uch well zhoil not, however, be deemed nn election by., such- '°ar~'"'; '"1 .... '-,,':,v",=""~-"'- m'- ~c'~' ............. ~..ost~ there only that m~ch I'arly consider.-, the Drililn~ of the well e,,,,-~-*,,-~ ...-~- ,~ -=-,: ........ o}., out w.!~l re. can arcs involved and has no objectio, to the i~rllling thereof ............ ,,,, u~,,,,~y uevr4opmenr ox tim parucipating 8.2 Nollc~ of Proposed i)rililn~.. Suhje. ct Io the provisions of SecUon 8.1, any Party within a parUeipating area may propost: lite Drilling of a Development Well therein by giving.to each o~ the other Parties within the participating area written notice spceifying the location, depth and e-sUmated cost of the proposed well which location st~all eonform to any applicahle spacing pattern theretolore adopted or thou being lollowed, or an au~orlzed exception thereto. 8.~, .R. esp?!se to.. N?!lce.,_W!t. hin..thlrt~, (3.0) d.a,.y,s alt~ .r~e. elpt of au.ch notice, each Party within such artlcJpatln area snal~ aovlse ali Other t'arues thereto, m. wrmng, whether or not It wishes to participate in Drilling t~e pro se~ well. If all the Partie~ within such_ participating area so advise that they wish to partlclpat~ therein, the ropo~w~eli · shall be Drilled by Unit Operator Jar the account of aH the Parties wltttln the participating area. I~ tn ~arty /ails to ~'~oPond to such notice within said thi:~ (30) day period, It shall be deemed to have clectedaot to Partl~vl~te In Drilling proposed well. 8.4 Notice o! Election to Drill. Unless all Part.les within the particlpaUng area agree to participate in response to said notice, then within fifteen (15) days after expiraUon of said period of thirty (30) days, each Party within the a.r tlelpating ares who then desires to have the pro,~,sed well DrUI~-~ -~--" -" ..................... P. ' · - ' r.. ~u a.au av~ ~o att omer t'arues w~tmn the participating area written notice o! election to roeeed with tho election not to participate in Drilling said well. DHlllng o! said w~. Failure to give such not, ce sl~ll be deemed an 8.5 E/~ect of Election to DHll. If one or more, but not all of the Parties within the participating area so elect to pro- ceed, Unit Operator shall Drill the well for the account of such Party or Parties, who shall constitute the Drilling Party. has nS~ pSrUebvSieoOu~?tel~lc~ec~°t~'-~t?~-c[lt°ent~:reDirill the.proposed w.e.l.l is mad, e, any Party within the partlcipatlag area who · . . p.~ p n may oo so oy written not~ce given to all other Parties within the t~ar. ticipating area at any time before operations for Drilling the well are commenced, in which event such Part shall-be included in the Drilling Party. However, such Party shall be bound by any and all Directions and Approvals t~eretofore given by the Drilling Party concerning the Drilling of the well a.7 l'tights and Obligations of Drilling Party and Non.Drilling Parties. Whenever a Development Well Is Drilled otherwise than for the account ..0.of..a.]l Pa..rti.es wit.hiE the_. g.a. rticij~at!ng area involved, the provl~ions o! 3.-rtlcle L?. dealing with ILight~ and Obligations of urJmng t'arty ann r~on.uraling ~'arties shall bo applicable. ARTICLE $ EXPLORATORY WELLq 9.1 Procedure for Drilling. The Drilling of Exploratory Wells shah be governed by tho provi~ioas of Part 1 of Exhibit 4 hereto attached and made a part hereof. ARTICLE 10 · REQULRED WELL~ 10.1 Definition. For the purpose of this .AJ'tlcle a well shall be deemed a required well If the DriLling thereo! required by the final order of an authorized representative oJ the Department of interior. Such an order shallbe deemed final upon expiration of the time allowed ~or appeal therefrom without the cOmmencement of appropriate appeal pro- ceedings or, ~ such proceedings are commenced within said time, upon the final disposition of the apl~.~l. Whenever Unit Operator receives any such order, it shall promptly mail a copy thereof to each el the oth~ ParL~es; J! any such order is appealed, the Party appealing shall give prompt written notice thereof to each of the other Parties, and upon final disposition of the appeal, Unit Operator shah give each o1~ the other Parti~ prompt written notice o£ the result thereoL ~0.2 Election to Drill. Any Party desiring to Drill, or participate in the Drilling of, a required well shall give to Unit Operator written notice thereo~ within thirty (30) days alter the order requiring such well becomes final or within such lesser time as may be required by such order. Iff such notice Js given within said period, Unit Operator shall Drill the required well for the account of the Party or -Parties giving such notice, who shall bear all Cosl~ incurred therein. provided, however, that if the Required Well is a Development Well it shall not be drilled unle~ Jt receives the Approval o~. the .P~.r. tie. s.. Th.e r.i. gh~ an.d' o. blig.a.tions, of such. Part~ or Parti?.s_with respect to the ownership et such well, the oper- a[~ng rtgms thereto, the x'ro~uction tnercu'om and the oearing of Costs incurred therein shall be the same as i~ the well had been Drilled for the account of such Party or Parties under Article 8 dealing with Development Wells. if the same is a Development WellS or Article 9 dealing with Exploratory Wells, if the same is an Exploratory Well or a Subsequent Test WeLl. 10.3 Alternatives t~ 'Drilling. I.f no Party elects to Drill a required well within the period allowed for such election, and if any o! the following alternatives is available, the first such alternative which is available shaft be followed: A. Compmtsatory Royalties. If compensatory royalties may he paid in lieu of Drilling the well and if payment thereol receives, within said period, the Approval of the Parties who would be chargeable with the Costs recurred in Drilling the well, if the well were Drilled as provided in Section 10.4, Unit Operator shall pay such comper~atory royalties for the account o! said Parties; or B. Contraction. If the Drilling of the well may be avoided, without other penalty, by contraction of tho Unit Az'ca, Unit Opet'ator shall make reasonable effort to effect such con,action with the approval of [he Director; or C. Termination. I! the requL,'ed well is a Subsequent Test Welt, the Parties shah join in termlnat, ion o~ the Unit Agreement in accordance with it~ provisions. 10.4 Required Drilling. If none of the toregoing alternatives is available, Unit Operator shall DrLL1 the required well under whichever o~ the following provisions is applicable: A. Development WelL ~ the required well is a Development Well, it shall be Drilled by Unit Operator ~or the account of all Parties within the participating area In which the well is Drilled; or B. ExploratoFy WelL If the required well l~ an Exploratory Well, tt shall be Drilled by Unit Operator Ior the account oJ the Party or ?artle~ who would be obligated to bear the Costs thereo! in accordance with Part 1 of Exhibit 4. ARTICLE 11 ATTEM'PTED COMPLETION~ DEEPENING~ PLUGGING BACK AND ABANDONMENT 11.1 Procedure. The attempted completion, Deepening,'or Plugging Back of any well not completed as a producer, the abandonment o.f a producing well and the Deeperdng or Plugging Back of any well abandoned in the stratum in which it was completed as a producer, shall be governed by the provisions o! Part 2 o~ Ex.bit ,i hereto attached and made 'a part boreal ' ARTICLE L2 - - RIGIITS AND OBLIGATIONS OF DRILLING' PARTY AND NON-DRILLING PARTY . 12.1 Scope of Article. Subject to such contrary or inconsistent provisions, if any, as are contained in Exhibit 4, the right~ and obligations o~ the Drilling Party and Non-Drilling Party in respect o~ a well which is Drilled. Deepened. Plugged 13ack or completed otherwise than ~or the account of all Parties entitled to participate therein, shall be gev. erned by the succeeding provisions o~ this article. 12.2 Relinquishment of Interest by Non.Drilling Party. When a well Is Drilled, Deepened. Plujgged Back or com. plated otherwise than Jar the account of aLl Parties entitled to participate therein, each Non-Drilhng Party shall be deemed to have relinquished to the Drilling Party all oJ its operating lqghts and working interest in and to such well. In tho case of a Deepening or PJu~ging Back, Jfa Non-Drilling Party owned an interest in the well immediately prior to the Deepening or Plugging Back. thc Drilling Party shall pay to such Non-Drilling Party its share of thc Value of the well, such payment to bc mad~ at the time tho well is taken over by the Drilling Party for Decpe~Jng or Plugging ~ack. RCCk'Y MOUNYAIN UNIT OPEEATING Form 12..3 llcvcrsinn o[ Relinquished interest If Ihe well is complclerl as a producer of Unitized Substances, and If the well is a Development Well, or result~ in thc e.~tahlishment or enlargement gl a participating area to include such well, then thc opt'rati,g rights and working interest relinquishml b.v a Non-Drilling Party shall revert to it at such time as Ihe prn<'ceds or.market value, of ,tha. t po.r. ti.o.n of _the Production ohtained [rom the well after such r..iinq,ishmcnt which is allocated to the acreage ot suc~ r~nn-t~rdling Party' in the participating area invnlved (Mter deducting irom s.ch pro- ceeds or market value .ali. Lense,uu.r, dens, and ail. taxes upon or measured by Production that are payable up to such time on said portion o[ the Yrooucuon trom sues well) shall equal the total o/ the foUowlng: A. 100% of that portion of the Costs Incurred In operating the .Tell after suc_b relinquishment, and up to such time, that would have been charged to such Non-DrlUlng Party Lf tnt well had been Drilled, Deepened, Plugged .:,../j:e', Back or cqmj~gted lor tho account of all Parties enUtled to participate therein. . · B .......L~.?..?.....% of that portion o! the Costs Incurred in Drilling, Deepening, Plugging Back or completing the .... well that would have been charged to such Non-DrilUng Party if the well had been DriUed, Deepened, Plugged Back or completed for the account of ali Partie~ entiUed to pa.,iielpate therein. However, if a Deepening or Plugging Back ia involved (1) any payment made to such Non-DrUling Party aa ils share of the SRlvage Value o! the wet In accordance with SeeUon lg.~ shall be added to and deemed part of the Costa Incurred ,In .o?er,at!.n.g. th__.e.,w,.ell: fo.r.,the p~po.s~ .o,! S~bfl,.!,vislo..n A. ab.o.v.e, a.n.d, (2.) .~, suc, h No.n-.D_rilling Party did not participate ~..u tn~e l..n.{ua_t~t~_r_i._u_m__g ot.~.ne' w,.e,.I _ou,t..t. ne t,.ri.{ung ¥?~t. y. nla. partlctpa_te tn,e. re.mt and Il _the interest relinquished by such .~.on-~nm.n.g ra. rty upon.tEe .m!.ti,ai.~ru_tml~ ox tn.e. wen ?a?..not r.e.v_erted to. .it nero_re such_ Deepening or Plu~r, ging Back, the. ri, ~or t_.ne p,urpo~ses.ot.?un.?lvtalon tt adore,, tner~_ anaU I)e added to and deemed part of the Costs incurred m the Deep- enmg or rtu/ggtng*tncg, me then unrecove_reu portion of the Coats incurred in the Initial Drilling ot the well down to the pool or zone m which such weU ts completed as a producer. 12.4 EITcct of Reversion. From and after reversion to a Non.Drilling-Party of its relinquished interest tn a well, .such Non.Drilling Party shall share, on an Acreage Bash in the ownership of the well, the operating rights and working tnter~t therein, the materials and equipment in or pertn_ining to the well, the Production therefrom and the Costs operating the well.. - -'- ~,__,.12_~_ _lt_l__gh_,ta_,_a~nd_=O_,b?_ga_tlons. o.f Drti!!ng_. P?t? The...Drfllln. g P .a~.-fo..r who.re, a well .b Drtll~l, Deepened, Plugged ~a..ca_..o~ c..o.m_p~e.,~e~u_~_a_~u.~,.p__a_y._ano__o~e.a[_~__~,mc~ea.tnerem,.~n.~ own the w~eLl, the materials and equipment in .,~; w=. u~ ~,,--~-~-ts ~m;~=tu, anu tau prouuctton therefrom, subjec~ to reversion to each Non-Drl. Ulng Party of ils relinquished interest In the well. If the well i~ a Developme~:t Well or results in the establishment or enlargement of a participating area to include the well, then, until reversion to a Non-Drilling Party of its relinquished interest, the Drilling Party shall pay and bear ia) that portion of the costs incurred in operating the well that otherwise would be chargeable to such Non-Drilling Party, and (b) aU Lease Burdens that are.payable in respect of that portion of the Pro- duct/on from such well which is allocated to the acreage of such Non-Drilling Party. If the Drilling party include:s two (2) or more Parties, the burdens imposed upon and the benefits accruing to the Drilling Party shah be shared by such Pa.,-tie~ on an Acreage Basis among themselves. ARTICLE ~$ ADJUSTIVlENT ON ESTABLISHMENT OR CHANGE OF pARTIcIPATING AREA 1:3.1 When Adjustment Made. Whenever, in accordance with the Unit Agreement, a participating area is estab- lished or revised by contraction or enlargement, and. whenever two or more participating areas are combined (the par- ticipat/ng area resulting from such establishment, rev/sion or combination being heroins/toy referred to as a "resulting area") an adjustment shall be made tn accordance with tho succeeding provisions of this Article 13, as of the date on which the establishment, revision or combination that creates such resulting area becomes effective, such date being hereinafter referred to as the "effective date" of such restdting area~ ~3.2 Definitions. As used in this ArUcle 13: A. "Useable well" within a resulting area means a well which is either (1) completed in and capable of pro- ducing unitized substances from a pool or zone for which such resulting area is created, or (2) used as a dtsposal well, injection well or otherwise, in connection with the production o! Unitized Substances from such resulUng area. B. "Intangible value" of a useable well within 'a resulting area means the amount of Costs incurred in Drill- lng such well, or Deepening it, down to the deepest pool or zone for which such resulting area is created, and which contribute to the Production of Unitized Substances therefrom and which are properly clarified as intangible Costs in conformity with accounting practices generally accepted in the industry, reduced at the following rates for each month during any part o! which such wetl has been ope. rated prior to the effective date of such result-lng area: (1)O.~e--.h-aL-~-.:kf.._°..~· cent (._~....c:~._~) per month./u~- a' cumuiaL/vu tutarut ._~ ..... and x'~) ............................... ~,~-,.~;~t-{~.~- ~---=%) ~.,~-a,o~-~ I,,~--c~ch-~,>r,L=. ~.=-~.~cc~ C. "Tangible property" serving a resu]LinE area mean~ any Lind o! tangible property (whether or not in or per- taining to a well) which has been acquired for use in or in connection with the Production of Unitized Substance~ ~rom such resulLing area or any portion thereof, and tho cost o~ which b,~ been charged ~ Costs pursu;u~t to thi~ agreement. D. "Yalue" of langible proper~y means the amount o! C.o~ts incurred therefor, Including Costs incurred in the construction or installation thereof (excepting installation eo~J.s properly Classified a~ part of the intangible costs ineurTed in connection with a weU) reduced, in the ease of tangible property-which is genernl[y regarded as depre- eiable, at such reasonable rates of depreciation as receive the Approval o~ the Parties within such resttlting area, for the period of time between the acquisition date thereof and the elTective date of such resulting area. 13.3 Method of Adjustment on Establishment or Enlargement. As promptly a~ reasonably possible after the e~- fective date of a resulting area created by establishment or enlargement of a partieipaLing area, and as of such elTee. tire date an adjustment shall be made in accordance with the following provisions e. xeept to the extent other~L~e speci- fied in Section 1~.§. A. The intangible value of each useable well within such resulting area on the effective date thereof shall be credited to the Party or Parties who own such well immediately ]prior to such effective date, in proporLion to their respective interests m suel~ well Immediately prior to such effective date. The totaf amount so credited as the Intangible value of useable wells shall be cha~t-ged to aH parties within the resulting area on an Acreage Bnsi~. B. The value of each Rem o~ tangible property serving the re~ulting area on the effective date thereof .b.e .credited .t.o th.e Party o.r Parties who o~ ~ueh item ]mmed~atetyprior to such elfecUve date, in proportion to .t.netr r.e-~pee_uve ~.n.t.erests in .such Item immediately prior .to such effective date. The total amount so ~redited as the va~ue o! tangime property shah be charged.th afl ParUes within the resulting-area on an Acreage B~ls. C. If a resulting ~ea, on the effective date thereof, ts se~ed by an7 tangible property or useable well, which also sen, es another participating area or other pL,'tieipating areas, the value of such tangible property ~nd use- able well (including intangible value thereof)' shall be determined in accordance With Subdivision ]3 oil Section 13~., and such value m~7 be fairly ~pportioned between such resulting ~rea and such other participatin~ area or are~, provided that such apportionment receives Approval o! the Parties in each participating area concerned. That portion of the value o~sueh t~ngible property and useable well (including intangible value, thereof) which is .~o apportioned to the resulting area shall be included In the adjustment made as o! the elfeetive date el ~uch re~ult. lng area in the same manner, as the v~ue el: ta-qgible property s~g only the resulting D. The eredil~ and charges above pro',rlded for ~h~Jl be made by Unit Operator, in such manner that ~n ad- Justment shall be made for the intangible wdue of useable wells separate and apart ~om an adjustment for the value of tangible property. On each such adjustment, each Party who is charged an amount tn exee~s of the amount credited to it, shah pay to Unit Operator the amount el such excess, which ~hali be considered as Costs chargeable to such Party for nil pttrposes o! thh agreement, and such amount, when. received by Unit Operator, shall be distributed or credited to the Partie~ who, ]n such adjastment, are credited with amount~ in e~eess of the smounts charged to them respecth, e~. .13-.~. Met.hod of.A.dJu, stment on Con_traction. As promptly' as reasonably' possible after the effective date of any contraction et a panic,paring area,' an adjustment shall be made with each Party owning a Committed Working Interest ~ ]a~.d e.x. eluded from the participating area by such eontracU_on (sue.h Committed Workin~ Interest being h~ein. a~ter m th~s section referred to as "excluded interest") in accorclnnee with the following provis-ion~: A. An ad)ustment for lntanglble~ shall be made In accordance with Subdivision B hereof and a separate adj~t- . meat for t~ng~bles shah be mn'de in accordance with Subdi~.sion C: bereoL ROCK'¥ MOUNTAIN UNIT OPERATING .~ ~41~NT Fo~m 2 (D~vtdecl Intore.O Ionu,:-'T. If.SS B. Such party shall be credited with the sum of (..1) the to~.! ·mount.therctofor~ ch·fled against such Part~ in respect of Its excluded Interest In accordance with the a.eeountmg procedure set forth In Exhibit ~ u Intangible Costs incurred in the development and operation of the participating ·rea prlor to the effective date of such eontrae- tits, plus (2) the total amount charge~l against such Party in respect of such excluded interc~ ·s intangible value o{ ,·cable wells in any previous adjustment or adjustments made upon the establishment or revision of such par. ticipating area. Such Party shall be charged with the sum of {1) the market value of that portion of the Production from such participating area which, prior to the effective date o! such contraction, is delivered to such Party In respect of such excl.ded interest, less the amount of Lease Burdens and taxes paid or payable on said portion, and (2) the tot,~t amount credited to such Party In respect of such excluded interest as Intangible value o~ useable weli.~, in any previous adjustment or adjustments made upon the' establishment or revision of suchparticip·ting area. Any dl~'erence between the ·mount of said credit and the amount of said charge shah be adjusted as hereinafter pro- vlded. C. Such Party shall be'credited with the sum of (I) the total amount theretofore charged against such Party in respect of its excluded interest, In accordance with the accounting procedure set forth in Exhibit i, ts Costs 9ther than !ntanll. ible.,Costs .Incurred In t.h.e ,development and operaUon of thepartlclpaOng area prior to the effective da.te et.au, es ,e.o.ntractlon,. p~.ua (2) the t, otai ·.re. aunt charged against such Party in respect of Its excluded Interest ts vatue et tangtme property tn ·ny previous adjustment or adjustments made upon the establishment or revision of such parti,clpaUng area,.p!us (3) the excess, if .any, of the credit provided for in Subdivision B of this Section ,over the.c.n.arge_provlden t.o.r .in. said ,S,ub_dl.v,h, lo, n, I1. Such Party shah be charged with the sum of (I) the excess. ii any, ti ~ne charge proviaea sar sola ~uDa~vtsion B, over the credit therein provided for, pitts (2) the total a,m. ou.nt ~r. edlrteddt, o .such .Party_in respe?,t o~ l~.,e,x,clude.d Interest..as v.alue .of tangible.property in any previous aa justin nto a 3ustments mate upon the e~taDltsnment or tension ox such participating area. D, If the charge provided for In Subdivision C of this Section h equal to or greater than the credit therein provided for, no adjustment shall be made with such Party. However, tf the credit provided for tn said Subdivision ga..In ex?ess of th.e c, har. i~e ther.e, tn. p.r,ovided for, _such ex_ecs· shah be charged on an Acreage Bt·Is against the · riles WhO remain tn the participating area sitar such contraction, and shah be paid by said Parties to Unit Operator upon receipt of Invoices therefor. Such payments, when received by Unit Operator, shall be paid by it to the Party owning such excluded interest. .. 13.5..0whets.hip of,. Wells and Tan. bible Property. From and after the effective date o! · resulting area, aH useable wesis within such resulting area and all tangible property serving such resulting area shall be owned by the Parties wit.h,in, su..ch area on. an ,A.c.r.,eage. Ba..sis, exce. pt that (a) In_ the case of tangible property serving a participating ~rea or participating areas tn aoottton to the resulting area, only that undivided interest therein which is proportion·re to that portion ,o./,, the value that.eof whic.h.h Is. included l.n the adjustment above provided for shall be owned by the partie~ within tn.e. r, es,uitnng ar.e,· on a.,n a.c.r.e, age t~.asss, a_nd (b) if a Party within the resulting area was a Non-Drilling Party for a well watch ts a useame weft within SUCh resulting area on the effective date thereof, and if the relinquished interest of such Non-Drilling Party In such well has not reverted to ltprior to such effective date, the Drilling Party for such well shall own the interest therein that would otherwise be owned by such Non-Drilling Party, until reversion to such Non-Drilling Party of it~ relinquished interest In such well. 13,6 Itelinquished Interests of Non-Drilling Parties, If 'the Interest relinquished by a Non-Drilling Party In a we. Il which is a useable well within a resulting area on the effective date thereof haS not reverted to It prior to such effec- tive date then insofar, and only insofar~ as relates to such well, the adjustments provided for In Section 132 shall be sub- ject to the following previa.ions, wherein the sum of the intangible value of such well, plus tho value of the tangible property in or pertaining thereto, ts referred to as the "value" of such well: , A. The Drilling Party for such well shall be charged with that part of the value of the well that would other- wise be chargeable to such Non-Drilling Party in respect of (1) such Non-Drilling Party's Committed Working Interest or Interests in the participating area in which the well was Drilled, as such participating area existed when the Drilling of the well was commenced, if the well was Drilled as a Development Well, or (2) the Committed Working Interest or Interests of such Non-Drilling Party which entitled it to participate In the Drilling, Deepening, Plugging Back, or Completion of the well, if It was Drilled. Deepened, Plugged Back or Completed, otherwise than as a Development Well. However, such Non-Drilling Party shall be charged with such part, 1/any, of the value of such well as Is chargeable to it, In accordance with Subdivisions A and B or Section 13.3, in r~pect of its Com- mitted Working Interests other than those referred to In (I)or {2)above. B, If that part of the value of such well which would have been credited to Such Non-Drilling Party, if th~ well had been Drilled, Deepened, Plul/ged Back or Completed for the account of all Parties entitled to participate therein, exceeds the amount provided in Subdivision A above to be charged against the Drilling Party, such exce.~ shall be applied against the reimbursement to which the Drilling Party is entitled out of Production that would otherwise accrue to such Non-Drilling Party. Any balance of such excess over the amount necessary to complete such reimbursement shall be credited to such Non-Drilling Party. ARTICLE 14 SUPERVISION OF OPERATIONS BI' PARTIES 14.1 fright of Supervision. Each operation conducted by Unit Operator ,nder this agreement or the Unit Agreement shall be subject to supervision and control in accordance with the succeeding provisions of this article by the Parties who are chargeable with the Costs thereof. 1,t.2 Voting Control. In the supervision of an operation conducted by Unit Operator, the Parties chargeable with the Costs of such operation shall have the right t° vote thereon in proportion to their respective obligatlon~ /or such Costs. The Parties having the right to vote on any other matter shall vote thereon on an Acreage Basis, Except as provided in thee Unit .Agreement and except as otherwise specified herein (particular reference being made to Section 125.1. Consent Re.quired to Commence. Secondary Recovery and Pressure Maintenance; Section 27.1, Surrender or Release Within Participating Area, and that portion of Part 2, Exhibit 4 relating to Abandonment of producing wells outside of a participating area), the a/ftrmative vote of Parties havtng._.,.~J.X.'t;~_-.l[J..V'_e.. ....... ~ .... per cent (.~.{~.5___.%) or more of the voting power on any matter which ts proper /or action by them shall be binding on all Parties entitled to vote thereon; provided, however, that If one Party voting in the a/th-motive has .._~.J.z~t.y...-.J~.J..V.~ ..................... per cent ( .... ~..5 ...... %) or more but less than .~.e.l/:~II.i:.I/.~J~J..V.P... .... per cent (~.7.5. ..... %) of the votingpower, the ·th-ma. tire vote of such Party shah not be binding on the Parties entitled to vote thereon unless Its vote is supported by the a/r~rmative vote ti at least .... .onE., additional Party; and provided turther, that II one Party voting in the negative or failing to vote bas more than .~'AJ.~y_.-...~.i..V..~ ..... per cent ( ..... .,~.5 .... %) but less than fifty per cent (§0%) of the voting power, the affirmative vote of.the Parties having a majority of the voting power shall be binding on all Parties entitled to vote unless there ts a negative vote of at least ......... /3.t't~-.._.._ ................ additional Party, In the event only two Parties are entitled to vote, the vote of the one with the greater Interest shall prevail. If only one Party Is entitled to vote, such Party's vote shall control. A Party falling to vote shah not be deemed to have voted either. In the afl3rmatlve or negative. Any Approval or Direction provided for in this agreement which receives the a/rtrmative vote abov. e sj~eelfied shall be deemed given by and shah be bincltng on all Parties entitled to vote thereon, except where the vote o! a larger percentage i3 specl/ically required. 14.3 l~leetlngs. Any matter which isproper for consideration by the Parties or any of them, may be considered at · meeting held for that purpose. A meeting may be called by Unit Operator at any time and a meeting shall be called by Unit Operator upon written request of any Party or Parties having .... ._P..£.xr_.e. ....... : ......per cent (~5 ......... or more o/the voting power on each matter to be considered at the meeting. At least ten (10) days in advance of each meeting, Unit Operator shall give each Party entitled to vote thereat written notice o! the time, place and purpose of the meeting. 14.4 Action Without Meeting. In lieu of calling ·'meeting, Unit Operator may submit any matter which is proper for consideration by the Parties, or any o! them, by giving to each such Party written notice by mall or telegraph (or telephone confirmed in writing not later than the next business day), describing in .adequate detail the matter so sub- mitted. Each Party entitled to vote on any matter so submitted shall communicate Its vote thereon to Unit Operator by mall or telegraph (or telephone, confirmed la writing not later than the next bustneas day), within such period as may be designated In the notice given by Unit Operator (which period shall not be less than ten ¢10) nor more than thirty (.30) days) provided, however, that if within ten (10) days after submission of such matter, request ts made for_ a meeting i.n accordance with Section 14.:3, such matter shall be considered only at a meeting called for that purpose. If · meeting t__s not required, then, at the expiration of the period designated In the notice given by it, Unit Operator shall give to each ~'art¥ entitled to vote thereon written notice ~tating the tabulation and re.tit o! the vote, I~C)CL"Y i,40UNTAIN UNIT 14.5 Ilepresen~n~lves. Promptly after execution of this agreement, each Party by written notice to all other shall dc. si...cn,~tc n representative authorized to vote for such Party, and may deslRnate an alternate who Is nuthori~.cd to vote for .~.ch Pnrt.~' in the absence of its representative. Any such designation of a representative or alternate repre- ~ent3tive may be revoked at ;~ny thne by written notice given to nil other Parties, provided such notice designates i new repre:~'ntnsive or alternate repre.sentntive as the case may be. In addition, any corporate Party may vote through President. or .',ny of Jt.,~ Vice Presidents, and a Parly which is a partnership may vote through any o! its partners. 14.fi Atndits. An audit shall be made o! Unit Operator's records and books'of account pertalninR tn operations here- under whenev~'r the rank!ag of such audit receives the .Approval of the Parties (other than the Party acting as Unit Operator) ch~ril.eabl.e, with the Costs incurred during th_.e p.eri, o.d_ eover.ed by the audit, except that such ,audit shall not be m~de more o~ten than once each six months. Such andtt shall be maae by auditors in the employ of szld Parties, and the nliow.~.ce to be made to each Part), furnishing an auditor shall be determined by the Approvalo! said P-',rties; such allowances .shall be paid by said Part~es In .proportion to their respective participations among themselves in Costs incurred during the period covered by the audit. . 14.'/ Extra~eous Projects. Nothing contained In this agreement shah be deemed to authorize the Parties, hy vote or other'wise, to net on any matter or authorize any expenditure unless such matter or expenditure relates to the conduct of operations authorized by the Unit Agreement or this agreement, ARTICLE 15 UNIT OPERATOR'S POWERS AND ItXGHTS 15.1 In Ges~eral, Subject to the limitations provided for in this agreement, all operations authorized by the Unit Agreement and this agreement shall be managed and conducted byUnit Operator. Unit Operator shall have exclusive custod)' of all materials, equipment and any other property used In connection with any operation on the Unit Area. 15.2 Employees. All Individuals employed by Unit Operator in the conduct of operations hereunder shah be the employces of Unit Operator alone, and their working hours, rates of compensation and all other matters relating to their employment shall be determined solely by Unit Operator, . 15.3 Non-Liability. Unit Opcrator shall not be liable to any other Party for anything don~ or omitted to bo dot~ by It in the coati.ct of operations hereunder except in case of bad faith. 15.4 Force lHaJeure. The obligations of Unit Operator hereunder shall be suspended to the extent that, and only so long as, pcrformance thereof Is prevented_by lire, action of the .el.es!eats, strikes .or other dllIerenc~ with workmen, ac~ of c~vil or military authorities, acts o1~ the public enemy, restrictions or restraints Imposed by law or by regulation or order of governmental authority, whether federal, state o_r lo. cai, Inability to obtain necessary rights of access, or any other cause reasonably beyond control by Unit Operator, whether or not similar to any cause above enumerated. When- ever performance of its obligations Is prevented by any such cause, Unit Operator shall give notice thereof to the other Partie~ a~ promptly as reasonably possible. 15.5 Lien. Each of tho other Parties hereby grants to Unit Operator a lien upon Its Committed Working Interests, its interest in all jointly owned materials, equipment and other property and Its interest In all Production, as security for payment of Costs chargeable to It, together with any interest payable thereon. Unit Operator shall have the right ' to bring any action at law or in equity to enforce collection of such Indebtedness with or without foreclosure of such lien. In addition, upon default by any Party in the payment of Costs chargeable to It, Unit Operator shall have the right to collect and receive from the purchaser or purchasers thereof the proceeds of such Party's share of Production, up to the amount owing by such Party plus interest at the rate of six per cent (6%) Per n_nnum until paid; each such pur- chaser shall be entitled to rely on Unit Operator's statement concerning the existence and amount of any such default. 15.6 Ad~'ances, Unit Operator, at .its election, shall have the risht from time to time to demand and receive from the other Parties chargeable therewith payment in advance of their respective shares of the estimated amount of the Costs to be incurred during any month, which right may be exercised only by submission to each such Party of a prop- erly itemized statement of such estimated Costs, together with an Invoice for Its share thereof. Each such statement and invoice .for the paymen_t in advance of estimated _Cost~. for .an}, month .shall.be subm. l, tted o.n or_about the twentieth (20t.h) day of the next preceding month. The amount of each such invoice snail .e payame within f~teen (15) days after the mailing thereof, and thereafter shall bear interest at the rate of slx per cent (6.%) per annum until paid. Proper .adjust- ment shall be made monthly between such advances and Costs, to the end that each Party shall bear and pay it~ pro- portionate share of Costs incurred and no more. Unit Operator may request advance payment or security for the total estimated Costs to be incurred in a particular Drilling, Deepening or Plugging Back operation and notwithstanding any other provision of this agreement shall not be obligated to commence such operation unless and until such advance pay. meat ts made or Unit Operator is furnished security acceptable to it for the payment thereof by the Party or Parties chargeable therewith. 15.7 Use of Unit Operator's Drilling Equipment, Any Drilling, Deepening or Plugging Back operation conducted hereunder may be conducted by Unit Operator by means of Its own tools and equipment provided that the rates to be charged and the applicable terms and conditions are set forth in a .form of.,drilling contract .which receives the Approval et the Party or Parties chargeable with the Costs lnctwred in such operation, except that In any case where the Unit Operator alone constitutes the Drilling Party, such form shall receive the approval of the parties within the participat- ing area, or other designated area tot such well, prior to the commencement of such operation. 15.8 Rights as Party. As an owner of Committed Working Interest, the Part]~ acting as Unit Operator shah have the same rights and obligations hereunder as If it were not the Unit Operator. In each Instance where this agreement requires or permits a Party to give a notice, consent or approval to. th.e. Unl.t Operate, r, such n.?tl?., co..nse, n,t or appro, val shall be deemed properly given by the Party acting as Unit operator u aaa when given to au other l-'arues entitled to give or receive such notice, consent or approval. AItTICI~ ltl UNIT OPERATOR'S DUTIES 163 Specific Duties. In the conduct o! operations hereunder, U~t Operator shall: A. Drilling of lYells. Drill, Deepen or Plug Back & well or wells only hi accordance with the provisions of this agreement; B. Compliance with Laws and Agreements. Comply with the proVtSlon.s of..the .Ual.t. Ag~-~ee,ment, aH applicable laws and governmental regulations (whether _fe. der.,al, atate.o.r, local), ,a~,d Du'.ec..uon~., .oy..t:ne raru~ pursu ,ant. to this agreement; in ease of conflict between such Dtrecuons ana [ne prov~lons et the utn~ Agreemen~ or such laws or regulations, the provisions of the Unit Agreement or such laws or regulations shall govern; C. Consultation with Pariies. Consult ireely with the Parties within the area affected by any operation here- under, and keep them advised of aH matters arising hi operations hereunder which Unit Operator deems Important, in the exercise of its best Judgment; D, Paymeni of Costs. Pay all Costs Incurred tn operatious h~e, under pro,raptly as and .w. hen due, and payable, and keep the Committed Working Interests and all prope .r}y .useo.m_co.nnecuon .with ope,ra.u, ona u,n,o.er .t.h~ a~ee- meat free from Bens which may be claimed for the payme_n_t et sues c;o.s~, except any s,ucn l,~en w?.cn .~,~ mspu~.es, in which event Unit Operator may conte.~t the disputed lien upon giving wrRten nouce mereoz to ~ne Parties affected thereby; . . - E. Itecords. Keep full and accurate reeords of aH Costs Incurred, and eontrollable materlats and equipment, wi:deb records, and receipts and vouchers In support thereof, shall be available for inspection by authorized repre- sentatives of the other Parties at reasonable intervals during usual business hours at the niece of Unit Operator; '/ F. In. formation. Furnish to each of the other Parties who makes timely written request therefor (1) cople~ of Unit Operator'~ authorizations for expenditure or ltenflzations of esthnated expenditures in excess o! . = ....... 4 .... .. __nonm po.__.._)., o.r dr .ng.re.po , log~ basic engtneerlng ~lata, tank tames, gauge.repo_r~, an.~ run ti.c,*re_ts,. ~;~)..report~.ox s. to!:.z, o,n'nano. at. t.ne nrs.t .et. each month, and (4) samples of cores or.cuttings tate. n._f~o, mw, etis prulea, n~e..u.n, nerI t.o .oe oe.u, verea at tne.weti in ~.ntalners furnished by the Party requesting same, aha to] _suc? .other ana aoaitionai 3ntormauon or reports ts may be requtred by Direction of the Pa~rtles withlxt the area attectoa; · -/ G. Access to Unit Area, Permit e~ch of tho other Parties, through its duly authorized employees or sgenta, but at such Party'a sole risk and expense, to have access to t.he.Unit ,A~_ea at a.!l times, ,and. tp.the de~elck fl,o?r of e,ach well Drtlled or beLng Drilled hereunder, ior the p~ et ooser~ operations conouctea nerettn er aha inspecting .ROCK'Y ],.IOUNTAIN UNIT F~'-m :2 {Divided lnl.r~.l! Jnnuorf, materials, equipment or other property used In connection with operations under this ~reement, and to have at reasonable times to Information and data In the possession of Unit Operator concerning the Unit Area. 16.2 Insurance. A. Unit Operator's. Unit Operator shall comply with the Workmen's C0mvensatinn Law nf the state In which the Unit Area is located. Unit Operator shall slsb maintain in force at all time~wRh-r~pe-~t-'to-~p~.~ti-o-~s h~-~eu"n'~ such other insurance, H any, as may be required by law. In addition, Unit Operator shall maintain such other Insur- ance, if any, as is described In Exhibit 5 hereto attaehed or ts reeelves the Approval of the Parties from time to time. Unit Operator shall carry no other insurance for the benefit of the Parties except ~s above specified. Upon written request of any Party, Unit Operator shah furnish evidence of in~urance ctrrled by It with re~pect to oper- ations hereunder. B. Contractor's. Unit Operator shah require all contractors engaged In operations under t_bi_. ~U'eement to com- ply with the Workmen's Compensation Law of the state In which the Unit Area Is located and to mt,.tala such Insurance ns is required by Dl4'ectlon of the Parties. C. Automotive Equipment, In the event Automobile Public Liability Insurance Is specified In said Exhibit 5 or subsequently receives the Approval of the Parties, no direct charge_sh~ll, bo made by Unit Operator for premiums paid lor such insurance for Operator's-fully owned a.utomotive e.qulpment, ~-~ n n.t -- ~'~'-_ ~ ~~., - __* . . .~ ~,_ _ *~n --~--' ; ...... - 16.3 Nondiscr~mination. In connect/on with 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 are hereby incorporated by reference in this agreement. .. 1(].4 Drilling Contracts. Each Drilling, Deepening or Plugging Back operation conducted hereunder', and not per- formed by Unit Operator with lt~ own tools and equipment in accordance with Section 15.'/ dealing with Usc of Unit Operator's Drilling l~.quipment, shall be performed by a reputable drilling contractor having suitable equipment and personnel under written contract between Unit Operator and the contractor, nt the most favorable rates and on the most lavorable terms and conditions bid by any such contractor a~ter soliciting bids, ff bids are obtaInable, but othe~vise at rates and on terms and conditions receiving the Approval of the Pax'ties. ]§.5 Uninsured Lo. sses. Any and aH payments made by Unit Operator In the settlement or di~harge o~ any liability to third persons (whether or not reduced to judgment) arising out of an operation conducted hereunder and not covered by insurance herein provided to be maintained by Unit' Operator shah be charged ts Costs and borne by the Party or Pa,'ties for whose account such operation was conducted. ,~ttTICL~ ~TATIONS ON UNIT OPI~RATOR 17.1 Specific Limitations. In the conduct of operations hereunder, Unit Operator shah not, without first obtaining the Approval of the Partie~: A. Change in Operations. Make any substantial change In the basic me'had the case of an emergency. ]3. Limit on F. xpcnditurcs. Undertake any project reasonably estimated to require an expendit-ure in exce.~ of ......... ~.~t.~/....~i"~.O.~,~.~ ................ Dollars ($2.Q.,..~.~.,,.0.~_); provided, however, that (Z) Uuit Ope. ra- to.r Js ,authorized t.o make all ,usual and. customary operating expenditures that are required In the normal course et prooucin~ operations, (2) whenever unit Operator Is authorized to conduct a Drilling, Deepening or Plugging Back operatton, or to undertake any other project, in accordance with this agreement, Unit Operator ~hall be author- ized to make all reasonable and necessary expenditures in connection therewith and (3) in cn~e o! emergency, Unit Operator may make such immediate expenditures as may be necessary for the protection of IUe or property, but notice of such emergency shall be given to all other Partje~ as promptly as reasonably possible. C. Partial Itelinq~ment. ]~ake any partial re].inqui~hment of its rights ns Unit Operator or appoint any sub- operator. D. Settlement of Claims. Pay in excess ol~ Five X~undred DeHorn ($500.00) in t~e settlement of any claim (ot~er than Workmen's Compensation claims) for injury to or death of persons, or for loss of or damage to property. ~. Determtn-~tions. ]~ake any of the determinations provided tn the Uuit Agreement to ~e made by U~t Oper- ator, except as otherwise specl~ed in ttds agreement, ARTICLE 18 TITLES 18.1 ltcprcsentatlons of Ownership. Each. Party represents to all other Parties that to the best of its knowledge and belief its ownership of Working Interests in the Unit Area is that set out in Exhibit B of the Unit Agreement. II It develops that any suc. h ownership i~. incorrectly stated, the rights and responsibilities of the Parties shall be governed by the provisions of this Article 18, but such erroneous statement shall not be a cause ~or cancelling or terminating this agreement. --.... ~ . . 18.2 Title-Papers to be Furnished. Upon the est'ablishment of a Drilling- Block or a Participating Area, any Party within such Block or Area may request and be entitled to receive.from any other Party in such Block or Area copies of all leases,, assignments, options, operating agre6ments, and other pertinent documents or information in its possession relating to its title to its Committed Working Interests~ in such Block or Area. The requesting Party or Parties will bear all expense in connection with furnishing such copies. (4) If federal lands are involved, status reportsj:ff.~-'l~ent datg~tlng fOrth the entries found in the districl land office aad the Washington, D. C.J~mt~l~ce of the ~eau of Land M~agement for the l~ds ~volved and also a certified copy of ~~egister fo~h~er~ leas~ Involved. (5} U state lands ~e l~~epo~ of cure,date sho~ng the enffl~ pedaling to ~e land involvec found ~ t~e r~ye~ ,~te, - . ~. (8) If In~ved,__st~ replier the l~d involved show~g the en~i~ found In the o~ce thin. he lnd~ A~and ~e ~ea o~ce for'such Indian' lands and ~ the B~eau C. Title Papers ~or Subsequent ~ ~y P~y who proposes the Drilling of a Subsequent T~t Well or ',o~ WeU shaH, at the ~e of ~no~ee ~or such proposed w~, deslgnat~ n ~Oe exa~n.a~on ~ea not ~eeed ,~ ............................... a~ ~ not Including any lands ~t~n a partldpating ~ea. When ~e ~g of a Devel .preen, Well rece[v~ ~e ~rov~ of the P~ ~thln the p~lelpa~g areal' which It ~ locat~ a ~e examl ~a~on area which, cov~ands ou~ide any p~lelpaOng ar~a may be d~tgnated by the Approv~ of such P~les ~ach Pa~y ~thin ~ such title examination ~ea sh~l at 1~ o~ expense and upon requ~t furn~h Unit O~rato~ Fith the'tRle m~ials listed In SecHon 18~B not pre~ously ~u~shed, relating ~ ~ lan~ wlt~ such ~ch it own~mmitted Wor~ng Interest. [ D. ~l~Pap~r~ on Establishment or Enl~gement o( ~ P~iclpating A~a. Upon the ~tabllshment or the e~ge ~ent~ a participating area, each P~ty shall promptly at 1~ own expense furnish Unit Operator all the tiff, mate [i~listcd in Section ,18~B'relating t~ a~ i~ ~m~tted Wor~ng Interests In the lands lying within such p~ ROCICY tdOIlNTAIN UNFf OPEBATIN(. ~"~i{IjI.'MI".NT . 18.3 Corrective Action. After examination.of the foregoing documents, any Party in s D~illing Block or a Partici~ating Area may request any other Party in such Block or Area to correct any Title deficiencies which may have been noted. If the Party to whom the request is directed deems the action unnecessary or for some other reacts declines,' the requesting Party at its own expense, may perform the curative work but only With the concurrence of the Party who owns the affected interest. Unless there are .obligations which require earlier drilling, commencement of Drilling on such Drilling Block or further Drilling on such Partici- pating Area may be delayed'up to 60 days to permit the accomplishment of such curative work. ~i.s_!?. of ?har. g~. ,guen c,.,ratJv% wor~ as is performed to me~t title requlremenu concer~i.~ a 'Comimtted 1~. '~i ~Y. lthdra.wa] from .D. ri.lUnl~ P?ty.. Any Pa~_¥ i~_cluded in the 'Drilling Party [or a well for which title examina- t on is mane as score provlaea, who nas aisapproved title to a Committed Working Interest which h~ been examined ln..,co, nnect,io.n w,i,th ..the D~r/ll.l. ng ,of ,su,eh well _may withdraw from the Drilling Party by giving written notice of such ~wJ.t,nar~awai t..o. a, otner.,~..arues m,cm.o, ed In the Drilling Party within fifteen (15) days after the recommendation of the -t'iue committee on a uue examination made In 'connection with the Drilling of the well, and the drilling of such well shall not be commenced unt/l the expiration o~ said fifteen (!5) day period, In the event any Party so withdraws,-the proposed well shah not be drilled unle~ within fifteen (15) days after the giving of such notice of withdrawal, a Party or Parties included In the Drilling Party agrees in writing to bear that proportion of the Costs incurred in Drilling such well that would have been borne by the withdrawing Party. re, ceipt o.f. the.,recommendatlon of the Title Committee ~n title examinatioh ma~e upo~ the ct a participat,ng area, each Party within the participating area as established or enlarged shall notify eack-~ the other Parties therein whether it accepts or rejects title to each Coronal!ted Working Inter.t within such_odrt~lpating area as established or enlarged. Any Party reJecting title shah state the re,sons therefor in writin~.~ l.f title to a Committed Workin§ Interest is rejected by any Party by notice glv.~.n-l~-_ above provided,-the Parties within the participating area u established or enlarged shall vote in accordan3',.~-;Wqth Article l~'de~ing with Super- v..isi.o.n of Op, er?..t!ons_b~. Fan!es, on_ the Approval o! su_ch title. ~!, on suc_~, the ~tle receives the Approval of the t'a~tles, .s.u. cn, .t.l.tle_.snalj. o.e ae.e,med A. pproved; if not, it sh~ll be de.emc~f-d_isapprove .eL I! no Party has re;ected title to a uommJtte~ Wor~mg interest ny nonce given ns above providm~l~en title to ~uch intreat shall be deemed Approved . without vote of the Parties. ~ ' · ],8.8. Eft, eeC o.f .Disap. provnl o! Title on Establishn1%nt or Enlargement o! Particlpatin~ Area. l/ title to the Com- mitten wor~ing interest in a tract within n_..pn~icipating area Is disapproved ns provided in Section 18.'/, the Par.ty clai,m!ng such_C, ommi.tted Wo.rking Xgt.er-c~. may, within thirty (30) days after such disapproval provide indemnity in SUCh terms ant m SUCh amount as_.r, eceives the Approval o! the Parties (other than the indemnifying Party) within snch participaling area, on an A_c~e-a'~e Basis among themselves. In the absence of such Indemnity, the proceeds of the Pro- duc!ion ~rom such trac3-of'-o~ the Production allocated t~ereto (whichever is the ~eater) to the extent attributable to ~sue,c9 .Comm!t_t?d ~_~._., .n..~, in.!ernst; ~ter d.e..duFt!ng ,Lc. ese_ Burde. ns payable thereon, sball be paid to Unit Operator and .q ~.~ 1.9 su~s_D..p..rt.Je u_nt.ll., title, to. such uomm~ttea woricmg Int~res~ recewe~ the Approval of the Partie~ within ~uch par- t_iclpatj, t~,'~rca or untu such time as such Committed Working Interest is lost through title [allure; provided, however, t];~t'Unit Operator shall apply such proceeds in payment of Cost~ incurred in the development or operation of such ].~ o ~ __--~k_-~-._-Fallure of Ti&lc to Committed Workin~ Interest. If title to ii Committed Working Interest fails in whole or in -. part, such Committed Working Interest shall no longer be subject to this agreement and .the following provisions shall apply: A. Loss of Froduction. The Party whose title has failed shidl not be entitled to receive, after the date of such title failure, any Production that would otherwise accrue to such interest, ii'U~li~Dpu~'~u~ &,J~.N.n~Ui~; "'- "'--'--' ..... ' .... ~- ' ' - -'~ -' .... · '~- ' · B. Loss of Ownership la Wells and Property. Such interest as the Party claiming such Committed Working Interest may have in wells, materials, equipment and other property on account ot such Committed Working Inter. est shall pass to and vest in the other Parties owning the same in proportion to their respective interes~ therein among themselves. .-. C. Liabilities to Third Parties. Any liability to account to third parties for prior production of Unithed Sub- stances which arises by reason of such title failure shall be borne by the parties in the same proportions in which .they shared in such prior Production. Any and aH other liabilities to third parties shall be borne by the Party claim. mg the Committed Working Interest title to which has fa!led. D. Reimbursement for Investment. If at the time of such title failure the tract affected thereby is within s par- ticipating area, the Party whose Committed Working Interest therein has been lost shall be credited with the same amount as would be credited to it !or the interest owned by it, by reason of such Committed Workin~ Interest, in - useable wells and tangible property within such participating area (other than useable wells and tangible property located on the tract affected by the title failure, to the extent affected by the title failure) if at such time an invest. e, nt .adjustment were made for the participating area in accordance with Section 13.3 dealing with Method of ajustment. If the amount so credited is In excess of the proceeds or market value o! that portion of the Production from such participating area which was received by such Party prior to the title failure, by reason of such Committed _Working Interest after deducting Lease Burdens paid In respect of said portion, t_hen after such title failure s_uch Party shall (l) be entitled to that portion of the Production lrom such participating area as then constituted or !..her.eat!er revised which It would have received had title to such Committed Working Interest not failed, less Lease uurnens payable on said portion and (2) be charged with a like portion of Its Costs incurred in the operation o! wells within such participating area, until such time as the proceeds or market value of said portion of Production, less said portion of operating Costs, shah equal such excess;provided, however, that such Party .,hah not have any voice in the conduct or supervision of operations within such participating area or in any revision oI such par~cipattng area other than such as it may be entitled to by reason of ownershlp'ol Committed Working Interests within the participating area that are not affected by the rifle lath!re. ].~. 6 lC..:0 Jolnder by True Owner. A true owner of a working interest title to which has failed may Join In this Agreement or enter upon a separate operating agreement with the Parties to this agreement upon such terms and conditions as receive the Approval of the Parties within the Unit Area. Area which is not subject to any otl and g~ Ieee, or o~ con,act In the nature theft!, such ~~eemed to own a Committed Working InChes! in such ~act and also a royalty Interest the~ma~er as H such P~ty's oil and g~ rlgh~ in such ~act were cov~ed by ~~ attache~eto ~ Ex.bit ~. 19~ Ex~utlon of ~ase. In ~y pr y any Pa~y of i~ Committ~ inter. est shall form attach lbit ~, which shah sat~fy ~e requ~ement tot a~lgnment or conveyance of a ~mmltted Work- ]~OCK'Y IdOUNTAIN UN'IT OPERATING Form ARTICLE It.ENTAL,q AND LEASg IIURDEN$ ,2,0.1 I~entals. Each P~.rty..shal~l he ob!lgated to pay any and nil 'rentals and other sums (other than ~ Btu'dens) payaole upon or in respect et Its committed Worldng Interests, subject, however, to the fight o! each Perry to sur- render any of Its Co.,re.mit. ted Wo, r. king Interests In accordance with Article 2'/. Upon request, each Perry shall furnish t..o .Unit. Oper,at.or .s?ttsx, ae. to,.ry ev.laenee, el the ma.k/ag of such payments. However, no Party ah.~ll be Liable to ~ny other ra. rty lot unm~entwnal xauure to maxe any SUCh payments provdied it has acted In good faith. 20.2 Lease Burdens. The Party or Parties entitled to receive the Production allocated to a tract of had within a articipating area shah be obligated to make any and dl payments, whether in cash or In kind, aeeruin~ to ease Burdens, net profits interests, carried Interests and any similar Interest payable In respect of suc~t Production or t'..ar, ty .o.r Part,es .en.t,l~ed to. recel_ve the Production from a well completed as a producer but not included within ~, p.ar~c.~p.a?.ng ~,e.a sna. uoe obligated to pay ~ Lease Burdens payable In respect of such Production ami each ~uch 20.3 Loss of Committed WorkIng Interest. H a Committed Working Interest is lo~t through fa/lure to make any payment above provided to be made by the Party owning the same, such ]o~ shall be borne entlre/y by such Party; provided, however, If the Committed Working Interest so lost covers land within a participating ar~ the provisions Subdivisions A, ~, C and D of Section ~ den~!i_n_g with Failure el Tiffs to Committed Working Interest ~ apply. 18.5 TAXES 21.1 P~¥m. cn~ An.y an~ ?H. ad.valorem taxes payable upon the C~.mmitted Working ]_nterest~ (~d upon Le~e Burdens ,w,n!.cn~are n.o~ p. ayame ~y ~e owners there_et) or upon materials, equ/pment or other -property ~'quired and held by omt opera,or hereunder, and any and all taxes (other than income taxes) upon or measured by Unitized Substances produced from the Unit Area which are not payable by the purchaser or purchasers thereof ~' by the owner of Lease Burdens, shall be paid by Unit Operator as and when due and payable. 21.2 Apportionment. Taxes upon mater/als, equipment and other-property acquired and held by Unit Operator here- ~.n,,der..shal.l be cha.r{:e.d t? and borne by the Parties owning the same in proportion to theh' respective Interests therein. ~,u o~ner taxes paia ~)y onit Operator shah be charged to and borne by the Parti~ h~ proportion to theh' ownership in the Committed Working Interests or Unitized Substances (as the case may be) upon which or in respect of which such ~xe~ are paid. 2.11 .re/?bursements ~rom owners oi Lease Burdens, whether obt_ained in cash or by deduction h'om Lea~e uraens, on accoun~ o~ any taxes paid tot such ov~ers sh~ be paid or credited to the Pa,~es tn the ~e proportions a~ such taxe~ were cha~ged to such Part/es. 21.3 Transfer of Interests. In the event of a transfer by one Party to another under the provisions o/'this agree- ment of any Committed Working Interest or el any interest In any well or in the materials and equipment in any well or in the event of the reversion of any relinqu/~hed interest as in this a{~'eement provided the taxes above mentioned assessed against the interest transferred or reverted for the taxable perwd in which such trander or reversion shall be apportioned between such Parties so that each shall bear the percentage et such tastes which ls proportionate to that port/on of the taxable period dur/ng wlfich it owned such interest. '. 21.4 N~otice. s?nd Heturns, Each Par~y shall promptly furn/sh Unit Operator with copies of notlce~ lev/es or lax sca~emen~ received by it pertainh/g to the taxc~ to be paid by Unit Operator. Un/t Oper~Wr shah make such returns, reports and .statements as may be required by law In con~ection with any taxes above prey/tied to be paid by it and shall f~rnish copies to the parties upon request~ It shall not/fy the Part/es of any tax wh/ch it doe~ not propose to pay before such tax becomes delinquent. ~..i-Li,,,it~tlu, u,,-It/ghr"af--Withdraw'al.--'N. ~han~6)~J~yz-belo~,e-/iling-t4~c. Departmental approval, Unit Operator shall notify each Party in writing of intention to file, specifying /n sucJ~-notice, to the best of Unit Operator's knowledge, the status of ownership of unitized lands and Lease Burdens _~an-?roduction' therefrom. If the owner of any substantial interest in a tract within the Unit Area has then failed or~rMus~d to join in the Unit Agreement, the Party or Parties owning Committed working Interests in such tract sh.a.J~have the right to with- draw such tract /rom the Unit Area in accordance with the Unit Agreement; provided, h_gjue~/r, that such fight shall not be exercised until after at least ten (10) days prior written notice to all other Partie~i~,,Hhin the Unit Area and such right s_hall not .be exe.rcised If w_ithin said period often days the non-withdrawal oJ~euch tract receives the Direct/on of the Yarfies wl~o at the t/me of the giving of such ~otice have executed thi_~agr'eement. 22.2 The Effect of Non-Withdrawal at Direction of Parti_c..~4. ff'/he non-withdrawal of a tract receives the Direction of the Parties as above provided and if such tract is incl. Bded"within a parLicipating area, the following provisions shall apply: A. Any and all payments and liabilitjo oe~~the'owners of uncommitted interests'in such tract that are i, excess of the payments that would accrue, i.e.-enOCh owners had they executed the Unit Agreement shall be bo~c and shared on an Acreage Basis by the P.P~p>ar-ties within the participating area in which the tract is located. B. If the payment_.~Alrg[ would accrue to the owners of uncommitted interests in such tract If they had joined in the Unit Agrcejnetl[ are in excess of the paymenLs actually accruing to them such excess shall be shared by all Parties wi~e participating area on an Acreage Basis. _22.3~y..olnihary Non. Withdrawal. If the Party or Parties owning Committed Working Interests in a tract vohm- tariJ~l'~s to exercise thc right to withdraw such tract in accordance with the Unit Agreement, all payments and lin. btf'fr/cr--ac~hc'-own ers"u f-uncom mit t ud-tntercst~-/zr-such-tract~h~be~aid-an d-born~ ueh~~~ a~i ~. ARTICLE ~3 COI~IPENSATOIIY ROYALTIES 23.1 Notice. Whenever demand is made in accordance with the Unit Agreement for the payment of compensatory royalties, Unit Operator shall give written notice thereof to each Party affected by the demand, as hc. reinafter pro- vided. 23.2 Demand for Failure to Drill a Development Well. If the demand for compensatory royalty results /rom the failure to Drill a Development Well and such well Is not drilled, then Unit Operator shall pay such compensatory royalty. Such payment shall be charged as Costs Incurred in operations within such participating area. 23.3 Demand /or Failure to Drill a Well Other than a Development Well. If the demand for compensatory royalty results from the failure to Drill a well other thnn a Development, Well and an election to Drill in order to avoid pay- ment of Compensalory Royalties is not made by any Party owmng a Committed WOrking-Interest in the tract upon which such a well may be Drilled, then Unit Operator shall pay such compensatory royalty. Such payment shall be chargeable to and borne by the Parties who would be obligated to bear the Costs of such well ff the well were Drilled as a Required Well In accordance with Section 10.4B. ARTICLE 24 SEPARATE MF. ASUREI~IENT AND SALVAGE ' 24.1 Separate i~Ieasurement. If a well completed as a producer of Unitized Substances is In or Included in a partici- pating area but Is not owned on an Acreage Basis by all the Parties within such participating area end lf~ within thirty (30) day~ niter request by any interested Party, a method of measuring the Production from such well w~thout necessi- tating additional facilities does not receive the Approval of the Parties, then Unit Operator shall Install such additional tankage, flow lines or other facilities for separate measurement of the Unitized Substances produced from such well as Unit Operator may deem suitable. The Costs of such facilities for separate measurement shall be charged to and borne by the Drilling Party for such well and treated as Costs Incurred tn operating such well notwithstanding ~ny other pro- visions of this agreement. 24.2 Salvaged Materials. If any materials and equipment, are salvaged from a well completed ,~s a producer after being Drilled. Deepened or Plugged Back otherwise than for the account of .all the Parties entitled to parhcipate therein , be/ore reversion to the Non-Drilling Parties of their relinquished interest, s In the well, the proceeds derived /rom sale ROCKY MOUNTAIN UNIT OPEa:L~T~IG thereof, or, fir not sold, the Salvage Value thereof, shall be treated In tho same manner aa proceeds of Production from such well for the purpose of determining reversion to Non-Drilling Partle~ of their relinquished Interests tn such well SECONDARY RECOVERY AND PRESSURE :L~.I Consent Itequired. Unit Operator shah not undertake any program of secondary recovery or pressure maln. tenance Involving Injection of gas, water or other substance by srO' method, whether now known or here. alter devised, without first obtaining the consent of not less than. .... iL1./L.m~._.Partles tn the aggregate owning not le.~ than...__._._.. ..IDrte...Hl.t~dl::e_d .... per cent (..._1_00 ....... %) of the Committed Working Interests on tn Acreage Basts In the participating area affect,ed, by any. such program. At'tar the parties have voted to-undertake a pro,ram of secondary recove,ry, or .pre. a, sur..e m.,am?nane, e in a~o. ru.n.ne? wi. th..t, hl, section, the conduct of such · program shall be subject to supervision ny the rat-des ny vote as set luria m z~euede Il. _ 2~.2 Above Gr.o, und .FaclUtles. ,,This ,agr.eeme, nt, shall not be '_deemed to require thy Party to participate In the co~ strucuon or .,opera, tits. ot.an_.y fast,line pi.ant, .su!pnur recover,/plant, dewaxtng plant or other above ground fscllJties to process or ?,tnerwis,e tre,at.rr,o,,a.u, euon, otne,r ~an ,suc~. ,Ia~!ltles aa_ re.ay .be requ.,h'ed for treating Production In ordinary lease operations ann seca taemues aa may ne requires tn the condec; ox operauons authorized under Section 115.1. TRANSFEILS OF INTEEE,8? 26.1 Restriction on Zone Transfers. No Party shall assign, mortgage or transfer Its Committed Working Interest In any tract committed to this agreement as to less than aU formations underlying said tract without first receding the Approval of the Parties within thc Unit Area; provided, however, that such restriction shaU not apply to s transter by any Party of any part of its Committed Working Interest in any tract or tracts after the Drilling-of the InlUal Test Well or Wells and prior to the discovery of Unitized Substances tn paying quanUUes under a larmout arrangement In consid- eration of the Drilling o( a well within the Unit Area, tree of expense to the other Parties, and upon the further condition that If such well results In the Production of UniUzed Substances In paying quantities, such well and the Production there- from will be ~..ha.r.e,d .by t.h,e Parties .within _the participating _area establls.hed for such well in the same manner as it the well had been t~riheu zor me account ti all Parties within such participating area. 28.2 Sale by Unit Operator, If Unit Operator sells all Its Committed Working Interests, It shall resign and s new Unit Operator shall be selected as provided tn the Unit Agreement, Is 2871 Assuml~tion. o.f Obligations-. No transfer of an), Committed Working Interests shall be elfectJvo unleu the same re. aaa ex..pre, s.s)y .s, uoject, to. the Un)t Agree.meat and this agreement and the transferee agrees In writing lo assume and perzorm ali omiga, uons o.l tl~e transzeror unaer the Unit Agreement and this agreement Insofar as relates lo the interest .assig. ned, except .that. s,ue_h a,ssumption ti obligations shall not be required in case of · transfer by mortgage or deed trust as security lot tnoebteoness. 28.4 Effective Date. A transfer of Committed Working Interests shall not be effective as between the Parties until the re'st .day o.f the n]onth, nex. t following the deliver,/ to Unit Operator of the original or a eertihed copy of the Instru- · sent of transler eomormmg to the requirements of Section 28.3. In no event shall a transfer of Committed Working Interests .relieve the transferring Party of any obligations accrued hereunder prior to said effective date, for whkh pur- pose any obligation assumed by the transferor to participate in the Drilling, Deepening or Plugging Back ut a wcH prtor to such effective date shall be deemed an accrued obligation. ARTICLE Z~ RELEASE FROM OBLIGATIONS AND SURRENDER 27.1 Surrender or Release With.in Participating Are~. A Committed Working Interest covering land within a par- tlcipating area shall not be surrendered except with the consent of all Parties within such participating area. However, a Party who owns a Committed Working Interest in land within a participating are~ and who is not at the time com- mitted to participate in the Drilling, Deepening o.r ,Plu. tlging Back of a well within such participating area may be re/laved of further obligations with respect to such particlpaung area as then con.s~ituted by executing and delivering $@ Unit Operator an assignment conveying to all other Parties within such participating area all Committed Working laierests owned by such Party in lands within the participating area, together with the entire interest of such Party in any and all ~ells, materials, equipment and other property within or pertaining to such participating area. ~7.2 Procedure on Surrender Outside Participating Area. Whenever · Party desires to surrender Its Committed Working Interest in any tract which is not within any participating area, such Party shall give to all other Parties writte-n notice thereof describin6 such Committed Working Interest. The Parties receiving such notice, or any of them, shall have /he right at their option to take from the Party de. siring to surrender an assignment of such Committed. W~rk- lng Interest by giving to the Party desiring to surrender written notice of election so to do within thirty (30) days n4ter receip4 of the notice of the desire to surrender. H such election ts made as above provided, the Party or Partle~ t~king the assignment (which shall be taken by them in proportion to. the acreage ot their Committed Working Interests themselves in the Unit Area) shall pay to the assigning. Party its share of the Salvage Value of any wells owned Parties and then located on the land covered by such Committed Working Interest, which payment shaH-be made receipt of the assignment. If no Party elects to take such assignment within such thirty (30) day period, then th~ P~rty or Parties owning such Committed Working Interest may surrender the same It surrender thereof can be made in accord- ance with the Unit Agreement. 272 Accrued Obligations. A Party making an assignment o_r surrender in accordance with Section 27.1 or ~/.~ not be relieved of its liability for an), obligation accrued hereunder at the tLme the assignment or surrender Is m~de, or of obligation to bear its share of the Cos~ Incurred In any Drilling, Deepening or Plugging Back operation in such Party has elected to participate prior to the making of such assignment or surrender, except to the exlent the Party or Parties receiving such assignment shall assume, with the Approval of the Parties, any ~nd all oblig~thms of the assigning Party hereunder and under the Unit Agreement. ARTICLE ~8 SEVERAL, NOT JOl~r LIABILITY 28.! Liability. T~e liability of the Parties hereunder shall be several and not Joint or collective. E~ch Party' ~ be responsible only for lte obligations az heretn set out. 28.2 No Partnership Created. It is not the Intention of the Partie~ to create, nor shall thts agreement or O~ Unit Agreement be construed as creating a ~!pl_ng or other partnerahip or association between the Parti~ or to render them liable as partners or associates. 28.3 Election. Each .of the Parties hereby elects to be excluded from the application of Subchapter ~ of CI~pter ! Subtitle A of the Internal Revenue Code of lgs,t or such portion or portions thereof as may be perml~d or authorized by the Secretary of the Treasury of the United States or hts delegate Insofar as such Subchapt. ex or any portloa or por- tions thereof may be applicable to the Parties. H any pre.sent ,ae-htha~ Income ~ laws of the state or states In which the Unit Area Is located, o~- .~a~- ~%~.~-c i~.c,,~,~ ~ :;,-.- ~,:-~?,.;-Ur.i'.r.~ C~.~, contain, r,r~?.---:! .k~.=~r2'..-'~ ;;.':~1.':,- provisions similar to those contained in the Subchapter of the Internal ttevenue Code of lg~4 above referred ~ under which a ~lml- _ lar election Is permitted, each of the Parties hereby elects to be exciuded from the application ot s~=h laws.- Acc0rdlngly, each Party hereby authorizes and directs Unit Operator to execute such an election or elections au f~ behalf and file the same with the proper administrative office or agency. I/ requested by Unit Operator, each Party a~'eca to execute and Join In such instruments as axe necessary to make such elect/oas effective. · NOTICE8 2g.1 Giving and Receipt. Except as otherwise apectfled hereIn, any ~otlce, consent or statement herein provided pr permitted to be given by Unit Operator or a Party to the Parties shall be giv_en in writing by United States marl or .by telegraph, properly addressed to each Party to whom given, with postage _or charges prepaid, or by deliver~ therco/ tn person to the Party to whom given; however, Lf delivered to .a corporate Party, it shall notbe deemed given unless delivered personally to an executive ol~icer of such Party or to Its representative designated pttrauant to Section dealing with Representatives. A notice given under any provision hereof shall be deemed given only when received by ' the Party to whom such not/ce la directed, except that any notice given by United States regtstered marl or b~' telegraph, --I0-- properly addre~ed to .the ,Party.to whom. g. iven with ~11 postage and charges prepaid, shall be deemed given to and received by tho Party to whom mrecteo zorty-eight (4~.) hours after such notice la deposited in the United States malls or twenty-four (2t) hours after such not. i~:o b ii led _with an operating telegraph company for Immediate tr~__n_s_misslon by telegraph, and atso except that e notice to Unit Operator shall not ho deemed given until actually received by it. · 2g.,q Proper Ad .dreues..Each .Party'.s ~ro.pe.r address shall be deemed to be the addrew, s set forth under or opposite its signature hereto unless ~no until such t'arty speci§es anoth .er post office address within the contlneittal limits of the United States by not leu than tea (10) days prior written noUe~ to all other Parties. AItTICL~ 8~ EXECUTED IN COUNTF_n__PART9 AND IL'tTIFIC. iTION ' 30.1 Counterparts. This agreement may bc executed In cotmterparta and all such counterparts taken together s__h~_ll_ b~ deemed to constitute one and the same InstrumenL 30.2 Rattflcatiost, This agreement may bo executed by the execuUon and dellvei-y id a good and sufficient Instrument of ratification, adopting and entering into this agreement. Such r·tl~catlon shall have the same effect ts if the Party executing It had executed this agreement ~-~ counterpart hereof, . tRTICI.~ Il , " tUCCE~OILq AND ASSIGNS · 31.1 Covcn~ ~ ~eement s~ be b~d~g ~ ~d ~ ~ the benefit of ~ P~ ~l~g ~c ~e, the~ he~s, dev~e~, pe~on~ repressive, succ~o~ ~d ~ ~d the~ suc~o~ ~ ~t~L w~ther ~ not It ~ ~gned by aH ~e P~ ~t~ ~low. ~e ~ h~t s~ ~tu~ a covert ~g with ~e ~ ~d ~o ~m~tt~ Wor~ ~t~ M ~e P~ ' . ARTICLE 33 FIGHT OF APPE.~ ILiA Not Waived. Notbi_ng contained In this agreement shah be deemed to constitute the waiver by anir Party o! any right it would otherwise have to contest the validity id any law or any order or regulation ofgovernme.utal authority (whether lederai, state or local) relating to or affecting the conduct of operations Wi.thin the Ulgt .~rea el' to appeal from ~ny such order. ARTICLE 14 ' .. SUBSEQUENT JOXNDER 34.1 Prior to the Commencement of Operations, Prior to the commencement of operatio~ under the Unit Agree. mcat, all owners of Working Interests In the Uuit Area who have Joined In the Unit Agreement shall be privileged to execute or ratily !bis agreement. 3,1.2 Al~er Com_m__encemcnt of Operations. After commencement of operations under the Unit Agreement, any Work- lng Interest in land within the Unit Area which is not then committed hereto may be committed to this agreement and to the Un. it Agreement upon such reasonable terms and conditions aa may receive, the Approval el the Partic~. iL~.I Treatment or. H ·ny Working Interest shown on Exhibit B of the Unit Agreement and commiited thereto cnn'ted working interest, such interest shall, if the carrying party executes this agreement be d~__m~__ to be, for the purpose of thl.s agreement, · Committed Working Interest owned by tho carrying party. ARTICLB 36 EFFE~IVE DATE AND 36.1 Elfccllve Date. T~ agreement shah become eff~Ove on the effective date of the Unit Ag~ement 36~ Te~ ~e t~m o~ ~ agreement sh~ be the ~me ~ tho'te~ of ~e U~t Agreement ~d ah~ ~nate ~cu~enOy ~ewl~. ~.3 Eaect of To,nation, Termination of th~ a~eem~t sh~ not relieve ~y Pray of 1~ oM!~!io~ ~ necked h~under. Hot~t~tnn~ng t~na~on of t~s agreement the provisions her~f relating to the c~g ~ ~d the ~positlon of materla~ ~d eq~pment a~ continue ~ force ~gl ~1 materials n~ ~uipment owned by P~es have been disposed of and ~ hn~ aceoungng between Unit Operator and tho P~g~. Te~a~on ~reement sh~ automatically te~ate aH Hgh~ and interes~ acq~red by v~ue of this a~eement ~ lands ~ the Unit ~ea except such ~!~sfera id Com~tted W~g ~t~ea~ ~ have been cvlden~d by ~o~ written ~.4 Effect of Si~~ When t~s a~eement ~ executed by two P~, execuHon by each a~l be d~med con- ~atlon for exeeu~on by ~e other and ~ch P~ty theretofore or there~ter execut~g this agreement ah~ ~ereupon ~ome and rem~n ~und hereby unffi ~e te~a~on of th~ a~eem~t. However, H ~e Unit ~eement does not ~mo effec~ve ~thin t~lve (12) mont~ from and ~ter ~e date of ~s a~eement, then at the expka~on of said ~rlo~ t~ a~eement s~ t~J~ate. nC)CKY ~OUNTA[N UN]~ OPL~RAT}N~, Fo~*m 2 (Dl~d,*~ Inleresl) ]ontmry, 1955 Otbcr provisions, ff nay, sre: AETICLE ~ OTIIEIt PBOVISIONS 37.1 Notwithstanding any provision in this agreement to the contrary, no Party shall be liable, without its consent, for any investment adjustment cha~ge under the provisions of Section 13.3D or 13.4D, which charge is in excess of the Party's credits under Article 13. In the event of the establishment, enlargement or contraction of a Participating Area, the provisions of Article 12 and other provisions related thereto shall be appli- cable to any investment adjustment to the same extent that these provisions are applicable to a well drilled otherwise than for the account of all parties entitled to participate therein. Any Party subject to such charge may elect not to pay it in cash. If within 30 days after proposal for establishment, enlargement or contraction of Participating Area has been submitted by Unit Operator, in writing to the Working Interest Owners involved, a Party elects not to participate in the investment adjustment applicable to the establishment, enlargement or contract*ion, that Party shall be a Non-Drilling Party, and shall be deemed, as of the effective date of the resulting area in connection with which such charge is made, to have relinquished the interest in the well for which such charge is made to the Party or Parties who would otherwise be entitled to receive a credit under Section 13.3D or Section 13.4D, which latter Party or Parties shall be the Drilling Party with respect to this relinquished interest. The Drilling Party shall own the relinquished interest until it reverts to Non-Drilling Party pursuant to Article 12, except that it is specifically understood that the Article 12.3B percentage for exercise of the Non-Drilling Option applicable to establishment, enlargement or contraction of the Participating Area, be 200%. 37.2 The provisions of Section 16.1F and G or any other provision of this Unit Operating Agreement shall not, without more, entitle any Party to share in the distribution of velocity survey information or velocity logs (if any are made), whether conventional velocity surveys or continuous velocity logs. The Parties hereto, or any one or more of them or an assoCiation of which one or more of the Parties is a member, may at its or their sole cost, risk and expense, including stand-by rig tJnne, conduct such surveys in any well drilled hereunder upon reasonable request and be entitled ex- clusively to the information thereby obtained. IN WITNESS WHEREOF,-the parties hereto have caused this agreement to be executed as of the day and year first above written. UNIT OPERATOR AND WORKING INTEREST OWNER: TEXACO Inc. Its Attorney in Fact By_ Attest STATE OF CALIFORNIA ) ) SS, COUNTY OF LOS ANGELES ) before me ' Buzanid'n ~'£ - , a Notary Public in and for said County and State, residing therein, duly commissioned and sworn, personally appeared Iq. F. Ashauer ., known to me to be the person who executed the within instrument on behalf of TEXACO Inc., a Delaware corporation, the corporation therein named', and whose name is subscribed to the within instrument as the attorney-in-fact of said corporation, and acknowledged-' · to me that he subscribed the name of said corporation thereto as principal, and his own name as attorney-in-fact, and acknowledged to me that such corporation executed the same. IN WITNESS WHEREOF, I have hereto set 'my hand and affixed my official seal the day and year in this certifi- cate first above written. " Notary P~lic in and~for said LOS ~U[L~S COUntY J~ County and 'State ~ .~_~ ~ _~..~_~ · Es%her V. Bozanich My Commission expires Ii,;), Co:,;,-n:ssion Expires August 16, 1970 w^~.,v~, co,~,*~r EXHIBIT" 2 " · . ,.~o7., ACCOUNTING PROCEDURE Al,ochod to end made o pon of Unit' .O.1Deratin9 A~reement~ Nicolai Creek Unit Area dated Decemb.er 15, 196.7.,. ..b.~. and between Texaco, Gulf, Shell, Pan Am, .P. hillip..$.., ..... ..S..k,~l. ly.., ..... Sincl air,~ super.i.or., ..... and_Mobil hereJnaller rcferfod Io ol "Agroemenl." The purpose of Ibis Accounting Procedure Is Io establish equitable melhods for d¢lermlning charges and crediFi applicable to ope,aliens under Ihe Agreemenl. Thc parties agree0 J~owever, thai if el any lime, or fram time Ia rime, any of such melhods prove unlalr or Inequllable to Operator or Non-Operator, the parties will meet and In go~>cI faith endeavor to agree on changes In melhods deemed neces~ar), Io correcl any unfairness or Inequity. e SECTION I. GENERAL PROVISIONS DEFINITIONS "Properly" as used herein shall mean Ihe real and personal proper~ *ublect Io Ihe Agreement "Operator°' as used herein shall mean Texaco ~ Ihe par~ ~o deslgnaled at any subsequenl Ope~alar dedgnaled pur~nl Io the Agreemenl. - .._~.~.~ r.i~r.....~n~....~.hil ...................... / and any po~ who may lubsequen~y be~me a Non-Opcralor purluanl lo Ihe Agreemenl. "Controllable Maler~l"a, used herein ~all mean male~l ~ clazsified in I~e Iisi mosl recenlly publhhed by ~ Pe~oleum Aceounlantz ~cle~ of Lei Angalel.- RECORDS Operalor shall c~ a// I~es mainlaln and keep true and correct records ~ II~e production and dj,po, ilion of all oi~, ~, and other · hydrocarbon substances and of all co,Is and expendilure$ incurred, as well as all olher dale necessary os proper fro' I~e seltlemenl of accounh between Ihe partie~ herelo in connection with Iheir righl~ and obligatlom under Ihe Agreemenl. Such re'cords shall be open at all reasonable limes far Inspection by oulhorized ,epresenlalives of Non-Operator. PRODUCTION REPORTS A. If the Agreemenl provides for division in kind of crude o~, gas and other hydrocarbon substances produced, upon request by Non-Oparalor, Operator shall furnish Non-Operator, on or before the loth day of each calendar monlh, stalemenls showing dhposllion of such sub,lances during Ihe preceding calendar monlh and such alher dale os will ~,alisfy Ihe reasonable require. menls of Non-Operalor. B. II Ihe Agre~menl does not provide for a division In kind, Operator shall furnish Non-Operalor, on or before Ihe last da)' air each calendar monlh, slalemenls Ihol will properly reflect Ihe applicallon of credits derived Irom the dlsposlllon at crude oil, gas and olher hydrocarbon subslances loc Ihe preceding calendar month. STATEMENTS On or bolero Iho last day of each monlh, Opcralor shall submil Io Non-Operalor a slalement al co, Is and expendilures incu,,ed under Ihe Agreemenl during Ibc preceding calendar manlh. Unless olherwise agreed upon, such slolemenls shall be In summary farm by Operator's accounl and sub-accounl clossilicalions, excepl Ihol Conlrollable Molerial and soeciol charges and credils shall be deloiled. PAYMENTS The amounl due Operolor or Non-Operolor in accordance wilh Ihe Agreemenl os reflecled by ~talemenls Issued by Operator, ,hall be paid wilhin lillean (15) days from receipl of the slalemenls. It poymenl is hal made wilhin such time, Ihe unpaid balance shall bear inleresl al Ih~. rate al I~welve percenl (12%) per annum unlil paid. Upon toque,l, Operolor may require Non-Operolor Io cro~ance Non. Operalor's share al eslimaledcash oullay Ior Ihe currcnl month's expendilures. 6, ADJUSTMENTS Paymenl of any slalemenls shall not prejudice Ihe right of Non-Operator to prole$1 or question the correclness Ihareof. Su~j'ecf fo Ihe exceplion nole. d In Paragraph 7 of Ibis Seclion I, ali slalemenls rendered Io Non-Operalor by Ope. taler during any calenc~or year shall be conclusively presumed Io be lrue and correct afler twenty-four (2~) monlhs from the end of Ihe calendar year to which such slalement applies, unless wilhin Ihe said twenly-four (24) monlh period Non-Operalor takes exception Ihereto and makes wrlllen claim on Operolor for odJuslmenl. Failure on Ihe peri o! Non-Operalor lo make claim on Operator for adjuslmenl wilhln such period shall esiobllsh Ihe correclness Ihereol and preclude Ihe tiling of exceptions therelo or making of claims for adiuslmen~ Iherecm. Also, no adjuslmonl favorable Io Operalor shall be made unless il is made within Ihe same prescribed period, or unless il ts In co,nectlan wilh a claim of Non-Operalor..The provisions of Ibis paragraph shall nol prevenl adjuslmenls resulling from physicaF h~Yenlory of properly as provided for In Section VI, In~enlorles, hereof. 7. AUDITS A Non-Operalor, upon halite in welling to Operalor and all olher Non-Operalors, shall have the riehl Ia audit OperaPo/s accounls and records reloling Io Ihe accounting hereunder for any calendar year wilhln lhe twenty.four (24) monlh period folfo~dng the end of such calendar year, provided, howeYer, thai Non-Operalor must lake excepllon Io and make wrilten claim upon I1~ Operalo, for oll dlsc,epancles disclosed by said oudil within said twenty.four (24) monlh period. Where there ar~ twa or more F/m',-Operalors, Ihe Non.Operalors shall make every reasonable effort to conduct joint or simulloneous audils in o manner which w~/ result In a minimum of InconYenience Io Ihe Oparalor. . SECTION II. CHARGEABLE COSTS AND EXPENDITURES Chargeable oasis and expendllure$ shall Include oil co,Is and' ex~endJlures in connection wllh Ihe performance of O~eralor's dullas under Iha Agreemenl. Wllhoul in any way limiling Ihe generalily cdr ~ fbr~golng, chargeable cos1, and expendilures shall IncJude~ I. RENTALS AND ROYALTIES Leozo rcnlals and royallles paid by Oporalor pursuant to the Agreema~ &ABOR AND PAYROLL llURDEN 5,alflries and wages of Operator's employeet, direcffy efl~oed ~ the o~roJ~fls of !~ Pr~, ~1~ os~e~sminl~ Imposed by goverflmen~l gulh~hy on or meolured by the ~y of em~oyeel, o~ oily grip ~ecoveroblo from 1fleurance), h~ldoy ~y, vocolioflt, Irovel allowances, ~flUon ofld ~dll ~ e~ M~r 0eflerol ia employees at O~rolor ~puted ~ ~ applicable Io sKh ~lorks p~ ~ 'MATERIAL ~ol,rloh, eqvipmenl omi ouppl~s purchated by Operolor or ~rflished Ir~ I~ slorohouH BIKEs ~ Ir~ use on Ihe ProperS. InuJor os h procl~oJ omi coflJitlofld with ell~lenl end ecoflomkol operol~ only purchased lot or I;ofljltrr~ lo Ihe Prope~y m ore required f~ Immod~ie v~ gild Ihe occ~m~ol~ ~ ~ler~ls Ihs Pro~ s~ll be kepi Io o miffed. 4. TRANSPORTATION Transporlollon of employeel, equipment, material and supplier flecessar7' fei' lhe deYelopmenl, maintenance aml operation of Ihe Properly subJecl Io Ihe f~lowing Ilmllelions~ A. If malarial b moYed Io the Properly from Irendor al; tram Ihe Operol~r's warehouse or 'olher i~operlles, no charge shaft be made la Ihe account for o dhtonce grealer Ihan Ihe dislance Io Ihe neoresl reliable supl:dy store or railway, receiving poinl where such molerlol la available, excepl Elf agreement wilh Non-C)peralor. B. If surplus malarial Is moved Ia Operalor's warehouse or olher ,forage polnh, no charge shall'be made ta the occounl for a diHance grealer than Ihe dlslance from Ihe neareH reliable ,upply Hare or railway receiving p~nl, excepl by special o...greemenl wilh Non-OperxHor. No charge shall be made to lhe account Jar moving malarial Io olher properties belonging to uperotor0 excepl by jpoclal agreemenl wllh Non-Op(,ratar. Each party herelo, al lis Iole cosl and expense, droll Ironsporl from Ihe Properly I1~ proportion o~ surplul equlpmenl and mate- rial which has been divided In kind. C. S. OUTSIDE SERVICES - $orvkes and utilities procured from outside sources. OPERATOR'S EXCLUSIVELY-OWNED EQUIPMENT AND FACILITIES Charges for Operator's excludveJy.owned equipmenl, lacllllles and ulflllles on Ihe basis of actual u~age on or s.rvlce to Ihe Property al roles co,nmensuralo wJlh Ihe cosl of ownership and operalion, bul not in excess of fates currondy prerollin9 for like service and equipment ir~ Ihe area where Iht Property is io<aled. On rcque~l, Operalor shall furr.ish Hon,.Op~.rmor a Iisi al roles and Ihe bath of opplicallon. Such roles shall be r, vised from lime ia time if found bo be either exce~Ive or Iruuffidonl, bul hal mare often than once eYery six (6) monlhl. Drilling Iools and olher equipmenl loft in Ihe hole or damaged beyond repair may be charged at a fair value. 7. DAMAOES AND LOSSES Rehabililalion co(ts occasioned by fire. flood, storm, acc~0nl or other cause or condition not con~b/e by Operator through Ihe exercise of reasonable diligence, whelher or hal similar la Ihe causes or conditions herein specil%cally enumeraled, and hal com- pensated for by insurance or olherwise. Operator shall lurnish Iqon-Operaior written not~ce of major damage~ m Josses Incurred os soon os practicable oiler Ihe report of Ihe same has been received by Operator. l. LITIGATION AND CLAIMS Expenses of liligalion, liens, Judgments and seltlement of claims Incurred In or resulting from Ihe operations under Ihe Agreomenl~ except thai no cl~arges for services of Operator's legal slaff or for fees or expenses of out, ldo allorney~ d~all be made except upon prior agreement berween Operator and Non-Operalar. 9. INSURANCE Insurance covering operations under the Agreement, os follower A. Net premium cosl of Insurance carried Jar tho protection of lhe parties hereto in accordance wtlh Ihe Agreemenl. B. In the erenl operations under the Agreemenl are conducted in a .State in which Operator may ecl as self-insurer under the respective Staleq Warkmen's Compen~alion Iow'% Operolar may', al lis election, Include Ihe rhk under its self-Insurance pro- gram and In Ihal event, Operalor shall Include a charge Iherefor on Ihe Jollowlng bash: At;....Qp.~Z:.a.t;.Q~.!..~.....C ~.e.t....nc,.t:;_t.c~....~¢ ~..~a e~._S~e..~a ~ ~...~ ~e ~ I0. TAXES B. All loxes and assessments which are levied, ossa,ed and paid upon the mineral Inlerest in and to Ihe PropertT. All other Ioxc$, pcrmit~ and assossmonl$ which are leYled, assessed and paid, such as taxes on JmproYo.ment~ am;J per~onal property and any Ii<ense, excise or severance taxes or assessments on or measured by Ihe producllan of ~1, gas and olher hydrocarbon subslanc'~s from Ihe Property. I J. OPERATOR'S OV[RHEAD A charge shall be mode to cawr om/' portion of salaries and wages, applicable payr-o~ I~urdon and expenses of any managomenl, supervisory, administraliYe, purclx~ing, store~, I~chnical, clerical and other em~e~ ~ ofticen indirectly servfng Ihe Properly whose salaries, wages and expanses or~ eel a chargeable cost under paragraph 2 of Ibis Section II; also, anypo,lon of the expanse of mainlaining and operaling afl ot'llc~s and la<i~flas including bul ne4 limited to head off;caN area, dN'ision, dhlrict, field and comp offices, warehouses, boarding fac~tlles and ~ similar facllilies n~ e~qulred exdustwly to~ Ihe Properly. This charge shall be made on one of Iha following bases (eilher A ~r Percenlage DeYeiopmonh ............ ..~,....O......f3...T)...~.....O...~.,~..-_h.~.~r.,.~ ............................................................ Percent (...~.~.%) ' of lbo cost of daYelopmenl exclusive of costs pro'tided under paragraph B of ri~ Section II and oil ,-olvage credits. (2) Operollng: .............. ~]:~__P ~ .... Percenl (...1.0.-%) of Ihe cosl of operollng Ihe Property exdudve of costs prodded ~nder paragraphs 1, 8 and 10A of Ibis Section II. (3) Major Conslructlom The charge Io be mode her.eunder shaft be sub~c~ to prlo~ agreemenl between Operalor and Non- Operalor. For lbo purpose of delermlnlng these charges, "Developmen'f" shall Include afl costs in connecllon with drilling, redrlllln~, deep. ening or any remedial operalions on any or all wells involving Ihe use of drilling crew and equipmenl/ also, preliminary pendilurel necessary In preparallon for drifting and expendllure, Incurred In abandoning when w~ll is not compleled as a producer/and original carl of conHruction or Inslallallon of'fixed assels, Ihe expansion of fixed assail and any olher proJecl dearly dhcernlblo as a fixed ossel, excapl 'Molar Conslruction." "Major Conuructlon" shall Include all cam of construction or Inslollallon of permanenl offshore plallorms, gas processing and repressurlng planl~ or as olf~erwi~ agreed. All olher ,hall be conHdered as "Operaling." #2--4 *,Under this Paragraph 2 of Section II the salaries or wages of technical employes who are temporarily assigned to and employed on the Property in the conduct of operations hereunder will be charged direct on a time served basis. (I) Deveiol~me'qh $ ...................... per monlh (prorated lot perloclt of lest Ihan one mon~) faf each well upon whkl~ redtillJna or olhor fPmedial ope,aliens involving the use of drilling equlpmenl and drilling crew ore being comouled from Ihn deeP. of commenceme, n! of spudding-in operalion, on such well and c~nHn~ed ~nlll I~ I~l~"oced producllon, abandoned or operalions ore suspended fro' lilteen (15) of more consecutive dalq.. / ' (2) Operallngi $ ........................... per will per month for the firsl five (5) producing wills, undtr thh A~emen¢./ $ ........................... per well p.r mon,h fo, th. ,,tend fly. (5) p,odu¢lng w, ll,, u~,"mh~' 'Agr,.menh $ .......................... per will per monlh lot all producing wells aver ten ('10)~ u~'r Ihlt'/'"' 'Agre~mint.- (3! Thc aboYc overhead rates apply only Io drilling and procluclng operalions and are nj~nlended to cover the c~n~lrucllon or oparollon of addillonal facllilles such al, bul hal Iimlled Io,'oflshore plalJo~"-~ planls, comp~sm' plant~, repressuring prelects and IJmilar Inllallallons. If al anytime any ar all of t~ hecta'ne .nece~a~ Io Ihe operation, scparale agreomenl will be reached relallve to an overhead charge. ~/' ' For delerminl~g charges under BaH B, Ihe ilolul of wells shall be as filial (I) Inlcclion wells for recovery operations, such as for repressu~~ in Ihe a~rhead schedule Ihe ~ome as producing oil wells. (2) Water supply wells utilized Ior water flooding ope~~~ ~h~ad ~chedule the same os produc, · lng all wells. ,. ''J {3) Produ~ing gas or condensat~ wells shall (4) Wells permaninlJy shul dawn bula al the lime the shuldown Is erie role during Ihe lime requlr (5) Wells being plugged b over thai requires Ih well for Ihe pe (6) Temporarll exclude th (7) The charges provided for under paragraphs ! IA or lib of Ihis Secllon !i shall be subject Io review and possible re~slon fram lime to lime (bul nol more allen than one, In any twelve monlhs) If in practica Ihey are found to be Insufflcienl or excessive, provided however, Ih~l any revision Jn roles agreed upon by Ihe Operalor and Non-Operalor shall not be applied relroaclhr~ly. II al any time Operator shall make any substanllal change in accounling procedure or organlzallon which offecls costs ar bases used In eslablishing roles under paragraphs 1 IA or liB, Operalor shall noilly Non-Operator in willing. 12. OTHER EXPENDITURES Any olher expendllures Incurred by Operalor for Ihe necessary and proper development, mainlenance, operation and abandonment of Ihe Property. SECTION III. BASIS OF CHARGE!i I. PURCHASES Malarial, aqulp~nent and sendce procured shall be charged al price paid by Oparalor oiler deduction of all discounts aclually received. 2. MATERIAL FURNISHED BY OPERATOR Material required far operations may be purchased for dl~ecl charge Ia the Prope'ly or Operator may furnish such material from Operator's slacks or olhar proporlies sublecl Io the following provisions~ New material (Condition A) ~hall be priced f.o.b. Ihe nearesl ~epulable supp'y slate or railway receiving polnl, where such material ts available, of current new price. Including sales and use taxes bul I.:ss oil discounl~ customarily lakin by Operolor. This will include mu*oriel such a~ lank,, pumping unlls, angina, and olher mojnr equJ'pmenl. Tubular goods, Iwc~.Jnch (2'*) and over, shall be priced on carload basi~ elJective al dote of transfer and f.o.h, railway, receiving paint nearesl lbo Properly regordJe, ss of quantily transiorred. Small malarial,, such as miscellaneous fillings, supplies, etc., may, for Ihe pu. rpo~e al con- si,linty and convenience, ba charged al Operalor's ~egular slorehous0 prices. B. Gasoline, karo,eno and olher lighl oils furnished by Operator shall be al prices approximaling po,led lank wagon price. Lubricaling oill and greases shall be al prices approximating commercial consumef'~ price. In no event shall such prices exceed lank wagon or commercial consumer's prices for Ihe respecllYe products. Crude oil shall be priced at Ihe available po,led and published field price. Gas and Ilquilied producls shall be at prices approximaling market value. C. Used Malerials Furnbhed by Operator (Condilions "B' and 'C"~. (1) Malarial and equipmen! which h In iound and se~lceable cendilion and sullable for use wifhoul repair or reconditioning shall be classed as Condition "B" and, ex,opt as provided hereinbelow, priced al sovenl-/,-I~e per cenl (75%) of current new price of like malarial. (2) Malarial and aquipmenl hal meeting Ihe requlremenls of subparagraph 2C(1) herelnabo~ bul whtch can be made Il Il suitable for use oiler being ropalred ar racondilloned, shall be classed as Condition C and priced al filly per cent (50%) of current new price of like malarial, provided Ihal material so classiliod will moil Ihe r~qulriments for Condition 'B" malarial upon being repaired or re~ondilioned. (3) Tanks, derricks, buildings and olher Ilems of malarial Involving erection costs, If transferred In a knocked-down condillan, shall be graded as Ia candillon as. provided In Ihlt paragraph of Sacllon III, and priced on Ihe basis o! knocked-down pflc~ of like new malarial. (4) Malarial and equipment, Including drill pipe, casing and lublng which is no longer usable for its original purpose bulh furlher usable for some alher purpose, shall be graded os Ia condition as provided in Ibis paragraph 2C of Section III and priced on Iha basis of curronl new price of Ilems normally used for such olher purpose. (5) There may also be cases where soma ilems of major equipmenl, due lo Ihelr unusual condition, should be lahly and equilably priced .by epee'aloe. (6) Currenl new price, w'herever us'ad In this paragraph 2C of ,Section III, shall have lhe some meaning and be delermined - In accordance wllh paragraph 2A of Ihls Secllon III, except Ihal cash d!scaunls will be disregarded. $. PREMIUM PRICES In Ihe evenl malarial Is hal obtainable al recognized currenl Iisi prices from general supply sources, due Ia national emergency, slrlkes, governmenlal regulallons or olher unusual circumstances over which Operalor has no conlrol0 provisions al prior paragraphs perlalning to pricing malarial, and cosl of Iransportalion shall hal apply and Operator may supply such scarce malarial from any available source, charging therefor the cu,enl replacement cosl, Including tho cost of transporling such malarial Io the I~rop.rryl provided, when praclicable, Ihal a Non-Operalor who becomes an undivided inleresl owner in slu~h~al~rlc~l ~a~! ~-iighrin Ihe opporlunlly of furnishing Ils sha,, In kind. ?~"-"ii'. ii;~i !::..~. ~ ~ '~::~ ? ~ ? ~3-4 4. WARRANTY OF MATERIAL FURNISHED RY OPERATOR Opetalor does hal wor,anl the malarial lurnhhed beyond or back al the dealer's or monulocturer's delective mole~iol, cledil ~holl hal ~ po~,ed unlil adiullmenl ho~ been received by Operol~ from the monviocturen SECTION IV. DISPOSAL OF EQUIPMEN! AND MATERIALS The Operalor shall be under no abligalion Io purchase Inleresl of Non~C)perolor ~emoval of turplu~ equipment and maledah b olhe~l~e ~e~l~kled ~uipmenl andmole~l~ oi I~low~, . 1.. MATERIAL PURCHASED IT THE OPERATOR el NON~PE~TOI ~~he ~lue el maledoh and equipmfnl I~onsle,fd lo Operal~ s~ll monte ~ which the mole~ls or equlpmenl o~t ~tmo~d I. ~oler~ls.and ~uipm. nl trends,ed lo Non~perDl~ malfdall end equipment end upon ~ceipl of invo~e. Operal~ ~11 ~ereup~ InVade c~ed, f~ the ~ym. nl ~ I~ m~l~y ilalemanl of ope~uitonl Io~ Iht month In which the.molerhli DIVISION IN KIND . When malarial* and equlpmenl ore divided in kind between Operalor and Not,Operator' each port~ d~all be dmrged Indivtdbmlly wllh Iht value a[ Iht malerlah and equlpmenl so divided, and corresponding credlls droll I~ mode currently' i~ t~ manlhly liolem4nl. SALES TO OUTSIDERS Sales Io oulslders of major molerials or equipment shall be made only with Iht consent el Non~C)perolor as fo both lerml and pric, and, where made, proceeds ihalI be crediled by Operator al Iht Jul1 amounl collected from vendee. Any' claims br Y~ndee fo~ defective materials, c~ olherwhe, ,holt bo charged bock If end when p~id by'Operolor. e DISPOSAL OF JUNK Operolor on behalf of Itself and Nan-Operalor shall hove the right to remove from Iht Property end dispos~ of Jvnk materials end scrap. The flel proceed, from the ~ole or transfer of all luch molerlols ~holl be cTedlled currently M the monthly' slat~ment. sEcTION V. BASIS OF PRICING MATERIALS 'tRANSFERRED FROM PROPERTY Malerlals 'and equipment transferred to ellher Operator or No,Operator o{ divided In'kh~d between Ih4m, unle~ olharwb4 agreed, eh.oil be valued on the following basis of condition and pti. ce, NEW MATERIAL New maleriols and current new prices. equipment (Condilton .'A") acquired Ic~ Ihe Froperty but not u,ed thereon, al one hundred per cent (100%) of USED MATERIAL A. /~alerlal and equipment which is In sound and serviceable condillan and suitable Ior use without repair or reconditiafdng ~holl be dos,ed a, Condllion "B" and, except as provided hereinbelow, priced al seventy-five per cent (75%) of curt'ant new price of like malarial. B. Material and equipment hal meeting the requiremenb of subparagraph 2A, hereinabove, but whio~, oiler beh~g r~paire~l or reconditioned will meet Ihe ,equirements for Condition "$' malarial, ,hall be classed al Condllion 'C" and, excepl m proYtded herelnbelaw, priced al fifty per cent (50%) ~f current new price af like mole~k)f. C. hl, oterk~! and equipment, Including drill pipe. casing and tubing, which Is no longer u~oble for itl mlglnal p,.rrpole ~ is furlher u~able far some olher purpose, ,hall be graded as lo condil]on as provided in Ibis paragraph 2 of Saclion ¥ end priced on the baH, of cu,enl new price of Ilems normally used for such olher purpose, D. Unserviceable malarial and ~crap shall be considered al "Junk," clash_ed al Condilian 'D' and, If Ironsferred to 'Operalor, valued al prevailing Junk prices In Ihe dlsldcl where the Pruperly I~ located. E. There may also be cases where some Ilems af major equipmenl, due lo unusual clrcd~stonces ~' candillans, Ihould be faidy and equllabty priced by Operator. F, Current new price, wherever used in lhJs paragraph ~ of Section ¥, shaft ha~e 1he ~ame meaning and be delerm~ned In ac- cordance wilh subparagraph 2A of ~ection III, excepl thai cash di~counh will be disregarded. SECTION Vi. INVENTORIES PERIODIC INVEN1ORIES Periodically, Operator shall take Inventory of Controllable MateriaL Upon failure of Operalor Ia take such Inventory a4 flasonable Inlervols, Operal~, at the requesl of Non-Operalor, ~hall take luch periodic invenlory, provided that Operetta shaft nas be required to conduct luch periodic Invenlorlel more often than once in any two-year period. NOTICE Wrillen notice of Intention lo toke Inventory ,hbll be given by Operator fo Non:Operator at leasl thirty [3G) day~ before any Invenlory b to begin, sa thai Non.Operator may be represenled when any Inwnlory b being taken. Failure of Non~)peralor to be represenlod al Ihe Invenlory shall bind ii lo accept Ihe Invenlory laken by Operetta'. RECONCILIATION AND ADJUSTMENT · Reconclliallon of Inventory ~hall be made by Operalor and o Iisi of overagel.and shortages tholl be furnl~ed by Operaloc to Non-Operalorl. Invenlary adJuslment~ shall be made by C)peralor for overages 'and ~horlages of Controllable Malerfal~ Operator iholl not be h01d accounlable Io~ Ihefls or minor Ihorlage, hal due to o lack of reasonable diligence. ' 4. INITIAL INVENTORIES Operator ~hall furnhh Non-C)peralorl with copies of Initial Invenloriel of prevloudy developed properlle~ 5. EXPENSE The expense of repre,enlatlvel conducting periodic and Initial Invenfori~ Ihall not be charged. SPECIAL INVENTORIES Special Invenlorles may be laken, al Ihe expense of the purchaser, whenever there is any' ~ale or change af Inleresl in the Property. in such cases, both Ihe ,eljer and Ihe purchaser shall be represenled and shall be governed by the l~venlory la laken. flOC-KY MOUITTAIH UNIT OPL-RATING Form 2 (Divtdod Int~reol) Janucro', IgSS (Flexible Drilling Block.) EX~IT ~ Attached to and made a part of that certain agreement enUtled Unit N!co'laJ Creel; Operating Agreemen~ Unit Area, KOmiV~:t~._ ,8tate'0f_~.],~'l.~-~ ........ Dated the ......... .]-...~L.~..h. - ..... day PART 1 DRILLING OF EXPLORATORY W'ELI~ 1. Notice of Proposed Drilling. Any Party desiring the Drilling of an Exploratory Well on land In which It owns a Committed Working Interest shall designate an area, herein called a Drilling Block, not to exceed ...... =~..=~[0_ ..... acre~, which, on the basis of available geological information will, In its judgment, beproved productive by the drilling o! such well. Unit Operator and each Party within the Drilling Block shall be furnished with a plat and description of the area so designated, together with written notice of the local/on, objective formation~ maximum depth, and estimated cost o! the proposed well The location ti the proposed well shall contorm to any apphcable spacing pattirn then existing or an authorized' exception thereto. The Drilling Block shall include no land In an established participating area for the objec- tive formation lor the well to be drilled thereon nor any land included In a proposal therelor filed wflh the Director, nor any land within an active, previously designated Drilling Block for such formation. The Drilling Block shall be cortzid- ered active /or ninety (90} days after the designation thereof and ti a well is commenced thereon within such period until either: A. The completion of the well, 1/ It is completed otherwise than as a producer el unitized substances In payIng quantities, or; B. The filing with the Director of a proposal for the establishment or revision of a participating area ii the.drill- lng of the well results In the filing of such proposal. 2. Basis of Participation. Each Party within the DrilUn. g Block shall be entitled to participate in the Costs of the proposed well on an Acreage Basis, but shall be required to do so only ii It notlfl~ the other Parties of its willingness so to participate as hereinafter tn this Article provided. 3. Exclusion of Land From Proposed Drilling Block. Within thirty (30) days alter receipt of such notice, any part of the land included in the proposed Drilling Block may be excluded therefrom at the Direction of the Parties therein. In such event the proposed Drilling Block as reduced by the exclusion of such land shall be established ~ the Drilling Block. In the absence of any such Direction then at the expiration o! said period, the proposed Drilling Block shall he estab- lished as the Drilling Block. 4. Prclimi-ary Notice to Join in Drilling. Within ten (10) days after the establislunent of the Drilling Block, each Party within such Drilling Block shall in writing advise all other Partie~ therein whether or not it wishes to participate in the Drilling of the proposed well. If any Party tails to give such advice within the pre.scribed time~ It shall be deemed to have elected not to participate in Drilling such proposed well. Ii all the Parties within th~ Drilling Block so advise that they wish to participate therein, the Unit Operator shall Drill the proposed Well for the account of all such Parties. 5. Notice of Election ~o Drill. Unless all Parties within the Drilling Block agree to participate In Drilling such well, then, within fifteen (15} days after the expiration of the ten-day period last above provided in Section 4~ each Party within the Drillin!g Block then desiring to have the proposed well Drilled, shall give to all other Parties therein written notice of its electron to proceed with the Drilling of satd well. Failure to give such notice shall be deemed an election not to participate In Drilling the well ~. Effect of Election to Drill If one or more, but not nil of the Parties, elect to proceed with the Drilling of the well, Unit Operator shall drill the well /or the account o! such Party or Parties on an Acreage Basis among themselves who shall constitute the Drilling Party. Any Party within the Drilling Block who has not previously'elected to participate in the proposed well may do so by written notice given to all other Parties within the Drilling Block at any time be_fore operations for the Drilling of the well are commenced, In which event such Party shall be included in the Drilling Party. However, such Party shall be bound by any and all Directions and Approvals theretolore given by the Drilling Party concerning the Drilling o! the well. 7. Rights and Obligations ti Drilling Party and Non-Drilling Party. H the well results In the establishment or enlarge- ment ti a participating area to include such well and t/by reason thereof there t~ Included in such participating area any land within the Drilling Block in which a Non-Drilling Party owns a Committed Working Interest, then such Non-Drill. lng Party as of the effective date of such inclusion, shall, be al.seined .to h.ave relin, quis.h, ed t_o the D.rill,in.g P .a~'ty a,nd the. Drillint{ Party shall own all of the operating rights ann working inmrests in such weis, and the materials ann eqmpmem pertaintng thereto_, which such Non. Drilling Party would othe..rwi.se o.wp.; and .that .p?,rtio.n. o! production item such well which is allocated to ail of the acreage ti such Non.Drilling l-'ar~y within such paruc~paung area until such time ~ the proceeds or market value of said portion of the production from such well (after deducting all Lease Burdens and all taxe~ upon or measured by production which are payable in respect of said portion up to such time) shall equal the sum of the lollowing: A. One hundred per cent (100%) of that portion of the Costs Incurred in operation of the well up to such time that would have been chargeable to Non-Drilling Party with respect to Its Committed Working Interest In the participating area but for the relinquishment aforesaid, and. B SJ[,,~....~LB.~X'=~.~ ............... per cent ( ....... ~.0[~___%) of that portion, of.the, Cos.ts,incur, ed by DrLLll~g-~'~'~"ln Drilling the well that would have been chargeable to such Non-Drilling ratty nad It ~nltlaay par. tlclpated In the Drilling of such well on an Acreage Basis and had the Drilling Block included only such of the lands Included in the Drilling Block as originally designated which are included within the participating area. At such time the interest relinquished by Non-Drilling Party In such well shall revert to it. Except as above in this section provided the provisions of Article 12 dealing with Righiz and 0bHgatlons of Drilling Party and Non-Drilling Party shall apply, ~. Required Drilling. If an Exploratory Well Is Drilled as a required well in accordance with Section 10.4 B, the Drill. lng block for such well shall consist of all forty aero subdivisions lpld lots of the Public Land Survey of which more than one-hal/ of the surface area is within a d/stance of ......... _~_.,.~.O.___._.feet from me proposed bottom' hole loca- tion of such well, but excluding there/rom all lands within a participating area thereto/ore established for the.pool or tone - to which the well is to be Drilled. ' - _ ' - -PART :[ A'VI'EAIPTED COMPLETION, DEEPENING, PLUGGING BACK AND ABANDONMENT 1. Wells Not Completed as Producers. The attempted completion, Deepening or Plugging Back of wells not com. pleted as producers at their projected depths, shall be governedby the iollowing provisions, except that said provisions shall not apply to a particular well il every Party entitled to the notice provided /or in Subdivision A hereof has con- sented to abandonment and plugging of such well: A. Notice by Unl~ Operator. Be/ore abandoning a Development Well which has been Drilled to its projected depth but not completed as a producer, Unit Operator shall give notice thereof to each Party within the participating area involved. Alter a well other than a Development Well has reach, ed its projected depth and been tested, but bolero pro- duellos pipe has been set therein, Unit Operator shall give notice thereo! to each Party who participated in Drilling the well, and to each additional Party, if any, who was entitled to participate therein, but elected not to do so. Each notice provided Ior In thl~ section shall be given by telegraph or telephone, ROCKy MOUNTAIN UNiT OPI~ATING Form :2 (Dl~ldod ]alerts0 Jonucu"y, 195S 13. lllght to Attempt Completinn, Deepen or Plug Back, Each Party who participated In the Drilling of a well con- cerning which notice is given in accordance with Subdivision A hereof~ and any other Party ownin~l a Committcd Work- ing Interest in the tract of land on which the well is located, may initiate a proposal to attempt the completion of, or to Deepen or Plug Back such well; provided, however, that if the well was Drilled as a Development Well, a proposal to Deepen or Plug Back the well may be initiated only by a Party owning a Committed Working Interest In the tract of land on which the well is located. In order to be entitled to participate In a proposed operation, a Party must haYe the right to initiate the same or must own a Committed Working Interest in the Drilling block theretolore established for such well or, ti no Drilling block has theretolore been established for such well, in the Drilling Block established /or such Deepening or Plugging Back operation as provided in the loilowing paragraph C. C. Time and l~lanncr ol initiating Proposal A period of twenty.four (114) bourn (exclusive of Saturdays, Sun. days and holidays) from and alter receipt of the n.otice referred to in Subdivision A of this paragraph 1 shall be allowed within w.hlch a Party may initiate a proposal to complete, Deepen or Plug Back a'nd, except in thor case of a proposal to complete a well Drilled as a Development well, designate a Drilling Block for such proposed operation, .if one has not pr.ev, iously, been d?ig..na.ted for such well, Any suc. h proposal shall be initiated by giving notice thereo[ by telephone or teler, raph to each ratty entitled to participate In the proposed operation. Il no such proposal Is Initiated within the period allowed there/or, Unit Operator shall abandon and plug the well. · _D_. Election:, If a proposal, is lnitia, ted each P_ar}.y entitled to pal'tlcipate in'any completing, Deepening or Plug- ging t~acs; operation proposeo in accornance with ~ubdlvision C above shall have a period of twenty.four (:24) ho~rs .(,exclu.alye of..~a, tu~. days, S.undays .a, nd ho!ldays) from and after receipt of notice ol the Initiation of any such up. ora- tion within which lelther at a meeting or Dy telephone) to establish a Drilling Block il the establishment of a Drilling Block is necks .a~y. for the proposed operations (following the same procedures In establishing a Drilling Block as the ~p?.o.c.e. dures..provi, d,.ed .t.or,.in~Part.1 o! tl!.e.E .x;hlblt 4 for the establishment ola Drilling Block for an Exploratory ~,'cu) ann to nottiy unit uperator Dy telephone or telegraph whether or not It elects to participate In the proposed o. per. a, tion..T.he Iall. u.r.e o.t a. Pa,rty to signl~.y its election within the time required shall' be deemed to'constitute an etecuon not to parucipate tn the propose~l operation, E. Effec$ of Election. The Party or Parties electing to participate In an attempt to complete,, Or to Deepen or Plug Back, a well as above provided shall constitute the Drilling Party tot such operation. Each Party who la en- titled to make such election but tails to do so as above provided, shall be deemed to i~ve elected not to participate la such operation, and. shall be a N_on-Drilling Party In respect of such operation. Such operation shall be conducted by .Unit Operator .l,or .th.e account .ut .the Party .or Parties constituting the Drilling Party on an acreage basLs among ~nemseiv~,.. su~ect: .now. e.,ve, r,..to..m..e prows.~pns o! paragraph 4 of Part 2 of this Exhibit 4, dealing with Conflicts, and paragraph o ut i-'art z ut re.ts r~xtumt 4 dea~tng with Deepenin. g or Plugging Back to Participating Area. .' F, Stand-By Rig Time. Stand.by time paid for the rig on a well until expiration .of the period of forty-eight (48) ho .uts al, l. ow,ed..to.r the inifl, atio.n.of and election to participate In an attempt to complete, or to Deepen or Plug Back, .a.ucn w,e~ .snail. De ca. ar. ged .ann t~orn, e ~. pa~_ of the _Costs Incurred in DrillLul~ the well. Thereafter such stand.by _.~me snau t)~e.cnar~gea, to..ano t~,,rne.t~y..tne l'arty or Parties who elect to participate In the attempt to complete, or to l~,eepen or ~'lug ~acr,, me wen, whether or not such Party or Parties shall proceed with such operation. However, H t,,he .P,,a~rt~. or, Patti_ '? m,ali;.ing such ele?tio, n..do_not, proceed with the operation, the Costs incurred In plugl~ing tho wen snau t)e c. nargea ann t)orne a.s par~ ut tho c;ost.s Incurred in Drilling the well. ' R. Abandonmen¢ of Producing Wells. A well completed as a producer of Unitized Substances within a participating area shall be abandoned for plugging ii and when abandonment thereof receives the Approval oi'tb~ Parties within such participating area, subject, however, to the provisions of paragraph ii hereof concerning Deepening, or Plugging Back Abandoned Producing Wells. The abandonment oia wed completed as a producer but not Included in a participat- Lng area shall be governed by the lollowing provisions: A. Consent ltequtred. Such a well shall not be abandoned for production /rom the pool or zone In which It is completed except with the consent of all Parties then owning the Well. B. Abandonmeni Procedure. H the abandonment of such a well receives the Approval of the Parties who own the well, but Is not consented to by aU such Parties; Unit Operator shah give written notice thereol to each Party then having an interest in the well who did not Join In such Approval. Any such non-Joining Party who objects to i. band, onme..nt.oI .the .wel~. (her_els. called non-abandoning Party) may give wr/.'tten notice thereof to all other Partie~ herein ca~leo anannonmg Parties) then having interests in the well, provided such notice is given within thL,-ty (30) ays after receipt of the notice given by Unit Operator. If such objection ts so made, the non-abandoning Party or Parties shall forthwith pay to the abandoning Parties their respective shares of the Salvage Value oi the well. Upon the making of such payment, the abandoning Parties shall be deemed to bane relinquished unto the non-abandoning Party or Parties all their operating rights and working Interest in the well, but only with respect to the pool or zone in which it is then completed, and all their interest in the materials and equipment tn or pertaining to the well H t..her.,e is mo.re, tb.a.n one au,rt.-ab .a~.doning Party: t. he interest so relinquished shall be owned by the non-abandoning rarues, each tn the proporuon that its interest in the well bears to the combined interest therein ut all non-abandon. lng Parties Immediately prior to such relinquishment. - C. Eights and Obligations of Non-Abandoning Party. After the relinquishment above provided /or, such well a. hall, be .opera. ted by ,Un!t ,O.p.erator _for the account of the non-abandoning Party or Parties, who shall own all Pro- auc..uon_tn.eretr, om ,.ann. anal!. De.ar ~ .Cos.ts, L.e. ase Btu'de.vs. and oth~ bu..rdens thereafter Incurred in operating the wen ann piuggtng It when aoanooner, tuniess the well is taken over tot .veepenlng or Plugging Back as hereinafter provided), and also the Costs of any additional tankage, flow lines or other facilities ~eeded to measure separately the Unitized Substances produced from the well; said operating Costs shall Include an overhead charge computed at th.e ~ghest p.er.well rate applicable to the operation of a single producing well In accords.ucc with Exhibit 2, 1f such l'ate ts prOVinCiaL vi' .D;Ol~tion, to ,Re. put,asa, l~Iate,r!als. H a well taken over by the non-abando.ning Party or Parties as above pro- oeo ts aoanoonea tot piuggtng wltmn six (~) months after relinquishment by the abandoning Parties o! their In- terests therein, each abandoning Party shall have the right at lt~ option to repurchase that portion of tho materials and equipment salvaged from the well equal to the interest relinquished by it to the non-abandoning Part), or Parties, at ,the vain9 ILxe. d therefor In accordance with Subdivision B o! this section. Said option may be exercaed only by w)-i. '.t.ten n.o!lce ~lven .to .U,,n!.t O~pera!or and the.n.on-abandonlQ, g_P. arty o.r Parties within ~teen (15) days alter receipt ut the nonce g~ven t)y um~ operator pttrsuan~ to paragrapa ~ serene. 3. Deepening or Plugging Back Abandoned Producing Wells. Before abandoning for plugging any well completed as a producer o£ Unitized Substances, Unit Operator shall, (A} if the well la within a Participating Area, give written notice thereof to the P.arg,' or. P.ar_tles o_wnln, g. Committed Working Interests in the tract of land on which the well la located, ,or .(.B) lt..the .we. Il ~s not .w.t.t.h, tn a. P_ar~.lclp.ating Area, give writ, ten.n, otice, the_reof to e.ach Party then owning an interest tn }n,e ,wen .an, a t.o. eae_.n a,.a.?uo..n, ai ?_arty, u any, owning Committed ~orlanglnterest.s in the tract o! land upon which the wen ts located, it no t~ninng Joiock has previously been established for such well and a Party receiving such notice de. nh'es the Deepening or Plugging Back thereof, It shall, within lifteen (15) days alter receipt of such notice, proceed with the establishment ut a Drilling Block for such well as provided In paragraphs 1 and :~ o! Part 1 of this Exhibit 4. Wlthin ten (10) days after recel~.t of such notice, It a DrillIng' Block has previously been established for such well,' or, I~ not previously e~tablished, within ten (10) days after a Drilling Block is established for such well, the Party desiring the Deepening or Plugging Back of such well shall give notice thereof in accordance with paragraph 4 of Part 1 o~ this Ex- .hi. blt 4 and all..of the provisions of,para_graphs 4, t~ and 6 of Part I of.this Exhibit 4 shall apply In the same manner as If the proposed Deepening or Plugging Back were the Drilling of an Exploratory Well. subject, however, to the provl. sloss of paragraph 4 of Part 1 of this Exhibit 4, dealing~with Conflicts, and paragraph ~ of Part I. oI this Exhibit 4, dealing with Deep. ening or Plugging Back to a Participating Area, It no Part.y gives notice o! desire to Deepen or Plug Back such well within said period often (10) days, or if such _notice is given but no Party elects to proceed with the Deepening or Plugging Back of the well within the time lLmited therefor, Unit Operator shall abandon and plug the well tot the account of the Party or Parties owning the well, 4. Contlicts. I~ conflicting elections to attempt completl°n, Deepen, or Plut~ Back are made in accordance with the preceding provisions o! Part o. of this Exhibit 4, preference shah be given first to a completion attempt and then to Deep- enlng. However, If a completion attempt, a Deepening or Plugging Back does not result in completion of the well as a producer, Unit Operator shall again give notice in accordance with Subdivision A of paragraph I of Part 2 of this Ex- hibit 4 before abandoning the well tor plugging, ~eaSt~ Deepening or Plugging Ba~:k to Participating Are~ H a well with!n, th,e, surface boundaries of a participating to be Deepened or Plugged Back to a pool or zono Ica' which such parucipatmg area has been ~tablished, such op- HOCEY MOUNTAIN UNIT OFIiiRATING A,.,EEEMEKT' Form (F~xWI, s Dr~_!~!,,,-d Block} eratlon may be conducted only Ii it receives the Approvsd o! the Pitrtle~ within such participating area, ~ upon such terms ~nd conditions as ma}, be specified In such Approval.. ' pDrri.,~,,Rlghts_and' Obllga. tl..o.ns.. 0,! Drl]llng..Party and Non-DrllHng Paflles, Whenevtr sn attempt to eompletea well _l_~,e?_ _a s_ &_.l,~,ev_.,e~_o, pm.?t.w,e, li ts _,m?.~.e_.ot.n. erwls,e t..h.a.,n f.o,r the. _a?o_u_q.t o[._ali Parties entitled to ptrtlclpet~ therein, the owsmns o~ ~r~cie ~ oeitung with tugnts ann unugauons et t,'rmmg Pai-ty and Non-Drilling Parties shill appb'. ,W, ,hen_.ever either (..1.) an a, tt..empted_completlon of a wcll which w~s not Drilled as a Development well Is made or (2) _a_,_w,_e~_~s_.t-~_.=P_e_n_e~__o.r.l"l_u.g~e_o' ~ack.,.o. ,t;he~rw!s,e..t.h~.n_lor..the a.e..eou._n.t 9f aH P _t!!.i...e;s entitled to participate there. In, the pro- lng t'a~-t ~ su ~ appty to the opera~lotts conoucted ina sa.me u ii such operations comprised Drilling opcraflon~. #1 E & P SERVICES, INC. Mr. Robert P. Crandall Senior Petroleum Geologist Alaska Oil and Gas Conservation Commission 333 West Seventh Avenue, Suite 100 Anchorage, AK 99501 July 11, 2002 Dear Mr. Crandall: Thank you for the meeting we had on the 8th of July, and the opportunity to discuss the Nicolai Creek.gas field development and Well Spacing Exception Order application. The application document discussed was a three well spacing application, and was applicable to Nicolai Creek Unit No. 2, Nicolai Creek Unit No. lA redrill and completion as NCU 1 B, and the grass-roots well Nicolai Creek No. 8. I apologize for the omissions in the original document and the lack of clarification on a couple of critical issues. That being said, please find attached, 3 copies of a modified Well Spacing Exception Order application. I have included the production coordinates as specified, and clarified the reasoning for placing these wells so close, both at surface and subsurface. I hope this information will suffice so you can post the public notice. The new document also contains an affidavit indicating that all interested parties have been both notified, and mailed a copy via certified mail, an actual complete copy of this application in its entirety. The mailing of the complete application to each occurred on the 1 lth of July, 2002. Once again, I apologize for the inconvenience, and appreciate your help in this matter. I will be in Nikiski all day, the 12th of July inspecting the rig we will be using for the upcoming well Work. If there is anything else you need, please call and leave a message, or call me Monday morning when I return at 258-3446. Sincerely, ~her E~P S rvices, Inc. enc: 715 L Street · Anchorage, Alaska 99501 ° (907) 258-3446 · FAX (907) 258-5557 650 North Sam Houston Parkway East, Suite 505 · Houston, Texas 77060 · (281) 445-5711 · FAX (281) 445-3388 Aurora Gas LLC Anchorage, Alaska APPLICATION FOR WELL SPACING EXCEPTION ORDER NICOLAI CREEK UNIT REDEVELOPMENT APPLICATION WELL'S' NICOLAI CREEK UNIT No. lB NICOLAI CREEK UNIT No. 2 NICOLAI CREEK UNIT No. 8 EFFECTED LEASES' STATE ADL 17585 STATE ADL 17598 STATE ADL 63279 FEDERAL AA-8426 GRANITE POINT, ALASKA July 11, 2002 Table of Contents Page 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Proposal Introduction ......................................................................................... 1-1 Lease Owners, Unit Information and Plat [20 AAC 25.055 (d)(1)] ................ 2-1 2.1 Lessee Identification .............................................................................. 2-2 2.2 Lessor Identification .............................................................................. 2-3 Land Owners and Plat [20 AAC 25.055 (d)(1)] ............................................... 3-1 Lease Operator [20 AAC 25.055 (d)(1)] ........................................................... 4-1 Geologic Considerations .................................................................................... 5-1 Affidavit [20 AAC 25.055 (d)(3) ....................................................................... 6-1 Conclusion .......................................................................................................... 7-1 Figure 2-1 Table 2-1 Table 2-2 List of Figures Enlarged Scale; Well Proximity Drawing ............................... 2-6 List of Tables Well Location Information ........................................................ 2-2 Well Proximity Information, ..................................................... 2-3 Exhibit 2-1 Exhibit 2-2 Exhibit 3-1 Exhibit 3-2 Exhibit 3-3 Exhibit 5-1 Exhibit 6-1 Exhibit 6-2 Exhibit 6-2A Exhibit 6-3 Exhibit 6-3A Exhibit 6-4 Exhibit 6-4A Exhibit 6-5 Exhibit 6-5A List of Exhibits [Init Plat Map ............................................................................. 2-7 Lease Identification Plat Map .................................................. .2-8 Surface Ownership Plat, Generalized. ..................................... .3-2 Surface Ownership Plat, Sec 29. ............................................... 3-3 Surface Ownership Plat, Sec 30. ............................................... 3-4 Geologic Cross Section ............................................................. 5-2 Affidavit of Mr. Duane Vaagen (agent for Aurora) ................ 6-2 Application Notice: Phillips Alaska Petroleum ....................... 6-4 Application Transmittal: Phillips Alaska Petroleum .............. 6-5 Application Notice: U.S. Bureau of Land Management. ........ 6-6 Application Transmittal: U.S. BLM ........................................ 6-7 Application Notice: State of Alaska, Div. Oil and Gas. .......... 6-8 Application Transmittal: State of Alaska, Div. Oil and Gas...6-9 Application Notice: State of Alaska Mental Health Trust ...... 6-10 Application Transmittal: State of Alaska Mental Health Trust .................................................................................................... 6-11 NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application i 1.0 Proposal Introduction During the course of redevelopment of the Nicolai Creek gas production field, Aurora Gas, LLC. will be utilizing a common surface location for three of the production wells. Currently there are two suspended wells and one plugged and abandoned well on the site. Aurora is proposing to drill an additional grass-roots gas production well on the site as well. Because of the relationship between the wells at surface and at the proposed production intervals with respect to the property lease lines and themselves, this application is necessary to proceed. The following information is common to all three wells and the individual Spacing Exception Order being requested for each. The three wells are identified as Nicolai Creek Unit No. lB (sidetrack of NCU lA), Nicolai Creek Unit No. 2, and Nicolai Creek No. 8. Nicolai Creek Unit No. 2, will be the first well to be re-entered and re-completed. The proposed zones being considered for production are structurally isolated from the production zones considered for the NCU 1B and the Nicolai Creek No. 8 by a fault. Please see Exhibit No. 5-1 in application. Because of the structural isolation, there is no anticipated pressure communication between proposed production zones in the NCU 2 well, and the proposed production zones in the NCU lB and NC #8. Please see Exhibit 5-1 for clarification. The Nicolai Creek Unit No. lB (NCU lA re-drill), will be the second well in the series to be worked on and re-completed. NCU lA will be re-entered, and sidetracked at-2200 feet and drilled to TD at--- 3653' MD (3600' TVD). NCU lB will be completed with a liner from 1850' to 3653' MD. It is hoped to intercept un-tapped reserves in the lower part of the Tyonek, but up-dip of the same interval intercepted in the NCU 1A. Due to the nature of the structure, it is hoped that gas production in this interval will be less prone to water production due to the higher location on structure. Please see Exhibit 5-1~ Nicolai Creek No. 8, while in close proximity to the proposed NCU 1 B, will be necessary to access shallow gas reserves not accessible with the NCU 1B well due to mechanical limitations. The NCU lA well when originally drilled, encountered numerous problems at surface due to an ineffectual cement job. Subsequently, the well had numerous perforating and squeeze procedures performed on the upper well bore section of the casing. When the Nicolai Creek Unit 1B is completed to produce out of the lower sands, a liner will be ran and hung to cover part of the original problematic perf and squeeze intervals. Because of the mechanical constraints imposed by the liner and completion equipment on the final configuration, shallower gas reserves will not be accessible from this well. To fully develop the potential of the Nicolai Creek field, the drilling and completion of Nicolai Creek No. 8 will be necessary. Again, please see Exhibit 5-1 for visual reference. This application contains information concerning lease boundaries, lessor and lessee information, and geologic relationships between the wells. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 2.0 Lease Owners and Unit Information [20 AAC 25.055(d)(1)] The wells being considered for the Well Spacing Exception order request' s are in an area known as the Nicolai Creek gas field, which is comprised of three unitized tracts on four leases (Exhibit 2-1). Three of the leases are state and one is federal. Of the four leases, Aurora Gas has 100% ownership of the following: Federal AA 8426, state ADL 17598 and state ADL 63279. The remaining state lease, ADL 17585 is jointly owned by Aurora Gas LLC (50%) and Phillips Petroleum (50%) (Exhibit 2-2), except for the unitized portion known as Tract 3, which is owned 100% by Aurora. The unitized portion of the gas field is comprised of Tracts 1, 3, and 4, which totals 900 +/- acres, and is owned 100% by Aurora Gas LLC. There are currently two suspended wells and one plugged and abandoned well drilled from one surface location at the end of the Shirleyville airstrip. The location is adjacent to the northern coastal area of Trading Bay, due west of Granite Point. The suspended wells, Nicolai Creek Unit No.'s 1A and 2, were drilled from a common surface location over the Federal subsurface mineral lease AA 8426. These wells are drilled directionally under the mud flats of the Trading Bay coastal area with wellbore's that penetrate into Tract's 4 (ADL 17585) and 3 (ADL 17598) respectively (Exhibit 2-2). The P&A'd well, Nicolai Creek Unit No. 6, is drilled from the same site, and was drilled in a southerly direction. The proposed vertical well, Nicolai Creek No. 8, will be drilled within 200' of the aforementioned wells on the same site, but will produce from zones within Federal Lease AA 8426, which is directly adjacent to ADL No.'s 17585 and 17598. Nicolai Creek No. 8, will be drilled outside of, but adjacent to, and will produce outside of, but adjacent to the Nicolai Creek Unit Tract 3 (Exhibit 2-2 & Figure 2-1). As stated previously, the production for NC No. 8 will come from Federal Lease AA-8426 acreage, which is part of a gas pool agreement, but is not part of the actual operating unit. Attached Table 2-1, contains the surface, production interval and bottom hole coordinates for the wells listed in this spacing exception order application. NCU Nou's lB, 2, and 8 Well Spacing Exception Order Application 2mi Table 2-1: Well Coordinate Information Nicolai Creek Unit No. lB (Proposed Sidetrack of NCU lA) Surface Lease No. AA-8426 (BLM) Well Location at Surface Production Lease No. ADL-17585 (State) Surface Location: 2018' FSL, 195' FWL, Sec. 29, T1 IN, R12W SM Top Prod. Interval 3325' MD (3271' TVD) 1637' FSL, 97' FWL, Sec 29, T11N, R12W SM Bottom Prod. Interval 3615' MD (3561' TVD) 1637' FSL, 97' FWL, Sec 29, T11N, R12W SM Bottom Hole Location: 3653' MD (3600' TVD) 1637' FSL, 97' FWL, Sec. 29, T11N, R12W SM Nieolai Creek Unit No. 2 Surface Lease No. AA-8426 (BLM) Well Location at Surface Production Lease No. ADL-17585 (State) 2018' FSL, 205' FWL, Sec 29, T1 IN, R12W, SM Surface Location: Top Prod. Interval 2426' MD (2142' TVD) 1176' FSL, 696' FWL Sec. 29, T1 IN, R12W SM Bottom Prod. Interval 2916' MD (2612' TVD) 898' FSL, 855' FWL Sec. 29, T1 IN, R12W SM Bottom Hole Location: 3540' MD (2988' TVD) 877' FSL, 870' FWL, Sec. 29, T1 IN, R12W, SM Surface Lease No. Production Lease No. Nieolai Creek Unit No. 8 (Proposed) AA-8426 (BLM) Well Location at Surface AA-8426 (BLM) Surface Location: +/- 2030' FSL, 245' FWL, Sec 29, T11N, R12W, SM Top Prod. Interval * 1835' MD (1835' TVD) 2030' FSL,.245' FWL, Sec. 29, T11N, R12W, SM Bottom Prod. Interval 2500' MD(2500' TVD) 2030' FSL, 245' FWL, Sec. 29, T11N, R12W, SM Bottom Hole Location: Same *Note: The above listed Top of Production Interval is a proposed depth. During production testing, it may become necessary to test shallower zones. The well is vertical so x-y coordinates will be the same. Surface Lease No. Production Lease No. Surface Location: Nieolai Creek Unit No. 6 (P&A'd) AA-8426 (BLM) Well Location at Surface ADL-17598 (State) 2048' FSL, 292' FWL, Sec 29, T1 IN, R12W, SM Production Interval: ** N/A **Note: This well is P&A'd. It is included here only because it shares the same surface location as aforementioned wells. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 2-2 Of importance in this application, are the spatial relationships between the wells, lease lines and production intervals. Table 2-2 below, highlights some of these relationships. Included are proposed horizontal subsurface completion separation, surface location separation, and well to lease line separation. See Figure 2-1 and Exhibit 2-2 for a graphical representation of this information. Table 2-2: Well Proximity Information: Horizontal Well Separation at Subsurface Production Interval: Well's Separation Distance NCU lB -> NCU 2 ~1084' NCU lB -> NCU 8 ~ 419' NCU 2 -> NCU 8 ~-1311' Horizontal Well Separation at Surface: Well' s 1 Separation Distance NCU lB-> NCU2 ~ 10' NCU lB -> NCU 8 ~ 51' NCU 2 -> NCU 8 ~ 42' Horizontal Separation (Production Interval to AA-8426 / ADL 17585 Lease Line) Well NCU lB NCU 2 NCU 8 Separation Distance 292' (ADL 17585 Side) 097' (ADL 17585 Side) ~ 100' (AA-8426 Side) Horizontal Separation (Surface Location to AA-8426 / ADL 17585 Lease Line) Well NCU lB NCU 2 NCU 8 Separation Distance 91' (AA-8426 Side) 87' (AA-8426 Side) 100' (AA-8426 Side In redeveloping the field, Aurora intends to re-enter the NCU lA well, sidetrack and re- complete it as the NCU 1B well. The NCU 1B bottom hole location will be located within the boundaries of State of Alaska lease ADL 17585 Tract 3 (Exhibit 2-2). The NCU 2 well will be re-entered and re-completed using the existing wellbore, again with production coming from Alaska lease ADL 17585 Tract 3 (Exhibit 2-2). Aurora then intends to drill a vertical, grass-roots well (NC No. 8) from the same gravel pad as the NCU 1B and NCU 2 wells to access untapped gas reserves, with production coming from Federal Lease AA-8426. Because of the proximity at surface and at final completed depth (Figure 2-1), Alaska Administrative Code [20 AAC 25.055] requires an application for a Well Spacing Exception Order. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 2-3 Another well, Nicolai Creek Unit No. 4, was directionally drilled in a south westerly direction from a site in the eastern half of section 29 (Figure 2-1). NCU 4 was subsequently plugged and abandoned as well. Besides the two suspended and two plugged and abandoned wells just listed, there is currently one gas production well (NCU 3) in the Unit. The NCU 3 well is located approximately 6000 feet due north of the effected well sites, on lease ADL 63279, Tract 1, which is 100% owned and operated by Aurora Gas LLC (Exhibit 2-2). There are also two more plugged and abandoned wells on leases owned in whole by Aurora Gas, one of which is the Nicolai Creek Unit No. 5. The NCU 5 well, which is -6300 feet northwest of the NCU 1A/NCU 2 well site, has been permitted for use as a Class II oilfield waste injection well. It is Aurora's intent to re-enter and complete the well for injection during the course of field redevelopment. The remaining P&A'd well, the Conoco Astosch 1, will be left as is. Research shows there are two owners of leases within the 3000 foot radius of investigation [20 AAC 25.055(d)(1)], Aurora Gas and Phillips Petroleum. Figure 2-1 and Exhibit 2-2 depict the spatial relationship of the wells in the vicinity. 2.1 Lessee Identification The owners of the lease(s) affected by this application are: Aurora Gas LLC. 10333 Richmond Ave. Ste 710 Houston, TX 77042 and Phillips Alaska Petroleum (Lease ADL 17585) 700 G. Street Anchorage Alaska 99501 Aurora Gas has submitted a signed notice of application to Phillips Alaska Petroleum, per'[25 AAC 25.055(d)], giving notification that an Application for Spacing Exception Order request has been filed (Exhibit's 6-1 and 6-2). Aurora will forward a copy of this application to Phillips via certified mail (Exhibit 6- lA)'. 2.2 Lessor Identification The lessor's involved and effected are: U.S. Bureau of Land Management. 6882 Abbot Loop Road Anchorage, Alaska 99507 NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 2-4 and State of Alaska (Department of Natural Resources) Division of Oil and Gas 550 W. 7th Ave. Ste 800 Anchorage, Alaska 99501 Aurora Gas has submitted a signed notice of application to the Bureau of Land Management, and the State of Alaska DNR, Division of Oil and Gas per [25 AAC 25.055(d)], giving notice that an Application for a Spacing Exception Order request has been filed (Exhibit's 6-1, 6-3 and 6-4). Aurora will forward a copy of this application to the Bureau of Land management and the State of Alaska DNR via certified mail (Exhibit's 6-3A and 6-4A). NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 2-5 ,,% Federal ~A-8426 3 Proposed NCU ADL-17598 NCU lA 3000' Radius Referenced t{ Proposed NCU lB Producti on Interval NCU 1 P&A'd 31 Aurora Gas, LLC TI 1N, R12W SM III I II II I II I II I II I I I II I I 3000' Radius Referenced to Proposed NCU No. 8 Site Federal AA-8426 Proposed NCU 8 Site Vertical Well 0 <- Indicates Completion Location ------.<- Indicates Leaseline Production Separation Distances O~t) NCU 8 -> NCU 2 ~1311 NCU 8 -> NCU lB ~ 419 NCU lB -> NCU 2 ~ 1084 28 Bay Shoreline intervaO 3 ~L-17585 3000' Radius Referenced to Proposed NCU No. 2 Production Interval 32 1" -- 1320' ADL-I 7585 Production Distance From Fed AA-8426 Lease Line (ft) NCU lB ~292 ' NCU 2 ~ 1097' NCU 8~ 100' Surface Location to Fed/IA-8426 Lease Line Distance (it) NCU lB ~91 ' NCU 2 ~ 87' NCU 8~ 100 ' 33 Figure 2-1 DHk'Fairweather E&P Servicesf Inc. F'l.2 743/~0? ii i I 4.0 Lease Operators [20 AAC 25.055 (d)(1)] Aurora Gas LLC is sole operator of the Nicolai Creek Unit and gas leases there-in. There are no other oil or gas operators within 3000 feet of the currently existing NCU lA and NCU 2 wells and the proposed well, NC No. 8. As such, no other operators will be affected by the Unit Well Spacing Exception Order and no further notice will be necessary. Exhibit 2-2 depicts the lease boundaries and areas covered and Exhibit 2-1 details the Unit boundaries. Figure 2-1 reflects the spatial relationships of the NCU 1 B, NCU 2 and NCU 8 well's with respect to surface location, production intervals and lease lines in the vicinity. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 4-1 5.0 Geologic Considerations The spatial relationship (at surface and subsurface) of the wells NCU 1 B, NCU 2 and NCU 8, is such that the actual separation of well-bores on a horizontal plane is relatively close (Figure 2-1 and Table 2-2). Of primary concern are the production intervals being proposed and the effect the development plans will play in accessing and exploiting reserves in an efficient manner. The attached reservoir cross-section (Exhibit 5-1), provides a structural correlation between the above listed wells and NCU 3, a well currently on gas production. All production at this time is proposed to come from the Tyonek gas sands. Depending on well test analysis made during the completion and testing of the Nicolai Creek No. 8, the shallower gas sands in the Beluga may eventually be produced as well. It can be shown that the production zones in the proposed NCU lB and NCU 8 wells are structurally isolated from the same zones in the NCU 3 and NCU 2 wells by faulting (Exhibit 5-1). Pressure communication across the fault is not anticipated. The production from the NCU lB and NC 8 wells, while close horizontally will come from different zones vertically in the Tyonek by virtue of mechanical limitations imposed by NCU lB. When the NCU 1 and lA sidetrack were initially drilled, it was discovered that an inadequate cement job had been performed on the surface casing. Numerous perforating and cement squeeze procedures were performed to finally stop gas from percolating up the annular area to the surface. When NCU lA is re-entered and sidetracked, a liner will be run from -1850' to TD at ~ 3650' MD. The well will then be perforated, tested and produced from the Tyonek sands below-3200' TVD. The completion assembly will consist of a sand screen assembly hung off with a production packer approximately 150' above the top production perforations, with production tubing run back to surface. Because of the limitations imposed by both the completion and the mechanical condition of the well up hole, shallower gas reserves will be inaccessible from the NCU lB. Because of these limitations, the drilling of Nicolai Creek No. 8 will be necessary to develop the known reserves at the shallower depths. Due to the physical surface location of the wellheads with respect to the nearby mud flats of Trading Bay, and because of characteristics of the underlying geology, Aurora Gas at this time feels 'that the current development plan is the best plan forward. Utilization of the existing NCU 2, and NCU lA well bores, combined with the drilling ofNCU 8 from the same surface location will provide a cost effective and efficient means of developing the gas potential in the immediate region. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 5-1 6.0 Affidavit [20 AAC 25.055 (d)(3)] The Affidavit of Mr. Duane H. Vaagen, local agent acting on behalf of Aurora Gas LLC, is attached as Exhibit 6-1. Exhibit's 6-2 through 6-5A, are copies of correspondence indicating notifications that have been submitted to concerned parties mentioned in parts 2, 3 and 4 of this application. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-1 EXHIBIT 6-1 AFFIDAVIT OF Mr. DUANE H. VAAGEN PROJECT ENGINEER AND LOCAL AGENT AURORA GAS, LLC State of Alaska 2nd Recording District I, Duane Vaagen, acting as local agent for Aurora Gas, LLC, declare and affirm that I have.personal kno3~ledge of the matters set forth in this affidavit, and that on the r~-r . 31 day of .~, ]n - 2002, the following surface owners, lease holders and lessor's were provide~written and signed notice that a Well Spacing Exception Order Application has been filed. Notification was made by placing said notices in the United States mail with postage prepaid and certified at Anchorage, Alaska. Furthermore, copies of this application were forwarded to the below listed individual~ind organizations via certified, postage prepaid mail at Anchorage, Alaska on the // day of 2002. Notification and Well Spacing Exception Applications have been sero to the following individuals and organizations: Attn: Carol Lee Alaska Department of Natural Resources Division of Oil and Gas 550 West 7th Ave Ste 800 Anchorage, AK 99501 Attn: Mike Franger Mental Health Trust Land Office 550 West 7th Ave Ste 1430 Anchorage, AK 99501 Attn: Greg Noble U.S. Bureau of Land Management 6882 Abbot Loop Road Anchorage, Alaska 99507 NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-2 Attn: Scott J. Jepsen Cook Inlet Asset Manager Phillips Alaska Petroleum 700 G. Street Anchorage, AK 99501 I verify that there are no other known surface owners, lease holders or lessor's within 3000 feet of the Nicolai Creek Unit No. 2, the proposed Nicolai Creek Unit No. lB, or the proposed Nicolai Creek No. 8 well's, which will be drilled and/or completed for natural gas production. I also verify that plats and exhibits submitted with and for this application are accurate based on information known to me. Subscribed and sworn before me this '1 / 'PS day of Not ic' and o the ~tate of Alaska state of~41aska .... NOTARY PUBLC JACKIE K. HUNT 2002. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-3 E & P SERVICES, INC. Exhibit 6-2 03-July-2002 Mr. Scott J. Jepsen Cook Inlet Asset Manager Phillips Alaska Inc. 700 G. Street Anchorage, AK 99501 Dear Mr. Jepsen: Fairweather E&P Services, Inc., respectfully submits this notice on behalf of Aurora Gas, LLC., as an update to a letter submitted to you dated June 27, 2002, by Aurora Gas, LLC~ Aurora Gas, LLC. intends to modify the original Well Spacing Exception Order request submitted to the Alaska Oil and Gas Conservation Commission, to include spacing requests for the Nicolai Creek Unit No. 1 B, the Nicolai Creek Unit No. 2 and the Nicolai Creek Unit No. 8. The original request submitted was applicable to the proposed NCU 8 well only. All other information in the original notification letter submitted is still valid with respect to notification requirements. If there are any questions about this notification, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; Fa~~er E&P~.erviees, Duane H. Yaagen NCU No.'s ! B,. 2, and 8 Well Spacing Exception Order Application 715 L Street · Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 E & P SERVICES, INC. Exhibit 6-2A 11-July-2002 Mr. Scott J. Jepsen Cook Inlet Asset Manager Phillips Alaska Inc. 700 G. Street Anchorage, AK 99501 Dear Mr. Jepsen: Please find enclosed a copy of the Well Spacing Exception application which was submitted to the Alaska Oil and Gas Conservation Commission. Notice was submitted to your organization via certified mail dated July 3, 2002, that a spacing application was being submitted by Aurora Gas LLC., for the ongoing development plans in the Nicolai Creek gas field. If there are any questions or concerns about this application, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; ~~________~Fairweather E&i)Services,v.._~_~Inc. Duane H. Vaagen NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-5 715 L Street · Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 650 North Sam Houston Parkway East, Suite 505 · Houston, Texas 77060 · (281) 445-5711 · FAX (281) 445....3388 E & P SERVICES, Exhibit 6-3 03-July-2002 Mr. Greg Noble U.S. Bureau of Land Management 6882 Abbot Loop Road Anchorage, AK 9950'7 Dear Mr. Noble: Fairweather E&P Services, Inc., respectfully submits this notice on behalf of Aurora Gas~ LLC., as an update to a letter submitted to you dated June 27, 2002, by Aurora Gas, LLC. Aurora Gas, LLC. imends to modify the original Well Spacing Exception Order request submitted to the Alaska Oil and Gas Conservation Commission, to include spacing requests for the Nicolai Creek Unit No. 1 B, the Nicolai Creek Unit No. 2 and the Nicolai Creek Unit No. 8. The original request submitted was applicable to the proposed NCU 8 well only. All other information in the original notification letter submitted is still valid with respect to notification requirements. If there are any questions about this notification, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; E&P ' Inc. Fab ather S rvmes, Duane H. V aagen NCU No.'s ! B, 2, and 8 Well Spacing Exception Order Application 715 L Street · Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 650 North Sam Houston Parkway East. Suite 505 · Houston. Texas 77060 · (281~ 445-5711 ° FAX i2Rll 44fi*,3388 E & P SERVICES, INC. Exhibit 6-3A 11-July-2002 Mr. Greg Noble U.S. Bureau of Land Management 6882 Abbot Loop Road Anchorage, AK 99507 Dear Mr. Noble: Please find enclosed a copy of the Well Spacing Exception application which was submitted to the Alaska Oil and Gas Conservation Commission. Notice was submitted to the Bureau of Land M,magement via certified mail dated July 3, 2002, that a spacing application was being submitted by Aurora Gas LLC., for the ongoing development plans in the Nicolai Creek gas field. If there are any questions or concerns about this application, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; F~a~er E&P Se]wices, Inc. Duane H. V aagen NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-7 715 L Street · Anchorage, Alaska 99501 · (907) 258-3446 ° FAX (907) 258-5557 650 North Sam Houston Parkway East, Suite fi0fi ° Houston, Texas 77060 · (281) 445-5711 · FAX (281) 445-3388 E & P SERVICES, INC. Exhibit 6-4 03-July-2002 Ms. Carol Lee Alaska Department of Natural Resources Division of Oil and Gas 550 West 7th Ave. Ste 800 Anchorage, AK 99501 Dear Ms. Lee: Fairweather E&P Services, Inc., respectfully submits this notice on behalf of Aurora Gas, LLC., as an update to a letter submitted to you dated June 27, 2002, by Aurora Gas, LLCo Aurora Gas, LLC. intends to modify the original Well Spacing Exception Order request submitted to the Alaska Oil and Gas Conservation Commission, to include spacing requests for the Nicolai Creek Unit No. 1 B, the Nicolai Creek Unit No. 2 and the Nicolai Creek Unit No. 8. The original request submitted was applicable to the proposed NCU 8 well only. All other information in the original notification letter submitted is still valid with respect to notification requirements. If there are any questions about this notification, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; Fa' ther E&P Se ices, Inc. Duane H. V aagen NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 715 L Street * Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 E & P SERVICES, INC. Exhibit 6-4A 1 l-July-2002 Ms. Carol Lee Alaska Department of Natural Resources Division of Oil and Gas 550 West 7th Ave. Ste 800 Anchorage, AK 99501 Dear Ms. Lee: Please find enclosed a copy of the Well Spacing Exception application which was submitted to the Alaska Oil and Gas Conservation Commission. Notice was submitted to the Alaska DNR, Division of Oil and Gas via certified mail dated July 3, 2002, that a spacing application was being submitted by Aurora Gas LLC., for the ongoing development plans in the Nicolai Creek gas field. If there are any questions or concerns about this application, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; Fairweather E&P Se~ices, Inc. Duane H. Vaagen NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6"9 715 L Street · Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 650 North Sam Houston Parkway East, Suite 505 ° Houston, Texas 77060 ° (281) 445-5711 ° FAX (281) 445,.3388 £ & P SERVICES, INC. Exhibit 6-5 03-July-2002 Mr. Mike Franger Alaska Mental Health Trust Land Office 550 West 7~ Ave. Ste 1430 Anchorage, AK 99501 Dear Mr. Franger: Fairweather E&P Services, Inc., respectfully submits this notice on behalf of Aurora Gas, LLC., as an update to a letter submitted to you dated June 27, 2002, by Aurora Gas, LLC,. Auroi'a Gas, LLC. intends to modify the original Well Spacing Exception Order request submitted to the Alaska Oil and Gas Conservation Commission, to include spacing requests for the Nicolai Creek Unit No. lB, the Nicolai Creek Unit No. 2 and the'Nicolai Creek Unit No. 8. The original request submitted was applicable to the proposed NCU 8 well only. All other information in the original notification letter submitted is still valid with respect to notification requirements. If there are any questions about this notification, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 715 L Street o Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 650 North Sam Houston Parkway East. Suite 505 · Houston.. Texas 77060 ° (281~ 445-5711 ° FAX E & P SERVICES, INC. Exhibit 6-5A 11-July-2002 Mr. Mike Franger Alaska Mental Health Trust Land Office 550 West 7th Ave. Ste 1430 Anchorage, AK 99501 Dear Mr. Franger: . Please find enclosed a copy of the Well Spacing Exception application which was submitted to the Alaska Oil and Gas Conservation Commission. Notice was submitted to the Alaska Mental Health Trust, via certified mail dated July 3, 2002, that a spacing application was being submitted by Aurora Gas LLC., for the ongoing development plans in the Nicolai Creek gas field. If there are any questions or concems about this application, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; Fairweather E&P Services, Inc. NCU No.'s 1 B, 2, and 8 Well Spacing Exception Order Application 6-11 715 L. Street · An(,'homge, Alaska 99501 ° (907) 258-3446 · FAX (907) 258-5557 650 North Sam Houston Parkway East, Suite 505 ° Houston, Texas 77060 · (281) 445-5711 ° FAX (281) 445-3388 7.0 Conclusion At present there is one active producing gas well (NCU 3), there are two suspended wells (NCU lA and NCU 2) and four abandoned wells on leases comprising the Nicolai Creek Operating Unit and the greater Nicolai Creek gas field, of which Aurora Gas LLC. is sole operator. Development. plans call for the following: Re-entry, sidetracking and recompleting the NCU 1A well as gas producer NCU 1B. Re-entry and recompleting the NCU 2 well as a gas producer. Drilling a vertical grass-roots well NCU 8, and completion as a gas producer. Re-entry and recompleting abandoned well NCU 5 as a Class II oilfield waste disposal well. The remaining three abandoned wells, NCU 4, NCU 6 and the Conoco Astosch 1 will be left as is. To maximize usage of existing surface facilities, minimize environmental impact in the region and more fully exploit known gas reserves, Aurora would like to further utilize an existing well site. The site being considered is located at the west end of the Shirleyville airstrip (Exhibit 3-2), m~d is adjacent to the northern coastal area of Trading Bay, due west of Granite Point. There are currently 3 wells on the site, the suspended wells NCU 1A and NCU 2, and the abandoned well NCU 6. Aurora would like to drill an additional grass-roots well NCU 8 from the site. To develop this property as proposed, rules laid out in Alaska Administrative Code [20 AAC 25.055] dictate that a Spacing Exception Order application be filed for each of the proposed production wells discussed in this application. A Sundry Application for well re-entry and completion work has already been filed for work on the NCU 2 well. A Permit To Drill application will be submitted under separate cover for the NCU lA well, which will be re-entered and sidetracked as NCU lB. A Permit To Drill application will be submitted for the NCU 8 well under separate cover also. A Permit to Drill and Disposal Injection Order Application have also already been submitted for consideration of the proposed work on the Nicolai Creek Unit No. 5 well. Based on the enclosed information, Aurora Gas, LLC., hereby requests the issuance of Well Spacing Exception Order's, for the Nicolai Creek Unit No. 2, the Proposed Nicolai Creek Unit No. 1B sidetrack, and the proposed Nicolai Creek No. 8 grass-roots well. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 7~ 1 Aurora Gas LLC Anchorage, Alaska APPLICATION FOR WELL SPACING EXCEPTION ORDER NICOLAI CREEK UNIT REDEVELOPMENT APPLICATION WELL'S' NICOLAI CREEK UNIT No. lB NICOLAI CREEK UNIT No. 2 NICOLAI CREEK UNIT No. 8 EFFECTED LEASES' STATE ADL 17585 STATE ADL 17598 STATE ADL 63279 FEDERAL AA-8426 GRANITE POINT, ALASKA July 3, 2002 Gas,, LLC ....... ,,~ gnch0ra~ Table of Contents Page 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Proposal Introduction ......................................................................................... 1-1 Lease Owners, Unit Information and Plat [20 AAC 25.055 (d)(1)] ................ 2-1 2.1 Lessee Identification .............................................................................. 2-2 2.2 Lessor Identification ............................................................................. .2-3 Land Owners and Plat [20 AAC 25.055 (d)(1)] ............................................... 3-1 Lease Operator [20 AAC 25.055 (d)(1)] ........................................................... 4-1 Geologic Considerations .................................................................................... 5- ! Affidavit [20 AAC 25.055 (d)(3) ....................................................................... 6-1 Conclusion .......................................................................................................... 7-1 List of Figures Figure 2-1 Enlarged Scale; Well Proximity Drawing ............................... 2-4, List of Tables Table 2-1 Table 2-2 Well Location Information ........................................................ 2-1 Well Proximity Information. ..................................................... 2-2 List of Exhibits Exhibit 2-1 Exhibit 2-2 Exhibit 3-1 Exhibit 3-2 Exhibit 3-3 Exhibit 5-1 Exhibit 6-1 Exhibit 6-2 Exhibit 6-3 Exhibit 6-4 Exhibit 6-5 Unit Plat Map ............................................................................ .2-5 Lease Identification Plat Map ................................................... 2-6 Surface Ownership Plat, Generalized. ...................................... 3-2 Surface Ownership Plat, Sec 29 ................................................ 3-3 Surface Ownership Plat, Sec 30. ............................................... 3-4 Geologic Cross Section ............................................................. 5-2 Affidavit of Mr. Duane Vaagen (agent for Aurora) ................ 6-2 Application Notice: Phillips Alaska Petroleum. ...................... 6-3 Application Notice: U.S. Bureau of Land Management ......... 6-4 Application Notice: State of Alaska, Div. Oil and Gas ........... 6-5 Application Notice: State of Alaska Mental Health Trust ...... 6-6 NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application i 1.0 Proposal Introduction During the course of redevelopment of the Nicolai Creek gas production field, Aurora Gas, LLC. will be utilizing a common surface location for three of' the production wells. Two suspended wells and one plugged and abandoned well currently exist on the site, and one grass-roots gas production well is proposed. Because of the relationship between the wells at surface and at the proposed production intervals with respect to the property lease lines and themselves, this application is necessary to proceed. The following information is common to all three wells and the individual Spacing Exception Order being requested for each. The three wells are identified as Nicolai Creek Unit No. 1B (sidetrack of NCU lA), Nicolai Creek Unit No. 2, and Nicolai Creek No. 8. This application contains information concerning lease boundaries, lessor and lessee information, and geologic relationships between the wells. NCU No.'s 1 B, 2, and 8 Well Spacing Exception Order Application 1-1 2.0 Lease Owners and Unit Information [20 AAC 25.055(d)(1)] The wells being considered for the Well Spacing Exception order request's are in an area known as the Nicolai Creek gas field, which is comprised of three unitized tracts on four leases (Exhibit. 2-1). Three of the leases are state and one is federal. Of the four leases, Aurora Gas has 100% ownership of the following: Federal AA 8426, state ADL 17598 and state ADL 63279. The remaining state lease, ADL 17585 is jointly owned by Aurora Gas LLC (50%) and Phillips Petroleum (50%) (Exhibit 2-2), except for the unitized portion known as Tract 3, which is owned 100% by Aurora. The unitized portion of the gas field is comprised of Tracts 1, 3, and 4, which totals 900 +/- acres, and is owned 100% by Aurora Gas LLC. There are currently two suspended wells and one plugged and abandoned well drilled from one surface location at the end of the Shirleyville airstrip. The location is adjacent to the northern coastal area of Trading Bay, due west of Granite Point. The suspended wells, Nicolai Creek Unit No.'s 1A and 2, were drilled from a common surface location over the Federal subsurface mineral lease AA 8426. These wells are drilled directionally under the mud fiats of the Trading Bay coastal area with wellbore's that penetrate into Tract's 4 (ADL 17585) and 3 (ADL 17598) respectively (Exhibit 2-2). The P&A'd well, Nicolai Creek Unit No. 6, is drilled from the same site, and was drilled in a southerly direction. The proposed vertical well, Nicolai Creek Unit No. 8, will be drilled within 200' of the aforementioned wells on the same site. Table 2-1 below, contains the surface and bottom hole locations for the wells listed in this spacing exception order application. Table 2-1: Location Information Nicolai Creek Unit No. lB (Proposed Sidetrack of NCU lA) Surface Lease No. Production Lease No. Surface Location: Bottom Hole Location: Measured Depth: True Vertical Depth: AA-8426 (BLM) ADL-17585 (State) 2018' FSL, 195' FWL, Sec. 29, T11N, R12W SM 1637' FSL, 97' FWL, Sec. 29, T11N, R12W SM 3653' 3600' Nicolai Creek Unit No. 2 Surface Lease No. Production Lease No. Surface Location: Bottom Hole Location: 877' FSL, 870' FWL, Sec. 29, T11N, R12W, SM 3540' Measured Depth True Vertical Depth AA-8426 (BLM) ADL-17585 (State) 2018' FSL, 205' FWL, Sec 29, TllN, R12W, SM 2988' NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 2-1 Table 2-1 Contd.. Surface Lease No. Production Lease No. Nicolai Creek Unit No. 6 (P&A'd) AA-8426 (BLM) ADL-17598 (State) Surface Location: 2048' FSL, 292' FWL, Sec 29, T1 IN, R12W, SM Bottom Hole Location: 1206' FNL, 176' FEL, Sec 31, T11N, R12W, SM Measured Depth: Tree Vertical Depth: .11,159' (Now plugged back to surface) 9750' (Now plugged back to surface) Surface Lease No. Production Lease No. Surface Location: Nicolai Creek Unit No. 8 (Proposed) AA-8426 (BLM) AA-8426 (BLM) +/- 2030' FSL, 245' FWL, Sec 29, T1 IN, R12W, SM Bottom Hole Location: +/- 2030' FSL, 245' FWL, Sec 29, T11N, R12W, SM Measured Depth Tree Vertical Depth 2500' 2500' Of importance in this application, are the proximity relationships between the wells, lease lines and production intervals. Table 2-2 below, highlights some of these relationships° Included are proposed horizontal subsurface completion separation, surface location separation, and well to lease line separation. See Figure 2-1 for a graphical representation of this information. Table 2-2: Well Proximity Information: Horizontal Well Separation at Subsurface Production Interval: Well's Separation Distance NCU lB-> NCU 2 M084' NCU lB-> NCU 8 ~ 419' NCU 2 -> iNCU 8 =1311' Horizontal Well Separation at Surface: Well's / Separation Distance NCU lB-> NCU 2 = 10' NCU lB -> NCU 8 = 51' NCU 2 -> NCU 8 ~ 42' Horizontal Separation (Production Interval to AA-8426 / ADL 17585 Lease Line) Well NCU lB NCU 2 NCU 8 Separation Distance 292' (ADL 17585 Side) 1097' (ADL 17585 Side) 100' (AA-8426 Side) NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 2~2 Table 2-2 Contd... Horizontal Separation (Surface Location to AA-8426 / ADL 17585 Lease Line) Well Separation Distance NCU lB = 91' (AA-8426 Side) NCU 2 ~ 87' (AA-8426 Side) NCU 8 = 100' (AA-8426 Side Please see Figure 2-1 and Exhibit 2-2 for location reference. In redeveloping the field, Aurora intends to re-enter the NCU 1A well, sidetrack and re- complete it as the NCU 1B well. The NCU 1B bottom hole location will be located within the boundaries of State of Alaska lease ADL 17585 Tract 3 (Exhibit 2-2). The NCU 2 well will be re-entered and re-completed using the existing wellbore, again with production coming from Alaska lease ADL 17585 Tract 3 (Exhibit 2-2). Aurora then intends to drill a vertical, grass-roots well (NCU 8) from the same surface location as the NCU lB and NCU 2 wells to access untapped gas reserves in the lease. Because of the proximity at surface and at final completed depth (Figure 2-1), Alaska Administrative Code [20 AAC 25.055] requires an application for a Well Spacing Exception Order. Another well, Nicolai Creek Unit No. 4, was directionally drilled in a south westerly direction from a site in the eastem half of section 29 (Figure 2-1). NCU 4 was subsequently plugged and abandoned as well. Besides the two suspended and two plugged and abandoned wells just listed, there is currently one gas production well (NCU 3) in the Unit. The NCU 3 well is located approximately 6000 feet due north of the effected well sites, on lease ADL 63279, Tract 1, which is 100% owned and operated by Aurora Gas LLC (Exhibit 2-2). There are also two more plugged and abandoned wells on leases owned in whole by Aurora Gas, one of which is the Nicolai Creek Unit No. 5. The NCU 5 well, which is-~6300 feet northwest of the NCU 1A/NCU 2 well site, has been permitted for use as a Class II oilfield waste injection well. It is Aurora's intent to re-enter and complete the well for injection during the course of field redevelopment. The remaining P&A'd well, the Conoco Astosch 1, will be left as is. Research shows there are two owners of leases within the 3000 foot radius of investigation [20 AAC 25.055(d)(1)], Aurora Gas and Phillips Petroleum. Figure 2-1 and Exhibit 2-2 depict the spatial relationship of the wells in the vicinity. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 2-.3 2.1 Lessee Identification The owners of the lease(s) affected by this application are: Aurora Gas LLC. 10333 Richmond Ave. Ste 710 Houston, TX 77042 and Phillips Alaska Petroleum (Lease ADL 17585) 700 G. Street Anchorage Alaska 99501 Aurora Gas will submit a signed notice of application to Phillips Alaska Petroleum, per [25 AAC 25.055(d)], giving notification that an Application for Spacing Exception Order request has been filed (Exhibit's 6-1 and 6-2). 2.2 Lessor Identification The lessor's involved and effected are: and U.S. Bureau of Land Management 6882 Abbot Loop Road Anchorage, Alaska 99507 State of Alaska (Department of Natural Resources) Division of Oil and Gas 550 W. 7a' Ave. Ste 800 Anchorage, Alaska 99501 Aurora Gas will submit a signed notice of application to the Bureau of Land Management, and the State of Alaska DNR, Division of Oil and Gas per [25 AAC 25.055(d)], giving notice that an Application for a Spacing Exception Order request has been filed (Exhibit's 6-1, 6-3 and 6-4). NCU No.'s 1 B, 2, and 8 Well Spacing Exception Order 2-4 Fcdcral AA-8426 Proposed NCU 8 Site Vertical Well 3000' Radius Referenced to Proposed NCU No. 8 Site Federal AA-8426 2~ O <- Indicates Completion Location < Indicates Ceaseline Production Separation Distances (ft) NCU 8 -> NCU 2 ~1311 NCU 8 -> NCU lB ~ 419 NCU lB -> NCU 2 ~ 1084 28 Proposed NCU ADL- 17598 NCU iA 3000' Radius Proposed NCU 113 Production Interval NCU 1 P&A'd TR 4 ADL-1 31 Aurora Gas, LLC T11N, R12W SM I I II Bay Shoreline in~aO 3 ADL-17585 3000' Radius Referenced to Proposed NCU No. 2 Production Interval 32 1" = 1320' II I ADL-17585 Production Distance From Fed AA-8426 Lease Line (ft) NCU lB ~292 ' NCU 2 -- 1097' NCU 8~ 100 ' Surface Location to Fed/L4-8426 Lease Line Distance (ft) NCU lB --91 ' NCU 2 -- 8 7' NEU 8~ 100 ' Figure 2-1 33 3.0 Landowners [20 AAC 25.0~ (d)(1)] The surface owner of record for the well site where the NCU lA sidetrack, the NCU 2 re- entry and recompletion, and the NCU 8 is to be drilled, is the State of Alaska Mental Health Trust. The only other surface owner within 3000 feet is the State of Alaska (Figure 2-1 and Exhibit's 3-1, 3-2 and 3-3). There are no other surface owners within 3000 feet which need notification. The surface owners of record are: and State of Alaska (Department of Natural Resources) Division of Oil and Gas 550 W. 7m Ave. Ste 800 Anchorage, Alaska 99501 State of Alaska Mental Health Trust 550 West 7th Ave. Ste 1430 Anchorage, Alaska 99501 Aurora Gas will submit a signed notice of application to the State of Alaska DNR, Division of Oil and Gas, and the State of Alaska Mental Health Trust, per [25 AAC 25.055(d)], giving notice that an Application for a Spacing Exception Order request has been filed (Exhibit's 6-1, 6-4 and 6-5). NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 3-.. 1 6.0 Amdavit [20 AAC 25.055 (d)(3)l The Affidavit of Mr. Duane H. Vaagen, local agent acting on behalf of Aurora Gas LLC~ is attached as Exhibit 6-1. NCU No.'s IB~ 2, and 8 Well Spacing Exception Order Application 6..1 EXHIBIT 6-1 AFFIDAVIT OF Mr. DUANE H. VAAGEN PROJECT ENGINEER AND LOCAL AGENT AURORA GAS, LLC State of Alaska 2na Recording District I, Duane Vaagen, acting as local agent for Aurora Gas, LLC, declare and affirm that I have pe~rsonal knowledge of the matters set forth in this affidavit, and that on the ~7'~'" day of ~ ~,/~, 2002, the following surface owners, lease holders and lessor's were provided ~vritten and signed notice that a Well Spacing Exception Order Application has been filed. Notification was made by placing said notices in the United States mail with postage prepaid and certified at Anchorage, Alaska. Notification was sent to the following individuals and organizations: Attn: Carol Lee Alaska Department of Natural Resources Division of Oil and Gas 550 West 7th Ave Ste 800 Anchorage, AK 99501 Attn: Mike Franger Mental Health Trust Land Office 550 West 7th Ave Ste 1430 Anchorage, AK 99501 Attn: Greg Noble U.S. Bureau of Land Managemem 6882 Abbot Loop Road --Axtehorage~. Alaska 99507 Attn: Scott J. Jepsen Cook Inlet Asset Manager Phillips Alaska Petroleum 700 G. Street Anchorage, AK 99501 NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-2 I verify that there are no other known surface owners, lease holders or lessor's within 3000 feet of the Nicolai Creek Unit No. 2, the proposed Nicolai Creek Unit No. 1 B, or the proposed Nicolai Creek No. 8 well's, which will be drilled and/or completed for natural gas production. I also verify that plats and exhibits submitted with and for this application are accurate based on information known to me. Subscribed and sworn before me this Notary ~b'" the State of Alaska 2002. NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-3 E & P SERVICES, INC. Exhibit 6-2 03-July-2002 Mr. Scott J. Jepsen Cook Inlet Asset Manager Phillips Alaska Inc. 700 G. Street Anchorage, AK 99501 Dear Mr. Jepsen: Fairweather E&P Services, Inc., respectfully submits this notice on behalf of Aurora Gas, LLC., as an update to a letter submitted to you dated June 27, 2002, by Aurora Gas, LLC. .Aurora Gas, LLC. intends to modify the original Well Spacing Exception Order request submitted to the Alaska Oil and Gas Conservation Commission, to include spacing requests for the Nicolai Creek Unit No. 1 B, the Nicolai Creek Unit No. 2 and the Nicolai Creek Unit No. 8. The original request submitted was applicable to the proposed NCU 8 well only. All other information in the original notification letter submitted is still valid with respect to notification requirements. If there are any questions about this notification, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; Fa~~er E&P1Services, Inc. Duane H. Vaagen NCU No.'s 1 B, 2, and 8 Well Spacing Exception Order Application 6-4 71 5 L Street · Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 E & P SERVICES, INC. Exhibit 6-3 03-July-2002 Mr. Greg Noble U.S. Bureau of Land Management 6882 Abbot Loop Road Anchorage, AK 99507 Dear Mr. Noble: Fairweather E&P Services, Inc., respectfully submits this notice on behalf of Aurora Gas, LLC., as an update to a letter submitted to you dated June 27, 2002, by Aurora Gas, LLC. Aurora Gas, LLC. intends to modify the original Well Spacing Exception Order request submitted to the Alaska Oil and Gas Conservation Commission, to include spacing requests for the Nicolai Creek Unit No. 1 B, the Nicolai Creek Unit No. 2 and the Nicolai Creek Unit No. 8. The original request submitted was applicable to the proposed NCU 8 well only. All other information in the original notification letter submitted is still valid with respect to notification requirements. If there are any questions about this notification, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; Fai~ ~.~ther E&P S~rvices, Inc. Duane H. Vaagen NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-5 715 L Street · Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 650 North Sam Houston Parkway East. Suite 505 · Houston. Texas 77060 · f2R11 44.~-5711 · FAX f2R11 445-3388 E & P SERVICES, INC. Exhibit 6-4 03-July-2002 Ms. Carol Lee Alaska Department of Natural Resources Division of Oil and Gas 550 West 7~ Ave. Ste 800 Anchorage, AK 99501 Dear Ms. Lee: Fairweather E&P Services, Inc., respectfully submits this notice on behalf of Aurora Gas, LLC., as an update to a letter submitted to you dated June 27, 2002, by Aurora Gas, LLC. Aurora Gas, LLC. intends to modify the original Well Spacing Exception Order request submitted to the Alaska Oil and Gas Conservation Commission, to include spacing requests for the Nicolai Creek Unit No. 1 B, the Nicolai Creek Unit No. 2 and the Nicolai Creek Unit No. 8. The original request submitted was applicable to the proposed NCU 8 well only. All other information in the original notification letter submitted is still valid with respect to notification requirements. If there are any questions about this notification, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; ~~~~3.~Fa' the r F_,&P Se ices, Inc. Duane H. V aagen NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-6 715 L Street · Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 ~t~ ~l^rfl~ ~,'~...~ L.I,-,,ic.f,~,-~ D,'~r'l/~,t,-.,~, I-~c...l ~,,;+,.,. l~t~t~ · L..l~i~f~ T~v,~t- '7'Tt~t~/~ ~ /r)O'l\ A/II~_~-/'I~ ,~ I~^V /O~l~ /IA~_QQI~ E & P SERVICES,/NC. Exhibit 6-5 03-July-2002 Mr. Mike Franger Alaska Mental Health Trust Land Office 550 West 7~' Ave. Ste 1430 Anchorage, AK 99501 Dear Mr. Franger: Fairweather E&P Services, Inc., respectfully submits this notice on behalf of Aurora Gas, LLC., as an update to a letter submitted to you dated June 27, 2002, by Aurora Gas, LLCo Aurora Gas, LLC. intends to modify the original Well Spacing Exception Order request submitted to the Alaska Oil 'and Gas Conservation Commission, to include spacing requests for the Nicolai Creek Unit No. 1 B, the Nicolai Creek Unit No. 2 and the Nicolai Creek Unit No. 8. The original request submitted was applicable to the proposed NCU 8 well only. All other information in the original notification letter submitted is still valid with respect to notification requirements. If there are any questions about this notification, please contact the undersigned at (907)258-3446, or Mr. Ed Jones, Executive Vice President, Aurora Gas, LLC at (713)977-5799. Sincerely; Fai(~~l~h~ r _i~~~rvices, Inc. Du~e~. aagen '-~~ NCU No.'s lB, 2, and 8 Well Spacing Exception Order Application 6-7 715 L Street · Anchorage, Alaska 99501 · (907) 258-3446 · FAX (907) 258-5557 650 North Sam Houston Parkwav East. Suite 505 · Houston. Texas 77060 ° (281~ 445-5711 ° FAX (281~ 4,45-R.RRR 7.0 Conclusion At present there is one active producing gas well (NCU 3), two suspended wells (NCU lA and NCU 2) and four abandoned wells on leases comprising the Nicolai Creek Operating Unit, which is solely operated by Aurora Gas LLC. Development plans call for the following: Re-entry, sidetracking and recompleting the NCU 1A well as gas producer NCU lB. Re-entry and recompleting the NCU 2 well as a gas producer. Drilling a vertical grass-roots well NCU 8, and completion as a gas producer. Re-entry and recompleting abandoned well NCU 5 as a Class II oilfield waste disposal well. The remaining three abandoned wells, NCU 4, NCU 6 and the Conoco Astosch 1 will be left as is. To maximize usage of existing surface facilities, minimize environmental impact in the region and more fully exploit known gas reserves, Aurora would like to further utilize an existing well site. The site being considered is located at the end of the Shirleyville airstrip, and is adjacent to the northern coastal area of Trading Bay, due west of Granite Point. There are currently 3 wells on the site, the suspended wells NCU 1A and NCU 2, and the abandoned well NCU 6. Aurora would like to drill an additional grass-roots well NCU 8 from the site. To develop this property as proposed, rules laid out in Alaska Administrative Code [20 AAC 25.055] dictate that a Spacing Exception Order application be filed for each of the proposed production wells discussed in the application. A Sundry Application for well re-entry and completion work has already been filed for work on the NCU 2 well. A Permit To Drill application will be submitted under separate cover for the NCU lA well, which will be re-entered and sidetracked as NCU lB. A Permit To Drill application will be submitted for the NCU 8 well under separate cover also. A Permit to Drill and Disposal Injection Order Application have also already been submitted for consideration of the proposed work on the Nicolai Creek Unit No. 5 well. Based on the enclosed information, Aurora Gas, LLC., hereby requests the issuance of Well Spacing Exception Order's, for the Nicolai Creek Unit No. 2, the Proposed Nicolai Creek Unit No. 1B sidetrack, and the proposed Nicolai Creek No. 8 grass-roots well. NCU No?s lB, 2, and 8 Well Spacing iException Order Application 7-1 :Aurora Gas, LLC www. aurorapower, com 27 June 2002 Ms. Cammy Oechsli Taylor Commissioner Alaska Oil & Gas Commission 333 W. 7th Ave. Street 100 Anchorage, AK 99501 Dear Commissioner Taylor: Aurora Gas, LLC is at this time redeveloping the Nicolai Creek Unit, onshore Granite Point. To optimize recovery efforts and minimize environmental impact, Aurora would like to drill a new well, Nicolai Creek Unit No. 8, within proximity to existing wells Nicolai Creek Unit No. lA, and Nicolai Creek Unit No. 2. All three wells will share a common surface location and use the same gravel drill site. All wells will be located at the west end of the Shirleyville Airstrip, which is adjacent and parallel to the mud flats of Trading Bay. The proposed surface location of the NCU 8 well will be within 200 feet of the surface location of the NCU lA and the NCU 2 wellheads. NCU 8 will be drilled vertically to a TD of 2500' +/- MD & TVD. The nearby well NCU lA, is a directionally drilled wellbore which trends in a southwesterly direction under the mud flats of the nearby Cook Inlet. The NCU 2 is directionally drilled in a southeasterly direction. At present, the NCU lA well is Suspended with cement plugs to surface. Prior to drilling the NCU 8 well, the NCU lA well will be re-entered, sidetracked and completed as gas production well, NCU lB. The NCU 2 well will simply be re-entered and recompleted for gas production. At TD, all three wells will be separated by a horizontal distance which is less then 3000 feet. To proceed with the planned development, the Spacing Exception Order is necessary as required by [20 AAC 25.055 (4)]. Because of the aforementioned scenario, Aurora Gas, LLC would like to apply for an exception order to the spacing rules as they apply to gas production Wells. The attached Nicolai Creek Unit Well Spacing Exception Order Application, provides information as required in [20 AAC 25.055 (d)] parts 1, 2, and 3. Information provided in the attached document will include the following: REf'r v[g Ms. Taylor Page 2 l) A list of the names of all lessees, lessors, landowners, and operators of properties within 3,000 feet of the proposed Nicolai Creek Unit No. 8 well site. 2) A plat map showing the NCU 8 location in relation to all other wells completed or drilling on the property, and all adjoining properties. 3) An affidavit signed by a legal representative of Aurora Gas, LLC, verifying the documents listed in 1 and 2 above are correct. 4) Copies of notification letters sent to affected parties. The Sundry Application for the NCU 2 well work has been submitted previous to this application. The Permit to Drill'applications for the NCU lB and NCU 8 wells will be submitted under separate cover. Please contact Duane Vaagen at (907) 258-3446, or the undersigned, Mr. Ed Jones, Executive Vice President of Operations at (713) 977-5799 if more information or clarification is required for this application. Sincerely, Executive Vice President Aurora Gas LLC. Attachments: Aurora Gas LLC Anchorage, Alaska APPLICATION FOR WELL SPACING EXCEPTION ORDER NICOLAI CREEK UNIT REDEVELOPMENT APPLICATION WELL NICOLAI CREEK UNIT No. 8 EFFECTED WELL'S NICOLAI CREEK UNIT No. lB NICOLAI CREEK UNIT No. 2 GRANITE POINT, ALASKA June 24, 2002 Gas, LLC Table of Contents Page 1.0 2.0 3.0 4.0 5.0 Lease Owners, Unit Information and Plat [20 AAC 25.055 (d)(1)] ................ 1-1 1.1 Lessee Identification .............................................................................. 1-2 1.2 Lessor Identification .............................................................................. 1-3 Land Owners and Plat [20 AAC 25.055 (d)(1)] ......................... : .................... .2-1 Lease Operator [20 AAC 25.055 (d)(1)] ........................................................... 3-1 Affidavit [20 AAC 25.055 (d)(3) ...................................................................... .4-1 Conclusion .......................................................................................................... 5-1 List of Figures Figure 1-1 Enlarged Scale; Well Proximity ............................................... 1-4 List of Exhibits Exhibit 1-1 Exhibit 1-2 Exhibit 2-1 Exhibit 2-2 Exhibit 2-3 Exhibit 4-1 Exhibit 4-2 Exhibit 4-3 Exhibit 4-4 Exhibit 4-5 Unit Plat Map. ............................................................................ 1-5 Lease Identification Plat Map ................................................... 1-6 Surface Ownership Plat, Generalized. ..................................... .2-2 Surface Ownership Plat, Sec 29 ................................................ 2-3 Surface Ownership Plat, Sec 30 ............................................... .2-4 Affidavit of Mr. Ed Jones ........................................................ .4-2 Application Notice: Phillips Alaska Petroleum ....................... 4-3 Application Notice: U.S. Bureau of Land Management. ....... .4-4 Application Notice: State of Alaska, Div. Oil and Gas .......... .4-5 Application Notice: State of Alaska Mental Health Trust ......4-6 NCU No. 8 Well Spacing Exception Order Application i Lease Owners and Unit Information [20 AAC 25.055(d)(1)] The area being considered for the Well Spacing Exception order is known as the Nicolai Creek Unit, a gas field comprised of three unitized tracts on four leases (Exhibit. 1-1). Three of the leases are state and one is federal. Of the four leases, Aurora Gas has 100% ownership of the following: Federal AA 8426, state ADL 17598 and state ADL 63279. The remaining state lease, ADL 17585 is jointly owned by Aurora Gas LLC (50%) and Phillips Petroleum (50%) (Exhibit 1-2), except for the unitized portion known as Tract 3, which is owned 100% by Aurora. The unitized portion of the gas field is comprised of Tracts 1, 3, and 4, which totals 900 +/- acres, and is owned 100% by Aurora Gas LLC. There are currently two suspended wells and one plugged and abandoned well drilled from one surface location at the end'of the Shirleyville airstrip. The location is adjacent to the northern coastal area of Trading Bay, due west of Granite Point. The suspended wells, Nicolai Creek Unit No.'s lA and 2, were drilled from a surface location over the Federal lease AA 8426. These wells are drilled directionally under the mud flats of the Trading Bay coastal area with wellbores that penetrate into Tract's 4 (ADL 17585) and 3 (ADL 17598) respectively (Exhibit 1-2). The P&A'd well, Nicolai Creek Unit No. 6, is drilled from the same site, and was drilled in a southerly direction. Surface and bottom-hole location information for the NCU IA, NCU 2, NCU 6 and proposed NCU 8, are as follows: Nicolai Creek Unit No. 1B Lease Number: Surface Location: Bottom Hole Location: Measured Depth: True Vertical Depth: AA-8426 2018' FSL, 195' FWL, Sec. 29, TllN, R12W SM 1643' FSL, 99' FWL, Sec. 29, T11N, R12W SM 3653' 3600' Nicolai Creek Unit No. 2 Lease Number: Surface Location: Bottom Hole Location: Measured Depth True Vertical Depth AA-8426 2018' FSL, 205' FWL, Sec 29, TllN, R12W, SM 583' FSL, 1060' FWL, Sec. 29, TllN, R12W, SM 3540' 2988' Nicolai Creek Unit No. 6 (P&A'd) Lease Number: Surface Location: Bottom Hole Location: Measured Depth: True Vertical Depth: AA-8426 2048' FSL, 292' FWL, Sec 29, T1 IN, R12W, SM 1206' FNL, 176' FEL, Sec 31, T1 IN, R12W, SM 11,159' (Now plugged back to surface) 9750' '"' '"' '"' NCU No. 8 Well Spacing Exception Order Application 1-1 Nicolai Creek Unit No. 8 (Proposed) Lease Number: Surface Location: Bottom Hole Location: Measured Depth: True Vertical Depth: AA-8426 +/- 2030' FSL, 245' FWL, Sec 29, T1 IN, R12W, SM Same 2500' 2500' Please see Figure 1-1 and Exhibit 1-2 for location reference. In redeveloping the field, Aurora intends to re-enter the NCU lA well, sidetrack and re- complete it as the NCU lB well. The NCU lB bottom hole location will be located within the boundaries of State of Alaska lease ADL 17585 Tract 3 (Exhibit 1-2). The NCU 2 well will be re-entered and re-completed using the existing wellbore, again with production coming from Alaska lease ADL 17585 Tract 3 (Exhibit 1-2). Aurora then intends to drill a vertical, grass-roots well (NCU 8) from the same surface location as the NCU lB and NCU 2 wells to access untapped gas reserves in the lease. Because of the proximity at surface and at final completed depth (Figure 1-1), Alaska Administrative Code [20 AAC 25.055] requires an application for a Well Spacing Exception Order. Another well, Nicolai Creek Unit No. 4, was directionally drilled in a south westerly direction from a site in the eastern half of section 29 (Figure 1-1). NCU 4 was subsequently plugged and abandoned as well. Besides the two suspended and two plugged and abandoned wells just listed, there is currently one gas production well (NCU 3) in the Unit. The NCU 3 well is located approximately 6000 feet due north of the effected well sites, on lease ADL 63279, Tract 1, which is 100% owned and operated by Aurora Gas LLC (Exhibit 1-2). There are also two more plugged and abandoned wells on leases owned in whole by Aurora Gas, one of which is the Nicolai Creek Unit No. 5. The NCU 5 well, which is N6300 feet northwest of the NCU 1A/NCU 2 wellsite, is currently being permitted for use as a Class II oilfield waste injection well. It is Aurora's intent to re-enter and complete the well for injection during the course of field redevelopment. The remaining P&A'd well, the Conoco Astosch 1, will be left as is. Research shows there are two owners of leases within the 3000 foot radius of investigation [20 AAC 25.055(d)(1)], Aurora Gas and Phillips Petroleum. Figure 1-1 and Exhibit 1-2 depict the spatial relationship of the wells in the vicinity. 1.1 Lessee Identification The owners of the lease(s) effected by this application are: Aurora Gas LLC. 10333 Richmond Ave. Ste 710 Houston, TX 77042 NCU No. 8 Well Spacing Exception Order Application 1-2 and Phillips Alaska Petroleum (Lease ADL 17585) 700 G. Street Anchorage Alaska 99501 Aurora Gas will submit a signed notice of application to Phillips Alaska Petroleum, per [25 AAC 25.055(d)], giving notification that an Application for Spacing Exception Order request has been filed (Exhibit's 4-1 and 4-2). 1.2 Lessor Identification The lessors involved and effected are: and U.S. Bureau of Land Managemem 6882 Abbot Loop Road Anchorage, Alaska 99507 State of Alaska (Department of Natural Resources) Division of Oil and Gas 550 W. 7th Ave. Ste 800 Anchorage, Alaska 99501 Aurora Gas will submit a signed notice of application to the Bureau of Land Management, and the State of Alaska DNR, Division of Oil and Gas per [25 AAC 25.055(d)], giving notice that an Application for a Spacing Exception Order request has been filed (Exhibit's 4-1, 4-3 and 4-4). NCU No. 8 Well Spacing Exception Order Application 1-3 3£ 31 ~ 3000' Radius Referenced to No. 8 Site Proposed NCU 1B ~-r~~ NCU 6 32 28 33 Figure 1-1 ~Aurora Gas, LLC TI IN, R12W SM II I 1" = 1320' DHV Fairweather E&P ServicesI Inc. VI.O 6/20/02 · 2.0 Landowners [20 AAC 25.055 (d)(1)] The surface owner of record for the wellsite where the NCU 1A sidetrack, the NCU 2 re- entry and recompletion, and the NCU 8 is to be drilled, is the State of Alaska Mental Health Trust. The only other surface owner within 3000 feet is the State of Alaska (Figure 1-1, Exhibit's 2-1, 2-2, 2-3). There are no other surface owners within 3000 feet which need notification. The surface owners of record are: and State of Alaska (Department of Natural Resources) Division of Oil and Gas 550 W. 7th Ave. Ste 800 Anchorage, Alaska 99501 State of Alaska Mental Health Trust 550 West 7th Ave. Ste 1430 Anchorage, Alaska 99501 Aurora Gas will submit a signed notice of application to the State of Alaska DNR, Division of Oil and Gas, and the State of Alaska Mental Health Trust, per [25 AAC 25.055(d)], giving notice that an Application for a Spacing Exception Order request has been filed (Exhibit's 4-1, 4-4 and 4-5). NCU No. 8 Well Spacing Exception Order Application 2-1 3.0 Operators [20 AAC 25.055 (d)(1)] Aurora Gas LLC is sole operator of the Nicolai Creek Unit and gas leases there-in. There are no other oil or gas operators within 3000 feet of the currently existing NCU lA and NCU 2 wells and the proposed well, NCU 8. As such, no other operators will be effected by the Unit Well Spacing Exception Order and no further notice will be necessary. Exhibit 1-1 depicts the lease boundaries and areas covered. Figure 1-1 and Exhibit 1-2 indicate the area affected by a 3000 fi radius. NCU No. 8 Well Spacing Exception Order Application 3-1 4.0 Affidavit [20 AAC 25.055 (d)(3)l The Affidavit of Mr. Ed Jones, Executive Vice President and Production Manager, Aurora Gas LLC, is attached as Exhibit 4-1. NCU No. 8 Well Spacing Exception Order Application 4-1 EXHIBIT 4-1 AFFIDAVIT OF Mr. J. EDWARD JONES EXECUTIVE VICE PRESIDENT AND PRODUCTION MANAGER AURORA GAS, LLC State of Texas Southern Judicial District I, J. Edward Jones, declare and affirm that I have personal knowledge of the matters set forth in this affidavit, and that on the 2~ ?~ day of x.2/~r~'., 2002, the following surface owners, lease holders and lessors were provided written and signed notice that a Well Spacing Exception Order Application has been filed. Notification was made by placing said notices in the United States mail with postage prepaid and certified at Houston, Texas. Notification was sent to the following individuals and organizations: Attn: Carol Lee Alaska Department of Natural Resources Division of Oil and Gas 550 West 7th Ave Ste 800 Anchorage, AK 99501 Attn: Mike Franger Mental Health Trust Land Office 550 West 7th Ave Ste 1430 Anchorage, AK 99501 Attn: Greg Noble U.S. Bureau of Land Management 6882 Abbot Loop Road Anchorage, Alaska 99507 Attn: Scott J. Jepsen Cook Inlet Asset Manager Phillips Alaska Petroleum 700 G. Street Anchorage, AK 99501 NCU No. 8 Well Spacing Exception Order Application 4-2 I verify that there are no other surface owners, lease holders or lessors within 3000 feet of the proposed Nicolai Creek Unit No. 8 well, which will be drilled and completed for natural gas production. I also verify that plats and exhibits submitted with and for this applica~n are accurate based o~formation known to me. J. ~'rd J~"~es ~/~/ Subscribed and sworn before me this ~-/ day of .J~tx~ 2002. Notary Pub~q}i~ and for the State of Texas NCU No. 8 Well Spacing Exception Order Application 4-3 Aurora Gas, LLC www. aurorapower, com Exhibit 4-2 27 June 2002 Mr. Scott J. Jepsen Cook Inlet Asset Manager Phillips Alaska Inc. 700 G. Street Anchorage, AK 99501 Dear Mr. Jepsen: Aurora Gas, LLC. is at this time giving notice that a Well Spacing Exception Order application is being filed with the Alaska Oil and Gas Conservation Commission. Aurora is obligated under Alaska Administrative Code, Title 20, Chapter 25.055 section (d), to give notice to all parties with interest in mineral leases that lie within a 3000 foot radius of a property for which a spacing exception order is being filed. Phillips Alaska Inc. is recorded as being a co-owner of state lease ADL 17585, with a 50% working interest, the other 50% of which is owned by Aurora Gas, LLC. This lease falls within the guidelines requiring notification. Aurora is redeveloping the Nicolai Creek gas field and intends to re-enter and re- complete the NCU 2 well, sidetrack and re-complete the NCU lA well, and drill and complete a grass-roots well, NCU 8. The surface locations and bottom hole locations necessitate the filing of this application. If there are any questions about this notification, please call Duane Vaagen at (907)258- 3446, or the undersigned at (713)977-5799. Sincerely; dward Jones ~// Executive Vice President Aurora Gas, LLC. NCU No. 8 Well Spacing Exception Order Application 4-4 10333 Richmond Avenue, Suite 710 · Houston, Texas 77042 ° (713) 977-5799 ° Fax (713) 977-1347 1029 West 3rd Avenue, Suite 220 ° Anchorage, Alaska 99501 · (907) 277-1003 · Fax (907) 277-1006 ,4urora (;as, LLC www. a u rorapowe r. com Exhibit 4-3 27 June 2002 Mr. Greg Noble U.S. Bureau of Land Management 6882 Abbot Loop Road Anchorage, AK 99507 Dear Mr. Noble: Aurora Gas, LLC. is at this time giving notice that a Well Spacing Exception Order application is being filed with the Alaska Oil and Gas Conservation Commission. Aurora is obligated under Alaska Administrative Code, Title 20, Chapter 25.055 section (d), to give notice to all parties with interest in mineral leases that lie within a 3000 foot radius of a property for which a spacing exception order is being filed. The U.S. Bureau of Land Management is noted as owner and lessor of minerals that are currently leased to Aurora Gas, LLC. Aurora is 100 % owner of lease AA-8426, which is currently being developed as a gas producing property. This lease falls within the guidelines requiring notification. Aurora is redeveloping the Nicolai Creek gas field and intends to re-enter and re- complete the NCU 2 well, sidetrack and re-complete the NCU lA well, and drill and complete a grass-roots well, NCU 8. The surface locations and bottom hole locations necessitate the filing of this application. The NCU 8 well will be drilled vertically for production from the AA-8426 lease. A Permit to Drill application will be submitted to the BLM under separate cover. If there are any questions about this notification, please call Duane Vaagen at (907)258- 3446, or the undersigned at (713)977-5799. Sincerely; Executive Vice President Aurora Gas, LLC NCU No. 8 Well Spacing Exception Order Application 4-5 10333 Richmond Avenue, Suite 710 · Houston, Texas 77042 ° (713) 977-5799 ° Fax (713) 977-1347 1029 West 3rd Avenue, Suite 220 ° Anchorage, Alaska 99501 ° (907) 277-1003 ° Fax (907) 277-1006 Aurora Gas, LLC www. aurorapower, com Exhibit 4-4 27 June 2002 Ms. Carol Lee Alaska Department of Natural Resources Division of Oil and Gas 550 West 7th Ave. Ste 800 Anchorage, AK 99501 Dear Ms. Lee: Aurora Gas, LLC is at this time giving notice that a Well Spacing Exception Order application is being filed with the Alaska Oil and Gas Conservation Commission. Aurora is obligated under Alaska Administrative Code, Title 20, Chapter 25.055 section (d), to give notice to all parties with interest in mineral leases or that have ownership of surface properties that lie within a 3000 foot radius of a property for which a spacing exception order is being filed. Aurora is redeveloping the Nicolai Creek gas field and intends to re-enter and re- complete the NCU 2 well, sidetrack and re-complete the NCU lA well, and drill and complete a grass-roots well, NCU 8. The surface locations and bottom hole locations necessitate the filing of this application. The State of Alaska is owner of property that adjoins Mental Health Trust lands, on which the well's are located and falls under the 3000 foot radius mandate. Further, the State of Alaska is lessor of gas leases currently owned by Aurora Gas, LLC., which border federal lease AA-8426, which is currently being developed for gas production. Due to the proximity of the leases, the surface ownership and the actual surface and subsurface location of the proposed wells, notification is required. The State of Alaska leases are ADL #'s 17598 and 17585. If there are any questions about this notification, please call Duane Vaagen at (907)258-3446, or the undersigned at (713)977-5799. Sincerely; ~, ~EJ~'xEedc~rvde J~inc;Spres//ident- Aurora Gas, LLC NCU No. 8 Well Spacing Exception Order Application 4-6 10333 Richmond Avenue, Suite 710 · Houston, Texas 77042 · (713) 977-5799 ° Fax (713) 977-1347 1029 West 3rd Avenue, Suite 220 · Anchorage, Alaska 99501 · (907) 277-1003 ° Fax (907) 277-1006 Aurora Gas, LLC www. aurorapowerocom Exhibit 4-5 27 June 2002 Mr. Mike Franger Alaska Mental Health Trust Land Office 550 West 7th Ave. Ste 1430 Anchorage, AK 99501 Dear Mr. Franger: Aurora Gas, LLC is at this time giving notice that a Well Spacing Exception Order application is being filed with the Alaska Oil and Gas Conservation Commission. Aurora is obligated under Alaska Administrative Code, Title 20, Chapter 25.055 section (d), to give notice to all parties with interest in mineral leases or that have ownership of surface properties that lie within a 3000 foot radius of a property for which a spacing exception order is being filed. Aurora is redeveloping the Nicolai Creek gas field and intends to re-enter and re- complete the NCU 2 well, sidetrack and re-complete the NCU lA well, and drill and complete a grass-roots well, NCU 8. The surface locations and bottom hole locations necessitate the filing of this application. The Alaska Mental Health Trust is surface owner of the property on which the well's are located and therefore meets this mandate. The property is identified as all lands in Section 29, T1 IN, R12W, which are above the waterline. Due to the proximity of the leases, the surface ownership and the actual surface and subsurface location of the proposed wells, notification is required. If there are any questions about this notification, please call Duane Vaagen at (907)258- 3446, or the undersigned at (713)977-5799. Sincerely; r{_~Executivde J~ne~-""~'~[//~Vice mresidefit~ ~ Aurora Gas, LLC NCU No. 8 Well Spacing Exception Order Application 4-7 10333 Richmond Avenue, Suite 710 · Houston, Texas 77042 ° (713) 977-5799 ° Fax (713) 977-1347 1029 West 3rd Avenue, Suite 220 · Anchorage, Alaska 99501 ° (907) 277-1003 · Fax (907) 277-1006 5.0 Conclusion At present there is one active producing gas well (NCU 3), two suspended wells (NCU lA and NCU 2) and four abandoned wells on leases comprising the Nicolai Creek Operating Unit, which is solely operated by Aurora Gas LLC. Development plans call for the following: Re-entry, sidetracking and recompleting the NCU lA well as gas producer NCU lB. Re-entry and recompleting the NCU 2 well as a gas producer. Drilling a vertical grass-roots well NCU 8, and completion as a gas producer. Re-entry and recompleting abandoned well NCU 5 as a Class II oilfield waste disposal well. The remaining three abandoned wells, NCU 4, NCU 6 and the Conoco Astosch 1 will be left as is. To maximize usage of existing surface facilities, minimize environmental impact in the region and more fully exploit known gas reserves, Aurora would like to further utilize an existing well site. The site being considered is located at the end of the Shirleyville airstrip, and is adjacent to the northern coastal area of Trading Bay, due west of Granite Point. There are currently 3 wells on the site, the suspended wells NCU lA and NCU 2, and the abandoned well NCU 6. Aurora would like to drill an additional grass-roots well NCU 8 from the site. To develop this property as proposed, roles laid out in Alaska Administrative Code [20 AAC 25.055] dictate a spacing order exception will be required. A Sundry Application for well re-entry and completion work has already been filed for work on the NCU 2 well. A Permit To Drill application will be submitted under separate cover for the NCU lA well, which will be re-entered and sidetracked as NCU lB. A Permit To Drill application will be submitted for the NCU 8 well under separate cover also. A Permit to Drill and Disposal Injection Order Application have also already been submitted for consideration for the proposed work on the Nicolai Creek Unit No. 5 well. NCU No. 8 Well Spacing Exception Order Application 5-1